Global Markets

Global markets ended the week on a decidedly negative note with equities mostly lower on the week. Friday's retreat followed a crackdown on margin lending in China that sent ripples around the world. China's securities regulator tightened rules on margin lending while the country's two stock exchanges said they would make it easier to short sell stocks in an effort to reign in country's soaring stock markets. China's securities regulator warned investors to be cautious as Chinese shares hit seven year highs after seven weeks of gains. Retail investors are borrowing record amounts of money to buy stocks, which in turn has pushed trading volumes to new highs.

Added to this is the ongoing situation with Greece which continues to escalate with concerns that the country may run out of money as debt repayments loom. Prospects have dimmed that Athens can strike a reform deal at a meeting on April 24 to unlock much needed bailout funds.

Traders said the European and U.S. sell-off was worsened by the expiry of futures and options in Europe and options in the United States. Disappointing corporate reports on both sides of the Atlantic also weighed on the market. On the week, most indexes retreated. Losses ranged from 5.5 percent (DAX) down to 0.2 percent (S&P/TSX Composite).

Global growth according to the IMF

The International Monetary Fund left its projection for global growth in 2015 unchanged from three months ago at 3.5 percent, according to its World Economic Outlook released Tuesday. Underneath the stable forecast, however, the IMF depicts a global economy being reshaped by swings in currency markets and the drop in oil prices. The Fund warned that continued weak growth in emerging economies would act as a drag on global growth despite an improving outlook in the United States and Europe. The organization highlighted how high levels of debt and fragile banks — in addition to slowing emerging markets — could pose threats to sustained economic growth.

Growth forecasts for Brazil, Russia and Mexico were slashed for 2015, with a mix of dicey politics, weak commodity prices and volatile exchange rates cited as contributing factors. Emerging market growth next year is expected to be 4.3 percent, the fifth consecutive year that activity has decreased compared with the previous year. There were some outliers — India is projected to grow at 7.5 percent both this year and next which would put it ahead of China as the fastest growing of the large emerging markets. China, once a main driver of global growth, is now expected to grow at 6.8 percent in 2015 and 6.3 percent in 2016, with overheating property markets and questionable loans remaining a concern. The IMF upgraded its economic forecast for the Eurozone, projecting growth of 1.6 percent in 2015.

The United States is expected to grow at 3.1 percent this year and next. The IMF said that the large developed economies would need to assume a dominant role in driving global growth. It believes low interest rates and lower oil prices should help. The fund pointed out that the dollar's recent strong run of late could add half a percent to global growth, with the stimulative effect of weaker currencies in Japan and Europe prevailing over reduced exports out of the United States.

Global Stock Market Recap

Europe and the UK

Stocks ended the week on a distinctly sour note. Attention shifted from ECB quantitative easing to escalating worries about the ongoing saga in Greece combined with global growth worries made investors risk averse. The selloff began in Europe and spread to the U.S. after a clamp down on margin trading in China. Equities were already down on the week before Friday's selloff. The day only added to equity investors' pain. European equities have comfortably outperformed U.S. stocks in 2015, reversing last year's pattern, as the European Central Bank's quantitative easing program helps lift asset prices, weakens the euro and raises hopes for a stronger Eurozone recovery.

The FTSE slipped below the coveted 7,000 level and was 1.3 percent lower on the week. Still it was the best performing index on the week belying analysts' concerns about the tight national election that will take place on May 7. The CAC declined 1.9 percent and the SMI lost 2.4 percent. The biggest loss was incurred by the highflying DAX — it retreated 5.5 percent from 15 year highs.

Investors are again worrying about Greece. The country's international creditors have signaled they are losing hope that Athens will do what is needed to unlock bailout funds before it runs out of money. On Thursday, International Monetary Fund Managing Director Christine Lagarde said she has warned Greek Finance Minister Yanis Varoufakis against delaying payments to the fund. This lifts the prospect of Greek default and a consequent financial mess, possibly culminating with Greece's exit from the euro.

The possibilities of a Greek default and a Greek exit from the Eurozone have investors on edge. German Finance Minister Wolfgang Schaeuble has refused further concessions to Greece and the International Monetary Fund and has ruled out giving the country any leeway on €1 billion of debt repayments due by early May. Yet Greek Prime Minister Alexis Tsipras reportedly said he is "firmly optimistic" that there will be an agreement with creditors by the end of April. As per the Eurogroup accord on February 20, Greece must reach an outline funding agreement with its lenders at the Eurogroup meeting scheduled for April 24.

European Central Bank

There were no surprises in the ECB's policy announcement — it simply confirmed that there was no change in key interest rates. The benchmark refi rate stays at just 0.05 percent and the rates on the deposit and marginal lending facilities remain pegged at minus 0.20 percent and plus 0.30 percent respectively. There was little of any real note in the post meeting press conference either. As anticipated, the overall tone was cautiously more optimistic than of late in line with the strengthening trend seen in recent real economy and inflation data. ECB President Mario Draghi even went so far as to describe economic risks as a having become more balanced. In itself this will probably encourage more vocal calls from some quarters for an early curtailment of the QE program, currently scheduled to run through September 2016. However, such an option has been essentially ruled out, at least for now. With questions surrounding Greece and its possible default deflected and left for the Greek government to address, the press conference really just signaled more of the same for ECB policy over coming months.

Asia Pacific

Equities were mixed last week thanks to some disappointing economic data and growing worries about Greece's finances. But the Shanghai Composite continued to steam upward, this week adding 6.3 percent after the previous week's jump of 4.4 percent. The index hit its highest level since March 2008 on expectations Beijing will unveil more fiscal and monetary stimulus to support the struggling economy. Enthusiasm cooled for Hong Kong shares during the week. The Hang Seng added 1.4 percent on the week after soaring 7.9 percent the week before helped by record buying from mainland investors through a trading link with Shanghai.

The Nikkei retreated 1.3 percent as a stronger yen dampened investor sentiment and investors braced for the earnings season that begins later this month. The yen advanced against the dollar as another round of discouraging U.S. data and dovish comments from Federal Reserve officials pushed back expectations for an interest rate increase. The All Ordinaries lost 1.4 percent, dragged down by miners as iron ore prices continued to fall. Banks also sank after Thursday's surprisingly strong jobs data reduced chances of a May rate cut.

Investors here also responded to weaker than anticipated U.S. economic data including retail sales and housing starts. But they also reacted to the signs of sluggishness in the Chinese economy. China's gross domestic product expanded 7.0 percent on the year in the first quarter, its slowest rate of growth in six years. But this was expected. Not expected was industrial production which gained just 5.6 percent in March from a year earlier, well shy of forecasts for an increase of 7.0 percent and down from 7.9 percent in February, while retail sales advanced an annual 10.2 percent, also coming in below expectations for a 10.9 percent increase and down from 11.9 percent in the previous month.

Currencies

The U.S. dollar retreated against its major counterparts three of five days to end the week down against all of its majors including the euro, yen, pound sterling, Swiss franc and the Canadian and Australian dollars. The U.S. currency was buffeted by lackluster economic data and dovish comments from several members of the FOMC that pushed back expectations for a Federal Reserve interest rate increase. Atlanta Federal Reserve Bank President Dennis Lockhart said the Fed's interest rate plans were being complicated by factors including a "murky" run of first quarter data.

The Australian dollar hit a nearly three week high against its U.S. counterpart in the wake of data showing employment sped past expectations in March while jobs created in February were revised up sharply. The data helped the Aussie dollar since they clearly diminish the risk of a rate cut from the Reserve Bank of Australia.

Selected currencies — weekly results

Indicator scoreboard

EMU

February industrial production excluding construction was up 1.1 percent after declining 0.3 percent the month before. On the year, output was up 1.6 percent. February's monthly jump was broad-based. Capital goods and durable consumer goods posted 1.0 percent gains while nondurables climbed 1.6 percent. Intermediates lagged but still managed a 0.3 percent increase while energy was up 1.1 percent. Production expanded in all of the big four member states. France was up a modest 0.2 percent but Germany (0.6 percent), Italy (also 0.6 percent) and Spain (0.7 percent) recorded respectable increases and for the two southern economies, their steepest increases in at least five months.

February seasonally adjusted merchandise trade balance returned a surplus of €22.0 billion, up €0.8 billion from the January. The unadjusted surplus was €20.3 billion, 41 percent above its year ago post. The improvement in the adjusted surplus reflected expansion in both sides of the balance sheet with exports, 2.8 percent higher on the month, just outpacing imports (2.6 percent). Compared with February 2014, exports grew 2.0 percent but imports declined 3.0 percent on the back of sluggish domestic demand.

March harmonized index of consumer prices was up 1.1 percent on the month and was down 0.1 percent from the same month a year ago. Excluding food, alcohol, tobacco & energy as well as omitting just unprocessed food and energy, the annual inflation rate was 0.6 percent, down a tick from last time. Without just seasonal food and energy the yearly rate was also 0.6 percent, unchanged from its February print. Among the major sectors, annual energy inflation (down 6.0 percent after down 7.9 percent) showed the only monthly increase of note as non-energy goods (0.0 percent) and food, alcohol and tobacco (0.6 percent) edged just 0.1 percentage points firmer. Indeed, services saw a 0.2 percentage point decline to 1.0 percent. Regionally national headline inflation rates were slightly firmer in most member states but still sub-zero in nine. Greece (minus 1.9 percent) was at the bottom of the ladder ahead of recession-hit Cyprus (minus 1.4 percent) and Lithuania (minus 1.1 percent). In fact, even top of the pile Austria (0.9 percent) posted a rate below 1 percent. Among the big four countries, Spain (minus 0.8 percent) was the only member in negative territory but both France and Italy were only at zero and Germany 0.1 percent.

United Kingdom

March consumer prices were up 0.2 percent. However, the annual rate was zero. The main downward pressure on the yearly rate came from clothing & footwear where prices fell 0.1 percent on the month compared with a 1.8 percent increase in the same month in 2014. Significantly, this was their first ever March decline and suggests that, notwithstanding the introduction of new fashion lines, clothing retailers are having to work hard to maintain volumes and market share. The other principal negative effects were attributable to housing & households services (prices down 0.4 compared with a 0.1 percent drop last year) as gas charges fell more rapidly this time round. Restaurants & hotels (up 0.2 percent from a 0.5 percent increase) also helped to check the overall CPI. Offsetting positive effects came from higher petrol costs (up a monthly 3.8 percent per litre compared with no change in March 2014) and a smaller fall in food & non-alcoholic drinks charges. The core CPI matched the 0.2 percent headline monthly advance but this still saw the annual underlying inflation rate slip from 1.2 percent to only 1.0 percent.

March factory gate prices were up 0.2 percent on the month and firm enough to leave their annual inflation rate unchanged at February's marginally stronger revised minus 1.7 percent. Input costs were firmer than anticipated although even here a 0.4 percent monthly increase still put costs 13.0 percent below their level in March 2014. Outside of a 2.4 percent jump in petroleum product charges, most components of the output price basket posted relatively muted monthly changes. As a result, core factory gate prices were flat compared with February and 0.1 percent higher on the year after a 0.3 percent annual increase last time. Input costs were boosted primarily by a 4.3 percent monthly jump in crude oil and sizeable, if smaller, increases in other imported materials (0.8 percent) and other home produced materials (0.6 percent). However, gains here were almost offset by drops in fuel (0.9 percent), imported food (1.4 percent) and imported metals (1.1 percent).

March unemployment according to the claimant count was down a further 20,700 on the month after a smaller revised 29,100 drop in February. The mid-quarter slide was the smallest since September 2014 but still the twenty-ninth in a row and left intact a strong downward trend that suggests that the demand for new hiring remains very robust. The jobless rate on this definition dipped 0.1 percentage points for a fifth consecutive month to stand at just 2.3 percent. The ILO statistics told a similarly upbeat story with a 76,000 decline over the three months to February that shaved its measure of the unemployment rate to 5.6 percent, its lowest reading since July 2008. However, annual average earnings growth in the December-February period was only 1.7 percent, down a couple of ticks from last time and while regular pay accelerated from 1.6 percent to 1.8 percent, this was still historically very soft.

Asia/Pacific

Japan

Producer prices continue to languish. March producer prices were up 0.3 percent after slipping 0.1 percent on the month. Analysts expected a 0.1 percent increase. From a year ago, the PPI added 0.7 percent after 0.5 percent last month. The annual increase was expected to be 0.6 percent. Excluding the sales tax, the PPI retreated 2.1 percent from a year ago after dropping 2.4 percent in February. Once again, petroleum & coal products exercised downward pressure, declining 20.9 percent from a year ago. Most other component prices increased from a year ago.

Core machine orders are considered a proxy for private capital expenditures. In February, machine orders excluding volatile ones were down only 0.4 percent – analysts expected them to drop 2.8 percent. The monthly decline was an improvement from a 1.7 percent drop in January. On the year, orders were up 6.3 percent.  Despite unprecedented monetary and fiscal assistance plus attempts at structural reform, many are not convinced of an imminent economic recovery. Despite beating forecasts the report largely confirms the misgivings seen two weeks ago in the Bank of Japan's closely-watched Tankan survey, which surveyed more than 10,000 firms and found that business spending plans are at their weakest level in two years.

Australia

March labour force survey was much stronger than anticipated. Unemployment slipped to just 6.1 percent from a downwardly revised 6.2 percent in February. Employment was up a greater than expected 37,700 to 11,720,300. The improved employment picture was driven by an increase in full time employment which was up 31,500. The remaining 6,100 jobs that were created were part time positions. A 15,600 gain in February was revised up — way up — to 42,000. The number of unemployed declined 1,500 to 764,500. This resulted in the declining rate. The seasonally adjusted labour force participation rate increased to 64.8 percent in March 2015 from a revised 64.7 percent in February 2015.

China

Chinese exports collapsed in March, reducing the nation's monthly trade to its smallest surplus in 13 months in renminbi (yuan) terms, according to China's customs administration. Chinese exports in renminbi terms fell 14.6 percent from a year ago. Imports dropped 12.3 percent from a year ago. The monthly trade balance was Rmb18.16 billion, the smallest in a 13 month string of surpluses. In February 2014, China recorded a trade deficit. The report blamed the timing of the Chinese New Year holiday, which fell late this year and delayed factory reopenings. The sharp decline in March exports came after an equally surprising jump in exports growth in February. Holiday timing is not the only problem here. Customs also acknowledged that weak external demand as well as rising costs for Chinese companies, including a strong yuan exchange rate, is hurting exports. In U.S. dollar terms the unadjusted trade surplus was $3.08 billion. Exports retreated 15 percent while imports slid 12.7 percent from a year ago.

First quarter gross domestic product was up 7.0 percent from the same quarter a year ago as expected. The quarterly pace was its slowest in six years highlighting the challenge of finding new growth drivers amid a slowdown in the key pillars of construction and manufacturing. For the year 2014, GDP was up 7.4 percent after growing 7.7 percent in 2013. The 2014 growth rate is the slowest since the 3.8 percent recorded in the post-Tiananmen chill of 1990. On a seasonally adjusted basis, GDP was up 1.3 percent from the fourth quarter after expanding 1.5 percent in the fourth quarter. The slowdown is widely seen as necessary and inevitable as the country tries to retool its growth model away from smokestack industries and towards domestic consumption and services. But at the same time, policy makers want to avoid an abrupt slowdown that could cause unemployment to jump and threaten financial stability with defaults. Expectations that the People's Bank of China will respond to weakening growth with further monetary easing has propelled China's equity market in recent months.

March industrial production expansion slowed to an increase of just 5.6 percent from a year ago after climbing 6.8 percent for January and February combined. The March rate was the slowest since November 2008. The result was substantially below expectations of a 6.9 percent increase. For the month, output was up 0.25 percent. Expectations were for an increase of 6.9 percent. Most categories with the exception of cement, electricity and power & thermal were up on the year. Motor vehicle production was up 3.5 percent on the year after increasing 4.6 percent the month before. Non-metal minerals output was up only 3.0 percent after increasing 10.4 percent in January/February. Ferrous metals output improved to 5.5 percent from 3.5 percent. Transport equipment was up 15.5 percent after 10.5 percent in January/February. Machinery slowed to a gain of 6.9 percent from 7.8 percent.

March retail sales grew just 10.2 percent from a year earlier, the slowest since February 2006 and missing forecasts at 10.9 percent. On the month, sales were up 0.71 percent. For the year to date, sales were 10.6 percent higher. Urban sales increased 10.0 percent after adding 10.6 percent and rural sales were up 11.5 percent after 11.6 percent. All categories increased with the exception of autos which were down 1.3 percent on the year and oil & oil products which were 8.0 percent lower. Communication sales soared 37.0 percent. Home appliances added 16.2 percent while household nondurables were up 15.6 percent.

Americas

Canada

February manufacturing sales dropped 1.7 percent after having fallen a much steeper revised 3.0 percent in January. The drop reduced annual growth to minus 1.5 percent following a 1.8 percent rise at the start of the year. Volumes were even weaker, falling 2.5 percent on the month to stand just 0.2 percent higher than in February 2014. Within the monthly drop in overall nominal sales, 10 of 21 subsectors registered reversals. Motor vehicles were down a hefty 14.9 percent and excluding this category alongside parts & accessories, shipments were only 0.1 percent lower. Outside of aerospace product & parts (down 25.7 percent), other declines were much more measured. There were sizeable gains in petroleum & coal products (5.3 percent), chemicals (8.2 percent) and miscellaneous manufacturing (6.2 percent). Elsewhere the survey was equally soft. New orders were down 17.7 percent from January while backlogs were 1.2 percent lower. Meantime, with business inventories up 0.9 percent, the inventory/sales ratio climbed 0.03 months to a high 1.44 months.

March consumer prices were up a monthly 0.7 percent lifting the annual inflation rate from 1.0 percent to 1.2 percent, its highest level since the end of last year. Core inflation was similarly surprisingly robust. Both the excluding food and energy index and the Bank of Canada's preferred measure climbed 0.6 percent from February to raise the annual rate of the former by 0.2 percentage points to 2.0 percent and of the latter by 0.3 percentage points to 2.4 percent. Seasonal factors are positive in March but even adjusting for these total prices were up a firm 0.4 percent from mid-quarter. Similarly adjusted, the ex-food and energy index advanced 0.3 percent and the BoC's gauge 0.4 percent. Within the seasonally adjusted basket the main upward pressure came from higher gasoline prices and this was reflected in a 0.8 percent jump in transportation costs. The next largest monthly increase was in recreation, education & reading (0.4 percent) and most other categories saw a more modest 0.2 percent gain.

February retail sales rebounded 1.7 percent but failed to reverse a cumulative decline of 3.2 percent in December/January. It was the sharpest increase since June 2014. Volumes also had a good month, advancing 1.3 percent from the start of the year. Within the headline nominal increase all eleven subsectors reported higher monthly sales. Particularly strong growth was seen in general merchandise (5.6 percent) and at sporting goods, hobby, book & music stores (8.4 percent). Motor vehicle & parts gained 0.9 percent and excluding this category purchases rose 2.0 percent on the month and 1.4 percent on the year. Furniture & home furnishings (1.7 percent), clothing & accessories (0.9 percent) and food & drink (0.6 percent) also enjoyed strong demand while higher prices saw gasoline sales up 2.2 percent.

Bottom line

Equities mostly retreated thanks to mixed corporate earnings, data that did not meet analysts' expectations and angst regarding Greece. The European Central Bank and Bank of Canada kept their respective monetary policies unchanged. Data from China particularly disappointed — but equities there continued to climb anyhow on anticipation of further stimulus to boost the economy.

The coming week is a quiet one with few major data releases with the exception of the flash PMI reports for April. However, it will be a busy one for corporate profits — they will garner investors' attention.

Looking Ahead: April 20 through April 24, 2015

Anne D Picker is the author of International Economic Indicators and Central Banks.