Global Markets

Equities were mostly lower last week thanks to disappointing economic data, the continuing Greek saga and mixed profits. Both the U.S. and UK posted disappointing growth in the first quarter. The U.S. was up at a seasonally adjusted annualized rate of 0.2 percent while the UK was at a 1.2 percent annualized rate. Three central banks announced the outcomes of their monetary policy meetings. The Reserve Bank of New Zealand, Bank of Japan and the Federal Reserve all maintained their respective policies.

April was not a good month for financial market investors. Many bet that the U.S. dollar would continue to climb higher (it didn't) and oil prices would continue to fall (they didn't). Uncertainty surrounding when the Federal Reserve would begin increasing interest rates, and Greek woes and Middle East flare ups all addled investors. Most equity indexes were down for the week with only the Hang Seng and Shanghai Composite recording gains.

Bank of Japan

As expected, the Bank of Japan left its key interest rate range at zero to 0.1 percent. It said it would continue to buy JGBs at an annual pace of ¥80 trillion. The vote to maintain its policy was 8 to 1. Takahide Kiuchi voted against the decision once again, arguing that a lower pace of purchases (¥45 trillion) was appropriate.

The BoJ pushed back its target date for reaching 2 percent inflation. Now Governor Haruhiko Kuroda says he expects the goal to be reached "around the first half of fiscal 2016," instead of the original plan for "within fiscal 2015." At its latest monetary policy board meeting, the BoJ reduced its median inflation projection for fiscal 2015 from 1.0 percent to 0.8 percent, with Kuroda citing declining crude oil prices and "a slight sluggishness in the recovery of consumer spending." However, the Bank expects the recovery of inflation will speed up in the second half of fiscal 2015 and reach the 2 percent target around the first half of fiscal 2016.

The BoJ retained its view that "the upward trend of consumer prices is recovering and will continue to recover," supported by an upswing in consumer spending on the back of improved corporate performances and wage increases. Kuroda said there is no need for additional monetary easing at this stage, "but if the trend of consumer prices changes, we will not hesitate to adjust policy."

Reserve Bank of New Zealand

As anticipated, the Reserve Bank of New Zealand left its official cash rate (OCR) unchanged at 3.5 percent where it has been since July 2014. In his statement, Reserve Bank Governor Graeme Wheeler noted that the RBNZ is not at this time considering a rate increase. However, it will monitor the situation carefully and will cut the OCR if demand weakens. The Bank will continue to carefully assess the emerging flow of economic data.

He further noted that the New Zealand economy continues to grow at an annual rate of around 3 percent, supported by low interest rates, high net immigration and construction activity along with the decline in fuel prices. House price inflation is elevated in Auckland. However, lower dairy incomes, lingering effects of drought, fiscal consolidation and the high exchange rate are weighing on the outlook for growth.

The RBNZ said that growth among its trading partners continues at around its long term average but remains dependent on highly accommodative monetary settings. Policy interest rates are at record lows and many European government bonds are trading at negative yields. Looking ahead, considerable uncertainties exist in Europe, China and Australia, and on the timing of U.S. monetary policy adjustment.

The RBNZ governor said that the New Zealand dollar on a trade-weighted basis continues to be unjustifiably high and unsustainable in terms of New Zealand's long-term economic fundamentals: "The appreciation in the exchange rate, while our key export prices have been falling, is unwelcome."

The timing of future adjustments in the OCR will depend on how inflationary pressures evolve in both the non-traded and traded sectors. It would be appropriate to lower the OCR if demand weakens and if wage and price setting outcomes settle at levels lower than is consistent with the inflation target.

Global Stock Market Recap

Europe and the UK

Equities retreated in Europe and the UK in a holiday shortened trading week. Losses ranged from 1.0 percent (IBEX) to 3.0 percent (DAX and CAC). The FTSE retreated 1.2 percent and the SMI lost 2.4 percent. In April, the FTSE and CAC added 2.8 percent and 0.3 percent respectively while the DAX slumped 4.3 percent and the SMI slid 0.6 percent. Investors were risk averse as they waited for the Federal Reserve's statement which was made after markets here were closed on Wednesday.

The European markets ended Thursday's session and the week with mixed results. The markets had been under pressure earlier in the session due to a strengthening euro, mixed economic reports and earnings. However, the markets staged a comeback in late trade on reports that Greece is willing to make concessions to achieve a deal with its international lenders. With time running short, the Greek government was holding talks with its lenders in Brussels on a reform package. Athens has reportedly signaled that it is willing to sell a majority stake in its two biggest ports. Greece is also said to be willing to compromise on value-added tax rates and some pension reforms. The talks are expected to continue through the weekend. The Greek government hopes to form an interim agreement by next week.

Economic data continued to disappoint. Economic confidence slipped. Consumer spending in Germany (down 2.3 percent in March) and France (down 0.6 percent) indicated that consumers continue to be wary of the Eurozone economy. And in the UK, GDP growth slowed to 0.3 percent on the quarter, down from 0.6 percent in the fourth quarter of 2014. This was the slowest pace since 2012 and reflected a contraction in construction and industrial activity.

Asia Pacific

Equities were mostly down in the last week of April in a holiday shortened week. Weak U.S. GDP data, a fresh decline in iron ore prices and disappointing earnings sapped investors' appetite for risk. Traders also digested the latest FOMC statement, which offered virtually no clues on the timing of the first U.S. rate increase in nearly a decade. Only the Shanghai Composite (1.1 percent) and Hang Seng (0.3 percent) advanced on the week. Losses ranged from 0.7 percent for the STI to 6.4 percent for the Jakarta Composite. The picture was different for the month of April however.

In April, index behavior was wildly disparate with the Shanghai Composite and Hang Seng soaring 18.5 percent and 13.0 percent respectively. The Nikkei was up a muted 1.6 percent while the Kospi added 4.2 percent. The All Ordinaries, however, lost 1.5 percent.

For the week, the All Ordinaries retreated 1.8 percent. Speculation revolved around the Reserve Bank of Australia and whether it will lower its key interest rate from 2.25 percent to 2.0 percent at its meeting on May 5. Iron ore prices also influenced the direction of stocks.

A slew of Japanese economic data released during the week once again left something to be desired. Consumer spending, which accounts for about two-thirds of GDP, continued to drop in the aftermath of the April 2014 consumption tax increase from 5 percent to 8 percent. Consumers gorged themselves prior to the increase but now spending is languishing. Japanese industrial output fell for a second straight month in March, casting doubts over the strength of the country's economic recovery.

The Nikkei Asian Review offers a useful history of the Nikkei which late in the month returned to 20,000: "It was January 30, 1987 when the Nikkei first breached 20,000 to end the day at 20,048.35. ... Media reports at the time cited excess liquidity during a period of ultralow interest rates as the reason Japanese stocks were moving higher. Others said stocks were a castle in the air, built on paper assets created by the quick rise in property prices. Some economists said the 20,000 mark represented a shift from a debt-oriented economy to a stock-driven one. Other market watchers threw cold water on this idea."

"Black Monday struck October 19 of that year. The Nikkei plummeted 3,836 points, or 14.9 percent, to 21,910 the next day, teaching Japan's newly enthusiastic retail investors a painful lesson. These small investors were just getting in on the stock market boom, excited by the initial public offering of former state monopoly Nippon Telegraph and Telephone in February. The market quickly recovered from the crash, surging ahead of its Western counterparts. By the end of 1989, the Nikkei index had nearly doubled again, reaching an all-time high of 38,915. In the early 1990s, however, Japan's economic bubble burst, and the economy fell into a period of stagnation that lasted a quarter century."

Currencies

The U.S. dollar was pummeled by the euro and Swiss franc. However, it advanced against the pound sterling and yen. The Canadian and Australian dollars edged up against their U.S. counterpart.

The introduction of quantitative easing by the European Central Bank initially pushed the euro down below $1.05 in March. However, it rose sharply in recent days as part of a broader global trend. A string of weak U.S. economic data releases triggered a broad dollar selloff, but the euro's recovery has been particularly strong. That is because betting on euro declines has been such a popular trade this year, encouraging many investors to take profits as markets moved against them, according to foreign-exchange strategists. Elsewhere in currency markets, the pound declined against the dollar following some weaker than expected UK manufacturing data.

A holiday Friday in most of Europe thinned trading after a tumultuous week which has seen the dollar sink in value, bond yields soar and stock markets in Europe and the United States weaken. The action was driven in part by poor U.S. first quarter growth numbers Wednesday. Underpinning the volatility are concerns that the world's economies, rather than recovering from a period of weakness which dates back to the 2008 financial crash, are slipping.

Selected currencies — weekly results

Indicator scoreboard

Eurozone

March broad money supply growth was up 4.6 percent on the year after increasing 4.0 percent in February. M3 expanded at its fastest pace since April 2009. As a result, the 3-month moving average measure climbed 0.3 percentage points to 4.1 percent, also its strongest performance in nearly six years. Annual growth of lending to the private sector finally turned positive (first time since 2012) although at just 0.1 percent, it was still far too soft to be confident that it can accommodate a meaningful economic recovery. Borrowing by households registered a zero rate, up a couple of ticks from mid-quarter, and within this loans for house purchase improved from zero percent to 0.2 percent. However, lending to non-financial corporations remained stubbornly negative, down 0.6 percent on the year after a 0.7 percent contraction last time. Borrowing by non-monetary financial institutions (excluding insurance companies and life assurance companies) jumped to a 2.3 percent rate from 0.5 percent in February.

April economic sentiment (ESI) was little changed at 103.7 and just 0.2 points below its unrevised March reading. It was the first decline since November last year but also its second highest level since July 2011. The relative stability of the headline index masked a slight deterioration in morale in the industrial sector (minus 3.2 after minus 2.9) and a more marked drop in consumer confidence (minus 4.6 after minus 3.7, as indicated in the flash report). Sentiment in construction (minus 25.6 after minus 24.2) similarly worsened somewhat but retail (minus 0.8) was flat and services (6.7 after 6.1) saw their second successive rise. Regionally the national ESI rose 1.3 points to 110.4 in Spain and held steady at 106.1 in Italy. However, both France (down 1.4 points to 97.2) and Germany (down 0.6 points to 104.5) lost ground. Once again, France was the only member of the larger four member states to post a reading below the common 100 long-run average. The sub-indexes measuring selling price expectations rose from minus 4.6 to minus 2.9 in manufacturing and from 2.4 to 2.6 in services. At the same time, consumer inflation expectations gained 1.5 points to 0.7, their third increase in a row. There was also another modest gain in household buying intentions.

April flash harmonized index of consumer prices were unchanged on the year and outside of negative territory for the first time since last November. However, the acceleration in the headline rate was not mirrored in the underlying measures. Excluding food, alcohol, tobacco & energy, the HICP was up 0.6 percent on the year, only unchanged from its March posting. The same held true for the other core index that omits just unprocessed food and energy. Non-energy industrial goods inflation crept 0.1 percentage points firmer to 0.1 percent but services dipped another tick to 0.9 percent having already declined 0.2 percentage points in March. Elsewhere in the HICP basket, energy deflation eased from 6.0 percent to 5.8 percent and food, alcohol & tobacco inflation climbed 0.3 percentage points to 0.9 percent.

March joblessness as measured by Eurostat dropped a further 36,000 to 18.105 million but the unemployment rate held steady at 11.3 percent for a third month. Among the larger member states the national jobless rate was unchanged in France (10.6 percent) and Germany (4.7 percent) and declined another tick to 23.0 percent in Spain. However, Italy saw its rate jump 0.3 percentage points to 13.0 percent, just a couple of ticks short of last November's record high. Top of the pile was again Greece (25.7 percent in January) while Germany remained at the bottom.

Germany

April unemployment declined 8,000 following a 14,000 decline in March. It left the jobless rate at its record low of 6.4 percent. The latest decrease in unemployment compares with average monthly declines of 14,000 in the first quarter and nearly 22,000 in the fourth quarter 2014. Part of this may reflect skills shortages in some areas or the introduction of the national minimum wage in January. Vacancies increased 5,000 in April to match their upwardly revised March gain.

France

March household spending on manufactured goods was down 0.2 percent on the month after stagnating in February. On the year, purchases were 1.8 percent higher. Weakness was concentrated in textiles, which slumped 3.3 percent following a 0.2 percent decline last time, and household goods where a 0.2 percent dip wiped out the previous period's gain. Elsewhere the news was rather better and autos (1.9 percent) enjoyed a very good month and the other products category (0.1 percent) also made further ground. Total spending on goods fared less well, declining 0.6 percent on the month to more than reverse February's 0.2 percent increase.

United Kingdom

First quarter provisional GDP was up 0.3 percent on the quarter and 2.4 percent from a year ago. Total output was hit by a 0.1 percent quarterly slip in industrial production, mainly reflecting a 2.1 percent slump in the volatile mining & quarrying subsector. Manufacturing output edged 0.1 percent higher. Service sector activity continued to increase but a 0.5 percent quarterly gain was little more than half of the fourth quarter gain as growth in business services & finance dropped to a minimal 0.1 percent from 1.3 percent last time. Elsewhere subsector performances were much in line with the previous period and distribution & hotels (1.2 percent) and transport, storage & communication (1.1 percent) again posted solid advances. Government services were up 0.3 percent after a flat fourth quarter. Elsewhere, construction fell 1.6 percent, compounding the previous quarter's 2.2 percent decline to subtract 0.1 percentage points from headline growth and agriculture, forestry & fishing was off 0.2 percent after a 0.4 percent increase at the end of 2014.

Asia/Pacific

Japan

Retail sales plunged a greater than expected 9.7 percent from a year ago. This was the third consecutive sales declined. March's result marks a fresh historic low in the data. The data do not bode well for first quarter consumer spending, a major portion of GDP. For the fiscal year, sales retreated 1.2 percent after rising 2.9 percent in fiscal year 2013. All the subcategories were lower on the year. Auto sales dropped for a sixth consecutive month, this time by 4.1 percent on the year after sliding 2.6 percent the month before. Fuel sales sank 20 percent after 17.9 percent, no doubt partially attributable to the decline in crude oil. Retail machinery sales dropped for a 12th month, this time by 27.9 percent after sliding 9.6 percent the month before. Apparel sales were down 6.2 percent after increasing 2.0 percent in February. Japanese consumers have cut back spending since April 2014 when the country's sales tax was raised from 5 to 8 percent.

March industrial production dropped a much less than anticipated 0.3 percent on the month – analysts were expecting a drop of 2.2 percent. It was the second consecutive decline. On the year, output was down 2.9 percent. The monthly reading showed great fluctuations, but Thursday's reading means it has been in negative territory for seven of the previous 12 months. Electrical machinery was down 3.7 percent after declining 5.7 percent in February. Petroleum & coal products retreated 7.7 percent on the month after increasing 2.7 percent the month before. Fabricated metals were down for a second month, this time by 2.7 percent. According to the survey of production forecast in manufacturing, production is expected to increase 2.1 percent in April and decrease 0.3 percent in May.

March consumer prices excluding fresh food but including energy were up 2.2 percent from a year ago. Excluding the influence of the sales tax, core CPI was up 0.2 percent on the year. The total CPI was up 0.4 percent and 2.3 percent on the year. Core which excluding both food and energy was up 0.4 percent and 2.1 percent on the year. For the fiscal year 2014, the core CPI was up 2.8 percent on the year. Among the categories making up the CPI, electronics goods dropped 1.3 percent from a year ago. TVs slipped 0.1 percent on the year while energy costs were down 1.0 percent. Food excluding perishables was up 3.8 percent from a year ago. In a significant change of language, the BoJ said it now expected to reach its goal "around the first half of fiscal 2016"— a phrasing that could mean as late as the end of next year. The change of language shows how hard the BoJ is finding the struggle to reignite inflation after two decades of stagnant prices.

Household spending declined for a twelfth straight month in March. On the year, spending was down 10.6 percent after sliding 2.9 percent in January. Consumption has been weak since last April when Japan raised its consumption tax by 3 percentage points to 8 percent. Spending in the most of the subcategories declined. The biggest drops were in furniture & household utensils (down 39.6 percent) and transportation (down 16.1 percent). Only education advanced, this time by 3.1 percent on the year.

Australia

March quarter final demand (excluding exports) producer price index was up 0.5 percent on the quarter and 0.7 percent from the same quarter a year ago. The PPI was up mainly due to price increases received for computer & electronic equipment manufacturing (7.5 percent), building construction (0.8 percent) and other transport equipment manufacturing (7.4 percent). The increases partly offset the declines in prices received for petroleum refining & petroleum fuel manufacturing (down 17.0 percent) and pharmaceutical & medicinal product manufacturing (down 12.8 percent). Intermediate prices were down 0.3 percent thanks mainly to the prices received for oil & gas extraction (down 23.2 percent) and petroleum refining & petroleum fuel manufacturing (down 17.6 percent). On the year, intermediate prices were down 1.0 percent. These declines were partly offset by increases in the prices received for grain, sheep, beef & dairy farming (6.1 percent), other agricultural products (5.5 percent) and textile, leather, clothing & footwear manufacturing (4.5 percent).

Americas

Canada

February monthly gross domestic product was unchanged as a combination of unseasonably cold weather and the collapse in energy prices took their toll. On the year, GDP was up 2.1 percent, its slowest pace since November. Weakness was most apparent in the goods producing sector where output declined 0.2 percent from January. Within this, manufacturing was down 0.8 percent after a 0.7 percent fall in January and there were also declines in construction (0.2 percent) and mining, quarrying & oil & gas extraction (0.6 percent). Partial offsets were provided by gains in utilities (2.3 percent) and agriculture, forestry, fishing & hunting (1.1 percent). Services edged up 0.1 percent, dominated by a 1.5 percent surge in retail trade. Finance & insurance (0.7 percent) and real estate & rental & leasing (0.4 percent) advanced. However, there were sizeable declines in a number of subsectors, notably wholesale trade (0.8 percent) and transportation & warehousing (1.0 percent).

Bottom line

Three central banks met and left their monetary policies unchanged. Economic data in the UK and US disappointed. Both grew below expectations in the first quarter.

The upcoming week is packed full of key economic events including key final purchasing managers' indexes around the globe. The U.S., Canada and Australia report their respective labour market data including employment and unemployment. The Reserve Bank of Australia holds a monetary policy meeting.

Looking Ahead: May 4 through May 8, 2015

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