Global Markets

After declines across the board in January and a mixed performance in February, equities rallied in the first week of March. There was plenty of economic data to evaluate globally. Investors chose to ignore some of the bigger disappointments. For example, they ignored the disappointing manufacturing and services data for China and for that matter, weakness in similar data virtually everywhere else. Readings were softer with the global manufacturing PMI sliding to a stagnant reading of 50.0 while the services index was barely above that at 50.7. On the week, all equity indexes followed here advanced.

Reserve Bank of Australia

As anticipated, the RBA kept its cash rate unchanged at 2 percent where it has been since May 2015. The RBA cut rates twice in 2015 — in February and May — to stimulate the economy amid continuing transition from a decade of booming mining exports and high commodity prices.

In its announcement, the RBA said that recent information suggests the global economy continues to grow, though at a slightly lower pace than was expected earlier. In Australia, the available information suggests that the expansion in the non-mining parts of the economy strengthened during 2015 despite the contraction in mining investment spending. This was reflected in improved labour market conditions data. The pace of lending to businesses also picked up.

The RBA has an inflation target of between 2 and 3 percent. The Bank noted that inflation is quite low. With growth in labour costs continuing to be quite subdued as well and prices restrained elsewhere in the world, inflation is likely to remain low over the next year or two. However the RBA left the door open to further easing, again stating that low inflation "would provide scope for easier policy, should that be appropriate to lend support to demand." The overall tone of their March statement was similar to that in February.

The day after the RBA announcement, fourth quarter growth data were released. GDP grew a quarterly 0.6 percent and 3.0 percent from a year ago. Not only did that result beat consensus estimates, it also followed upward revisions to third quarter growth. After years of robust growth in Australia's once booming mining industry, softer demand has been holding back business fixed investment spending. But consumer spending has been remarkably resilient and that was certainly the case in the fourth quarter as it was by far the largest positive contributor to growth. Other positive data followed in the week. The January merchandise trade deficit narrowed and retail sales increased.

PBoC

The People's Bank of China announced that it would be cutting its reserve ratio requirement (RRR) by 50 basis points, effective on March 1. This was the first reduction since last October and is aimed at maintaining ample liquidity in the financial markets. The move frees reserves so that banks can lend more. By lowering the RRR by 50 basis points, the PBoC is partly seeking to offset its own actions in support of the currency. For the biggest banks, the ratio of total deposits that must be kept in reserve was reduced to 17 percent from 17.5 percent.

The measure is the latest example of the fine line that China's policy makers are attempting to walk as they fight persistent capital outflows amid expectations that the renminbi could weaken further because of slowing economic growth. The PBoC has been selling dollars and buying renminbi to prop up the value of the renminbi, which has been under pressure. But that has siphoned liquidity out of the system. To counteract that, the Bank has been injecting billions of renminbi through open market operations. The RRR cut serves the same purpose.

In recent months the People's Bank of China has slowly been switching its focus away from reserve requirements. Instead, it has been putting greater emphasis on interest rates as a way to control liquidity — specifically encouraging credit in the bank-to-bank lending market — an approach that is generally regarded as more market oriented.

Global Stock Market Recap

Europe and the UK

Equities in Europe joined those from Asia and advanced on the week. It was the indexes' third consecutive weekly gain. Investors ended the week focused on some better than expected U.S. employment data. At the same time they were also speculating on the possibility of further stimulus from China and the European Central Bank's upcoming announcement on March 10. In January, President Mario Draghi signaled that the ECB may add further stimulus as soon as this month. The FTSE was up 1.7 percent, the CAC and DAX both added 3.3 percent and the SMI was 1.3 percent higher.

According to, European Central Bank executive board member Benoit Coeure, governing council members are exploring ways to mitigate the adverse effects that negative interest rates can have on bank profitability as the governing council prepares to unveil fresh stimulus that may include a deposit rate cut. Acknowledging the concern that negative deposit rate could squeeze banks' net interest margins, Coeure said, "We are well aware of this issue. ... We are monitoring it on a regular basis and we are studying carefully the schemes used in other jurisdictions to mitigate possible adverse consequences for the bank lending channel."

Eurozone private sector growth eased to a 13-month low in February. The composite PMI slid to 53 in February from 53.6 in January. This was the lowest reading since January 2015. In the UK, both the manufacturing and services PMIs indicated slower expansions. The manufacturing PMI slid to 50.8 from 52.9 while the services PMI dropped to 52.7 from 55.6. The readings suggest that concerns about "Brexit" and global growth weighed on orders and activity.

The Swiss economy recovered at a faster than expected pace in the fourth quarter, helped by domestic spending. The data suggested that Switzerland weathered the headwinds from the appreciation of the franc and the resultant weakness in exports. Gross domestic product advanced 0.4 percent on the quarter, reversing the revised 0.1 percent contraction in the third quarter. This was the fastest growth in a year. From a year ago, GDP was up 0.4 percent.

Asia Pacific

Equity indexes rallied and in the process compiled robust gains. Increases ranged from 1.7 percent (KLCI) to 7.1 percent (STI). Investors tended to ignore the weak data from China. The Nikkei jumped 5.1 percent on the week, climbing above the 17,000 threshold for the first time in about a month.

The Shanghai Composite gained 3.9 percent — its biggest weekly increase in over two months. The increase came after the People's Bank of China lowered the lenders' required reserve ratio by 50 basis points in an effort to bolster the economy. Equities advanced even as Moody's lowered the outlook on China's credit rating to 'negative' from 'stable', citing a weakening of fiscal metrics, a fall in reserve buffers and uncertainty about the government's ability to implement reforms. The Caixin manufacturing PMI remained in contraction dragging the composite below the breakeven 50 level. Although services slowed on weakened demand, they continued to grow albeit at a slow pace.

At week's end, though, investors were watching Chinese officials lay out their plans for reform. The government appears to be taking a more modest approach to cutting down on overcapacity as it faces slowing economic growth. Shares in Shanghai remain down about 45 percent from their peak last June. China's leaders are gathering in Beijing to approve economic policies for the next five years.

The Australian equity market posted its best weekly increase in almost five months, as miners lifted the index at week's end. The All Ordinaries were up 4.2 percent for the week, and now down only 3.6 percent for the year. A less than expected 0.3 percent rise in retail sales during January took the gloss off some more positive economic releases during the week, namely economic growth and trade figures.

Currencies

The U.S. dollar was down against five of its six major counterparts, only increasing against the yen. The currency retreated against the pound sterling, euro, Swiss franc and the Australian and Canadian dollars. The Australian dollar climbed after the Reserve Bank of Australia kept its key rate at 2.0 percent and assured investors that it would act if necessary. The currency was also bolstered by better than expected fourth quarter GDP (up 0.6 percent on the quarter and 3.0 percent from a year ago).

The U.S. dollar hit one week lows against the euro and declined against the yen Friday after a drop in February U.S. wages overshadowed strong jobs growth and supported views that the Federal Reserve will be in no hurry to increase interest rates. Average hourly earnings fell three cents in February as traders were fixated on that even though nonfarm payrolls increased by 242,000 jobs. While the dollar initially gained after the report given the monthly jobs growth, it soon reversed course.

Selected currencies — weekly results

Indicator scoreboard

Eurozone

February flash harmonized index of consumer prices was down 0.2 percent from a year ago after increasing 0.3 percent in January. The headline decline was largely attributable to renewed slump in energy prices which were down 8.0 percent on the year after a 5.4 percent drop in January. There were also fresh signs of weakness in underlying prices. The HICP excluding energy, food, alcohol & tobacco dropped from a 1.0 percent yearly rate to a surprisingly low 0.7 percent, its softest reading in 10 months. Similarly, without just energy and unprocessed food inflation was down 0.2 percentage points at 0.8 percent.

February manufacturing PMI was 51.2, up a couple of ticks from its flash estimate but still more than a point short of its final January reading and also a 12-month low. The headline continues to reflect slower growth of production, new business, exports and employment. In particular, output expanded at its slowest pace in a year and new business recorded its weakest gain since last April. Although the headcount was up, the increase was also the smallest in a year. Inflation pressures eased further. Input costs were down for a seventh consecutive month and more sharply than at any time since July 2009 while factory gate prices dropped for a sixth straight month. Regionally, the best performer was Spain (54.1) ahead of Ireland (52.9), Italy (52.9) and Austria (51.9). However, all four countries registered multi-month lows. Moreover, Germany (50.5) and France (50.2) essentially only stagnated.

Germany

January retail sales were up 0.7 percent on the month and followed a sharply upward revised 0.6 percent gain in December. Unadjusted annual sales growth dropped to minus 0.8 percent from 2.5 percent, the first negative print since May 2015, but this simply reflected unfavorable calendar effects. January was the third straight increase and means that volumes have climbed 1.7 percent since their last decline in September. January was also up 1.2 percent from the fourth quarter average.

Asia/Pacific

Japan

Industrial production rebounded 3.7 percent in January from the previous month. This was the first increase since October. Output was down a seasonally adjusted 2.3 percent from a year ago. Industries that mainly contributed to the increase were general-purpose, production and business oriented machinery, transport equipment and electronic parts and devices. This was the strongest pace of monthly growth since January 2015, when output expanded 4.1 percent. Late last year, industrial production was one area of the Japanese economy that was doing okay, but the data overall have probably given some mixed signals on the health of the Japanese economy.

Retail sales declined for a third month in January. Retail sales slipped 0.1 percent from a year ago as the economy continues to struggle. Fuel prices plunged 11.4 percent dragging down overall sales. But general merchandise was down 0.5 percent as well. However, both motor vehicles and machinery and equipment were up 1.4 percent — both declined in December. Food & beverage was up 2.5 percent while fabrics, apparel & accessories added 3.3 percent.

Household spending declined for a fifth consecutive month and the 10th in the last 12. Spending dropped 3.1 percent on the year in January after retreating 4.4 percent in December. The main spending declines occurred for fuel, light & water charges (down 16.1 percent) and furniture & household utensils (down 10.7 percent). In addition, medical care slumped 5.9 percent while culture & recreation declined 3.8 percent. However, spending on clothing & footwear was up 4.8 percent and transportation & communication 4.0 percent.

Australia

Fourth quarter gross domestic product was up 0.6 percent and 3.0 percent from a year ago. Growth in expenditures was driven by an increase of 0.8 percent in household final consumption and a gain of 6.0 percent in public gross fixed capital formation. These were partially offset by a decline in private business investment (down 3.3 percent), driven by a fall in new engineering construction (down 12.3 percent). Gross fixed capital formation was down 0.6 percent on the quarter and retreated 4.7 percent from the same quarter a year ago. The growth in household final consumption was reflected in the service industries of information, media & telecommunications (2.7 percent) and retail trade (1.0 percent). Other industries that had significant growth were rental, hiring & real estate (2.8 percent) and wholesale trade (1.6 percent).

January trade deficit was A$2.9 billion, down from A$3.5 billion in December. Exports were up 1.1 percent on the month while imports retreated 1.1 percent. Non-rural goods exports rose 1 percent and non-monetary gold was up 10 percent. Rural goods slipped 1 percent. The main component contributing to the decline was cereal grains & cereal preparations. Partly offsetting the decline was other rural. Exports of non-rural goods were up 1 percent. The main components contributing to the increase were other manufactures and coal, coke & briquettes. Partly offsetting these increases were metals and metal ores & minerals. Contributing to the decline in imports were intermediate & other merchandise goods, capital goods, consumption goods and non-monetary gold.

January retail turnover was up 0.3 percent following a relatively unchanged December 2015. On the year, sales were up 4.0 percent. Other retailing (1.4 percent), household goods (1.0 percent), cafes, restaurants & takeaway food services (1.0 percent) and clothing, footwear & personal accessory retailing (0.1 percent) all advanced on the month. However, food retailing (down 0.2 percent) and department stores (down 1.3 percent) both retreated. Sales increased in New South Wales (0.5 percent), Queensland (0.3 percent), South Australia (0.4 percent), Western Australia (0.2 percent), Tasmania (1.0 percent), the Australian Capital Territory (0.7 percent) and the Northern Territory (1.3 percent). Victoria was relatively unchanged.

Americas

Canada

Fourth quarter gross domestic product increased 0.2 percent on the quarter (0.8 percent SAAR). The quarterly rate was down from 0.6 percent in July to September and means that real GDP in 2015 only achieved any meaningful growth in the third quarter. Compared with a year ago GDP was up just 0.5 percent. The deceleration was largely attributable to a 1.6 percent quarterly decline in gross fixed capital formation. This followed a 1.3 percent drop in the third quarter and alone subtracted 0.4 percentage points off headline growth. Business investment (minus 3.3 percent) was especially weak but housing gained 0.4 percent. Household consumption eased a tick to a 0.3 percent rate and with government final spending 0.4 percent firmer, overall final domestic demand contracted 0.2 percent and so has still not grown since the fourth quarter of last year. Business inventories subtracted 0.3 percentage points. The economy would have fared a lot worse but for another improvement in net foreign trade which, having added almost a full percentage point to quarterly growth in the previous period, provided an additional 0.6 percentage points this time. The latest improvement was due to a 0.6 percent decline in exports that was easily more than offset by a 2.3 percent drop in imports.

January merchandise trade deficit was C$0.66 billion after a marginally larger revised C$0.63 billion shortfall in December. The smaller than expected deficit reflected a 1.0 percent monthly increase in exports that all but matched by a 1.1 percent increase in imports. Sales to the U.S. were up a solid 2.6 percent which, with purchases from across the border only 1.1 percent higher, saw the bilateral surplus widen from C$3.13 billion to C$3.70 billion. The real trade balance improved quite sharply as export volumes jumped 3.6 percent from December and imports advanced 1.6 percent. Within the monthly rise in total nominal exports consumer goods surged 13.7 percent, comfortably ahead of otherwise hefty gains in motor vehicles & parts (7.2 percent), electronics (6.8 percent) and basic & industrial chemical, plastic & rubber products (6.7 percent). Forestry products and building & packaging materials (5.7 percent) also had a very good month. However, there were partial offsets in energy products (down 7.7 percent), metal & non-metallic mineral products (down 7.2 percent) and farm, fishing & intermediate food products (down 3.2 percent).

Bottom line

The Reserve Bank of Australia kept its monetary policy unchanged while the People's Bank of China lowered its reserve requirements for banks. Economic data were mixed globally.

Looking ahead, all eyes will be on Thursday's ECB Governing Council meeting. Additional easing is almost guaranteed, the question is how much' It is a light economic data week. Second estimates for fourth quarter GDP in Eurozone and Japan are unlikely to bring major surprises. The first Chinese data for February (trade balance, CPI and PPI) will be watched but may not give clear insight into Chinese momentum due to seasonal distortions. China's annual National People's Congress kicks off on the weekend with the release of official targets for 2016 and the complete 13th Five-Year Plan.

Looking Ahead: March 7 through March 11, 2016

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