Global Markets

Equities advanced last week despite the pressures brought on by earnings season and the raft of economic data from China. Growth warnings from the IMF went unheeded. Investors, expecting a disappointing earnings season were relieved that several of the losses were not as bad as expected. The Banks of Canada and England left their policy interest rates unchanged at their monetary policy meetings as anticipated. Most equity indexes advanced on the week.

IMF

The International Monetary Fund's semiannual World Economic Outlook reduced its global growth forecast for 2016 by 0.2 percentage points to 3.2 percent, downgrading its expectations for a wide range of advanced and emerging economies. The IMF cited the risk of further market turmoil while warning of the political consequences of lacklustre growth since the 2008 global financial crisis.

The gloomy new forecasts included downgrades for the growth prospects of major economies ranging from the U.S. and the UK where the IMF anticipates growth of just 1.9 percent this year to Japan (0.5 percent) and the Euro area (2.4 percent). The one bright spot among major economies was China, which the IMF said it now believed would grow by 6.5 percent in 2016, up from its previous forecast of 6.3 percent thanks to a raft of short-term stimulus measures to meet growth targets. Among emerging economies the IMF predicted that growth would fade and recessions would linger. Both Brazil and Russia would see their economies contract again while sub-Saharan Africa would grow by just 3.0 percent, a full percentage point slower than the IMF predicted just three months ago.

The Group of 20 major economies met at week's end and said on Friday that economic growth remains "modest and uneven," with downside risks ranging from a potential British exit from the European Union to geopolitical conflicts. In a communique issued after a meeting of G20 finance ministers and central bank governors, the group reiterated its previous pledges on exchange rates, "including that we will refrain from competitive devaluations and we will not target our exchange rates for competitive purposes."

Bank of Canada

The Bank of Canada (BoC) left its policy interest rate unchanged as expected while at the same time retaining a neutral policy bias. The benchmark overnight rate target remains at 0.50 percent, 25 basis points above the deposit rate and 25 basis points below Bank Rate. The decision acknowledged signs of a stronger than expected domestic economic recovery so far this year and was reflected in a significant upward revision to the BoC's near-term growth. Real GDP is now seen expanding 1.7 percent this year, up from the 1.4 percent call made in January, and 2.3 percent in 2017. Inflation remains something of a non-issue with volatility in both the headline and, to a lesser extent, core rates still attributed to one-off factors.

Bank of England

The Bank of England's monetary policy committee left its bank rate at 0.5 percent for the 85th month. The asset purchase ceiling remains £375 billion. The vote was unanimous. Economic developments since March's discussions have added little to a picture of moderate, but probably slowing, real GDP growth and, one-off factors aside, benign inflation. The housing market has shown renewed signs of potentially problematic strength but newly introduced budget measures are expected to hit the buoyant buy-to-let market. Wages remain subdued and more generally confidence seems to be struggling in the wake of rising uncertainty about the looming EU referendum in June.

The minutes of the MPC meeting underlined the BoE's concerns about the risks associated with the vote. The Committee noted that both demand and supply were likely to be hit in the short-run while business decisions would probably be delayed. However, no explicit case was made by any individual MPC member for a rate cut. The Bank also pointed out that the referendum made interpretation of the current data all the more complicated. Nonetheless, on balance the majority view was still that it was more likely than not that interest rates would have to rise at some point over the policy relevant horizon.

Global Stock Market Recap

Europe and the UK

Despite ending the week on a down note, European equity indexes were up for the week. But the upward trend the markets enjoyed earlier in the week began to run out of steam Thursday, as investors became more cautious ahead of the major oil producers meeting in Doha over the weekend. On the week, the FTSE was up 2.2 percent, the SMI added 2.5 percent and both the DAX and CAC jumped 4.5 percent.

A year ago April 15, European equities hit their highest levels ever. But the euphoria about Mario Draghi's stimulus program didn't last, and trader skepticism is now rampant. Optimism has turned to doubt with Draghi's bond buying program doing little to bolster the economy while sowing concerns about bank profitability.

Crude oil prices pulled back Friday on reports that the Iranian Petroleum Minister may not attend the Sunday meeting. Investors are now skeptical about a breakthrough deal to freeze production at January levels. As Iran has rejected calls to cut production, Saudi Arabia made it clear that it won't sign any deal unless other major oil producers, including Iran, participate.

Asia Pacific

It was all about the deluge of Chinese economic data although Singapore (very) briefly held the spotlight. With data strung out throughout the week, it was hard to avoid considering the impact of the Chinese data. At the same time, Japan was still beleaguered by the seemingly ever rising value of the yen despite the pickup in rhetoric from Japanese officials. All indexes with the exception of the Jakarta Composite advanced on the week.

The Nikkei was the best performing index in the region, gaining 6.5 percent despite declining on Monday and Friday. The reason? The value of the yen finally eased somewhat on a barrage of rhetoric prior to the G20 meeting. While the currency rallied Friday, it was still lower on the week.

On Thursday a strong earthquake hit southwestern Japan. On Friday, media reports that some of Japan's biggest firms have shut down operations in southern Japan following a magnitude 6 plus earthquake that pushed investors into a defensive mode ahead of the weekend. After markets closed here for the week, another earthquake shook the same region, this one measuring over 7.2.

Equities showed little reaction to China's first quarter GDP data which were on target with the consensus forecasts. China's economy grew 6.7 percent from a year earlier, down from the 6.8 percent growth of the last quarter of 2015. The batch of data which included March data for consumer and producer price indexes, industrial production and retail sales failed to instill investor confidence. Some analysts said investors were selling on bank profits since the Shanghai market has rallied roughly 16 percent since the end of January to Thursday's close. But Shanghai's key benchmark is still down about 13 percent for the year because of huge losses in early January. On Wednesday, investors acted positively to China's March merchandise trade data but many analysts cautioned that the data were heavily influenced by the low base due to seasonal distortions around the Lunar New Year holiday.

Currencies

The U.S. dollar was up against the yen, euro and Swiss franc on the week. However, it declined against the pound sterling and the Canadian and Australian dollars. The weakening of the yen over the week was good news for the Bank of Japan. Since it instituted negative interest rates the yen has climbed instead of declining.

At the start of 2016, investors flocked to the yen as a safe haven amid global market turmoil. More recently, the dollar's relative weakness has boosted the Japanese currency. The yen's rise is provoking consternation in Tokyo, where policy makers are battling to revive the moribund economy. As the yen has risen, Japanese equities have declined as investors worry about the impact on corporate earnings. The surging yen also means that imported goods become cheaper in Japan. That makes it harder for policy makers to achieve their goal of stoking higher inflation. The yen declined during the week as Japanese officials intensified their rhetoric to restrain the currency's increase after it reached a 17-month high. The yen also declined as stocks and commodity prices rose, reducing demand for haven assets.

Japan's currency fell against all of its 16 major peers before central bankers and finance ministers from the Group of 20 met. Japan will take proper action if moves are extreme, Finance Minister Taro Aso said, recalling that officials agreed at the bloc's meeting in Shanghai that such moves are bad for economies.

Sterling posted its first week of gains in five against a basket of currencies, benefiting from better than expected inflation data and the Bank of England's unanimous vote to keep UK interest rates unchanged at 0.5 percent. The pound had fallen for four straight weeks against the Bank of England's trade weighted currency basket on worries that Britain will vote to leave the European Union at a referendum on June 23, for which the official campaign began on Friday. But it was given a lift by data earlier in the week that showed British consumer prices rose at their fastest rate in 15 months in March. Sterling also climbed on the week against the U.S. dollar. The dollar was weakened Friday after March industrial output declined more than anticipated.

Selected currencies — weekly results

Indicator scoreboard

Eurozone

March harmonized index of consumer prices was up 1.2 percent on the month but was virtually unchanged from a year ago. This was 0.2 percentage points above the final February reading and avoided what would have been the first back-to-back sub-zero yearly readings since January/February 2015. The annual core rates were mixed. While the narrowest measure, which excludes energy, food, alcohol & tobacco, climbed an unrevised 0.2 percentage points from February to an annual 1.0 percent rate, the HICP omitting just energy & unprocessed food was raised a tick to also 1.0 percent. Meanwhile, the first look at the index without only energy & seasonal food yielded a 0.9 percent rate when compared with 0.8 percent last time.

United Kingdom

March consumer price index was up 0.4 percent on the month and 0.5 percent from a year ago. The annual change was its highest since December 2014. The main boost to the change in the 12-month headline rate came from transport where prices rose 1.7 percent on the month or more than double the 0.7 percent gain seen over the same period in 2015. Air transport saw a 22.9 percent monthly surge — almost certainly reflecting the early timing of Easter. Elsewhere, clothing & footwear charges were 1.0 percent higher than in February after a 0.1 percent drop a year ago and restaurants & hotel prices increased 0.5 percent compared with a 0.2 percent rise. The main downward impact came from food & non-alcoholic drinks (monthly down 0.6 percent after down 0.2 percent). Core CPI advanced a sizeable 0.6 percent on the month which raised its yearly rate by 0.3 percentage points to 1.3 percent, the strongest reading since August 2014. However, again this will have been temporarily impacted by Easter.

March input costs recorded a sizeable 2.0 percent monthly increase which lifted their yearly change from minus 8.2 percent to minus 6.5 percent. Factory gate prices were 0.3 percent higher than in February and now stand 0.9 percent below their level in March 2015, up from a minus 1.1 percent annual rate last time. Factory gate prices were boosted by a monthly 2.8 percent jump in petroleum products which alone added nearly 0.2 percentage points to the headline increase. Elsewhere prices were relatively becalmed and, outside of computer, electrical & optical products (down 0.3 percent), all of the main subsectors recorded increases of between 0.1 percent and 0.3 percent. The core index edged just 0.1 percent firmer from February and, at 0.2 percent, its annual rate was similarly only a tick higher than last time.

Asia/Pacific

Japan

February core machine orders crumbled 9.2 percent. Analysts expected a plunge of 12.5 percent. It was the first decline since November. On the year, core machine orders were up 0.7 percent. Manufacturing orders retreated 30.6 percent on the month while nonmanufacturing orders added 10.2 percent. Volatile government orders soared 25.9 percent. Overseas orders added 6.3 percent. These data, though very volatile, are a popular proxy for capital expenditures. The total value of machinery orders received by 280 manufacturers was up 9.0 percent after decreasing 8.8 percent from the previous month on a seasonally adjusted basis.

March producer price index was down 0.1 percent on the month and 3.8 percent lower from a year ago. This was the 12th consecutive decline on an annual basis as deflation continues to plague the Japanese economy. Once again, petroleum & coal products weighed heavily on the index declining by 24.9 percent from a year ago after dropping 22.4 percent in February. Nonferrous metals also weighed, dropping 12.5 percent after sinking 12.6 percent the month before. Food prices were up only 0.6 percent on the year after increasing 1.1 percent in February.

Australia

The labour market improved in March. Seasonally adjusted employment increased 26,100. At the same time, the number of persons unemployed decreased by 7,300. The seasonally adjusted unemployment rate was 5.7 percent (down 0.1 percentage point from February) beating expectations while the labour force participation rate remained at 64.9 percent. The unemployment rate is at its lowest since September 2013. Part time employment accounted for the entire increase, gaining 34,900 jobs while full time employment declined 9,000. The employment to population ratio increased by less than 0.1 percentage point to 61.2 percent in March 2016.

China

March consumer prices were up 2.3 percent on the year for a second month and slightly lower than expectations of 2.5 percent. On the month, the CPI declined 0.4 percent. For the year to date, the CPI was up 2.1 percent from a year ago. Urban prices were up 2.3 percent for a second month while rural prices inched up to 2.3 percent from 2.2 percent. Food prices were up 7.6 percent on the year after rising 7.3 percent last time. Nonfood prices were up 1.0 percent for a second month. Clothing prices were up 1.5 percent and household articles & services were up 0.4 percent. The only subcategory to decline was transportation & communication. The category declined a steeper 2.6 percent after sliding 1.6 percent in February.

March producer price index retreated 4.3 percent on the year after declining 4.9 percent in February. On the month, the PPI was up 0.5 percent – the first monthly gain since January 2014. The continuing fall in commodity prices was reflected in raw materials procurement, fuel and power category which was down 5.2 percent – an improvement over recent months where the declines have been over 6 percent. Consumer goods were down 0.2 percent after slipping 0.4 percent in February.

In U.S. dollar terms, the March trade surplus was $29.86 billion, somewhat lower than expectations of $33.4 billion surplus. Exports were up 11.5 percent on the year — far surpassing the 6.5 percent gain forecast. Imports were down 11.5 percent on the year against expectations for a drop of 13.2 percent. March merchandise trade surplus in yuan terms was 194.6 billion yuan, down from 209.5 billion yuan in February. Exports jumped 18.7 percent from a year ago while imports slipped 1.7 percent. For the first quarter, the merchandise trade surplus was 810.2 billion yuan while exports were down 4.2 percent while imports were 8.2 percent lower. On a seasonally adjusted basis, exports were up 0.9 percent on the month while imports tumbled 8.0 percent.

First quarter gross domestic product was up 6.7 percent from a year ago and the slowest since the depths of the financial crisis in the first quarter of 2009. GDP was down from 6.8 percent in the fourth quarter last year. Expectations were for growth of 6.7 percent. In March, China's parliament approved a full-year growth target of 6.5 percent to 7 percent, down from last year's target of around 7 percent. The data add to a picture of a Chinese economy that is broadly stabilizing after a sharp slowdown in the second half of last year. Trade data released on Wednesday showed imports and exports beating expectations in March. The International Monetary Fund recently revised its full-year growth forecast up to 6.5 percent from 6.3 percent.

March industrial production was up a greater than expected 6.8 percent from a year ago. Expectations were for an increase of 6.0 percent. The last time output was at this level was in June 2015. On the month, output was up 0.64 percent. For the year to date, output was up 5.8 percent when compared with the same months a year ago. In 2015, for the first three months, output was up 6.4 percent. The 6.8 percent increase matches June 2015.

March retail sales were up 10.5 percent when compared with a year ago. This is barely above expectations of a 10.4 percent increase. On the month sales were up 0.85 percent. For the three months to March, sales were up 10.3 percent, below that for the same three months in 2015. Urban retail sales were up 10.4 percent while rural sales were up 11.1 percent. Auto sales jumped 12.3 percent after increasing only 5.4 percent for January and February combined.

Americas

Canada

February manufacturing sales dropped 3.3 percent on the month for their first decline since October. Annual sales growth was up 3.9 percent. The deterioration in nominal shipments was largely mirrored in volumes which fell a monthly 2.0 percent. Within the overall nominal monthly decline, sales were down in sixteen of the twenty-one reporting industries. The main areas of weakness were motor vehicles (down 10.5 percent) and petroleum & coal (down 12.6 percent). Overall transportation was off 7.6 percent. Among smaller declines elsewhere, machinery (2.7 percent) and computer & electronic equipment (5.0 percent) stood out. The only increases of note were in primary metals (1.3 percent), food (0.5 percent) and drink & tobacco (2.1 percent). The rest of the survey was equally poor. New orders slumped 8.1 percent from January while backlogs were down 2.3 percent. Although inventories decreased 0.7 percent, the inventory/sales ratio still rose from 1.36 months to 1.40 months.

Bottom line

The Banks of Canada and England left their policy interest rates unchanged. Economic data for the week was mixed. China's latest data deluge indicated that the economy was stabilizing. In Japan, the producer price index indicated that deflation remains firmly entrenched while core machine orders — a proxy for capital spending — declined.

With a light week for international economic data, investors will focus on the many earnings reports expected this week. Of note are the flash PMI reports for the Eurozone, France, Germany, Japan and the US. However, the European Central Bank will hold its policy meeting on Thursday. No change in policy is expected but President Mario Draghi's press conference will be parsed closely as usual.

Looking Ahead: April 18 through April 22, 2016

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