Global Markets

Investors listened intently to the executive orders that streamed from the White House in the first week of the new administration. They also analyzed quarterly earnings reports that were flowing from companies large and small. Most economic data were positive during the week. The U.S. currency gained and lost on alternate days and bond yields climbed to midweek only to recede back to where they were the previous Friday. Equities rebounded from last week's losses. With two trading days left in January, all but one equity index is positive for the month. Meanwhile in the UK and Europe, Brexit continues to hold the spotlight. And in Asia, it is the Lunar New Year celebrations.

Global Stock Market Recap

Europe and the UK

Equities were mixed for the week with the FTSE and CAC declining three of five days and the DAX and SMI down for two. The FTSE and CAC both slipped 0.2 percent while the DAX and SMI advanced 1.6 percent and 1.3 percent respectively. Disappointing U.S. gross domestic product data weighed on investor sentiment Friday.

Economic data during the week were mixed. For the euro area, although the flash manufacturing PMI for January edged upward, both the services and composite readings slipped lower. Both German and French consumer confidence improved but it tumbled in Italy. The German Ifo business climate was down. The first reading of fourth quarter GDP in the UK was up 0.6 percent on the quarter and 2.2 percent from the same quarter a year ago. For a comparison, U.S. GDP was up 0.5 percent on the quarter and 1.9 percent from the same quarter a year ago. Despite Brexit, the UK economy continues to outperform.

As expected, the UK government lost its bid to ensure that it, and not parliament, will have the final say in when to activate Article 50, the Brexit button that will initiate formal negotiations over how the UK will leave the EU. At the most Tuesday's announcement will only slow the process. The initial response from the government is that it will accept the ruling in which case the next step is to decide what form the vote (in both Houses) will take. Any bill is likely to be short but there is a chance that some members will want to make amendments and there are obviously some who would like to stop Brexit in its tracks.

Asia Pacific

Equities advanced in thin trading last week as investors stayed on the sidelines ahead of the Lunar New Year holidays. Several markets will be closed for several days next week in celebration. With two trading days left in January, all indexes were up for the month. The Sensex jumped 3.1 percent on the week followed by the Hang Seng, up 2.1 percent.

The Nikkei advanced the last three days of the week thanks to a weaker yen as the Bank of Japan surprised market participants by increasing its buying in five- to 10-year bonds in an attempt to bring down bond yields. Another plus on Friday was the December core consumer price index. It declined at the slowest annual pace in nearly a year. This undoubtedly will bring relief to the Bank of Japan's monetary policy board when it meets on Monday and Tuesday. The MPB has been struggling with deflationary pressures for quite some time.

The Hang Seng posted its biggest monthly gain since March as enduring optimism over U.S. economic policies and a stabilization in the yuan lifted sentiment. Moderation in local borrowing costs helped spur property developers. With mainland markets closed for a week-long holiday starting Friday for the Lunar New Year, the Shanghai Composite ended January with a 1.8 percent gain.

The end of U.S. participation in the free trade agreement with 11 other nations including Japan unnerved investors on both sides of the Pacific. The yen held on to a two-day gain after U.S. Treasury Secretary nominee Steven Mnuchin said an "excessively strong dollar" could have a negative short-term effect on the economy. The Japanese currency's level weighed on exporters while financial shares also declined after Trump told business leaders he intended to impose a "substantial border tax" on companies that move operations out of the U.S. While Trump campaigned on a pledge to ditch the TPP, Asian nations including Japan had made a last-ditch effort to convince him of the merits of the pact ahead of his inauguration.

Currencies

The U.S. dollar was mixed against its major counterparts last week. The currency was up against the yen but was virtually unchanged against the euro and Australian dollar. It declined against the Swiss franc, pound sterling and Canadian dollar. The U.S. dollar fluctuated as the new administration in Washington talked about trade, about a wall between the U.S. and Mexico and withdrew from the proposed Trans-Pacific Partnership (TPP).

The Mexican peso has been rocked by the declining relations between the U.S. and Mexico. Mexico's currency got a lift on Friday from news that Enrique Peña Nieto had held a call with Mr Trump. The call took place a day after plans for an in-person meeting collapsed amid an ongoing row over plans for a wall at the southern U.S. border, which the White House has said should be paid for by Mexico.

Selected currencies — weekly results

Indicator scoreboard

Eurozone

January flash composite output index was 54.3, down just 0.1 point from its final year-end reading. The minimal drop reflected a similarly minor cooling in services where the flash PMI was also down 0.1 point at 53.6, a 3-month low. By contrast, the recovery in manufacturing (see graph) continued apace with the flash PMI here gaining 0.2 points to 55.1, a 69-month peak. Optimistically, growth of aggregate new orders remained very robust at its December rate with both services and manufacturing posting solid advances. Backlogs also climbed, although the increase here was primarily due to services which saw an eighth successive rise. As a result, employment had another good month and overall payrolls recorded their largest advance since February 2008. Against this background, overall business optimism remained elevated, although only manufacturing noted a rise from December. Inflation pressures intensified as input costs increased at their fastest pace since May 2011, in part reflecting euro weakness. This in turn saw aggregate selling prices lifted further and, while the inflation rate eased marginally, December/January saw the sharpest back-to-back increase in prices in more than five years.

Germany

January Ifo business climate survey was upbeat but rather less optimistic than in December. At 109.8, the headline index was down 1.2 points from December and at its lowest level since September. The relatively modest decline was wholly attributable to the expectations component which fell 2.3 points, its steepest drop in a year, to 103.2 and a 3-month trough. By contrast, current conditions actually improved slightly, edging up from 116.7 to 116.9, the fifth increase in a row and their strongest print since November 2011. At a sector level morale was weaker across the board. Retail (5.8 after 9.4) saw the steepest decline but manufacturing (13.8 after 15.4), construction (10.7 after 13.1) and wholesale (14.7 after 17.9) were all not far behind.

United Kingdom

Provisional fourth quarter gross domestic product increased 0.6 percent on the quarter for the second consecutive period. Annual growth was also steady at 2.2 percent. Since this is the first estimate, no details on the GDP expenditure components were available. However, a strong performance by consumer-focused industries such as retail sales and travel agencies pointed to a strong consumer sector. Distribution, hotels and restaurants (1.7 percent) were again especially strong. Among the main sectors, services were up a quarterly 0.8 percent, alone adding 0.6 percentage points to the headline change, while construction edged 0.1 percent higher and agriculture 0.4 percent. Industrial production was only unchanged but within this, the key manufacturing category advanced a respectable 0.7 percent.

Asia/Pacific

Japan

December's merchandise trade surplus was ¥641.4 billion, up strongly from a surplus of ¥152.5 billion in November and the largest monthly trade surplus since June 2016. The surplus was driven by stronger exports and weaker imports. Exports rose 5.4 percent from a year ago after falling by 0.4 percent in November. This was the first annual increase in exports in 15 months and suggests that the depreciation in the yen has boosted demand for Japanese goods. Imports were down 2.6 percent after a sharp drop of 8.8 percent in November. Imports have now posted annual declines for 24 consecutive months, mainly reflecting the impact of lower global oil prices.

Australia

Fourth quarter consumer price index was up 0.5 percent on the quarter and 1.5 percent from the same quarter a year ago. Headline inflation remains below the Reserve Bank of Australia's target range of 2.0 percent to 3.0 percent. On the year, prices rose for food & alcoholic beverages, housing and transport, but decelerated for clothing & footwear, health and furnishings, household equipment & services. Overall, price pressures remain relatively subdued, with headline inflation now right at the mid-point of the range of 1.0 percent to 2.0 percent that has prevailed since the start of 2015. Measures of core inflation, which exclude the impact of volatile price changes, were mixed but suggest that underlying price pressures remained subdued. The trimmed mean was up 1.6 percent while the weighted mean was up 1.5 percent. Both measures of inflation rose 0.4 percent on the quarter.

Bottom line

Economic data were mostly positive globally. Both the U.S. and UK posted their first estimates of fourth quarter growth. The UK's was better than expected while the U.S. was worse. Earnings continued to influence equities.

The trifecta of central banks — the Federal Reserve and the Banks of Japan and England —will announce monetary policy decisions that could affect their currencies this coming week. Expectations are that none will alter its current monetary policy. It is a very heavy week for new economic data as well. And of course, the climax will be the U.S. employment situation report for January on Friday.

Looking Ahead: January 30 through February 3, 2017

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