Global Markets

Global equities were mixed in a holiday-shortened trading week. Unease regarding the situation in Ukraine continued to make investors wary, especially prior to a long holiday weekend in most of the major markets. But Ukraine was overshadowed by economic data from China and the U.S. along with the onset of earnings season. Most economic data were positive in the U.S. as well as in the Eurozone and UK. Data from China, including first quarter growth, beat expectations but indicated that growth had slowed from the fourth quarter.

Equities in the Asia Pacific region were mixed while only the OMX retreated in Europe. Among the indexes that declined were the Shanghai Composite, Hang Seng and Kospi. The Nikkei scored the biggest gain in the four day trading week. The index added 3.3 percent. Elsewhere, the S&P was up 2.7 percent while the Dow and Nasdaq gained 2.4 percent.

Global Stock Market Recap

Europe and the UK

Equities rebounded last week after sinking the week before. After rallying Monday, the indexes retreated Tuesday but rebounded again for gains on Wednesday and Thursday. The FTSE and DAX were up 1.0 percent, the CAC gained 1.5 percent and the SMI added 0.9 percent. On Thursday, European stocks fought back from early losses as traders snapped up shares ahead of the long Easter weekend.

With little new economic information available in Europe, investors looked to data releases from the UK, U.S. and China. Earnings from the U.S. also were in focus and allayed some of the concerns regarding Ukraine. Eurozone inflation continued to weaken to a 0.5 percent annual rate on March and was far below the European Central Bank’s target of just below 2.0 percent. A higher euro and a late Easter holiday complicates the picture for the ECB as they choose to talk up inflation rather than take definitive policy action. The German ZEW survey for April was mixed with current conditions jumping but expectations retreating.

In the UK, March consumer prices were up 1.6 percent on the year, slightly below the Bank of England’s 2.0 percent target. However, labour market data offered some good news. Unemployment for the three months to February using the ILO measure declined to 6.9 percent from 7.2 percent in the previous three months to January. This is below the BoE’s threshold of 7.0 percent and the lowest rate since February 2009. That means that the first phase of the BoE’s forward guidance, unleashed in August, is now over.

Asia Pacific

Equities were mixed in the holiday shortened trading week. Wednesday’s comments by Fed Chair Janet Yellen offset growing concerns about military activity in Ukraine. Trading was cautious before the long holiday weekend. The Nikkei jumped 3.3 percent with 3.0 percent gained in Wednesday’s trading session. The gain came after comments from Finance Minister Taro Aso suggested that the Government Pension Investment Fund may change its portfolio allocation in June or later. Bank of Japan Governor Haruhiko Kuroda told a parliamentary session that recent market volatility has not had a big negative impact on the economy. Kuroda, however, added he will monitor stock price moves carefully.

The Shanghai Composite and Hang Seng lost 1.5 percent and 1.1 percent respectively. Nerves prior to the release of key GDP and industrial production data sent the indexes down prior to their release. The data eased fears of a dramatic slowdown, but sentiment was dampened after Premier Li Keqiang once again ruled out major stimulus to counter slowing growth. First quarter gross domestic product slowed to an annual gain of 7.3 percent from 7.7 percent in the fourth quarter. Premier Li Keqiang said China is not considering "strong" stimulus, and reiterated that economic growth a bit higher or lower than 7.5 percent is a reasonable range. The government also said it will lower reserve ratios at some rural lenders.

Elsewhere, the All Ordinaries added a modest 0.4 percent since last Friday ahead of the long Easter and Anzac holiday period. The Reserve Bank of Australia publishes minutes from its meeting earlier this month. The minutes noted that stimulus already imparted is still working its way through the system, with positive results evident particularly among housing investment and consumer demand. The board observed that the Australian dollar remained extremely strong by historical standards and that the country's economic recovery continues to be slightly below trend.

Currencies

 The U.S. dollar was up against the Canadian and Australian dollars, the yen, euro and Swiss franc but was down against the pound sterling. The pound reached the highest level in more than four years against the dollar after the UK jobless rate declined more than expected. Financial markets in the U.S., UK, Germany, Hong Kong, Singapore, Hong Kong and Australia are among those that will be shut for public holidays on Friday, April 18.

The pound jumped to $1.6842, the highest level since November 2009 before trading little changed at $1.6803 Wednesday after a government report showed that the unemployment rate dropped below the 7 percent threshold Bank of England Governor Mark Carney has set as an initial guide for considering a boost in interest rates. And on Thursday, it blasted through to its highest level against the dollar in almost four-and-a-half years, still riding on the wave of positive data earlier in the week showing a rapid decline in unemployment. In addition, house prices, particularly in London, are rising. House prices rose 9.1 percent in the year to February, the fastest of growth since June 2010, with signs that price growth has begun to spread out from the capital.

In addition to the better than anticipated unemployment news, the currency also benefitted after Federal Reserve Chair Janet Yellen signaled the Fed will keep an accommodative monetary policy that has weakened the U.S. dollar. Since last April, the pound has fetched gains of almost 11 percent against the U.S. currency as the UK economy recovered much faster than expected. This was underlined by Wednesday’s unemployment data.

Selected currencies — weekly results

Indicator scoreboard

EMU

February industrial production was up 0.2 percent and 1.7 percent from a year ago. The sluggish gain reflected monthly increases in intermediates (0.6 percent) and nondurable goods (0.5 percent) that were partially offset by declines in consumer durables (1.2 percent) and energy (1.7 percent). Capital goods recorded no change. Regionally there were some strong monthly gains among the smaller member states, notably Malta (5.4 percent) and Ireland (5.0 percent). By comparison, declines were relatively small with Estonia (2.2 percent), Slovenia (0.6 percent) and Greece (0.5 percent) seeing the sharpest reversals. For the larger countries, German industrial production was up 0.4 percent on the month while France advanced 0.2 percent and Spain, 0.7 percent. Italy posted a 0.5 percent drop after a 1.1 percent increase in January.

March harmonized index of consumer prices was up 0.9 percent on the month and only 0.5 percent from a year ago. The core measure that excludes energy, food, alcohol and tobacco was revised a tick softer to a 0.7 percent rate, 0.3 percentage points short of its mid-quarter reading. The other underlying gauges were almost as soft with the yearly increase in the HICP omitting just energy and unprocessed food slowing from 1.1 percent to 0.9 percent and without only energy and seasonal foods falling from also 1.1 percent to 0.8 percent. Regionally annual headline HICP rates declined in all states except Ireland (0.3 percent after 0.1 percent), Cyprus (minus 0.9 percent after minus 1.3 percent) and Slovenia (0.6 percent after 0.2 percent). Worryingly negative rates can now be found in five of the 18 member countries with Greece (minus 1.5 percent) firmly at the bottom of the pile. Even at the top, Austria and Malta (both 1.4 percent) are uncomfortably short of the ECB's near-2 percent medium-term target.

Germany

April ZEW current conditions were up a surprisingly robust 8.2 points to 59.5, their fourth consecutive monthly rise and their strongest reading since July 2011. Meantime, the expectations balance was 43.2, down a larger than forecast 3.4 points from March for the fourth consecutive monthly decline. The index is now at its lowest level since August 2013. In line with last month's survey, the mixed results reflect optimism about increasing signs of a strong first quarter economy tempered by rising concerns about the potential fallout from the ongoing crisis in Ukraine.

United Kingdom

March consumer prices were up 0.2 percent and were up 1.6 percent from a year ago, their smallest rise since October 2009 and the third consecutive reading below the Bank of England’s 2 percent medium term target. The main downward pressure on the annual rate came from the transport sector where prices were unchanged on the month compared with a 0.6 percent increase in the same period in 2013. Petrol prices were flat on the month compared with 2.2 pence per litre increase a year ago. Clothing & footwear also had a negative effect as the seasonal rebound in prices last month (1.7 percent) was well short of that seen in March last year (2.4 percent) and furniture, household equipment & maintenance costs were up 0.3 percent or 0.5 percentage points less than in March 2013. Working in the opposite direction, restaurant & hotel prices were up 0.5 percent from February against a 0.2 percent increase a year ago and alcohol & tobacco climbed 0.3 percent having declined in the previous year.

March manufacturers' output prices climbed 0.2 percent on the month following a marginally stronger revised 0.1 percent increase in February. The latest advance put annual growth of factory gate prices at 0.5 percent. Input prices were down 0.6 percent following a sharper revised 0.5 percent drop in mid-quarter to steepen their annual rate of decline from 5.8 percent to 6.5 percent. Within overall output prices, the only move of any real substance was in tobacco & alcohol where charges jumped 2.0 percent from February. The other manufactured products category was next strongest (0.4 percent) but there were small offsetting declines in petroleum products (0.4 percent) and paper & printing (0.1 percent). The core output price index was just 0.1 percent higher on the month and 1.0 percent stronger on the year after a 1.1 percent annual rise in mid-quarter. The monthly slide in input prices was dominated by crude oil which saw a 2.1 percent decline and alone subtracted nearly 0.5 percentage points in the change in the headline index. The other major negative impact came from fuel where costs were down 1.8 percent. The only monthly increase of any size was in imported metals (1.8 percent).

March claimant count joblessness declined 30,400 after a larger revised 37,000 drop the month before. The claimant unemployment rate was 3.4 percent, down from 3.5 percent in February and the lowest level since November 2008. The ILO measure showed a sizeable 77,000 drop in the number of people out of work over the three months to February, a steep enough decline to reduce the unemployment rate on this gauge to 6.9 percent. To complete an all-round robust report, average annual earnings growth for the three months to February was 1.7 percent, up from 1.4 percent in the November to January period. Although still historically low, the acceleration finally lifts wage growth above the annual inflation rate (1.6 percent in March). However, excluding bonuses earnings were running at a more subdued 1.4 percent rate.

Asia/Pacific

China

First quarter gross domestic product was up 7.4 percent from the same quarter a year ago, slightly above the median forecast of 7.3 percent but below fourth quarter 2013 of 7.7 percent. On the quarter, GDP was up 1.4 percent on a seasonally adjusted basis. It is the slowest rate of growth since the third quarter of 2012 and underlines the economy’s struggle to rebound despite government stimulus spending. The lackluster year-over-year quarterly growth comes amid slumping trade and slowing manufacturing activity as Chinese regulators move against the high-risk shadow financing industry that has fuelled much of the highly leveraged nation's industrial growth.

March industrial production met expectations and was up 8.8 percent from a year ago after increasing 8.6 percent for January and February combined. Output was up 0.81 percent on the month. Year to date, industrial production was up 8.7 percent. Motor vehicle production was up 7.3 percent after increasing 12.5 percent in the first two months and 22.8 percent in December. Machinery also increased at a slower pace, up 10.4 percent after 11.9 percent. Other subcategories that were up less in March were textiles, chemicals, non-metal minerals and general equipment. The subcategories that increased at a higher rate were ferrous metals, transport equipment, communications, power & thermal, electricity, steel products and cement.

March retail sales were up 12.2 percent from a year ago, slightly higher than expectations for an increase of 12.1 percent. On the month, sales were up 1.23 percent after increasing 0.73 percent in the previous two months. Urban retail sales were up 12.1 percent from a year ago while rural sales increased 12.9 percent. The main contributors to increased sales were autos (up 14.0 percent after 11.5 percent in January/February combined), communications equipment (up 18.4 percent after 12.9 percent) and furniture (up 18.1 percent after 11.8 percent). However, several categories were up at a slower pace including clothing, stationery, cosmetics and grain & food oil.

Americas

Canada

Manufacturing shipments for February were up 1.4 percent on the month following a weaker revised 0.8 percent increase in January. The latest spurt put sales at their highest level since July 2008 but annual growth still fell to 3.3 percent, down nearly 2 percentage points from the start of the year on the back of unfavourable base effects. Volumes were not quite as robust as a monthly 0.8 advance only made for a yearly increase of 0.3 percent. Within the monthly gain in nominal shipments, the main areas of strength were transport equipment (4.3 percent), petroleum & coal (2.9 percent) and non-metallic mineral products (2.7 percent). Excluding motor vehicles, parts & accessories, shipments were up 1.1 percent. On the downside there were declines in food (0.6 percent), computer & electronic equipment (3.8 percent) and wood (1.5 percent). Elsewhere in the survey the news was upbeat. In addition to an 18.8 percent monthly surge in new orders, backlogs also rose a record 16.5 percent.

March consumer price index was up 0.6 percent and 1.5 percent on the year. Excluding food and energy, the CPI was up 0.3 percent and 1.2 percent on the year. The Bank of Canada core which excludes eight volatile items was up 0.1 percent and 1.3 percent on the year. A jump in annual energy inflation from 1.6 percent to 4.6 percent was the key element in the increase in total inflation. Seasonality is quite significant in March and adjusted for such factors the headline CPI was up 0.2 percent from February while both the ex-food and energy and BoC measures were a minimal 0.1 percent firmer. Within the adjusted basket the main upward pressure on the monthly change in the overall CPI stemmed from alcohol and tobacco where prices jumped 1.7 percent. Shelter (0.5 percent) was also strong and both the household operations, furnishings and equipment and food sectors saw a 0.3 percent rise. However, elsewhere charges were soft and there were monthly declines in recreation, education and reading (0.6 percent), clothing and footwear (0.3 percent) and transportation (0.2 percent).

Bottom line

Most equity indexes advanced in the run up to the long Easter weekend. Economic data during the week was mostly positive while earnings were mixed. Traders continued to monitor the worrisome situation in Ukraine.

The key notes of the upcoming week are the flash PMI reports for manufacturing and services for April. They will take the pulse of economic activity in the current month. The Bank of England’s monetary policy committee minutes will be read carefully especially in light of the surprising decline in unemployment. Japan’s merchandise trade data also will be given close scrutiny.

Looking Ahead: April 21 through April 25, 2014

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