Global Markets

Although most indexes advanced for the week, most were lower on Friday. The precarious conditions in Europe as the European finance ministers met were highlighted by the confusion around Cyprus’ deepening woes and bailout package. Markets in the Asia Pacific region contended with sabre rattling from North Korea, a continuing stream of rhetoric from the Bank of Japan and March economic data from China. When the dust settled at the end of the week, equities in Europe, UK and the U.S. advanced as did most of the indexes in the Asia Pacific.

Global Stock Market Recap

Europe and the UK

Equities here ended the week on a sour note after four consecutive days of advances. Friday’s markets were weighed down by the European Union finance ministers (Ecofin) meeting that began in Dublin. Disappointing U.S. economic data added to the negative mood. Added to this were earnings reports from JP Morgan and Wells Fargo — both reported better than expected earnings, but revenues fell short of expectations. Despite Friday’s gloom, the FTSE was up 2.2 percent on the week, the CAC gained 1.8 percent, the DAX was 1.1 percent higher and the SMI advanced 1.6 percent.

Gains earlier in the week were influenced by the positive performance in Asia and the continued strength of U.S. markets. Italy's borrowing costs also dipped in a bond auction and the larger than expected decline in U.S. weekly jobless claims Thursday was also viewed positively. On Wednesday, European investors got the opportunity to trade on the FOMC minutes which were released five hours earlier. There had been an inadvertent premature release forcing the Fed to release at 9 AM ET instead of the usual 2 PM ET.

A two day meeting of Ecofin began in Dublin Friday. Officials are expected to finalize the bailout package for Cyprus and consider extending debt repayment dates for Portugal and Ireland. Media reports indicated that Cyprus was asking for extra assistance from the European Union to help get the country back on track amid financial turmoil. The country’s finance ministry reportedly quickly denied the reports, saying President Nicos Anastasiades instead was referring to technical and structural reforms. Meanwhile reports out of Cyprus said three members of the central bank resigned.

At the Ecofin meeting, Portugal and Ireland were granted an extra seven years to pay back their emergency bailout loans. The European Union and the IMF bailed out the Republic of Ireland in 2010 and Portugal in 2011. They also said a €10 billion EU bailout loan for Cyprus was ready for approval by member states, and they rejected reports that the country might be granted more assistance. The extension is especially important for Portugal. When it received a €78 billion bailout two years ago, it pledged to take various measures in its budget to reduce public spending. However, last week the country's Constitutional Court ruled that several of these measures in the 2013 budget were unlawful.

Asia Pacific

Equities were mixed last week. The Nikkei continued to soar (up 5.1 percent) as the yen declined against its major counterparts and especially the U.S. dollar and euro. Elsewhere, equities in Australia and Hang Seng were up 2.4 percent and 1.7 percent respectively. However, the Shanghai Composite (down 0.8 percent) was lower for a third consecutive week while the Sensex (down 1.1 percent) declined for a second week. Continuing geopolitical worries and earnings concerns dampened sentiment. Caution ahead of Monday’s growth data from China weighed as the week came to an end. The South Korean Kospi slipped 0.2 percent on the week thanks to jitters about first quarter earnings and the ongoing tensions with North Korea.

Chinese stocks weathered a slew of economic reports during the week, including data showing March exports falling more than forecast, inflation easing and producer prices slumping for a 13^th month. And on Monday, investors will need to interpret first quarter gross domestic product and March industrial production and retail sales. The Shanghai Composite has fallen 9.4 percent from a February 6^th high amid concern that steps to cool property prices will drag on economic growth.

On Friday, BoJ Governor Haruhiko Kuroda said that the BoJ has taken all necessary steps to meet its 2 percent inflation target in two years and will try to minimize the market disruption from its massive bond buying. Kuroda conceded that some people doubted the BoJ could meet its inflation goal and said unexpected events could mean it would take longer than planned. He said the BoJ would maintain its new policy framework for as long as needed.

The BoJ stunned global financial markets, promising to inject about $1.4 trillion into the economy in less than two years by buying government debt and risk assets. Kuroda acknowledged the scale of purchases was so large that it could affect bond markets, but was confident the BoJ could smoothly buy the debt it needs. The BoJ would also monitor consumer spending, capital expenditure and exports to gauge the impact of its policy and make adjustments when needed. Kuroda last week committed the BoJ to open ended asset buying and said the monetary base would nearly double to ¥270 trillion by the end of 2014 in a shock therapy to end two decades of stagnation.

Earlier in the week, Kuroda said that his strategy to double Japan’s money supply was not an attempt to manipulate the value of the yen and would not give rise to asset bubbles.

Bank of Korea

The Bank of Korea resisted pressure from the government to reduce its key interest rate and left it at 2.75 percent for the seventh month. Analysts were split on whether the BoK would reduce the rate — the sliding yen is hurting the nation’s exporters and North Korea threatens war. The BoK said that the central bank’s monetary stance is already accommodative and in harmony with fiscal policy, rejecting pressure from the government for easing to accompany a planned stimulus package. While the Bank of Korea today pared its growth forecast for this year to 2.6 percent from a January estimate of 2.8 percent, BoK Governor Kim said that the economy is showing some signs of improvement. South Korea’s economy has expanded less than 1 percent for seven consecutive quarters, starting in the April to June quarter of 2011. Gross domestic product grew 0.3 percent in the fourth quarter of last year from the previous three months.

Currencies

The currency markets continue to measure each key U.S. indicator by the potential impact it will have on the Federal Reserve’s quantitative easing going forward. It was clear in the latest minutes released on Wednesday that the internal debate about QE is ongoing at the FOMC. The dollar advanced after Friday’s disappointing retail sales report — market participants interpreted the decline in sales as evidence QE will continue unabated. While that may have influenced trading Friday, the dollar for the week was down against all major currencies except the yen.

The yen continues to be in traders’ spotlights as it hovers just below the ¥100 mark for the first time since April 2009. The Japanese currency fell to a four year low on Wednesday after minutes from the Federal Reserve's March 19^th and 20^th meeting showed Fed members actively debating whether to pull back on its bond buying program before the end of the year. Some members wanted to taper the Fed’s $85 billion per month program by midyear, while others wanted to keep its current pace into 2014. Fed members have been divided on the timing of a pullback for several months, but the explicit mention of the divisions within the Fed helped the dollar rally against the yen. Bond buying by the Fed typically weakens the value of the dollar.

The yen has come under a huge amount of pressure since the Bank of Japan launched an unprecedented plan to flood the economy with cash. Market watchers have been bracing for funds to flow out of Japan as official buying compresses the country's government bond yields, and the dollar has pushed almost relentlessly towards the psychologically significant level of ¥100 against the dollar. The yen briefly strengthened early Wednesday after BoJ's Kuroda said in a media interview that he doesn't expect an "avalanche" of capital leaving Japan due to the BoJ’s newly enhanced easing program. Mr. Kuroda said the BoJ plans were not aimed at weakening the yen.

Selected currencies — weekly results

Indicator scoreboard

Germany

February industrial production was up 0.5 percent but was down 1.8 percent from a year ago. Excluding construction, output was up 0.9 percent but 2.4 percent lower than a year ago. Capital goods output was up 2.4 percent from January and durable consumer goods were up 1.8 percent. However, intermediates slid 0.3 percent and a 3.5 percent slump in non-durables was enough to ensure a 2.5 percent drop in overall consumer goods. Elsewhere, unseasonably poor weather helped energy output increase a solid 3.9 percent but the same factor contributed to a 2.7 percent decline in construction.

February seasonally adjusted merchandise trade surplus widened out to €17.1 billion from a marginally larger revised €15.6 billion at the start of the year. However, the increase in surplus to what was its highest level since August last year masked a contraction in both sides of the balance sheet. Exports declined 1.5 percent on the month, their first drop since November, while imports were off a much sharper 3.8 percent, their third fall in the last four months. The latter are now at their lowest level since the start of 2011. Compared with February 2012, exports were down 2.8 percent while imports lost 5.9 percent.

United Kingdom

February industrial production was up 1.0 percent on the month following a marginally steeper revised 1.3 percent decline in January. On the year, output was down 2.2 percent. Within the monthly increase in overall production manufacturing was up 0.8 percent although this failed to reverse in full a sharper revised 1.9 percent slump in January. The main upward contributions were provided by machinery & equipment not elsewhere classified, which surged 3.3 percent, transport equipment, which advanced 2.1 percent, and basic metals & metal products, which gained 1.8 percent. The most significant monthly declines were in computer, electronic & optical products, which dropped 7.1 percent, food, drink & tobacco, which was off 0.3 percent and pharmaceuticals which were down 1.0 percent. Elsewhere, mining & quarrying was up 2.8 percent on the month while particularly cold weather saw energy supply up 1.3 percent. Water & waste management output increased 0.8 percent.

February seasonally adjusted merchandise trade deficit widened out to Stg9.4 billion. Exports dropped 2.1 percent on the month following a 2.7 percent decline at the start of year and now stand at their weakest level since June 2012. By contrast, imports were up 2.2 percent, partially offsetting a 3.7 percent slump in January. The deterioration in the headline data was almost fully reflected in the underlying balance which saw a deficit of Stg8.5 billion, up Stg1.1 billion from the previous month. Within this, core exports declined 0.6 percent on the month while imports rose 3.6 percent. The bilateral shortfall with the EU widened by 7.4 percent to Stg5.1 billion while the deficit with the rest of the world expanded by nearly 27 percent to Stg4.3 billion.

Asia/Pacific

Japan

February core machine orders (excluding volatile demand from electric utilities and ships) were up 7.5 percent on the month after dropping 13.1 percent in January. Orders had risen 2.8 percent in December. Core orders were down 8.4 percent from a year ago. Orders from overseas were 8.0 percent higher after sliding the two months before. Manufacturing orders rebounded 8.6 percent after sinking 13.2 percent in January. Nonmanufacturing order were up a mild 0.6 percent. Total orders were up 4.6 percent. According to a Cabinet official, a gradual pickup in orders is seen.

March corporate goods price index edged up 0.1 percent but declined by 0.5 percent from a year ago. This was the twelfth consecutive annual decline. On the year, iron & steel prices dropped 7.5 percent but there were offsetting gains of a 4.0 percent increase by nonferrous metals, 1.6 percent by petroleum & coal products and 0.9 percent by chemicals & related products. Electric power, gas & water prices were up 4.2 percent from a year ago.

February tertiary index was up a greater than expected 0.8 percent on the month and 0.7 percent from a year ago. The monthly gain however, did not offset January’s loss of 1.5 percent. Most sectors advanced on the month. Wholesales & retail trade was up 0.9 percent, finance & insurance gained 1.9 percent and Scientific research, professional & technical services was 2.0 percent higher. Also higher on the month were information & communications, medical, health care & welfare, electricity, gas, heat supply & water and accommodations, eating & drinking services. Transport & postal activities and learning support were down 0.2 percent and 0.5 percent respectively.

Australia

March employment dropped 36,200 after soaring by 74,000 the month before. Total employment was 11,592,700 in March. Both part time and full time employment declined. Part time employment was down 28,700 people to 3,481,500 while full time employment declined 7,400 to 8,111,300 people. The decrease in total employment was mainly driven by declines in male part-time and female full-time employment. The unemployment rate jumped 0.2 percentage points to 5.6 percent. The number of unemployed people increased 25,900 people to 686,900 in March. The seasonally adjusted labour force participation rate decreased 0.2 percentage points to 65.1 percent in March. Employment has been volatile of late, gyrating from increase to decline, especially after February’s gain of 74,000.

China

After a spike in the CPI in February linked to the lunar New Year, March consumer prices were up 2.1 percent from a year ago after jumping 3.2 percent in February. On the month, the CPI dropped 0.9 percent after climbing 1.1 percent the month before. For the first three months of the year, the CPI was up 2.4 percent when compared with a year ago. For the same three months in 2012, the CPI jumped 3.8 percent. Food prices were up 2.7 percent compared with a hefty 6.0 percent gain in February. Non-food prices were up 1.8 percent after increasing 1.9 percent in February from a year ago. Rural and urban indexes were up 2.2 percent and 2.0 percent respectively.

March producer prices dropped 1.9 percent on the year as expected after declining 1.6 percent in February. The PPI was unchanged on the month after increasing 0.2 percent the month before. For the first three months of 2013, the PPI was down 1.7 percent. Production materials prices were down 2.7 percent on the year while consumer goods were up 0.5 percent. Among consumer goods, food & related products were up 1.2 percent.

March merchandise trade surprised with a deficit of $880 million from a year ago after recording a surplus of $15.1 billion in February. Analysts expected a surplus of $15 billion. Exports were up 10 percent while imports jumped 14.1 percent. For the first three months of 2013, the trade surplus was $43.07 billion. Exports to the U.S., European Union and Japan declined. Exports to the U.S. dropped 6.5 percent from a year ago while imports from the U.S. soared 30.3 percent. Exports to the EU dropped 14.0 percent while imports slid 5.5 percent. Exports to Japan were down 10.0 percent while imports sank 18.5 percent. The Chinese customs said they expect trade to improve this year. They also noted that the yen’s decline in value is hurting Chinese competitiveness.

Bottom line

Most equities advanced last week mostly thanks to central bank largesse in Japan and the U.S. Economic data were mixed including those released in the U.S. including jobless claims and retail sales.

The new week begins with China’s gross domestic product for the first quarter along with March industrial production and retail sales. Bank of England watchers will parse the minutes of its meeting held earlier this month. With a split vote in the Monetary Policy Committee, watchers will look to see if those who would like to see increased quantitative easing are winning any converts to their position.

Looking Ahead: April 15 through April 19, 2013

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