Global Markets

All stock indexes followed here were up last week with the exception of the Shanghai Composite which was down 0.6 percent. Gains for the week ranged from a low of 0.1 percent for the PSEi to 3.7 percent for the Nikkei.

Economic data from the U.S. and Europe were better than expected given the severe weather problems encountered during January and February. In Europe, the data focused on international trade and industrial production and the disparities between countries were quite apparent. And in Asia, Japan revised its fourth quarter gross domestic product data lower, although the revisions were no where near as large as third quarter revisions.

It was just a year ago last week that global equities hit the bottom of the bear market caused by the financial crisis. Analysts noted that equities had enjoyed their best 12-month performance since the 1930s, with the S&P 500 rising about 70 percent from its March 9 2009 low. Some analysts reminded that the week also marked the 10 year anniversary of Nasdaq’s record close above 5,000 in 2000 — and after 10 years it is still less than half that level.

Global Stock Market Recap

Europe and the UK

The FTSE, CAC and DAX were up for the second consecutive week. The FTSE gained 0.5 percent, the CAC was up 0.4 percent while the DAX jumped 1.2 percent. Only the FTSE is above its year end level. An increasing number of merger and acquisitions helped boost stocks. And signs of economic improvement in Europe coupled with an easing of fears surrounding the region’s fiscal problems added to optimism.

Most of the economic data last week revolved around merchandise trade balances and industrial production performance. And as is typical of late, they illustrated the divergent trends within the eurozone. Data revisions added to the confusion. The elusive nature of the eurozone’s economic recovery was highlighted on Wednesday as generally positive industrial production figures contrasted starkly to an unexpected slump in German exports. The fall came as a shock to analysts, especially coming just days after January German industrial orders data soared 4.3 percent for the largest increase since the start of the economic crisis. Analysts suggested the drop in exports was the result of unusually bad weather in northern Europe. Weather has been taking the blame for poorer than expected data in Europe and the U.S. And on Friday, investors were given another opportunity to relearn history. A surprising revision to December EMU industrial production changed perspective on the bloc’s growth. December industrial production was revised from a decline of 1.7 percent to an increase of 0.6 percent — a sizable revision anywhere!

Swiss National Bank

As widely expected, the Swiss National Bank left its official interest rates on hold at Thursday’s quarterly Monetary Policy Assessment. The decision means that the target range for 3 month CHF interest rates remains at 0.0 percent to 0.75 percent within which the Bank will continue to aim at a 0.25 percent rate.

The latest assessment acknowledged a somewhat faster than expected economic recovery and the bank has accordingly revised up its 2010 real GDP growth forecast to 1.5 percent. A range of 0.5 percent to 1.0 percent was projected in December. There were no significant adjustments made to the previous inflation forecast showing the CPI rising 0.5 percent on average this year and 1.0 percent in 2011. However, it was noted that inflationary risks could not be entirely ruled out. The Bank emphasized that there were considerable uncertainties associated with its latest projections.

The financial markets were most interested in the commentary surrounding the Swiss franc. The monetary authorities have been battling for some time to prevent significant appreciation and have intervened on a number occasions by selling the unit against the euro. Here the SNB indicated that it would continue to counter any excessive rise in its currency.

Asia/Pacific

With the exception of the Shanghai Composite, all indexes followed here were up for the week with an increasing number vaulting over or closing in on their 2009 year end levels. The Nikkei, Jakarta Composite and STI set the pace gaining 3.7 percent, 3.4 percent and 3.3 percent respectively. As the week wound down, some traders preferred to wait for the U.S. retail sales report which would be released after markets in Asia closed for the week while others were wary as they expected the People’s Bank of China to announce an interest rate increase from the current level of 5.31 percent. Still others are optimistic on speculation that the Bank of Japan might announce further monetary easing measures after their meeting this week.

The Nikkei shrugged off the lower than expected economic growth figures to reach a seven week high but gains for other Asian markets were pared after rising Chinese inflation deepened worries over monetary tightening. Although fourth quarter Japanese GDP growth was less than forecast, it was strong enough to ward off concerns over a double-dip recession.

China

On Thursday local time, China unleashed its monthly deluge of data, data that added to pressure on the People’s Bank of China to tighten monetary policy by increasing its policy interest rate which is currently 5.31 percent. February consumer prices jumped by 2.7 percent on the year and well above January’s 1.5 percent increase and close to the 3 percent ceiling that Premier Wen Jiabao set for this year in his speech to the National People’s Congress. Producer prices were up 5.4 percent following an increase of 4.3 percent in January. Industrial production also accelerated, increasing by 20.7 percent for the first two months of 2010 over the year before. Industrial production for February alone was up a hefty 12.8 percent.

The PBoC has taken a few steps recently to cool the economy, including increasing bank reserve requirements twice. Yet it has shown a reluctance to raise interest rates for a couple of reasons. Some government officials believe the underlying recovery could still be weak and some fear that if China lifts rates ahead of other major economies, it could attract a wave of speculative capital.

Reserve Bank of New Zealand

As expected the Reserve Bank of New Zealand left its official cash rate (OCR) at 2.5 percent where it has been since April of 2009. RBNZ governor Alan Bollard said in January that he wanted to see that the recovery is self sustaining before raising rates. The consumer remains wary thanks to rising unemployment and this in turn has weakened retail sales. And house prices are weakening as well. However, in governor Ballard’s statement after the meeting he indicated that they intend to begin removing stimulus around the middle of the year.

Bollard said the recovery is relatively sluggish. Demand is being constrained by higher home loan and business interest rates as banks pass on their increased funding costs. Expectations of a rate boost as early as March or April have dimmed after January house prices dropped and credit card spending declined for a second month in February. Bollard, who is required to keep annual inflation between 1 percent and 3 percent, raised his price forecasts, saying excess capacity in the economy is being used up and the currency is likely to decline, making imports more expensive.

Currencies

The dollar swooned against most major currencies last week with the exception of the yen which remained slightly lower on the week. The dollar was also lower against both the Australian and Canadian dollars as well. The euro rebounded strongly Friday on stronger than expected industrial production data for the EMU which when combined with disappointing U.S. sentiment data pressured the dollar lower.

This is always a touchy time of year for the yen. The Japanese fiscal year ends on March 31 and this is the time when profits are repatriated. When the yen is up, profits are diminished while the opposite is true as well.

The pound sterling has been increasingly under pressure as the outcome of the UK general election is worrying investors. Predictions of a hung parliament have been a major factor. And then there is the fiscal deficit which traders are finding worrisome as well, especially with the election looming. But there are other concerns — economic data last week were not reassuring at all. Exports swooned as did industrial and manufacturing output.

The Canadian dollar or loonie (named after the aquatic bird that appears on the C$1 coin) is once again approaching parity with its U.S. counterpart for the first time since July 22, 2008. The Canadian currency was up for the 11^th day, the longest winning streak in 23 years. The immediate boost to the currency came after February’s employment data was up more than expected and the unemployment rate edged downward. Canada has benefited from rising demand for copper, gold, wheat and oil from the U.S. and emerging economies such as India and China. Canada’s financial system was named the soundest in the world for two consecutive years by the Geneva-based World Economic Forum.

Selected currencies — weekly results

Indicator scoreboard

EMU

January industrial production was up 1.7 percent and was up 1.4 percent when compared with last year. December’s 1.7 percent decline was substantially revised to show a gain of 0.6 percent. The New Year bounce was led by particularly large monthly increases in durable consumer goods (2.0 percent) and, probably helped by the bad weather, energy (2.6 percent). However, intermediates were up a more than respectable 1.4 percent too. However nondurable goods output dropped 0.3 percent on the month as did the production of capital goods, the latter declining for the second month in a row.

Germany

January industrial production was up 0.6 percent and 2.9 percent when compared with last year. January's advance was built upon a 3.3 percent climb in the intermediate goods sector. However, outside of energy, where production jumped 8.8 percent, the other major sectors failed to keep their respective heads above water. Capital goods production was down 1.0 percent on the month while the consumer sector edged down 0.1 percent as a 1.0 percent slide in nondurable goods output eclipsed a 4.7 percent gain in durables. At the same time, construction was down 14.3 percent after a 2.0 percent drop in December. The January data were adversely impacted by particularly bad weather and February is likely to suffer in the same vein.

January merchandise trade surplus plunged to €8.7 billion, down from €16.6 billion in December and the smallest surplus since February 2009. The decline reflected a 6.3 percent drop in exports combined with a 6.0 percent jump in imports. Exports were notably soft to the other EMU states (down an annual 2.1 percent) but were up 2.5 percent on the year to non-EU countries. Imports from the rest of the EMU were down 1.5 percent on the year and dropped 4.6 percent from countries outside of the region.

France

January merchandise trade deficit was €3.68 billion and an improvement over December’s €4.15 billion shortfall. Exports were up 2.7 percent while imports gained 0.9 percent. Exports were boosted by sales of manufactured goods, in particular advanced aircraft, chemicals and pharmaceuticals.

January industrial production excluding construction was up 1.6 percent and was up 3.5 percent on the year. Energy production soared by 5.6 percent while manufacturing output was up 0.8 percent. Within this category, transport equipment dominated with an 8 percent monthly gain, outside of which only electronics & machinery (0.2 percent) and the other goods area (0.3 percent) managed minor advances. Food & agriculture was down 2.0 percent while refining swooned by 7.9 percent.

Italy

January industrial output jumped by 2.6 percent and edged up 0.1 percent on the year for the first positive annual growth since April 2008. The monthly gain was broad based. Consumer goods were up 1.0 percent with durables gaining 3.3 percent. Capital goods output also climbed 3.3 percent and intermediates expanded 2.1 percent. Energy output advanced 2.3 percent on the month. When compared with last year, the consumer sector was up 2.9 percent while capital goods were down 1.9 percent and intermediates were unchanged. Energy production was down 0.1 percent from January 2009.

Fourth quarter gross domestic product was revised to declines of 0.3 percent on the quarter and 3.0 percent when compared with the same quarter a year ago. Household spending edged down 0.1 percent on the quarter after a 0.6 percent gain in the third quarter and fixed investment dropped 1.0 percent following a stable performance previously. Government spending was off 0.2 percent after sliding 0.4 percent. Final demand declined 0.3 percent. The foreign trade sector was a major drag as export volumes edged up just 0.1 percent while imports jumped 3.2 percent. As a result, net exports subtracted 0.8 percentage points from quarterly growth. Inventories, however, climbed sharply to contribute 0.8 percentage points. Stocks had been run down aggressively over the first half of 2009 but the rebound is almost certainly stronger than desired given the fragility of domestic demand.

United Kingdom

January global merchandise trade deficit widened out sharply to Stg7.99 billion — the largest in 17 months. Exports dropped 6.9 percent while imports were down 1.6 percent. The deterioration in the headline was mirrored in the underlying data which showed the shortfall excluding oil and erratics rising from Stg6.5 billion to Stg7.4 billion, the largest since September 2008. The collapse in exports was mainly attributable to a 12.5 percent monthly decline in demand from non-EU countries. With imports from the same group up 1.6 percent, the bilateral trade deficit surged by more than Stg1.4 billion to Stg4.8 billion. By contrast, the bilateral shortfall with the rest of the EU eased from Stg3.6 billion to Stg3.2 billion as a 4.1 percent drop in imports exceeded a 2.1 percent slide in exports. Particularly worrying was failure of real exports to respond to the earlier hefty currency depreciation. Export volumes were down 8 percent while import volumes dropped only 2.3 percent.

January industrial production dropped 0.4 percent and was down 1.5 percent on the year. Manufacturing output sank 0.9 percent and edged up 0.2 percent on the year. Eleven of the 13 reporting manufacturing industries saw activity contract. The hike in VAT at the start of 2010 may also have dampened output by pulling forward some prospective production from January into December.

Asia/Pacific

Japan

February corporate goods price index edged up 0.1 percent but was down 1.5 percent on the year. This was the 14^th consecutive annual drop. Manufacturing prices were unchanged on the month after rising 0.3 percent in January. Most categories were up on the month with the exception of nonferrous metals (down 2.2 percent) and electrical machinery & equipment (down 0.2 percent) and information & communication equipment (down 0.1 percent). On the year however, most categories were down. Manufacturing was down 0.9 percent after slumping 1.3 percent the month before. The biggest jump in prices as expected was for the petroleum & coat products group – it soared 26.9 percent thanks to the rebound in prices from last year’s low levels. Nonferrous metals were up 20.6 percent on the year.

Fourth quarter gross domestic product was revised to an increase of 0.9 percent on the quarter from the original estimate of 1.1 percent. When compared with the same quarter a year ago, GDP contracted by 1.4 percent. On an annualized basis, growth was revised down to 3.8 percent from the earlier estimate of 4.6 percent. Overall domestic demand was revised lower as well — to 0.4 percent from 0.6 percent. The important capital expenditures component was also revised downward to an increase of 0.9 percent from 1 percent on the quarter. Household consumption was unrevised at a gain of 0.4 percent. Net exports were also unrevised at an increase of 0.5 percent.

Australia

February employment paused in February and added only 400 new jobs to 10.971 million after adding over 183,000 jobs in the previous five months. However the increase in employment was driven by full time employment which was up by 11,400. However, that was offset by a decline in part time employment which dropped by 11,000 to 10,971 million. The unemployment rate was 5.3 percent, up from the downwardly revised 5.2 percent rate in January. The number of people unemployed was up 10,700 people to 615,900 in February. The participation rate edged down to 65.2 percent from 65.3 percent the month before.

Americas

Canada

January merchandise trade surplus was C$0.8 billion, up from a minimal C$75 million surplus in December. The improvement reflected a 0.5 percent monthly increase in nominal exports (volumes down 0.3 percent) and a 1.7 percent decline in imports (real down 1.2 percent). Within the cash export total, sales to the U.S. slipped 0.6 percent but were more than offset by gains elsewhere, in particular Japan (17.3 percent). Imports from the U.S. also declined, down 0.5 percent from December, to leave a bilateral surplus of C$4.1 billion, little changed from the C$4.2 billion posted last time. By product group, exports of industrial goods & materials rose a solid 4.8 percent on the month and were aided by a 2.8 percent advance in agriculture & fishing. The other consumer goods area also performed strongly with a monthly jump of some 9.0 percent. However, there were declines in autos (4.1 percent) and in machinery & equipment (1.5 percent). Imports however were dragged lower by declines in energy products (5.6 percent), machinery & equipment (2.4 percent) and agriculture & fishing (1.4 percent). Other consumer goods also weakened sharply (down 4.0 percent). The only sector to see an increase of any real size was forestry products (up 2.5 percent).

February employment was up 20,900 while the unemployment rate edged down to 8.2 percent from 8.3 percent in January. The jump in payrolls was wholly accounted for by full time jobs which climbed fully 60,200. Part-time positions were down by 39,000. However, the overall gain was solely due to the public sector which created a net new 45,600 jobs. By contrast, employment in the private sector dropped a disappointing 7,500. The goods producing sector added 17,800 jobs but services edged up just 3,100. Within the gain in goods producing industries, employment was up nearly 17,000 in manufacturing and by almost 11,000 in natural resources. Utilities expanded by 2,500 positions but there were declines in both construction (11,100) and agriculture (1,100). The service sector payrolls were held in check by a 33,500 slump in trade and a 21,500 drop in finance, insurance, real estate & leasing. Weakness here was offset by advances in accommodation & food (26,500), business, building & other support services (18,400), health care & social assistance (18,400) and transport & warehousing (9,700).

Bottom line

The stock rally continued beyond its first anniversary but with a note of caution. Economic data were mixed but many of the low lights were blamed on the horrific weather on the U.S. east coast and in northern Europe. On the positive side, U.S. retail sales were up — despite the weather. Both the Reserve Bank of New Zealand and the Swiss National Bank left their monetary policies unchanged as did the Bank of Korea.

The Bank of Japan and the Federal Reserve hold policy meetings this week. Analysts will be looking for further moves to fight deflation from the Bank of Japan. And from the Fed, watchers will be looking for more information on the unwinding process and a clue to when interest rates will be lifted. Fed watchers will be waiting intently for President Obama’s nominees to fill the three vacant spots on the Fed board.

Looking Ahead: March 15 through March 19, 2010

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