Global Markets

Despite the extraordinary events in the first quarter, most equity indexes in Europe, the UK and North America (excluding Mexico) advanced. In the Asia Pacific region, however results were split. Equities ended the week and got the new quarter started on a positive note after March U.S. employment was up more than the consensus estimate. Traders viewed the report as a sign that growth is solidifying. The mood was already upbeat Friday after a survey of China's manufacturing base showed the sector picking up, suggesting Beijing's monetary efforts to cool inflation were not damaging activity.

Geopolitical troubles which began in late January in the Middle East and North Africa combined with Japan's March 11^th earthquake and ensuing tsunami to make for a volatile first quarter. Problems at Japan's nuclear facility exacerbated the nation's problems. As the quarter came to an end, the European sovereign crisis once again came to the fore this time in Portugal. Along with Portugal, the credit ratings of Ireland and Greece were once again lowered by the ratings agencies.

On the week, all indexes followed here were up with the exception of the Shanghai Composite. Gains ranged from 0.6 percent (Topix) to 6.6 percent (PSEi). Results were mixed for the month of March. Losses ranged from 0.1 percent (S&P 500 and S&P/TSX Composite) to 8.2 percent (Nikkei). Gains ranged from 0.1 percent (All Ordinaries) to 9.1 percent (Sensex) while losses ranged. Performance was widely disparate for the first quarter. The FTSE edged up 0.1 percent while at the other end of the spectrum, the Dow jumped 6.4 percent. On the losing side, the Jakarta Composite was down 0.7 percent while the Nikkei sank 4.6 percent.

Global Stock Market Recap

Europe and the UK

Equities jumped on the first day of the new quarter sending the FTSE, DAX and CAC to their highest levels in a month. Banks rose sharply after Ireland promised to recapitalize its banking system. The three indexes gained 1.9 percent, 3.4 percent and 2.1 percent respectively on the week. All three were down in March but were up for the quarter.

Gains during the week were spurred on in part by expectations that Friday's nonfarm payrolls data would be positive and add to evidence that the U.S. is firmly in recovery mode. Growth prospects allowed investors to put in the background - at least for now - the lowered credit ratings for Greece, Portugal and Ireland. Traders also shrugged off the continuing problems in Japan along with the crisis in the Middle East and North Africa.

The Central Bank of Ireland announced that four of the country's most prominent financial institutions would need an additional €24 billion to cover bad real estate loans, a move that pushes the country's banking system closer to being nationalized. The new figure was announced at the conclusion of a rigorous stress test of the nation's banks. While largely expected, the announcement brings the total banking bill for the Irish government to €70 billion.

In a step that could ease some of the pressure on Ireland, the European Central Bank said Thursday that banks could use government bonds as collateral for borrowing from the ECB, regardless of how the bonds are rated. Because of that, banks would have more flexibility to borrow from the European bank at its benchmark rate.

New economic information was mostly favorable with the exception of price data. February producer prices in both France and Italy jumped more than expected as did the March eurozone flash harmonized consumer price index. The HICP jumped 2.6 percent on the year and above the European Central Bank's inflation target of just under 2 percent. This in turn increased the chatter about an interest rate increase at this week's ECB meeting on Thursday.

Asia Pacific

Equities were up last week with the exception of the Shanghai Composite which slipped 0.3 percent. The Shanghai Composite was up 0.8 percent in March and was second only to the Dow, gaining 6.1 percent on the quarter. Investors are once again raising the spectre of an interest rate increase by the People's Bank of China given continuing inflationary pressures and continued growth. Analysts anticipate that consumer prices may be up a yaer-on-year 5.3 percent in March after increasing 4.9 percent on the year in February.

The Nikkei was up for the second week, gaining 1.8 percent as it recovers from its plunge in the wake of the March 11 earthquake, tsunami and resulting nuclear plant woes. However, the damage from the post March 11^th equity plunge left the index down 8.2 percent for the month of March and 4.6 percent lower on the quarter. Continued concerns over radiation leakage at the unstable Fukushima Daiichi nuclear power complex has made investors wary. Power shortages combined with part shortages have hampered manufacturers' ability to restart production especially in autos and for some technology firms.

The economic data released last week were unaffected for the most part by the disaster. The quarterly Tankan report showed that expectations had improved prior to the earthquake. The Bank of Japan is to release results of the survey for both before the quake and after on Monday. Most of the survey responses were collected prior to March 11^th. However, the purchasing managers' survey probably reflects post earthquake attitudes. Its reading dropped to 46.4 in March from 52.9 the month before. Readings below 50.0 indicate a contraction of activity in the surveyed sector. Investors are focusing on the rebuilding aspect going forward. The massive savings held by Japanese households and corporations are a potential source of capital for reconstruction.

The PSEi was the star performer last week, soaring by 6.5 percent followed by the Sensex with a 3.2 percent advance. Both sank in the first two months of the year and both roared back in March. The PSEi jumped 7.7 percent for the month of March but still dropped 3.5 percent for the quarter. The Sensex soared 9.1 percent in March but it could not make up the earlier heavy losses and was down 5.2 percent for the first quarter.

Currencies

The U.S. dollar was down against most of its major counterparts last week. The exceptions were the yen and Swiss franc. The yen has been sliding as traders bet that it will suffer from poor interest rate differentials. The Bank of Japan is expected to keep monetary policy loose as the country recovers and rebuilds in the aftermath of the March 11^th earthquake and tsunami. The favorable U.S. employment situation report Friday helped push the yen even lower. Japanese companies have not repatriated as much of their overseas earnings as might have been expected when the fiscal year ended on March 31^st. This too has contributed to lowering the yen.

The euro, despite the ongoing eurozone debt problems, has managed to rise on predictions that the European Central Bank will lift interest rates as soon as Thursday and make further increases throughout the rest of the year to tackle rising inflation. The flash harmonized index of consumer prices jumped 2.6 percent on the year in March and well above the ECB's inflation target of just under 2 percent. The euro was supported by comments made Wednesday by the ECB's Lorenzo Bini Smaghi who said the Bank would increase interest rates gradually while at the same time ensuring that help is available for eurozone banks that face difficulties from higher borrowing costs.

Selected currencies - weekly results

Indicator scoreboard

EMU

March economic sentiment remained at elevated levels this month at 107.3, down just 0.6 points from a marginally higher revised February and also well above its long-run average of 100. The minor dip in sentiment reflected small declines in confidence in most areas. Morale was down 0.6 points at minus 10.6 in the consumer sector and off 1.3 points at minus 1.5 in retail trade. There was also a 0.8 point drop to minus 25.0 in construction and a 0.4 point slip in services to 10.8. By contrast, sentiment in the industrial sector held steady at 6.6. Regionally, confidence edged lower in Germany (0.7 points to 116.1) and declined rather more steeply in Spain (3 points to 90.9) but crept higher in both France (0.9 points to 110.0) and Italy (1.1 points to 101.2). However, fresh losses in both Greece (1 point to 78.4) and, in particular, Portugal (6 points to 88.7) will do nothing to ease ongoing tensions in their respective financial markets.

March flash estimate for the harmonized index of consumer prices was 2.6 percent on the year, up from 2.4 percent in February and the fastest rate in 29 months. As usual Eurostat provided no details to explain the latest developments but higher energy costs were certainly a factor. Among the larger countries, the 12-month HICP rate held steady in Germany (2.2 percent) and actually eased in Spain (3.3 percent from 3.4 percent). However, Italy saw an ominously sharp rise (2.6 percent from 2.1 percent).

March manufacturing PMI declined to a reading of 57.5 from 59.0 in February. The reading was still among the highest recorded in the survey's 14-year history. Output, new orders and exports all expanded for the twelfth consecutive month and at rates well above their respective long-run averages. Production was again strongest in the investment and intermediate areas with consumer goods still acting as a drag on growth. Employment rose at close to last month's 10 ½ year high, largely courtesy of a record advance in Germany. By contrast, there were reductions in headcount in both Greece and Spain. The divergence in economic performance here was mirrored in backlogs where a sizeable increase in Germany contrasted with declines Greece, Ireland and Spain. Price pressures were again a feature with input costs rising at close to February's record pace and output prices registering a new series high. Regionally there were declines in most EMU members and in all of the four larger states.

February unemployment rate edged down to 9.9 percent from 10.0 percent in January. The number of people out of work dropped by 77,000 on the month, a steeper decline than seen on average since unemployment started to decline in October last year. The level of joblessness now stands at 15.747 million. Regionally the unemployment rate was down 0.2 percentage points to 6.3 percent in Germany and 0.1 percentage points to 8.4 percent in Italy. However, there was no improvement in France (9.6 percent) and the rate edged up to 20.5 percent in Spain, the worst performing labour market in the eurozone. At the other end of the table, the Netherlands (4.3 percent) continued to report the lowest national rate.

Germany

March unemployment rate was 7.1 percent, down from 7.3 percent in February. The total jobless declined by 55,000. Vacancies rose 9,000 after a smaller revised 12,000 increase in February and suggest that a 33,000 advance in payrolls in mid-quarter (25,000 in January) will be added to over coming months. The national unemployment rate calculation differs from Eurostat's which is why the unemployment rates differ. 

February retail sales dropped 0.3 percent on the month but were up 1.1 percent on the year. The February slide in purchases was the first since November's 1.2 percent slump and reduced growth in the series' 3-month moving average to just 0.4 percent. Few details are available in the preliminary estimate but annual growth data show the main areas of weakness concentrated in food, beverages & tobacco (down 2.0 percent) and non-specialized stores (down 2.2 percent). Real non-food purchases were up 3.4 percent from a year ago within which clothing was up 6.6 percent, furniture & household goods 3.5 percent and other assorted goods 3.0 percent.

France

February household spending on manufactured goods rebounded by a stronger than expected 0.9 percent on the month. The increase followed a smaller revised 0.3 percent drop In January and left purchases 5.5 percent above their year ago level. The latest gain was dominated by textiles where demand jumped 4.2 percent on the month following sharp declines in both December and January. Spending on durables increased 1.0 percent helped by a 1.0 percent gain in car sales after a 6.4 percent slump in January. There was also a 0.9 percent increase in purchases of household goods. However the other manufactured goods sector saw a 0.3 percent dip mainly attributable to weaker sales of books, clocks & jewelry.

February producer prices jumped 0.8 percent on the month after climbing 0.9 percent the month before. On the year, the PPI was up 6.3 percent. As in January, the bulk of the gain was attributable to higher energy costs with prices of refined petroleum products compounding the previous month's 3.7 percent leap with an even larger 4.0 percent jump. Prices in this sector now stand 35.3 percent higher on the year. However, a number of other areas also saw relatively large gains too. Food, drink & tobacco prices were up 1.0 percent on the month and the other manufactured products group posted a 0.6 percent advance, mainly due to a 2 percent gain in chemicals. The only decline was in electronic equipment & information technology where charges fell 0.3 percent from January. Utilities' prices were up 0.2 percent.

Italy

February producer prices were up 0.6 percent and 5.7 percent on the year. However, the overall PPI was not dominated by the energy sector as prices there were up a relatively modest 0.3 percent on the month. Rather, the bulk of the damage was caused by intermediates which jumped 1.0 percent. The 12-month increase in intermediate prices now stands at 8.2 percent or more than 5 percentage points above that of the other major sub-sectors excluding energy (9.5 percent). Prices of consumer goods remained quite subdued with a 0.3 percent monthly increase while capital goods prices rose just 0.2 percent. Annual growth rates were 2.5 percent and 1.4 percent respectively.

First quarter unemployment rate edged up to 8.5 percent from 8.4 percent in the previous quarter. The unemployment rate was essentially flat over the year and the more recent monthly data have suggested that the first quarter of 2011 will also see little change. Hence, the February rate stood at 8.4 percent following an 8.6 percent rate in January.

United Kingdom

Fourth quarter revised gross domestic product contracted 0.5 percent on the quarter, revised from the previous estimate of 0.6 percent. On the year, growth was unchanged at 1.5 percent. Among the GDP expenditure components, quarterly growth of household consumption was adjusted 0.2 percentage points weaker (minus 0.3 percent) but gross fixed capital formation was revised significantly stronger (minus 1.8 percent from minus 2.5 percent). With government spending nudged 0.1 percentage points stronger, total domestic expenditure was unchanged on the quarter, an improvement of 0.3 percentage points from last time. The real trade balance subtracted 0.5 percentage points from quarterly growth compared with the minus 0.3 percentage point impact reported last month. In terms of output, both quarterly industrial production (0.8 percent) and service sector output (minus 0.6 percent) were slightly firmer. The ONS confirmed an estimated minus 0.5 percentage point impact from December's severe weather implying zero quarterly growth in underlying total output.

Asia/Pacific

Japan

February unemployment rate dropped to 4.6 percent from 4.9 percent in January. Employment increased by 380,000 from a year ago to 62.23 million. The number of unemployment declined 240,000 from a year ago to 3 million. The labour force participation rate edged up 0.1 percent to 59.0 percent while the employment rate gained 0.3 percent to 56.3 percent. These data were estimated excluding the earthquake and tsunami hit prefectures of Iwate, Miyagi and Fukushima.

February household spending edged down 0.2 percent after dropping 1.0 percent in January from a year ago. Food purchases declined 0.2 percent on the year but housing jumped 12.9 percent. Clothing & footwear continued to decline, down 6.7 percent as did culture & recreation which was down 1.5 percent. Consumption of fuel, light & water charges soared 12.9 percent on the year, no doubt thanks to higher energy prices. Furniture & household utensils were up 5.0 percent. It is expected that spending will tumble as a result of the earthquake and tsunami. The scheduled power blackouts to Tokyo and its suburbs will also cut into spending.

February retail sales surprised and edged up 0.1 percent on the year. In January, retail sales were also up 0.1 percent. Analysts had expected a declined of 0.7 percent. The gain was probably due to gasoline prices. Large scale retail stores were up 0.5 percent after swooning 0.7 percent on the year in January. Fuel sales were up 7.3 percent but auto and machinery sales were down 16.0 percent and 4.7 percent respectively.

February industrial production was up 0.4 percent from the previous month and 2.9 percent on the year. This was the fourth consecutive month in which industrial output increased. Analysts had expected output to decline 0.3 percent on the month. Transportation equipment (up 3.4 percent), general machinery (up 2.4 percent) and chemicals excluding drugs (up 3.5 percent) were the main contributors to increased output. Commodities that contributed were metal oxide semiconductor ICS (memory), large passenger cars and small passenger cars. According to METI's production forecast survey, output is expected to increase 1.4 percent in March and decrease 1.3 percent in April. The forecast data do not reflect conditions after the March 11 earthquake and tsunami.

First quarter Tankan for large manufacturers index improved to plus 6 from plus 5 in the fourth quarter of 2010. Small manufacturers reading also improved to minus 10 from minus 12. Large nonmanufacturing companies registered a reading of plus 3, up from plus 1 in December while for small nonmanufacturing, the index improved to minus 19 from minus 22 last time. CAPEX for all industries for fiscal year 2011 was minus 3.7. Big firms saw fiscal year CAPEX at minus 4 while small firms saw CAPEX as minus 24.5. Business sentiment improved on the back of a pickup in exports and production over the past few months. But analysts expect the indexes to deteriorate sharply in the next survey in June as the impact of the recent disasters will likely become clearer in the coming months. The latest survey's recommended deadline for responses was the day the earthquake hit. The Bank of Japan said it would release data to show readings both before and after the March 11 earthquake and tsunami. The BoJ said that 72 percent of respondents replied prior to March 11 and 23.6 percent after March 11. The BoJ said it would release the index for responses gathered after the quake at 8:50 a.m. local time Monday.

Australia

February retail sales were up 0.5 percent after rising 0.4 percent in January. On the year, sales were up 3.6 percent. On the month, household goods retailing was up 2.0 percent, other retailing gained 0.7 percent, clothing, footwear & personal accessory retailing advanced 0.9 percent and cafes, restaurants & takeaway food services were up 0.3 percent. Turnover was relatively unchanged in food retailing and declined 0.4 percent in department stores.

Americas

Canada

February industrial product prices jumped 0.7 percent and were up 3.4 percent higher on the year. Raw materials prices soared 1.8 percent and were up 11.0 percent on the year. The monthly advance in factory gate prices, which followed a larger revised 0.4 percent gain in January, was partly due to a 3.0 percent leap in petroleum & coal product prices without which the headline index would have risen 0.5 percent (1.8 percent on the year). However, there were also sizeable increases in primary metals (2.5 percent), chemicals (1.0 percent) and meat, fish & dairy products (1.4 percent). The overall increase was limited by a decline in prices of motor vehicles & other transport equipment (0.4 percent) and lumber & other wood products (0.7 percent). The RMPI was restrained by mineral fuels where prices edged up 0.1 percent on the month and without which the index would have jumped some 3.3 percent. There were solid gains in vegetable products (4.7 percent), animal & animal related products (3.4 percent), ferrous materials (2.1 percent) and non-ferrous metals (4.5 percent).

January monthly gross domestic product expanded 0.5 percent on the month and was up 3.3 percent on the year. The latest gain was led by the goods producing sector where production advanced 1.1 percent from December. Within this, manufacturing output surged 2.8 percent on the back of hefty increases in both durable and nondurable goods. Fabricated metals and autos enjoyed a particularly robust period, the latter buoyed by a resumption of production in some plants following temporary shutdowns and bad weather. Elsewhere within the sector, agriculture, forestry & fishing expanded 1.4 percent, utilities gained 0.5 percent and construction 0.4 percent. The only decline was in mining & oil & gas extraction (0.5 percent). Service sector output was up a more modest 0.3 percent on the month. Transport & warehousing (1.2 percent) led the way with support from wholesale trade (0.7 percent) and less significant contributions from finance, insurance & real estate (0.5 percent) and professional, scientific & technical services (0.4 percent). The lone decline of note occurred in arts & entertainment (down 0.9 percent) although retail also disappointed (down 0.1 percent).

Bottom line

Most of the new economic data were released at week's end. In Japan, the new data reflected what had been prior to the earthquake. In Europe, producer price data were up more than expected as was the flash harmonized index of consumer prices. Most purchasing managers surveys saw the indexes edge downward albeit at high levels. March U.S. employment was up more than expected while the unemployment rate edged a notch lower. However, average hourly earnings remained dormant.

This week is highlighted by four major central bank meetings including the Reserve Bank of Australia, the Banks of England and Japan and the European Central Bank. Most expect the ECB to increase its policy rate by 25 basis points to 1.25 percent.

Looking Ahead: April 4 through April 8, 2011

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