Global Markets

Equities were mixed last week as investors squared positions for the end of the month and the first quarter. While the results for the week and for March were mixed, all indexes with the exception of the Spanish IBEX recorded healthy gains in the first quarter. Traders were cautious during the week as they took in mixed economic data while at the same time awaited the conclusion of Friday’s Eurozone finance ministers meeting. Also weighing on investor sentiment was the Organization for Economic Cooperation and Development (OECD) interim estimates for growth and sobering comments from Fed Chairman Ben Bernanke during the week.

The OECD estimates robust U.S. growth, but sees Europe remaining more fragile where weak confidence, climbing unemployment and tight credit point to further declines in activity. In an interim outlook assessment of the world's major economies, the OECD said short term prospects had improved relative to the situation prevailing late last year, but that the global recovery remains fragile. The OECD sees a technical recession in the UK with GDP contracting 0.4 percent in the first quarter after declining in the final quarter of 2011. However, a moderate recovery is expected in the second quarter. In the euro area, Germany, France and Italy together will shrink by 0.4 percent on average during the first quarter, before a moderate 0.9 percent growth recovery in the second quarter.

In November 2011, the OECD lowered its forecast on the world's largest economies, and warned that the Eurozone’s debt crisis could escalate economic disruption. Since then, the bloc's leaders have approved a second bailout for Greece, which has reduced uncertainty in the world economy. The organization raised its forecast for the U.S. economy, which it said should grow at an annualized rate of 2.9 percent this quarter and 2.8 percent in the next. Japan is also forecast to grow more than the OECD economists had thought earlier, with an annualized growth rate of 3.4 percent in the first quarter of 2012 and 1.4 percent in the second. The OECD expects that Italy's economy, which is already in recession, will continue to contract in the first two quarters of this year. It expects France's economy to contract in the first quarter, but expand in the second. It expects Germany to grow in both quarters, although by just 0.1 percent in the first. The OECD expects the UK’s economy to contract in the first quarter, thereby entering a technical recession, before expanding in the second quarter.

Equities were mixed on the week and for the month of March. However, only the Spanish IBEX was down on the quarter. Quarterly gains ranged from 2.9 percent (Shanghai Composite) to 19.3 percent (Nikkei).

Global Stock Market Recap

Europe and the UK

Stocks ended the week, month and quarter on a positive note after declining three of five days last week. The indexes were down for the week The FTSE and CAC were lower for the month of March as well. However, all recorded gains for the quarter on the strength of strong January and February advances. The FTSE was down 1.5 percent for the week and 1.8 percent in March. It was 3.5 percent higher for the quarter. The CAC lost 1.5 percent and 0.8 percent for the week and month respectively. However, it was up 8.4 percent on the quarter. The DAX and SMI were down 0.7 percent and 0.1 percent on the week respectively. They were 1.6 percent and 2.1 percent higher in March and up 17.8 percent and 5.0 percent in the first quarter.

Investors continued to fret over global growth prospects. Recent economic data on both sides of the pond have been mixed. And OECD’s statement Thursday saying that European growth would lag behind the U.S. also weighed on investors. Comments from Fed Chairman Ben Bernanke also discouraged investors. He said that it is far too early to declare victory in the U.S. economic recovery — joblessness was still at a troubling high and housing markets were still weak. Traders were looking forward to Friday’s Eurozone finance ministers meeting as well.

On Friday, Eurozone finance ministers agreed to raise their financial firewall. They agreed to combine its two rescue funds to make €500 billion of new funds available in case of emergency until mid-2013 on top of €200 billion already committed to bailouts for Greece, Ireland and Portugal. An official statement said ministers had lifted the combined lending capacity of the temporary European Financial Stability Facility (EFSF) and the permanent European Stability Mechanism (ESM) to €700 billion from €500 billion. Initial market reaction was positive,

IMF and other officials in Group of 20 economies have said simply running the €200bn in bailouts alongside the new €500bn ESM may not be enough to convince them Europe has done all it can. Christine Lagarde, the managing director of the I.M.F., said the agreement in Copenhagen would “support the IMF’s efforts to increase its available resources for the benefit of all our members.” But she did not say whether the agreement was sufficient for the I.M.F. to direct more of its resources to Europe.

Asia Pacific

Equities were mixed in the Asia Pacific region last week as investors continued to worry about slowing global growth. These concerns were tempered by gains stemming from reports that Eurozone leaders will likely achieve positive results on the region's sovereign debt crisis at Friday’s Eurozone Finance Ministers' meeting in Copenhagen that will take place after markets here were closed for the week.

On the week, losses ranged from 0.8 percent (Kospi) to 5.2 percent (Hang Seng) and 6.8 percent (Shanghai Composite). Gains ranged from 0.2 percent (Sensex and SET) to 2.0 percent (Jakarta Composite). For the month of March Chinese stocks plunged 5.2 percent (Hang Seng) and 6.8 percent (Shanghai Composite). The Kospi, Sensex and Taiex were also lower on the month. On the upside in March, gains ranged from 0.7 percent (All Ordinaries) to 4.3 percent (PSEi). All indexes were positive for the first quarter with most recording impressive gains. The Nikkei soared 19.3 percent in the first quarter — its best first quarter performance in 24 years.

Friday marked the end of trading for the Japanese fiscal year 2011. For fiscal year, the Nikkei was up 3.4 percent for its first gain in two years. The advances helped lift the Nikkei to its highest point since the Great East Japan Earthquake and tsunami struck on March 11^th of last year. The increase was driven by exporters on hopes that the yen would continue to depreciate. Investors seeking dividends and preferential shareholder treatment before the end of the fiscal year also supported the market with their stock purchases.

Currencies

The euro was up against the U.S. dollar for the week. It also recorded its biggest quarterly gain in a year after European finance ministers agreed to boost the euro ceiling for a crisis firewall. This boosted confidence that the region’s financial problems are abating. However, European finance ministers were warned on Friday that the underlying causes of the continent’s debt and banking crisis had yet to be resolved. Two confidential analyses prepared by European Union officials and distributed to the ministers said that the €1 trillion in cheap loans to banks provided by the European Central Bank since December had provided a reprieve.

The yen erased gains after touching a three week high against the dollar amid speculation companies are buying the yen to bring home overseas earnings before the end of the fiscal year. The yen also strengthened against the majority its 16 major counterparts. At the end of the fiscal year these flows are typical, especially because the yen was at very good levels to take profit.

Selected currencies — weekly results

Indicator scoreboard

EMU

February M3 money supply accelerated to a 2.8 percent annual rate from 2.5 percent at the start of the year. As a result, the ECB's preferred three month moving average climbed 0.3 percentage points to 2.3 percent, its strongest pace since September 2011. However, the pick-up in the headline rates masked another disappointing performance by the key private sector lending counterpart which was up just 0.7 percent on the year after a 1.1 percent annual increase in January. Loans to households grew 1.2 percent from a year ago and within this, borrowing for house purchases was steady at 1.8 percent. Lending to non-financial corporations slid to 0.4 percent annual pace from 0.7 percent in the previous month while loans to non-monetary financial intermediaries (excluding insurance corporations and pension funds) weighed in at just 0.6 percent, off 1.4 percentage points from their January rate.

March economic sentiment reading edged down to 94.4 from February’s revised reading of 94.5. All sectors saw only small changes in confidence levels. Manufacturing was 1.5 points lower at minus 7.2 and so more than reversed its modest February gain. But consumers saw a 1.2 point gain to minus 19.1 and retail a 1.8 percent improvement to minus 12.2. Service sector morale was up just 0.6 points at minus 0.3 while construction was off almost a point at minus 26.5. Among the larger EMU states, sentiment was again above its long run average (100) in just Germany although even here it declined 2.4 points from February to 104.3, its weakest reading since December. France recorded a 2 point rise to 95.5 and Italy was up 3.3 points at 88.8. However, Spain lost more than a point to 90.9, its lowest level in three months.

March flash harmonized index of consumer prices were up 2.6 percent on the year after increasing 2.7 percent in February. In fact the headline would have looked rather better but for a surprising spike in the Italian rate which jumped some 0.4 percentage points to 3.8 percent. By contrast, among the other larger EMU states inflation was down a couple of notches in Germany to 2.3 percent as well as a notch in Spain to 1.8 percent. Details of today's figures will not be released until April 17. These will be watched especially closely for any signs that the latest run-up in energy costs might be creating what would be, extremely unwelcome, second round effects.

Germany

March Ifo sentiment edged up to 109.8 from 109.7 in February. The relative stability reflected a 0.3 point increase in the expectations component to 102.7, its best reading since July last year and an unchanged 117.4 level for the current conditions measure. There were similarly only minor changes in morale among the major sectors, although retail bucked the trend with a near-7 point jump to 10.6. Elsewhere confidence was somewhat weaker with manufacturing just 0.3 points softer at 14.0, services down 2.5 points 22.4 and wholesale 2.2 points lower at 12.8. Sentiment in construction was 1 point off at 2.3.

March unemployment rate was 6.7 percent, down from 6.8 percent in February. Joblessness declined by 18,000. The March decline followed a revised 3,000 drop in mid-quarter and left the total number of people out of work at 2.841 million. However, vacancies were down 1,000 after an unrevised 11,000 fall last time. The lagging ILO data reported a further 41,000 increase in employment in February, well down from January's 94,000 gain but only slightly short of the 49,000 fourth quarter average. On this measure, employment last month stood at 41.406 million, another new record high.

February retail sales dropped 1.1 percent but were 1.7 percent higher on the year. Retail demand has now fallen in four of the last five months and in February was at its lowest level since May 2011. This warns that the 0.2 percent quarterly contraction in consumer spending last quarter could well be followed by a steeper decline in the current period. The monthly data are notoriously erratic and often subject to hefty revisions but as they currently stand, sales will need to jump by more than 5 percent in March just to keep first quarter purchases at their fourth quarter level.

France

Fourth quarter gross domestic product was up at an unrevised quarterly rate of 0.2 percent, down 0.1 percent from its third quarter pace. Annual growth was shaded lower to 1.3 percent although this left intact a calendar year 2011 advance of 1.7 percent. There were a few, but only quite minor, changes made to the GDP expenditure components. Household consumption still shows a quarterly 0.2 percent gain but gross fixed capital formation was revised up to 1.1 percent while government consumption was revised up to 0.3 percent. However, gains here were offset by a smaller drop in imports (1.0 percent from 1.2 percent) which in turn saw the net export contribution reduced by 0.1 percentage points to 0.6 percent. Inventories continue to subtract from the bottom line to the tune of 0.8 percent.

February household consumption expenditures were 3.0 percent higher on the month and up 0.5 percent on the year. Purchases of manufactured goods were up 1.5 percent but were 1.3 percent lower than a year ago. February's surge was largely due to the energy sector which saw an 11.7 percent leap on the month. However, leather (5.7 percent), food (1.3 percent) and engineered products (0.9 percent) all posted decent gains. The only real area of weakness was autos which compounded an 8.3 percent plunge in January with drop of 0.8 percent.

February producer prices were up 0.8 percent and up 4.3 percent on the year. The most damage was again caused by the coke & refined petroleum products sector where charges jumped a sizeable 3.5 percent from January (heating oil 4.7 percent). Food, drink & tobacco costs were up 0.5 percent and electrical & electronic equipment 0.3 percent. Transport prices edged up 0.1 percent on the month but the other manufactured goods category registered a 0.5 percent increase, in line with mining & quarrying, energy & water.

United Kingdom

Fourth quarter gross domestic product contracted slightly more than expected with quarterly real GDP growth revised down 0.1 percent to minus 0.3 percent in the final report. As a result, total output was up just 0.5 percent on the year or 0.2 percentage points less than estimated last time and 0.3 percentage points short of the flash print released in January. The negative adjustment was attributed to weaker activity in the service sector, notably in the transport & communication, business services and finance areas.

Asia/Pacific

Japan

February retail sales jumped 3.5 percent when compared with a year ago after increasing 1.8 percent in January. Auto sales soared 21.4 percent while fuel sales were 4.8 percent higher. Other categories that advanced on the month included fabrics, apparel and accessories, drugs & toiletries and other. Partially offsetting the gains were general merchandise (down 0.2 percent) and machinery & equipment (down 15.9 percent).

February consumer prices were up 0.2 percent on the month and 0.3 percent on the year. The important core CPI which excludes only fresh food was 0.2 percent higher on the month and 0.1 percent on the year. This was the core’s first annual increase since September 2011. Core excluding food and energy was up 0.2 percent but dropped 0.6 percent on the year. On the year, prices of furniture & household utensils dropped 3.5 percent, culture & recreation slid 1.9 percent and medical care was 1.2 percent lower. Fuel, light & water utensils were up 4.6 percent while transportation & communication prices were up 0.9 percent higher. Goods prices were up 0.5 percent on the month and 0.8 percent on the year. However, services slumped 0.2 percent on the month and 0.1 percent from a year ago.

February household spending surprised and jumped 2.3 percent on the year. Analysts expected spending to decline 0.4 percent. Spending was higher for all categories with the exception of culture & recreation which was down 1.8 percent on the year. Furniture & household utensils spending jumped 9.6 percent while medical care was 7.2 percent higher. Education spending jumped 11.5 percent.

February seasonally adjusted unemployment rate was 4.5 percent, down from 4.6 percent in January. The number of unemployed was 2.89 million, a decline of 140,000 or 4.6 percent from a year ago. The number of employment was 62.26 million, a drop of 400,000 or 0.6 percent from a year ago. The labor force participation rate slipped 0.3 percent from a year ago to 58.7 percent. The employment rate was down as well, dropping 0.2 percent to 56.1 percent.

February industrial production surprised and dropped 1.2 percent and was down 3.9 percent on the year. Industries that mainly contributed to the decline were general machinery (down 4.5 percent), transport equipment (down 2.6 percent) and information & communication electronics equipment (down 8.9 percent). Commodities were down included cellular telephone (down 32.3 percent), large passenger cars (down 2.6 percent) and active matrix LCDs (Liquid Crystal Devices) which declined 17.2 percent.

Americas

Canada

February industrial product price index edged up 0.2 percent and was up 1.7 percent on the year. The IPPI was pushed higher mainly by a 1.8 percent monthly increase in the cost of petroleum & coal products without which the headline would have shown a 0.1 percent decline from January and a 0.5 percent advance on the year. The other main areas of strength were gasoline, where prices were up nearly 4 percent on the month, and primary metals (1.9 percent). However, a number of categories registered monthly declines including pulp & paper (0.8 percent), motor vehicles & other transport equipment (1.0 percent) and miscellaneous non-manufactured goods (1.1 percent). The Canadian dollar also helped to keep prices in check, subtracting 0.4 percentage points from the overall monthly change. The RMPI was down 0.5 percent and up 1.5 percent on the year. The RMPI was depressed by a 2.4 percent monthly decline in the cost of mineral fuels. Excluding this, the index would have risen 1.3 percent from January but would have fallen 1.5 percent from February 2011. Among the other components, the only other significant decline was seen in ferrous materials (1.2 percent). Increased prices were recorded for non-ferrous metals (2.6 percent), vegetable products (2.5 percent) and wood (0.7 percent) while non-metallic minerals were flat.

January monthly GDP edged up 0.1 percent and was 1.7 percent higher on the year. The goods producing sector also posted a 0.1 percent monthly rise in output. This was largely attributable to manufacturing which jumped 0.7 percent, its fifth gain in a row. Utilities (1.1 percent) also fared well but there were largely offsetting declines in agriculture (0.9 percent), mining & oil & gas extraction (0.5 percent) and construction (0.1 percent). Services were up 0.2 percent from December. Accommodation & food (0.7 percent) led the way ahead of transport & warehousing (0.5 percent) and wholesale trade (0.3 percent). However, other gains were only minor and, while retail trade was just flat, arts, entertainment & recreation fell 0.9 percent.

Bottom line

Equities advanced in the first quarter as tensions in Europe eased and economic data indicated that the U.S. was growing, albeit slowly. However, investors are still concerned about global growth — and especially China’s.

The first week of the month is typically a busy one. The Reserve Bank of Australia, Bank of England and the European Central Bank meet. The BoE and ECB are expected to leave policy unchanged. While the probability is that the RBA will leave its policy interest rate at 4.25 percent, a growing number of analysts are calling for an interest rate cut. Besides the central banks, numerous key economic indicators are also on the calendar globally.

Looking Ahead: April 2 through April 6, 2012

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