Global Markets

Although equities steadied on Friday — and in many cases advanced — most major indexes were down for the week. For many it was their worst week in almost a year, a sell-off triggered by global economic growth concerns. Surprisingly weak Chinese and U.S. economic data, on top of the International Monetary Fund's decision to trim its global growth forecast, hit commodities from gold to oil this week and brought the recent rally in equity markets to a halt.

Markets were hit on Monday by unexpectedly weak Chinese GDP, on Tuesday by some worrying numbers from Germany, and on Wednesday it was the International Monetary Fund’s downgrade to its 2013 global growth forecasts. Against the backdrop of growth uncertainty — and some poorly received corporate earnings reports — equity markets were down.

IMF cuts forecasts again

The International Monetary Fund downgraded its growth forecasts for 2013, while at the same time holding out the prospect of relief late in the year. In its twice yearly World Economic Outlook, the IMF outlined high medium term risks stemming from doubts about the Eurozone’s ability to find its way out of its crisis, and the ability of the U.S. and Japan to cut public sector deficits and debt. The IMF believes the world economy is running at three speeds with emerging market and developing economies still strong while the U.S. is doing much better than the Eurozone among advanced economies.

Reflecting this nuanced view of the global economy, the IMF revised down its 2013 global growth forecast 0.2 percentage points to 3.3 percent and kept the 2014 forecast constant at 4 percent. The downward revision was shared among emerging and advanced economies with the exception of Japan. The IMF was markedly more optimistic following the strenuous efforts of Tokyo to defeat deflation through changed monetary policy. The IMF expects the U.S. to grow 1.9 percent this year and 3 percent next, while the Eurozone will contract 0.3 percent in 2013 and grow only 1.1 percent in 2014.

Global Stock Market Recap

Europe and the UK

Equities declined last week and in the process continued to erode gains made in the first quarter. The FTSE slid 1.5 percent, the SMI lost 1.8 percent, the CAC declined 2.1 percent and the DAX dropped 3.7 percent. Disappointing earnings in Germany weighed heavily on the DAX. After markets closed, Fitch joined Moody’s and stripped the UK of its triple-A rating. Fitch downgraded the country's rating by one notch to double-A-plus, pointing to a weaker economic and fiscal outlook. Economic data also played a role during the week. Equities were down after U.S. economic data including the leading economic indicator index and the Philadelphia Fed manufacturing index missed estimates. The dour April ZEW survey in Germany also depressed spirits.

Worries over European growth sent equities lower especially after Bundesbank President Jens Weidmann warned the region could take as much as a decade to recover from the debt crisis. He also signaled the European Central Bank could cut interest rates if needed. The remarks come in the wake of weakening European economic data that has called into question prospects for a return to growth in the Eurozone later this year.

Early in the week, equities declined after weaker than expected Chinese GDP data and the decline in the price of gold. Energy stocks were also under pressure, due to the decline in the price of oil. Chinese economic growth unexpectedly slowed in the first quarter of 2013, with the acceleration in growth witnessed in the fourth quarter of 2012 proving to be short lived.

Asia Pacific

Although most equities traded higher on Friday, it was too late to erase the declines that occurred earlier in the week. Investors remained cautious due to concerns about the near term outlook for the global economy, following some weak economic data from the United States. Indexes such as the All Ordinaries (down 1.9 percent) and Nikkei (down 1.3 percent) led declines. However, emerging market indexes such as the Jakarta Composite and PSEi were 1.2 percent and 1.0 percent higher respectively. The Sensex rallied on hopes that the Reserve Bank of India will reduce interest rates at its May 3^rd meeting. Equities were up 1.7 percent last week.

China's disappointing growth data, which were released on Monday, set the tone for Asian markets in the week. The slower than expected expansion not only weighed on stocks, but also helped exacerbate a sell-off in commodities, with gold leading the slide. The weak growth data had already been digested by Friday and the focus was on hopes that an imminent widening of the yuan's trading range could prompt more funds to enter the country's capital markets, following comments made by People's Bank of China Vice Governor Yi Gang during the week.

Tokyo stocks rebounded Friday after remarks from Finance Minister Taro Aso helped weaken the yen. Shortly before the morning trading session ended, Aso was quoted as saying there had been no criticism of Japan's financial policy from gathered finance ministers and central bankers of the Group of 20 nations in Washington. This caused the yen to briefly hit the upper 98 yen range against the dollar.

Currencies

The U.S. dollar was up against all of its major counterparts last week. Equities declined as investors became risk averse and sought the safe haven status of the currency. Economic data from the U.S. and China elevated concerns about global growth. After the Fitch downgrade of the UK on Friday, the pound sterling declined.

Investors watched the yen as it climbed and then sank again against the U.S. currency and the euro on rhetoric from Bank of Japan Chairman Haruhiko Kuroda and Prime Minister Shinzo Abe. After the yen climbed on safe haven demand earlier in the week, it swooned Friday after Japanese Finance Minister Aso said that Japan's "policies went unopposed at the G-20 meeting" and that was considered tacit approval of the BoJ's massive easing campaign. In fact, the G20 pledged to refrain from competitive devaluations for competitive trade advantage and repeated its commitment toward a more market oriented foreign exchange rate.

Finance ministers also agreed that Japan's monetary easing is needed to boost growth. It said Japan also needs to spell out structural reforms it can take to further aid growth. Currency traders are likely to see the statement as a green light for the policy and for a weaker yen. The leaders said that they "will be mindful of unintended negative side effects stemming from extended periods of monetary easing." They also called on Japan to take other measures to spur growth.

Selected currencies — weekly results

Indicator scoreboard

EMU

March harmonized index of consumer prices was up 1.2 percent from February — in line with the usual seasonal pattern — and 1.7 percent from the same month a year ago. However, there was some slightly disappointing news on the underlying picture as all three core measures of annual inflation picked up 0.2 percentage points from their respective February rates. This put the ex-food, drink, tobacco & petrol index 1.5 percent higher on the year, the excluding seasonal goods & petrol gauge 1.7 percent firmer and the ex-unprocessed food & petrol index 1.6 percent stronger. Regionally, national headline inflation rates were down in most EMU countries and in Greece, sufficiently so as to fall below zero (minus 0.2 percent). Greece duly stays at the bottom of the inflation ladder and below Ireland (0.6 percent) and Portugal (0.7 percent). The top rung remains occupied by Estonia (3.8 percent) despite a 0.2 percentage point drop in its rate from February.

Germany

April ZEW current conditions measure slipped more than 4 points to 9.2, still above the readings seen around the turn of the year but well short of levels reported during the first half of 2012. Similarly, the expectations index declined 12.2 points to 36.3, its steepest drop since last June and its weakest reading since January. ZEW attributed the increased caution to worries about the implications for German exporters of economic weakness elsewhere in the Eurozone together with the ongoing EMU debt crisis. The handling of the Cyprus situation, which at this stage is widely seen as reflecting very badly on the international negotiators, will have been a major issue.

United Kingdom

March consumer prices were up 0.3 percent on the month and 2.8 percent from a year ago. On the month, the main upward pressure on prices came from furniture & household equipment (0.8 percent) although the increase here was essentially just seasonal and the sector's 12-month rate actually dropped from 0.7 percent to 0.2 percent. The clothing & footwear category, which saw a 2.4 percent monthly jump on the back of new season fashion lines, was also robust as was, to a lesser degree, transport (0.6 percent) and recreation & culture (0.5 percent). However, partial offsetting monthly declines were seen in food (0.4 percent), alcohol & tobacco (0.5 percent) and communications (0.1 percent). The core CPI was up a somewhat disappointingly firm 0.5 percent from mid-quarter and 2.4 percent on the year. The CPIH, the new measure that includes an estimate for owner occupied housing, expanded at an annual 2.6 percent rate in March, matching its February result.

March producer output prices were up 0.3 percent and were 2.0 percent higher on the year after a 2.3 percent annual gain last time. Raw material and fuel costs dipped 0.1 percent from mid-quarter and were 0.4 percent up from a year ago. Core output prices edged just 0.1 percent firmer on the month and at a 1.3 percent rate, were steady at February's annual pace. Only tobacco & alcohol (0.9 percent) and chemicals & pharmaceuticals (0.6 percent) showed any real strength on the month. Input prices were up 0.5 percent and 1.6 percent on the year.

March claimant count unemployment declined 7,000 following a larger revised 5,300 decline in February. This was its fifth decline in a row. The jobless rate at quarter-end was 4.6 percent for the fourth month. According to the ILO measure, the number of people out of work in the December to February period was 70,000 and the unemployment rate on that measure edged up to 7.9 percent. Headline average earnings growth slowed by 0.4 percentage points to an annual rate of just 0.8 percent (private sector 0.5 percent), its slowest pace since November 2009. Single month earnings in February showed no increase at all from a year ago. Moreover, regular earnings also decelerated with an annual increase over the three months to February of only 1.0 percent, down from 1.3 percent last time and the weakest rate on record.

March retail sales dropped 0.7 percent and were down 0.5 percent on the year. The second coldest March on record took its toll on high street spending. Excluding auto fuel, purchases dropped a marginally steeper 0.8 percent on the month but were 0.4 percent higher than in March 2012. The underlying picture was a good deal weaker as headline sales would have fallen much more sharply but for a 0.9 percent monthly increase in the food sector. Without auto fuel, non-food demand slumped 3.4 percent from February and incorporated hefty declines in non-specialized goods (4.0 percent), clothing & footwear (3.1 percent) and household goods (6.2 percent). The other stores category also suffered a 1.5 percent reversal. The only areas to see stronger sales were non-store retailing which, as further testimony to the effects of the extreme cold, enjoyed a 6.0 percent monthly surge, and fuel (0.4 percent).

Asia/Pacific

Japan

March unadjusted merchandise trade deficit was a smaller than expected ¥362.4 billion from a year ago. For the fiscal year ending March 31, the deficit was ¥8.18 trillion, a record high. Exports were up 1.1 percent from a year ago while imports gained 5.5 percent. Exports were up for the first time in two months while imports posted their fifth straight increase. Exports to Asia edged up 0.3 percent on the year while those to China dropped 2.5 percent. Exports to the European Union were down for the 18^th straight month, this time declining by 4.7 percent. However, exports to the U.S. were up 7.0 percent for the third straight increase. The March seasonally adjusted deficit was ¥922 billion. On the month, imports were down 1.2 percent and up 7.7 percent from a year ago. Exports were up 1.6 percent from February and 2.4 percent on the year. 

China

First quarter gross domestic product was up at a less than expected 7.7 percent when compared with the same quarter a year ago. Analysts expected GDP to grow 8.0 percent. GDP was up 1.6 percent on the quarter. GDP in the fourth quarter was up 7.9 percent. For 2012, the Chinese economy grew 7.8 percent.

March industrial production was up a less than expected 8.9 percent from a year ago. Analysts expected an increase of 10.0 percent. For the year to date, output was up 9.5 percent from a year ago. On the month, output was up 0.66 percent. All categories advanced on the year. Motor vehicle production was up 12.4 percent, non-metal minerals gained 11.8 percent, chemicals were 11.4 percent higher and machinery advanced 10.0 percent. After the pick-up in November (10.1 percent) and December (10.3 percent) last year, analysts thought the economy had turned around, but these data indicate a slower pace of growth.

March retail sales were up about expected at 12.6 percent from a year ago. For the first three months, sales were up 12.4 percent. On the month sales were up 1.23 percent. Urban retail sales were up 12.2 percent while rural retail sales jumped 15.0 percent. For the combined months of January and February, sales were up 12.1 percent and 13.4 percent respectively. Auto sales were up 5.5 percent, down from the January-February pace of 6.9 percent and December’s 9.0 percent. Communications equipment sales were up 16.0 percent after increasing 10.4 percent in January-February and 14.0 percent in December. 

Americas

Canada

February manufacturing sales jumped 2.6 percent on the month — it was the largest monthly increase since July 2011. On the year, sales were up 2.3 percent. Moreover, volumes performed almost as well, increasing 2.5 percent on the month for a 1.4 percent gain from a year ago. The February improvement in nominal shipments reflected monthly gains in 14 of 21 reporting industries. Transport equipment (8.7 percent) was particularly strong as motor vehicle assembly surged 13.5 percent and aerospace jumped 15.5 percent. Excluding motor vehicles, parts & accessories, sales were up 1.8 percent. Other strong categories were petroleum & coal (2.4 percent) where prices had a major impact, wood products (3.4 percent) and food (1.9 percent). The main areas of weakness were clothing manufacturing (down 9.4 percent), leather & allied products (down 6.2 percent) and drink & tobacco (down 1.3 percent).

March consumer price index was up 0.2 percent and 1.0 percent from a year ago. The Bank of Canada core CPI that excludes eight volatile items also increased 0.2 percent from February following a 0.8 percent gain last time to leave its 12-month rate steady at 1.4 percent. Excluding only food and energy, the CPI was up 0.3 percent and 0.9 percent on the year. Seasonally adjusted, the CPI was up just 0.1 percent on the month after a 0.7 percent leap in mid-quarter. Within this the only significant upside pressure came from 0.3 percent monthly increase in household operations, furnishings & equipment, clothing & footwear, and alcohol & tobacco. Shelter charges were up 0.1 percent. Weaker fuel costs saw transportation prices drop 1.5 percent on the month, and there were declines in recreation, education &reading (0.3 percent), health & personal care (0.2 percent) and food (0.1 percent).

Bottom line

After an initial scare Monday afternoon and into Tuesday’s Asian trading session, the bombing at Boston’s marathon appeared to have little influence on the global financial markets. Investors sold because they were disappointed by a combination of economic and earnings data that did not meet expectations.

The calendar is heavy with market moving events next week including the all-important flash PMI indexes for China, Japan, Eurozone, Germany, France and the U.S. And the UK will release its first estimate of first quarter growth.

Looking Ahead: April 22 through April 26, 2013

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