Global Rundown

The pessimism that was building early in the year is being reflected in increasingly defensive central bank policy that perhaps contrasts with at least some of the latest economic data out of Europe and Asia, much of which are showing hints of emerging life. The heavy rush in recent weeks into the safety of the global bond market belies economic improvement, yet improvement may be what global stock markets are expecting as gains all this year have been solid. And solid is definitely the description for the German labor market with the country's retail sector also showing life. Sentiment in Germany and the Eurozone as a whole is soft as are consumer signals out of France, but the continent's money supply is on the rise and leading indicators, including out of Switzerland, may have seen the worst. And improvement in cross-border trade may beginning to emerge in New Zealand and also Canada, the latter also posting a nice gain in the latest GDP data. But first we start with the old theme of caution, echoed in the latest out of the Reserve Bank of New Zealand.

The RBNZ may have left its rate unchanged but its guidance has taken the fashionable pivot of wait-and-see. The overnight cash rate was unchanged at a record low of 1.75 percent and where it has been since a 25 basis point cut in late 2016. Officials, however, changed their assessment of the policy outlook and now consider that the next move in this rate is likely to be lower after previously advising that the next move was a wash, either up or down. Officials noted that the global economic outlook was weakening and that central banks in other countries had eased their expected monetary policy stances. This, they noted, had put upward pressure on New Zealand's currency, likely making it more difficult for inflation to increase toward the mid-point of the 1.0 percent to 3.0 percent target range. Officials also noted domestic growth slowed in 2018 and argued that the balance of risks for the outlook has shifted to the downside. Reflecting this assessment, officials retained their view that policy rates should be kept "at an expansionary level for a considerable period".

Indicator Scoreboard

Eurozone

Germany

The week's run of economic data starts with very good news out of Germany, a sub-5 percent unemployment rate and a reminder that the global economy, though slowing, is still producing jobs. Germany's labor market showed resilience yet again in March. The number of people out of work fell a further 7,000 to 2.231 million following a 20,000 drop in February. This put the unemployment rate at 4.9 percent, down a tick from January and a new post-Reunification low. Prospects also remained positive with vacancies edging up 1,000 and matching February's gain. Still, labor market strength may be easing as the total first-quarter decline in unemployment of 31,000 was well short of the fourth quarter's 42,000 drop.

Germany

There's still more good news out of Germany as retailers had an unexpectedly good February. On top of a 2.8 percent monthly jump in February, January volume sales rose a further 0.9 percent for their fourth increase in five months. Year-on-year growth climbed 1.6 percentage points to 4.7 percent as tracked in the accompanying graph. The February gain leaves average purchases so far this quarter a healthy 1.7 percent above their fourth quarter average. Ignoring any revisions, this means March would need to record a monthly fall in excess of 5 percent for the sector not to make a positive contribution to first-quarter GDP. The pick-up in spending since the end of the third quarter has been surprisingly sharp and certainly paints a significantly brighter picture of German domestic demand. And crucial in this has been the buoyancy of the labor market.

Germany

However strong German employment or retail sales, confidence has been flagging a bit though the March Ifo survey found businesses in a slightly more positive mood. Overall sentiment rose 0.9 points to 99.6 for its first rise since last August. However, it remained well short of its average 101.1 reading over the last five years. Nevertheless, there were gains in both components with current conditions up 0.2 points at 103.8 and expectations up a larger 1.6 points to 95.6. By sectors, morale improved in services as well as trade and also construction but deteriorated for a seventh straight month in manufacturing to 6.6 from 9.1 for the weakest showing since February 2016. In a separate report on consumer sentiment, March didn't show any improvement at all. At 10.7, the GfK consumer climate index fell a further 0.3 points in the April forecast to 10.4 which was well below expectations.

Eurozone

The downward slope evident in the Ifo graph is also evident in the graph for Eurozone economic sentiment which here tracks both businesses and consumers. At 105.5, economic sentiment fell for a ninth month in a row in March and was down a further 0.7 points versus February. This was softer than expected and its lowest level since October 2016. Yet the decline was modest and reflected weaker morale in industry and also services. There were small gains in retail trade and construction as well as a marginally more optimistic consumer sector. All four major Eurozone economies stayed above the 100 long-run average though France and Italy are worryingly close.

Eurozone

The global shift toward more dovish monetary policy should provide some insurance against economic slowing as does perhaps an increase in Eurozone money supply which accelerated in February. At 4.3 percent, the annual rate was up 0.5 percentage points from January to equal its fastest pace in more than a year. Importantly, there was better news for private sector lending which posted a 2.7 percent yearly rate, up from 2.5 percent albeit still short of the 3 percent plus highs seen last summer. Adjusted for loan sales and securitization, growth was 3.2 percent after 3.0 percent. Within this, borrowing by households edged a tick firmer to 3.3 percent, matching last November's multi-year high despite only a stable 3.5 percent reading for mortgage lending. Overall the February money figures, showing a pickup for both households and businesses, are cautiously reassuring.

France

Unlike the strength in German retail sales, French data on consumer spending aren't pointing to much improvement. Household spending on manufactured goods crept only 0.2 percent higher in February and failed to reverse much of a 1.0 percent drop in January. This put the year-on-year, as tracked in the graph, from plus 0.6 percent to minus 0.1 percent and the fourth negative print in the last six months. Yet the modest monthly advance was broadly based with decent gains in transport equipment, household durables as well as textiles and clothing. Food dipped 0.1 percent and energy was off 3.3 percent. Still, average purchases so far this quarter are 0.2 percent above their mean level in the fourth quarter so it looks as if the sector will provide a small lift to real GDP growth.

Switzerland

Reason for optimism that the worst of general slowing may be easing is also offered by the KOF leading economic index out of Switzerland. At an unexpectedly firm 97.4, the indicator rose more than 4 points versus February to yield its first increase since last September. The improvement was mainly due to a healthier manufacturing sector but most other areas signalled a slightly better month too. Within the manufacturing sector, intermediate products, order backlogs and the overall business situation all posted decent gains, suggesting that next week's March PMI could surprise on the upside. Nonetheless, the measure remains below its 100 long-run average and so still points to generally sluggish economic growth over the coming quarter or so.

Asia-Pacific

Japan

The graphs are similar and the story is much the same out of Asia, some signs of life but also mixed signals as well. Retail sales in Japan increased 0.4 percent on the year in February, down from 0.6 percent in January and well short of the consensus forecast of 1.2 percent. This was the weakest growth since October 2017. Seasonally-adjusted retail sales rose 0.2 percent on the month after dropping 2.3 percent previously. Weaker year-on-year growth in headline retail sales in February was largely driven by food and beverage sales, down 0.8 percent on the year in January after falling 0.2 percent previously, and fuel sales, down 1.2 percent on the year after increasing 1.8 percent previously. Growth in motor vehicle sales, however, picked up from 5.8 percent to 6.1 percent. Household spending data for February are scheduled for publication in the coming week.

New Zealand

New Zealand's merchandise trade balance shifted from a revised deficit of NZ$948 million in January to a surplus of NZ$12 million in February, one driven by an increase in exports. Exports rose an unadjusted 8.3 percent on the year in February, picking up from a revised increase of 1.3 percent in January. Using seasonally adjusted data, New Zealand's exports rose 7.7 percent on the month, rebounding from a drop of 8.6 percent previously. Imports of goods advanced 12.9 percent on the year in February, up from revised growth of 6.9 percent in January, with seasonally-adjusted imports up 0.7 percent on the month after falling 0.9 percent previously.

Americas

Canada

Exports in the latest data out of Canada are also favorable. The nation's trade deficit in January came to C$4.25 billion. The shortfall was larger than expected but smaller than the upwardly revised C$4.82 billion in December. The headline deficit reflected a 2.9 percent rise in exports, the first increase in 6 months, and a 1.5 percent rise in imports. Within overall exports, sales to the U.S. were up 1.1 percent while purchases across the border rose 1.8 percent, which put the bilateral surplus at C$1.56 billion after C$1.77 previously. The monthly rise in exports was led by energy products, which rose 14.0 percent to C$7.15 billion in January after five months of consecutive decreases, with crude oil exports up 36.5 percent on the strength of a 36.0 percent increase in prices. Metals and non-metallic mineral products also made a solid contribution, rising 11.9 percent to C$5.55 billion and largely due to higher exports of refined gold to the United Kingdom and gold transfers to Hong Kong banks.

Canada

We end the week's run with another hopeful note out of Canada where the  economy expanded 0.3 percent in January, offsetting contraction in the two prior months and beating expectations. Broad-based, with 18 of the 20 sectors increasing, the monthly rise in output raised year-on-year GDP from 1.1 percent to 1.6 percent. Led by growth in both manufacturing and construction, goods producing industries increased 0.6 percent on the month while services rose 0.2 percent. Within goods producing industries, manufacturing growth of 1.5 percent more than offset declines in the two previous months with non-durable manufacturing up 1.9 percent for the strongest growth in seven months. Leading the growth in this category were food, up 2.8 percent, petroleum and coal products, up 3.8 percent, and chemicals manufacturing up 1.8 percent.

The bottom line

Though not uniformly unfavorable, economic indicators have been uneven this year and understandably have triggered a largely uniform response among central banks, that is toward caution. Sentiment measures on consumer and business confidence have also generally been signaling caution though there are perhaps hints of some improvement emerging. Sentiment, especially on the consumer side, is ultimately supported by demand for labor which is still strong on a global scale.

A key update on sentiment, specifically on the business side, opens the coming week with Japan's Tankan report. Central bank announcements are set for Australia and also India which earlier in the year took the lead on global dovishness with a rate cut. Manufacturing data, including out of Germany, are also slated as is a host of PMI finals for March.

**Jeremy Hawkins and Brian Jackson contributed to this article

Looking Ahead: April 1 through April 5, 2019