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  • Weekly macroeconomic and market update 20 April 2015

Weekly macroeconomic and market update

What were the major market and macroeconomic events for the week ending 17 April? Read on to find out about the latest economic data out of China and the US, unemployment statistics from here in the United Kingdom, and what we can expect from the next seven days.

Further stimulus from The People’s Bank of China

Weak Chinese economic data prompted further stimulus from the Central Bank. GDP growth slowed from 7.3% to 7.0% year on year in the first quarter, whilst industrial production and retail sales numbers disappointed with both measures falling despite expectations for marginal increases. The People’s Bank of China (PBoC) responded with further stimulus by cutting the Reserve Requirement Ratio (RRR) a full percentage point to 18.5%. This is the latest in a string of efforts by the PBoC to manage the economic slowdown, with two interest rate cuts since November and a previous RRR cut in February.

Economic cooling but improved consumer sentiment in the US

Last week we saw further signs of economic cooling but improved consumer sentiment in the US. Industrial production fell more than expected, from 0.1% to -0.6% month on month in March, whilst housing starts and new building permit numbers were also disappointing. However, there were more positive signs as the Michigan Consumer Sentiment survey showed improving sentiment – the survey index increased from 93.0 in March to 95.9 in April, well ahead of more moderate expectations of an increase to 94.0. The Philadelphia Fed Manufacturing index also improved ahead of expectations, rising by 2.5% to 7.5% for April.

Last week’s other events

  • UK inflation was once again flat year on year, whilst core inflation slipped from 1.2% in February to 1.0% in March. Also in the UK, unemployment improved in line with expectations and fell 0.1% to 5.6%, whilst average earnings were up 1.7% – a marginally lower figure than last month.
  • In the Eurozone, industrial production figures accelerated sharply in February with year-on-year production up 1.6% from 0.4% in January, and more than double the expected 0.7%.
  • Although US headline inflation slipped formally into negative territory in March (-0.1% year on year), core inflation actually increased to 1.8% (from 1.7% previously).
  • Japanese machinery orders fell -0.4% month on month in February. Despite the negative figure, this was a marked improvement from January’s -1.7% and far surpassed the expected decrease of -2.8%.

The markets

Over the last seven days we saw a drop in most Western equity markets, improvements for energy commodities, and mixed results for the sterling and dollar currencies.

Graph 20-04-2015

  • Equities - Most western market equities were sharply down on the week after a particularly weak session on Friday, which saw a global outage of Bloomberg terminals for several hours adding to general concerns around economic data. The FTSE All-share was down 1.37%, the S&P 500 was down 0.99% and Europe (ex-UK) fell 1.27%. Japan bucked the trend with a fall of only 0.05%, and Chinese equities were also stronger.
  • Bonds – As Greek concerns once again bubble back to the surface, European bond markets were in focus. German 10-year bund yields were 9 bps tighter on the week, closing at just 0.07% having briefly hit a record low of 0.049%. Greek bond yields continued to blow out, whilst US and UK bond yields were little changed on the week.
  • Commodities – Energy commodities improved through the week, with Brent Crude Oil up at US$63.91 per barrel and WTI at US$56.14. There was little change in copper or gold – copper closed the week at US$2.78, and gold was still above $1,200 at the end of Friday, finishing at US$1202.90.
  • Currencies – The sterling was generally stronger through the week, strengthening 2.3% against the dollar, 1.1% against yen and 0.3% against the euro. The dollar lost ground against other major currencies, falling 1.9% and 1.1% against the euro and the yen respectively.

The week ahead

We start this week quietly, with only the German Producer Prices index released on Monday. On Tuesday, still in Germany we have the release of ZEW sentiment surveys. The Current Conditions measure is forecast to have increased from 55.1 to 56.0, whilst the Economic Sentiment index, which is more forward looking, is predicted to be up to 55.5 from 54.8.Midweek sees the release of minutes from the Bank of England’s MPC meeting, along with flash readings of the Eurozone Consumer Confidence index and US existing home sale figures.

Moving onto Thursday and we can expect earnings reports from General Motors and search engine giants Google. There will also be overnight Manufacturing PMIs from Japan and China, Eurozone Manufacturing and Services PMIs, and Germany’s GFK Consumer Confidence measure.

With the new developments in Greece, we are expecting to hear the thoughts of the Eurogroup on Friday. In the afternoon we have the German IFO sentiment report, where we expect to see increases in both the Current Conditions and Expectations measures. The week then finishes with US Durable Goods Orders which are expected to have improved from a fall of -1.4% in February to 0.6% for March.

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