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The clock is ticking
International Perspective - March 31, 2017
By Anne D. Picker, Chief Economist


Global Markets

On Wednesday, Prime Minister Theresa May set in motion the process by which the UK will leave the European Union. There will be two years for both sides to agree on any exit deal after which negotiations can only be extended if all the EU's other 27 members agree. If there is no deal, the UK will cease to be part of the European Union and no longer subject to its treaties. Rather, as a signatory to World Trade Organisation (WTO) Agreements, trade relations would be governed by WTO rules and the EU would apply a range of tariffs (averaging around 10 percent) to UK goods, replacing the current zero rate.


A summit to determine the guidelines for the EU's negotiating team headed by Michel Barnier will be held on April 29. Any eventual settlement will need the approval of at least 20 EU countries with 65 percent of the population. This must also be ratified by the European parliament. At this time, the shape of the final agreement is unknown.


On Friday, European Council President Donald Tusk sent the guidelines which must be finalized at an April 29 summit of 27 member countries' leaders to EU capitals. According to Reuters, the European Union offered Britain talks this year on a future free trade pact but made clear in the negotiating guidelines issued Friday that London must first agree to EU demands on the terms of Brexit. Those include paying tens of billions of euros and giving residence rights to some 3 million EU citizens in Britain. The document according to Reuters also sets tough conditions for any transition period, insisting Britain must accept many EU rules after any such partial withdrawal. It also spelled out EU resistance to Britain scrapping swathes of tax, environmental and labor laws if it wants to have an eventual free trade pact. The EU stance is in contrast to the British Prime Minister Theresa May's proposal that talks on the UK withdrawal and future relationship with the EU covering areas such as trade and citizens' rights be held simultaneously.


Most equity indexes followed here advanced on the week and month. In March, the Nikkei and Topix were down 1.1 percent and 1.5 percent respectively. Also retreating were the Shanghai Composite (down 0.6 percent) and the Dow (down 0.7 percent). Gains ranged from 9.5 percent (IBEX) to 0.6 percent (Taiex). Only the two Japanese indexes were lower for the quarter.


Global Stock Market Recap

  2016 2017 % Change
Index Dec 31 Mar 24 Mar 31 Week March 2017
Australia All Ordinaries 5719.1 5796.1 5903.83 1.9% 2.5% 3.2%
Japan Nikkei 225 19114.4 19262.5 18909.26 -1.8% -1.1% -1.1%
Topix 1518.61 1543.92 1512.60 -2.0% -1.5% -0.4%
Hong Kong Hang Seng 22000.6 24358.3 24111.59 -1.0% 1.6% 9.6%
S. Korea Kospi 2026.5 2169.0 2160.23 -0.4% 3.3% 6.6%
Singapore STI 2880.8 3142.9 3175.11 1.0% 2.5% 10.2%
China Shanghai Composite 3103.6 3269.5 3222.51 -1.4% -0.6% 3.8%
India Sensex 30 26626.5 29421.4 29620.50 0.7% 3.1% 11.2%
Indonesia Jakarta Composite 5296.7 5567.1 5568.11 0.0% 3.4% 5.1%
Malaysia KLCI 1641.7 1745.8 1740.09 -0.3% 2.7% 6.0%
Philippines PSEi 6840.6 7269.6 7311.72 0.6% 1.4% 6.9%
Taiwan Taiex 9253.5 9903.0 9811.52 -0.9% 0.6% 6.0%
Thailand SET 1542.9 1573.5 1575.11 0.1% 1.0% 2.1%
UK FTSE 100 7142.8 7336.8 7322.92 -0.2% 0.8% 2.5%
France CAC 4862.3 5020.9 5122.51 2.0% 5.4% 5.4%
Germany XETRA DAX 11481.1 12064.3 12312.87 2.1% 4.0% 7.2%
Italy FTSE MIB 19234.6 20188.0 20492.94 1.5% 8.4% 6.5%
Spain IBEX 35 9352.1 10309.4 10462.90 1.5% 9.5% 11.9%
Sweden OMX Stockholm 30 1517.2 1579.7 1587.63 0.5% 1.1% 4.6%
Switzerland SMI 8219.9 8613.6 8658.89 0.5% 1.3% 5.3%
North America
United States Dow 19762.6 20596.72 20663.22 0.3% -0.7% 4.6%
NASDAQ 5383.1 5828.7 5911.74 1.4% 1.5% 9.8%
S&P 500 2238.8 2344.0 2362.72 0.8% 0.0% 5.5%
Canada S&P/TSX Comp. 15287.6 15442.7 15547.75 0.7% 1.0% 1.7%
Mexico Bolsa 45642.9 49083.9 48541.560 -1.1% 3.6% 6.4%


Europe and the UK

Equities advanced in March and for the first quarter of 2017. However, on the week, the FTSE retreated 0.2 percent but the CAC was up 2.0 percent, the DAX gained 2.1 percent and the SMI was 0.5 percent higher. In March, the FTSE added 0.8 percent, the CAC jumped 5.4 percent, the DAX gained 4.0 percent and the SMI was up 1.3 percent.


Trading on Friday was influenced by the flash March estimate of the harmonized index of consumer prices. The annual increase eased to 1.5 percent — down from February's 2.0 percent and below the European Central Bank's inflation target of just below 2 percent. The reading will add pressure on the ECB to continue with its stimulus measures. But part of the easing in inflation was due to the Easter effect — the holiday occurred in March last year, compared with mid-April this year. The Easter holiday tends to push up prices on airfares and hotels, giving a lift to the inflation measure for that month. However, the decline in March was because of a slower rise in energy and food prices as well.


Germany's retail sales jumped 1.8 percent in February. The March Ifo survey climbed to its highest since July 2011. However, French consumer spending retreated along with Italy's industrial orders. Euro area economic confidence slipped but remains at a high level.


Asia Pacific

Equities were mixed last week as investors absorbed economic data from throughout the region. Among the major indexes, the Nikkei (down 1.8 percent), Topix (down 2.0 percent), Hang Seng (down 1.0 percent) and Shanghai Composite (down 1.4 percent) all retreated on the week. The All Ordinaries (up 1.9 percent) and Sensex (up 0.7 percent) advanced. For the month of March, the two Japanese indexes — Nikkei and Topix — both declined along with the Shanghai Composite. And only the two Japanese indexes are down for the year.


Japanese stocks dropped to more than seven week closing lows on the last day of the Japanese fiscal year as investors locked in gains. Much of the demand for Japanese stocks has been influenced by the yen's moves and broad sentiment around U.S. President Donald Trump's early efforts to change domestic policies. Trump's failure to push through a healthcare bill triggered sharp selling in Japanese equities Monday as investors fretted about his ability to push through economic stimulus measures.


February economic data in Japan were mixed. Inflation readings were mixed while industrial production gained 6.6 percent and the unemployment rate declined to 2.8 percent. However, household spending tumbled 3.8 percent on the year. Inflation data were stronger than expected, but the headline and so-called core-core measures (which strips out fresh food and energy prices) retreated from the previous month.


Shanghai stocks posted their biggest weekly loss since mid-December as concerns over tighter liquidity and curbs on property investment dampened investors' risk appetite. Earlier on Friday, the People's Bank of China skipped open market operations for the sixth straight session.


Financial markets continue to be influenced by chatter from Washington DC. Chinese President Xi Jinping will travel to the United States to meet President Donald Trump at his Mar-a-Lago retreat in Florida on April 6 and 7. It will be Xi's first meeting with Trump and comes as the two sides face pressing issues, ranging from North Korea and the South China Sea to trade disputes. President Trump took to twitter to say the meeting with China "will be a very difficult one in that we can no longer have massive trade deficits and job losses."



The U.S. dollar was mixed against its major counterparts. It was higher against the euro, Swiss franc and yen but retreated against the pound sterling and the Canadian and Australian dollars. At week's end, the euro hit a two-week low after preliminary March data indicated that inflation in the euro area slowed by far more than expected, giving the European Central Bank room to scale back monetary stimulus only gradually.


The euro was down 1 percent against the U.S. dollar on the week. Investors have been revising their expectations for when the ECB will begin to normalize monetary policy. The repricing has been driven by comments from ECB governing council members. They have suggested policymakers are wary of making any new changes to their message after small tweaks upset investors and raised the spectre of surging borrowing costs for the bloc's indebted periphery. ECB board member Benoit Coeure said on Friday it would be "legitimate" for the central bank to review its current stance that rates will stay at record low levels or may even be cut, but it was too early for now to have that conversation. Also pressing on the euro is the French elections which are scheduled for the end of April.


Selected currencies — weekly results

2016 2017 % Change
Dec 30 March 24 March 31 Week 2016
U.S. $ per currency
Australia A$ 0.7215 0.763 0.764 0.2% 5.9%
New Zealand NZ$ 0.6948 0.703 0.701 -0.3% 0.9%
Canada C$ 0.7443 0.747 0.752 0.6% 1.0%
Eurozone euro (€) 1.0534 1.080 1.067 -1.2% 1.3%
UK pound sterling (£) 1.2333 1.249 1.253 0.3% 1.6%
Currency per U.S. $
China yuan 6.9450 6.884 6.887 -0.1% 0.8%
Hong Kong HK$* 7.7533 7.766 7.772 -0.1% -0.2%
India rupee 67.9238 65.415 64.850 0.9% 4.7%
Japan yen 116.8100 111.070 111.340 -0.2% 4.9%
Malaysia ringgit 4.4862 4.426 4.426 0.0% 1.4%
Singapore Singapore $ 1.4465 1.397 1.399 -0.1% 3.4%
South Korea won 1205.8300 1122.650 1118.450 0.4% 7.8%
Taiwan Taiwan $ 32.3260 30.483 30.348 0.4% 6.5%
Thailand baht 35.8100 34.540 34.350 0.6% 4.3%
Switzerland Swiss franc 1.0174 0.9909 1.0016 -1.1% 1.6%
*Pegged to U.S. dollar
Source: Bloomberg


Indicator scoreboard


March flash harmonized index of consumer prices was up 1.5 percent on the year, down from 2.0 percent in February. The new rate was a 3-month low. Core readings also slid. Excluding energy, food, alcohol & tobacco and core omitting just energy & unprocessed food the HICP dropped 0.2 percentage points to 0.7 percent. This is the softest underlying rate since April 2015. Inflation in non-energy goods was steady at 0.2 percent but services saw a 0.3 percentage point slide to 1.0 percent. Food, alcohol & tobacco (1.8 percent after 2.3 percent) and energy (7.3 percent after 9.3 percent) also had negative effects.



Ifo March sentiment indicator rose from a marginally stronger revised 111.1 in February to 112.3, its best since July 2011 and a 5.6 point increase from a year ago. The improvement reflected gains in both components. Current conditions advanced almost a full point to 119.3, their seventh straight increase and also their highest reading in nearly six years. At the same time, expectations climbed 1.5 points, their largest increase since October last year, to stand at 105.7, a 6-month peak. The more bullish headline data were mirrored in most of the main sectors with confidence improving in all areas apart from wholesale (18.4 after 22.3). Manufacturing (21.0 after 16.8) saw a particularly marked upturn but there were gains in both construction (9.4 after 7.8) and retail (6.4 after 4.5).



February household spending on manufactured goods was up a monthly 1.3 percent — the sharpest increase since December 2015 and lifted annual sales growth from 0.6 percent to 1.6 percent, a 3-month high. The increase was led by textiles which, after a prolonged period of weakness, posted an 8.8 percent monthly surge, their best performance since July 2010. Household goods (1.3 percent) similarly had a very good month while the other products category (0.1 percent) also managed to edge firmer. However, total goods spending still fell a sizeable 0.8 percent from January, more than reversing that period's 0.6 percent gain. A slump in energy demand (down 10.9 percent) was largely responsible.


United Kingdom

The final estimate of fourth quarter real gross domestic product increased an unrevised 0.7 percent on the quarter and was up 1.9 percent from a year ago, down just a tick from the previous estimate. Household expenditures expanded an unrevised 0.7 percent on the quarter and more than offset a disappointing 0.9 percent drop in business investment. Government consumption was flat. The main boost to quarterly growth came from the external economy. Here, a 4.6 percent surge in exports combined with a 1.0 percent decline in imports to provide a net contribution of 1.7 percentage points. This was reflected a record narrowing in the current account deficit from Stg25.7 billion (or 5.3 percent of GDP) in the third quarter to Stg12.1 billion (2.4 percent). The dramatic improvement here was largely attributable to the trade balance where the red ink dropped from Stg14.8 billion to just Stg4.8 billion on the back of booming exports.




February household spending sank 3.8 percent from a year ago after declining 1.2 percent the month before. The drop in spending reflected weakness in most categories. Spending on fuel, light & water charges fell 4.2 percent on the year after increasing by 1.6 percent in January, while spending on food tumbled 5.8 percent after dropping 2.6 percent the previous month. Clothing & footwear, medical care and transportation & communication also posted large declines which were only partly offset by stronger spending on housing.




February industrial product price index edged up 0.1 percent after January's 0.6 percent and was up 3.5 percent on the year after 2.5 percent the month before. It was the IPPI's sixth consecutive monthly increase. The monthly IPPI increase was expected to be 0.3 percent. On the year, price gains accelerated mainly due to base effects. Meat, fish and dairy products along with primary non-ferrous metals were up 1.5 percent on the month. Prices rose in 8 of 21 industries and were lower in 10 industries. Excluding energy and petroleum, the IPPI was 0.3 percent higher on the month. The 0.6 percent appreciation of the Canadian dollar against the U.S. dollar also contributed to moderate gains — prices would have been up 0.2 percent had the exchange rate remained constant. The raw material price index was up 1.2 percent on the month and 23.7 percent from a year ago. On the month, all RMPI components posted gains with the exception of crop products. Excluding crude energy, prices were up 1.6 percent on the month and gained 5.5 percent on the year.


January gross domestic product was up a much larger than anticipated 0.6 percent. Strength was widespread across goods and service producing industries. With the exception of October, gross domestic product has risen every month since June 2016. On the year, monthly GDP was up 2.3 percent after increasing 2.1 percent in December. Goods producing industries grew for the seventh time in eight months, increasing by 1.1 percent. Service producing industries rose 0.4 percent, their highest monthly growth rate since June 2015. The manufacturing sector was the largest contributor to the increase in gross domestic product, expanding 1.9 percent in January. Durables were up a monthly 2.0 percent while nondurables added 1.8 percent. Retail trade was up 1.5 percent — the sixth increase in seven months, with 10 of the 12 subsectors advancing. The construction sector expanded 0.4 percent. The finance & insurance sector was unchanged as growth in banking and other depository intermediaries was offset by a decline in financial investment services. Activity at insurance carriers was essentially unchanged.


Bottom line

Most economic news was positive last week in Asia, Europe, Canada and the U.S. The major event of the week was the activation of Article 50 by British Prime Minister Theresa May.


The Reserve Banks of India and Australia announce their respective monetary policy decisions. The Federal Reserve publishes minutes from its most recent FOMC meeting. At that time, the FOMC increased the fed funds rate by 25 basis points to 0.75 percent to 1.00 percent. Manufacturing, services and composite PMIs will be released globally. The Bank of Japan publishes its key Tankan Survey. Canada posts its March labour market survey and the U.S. releases its employment situation report.


Looking Ahead: April 3 through April 7, 2017

Central Bank activities
April 4 Australia Reserve Bank of Australia Monetary Policy Announcement
April 5 United States FOMC Minutes Published
April 6 India Reserve Bank of India Monetary Policy Announcement
The following indicators will be released this week...
April 3 Eurozone Manufacturing PMI (March)
Producer Price Index (February)
Unemployment Rate (February)
Germany Manufacturing PMI (March)
France Manufacturing PMI (March)
UK Manufacturing PMI (March)
April 4 Eurozone Retail Sales (February)
April 5 Eurozone Composite & Services PMI (March)
Germany Composite & Services PMI (March)
France Composite & Services PMI (March)
UK Services PMI (March)
April 6 Germany Manufacturing Orders (February)
April 7 Germany Industrial Production (February)
Merchandise Trade (February)
France Industrial Production (February)
Merchandise Trade (February)
UK Industrial Production (February)
Merchandise Trade (February)
Asia Pacific
April 3 Japan Tankan Survey (Q1.2017)
Manufacturing PMI (March)
China Manufacturing PMI (March)
April 4 Australia Merchandise Trade Balance (February)
April 4 Canada Merchandise Trade Balance (February)
April 7 Canada Labour Force Survey (March)


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


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