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A short but volatile week
International Perspective - March 29, 2018
By Anne D. Picker, Chief Economist


Global Markets

After rather smooth sailing in 2017, volatility has returned. In the first quarter of 2018 just concluding, global indexes declined two of three months. Some of the factors that influenced the pickup in volatility are geopolitical concerns especially with North Korea, the potential trade war situation with China and the retreat of technology shares. The worries have been in part offset by positive profits and firming global economic growth. And comments from Treasury Secretary Mnuchin early in the week suggested that negotiations between the U.S. and China are occurring behind the scenes.


Global Stock Market Recap

  2017 2018 % Change
Index Dec 29 March 23 March 29 Week March 2018
Australia All Ordinaries 6167.3 5929.0 5868.91 -1.0% -4.1% -4.8%
Japan Nikkei 225 22764.9 20617.9 21159.08 2.6% -4.1% -7.1%
Topix 1817.56 1664.94 1704.00 2.3% -3.6% -6.2%
Hong Kong Hang Seng 29919.2 30309.3 30093.38 -0.7% -2.4% 0.6%
S. Korea Kospi 2467.5 2416.8 2436.37 0.8% 0.4% -1.3%
Singapore STI 3402.9 3421.4 3427.97 0.2% -2.6% 0.7%
China Shanghai Composite 3307.2 3152.8 3160.53 0.2% -3.0% -4.4%
India Sensex 30 34056.8 32596.54 32968.68 1.1% -3.6% -3.2%
Indonesia Jakarta Composite 6355.7 6210.7 6188.99 -0.3% -6.2% -2.6%
Malaysia KLCI 1796.8 1865.2 1856.35 -0.5% 0.0% 3.3%
Philippines PSEi 8558.4 7970.8 7979.83 0.1% -5.8% -6.8%
Taiwan Taiex 10642.9 10823.3 10845.92 0.2% 0.3% 1.9%
Thailand SET 1753.7 1794.2 1766.92 -1.5% -3.5% 0.8%
UK FTSE 100 7687.8 6921.9 7056.61 1.9% -2.4% -8.2%
France CAC 5312.6 5095.2 5167.30 1.4% -2.9% -2.7%
Germany XETRA DAX 12917.6 11886.3 12096.73 1.8% -2.7% -6.4%
Italy FTSE MIB 21853.3 22289.1 22411.15 0.5% -0.9% 2.6%
Spain IBEX 35 10043.9 9393.1 9600.40 2.2% -2.4% -4.4%
Sweden OMX Stockholm 30 1576.9 1513.2 1535.35 1.5% -3.0% -2.6%
Switzerland SMI 9381.9 8569.1 8740.97 2.0% -1.9% -6.8%
North America
United States Dow 24719.2 23533.20 24103.11 2.4% -3.7% -2.5%
NASDAQ 6903.4 6992.7 7063.44 1.0% -2.9% 2.3%
S&P 500 2673.6 2588.3 2640.87 2.0% -2.7% -1.2%
Canada S&P/TSX Comp. 16209.1 15223.7 15367.29 0.9% -0.5% -5.2%
Mexico Bolsa 49354.4 46515.9 46124.850 -0.8% -2.8% -6.5%


Europe and the UK

Equities advanced on the week but they all retreated for the month of March. Concerns about trade and tumbling U.S. technology shares were offset by opportunities to buy shares at reduced prices following the recent selloff. The FTSE was up 1.9 percent on the week while the CAC gained 1.4 percent, the DAX advanced 1.8 percent and the SMI was 2.0 percent higher. However, for March, the FTSE lost 2.4 percent, the DAC declined 2.9 percent, the DAX slid 2.7 percent and the SMI was 1.9 percent lower.


Among the economic reports issued during the week, March EC sentiment deteriorated for a third consecutive month. Industry sentiment declined but household sentiment was flat. German unemployment edged down to 5.3 percent from 5.4 percent in March. The final reading of UK fourth quarter GDP was up 0.4 percent on the quarter and was up 1.4 percent from a year ago, little changed from the third quarter.


Spain continued to outpace the growth of the other major countries in the Eurozone while the UK continued to lag. As a whole, the Eurozone continued to show signs of strengthening growth in the fourth quarter of 2017. Whether growth will carry over at the same rate in the first quarter remains to be seen. The first quarter is typically a difficult quarter to forecast. Weather often can have an adverse impact on growth.


Asia Pacific

Equities were mixed in the shortened week with five indexes retreating and eight advancing. A combination of weak commodity prices and a continued sell-off in technology shares kept investors on edge ahead of Easter holidays. The ongoing concerns were heightened when U.S. President Trump moved to impose tariffs of Chinese goods and Beijing threatened to retaliate. Gains ranged from 0.1 percent (PSEi) to 2.6 percent (Nikkei). Losses ranged from 0.3 percent (Jakarta Composite) to 1.5 percent (SET). Only two indexes surveyed here managed to record increases for the month of March — most indexes will be closed Friday making March 29 the last day of the month. The Kospi and Taiex added 0.4 percent and 0.3 percent respectively while the KLCI was virtually unchanged.


Although the Nikkei and Topix were up 2.6 percent and 2.3 percent respectively, they tumbled a hefty 4.1 percent and 3.6 percent in the month of March thanks to the ever rising value of the yen, the on-again off again tensions with North Korea and the end of the fiscal year on March 31. While the Bank of Japan protested that it was too soon to consider cutting back on its massive stimulus program, market chatter continued to hint at the possibility of just that. The yen, often sought in times of market turmoil and political tensions as a safe haven, retraced the gains it made against the dollar earlier in the week.


On Monday, New Zealand Finance Minister Grant Robertson and Reserve Bank Governor Adrian Orr signed a new Policy Targets Agreement (PTA) setting out specific targets for maintaining price stability and a new requirement for employment outcomes to be considered in the conduct of monetary policy. In the announcement it noted that the Reserve Bank Act of 1989 is nearly 30 years old. While the single focus on price stability has generally served New Zealand well, there have been significant changes to the New Zealand economy and to monetary policy practices since it was enacted. The changes will be incorporated into the Bank's legislation going forward by adding employment alongside price stability as a dual mandate for the Bank.


In addition to the requirement for the RBNZ to keep future annual CPI inflation in the 1 percent and 3 percent range over the medium-term, with a focus on keeping future inflation near the 2 percent mid-point, now it requires monetary policy to be conducted so that it contributes to supporting maximum levels of sustainable employment within the economy.


In addition, a change to the way policy decisions are made is also included. In the past, the Governor had the sole authority for monetary policy decisions. Going forward it will be in the hands of a committee similar to that of the Bank of England. The RBNZ has agreed to a committee of five to seven voting members for a Monetary Policy Committee. The majority of members will be Reserve Bank internal staff, and a minority will be external members. The Reserve Bank Governor will be the chair. The MPC is expected to begin operation in 2019 following passage of amending legislation to the bank act.



The U.S. dollar advanced against its major counterparts including the yen, euro, pound sterling, Swiss franc and the Australian dollar on the week. The Canadian dollar was changed against its U.S. counterpart. The dollar rallied Wednesday and held on to its gains Thursday, but traders said the outlook for the currency remained negative as it headed for its fourth consecutive quarter of losses. Quarter-end and month-end flows also boosted the dollar as global asset and fund managers rebalanced portfolios. Analysts said the dollar's jump on the week looked overdone however, and many of the structural reasons for the U.S. currency's decline — trade and budget deficits and monetary tightening in other parts of the world — remained.


Global markets were shaken this month when U.S. President Donald Trump moved to impose tariffs on Chinese goods and Beijing threatened retaliatory measures. But fears of a full-blown trade war have eased on hopes negotiations can bring a compromise. This encouraged investors to buy the dollar.


The euro has been weighed down recently by comments from some European Central Bank officials suggesting the ECB is in no hurry to curtail its stimulus, given the spectre of low inflation. But earlier in the week, the euro jumped after German Bundesbank President and ECB Governing Council member Jens Weidmann sounded hawkish about normalizing monetary policy. That builds on similar comments that he made last month and could add to talk that he's too hawkish to become the next ECB president.


Selected currencies — weekly results

2017 2018 % Change
Dec 29 March 23 March 29 Week 2018
U.S. $ per currency
Australia A$ 0.779 0.770 0.768 -0.2% -1.4%
New Zealand NZ$ 0.709 0.724 0.723 -0.2% 2.0%
Canada C$ 0.796 0.777 0.777 0.0% -2.4%
Eurozone euro (€) 1.194 1.236 1.230 -0.4% 3.0%
UK pound sterling (£) 1.344 1.414 1.403 -0.7% 4.4%
Currency per U.S. $
China yuan 6.534 6.316 6.290 0.4% 3.9%
Hong Kong HK$* 7.816 7.845 7.848 0.0% -0.4%
India rupee 64.081 65.013 65.178 -0.3% -1.7%
Japan yen 112.850 104.850 106.480 -1.5% 6.0%
Malaysia ringgit 4.067 3.919 3.869 1.3% 5.1%
Singapore Singapore $ 1.338 1.315 1.311 0.3% 2.1%
South Korea won 1070.630 1082.350 1065.930 1.5% 0.4%
Taiwan Taiwan $ 29.775 29.165 29.171 0.0% 2.1%
Thailand baht 32.696 31.210 31.241 -0.1% 4.7%
Switzerland Swiss franc 0.979 0.9469 0.956 -1.0% 2.3%
*Pegged to U.S. dollar
Source: Bloomberg


Indicator scoreboard


February M3 money supply was up 4.2 percent on the year and the weakest growth since February 2015. It was also the fifth consecutive decline since peaking at 5.2 percent in September last year. As a result, the 3-month moving average slipped to 4.4 percent from 4.7 percent. The headline deceleration reflected slower growth of private sector lending which was off 0.2 percentage points at 2.7 percent, although this was still among the fastest rates seen since the middle of 2009. When adjusted for loan sales and securitization, lending expanded 3.0 percent — down 0.3 percentage points from last time. Within this, overall borrowing by households (3.0 percent after 3.1 percent) was checked by mortgage lending (2.9 percent after 3.1 percent) but credit for consumption (7.3 percent after 7.2 percent) edged firmer. Loans to non-financial corporations (1.9 percent after 2.3 percent) decelerated markedly.


March Eurozone economic sentiment (ESI) deteriorated for a third straight month. At 112.6, the EU Commission's yardstick was down a surprisingly large 1.6 points from a marginally firmer revised February print to record its weakest reading since last September. The latest decline in part reflected reduced optimism in industry (6.4 after 8.0) and services (16.3 after 17.6), the former touching a 7-month low and the latter a 5-month trough. However, morale in retail (1.6 after 4.5) also posted a marked decline. With household confidence (0.1) flat, that left construction (5.2 after 4.3) to record the only improvement. Across the region, there were decreases in national ESIs in France (109.5 after 109.9), Germany (112.0 after 114.4), Italy (109.8 after 111.6) and Spain (109.0 after 110.2).


United Kingdom

Fourth quarter gross domestic product was unrevised at 0.4 percent on the quarter, a tick short of the third quarter's increase of 0.5 percent. The annual expansion rate similarly matched last month's estimate of 1.4 percent but was also unchanged from its July-September reading. Among the GDP expenditure components, household consumption gained a quarterly 0.3 percent and gross fixed capital formation was up1.1 percent. Within the latter, business investment was revised up from flat to 0.3 percent. However, government consumption was trimmed a couple of ticks to 0.4 percent. Net foreign trade was slightly less negative than previously thought. With exports falling a sharper revised 0.9 percent and imports increasing a shallower revised 0.4 percent, the net drag was 0.4 percentage points after the 0.5 percentage points reported last time. Even so, the nominal current account shortfall weighed in at a still sizeable £18.44 billion, albeit a minor improvement on the downwardly revised £19.17 billion for the third quarter.




January real gross domestic product edged down a monthly 0.1 percent, offsetting part of the 0.2 percent growth in December. The decline was mainly the result of lower output of non-conventional oil extraction and decreased activity in real estate. The 20 industrial sectors were evenly split between increases and decreases. On the year, GDP was up 2.7 percent. Services-producing industries were essentially unchanged as a decline in real estate & rental & leasing was offset by increases in the wholesale, retail and finance & insurance sectors. Retail trade was up 0.2 percent with its 12 subsectors evenly split between increases and decreases. The construction sector gained 0.5 percent, with increases in the majority of subsectors. The finance & insurance sector grew 0.3 percent in January. Manufacturing was up a monthly 0.7 percent. The gain came from a 1.6 percent increase in non-durable manufacturing, while durable manufacturing was essentially unchanged as 4 of 10 subsectors contracted in January.


Bottom line

In the holiday shortened trading week, investors' nerves were tested by flaring trade war concerns and tumbling technology shares. Volatility was once again an issue. Most economic data were positive. There were no central bank meetings.


The Reserve Banks of India and Australia announce their respective monetary policies — no change is anticipated. Manufacturing, services and composite PMIs will be posted throughout the week. Japan reports its first quarter Bank of Japan Tankan Survey. Both Canada and the U.S. release March employment data and February international trade balances.


Looking Ahead: April 2 through April 6, 2018

Central Bank activities
April 3 Australia Reserve Bank of Australia Monetary Policy Announcement
April 5 India Reserve Bank of India Monetary Policy Announcement
The following indicators will be released this week...
April 3 Eurozone Manufacturing PMI (March)
Germany Manufacturing PMI (March)
Retail Sales (February)
France Manufacturing PMI (March)
UK Manufacturing PMI (March)
April 4 Eurozone Harmonized Index of Consumer Prices (March flash)
April 5 Eurozone Services & Composite PMI (March)
Retail Sales (February)
Germany Manufacturers Orders (February)
Services & Composite PMI (March)
France Services & Composite PMI (March)
UK Services PMI (March)
April 6 Germany Industrial Production (February)
France Merchandise Trade (February)
Asia Pacific
April 2 Japan Tankan Survey (Q1.2018)
Manufacturing PMI (March)
China Manufacturing PMI (March)
April 4 Japan Services PMI (March)
April 5 Canada International Trade (February)
April 6 Canada Labour Force Survey (March)


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


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