Global markets were divided in March and look to continue to be divided in April, with the U.S. growing strong and eurozone worries persisting. But looking forward into April, traders should watch for potential profit taking in the U.S. after its run-up and a potential bottom for the euro, after the aftermath of the Cyprus decision to tax all depositors has worn off.
U.S. Growth Continues Despite Hurdles
The United States economy has been the subject of much pessimism, especially among those concerned with the effects of budget cuts. While revised Q4 2012 GDP data painted a bleak picture, rising just 0.1% quarter over quarter, these were affected by deep defense cuts, lower inventories and concerns over the “fiscal cliff” and presidential elections.
Nonfarm payrolls that increased by 236,000 and an unemployment rate that sank to 7.7% may provide more reliable pictures of economic growth. The U.S. sequestration may negatively impact growth by about 0.5% of GDP, but the positive economic momentum should be enough to keep the economy growing in spite of these concerns in the eyes of many analysts.
Europe Struggles to Gain Traction
While the U.S. may be showing signs of improvement, the eurozone economy continues to struggle with high unemployment and lackluster growth. The region’s aggregate GDP shrank 0.6% during the fourth quarter of 2012, with Germany contracting 0.6%, France 0.3%, Spain 0.8% and Italy 0.9%, while the area shrank 0.9% in aggregate during FY 2012.
The largest problem facing the eurozone, however, continues to be its employment situation. During the fourth quarter, employment fell 0.3% to its lowest levels in nearly seven years, driven primarily by a 1.4% reduction in Spanish employment. Economists expect the region’s economy to remain stagnant until at least 2014, with about 12% of the population unemployed.
Inflation out of Reach in Japan
Japan’s stock market has soared and the yen has certainly fallen, but economists remain skeptical that a 2% inflation target can be met. The primary hurdle is businesses that remain skeptical that growth and a weak yen will be sustainable long-term, making them hesitant to increase wages and potentially putting pressure on the working class.
But so far, signs seem to be very positive. The government raised its assessment of the economy for the third consecutive month in March, citing a number of different factors favorably influencing the economy. Prime Minister Shinzo Abe has made it his priority to lift the country’s economy out of its chronic deflation that resulted in a “lost decade.”
Britain Moves Toward Triple Dip
Great Britain’s economy has continued to struggle over the past month. George Osborne’s tax increases and spending cuts may have been necessary by some measures, but they have taken their toll on economic growth, despite some 375 billion pounds of quantitative easing and near-zero interest rates that were implemented over the same timeframe.
The country is now reportedly considering bringing its inflation target back up to 2% and broadening the central bank’s mandate to target both inflation and growth. Such measures could lead to a lower valuation for the pound in the near-term, but could potentially boost the country’s long-term growth prospects, if successfully implemented.
Upcoming Events to Watch
April 2 – Germany will release its PMI Manufacturing Index, which expanded last month to 50.3, putting the country in growth territory. Traders will be watching for ongoing growth in the country, particularly given that it’s one of the only eurozone members actually growing.
April 3 – The European Monetary Union will release its HICP Flash, which provides insight into inflation in the eurozone. Eurozone inflation came in at 1.8% in February, which was down from 2.0% in January and 2.7% during the year ago comparison period.
April 5 – Great Britain will release its Producer Price Index and CIPS/PMI Services Index, providing insight into the health of its manufacturing and service economies. In early March, the country released a stronger-than-expected PMI Services reading of 51.8.
April 8 – The Bank of Japan will release its MPB Minutes, providing insight into the country’s monetary policy plans. With three doves now in control of the central bank, traders are expecting to see more monetary easing policies put in place.
April 12 – The European Monetary Union will release its Industrial Production figures, providing insight into the region’s manufacturing economy. In January, the eurozone reported a worse-than-expected drop in factory output, falling 0.4% month over month.
April 17 – Great Britain will release its Labor Market Report, providing insight into the country’s employment situation. In December, the region’s unemployment rose to 7.8% from 7.7% in November, while traders will be watching for any improvements ahead.
Japan will also release its Merchandise Trade report, providing insight into the country’s export economy. In January, the country reached a record monthly deficit of US$17.5 billion, but the weak Japanese yen could help improve these figures later this year.
April 18 – Great Britain will release its Retail Sales data, providing insight into the health of the region’s consumers. In February, retail sales increased 2.7% year over year, reaching their highest rates in years, sparking some optimism of a recovery.
April 25 – Great Britain will release its Gross Domestic Product, providing insight into the overall health of the region’s economy. While economists remain divided on the subject, some analysts believe that the country could see a triple-dip recession during Q1 2013.
Japan will also report its Consumer Price Index, providing insight into the country’s inflation record. While the government is hoping for inflation closer to its 2% target, many analysts believe that the target rate is out of reach, making deflation a key concern.
April 29 – Japan will report its Industrial Production figures, providing insight into the country’s manufacturing industry. In January, the country’s industrial production rose 0.3%, which was lower than the initial 1% reading or December’s 2.4% reading, but still suggestive of a pickup.
April 30 – The European Monetary Union will release its HICP Flash, providing insight into the region’s inflation. Eurozone inflation came in at 1.8% in February, which was down from 2.0% in January and 2.7% during the year ago comparison period.