The market has become cautiously optimistic in March, with bullish U.S. employment figures and a Greek debt deal improving the situation in Europe. Meanwhile, the MSCI global shares index is up around 10% since the beginning of the year and remains more than 20% off of its lows reached during the fourth quarter of last year.
SEE: Forex Outlook For March 2012
Still, there are many risks that threaten to derail the global economic recovery, including continued turmoil in Greece, higher oil prices due to the situation in Iran, and any signs of a more severe slowdown in China. The global economy is expected to be slower this year than it was in 2011, amid less-than-spectacular emerging markets and troubles in Europe.
- U.S. Recovery Picks Up Steam – February was the third consecutive month of U.S. job growth over 200,000. Retail sales and consumer spending were also on the rise that month. But signs of trouble started emerging in March data, where consumer confidence fell unexpectedly as higher gasoline prices put pressure on consumers. (For related reading, see Consumer Spending As A Market Indicator.)
- Europe Shows Signs of Hope – The situation in the European Union (E.U.) was temporarily defused after Greece reached a restructuring agreement with bond holders that opened the doors to more bailout funds. But economists remain skeptical that the country can reach its austerity targets, given failures in the past, while additional bailout funds are likely to be required, and other countries remain in danger.
- Signs of Strength in Japan – Japan's economy showed signs of strength this month, after reporting a disappointing fourth quarter gross domestic product (GDP) last month. The bullish signals led the Bank of Japan (BOJ) to avoid any additional stimulus measures for the time being, but interest rates are to be kept at near zero. The move has helped the Japanese yen recover some ground after a spectacular fall.
- Britain Faces Headwinds – Britain's economy continues to struggle with a so-called "productivity puzzle," in that its workers are failing to become more efficient during the downturn, unlike the U.S. and other countries. But Britain's austerity efforts led to a large surplus last quarter, boosting hopes that it would opt for more economic stimulus packages that could jumpstart its economy. (For related reading, see Austerity: When The Government Tightens Its Belt.)
- Switzerland Recovers Alongside Europe – The Swiss economy has shown signs of recovery amid improvements in the Eurozone. Traders had been using the currency as a safe-haven investment throughout the Eurozone crisis. While the Swiss franc remains overvalued, according to the government, the Swiss National Bank (SNB) is expected to leave interest rates near zero and maintain its current monetary policy.
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