Markets rebounded last week as the global economy showed unexpected strength. Did investors just get ‘rope a doped’ or is this going to be short lived?
US Data
Weekly initial jobless claims hit the lowest level since 1973, at 253,000[1]. The population was much smaller at that time, which makes this feat that much more impressive.
Core retail sales increased 0.2%. Consumer Prices were flat year over year (YoY), but core prices excluding fuel and food, increased 2.2% YoY[2]. Both factors are good news for the economy, but a word of caution exists in the fact that fuel has kept inflation at bay. Should that change, inflation could become a concern.
To the negative, Consumer sentiment slipped to 89.7 in April from 91.0 and Oil inventories grew more than expected[3]. Oil markets were little impacted by this as prices increased across the week. Mostly on the hopes of a deal to cap production that was planned for Sunday April 17th. As of the time of this article it is known that no such deal was reached.
Eurozone
A bailout package has been designed to save failing Italian banks and has driven a rally in Italian stocks.
An impending June referendum has caused a stall in economic activity in England. Come June, England will vote on the issue of leaving the European Union. Current polling shows it to be an even race.
Japan
Central Bank Chair Kuroda spoke at the University of Columbia last week and reaffirmed that he is willing to do whatever it takes to stabilize the economy. He also expressed concern that the strength in the ¥ has been over played and is causing harm to their economy[4].
China
GDP for the first quarter came in at 6.7% as expected, which is a good sign of stability. Several pieces of data that came out for March, however, point to China playing games with their economy again.
- Fixed Asset Investment YoY: 10.7%
- Industrial Production YoY: 6.8%
- New Loans, March: 1.37 Billion[5]
All these factors point to China not being committed to the conversion to a consumer based economy. These moves are in favor of an industrial production economy.
Brazil
Last week President Dilma Rousseff moved one stepped closer to impeachment. Brazil’s Supreme Court found against her. This caused the scheduling of an impeachment hearing in the lower house of congress for Sunday, April 17th. As of this article the lower house approved her impeachment. Markets have responded favorably to this process as it brings hopes of reform and a return to growth. Although reform is not assured.
Conclusion
As for a ‘rope a dope’ or short lived growth… Well, the answer is yes. For some economies the strength seen last week could be very sustainable while others may be very short-term in nature. Developed country strength all came as the result of consumer activity (fueled by central bank action), while emerging economy strength appears to be reactive and the result of government intervention.
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[1] www.mfs.com – week in review
[2] www.investing.com – economic calendar
[3] www.investing.com – economic calendar
[4] www.troweprice.com – weekly market wrap-up
[5] www.investing.com – economic calendar