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There is an election in your future
International Perspective - April 21, 2017
By Anne D. Picker, Chief Economist


Global Markets

Geopolitical issues remained high on investors' list of worries thanks to the upcoming weekend's French presidential election and sabre rattling on the Korean peninsula. A spate of better than expected earnings reports helped to offset some of the concerns. Another election was added to the 2017 calendar when UK Prime Minister Theresa May called a snap election for June 8. The first round of the French presidential election takes place on Sunday April 24. Should there be no outright winner, a second round run-off ballot between the two best performers will be held on May seventh. Germany's national election is scheduled for Sunday, September 24.


Equities in the Asia Pacific and in Europe were lower on the week while those in North America advanced.


Global Stock Market Recap

  2016 2017 % Change
Index Dec 31 April 14 April 21 Week 2017
Australia All Ordinaries 5719.1 5925.9 5885.65 -0.7% 2.9%
Japan Nikkei 225 19114.4 18335.6 18620.75 1.6% -2.6%
Topix 1518.61 1459.07 1488.58 2.0% -2.0%
Hong Kong Hang Seng 22000.6 24261.7 24042.02 -0.9% 9.3%
S. Korea Kospi 2026.5 2134.9 2165.04 1.4% 6.8%
Singapore STI 2880.8 3169.2 3139.83 -0.9% 9.0%
China Shanghai Composite 3103.6 3246.1 3173.15 -2.2% 2.2%
India Sensex 30 26626.5 29461.45 29365.30 -0.3% 10.3%
Indonesia Jakarta Composite 5296.7 5616.6 5664.48 0.9% 6.9%
Malaysia KLCI 1641.7 1731.0 1756.05 1.4% 7.0%
Philippines PSEi 6840.6 7629.6 7578.16 -0.7% 10.8%
Taiwan Taiex 9253.5 9732.9 9717.41 -0.2% 5.0%
Thailand SET 1542.9 1589.5 1570.02 -1.2% 1.8%
UK FTSE 100 7142.8 7327.6 7114.55 -2.9% -0.4%
France CAC 4862.3 5071.1 5059.20 -0.2% 4.0%
Germany XETRA DAX 11481.1 12109.0 12048.57 -0.5% 4.9%
Italy FTSE MIB 19234.6 19773.7 19741.75 -0.2% 2.6%
Spain IBEX 35 9352.1 10326.1 10377.00 0.5% 11.0%
Sweden OMX Stockholm 30 1517.2 1572.8 1573.25 0.0% 3.7%
Switzerland SMI 8219.9 8629.0 8553.99 -0.9% 4.1%
North America
United States Dow 19762.6 20453.25 20547.76 0.5% 4.0%
NASDAQ 5383.1 5805.2 5910.52 1.8% 9.8%
S&P 500 2238.8 2329.0 2348.69 0.8% 4.9%
Canada S&P/TSX Comp. 15287.6 15535.5 15614.48 0.5% 2.1%
Mexico Bolsa 45642.9 48955.8 48967.830 0.0% 7.3%


Europe and the UK

Equities were mostly lower on the week. Investors were cautious in the run-up to the French election to be held this Sunday with the results too close to call according to recent polls. The FTSE dropped 2.9 percent and is now down for the year. The FTSE declined and the pound sterling climbed after Prime Minister Theresa May shocked markets and announced a snap election to be held on June 8. The CAC slipped 0.2 percent in pre-voting trade, the DAX was down 0.5 percent and the SMI lost 0.9 percent. Europe's earnings season kicks off in earnest next week.


Although stocks had been sliding in previous weeks, the FTSE tumbled after UK Prime Minister Theresa May called the snap general election. On Wednesday, the FTSE erased its yearly gain after falling for four straight sessions. The move to call an election Tuesday spurred a rally in the pound sterling and sent it to its highest since October. Analysts suggested that sterling's surge was based on hopes for a bigger Conservative majority in parliament, which could put the UK in a stronger position to negotiate Brexit with the European Union.


A stronger pound tends to weigh on the financial results of the index's many multinationals that make the bulk of their earnings overseas sending the FTSE lower. The Prime Minister won a vote in the House of Commons on Wednesday by 522 to 13, allowing her to press ahead with an early general election on June 8. The motion overrode the Fixed-term Parliaments Act, which had set May 7 2020 as the date of the next election. That is now moved to 2022. Only last month Mrs May had ruled out an early election, saying it would be "self-serving" and would create uncertainty.


Most of the economic data released in Europe were positive with the exceptions of German producer prices which increased less than anticipated and UK retail sales — they tumbled 1.8 percent on the month. However, on the upside were the flash April PMIs. April euro area manufacturing PMI added 0.6 points to a reading of 56.8 while the services PMI added 0.2 points to 56.2 and the composite was up 0.3 points to 56.7 — the highest since April 2011. The February merchandise trade surplus widened and consumer confidence was higher in the flash April reading. The breakeven point between increases and declines is a reading of 50.


Asia Pacific

Geopolitical concerns that weighed on equities during the week were only offset partially by positive earnings reports. As a result, equity indexes were mixed during the week. Five of 13 indexes followed here advanced while eight retreated. Remarks by U.S. Treasury Secretary Steven Mnuchin indicated that the Trump administration would introduce a major tax reform plan "very soon", regardless of the outcome of a healthcare overhaul bill. On the week, gains ranged from 0.9 percent for the Jakarta Composite to 2.0 percent for the Topix and 1.6 percent for the Nikkei. This was the first positive week for Japanese equities since the week of March 10.


Japanese equities continue to fluctuate with the value of the safe haven yen against the U.S. dollar. Bank of Japan's governor Haruhiko Kuroda said in an interview Thursday that the BoJ will continue with very accommodative monetary policy for some time to ensure price stability. The Bank holds a monetary policy meeting on April 26 and 27 local time. Stocks here were also bolstered by the possibility that U.S. tax reforms are gaining traction. March merchandise trade surplus declined to ¥614.722 billion from ¥813.546 billion the month before. Exports and imports were up 12.0 percent and 15.8 percent respectively from a year ago.


Most other Asian markets retreated — risk sentiment was tepid, with investors fretting over the possibility of increased tensions between the U.S. and North Korea. Caution before the first round of French presidential elections Sunday also kept investors on edge.


Focus was on the latest growth data from China. First quarter gross domestic product increased 6.9 percent from a year ago after rising 6.8 percent in the fourth quarter and 6.7 percent in the four preceding quarters. Industrial output for the first quarter improved to 6.8 percent from a year ago after increasing 6.0 percent in the fourth quarter while retail sales eased slightly to 10.0 from 10.4 percent. Official data show that China's economy has grown in a range of 6.7 percent to 7.2 percent for the last 11 quarters — an amazingly long period of stability by international standards. For a frame of reference — U.S. growth can move by one or two full percentage points from quarter to quarter.



The U.S. dollar was mixed against its major counterparts last week. It advanced against the yen and the Canadian and Australian dollars. However, it retreated against the euro, pound sterling and Swiss franc. The currency's decline eased after Treasury Secretary Steven Mnuchin said the administration plans to release its tax reform proposal "very soon" and promised that a sweeping overhaul of the tax code will get done. However, the dollar has declined with hopes fading that the administration will be able to deliver on its legislative agenda.


The UK's pound sterling declined against all but one of its Group of 10 peers on disappointing retail sales data and after Chancellor of the Exchequer Philip Hammond said the government needs to "restate" its fiscal mandate in the next parliament. Sterling pared its biggest weekly advance this year against the U.S. dollar after March retail sales recorded their largest drop in seven years in the first quarter. Sterling extended its decline after Hammond said in Washington that the 2015 Conservative Party manifesto limited its ability to manage the economy.


Selected currencies — weekly results

2016 2017 % Change
Dec 30 April 14 April 21 Week 2016
U.S. $ per currency
Australia A$ 0.7215 0.758 0.754 -0.6% 4.5%
New Zealand NZ$ 0.6948 0.701 0.703 0.4% 1.2%
Canada C$ 0.7443 0.751 0.741 -1.3% -0.5%
Eurozone euro (€) 1.0534 1.062 1.070 0.8% 1.6%
UK pound sterling (£) 1.2333 1.253 1.280 2.1% 3.8%
Currency per U.S. $
China yuan 6.9450 6.885 6.886 0.0% 0.9%
Hong Kong HK$* 7.7533 7.773 7.776 0.0% -0.3%
India rupee 67.9238 64.411 64.613 -0.3% 5.1%
Japan yen 116.8100 108.620 109.130 -0.5% 7.0%
Malaysia ringgit 4.4862 4.407 4.399 0.2% 2.0%
Singapore Singapore $ 1.4465 1.397 1.396 0.1% 3.6%
South Korea won 1205.8300 1139.900 1134.300 0.5% 6.3%
Taiwan Taiwan $ 32.3260 30.369 30.342 0.1% 6.5%
Thailand baht 35.8100 34.340 34.372 -0.1% 4.2%
Switzerland Swiss franc 1.0174 1.0043 0.9975 0.7% 2.0%
*Pegged to U.S. dollar
Source: Bloomberg



The sell-off in crude oil continued apace Friday, with West Texas Intermediate dropping below the $50-a-barrel mark for the first time in over two weeks as investors question OPEC's ability to bring down excess stockpiles. Oil has declined since data on Wednesday showed an unexpected increase in weekly U.S. gasoline stockpiles. Despite an historic agreement between OPEC and major non-OPEC producers to curb production, oil prices have been held back by concerns over North American drillers, which have ramped up production on the stabilization in crude prices.


In its weekly report, Baker Hughes said the number of rigs drilling for crude in the U.S. rose for a 14th consecutive week. The number of rigs exploring for oil and natural gas in the U.S. climbed 10 to 857. A year ago, only 431 rigs were active. According to Baker Hughes 688 rigs sought oil and 167 explored for natural gas this week.


Indicator scoreboard


Final March harmonized index of consumer prices was up 0.8 percent on the month and up 1.5 percent from the same month a year ago. The core rates were soft, although excluding energy & unprocessed food, the annual rate was revised to 0.8 percent from 0.7 percent. Without energy, food, alcohol & tobacco and omitting just energy & seasonal food, the rate was 0.7 percent — in both cases 0.2 percentage points short of the 0.9 percent mark posted by all three gauges in the final February report. The data however, appear to have been quite heavily distorted by the timing of Easter with the early holiday in 2016 (and accompanying seasonal bounce in prices) biasing down last month's annual change.


April flash composite output index weighed in at 56.7, its strongest print in six years. The increase was attributable a broad-based increase business activity rates. The manufacturing flash PMI advanced 0.6 points to 56.8 while services climbed 0.2 points to 56.2. Both were 72-month peaks. Manufacturing output (58.0) was especially robust and the largest new orders increase since March 2011 bodes well for coming months. By contrast, new business growth in services slowed and confidence in the year ahead here dipped to a 3-month low. Still, backlogs were up sharply again in both sectors as was employment which, at the aggregate level, saw its strongest increase since July 2007. As a result, overall confidence climbed to a record high. Price pressures remained elevated with cost inflation moving back up to equal February's near 6-year peak and growth of selling prices only just short of March's multi-year high. Output growth in France (57.4) continued to accelerate and even outstripped a slightly disappointing Germany (56.3). However, both countries recorded healthy gains and elsewhere in the region growth saw its best performance since July 2007. The results in Europe outweighed those in both Japan and the U.S.


United Kingdom

March retail sales dropped a monthly 1.8 percent while annual growth dropped from 3.7 percent to 1.7 percent. Excluding auto fuel purchases declined a slightly smaller 1.5 percent from February to stand 2.6 percent higher on the year, down from 4.1 percent last time. March's setback means that overall sales have fallen in four of the last five months. The latest decline would have been steeper but for a relatively modest 0.5 percent monthly contraction in the food sector. Excluding auto fuel, non-food was down a hefty 2.4 percent, almost offsetting February's 2.6 percent surge. The other stores category posted a 7.7 percent tumbled and this was compounded by sizeable reversals in non-store retailing (1.6 percent) and textiles, clothing & footwear (0.9 percent). With household goods flat and auto fuel down 4.6 percent, only non-specialized stores (1.4 percent) recorded any monthly growth.




March merchandise trade surplus narrowed to ¥614.7 billion from ¥813.4 billion in February. Exports increased 12.0 percent on the year, up from 11.3 percent in February. Imports were up 15.8 percent on the year after increasing 1.2 percent in February. Exports to most of Japan's major Asian trading partners showed strong growth. Exports to China were up 16.4 percent, while exports to Korea and Taiwan were up 29.0 percent and 12.0 percent respectively. Demand was more subdued but still positive elsewhere, with exports to the United States up 3.5 percent on the year and those to the European Union advancing 1.4 percent. Higher global oil prices were the main factor driving the acceleration in headline import growth in March. Although the volume of Japan's imports of petroleum fell 16.8 percent on the year, their value soared 45.7 percent. Higher prices for metals, iron and steel, coal and liquid petroleum gas imports also contributed to the stronger headline growth.



First quarter gross domestic product was up 6.9 percent from the same quarter a year ago after increasing 6.8 percent in the fourth quarter. On the quarter, GDP was up 1.3 percent, down from the fourth quarter's 1.7 percent increase. The data continue a pattern of stability in reported GDP growth. China's government delivered significant fiscal stimulus in 2016 to help meet the government's growth target of 6.5 percent to 7.0 percent. Official estimates show China's economy grew by 6.7 percent last year, near the middle of this target range but also the weakest reported annual growth for more than 20 years.


March industrial production was up 7.6 percent on the year and up from 6.3 percent for the combined months of January and February. Industrial production data are not reported separately for January and February due to distortions caused each year by the timing of lunar new year holidays. Output was up 0.83 percent on the month. The increase in annual growth reflects stronger output growth in manufacturing (up from 6.9 percent to 8.0 percent) and utilities (up from 8.4 percent to 9.7 percent). Mining output declined 0.8 percent on the year in March, but this was an improvement from the drop of 3.6 percent for January and February.


March retail sales were up 10.9 from a year ago and up from 9.5 percent for January and February combined. Retail sales data are not reported separately for January and February due to distortions caused each year by the timing of lunar new year holidays. Sales advanced 0.84 percent on the month in March. The annual increase was broad-based with nine of the 12 reported spending categories posting stronger growth in March. Auto sales, in particular, have rebounded strongly, up 8.6 percent after falling by 1.0 percent in January and February. Annual urban retail sales accelerated from 9.2 percent for January and February combined to 10.7 percent in March, while rural retail sales growth advanced from 11.8 percent to 12.2 percent.




March consumer price index was up a monthly 0.2 percent and 1.6 percent on the year. The March CPI was lower than in February when it increased 0.3 percent and 2.0 percent. Excluding food and energy, the CPI increased 0.3 percent on the month and 1.7 percent from a year ago. On the year, prices were up in five of the eight major components with the transportation and shelter contributing the most to the annual increase. The food and clothing & footwear declined on the year while the household operations, furnishings & equipment index was unchanged. On a seasonally adjusted monthly basis, the CPI declined 0.2 percent after falling 0.3 percent in February. In March, three major components decreased on a seasonally adjusted monthly basis and five increased. On a seasonally adjusted monthly basis in March, the transportation index was down 1.1 percent posting the largest decline, while the recreation, education & reading index was up 0.6 percent.


Bottom line

Geopolitical events dominated the week with the surprise call for a snap election in the UK and the ongoing campaigning in France with the first round election on Sunday, April 23. China released its quarterly growth data that indicated improvement in the country's economy.


In the upcoming week, both the Bank of Japan and the European Central Bank meet — neither is likely to change its monetary policy. The ECB will do little if anything given the easing of inflation in March along with the considerable risks of the French elections. The BoJ has widest gap to close among key central banks in terms of its inflation target. Given the yen's recent strengthening, the BoJ will be reluctant to go anywhere near discussing changes in its policy stance. It is a very heavy data week globally. In Europe, first quarter growth data will be released in the UK and France. Japan releases its slew of end of month data. March data for consumer prices, household spending, retail sales, unemployment and industrial production will be reported. And in Australia, the important quarterly consumer price index will be released.


Looking Ahead: April 24 through April 28, 2017

Central Bank activities
April 26 Japan Bank of Japan Monetary Policy Announcement
April 27 Eurozone European Central Bank Monetary Policy Announcement
The following indicators will be released this week...
April 24 Germany Ifo Business Survey (April)
April 27 Eurozone EC Consumer & Business Sentiment (April)
April 28 Eurozone M3 Money Supply (March)
Harmonized Index of Consumer Prices (April flash)
Germany Retail Sales (March)
France Gross Domestic Product (Q1. 2017 flash)
Consumption of Manufactured Goods (March)
UK Gross Domestic Product (Q1. 2017)
Asia Pacific
April 26 Australia Consumer Price Index (Q1.2017)
April 28 Japan Household Spending (March)
Consumer Price Index (March)
Unemployment Rate (March)
Retail Sales (March)
Industrial Production (March)
Australia Producer Price Index (Q1.2017)
April 26 Canada Retail Sales (February)
April 28 Canada Monthly Gross Domestic Product (February)
industrial Product Price Index (March)


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


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