Markets steadied a bit last week after the European Union came out with a huge financial package to help indebted European governments raise money.
Stock markets mostly gained last week. The Standard & Poor’s 500 Index rose 2.2 percent to 1,135.68. The STOXX 600 Index rose 4.8 percent to 248.46.
Stock market gains in Asia were more muted. The MSCI Asia Pacific Index rose just 1.3 percent to 120.00.
Markets had surged last Monday after the announcement by the EU of the financial stabilisation package. The package included 440 billion euros in guarantees from eurozone countries plus 60 billion euros in a European stabilisation fund that could be disbursed to help eurozone countries if needed. In addition, the IMF would contribute up to 250 billion euros, bringing the total sum involved to 750 billion euros.
Declines on Friday pared the stock market gains for the week after Deutsche Bank chief executive officer Josef Ackermann said Greece may not be able to repay its debt in full and former Federal Reserve chairman Paul Volcker said he was concerned the euro area may break up. The declines show that investors remain nervous about prospects for resolving the debt crisis.
Indeed, commodities ended the week on a negative note. A sell-down on Friday brought the Reuters/Jefferies CRB Index down 1.1 percent for the week to a three-month low of 258.55.
The euro also fell over the week. It fell 3.1 percent against the US dollar to $1.2358 and 2.1 percent against the Japanese currency to 114.38 yen.
At least the economic data in Europe last week were positive. The EU and the euro area both grew 0.2 percent in the first quarter of 2010, a slight improvement over the 0.1 percent and 0.0 percent growth registered for the fourth quarter of 2009.
Unfortunately, the eurozone country with the most serious debt problem, Greece, contracted 0.8 percent in the first quarter. With fiscal tightening expected over the next few years, things are likely to get much worse for the Greek economy before they get better.
On a more positive note, Spain, another economy facing debt concerns, reported 0.1 percent growth in the first quarter, ending almost two years of recession.
Indeed, according to a report from the Organisation for Economic Co-operation and Development, the economic outlook for the euro area and the developed world in general remains positive. The OECD composite leading indicator for member countries as a whole increased by 0.6 in March. The leading indicator for the United States and Japan increased by 0.8 and 0.9 respectively while the euro area leading indicator increased by 0.5.
Leading indicators reported by Japan last week also pointed to a continuation of its economic recovery. Its composite index of leading indicators jumped 4.4 points in March to 102.8, its biggest gain on record. The diffusion index for current conditions from the economy watchers survey rose to 49.8 in April, its highest in three years, from 47.4 in March, while the index for future conditions rose to 49.9 in April from 47.0 in March.
In the US, economic reports last week were also positive. The reports showed that retail sales increased 0.4 percent in April while industrial production rose 0.8 percent.
Ironically, problems for global growth could come from an unexpected source: emerging economies. The OECD report last week said that its composite leading indicators for Brazil and China decreased by 0.3 in March, indicating "a potential halt in expansion".
Last week's reports from China provided few hints of such a halt though. Industrial output rose 17.8 percent year-on-year in April while retail sales were up 18.5 percent.
However, inflation appears to be accelerating in China and this could provoke further monetary tightening. The rate of consumer price inflation accelerated from 2.4 percent in March to 2.8 percent in April, the highest in 18 months. Property prices jumped 12.8 percent in April, the biggest since records began in 2005.
Already, the Chinese stock market is signalling nervousness about the outlook for the economy and monetary policy. Although the Shanghai Composite Index rose 0.3 percent last week to 2,696.63, it is down 17.7 percent for the year and is 22.3 percent below its highest level in 2009.
That is not a good sign from an economy that is supposed to be one of the key drivers of growth for the rest of the world.
So while investors are mostly focused on Europe at the moment, it is certainly not the only source of risk for global markets.