Markets turbulent as OECD indicator reaches prior peaks

Last week turned out to be a highly turbulent one as investors reacted to events in Japan and the Arab world.

In Japan, the earthquake that struck on 11 March created a nuclear crisis after cooling systems at a nuclear plant failed after being hit by a tsunami while in the Arab world, the political turmoil escalated as protests flared up in countries like Yemen and Bahrain even as Libyan leader Muammar Gaddafi continued to attack rebels fighting to topple his regime.

Stock markets around the world fell last week. The Standard & Poor's 500 Index fell 1.9 percent to 1,279.20 last week, its second consecutive week of decline. The Stoxx Europe 600 Index fell 2.8 percent to 267.63 last week, its biggest weekly drop since July last year.

Not surprisingly, Japan saw the biggest fall, with the Nikkei 225 Stock Average plunging 10.2 percent to 9,206.75 last week. The MSCI Asia Pacific ex Japan Index fell 1.6 percent to 452.76.

The yen rose early in the week on speculation Japanese investors would repatriate funds following the earthquake. However, intervention by the Group of Seven near the end of the week helped stem the rise. The yen finished the week at 80.58 per dollar last week, up 1.54 percent, but was down 0.5 percent against the euro.

After fluctuating throughout the week as investors took into account both the expected drop in demand for oil in Japan following the earthquake and the potential supply disruptions in Libya and the Middle East because of political violence, crude oil finished little changed. US light sweet crude for April delivery closed at $101.07 on Friday to finish down 0.1 percent for the week.

Gold suffered a similar fate. Gold for April delivery closed in the US at $1,416.10 on Friday, down 0.4 percent for the week.

While investors mostly reacted to the news from Japan and the Arab world, economic data released last week were relatively positive.

In the United States, the Conference Board's index of leading economic indicators rose 0.8 percent in February. And although the Economic Cycle Research Institute's weekly leading index fell to 130.4 in the week ended 11 March from 130.9 in the previous week, the index's annualised growth rate rose to 7.1 percent, the highest since May 2010, from 6.8 percent a week earlier.

Leading indicators for the global economy published last week were also positive. The Organisation for Economic Co-operation and Development's composite leading indicator for member countries as a whole rose to 103.1 in January from 102.8 in December. This is the highest level since June 2007.

In fact, the OECD composite leading indicator is essentially around the level where it had peaked in the previous two economic cycles. In 2000, the CLI had peaked at 102.9. In 2007, it had peaked at 103.2.

Obviously, if the current level turns out to be another peak, then the outlook for the global economy beyond the next few months would not be that good.

We will know in a few months' time whether this is indeed the case.