Eurozone confidence falls, US consumer spending rises

Economic data on Monday were mixed.

In the euro area, the economic sentiment indicator fell to 88.6 in April from 90.1 in March.

In Germany, prices fell 0.5 percent in April, pulling the inflation rate down to 1.1 percent, the lowest since August 2010, from 1.8 percent in March.

However, in the US, consumer spending grew 0.2 percent in March, as did personal income, while pending home sales jumped 1.5 percent last month after having fallen 1.0 in February.

Investors appear to be comfortable with the data. Stocks rose on Monday, with the S&P 500 climbing 0.7 percent to a record high and the STOXX Europe 600 gaining 0.5 percent. The euro strengthened 0.5 percent against the dollar.

In Italy, yields on 10-year bonds fell 15 basis points to 3.91 percent as the government sold 6 billion euros of five- and 10-year bonds at the lowest yield since 2010. This came after Italy's new prime minister Enrico Letta formed a new government over the weekend, ending a two-month political stalemate.

First quarter sees rebound in economic growth

Last week's economic data showed rebounds in growth for the United States and the United Kingdom in the first quarter.

In the UK, real gross domestic product grew 0.3 percent in the first quarter, reversing the 0.3 percent decline in the previous quarter.

In the US, the economy grew at an annualised rate of 2.5 percent in the first quarter, rebounding after growth had slowed to a 0.4 percent rate in the final quarter of last year.

Other reports from the US last week indicated that growth has probably weakened since the first quarter though.

Durable goods orders fell 5.7 percent in March, more than reversing the 4.3 percent increase in February.

Further indication of weaker growth in US manufacturing came from Markit's purchasing managers survey. The flash reading of the manufacturing index for April came in at 52.0, down from 54.6 in March.

US consumer spending may also weaken. While the GDP report showed a rebound in consumer spending growth to 3.2 percent in the first quarter from 1.8 percent in the previous quarter, the Thomson Reuters/University of Michigan index of consumer sentiment declined to 76.4 in April from 78.6 in March.

US housing data last week were mixed. Existing home sales fell 0.6 percent but new home sales, a leading indicator of the economy, rose 1.5 percent in March.

Elsewhere in the world, economic data from the euro area last week mostly indicated weakness.

Markit's flash composite index for the euro area based on purchasing managers surveys came in at 46.5 in April, unchanged from March. The services index rose to 46.6 in April from 46.4 in March but the manufacturing index fell to 46.5 from 46.8.

In Germany, the euro area's biggest economy, the Ifo business climate index fell to 104.4 in April from 106.7 in March.

Consumer confidence in the euro area did improve to -22.3 in April from -23.5 in March though.

Meanwhile, China's economy may also be slowing.

Data over the weekend showed that profits from industrial companies in China grew 5.3 percent in March from a year earlier, down from 17.2 percent growth in the first two months.

Earlier last week, a flash reading of HSBC's manufacturing index for China came in at 50.5 in April, down from 51.6 in March.

BoJ sees end to Japan's deflation, US growth rebounds less than expected

Japan reported on Friday that its consumer prices excluding fresh food fell 0.5 percent in March from the previous year, signalling continued deflation.

There was no immediate reaction from the Bank of Japan. Its latest monetary policy meeting ended on Friday without new policy action.

Instead, the BoJ raised its forecasts for growth and inflation. The economy is now expected to grow 2.9 percent for the fiscal year to March, up from an earlier 2.3 percent projection in January. Inflation is expected to hit 0.7 percent, up from an earlier 0.4 percent projection.

In the US, a report on Friday showed that the economy rebounded in the first quarter to grow at a 2.5 percent annualised rate after having grown at a 0.4 percent rate in the previous quarter. However, the first quarter growth was less than the 3 percent growth estimated by economists surveyed by Bloomberg.

Another report from the US on Friday showed that the Thomson Reuters/University of Michigan final index of consumer sentiment declined to 76.4 in April from 78.6 a month earlier. The preliminary April reading had been 72.3.

The weaker-than-expected growth in the US economy helped push the US dollar down 1.2 percent against the yen on Friday. The yen also rose 1.1 percent versus the euro.

Central banks buy gold and equities, UK economy rebounds

It looks like central banks were among the losers from the recent fall in gold prices. From Bloomberg:

Central banks bought the most gold since 1964 last year just before the collapse in prices into a bear market underscored investors’ weakening faith in the world’s traditional store of value...

Central banks are the biggest losers, with about $560 billion of value erased since gold reached a record $1,921.15 an ounce in September 2011...

Some people think central banks are not very good at timing markets.

“They sell at the wrong time and buy at the wrong time,” said Walter “Bucky” Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama. “They aren’t traders. They are looking at it as a long-term holding, as an ultimate reserve currency. With the benefit of hindsight, they tend to get it wrong more often than not.”

That may not be good news for stocks as central banks have apparently also been buying or are planning to buy equities. Again from Bloomberg:

Central banks, guardians of the world’s $11 trillion in foreign-exchange reserves, are buying stocks in record amounts as falling bond yields push even risk- averse investors toward equities.

In a survey of 60 central bankers this month by Central Banking Publications and Royal Bank of Scotland Group Plc, 23 percent said they own shares or plan to buy them. The Bank of Japan, holder of the second-biggest reserves, said April 4 it will more than double investments in equity exchange-traded funds to 3.5 trillion yen ($35.2 billion) by 2014. The Bank of Israel bought stocks for the first time last year while the Swiss National Bank and the Czech National Bank have boosted their holdings to at least 10 percent of reserves.

Still, both gold and stocks rose on Thursday, with the STOXX Europe 600 in particular rising 0.8 percent for its fifth consecutive day of gains.

Positive economic reports from Europe helped buoy investor sentiment.

In the UK, the economy grew 0.3 percent in the first quarter, reversing the 0.3 percent decline in the previous quarter and thus avoiding a recession.

In Germany, the government raised its forecast for growth in 2013 to 0.5 percent from 0.4 percent.

US durable goods orders and Ifo index fall

Economic data on Wednesday were weak.

In the US, durable goods orders fell 5.7 percent in March after having risen 4.3 percent in February. Excluding transportation equipment, orders fell 1.4 percent in March after falling 1.7 percent the prior month.

Somewhat more encouragingly, orders for non-defense capital goods excluding aircraft rose 0.2 percent.

In Germany, Ifo's business climate index fell to 104.4 in April from 106.7 in March, its second consecutive decline.

In the UK, mortgage approvals were 1.2 percent lower in March compared to a year ago as net mortgage lending shrank by 328 million pounds last month and retail sales fell in April.

Despite the weak economic data, markets were mostly steady on Wednesday. Copper rebounded 2 percent, its first gain in four days after falling into a bear market on April 19. Gold rose 1 percent and European stocks rallied for a fourth day.

Markets rise as manufacturing slows

Markets ended positively on Tuesday, especially in Europe, where the STOXX Europe 600 Index jumped 2.4 percent, the biggest rise since 3 August. In the US, the S&P 500 rose 1.0 percent.

European government bonds also rose on Tuesday. The yield on Italy's 10-year government bonds in particular fell as much as 17 basis points to 3.89 percent, the lowest since 27 October 2010, while the two-year yield touched 1.125 percent, the lowest since Bloomberg began compiling the data in 1993.

Raised expectations for a rate cut from the European Central Bank may have helped boost markets after Markit's composite index for the euro area remained in contraction territory in April, staying unchanged from March at 46.5 based on a flash reading released on Tuesday. The services index rose to 46.6 in April from 46.4 in March while the manufacturing index fell to 46.5 from 46.8.

Meanwhile, manufacturing activity in China slowed in April. HSBC's flash manufacturing PMI came in at 50.5, down from 51.6 in March.

US manufacturing activity also slowed in April. Markit's flash US manufacturing PMI fell to 52.0 from 54.6 in March.

Another report from the US on Tuesday showed that new home sales increased 1.5 percent in March.

European bonds rise with consumer confidence, US growth slows

Europe's financial and economic problems showed further signs of easing on Monday.

Italy’s government bonds rose, pushing the two-year yield down 10 basis points to a record low of 1.24 percent, after Giorgio Napolitano was re-elected as president over the weekend.

Spanish bonds also rose on Monday, the 10-year yield falling 12 basis points to 4.50 percent, the lowest since November 2010, even as a report from Eurostat showed that the country's budget deficit widened to 10.6 percent of gross domestic product last year.

Another report on Monday showed that consumer confidence in the euro area rose to -22.3 in April from -23.5 in March.

In the US, though, the Chicago Fed's National Activity Index fell to -0.23 in March from +0.76 in February. The three-month average fell to -0.01 from +0.12.

According to the Chicago Fed, the three-month average showed that economic growth “was very near its historical trend” and that inflationary pressure is “subdued”.

Another report from the US on Monday showed that existing home sales fell 0.6 percent in March. The fall was mostly attributed to a decline in the availability of distressed homes though.

G20 and IMF mindful of QE side effects as Fed expected to persist

The G-20 gave qualified support for quantitative easing policies last week. From Bloomberg:

Group of 20 finance chiefs pledged to stay alert to any fallout from easy monetary policies even as they backed the Bank of Japan’s plan to buy more than 7 trillion yen ($70 billion) a month of bonds.

In a nod to concerns that stimulus in one economy often creates challenges elsewhere and could fuel asset bubbles, the G-20 officials meeting in Washington heightened their commitment to being “mindful of unintended negative side effects stemming from extended periods of monetary easing.”

The IMF has also shown concerns about the unintended consequences of QE.

Although the spotlight fell on currencies, the International Monetary Fund, which held its spring meetings alongside the G-20 gathering, last week said loose monetary policy could inflate credit bubbles, threatening a fresh round of financial crises...

The IMF plans a study on how best to unwind stimulus, said Managing Director Christine Lagarde, who called the current support programs “appropriate.”

Quantitative easing is unlikely to be unwound soon though, at least in the US, according to Wall Street analysts. Again from Bloomberg:

Wall Street’s biggest bond dealers see little chance the Federal Reserve will slow the pace of debt purchases designed to boost economic growth before year-end, even as policy makers face calls to curb the buying.

Of the 21 primary dealers that trade with the central bank, 14 said in a Bloomberg News survey that the Fed won’t start to reduce its $85 billion monthly bond buying until the last three months of 2013. Twelve forecast they will end in mid-2014 or later. Fifteen say it will take until at least June 2015 for policy makers to raise the record low benchmark interest rate target of zero to 0.25 percent. Goldman Sachs Group Inc. chief economist Jan Hatzius sees no increase before January 2016.

Fitch cuts UK credit rating

While the financial crisis in the euro area has abated recently, sovereign debt remains an issue for many developed economies, as Fitch's downgrade of the UK on Friday reminds us. From Reuters:

Britain's credit standing took a further blow on Friday when Fitch Ratings became the second major international agency to strip the country of its top-notch credit rating...

Fitch trimmed the rating to AA-plus from AAA, citing a weaker economic and fiscal outlook. But it returned the outlook to "stable", removing the threat of any further rating action, at least in the near term.

The impact on markets is expected to be minimal.

"The downgrade only tells us what was already known: that fiscal consolidation has ground to a halt and that the growth outlook is poor," said Rob Wood, UK economist at Berenberg Bank.

Moody's had been the first rating agency to downgrade the UK in February.

US leading index falls, China home prices rise

US data on Thursday indicate that the economy may be slowing. The Conference Board's index of US leading indicators fell 0.1 percent in March. The Federal Reserve Bank of Philadelphia’s manufacturing index fell to 1.3 in April from 2.0 in March.

Meanwhile, in the UK, cold weather contributed to a 0.7 percent fall in retail sales in March. That left first quarter retail sales just 0.4 percent higher than the previous quarter.

However, in China, foreign direct investment rose 5.7 percent in March from a year earlier and new home prices rose 1.2 percent in March as 68 of 70 major cities monitored by the government saw price increases, up from 66 in February.

Europe also had good news. Spain’s bonds rose on Thursday, its 10-year yield falling two basis points to 4.66 percent after the government sold 10-year debt at the lowest yield since September.

However, Italy's 10-year yield rose one basis point to 4.26 percent on Thursday as two rounds of voting failed to break a deadlock on the selection of the country's next president.

Japanese consumer confidence and exports rise, US maintains expansion

Japan's economy appears to be improving.

A report on Wednesday showed that the Cabinet Office's consumer confidence index rose to 44.8 in March from 44.2 in February. It was the third consecutive increase.

A report on Thursday showed that Japan's exports rose 1.1 percent in March from a year earlier. Imports rose a larger 5.5 percent though, leaving a trade deficit of 362.4 billion yen, the ninth consecutive monthly trade deficit.

Meanwhile, the US economic expansion remained “moderate”, according to the Federal Reserve's latest Beige Book survey. The Fed report on Wednesday noted increases in manufacturing activity, with particular strength in industries tied to residential construction and automobiles, that offset weakness in defense-related industries in some regions.

However, the UK economy appears to be still struggling. A report on Wednesday showed that its unemployment rate rose to 7.9 percent in the three months ending in February, the highest since the three months to August 2012.

Mixed data, low inflation means no Fed tightening soon

Markets rebounded on Tuesday with the S&P 500 rising 1.4 percent and gold rising 1.9 percent.

However, economic data on Tuesday were mixed.

In the US, a report showed that industrial production rose 0.4 percent in March but manufacturing production fell 0.1 percent.

Another report from the US on Tuesday showed that total housing starts rose 7.0 percent in March. However, starts for single-family houses fell 4.8 percent and building permits fell 3.9 percent.

There has been little inflation in the US though. The consumer price index fell 0.2 percent in March after having jumped 0.7 percent in February.

Low inflation means that the Federal Reserve will be in no hurry to remove monetary stimulus.

Indeed, Rich Bernstein thinks that the Fed will be slow to tighten. It will only tighten “when a strong and broad consensus forms that the economy can withstand a tightening cycle”, which is not the case today.

When it eventually does tighten, it will probably “tighten too much . . . and cause a recession”. However, that eventuality “is probably quite far in the future”.

Meanwhile, elsewhere, inflation held steady in the UK at 2.8 percent in March and slowed in the euro area to 1.7 percent from 1.8 percent in February.

The main concern in Europe, rather, has been weak growth. The ZEW index of investor confidence in Germany fell to 36.3 in April from 48.5 in March, its first decline in five months.

Indeed, the International Monetary Fund has urged European policy makers to stimulate the economy as it cut its latest global growth forecast for this year to 3.3 percent from 3.5 percent in January.

Gold plunges as markets decline following slower growth in China

Markets tumbled again on Monday, with gold in particular plunging 9.3 percent, its biggest fall since 1980.

Stocks were also hit hard. The S&P 500 fell 2.3 percent, its biggest fall since 7 November.

Weak economic data on Monday contributed to the market declines.

In China, economic growth reportedly slowed to 7.7 per cent in the first quarter from 7.9 percent in the previous quarter.

Fixed-asset investment jumped 20.9 percent in the first quarter from the same period last year. However, this was down from a 21.2 percent increase for the first two months.

Industrial production rose 8.9 percent year-on-year in March and 9.5 per cent for the first quarter as a whole. Retail sales were up 12.6 per cent in March and 12.4 per cent in the first quarter.

US data on Monday were also disappointing. The National Association of Home Builders/Wells Fargo index of builder confidence fell to 42, the lowest since October, from 44 in March. The Federal Reserve Bank of New York’s general economic index fell to 3.1 in April from 9.2 in March.

Central bankers see no bubble, Hussman disagrees but sees value in gold shares

Bloomberg reports that central bankers are not seeing a bubble in equities despite the ultra-easy monetary policies that have been implemented around the world.

Policy makers from the Federal Reserve and the Bank of England said they see few signs of equity price bubbles in the U.S. and the U.K., countering criticisms record stimulus is stoking excessive risk-taking.

“I don’t think we’re in that kind of territory that obviously makes these asset prices unsustainable and at a bubble level,” Bank of England policy maker David Miles said today during a panel discussion at the Boston Fed. While “this is something we have to keep monitoring” at the Fed, “I don’t see” these risks now, Minneapolis Fed President Narayana Kocherlakota said to reporters after speaking at the same forum.

Kansas City Fed President Esther George did warn of risks though earlier this month.

“We should not underestimate the risk of an extended period of zero interest rates and the accompanying incentives that may lead to future financial imbalances,” George said on April 4 in El Reno, Oklahoma. “Such imbalances could unwind in a disruptive manner and cause the labor market recovery to stumble.”

Criticism of central bank policies have been stronger from non-central bankers.

For example, the recent action by the Bank of Japan has triggered the following response reported by Bloomberg:

The Bank of Japan’s “huge bet” by boosting quantitative easing won’t turn the economy around and is instead sending the nation toward default, said Takeshi Fujimaki, former adviser to billionaire investor George Soros...

“By expanding the monetary base to 270 trillion yen, the BOJ is making a huge bet which I think it will ultimately lose,” Fujimaki said in an interview in Tokyo on April 11. “Kuroda’s QE announcement is declaring double suicide with the government. The BOJ will have to share the country’s fate and default together.”

Another critic of quantitative easing has been fund manager John Hussman. In his latest article, he notes an “accelerating eagerness to buy market dips since 2010”.

This tendency reflects a broadening consensus among investors that there is no direction other than up, and that any correction, however small, is a buying opportunity. As investors clamor to buy ever smaller dips at increasing frequency, the slope of the market’s advance becomes diagonal or parabolic. This is one of the warning signs of a bubble...

Undoubtedly, the eagerness of investors to aggressively buy every dip has been driven by the confidence that quantitative easing supports those actions. Still, I doubt that investors have seriously considered the fact that each round of QE has had successively smaller effects...

While Hussman thinks that most assets have become overvalued as a result of quantitative easing, he notes that the recent fall in gold may have made gold shares attractive.

I should note that last week, spot gold fell to 1486, and the Philadelphia gold index (XAU) declined to just 116, down nearly 50% from its 2011 peak. Importantly, this places the ratio of the spot gold price to the XAU at the highest level in history. This fact does not, in and of itself, imply near-term gains in the XAU. However, looking out over horizons of a year or more, an elevated gold/XAU ratio is a strong indicator of subsequent prospective total returns in gold shares.

Gold sinks, US retail sales fall

Markets fell on Friday, with gold in particular falling more than 4 percent to its lowest level since July 2011. Other precious metals and oil also fell, as did stocks. US Treasuries and German bunds rose.

Unexpectedly weak economic data from the US on Friday contributed to the market sell-off.

US retail sales fell 0.4 percent in March, the biggest drop since June. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment declined to 72.3 in April from 78.6 in March.

Meanwhile, inflationary pressure remains subdued. Producer prices fell 0.6 percent in March after having risen 0.7 percent in February.

Europe had positive data to report on Friday though. Industrial production in the euro area rose 0.4 percent in February.

Italy sells bonds at lower yields as global economy gains momentum

The news on Thursday was positive.

In Europe, Italy saw yields decline at its latest bond auction on Thursday. It sold a total of 7.17 billion euros of debt, near the 7.5 billion-euro maximum target.

Even as the European financial crisis remains in check, the European Central Bank said in its monthly bulletin for April on Thursday that “signs of renewed growth momentum have begun to emerge in recent months” for the global economy. This is expected to help the euro area grow its exports and “lead to a gradual recovery in the second part of the year”.

Indeed, on Wednesday, the OECD had reported that its composite leading indicators “point to growth picking up in most major economies”, including the euro area.

And in the US, a report on Thursday provided yet another sign that its economy continues to grow. Jobless claims plunged by 42,000 to 346,000 in the week ended 6 April 6 from 388,000 the previous week.

China's trade falls into deficit but new loans jump

China's trade balance fell into deficit in March, according to a report on Wednesday. Imports rose 14.1 percent from the previous year. Exports were also up 10.0 percent.

In a sign that China's economy is likely to continue growing, a report on Thursday showed that new local-currency lending rose to 1.06 trillion yuan in March from 620 billion yuan in February.

Meanwhile, another report on Thursday showed that Japan's economic recovery also looks likely to continue. Core machinery orders rose 7.5 percent in February, the fastest pace since mid-2011. Orders had fallen 13.1 percent in January.

UK economy ekes out growth in first quarter

It looks like Britain will avoid another recession for the time being. The National Institute of Economic and Social Research has estimated that the UK economy grew 0.1 percent in the first quarter.

Other data on the UK economy on Tuesday were mixed though. While industrial production rose 1.0 percent in February, the trade deficit rose to £3.6 billion from £2.5 billion in January as exports to non-EU countries fell by 4.7 percent.

Another report on Tuesday showed that the trade picture for Germany in February was also not good. While the trade surplus increased to 16.8 billion euros from 13.6 billion euros in January, exports fell 1.5 percent as imports fell by a bigger 3.8 percent.

Meanwhile, China reported on Tuesday that inflation slowed to a rate of 2.1 percent in March from 3.2 percent in February.

Japan's current account returns to surplus, German industrial output rises

With the yen weakening recently following moves by the Bank of Japan to stimulate the economy, hopes have risen for a rebound in Japan's trade balance.

However, a report on Monday showed that Japan's current account balance had already moved backed into surplus in February, its first surplus in four months. The surplus of 637.4 billion yen was well down from the year-ago surplus of 1.2 trillion yen but it reversed the 364.8 billion yen deficit in January.

In further good news for Japan on Monday, the Cabinet Office's economy watchers survey showed that the index for current conditions rose to 57.3 in March from 53.2 in February, its fifth consecutive increase. The future conditions index dipped to 57.5 though from 57.7.

In Europe, Germany reported on Monday that its industrial production rose 0.5 percent in February, rebounding from a 0.6 percent fall in January.

However, in a sign that Europe continues to face problems, Fitch warned Portugal on Monday it could downgrade the country's debt rating deeper into junk territory if last week's rejection of austerity measures by its constitutional court disrupts its fiscal repair plans.

Economies face demographic drag

Employment growth around the world has been weak in the current economic cycle. While this is partly due to cyclical factors, an underlying secular trend in demographics has also been a contributing factor.

On Friday, the United States Labor Department reported that employment rose by 88,000 in March. This is weaker than in recent months but employment growth in the recovery from the last recession has been weak anyway, with employment still significantly below the last cycle peak.

One of the reasons for the weak growth in employment has been the lack of demand growth in the world economy as major banks in developed economies tightened lending standards to try to repair balance sheets stretched by excessive lending in the last economic cycle.

However, another, less-mentioned reason for the weak growth in employment is the slower growth in the labour force itself. Indeed, in some countries, the labour force is shrinking.

For example, while US employment rose by just 88,000 in March, the unemployment rate still fell to 7.6 percent from 7.7 percent in February as the labour force contracted by 496,000.

The outright decline in the US labour force in March may have been an aberration. Over the longer term, the US labour force has still been growing.

Still, the trend in the growth rate is clearly down. In the ten years from March 1983 to March 1993, the labour force grew 16.3 percent. In the ten years from March 1993 to March 2003, it grew 13.5 percent.

In the ten years from March 2003 to March 2013, the US labour force grew just 6.2 percent.

The US is not unique in seeing weak growth in its labour force. Indeed, the demographic trend looks even worse in some of the other major economies.

In an article on 27 March, Bloomberg reported that, based on data from the US Census Bureau, China’s pool of 15- to 39-year-olds fell to 525 million last year, down from 557 million five years earlier. As a result of the slowing growth in the labour force, the report, citing consulting company Hackett Group, said that the gap between manufacturing costs in the US and China has almost halved in the past eight years and will fall to 16 percent this year.

Europe has a similar demographic trend. The database from the Census Bureau shows that the number of 15- to 39-year-olds in countries belonging to the European Union fell to 161 million last year from 169 million in 2007.

As far as shrinking labour forces is concerned, though, no country has had it worse than Japan. Data from Japan's Statistics Bureau show that its labour force peaked back in 1997 and has been on a declining trend ever since.

The number of entrants into the labour force looks set to fall further in the coming years. China, Europe, Japan and even the US have fewer people below age 15 than in the 15-29 age group.

Fewer new workers means lower economic growth is likely. Demographics looks set to remain a drag on economic growth for most of the major economies for several more years.

Yen at risk of rout but Japanese stocks rise amid falls elsewhere

The Bank of Japan's latest moves to stimulate the economy are being met with some skepticism. From Bloomberg:

Billionaire investor George Soros and Bill Gross, who runs the world’s biggest bond fund, said the Bank of Japan plan to end deflation risks weakening the yen.

“If the yen starts to fall, which it has done, and people in Japan realize that it’s liable to continue and want to put their money abroad, then the fall may become like an avalanche,” Soros said today in an interview on CNBC...

Kuroda may have difficulty achieving his inflation goal, Gross said. Group of Seven nations may press Japan to control the pace of the yen’s decline to temper gains in their own currencies, he said...

Nevertheless, in early reaction to the BoJ move, Japanese stocks started strongly on Friday, the Nikkei 225 surging more than four per cent in early trade to its highest level since August 2008. However, it ended the day just 1.6 percent higher.

Other Asian markets mostly closed lower, with South Korean stocks losing 1.6 percent amid tension with North Korea and Hong Kong stocks tumbling 2.7 percent after news of deaths from bird flu in China.

The weakness carried over into the European and US sessions. The STOXX Europe 600 fell 1.6 percent, its biggest drop since October. The S&P 500 initially fell 1.3 percent following a weak US jobs report but recovered later to end the day just 0.4 percent lower.

Among economic data on Friday, the US employment report was the highlight of the day. The weak growth of 88,000 payrolls in March initially drove markets down, although the unemployment rate did fall to 7.6 from 7.7 percent in February as the labour force shrank.

Encouragingly for the US economy, another report on Friday showed that the trade deficit narrowed in February as exports rose 0.8 percent while imports were little changed.

There were also positive data from Japan on Friday. A preliminary reading of the index of coincident economic indicators showed a rise of 0.5 point in February. The index of leading economic indicators rose 2.5 points.

Economic data from Europe on Friday were mixed. Retail sales in the euro area fell 0.3 percent in February. This followed a 0.9 percent increase in January. Moving in the opposite direction, German factory orders jumped 2.3 percent in February after having fallen 1.6 percent in January.

ECB leaves monetary policy unchanged as eurozone services sector deteriorates

Following the market-moving measures taken by the Bank of Japan on Thursday, the European Central Bank's monetary policy meeting later that day proved to be a more sedate affair.

The ECB left its main interest rate unchanged at 0.75 percent. At a press conference after the meeting, ECB President Mario Draghi said that “we will monitor very closely all the incoming information on economic and monetary developments, and assess the impact on the outlook for price stability”.

The weak eurozone economy could still push the ECB into further monetary stimulus though. A report on Thursday showed that Markit's index of services activity for the euro area fell to 46.4 in March from 47.9 in February, pushing the composite index down to 46.5 last month from 47.9 in the previous month.

The Bank of England also left monetary policy unchanged after its meeting on Thursday.

While the UK economy has also been struggling, data on Thursday were positive, with the Markit/CIPS services PMI rising to 52.4 in March from 51.8 in February.

New BoJ governor fires opening salvo in war on deflation

Japan's policy makers seem determined to end deflation, with the Bank of Japan today launching a renewed offensive against it. Bloomberg reports:

Bank of Japan Governor Haruhiko Kuroda began his campaign to end 15 years of falling prices by doubling monthly bond purchases in a bid to reach 2 percent inflation in two years.

With Kuroda presiding over his first meeting, the board today temporarily suspended a cap on some bond holdings and dropped a limit on the maturities of debt it buys. The BOJ will purchase 7 trillion yen ($74 billion) of bonds a month along with more risk assets, the central bank said in Tokyo.

Elsewhere, the case for further monetary easing appears mixed based on Wednesday's economic reports.

In the euro area, a report on Wednesday showed that inflation slowed to 1.7 percent in March from 1.8 percent in February.

In the US, the Institute for Supply Management reported on Wednesday that its non-manufacturing index fell to 54.4 in March from a one-year high of 56.0 in February. ADP reported that private employment rose by 158,000 last month, down from a 237,000 gain the prior month and the smallest increase since October.

On a more positive note, China reported on Wednesday that its official non-manufacturing PMI rose to 55.6 in March from 54.5 in February while HSBC reported that its services index for China rose to 54.3 from 52.1.

US factory orders rise but shrinking eurozone manufacturing may get hit further by Cyprus

Economic data on Tuesday were mixed.

In the US, a report showed that factory orders rose 3.0 percent in February, more than reversing a 1.0 percent decline in January and providing an indication that US economic growth is gaining momentum.

In contrast, manufacturing in the euro area worsened in March with Markit's manufacturing PMI falling to 46.8 in March from 47.9 in February. Chris Williamson, chief economist at Markit, warned in his report that there is concern that the “events in Cyprus . . . will have hit demand further in April”.

Another report on Tuesday showed that unemployment in the region stayed at a record high of 12.0 percent in February, unchanged from January.

In the UK, manufacturing also contracted, although the Markit/CIPS manufacturing PMI did rise to 48.3 in March from 47.9 in February. Another report from the UK showed that mortgage approvals fell in February but the value of mortgage lending rose, as did lending to consumers.

Meanwhile, the saga in Cyprus may not be over despite the country receiving a bailout deal. Tuesday saw Finance Minister Michael Sarris resign amid a probe into the country's financial crisis.

And Cumberland Advisors' David Kotok reminds us: “Contagion starts small, and we may now be witnessing one gathering momentum in the Eurozone.”

US and China show signs of continued growth

Reports on Monday showed continued economic growth in the US and China.

The US data were somewhat mixed.

Manufacturing activity cooled in March, according to the Institute for Supply Management. Its manufacturing PMI fell to 51.3 last month from 54.2 in February.

In contrast, Markit's manufacturing PMI for the US rose to 54.6 in March from 54.3 in February.

Another report from the US on Monday showed that construction spending rose 1.2 percent in February after having fallen 2.1 percent in January.

Earlier on Monday, data had shown accelerating activity in China's manufacturing sector.

The manufacturing PMI from the National Bureau of Statistics and the China Federation of Logistics and Purchasing rose to 50.9 in March, the highest since April 2012, from 50.1 in February.

HSBC's manufacturing PMI for China rose to 51.6 in March from 50.4 in February.

Japan's Tankan shows improvement but Asian property may be topping out amid new curbs

Japan's economy moved out of recession in the fourth quarter but the data since then have been mixed (see, for example, Friday's reports).

The latest indication of a recovery came today. The Bank of Japan's Tankan survey showed that the index for large manufacturers rose to minus 8 in March from minus 12 in December. The index for large non-manufacturers improved 2 points to plus 6.

While Japan is trying to revive its economy, many other countries in East Asia are trying to cool their property markets.

Over the weekend, several Chinese cities introduced new curbs on home purchases. Bloomberg reports:

Beijing, the capital, banned single-person households from buying more than one residence while Shanghai prohibited banks from giving credit to third-home buyers, according to the local administration websites. The two cities will also enforce a 20 percent tax on capital gains from property sales...

The city administration of Shanghai, where new home prices in February rose 3.4 percent from a year earlier, also said it will increase down-payment requirements and interest rates for second-home mortgages. Shenzhen, Guangzhou, Chongqing, Tianjin and Jinan have also published details on the housing curbs.

Meanwhile, James Gruber notes that governments in Hong Kong and Singapore have become “more concerned with property price rises and are willing to act to curb them”. He thinks that it is possible that “property in Hong Kong and Singapore may be close to topping out not just for a few years, but for a decade or more”.