Global stocks fell to a two-week low on Friday as a sell-off in U.S. equities led by technology-focused shares rippled through Asian and European markets. The S&P 500 fell 2.1% yesterday to eight-week lows, and the Nasdaq Composite tumbled 3.1%, its largest single-day loss since November 2011. In Asia on Friday, the region’s benchmark MSCI stock index slid 0.9% from a nearly three-month high with Japan’s Topix index posting its worst weekly drop since June. Europe’s Stoxx 600 index declined 1.6%, heading for a weekly loss of 3.3%, with all national benchmark indexes slumping in western-European markets except Iceland. The benchmark MSCI developing-country stock index fell as well as technology stocks tumbled from a record high.
With stocks out of favor, safe-haven government bonds advanced with the yield on the 30-year U.S. Treasury bond falling to its lowest since July. The 30-year U.S. bond yield dropped 4 basis points (bps) to 3.48%, its least intraday level since July 3rd, extending its year-to-date drop to 46 bps. The benchmark 10-year Treasury yield fell 3 bps to 2.62%, its lowest since early March. German government bonds gained as well with the benchmark 10-year bund yields sliding below 1.5% for the first time since June.
High Income Economies
Preliminary reading of the Thomson Reuters/University of Michigan consumer sentiment index for the U.S. came in at 82.6 in April compared to the final March reading of 80.0. The bigger than expected increase, reflecting improvements in both expectations as well as the assessment of current conditions, puts index at its highest level since last July. The gauge of consumer expectations climbed to 73.3 in April from 70.0 in March, while the barometer of current economic conditions rose to 97.1 from 95.7. On the inflation front, one-year inflation expectations dipped to 3.1% in April from 3.2% in March, but the five-to-ten-year inflation outlook edged up to 3.0% from 2.9%.
U.S. producer prices advanced by 0.5% (m/m) in March after edging down by 0.1% in February. The bigger than expected increase in the price index was largely due to a rebound by the new services component, which rose by 0.7% in March, after falling by 0.3% in February. Food prices also surged up 1.1% in March following a 0.6% increase, while energy prices fell 1.2% in March after rising by 0.5% in February. Core producer prices, which exclude food and energy, also rose by 0.6% in March following a 0.2% drop in February.
Fitch Ratings upgraded the outlook on Portugal's credit rating to 'positive' from 'negative', citing the good progress the country has made in reducing the budget deficit. The ratings were affirmed at 'BB+'. At the same time, Standard & Poor's affirmed Denmark's sovereign rating at 'AAA' and maintained 'stable' outlook. However, S&P downgraded the rating outlook on Finland to 'negative' from 'stable' on subpar growth prospects and affirmed 'AAA' rating.
East Asia and Pacific
China’s annual consumer price inflation edged higher in March, rising to 2.4% (y/y) from 2.0% in February, as expected, but remained well within the government’s target of 3.5% for 2014. This increase was due to higher food prices, which rose 4.1% (y/y) while non-food prices advanced 1.5% (y/y). Month-on-month, consumer prices fell 0.5% following a 0.5% increase in the previous month. Meanwhile producer price inflation declined for the 25th consecutive month in March, decreasing 2.3% (y/y) and 0.3% (m/m).
Europe and Central Asia
Hungary’s annual consumer price inflation was unchanged in March at 0.1%, remaining well below the central bank’s target of 3%. Upward pressures from cost of alcoholic beverages and tobacco and services were offset by price declines in electricity, gas and other fuels, motor fuels, clothing and footwear and consumer durable goods. Month-on-month, consumer price inflation slowed to 0.2% in March from 0.3% in February. Core CPI increased 0.1% (m/m) and 2.7% (y/y) in March.
India’s industrial production growth contracted in February, decreasing 1.9% (y/y) after rising by a revised 0.8% (y/y) in January, reflecting weaknesses in manufacturing. Manufacturing production fell notably in February and at a faster pace, contracting 3.7% (y/y) after remaining flat in January, mitigating gains in electricity output (+11.5%, y/y) and mining (+1.4%, y/y).