Most Economic releases showed no pick-up of activity again this week. The U.S. Initial Jobless Claims was an exception, since it showed the firming of the U.S. employment situation. Nonetheless, the markets were more focused on softening of China's growth, the double digit year-to-date decline of the Nikkei and concerns about what might result from Russia's military incursion into the Ukraine. In a flight to safety, equity markets declined, credit spreads widened and government bond markets rallied. The U.S. dollar was mixed, but energy prices fell and metals prices gained on the week.

Perspective:

This winter has been severe by all accounts. My investment banker friend in Florida tried to make me feel better by claiming 5 inches of snow in his yard, but I had a hard time verifying that from any other source. Sara Potter of Fact Set wrote an article Will Winter Weather Cause an Economic Chill?, which included more reliable data. She highlighted U.S. National Oceanic and Atmospheric Administration data on aggregate heating days for the East North Central Region (Illinois, Indiana, Michigan, Ohio and Wisconsin), which was running higher than "anything seen in the past 15 years." Fuel oil consumption was "up 17.8% in December and 14.5% in January compared to the prior year..." She added, "The more tangible impact of bad weather is the loss of worker productivity due to flight cancellations, impassable roads and school closure." Whether or not the economic impact of this severe winter has done permanent damage to the economy or the lost economic activity is made up in future spending will unfold in the coming months of economic releases.

On a personal note, the Davidson family's economic and travel activity is guaranteed to pick up later in 2014. This weekend my wife is attending a baby shower for Ella, our first granddaughter, due next month. Our second grandchild is due in September. It is still cold outside in Maine, but our hearts could not be warmer!

Economic Releases:

The U.S. Retail Sales numbers for February were near the high end of the range of expectations, but January's Sales were revised lower, showing the continued impact of weather. Headline Retail Sales (blue in the chart) rose +0.3% in February, but January's Sales were revised two ticks lower to -0.6%. Without the more volatile automobile and Food sectors, Sales (red in the chart) also rose +0.3%, but January Sales, less food and auto's, were revised six ticks lower to -0.6%.

The Initial Claims for Unemployment in the U.S. were more solidly positive. New Claims fell -9,000 to 315,000 the week of March 8. The four-week average of Claims (blue in the chart) fell to 330,500. Continuing Claims, reported on a 1-week lag, (red in the chart) also fell 48,000 to 2.855 million. This improving employment picture should allow the Yellen Fed to continue to taper its QE purchases.

Other Economic Releases

The University of Michigan Consumer Sentiment Index slipped over a point to 79.9 in mid-March. The release of the Producer Price Index for February showed no signs of inflationary pressure. PPI fell -0.1% from the previous month and rose only +0.9% year-over-year. Less the more volatile food and energy component, PPI fell -0.2% from the previous month and rose 1.1% from the previous year.

This week's releases showed that growth is slowing in China, more than expected. Industrial Production rose less than previously estimated in January and February. The increase of +0.61% led to an 8.6% year-over-year change, almost a full percentage point less than expected. Similarly, China's Retail Sales rose +0.71% in February, an 11.8% annual increase, almost 2 percentage points less than expected.

The Bank of Japan met and left its interest rates and asset purchases unchanged in the face of lackluster economic performance.

Industrial Production in the European Union fell -0.2% in January, well below consensus. IP in the UK was a bit better, +0.1%.

Equities Markets:

Growth worries in China and the potential for economic repercussions from the geopolitical risks in the Ukraine weighed heavily on stocks across the globe. The "risk-off" reaction was a decline in stock prices and the widening of credit spreads. This week's decline pulled most stocks into negative territory for the quarter-to-date. Spread widening pulled the riskier credit indices into negative territory for the week despite the decline in government rates. Nonetheless, the ML credit market indices below were able to maintain positive year-to-date results.

Bond Markets:

In a flight to safety, government bond yields dropped across the globe this week in reaction to the geopolitical risks. Credit spreads widened, especially in the riskier credit sectors. Year to date, Government Bond yields are lower and non-emerging market credit spread are narrower.

Currencies & Commodities:

The U.S. dollar rose against the Pound and Looney, but fell against the Yen and Euro. The year-to-date 3.9% rise of the Yen was not sufficient to offset the -12.1% decline of the Nikkei for U.S. investors in the Japanese stock market. Energy prices fell and commodity metals prices rose on the week.