The first full week of April saw active but net slightly down equity markets. While new economic data during the week was positive, expectations about corporate profits and output levels in the first quarter of 2016 are low. In light of solid fundamentals, and increasing aggregate demand, pessimists (including on the campaign trail) seem to be overreacting. Price data shows signs of upward pressure after an extended decline, and may soon join labor market and equity market indicators in signalling accelerating economic expansion.
The Nasdaq composite index fell 1.3 percent on the week, while both the S&P 500 and the Dow Jones Industrial Average fell 1.2 percent. Volatility, as measured by the VIX, closed Friday 17 percent above its previous week level. The Shiller index of price to earnings ratios climbed in March to 25.5. Expectations about first quarter earnings are very weak.
Prices data showed a continuation of upward pressure in March from commodity and food prices. Oil prices climbed more than eight percent during the past week. U.S. oil inventory fell for the first time in eight weeks. March CPI data, due out next week, should reflect the rising fuel and commodity prices.
World food prices, measured by the Food and Agriculture Organization of the UN, showed an uptick in March from a jump in sugar prices. This is only the second material increase in the world food price index since early 2014.
The trade-weighted dollar index continues to show a depreciation in the U.S. dollar. To the frustration of the Bank of Japan, the Yen appreciated nearly three percent against the dollar during the past week, which is not included in the lagged trade-weighted index. The dollar did appreciate against many emerging market currencies, pound sterling, and the Canadian dollar, during the past week.