Last week was a relatively uneventful week for UK and other major equity markets. The Japanese stock market continued its downward path driven by a strengthening yen, although there was some respite mid-week as government officials signalled that they were not yet finished with stimulus measures.

UK trade data and industrial production data for February was released on Friday, indicating that the difficulties the UK economy is facing George Osbourne highlighted in the recent budget announcement may well be coming true. UK industrial production and manufacturing fell 0.5% and 1.8% respectively in February from a year earlier, being the biggest decline since August 2013. Industrial production will have been significantly impacted by the ongoing steel crisis. Furthermore, the UK goods trade deficit in February was also wider than expected, at £12bn. This trade gap is a significant contributor the historically wide current account deficit which many economists have forecast will inevitably lead to a weakening of the sterling. However, as the UK economy and specifically the UK consumer is in far better health than much of the world, this is a natural state.

A continuing flight for safety compounded by the ongoing quantitative easing programme in Europe has resulted in German government bond yields once again approaching all-time lows. 10-year bunds are now yielding 0.08%. While this may seem illogically low, buyers of bunds are motivated by the current €80bn a month of purchases by the ECB, which should continue to drive the price lower as the available stock of bonds dries up. Furthermore, the move by the ECB to cut interest rates to minus 0.4% means that the relative yield looks more attractive.

UK CPI and the Bank of England interest rate decision will be announced this week. It is widely expected that interest rates will remain at 0.5%; however, the wording of the announcement will be closely monitored. Chinese CPI was announced today, coming in at 2.3%, and dispelling some deflationary fears that were building.

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