For a more comprehensive round up of the week, listen to Stephens’s full report here.

After rising strongly in January risk assets were mixed in February, continuing to rise in regions and countries subject to easier monetary conditions, such as the Euro-area and Japan but pulling back mostly elsewhere. Economic readings released over the past month were on balance comparatively soft in the United States and China, but were slightly firmer than expected in Europe. Further falls in key industrial commodity prices such as the price of iron ore periodically dented investors’ enthusiasm for Australian shares. Among the major share markets the German DAX was one of the strongest in March, lifting by 5.0% after gaining 6.6% in February. Japan’s Nikkei was up 2.2% after gaining 6.4% in February. On the softer side, the US S&P 500 was down by 1.7% while the FTSE 100 fell by 2.5%, The Australian ASX 200 fell by 0.6%, after gaining 6.1% in February.

The hunt for yield continued almost unabated through March assisted in part by a relatively dovish March Federal Reserve policy meeting that made it plain that the Fed will still be taking time before lifting its Funds rate from near-zero and even when the process starts it will be a cautious affair. Australian credit continued to rally through March. In government bond markets, yields fell after the increases in February – relatively big increases in the case of US treasuries and bonds. The US 10 and 30-year bond yields fell in March respectively by 7bps to 1.92% and 5bps to 2.54%. The Australian 10-year bond again out-performed its US counterpart, falling in yield by 14bps to 2.31% even though the RBA left the cash rate unchanged at 2.25% at its early March policy meeting. A mark of the market’s conviction that more cash rate cuts are coming, however, showed in shorter-dated bond yields sitting well below the current cash rate at the end of March, 1.72% for the 2-year bond yield and 1.80% for the 5-year bond yield.

On the US economic data front a first chink in the strength of non-farm payrolls showed in March when payrolls rose by 126,000 well off consensus forecast of +247,000 and down from a downwardly revised +264,000 in February. The unemployment rate was unchanged in February at a 7-year low of 5.5%. Other US economic readings were mixed strength and the final reading of Q4 2014 GDP came in at 2.2% annualized growth, down from 5.0% in Q3 and with every prospect that Q1 2015 GDP growth will be softer than Q4 2014. The relative pull-back in the US economy is down to factors such as the severe winter, the strong US dollar hurting company profits and specific weakness in the previously booming shale oil industry caused by weaker oil prices. The US is still growing, but prospective growth is not quite as assured as seemed likely a few months ago causing the Fed to watch the balance of US economic readings very carefully before considering lifting the Funds rate.

In China, it became clearer in March that annual economic growth has slipped below 7% y-o-y in Q1 2015. China’s Government affirmed that its growth target for 2015 is 7.0%, down from 7.5% in 2014, but to achieve the lower growth target increasingly it seems that more policy accommodation will be needed. In the process of priming growth the authorities also need to be wary of upsetting other key economic policy initiatives – rebalancing growth in favour of consumption spending and services and away from industrial output and exports as well as ensuring that growth is less polluting.

In Europe, economic readings were mostly a touch firmer than expected and the European Central Bank started to buy sovereign debt along the lines promised when it announced expanded QE at its February policy meeting to 60 billion euro worth of securities a month through to September 2016 initially and longer if needed. Problems surrounding Greek debt were temporarily defused as Greece negotiated a short extension of its maturing debt with creditors.

In Australia, something akin to a phony war is developing. Housing activity continues to boom, notably in the eastern cities led by Sydney, and promoting a false sense that the economy is performing much better than is really the case. Q4 2014 GDP released early in March highlighted more of the real battle with annual growth slipping further below trend (2.5% y-o-y against long-term trend around 3.2%) and real net national disposable income slipping to only 0.5% y-o-y. Australia’s terms of trade – export prices relative to import prices – continued to fall sharply, down another 1.7% in Q4 and down 10.8% y-o-y. Key export commodity prices have fallen much further in Q1 2015, notably the price of iron ore heralding further weakness in national income extending to much weaker tax receipts for States such as Western Australia and for the Federal Government. It is the battle of an extended period of very weak growth in national income extending to weak growth generally that the RBA is likely to continue to fight using lower interest rates. We see another cash rate cut either later today or in early May to be followed by at least one more rate cut later in the year.