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

Risk assets were mostly stronger in April as it became clearer that the US economy was starting to rebound from its severe winter-weather setback and that the moderation in economic growth in China was not as sharp as feared in some quarters. Also signs of modest economic improvement continued in Europe and Australian economic readings showed mostly promising signs of improvement. Internationally, the instability in the Ukraine periodically tempered investors’ enthusiasm for risk assets and locally, concerns about potential government budget spending cuts and expectations of softer commodity prices capped enthusiasm for Australian risk assets. Major equity markets were mostly stronger in April with gains ranging from 0.6% for the German DAX to 2.8% for the British FTSE 100. A notable exception to the gains was Japan’s Nikkei, down by 3.3% in the month. The Australian ASX 200 climbed to a 5-year high above 5,500 during the month, but finished the month below that mark, but still up 1.8% for the month.

Credit markets finished April firmer from where they ended March, tracking the fortunes of equity markets through the month. Major bond markets strengthened through April, even though the US Federal Reserve continued to wind back its asset purchase programme or quantitative easing at its late April policy meeting by another $US10 billion to $US45billion and marking the fourth consecutive reduction in purchases. The Reserve Bank of Australia again left the cash rate on hold at 2.50% at its early April policy meeting and continues to advise an extended period of rate stability ahead. US 10 year and 30 year treasury yields finished April at respectively 2.66% and 3.46%, 10 basis points (bp) and 15bp lower respectively than at the end of March. The Australian 10 year bond yield fell by 16bp, finishing April at 3.93%.

On the economic data front, US indicators showed both the damage to past output from severe winter weather but also promising signs of a rebound. Q1 GDP slowed to only 0.1% annualized growth from 2.6% in Q4 2013. However, retail spending and manufacturing activity showed signs of improvement in March and the latest April nonfarm payrolls lifted by 288,000 with private sector positions up by 273,000 with the unemployment rate falling to 6.3% from 6.7% in March. Economic readings in China released through April were mixed-strength relative to market expectations, but encouragingly Q1 GDP growth came in at 7.4% y-o-y a touch above expectations and an indication that the authorities can achieve their 7.5% GDP growth target in 2014. European economic readings again were mostly a little firmer than expected and consistent with a continuing, modest economic recovery. In Australia, economic readings were again relatively strong with employment growth again surprising on the high side of expectations at +18,100 in April contributing to a positive surprise on the unemployment rate front which fell to 5.8%. Q1 CPI inflation was also a little lower than expected at +0.6% in quarter and 2.9% y-o-y reducing pressure on the RBA to hike the cash rate in the next few months.

Looking ahead, economic growth still looks set to improve through the northern summer in the US, China and Europe. The worsening situation in the Ukraine could influence the European recovery depending upon what happens to gas supply and prices, but does not look sufficient to derail the global economic recovery. In Australia, the lower-than-expected Q1 CPI is likely to extend the period before the RBA needs to lift the cash rate. We still see the inflation readings as crucial to the RBA’s rate decision making and on our forecasts, relatively high Q2 and Q3 CPIs would see a first RBA 25bp cash rate hike in November. The approaching May Budget (due 13th May) may also have an influence on rate hike timing with any projected net reduction in government spending in 2014-15 above our estimate of about 0.7 percentage points of GDP likely to delay further the timing of future rate hikes.