Fewer initial jobless claims in the U.S. and reaction to Japanese easing policies were the driving economic forces affecting the capital markets this week. Continued weakness in European numbers did not deter the upward trajectory of equity prices as several indices (including the Dow, S&P and DAX) registered new record highs. Government bond yields rose, but credit spreads tightened, netting positive returns on the week in only the riskiest sectors. The U.S. dollar rose; the biggest increase was against the Yen. West Texas Intermediate Oil prices rose, but Brent, natural gas and metals prices fell on the week.

Perspective:

The efforts by the Bank of Japan and its government to stimulate the economy out of its deflationary spiral has had impact not only on the economy of Japan, but on the global economy as well. Last week's "Economic Comments" noted stronger economic signals from Japan; this week's release of their PMI's indicated that their economy remained in expansion in April. The objectives of their strategy are to raise inflation to a 2% target, decrease the value of their currency, increase their export competitiveness and grow their economy. Since rates are so low the easing will be accomplished by boosting the monetary base and increase the amount and duration of the JGB purchases. Is their strategy working? The Yen fell 2.6% against the U.S. dollar and the Nikkei rose 6.7% this week. On a year-to-date basis, the Yen is down 14.8% against the U.S. dollar and the Nikkei is up over 40%.

Their strategy has a global impact as well. The Germans, for instance, will want their own automobile industry to remain competitive with their Japanese auto-makers. Therefore, the impact of the aggressive easing on the part of Japan is to also ensure the continuation of global easing on the part of other Central Banks as well. Global easing is one of the arguments against selling-in-May.

On a personal note, in the next several weeks I will be engaged in a number of adventures that may preclude distribution of my Economic Comments. These adventures include fly fishing in northern Maine and sailing our boat (with my wife and friends) from the Chesapeake to Maine. I hope that these adventures and my time away will offer me some insights on the economy that I can share with my readers upon my return.

Economic Releases:

This week's Initial Jobless Claims unexpectedly dropped to 323,000. The four-week average of Claims (blue in the chart) dropped to 336,750, the lowest level since the Great Recession. Continuing Claims (red in the chart) also dropped to a recovery low of 3.005 million. Both were welcome news and helped to allay concerns about a growth problem in the U.S.

Other Economic Releases

The Markit Eurozone Purchasing Managers' Indices for April was a touch better than expected, 46.9 for the Composite and 47 for Services, but they still remain well below into the contraction zone, below 50. The German PMI dropped below the demarcation to 49.2 and 49.6 respectively for the Composite and Services. Yet, for March, the German Industrial Production surged 1.2% and Manufacturers' Orders rose 2.2%, well above expectations for both. The French Markit PMI's for the Composite and Services each rose to 44.3. French Industrial Production fell -0.9% in March. The Bank of England met this week and, as expected, kept interest rates unchanged at +0.50% and Asset Purchases unchanged at 375 billion pounds.

The Japanese PMI's slipped in April, but at 51.8 for the Composite and 51.7 for Services, they remain in the expansion zone.

Equities Markets:

Stock markets rallied across the globe on signs of strengthening in the U.S. and confidence in continued Central Bank easing. The Nikkei posted the biggest gain for the week, QTD and YTD.

Bond Markets:

Government bond yields rose this week and credit spreads narrowed, especially for the riskiest asset classes.

Currencies & Commodities:

The U.S. dollar rose against the other four currencies in the table this week. The Yen fell the most against the dollar this week, QTD and YTD. With exception of WTI, commodity prices fell this week.

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Who is John Davidson?

John W. Davidson, CFA, started writing these Comments over a decade ago as a personal discipline when he was promoted to chief investment officer from portfolio manager.

Most recently, he was the president of PartnerRe Asset Management Corporation, responsible for the management of PartnerRe's invested assets, which grew from $4 billion to $12 billion during his tenure. After joining PartnerRe in the fall of 2001, he hired the staff, built the trading floor and created the infrastructure to manage both fixed income and equity assets internally. He retired from PartnerRe at the end of 2008 and moved to Maine.

He has more than 35 years of industry experience, including positions with investment management responsibility for separate institutional accounts, mutual funds, trusts, and insurance assets. Prior to joining PartnerRe, he served as president and chief executive officer of two other investment management companies. For various companies he has held positions as chief investment officer, chief economist, head of fixed income, and portfolio manager. As a portfolio manager, Davidson managed and traded U.S. Government Securities as well as futures and options on fixed income instruments.

His real world experience is backed by a strong academic foundation, which includes earning a Master of Business Administration in finance and a Master of Arts in mathematics from Boston College, as well as a Bachelor of Arts, cum laude, in economics from Amherst College. He holds the professional designation of chartered financial analyst.

His experiences and credentials have brought him to the public as a television commentator and conference speaker. In addition to his frequent past appearances on CNBC, CNNfn, Bloomberg TV and Yahoo FinanceVision, he has appeared as a special guest on Wall $treet Week with Louis Rukeyser. Reuters, Bloomberg and other business press services often quote his views on the market. He has taught CFA preparation programs, as well as other courses offered by the Stamford and Boston CFA Societies, and courses at the National Graduate Trust Officers' School.

Davidson is a natural leader in both his professional and personal life, having developed those skills early in his career as a Naval Officer. He spent three years on active duty, which included a year on the rivers of Vietnam, and 24 years in the Naval Reserves, from which he retired as a captain in 1994.

Davidson is treasurer and board member of the Camden Conference. He is treasurer of the Maine Conference of the United Church of Christ, serving on the executive committee and the coordinating council, the governing board of the conference. He is also on the investment committee of the Pen Bay Health Foundation.

In his leisure time, he is an active sailor, tennis player and skier. With his wife, Barbara, he renovated a 100+-year-old home in Camden, where they enjoy spending time with their two golden retrievers and having visits from their five children. He can be reached at jwdbond@me.com.