Matthew Bennett, head of international equities at NFU Mutual, reviews the markets and economic announcements for the week commencing 11 April 2011.

Inflation falls but remains a concern

A record monthly fall in the price of food and non-alcoholic beverages meant UK Consumer Price Inflation (CPI) unexpectedly fell to 4 per cent in March (from 4.4 per cent in February). Retail Price Inflation (which includes mortgage interest payments) fell to 5.3 per cent from 5.5 per cent.

The surprise decline will have pleased policy makers as it reduces the pressure on the Bank of England to raise the base rate at a time when the UK economic recovery remains fragile. However CPI is still running at twice its 2 per cent target and on the international front inflationary pressures continue to mount.

* US CPI was higher than expected at 2.7 per cent
* Inflation figures for the eurozone were revised upwards
* Indian CPI ran at nearly 9 per cent in March
* Chinese CPI was higher than expected at 5.4 per cent, prompting Chinese authorities to introduce price controls on basic consumer goods.

Against this backdrop assets such as gold which are traditionally seen as inflation hedges performed well last week. The price of gold reached a new record high at $1,483 per troy ounce while silver traded at thirty one-year highs.

Economic and stock market update

Markets fell last week after weaker commodity prices and disappointing retail sales numbers led the FTSE 100 to its biggest daily decline in a month on Tuesday (12 April).

The British Retail Consortium reported like-for-like UK Retail sales tumbled 3.5 per cent in March. It was the largest fall in six years and casts doubts over the strength of the UK consumer in light of the Government cut-backs needed to tackle the budget deficit.

There was better news though from the Office for National Statistics which reported unemployment had declined by 17,000 in the three months to the end of February. The unemployment rate fell to 7.8 per cent. UK jobless claims however registered a surprise increase in March thanks in part to new benefit rules which meant more people were in the labour market.

China's economy continues to power on. Chinese GDP expanded by 9.7 per cent in the first quarter of 2011 and although this was slightly down on the previous quarter's 9.8 per cent, it was still above expectations.

The Independent Commission on Banking's interim report was released last Monday and most banks breathed a sigh of relief as it didn't contain anything that would significantly impact their earnings. Lloyds Banking Group however criticised a recommendation that it should sell in excess of 600 branches.

In other company news chip designer ARM Holdings received a boost after a broker reiterated their buy rating on the supplier of chips to most smart phones and tablets while on Wall Street US investment bank JP Morgan announced record profits.

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