Tuesday, 16 September 2014

OECD cuts growth forecasts as US industrial production falls, BIS sees asset prices as elevated

The Organisation for Economic Co-operation and Development lowered its growth forecasts for the major economies on Monday.

The eurozone economy is now expected to grow 0.8 percent this year, down from 1.2 percent in May, while the US economy is expected to grow 2.1 percent instead of 2.6 percent.

The OECD expects these economies to accelerate in 2015, with the eurozone economy expanding 1.1 percent and the US economy expanding 3.1 percent.

Japan's economy is expected to grow 0.9 percent this year and 1.1 percent in 2015, while China's economy is forecast to grow 7.4 percent and 7.3 percent.

Also on Monday, data from the Federal Reserve showed that US industrial production fell 0.1 percent in August, with manufacturing output declining 0.4 percent as car production fell 7.6 percent.

Over the weekend, China had reported that industrial production rose 6.9 percent in August from the previous year, sharply lower than the 9.0 percent growth in July and the weakest growth since December 2008.

Other data released over the weekend showed that Chinese retail sales rose 11.9 percent in August from the previous year, down from 12.2 percent in July, while fixed asset investment rose 16.5 percent in the first eight months of this year from the corresponding period last year, down from the 17.0 percent increase for the first seven months.

Also over the weekend, another international body, the Bank for International Settlements, released its quarterly review.

In the review, the BIS noted that financial market volatility spiked higher in August on the back of geopolitical concerns and worries over economic growth but quickly returned to “exceptional lows” across most asset classes.

“By fostering risk-taking and the search for yield, accommodative monetary policies thus continued to contribute to an environment of elevated asset price valuations and exceptionally subdued volatility,” the BIS said.

Monday, 15 September 2014

Rally in stocks ends as Fed prepares to meet

After rallying for the past few weeks, stock markets finally fell last week.

The Standard & Poor’s 500 Index fell 1.1 percent to 1,985.54 last week, the STOXX Europe 600 Index fell 0.9 percent and the MSCI Asia Pacific Index fell 1.8 percent.

After last week's moves, the S&P 500 now trades at 16.6 times estimated earnings, the STOXX Europe 600 at 15.5 and the MSCI Asia Pacific at 13.7.

While stock market valuations may not look unduly stretched at the moment, a rise in interest rates could still put additional pressure on stock prices.

The Federal Reserve meets to decide on monetary policy on 16-17 September. While it will almost certainly not increase interest rates at this meeting, the probability that the Federal Reserve will tighten monetary policy soon was raised just a little last week after some positive data for the United States economy.

A report on Friday showed that US retail sales rose 0.6 percent in August while another report showed that the Thomson Reuters/University of Michigan consumer sentiment index rose to 84.6 in September from 82.5 in August.

The euro area also saw positive economic data last week. Reports on Friday showed that industrial production rose 1.0 percent in July while employment rose 0.2 percent in the second quarter.

Data from the two major economies in Asia last week were mixed though.

In China, reports last week showed that bank lending nearly doubled in August from the previous month but imports fell and export growth slowed while inflation eased to 2.0 percent in August from 2.3 percent in July.

Japan last week revised its second quarter GDP report to show a larger contraction of 1.8 percent compared to the initial estimate of a 1.7 percent contraction. Adding to the negatives, the consumer confidence index fell to 41.2 in August from 41.5 in July while the diffusion indices from the economy watchers survey showed deterioration in service sector sentiment last month as well.

More positively for Japan, other reports last week showed that core machinery orders rose 3.5 percent in July and the business outlook survey showed large improvements in business leaders' assessment of the economy in the third quarter compared to the previous quarter.

Saturday, 13 September 2014

US retail sales and consumer confidence rise, eurozone industrial production rebounds

Economic data on Friday were positive.

In the US, retail sales rose 0.6 percent in August after rising 0.3 percent in July.

And US consumer spending could improve further after another report on Friday showed that the preliminary September reading of the Thomson Reuters/University of Michigan consumer sentiment index indicated a rise to 84.6 from 82.5 in August.

In the euro area, industrial production rose 1.0 percent in July after falling 0.3 percent the previous month.

Another report showed that eurozone employment rose 0.2 percent in the second quarter.

In China, a report showed that bank lending rose to 702.5 billion yuan in August, nearly twice July's 385.2 billion yuan.

Total social financing, a broader gauge of credit in the economy, reached 957.4 billion yuan in August, more than tripling the 273.1 billion yuan in July.

Friday, 12 September 2014

Inflation eases in China, steady in Germany

A report on Thursday showed that inflation in China eased to 2.0 percent in August from 2.3 percent in July.

Overall food prices drove inflation, rising 3.0 per cent from a year ago. Fresh fruit and eggs in particular saw double-digit price increases.

Another report on Thursday showed that China's producer price index fell 1.2 percent in August from a year ago, more than the 0.9 percent decline in July.

Meanwhile, a report from Germany showed that inflation there held steady at 0.8 percent in August, its lowest level since February 2010.

Thursday, 11 September 2014

US growth forecast cut on weak inventory gain, Japanese machinery orders and business sentiment rise

A report on Wednesday showed that US wholesale inventories edged up 0.1 percent in July, the smallest rise since July of last year, after a 0.2 percent gain in June. This was well below the 0.5 percent increase expected by economists.

Some economists lowered their GDP growth forecasts for the third quarter following the report. Barclays cut its third-quarter growth forecast by 0.2 percentage point to a 2.5 percent annual rate. Action Economics lowered its forecast to a 2.8 percent rate from 3.0 percent.

Data from Japan, however, have been more positive.

A report from Japan on Wednesday showed that core machinery orders rose 3.5 percent in July. Orders had jumped 8.8 percent in June following a 19.5 percent plunge in May.

A report from Japan on Thursday showed that the business sentiment index for large manufacturing rose to 12.7 in the third quarter from -13.9 in the second quarter. For all industries, the BSI rose to 11.1 from -14.6.

Wednesday, 10 September 2014

Japanese consumer confidence falls, UK industrial output rises, Chinese and German trade surpluses hit record highs

Consumer confidence in Japan deteriorated in August. A report on Tuesday showed that the consumer confidence index fell to 41.2 last month from 41.5 in July.

In the UK, a report on Tuesday showed that industrial production rose 0.5 percent in July, the most in six months, but another report showed that the goods trade deficit rose to 10.186 billion pounds in July.

In contrast, Monday had seen both China and Germany report record trade surpluses.

China's trade surplus surged to a record US$49.8 billion in August as imports fell for a second straight month while export growth slowed.

Germany's trade surplus hit a record high of 22.2 billion after exports jumped 4.7 percent while imports fell 1.8 percent.