Industrial production improves, inflation accelerates

The global economy continues to show signs that it is headed towards recovery.

In the US, Bloomberg reports that manufacturing is on the verge of stabilisation.

Industrial production shrank less than forecast and a New York regional factory gauge showed the smallest contraction in more than a year, signaling manufacturing is on the verge of stabilizing.

The 0.4 percent decrease in output at factories, mines and utilities in June was the smallest in eight months, Federal Reserve figures showed today in Washington. The New York Fed’s Empire Index rose to minus 0.6 in July from minus 9.4 the month before. The Commerce Department said separately consumer prices rose 0.7 percent last month, spurred by energy costs.

Industrial production in the euro area looks even better, increasing by 0.5 percent in May, while deflation in the region appears to have been kept at bay with the CPI rising 0.2 percent in June.

Investors certainly focused on the positives on Wednesday, as Bloomberg reports:

U.S. stocks rallied, sending the Dow Jones Industrial Average to its best gain in three months, after Intel Corp. forecast sales that beat analysts’ estimates and gauges of manufacturing improved. Treasuries fell for a third day and the dollar and yen dropped...

The S&P 500 added 3 percent to 932.68 at 4:05 p.m. in New York, extending its biggest three-day advance since March. The Dow climbed 256.72 points, or 3.1 percent, to 8,616.21. The MSCI World Index of 23 developed nations surged 2.8 percent...

The 10-year note yield surged 13 basis points, or 0.13 percentage point, to 3.61 percent at 4:33 p.m. in New York, according to BGCantor Market Data...

The yen declined the most versus the euro in more than a month and the dollar fell as global stocks rallied on the prospects for the economy and corporate earnings...

Crude oil rose the most in three weeks after a U.S. report showed a bigger-than-forecast drop in crude supplies as refineries increased operating rates.

Despite the general improvement in economic conditions, the Bank of Japan has actually downgraded its outlook for the country. From AFP/CNA:

Japan's central bank said Wednesday it was extending its emergency measures to tackle the worst recession in decades, as it downgraded its outlook for the world's number two economy.

But the Bank of Japan said the worst of the slump appeared to be over and economic conditions "have stopped worsening."

It held its key interest rate steady at 0.1 per cent, as expected, and said it would continue its policy of buying up corporate debt to keep credit flowing to cash-strapped firms during the recession.

While there are signs of an improvement in the economy, gross domestic product is expected to shrink 3.4 per cent in the financial year to March 2010, worse than a previous forecast for a contraction of 3.1 per cent, it said.

The Bank also revised its outlook for the next financial year, predicting positive growth of 1.0 per cent, against a previous projection of 1.2 per cent.