US markets closed sharply down on Friday, the S&P 500 falling 2.8 percent to 1,036.19, more than erasing Thursday's 2.3 percent jump. For the whole of October, the S&P 500 fell 2 percent, its first monthly decline since February.
The day had started positively for investors, with Asian markets closing higher for the day. The Nikkei 225 rose 1.5 percent.
Positive news on the Japanese economy helped boost markets early in the day. From AFP/CNA:
Japan's economy on Friday showed fresh signs that it is recovering after a sharp downturn, with jobless figures hitting a four-month low, an easing in deflation and household spending edging up.
Japan's unemployment rate fell to a four-month low of 5.3 percent in September, beating the market expectation that it would rise to 5.6 percent, according to data from the internal affairs ministry.
The latest figure was down from 5.5 percent in August and the lowest since 5.2 percent in May...
Core prices, which exclude those of volatile fresh food, dropped 2.3 percent in the month from a year earlier, after an unprecedented 2.4 percent slump in August.
Compared with the previous month, prices rose 0.1 percent -- the first increase in six months...
In September Japanese household spending edged up by 1.0 percent from a year earlier, an increase for a second consecutive month.
Unfortunately for investors, the Bank of Japan has noticed the improvement in the economy. From Bloomberg:
The Bank of Japan said it will stop buying corporate debt at the end of the year, as central banks around the world phase out emergency measures taken at the height of the financial crisis.
Governor Masaaki Shirakawa and his colleagues also said they will only extend a program providing unlimited collateral- backed loans to banks one last time through March 31...
The bank also left its benchmark interest rate at 0.1 percent and pledged to keep borrowing costs at “low levels” as it forecast deflation will extend into fiscal 2011. Shirakawa said he’s “committed to prolonging the current extremely accommodative financial environment.”
Central bank tightening could threaten markets, especially if the economic recovery turns out to be weak. Unfortunately, data later in the day hinted at the latter.
German retail sales unexpectedly fell 0.5 percent in August while in the euro area as a whole, consumer prices fell for a fifth month in October after the unemployment rate increased to 9.7 percent in September, the highest in more than a decade.
Across the Atlantic, Canada produced a negative surprise on the GDP front. Bloomberg reports:
Canada’s economy unexpectedly shrank in August, suggesting it may not have followed the U.S. out of a recession in the third quarter as the central bank and a majority of economists predict.
Gross domestic product fell 0.1 percent in the month, as oil and gas extraction dropped 2.3 percent and manufacturing fell 0.7 percent, Statistics Canada said today from Ottawa. Economists expected a 0.1 percent increase after output was little changed in July, according to the median estimate of 23 analysts surveyed by Bloomberg.
And the US economy may not be all that healthy despite Thursday's positive GDP report. Again from Bloomberg:
Americans cut spending for the first time in five months and a gauge of confidence weakened, signaling consumers will make a limited contribution to the recovery without government incentives.
Consumer spending fell 0.5 percent in September after a 1.4 percent jump in August, Commerce Department figures showed today in Washington. The Reuters/University of Michigan final index of consumer sentiment decreased to 70.6 in October from 73.5 the month before.
The US did provide a positive piece of data.
The Institute for Supply Management-Chicago Inc. said its business barometer increased to 54.2, the highest level in 13 months. The gauge was forecast to rise to 49, the median estimate of 58 economists in a Bloomberg News survey. Readings above 50 signal an expansion.