Tuesday, 19 October 2010

US industrial production falls, stocks rise

Monday saw the Federal Reserve provide its own data to justify more monetary stimulus. Reuters reports:

U.S. industrial output shrank last month for the first time in more than a year, a sign the economy was in a slow growth rut that appears certain to lead to more monetary stimulus from the Federal Reserve...

Industrial production fell 0.2 percent in September, the first decline since June 2009, the Fed said. Economists had expected industrial production to rise 0.2 percent, the same as in August...

Capacity utilization, a measure of slack in the economy, edged down to 74.7 percent, 4.2 percentage points above the year-ago level but still 5.9 points below the 1972-to-2009 average.

However, there was further evidence that the housing market may be stabilising.

Separately, the National Association of Home Builders/Wells Fargo Housing Market Index rose three points to 16 in October, beating economists' expectations for a 1-point rise to 14.

Mark Thoma thinks that the drop in capacity utilisation is not encouraging for employment. Investors, though, were able to shrug it off, according to Bloomberg.

U.S. stocks rose to a five-month high, led by financial shares, after Citigroup Inc.’s earnings topped estimates and an unexpected drop in industrial production added to signs the Federal Reserve will help fuel the recovery...

The S&P 500 climbed 0.7 percent to 1,184.71 at 4 p.m. in New York, the highest level since May 3... The Dow Jones Industrial Average rose 80.91 points, or 0.7 percent, to 11,143.69.

European stocks have also done well recently. Again from Bloomberg:

European stocks rose to the highest level since April as Royal Bank of Canada’s offer for BlueBay Asset Management Plc boosted financial-services companies, outweighing losses in BHP Billiton Ltd. and Rio Tinto Group...

The Stoxx Europe 600 Index advanced 0.3 percent to 266.64 at the 4:30 p.m. close in London, the highest level since April 26. The benchmark measure for European equities has climbed 2.7 percent this month amid speculation that the Federal Reserve will announce further plans to stimulate economic growth at its November meeting.

This comes as Europe's sovereign debt concerns have eased.

Euro-region interbank borrowing costs rose to the same level as the European Central Bank’s main interest rate for the first time in 15 months today, signaling greater willingness by financial institutions to lend to one another. The increase in Euribor suggests more banks are weaning themselves off ECB liquidity programs that were started to fight the global recession and then extended as the Greek debt crisis fueled concern some nations in the region could default.

Providing more direct evidence of decreasing worries over European sovereign debt, FT Alphaville notes that there was no ECB bond-buying last week while yield spreads have declined.

Meanwhile, the UK property market showed some signs of recovery on Monday. From Reuters:

Property asking prices in England and Wales rose for the first time in four months in October, with sellers responding to seasonal pressures instead of market fundamentals, a survey showed Monday.

Property website Rightmove, which says it captures 90 percent of all homes for sale, said asking prices jumped 3.1 percent this month, following drops of 1.1 percent in September and 1.7 percent in August.

The annual rate of growth in prices rose 2.9 percent from 2.6 percent in September.

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