Saturday, 19 November 2011

US leading index rises, Italian and Spanish bond yields fall

The Conference Board’s index of U.S. leading indicators rose 0.9 percent in October, the biggest jump since February, after a 0.1 percent increase in September.

The stream of positive US economic data recently has led economists to raise their forecasts for economic growth for the fourth quarter. From Bloomberg:

Economists at JPMorgan Chase & Co. (JPM) in New York now see gross domestic product rising 3 percent in the final quarter, up from a previous prediction of 2.5 percent. Macroeconomic Advisers in St. Louis increased its forecast to 3.2 percent from 2.9 percent at the start of November, while New York-based Morgan Stanley & Co. boosted its outlook to 3.5 percent from 3 percent.

“The incoming data on consumption, business spending and residential investment all point to GDP growth in the fourth quarter tracking 3.3 percent,” said John Herrmann, senior fixed-income strategist at State Street Global Markets in Boston.

One risk for the US economy comes from Europe's debt crisis.

The U.S. would not be able to “escape the consequences of a blowup in Europe,” Federal Reserve Chairman Ben S. Bernanke said in El Paso, Texas on Nov. 10. “The world’s financial markets are highly interconnected.”

Federal Reserve Bank of New York President William C. Dudley said in a speech yesterday that while recent economic reports have shown improvement, that shouldn’t be a signal for the Fed to relax its efforts to boost the economy...

“We also continue to face significant downside risks, mostly related to the stress in the euro zone,” Dudley said.

The risk of a "blowup" in Europe receded just a little on Friday after European Central Bank purchases reportedly helped push down Italian and Spanish bond yields.

However, the ECB would prefer that more action come from governments instead. Bloomberg reports:

European Central Bank President Mario Draghi pushed back against politicians and investors asking him to do more to end the sovereign debt crisis, expressing impatience with leaders’ failure to act.

The ECB would quickly lose credibility if it departed from its primary role of keeping prices stable, Draghi said in a speech in Frankfurt today. “Where is the implementation” of government pledges to bolster the region’s rescue fund, he asked. “We should not be waiting any longer.”

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