Thursday, 31 May 2012

Spanish and Italian yields rise as eurozone economic sentiment falls

Markets remained nervous about the situation in Europe on Wednesday. The euro fell 1.1 percent against the US currency to $1.2368 while Spain’s 10-year yield rose 21 basis points to 6.66 percent. The MSCI All-Country World Index fell 1.8 percent.

Italy's 10-year yield jumped 17 basis points to 5.93 percent after a government debt sale fell short of its maximum target.

Worries over Europe's economy was also reflected in the European Commission's economic sentiment indicator for the euro area, which fell 2.3 points to 90.6 in May.

Elsewhere in Europe, hopes for a recovery in the property market in the UK increased after Bank of England data on Wednesday showed that mortgage approvals rose in April to their highest since January.

However, hopes for a recovery in the US housing market were set back after data on Wednesday showed that pending home sales fell 5.5 percent in April.

Amid worries over Europe and the global economy, monetary policies around the world have become easier of late. Brazil's central bank continued that trend on Wednesday, lowering the Selic rate by a half-point to 8.5 percent.

Wednesday, 30 May 2012

Stocks rise despite mixed data

Investors turned optimistic on Tuesday, with both US and European stock markets rising. The S&P 500 rose 1.1 percent while the STOXX Europe 600 rose 0.8 percent. Spain’s 10-year yield decreased three basis points to 6.45 percent.

The gain in stocks was partly attributed to improved prospects for Greece staying in the euro after polls showed voters supporting politicians who back the nation’s bailout. Speculation of another China stimulus also helped, although Xinhua indicated that there will not be another massive stimulus plan.

However, US economic data on Tuesday were mixed. Home prices rose in March, the S&P/Case Shiller composite home price index of 20 metropolitan areas gaining 0.1 percent. However, the Conference Board's consumer confidence index fell for the third consecutive month to 64.9 in May from 68.7 in April.

Earlier in the day, Japanese stocks had also risen, the Nikkei 225 rising 0.7 percent.

Stocks in Japan rose despite weak economic data on Tuesday. Japan's unemployment rate rose to 4.6 percent in April from 4.5 percent in March. Household spending rose 2.6 percent in April from a year earlier but fell 0.8 percent from March.

Tuesday, 29 May 2012

Spanish yields rise

Market concerns shifted away from Greece and towards Spain on Monday. Bloomberg reports:

The euro strengthened, rebounding from a four-day losing streak, as polls showed Greece’s pro- bailout parties gained ground. European stocks erased gains, Spanish bonds declined and yields on German two-year notes fell to a record low.

The euro rose 0.2 percent to $1.2538 at 4 p.m. New York time. The Stoxx Europe 600 Index lost less than 0.1 percent, moving lower after gaining as much as 0.9 percent, as banks slumped. Spain’s IBEX 35 dropped 2.2 percent while Germany’s DAX Index retreated 0.3 percent after adding 1.4 percent. Yields on two-year bunds slipped to 0.027 percent...

The yield on Spain’s 10-year bond climbed 16 basis points, or 0.16 percentage point, to 6.47 percent. The extra yield investors demand to hold the securities instead of their German counterparts expanded by 17 basis points to 511 basis points after reaching 514 basis points, the most since the euro’s introduction in 1999.

In a news conference on Monday, Spanish Prime Minister Mariano Rajoy asked for support from European authorities but insisted that he would not seek a bailout.

However, Ambrose Evans-Pritchard at The Telegraph says that things will get worse for Spain and that Rajoy is fighting a losing battle to stave off an EU rescue.

Saturday, 26 May 2012

US consumer confidence improves, Spain's financial problems worsen

A report on Friday showed that US consumer confidence continued to rise in May. The Thomson Reuters/University of Michigan index of consumer sentiment rose to 79.3 this month, the highest level since October 2007, from 76.4 in April.

European consumer confidence also appears to be holding up relatively well despite the on-going debt crisis. GfK said on Friday that its consumer confidence index for Germany will hold at 5.7 next month. Meanwhile, France's consumer confidence index rose to 90 in May from 89 in April.

However, Spain's financial problems continued to deteriorate on Friday. Bankia SA, Spain's fourth biggest bank, asked for a bailout of 19 billion euros after suffering losses from property loans. This comes as Standard & Poor's lowered its ratings on the debt of Bankia and four other Spanish banks and said it was taking a dimmer view of Spain's economy.

Meanwhile, Artur Mas, the president of Catalonia, one of Spain's wealthiest regions, said on Friday that his administration was having difficulty raising funds and called for central government help.

Earlier on Friday in Asia, Japan had reported that its core consumer price index rose 0.2 percent in April from a year earlier, the same as in March.

Friday, 25 May 2012

Europe, China and US report weaker economic data

The bad news for Europe continued on Thursday with economic data coming out weak.

Markit's composite index for the euro area fell to 45.9 in May from 46.7 in April. The manufacturing PMI fell to 45.0 in May from 45.9 in April while the services index fell to 46.5 from 46.9.

Ifo's business climate index for Germany fell to 106.9 in May from 109.9 in April.

The UK economy's contraction in the first quarter was revised to 0.3 percent from 0.2 percent.

China's economy is also at risk. HSBC's manufacturing PMI for the country fell back to 48.7 in May from 49.3 in April.

Thursday's data showed that even the US economy may be succumbing to the global slowdown. Durable goods orders rose just 0.2 percent higher in April after having fallen 3.7 percent in March. Excluding transportation, orders fell 0.6 percent. Non-defense capital goods orders excluding aircraft, an indicator of business investment, fell 1.9 percent.

Further indication on Thursday of a slowdown in US manufacturing came from Markit, whose preliminary index fell to 53.9 in May from 56.0 in April.

Thursday, 24 May 2012

Asian and European stocks tumble, US stocks escape

Asian and European stocks fell sharply on Wednesday amid growing concerns on the eurozone debt crisis. The MSCI Asia Pacific Index fell 1.6 percent while the STOXX Europe 600 Index dived 2.1 percent.

However, US stocks ended little changed, with the Standard & Poor’s 500 Index up 0.2 percent. Oil, though, fell 2.1 percent to $89.90 a barrel, closing below $90 for the first time since October.

Early on Wednesday, the Bank of Japan had left monetary policy unchanged.

This came as a report on Wednesday showed that Japan's exports rose 7.9 percent in April from a year earlier, the biggest gain in more than a year. With imports rising 8.0 percent, the trade balance remained in deficit.

Meanwhile, there were further signs of a recovery in the US housing market on Wednesday. New home sales increased 3.3 percent in April while the Federal Housing Finance Agency's house price index was up 2.7 percent in March from a year ago, the largest gain since November 2006.

However, the UK economy continues to look weak after a report on Wednesday showed that retail sales volumes fell 2.3 percent in April, its biggest drop since January 2010.

Wednesday, 23 May 2012

US and Europe report better data, Japan sees rating cut

Economic data on Tuesday were mostly positive.

In the US, sales of existing homes rose 3.4 percent in April to its fastest pace since May 2010.

In the euro area, the consumer confidence index rose to minus 19.3 in May from minus 19.9 in April.

In the UK, the inflation rate fell to 3.0 percent in April from 3.5 percent in March.

Indeed, the Organisation for Economic Co-operation and Development sees global economic growth easing just slightly to 3.4 percent this year from 3.6 percent in 2011 before accelerating to 4.2 percent in 2013. Growth among the OECD members is expected to ease this year to 1.6 percent from 1.8 percent in 2011 and then rebound to 2.2 percent in 2013.

The main risk to the global economy comes from Europe's debt crisis. The OECD forecasts that the eurozone economy would shrink 0.1 percent this year before posting growth of 0.9 percent in 2013.

And yet, the euro area is not the only region with a heavy government debt load. On Tuesday, Fitch cut Japan's credit rating, citing the country's massive public debt. Japan's long-term foreign currency rating was downgraded to A+ from AA with a negative outlook.

Tuesday, 22 May 2012

Markets rebound, US and Japanese data point to growth

Markets rebounded on Monday after last week's losses. The MSCI All-Country World Index of stocks rose 1.2 percent, oil rose 1.2 percent and copper gained 1 percent.

The gains in markets came after a report on Sunday had said that Chinese Premier Wen Jiabao had indicated that growth will be made a bigger policy priority.

Meanwhile, economic data on Monday indicated that growth is being maintained in the two other leading economies.

In the US, the Chicago Fed National Activity Index rose to +0.11 in April from –0.44 in March. However, the increase was not enough to prevent the index’s three-month moving average from edging down to –0.06 in April from +0.02 in March. Still, the Chicago Fed said that this suggests that economic growth was near its historical trend.

In Japan, the all industry activity index fell 0.3 percent in March, faster than the 0.1 percent decrease seen in the previous month and the third consecutive monthly decline. However, the coincident index climbed to 96.7 in March from 95.2 in February. The leading index rose to 96.4 from 96.1.

Monday, 21 May 2012

Japan led, Europe lagged in first quarter

The major developed economies put up diverging performances in the first quarter of 2012.

The United States economy slowed in the first quarter, growing 0.5 percent from the previous quarter for an annualised rate of 2.2 percent. It had grown 0.7 percent -- 3.0 percent annualised -- in the fourth quarter.

Japan put up the best performance among the major developed economies, growing 1.0 percent in the first quarter after having stagnated in the fourth quarter.

Europe provided most of the laggards among the major developed economies in the first quarter.

Germany managed to grow 0.5 percent in the first quarter, rebounding from the 0.2 percent contraction in the fourth quarter.

However, France's economy stagnated in the first quarter after having grown 0.1 percent in the fourth quarter.

That was still better though than the United Kingdom and Italy, whose economies contracted by 0.2 percent and 0.8 percent respectively. Both of these economies are now in recession after two and three consecutive quarters of contraction respectively.

Percentage change in real GDP
  Q2    Q3    Q4    Q1  
United States0.
Germany0.30.6-0.2 0.5
United Kingdom-0.1 0.6-0.3 -0.2 
Italy0.3-0.2 -0.7 -0.8 

The pattern of growth among the major developed economies is not likely to change much in the months ahead.

In a report on 10 May, the Organisation for Economic Co-operation and Development said that the composite leading indicators for Japan and the US for March pointed to stronger expansion for these economies. The CLI for the UK also improved, indicating that its economy may turn around.

However, the CLI for the euro area as a whole stagnated. While the CLI for Germany was stable, the CLIs for France and Italy maintained declining trends, pointing to continued sluggish economic activity in the latter countries.

OECD composite leading indicators
 Ratio to trend,
amplitude adjusted
Change from
previous month
United States100.9101.1101.
United Kingdom99.499.599.

Saturday, 19 May 2012

Stocks decline, China home prices fall

Markets fell again on Friday.

The STOXX Europe 600 fell 1.1 percent to 238.88. It was down 5.2 percent for the week.

The S&P 500 fell 0.7 percent to 1,295.22, Facebook's market debut failing to give the overall market a lift. The index fell 4.3 percent for the week.

Commodities managed to edge up though, boosted by gains in wheat and gold. However, oil and copper both fell to multi-month lows.

While the recent weakness in markets has been driven by developments in Europe, there has been a longer-term decline in the prices of homes in China. New home prices in April fell on a year-on-year basis in 46 out of 70 cities in China while 43 cities saw declines in month-on-month terms.

Calculations by Reuters showed that average home prices in China fell 1.2 percent last month from a year earlier and 0.3 percent from the previous month, the seventh consecutive monthly decline.

Friday, 18 May 2012

Markets fall, Europe hit by downgrades again

Markets fell again on Thursday. The S&P 500 fell 1.5 percent while the STOXX Europe 600 dropped 1.1 percent.

Spain’s IBEX 35 Index fell 1.1 percent to a nine-year low on fears of a downgrade of its banks. Those fears were confirmed after markets closed when Moody’s Investors Service announced that it was downgrading 16 of the nation’s banks.

Another rating downgrade on Thursday fell on already-beleaguered Greece. Fitch Ratings downgraded Greece's credit rating to CCC from B-. The country’s ceiling was lowered to B-. Greece’s ASE Index fell 3.4 percent to its lowest level since 1990.

Fitch also said that it would place all euro area sovereign ratings on Rating Watch Negative following the Greek elections if a Greek exit from the EMU becomes probable in the near term.

To add to the bad news on Europe, US economic data on Thursday came out unexpectedly weak. The Conference Board's index of leading economic indicators dipped in April for the first decline since September, falling 0.1 percent compared to an increase of 0.3 percent in March. The Philadelphia Federal Reserve's manufacturing index sank to -5.8 in May from 8.5 in April, registering its first negative reading since September.

Thursday, 17 May 2012

Japanese economy accelerates

Japan reported today that its economy grew 1.0 percent in the first quarter, accelerating strongly from a virtually flat performance in the fourth quarter of last year.

The strong growth was driven by a 1.1 percent increase in private consumption. Reconstruction activity following last year's tsunami also helped boost growth. Growth is expected to slow in coming quarters though as the latter fades.

Indeed, a report on Wednesday showed that core machinery orders fell 2.8 percent in March and were up just 0.9 percent for the quarter as a whole.

Wednesday's economic data from the US had been more positive. Housing starts rose 2.6 percent in April while industrial production rose 1.1 percent. However, building permits fell 7.0 percent last month, indicating that the strong growth in starts may not be sustainable.

Wednesday, 16 May 2012

Eurozone economy avoids contraction in first quarter

It turns out that the eurozone economy performed better than expected in the first quarter. A report on Tuesday showed that GDP was unchanged in the quarter, better than the 0.2 percent contraction most economists had expected. Germany grew 0.5 percent, offsetting contraction in places like Italy, which contracted 0.8 percent, and Spain, which contracted 0.3 percent.

Greek GDP contracted 6.2 percent year-on-year in the first quarter and things could get worse there as attempts to form a ruling coalition broke down on Tuesday. This development forces the country into another election next month, raising the spectre of a collapse of its bailout agreement and the country's exit from the euro area.

US economic data on Tuesday were mixed. Retail sales edged up 0.1 percent in April, its smallest gain since December. However, the New York Federal Reserve's Empire State general business conditions index jumped to 17.09 in May from 6.56 in April while the National Association of Home Builders/Wells Fargo Housing Market index rose to 29, the highest reading since May 2007, from 24 in April. Consumer prices were unchanged in April.

Economic reports from Asia on Tuesday were negative. Foreign direct investment in China in the first four months of this year fell 2.4 percent from a year earlier after a previously-reported 2.8 percent decline in the first quarter. Japan's consumer confidence index fell to 40.0 in April from 40.3 in March.

Tuesday, 15 May 2012

Markets fall, eurozone industrial production shrinks

Markets fell on Monday amid growing concern that Greece will exit the European currency union. The MSCI All-Country World Index fell 1.6 percent. The euro depreciated 0.6 percent against the US dollar and 0.7 percent versus the yen. The yield on the Spanish 10-year note rose 22 basis points to 6.23 percent while Italy’s 10-year yield increased 19 basis points to 5.70 percent. Copper futures fell 2.6 percent while New York oil futures dropped 1.4 percent.

Weak European economic data on Monday added to the negative sentiment. Industrial production in the euro area fell 0.3 percent in March. A strong 1.3 percent increase in industrial output in Germany was not able to fully offset large decreases elsewhere, particularly the 1.8 percent decline in Spain and the 0.9 percent decline in France.

And the eurozone economy could weaken further as the financial crisis continues to wreak havoc on credit ratings. On Monday, Moody's cut the credit ratings of 26 Italian banks, citing weakened earnings and the country’s economic outlook.

Monday, 14 May 2012

China eases monetary policy, Greece remains in deadlock

The weekend saw China making a move to bolster economic growth. From AFP/CNA:

China said on Saturday it would cut reserve requirements for banks, after disappointing economic data raised fears of a sharp slowdown in the world's second largest economy.

The People's Bank of China, the central bank, said it would cut banks' reserve requirements by 0.50 percentage points effective from May 18, according to a statement posted on its website...

After the latest move takes effect, China's reserve requirement for most large banks will fall to 20 per cent, the official Xinhua news agency said.

Smaller banks will be required to maintain reserves of 16.5 per cent.

However, Europe's debt crisis remains a threat to the global economy as there was no improvement in the political situation in Greece over the weekend. Bloomberg reports:

Greece’s political deadlock looked set to continue for a second week as President Karolos Papoulias failed to secure agreement on a unity government and avert new elections with the country heading toward a possible exit from the euro area.

Greece’s biggest anti-bailout party, Syriza, defied overtures to join the government yesterday, deepening the impasse. Leader Alexis Tsipras won’t attend a new meeting called by Papoulias today for 7:30 p.m., state-run NET TV reported, without saying how it got the information.

Saturday, 12 May 2012

Europe in recession, Asia slowing

According to the latest European Commission economic forecast released on Friday, the EU economy “entered a shallow recession in the fourth quarter” and is expected to be flat for 2012. The eurozone economy is also in recession and is expected to contract by 0.3 percent this year.

Meanwhile, Friday's data show that Asia is also slowing.

In China, growth in industrial output slowed to 9.3 percent year-on-year in April, the lowest level in nearly three years, from 11.9 percent in March. Urban fixed asset investments in the first four months of 2012 rose 20.2 percent compared with a year earlier, slowing from 20.9 percent in the first three months. Retail sales rose 14.1 percent year-on-year in April compared with an increase of 15.2 percent in March. Inflation also slowed to 3.4 percent year in April from 3.6 per cent in March. The value of home sales from January to April fell 13.5 percent from a year earlier.

In India, industrial output contracted by 3.5 percent from a year ago in March. Output had increased 4.1 percent in February.

Data for the US economy on Friday remained positive though. Consumer confidence reached its highest level in four years in May as the Thomson Reuters/University of Michigan preliminary sentiment index climbed to 77.8 this month from 76.4 the prior month. This comes as inflation appears to be cooling, with producer prices falling 0.2 percent in April.

Friday, 11 May 2012

BoE withholds further monetary stimulus amid mixed global economic data

The Bank of England left its key interest rate unchanged at 0.5 percent after its monetary policy meeting on Thursday and announced no additional asset purchases.

The BoE's decision comes as the latest data show that the UK economy remains weak. Nationwide's consumer confidence index plunged to 44 in April after having hit a nine-month high of 53 in March. Industrial production fell 0.3 percent in March. However, manufacturing output rebounded 0.9 percent after having fallen by 1.1 percent in February.

French industrial production also fell in March by 0.9 percent despite a 1.4 percent jump in manufacturing output but Italian industrial production rose 0.5 percent in March.

Outside Europe, Japan also reported mixed data on Thursday. The Cabinet Office's economy watchers survey showed that the current conditions index of service sentiment fell to 50.9 in April from 51.8 in March but the future conditions index rose to 50.9 in April from 49.7 in March. Japan's current account surplus fell 8.6 percent in March from a year ago but this was much better than the 30.7 decline in February. Exports rose 7.3 percent in March from a year earlier, the first gain in six months.

However, China's export growth slowed to 4.9 percent year-on-year in April from 8.9 percent in March. Imports edged up just 0.3 percent from a year ago compared to a 5.3 percent increase in March, which is likely to renew concerns of a slowdown in China's economy.

In contrast, US trade data for March gave few indication of an economic slowdown. Exports grew 2.9 percent while imports jumped 5.2 percent. The increase in imports in March was partly due to a 1.5 percent increase in import prices but the latter fell 0.5 percent in April.

Thursday, 10 May 2012

Greece to get bailout money

Tension is likely to ease in Europe after eurozone governments agreed on Wednesday to release Greece's bailout money. Reuters reports:

After a conference call, the board of the European Financial Stability Facility, the 700 billion euro bailout fund administered by the 17 countries that use the euro, agreed to make the scheduled payment, which will allow Greece to meet near-term bond redemptions and other obligations.

An initial 4.2 billion euros will be paid on Thursday, while the remaining 1 billion will be paid out later, "depending on the financing needs of Greece," a statement said.

Economic data for the euro area on Wednesday were mixed.

German exports rose 0.9 percent in March, rising for the third consecutive month. Imports rose 1.2 percent.

However, French exports fell 1.5 percent. Imports fell 2.6 percent.

Outside Europe, there were positive data from Japan. Its leading index of economic indicators rose for the third consecutive month to 96.6 in March from 96.0 in February. The coincident index rose to 96.5 from 95.2 in February.

Wednesday, 9 May 2012

Markets fall as Greek bailout under threat

Markets fell on Tuesday, although US stocks again managed to finish off the day's lows. The S&P 500 fell 0.4 percent after having fallen as much as 1.6 percent earlier. The STOXX Europe 600 fell 1.7 percent while Greece’s ASE index plunged 3.6 percent to close at the lowest level since November 1992. The euro fell 0.3 percent against the US dollar and 0.4 percent against the yen.

Markets were unnerved by threats from Alexis Tsipras of Greece’s Syriza party to renounce support for the implementation of austerity measures as required by the terms of the European Union bailout.

However, while Greece and some of the other peripheral eurozone economies are floundering, the German economy continues to outperform. German industrial production jumped 2.8 percent in March, well above economists' forecast for a gain of 0.8 percent and more than reversing February's 0.3 percent decline in output.

Tuesday, 8 May 2012

Markets volatile as Europe turns away from austerity

Asian markets were badly hit on Monday by the results of the elections in France and Greece over the weekend. AFP/CNA reports:

Asian markets and the euro tumbled on Monday after voters in France and Greece voted out their ruling parties in a backlash against austerity measures aimed at battling the eurozone crisis...

France's Nicolas Sarkozy was on Sunday dumped out by Socialist Francois Hollande, who had campaigned on a platform of boosting growth instead of introducing huge spending cuts to overcome the country's deficit...

In Greece the two main parties -- the conservative New Democracy and the left-wing Pasok -- suffered huge losses in a general election, with those opposed to more cuts winning almost 60 percent support.

The Japanese stock market was hit particularly hard, falling 2.8 percent on Monday.

Western stock markets, however, managed to reverse early losses by the end of the day. The S&P 500 ended flat with most stocks rising while the STOXX Europe 600 even managed a gain of 0.7 percent.

While investors were focused on political developments, there was actually a positive piece of economic news from Europe on Monday. German factory orders jumped 2.2 percent in March, much higher than the 0.5 percent increase expected by economists surveyed by Bloomberg.

Monday, 7 May 2012

Global economy slowed again in April

Reports last week showed that the global economy continued to slow as it entered the second quarter of the year.

Surveys of purchasing managers around the world showed that global growth slowed again in April. The JPMorgan global all-industry output index fell to 52.2 in April from 54.4 in March and after having hit a one-year high of 55.4 in February.

JPMorgan Global All-Industry Indices
New orders53.951.7
Input prices58.254.8

The United States economy has been among the best performer of the major economies in recent months and April was no exception. The manufacturing sector accelerated last month, with the Institute for Supply Management’s manufacturing PMI rising to 54.8 from 53.4 in March. Services decelerated though, with the ISM's non-manufacturing index falling to a four-month low of 53.5 in April from 56.0 in March.

In contrast, the euro area continued to be the major drag on global output. Markit's composite index for the region dropped sharply to 46.7 in April from 49.1 in March. The manufacturing index declined to 45.9 from 47.7 while the services index fell to 46.9 from 49.2.

In Japan, growth also weakened in April but remained positive. The composite output index fell to 51.3 after having hit a series-record high of 53.2 in March. The manufacturing PMI fell to 50.7 from 51.1 while the services business activity index fell to 51.0 from 53.7.

April's purchasing managers' data, however, gave few signs of a slowdown in China's economy. The HSBC composite output index rose to 51.4 from 49.9 in March, with the manufacturing PMI rising to 49.3 from 48.3 and the services business activity index rising to 54.1 from 53.3. The China Federation of Logistics and Purchasing's manufacturing PMI also improved, rising to 53.3 in April from 53.1 in March. However, its services PMI fell to 56.1 from 58.0.

Employment data released last week also indicated that growth in the major economies is weakening.

In the US, nonfarm payrolls rose 115,000 in April, the smallest increase in six months. The unemployment rate fell nevertheless to a three-year low of 8.1 percent from 8.2 percent in March.

In contrast, the eurozone unemployment rate rose to 10.9 percent in March, the highest since April 1997, from 10.8 percent in February.

Saturday, 5 May 2012

Stocks fall on weak economic data

Markets fell on Friday after another day of weak economic data. The MSCI All-Country World Index lost 1.5 percent.

In the euro area, Markit's composite index based on a survey of purchasing managers dropped sharply to 46.7 in April from 49.1 in March. The services index fell to 46.9 from 49.2 following the manufacturing index's decline to 45.9 from 47.7 reported earlier in the week.

Negativity in the euro area was offset somewhat by the report of a surprise 0.3 percent rise in retail sales in March.

In the US, nonfarm payrolls rose 115,000 in April, the smallest increase in six months. Employment gains for the prior two months were revised higher by a total of 53,000 jobs. The unemployment rate fell to a three-year low of 8.1 percent from 8.2 percent in March.

PIMCO's Bill Gross said in an interview with Bloomberg that the weak US employment is a structural problem stemming from technology advances and the lack of retraining.

David Kotok of Cumberland Advisors also thinks that there is a long-term downward trend in employment. However, he also says that that means low inflation pressure, higher profits, and a continuation of Federal Reserve policy focused on low short-term interest rates, a combination that is bullish for stocks.

Friday, 4 May 2012

ECB leaves rate unchanged, US and UK services slow

The European Central Bank left its benchmark rate at 1.0 percent on Thursday.

President Mario Draghi said at a news conference that he expected the euro area economy to recover gradually during the course of the year but that the “economic outlook continues to be subject to downside risks”. He said that growth had to be put back at the centre of the agenda even as governments continued with fiscal consolidation.

Meanwhile, data elsewhere indicated that the global economy continued to slow in April.

In the US, the Institute for Supply Management's non-manufacturing index fell to a four-month low of 53.5 in April from 56.0 in March. More encouragingly, initial jobless claims fell by 27,000 to 365,000 in the week ended 28 April.

In the UK, the services sector also slowed in April, with the Markit/CIPS PMI for the sector falling to 53.3 from 55.3 in March. Meanwhile, house prices fell 0.2 percent in April after having fallen 1.0 percent in March.

Thursday, 3 May 2012

Eurozone downturn deepens

There were some weak economic data on Wednesday, particularly from Europe.

The manufacturing downturn in the euro area deepened in April. Markit's eurozone manufacturing PMI dropped to 45.9 last month from 47.7 in March. The April reading was below the preliminary reading of 46.0 and was its lowest since June 2009.

Meanwhile, the eurozone unemployment rate rose to 10.9 percent in March, the highest since April 1997, from 10.8 percent in February.

US data on Wednesday were also uncharacteristically weak. Private employment increased by 119,000, the smallest gain in seven months, according to ADP Employer Services. Another report showed factory orders fell 1.5 percent in March.

In contrast, UK data on Wednesday took a turn for the better. Mortgage approvals climbed to 49,860 in March from 49,029 in February while the Markit/CIPS construction PMI eased to 55.8 in April from 56.7 in March but remained well above the 50 level.

Asian data on Wednesday also showed some economic resilience. HSBC's China manufacturing PMI improved to 49.3 in April from 48.3 in March while India's manufacturing PMI rose to 54.9 in April from 54.7 in March.

Wednesday, 2 May 2012

China and US manufacturing PMIs rise, Australian interest rates slashed

Tuesday's economic reports showed that the world's two main growth engines appear to have done well in April.

The China Federation of Logistics and Purchasing reported on Monday that its manufacturing PMI rose to 53.3 in April from 53.1 in March.

US manufacturing also accelerated in April, the Institute for Supply Management’s manufacturing PMI rising to 54.8 from 53.4 in March.

The news was not as good for US construction spending, which rose just 0.1 percent in March after falling 1.4 percent in February.

Meanwhile, the UK economy looks like it will struggle to come out of recession. The Markit/CIPS manufacturing PMI fell to 50.5 in April from 51.9 in March.

Australia's manufacturing PMI fell even more alarmingly by 5.6 points to 43.9 in April. And with house prices falling 1.1 percent in the first quarter, the Reserve Bank of Australia must have felt compelled to cut interest rates by 50 basis points to 3.75 percent in its monetary policy meeting on Tuesday.

Tuesday, 1 May 2012

Spain in recession, US consumer spending increases

Monday brought more mixed economic data.

Europe predictably had the worst, with data confirming that Spain's economy has fallen into recession. It contracted 0.3 percent in the first quarter, the same as in the previous three months.

Adding to Spain's woes, Standard & Poor’s cut its credit ratings for 11 Spanish banks on Monday.

The German economy has been doing better. German retail sales rose 0.8 percent in March, rebounding from a 0.9 percent decline in February.

Meanwhile, lower inflation could help boost the eurozone economy. Inflation in the euro area fell to 2.6 percent in April from 2.7 percent in March, according to an initial estimate.

The US economy has been performing better than Europe, although it may have lost some momentum recently. Consumer spending increased 0.3 percent in March after having increased 0.9 percent the prior month. After adjusting for inflation, consumer spending rose 0.1 percent in March. Disposable income rose 0.2 percent after accounting for inflation.

The Institute for Supply Management-Chicago's business barometer fell to 56.2 in April from 62.2 in March.