Friday, 31 July 2009

Japanese industrial production increases, eurozone confidence rises

Thursday brought more positive news on the economic front.

Japanese industrial production expanded again in June. Bloomberg reports:

Japanese manufacturers increased production for a fourth month in June, capping the fastest quarterly output expansion in more than half a century and helping the economy rebound from its deepest postwar recession.

Production rose 2.4 percent from May, the Trade Ministry said today in Tokyo. Output gained 8.3 percent last quarter from the first three months of 2009, the most since 1953...

Manufacturers planned to boost output 1.6 percent in July and 3.3 percent in August, today’s report showed. The ministry said production is “on a recovery trend” after last month describing it as “showing signs of recovery.”

Meanwhile, confidence in the euro area is rising. Again from Bloomberg:

An index of executive and consumer sentiment in the 16 nations that use the euro rose to 76, the highest since November, from 73.2 in June, the European Commission in Brussels said today...

However, recovery in the region is likely to be slow.

The euro region will experience a “modest recovery” next year, the International Monetary Fund said in a report today. The Washington-based lender with 185 member nations sees the 16- nation economy shrinking 0.3 percent in 2010 after a 4.8 percent contraction this year.

In the US, initial jobless claims rose last week but investors are now focussed on an expected recovery. From Bloomberg:

U.S. stocks rose and the Standard & Poor’s 500 Index approached a nine-month high as companies from Motorola Inc. to MasterCard Inc. posted better-than-estimated results and jobless claims held below June levels. Treasuries gained on a better-than-forecast auction of seven-year notes...

The S&P 500 added 1.2 percent to 986.75 at 4:08 p.m. in New York, the highest close since Nov. 4. The Dow Jones Industrial Average rose 83.74 points, or 0.9 percent, to 9,154.46. European and Asian stocks gained, pushing the MSCI World Index up 1.5 percent. Brazil’s Bovespa jumped 1.4 percent.

Thursday, 30 July 2009

Chinese stocks plunge

The soaring Chinese stock market hit an air pocket on Wednesday. From AFP/CNA:

Chinese shares slumped 5.00 per cent on Wednesday as investors collected profits across the market after recent gains, with property developers leading the fall, dealers said.

The Shanghai Composite Index, which covers A and B shares, was down 171.94 points at 3,266.43 on turnover of 296.9 billion yuan (US$43.5 billion).

The sharp fall on Wednesday marked the biggest single-day percentage decline since November 18, when the index ended down 6.3 per cent. But the market has surged by about 80 per cent since the start of the year...

Meanwhile, concerns about slowing credit growth also weighed on sentiment, traders said.

China's two biggest lenders - Industrial and Commercial Bank of China and China Construction Bank - said they would sharply cut credit growth in the second half, Caijing Magazine reported Tuesday.

The broad-based decline in the market also came after a slew of profit warnings from China's blue-chip companies.

The plunge in China had little impact on trading in Europe, where the DJ Stoxx index rose 0.8 percent.

US stocks did close down though. Bloomberg reports:

The Standard & Poor’s 500 Index slipped 0.5 percent to 975.15 at 4 p.m. in New York. The Dow Jones Industrial Average fell 26 points, or 0.3 percent, to 9,070.72...

Treasury notes fell after a government auction of a record amount of notes drew higher-than-forecast yields for a second consecutive day, renewing concern a deluge of U.S. debt will overwhelm investor demand...

The dollar advanced the most against the currencies of six major U.S. trading partners in almost four weeks as stocks fell and crude oil slumped, bolstering demand for the greenback as a haven.

US economic data on Wednesday came in mixed, with durable goods orders down 2.5 percent in June but up 1.1 percent when transportation equipment is excluded.

Wednesday, 29 July 2009

US home prices rise, consumer confidence falls

Tuesday's data provided more evidence that the US housing market is stabilising. From Bloomberg:

The S&P/Case-Shiller home-price index rose 0.5 percent in May from the prior month, the first gain since July 2006 and biggest since May of that year, the group said today in New York...

... Adjusted for seasonal changes, the index fell 0.2 percent in May, the smallest monthly decline since February 2007.

However, consumer confidence fell in July.

The Conference Board’s confidence index dropped to 46.6, a second consecutive decline, following a reading of 49.3 in June, the New York-based research group said. The figure reached a record low of 25.3 in February.

Nevertheless, Bloomberg reports that Federal Reserve Bank of San Francisco President Janet Yellen said on Tuesday that the US economy is showing signs of emerging from the recession.

“We glimpse the first solid signs since the recession started more than a year and a half ago that economic growth may be poised to resume,” Yellen said. “Indeed, I expect that to happen sometime this year,” she said, while adding that risks to the outlook remain, with the commercial property slump the biggest threat.

Tuesday, 28 July 2009

US new home sales see biggest gain in eight years

The week starts on a positive note. From Bloomberg on Monday:

Purchases of new homes in the U.S. climbed 11 percent in June, the biggest gain in eight years, underscoring evidence that the deepest housing slump since the Great Depression is starting to stabilize.

Sales increased to a 384,000 annual pace, higher than every forecast in a Bloomberg News survey and the most since November, figures from the Commerce Department showed today in Washington. The number of houses on the market dropped to the lowest level in more than a decade.

Deutsche Bank Securities Inc. and Goldman Sachs Group Inc. economists said today’s figures signal an end to the slide in home construction and sales. While that means the drag on economic growth will turn to a stimulus in the second half of the year, property values are likely to continue falling and rising unemployment will temper the recovery, analysts said.

“We’re barely past the housing bottom, this thing is still fragile,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York. “It’s not premature to talk about home prices bottoming -- it’s somewhere in the next three to six months. There is light at the end of the tunnel.”

However, while Calculated Risk agrees that new home sales have probably bottomed, house prices may take much longer to do so.

It is way too early to try to call the bottom in prices. House prices will probably fall for another year or more. My original prediction (a few years ago) was that real house prices would fall for 5 to 7 years (after 2005), and we could start looking for a bottom in the 2010 to 2012 time frame for the bubble areas. That still seems reasonable to me.

Monday, 27 July 2009

Is the housing bubble still alive in China?

Certainly looks like it. From AFP/CNA:

Government stimulus measures and speculative investors have helped forge a surprising turnaround in the property market, with rocketing prices in some large cities sparking concerns of a new bubble...

In the Chinese capital, average house prices jumped 27 per cent from January to June, according to government data published in the state media.

Property prices across all major cities rose by 0.2 per cent in June from a year ago, government figures showed, ending falls since December, when the data posted the first decline since official records were published in mid-2005.

To lift the sector out of its slump, the government last year cut minimum deposits for first-time home buyers and slashed equity capital requirements on property investments.

It also lowered mortgage interest rates, while erasing stamp duty on all private home purchases and value-added tax for land on property sales...

But analysts said speculative money was also fuelling the rebound with the property market attracting hot money as a hedge against inflation.

Meanwhile, China's stock market today continued its recent surging run. From Bloomberg:

China’s stocks rose, with the benchmark index reaching twice the level of last year’s low in November, as Sichuan Expressway Co. tripled on its debut trade and metals producers gained on higher product prices...

The Shanghai Composite added 62.61, or 1.9 percent, to 3,435.21 at the close, a 13-month high. The gauge has doubled from its Nov. 4 low of 1,706.7 as the government implemented a stimulus package, banks tripled lending in the first half of 2009, and the economy rebounded in the second quarter. The CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, gained 2.1 percent to 3,743.63.

Saturday, 25 July 2009

UK economy shrinks but global economy on the mend

The UK economy shrank more than expected in the second quarter. Reuters reports:

The economy shrank more than twice as fast as expected in the second quarter to register its biggest annual decline since comparable records began in 1955, official data showed on Friday.

The Office for National Statistics said GDP fell by 0.8 percent on the quarter, taking the annual decline to 5.6 percent. Analysts had forecast a quarterly decline of just 0.3 percent after a hefty 2.4 percent drop in the first quarter.

Still, the second quarter performance shows an economy on the mend. Other data on Friday tell similar stories for other regions.

Bloomberg reports that the euro area is edging towards recovery.

Europe’s economy moved closer to recovery as the manufacturing and service industries contracted at the slowest rate since August and German business confidence climbed to a nine-month high.

A composite index of both industries for the 16 euro nations rose to 46.8 from 44.6 in June, a survey of purchasing managers by Markit Economics showed today. According to a separate report, the Ifo Institute’s index of business sentiment in Germany, the region’s largest economy, increased to 87.3 from 85.9, reaching the highest since October...

Markit’s manufacturing index rose to 46 this month from 42.6 in June after reaching a low of 33.5 in February, according to today’s report. The services index increased to 45.6 from 44.7 and its low was 39.2, also in February.

US consumer confidence did fall in July, but not as badly as indicated in the preliminary report. From Bloomberg:

Confidence among U.S. consumers fell in July for the first time in five months as mounting unemployment and stagnant wages shook households.

The Reuters/University of Michigan final index of consumer sentiment decreased to 66, in line with forecasts, from 70.8 in June. A preliminary report for July showed a reading of 64.6.

And some Asian economies are growing rapidly again. AFP/CNA reports South Korea's second quarter performance.

Surging exports and consumer spending fuelled growth of 2.3 per cent for South Korea's economy in the three months to June, its fastest rate in more than five years, data showed Friday.

The quarter-on-quarter growth in gross domestic product (GDP) was up sharply from the first quarter's slender gain of 0.1 per cent, the central Bank of Korea said.

Even Japan's economy may be recovering. Its all industry activity index rose 0.7 percent in May, its second consecutive increase.

Friday, 24 July 2009

US existing home sales, Japanese exports rise in June

Thursday's economic reports show that prospects for a global economic recovery remain intact.

Bloomberg reports that US existing home sales rose for a third consecutive month in June.

Sales of existing homes in the U.S. rose in June for a third consecutive month, signaling the four- year slump that precipitated the financial crisis is ending.

Purchases climbed 3.6 percent to an annual rate of 4.89 million, stronger than forecast and the highest level since October, the National Association of Realtors said today in Washington. Another report showed jobless claims rose last week from a six-month low.

Investors are literally buying into the recovery story.

The S&P 500 rose 2.3 percent to close at 976.29 in New York, as EBay Inc., Ford Motor Co. and AT&T Inc. posted better- than-estimated results, while the homebuilder supercomposite gauge surged 5.2 percent. The yield on the benchmark 10-year note jumped to 3.67 percent at 4:15 p.m. New York time from 3.55 percent late yesterday.

Japan also had better news to report on Thursday. Again from Bloomberg:

Japan’s exports fell in June at the slowest pace this year as demand picked up worldwide, helping the trade surplus widen for the first time in 20 months and adding to evidence the economy is on the path to recovery.

Shipments abroad dropped 35.7 percent from a year earlier, easing from a 40.9 percent decline in May, the Finance Ministry said today in Tokyo. Compared with a month earlier, shipments rose 1.1 percent...

Exports measured by volume increased 5.7 percent in June on seasonally adjusted basis, the central bank said today. Shipments have risen for four months running by that measure, which correlates closely with the export component of GDP, according to London-based Capital Economics Ltd.

Analysts surveyed by Bloomberg predict the rebound in exports helped the world’s second-largest economy expand an annualized 2.4 percent in the three months ended June 30. That would end four consecutive quarters of negative growth that shrunk gross domestic product down to its 2003 size.

The UK economy also looks increasingly likely to emerge from recession soon. From Reuters:

Retail sales jumped at three times the rate analysts expected last month as hot weather and early summer discounting boosted sales of clothes, official data showed on Thursday.

Separate figures from the British Bankers Association showed mortgage approvals rose in June to their highest level in over year, providing further evidence the economy is emerging from recession...

The Office for National Statistics said sales volumes rose 1.2 percent last month, above all forecasts in a Reuters poll and more than reversing a 0.9 percent fall in May. The annual rate picked up to 2.9 percent, its strongest this year.

Thursday, 23 July 2009

Eurozone industrial orders dip

Eurozone industrial orders fell again in May. Bloomberg reports:

European industrial orders declined more than economists expected in May as the worst recession in six decades curtailed demand for machines and equipment.

Orders to industrial companies in the euro region fell 30.1 percent from a year earlier, the European Union’s statistics office in Luxembourg said today. That was the 10th straight drop and followed a record 35.3 percent decline in April. Economists forecast a 27.9 percent fall in May, according to the median of 14 estimates in a Bloomberg survey. From the prior month, May orders fell 0.2 percent, also more than economists expected.

Still, the May numbers indicate some stabilisation.

“The overall picture is that the industrial sector is close to stabilizing and probably will come out of recession not in the second quarter but in the third quarter,” said Nick Kounis, chief European economist at Fortis Bank Nederland Holding NV in Amsterdam. He forecasts the euro-area economy will grow 0.1 percent this quarter from the previous three months.

French consumer spending data out on Wednesday add to signs of an improving outlook. From Bloomberg:

French consumer spending rose the most in five months in June as clothing retailers brought forward seasonal sales and consumer confidence improved.

Spending on manufactured goods rose 1.4 percent from May, when it fell 0.2 percent, Paris-based national statistics office Insee said today. The increase, the most since January, topped the median forecast for a 0.3 percent gain in a survey of 21 economists by Bloomberg News.

The French are not the only ones spending. Canadian retail sales also rose in May. Again from Bloomberg:

Canadian retail sales rose more than expected in May, posting the fourth gain in five months, led by sales of automobiles and personal care products.

Sales rose 1.2 percent to C$34 billion ($30.8 billion), Statistics Canada said today in Ottawa. Economists expected a 0.5 percent increase in May, based on the median of 21 estimates in a Bloomberg News survey.

Wednesday, 22 July 2009

Fed, BoC to maintain accommodative policies

The Fed looks likely to keep monetary policy accommodative for some time to come. Bloomberg reports Fed chairman Ben Bernanke's testimony in Congress on Tuesday.

Federal Reserve Chairman Ben S. Bernanke said while the economy is showing “tentative signs of stabilization,” the central bank intends to maintain a “highly accommodative” monetary policy for “an extended period.”

“The pace of decline appears to have slowed significantly,” Bernanke said today in semi-annual testimony before the House Financial Services Committee. At the same time, “in light of the substantial economic slack and limited inflation pressures, monetary policy remains focused on fostering economic recovery,” he said.

Bernanke also outlined his exit strategy.

“We have a number of tools that will enable us to raise market interest rates as needed,” he said, noting that outright sales from the Fed’s portfolio would also raise longer-term interest rates...

Among the five options, the interest rate on banks’ deposits with the Fed is “perhaps the most important” tool, Bernanke said. It “will most likely be used in combination” with other methods, including reverse-repurchase agreements and term deposits, the report said.

Another central bank that appears likely to keep monetary policy accommodative for some time is the Bank of Canada, which left interest rates unchanged on Tuesday. Again from Bloomberg:

The Bank of Canada kept its benchmark interest rate at a record low, and said the stronger Canadian dollar is slowing a recovery that has been quicker than policy makers expected.

All 23 economists surveyed by Bloomberg News predicted Governor Mark Carney would keep the target rate for overnight loans between commercial banks at 0.25 percent. The central bank also reiterated a plan to keep that rate unchanged through June 2010, and made no comment on further credit-market stimulus...

The bank now expects the economy to shrink 2.3 percent this year, less than its April forecast for a 3 percent contraction. Inflation will return to its 2 percent target three months sooner than earlier projected, the statement said, and the global economy shows signs of a “nascent” recovery.

Tuesday, 21 July 2009

US leading index up for third straight month

The US economy is climbing out of recession, if the Conference Board’s leading index is anything to go by. Bloomberg reports:

The index of U.S. leading indicators rose in June for a third consecutive month, reinforcing signs the economy may be emerging from the worst recession in five decades.

The Conference Board’s gauge of the economic outlook for the next three to six months increased 0.7 percent, more than forecast, after a revised 1.3 percent gain in May, the New York- based research group said today. It is the first time the index has climbed for three months in a row since 2004.

The coincident index is still falling though.

The Conference Board’s index of coincident indicators, a gauge of current economic activity, dropped 0.2 percent after decreasing 0.3 percent the prior month. The National Bureau of Economic Research, the arbiter of when recessions begin and end, follows this index to help it time downturns. The index tracks payrolls, incomes, sales and production.

Investors, however, aren’t waiting for the coincident index to turn up.

Stocks, one component of the leading index, extended gains after the report. The Standard & Poor’s 500 Index, which has soared more than 40 percent since its March 6 intraday low, rose 1.1 percent to close at 951.13 today in New York. An advance in stocks last month contributed 0.1 percentage point to the leading index.

Saturday, 18 July 2009

US housing starts increase, end of recession looks imminent

Friday added to mounting evidence that US housing is near a bottom. From Bloomberg:

Housing starts in the U.S. unexpectedly rose in June as construction of single-family dwellings jumped by the most since 2004, signaling the market is stabilizing even as unemployment worsens.

The 3.6 percent increase brought starts to an annual rate of 582,000, the highest level since November and followed a 562,000 pace in May that was higher than previously estimated, the Commerce Department said today in Washington...

The Commerce report showed building permits, a sign of future construction, climbed 8.7 percent to a 563,000 annual rate, the highest level of the year.

This is good news for the US economy, which itself looks like it is near a bottom, according to ECRI. From Reuters:

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index slipped to 118.1 in the week to July 10 from a revised 119.0 the prior week, which ECRI originally reported at 118.5.

The index's annualized growth rate surged to a five-year high of 7.0 percent from 6.2 percent one week ago, which was revised higher from 5.4 percent.

It was the gauge's highest yearly growth rate reading since the week ended May 14, 2004, when it was 7.1 percent.

Barry Ritholtz warns about reading too much into Friday's housing figures, but nevertheless posts a commentary from Lakshman Achuthan, co-founder and managing director of ECRI, that describes how strong the signal from the leading indicators have been. Excerpt from the latter:

... We clearly have “pronounced, pervasive and persistent upswings in a succession of leading indexes of economic revival – the most powerful possible predictor of a business cycle recovery. What is impressive here is the degree of unanimity within and across these leading indexes, along with the classic sequence of advances in those indexes. Such a combination of upturns does not happen unless an end to the recession is imminent...”

Friday, 17 July 2009

China reports 7.9 percent growth, US data mixed

China's stimulus programme seems to be working. From AFP/CNA:

China's economy grew 7.9 per cent in the second quarter of 2009, the government said Thursday, in a startling turnaround for the Asian powerhouse fuelled by a massive stimulus package.

Expansion in the world's third biggest economy picked up pace again after growing by just 6.1 per cent year-on-year in the first quarter, which was the slowest growth in more than a decade.

The turnaround in the US looks likely to be less dramatic. From Bloomberg:

Manufacturing in the Philadelphia region shrank at a faster pace than forecast as sales and employment deteriorated.

The Federal Reserve Bank of Philadelphia’s general economic index fell to minus 7.5 from a nine-month high of minus 2.2 in June, the bank said today...

Still, other reports on Thursday were encouraging.

Initial jobless claims dropped by 47,000 to 522,000, lower than forecast, in the week ended July 11, from a revised 569,000 the prior week. The total number of people collecting unemployment insurance plunged by a record 642,000, also reflecting seasonal issues surrounding the closures at carmakers, a Labor analyst said...

Another report today showed confidence among U.S. homebuilders rose this month to the highest level since September. The National Association of Home Builders/Wells Fargo index of builder confidence increased to 17 from 15 in June as measures of sales and of prospective buyer traffic gained.

Thursday, 16 July 2009

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.

Wednesday, 15 July 2009

US retail sales rise in June

US retail sales were up in June but there was little cause for celebration. From Bloomberg:

Surging gasoline costs spurred gains in U.S. retail sales and wholesale prices in June, while a drop in spending outside of auto dealers and service stations reinforced concern an economic recovery will be limited.

Sales at retailers rose 0.6 percent from May, more than forecast and the biggest gain since January, Commerce Department figures showed today in Washington. Excluding autos and gas, purchases dropped for a fourth consecutive month. The Labor Department’s producer-price index gained 1.8 percent, twice as much as anticipated...

A separate government report today showed companies cut stocks of unsold goods for a ninth straight month in May. Business inventories dropped 1 percent, more than forecast, after a 1.3 percent decline in April, Commerce Department figures showed.

Nevertheless, Richard Berner thinks that there will be a bounce in spending ahead.

... [W]e think renewed retrenchment is highly unlikely; in fact, we see a short-term bounce in spending ahead, courtesy of ‘cash-for-clunkers' vehicle purchase incentives... And a recovering economy should promote a modest acceleration in spending next year.

But the spending acceleration in 2010 and beyond is likely to be mild, as we believe that a sea change in consumer behavior is underway, one involving a slow return to thrift. Aggressive deleveraging of household balance sheets and a slow stabilization of household wealth over the next few years mean that spending should grow more slowly than income. As a result, the personal saving rate seems likely to rise to 7-10% during this period...

Monday, 13 July 2009

Emerging markets trading at premium

Emerging markets probably have a better long-term growth potential than those in developed ones but at least some of that potential may already be in their stock prices. From Bloomberg:

The last time stocks in developing countries got this expensive was in October 2007, just before the MSCI Emerging Markets Index began a 12-month tumble that erased half its value.

The MSCI gauge trades at 15.4 times reported earnings, compared with 14 for the Standard & Poor’s 500 Index, according to weekly data compiled by Bloomberg. When developing nations last commanded a premium, the 22-country benchmark sank 54 percent in the next year.

Groupama Asset Management, Palatine Asset Management and Standard Life Investments say the disparity means investors are paying too much for shares from China to India to Brazil at a time when the global economy is contracting. MSCI’s emerging- market gauge is valued at 1.7 times its companies’ net assets after a 34 percent surge last quarter, the highest on record compared with the MSCI World Index of 23 advanced economies, which trades for 1.5 times, data compiled by Bloomberg show...

Developing nations led the worldwide rally in equities last quarter, with China’s Shanghai Composite Index adding 25 percent and India’s Bombay Stock Exchange Sensitive Index jumping 49 percent. The gains outpaced a 20 percent rise in the MSCI World and a 15 percent advance in the S&P 500.

The increase cut the dividend yield of the emerging-market gauge to 3 percent, compared with 3.5 percent for developed countries. MSCI’s emerging-market index fetches 1 times sales and 6.6 times cash flow, compared with 0.8 and 4.3 in the advanced gauge, data compiled by Bloomberg show.

There are some who justify the higher valuation in emerging markets though.

Emerging markets “should be more expensive,” said Le Coz, who helps oversee $28 billion as a member of the investment committee at Carmignac in Paris. “In the past, emerging markets were fragile. Today that’s not the case.”

That, though, sounds too much like the decoupling theory that was in vogue not too long ago.

Saturday, 11 July 2009

US consumer confidence falls but other indicators show improvement

US consumer confidence has fallen. Bloomberg reports:

The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 64.6, the lowest since March, from 70.8 in June...

A gauge of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, fell to 70.4 from 73.2.

The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, plunged to 60.9, the biggest drop since October, from 69.2.

Apart from that, the reports on Friday mostly indicated continuing improvement in the global economy.

For example, the US trade deficit declined in May. Bloomberg reports:

The U.S. trade deficit unexpectedly narrowed in May to the lowest level in almost a decade as exports jumped while imports of crude oil and auto parts declined.

The gap between imports and exports decreased 9.8 percent to $26 billion, the smallest deficit since November 1999, from a revised $28.8 billion in April that was lower than previously estimated, the Commerce Department said today in Washington...

Exports rose 1.6 percent, the biggest increase since July 2008, to $123.3 billion, as sales of petroleum products, chemicals and industrial machinery increased...

Imports fell 0.6 percent to $149.3 billion after decreasing the prior month. The import figures were held down by a decline in purchases of foreign crude oil to $12.9 billion from $13.8 billion, reflecting lower demand for petroleum even as prices rose...

China's exports also appear to have turned around. From Bloomberg:

China’s exports fell for an eighth month as the global recession cut demand, highlighting the economy’s dependence on stimulus spending to revive growth.

Overseas sales slid 21.4 percent in June from a year earlier, the customs bureau said today on its Web site, after a record 26.4 percent drop in May.

Imports fell a less-than-estimated 13.2 percent, the smallest decline in eight months, signaling that the worst may almost be over for the nation’s trade...

Exports gained a seasonally adjusted 4.5 percent from May and imports rose 2.2 percent, the customs bureau said.

As have China's property prices. From AFP/CNA:

China's urban property prices rose on year for the first time in six months in June, official data showed Friday, in a sign the sector is recovering thanks to government stimulus support.

Property prices in 70 major cities increased by 0.2 percent year-on-year, the National Development and Reform Commission and the National Bureau of Statistics said in a statement, following a 0.6-percent fall in May.

Economic data from Europe were also encouraging. From Bloomberg:

French industrial production unexpectedly increased for the first time in nine months in May, adding to signs that Europe is starting to pull out of its worst recession since World War II.

Output at factories and utilities climbed 2.6 percent from April, Paris-based statistics office Insee said today. A separate report showed Italian output was unchanged in May. Economists had forecast that production would drop 0.2 percent in France and 1.1 percent in Italy, according to surveys of economists by Bloomberg News.

Friday, 10 July 2009

US initial jobless claims fall, German exports rise

The global economy still appears to be on track towards recovery.

In the US, Bloomberg reports that initial jobless claims fell last week to the lowest since January.

Initial jobless claims fell by 52,000 to 565,000, a lower level than forecast, in the week ended July 4, from a revised 617,000 the prior week, the Labor Department said today in Washington...

The four-week moving average of initial claims, a less volatile measure, fell to 606,000 last week from 616,000.

Continuing claims soared by 159,000, the most since early May, in the week ended June 27 to 6.88 million.

There were also encouraging signs from Europe. From Bloomberg:

German exports rose in May, the third report this week to suggest Europe’s largest economy may be shaking off its worst recession since World War II.

Sales abroad, adjusted for working days and seasonal changes, increased 0.3 percent from April, when they dropped 5 percent, the Federal Statistics Office in Wiesbaden said today. Economists expected a gain of 1.5 percent in May, according to the median of 10 forecasts in a Bloomberg News survey...

Factory orders rose 4.4 percent in May from April, driven by an 8.2 percent gain in exports to countries outside the euro area. Industrial production increased 3.7 percent in May, the biggest gain in 16 years.

At least the BoE is encouraged enough to ease up on its monetary easing. From Reuters:

The Bank of England cut the pace at which it pumps money into the economy on Thursday after unexpectedly deciding not to expand its 125 billion pound asset buying scheme, raising fears it may stop purchases completely...

[T]he Bank reduced weekly gilt purchases to 4.5 billion pounds from 6.5 billion, with the last money to be spent on July 29 before it decides whether to fund future purchases at its August 6 policy meeting.

Thursday, 9 July 2009

Japanese machinery orders hit record low

Despite some positive signs of late, Japan's economic recovery remains in doubt, especially after the numbers reported on Wednesday. From the WSJ:

Japanese core machinery orders fell to a record low in May, dropping 3% from April, fueling concerns that companies may be putting business-investment plans on hold...

Core orders, which exclude often-volatile orders for ships and electric-power companies, stood at 668.2 billion yen ($7.05 billion), their lowest value in monetary terms since the government began compiling the data in a comparable form in 1987.

Trade data were not encouraging either.

The nation's current-account surplus, meanwhile, shrank 34.3% in May from a year earlier, with a faster decline in exports underscoring the impact of the global slump in demand...

In April, the surplus fell 54.5% year-to-year to 630.5 billion yen. Exports decreased 42.2% on year.

But it was not all negative.

Meanwhile, Japanese worker sentiment rose for the sixth straight month in June, the cabinet office's Economy Watchers Survey showed, to 42.2 from 36.7 in May. Analysts said the improvement is largely due to the effect of tax-relief measures in the government's stimulus program, and so further deterioration in sentiment is a possibility.

Wednesday, 8 July 2009

Manufacturing output falls in the UK, orders rise in Germany

The improvement in global manufacturing recently failed to translate into higher manufacturing output in the UK in May. Reuters reports:

The Office for National Statistics said factory output fell by 0.5 percent in May, confounding forecasts for a 0.2 percent rise. And an initially reported 0.2 percent rise in April was revised away to nothing.

The wider industrial output measure, which includes energy production and accounts for almost a fifth of economic output, fell 0.6 percent on the month after a downwardly revised 0.2 percent gain in April.

However, data from Germany indicate that the outlook for manufacturing remains positive. From Bloomberg:

German manufacturing orders jumped the most in almost two years in May, adding to signs that the deepest economic slump since World War II is abating.

Orders, adjusted for seasonal swings and inflation, rose 4.4 percent from April, the Economy Ministry in Berlin said today. That’s the biggest gain since June 2007 and nine times the 0.5 percent increase forecast by economists in a Bloomberg News survey. Orders were still 29.4 percent lower than a year earlier.

Tuesday, 7 July 2009

US non-manufacturing index up, Japanese composite indices rise

The recession in the world's two largest economies appears to be abating.

Bloomberg reports that in June, US services industries shrank at the slowest pace in nine months.

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose more than forecast to 47 from 44 in May, according to data from the Tempe, Arizona-based group. Readings less than 50 signal contraction...

The ISM non-manufacturing industries index of employment rose to 43.4 from 39 the prior month, and its gauge of new orders increased to 48.6 from 44.4.

Meanwhile, the Bank of Japan reported on Monday that it is more optimistic about the economy.

The Bank of Japan became more optimistic about the economy in all nine regions for the first time since January 2006 and Governor Masaaki Shirakawa said exports and industrial production are recovering.

"The pace of economic deterioration was slower in all regions," the central bank said in a quarterly report in Tokyo today. "Most regions, however, emphasized that their economies continued to be in a severe situation."

Composite economic indicators support the improved assessment.

The coincident index climbed to 86.9 in May from 86 in April, the Cabinet Office said today in Tokyo, matching the median estimate of economists surveyed by Bloomberg News. The gauge, a composite of 11 indicators including factory production and retail sales, rose for a second month...

The leading index, a gauge of future economic activity, rose to 77 from 76.2 in April.

Saturday, 4 July 2009

Eurozone retail sales and services activity fall

Friday's data suggest that the eurozone economy will take a while to recover.

Bloomberg reports that eurozone retail sales fell in May.

Sales in the 16-nation euro region declined 0.4 percent from April, when they rose 0.1 percent, less than initially reported, the European Union’s statistics office in Luxembourg said today. Economists expected a drop of 0.1 percent, according to the median of 20 forecasts in a Bloomberg News survey. From a year earlier, sales fell 3.3 percent.

Data for June provided mixed indications. Again from Bloomberg:

A gauge of services activity in the 16-nation euro region fell to 44.7 from a seven-month high of 44.8 in May, London- based Markit Economics said today. The June reading was revised up from an initial estimate of 44.5. The index is based on a survey of purchasing managers by Markit and a reading below 50 indicates contraction...

Manufacturing shrank at the slowest pace in nine months in June, a separate report showed on July 1, adding to signs that Europe’s economy is starting to recover from the worst recession in six decades. A composite index of manufacturing and services rose to 44.6, marking the fourth month of slowing contraction.

The UK economy appears to have a better chance of returning to growth soon. From Reuters:

The dominant services sector expanded for a second month in June but the pace of recovery slowed as new business contracted and firms stepped up the pace of job cuts, a monthly survey showed on Friday. The headline PMI index eased to 51.6 from 51.7, confounding expectations for an improvement to 52.0.

Friday, 3 July 2009

ECB keeps interest rate unchanged as eurozone and US unemployment rates rise

The ECB kept interest rates unchanged on Thursday, and will probably keep rates low for some time to come. From Bloomberg:

Jean-Claude Trichet signaled the European Central Bank will keep interest rates at a record low for the coming months as officials deploy new tools to fight the worst recession since World War II.

“The current rates are appropriate,” Trichet said at a press conference in Luxembourg after the ECB left its benchmark rate at a record low of 1 percent. At the same time, he refused to rule out the option of further cuts, saying “we did not decide today that this was the lowest level we would attain under any circumstances.”

The ECB's stand appears justified, based on data reported on Thursday.

Europe’s unemployment rate rose to the highest in a decade in May as airlines, banks and builders cut jobs to survive a recession that’s led to soaring losses and fueled bankruptcies.

Unemployment in the 16-member euro region increased to 9.5 percent from a revised 9.3 percent in April, the European Union statistics office in Luxembourg said today. That’s the highest since May 1999 and exceeded the median forecast of 9.4 percent from a Bloomberg survey of 29 economists. A separate report showed European producer prices fell by a record 5.8 percent in May from a year earlier.

Scant consolation to Europeans, perhaps, but the US unemployment rate appears to have caught up with European levels.

Payrolls declined by 467,000 last month following a 322,000 drop in May, according to Labor Department figures released today in Washington. The jobless rate rose to 9.5 percent, the highest since August 1983, from 9.4 percent.

But there are still signs that the US economy has begun to turn around.

The payrolls decline in June was still well below the peak of 741,000 jobs lost in January, suggesting the economy remains on track for a recovery later this year, economists said...

A gain in orders placed at U.S. factories reinforced signs that the economy may be stabilizing. Factory orders climbed for a third time in four months in May on rising demand for aircraft, machinery and computers, a separate report from the Commerce Department showed today. Bookings gained 1.2 percent, the most since June 2008, after a 0.5 percent increase in April...

The number of Americans filing claims for unemployment benefits last week fell in line with forecasts, Labor also said, indicating firings remain elevated. Initial jobless claims dropped by 16,000 to 614,000 in the week ended June 27, from a revised 630,000 the week before.

Thursday, 2 July 2009

Manufacturing PMIs rise

Wednesday's reports showed that the manufacturing sector continued its gradual path to recovery in June.

Reuters reports the PMIs from China.

China's manufacturing sector extended a steady if unspectacular recovery in June, surveys released on Wednesday showed, adding to evidence across Asia that the regional economy is finally pulling out of a deep dive...

The official purchasing managers' index (PMI) for June rose to 53.2 from 53.1 in May, consolidating for the fourth month in a row above the watershed mark of 50.

A companion index compiled for brokerage CLSA improved to 51.8 from 51.2, its third month in positive territory, as output grew at the strongest rate in a year and overseas orders rose for the first time in 11 months.

Manufacturing in Europe remains weak but is nevertheless improving as well. From Bloomberg:

Europe’s manufacturing industry contracted at the slowest pace in nine months in June, indicating the economy is stabilizing after a record contraction in the first quarter.

A gauge of manufacturing activity in the 16-nation euro region rose to 42.6, the highest since September, from 40.7 in May, Markit Economics said today. That compares with the initial estimate of 42.4 published on June 23...

Reuters reports similar improvement in the UK.

Britain's main manufacturing survey, the CIPS/Markit manufacturing purchasing managers' index, rose to 47.0 last month from 45.4 in May -- the highest since May 2008 and just ahead of analysts' forecasts for smaller improvement to 46.5.

There were other improvement in the UK.

The Office for National Statistics said output in the services sector, which accounts for more than three-quarters of the whole economy, fell 0.1 percent in April -- the smallest decline since last October.

And US economic data on Wednesday painted a similar picture. From Bloomberg:

The Institute for Supply Management’s factory index rose in June for a sixth straight month, to 44.8; readings less than 50 signal contraction. The National Association of Realtors said the number of Americans signing contracts for existing homes increased 0.1 percent in May after a 7.1 percent gain...

... [A] survey issued today by ADP Employer Services that showed U.S. companies eliminated 473,000 jobs in June after a 485,000 drop the previous month...

Spending on construction projects dropped 0.9 percent in May after increasing in April for the first time in seven months, a report from the Commerce Department also showed.

Wednesday, 1 July 2009

Japanese employment falls but Tankan survey shows improvement

Japan's economy may have gotten better lately but the improvement has not been as rapid or as broad-based as some may have hoped. From Reuters on Tuesday:

Japan's jobless rate rose to a new 5-1/2-year high in May and job availability sank to a record low, fuelling worries that bleak job conditions may overwhelm government efforts to boost consumption, delaying an economic recovery...

The number of employed people fell by 1.36 million from a year earlier, a record rate, as manufacturers and the service sector cut staff even as the country's export industries start to recover from a sharp downturn in the global economy...

Household spending rose 0.3 percent in May from a year earlier, beating market expectations for a decline of 1.6 percent...

With job conditions deteriorating, housing starts fell 30.8 percent in May from a year earlier to a level last seen in 1966, marking the sixth straight month of annual declines.

Orders received by construction firms in May fell a record 41.9 percent from a year earlier to 454.8 billion yen ($4.74 billion), the lowest monthly amount on record...

The Nomura/JMMA Japan Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 48.2 in June, with both output and export components of the index edging above the 50 marks that separate contraction from expansion for the first time since 2008.

And today from AFP/CNA:

Business confidence among major Japanese manufacturers has improved for the first time in two-and-a-half years, the central bank's quarterly Tankan survey showed Wednesday.

The sentiment index rose to minus 48 in June from a record low of minus 58 in March. Market forecasts had been for a figure of about minus 43.

The increase was the biggest since June 2002, when the index jumped 20 points. It was the first improvement since December 2006, adding to hopes that the recession is easing...

Experts say a full-fledged recovery is unlikely in Japan until demand picks up in major overseas markets such as the United States and Europe.

A sustained pick-up in demand in the US is still not a certainty though. From Bloomberg:

The home-price slide eased in April, underscoring signs the U.S. economy began to stabilize in the second quarter, while a drop in consumer confidence this month warned of a muted recovery...

Real-estate values in 20 major cities decreased 18.1 percent in April from a year earlier, the smallest decline in six months, according to the S&P/Case-Shiller index released today from New York.

The Conference Board’s confidence gauge decreased to 49.3 from a revised 54.8 in May, the New York-based research group said. The figure was still above a record low of 25.3 reached in February...

Another report from the Institute for Supply Management- Chicago Inc. showed its business barometer climbed to 39.9 in June, the second-highest level in the last nine months.