Eurozone confidence rises, Japanese industrial output falls

Confidence in the euro area continued to climb in November. Bloomberg reports:

European confidence in the economic outlook improved to the highest in three years in November as Germany’s export-driven growth helped counter concerns that a spreading sovereign-debt crisis will hurt the recovery.

An index of executive and consumer sentiment in the 16 euro nations rose to 105.3 from 103.8 in October, the European Commission in Brussels said in a statement today. That’s the highest since November 2007. Economists forecast a gain to 105, the median of 26 estimates in a Bloomberg News survey shows.

Still, economic growth is expected to weaken next year. Again from Bloomberg:

Europe’s economy may weaken next year as budget cuts to stem a mounting debt crisis hurt consumer demand and faltering global expansion curbs exports, the European Commission said.

Gross-domestic-product growth in the 16-nation euro region may weaken to 1.5 percent in 2011 from 1.7 percent this year, the Brussels-based commission said in a report published today. While Germany may expand 3.7 percent this year, the economies of Ireland, Greece and Spain will continue to shrink.

Meanwhile, Japan's economy is already seeing a significant slowdown. From Reuters:

Japanese factory output fell in October by the most since February 2009, as slowing exports and the diminishing effects of stimulus-driven consumption cloud the outlook for the fragile economic recovery...

Industrial output fell 1.8 percent in October, government data showed on Tuesday, less than a median estimate for a 3.25 percent fall but marking the fifth straight month of declines.

Manufacturers surveyed by the Ministry of Economy, Trade and Industry expect output to rise 1.4 percent in November and 1.5 percent in December, the data showed...

The Nomura/JMMA Japan Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 47.3 in November from 47.2 in October, staying below the 50 threshold that separates contraction from expansion for a third month in a row...

Separate government data showed the jobless rate rose to 5.1 percent in October from the previous month's 5.0 percent. Household spending fell 0.4 percent in October from a year earlier, partly due to the end of government subsidies for buyers of environmentally friendly automobiles.

EU announces €85 billion plan for Ireland

The bailout for Ireland takes shape. Reuters reports:

The EU approved an 85 billion euro ($115 billion) rescue for Ireland on Sunday and outlined a permanent system to resolve Europe's debt crisis, in which investors could gradually share the cost of any future default.

Finance ministers from the 16-nation euro zone, anxious to prevent market contagion engulfing Portugal and Spain, unanimously endorsed an emergency loan package to help Dublin cover bad bank debts and bridge a huge budget deficit...

Some 35 billion euros was earmarked to help restructure the shattered Irish banks, of which 10 billion will be an immediate capital injection and the rest a contingency fund. Ireland will contribute 17.5 billion euros of its own cash and pension reserves towards the bank rescue.

The rest of the emergency loans, which Dublin said were granted at an average interest rate of 5.8 percent, will help cover the giant hole the banks have blown in public finances. The IMF will contribute 22.5 billion euros.

Japanese exports slow, consumer prices decline

The relatively weak run of economic data from Japan recently is continuing.

A report on Thursday showed that the export recovery is stalling. From Bloomberg:

Japan’s export growth slowed more than forecast in October, weakening the boost from trade that has led the nation’s recovery from its deepest postwar recession.

Overseas shipments increased 7.8 percent from a year earlier, the Finance Ministry said in Tokyo today. The median estimate of 21 economists surveyed by Bloomberg News was for a 10.7 percent gain...

Imports climbed 8.7 percent in October from a year earlier and the trade surplus widened to 821.9 billion yen, today’s report showed. Seasonally adjusted, exports were unchanged and imports rose 0.7 percent from September.

Meanwhile, the country remains in deflation. From Bloomberg today:

Japan’s consumer prices fell for a 20th month in October, with declines moderating after the government raised tobacco taxes.

Consumer prices excluding fresh food fell 0.6 percent from a year earlier after dropping 1.1 percent in September, the statistics bureau said today in Tokyo. The government’s Oct. 1 tax increase, which boosted the cost of cigarettes by a third, added 0.28 percentage point to the figure, the bureau said.

Stocks rally amid mixed data

Markets rebounded on Wednesday but investors remained concerned about European sovereign debt. Bloomberg reports:

Stocks rallied, driving the MSCI World Index up from a five-week low, after U.S. jobless claims declined to the fewest since 2008 and German business confidence improved. Yields on Treasuries and Irish bonds increased and oil surged.

The MSCI World advanced 0.8 percent at 4 p.m. in New York. The Standard & Poor’s 500 Index added 1.5 percent to 1,198.35, ending a two-day slump. Irish 10-year yields soared 45 basis points to 8.86 percent, while those on Treasuries of similar maturity jumped to the highest in four days. Oil surged the most in four months...

The difference in yield, or spread, between Ireland’s 10- year debt and bunds widened 29 basis points to 615 basis points, according to Bloomberg generic data. Portugal’s 10-year yield increased 11 basis points to 7.00 percent.

Economic data released on Wednesday were mixed.

In Germany, Bloomberg reports that business confidence surged to a record high in November.

The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, rose to 109.3 from 107.7 in October. That’s the highest since records for a reunified Germany began in 1991. Economists predicted a decline to 107.5, according to the median of 42 forecasts in Bloomberg News survey.

However, industrial orders in the euro area were down in September, according to another Bloomberg report.

European industrial orders slumped the most in almost two years in September, suggesting weaker global growth and a stronger euro are starting to hurt exports.

Orders in the 16-nation euro area dropped 3.8 percent from August, when they rose 5.1 percent, the European Union’s statistics office in Luxembourg said today. That’s the biggest plunge since December 2008 and sharper than the 2.5 percent drop forecast by economists in a Bloomberg News survey. Orders rose 14 percent from September 2009.

The data from the US were also mixed. Again from Bloomberg:

Americans increased spending for a fifth month in October and filed the fewest unemployment claims in more than two years last week, pointing to strength in the largest part of the economy as the fourth quarter began.

Household purchases advanced 0.4 percent after a 0.3 percent gain in September that was larger than previously estimated, the Commerce Department reported today in Washington. Incomes climbed 0.5 percent. Jobless claims fell by 34,000 to 407,000 in the week ended Nov. 20, Labor Department figures showed...

The Thomson Reuters/University of Michigan final index of November consumer sentiment increased to 71.6, the highest since June, from 67.7 a month earlier. The preliminary November figure was 69.3. Economists projected a reading of 69.5...

Demand for so-called durable goods dropped 3.3 percent after a revised 5 percent jump in September that was larger than previously estimated. Purchases of new homes decreased 8.1 percent to a 283,000 annual rate. Sales reached a 275,000 pace in August, the lowest since data collection began in 1963.

Markets shaken as fighting breaks out in Korea

North Korean artillery blazed on Tuesday and markets got pounded. Continuing concerns over European sovereign debt didn't help.

Bloomberg reports the market action:

Stocks sank, dragging the MSCI Emerging Markets Index down the most in five months, while the dollar and the Swiss franc rallied as fighting broke out between North and South Korea and concern grew Europe’s debt crisis will spread. Copper slid as China’s banks approached lending limits.

The MSCI gauge of stocks in developing nations lost 2.6 percent and the Standard & Poor’s 500 Index slid 1.4 percent at 4 p.m. in New York. The dollar and franc appreciated against most peers. South Korean won forwards slipped the most in six months. Ten-year Treasury yields decreased 4 basis points, while credit default swaps protecting European government debt rose to a record. Copper, lead and zinc slumped, while gold advanced.

However, economic reports on Tuesday were once again quite positive.

Purchasing managers indices in the euro area jumped in November. From Bloomberg:

Growth in Europe’s services and manufacturing industries unexpectedly accelerated for the first time in four months in November as companies weathered the debt crisis and cooling global growth.

A composite index based on a survey of euro-area purchasing managers in both industries advanced to 55.4 from 53.8 in the previous month, London-based Markit Economics said today in an initial estimate. A reading above 50 indicates expansion.

In the US, third quarter growth has been revised upward. Again from Bloomberg:

The U.S. economy grew more than previously calculated in the third quarter, led by stronger consumer spending and fueled by labor income gains that may stoke demand into 2011.

The revised 2.5 percent increase in gross domestic product compares with a 2 percent estimate issued last month and a 1.7 percent rise in the second quarter, figures from the Commerce Department showed today in Washington. Consumer purchases rose at the fastest pace since the last three months of 2006.

The Federal Reserve, however, recently made revisions to its projections in the opposite direction. From Reuters:

A weaker economic outlook prompted Federal Reserve officials to consider more radical steps to aid the economy before settling on $600 billion in bond purchases earlier this month...

Looking toward the future, Fed officials' estimates for growth in 2011 ranged from 3.0 percent to 3.6 percent, down considerably from June estimates of 3.5 percent to 4.2 percent. Unemployment will remain close to 9.0 percent for much of next year and could still be above 8.0 percent at the end of 2012.

Continuing weakness in the US housing market no doubt was a factor that Fed officials took into account. From Bloomberg:

Sales of existing homes fell more than forecast in October as foreclosure moratoriums and a lack of credit disrupted the U.S. housing market.

Purchases decreased 2.2 percent to a 4.43 million annual rate from 4.53 million in September, the National Association of Realtors said today in Washington. Economists projected sales would decline to a 4.48 million pace, according to the median forecast in a Bloomberg News survey. The median price fell 0.9 percent from a year earlier.

Chicago Fed index and eurozone consumer confidence improve

Economic data continue to come out positive.

The Chicago Federal Reserve reports that its national activity index showed a pick-up in US economic activity in October.

Led by improvements in production- and employment-related indicators, the Chicago Fed National Activity Index increased to –0.28 in October from –0.52 in September. Three of the four broad categories of indicators that make up the index made small positive contributions in October, while the consumption and housing category continued to make a large negative contribution.

Another positive report came from Moody's, which reported that US commercial property prices rose 4.3 percent in September.

In Europe, while investors remain nervous about sovereign debt issues, consumers became slightly more confident in November. Bloomberg reports:

European consumer confidence unexpectedly rose in November, suggesting the region’s recovery may be weathering government budget cuts.

An index of consumer sentiment in the 16-nation euro region increased to minus 9.5 from a revised minus 10.9 in October, the Brussels-based European Commission said today in an initial estimate today. That’s the highest since December 2007. Economists had forecast a reading of minus 11, the median of 20 estimates in a Bloomberg News survey showed.

Ireland gets bailout, China continues inflation fight

It was a relatively eventful weekend.

For financial markets, the most significant event was a bailout for Ireland. Reuters reports:

The EU and IMF agreed on Sunday to help bail out Ireland with loans to tackle the country's banking and budget crisis in a move aimed at protecting Europe's wider financial stability.

Ireland, facing widespread public anger over its handling of the crisis, formally requested the aid on Sunday evening.

"The European authorities have agreed to our request," said Prime Minister Brian Cowen. "I expect that agreement to be finalized shortly, within the next few weeks."

The size of the rescue by European authorities and the International Monetary Fund has yet to be negotiated but is likely to be smaller than Greece's 110 billion euro ($150 billion) bailout last May.

Some details of the bailout can be found here.

Meanwhile, China announced additional inflation-fighting measures. AFP/CNA reports:

China on Sunday announced a further series of measures to rein in rising commodity prices as it steps up efforts to combat rapidly rising inflation, state media said Sunday.

The State Council, China's Cabinet, ordered local governments to boost agricultural production, stabilise supplies and reduce prices, the official Xinhua news agency reported, citing a seven-page document.

It also instructed local officials to ensure oil, gas, coal, and power supplies were sufficient and provide temporary subsidies, Xinhua said.

Local authorities were also ordered to coordinate social-security programmes to provide a gradual rise in basic pensions, unemployment insurance and minimum wages.

The new order comes a day after China said it would will increase grain supplies, open up more land for planting vegetables and crack down on hoarding.

China raises reserve requirement again

China did it again on Friday. From AFP/CNA:

China's central bank on Friday said it would raise the amount of money that lenders must keep in reserve as officials step up efforts to contain rising inflation and soaring housing costs.

The People's Bank of China said in a one-line statement on its website that the reserve ratio would be raised by 50 basis points, effective November 29.

This time, stock markets largely managed to shrug it off although commodities were hit again. From Bloomberg:

Commodities sank after China told banks to set aside more reserves in an effort to curb inflation, while the euro gained amid prospects for a financial rescue for Ireland. U.S. stocks advanced after Nike Inc. increased its dividend and earnings at technology companies topped estimates.

The S&P GSCI Index of commodities tumbled 0.9 percent at 4 p.m. in New York to extend a weekly slump to 2.8 percent, its biggest slide since August. The euro climbed against 14 of 16 major peers. The Standard & Poor’s 500 Index rose 0.3 percent to 1,199.73, erasing an earlier 0.6 percent slide. Irish bonds reversed a rally as Allied Irish Banks Plc said its reliance on funding from central banks tripled, underscoring the nation’s need for a financial rescue.

Meanwhile, Jennifer Thomson at FT Alphaville brings us a warning from Société Générale’s Dylan Grice of the risk in China.

So long as China’s credit growth continues at its current pace, aided by the liquidity the Fed is flooding world markets with, and encouraged by artificially low interest rates, the primary risk EMs face today remains that of a bubble.

Markets rise on positive reports

Markets bounced back on Thursday. Bloomberg reports:

Stocks surged and commodities snapped a two-day retreat as Ireland moved closer to a European Union-led financial bailout and data on jobless claims and manufacturing bolstered optimism in the U.S. economy. General Motors Co. rallied as it returned to the stock market.

The MSCI World Index gained 1.7 percent at 4:28 p.m. in New York and the Standard & Poor’s 500 Index jumped 1.5 percent, the biggest advances for both in two weeks. The euro climbed 0.8 percent against the dollar. Costs to insure Ireland’s bonds from default sank. A drop in Treasuries sent the 10-year note yield up two basis points to 2.90 percent. Silver rose 5.2 percent, gold climbed 1.2 percent and oil added 1.8 percent.

Economic data on Thursday were quite positive. Bloomberg reports that the US economic recovery is accelerating.

The index of U.S. leading indicators rose for a fourth consecutive month, manufacturing surged in the Philadelphia area and jobless claims climbed less than forecast, signaling the world’s largest economy is accelerating...

The Conference Board’s gauge of the outlook for the next three to six months climbed 0.5 percent for a second consecutive time, capping the biggest back-to-back gains since February- March, the New York-based research group said today...

The Philadelphia Fed’s general economic index rose to 22.5, the highest level since December, from 1 a month earlier...

Applications for unemployment insurance payments rose by 2,000 to 439,000 in the week ended Nov. 13, Labor Department figures showed. The four-week moving average, a less volatile measure than the weekly figures, dropped to 443,000, the lowest level since September 2008.

There were also positive reports from the UK, with retail sales recovering in October and the Confederation of British Industry survey's total order book balance improving in November.

Still, the OECD has cut the global growth outlook for next year. Bloomberg reports:

The Organization for Economic Cooperation and Development cut its global growth forecast for next year, predicting a “soft spot” as stimulus spending fades before investment spurs a revival in 2012.

The global economy will expand 4.2 percent next year instead of the 4.5 percent predicted in May, the Paris-based organization said today in its semi-annual Economic Outlook. Growth will recover to 4.6 percent in 2012, it said.

US inflation lower than expected as housing starts fall

Bloomberg reports that US consumer prices excluding food and energy rose in October by the smallest on record.

The cost of living rose less than forecast in October and housing starts dropped, validating Federal Reserve Chairman Ben S. Bernanke’s decision to give the U.S. economy another dose of monetary stimulus.

Consumer prices excluding food and fuel, the gauge followed by central bankers, increased 0.6 percent from October 2009, the smallest gain in year-over-year data going back to 1958, the Labor Department said today in Washington...

The consumer-price index increased 0.2 percent in October from the previous month, less than the 0.3 percent gain projected by the median forecast of 80 economists surveyed by Bloomberg News. Excluding food and fuel, so-called core costs were little changed for a third consecutive month.

It is apparently difficult to get much inflation when the economy is still feeling the effects of the housing market crash, as suggested by October housing starts data.

Housing starts fell to a 519,000 annual rate, down 12 percent from a revised 588,000 in September that was lower than previously estimated, the Commerce Department report showed. Work on multifamily units, which is often volatile, plunged 44 percent, overshadowing a 1.1 percent drop in the single-family component...

Building permits, a sign of future activity, rose 0.5 percent to a 550,000 rate, less than forecast, from 547,000 in September. The stabilization in applications makes it less likely that construction will fall much more in coming months.

Shanghai leads global stock markets down on inflation concerns

South Korea raised interest rates on Tuesday but the threat of China acting to rein in inflation had the bigger impact on markets. Bloomberg reports:

Global stocks fell for a seventh day, the longest streak since January, and commodities slid amid concern that the debt crisis in Ireland and Greece is worsening and that China will act to slow its economy. U.S. Treasuries snapped a two-day plunge and the dollar rallied.

The MSCI World Index slid 1.9 percent at 4 p.m. in New York, the most since Aug. 11. The Standard & Poor’s 500 Index sank 1.6 percent and the Shanghai Composite Index lost 4 percent. Ten-year Treasury yields fell 12 basis point to 2.84 percent after a 31-point gain over the past two days, the biggest back-to-back rise since January 2009. Irish 10-year yields increased 28 basis points. The Dollar Index rose 0.9 percent, while Nickel and wheat led commodities lower...

The Shanghai Composite Index fell to the lowest level in a month as PetroChina Co. and Jiangxi Copper Co. plunged more than 6.5 percent on concern tighter monetary policy will curb demand for commodities. The China Securities Journal reported that the country will introduce measures to control rising food prices in the world’s fastest-growing major economy.

South Korea’s Kospi Index of shares lost 0.8 percent, while the won strengthened 0.4 percent against the dollar. The Bank of Korea raised the seven-day repurchase rate by 0.25 percentage point to 2.5 percent today, the second increase this year, and dropped a reference to keeping borrowing costs “accommodative.”

Asia is not the only place concerned about inflation. The UK has also been experiencing excessive inflation. From Reuters:

The Office for National Statistics said on Tuesday that annual consumer price inflation rose to 3.2 percent last month, more than a percentage point above the Bank's 2 percent target. It has now exceeded 3 percent every month since March.

Analysts had expected it to stay at 3.1 percent and sterling shot up around half a cent against the dollar as traders bet the stubbornly high inflation figures meant the Bank of England's Monetary Policy Committee would not pump more stimulus into the economy.

High inflation isn't stopping the BoE from contemplating quantitative easing though.

However Governor Mervyn King, forced by his remit to write a fourth letter of explanation this year as to why inflation is so high, stressed the Bank could still do more quantitative easing if it were judged necessary...

King said the rise in inflation was likely temporary and that spare capacity in the economy would bring the CPI rate down in the medium-term.

The euro region also saw inflation accelerate in October. Bloomberg reports:

European inflation accelerated to the fastest in almost two years in October, led by surging energy costs.

Euro-area consumer prices rose 1.9 percent from a year earlier after increasing 1.8 percent in September, the European Union statistics office in Luxembourg said today. That’s the fastest since November 2008 and in line with an estimate published on Oct. 29. Energy prices rose 8.5 percent in October from a year earlier, the biggest gain since May.

US producer prices, though, rose less than expected in October. From MarketWatch:

U.S. producer prices rose in October at a pace slower than economists had anticipated as prices for cars and trucks declined, according to government data released Tuesday.

Overall, producer prices increased, up a seasonally adjusted 0.4% as energy prices rose, the Labor Department reported.

Higher inflation in the near future cannot be ruled out though.

The government also reported that prices for intermediate goods rose 1.2% in October, while prices for crude goods gained 4.3%. Over 12 months, prices for intermediate goods were up 6.4%, while prices for crude goods were up 17%.

Still, the Federal Reserve's industrial production report did not suggest much inflationary pressure in the economy. From Reuters:

U.S. industrial production was flat in October, Federal Reserve data showed on Tuesday...

Manufacturing edged up 0.5 percent, its biggest gain since July, but utilities output dropped 3.4 percent because unseasonably warm temperatures reduced demand for heating.

The capacity utilization rate, a measure of slack in the economy, was flat at 74.8 percent. That was up 6.6 percentage points from a June 2009 low but remained 5.8 points below its 1972-2009 average.

In other US data, the National Association of Home Builders/Wells Fargo housing market index rose to 16 in November from a downwardly revised 15 reading in October.

US retail sales and eurozone exports rise

US retail sales were surprisingly strong in October. Reuters reports:

Sales at U.S. retailers posted their strongest gain in seven months during October, adding to signs the economy was regaining strength after hitting a soft patch in the summer.

The Commerce Department said on Monday total retail sales rose a surprisingly strong 1.2 percent, nearly double market expectations, as consumers snapped up motor vehicles and building materials...

Although the New York Federal Reserve's "Empire State" general business conditions index unexpectedly fell to -11.1 in November from 15.7 in October, economists were little worried...

A second report from the Commerce Department showed business inventories rose 0.9 percent to $1.40 trillion, the highest level since March 2009, after increasing by a revised 0.9 percent in August.

Also showing some resilience is eurozone exports. Again from Reuters:

The euro zone had a bigger than expected trade surplus in September, data showed on Monday, as export growth outpaced the rise in imports year-on-year.

The European Union's statistics office Eurostat said the 16 countries using the euro had a trade surplus with the rest of the world of 2.9 billion euros in September, up from 1.4 billion last year and a deficit of 5 billion euros in August.

Eurostat said unadjusted exports grew 22 percent year-on-year in September, while imports were up 21 percent.

Adjusted for seasonal swings, exports grew 0.6 percent month-on-month in September while imports fell 2.5 percent against August.

Japanese economy accelerates in third quarter

The Japanese economy did surprisingly well in the third quarter of 2010.

The Cabinet Office reported today that real Japanese gross domestic product grew 0.9 percent in the third quarter, faster than the 0.4 percent growth in the second quarter as well as the 0.6 percent growth estimated by economists surveyed by Bloomberg.

This means that the Japanese economy was the best performer among the largest developed economies in the third quarter, at least according to the latest available official estimates.

Percentage change in real GDP
	2009	2010
	Q4	Q1	Q2	Q3
United States	1.2	0.9	0.4	0.5
Japan	1.0	1.6	0.4	0.9
Germany	0.3	0.6	2.3	0.7
France	0.6	0.2	0.7	0.4
United Kingdom	0.4	0.4	1.2	0.8
Italy	-0.1	0.4	0.5	0.2

The third quarter was the first time since the start of the recovery that net exports did not contribute to Japanese economic growth. Exports grew 2.4 percent but this was offset by imports that grew 2.7 percent.

Instead, a 1.2 percent jump in household consumption provided the bulk of GDP growth in the third quarter.

While the third quarter growth maintains Japan's economic recovery, real GDP remained substantially below the peak reached in the first quarter of 2008 though.

Already, however, the Bank of Japan has warned that the economic recovery is "pausing" (see "BoJ says Japanese recovery pausing").

Despite the growth of the past few quarters, a full recovery of the Japanese economy does not look like a near-term prospect.

China leads global stocks down, european debt worries ease

China helped drag down global stock markets on Friday. From Bloomberg:

Stocks slid, extending the biggest weekly slump in three months for U.S. benchmark indexes, and commodities tumbled amid speculation China will lift interest rates...

The Standard & Poor’s 500 Index fell 1.2 percent to 1,199.21 at 4 p.m. in New York...

The Shanghai Composite Index sank 5.2 percent, its biggest decline since August 2009...

The MSCI Emerging Markets Index fell 1.7 percent, the most since August...

Commodities were not spared.

The CRB index of 19 raw materials lost 3.6 percent, the most since April 2009. Crude oil tumbled 3.3 percent to $84.88 a barrel in New York, while copper slid 3.3 percent to $3.898 a pound.

But worries over European sovereign debt eased a little.

The euro rose from a six-week low against the dollar, climbing 0.2 percent to $1.3694, amid speculation European leaders will support Ireland and the currency region’s other most-indebted nations.

The yield on the Irish 10-year bond fell 76 basis points 8.14 percent, and the extra yield investors demand to hold 10- year Irish bonds instead of benchmark German bunds narrowed 83 basis points to 563 basis points. The yield on similar-maturity Portuguese bonds decreased 29 basis points to 6.73 percent.

This comes despite a Bloomberg poll showing that a majority of global investors predict that Ireland will default on its sovereign debt.

It also comes despite slower growth reported for the euro area in the third quarter. From Bloomberg:

Europe’s economic growth weakened in the third quarter from the fastest pace in four years as governments’ austerity measures to cut record budget deficits dented the recovery.

Gross domestic product in the 16-nation euro area rose 0.4 percent from the second quarter, when it increased 1 percent, the European Union’s statistics office in Luxembourg said today. Economists expected a gain of 0.5 percent, the median of 35 estimates in a Bloomberg News survey showed. Industrial output fell 0.9 percent in September from the previous month, the largest drop in 18 months, separate data showed.

In the US, the recent generally positive dataflow continued on Friday, with consumer confidence reportedly rising in November. Bloomberg reports:

Consumers in the U.S. gained confidence in November for the first time in three months, raising the odds that an improving job market and increasing wages and stock prices will lift spending.

The Thomson Reuters/University of Michigan preliminary sentiment index rose to 69.3, in line with the median forecast of economists surveyed by Bloomberg News and the highest level since June, from 67.7 in October. The measure averaged 88.9 in the five years to December 2007, when the last recession began.

China's inflation surges

China's inflation rate continued to rise in October even as the economy showed signs of slowing. AFP/CNA reports:

China said Thursday that consumer prices rose at their fastest pace in more than two years in October, raising expectations of another rate hike as Beijing admits it may miss its 2010 inflation target.

The consumer price index -- or CPI, a key measure of inflation -- rose 4.4 percent year-on-year last month, compared with 3.6 percent in September, the National Bureau of Statistics (NBS) said...

New lending in October fell slightly from the previous month to 587.7 billion yuan (US$88.6 billion), the central bank said Thursday...

Industrial output from China's factories rose 13.1 percent on year, slower than September's 13.3 percent rise, as Beijing closed highly polluting operators and rationed power to energy-intensive industries.

Fixed asset investment in urban areas, a measure of government spending on infrastructure, rose 24.4 percent in the January-October period, slightly slower than the 24.5 percent in the first nine months of the year.

Retail sales, a key measure of consumer spending, rose 18.6 percent on-year.

Japan's machinery orders data on Thursday adds to earlier evidence that its economy may be experiencing an even more serious slowdown. Again from AFP/CNA:

Japan's core machinery orders, a leading indicator of corporate capital spending, logged the biggest fall in more than two years as demand from manufacturing firms shrank, data showed Thursday.

The core orders, which exclude particularly volatile demand from power companies and for ships, fell 10.3 percent in September from the previous month, the Cabinet Office said.

China tightens again

China has tightened monetary policy again. Bloomberg reports:

China’s central bank raised lenders’ reserve requirements as cash from October’s larger-than-forecast $27.1 billion trade surplus threatened to add to the risk of asset bubbles and accelerating inflation.

Reserve requirements will increase 0.5 percentage points from Nov. 16, the People’s Bank of China said in a statement on its website about eight hours after the trade data. The announcement followed media reports today of increases for selected banks...

The increase takes reserve requirements for the nation’s biggest four banks to 18 percent and will drain about 360 billion yuan ($54 billion) from the financial system, Bank of America-Merrill Lynch said in a note...

The nation’s property prices rose 8.6 percent in October from a year earlier, the smallest gain in 10 months, as the government cracked down on speculation to limit asset-bubble risks, a separate report showed today.

Exports gained 22.9 percent from a year earlier and imports rose 25.3 percent, the customs bureau said...

While China's trade surplus expanded in October, the US trade deficit had shrunk in September. Again from Bloomberg:

The U.S. trade deficit shrank more than forecast in September as exports climbed to the highest level in two years, showing a weaker dollar is helping strengthen the economic recovery.

The gap narrowed by 5.3 percent to $44 billion, smaller than the $45 billion median estimate of economists surveyed by Bloomberg News, according to Commerce Department figures today in Washington...

The number of Americans filing applications for unemployment benefits declined by 24,000 to 435,000 in the week ended Nov. 6, lower than the median forecast in a Bloomberg survey, figures from the Labor Department today also showed. The four-week moving average, a less volatile measure than the weekly data, dropped to 446,500 last week, the lowest since September 2008, reinforcing evidence the labor market is starting to improve...

A second report from the Labor Department showed prices of goods imported into the U.S. rose 0.9 percent in October, the biggest gain in six months, reflecting higher costs for crude oil, metals and automobiles.

BoJ says Japanese recovery pausing

Even before the Federal Reserve announced its latest plan last week to inject monetary stimulus in the United States economy by buying Treasury securities, the Bank of Japan had already announced its own asset-buying plan in the face of a slowing economy.

On 5 October, the BoJ had announced that it would establish an asset purchase programme in an attempt to stimulate the economy. The programme would involve the purchase of 35 trillion yen worth of assets, including 5 trillion yen of risk assets such as exchange-traded funds and real-estate investment trusts. Details of the programme were announced on 28 October and 5 November.

In its statement following the monetary policy meeting on 5 November, the BoJ said that the Japanese economic recovery "seems to be pausing". This assessment was repeated in its monthly report for November published on Monday.

The BoJ assessment is a downgrade from that in its October report, when it said that that the pace of recovery was "slowing down". It also follows the assessment in the Cabinet Office's October economic report, which had said that the economy appears to be "pausing recently".

In any case, economic reports over the past two days substantiate the BoJ's latest assessment.

On Monday, the Cabinet Office reported that the composite leading index for the Japanese economy fell to 98.9 in September from 99.5 in August. This was its third consecutive month of decline. The composite coincident index fell to 102.0 in September from 103.3 in August. This was its first decline since March 2009.

On Tuesday, the Cabinet Office reported that the diffusion index for current conditions derived from its economy watchers survey fell to 40.2 in October from 41.2 in September. This was its third consecutive monthly decline. The diffusion index for future conditions also fell to 41.1 in October from 41.4 in September.

To a large extent, the weakness in the Japanese economy is the result of weak exports. On Tuesday, in its report on Japan's balance of payments, the Ministry of Finance said that exports grew 15.9 percent in September from the year before, down from a 16.5 percent increase in August.

Exports appear to have peaked in July. On a seasonally-adjusted basis, exports in the third quarter were 2.5 percent less than in the second quarter.

While clearly aware of the on-going trend, the BoJ does not seem overly alarmed. In its last monetary policy statement and its latest monthly report, it added that while the economy "is likely to grow at a slower pace for some time", it "is expected to return to a moderate recovery path thereafter".

US economic data better even as Fed eases further

The Federal Reserve announced its latest quantitative easing programme last Wednesday in a week that ironically showed that the United States economy is performing better than many had expected.

The Federal Reserve said on Wednesday at the end of its policy meeting that it will be buying an additional $600 billion worth of Treasuries through June while keeping interest rates low for an extended period.

The announcement helped push stock and commodity prices up and the US dollar down. Investors are no doubt counting on increased liquidity to fuel further market rallies. The fact that economic indicators last week were mostly positive also helped.

The business indices released by the Institute for Supply Management indicated that the US economy accelerated in October. Its manufacturing PMI rose to 56.9 in October from 54.4 in September. Its non-manufacturing index rose to 54.3 from 53.2, with the business activity index -- which has a longer history than the headline non-manufacturing index -- jumping to 58.4 from 52.8.

Elsewhere, the euro area, China and the UK also mostly reported better, or at least better-than-expected, manufacturing and services indices for October, helping to push the JPMorgan Global All-Industry Output Index up to a four-month high of 54.8 from 52.6 in September.

However, the economic indicators that the Federal Reserve tends to rely more on for monetary policy appear to justify the latest move on quantitative easing.

For example, the price index for US personal consumption expenditures excluding food and energy was barely changed in September. This indicator, the Federal Reserve's main measure of core inflation, had also risen by less than 0.1 percent in the previous three months. Based on this indicator, the US economy appears close to deflation.

Also, the monthly employment report on Friday showed that the unemployment rate in the US remained unchanged at 9.6 percent in October. Although this is down from the recession peak, the Federal Reserve said in its most recent monetary policy statement that it considers this rate to be too high and coming down too slowly.

Still, the recent data show that the US economy continues to grow, which should, if it persists, eventually bring down the unemployment rate and ease deflationary pressure.

BoJ holds, US employment rises

There was no additional monetary stimulus coming out of Friday's BoJ meeting. From AFP/CNA:

Japan's central bank on Friday kept its key rate unchanged at a rock-bottom zero to 0.1 per cent in a widely anticipated move, but refrained from announcing fresh monetary easing measures...

As part of previously announced monetary easing worth a total of 35 trillion yen (432 billion US dollars), the BoJ said it planned purchases of assets such as exchange-traded funds and real-estate investment trusts.

There was mixed news in the US, with employment rising in October. Bloomberg reports:

Employment in the U.S. rose in October for the first time in five months, a sign businesses may be starting to gain confidence in the prospects for a faster pace of growth.

Payrolls climbed 151,000, exceeding all estimates in a Bloomberg News survey of economists and following a revised 41,000 drop the prior month that was smaller than initially estimated, Labor Department figures showed today in Washington. Private payrolls expanded the most since April, while the jobless rate held at 9.6 percent.

However, pending home sales fell in September.

A report today from the National Association of Realtors showed that pending sales of existing homes unexpectedly declined in September, a sign the housing market at the center of the crisis remains a weak spot for the economy. The group’s index of pending home resales dropped 1.8 percent after a revised 4.4 percent gain the prior month.

Meanwhile, European economic news on Friday were quite negative.

The Wall Street Journal reports that eurozone retail sales fell in September.

Retail sales in the 16 countries that use the euro fell for the second straight month in September, indicating that weak consumer spending continues to be a drag on the currency area's economic recovery.

European Union statistics agency Eurostat said Friday sales volumes in the euro zone fell 0.2% from August, during which month they also fell 0.2%. Volumes were up 1.1% from September 2009, a slower annual rate of increase than the 1.3% recorded in August.

Even eurozone economic powerhouse Germany reported negative numbers on Friday. From Bloomberg:

German factory orders unexpectedly dropped in September, led by a slump in euro-area demand for investment goods, after big-ticket contracts inflated the previous month’s increase.

Orders, adjusted for seasonal swings and inflation, fell 4 percent from August, when they rose 3.5 percent, the Economy Ministry in Berlin said today. Economists had forecast a 0.4 percent gain, according to the median of 37 estimates in a Bloomberg news survey. From a year earlier, orders climbed 14 percent, when adjusted for working days.

And the eurozone still has to deal with simmering sovereign debt issues. From Bloomberg:

Ireland led a surge in the cost of insuring sovereign debt to a record as the government struggles to convince investors it can avert a European Union-led bailout.

Credit-default swaps on Ireland rose for a ninth day, soaring 18 basis points to 587, according to data provider CMA. The Markit iTraxx SovX Western Europe Index rose 6.5 basis points to a record 171.5...

Sentiment also weakened after a report showed Spanish growth stalled in the third quarter, as the deepest austerity measures in three decades undermined the economic recovery.

Credit swaps on Spain increased 18 basis points to 251.5, according to CMA. Contracts on Greece jumped 14.5 basis points to 866, Italy rose 10 to 192 and Portugal climbed 8 to 447.5. A basis point on a contract insuring $10 million of debt for five years is equivalent to $1,000 a year.

BoE and ECB hold, markets rally

The Federal Reserve may have launched another round of quantitative easing but the Bank of England appears to be keeping its powder dry. From Reuters:

The Bank of England added no more stimulus to the economy on Thursday after its November policy meeting, seeming to want evidence of a sharper economic slowdown before it considers the U.S. path of more quantitative easing.

Meanwhile, the ECB is even contemplating removing monetary stimulus. From Bloomberg:

European Central Bank President Jean- Claude Trichet signaled the bank intends to stick to its exit strategy even after the Federal Reserve eased policy further, sending the euro to a 10-month high, and tensions on Europe’s bond markets increased.

Policy makers will decide on possible further exit steps next month, Trichet said at a press conference in Frankfurt today after the ECB left its benchmark interest rate at a record low of 1 percent. “The non-standard measures are by definition temporary in nature,” he said.

A relatively resilient eurozone economy may be contributing to the ECB stance. Again from Bloomberg:

Europe’s services and manufacturing industries expanded at a faster pace than initially estimated in October, led by surging output in Germany.

A composite index based on a survey of euro-area purchasing managers in both industries slipped to 53.8 from 54.1 in the previous month, London-based Markit Economics said today. It had initially reported a drop to 53.4. A reading above 50 indicates expansion. A services gauge for the euro region fell to 53.3 from 54.1.

However, the Fed's decision on Wednesday proved sufficient for investors. From Reuters:

World stocks soared to highs last seen before Lehman Brothers' collapse in 2008 and the dollar fell sharply on Thursday on rising risk appetite in the afterglow of the Federal Reserve's asset buying plan...

Energy and commodity prices rose, with gold touching record highs as markets concluded the Fed's move to increase the supply of dollars would likely weigh the currency down further...

MSCI's all-country world stocks index rose 2.3 percent, taking the index to a level last seen before the collapse of investment bank Lehman Brothers in September 2008. MSCI's emerging market index gained 1.8 percent, its highest since July 2008.

Fed launches QE2 as recovery shows strength

The Federal Reserve launched QE2 on Wednesday. Bloomberg reports:

The Federal Reserve will buy an additional $600 billion of Treasuries through June, expanding record stimulus and risking its credibility in a bid to reduce unemployment and avert deflation.

Policy makers, who said new purchases will be about $75 billion a month, “will adjust the program as needed to best foster maximum employment and price stability,” the Fed’s Open Market Committee said in a statement in Washington. The central bank retained its pledge to keep interest rates low for an “extended period.”

This comes as the US economy shows signs of renewed strength. Again from Bloomberg:

Services in the U.S. expanded in October at the fastest pace in three months, indicating the recovery is gaining strength even as central bankers loosen monetary policy.

The Institute for Supply Management’s index of non- manufacturing businesses, which covers about 90 percent of the economy, rose to 54.3 from 53.2 in September. Readings greater than 50 signal growth...

Another report today showed U.S. companies added more jobs than forecast in October. ADP Employer Services said employment rose by 43,000 last month. The median projection in a Bloomberg survey called for a gain of 20,000. September was revised to a 2,000 decrease from a previously reported 39,000 decline...

The Commerce Department said factory orders in September rose 2.1 percent. The figures also signaled spending on equipment and software, which helped the U.S. rebound from recession, may cool less than previously estimated.

Growth in the UK services sector also accelerated in October. Bloomberg reports:

A U.K. index of growth in services businesses from banks to airlines unexpectedly rose in October to the highest level in four months.

The gauge rose to 53.2 from 52.8 in September, Markit Economics and the Chartered Institute of Purchasing and Supply said in an e-mailed statement today in London. Economists forecast a decline to 52.6, according to the median of 25 estimates in a Bloomberg News survey. A reading above 50 indicates growth.

Australia and India raise interest rates

Australia resumed its monetary tightening on Tuesday. AFP/CNA reports:

Australia's central bank Tuesday lifted interest rates for the first time since May, hiking its cash rate by 25 basis points to 4.75 per cent as it warned of inflationary concerns.

Reserve Bank of Australia (RBA) governor Glenn Stevens said despite recent data indicating consumer prices had moderated in 2010, "the risk of inflation rising again over the medium term remains."

Meanwhile, India kept up its recent pace of monetary tightening. Again from AFP/CNA:

India's central bank on Tuesday raised benchmark interest rates by 25 basis points, its sixth hike since the start of the year to curb rising inflation in the country's booming economy.

The Reserve Bank of India (RBI) raised its main repo rate -- the rate at which it lends to commercial banks -- to 6.25 per cent. The reverse repo rate -- the rate it pays to banks for deposits -- was increased to 5.25 per cent...

But the bank said it expected to hit the pause button on further rises.

The acceleration in the global manufacturing sector may be giving central banks some confidence in the strength of the global economic recovery.

Following the better PMI data from the US, UK and China on Monday, the euro area also reported better data on Tuesday. From Reuters:

Euro zone manufacturers boosted their output in October at a faster pace than previously estimated, a business survey showed on Tuesday, with Spain and Ireland both recovering while Greece continued to struggle.

The Markit Eurozone Manufacturing Purchasing Managers Index (PMI) rose to 54.6 in October, revised up from the earlier estimate of 54.1 and comfortably higher than the final reading of 53.7 for September.

Manufacturing accelerates

The US manufacturing sector is looking resilient. From Bloomberg:

Manufacturing in the U.S. expanded at the fastest pace in five months in October, pointing to renewed strength in the industry that led the nation out of recession.

The Institute for Supply Management’s factory index increased to 56.9 from 54.4, the Tempe, Arizona-based group said today. Readings greater than 50 signal growth...

The ISM’s U.S. new orders climbed to 58.9 from 51.1, while the production index jumped to 62.7 from 56.5. Both were the highest in five months. Measures of employment and export orders also increased.

Manufacturing also accelerated in China and the UK.

China purchasing managers’ index released by the country’s logistics federation rose to 54.7 last month from 53.8. A second China PMI, from HSBC Holdings Plc and Markit Economics, jumped to 54.8 from 52.9.

A U.K. manufacturing gauge based on a survey of companies by Markit Economics and the Chartered Institute of Purchasing and Supply rose to 54.9 last month from 53.5, according to an e- mailed statement in London. Measures above 50 indicate expansion.

Other US data released on Monday were mixed.

Commerce Department figures released today showed consumer purchases increased 0.2 percent, the smallest gain in the third quarter. Incomes fell 0.1 percent, the first drop since July 2009...

A separate report from the Commerce Department showed construction spending in September unexpectedly rose, led by gains in homebuilding and public works projects. The 0.5 percent gain brought spending to $801.7 billion, according to the report.

Europe and US maintain recoveries but not Japan

Last week's economic reports show that the economies of Europe and the United States continue to recover but that of Japan appears to be turning back down.

In Europe, the European Commission's monthly sentiment survey showed that confidence improved again in October. The Economic Sentiment Indicator for the European Union rose to 104.1 in October from 103.6 in September while for the euro area, it rose to 104.1 from 103.2.

In the US, real gross domestic product grew at a 2.0 percent annual rate in the third quarter, faster than the 1.7 percent rate in the second quarter. If the US economy continues to grow at the third quarter rate, real GDP will regain its 2007 peak by the first quarter of 2011.

However, US real GDP growth so far has relied to a large extent on inventory accumulation. Real private inventories contributed 1.44 percentage points to third-quarter growth. Real final sales of domestic product -- GDP less change in private inventories -- increased just 0.6 percent in the third quarter, down from 0.9 percent in the second quarter.

If the US economy grows at the third quarter's growth rate of final sales, real GDP will take more than another year to regain its 2007 peak.

In Japan, industrial production fell 1.9 percent in September, the fourth consecutive monthly fall. A survey by the Ministry of Economy, Trade and Industry showed that production is projected to fall again by 3.6 percent in October before increasing by 1.7 percent in November.

The trend in Japanese industrial production is looking ominously similar to that in early 2008 near the beginning of the last recession.