US economy grows 1.3 percent in second quarter, Japan maintains recovery

US economic growth in the second quarter was slower than expected. Bloomberg reports:

The U.S. economy grew less than forecast in the second quarter, after almost stalling at the start of the year, as consumers retrenched.

Gross domestic product climbed at a 1.3 percent annual rate following a 0.4 percent gain in the prior quarter that was less than earlier estimated, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg News called for a 1.8 percent increase. Household purchases, about 70 percent of the economy, rose 0.1 percent...

Economic growth in the first quarter was revised down from a 1.9 percent prior estimate, reflecting fewer inventories and more imports, the Commerce Department’s report showed. At $13.27 trillion in the second quarter, GDP has yet to surpass the pre- recession peak.

Revisions to GDP figures going back to 2003 showed that the 2007-2009 recession took a bigger bite out of the economy than previously estimated, and the recovery lost momentum throughout 2010. The world’s largest economy shrank 5.1 percent from the fourth quarter of 2007 to the second quarter of 2009, compared with the previously reported 4.1 percent drop.

The third quarter has not started too well either.

The Institute for Supply Management-Chicago Inc. said its business barometer fell to 58.8 in July from 61.1 the prior month. Figures greater than 50 signal expansion.

The Thomson Reuters/University of Michigan final index of consumer sentiment fell to 63.7 this month, the weakest since March 2009, from 71.5 in June.

However, slower economic growth worldwide may have helped to restrain inflation. Bloomberg reports the latest inflation rate in the euro area:

Euro-region inflation unexpectedly slowed in July, though it remained above the European Central Bank’s 2 percent ceiling for an eighth month as rising energy prices added pressure on companies to pass on higher costs.

The inflation rate in the 17-nation euro region declined to 2.5 percent from 2.7 percent in the previous month, the European Union’s statistics office in Luxembourg said today in an initial estimate. Economists expected price growth to hold steady, the median of 31 forecasts in a Bloomberg News survey showed.

Meanwhile, the drag on the world economy from Japan's earthquake and tsunami disaster may be dissipating. Reuters reports another increase in Japan's manufacturing PMI in July:

Japanese manufacturing activity expanded in July at the fastest pace in five months as supply chains recovered from the March 11 disaster and companies brought forward production to avoid possible power shortages in the summer, a survey showed on Friday.

The Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 52.1 in July from 50.7 in June. The index remained above the 50 threshold that separates contraction from expansion for a third straight month and rose to its highest since February.

The output component of the PMI index rose to 53.1 in July from 52.7 in June, also the highest since February.

Corroborating the signs of Japanese recovery was another report on Friday indicating an increase in industrial production in June. From AFP/CNA:

Japan's industrial production rose 3.9 per cent in June from the previous month, reflecting a continued recovery in earthquake-hit supply chains following the March 11 earthquake and tsunami...

The ministry added that production levels were expected to continue to rise in July and August, although analysts warn that power consumption curbs in the summer months add a layer of uncertainty to estimates.

The June figure marked a slower pace of growth than May, which saw output rise 6.2 per cent.

Other data from Japan, though, were not as positive.

Further data on [F]riday showed that Japanese consumers remained cautious as household spending fell 4.2 per cent in June, a steeper decline than market expectations of a 2.0 per cent drop.

It had plunged 8.5 per cent in March while the pace of decline eased in April and May by 3.0 per cent and 1.9 per cent...

Other data Friday showed Japan's core consumer prices rose 0.4 per cent in June from a year earlier, slightly less than market expectations of a 0.5 per cent gain...

Separate data showed Japan's unemployment rate rose to 4.6 per cent in June, up 0.1 percentage points from the previous month, excluding figures from the disaster-hit northeast of the country.

European sentiment worsens

Eurozone economic indicators came out weak on Thursday. Reuters reports:

Economic sentiment in the euro zone worsened more than expected this month with optimism fading in all sectors, data showed on Thursday, signalling slower expansion of the region's economy in the second half of this year.

The European Commission's monthly sentiment index, based on a survey of businessmen and consumers across the 17-nation euro zone, fell to 103.2 in July from 105.4 in June. This month's figure was the lowest reading since 102.2 in August 2010.

Thursday's economic data also came out negative in the UK, where retail sales fell at their fastest pace in a year in July according to the Confederation of British Industry's distributive trades survey and the Gfk's consumer confidence index fell five points in July to -30, nearing the two-year low of -31 hit in April.

There were better economic data in the US, however. Reuters reports:

The number of Americans claiming new jobless benefits hit a three-month low last week and contracts to buy existing homes rose in June, hopeful signs for an economy that has struggled to regain momentum.

Initial claims for state unemployment benefits dropped 24,000 to 398,000, the Labor Department said on Thursday, below economists' expectations for a fall to 415,000.

A separate report from the National Association of Realtors showed pending home sales rose 2.4 percent in June, the second straight monthly increase. Contracts usually lead sales by a month or two.

Markets fall sharply

MarketWatch reports the US market action on Wednesday:

U.S. stocks were hammered Wednesday with no end in view to political sparring over raising the debt limit and economic data that only heightened uncertainty about the recovery...

Extending losses into a fourth session, the Dow Jones Industrial Average fell 198.75 points, or 1.6%, to 12,302.55. The rout is the worst for the blue-chip index since June 1...

The selloff extended beyond stocks, to almost every major asset class except the U.S. dollar.

While uncertainty over the debt limit was a major factor behind the weakness in markets, economic reports also contributed to the negativity. From Reuters:

Demand for long-lasting U.S. manufactured goods fell in June and economic activity across much of the nation slowed through mid-July, casting doubt over how quickly the economy might escape its soft patch.

The Federal Reserve said on Wednesday the recovery lost steam in eight of 12 regions it tracks in recent weeks, with hiring modest, wages soft and price pressures subdued.

"Economic activity continued to grow; however, the pace has moderated in many districts," the Fed said.

Separately, the Commerce Department said weak receipts for transportation equipment pushed down durable goods orders 2.1 percent last month after a 1.9 percent increase in May. A closely watched reading on business spending plans also fell.

Excluding transportation, orders edged up just 0.1 percent.

Elsewhere, the outlook for UK manufacturing is also looking poor. Again from Reuters:

British factory orders fell more sharply than expected in July, with price pressures at their weakest in a 1-1/2 years, a survey showed on Wednesday.

The Confederation of British Industry survey's total order book balance fell to -10 this month from +1 in June, well below forecasts for a reading of -2.

Despite the softening global economy, inflation remains a threat, at least in Germany. From Bloomberg:

Inflation in Germany, Europe’s largest economy, unexpectedly accelerated in July as energy costs increased.

The inflation rate, calculated using a harmonized European Union method, rose to 2.6 percent from 2.4 percent in June, the Federal Statistics Office in Wiesbaden said today in an initial estimate. Economists predicted the rate would hold steady, according to the median of 18 estimates in a Bloomberg News survey. Prices climbed 0.5 percent from the previous month.

Indian rates rise, UK growth falls

India raised interest rates on Tuesday. AFP/CNA reports:

India's central bank hiked interest rates by a higher-than-expected 50 basis points on Tuesday, its 11th increase since March 2010 to combat near double-digit inflation.

The Reserve Bank of India (RBI) raised its repo rate at which it lends to commercial banks to 8.0 per cent and increased the reverse repo -- the rate it pays to banks for deposits -- to 7.0 per cent.

The UK, however, looks likely to continue delaying any rate hike after the economy showed little growth in the second quarter. From Reuters:

Britain's gross domestic product grew by 0.2 percent in the second quarter compared to the first. That took the annual growth rate to 0.7 percent, the lowest since the first quarter of 2010, the Office for National Statistics said on Tuesday...

The ONS said special factors such as an additional holiday for the royal wedding and the after-effects of the tsunami in Japan weighed on growth, which could have been as high as 0.7 percent without them.

The data from the US on Tuesday were mixed. Bloomberg reports:

Sales of new U.S. homes unexpectedly fell for a second month and a gauge of property values also dropped, showing the industry that sparked the recession is stagnating.

Purchases dropped 1 percent in June to a 312,000 annual pace, a three-month low, figures from the Commerce Department showed today in Washington. Prices in 20 cities dropped 4.5 percent in the year ended May, the most since November 2009, according to a report from S&P/Case-Shiller...

The Conference Board’s consumer confidence index rose to 59.5 from a revised 57.6 reading in June that was lower than previously estimated, figures from the New York-based private research group showed. Economists predicted the July gauge would fall to 56, according to the median forecast in a Bloomberg News survey.

Markets fall, US economy shows slow growth

Markets predictably fell on Monday after the failure in the US to break the deadlock on deficit reduction and the debt ceiling over the weekend. Bloomberg reports:

U.S. stocks fell, pulling the Standard & Poor’s 500 Index down from a two-week high, and Treasuries and commodities declined as a political stalemate over raising the federal debt ceiling intensified.

The S&P 500 slipped 0.6 percent to 1,337.43 at 4 p.m. in New York after losing as much as 1 percent. The 30-year Treasury yield rose six basis points to 4.32 percent. Oil lost 0.7 percent, retreating for the first time in five days. The Dollar Index was little changed and gold and the Swiss franc touched records...

And just in case anyone forgot, Moody's gave a reminder that there are debt problems in Europe too.

Greece’s 10-year yield climbed 11 basis points, or 0.11 percentage point, to 14.79 after retreating from a high of 18.2 percent on July 18. Greece’s credit rating was cut three steps by Moody’s Investors Service, which said the European Union’s rescue for the nation will cause “substantial” losses for investors.

Meanwhile, the Chicago Fed reports that US economic growth was below average in June.

Led by improvements in housing-related indicators, the Chicago Fed National Activity Index increased to –0.46 in June from –0.55 in May; however, the index remained negative for the third consecutive month. Three of the four broad categories of indicators that make up the index improved in June, but only one made a positive contribution to the index.

The index’s three-month moving average, CFNAI-MA3, decreased to –0.60 in June from –0.31 in May, reaching its lowest level since October 2009. June’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. With regard to inflation, the economic slack reflected in June’s CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.

However, there are also signs that the US economy may already be picking up pace again. From the Dallas Fed:

Texas factory activity expanded in July, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 5.6 to 10.8, suggesting output growth picked up this month...

Indexes reflecting general business conditions improved in July. The general business activity index remained negative for the third month in a row but jumped from –17.5 to –2, suggesting only a slight worsening this month. The company outlook index rose from 7.2 in June to 11 in July, indicating manufacturers were more optimistic about their firms’ prospects for the near future. Ninety percent of respondents said their outlooks were unchanged or improved from last month.

US debt ceiling unresolved on deficit deadlock

This will keep markets nervous today. From Reuters:

Lawmakers failed to achieve a budget breakthrough and instead worked on rival plans Sunday in a impasse that heightened prospects for a catastrophic debt fault.

With time running out, Republican and Democratic lawmakers split into opposite camps and held talks among themselves. There were no signs of a deal emerging to head off a default in nine days that could trigger global economic calamity and downgrade America's Triple-A credit rating.

Lawmakers missed a self-imposed deadline of producing a deficit-reduction deal by the time Asian markets opened on Sunday, but planned to outline a proposal Monday. A deficit deal is needed to permit a vote to increase the $14.3 trillion U.S. debt ceiling by August 2.

PIMCO's Mohamed A. El-Erian thinks that even a deal may not be enough to completely satisfy markets. From Bloomberg:

“In most likelihood, a last-minute political compromise will avoid a default but will leave the AAA rating extremely vulnerable,” El-Erian, the Newport Beach, California-based chief executive officer and co-chief investment officer at Pimco, wrote in an e-mail. “Stock markets around the globe will look to price in a greater uncertainty premium on account of political squabbles in the world’s largest economy and the increasing risk that it may lose its sacred AAA rating.”

Europe offers new aid for Greece

European leaders managed to reach an agreement on Greek sovereign debt. Bloomberg reports:

Euro-area leaders redoubled efforts to end the 21-month sovereign bond crisis as they erected a firewall around Spain and Italy and risked temporary default to lighten Greece’s debt burden.

After eight hours of talks in Brussels, leaders announced 159 billion euro ($229 billion) in new aid for Greece late yesterday and cajoled bondholders into footing part of the bill. They also empowered their 440-billion euro rescue fund to buy debt across stressed euro nations after a market rout last week sparked concern the crisis was spreading. The fund can also aid troubled banks and offer credit-lines to repel speculators.

Meanwhile, however, the eurozone economy is decelerating fast. From Bloomberg:

European services and manufacturing growth weakened more than economists forecast to the slowest pace in almost two years, adding to signs the euro-region recovery is losing momentum as the debt crisis persists.

A composite index based on a survey of euro-area purchasing managers in both industries fell to 50.8 in July from 53.3 in June, London-based Markit Economics said today. That’s the lowest since August 2009. Economists forecast a drop to 52.6, the median of 17 estimates in a Bloomberg News survey showed. A reading above 50 indicates growth...

The euro-area services indicator fell to 51.4 this month from 53.7 in June, Markit said in the initial estimate. The manufacturing gauge decreased to 50.4 from 52.

Supposedly fast-growing China's manufacturing sector did even worse. From AFP/CNA:

Manufacturing activity in China contracted for the first time in a year in July to hit a 28-month low, early HSBC data showed Thursday, the latest sign monetary tightening measures are being felt...

HSBC's preliminary purchasing managers index fell to 48.9 in July from a final reading of 50.1 in June, the British banking giant said.

At least US economic data were positive on Thursday. From Bloomberg:

The index of U.S. leading indicators rose in June, confirming the Federal Reserve’s forecast that the economy will pick up in the second half of the year.

The Conference Board’s gauge of the outlook for the next three to six months climbed 0.3 percent after a 0.8 percent gain in May, the New York-based research group said today. Jobless claims rose more than forecast and consumer confidence stagnated last week, while manufacturing in the Philadelphia area rebounded this month, other reports showed.

US existing home sales drop, Japan's trade returns to surplus

The US housing market is still struggling to recover. From Bloomberg on Thursday:

Sales of previously owned U.S. homes unexpectedly declined in June to a seven-month low as the industry struggled to overcome rising unemployment and foreclosures.

Purchases dropped 0.8 percent to a 4.77 million pace, data from the National Association of Realtors showed today in Washington. The median projection in a Bloomberg News survey called for a gain to 4.9 million. Inventories increased, more contracts were canceled and 30 percent of transactions last month were of distressed dwellings, the figures showed.

Fortunately, Japan's recovery from its earthquake and tsunami in March continued last month. From AFP/CNA:

Japan logged 70.7 billion yen (US$897 million) in trade surplus in June, about a tenth of the year-before surplus but the first black ink in three months, data from the finance ministry showed...

Exports totalled 5.78 trillion yen, down 1.6 per cent from a year earlier.

It was a much smaller drop compared with falls of 10.3 per cent in May and 12.4 per cent in April...

Overall imports rose 9.8 per cent to 5.71 trillion yen due to higher oil and other commodity prices, extending their rising streak to an 18th consecutive month.

Stocks jump, US housing starts rise

Investors turned optimistic on Tuesday. Bloomberg reports:

Stocks surged, sending the Standard & Poor’s 500 Index to its biggest gain in four months, and Treasuries rallied amid optimism lawmakers were moving closer to a deal that would cut the U.S. budget deficit and avoid default. Oil helped lead gains in commodities and the dollar fell.

The S&P 500 jumped 1.6 percent to 1,326.73 at 4 p.m. in New York, its biggest gain since March 3. The S&P GSCI Index of 24 commodities advanced 1 percent as oil surged 1.6 percent to $97.50 a barrel. Ten-year Treasury note yields lost five basis points to 2.88 percent and the Dollar Index, a gauge of the currency against six major peers, slipped 0.5 percent. Nasdaq-100 Index futures climbed 0.7 percent at 5:12 p.m. after Apple Inc. (AAPL) beat earnings estimates.

Stocks added to an early advance and Treasuries climbed after President Barack Obama endorsed a deficit-cutting proposal by a bipartisan group of senators known as the “Gang of Six.” Earlier gains in global equities were triggered by higher-than- estimated results at companies from International Business Machines Corp. to Coca-Cola Co. and Novartis AG...

The Markit iTraxx SovX Western Europe Index of swaps on 15 governments fell 9.6 basis points to 296.85 basis points, retreating from an all-time high...

Economic data in the US supported the rally. From Bloomberg:

Housing starts in the U.S. jumped more than forecast in June as better weather allowed the struggling industry to break ground on delayed projects.

Work began on 629,000 houses at an annual pace, up 15 percent from May and the highest level in five months, figures from the Commerce Department showed today in Washington. The level topped the most optimistic forecast in a Bloomberg News survey of 71 economists. Building permits, a sign of future construction, unexpectedly climbed 2.5 percent.

Reports from Europe were less supportive. Eurostat reported a fall in construction output.

In the construction sector, seasonally adjusted production fell by 1.1% in the euro area (EA17) and by 0.9% in the EU27 in May 2011, compared with the previous month. In April, production increased by 1.2% in the euro area, but decreased by 0.5% in the EU27.

Compared with May 2010, output in May 2011 dropped by 1.9% in the euro area and by 1.0% in the EU27.

And German investor confidence fell more than expected in July. Bloomberg reports:

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict developments six months in advance, fell to minus 15.1 from minus 9 in June. That’s the lowest since January 2009. Economists expected a decline to minus 12.5, according to the median of 42 estimates in a Bloomberg News survey.

The IMF also had discouraging news for Europe. Again from Bloomberg:

Greece’s sovereign-debt crisis risks contaminating the rest of the euro region even if officials avert a default, the International Monetary Fund said.

Both the European Commission and the European Central Bank “considered that a sovereign default or a credit event would likely trigger contagion to the core euro-area economies with severe economic consequences,” according to an IMF staff report on the region’s economy released yesterday. “Staff however also saw serious risks of contagion, even under a strategy which tries to avoid default or credit events.”

Markets fall amid debt concerns in Europe and US

The week starts off with investors again turning away from risk. Bloomberg reports:

Stocks fell around the world, extending last week’s drop, and oil declined amid concern officials are no closer to solving the debt crises in Europe and the U.S. Gold extended its longest rally since 1980.

The Standard & Poor’s 500 Index lost 0.8 percent to 1,305.44 at 4 p.m. in New York and the Stoxx Europe 600 Index sank 1.8 percent, extending its slide from its 2011 high to almost 10 percent. The euro recovered losses after reaching an all-time low versus the Swiss franc, while costs to insure European sovereign debt climbed to a record. Gold topped $1,600 an ounce for the first time. Italy’s 10-year bond yield rose 20 basis points and Spain’s surged 25 points. Oil fell 1.4 percent.

US Treasuries were not able to take advantage of the flight from risk on Monday.

The yield on the 10-year Treasury note rose less than one basis point to 2.92 percent after decreasing four points earlier. Two-year Treasury yields were little changed at 0.36 percent.

Global demand for U.S. stocks, bonds and other financial assets rose in May from a month earlier as China and Japan added to their holdings of government securities, the Treasury Department reported. Net buying of long-term equities, notes and bonds totaled $23.6 billion during the month, compared with $30.6 billion in April. Including short-term securities such as stock swaps, foreigners sold a net $67.5 billion compared with net buying of $66.6 billion the previous month.

The true risk for US bonds, though, may become manifest next year, according to Ray Dalio.

Ray Dalio of Bridgewater Associates LP said he expects “another very difficult period” for financial markets next year or in early 2013 as governments struggle to reduce their debt, the New Yorker reported, citing an interview with the founder of the world’s biggest hedge fund by assets. The U.S. will eventually print more money to devalue its currency, which would hurt its bond markets, Dalio said, according to the New Yorker. Countries in the euro zone don’t have that option and will undergo “classic depressions,” he told the magazine.

Speaking of difficult periods, the US housing market has already been in one for some time. Bloomberg reports the latest data on homebuilders' sentiment:

Confidence among U.S. homebuilders improved in July from a nine-month low as executives turned less pessimistic on the outlook for sales.

The National Association of Home Builders/Wells Fargo sentiment index climbed to 15 this month, higher than forecast, from 13 in June, data from the Washington-based group showed today. The median projection of economists surveyed by Bloomberg News was for a gain to 14.

Home prices accelerate in Beijing and Shanghai

After data last week showed that China's economy slowed only slightly in the second quarter, another report today suggests that policy makers may need to tighten further.

From Bloomberg:

New home prices rose in 67 Chinese cities in June, with growth in Beijing and Shanghai accelerating for the first time since the government stepped up efforts this year to curb growth.

In Beijing new home prices rose 2.2 percent last month from a year earlier, compared with 2.1 percent in May, while in Shanghai they climbed 2.2 percent, compared with 1.4 percent growth the previous month, the statistics bureau said on its website today.

China’s cabinet said last week it will expand measures to rein in residential prices to smaller cities after limiting home purchases in metropolitan areas including Beijing and Shanghai. The government is intensifying real-estate restrictions nationwide after developers posted gains in first-half sales and housing transactions climbed 31 percent last month, even as China increased down payments on some mortgages this year.

“China has negative interest rates right now with high inflation, so it’s not surprising that people are back to higher-yielding assets such as real estate,” said Liu Li-Gang, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd. The government’s housing restrictions “simply have limited effect in controlling home prices.”

US industrial production rises, eight European banks fail stress tests

US economic data were again mixed on Friday. Bloomberg reports:

Industrial production in the U.S. rose less than forecast in June, restrained by declines in the output of autos and business equipment.

The 0.2 percent increase in production at factories, mines and utilities followed a revised 0.1 percent decrease the prior month that was initially reported as a gain, figures from the Federal Reserve showed today. Economists projected a 0.3 percent rise in June, according to the median estimate in a Bloomberg News survey. Factory production was unchanged last month, while utility use rebounded...

Other figures from the Fed today showed manufacturing in New York state unexpectedly contracted for a second straight month in July. The so-called Empire State Index, which covers New York, northern New Jersey and southern Connecticut, rose to minus 3.8 from minus 7.8. Readings less than zero signal contraction.

The Labor Department said today that the consumer-price index decreased 0.2 percent in June. The so-called core measure, which excludes more volatile food and energy costs, rose 0.3 percent.

Consumer confidence slumped in July to the lowest level since March 2009. The Thomson Reuters/University of Michigan preliminary index of sentiment decreased to 63.8 from 71.5 at the end of June.

Meanwhile, confidence in Europe's banks remains shaky after the latest stress tests. Again from Bloomberg:

As many as 24 European banks will be under pressure to show they can raise capital after failing, or barely passing, a second round of stress tests by regulators.

Eight failed the European Banking Authority’s stress tests yesterday, with a combined shortfall of 2.5 billion euros ($3.5 billion). As many as 16 more will need to bolster capital after their core Tier 1 ratio dropped below 6 percent, little more than the assessment’s 5 percent pass-mark, the EBA said.

Mixed US economic data

US economic data on Thursday were mixed. Reuters reports:

Initial claims for state unemployment benefits fell 22,000 to 405,000 last week, the lowest since mid-April, the Labor Department said. Economists expected claims to drop to 415,000. Still, claims held above the 400,000 level usually associated with a stable labor market...

Retail sales rose 0.1 percent as a rebound in receipts from auto dealers offset the biggest drop in gasoline receipts in a year, a Commerce Department report showed, after dipping 0.1 percent in May.

Core sales, excluding gasoline and autos, rose 0.2 percent after rising by the same margin in May...

Another report from the Commerce Department showed business inventories were starting to pile up because of weak demand.

Inventories increased 1 percent in both May and April, suggesting restocking supported growth in the second quarter and will be less of a boost to third-quarter GDP...

The Producer Price Index fell 0.4 percent, the steepest decline since February 2010, the Labor Department said in a second report, after a 0.2 percent rise in May.

China's economy grows 9.5 percent

China's economy slowed only slightly in the second quarter. AFP/CNA reports:

China said Wednesday its economy expanded at a slower but still robust pace in the second quarter as Beijing battles to bring politically sensitive inflation under control.

Gross domestic product in the world's number two economy grew 9.5 per cent year-on-year in the April-June period, the National Bureau of Statistics said, as policymakers clamped down on bank lending to tame soaring prices.

The figure was higher than the 9.4 per cent growth forecast in a poll of analysts by Dow Jones Newswires, but slower than the 9.7 per cent posted in the first three months of the year and 9.8 per cent in the fourth quarter of 2010...

Other data showed industrial output from China's millions of factories rose 14.3 per cent year-on-year in the first half, while fixed asset investment, a measure of government spending on infrastructure, rose 25.6 per cent.

Retail sales were up 16.8 per cent year-on-year in the first six months.

There was also positive news from Japan. From Reuters:

Japan's government left its assessment of the economy unchanged in a monthly report on Wednesday, while raising its views on private consumption and capital spending, suggesting that economic recovery from the earthquake in March is progressing...

"Upward movements are observed in the Japanese economy while difficulties continue to prevail due to the earthquake," the government said in its economic report for July.

Corroborating the government's assessment of the economy was the upwardly revised reading of industrial production for May. From Reuters:

Japan's industrial output rose 6.2 percent in May, revised government data showed on Wednesday, suggesting the economy is on course for a rapid recovery following the massive earthquake in March.

The figure compared with an initial reading of a 5.7 percent rise, and was the second-biggest increase on record after a 7.9 percent increase in March 1953, the data from the Ministry of Economy, Trade and Industry showed. In April, industrial production rose 1.6 percent.

Less impressive was industrial production growth in the euro area. From Bloomberg:

European industrial production increased less than economists forecast in May, adding to signs the euro-region recovery is losing some momentum.

Production in the 17-nation euro area advanced 0.1 percent from April, when it rose 0.2 percent, the European Union’s statistics office in Luxembourg said today. Economists had forecast a gain of 0.4 percent, the median of 31 estimates in a Bloomberg News survey showed. Production increased 4 percent from a year earlier after rising 5.3 percent in April.

The news from the UK was mixed. From Bloomberg:

U.K. unemployment claims rose at their fastest pace since May 2009 last month, casting doubt on whether the economy is generating enough jobs to offset the deepest government budget cuts since World War II.

Jobless benefit claims rose by 24,500 from May to 1.52 million, the highest level since March 2010, the Office for National Statistics said today in London. The median forecast of 21 economists in a Bloomberg News Survey was for a gain of 15,000. Unemployment measured by International Labour Organization methods fell by 26,000 to 2.45 million people in the quarter through May.

But just to keep attention on the sovereign debt crisis, Greece received another downgrade on Wednesday. Bloomberg reports:

Greece’s credit rating was cut three levels to Fitch Ratings’ lowest grade for any country in the world as the company followed rivals and said that a default is a “real possibility.”

The move to CCC from B+ “reflects the absence of a new, fully funded and credible” program by the International Monetary Fund and the European Union, the ratings company said yesterday in a statement in London. It also reflects “heightened uncertainty surrounding the role of private creditors in any future funding, as well as Greece’s weakening macroeconomic outlook.”

However, Europe is not the only region with debt concerns. The credit rating of US debt is coming under increasing scrutiny by rating agencies. From Bloomberg:

Moody’s Investors Service raised the pressure on U.S. lawmakers to increase the government’s $14.3 trillion debt limit by placing the nation’s credit rating under review for a downgrade.

The U.S., rated Aaa since 1917, was put on review for the first time since 1995 on concern the debt threshold will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes even though the risk remains low, Moody’s said in a statement yesterday. The rating would likely be reduced to the Aa range and there is no assurance that Moody’s would return its top rating even if a default is quickly cured...

Standard & Poor’s put the U.S. government on notice on April 18 that it risks losing its AAA credit rating unless policy makers agree on a plan by 2013 to reduce budget deficits and the national debt. The firm said at the time that there’s a one-in-three chance that the rating might be cut within two years and that its “baseline assumption” is that Congress and the Obama administration will come to terms on a plan to reduce record deficits.

While debate over the debt ceiling continues, the Fed at least still seems ready to buy US Treasuries. From Bloomberg:

Federal Reserve Chairman Ben S. Bernanke told Congress the central bank is prepared to take additional action, including buying more government bonds, if the economy appears to be in danger of stalling.

“The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support,” Bernanke told the House Financial Services Committee in Washington today. The Fed “remains prepared to respond should economic developments indicate that an adjustment of monetary policy would be appropriate.”

If the Fed is preparing for further monetary stimulus, it can take some comfort from the fact that some inflation pressure is easing. From Bloomberg:

Prices of goods imported into the U.S. dropped in June for the first time in a year as oil and food expenses retreated.

The 0.5 percent fall in the import-price index followed a revised 0.1 percent gain in May, Labor Department figures showed today in Washington. Economists projected a 0.6 percent decrease for June, according to the median estimate in a Bloomberg News survey. Prices excluding petroleum fell 0.2 percent, the first decline since July 2010.

BoJ leaves rates unchanged, Moody's cuts Ireland's credit rating

The BoJ lowered its growth forecast as it held interest rates unchanged on Tuesday. AFP/CNA reports:

The Bank of Japan on Tuesday lowered its real GDP growth forecast for this fiscal year to 0.4 percent from an earlier 0.6 percent projection due to the impact of the March 11 earthquake and tsunami.

The central bank upgraded its view of the economy, saying it is "picking up" as post-quake supply-side constraints ease, but it said growth prospects for Japan would be lower for the fiscal year ending March 2012 due to "the sharp downturn immediately after the earthquake".

The bank's board also voted unanimously for the key rate to remain unchanged at between zero and 0.1 percent.

China, though, may have to keep tightening monetary policy. From Bloomberg on Tuesday:

China’s new loans exceeded estimates in June and foreign-exchange reserves jumped by $153 billion in the second quarter, bolstering the case for more increases in bank reserve requirements.

New loans were 633.9 billion yuan ($98 billion), compared with the 622.5 billion yuan median estimate in a Bloomberg News survey of economists. M2, the broadest measure of money supply, rose by a more-than-forecast 15.9 percent, and foreign-exchange reserves climbed to $3.2 trillion. The People’s Bank of China released the data on its website today.

The BoE looks likely to keep its monetary policy unchanged though after inflation moderated in June. Reuters reports:

Inflation fell unexpectedly in June and the trade gap widened, pointing to more weakness in the economy and providing support to those in the Bank of England who want to keep interest rates at a record low...

The Office for National Statistics said consumer price inflation fell to 4.2 percent in June from a 2-1/2 year high of 4.5 percent in May, after the first drop in prices for a month of June since 2003...

The goods trade deficit widened unexpectedly in May to 8.48 billion pounds, casting doubt on the scale of net trade's contribution to second-quarter GDP data due later this month. Economists had forecast a deficit of 7.37 billion pounds.

This deficit came as both exports and imports hit record highs. There were hefty imports of chemicals, while British exports of silver leapt.

Also seeing a wider trade deficit in May was the US. Bloomberg reports:

The trade deficit in the U.S. widened in May to the highest level in almost three years, reflecting a surge in the cost of imported crude oil.

The gap grew 15 percent to $50.2 billion, exceeding all forecasts of 73 economists surveyed by Bloomberg News and the biggest since October 2008, Commerce Department figures showed today in Washington...

Imports rose 2.6 percent to $225.1 billion, second only to the record $231.6 billion reached in July 2008. Purchases of food and capital goods produced overseas reached records in May, the report showed...

Exports decreased 0.5 percent to $174.9 billion, also the second-highest on record and depressed by a drop in foreign demand for industrial supplies like fuel oil and cotton. Purchases of American-made capital equipment were the strongest ever.

However, a cut by Moody's on Ireland's credit rating means that investors' attention remains focused on Europe. From Reuters:

Moody's cut Ireland's credit rating to junk on Tuesday, warning that the debt-laden country would likely need a second bailout -- just the latest move amid heightening concerns about Europe's ability to address its debt crisis and prevent it from spreading...

Moody's one-notch downgrade on Ireland weighed on stocks and the euro, which hit its lowest level against the dollar in four months...

Moody's now rates Ireland Ba1, one notch below former financial market pariah Colombia and two notches below Brazil, and has kept a negative outlook, meaning further downgrades are likely in the next 12 to 18 months.

Markets fall again on European contagion concerns

Europe continues to search for a solution to the sovereign debt problem. Reuters reports:

Euro zone finance ministers promised cheaper loans, longer maturities and a more flexible rescue fund on Monday to help Greece and other EU debtors in a bid to stop financial contagion engulfing Italy and Spain.

After talks following another day of turmoil on financial markets, ministers from the 17 countries that share the European currency vowed to safeguard stability in the euro area and promised new measures shortly, but set no deadline...

The euro zone ministers gave no indication that they had broken a stalemate over how to make banks, insurers and other funds share the cost of additional funding for Athens.

But they tasked a working group to propose ways to finance a new multi-year programme for Greece, reduce the cost of servicing its 340 billion euro debt -- nearly 160 percent of annual output -- and improving its sustainability.

However, markets are getting impatient. From Bloomberg:

Stocks sank the most since March while Spanish 10-year bond yields topped 6 percent for the first time since 1997 amid concern Europe’s debt crisis will spread. The euro tumbled, while U.S. Treasuries rallied.

The MSCI All-Country World Index of shares in 45 nations tumbled 2.1 percent, the most in four months, as of 5 p.m. in New York. The Markit iTraxx SovX Western Europe Index of default swaps jumped to an all-time high as Italy’s stock index tumbled to the lowest level in two years. The euro sank 1.7 percent to $1.4029 and reached the weakest price since May. Oil fell 1.1 percent while yields on 10-year Treasuries posted the biggest two-day drop in more than a year.

China's inflation accelerates, stocks rise

Over the weekend, China reported that its inflation rate accelerated in June. Investors were undaunted by the news though. From Bloomberg today:

China’s stocks rose, spurring the biggest gain for the benchmark index in a week, on speculation inflation will decelerate the rest of the year and the nation’s economic growth may sustain earnings...

“The June inflation number had already been widely expected by the market and its impact will be minor,” said Ling Peng, chief strategist at Shenyin & Wanguo Securities Co. in Shanghai. “Inflation may have already peaked.”

The Shanghai Composite, which tracks the bigger of China’s stock exchanges, rose 4.92 point, or 0.2 percent, to 2,802.69 at the 3 p.m. close. The CSI 300 Index added 0.1 percent to 3,113.21...

Consumer prices rose 6.4 percent in June, mainly driven by a 14 percent gain in food costs, the statistics bureau said on its website over the week-end. The pace exceeded the 6.2 percent median estimate in a Bloomberg News survey of 19 economists. Producer prices gained 7.1 percent, the bureau said. That compared with the median estimate of 6.9 percent.

China also released trade data over the weekend.

Exports climbed 17.9 percent in June, the least since December, the customs bureau said on its website yesterday. Imports jumped 19.3 percent, the weakest expansion since gains resumed in November 2009. The trade surplus widened to $22.3 billion in June, the highest level in seven months.

Japan shows more signs of recovery but US employment barely grows

Japan's economy continued to show signs of improvement on Friday. From AFP/CNA:

Japan's current account surplus shrank by a smaller-than-expected 51.7 per cent from a year earlier in May with the impact of the March earthquake and tsunami weighing on exports, data showed Friday.

The surplus came to 590.7 billion yen (US$7.3 billion) in May, the finance ministry data showed, beating economists' median forecast of 300 billion yen...

Exports fell 9.8 per cent to 4.5 trillion yen, compared with growth of 34.0 per cent a year earlier but better than a fall of 12.7 per cent registered in April.

Imports soared 14.7 per cent to 5.3 trillion yen largely due to higher energy costs.

Another evidence of recovery in Japan comes from Reuters:

Japan's service sector sentiment index rose to 49.6 in June, a Cabinet Office survey showed on Friday, improving for the third consecutive month following a record fall in March, as progress in recovery from the March 11 disaster boosted consumer confidence.

The survey of workers such as taxi drivers, hotel workers and restaurant staff -- called "economy watchers" for their proximity to consumer and retail trends -- showed their confidence about current economic conditions climbed from 36.0 in May...

The outlook index, indicating the level of confidence in future conditions, was at 49.0, up from 44.9.

In the US, however, the employment report for June turned out to be a disappointment. Bloomberg reports:

American employers added jobs at the slowest pace in nine months in June and the unemployment rate unexpectedly climbed to 9.2 percent, sending global stocks sliding on concern the world’s biggest economy is faltering.

Employers increased payrolls by 18,000 workers, less than the most pessimistic forecast in a Bloomberg News survey of economists, which called for growth of 105,000. The increase followed a 25,000 gain that was less than half the initial estimate. Hiring by companies was the weakest since May 2010.

ECB raises interest rates, drops rating requirement for Portugal

As expected, the ECB raised interest rates on Thursday. Reuters reports:

The European Central Bank raised interest rates for the second time in three months on Thursday and signaled a further hike is likely this year to tackle inflation despite the intensifying euro zone debt crisis...

"We will continue to monitor very closely all developments with respect to upside risks to price stability," Trichet told a news conference after the bank raised interest rates by 25 basis points to 1.5 percent -- its second rise this year.

The ECB also took action to help Portugal.

The ECB also offered help to hard-pressed Portugal after ratings agency Moody's downgraded its debt to junk status this week, pledging to keep providing it with liquidity regardless of ratings...

"We have decided to suspend the application of the minimum credit rating threshold ... for the purpose of Eurosystem credit operations in the case of marketable debt instruments issued or guaranteed by the Portuguese government," he said.

"This suspension will be maintained until further notice."

The BoE left interest rates unchanged on Thursday.

Economic data on Thursday were mostly positive.

German industrial production rebounded in May, according to Bloomberg:

Industrial production in Germany, Europe’s largest economy, increased more than economists forecast in May, led by rising output of investment goods such as machines.

Production jumped 1.2 percent from April, when it fell a revised 0.8 percent, the Economy Ministry in Berlin said today. Economists had forecast a gain of 0.8 percent, the median of 32 estimates in a Bloomberg News survey showed. In the year, output rose 7.6 percent when adjusted for working days.

UK industrial production also rebounded in May, reports Reuters:

Manufacturing output rose at its fastest pace in over a year in May as factories ramped up output after a Royal Wedding-related drop in April, official data showed Thursday...

The Office for National Statistics said that manufacturing output -- which does not include utilities or oil and gas extraction -- rose by 1.8 percent in May, after a drop of 1.6 percent in April.

The wider measure of industrial output, however, rose by a below-forecast 0.9 percent in May, making up only half of April's drop. A sharp fall in oil and gas production due to unplanned maintenance work was largely to blame.

AFP/CAN reports that Japanese machinery orders were up in May.

Japan's core private-sector machinery orders, a leading indicator of corporate capital spending, rose 3.0 per cent in May from the previous month, official data showed on Thursday.

The core data, which exclude volatile demand from power companies and for ships, reversed a 3.3 per cent drop registered for April.

And Bloomberg reports signs of improvement in the US labour market.

Companies in the U.S. added twice as many workers as forecast in June, signaling an improvement in the labor market that may help bolster the economy in the second half of the year.

The 157,000 increase followed a 36,000 gain the prior month, according to data from ADP Employer Services. The median forecast in a Bloomberg News survey called for an advance of 70,000...

The Labor Department said today that first-time applications for unemployment insurance fell while remaining at a level that shows the labor market will take time to heal. Jobless claims dropped by 14,000 to 418,000 in the week ended July 2, in line with the median forecast in a Bloomberg survey.

China raises interest rates

China continued its tightening campaign on Wednesday. AFP/CNA reports:

China's central bank said Wednesday it will raise its benchmark deposit and lending rates by 25 basis points, the third rate hike this year, in the latest round of monetary tightening.

The move comes as the government places priority on fighting rising inflation and despite recent fears of an economic slowdown in China...

In a statement on its website, the People's Bank of China, the central bank, said it will raise the one-year yuan lending rate to 6.56 percent from 6.31 percent, and the one-year yuan deposit rate to 3.50 percent from 3.25 percent.

The ECB is expected to raise rates on Thursday, especially after an unexpected increase in German factory orders in May. From Bloomberg:

Factory orders in Germany, Europe’s largest economy, unexpectedly increased in May, led by domestic demand for investment goods such as machinery.

Orders, adjusted for seasonal swings and inflation, increased 1.8 percent from April, when they surged a revised 2.9 percent, the Economy Ministry in Berlin said in a statement today. Economists had forecast a drop of 0.5 percent, according to the median of 33 estimates in a Bloomberg News survey. In the year, orders rose 12.2 percent, when adjusted for work days.

However, data on the US services sector for June turned out weaker than expected. Bloomberg reports:

Service industries in the U.S. expanded at a slower pace in June, a sign the economy cooled at the end of the first half of 2011.

The Institute for Supply Management’s index of non- manufacturing businesses decreased to 53.3, less than projected, from 54.6 in May. Economists forecast the gauge would drop to 53.7, according to the median estimate in a Bloomberg News survey. A reading above 50 signals expansion.

Sweden hikes rate, Moody's downgrades Portugal

The Riksbank raised interest rates again on Tuesday. Bloomberg reports:

Sweden’s central bank raised its benchmark repurchase rate for the seventh time in a year and repeated a pledge to continue tightening policy as the country’s economic expansion withstands Europe’s debt crisis.

Policy makers raised the seven-day rate a quarter of a percentage point to 2 percent, the Stockholm-based Riksbank said today said in a statement. The move was expected by all 18 economists surveyed by Bloomberg. The bank maintained its outlook for the pace of continued rate increases.

Next to raise rates could be the ECB, although Tuesday brought further signs that the eurozone economy is slowing. From Bloomberg:

European services and manufacturing growth slowed more than estimated in June, as the region grappled with a worsening debt crisis.

A composite index based on a survey of euro-area purchasing managers in both industries fell to 53.3 from 55.8 in May, London-based Markit Economics said today. That’s the biggest drop since November 2008. Markit had initially reported a drop to 53.6. A reading above 50 indicates growth...

A manufacturing gauge fell to 52 from 54.6 in May, Markit said on July 1. That’s the lowest in 18 months. The services indicator dropped to 53.7 from 56 in the previous month, the weakest pace since October.

And from another Bloomberg report:

European retail sales declined the most in more than a year in May, as consumers from Germany to Ireland and Spain cut spending.

Sales in the 17-nation euro region slipped 1.1 percent from April, when they rose 0.7 percent, the European Union’s statistics office in Luxembourg, Eurostat, said today. That’s the biggest decline since April 2010. Economists had projected a drop of 1 percent, the median of 22 estimates in a Bloomberg News survey showed. Sales fell 1.9 percent from a year ago.

The euro area's main concern at the moment though remains sovereign debts. Developments on Tuesday on this front were also negative. From Bloomberg:

Moody’s Investors Service cut Portugal’s credit rating to below investment grade on concern the southern European country will need to follow Greece in seeking a second international bailout.

The long-term government bond ratings were lowered to Ba2, or junk, from Baa1, and the outlook is negative. Discussions to involve private investors in a new rescue plan for Greece make it more likely that the European Union will require the same pre-conditions in the case of Portugal, Moody’s said in a statement.

Europe was not the only place where Moody's raised concerns. From AFP/CNA:

China may have understated the debt burden of local governments by as much as US$541.6 billion, and the proportion of bad loans could be higher than previously forecast, ratings agency Moody's said Tuesday.

In a stern warning, Moody's warned the lack of a plan to tackle bad loans to local governments meant it could downgrade its outlook for Chinese banks to negative.

Amid these negative pieces of news on Tuesday were a few positive ones.

In the UK, the services PMI rose in June. Bloomberg reports:

U.K. services growth accelerated in June as the industry rebounded from a slowdown related to an additional public holiday. The pound erased its decline.

A gauge based on a survey of companies rose to 53.9 from 53.8 in May, Markit Economics Ltd. and the Chartered Institute of Purchasing and Supply said today in a report in London. Economists had forecast that the index would slip to 53.5, according to the median of 26 estimates in a Bloomberg News survey. A measure above 50 indicates expansion. A measure of new business fell in June.

In the US, factory orders rose in May. Bloomberg reports:

Orders placed with U.S. factories increased in May, indicating manufacturing may rebound from a slowdown in economic growth in the first half of 2011.

Bookings for manufacturers’ goods rose 0.8 percent, less than forecast, after a revised 0.9 percent decline in April that was smaller than previously estimated, figures from the Commerce Department showed today in Washington. Demand for durable goods that are meant to last at least three years increased 2.1 percent, while unfilled orders climbed the most since September.

Eurozone investor confidence rises

Bloomberg reports that investor confidence in the euro area has risen:

European investor confidence rose for the first time in four months in July after oil prices retreated and the economy gathered strength.

An index measuring sentiment in the 17-nation euro region rose to 5.3 from 3.5 in June, Limburg, Germany-based Sentix said in an e-mailed statement today. A gauge of current business conditions climbed to 19.25 from 18.50, while an indicator of expectations advanced to minus 7.75 from minus 10.50...

“It seems that the correction in commodity prices, in particular oil prices, is seen as a relief,” Sentix said in the statement. “Investors’ assessment certainly also profited from the approved support package for Greece.”

The fall in oil prices has helped drive down producer price inflation in the euro area. From Bloomberg:

European producer-price inflation slowed more than economists forecast in May as the economic recovery faltered and oil prices retreated.

Factory-gate prices in the euro region increased 6.2 percent from a year earlier after rising 6.7 percent in April, the European Union’s statistics office in Luxembourg said today. Economists had projected a gain of 6.3 percent, according to the median of 21 estimates in a Bloomberg news survey. Prices fell 0.2 percent from April, when they rose 0.9 percent.

However, resolution of the Greek debt problem may hit another stumbling block. From Bloomberg:

Europe’s effort to pull Greece back from the brink may result in a default rating by Standard & Poor’s, exposing a critical flaw in the drive to press creditors to assume a share of the bailout cost.

Standard & Poor’s said today a rollover plan serving as the basis for talks between investors and governments would qualify as a distressed exchange and prompt a “selective default” grade. That may leave the bondholders unwilling to complete the transaction and the European Central Bank unable to accept Greek government debt as collateral, impairing the lifeline it has provided the country’s banks.

Global manufacturing slowed in June

The global manufacturing sector slowed in June but the slowdown may already be about to end.

Last week's reports on purchasing managers surveys showed that manufacturing activity on the whole slowed in June. The JPMorgan Global Manufacturing PMI fell to 52.3 in June from 53.0 in May. Manufacturing slowed in most major economies around the world, the United States being a notable exception.

Manufacturing purchasing managers indices
	April	May	June
Global	55.0	53.0	52.3
US	60.4	53.5	55.3
Euro area	58.0	54.6	52.0
China	51.8	51.6	50.1
Japan	45.7	51.3	50.7
UK	54.4	52.0	51.3

Much of the slowdown in global manufacturing in the last two months was the result of supply disruptions in Japan following the earthquake and tsunami in March.

However, Japan itself is already starting to recover. After falling 15.5 percent in March, industrial production has risen by 1.6 percent and 5.7 percent in April and May respectively.

Japan's recovery should remove an important drag on the global manufacturing sector.

Manufacturing slows in Europe and Asia but accelerates in US

Manufacturing in the euro area slowed in June. Bloomberg reports:

European manufacturing expanded at the weakest pace in almost two years in June, adding to signs that the region’s economy is losing some momentum.

A manufacturing gauge based on a survey of purchasing managers in the 17-nation euro region fell to 52 from 54.6 in May, London-based Markit Economics said today. That’s the lowest in 18 months. A reading above 50 indicates growth.

Manufacturing also slowed in the UK. Reuters reports:

Britain's manufacturing sector expanded at its slowest pace in almost two years last month, a survey showed on Friday, as factories reduced hiring and new orders fell, reinforcing concerns about the health of the broader economic recovery.

The Markit/CIPS manufacturing PMI index sank to a 21-month low of 51.3 in June from May's downwardly revised 52.0, worse than the average forecast from economists that the index would hold steady at 52.1, the previously reported level for May.

It was the same story in Asia. AFP/CNA reports:

China's manufacturing activity fell to an 11-month low of 50.1 in June from 51.6 in May, the British banking giant said in a statement, confirming preliminary data released last week, as Beijing tries to tame soaring costs.

The country's official purchasing managers index also fell for the third straight month to 50.9 in June from 52.0 in May, the China Federation of Logistics and Purchasing said earlier Friday...

India's PMI fell to 55.3 in June from May's 57.5 marking its slowest pace so far this year while input costs rose.

However, US manufacturing proved an exception to the pattern in the rest of the world. Bloomberg reports:

U.S. manufacturing unexpectedly accelerated in June, supporting the Federal Reserve’s forecast that the economy will strengthen in the second half of 2011.

The Institute for Supply Management’s factory index rose to 55.3, the first gain in four months, from 53.5 in May, the Tempe, Arizona-based group said today. Economists projected a decrease to 52, according to the median forecast in a Bloomberg News survey. Figures greater than 50 signal expansion.

Other US data on Friday were not as positive though.

Confidence among U.S. consumers declined in June. The Thomson Reuters/University of Michigan said today its final index of sentiment fell to 71.5 from 74.3 in May.

The Commerce Department reported that construction spending in May dropped for a sixth straight month. The 0.6 percent decrease matched the previous month’s decline, which was initially reported as a gain.

However, Japan, which to a large extent drove the current slowdown in the rest of the world, could be seeing a recovery ahead. From AFP/CNA:

Japanese business confidence plunged in the months after the March 11 earthquake, turning negative for the first time in over a year, the Bank of Japan said in its quarterly Tankan survey on Friday.

But firms expect conditions to improve by September and analysts said plans to increase capital spending signalled recovery hopes even amid uncertainty due to looming power shortages following the crisis at the tsunami-ravaged Fukushima Daiichi nuclear plant.

Large manufacturer sentiment in June dropped to "minus 9" from "6" in March, a plunge of 15 points and the first negative reading in five quarters...

The survey showed that big companies expected sentiment to improve to plus two in the next survey in September, and boost capital spending by 4.2 per cent in the current fiscal year.

Other Japanese data on Friday also indicate an improving economy. Again from AFP/CNA:

Japan's core consumer prices rose by a higher than expected 0.6 percent in May from a year earlier, boosted by increased energy prices, government data showed on Friday...

In separate data, Japan's unemployment rate fell to 4.5 percent in May from 4.7 percent in the previous month, with figures from disaster-hit northeastern Japan excluded, the government said.

The internal affairs ministry said that household spending in May fell by an inflation-adjusted 1.9 percent from a year earlier, a smaller drop than April's 3.0 percent fall and an 8.5 percent dive in March.

Markets rise on Greek vote

Markets were buoyant on Thursday as the Greek parliament voted for austerity for a second consecutive day. Reuters reports:

World stocks rose to a one-month high and the euro closed out a second straight quarter of gains against the dollar on Thursday as Greece approved the final austerity measures needed to secure international funding and avert imminent bankruptcy...

The Greek Parliament approved on Thursday detailed austerity and privatization bills required by the European Union and the International Monetary Fund in exchange for emergency funding.

The price of copper, a key industrial metal, ended at a two-month high as appetite for risk rose. Three-month copper on the London Metal Exchange closed at $9,430 a tonne -- its highest price since the end of April...

In equity markets, the MSCI All-Country World Index climbed 1.3 percent to its highest level since June 2.

Positive data on the US economy helped market sentiment.

Factory activity in the U.S. Midwest accelerated in June, fostering hopes for a pick-up in economic growth in the third quarter, despite signs of lingering weakness in the labor market.

The Institute for Supply Management-Chicago said on Thursday that its business barometer jumped to 61.1 after slowing abruptly to 56.6 in May. The gain defied economists' expectations for a drop to 54...

But optimism was tempered somewhat by a separate report from the Labor Department showing initial claims for state unemployment benefits slipped just 1,000 to 428,000 last week. Economists had expected claims to drop to 420,000...

The brightening manufacturing picture was enhanced by a Kansas City Fed survey that showed factory production in its region rebounded strongly this month after slumping in May.

There were also signs on Thursday that US home prices are rebounding.

Home prices rose for the second month in a row in May but fell compared to a year earlier, data analysis company CoreLogic said on Thursday.

CoreLogic's home price index rose 0.8 percent in May from the month before, though prices were still down 7.4 percent from a year ago. Excluding distressed sales, prices declined just 0.4 percent year-over-year.

In the UK though, house prices stagnated in June.

House prices in England and Wales held steady in June, and this trend of broadly static prices is likely to continue for the rest of the year, mortgage lender Nationwide said on Thursday.

Nationwide's June house price index showed no change on the month, compared to a 0.3 percent rise in May, and was 1.1 percent lower on the year.

However, consumer prices in the euro area continued to rise.

The European Union's statistics office said consumer prices in the 17 countries using the euro were 2.7 percent higher in June than a year earlier, the same as in May. Economists polled by Reuters had forecast a figure of 2.8 percent...

Euro zone money supply growth accelerated in May, while growth of loans to the private sector in the euro zone rose.

Unemployment in Germany -- Europe's largest economy -- fell less than expected and German retail sales dropped at their fastest rate in four years in May, though economists said an E.coli outbreak that led to a fall in food sales was a major factor.