BoJ announces more monetary stimulus as factory production falls

The Bank of Japan announced more monetary easing after its monetary policy meeting on Tuesday. The BoJ kept interest rates unchanged at between zero and 0.1 percent but said it would expand its asset-purchase programme by 11 trillion yen to 91 trillion yen.

The additional stimulus come as the economic growth forecast for the fiscal year to March was revised down to 1.5 percent, well down from an earlier 2.2 percent estimate. Prices are also forecast to fall 0.1 percent in the year to March instead of rise 0.2 percent.

The forecast downgrades also comes as a report on Tuesday showed that Japanese factory production fell 4.1 percent in September, while a survey of manufacturers showed that production was expected to decline by another 1.5 percent in October before rising 1.6 percent in November.

Corroborating evidence for the weakness in manufacturing came today from the manufacturing PMI, which fell to 46.9 in October, an 18-month low, from 48.0 in September.

The euro area was also hit by negative economic data on Tuesday.

The European Commission's economic sentiment indicator for the euro area fell to 84.5 in October from 85.2 in September.

Spain's economy contracted 0.3 percent in the third quarter.

The number of Germans out of a job rose by 20,000 in October, although the unemployment rate held steady at 6.9 percent.

Not for the first time recently, the US proved the exception to the negativity. A report on Tuesday showed that US home prices rose 2.0 percent in August from a year ago, the biggest gain since July 2010, according to the S&P/Case-Shiller index.

Still, there was not much cheer in the US on Tuesday after the devastation wreaked by Hurricane Sandy along the east coast.

US consumer spending and UK consumer credit rise

September was apparently a good time for consumers in the US and UK to spend.

A report on Monday showed that US consumer spending rose 0.8 percent in September while income rose 0.4 percent. After adjusting for inflation, spending rose 0.4 percent but disposable income was little changed.

In the UK, a report on Monday showed that consumer credit rose by 1.199 billion pounds in September, the strongest rise since February 2008. Mortgage approvals rose to 50,024 in September from 47,921 in August.

Japanese consumers pulled back in September though. A report today showed that although Japan's jobless rate stood unchanged at 4.2 per cent in September, household spending fell 0.9 per cent in September from the previous year after having risen 1.8 percent in August.

US third quarter GDP report shows no recession for now

According to the advance estimate from the Commerce Department, the US economy grew at a 2.0 percent annual rate, accelerating from the 1.3 percent growth rate in the second quarter.

Bill McBride thinks the US economy is likely to avoid a recession in the near future.

The key story is that residential investment is continuing to increase, and I expect this to continue (although the recovery in RI will be sluggish compared to previous recoveries). Since RI is the best leading indicator for the economy, this suggests no recession this year or in 2013 (with the usual caveats about Europe and policy errors in the US).

However, James Hamilton finds little encouraging in the third quarter GDP report.

The biggest boost to third quarter growth came from federal military spending, which all by itself added 0.64 percentage points to the 2.0% total growth. Possibly this represented spending in anticipation of sequestration to come, in which case it could be more than matched by a corresponding negative entry this quarter or next. Nonresidential fixed investment subtracted 0.1%-- not a huge drag, but a very worrisome development.

John Hussman goes one step further and says that the US economy is in “an unrecognized recession that started about mid-year” and that the growth rate reported for the third quarter is likely to eventually be revised downward.

US growth accelerates in third quarter as euro area reports mixed data

The US economy performed better than expected in the third quarter.

An advance estimate by the Commerce Department released on Friday showed that the economy grew at a 2 percent annual rate after having grown 1.3 percent in the second quarter. Economists surveyed by Bloomberg had estimated a growth rate of 1.8 percent for the third quarter.

In another piece of good news for the US economy on Friday, the Thomson Reuters/University of Michigan final consumer sentiment index for October came in at 82.6, the highest since September 2007, and up from 78.3 in September.

German consumer confidence is also improving. GfK said on Friday that its consumer confidence index for Germany will rise to 6.3 in November, the highest in five years, from 6.1 in October.

Other eurozone economic data on Friday were mixed though.

French consumer confidence deteriorated in October, INSEE's consumer confidence index falling to 84 from 85 in September.

In Italy, Istat's composite business confidence climate index increased to 76.6 from 76.0 in September.

But in Spain, the unemployment rate hit a record high of 25 percent in the third quarter amid a series of spending cuts by the government.

In contrast, Japan is providing a fresh round of fiscal stimulus. The government on Friday approved a US$5.3 billion cash injection to boost the economy.

The stimulus comes as a report on Friday showed that Japan's core consumer prices fell 0.1 percent from a year ago in September.

UK economy returns to growth, US growth improves

The UK economy rebounded in the third quarter, thanks to the Olympics.

The Office for National Statistics reported on Thursday that the economy grew 1.0 percent after having shrunk 0.4 percent in the second quarter. The statistics office estimated that Olympics ticket sales accounted for a fifth of the increase while economists estimate that a rebound from the output lost due to an extra holiday in June to celebrate the Queen's Diamond Jubilee added another 0.5 percentage points.

US economic data on Thursday were mixed.

The Chicago Federal Reserve reported that its National Activity Index rose to 0.00 in September from -1.17 in August. The index’s three-month moving average increased to -0.37 in September from -0.53 in August.

A report from the Commerce Department showed that durable goods orders jumped 9.9 percent in September, the biggest gain in more than two and a half years, after having plunged 13.1 percent in August, the largest decline in three years.

A surge in aircraft orders drove the increase in September. Excluding transportation, new orders for durable goods rose 2.0 percent in September. Orders for non-defense capital goods excluding aircraft were flat.

Another report on Thursday showed that pending home sales in the US rose 0.3 percent in September after having declined 2.6 percent in August.

Fed policy unchanged as US new homes sales jump

The Federal Reserve made no change to monetary policy on Wednesday. It noted that the economy is still growing modestly and unemployment remains elevated.

Housing in the US, meanwhile, continues to recover. A report on Wednesday showed that new home sales rose 5.7 percent to a 389,000 annual pace, the highest since April 2010.

There was also good news for US manufacturing on Wednesday. A preliminary reading from Markit showed that its US manufacturing PMI rose to 51.3 in October from 51.1 in September.

Manufacturing in China also showed signs of improvement. A preliminary report from HSBC on Wednesday showed that its China manufacturing PMI rose to 49.1 this month, the highest level in three months, from 47.9 in September.

However, there was no relief for the euro area. Markit's composite index for the euro area fell to 45.8 in October, the lowest in more than three years, from 46.1 in September. The manufacturing index fell to 45.3 from 46.1 while the services index edged up to 46.2 from 46.1.

Germany was also hit, its manufacturing index falling to 45.7 in October from 47.4 in September and its service index falling to 49.3 from 49.7.

Further evidence of deterioration in Germany's economy came from the Ifo institute, who reported on Wednesday that its business climate index fell to 100.0 in October from 101.4 in September.

Markets fall, Spanish economy contracts in third quarter

Markets fell on Tuesday, with the MSCI All-Country World Index falling 1.5 percent.

European stocks were hit especially hard, with the STOXX Europe 600 Index falling 1.7 percent.

European economic data were mostly negative.

The Bank of Spain reported that the Spanish economy shrank 0.4 percent in the third quarter, the same rate as in the second quarter.

An index of confidence among French factory executives fell to 85 in October, the lowest since August 2009, from 90 in September.

In Belgium, the business confidence index fell to -13.5 in October from -11.6 in September.

However, the eurozone consumer confidence indicator edged up to -25.6 in October from -25.9 in September.

Outside the euro area, the number of mortgage approvals for house purchases in the UK increased to 31,175 in September from 30,683 in August.

US stocks outperform as Fed easing pushes valuations above historical norms

Bloomberg reports that US stocks are beating every major asset class for the first time in 17 years.

The Standard & Poor’s 500 Index has rallied 14 percent in 2012, beating Treasuries, corporate bonds, commodities, the dollar and equities in Asia and Europe, data compiled by Bloomberg show. The last time that happened, in 1995, the S&P 500 was posting the biggest annual advance of the last five decades. With a price-earnings ratio close to today’s level, the index gained another 93 percent in the next 2 1/2 years.

However, Brett Arends says stocks may actually have become expensive by historical standards.

Over the past 130 years, U.S. stocks on average have traded at about 17 times mean earnings for the previous 10 years—a measure known as the "Shiller Price/Earnings Ratio" after Yale economics professor Robert Shiller, who tracks the data. Today the market is about 22 times those earnings, a level associated with frothy markets such as 1929, the mid-1960s, and most of the period from 1995 to 2008.

Another measure, "Tobin's q," also suggests stocks might be in dangerous territory. Tobin's q, named for the late Nobel economics laureate James Tobin, measures stock valuations against the cost of replacing companies' assets. Right now the reading is 0.92, about 50% above the long-term historical average. Stock returns from these levels have usually been subpar.

Barry Ritholtz says that the Federal Reserve's quantitative easing has “made riskless assets much less attractive” and “forced managers into equities beyond what is normally prudent”.

The Fed’s impact on asset prices will eventually attenuate. Those of you who are playing along at home, make sure you have some set of parameters to alert you to evidence of when the Fed’s punchbowl has gone non-alcoholic so you can reduce your equity exposure substantially.

We continue to get closer to that point, but we are not quite there yet . . .

Japan's economy shows weakness as exports fall again

Japan's exports fell again in September, adding to the weak trend in Japanese economic indicators recently.

Today, the Finance Ministry reported that Japan had a trade deficit of 558.6 billion yen in September after exports fell 10.3 percent from a year earlier while imports rose 4.1 percent.

It was the fourth consecutive year-on-year decline in exports, the third consecutive monthly trade deficit and the first trade deficit for the month of September since 1979.

Exports to the economically-troubled European Union dived 21.1 percent.

Exports to China, with whom a territorial dispute has recently flared, fell 14.1 percent.

Exports to the United States managed to rise, albeit by just 0.9 percent.

The latest weak trade figures followed a report last Friday showing that the coincident index of economic indicators fell to 93.5 in August from 93.8 in July, the fifth consecutive monthly decline.

The leading index did edge up to 93.2 in August from 93.0 in July, though, after having declined for the previous four consecutive months.

The broad trend in Japan's economic indicators, though, remains clearly down.

US existing home sales fall, markets drop

A report from the National Association of Realtors on Friday showed that US existing home sales fell 1.7 percent in September. This was in line with expectations though.

Significantly, the median price rose 11.3 percent from a year ago, the biggest year-over-year gain since November 2005, and the supply of existing homes fell 3.3 percent to 2.32 million, the fewest for any September since 2002. Supply now constitutes 5.9 months of sales, the lowest since March 2006.

Despite the fall in sales, Bill McBride sees this as a “solid report” due to the decline in inventory.

Markets did not positively on Friday though. From Bloomberg:

U.S. stocks slid the most since June and Treasuries rose as companies from General Electric (GE) Co. to McDonald’s Corp. and Microsoft Corp. posted results below estimates and euro-area leaders failed to discuss aid for Spain at a summit. Metals and oil led a slump in Commodities.

The Standard & Poor’s 500 Index fell 1.7 percent at 4 p.m. in New York, its worst drop since June 21, as GE, McDonald’s and Microsoft lost at least 2.9 percent. The Stoxx Europe 600 Index declined 0.8 percent, paring its advance this week to 1.7 percent. Ten-year Treasury yields fell seven basis points to 1.76 percent after rising for four straight days. The euro weakened against the dollar for a second day while copper and oil dropped more than 2 percent.

China's economy shows signs of stabilising

A report on Thursday showed that China's economic growth slowed to 7.4 percent in the third quarter from 7.6 percent in the previous quarter.

However, other data indicated that the economy may be stabilising. Industrial production rose 9.2 percent in September from a year ago compared with 8.9 per cent in August. Retail sales rose 14.2 percent, up from 13.2 percent in August. Fixed-asset investments rose 20.5 percent in the first nine months of the year compared with 20.2 per cent in the first eight months.

“Judging from figures in the third quarter and particularly in September, the signs that the national economy is stabilising are clearer,” National Bureau of Statistics spokesman Sheng Laiyun said.

However, home prices in China slowed in September, although this too is probably welcomed by a government that has been trying to cool property prices. Prices in 31 out of 70 cities tracked by the government rose in September, down from 35 cities in August.

Elsewhere in the world, the UK reported on Thursday that retail sales rose 0.6 percent in September while in the US, the Conference Board's index of leading indicators rose 0.6 percent in September.

US housing starts surge, UK employment hits record high

The positive dataflow in the US continued on Wednesday with housing starts reportedly surging 15.0 percent in September to an annual rate of 872,000, the highest since July 2008. Building permits grew 11.6 percent to a 894,000-unit annual rate.

There was also good news from the UK on Wednesday. Claims for jobless benefits fell by 4,000 in September and the unemployment rate for June to August fell to 7.9 percent from 8.1 percent in the prior three months. The employment level rose to 29.590 million, the highest since records began in January-March 1971.

Even the euro area had positive data to report on Wednesday. Construction production rose 0.7 percent in August, the second consecutive increase after output had risen 0.1 percent in July.

Perhaps more significantly for the euro area, Spanish bonds rose on Wednesday, pushing the 10-year yield down 34 basis points to 5.46 percent, the lowest since 4 April, after Moody’s Investors Service kept the country’s credit rating at investment grade.

US industrial production and home builders sentiment rise, Spain retains credit rating

Tuesday brought more positive economic data from the US. Industrial production rose 0.4 percent in September after having fallen 1.4 percent in August. The National Association of Home Builders/Wells Fargo builder sentiment index increased to 41 this month, the highest since June 2006, from 40 in September.

Meanwhile, though, inflation in the US has accelerated. The consumer price index rose 0.6 percent in September for a second consecutive month.

In the euro area, consumer prices rose 0.7 percent in September but the 12-month rate of increase was unchanged at 2.6 percent. Euro-area exports rose 3.7 percent in August, more than reversing the 2.2 percent fall in July.

In the UK, the inflation rate fell to 2.2 percent in September, the lowest in almost three years, from 2.5 percent in August.

Markets were positive on Tuesday, boosted by the positive US economic data as well as news that German lawmakers were open to Spain seeking a precautionary credit line from Europe’s rescue fund.

In further good news for Spain, Moody’s retained its Baa3 rating for the country's bonds. However, the rating was assigned a negative outlook.

US retail sales rise as household debt payments fall

Monday provided more evidence that the consumer is helping to hold up US economic growth. Retail sales rose 1.1 percent in September, with electronics sales in particular rising 4.5 percent.

Bloomberg has an article saying that consumers' better financial health puts them in position to boost the economy.

Three-plus years into a recovery from the worst financial crisis since the Great Depression, Americans finally are getting their finances back into shape, Federal Reserve figures show. Household debt as a share of disposable income sank to 113 percent in the second quarter from a record high of 134 percent in 2007 before the recession hit. Debt payments on that basis are the smallest in almost 18 years, while the delinquency rate for credit cards is the lowest since the end of 2008.

“The household deleveraging process is largely over,” said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “Credit use should soon go from being a significant headwind to the economy to a tailwind.”

However, longer term, it is less clear that the deleveraging process is over.

Some economists, including Harvard University professor Kenneth Rogoff and former Fed official Nathan Sheets, say the deleveraging process still has years to run. While debt as a share of income has fallen from its peak, the second quarter’s 113 percent was above the 94 percent average since 1980.

Meanwhile, there was also good news from Europe on Monday, where Greek government bonds rose, pushing the 10-year yield 47 basis points down to 17.58 percent.

However, Japan on Monday published data showing that industrial production fell 1.6 percent in August, worse than the initially-reported 1.3 percent decline.

Bernanke defends QE as China restricts monetary stimulus

The Federal Reserve's quantitative easing often attracts criticism in the United States but Sunday saw him defending it to an international audience. From Bloomberg:

Federal Reserve Chairman Ben S. Bernanke tried to refute arguments the U.S. central bank’s record stimulus is causing destabilizing flows of capital to emerging-market economies.

“It is not at all clear that accommodative policies in advanced economies impose net costs on emerging market economies,” Bernanke said today in prepared remarks for a seminar in Tokyo on the last day of International Monetary Fund annual meetings.

His comments contrasted with those of IMF Managing Director Christine Lagarde, who told the same audience that such easing is likely to cause large and volatile flows that risk leading to “overheating, asset-price bubbles and the build-up of financial imbalances” in emerging economies, even as she applauded Fed efforts to boost growth...

Brazilian Finance Minister Guido Mantega vowed in a statement delivered at the IMF’s annual meeting to do whatever is necessary to stop the “selfish” monetary policies of some developed nations from hurting his country’s economy...

Philippine central bank Governor Amando Tetangco said in an interview in Tokyo last week that he is “watchful” of the challenges to monetary policy in emerging markets presented by the Fed’s actions. China also expressed concern at the possible side-effects of quantitative easing.

Meanwhile, China may not be as eager to ease monetary policy. While a report today showed that China's inflation rate slowed to 1.9 percent in September from 2.0 percent in August, other reports over the weekend showed that the economy is not falling off a cliff. From Bloomberg:

China’s exports and money supply grew more than estimated in September, signaling that the world’s second-biggest economy may be stabilizing after a slowdown that began in the first quarter of 2011.

Overseas shipments increased 9.9 percent from a year earlier, the customs administration said Oct. 13 in Beijing. That was more than the 5.5 percent median estimate in a Bloomberg News survey of economists. M2 money supply gained 14.8 percent, the fastest pace since June 2011, a central bank report showed the same day.

Indeed, China's central bank appears to remain wary of asset and consumer price inflation.

... At an International Monetary Fund meeting in Tokyo yesterday, central bank official Yi Gang said that bubble risks remain in housing markets in major cities and stimulus will be restricted to an “appropriate” level...

Yi said yesterday that while this year’s inflation rate is “fine” and may be 2.7 percent for the full year, longer-term threats are from agricultural costs and prices for imported raw materials, commodities and energy, which can be driven up by global monetary easing.

US consumer sentiment highest in 5 years

Economic reporting for the week ended on a positive note.

In the US, the Thomson Reuters/University of Michigan's preliminary October reading of the consumer sentiment index came in at 83.1, the highest since September 2007 and up from 78.3 the month before. The Economic Cycle Research Institute's weekly leading index rose to 127.7 last week from 126.2 the previous week while its growth rate accelerated to 5.7 percent, its highest since May 2011, from 4.6 percent.

With the economy showing signs of buoyancy, inflation may be slow to fall. The producer price index rose 1.1 percent in September.

The euro area also had positive news on Friday, with industrial production showing 0.6 percent growth in August, the same rate as in July.

Meanwhile, Chinese bank lending fell to 623.2 billion yuan in September, down from 703.9 billion yuan in August. However, the September figure is still much higher than the 540.1 billion yuan reported for July.

Japanese machinery orders fall, US trade deficit widens, Brazil and Korea cut rates

Japanese data continued to indicate a weak economy on Thursday. Core machinery orders fell 3.3 percent in August, reversing much of the previous month's 4.6 percent increase. The consumer confidence index fell to 40.1 in September from 40.5 in August.

US data on Thursday were mixed. The trade deficit widened in August as exports fell 1 percent in August and imports decreased 0.1 percent. However, claims for jobless benefits fell 30,000 to 339,000 last week, the fewest since February 2008. Another report on Thursday showed that import prices rose 1.1 percent in September for a second month.

Meanwhile, though, inflation in Europe is mostly moderating. In Germany, inflation slowed to 2.1 percent in September from 2.2 percent in August. In France, inflation slowed to 2.2 percent in September from 2.4 percent in August.

Slowing inflation means central banks will continue to ease monetary policy. On Wednesday, Brazil's central bank cut its benchmark interest rate for the tenth straight time to 7.25 percent, a record low. That was followed on Thursday by South Korea's central bank cutting its key interest rate by 25 basis points to 2.75 percent.

S&P downgrades Spain, markets fall

Standard & Poor’s downgraded Spain's credit rating two levels to BBB-, just one level above junk, from BBB+ on Wednesday.

However, economic data from Europe on Wednesday were surprisingly good. Industrial production jumped in August in France and Italy by 1.5 percent and 1.7 percent respectively.

In the US, the Federal Reserve's Beige Book reported that the economy expanded “modestly” last month.

Still, markets fell on Wednesday. The MSCI All-Country World Index fell 0.6 percent, its third consecutive decline. The S&P 500 also fell 0.6 percent to close at 1,432.63, its lowest level in a month.

UK third quarter growth fastest in five years

The UK economy grew 0.8 percent in the third quarter, the fastest pace in five years, according to the National Institute of Economic and Social Research. However, this was because the previous quarter had been distorted by June’s extra public holiday for Queen Elizabeth II’s Diamond Jubilee.

Economic data for August released on Tuesday suggest that underlying growth is probably weaker. Industrial output fell 0.5 percent, driven by a 1.1 percent fall in manufacturing output. The goods-trade deficit widened as exports fell 4.0 percent and imports rose 4.5 percent.

Meanwhile, Japan was able to report a rise in its current account surplus in August despite a third straight month of decline in exports when compared to a year ago.

However, Japan's economy remains weak, with the sentiment index from the economy watchers survey falling to 41.2 in September from 43.6 in August. The future conditions index fell to 43.5 from 43.6.

IMF cuts global growth forecast

The International Monetary Fund has cut its global growth forecasts to 3.3 percent for this year and 3.6 percent for next year from 3.5 percent and 3.9 percent respectively in its July forecasts.

Monday's economic reports, though, were relatively encouraging.

In China, HSBC's services PMI rose to 54.3 in September from 52.0 in August.

In Germany, industrial production fell 0.5 percent in August but exports increased 2.4 percent.

US and eurozone economies continue to diverge

Economic data released last week indicate that the United States economy probably continued to grow in the third quarter but the euro area probably fell into recession.

Surveys of purchasing managers around the world showed that global economic activity accelerated in September. The JPMorgan global all-industry output index rose to 52.5 last month from 50.9 in August.

JPMorgan Global All-Industry Indices
	August	September
Output	50.9	52.5
New orders	49.8	51.6
Input prices	56.2	58.0
Employment	50.9	49.9

The improvement in global output was mainly driven by the US. Manufacturing there returned to expansion in September with the Institute for Supply Management's manufacturing PMI rising to 51.5 from 49.6 in August, the first time since May that it has been above 50. The non-manufacturing index also rose to 55.1 last month from 53.7 in August.

In the euro area, manufacturing also improved in September with Markit's manufacturing PMI rising to 46.1 from 45.1 in August. However, the services business activity index fell to 46.1 last month from 47.2 in August. The weakness in services pulled the composite output index for the euro area down to 46.1 in September from 46.3 in August.

Chris Williamson, Markit's chief economist, said in his report on the purchasing managers' survey on the euro area that it “seems inevitable that the region will have fallen back into recession in the third quarter”.

It was a similar picture for Japan. In the previous week, a report had shown that the Markit/JMMA manufacturing PMI rose to 48.0 in September from 47.7 in August. However, a report last week showed that the services business activity Index fell to 48.9 in September from 49.3 in August. The composite output index for Japan fell to 48.4 last month from 48.6 in August.

Things were little better in China. Manufacturing improved in September but remained in contraction. The manufacturing PMI from the China Federation of Logistics and Purchasing and the National Bureau of Statistics rose to 49.8 in September from 49.2 in August while HSBC's manufacturing PMI rose to 47.9 from 47.6. The services PMI from the National Bureau of Statistics and China Federation of Logistics and Purchasing fell to 53.7 in September though from 56.3 in August.

Beyond the purchasing managers surveys, other economic data released last week also pointed to resilience in the US and weakness elsewhere.

In the US, the employment report on Friday showed that the economy added 114,000 jobs in September after having added 142,000 jobs in August and 181,000 in July. The average of 146,000 jobs added per month in the third quarter matches the average for 2012 so far.

The employment report also showed that the US unemployment rate fell to 7.8 percent in September from 8.1 percent in August. This brings the unemployment rate to its lowest level since January 2009.

In contrast, a report last week showed that unemployment in the euro area was 11.4 percent in August, having stayed unchanged since June. This is the highest unemployment rate since the data series started in 1995, showing a clear divergence from the trend of declining unemployment seen in the US.

Japanese data outside of the purchasing managers data were mixed. The index of coincident economic indicators fell 0.2 point in August but the index of leading economic indicators rose 0.6 point. The diffusion index for large manufacturers from the Bank of Japan's quarterly Tankan survey fell to minus three in September from minus one in June but the index for non-manufacturers was unchanged at 8.

US unemployment falls to lowest since January 2009

Economic data on Friday were mixed.

In the US, the unemployment rate fell to 7.8 percent in September. This was down by 0.3 percentage point from the previous month and its lowest level since January 2009.

The US economy added 114,000 workers in September while revisions added a combined 86,000 jobs to the prior two months.

In Japan, the index of coincident economic indicators fell 0.2 point in August. However, the index of leading economic indicators rose 0.6 point.

In Germany, factory orders fell 1.3 percent in August.

ECB, BoE and BoJ refrain from further easing measures

Despite three monetary policy meetings by major central banks over the past two days, there was very little new action.

In the euro area, the European Central Bank kept its main interest rate on hold at 0.75 percent on Thursday, with President Mario Draghi saying that the ECB will not start intervening in bond markets until governments like Spain request a bailout and agree to conditions.

The Bank of England also kept its policy rate unchanged at 0.5 percent after its monetary policy meeting on Thursday and announced no new bond buying.

And today, the Bank of Japan kept interest rates unchanged at between zero and 0.1 percent and announced no addition to its asset-purchase programme.

There was no monetary policy meeting in the US but the Federal Reserve did release the minutes to its last meeting, which appeared to signal a move towards linking its outlook for interest rates to specific economic conditions such as a decline in the unemployment rate.

Data on Thursday certainly did not suggest an imminent end to the current accomodative Fed policy. US factory orders fell 5.2 percent in August, the biggest decline since January 2009.

US services accelerate, rest of world deteriorates

Reports on Wednesday showed that the US economy remained relative buoyant in September. In fact, the Institute for Supply Management’s non-manufacturing index rose to 55.1 last month from 53.7 in August while ADP Employer Services reported that private payrolls increased 162,000 last month.

The same cannot be said of the rest of the world's economies.

Services industries from Asia to Europe cooled last month. The services PMI from the National Bureau of Statistics and China Federation of Logistics and Purchasing fell to 53.7 in September from 56.3 in August. In the euro-area, Markit's services PMI fell to 46.1 last month from 47.2 in August, pulling the composite index for the euro-area down to 46.1 from 46.3. The UK services PMI fell to 52.2 in September from 53.7 in August.

Euro-area retail sales did rise 0.1 percent in August though.

Still, the Asian Development Bank has lowered its 2012 growth forecast for Asia excluding Japan down to 6.1 percent, the slowest since 2009, from 6.6 percent.

RBA cuts interest rates, UK house prices and construction activity fall

The Reserve Bank of Australia cut interest rates by a quarter point to 3.25 percent on Tuesday. Reuters reports:

"The Board judged that, on the back of international developments, the growth outlook for next year looked a little weaker," Reserve Bank of Australia (RBA) Governor Glenn Stevens said after the central bank's monthly policy meeting.

"The Board therefore decided that it was appropriate for the stance of monetary policy to be a little more accommodative."

Data from the UK on Tuesday certainly pointed to weak growth.

UK house prices fell 0.4 percent in September according to Nationwide. So despite the 1.1 percent bounce in August, house prices are now 1.4 percent below last September's level.

As house prices fall, construction activity contracted. The Markit/CIPS construction PMI rose to 49.5 in September from 49.0 in August, remaining below 50 for a second consecutive month.

Another report on Tuesday from the British Chambers of Commerce showed that firms are scaling back investment and hiring plans.

Manufacturing returns to expansion in US but recession looms in euro area and Japan

US manufacturing ended its contraction in September, according to a report from the Institute for Supply Management on Monday. The latter's manufacturing PMI rose to 51.5 last month from 49.6 in August. It was the first time since May that the PMI has been above 50.

Another index of US manufacturing released on Monday also pointed to expansion. Markit's manufacturing PMI fell to 51.1 in September from 51.5 in August. The September reading, however, was the lowest in three years.

Another report from the US on Monday showed that construction spending fell 0.6 percent in August, the largest drop since July last year.

In the euro area, the manufacturing contraction eased a little in September as Markit's manufacturing PMI rose to 46.1 from 45.1 in August.

Despite the improvement, Chris Williamson, Markit's chief economist, said in his report on Monday that it “seems inevitable that the region will have fallen back into a new recession in the third quarter”.

Further evidence of recessionary conditions in the euro area was another report on Monday showing that unemployment in the euro area hit 11.4 percent in August, the same as in June and July after those months’ figures were revised higher. That is the highest unemployment rate since the data series started in 1995.

Elsewhere in Europe, the UK's economic reports on Monday were mostly negative. Manufacturing shrank again in September with the CIPS/Markit PMI falling to 48.4 from 49.6 in August. Mortgage lending dropped by 276 million pounds last month, the sharpest decline since December 2010.

Chinese manufacturing did improve in September but remained in contraction. The manufacturing PMI from the China Federation of Logistics and Purchasing and the National Bureau of Statistics rose to 49.8 in September from 49.2 in August.

Finally, the Bank of Japan's quarterly Tankan survey found sentiment among large manufacturers fell to minus three in September from minus one in June, increasing fears that the economy may be entering a recession.

Global economy looking weak in third quarter

Reports last week suggest that the global economy continued to weaken in the third quarter.

In the United States, the latest estimate of second quarter gross domestic product released last week showed that the economy grew 1.3 percent, less than the previous estimate of 1.7 percent.

There has probably been no improvement in the third quarter. A report from the Chicago Federal Reserve at the beginning of last week showed that its national activity index fell to -0.87 in August from -0.12 in July.

The three-month moving average of the index fell to -0.47 in August from -0.26 in July. That is its lowest reading since June 2011. It is also the same as when the economy last entered recession in December 2007.

Recent economic weakness in the US has been driven by manufacturing and data last week suggest that this will continue. Durable goods orders plunged 13.2 percent in August. This was mainly due to a 34.9 percent fall in transportation orders. However, even excluding transportation, orders fell 1.6 percent.

However, consumer spending may help to keep the economy growing in the third quarter. Although real personal consumption expenditures rose just 0.1 percent in August, consumer sentiment improved in September. The Conference Board’s consumer confidence index rose to 70.3 in September, the highest level in seven months, from 61.3 in August, while the Thomson Reuters/University of Michigan consumer sentiment index rose to 78.3 last month from 74.3 in August.

If US economic data last week looked weak, it was no better elsewhere.

In the euro area, the European Commission's economic sentiment indicator fell to 85.0 in September from 86.1 in August. It was the seventh consecutive fall in the indicator and brings it down to the lowest level in three years.

Data last week painted a similar picture for the Japanese economy. Industrial production there fell 1.3 percent to a 15-month low in August, with a survey by the Ministry of Economy, Trade and Industry showing that output was expected to fall again by 2.9 percent in September before stabilising in October.

Finally, in China, HSBC's manufacturing purchasing managers index rose to 47.9 in September from 47.6 in August. While an improvement, it was the 11th consecutive month that the index has stayed below 50, indicating contraction in the manufacturing sector.