Eurozone economic confidence and US durable goods orders ex transport rise

Economic data on Wednesday were mostly positive.

In Europe, the UK economy was confirmed to have shrunk 0.3 percent in the last quarter of 2012 but economic sentiment in the euro area has been improving. The European Commission's economic sentiment indicator rose for a fourth straight month to 91.1 in February from 89.5 in January.

Meanwhile, Italy managed to sell the maximum planned amount of 4 billion euros of 10-year bonds on Wednesday despite the political uncertainty following its latest election. However, the bonds were sold at a yield of 4.83 percent, the highest in four months.

In the US, a report on Wednesday showed that durable goods orders excluding transportation equipment rose 1.9 percent in January, the biggest gain since December 2011. Capital goods orders excluding defense and aircraft jumped 6.3 percent in January, also the most since December 2011.

Total orders for durable goods plunged 5.2 percent in January though. The total was pulled down by a 63.8 percent slump in orders for defense aircraft and parts following a 58.5 percent surge the prior month.

Another report from the US on Wednesday from the National Association of Realtors showed that its pending home sales index rose 4.5 percent to 105.9 in January, the highest level since April 2010.

US new home sales, home prices and consumer confidence jump

Economic data on Tuesday show that the US housing market is continuing to recover.

New home sales surged 15.6 percent in January to the highest level since July 2008. The increase in January was the biggest since April 1993.

The S&P/Case Shiller composite index of home prices in 20 cities jumped 6.8 percent in December from a year earlier, the biggest gain since July 2006.

To add to the positive newsflow, the Conference Board’s consumer confidence index jumped to 69.6 in February from 58.4 in January and the Federal Reserve Bank of Richmond’s factory index showed a return to expansion in February after a contraction in January.

US stocks rebounded on Tuesday on the positive data as well as comments by Federal Reserve Chairman Ben Bernanke that suggested to some that monetary policy is not likely to be tightened soon. Reuters reports on Bernanke's testimony to Congress:

Federal Reserve Chairman Ben Bernanke strongly defended the U.S. central bank's monetary stimulus before Congress on Tuesday, easing financial market worries over a possible early retreat from bond buys...

"To this point, we do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery and more rapid job creation," Bernanke told the Senate Banking Committee.

Markets fall following Italian elections

An inconclusive Italian election on Monday left markets with more uncertainty. While the STOXX Europe 600 fell just 0.1 percent, the S&P 500 fell a sharper 1.8 percent.

Mixed economic data on Monday also did little to boost markets.

In the US, the Chicago Fed's National Activity Index fell to -0.32 in January from +0.25 in December. However, the three-month moving average rose to +0.30 in January from +0.23 in December.

A more recent regional survey from the Dallas Fed showed that its general business activity index fell to 2.2 in February from 5.5 in January, indicating continued but slower growth. Its manufacturing production index fell to 6.2 from 12.9.

Earlier on Monday, an HSBC report showed that its preliminary February manufacturing PMI for China fell to 50.4 from 52.3 in January. Nevertheless, HSBC economist Qu Hongbin noted that the "Chinese economy is still on track for a gradual recovery" and that the "slower pace of manufacturing expansion partly reflects the impact of a week-long Chinese New Year holiday and partly the continued softness of external demand".

Property bubble bursts on Chinese island

Stories like this from AFP/CNA make it hard to believe that there hasn't been a property bubble in China.

It was billed as China's Dubai: a cluster of sail-shaped skyscrapers on a man-made island surrounded by tropical sea, the epitome of an unprecedented property boom that transformed skylines across the country.

But prices on Phoenix Island, off the palm-tree lined streets of the resort city of Sanya, have plummeted in recent months, exposing the hidden fragilities of China's growing but sometimes unbalanced economy...

Now apartments on Phoenix Island which reached the dizzying heights of 150,000 yuan per square metre (US$2,200 per square foot) in 2010 are on offer for just 70,000 yuan, said Sun Zhe, a local estate agent.

Elsewhere in China, though, a report last week showed that home prices may already be recovering, suggesting that policies to curb property prices may be maintained or even tightened.

Meanwhile, the latest cooling measure in Hong Kong appears to have had an effect. From Bloomberg:

Residential property sales in Hong Kong fell after sales tax was doubled on property costing more than HK$2 million ($258,000), according to Midland Holdings Ltd., the city’s biggest publicly traded realtor.

Secondary sales for the 15 most popular housing estates fell 15 percent this weekend from the previous weekend, according to Buggle Lau, Midland’s chief analyst.

Hong Kong’s government raised stamp duty from Feb. 23 to 8.5 percent of the purchase price for all properties above the HK$2 million threshold. It was the third set of property curbs to cool the city’s real estate market since Chief Executive Leung Chun-ying took office in July. Home prices have doubled in the past four years on near-record low mortgage rates, an influx of mainland Chinese buyers and a lack of new supply.

Over in Singapore, though, there may have been one last hurrah for the property market. Again from Bloomberg:

Singapore home sales rose 43 percent in January from the previous month as buyers rushed to purchase homes right after the government announced cooling measures to ease residential prices...

Singapore home prices reached a record high in the fourth quarter amid low interest rates, raising concerns of a housing bubble and prompting the government to introduce its seventh round of cooling measures on Jan. 11.

Singapore has been attempting to rein in prices since 2009...

The relentless tide of liquidity from central banks around the world means that the fight against property price inflation by regulators, especially those in Asia, have mostly been a losing one so far. Note in particular the Singapore authorities' long fight to cool property prices.

Moody's cuts UK rating, German business confidence jumps

Moody's has downgraded the UK's sovereign credit rating. Reuters reports:

Britain suffered its first ever sovereign ratings downgrade from a major agency on Friday, after Moody's stripped the country of its coveted top-notch triple-A rating, dealing a major blow to finance minister George Osborne.

Moody's cut Britain's rating by one notch to Aa1 from Aaa, with a stable outlook, blaming weak prospects for Britain's economy over the coming years which have thrown the government's deficit reduction strategy off course.

While the UK may have lost the confidence of Moody's, confidence in Germany has increased. The Ifo business climate index jumped to 107.4 in February from 104.3 in January, taking it to a 10-month high.

The rest of the euro area may not do as well as Germany though. A report on Friday showed that the European Commission has revised down its economic forecast for the region and now sees it contracting 0.3 percent this year compared with a November forecast of 0.1 percent growth.

Meanwhile, China may need to see some slowing, at least in its home prices. Home prices rose in January in 53 of the 70 Chinese cities tracked by the government. While this is down from 54 in December, many analysts see policy tightening as likely in 2013. A recent Bloomberg survey showed that 10 out of 24 economists expect the People's Bank of China to raise interest rates this year.

Eurozone contraction worsens, US manufacturing slows

There were some disappointing economic data on Thursday.

In the euro area, the contraction in manufacturing and services worsened in February. Markit's composite index for the region fell to 47.3 this month from 48.6 in January, according to a preliminary reading. The manufacturing index slipped to 47.8 in February from 47.9 in January while the services index fell to 47.3 from 48.6, its steepest drop in 10 months.

In the US, Markit's preliminary manufacturing PMI fell to 55.2 this month from 55.8 in January. The Philadelphia Fed's business activity index fell to minus 12.5 in February from minus 5.8 in January. Initial claims for state unemployment benefits increased 20,000 to 362,000 last week.

On the bright side, US inflation remained tame -- consumer prices were flat for a second consecutive month in January -- and existing home sales rose 0.4 percent last month, pushing the supply of homes on the market to a 13-year low. The Conference Board's index of US leading indicators rose 0.2 percent in January.

US housing starts fall, Japan logs record trade deficit

Wednesday brought mixed economic data.

In the US, housing starts fell 8.5 percent in January. This was mainly due to a fall in multi-family housing starts.

In contrast, starts for single-family homes hit their highest level since July 2008 while permits for future construction rose to their highest level since June 2008.

Another report from the US on Wednesday showed that producer prices rose 0.2 percent in January.

Reports from Europe on Wednesday were positive.

The consumer confidence index for the euro area rose to -23.6 in February, the highest in seven months, from -23.9 in January.

In the UK, the number of people in work rose to 29.730 million in the three months to December, the highest since records began in 1971. Claims for jobless benefit fell by 12,500 last month.

Report from Asia on Wednesday were less positive.

Japan logged its worst ever monthly trade deficit in January despite an upturn in exports. The trade deficit came in at 1.63 trillion yen last month. Exports rose 6.4 percent and imports rose 7.3 percent as the yen's fall pushed fuel costs higher.

Foreign direct investment in China fell 7.3 percent in January from a year ago to $9.27 billion. It was also down from December's $11.7 billion.

US homebuilder confidence falls, German investor confidence rises

Economic data on Tuesday were mixed.

In the US, homebuilder confidence dipped in February. The National Association of Home Builders/Wells Fargo housing market index fell to 46 this month from 47 in January.

However, in Germany, the ZEW's index of investor sentiment rose to 48.2 in February, the highest since April 2010, from 31.5 in January.

This follows a report released on Monday where the Bundesbank said that it expects Germany to return to growth this quarter.

Global economy stumbled at end of 2012

After the data released last week, it now appears that most of the major developed economies were unable to produce any economic growth in the fourth quarter of last year. However, things may have improved since then.

Last month, the United States Commerce Department had reported that the US economy contracted at an annual rate of 0.1 percent in the fourth quarter of 2012 after having grown at an annual rate of 3.1 percent in the third quarter.

Last week, Eurostat reported that the eurozone economy contracted by 0.6 percent in the fourth quarter, its third consecutive quarterly contraction and the biggest contraction since the first quarter of 2009.

Also last week, Japan's Cabinet Office reported that the Japanese economy contracted by 0.1 percent in the fourth quarter, also its third consecutive quarterly contraction.

However, the world's developed economies may have improved since. A report last week from the Organisation for Economic Co-operation and Development showed that the composite leading indicator for the OECD as a whole rose to 100.4 in December from 100.3 in November, its fourth consecutive monthly increase.

OECD composite leading indicators
	Ratio to trend, amplitude adjusted					Change from previous month
	2012					2012
	Aug	Sep	Oct	Nov	Dec	Aug	Sep	Oct	Nov	Dec
OECD area	100.1	100.1	100.2	100.3	100.4	-0.02	0.02	0.07	0.10	0.11
United States	100.5	100.6	100.8	100.9	101.0	0.04	0.11	0.14	0.14	0.14
Euro area	99.5	99.4	99.4	99.5	99.6	-0.08	-0.04	0.00	0.06	0.09
Japan	100.2	100.1	100.2	100.2	100.3	-0.08	-0.03	0.02	0.05	0.08

In its report, the OECD described the US composite leading indicator as pointing to “economic growth firming”. For the euro area, the OECD saw a “stabilisation in growth prospects”. And for Japan, the OECD said that “signs of growth picking up are emerging”.

So the global economy may have stumbled at the end of 2012 but it is probably already picking itself up.

US industrial production falls, consumer confidence rises

Economic data on Friday were mixed.

In the US, manufacturing production fell 0.4 percent in January, pushing overall industrial production down by 0.1 percent. However, manufacturing production in November and December were revised higher.

And manufacturing may have improved recently. The New York Federal Reserve Bank said its Empire State general business conditions index rose to 10.0 in February from -7.8 in January.

Also improving is consumer confidence. The Thomson Reuters/University of Michigan consumer sentiment index rose to 76.3 in February from 73.8 in January.

Meanwhile, the UK apparently needs an improvement in consumer confidence. Retail sales there fell 0.6 percent in January. The fall was partly attributed to weather.

European recession deepens but stocks look cheap

The eurozone recession deepened in the final quarter of last year. A report on Thursday showed that real GDP in the euro area fell 0.6 percent in the fourth quarter, the biggest contraction since the first quarter of 2009.

Most European stocks fell on Thursday, although the STOXX Europe 600 managed to gain 0.1 percent.

At this point, European stocks may have become cheap. On Thursday, Business Insider reported a recent assessment by Albert Edwards, the analyst at Societe Generale who is otherwise mostly bearish. "Investing say, in European equities, on a ten year view at current valuations will probably result in good long term returns," he said.

However, Edwards thinks that US stocks are extremely overvalued.

See also a post by Barry Ritholtz.

Japanese stocks were also mixed on Thursday following the negative Japanese GDP report earlier. The Nikkei 225 rose 0.5 percent but the broader Topix fell 0.2 percent.

The Bank of Japan kept monetary policy unchanged after its meeting on Thursday.

Japan's economy contracts again, may face fiscal crisis

Economic data on Wednesday were positive.

US retail sales rose 0.1 percent in January, the third consecutive increase.

Eurozone industrial production rose 0.7 percent in December, reversing the 0.7 percent decline in November.

And as I reported yesterday, Japan's tertiary industry index rose 1.4 percent in December.

However, today brought news that Japan's economy shrank in the fourth quarter, contracting by 0.1 percent. It was the third consecutive quarterly contraction and is likely to reinforce the government's eagerness to boost economic stimulus.

Indeed, a Business Insider post on Wednesday quoted BNP Paribas economist Ryutaro Kono as saying:

[W]e think monetisation will be the choice of the Japanese government and are making it our base-case scenario... In addition to the large fiscal stimulus package just announced (2% of GDP), we expect the government to implement stimulus measures of a similar magnitude in Q1 2014 and again in Q2 2015... the economy will continue to outperform its trend growth rate (roughly 0.25%)... risk-asset prices will likely continue to rally. The economy, in other words, will take on bubble-like aspects.

While there is likely to be near-term improvement in the economy and asset prices, longer-term consequences are likely to be negative.

With the frictional unemployment rate at around 3.5% and the current unemployment rate at 4.2%, there is actually not much slack left in the economy... we expect inflation to start to pick up once the economy reaches full employment in H2 2015...

Upward pressure on long-term rates should also intensify alongside accelerating inflation... the BoJ won’t be able to neutralise this upward pressure for long, and the long-term interest rate should also start to climb in the latter part of 2015, increasing the risk of a fiscal crisis.

Japanese stocks and consumer confidence rise but so does debt burden

Japanese stocks rose on Tuesday, with the Nikkei 225 rising 1.9 percent to 11,369.12, close to its 33-month high of 11,498.42 hit last Wednesday.

While Japanese investor sentiment would have been boosted by a comment by economy minister Akira Amari on Saturday that the government will increase economic efforts to help the Nikkei reach 13,000 by the end of March, the news on Japan has also become somewhat more positive in recent weeks. That positive trend has continued so far this week.

A report on Tuesday showed the consumer confidence index for general households in Japan rose to 43.3 in January from 39.2 in December.

Wednesday brought news that Japan's tertiary industry index rose 1.4 percent in December.

For the long term, however, Claus Vistesen and Edward Hugh think that Japan faces serious problems as a result of its demographics.

Japan is not only an ageing society: It’s THE ageing society. Following decades of an ultra low birth rate and negligible immigration, it faces a steady decline in its working-age population and a rising dependency ratio for decades to come. There is no changing this now. Even some "miracle" reversal of the fertility problem would take decades to work through, so whatever happens next, things will get worse before they get better.

The decline in the working-age population means that any fiscal stimulus to combat deflation creates its own problems.

[I]f Japan is going to see a decline in working population over the next several decades . . . then it means the issue is a deep structural one which won't be resolved by any kind of "kick start", however large. The only consequence of having permanent fiscal injections will be not to give stimulus, but rather an accumulation of debt that will be increasingly harder for those smaller and poorer workforces to pay down in the future – especially if the process is associated with ongoing deflation.

Meanwhile, though, deflation has been kept at bay in most other countries. A report on Tuesday, for example, showed that UK inflation was unchanged at 2.7 percent in January.

However, another report from the UK showed that house prices fell in January. The Royal Institution of Chartered Surveyors' house price balance fell to -4 in January from -1 in December.

Markets at risk of overheating as investor sentiment hits bullish extreme

A story in Bloomberg suggests that credit markets are at risk from overheating, thanks to the Federal Reserve's monetary policy.

Yields on a record 38 percent of the $1.1 trillion of notes sold by the neediest U.S. borrowers were trading below the 10- year average rate for investment-grade debentures last month, Barclays Plc data show. Investors poured a record $1.3 billion into U.S. leveraged loan funds last week as covenants on the debt weaken the most ever.

The central bank’s policy of keeping benchmark borrowing costs at about zero for a fifth year is pushing investors into riskier debt, even as Fed Governor Jeremy Stein warns that the market for speculative-grade debt may be overheating. While U.S. prosecutors are suing Standard & Poor’s for deliberately failing to provide warnings against losses on collateralized debt obligations before the credit crisis, the government’s stimulus is fueling demand for similar products now.

Meanwhile, Business Insider brings us a report from Bank of America Merrill Lynch that says that investor sentiment is at a bullish extreme.

The current B&B reading is 9.6 (on a scale of 0 for max bearish and 10 for max bullish). It suggests investor sentiment is currently more bullish than 99% of all readings since 2002. Extreme bullishness is characterized by robust inflows to EM equity funds, overbought high-yield credit markets relative to treasuries and aggressive hedge fund positions for a weaker yen and stronger oil prices.

Although the Fed's monetary policy is being blamed for causing markets to become overheated, it appears unlikely to change soon. From Reuters:

The Federal Reserve's aggressive easing of monetary policy is warranted given the still-battered state of the U.S. labor market, Fed Vice Chairwoman Janet Yellen said on Monday...

"The gulf between maximum employment and the very difficult conditions workers face today helps explain the urgency behind the Federal Reserve's ongoing efforts to strengthen the recovery," Yellen said.

"We have taken, and are continuing to take, forceful action to increase the pace of economic growth and job creation."

In the Year of the Snake, will investors get bitten?

Stock markets have started 2013 on a positive note.

According to the Morgan Stanley Capital International All Country World Index, stocks rose 4.5 percent in January and 0.2 percent in February.

Renewed concerns over Europe's sovereign debt have restrained markets in recent days. European stocks in particular posted a second weekly drop last week amid political uncertainty in Italy and Spain.

In Italy, a survey showed that former prime minister Silvio Berlusconi, an opponent of austerity, has narrowed the lead of front-runner Pier Luigi Bersani. In Spain, Prime Minister Mariano Rajoy was hit by a political scandal involving alleged corruption.

However, global economic data have been more encouraging for investors. Purchasing managers surveys in particular have shown that the global economy grew at the start of the year.

According to Markit, the JPMorgan global all-industry output index came in at 53.3 in January, indicating growth in global output. This was slightly down from December. However, most of the major sub-indices showed improvement in January compared with December.

JPMorgan Global All-Industry Indices
	December	January
Output	53.7	53.3
New orders	52.5	52.6
Input prices	55.0	55.4
Employment	51.8	52.5

Still, continued global economic growth is not guaranteed, especially with the prevailing political uncertainty and fiscal tightening trends. While Europe has to overcome popular discontent to implement austerity measures designed to reduce the risk of sovereign default, the United States government faces its own form of fiscal tightening in the form of automatic federal spending cuts that will go into effect in March.

While fiscal policy may threaten growth, central banks have at least been very accommodative with monetary policy. These accommodative policies were left unchanged after recent monetary policy meetings at the Federal Reserve, European Central Bank and Bank of England.

The Bank of Japan at its latest meeting introduced a two percent inflation target, and the announcement last week of an early departure by BoJ governor Masaaki Shirakawa paves the way for monetary policy there to be loosened even further.

Meanwhile, in China, markets will be quiet for a while. On Sunday, the Chinese celebrated the arrival of the Lunar New Year and will mostly be on holiday this week.

Based on the Chinese zodiac, the current year is the Year of the Snake. Historically, this has not been an auspicious animal for investors.

In a commentary last month, Jeffrey Kleintop, chief market strategist at LPL Financial, said that among the 12 animals of the Chinese zodiac, the year of the snake has produced the worst returns for the US stock market. Since 1950, it is, together with the year of the horse, one of only two zodiac years to have produced negative average returns.

However, this year could be an exception. According to feng shui expert Raymond Lo, this particular Year of the Snake is symbolised by two elements, with water sitting on top of fire. He says that while water represents fear, fire generates optimism. He thinks this year could bring substantial economic improvement and increased investor confidence.

Which would mean that the positive start to 2013 for the global economy and stock markets could yet continue.

Chinese exports and lending rise, inflation slows

Friday provided more evidence that China's economy continues to grow strongly.

China's exports jumped 25.0 percent in January from a year ago while imports surged 28.8 percent. Part of the increase was due to the previous year's Lunar New Year but even after adjusting for that, exports were 12.4 percent higher.

China’s new local-currency lending was 1.07 trillion yuan in January compared with 738.1 billion yuan a year ago. M2 money supply climbed 15.9 percent from a year earlier.

Inflation slowed though to 2.0 percent in January from 2.5 percent in December.

Unlike China, Japan's trade balance has been deteriorating. Its current account surplus last year shrank to the lowest in almost three decades after consecutive monthly deficits in the last two months of the year.

The good news for Japan, though, is that service sector sentiment improved in January. The Cabinet Office's economy watchers survey showed that the index for current conditions rose to 49.5 last month from 45.8 in December while the future conditions index jumped to 56.5 from 51.0.

Germany's trade performance has proven more resilient than Japan's recently. Germany's trade surplus for 2012 was the second highest in more than 60 years. Exports rose 0.3 percent in December while imports fell 1.3 percent.

Meanwhile, the US trade deficit shrank in December as oil exports helped overall exports rise 2.1 percent. Imports fell 2.7 percent.

ECB and BoE leave rates unchanged

The two major European central banks left their monetary policies unchanged on Thursday.

The European Central Bank left its main interest rate at 0.75 percent. ECB President Mario Draghi told a press conference that the central bank will monitor the economic impact of a strengthening euro.

In the UK, the Bank of England left its main interest rate at 0.5 percent. It also decided to reinvest 6.6 billion pounds of bond holdings that mature in March and keep its gilt purchases at 375 billion pounds.

Economic data from Europe on Thursday had been positive.

In Germany, industrial production rose 0.3 percent in December after having fallen 0.2 percent in November.

In the UK, industrial production rose 1.1 percent in December following a 0.2 percent rise in November.

Economic data from Japan on Thursday were also positive.

Core machinery orders rose 2.8 percent in December after having risen 3.9 percent in November.

Japan's index of coincident economic indicators rose 2.5 points in December, according to a preliminary report. The index of leading economic indicators rose 1.4 points.

Japanese stocks surge as yen falls, European stocks fall on renewed debt concerns

The announcement on Tuesday that Bank of Japan Governor Masaaki Shirakawa would step down from his post three weeks before the end of his five-year term sent the yen tumbling on Wednesday on expectations that his replacement will ease monetary policy more aggressively. Stocks went in the opposite direction, the Nikkei 225 surging 3.8 percent on Wednesday to close at 11,463.75, its highest level since October 2008.

US stocks were up marginally on Wednesday, the S&P 500 rising just 0.1 percent.

However, in Europe, the STOXX Europe 600 fell 0.4 percent despite German factory orders rebounding 0.8 percent in December after having fallen 1.8 percent in November.

Renewed concerns over Europe's sovereign debt problems are keeping stocks down. Business Insider reports the latest missive from Citigroup chief economist Willem Buiter:

In a note to clients titled “New and old risks in the Euro Area,” Buiter says that the big rally in European equity and bond markets in recent months “can be only partially explained by economic fundamentals, and most of it represents a bubble driven by ‘positive contagion’.”

Buiter explains: “Much of the improvement is driven by liquidity, unprecedentedly low safe nominal and real interest rates, an increasingly frantic ‘search for yield’, unrealistic expectations about what policy will be able to deliver and other forms of irrational optimism and exuberance.”

He then adds:

However, in our view, the improvement in sentiment appears to have long overshot its fundamental basis and was driven in part by unrealistic policy and growth expectations, an abundance of liquidity and an increasingly frantic search for yield.

Buiter's warning on the situation in Europe is only the latest of several. Similar concerns previously highlighted by Business Insider include those expressed by Natixis Chief Economist Patrick Artus, Morgan Stanley interest rate strategist Laurence Mutkin and Citigroup interest rate strategist Robert Crossley.

Services sector maintains growth in US, contracts less in euro area

The economic reports on Tuesday were mostly positive.

In the US, the Institute for Supply Management’s non-manufacturing index fell to 55.2 in January from a 10-month high of 55.7 in December but remained comfortably above the 50 mark that indicates expansion in the services sector.

In China, the HSBC services PMI jumped to 54.0 in January from 51.7 in December.

The UK's services sector joined the growth party in January after the Markit/CIPS services PMI rose to 51.5 from 48.9 in December.

The euro area was the laggard. The eurozone services sector continued to contract in January, although Markit's services index for the region did rise to 48.6 from 47.8 in December. The improvement helped push the composite index up to 48.6 in January from 47.2 in December.

In another sign that the eurozone economy remained weak, another report on Tuesday showed that retail sales in the region fell 0.8 percent in December.

Stocks fall despite rise in US factory orders

Stocks fell on Monday as concerns over Europe returned. Bloomberg reports:

The S&P 500 slipped 1.2 percent, the most since Nov. 14, to 1,495.71 in New York, after reaching a five-year high last week. The Dow (INDU) Jones Industrial Average lost 129.71 points, or 0.9 percent, to 13,880.08. More than 6.3 billion shares traded handed on U.S. exchanges today, in line with the three-month average...

The Stoxx Europe 600 Index slid 1.5 percent today. Spanish Premier Mariano Rajoy is facing opposition calls to resign amid contested reports about illegal payments, while Deutsche Bank AG said this year’s rally in Italian, as well as Spanish, bonds may falter as Italy’s Silvio Berlusconi narrowed the front-runner’s lead before elections this month.

Spanish 10-year government yields jumped 23 basis points to 5.44 percent. Yields on similar-maturity Italian debt rose 14 basis points to 4.47 percent.

Ironically, stocks fell on the day Sentix reported that its index of investor sentiment in the euro area rose to -3.9 in February from -7.0 in January, its sixth consecutive increase.

The latest economic reports were mixed.

A report on Monday showsed that US factory orders rose 1.8 percent in December. This was less than the 2.3 percent gain expected by economists surveyed by Bloomberg and came after orders for November were revised to show a 0.3 percent drop from unchanged previously.

In the UK, a report on Monday showed that the construction sector shrank again in January as the Markit/CIPS Construction Purchasing Managers' Index was unchanged at 48.7 level from December.

In contrast, China's services sector continued to grow last month. A report on Sunday had shown that China's official non-manufacturing PMI rose to 56.2 in January from 56.1 in December.

Global economy improving amid signs of US rebound

Data last week showed that the United States economy shrank in the final quarter of last year but may already be leading the rest of the world back to growth at the beginning of the new year.

The Commerce Department reported last week that US real gross domestic product fell at an annual rate of 0.1 percent in the fourth quarter of 2012. The decline was mainly due to a decrease in government outlays and a smaller rise in inventory.

Data for January, however, showed that the US economy may have already returned to expansion. Nonfarm payrolls increased by 157,000 in January and manufacturing activity accelerated, with the Institute for Supply Management's manufacturing PMI jumping to 53.1 last month from 50.2 in December and Markit's US manufacturing PMI rising to 55.8 from 54.0.

Not all the latest US data were positive though. The unemployment rate rose to 7.9 percent in January from 7.8 percent in December. And while the Thomson Reuters/University of Michigan index of consumer sentiment rose to 73.8 in January from 72.9 in December, the Conference Board's consumer confidence index plunged to 58.6 last month from 66.7 in December.

Still, the Federal Reserve appears relatively sanguine about the economy. It left monetary policy unchanged after its meeting last week, saying that the economy had “paused in recent months in large part because of weather-related disruptions and other transitory factors”.

Meanwhile, the eurozone economy appears to be on the mend at the start of 2012. A report from Markit last week showed that its manufacturing PMI for the euro area rose to 47.9 in January, its highest level in 11 months, from 46.1 in December. In addition, the European Commission's economic sentiment indicator rose for the third consecutive month to 89.2 in January, its highest level since June, from 87.8 in December.

Like the euro area, manufacturing in Japan showed contraction last month but at a slower rate. The Markit/JMMA PMI rose to 47.7 in January from 45.0 in December.

In contrast to the euro area and Japan, manufacturing activity appears to have grown in China in January. The HSBC manufacturing PMI rose to a two-year high of 52.3 in January from 51.5 in December. The manufacturing PMI from the China Federation of Logistics and Purchasing and the National Bureau of Statistics fell to 50.4 in January from 50.6 in December, which still indicates probable growth in manufacturing activity last month.

US economy adds jobs as manufacturing shows signs of acceleration

US economic data on Friday were mostly positive.

Employment rose 157,000 in January. In addition, revisions added a total of 127,000 jobs to the previous estimates for the last two months of 2012. The unemployment rate rose to 7.9 percent from 7.8 percent in December though.

Construction spending rose 0.9 percent in December to the highest level since August 2009.

The Thomson Reuters/University of Michigan index of consumer sentiment rose to 73.8 in January from 72.9 in December.

US manufacturing activity accelerated in January. The Institute for Supply Management's manufacturing PMI rose to 53.1 from 50.2 in December while Markit's US manufacturing PMI rose to 55.8 from 54.0.

Economic data from the euro area on Friday were also relatively positive. Inflation slowed to 2.0 percent in January from 2.2 percent in December while the unemployment rate held at 11.7 percent in December. Markit's manufacturing PMI for the euro area rose to 47.9 in January from 46.1 in December.

Manufacturing slowed though in the UK in January. The Markit/CIPS Manufacturing Purchasing Managers' Index fell to 50.8 in January from 51.2 in December. Nevertheless, January was the second consecutive month that the index had been above 50.

Manufacturing also continued to grow in China in January. The manufacturing PMI from the China Federation of Logistics and Purchasing and the National Bureau of Statistics fell to 50.4 in January from 50.6 in December. However, the HSBC manufacturing PMI rose to a two-year high of 52.3 in January from 51.5 in December.

There were disappointing economic data from Japan though. The unemployment rate rose to 4.2 percent in December while household spending fell 0.7 percent from a year earlier.

Stocks fall after good month amid mixed economic data

Stocks fell on the last trading day of January but had a good month nevertheless. The MSCI All-Country World Index increased 4.5 percent over the past month, its best January since 1994.

Economic data on Thursday were mixed.

In the US, the MNI Chicago Report’s business barometer rose to 55.6 in January, the highest since April, from 50.0 in December. Personal income rose 2.6 percent in December, the biggest increase in eight years. However, consumer spending rose a more modest 0.2 percent. Also, initial claims for state unemployment benefits increased 38,000 last week to 368,000 after having hit their lowest in five years the previous week.

In Japan, industrial production rose 2.5 percent in December. A survey of manufacturers released with the data showed that producers expected further increases of 2.6 percent and 2.3 percent for January and February respectively. However, the December increase still fell short of analysts' expectations and left factory output down 1.9 per cent in the October-December quarter from the previous quarter.

In Germany, unemployment fell by 16,000 in January, taking the jobless rate down to 6.8 percent. However, retail sales fell 1.7 percent in December. Inflation cooled to 1.7 percent in January.

There were encouraging signs for the UK economy though. GfK NOP's consumer confidence index rose to -26 in January from -29 in December. House prices rose 0.5 percent in January, according to a report from Nationwide.