Japanese industrial production jumps, core consumer prices stop falling

Japanese economic data on Friday were mostly positive.

The Markit/JMMA manufacturing PMI rose to 52.3 in June from 51.5 in May. This indicates that manufacturing activity in Japan expanded in June at the fastest pace since February 2011.

Economic data on Japan for May had also been mostly positive.

Industrial production jumped 2.0 percent in May. It is forecast to decline by 2.4 percent in June but rebound by 3.3 percent in July.

Consumer prices excluding fresh food were unchanged in May from a year earlier, the first time in seven months that prices did not fall.

The unemployment rate was unchanged at 4.1 percent in May. However, the jobs-to-applicants ratio rose to 0.90, the highest in five years, from 0.89 in April.

One negative sign was a 1.6 percent fall in household spending in May from a year earlier.

However, elsewhere in the world, a report on Friday showed that German retail sales rose 0.8 percent in May after having fallen 0.1 percent in April. Another report showed that Germany's inflation has also picked up pace, rising to 1.9 percent in June from 1.6 percent in May.

In the US, economic data on Friday were mixed.

The Thomson Reuters/University of Michigan consumer sentiment index fell to 84.1 in June from 84.5 in May. However, the final June reading is higher than the preliminary reading of 82.7.

Another report on Friday showed that the Chicago business barometer fell sharply to 51.6 in June from 58.7 in May. The May reading had been the highest in more than a year though.

Markets rally amid positive economic data

Most markets continued to rally on Thursday.

In the US, the S&P 500 rose 0.6 percent, rallying for a third day. The STOXX Europe 600 rose 0.7 percent.

US Treasuries and European government bonds rose while China’s seven-day repurchase rate fell for a fifth day.

Commodities mostly rose, with oil in particular surging 1.6 percent. However, gold fell 1.5 percent.

Jeff Gundlach told CNBC on Thursday that for credit markets, the "liquidation cycle appears to have run its course". Bill Gross thinks so too.

Meanwhile, economic data on Thursday were mostly positive.

In the US, consumer spending rose 0.3 percent in May and personal income rose 0.5 percent. The index of pending home sales jumped 6.7 percent in May, the biggest increase since April 2010, to 112.3, the highest level since December 2006.

In Europe, the economic sentiment indicator rose to 91.3 in June, its highest level in 13 months, from 89.5 in May.

US growth slashed, stocks jump

US first quarter growth has been revised down. A report from the Commerce Department on Wednesday showed that the US economy grew at an annualised rate of 1.8 percent in the first quarter, less than the 2.4 percent rate previously reported.

The downward revision was mainly due to a reduction in the estimate of growth in consumer spending on services to 1.7 percent from the prior estimate of 3.1 percent.

In more positive news for consumer spending, another report on Wednesday from GfK showed that its consumer sentiment indicator for Germany will rise to 6.8 in July, the highest level since September 2007, from 6.5 in June.

Investors largely shrugged off the weaker-than-expected US GDP report. The S&P 500 rose 1.0 percent on Wednesday, pulling the MSCI All-Country World Index up by the same amount. Interbank lending rates in China fell, as did government bond yields around the world.

US Treasury yields and stocks rise on positive economic data

US Treasuries fell on Tuesday, pushing the 10-year yield up seven basis points to 2.61 percent.

US stocks rose though. The S&P 500 rose 1.0 percent.

Positive US economic data on Tuesday helped push up both Treasury yields and stock prices.

New home sales rose 2.1 percent in May to an annualised rate of 476,000, the most since July 2008.

Home prices in 20 US cities rose 12.1 percent in April from a year earlier, the biggest year-over-year gain since March 2006, according to a report from S&P/Case-Shiller.

The Conference Board’s consumer confidence index increased to 81.4 in June from 74.3 in May.

Durable goods orders jumped 3.6 percent for a second month in May. Orders for non-defence capital goods excluding aircraft rose 1.1 percent.

Chinese stocks plunge

China's stock market plunged on Monday. The Shanghai Composite Index fell 5.3 percent to 1,963.24, the weakest close since 3 December 2012.

The fall came amid signals from the People's Bank of China that it will do little to alleviate the ongoing liquidity crunch. AFP/CNA reports:

China's central bank has urged lenders in the country to strengthen liquidity management, according to an official note published on Monday, in a sign Beijing does not intend to loosen policy despite a recent credit crunch.

"Currently, overall liquidity in the domestic banking system is at a reasonable level," said the statement dated June 17 that was issued to banks across the country...

It asked lenders to "prudently manage liquidity risks that may result from overly fast credit asset expansion".

"All financial institutions should... maintain credit growth at a stable and moderate level," it added.

It also urged large commercial lenders to "cooperate with the central bank to stabilise the market".

Stocks also fell in the rest of Asia, Europe and the US.

US Treasury yields were little changed by the end of the day though after having jumped earlier.

Signs of economic improvement on Monday did little to boost markets.

In the US, the Chicago Fed National Activity Index increased to -0.30 in May from -0.52 in April. The three-month moving average fell to -0.43 in May from -0.13 in April though, indicating that growth remained below its historical trend.

In Germany, the Ifo institute’s business climate index rose to 105.9 in June from 105.7 in May.

Markets in turmoil as interest rates rise

Markets fell sharply last week as the Federal Reserve announced that it may reduce the pace of its bond purchases by the end of this year and monetary conditions tightened in China.

In the United States, the Standard & Poor's 500 Index fell 2.1 percent last week. It fell 1.4 percent on Wednesday, the day Federal Reserve Chairman Ben Bernanke announced his plan to reduce bond purchases later this year and end it in 2014 if the economy and unemployment rate continues to improve as forecast. The S&P 500 fell another 2.5 percent on Thursday before rebounding slightly on Friday.

In Europe, the STOXX Europe 600 Index fell 3.7 percent last week. It was the biggest weekly fall in 13 weeks and the fifth consecutive weekly decline.

In Asia, the MSCI Asia Pacific excluding Japan Index fell 4.5 percent last week, the biggest fall since May last year. However, the Nikkei 225 bucked the global trend, rising 4.3 percent after having fallen in the previous four weeks.

The direct impact of the Federal Reserve's plan to taper bond purchases will, of course, be on bonds. US Treasuries fell last week, with the 10-year Treasury yield rising 40 basis points to 2.53 percent. It was the biggest increase since March 2003. The 30-year Treasury yield rose 28 basis points, the most since August 2009, to 3.58 percent.

It was not just monetary policy in the US that affected markets last week. Interbank lending rates in China spiked last week, with the overnight Shanghai Interbank Offered Rate jumping 527 basis points to a record-high 13.44 percent on Thursday.

The People's Bank of China eventually injected funds into the financial system on Friday, causing the overnight SHIBOR to plunge 495 basis points to 8.49 percent. Nevertheless, the slow response from the central bank to the rate spike suggested to some that it was not averse to tighter credit conditions.

However, despite the increase in interest rates last week, none of the most important central banks have actually started tightening monetary policies. Last week's market turmoil essentially resulted from just the expectation for a reduced pace of monetary stimulus. It shows how sensitive markets have become to the course of monetary policy.

We should expect even greater volatility if and when markets perceive impending tightening from the major central banks.

Stocks stabilise as China interbank rates fall

Markets stabilised somewhat on Friday.

The STOXX Europe 600 fell 1.2 percent. However, the S&P 500 ended the day up 0.3 percent.

The Federal Reserve's expected tapering of bond purchases remained in investors' minds. US Treasury 10-year note yields rose past 2.5 percent for the first time in 22 months.

Earlier in the day, the MSCI Asia Pacific Excluding Japan Index fell 0.8 percent but the Nikkei 225 gained 1.7 percent. The wider MSCI Asia Pacific Index ended little changed after having earlier fallen by 1.5 percent.

Helping to stabilise Asian markets on Friday was a fall in interbank rates in China. The People's Bank of China reportedly injected funds into several banks to relieve the credit crunch.

However, credit looks likely to remain tight in China.

“Recent action by the PBoC reflects the government's determination to take aggressive action to contain financial risks,” said Zhang Zhiwei, an economist for Nomura Securities in Hong Kong. “The monetary policy stance will remain tight.”

“The (PBoC) is worried by the unsustainable growth rate of credit and is sending a message that market participants should not take for granted that they will always have access to cheap interbank loans,” Capital Economics said in a research report this week.

Markets fall on Fed taper and China concerns

Markets tumbled around the world on Thursday following the Fed's announcement of a likely tapering of bond purchases the previous day as well as concerns over China.

The MSCI All-Country World Index fell 3.4 percent on Thursday. The S&P 500 declined 2.5 percent. The declines were even bigger in Asia, where stocks plunged 4.1 percent, and Europe, where stocks fell 3 percent.

Government bonds around the world also fell on Thursday. The US 10-year Treasury yield rose six basis points to 2.41 percent. German bund yields rose 12 basis points to 1.68 percent.

In China, interbank rates surged on Thursday. The benchmark weighted-average seven-day bond repurchase rate jumped 380 basis points to a record high of 12.06 percent while the overnight repo rate surged 598 bps to 13.85 percent.

That was not the only bad news from China on Thursday. A report from HSBC showed that its manufacturing PMI for China fell to 48.3 in June from 49.2 in May.

Other economic data on Thursday were not as bad though.

In the US, manufacturing activity growth slowed only slightly in June as Markit's flash PMI reading fell to 52.2 from 52.3 in May.

US economic growth is likely to be sustained. The Conference Board's US leading economic index increased 0.1 percent in May to hit 95.2, its highest level since June 2008.

Helping US economic growth is a recovering housing market. US existing home sales rose 4.2 percent in May to the highest level since November 2009. Inventories fell to 5.1 months of sales from 5.2 in April.

Meanwhile, Europe's recession may be abating. Markit's composite index based on a survey of purchasing managers rose to 48.9 in June, the highest in 15 months, from 47.7 in May. The index for services rose to 48.6 from 47.2 while the index for manufacturing increased to 48.7 this month from 48.3 in May.

Consumer confidence in the euro area has also improved. The European Commission's consumer confidence index for the region rose to -18.8 in June from -21.9 in May.

The UK economy also appears to be improving. The Confederation of British Industry's total order book balance rose to -18 in June from -20 in May while retail sales rose 2.1 percent in May.

Fed may taper later this year

The Federal Reserve confirmed on Wednesday expectations that it is looking to taper its bond purchases later this year. Bloomberg reports:

Federal Reserve Chairman Ben S. Bernanke said the central bank may start dialing down its unprecedented bond-buying program this year and end it entirely in mid-2014 if the economy finally achieves the sustainable growth the Fed has sought since the recession ended in 2009.

The Federal Open Market Committee today left the monthly pace of bond purchases unchanged at $85 billion, while saying that “downside risks to the outlook for the economy and the labor market” have diminished. Policy makers raised their growth forecasts for next year to a range of 3 percent to 3.5 percent and reduced their outlook for unemployment to as low as 6.5 percent.

“If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it would be appropriate to moderate the pace of purchases later this year,” Bernanke said in a press conference in Washington. If later reports meet the Fed’s expectations, “we will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year.”

Investors were quick to act. Stocks fell, with the S&P 500 falling 1.4 percent on Wednesday. The yield on the 10-year Treasury note jumped to 2.36 percent, the highest since March 2012, from 2.19 percent the previous day.

Earlier on Wednesday, Japan reported that its exports rose 10.1 percent in May from the previous year. This was the fastest rate of year-on-year increase since December 2010.

Imports rose 10.0 percent though, leaving the trade balance at a deficit of 994 billion yen.

US housing starts and German investor confidence rise

Economic data on Tuesday were mostly positive.

In the US, housing starts rose 6.8 percent in May. A 10 percent slump in applications for multifamily homes pulled building permits down 3.1 percent but permits for one-family homes rose to the highest since May 2008.

Another report from the US showed that consumer prices rose 0.1 percent in May. As a result, the 12-month inflation rate climbed to 1.4 percent last month from 1.1 percent in April.

Inflation also accelerated in the UK in May. The inflation rate rose to 2.7 percent last month from 2.4 percent in April.

In Germany, the ZEW index of investor confidence rose to 38.5 in June from 36.4 in May.

Stock markets rise, housing markets improve

Stocks started the week positively, with markets in the US, Europe and Asia all rising. Japan's Nikkei 225 in particular jumped 2.7 percent.

Notwithstanding the recent volatility, stock markets have mostly been rising, as have housing markets.

Indeed, in the US, a report on Monday showed that confidence among homebuilders surged in June. The National Association of Home Builders/Wells Fargo housing market index rose to 52 this month from 44 in May, the biggest monthly increase since September 2002.

In the UK, home asking prices rose 1.2 percent in June, according to a report by Rightmove on Monday. It was the sixth consecutive monthly increase and pushed average values above 250,000 pounds for the first time.

And Reuters reports on Tuesday that new home prices in China rose 0.9 percent in May, based on data released by the government. The government data showed that prices rose in 69 of the 70 cities tracked by the government.

Fed meeting in focus after another week of market losses

Stocks around the world fell again last week as concerns persisted over the possibility of the Federal Reserve paring its bond purchases.

In the United States, the Standard & Poor's 500 Index fell 1.0 percent last week. It fell in four of the five trading days, only rising ironically on the day when US retail sales reportedly rose 0.6 percent, which should have raised tapering expectations.

In Europe, the STOXX Europe 600 Index fell 1.5 percent last week. It was its fourth consecutive weekly decline, the longest streak of losses since April 2012.

In Asia, the MSCI Asia Pacific excluding Japan Index fell 1.3 percent last week. It was its fifth consecutive decline, the longest streak of losses in two years.

Leading the falls was, as usual, Japan. The Nikkei 225 fell another 1.5 percent last week. On Thursday, it plunged 6.4 percent to extend its loss from its 22 May high to 20.3 percent -- thus putting it in a bear market -- before rebounding slightly on Friday.

Investors' nervousness last week was not helped by the absence of additional monetary stimulus from the Bank of Japan following its monetary policy meeting on Tuesday.

This week, it is the turn of the Federal Reserve to conduct its monetary policy meeting. No substantive change to prevailing monetary policy is expected but the Fed is expected to provide some hints on the likelihood and imminence of a tapering in its rate of bond purchases.

US economic data last week had been mixed. Retail sales rose 0.6 percent in May, its biggest rise in three months, but the Thomson Reuters/University of Michigan index of consumer sentiment fell from 84.5, the highest reading since July 2007, in May to 82.7 in June. Industrial production in May was unchanged from the previous month.

US stocks fall as industrial production stagnate and consumer sentiment declines

US stocks fell on Friday amid some relatively disappointing economic reports. The S&P 500 declined 0.6 percent to end the week down 1.0 percent.

Data from the Federal Reserve showed that US industrial production was unchanged in May. However, manufacturing output managed to increase by 0.1 percent.

Consumer confidence declined in June, with the preliminary Thomson Reuters/University of Michigan index of consumer sentiment falling to 82.7 from 84.5 in May. The May reading, though, had been the highest since July 2007.

Producer prices rose 0.5 percent in May. This was not enough to suggest inflationary pressure, especially after the 0.7 percent decline in April.

However, inflation in the euro area accelerated to 1.4 percent in May from 1.2 percent in April.

Japanese stocks in bear market but US stocks jump on retail sales

Asian stocks tumbled on Thursday. The MSCI Asia Pacific Index fell 2.2 percent, extending its drop since its 2013 high on May 20 to more than 10 percent.

As usual, Japan led the falls. The Nikkei 225 fell 6.4 percent. It is now more than 20 percent below its high last month, pushing it into bear market territory.

Jim Rogers thinks that Prime Minister Shinzo Abe has “ruined Japan”. He told Fusion MarketSite in an interview that with its “huge debt levels” and “horrible demographics”, Japan's attempt to force down its currency “is a disaster in the long term, and not guaranteed to work in the short term, either”.

Indeed, a report from Bloomberg suggests that Japanese consumer goods companies are “still planning for deflation”.

Felix Zulauf thinks that Japan may also ruin the rest of the world. He told Financial Sense that Japan “will be the root cause of the next big global crisis whenever it breaks out, probably some time over the next 12 to 18 months or so”.

However, Western markets were able to shrug off the decline in Japan on Thursday. The STOXX Europe 600 fell just 0.1 percent while in the US, the S&P 500 jumped 1.5 percent, its second biggest rise this year.

US stocks were boosted by better-than-expected retail sales data. US retail sales rose 0.6 percent in May, the biggest gain in three months.

Europe reports positive data but anxieities rising in emerging markets

Economic data on Wednesday were relatively positive.

In Europe, industrial production increased 0.4 percent in April in the euro area and 0.3 percent in the European Union as a whole. It was the third consecutive monthly increase for both regions.

In the UK, the job market improved in May. The number of people claiming jobless benefit dropped by 8,600 last month, its seventh consecutive fall.

However, the World Bank announced on Wednesday that it had lowered it growth forecast for the global economy in 2013. It now sees the global economy growing 2.2 percent this year, down from a January estimate of 2.4 percent. The euro area in particular saw a sharp downward revision, with its economy now expected to contract by 0.6 percent compared with the prior estimate of a 0.1 percent contraction.

In financial markets, stocks continued to fall on Wednesday. The S&P 500 fell 0.8 percent, the STOXX Europe 600 fell 0.4 percent and the Nikkei 225 fell 0.2 percent.

US Treasuries also fell on Wednesday, pushing yields towards 14-month highs, after a US government sale of $21 billion of 10-year notes drew the weakest demand since August. The 10-year yield rose four basis points to 2.23 percent while the 30-year yield rose six basis points to 3.37 percent.

Bloomberg reports that anxieties are also surging in emerging markets.

The biggest drop in perceived creditworthiness for emerging-market borrowers since the credit crisis is deepening as speculation intensifies that central banks will scale back record stimulus.

Prices on the Markit CDX Emerging Markets index, a credit-default swaps benchmark for debtor nations from Latin America to the Middle East and Asia, have tumbled 4 cents in the two weeks through yesterday to 107 cents on the dollar. The decline is the biggest since the failure of Lehman Brothers Holdings Inc. reverberated across financial markets and caused the index to plunge 6.7 cents in the period ended Nov. 18, 2008.

Reuters adds that corporate bonds in emerging markets could be headed for a surge in defaults. The potential for financial turmoil in emerging markets could in turn give the Federal Reserve a “fresh headache” in deciding when to exit from quantitative easing.

BoJ holds off additional monetary stimulus, markets fall

The Bank of Japan provided no additional monetary stimulus at its monetary policy meeting on Tuesday. “Japan's economy is picking up,” the BoJ said in a statement.

The yen rose following the decision while stock markets around the world fell. The Nikkei 225 fell 1.5 percent, the STOXX Europe 600 fell 1.2 percent and the S&P 500 fell 1.0 percent.

European government bonds fell on Tuesday. Spain and Italy’s 10-year yields rose six basis points to 4.65 percent and 4.35 percent respectively.

However, US Treasuries rose on Tuesday. The 30-year bond yield fell six basis points to 3.31 percent while the 10-year note yield fell three basis points to 2.19 percent.

On the economic data front, the UK provided some positive news. Industrial output rose 0.1 percent in April, the third consecutive monthly increase. A survey from the Royal Institution of Chartered Surveyors showed British house prices rose last month at their fastest pace since June 2010, while new buyer enquiries jumped to levels last seen in 2009.

Japan's first quarter growth revised up, OECD growth improving

Japan's first quarter growth has been revised up. The Cabinet office reported on Monday that real GDP grew 1.0 percent in the first three months of the year, slightly better than the 0.9 percent growth initially reported.

In another positive sign for the Japanese economy, consumer confidence improved in May. Another Cabinet Office report on Monday showed that the consumer confidence index for general households rose to 45.7 in May from 44.5 in April.

However, the Cabinet Office's economy watchers survey was more downbeat. The index for current conditions fell to 55.7 in May from 56.5 in April. The index for future conditions fell to 56.2 from 57.8.

Nevertheless, the outlook for Japan and other major developed economies appear to be improving, according to a report from the Organisation for Economic Co-operation and Development on Monday. The OECD's composite leading indicator for the OECD as a whole rose to 100.6 in April from 100.5 in March. The US, euro area and Japan all saw increases in their CLIs.

Global economy accelerated in May but China slowed

Reports on the global economy last week were generally positive although China's economy appears to have slowed.

Surveys of purchasing managers around the world showed that the global economy accelerated in May. The JPMorgan global all-industry output index rose to 53.1 last month from 51.9 in November.

JPMorgan Global All-Industry Indices
	April	May
Output	51.9	53.1
New orders	51.6	52.9
Input prices	52.1	51.7
Employment	50.4	50.4

China's economy may have slowed in May though. The HSBC China composite output index fell to 50.9 in May, the lowest level since last October, from 51.1 in April.

Reports over the weekend also indicated that China's economy slowed in May.

Exports rose just 1.0 percent in May from a year earlier, the smallest increase since July last year, while imports fell 0.3 percent.

However, the deterioration in the trade data may have been exaggerated by a government crackdown on practices by firms that disguised financial inflows as exports.

Still, industrial production did slow to 9.2 percent year-on-year growth in May from 9.3 percent in April. Fixed asset investment grew 20.4 percent over the first five months of the year compared to the same period last year, down from 20.6 percent in the first four months.

More positively, year-on-year retail sales growth improved to 12.9 percent in May from 12.8 percent in April even as inflation slowed to 2.1 percent from 2.4 percent.

Meanwhile, credit growth in China cooled in May. New local-currency lending fell to 667.4 billion yuan in last month from 792.9 billion yuan in April. Aggregate financing in May fell to 1.19 trillion yuan from 1.75 trillion yuan in April.

M2 money supply rose 15.8 percent in May from a year earlier compared to a 16.1 percent increase in April.

Stocks jump on positive economic data

Stocks ended the week on a strong note. Both the S&P 500 and the STOXX Europe 600 rose 1.3 percent on Friday.

Earlier on Friday, Asian stocks had been little changed. The Nikkei 225 pared early losses to finish just 0.2 percent down.

Positive economic data throughout the day helped to buoy investor sentiment.

Japan started the day by reporting that its index of coincident economic indicators rose a preliminary 1.0 point in April. The index of leading economic indicators rose 1.3 points.

Later, Germany reported that its exports jumped 1.9 percent in April while its imports surged 2.3 percent.

This was followed by a report that showed that German industrial production jumped 1.8 percent in April, the third consecutive increase and the strongest gain since March last year.

Economic data from the UK on Friday were less positive. The trade deficit narrowed in April but only because a 3.8 percent decline in imports overwhelmed a 1.4 percent decline in exports.

The report that probably moved stocks the most on Friday, though, was the US employment report. That showed that employment in the US rose by 175,000 in May. That was better than the 163,000 median forecast from a Bloomberg survey and the 149,000 increase in April.

The unemployment rate nevertheless climbed to 7.6 percent from 7.5 percent as a result of a surge in the number of people entering the labour force.

ECB sees economy recovering at subdued pace

The ECB held its main refinancing rate unchanged at 0.5 percent after its monetary policy meeting on Thursday.

ECB President Mario Draghi told a news conference after the meeting that “economic activity should stabilize and recover in the course of the year, albeit at a subdued pace”.

The ECB's growth forecast for the euro area this year was lowered to minus 0.6 percent from a previous estimate of minus 0.5 percent but the projection for next year was raised to 1.1 percent from 1 percent.

Also on Thursday, the Bank of England kept its bond-purchase target at 375 billion pounds and maintained its key rate at 0.5 percent.

In a sign that Europe's economy remains weak, a report on Thursday showed that German factory orders fell 2.3 percent in April, reversing the 2.3 percent increase in March.

European stocks fell on Thursday. The STOXX Europe 600 declined 1.2 percent, reversing early gains after the ECB failed to signal additional monetary stimulus for the near future.

However, US stocks managed to finish up on Thursday. The S&P 500 rose 0.9 percent to end a two-day losing streak.

Japanese stocks plunge again as Abe fails to provide details of growth strategy

Japanese Prime Minister Shinzo Abe announced the objectives of his planned economic reforms on Wednesday. These include increasing incomes by 3 percent annually, allowing tax cuts and reducing red tape in special economic zones.

However, he did not provide details of how those objectives will be achieved.

Investors appear to be unimpressed with Abe's announcement. Japanese stocks plunged 3.8 percent on Wednesday, pulling the rest of Asia down.

Western markets were not spared. The S&P 500 fell 1.4 percent to a one-month low while the STOXX Europe 600 fell 1.5 percent to the lowest level in six weeks.

Economic data on Wednesday were mixed.

China's services sector continued to expand in May. The HSBC/Markit services PMI rose to 51.2 from 51.1 in April.

The eurozone services sector PMI also improved in May, rising to 47.2 from 47.0 in April. This helped push the composite index up to 47.7 in May from 46.9 in the prior month.

This still means that the eurozone economy probably continued to contract in the second quarter, after having contracted 0.2 percent in the first, especially since another report on Wednesday showed that eurozone retail sales fell 0.5 percent in April.

In contrast, the US economy continued to show signs of expansion based on reports on Wednesday.

The Federal Reserve's latest Beige Book described growth as “modest to moderate”, ADP reported that private employers added 135,000 jobs in May and the Institute for Supply Management reported that its services index edged up to 53.7 last month from 53.1 in April.

New orders for manufactured goods increased 1.0 percent in April, rebounding partially from March's 4.7 percent decline.

The UK economy also added to signs of recovery on Wednesday. The services PMI rose to 54.9 in May from 52.9 in April. The composite index rose to 54.3 in May, the highest since March 2012.

Japanese stocks rebound

Japanese stocks rebounded on Tuesday. The Nikkei 225 rose 2.1 percent.

US stocks fell on Tuesday though. The S&P 500 declined 0.6 percent.

US stocks fell despite relatively good economic data on Tuesday. A report showed that US exports rose 1.2 percent in April to $187.4 billion, the second-highest level on record. Imports jumped 2.4 percent, resulting in a wider trade deficit.

There were also good economic data from the UK on Tuesday. The Markit/CIPS construction PMI increased to 50.8 in May from 49.4 in April. The British Retail Consortium reported that retail sales rose 3.4 percent in May compared with the same month last year.

Japanese stocks plunge again, global manufacturing gives mixed signals

Japanese stocks plunged again on Monday, the Nikkei 225 losing 3.72 percent.

Again, the plunge was limited to Japan. Other Asian stock markets only fell mildly on Monday, as did European stocks. US stocks even managed to gain.

Economic data on Monday were mixed.

In China, the HSBC manufacturing PMI fell to 49.2 in May, below the 50 mark that divides expansion from contraction, from 50.4 in April. This was in contrast to the official manufacturing PMI, released on Saturday, which rose to 50.8 in May from 50.6 in April.

The official PMI for the non-manufacturing sector, released earlier on Monday, fell to 54.3 in May from 54.5 in April.

In the US, the Institute for Supply Management manufacturing PMI also fell below 50 in May. It fell to 49.0, the lowest level since June 2009, from 50.7 in April.

Contradicting this indicator, however, Markit's manufacturing PMI for the US rose to 52.3 in May from 52.1 in April.

Another report on Monday showed that US construction spending rose 0.4 percent in April.

Manufacturing improved in Europe in May. Markit's manufacturing PMI for the euro area rose to 48.3 in May from 46.7 in April. In the UK, the manufacturing PMI from Markit and the Chartered Institute of Purchasing and Supply rose to 51.3 from 50.2 in April.

Despite quantitative easing, markets may crack

Markets continued to be volatile last week as investors remained concerned about rising interest rates.

Bill Fleckenstein thinks that “cracks have appeared” in bond markets, particularly Japan's.

The bottom line, I believe, is that Japanese authorities have “lost the bond market” (i.e., rates are much higher than authorities want, despite their best efforts) and the Fed has as well, but, perversely, Japan may be further along in the process, even though its powers that be started much later to really get serious about QE-powered monetary debasement.

If quantitative easing cannot keep bond prices up and yields down, then stocks could be negatively impacted too.

Indeed, John Hussman reminds us in his latest article that history shows that Fed easing does not guarantee a rising market.

One of the most strongly held beliefs of investors here is the notion that it is inappropriate to “Fight the Fed” – reflecting the view that Federal Reserve easing is sufficient to keep stocks not only elevated, but rising. What’s baffling about this is that the last two 50% market declines – both the 2001-2002 plunge and the 2008-2009 plunge – occurred in environments of aggressive, persistent Federal Reserve easing.

It’s certainly true that favorable monetary conditions are helpful for stocks, on average. But that average hides a lot of sins.

Markets fall amid mixed data

Markets ended the week on a negative note with both stocks and bonds falling on Friday.

The S&P 500 fell 1.4 percent while the STOXX Euro 600 fell 0.9 percent. The US 10-year Treasury yield rose two basis points after rising as much as 10 basis points earlier.

Selling had begun in Asia, where most markets fell. In particular, stocks in India fell 2.3 percent after a report showed that the economy grew 5.0 percent in the financial year 2012/13, the slowest rate in a decade.

A notable exception to the falls in Asia was the Nikkei 225, which rebounded 1.4 percent amid mostly positive Japanese economic data on Friday.

Japanese industrial output rose 1.7 percent in April, its fifth consecutive increase. However, manufacturers surveyed by the government forecast production to be flat in May and fall 1.4 percent in June.

Also pointing to an improvement for Japanese manufacturing was a rise in the Markit/JMMA manufacturing PMI to 51.5 in May, the highest since August, from 51.1 in April.

Meanwhile, there was less deflation in Japan in April. Consumer prices excluding volatile fresh food fell 0.4 percent from a year earlier compared with a 0.5 percent fall in March.

Japan's jobless rate was unchanged at 4.1 percent in April.

However, growth in household spending slowed to 1.5 percent in April from 5.2 percent in March.

US data on Friday were also mostly positive.

Consumer spending fell 0.2 in April while income was flat. However, with consumer prices falling 0.3 percent, real consumer spending was up 0.1 percent.

And consumer sentiment appears to be improving. The Thomson Reuters/University of Michigan consumer sentiment index increased to 84.5 in May, the highest since July 2007, from 76.4 in April.

In another positive sign for the US economy, the MNI Chicago Report’s business barometer jumped to 58.7 in May, the highest since March 2012, from 49.0 in April.

There were more gloomy data from the euro area on Friday though.

The unemployment rate in the euro area rose to 12.2 percent in April from 12.1 percent in March. Inflation accelerated to 1.4 percent in May from 1.2 percent in April.

And the region's largest economy, Germany, saw retail sales fall 0.4 percent in April, its third monthly decline.