Thursday, 31 October 2013

Fed maintains stimulus, stocks fall

There was no change to the Federal Reserve's monetary policy after its meeting on Wednesday. Bloomberg reports:

The Federal Reserve decided to press on with $85 billion in monthly bond purchases, saying it needs to see more evidence that the economy will continue to improve.

“The recovery in the housing sector slowed somewhat in recent months,” the Federal Open Market Committee (FDTR) said today at the end of a two-day meeting in Washington. “Fiscal policy is restraining economic growth.”

US stocks fell anyway, the S&P 500 declining 0.5 percent to end its four-day winning streak.

The Fed's hesitance in removing monetary stimulus appears consistent with US economic data on Wednesday. A report from ADP showed that private sector employers added 130,000 jobs in October, the fewest since April. A report from the Labor Department showed that the consumer price index rose 0.2 percent in September, leaving the 12-month increase at 1.2 percent, the smallest since April.

Signs of slowing were also apparent in data from Germany on Wednesday. German inflation slowed to 1.2 percent in October from 1.4 percent in September while unemployment rose for a third month in October by 2,000.

Other reports on Wednesday, however, showed that Europe as a whole is reflating. Spain's economy grew 0.1 percent in the third quarter, bringing its two-year recession to an end. The European Commission's economic sentiment index rose to 97.8 in October from 96.9 in September.

Japan's recovery also appears to be maintaining momentum. A report on Wednesday showed that industrial production there rebounded 1.5 percent in September after having fallen 0.9 percent in August. And on Thursday, Markit reported that its manufacturing PMI for Japan rose to 54.2 in October, the highest level since May 2010, from 52.5 in September.

Wednesday, 30 October 2013

Economic data mixed, India raises interest rate again

Economic data on Tuesday were mixed.

In the US, retail sales fell 0.1 percent in September, dragged down by a 2.2 percent decline in sales at auto dealers. However, excluding automobiles, gasoline and building materials, retail sales increased 0.5 percent.

Still, the Conference Board did report that its index of consumer confidence for the US fell to a six-month low of 71.2 in October from 80.2 in September.

Meanwhile, US producer prices fell 0.1 percent in September, pushing the 12-month increase down to 0.3 percent, the smallest since October 2009.

However, home prices continued to increase in August. The S&P/Case Shiller composite index of home prices in 20 metropolitan areas rose 0.9 percent. Compared to a year ago, prices rose 12.8 percent, the strongest increase since February 2006.

The housing market has also been strong in the UK, with mortgage approvals for house purchases rising to almost 67,000 in September, the highest level since February 2008.

Earlier in the day, Japan had reported that household spending rose 3.7 percent in September from a year ago while the jobless rate fell to 4.0 percent last month from 4.1 percent in August.

Even as global economic data have been coming out mixed, India's central bank remains focused on fighting inflation. On Tuesday, the Reserve Bank of India decided to raise its benchmark repo rate by 25 basis points to 7.75 percent. It was the second consecutive month that the RBI had raised its benchmark rate.

Tuesday, 29 October 2013

S&P 500 touches new record amid mixed US economic data

The S&P 500 eked out another record high on Monday, rising 0.13 percent to 1,762.11.

The small gain in stocks came amid mixed US economic reports on Monday.

Industrial production rose 0.6 percent in September but manufacturing production rose just 0.1 percent.

Pending home sales plunged 5.6 percent in September, the largest decline since May 2010.

Manufacturing activity held up better in Texas this month. The Dallas Federal Reserve's Texas Manufacturing Outlook Survey for October showed that the production index rose to 13.3 this month from 11.5 in September. However, the general business activity index fell to 3.6 in October from 12.8 in September.

Monday, 28 October 2013

With US stocks at fresh highs, will faith in Fed be tested?

Stocks in the United States rose last week, with the Standard & Poor’s 500 Index climbing 0.9 percent to close the week at a record high of 1,759.77. However, as the bull market continues, valuations for stocks have become stretched, leaving some analysts nervous.

Last week, Lance Roberts asked in a post at the Daily X-Change: Is a major correction coming?

He noted that currently, both the S&P 500 Index and the broad Wilshire 5000 Index have deviated from their long-term moving averages to extremes that have been seen only four times previously.

“The current deviation from the long term average, fueled by Federal Reserve interventions, is approaching extremes in both deviation and duration,” he wrote.

Roberts also cited a post by Cullen Roche at Pragmatic Capitalism last week. Roche wrote that “the market is just driving higher on what looks like sheer optimism of continued QE and little else”.

Roche cited two indicators of this optimism. One is stock market capitalisation as a percentage of gross national production, which is now at 110 percent, a reading that has “only been surpassed by the Nasdaq bubble”. The other indicator is margin debt at the New York Stock Exchange, which is now at an all-time high.

An article by Walter Hamilton and Andrew Tangel at the Los Angeles Times last week also mentioned the record level of margin debt.

The article also said that “optimism is everywhere”. It cited the latest weekly poll by the American Association of Individual Investors, where 49.2 percent of people responded by saying that they were bullish, up from 29 percent in late August, while bearish responses fell to 17.6 percent, the lowest since January 2012, from 43 percent.

Another recent survey by Barron's found that 65 percent of money managers were bullish while only 8 percent were bearish.

Again, it is all thanks to the Fed, apparently. The article quoted Patrick J. O'Hare, chief market analyst at, as saying: “Everyone is reading from same script — that you can't lose buying the dips because the Fed is by your side. And it's clearly working.”

Less confident in the Fed's ability to sustain the bull market in stocks is John Hussman. In an article last week entitled “Did Monetary Policy Cause the Recovery?”, he pointed out that aggressive monetary easing did not prevent the market from losing half of its value during the 2000-2002 and 2007-2009 plunges.

Indeed, Hussman asserts that monetary policy may not even have been the central factor in ending the banking crisis during the last recession. Instead, “the clearest and most immediate event that ended the banking crisis was not monetary policy, but the abandonment of mark-to-market accounting by the Financial Accounting Standards Board on March 16, 2009,” he wrote. That rule change “removed the risk of widespread bank insolvency by eliminating the need for banks to make their losses transparent”.

Hussman said that faith in the Fed's ability to sustain the current bull market “is already wavering, but the loss of this faith will be one of the most painful aspects of the completion of the present market cycle”.

Saturday, 26 October 2013

UK economy accelerates but other economic data mixed

The UK economy grew 0.8 percent in the third quarter, the Office for National Statistics reported on Friday. This was up from 0.7 percent growth in the second quarter and was the fastest growth rate in more than three years.

Other economic data on Friday were not as positive.

In the US, durable goods orders rose 3.7 percent in September. However, this was due to a surge in aircraft orders. Excluding transportation equipment, orders fell 0.1 percent. Orders for non-defence capital goods excluding aircraft fell 1.1 percent.

Also pointing to weakness in the US economy was the final reading of the Thomson Reuters/University of Michigan consumer sentiment index for October. The index fell to 73.2 this month from 77.5 in September.

Also falling in October was German business sentiment. The Ifo business climate index fell to 107.4 this month from 107.7 in September. It was the index's first decline in six months.

Friday did bring more evidence though that Japan may be pulling out of deflation. Consumer prices excluding fresh food and energy were unchanged in September from a year earlier, the first time since December 2008 that this measure of prices has not fallen.

Friday, 25 October 2013

Global stocks rebound as growth slows

Most stock markets rebounded on Thursday after the previous day's falls. The S&P 500 rose 0.3 percent while the STOXX Europe 600 rose 0.4 percent.

In Asia, stock markets were mixed though. The Nikkei 225 rose 0.4 percent but the Shanghai Composite Index fell 0.9 percent.

Chinese investors were apparently concerned after another 65-basis point jump in the seven-day repurchase rate on Thursday, the most in two months, and ignored a report on Thursday showing an acceleration in economic growth. HSBC's preliminary manufacturing PMI for October hit 50.9, up from 50.2 in September.

The rebound in stocks elsewhere occurred despite signs of slower growth.

In the US, the trade deficit widened in August as exports fell 0.1 percent while imports were flat. Markit's preliminary US manufacturing PMI for October fell to 51.1 from 52.8 in September.

In the euro area, Markit's preliminary composite index for October fell to 51.5 from 52.2 in September. The composite index was dragged down by the services index, which fell to 50.9 from 52.2. The manufacturing PMI rose to 51.3 from 51.1.

Thursday, 24 October 2013

Stock rally ends amid positive economic data

The two-week rally in global stocks came to an end on Wednesday with the MSCI All-Country World Index falling 0.6 percent. The S&P 500 fell 0.5 percent while the STOXX Europe 600 fell 0.6 percent.

Some of the biggest declines on Wednesday took place in Asia. The MSCI Asia Pacific Index ended down 0.8 percent after having climbed as much as 0.5 percent earlier in the day. The Shanghai Composite Index fell 1.3 percent after China's seven-day repurchase rate surged 47 basis points to 4.05 percent but Japanese stocks fell even harder, the Nikkei 225 falling 2.0 percent, its biggest loss in three weeks.

Economic data on Wednesday were mostly positive.

House prices in the US eked out further gains in August according to the Federal Housing Finance Agency, albeit by just 0.3 percent, the smallest in 11 months.

Housing remains strong in the UK, with approvals for home loans rising nearly 40 percent in September from a year earlier to 42,990, the highest level since December 2009.

Elsewhere in Europe, the European Commission reported that its consumer confidence index for the euro area improved to -14.5 in October from -14.9 in September.

Wednesday, 23 October 2013

US employment disappoints, stocks hit record high

The US employment report released on Tuesday disappointed economists as payrolls rose 148,000 in September, lower than expectations for a 180,000 gain and down from the increase of 193,000 in August.

Investors, though, were apparently pleased with the report. The S&P 500 rose 0.6 percent on Tuesday to another record high.

Other US economic data on Tuesday looked somewhat stronger.

The employment report showed that the unemployment rate fell to 7.2 percent, the lowest level since November 2008.

A separate report showed that construction spending rose 0.6 percent in August, its fifth consecutive increase.

Tuesday, 22 October 2013

US existing home sales fall, China's new home prices rise

US existing home sales fell 1.9 percent in September, the National Association of Realtors reported on Monday.

Sales in August had been the strongest since 2009 though, and the September sales rate unadjusted for seasonal variations was still 15.1 percent higher than the corresponding rate a year earlier.

Also, the median price of a house rose 11.7 percent in September from a year earlier.

The inventory of existing homes for sale was 2.21 million at the end of last month, up from 2.17 million at the same time in 2012. It was the first time inventory increased on a year-on-year basis since early 2011.

Meanwhile, China's property market is looking even hotter. Data from the National Bureau of Statistics on Tuesday showed that compared to a year earlier, new home prices rose in September in 69 of the 70 cities the government tracked.

According to Reuters, average new home prices in the 70 cities rose 9.1 percent in September from a year earlier, the ninth straight month of year-on-year increases. Compared to August, prices rose 0.7 percent.

Monday, 21 October 2013

Japan moving towards inflation target as trade deficit makes record run

Bank of Japan Governor Haruhiko Kuroda said on Monday that the Japan is “on track” to hit its inflation target.

Speaking at the opening of a quarterly meeting of managers from the BoJ's domestic branches and US and European offices, he said that the central bank's aggressive monetary easing launched in April is “clearly having its desired effects, and the Japanese economy is steadily moving toward achieving the price stability target” set by the BoJ of 2 percent inflation.

The weaker yen that resulted from the BoJ's aggressive easing, however, has not helped Japan's trade balance. The Finance Ministry reported on Monday that the country's trade deficit hit 932.1 billion yen in September, up 64.1 percent from a year earlier. That was the 15th consecutive month of deficit, the longest on record.

Exports rose 11.5 percent in September from a year earlier while imports jumped 16.5 percent on higher import costs.

Saturday, 19 October 2013

China's economy accelerates, stocks rise to highest since May 2008

China's economy grew 7.8 percent year-on-year in the third quarter, the government reported on Friday, accelerating for the first time in three quarters. It had grown 7.5 percent in the second quarter.

Compared to the second quarter, the economy grew 2.2 percent in the third quarter.

The third quarter did not end as strongly though.

Industrial production rose 10.2 percent from the previous year in September compared to 10.4 percent in August while retail sales rose 13.3 per cent compared to 13.4 percent the previous month.

Fixed asset investment rose 20.2 percent in the first nine months of the year compared to the previous year. It had risen 20.3 percent in the first eight months.

However, home sales jumped 34 percent in September from the previous month.

The good GDP report from China helped stocks in Asia rally. The MSCI Asia Pacific Index added 0.6 percent on Friday.

Stocks elsewhere also rose on Friday. The S&P 500 rose 0.7 percent to a record high for the second consecutive day. The STOXX Europe 600 rose 0.8 percent for its seventh consecutive gain, its longest winning streak this year.

The MSCI All-Country World Index rose 0.7 percent to the highest level since May 2008.

Friday, 18 October 2013

US government shutdown ends, S&P 500 hits new high

The partial US government shutdown came to an end on Thursday after President Barack Obama signed a bill to raise the debt ceiling and restore government.

Relieved investors sent the US stock market to a record high. The S&P 500 rose 0.7 percent to close at 1,733.15 on Thursday.

The end of the government shutdown means a backlog of government economic indicators will be released soon.

In the meantime, reports on Thursday showed that the US economy has maintained momentum so far, with initial claims for state unemployment benefits falling 15,000 to 358,000 last week and the Philadelphia Federal Reserve Bank's business activity index slipping to 19.8 in October from 22.3 in September.

Meanwhile, in the UK, retail sales rebounded 0.6 percent in September after having fallen 0.8 percent in August.

Thursday, 17 October 2013

US stocks rise as budget deadlock nears end

US stocks rallied strongly on Wednesday as the budget impasse approached an end. The S&P 500 rose 1.4 percent after the Senate put together a proposal that would end the government shutdown and raise the debt ceiling.

Meanwhile, US economic growth remained “modest to moderate”, according to the Federal Reserve's Beige Book on Wednesday. In the latest Fed survey, four districts reported slower economic growth while the remaining eight saw steady expansion despite “uncertainty” from the US fiscal deadlock.

However, another report on Wednesday showed that confidence among US homebuilders weakened in October. The National Association of Home Builders/Wells Fargo housing market index fell to 55 this month from 57 in September.

Meanwhile, the positive dataflow on the UK economy continued on Wednesday. The number of people claiming jobless benefits fell by 41,700 in September, its biggest fall in more than 16 years.

Wednesday, 16 October 2013

US stocks fall, Fitch places US credit rating on negative watch

US stocks fell on Tuesday while Treasury bill rates rose after negotiations failed to produce an agreement to end the US budget impasse.

Adding to concerns in financial markets, Fitch Ratings placed the US government's AAA credit rating on negative watch on Tuesday, saying: “The political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default.”

One upside for markets, though, could be continued monetary stimulus from the Federal Reserve. Richard Fisher, the hawkish president of the Federal Reserve Bank of Dallas, told Reuters on Tuesday that the fiscal standoff means even he would find it difficult to make a case for scaling back bond purchases at the Fed's policy meeting later this month.

Indeed, the US economy may already be slowing. The Federal Reserve Bank of New York reported on Tuesday that its general economic index fell to 1.5 in October, a five-month low, from 6.3 in September.

Meanwhile, elsewhere in the world, the UK reported that inflation there was unchanged in September at 2.7 percent while house prices rose 3.8 percent in the year to August, the fastest rise since October 2010.

Tuesday, 15 October 2013

US stocks close in on record as senators close in on budget deal

US stocks managed to eke out a fourth day of gains on Monday, the S&P 500 rising 0.4 percent to 1,710.14, less than 1 percent away from its record high of 1,725.52.

There is still no agreement on the budget, although US Senate Democratic and Republican leaders said on Monday that they were close to one.

Economic data elsewhere in the world on Monday also provided some cause for optimism.

In the euro area, industrial production grew 1.0 percent in August, rebounding from a 1.0 percent decline in July.

In China, new bank loans rose to 787 billion yuan in September from 711 billion yuan in August. However, total social financing aggregate, a broad measure of liquidity in the economy, was 1.40 trillion yuan in September, down from 1.57 trillion yuan the month before.

Monday, 14 October 2013

China's exports fall, inflation accelerates

Over the weekend, China reported that its exports fell 0.3 percent in September from a year earlier. Imports rose 7.4 percent.

The fall in exports could be a sign of weak global demand, although it may have been exaggerated by inflated export data last year caused by fake invoices.

In any case, China's policy makers may be hesitant about stimulating the economy after a report on Monday showed that the consumer price index rose 3.1 percent in September from a year earlier, more than the 2.6 percent increase in August.

Indeed, another Asian economy, Singapore, decided on Monday to maintain tight monetary policy despite the Singapore economy contracting in the third quarter.

Saturday, 12 October 2013

US consumer sentiment falls, stocks rise

US consumer sentiment fell to a nine-month low in October, according to the Thomson Reuters/University of Michigan consumer sentiment index. The preliminary October reading of the index came in at 75.2 this month, down from 77.5 in September.

However, US investors have become more optimistic. The S&P 500 rose 0.6 percent to 1,703.20 on Friday, its highest level since September, erasing losses since the government’s partial shutdown that began on 1 October.

The improved sentiment among investors came as President Barack Obama and congressional Republican leaders inched towards an agreement over the budget on Friday. From Reuters:

Obama met Senate Republicans at the White House and spoke by phone to House of Representatives Speaker John Boehner as negotiations intensified on how to get hundreds of thousands of federal workers back on the job and extend the government's borrowing authority past the October 17 limit...

“The two of them agreed that all sides need to keep talking,” White House spokesman Jay Carney told reporters after the call between Boehner and Obama. “It at least looks like there is a possibility of making some progress here.”

Friday, 11 October 2013

Stocks jump on US debt agreement hopes, BoE leaves monetary policy unchanged

Markets surged on Thursday on reports of a possible agreement on raising the US debt ceiling. The S&P 500 jumped 2.2 percent while the STOXX Europe 600 rose 1.7 percent.

Meanwhile, in the UK, the Bank of England left monetary policy unchanged on Thursday.

Economic data out of Japan on Thursday were positive. Core machinery orders jumped 5.4 percent in August while the tertiary industry index rose 0.7 percent. The consumer confidence index rose to 45.4 in September from 43.0 in August.

Thursday, 10 October 2013

Stocks eke out gains in US but fall in Europe

US stocks were steady on Wednesday, the S&P rising 0.1 after having falling 2.1 percent over the previous two days.

However, European stocks fell for a third day, with the STOXX Europe 600 falling 0.6 percent on Wednesday.

Economic data from Europe on Wednesday were mixed.

In Germany, industrial production rebounded 1.4 percent in August after having fallen 1.1 percent in July.

However, in the UK, industrial production fell 1.1 percent in August, driven by a 1.2 percent fall in manufacturing output.

Wednesday, 9 October 2013

Markets fall, IMF cuts global growth outlook

Markets fell on Tuesday as the US budget deadlock dragged on. The S&P 500 fell 1.2 percent while the STOXX Europe 600 fell 0.8 percent. The US Treasury's sale of $30 billion of one-month bills saw rates hitting 0.35 percent, the highest since November 2008.

In a report released on Tuesday, the International Monetary Fund cut its global growth outlook to 2.9 percent for this year and 3.6 percent for next year from 3.1 percent and 3.8 percent respectively. It also warned that a US government default could “seriously damage” the world economy.

Economic data on Tuesday were mixed.

In Japan, the current account surplus plunged 63.7 percent in August from a year ago. However, service sector sentiment improved in September, with the economy watchers survey showing the current conditions index rising to 52.8 from 51.2 in August and the future conditions index rising to 54.2 from 51.2.

In Germany, factory orders fell 0.3 percent in August after having fallen 1.9 percent in July. However, exports rebounded 1.0 percent in August after having fallen 0.8 percent in July.

Tuesday, 8 October 2013

US stocks fall, Japanese economic indicators decline

US stocks fell on Monday, with the S&P 500 falling 0.9 percent as lawmakers remained deadlocked over the extension of the government’s debt limit.

While the government's borrowing capacity is at risk, US consumers have been piling on debt. The Federal Reserve reported on Monday that consumer credit rose $13.6 billion in August, more than the $10.4 billion increase in July.

Elsewhere on Monday, Japan's Cabinet Office reported that its index of coincident economic indicators fell 0.1 point in August while its index of leading economic indicators fell 1.4 points.

Despite the fall in the coincident index, the government left unchanged its assessment of the economy as “improving”.

Monday, 7 October 2013

Global economy slowed at end of strong third quarter

Surveys of purchasing managers around the world showed that the global economy grew in September, albeit at a slower rate than in August.

A report published by Markit Economics last week showed that the JPMorgan global all-industry output index fell to 53.5 last month from 55.1 in the previous month. Despite the fall in the index, the reading still signalled expansion in the global economy for the fiftieth consecutive month.

JPMorgan Global All-Industry Indices
New orders54.854.5
Input prices54.055.6

According to Markit, the slower rate of growth in the global economy in September was the result of sharply lower growth in the United States. Markit's US manufacturing PMI fell to 52.8 in September from 53.1 in August. While the Institute for Supply Management's US manufacturing PMI rose to 56.2 in September from 55.7 in August, its non-manufacturing index fell to 54.4 from 58.6.

However, it was a different story for most of the other major economies.

In the euro area, the economy continued to show improvement with Markit's composite output index for the region rising to 52.2 in September, a 27-month high, from 51.5 in August. The manufacturing PMI fell to 51.1 from 51.4 but the services business activity index rose to 52.2 from 50.7.

China's economy also continued to gain momentum. The manufacturing PMI from the National Bureau of Statistics and the China Federation of Logistics and Purchasing rose to 51.1 in September from 51.0 in August while HSBC's manufacturing PMI rose to 50.2 from 50.1.

In China's services sector, the non-manufacturing PMI from the National Bureau of Statistics and China Federation of Logistics and Purchasing rose to 55.4 in September, the highest in six months, from 53.9 in August.

It was a similar story in Japan, where Markit's composite output index rose to 53.2 in September from 51.9 in August. The Markit/JMMA manufacturing PMI rose to 52.5 in September, the highest since February 2011, from 52.2 in August. The services business activity index rose to 53.0 from 51.2, marking its eleventh consecutive month of expansion, the longest on record.

Commenting on the result of the purchasing managers surveys, JPMorgan economist Joe Lupton said that, despite the dip in September, the data for the third quarter as a whole point to the “strongest pace of growth of global GDP in almost one-and-a-half years”.

Saturday, 5 October 2013

Markets at risk from US budget impasse, BoJ leaves monetary policy unchanged

Jeff Frankels thinks that the on-going US budget impasse may lead to sharp falls in financial markets.

Both sides in Washington are firmly dug in, and don’t plan to back down. If the politicians don’t get their act together and the debt ceiling is really not raised, the results will be very bad indeed...

It seems to me that this then leaves two possible outcomes: either the financial markets fall before October 17 and the Republicans respond by backing down or the financial markets fall after October 17 and the Republicans respond by backing down. Precedents for financial markets forcing such a reversal include the delayed congressional passage of the unpopular TARP legislation in the fall of 2008 and the delayed passage of an unpopular IMF quota increase 10 years earlier. (In the last debt ceiling showdown, in August 2011, default was avoided at the last minute; but the stock market fell sharply anyway, when S&P for the first time ever downgraded US debt from AAA.)

Investors, though, have shown little concern so far. US stocks rose on Friday, the S&P 500 rising 0.7 percent to trim the week's decline to just 0.1 percent.

Central banks elsewhere also remain sanguine.

Following the European Central Bank's decision on Wednesday to leave interest rates unchanged, the Bank of Japan held off fresh monetary easing measures at its monetary policy meeting on Friday.

The BoJ said that the economy was still “recovering moderately” while overseas economies were “heading toward a pick-up”.

Friday, 4 October 2013

Global services expand in September

Global economic data on Thursday were positive.

In China, the National Bureau of Statistics and Federation of Logistics and Purchasing reported that the non-manufacturing PMI rose to 55.4 in September, the highest in six months, from 53.9 in August.

In the euro area, Markit's services PMI rose to 52.2 in September from 50.7 in August, pushing the composite PMI to 52.2 from 51.5.

In another sign of recovery for the euro area on Thursday, retail sales rose 0.7 percent in August after a 0.5 percent increase in July.

In the UK, the Markit/CIPS services PMI fell to 60.3 in September from 60.5 in August but the average for the quarter was still the highest since the second quarter of 1997.

According to Markit, the combined surveys of British manufacturing, construction and services imply economic growth of 1.2 percent in the July-September period, the fastest rate of expansion since late 2007.

In the US, the Institute for Supply Management’s non-manufacturing index fell to 54.4 in September from 58.6 in August. The September reading still suggested expansion and is just slightly lower than the 54.7 average since the end of 2011.

Thursday, 3 October 2013

ECB interest rates unchanged, US employment increases

The European Central Bank left its main refinancing rate unchanged at 0.5 percent on Wednesday.

The decision was made even as President Mario Draghi said that credit flows in the euro area are still “very weak”.

“We’ll remain particularly attentive to developments which may have implications to monetary policy and consider all available instruments,” Draghi told a press conference after the ECB monetary policy meeting.

Meanwhile, in the US, private employment continued to increase in September. A report from ADP showed that companies added 166,000 workers last month, up from 159,000 in August.

Wednesday, 2 October 2013

Markets shrug off US shutdown as manufacturing grows, Japan to raise sales tax

The US government went into partial shutdown on Tuesday but markets largely shrugged off the event, the 10-year US Treasury note rising 4 basis points to 2.65 percent and the S&P 500 rising 0.8 percent.

Helping to support markets on Tuesday were positive economic data.

The Institute for Supply Management’s manufacturing PMI rose to 56.2 in September, the strongest since April 2011, from 55.7 in August. Markit's US manufacturing PMI also showed growth in September, albeit falling to 52.8 from 53.1 in August.

Europe also reported positive economic data on Tuesday.

The eurozone unemployment rate was unchanged at 12.0 percent in August. However, a downward revision to the July rate left it lower than the 12.1 percent rate seen in June, thus marking the first decline in the eurozone unemployment rate in two years.

Meanwhile, eurozone manufacturing activity continued to expand in September. Markit's manufacturing PMI for the region fell to 51.1 last month from 51.4 in August but remained above 50 for the third consecutive month.

UK manufacturing growth also eased slightly in September. The Markit/CIPS manufacturing PMI slipped to 56.7 from 57.1 in August.

China's manufacturing expansion maintained momentum though. The National Bureau of Statistics and China Federation of Logistics and Purchasing reported on Tuesday that their manufacturing PMI rose to 51.1 in September from 51.0 in August.

However, Japanese economic data on Tuesday were mixed.

The Bank of Japan's Tankan index for large manufacturers rose to plus 12 in the three months to September from plus 4 in the preceding three months.

However, the jobless rate rose 3 percentage points to 4.1 percent in August, the first deterioration in six months, while household spending fell 1.6 percent in August from a year earlier.

Consumer spending in Japan could be hit further. Prime Minister Shinzo Abe announced on Tuesday an increase in the sales tax to 8 percent from 5 percent. To cushion the blow from the tax increase, he also announced a 5 trillion yen stimulus plan.

Tuesday, 1 October 2013

US government nears shutdown amid positive economic data

The US dollar slipped on Monday as the deadlock over the budget threatened a government shutdown even as data showed that the economy continued to expand.

The MNI Chicago Report business barometer rose to 55.7 in September from 53.0 in August. The Dallas Fed’s general business activity index jumped to 12.8 from 5.0 in August. The Institute for Supply Management-Milwaukee's manufacturing index jumped to 55.0 in September from 48.2 in August.

UK economic data on Monday were also positive. Mortgage approvals for house purchases rose to 62,226 in August, the highest since February 2008, from 60,914 in July. House prices in England and Wales rose 0.5 percent in September, the biggest increase since May 2007, according to Hometrack.

Meanwhile, inflation in the euro area slowed to 1.1 percent in September from 1.3 percent in August, according to another report on Monday.