Friday, 31 January 2014

US economy grows, eurozone confidence improves

Investors turned more optimistic on Thursday, with US stocks and Treasury yields rising, after a report showed that US GDP grew at a 3.2 percent annual rate in the fourth quarter.

Another report from the US showed that pending home sales fell 8.7 percent in December. However, this was partly attributed to bad weather.

Elsewhere, the European Commission reported on Thursday that its economic sentiment indicator for the euro area rose to 100.9 in January, the highest reading since July 2011, from 100.4 in December.

In Japan, a report on Thursday showed that the Markit/JMMA manufacturing PMI rose to 56.6 in January, the highest level since February 2006, from 55.2 in December.

In contrast, Chinese manufacturing contracted for the first time in six months in January, according to HSBC's manufacturing PMI, which fell to 49.5 this month.

Thursday, 30 January 2014

Fed cuts bond buys, South Africa raises interest rate

The Federal Reserve decided to continue to taper its bond-buying at its monetary policy meeting on Wednesday. Bloomberg reports:

The Federal Open Market Committee said it will trim monthly purchases by $10 billion to $65 billion, citing labor-market indicators that “were mixed but on balance showed further improvement” and economic growth that has “picked up in recent quarters”...

The Fed left unchanged its statement that it will probably hold its target interest rate near zero “well past the time” that unemployment falls below 6.5 percent, “especially if projected inflation” remains below the committee’s longer-run goal of 2 percent. Stocks remained lower and Treasuries gained.

Elsewhere, there was surprise action from the South Africa Reserve Bank, which raised its repurchase rate to 5.5 percent from 5 percent on Wednesday.

Despite the actions from central banks, the flight to safety resumed in financial markets on Wednesday as US stocks and emerging market currencies fell while US Treasuries and the yen gained.

Wednesday, 29 January 2014

Turkey and India raise interest rates

Turkey raised interest rates late on Tuesday in a bid to support its currency. Bloomberg reports:

Turkey’s central bank raised all its main interest rates at an emergency meeting, resisting political pressure and reversing years of policy, after the lira slid to a record low.

The bank in Ankara raised the benchmark one-week repo rate to 10 percent from 4.5 percent, according to a statement posted on its website at midnight. It also raised the overnight lending rate to 12 percent from 7.75 percent, and the overnight borrowing rate to 8 percent from 3.5 percent. The lira extended gains after the announcement, adding 3 percent to 2.18 per dollar at 1 a.m. in Istanbul.

Earlier on Tuesday, the Reserve Bank of India had raised its repurchase rate to 8.0 percent from 7.75 percent.

The Federal Reserve began a two-day monetary policy meeting on Tuesday and is expected to announce further cuts to its bond-buying programme on Wednesday.

That is notwithstanding some mixed US economic data released on Tuesday.

Durable goods orders fell 4.3 percent in December. Orders excluding transportation fell 1.6 percent while non-defence capital goods orders excluding aircraft fell 1.3 percent.

However, the Conference Board's consumer confidence index rose to 80.7 in January from 77.5 in December and the Standard & Poor's/Case Shiller home price index rose 13.7 percent in November from a year ago, the largest increase since February 2006.

Meanwhile, in the UK, GDP grew 0.7 percent in the fourth quarter to push the full year growth rate to 1.9 percent, the fastest since the financial crisis.

UK growth is likely to continue at the beginning of 2014. A composite indicator from the Confederation of British Industry rose to +30 in the three months to January from +26 in the three months to December.

Tuesday, 28 January 2014

Nikkei 225 plunges as markets fall again

The turmoil in financial markets continued on Monday. The MSCI Emerging Markets Index fell 1.9 percent, the biggest decline since July.

Among developed stock markets, Japan was the worst hit on Monday, the Nikkei 225 plunging 2.5 percent. The S&P 500 fell 0.5 percent while the STOXX Europe 600 fell 0.8 percent.

Some signs of stabilisation did emerge on Monday though.

Turkey’s lira rose 2.3 percent after the Turkish central bank said it would “take the necessary policy measures” to stabilise prices. The yen, which had been serving as a safe haven recently, fell 0.2 percent against the US dollar, its first decline in three days.

US Treasuries also fell for the first time in three days, the yield rising three basis points to 2.75 percent.

Economic data on Monday were mixed.

In the US, new home sales fell 7.0 percent in December. The lower sales were attributed to cold weather.

However, in Germany, the Ifo business climate index rose to 110.6 in January from 109.5 in December.

Monday, 27 January 2014

Emerging market volatility surges, Japan's trade deficit hits record following easy monetary policies

Emerging markets were in turmoil last week. Bloomberg reported that the Chicago Board Options Exchange Emerging Markets ETF Volatility Index rose 40 percent to 28.26, the biggest increase since September 2011.

Reuters attributes the emerging market sell-off partly to the Federal Reserve's impending reduction in bond-buying.

Indeed, Ed Yardeni thinks that these markets may have been in a speculative bubble that was fuelled by the Federal Reserve's easy monetary policy in the first place.

Could it be that the Fed’s ultra-easy monetary policy has already inflated yet another speculative bubble that is about to burst, or at least lose lots of air very quickly? If so, the obvious candidate is emerging economies, which borrowed lots of money (often in dollars) in recent years. They were able easily to attract foreign buyers, who were “reaching for yield” because interest rates were so low in the bond markets of the US, Europe, and Japan...

If this bubble is about to burst, then once again Fed officials didn’t see it coming. They’ve been aware of the possibility, but minimized its likelihood. Obviously, they once again are failing to learn from history, which shows that easy credit conditions always lead to speculative bubbles that inevitably burst...

But the Fed is not the only central bank whose monetary policy may have produced unwanted results.

The Bank of Japan's easy monetary policy has weakened the yen and caused Japan's trade deficit to balloon due to higher cost of energy imports. A report from the Finance Ministry on Monday showed that Japan's trade deficit hit a record 11.5 trillion yen in 2013, almost double the previous year's 6.9 trillion yen.

For December, exports rose 15 percent from a year earlier but imports surged 25 percent, resulting in a monthly deficit of 1.3 trillion yen.

Saturday, 25 January 2014

Stocks, emerging market currencies tumble

Risk aversion tightened its grip on investors on Friday.

As Bloomberg reports, global stocks tumbled the most since June. The MSCI All-Country World Index fell 1.9 percent. The MSCI Emerging Markets Index tumbled 1.4 percent but the S&P 500 fell by an even bigger 2.1 percent.

US ten-year Treasury yields fell five basis points to 2.73 percent and touched 2.70 percent, the lowest since November. Ten-year German bund yields also fell five basis points to 1.66 percent, the lowest since August on a closing basis.

Emerging market currencies were badly hit on Friday. The Turkish lira fell 2.2 percent against the US dollar, extending the decline for the month to 9 percent. The South African rand fell 1.1 percent to the weakest level since October 2008. Argentina’s peso, which fell 12 percent on Thursday after policy makers devalued the currency, lost another 1.5 percent on Friday.

The yen, which traditionally gains on rising risk aversion, rose against all 16 of the major currencies, advancing 1 percent against the US dollar and 1.1 percent versus the euro.

Friday, 24 January 2014

Stocks fall as Chinese manufacturing contracts

Stocks fell on Thursday. The S&P 500 fell 0.9 percent, the STOXX Europe 600 fell 1.0 percent and the MSCI Emerging Markets Index fell 1.3 percent.

The weakness in stocks came as economic data on Thursday came out mixed.

Probably spooking investors most was a report from China showing that manufacturing activity there contracted in January. HSBC's preliminary reading of China's manufacturing PMI fell to 49.6 in January, the lowest since August.

In the US, manufacturing slowed in January as Markit's preliminary manufacturing PMI fell to 53.7 from 55.0 in December.

Slower growth in US manufacturing came after the economy as a whole had moderated in December. A report from the Chicago Federal Reserve on Thursday showed that its national activity index fell to +0.16 last month from +0.69 in November, dragging down the three-month average to +0.33 from +0.36.

However, US existing home sales rebounded in December, rising 1.0 percent, although data from the Federal Housing Finance Agency showed that home prices had risen just 0.1 percent in November, the smallest gain in almost two years.

The outlook for the US economy may also have weakened. The Conference Board reported on Thursday that its index of US leading indicators rose 0.1 percent in December after a 1.0 percent gain in the prior month.

However, the eurozone economy is looking more positive. Markit's flash eurozone composite PMI showed a jump to 53.2 in January from 52.1 in December. The manufacturing PMI rose to 53.9 from 52.7 while the services PMI rose to 51.9 from 51.0.

Also, a preliminary reading of the consumer confidence index for the euro area showed a rise to minus 11.7 in January from minus 13.5 in December.

Thursday, 23 January 2014

BoJ leaves monetary policy unchanged

The Bank of Japan left its monetary policy unchanged on Wednesday. BoJ Governor Haruhiko Kuroda told reporters after its monetary policy meeting that “prices have been moving in line with our forecast”.

Meanwhile, the Japanese economy is continuing to recover. A report on Wednesday showed that its leading economic index increased for the third successive month in November, rising to 111.1, higher than a preliminary estimate of 110.8, from 109.8 in October.

The coincident economic index rose to 110.7 in November, also better than the preliminary estimate of 110.5, from 110.4 in the prior month.

The UK economy is also growing, pushing the unemployment rate down to 7.1 percent in the three months to November, just above the 7 percent threshold for the Bank of England to consider interest rate hikes.

Wednesday, 22 January 2014

Japan's finances at risk of collapse

Morgan Stanley's Robert Feldman recently warned that Japan's government faces a possible crisis. From Bloomberg.

The Japanese government has two to three years to curb expenditures or face a possible crisis, according to Robert Feldman, the head of Japan economic research at Morgan Stanley MUFG Securities Co...

“There’s the risk interest payments would swell should the government fail to cut budget deficits when inflation and yields grind higher,” Feldman said in an interview in Tokyo on Jan. 8. “Absent an increase in tax revenues stemming from a tangible improvement in the real economy, there is a risk of collapse.”

Indeed, a paper by Charles Yuji Horioka, Takaaki Nomoto and Akiko Terada-Hagiwara on Tuesday also warned that the Japanese government faces increasing pressures to reduce its debt-to-GDP ratio.

Japan’s massive government debt has not wreaked havoc in the past because of robust domestic saving, especially household saving (and, in more recent years, corporate saving) and a temporary inflow of foreign capital caused by the Global Financial Crisis, but it may wreak havoc in the future as both of these factors become less applicable unless the government debt-to-GDP ratio can be brought under control quickly.

Tuesday, 21 January 2014

Stocks fall as China's growth slows, Japanese industrial production declines

Asian stocks fell on Monday with the MSCI Asia Pacific Index falling 0.2 percent.

Chinese stocks were among the biggest losers in the region, with the Shanghai Composite Index falling 0.7 percent following news that China's economy slowed in the fourth quarter.

Japanese stocks also fell on Monday, the Topix falling 0.3 percent. Final data on Japan's industrial production showed that output fell 0.1 percent in November instead of a 0.1 percent increase initially estimated.

European stocks were little changed on Monday, with the STOXX Europe 600 Index slipping 0.1 percent.

US stock markets were closed on Monday for a holiday.

Monday, 20 January 2014

China's economy and home prices slow at end of 2013

Data on Monday showed that China's economy slowed slightly at the end of 2013.

China's GDP grew 7.7 percent in the fourth quarter of last year from the previous year, down from 7.8 percent growth in the third quarter. For 2013 as a whole, the economy grew 7.7 percent, the same as in 2012.

For the month of December, industrial production rose 9.7 percent from a year earlier while retail sales rose 13.6 percent. Fixed-asset investment excluding rural households increased 19.6 percent in 2013.

Over the weekend, China had released data showing that new home prices continued to rise in December. When compared with the previous year, home prices increased in 69 of the 70 cities tracked by the government.

Nevertheless, calculations by Reuters showed that average new home prices in the 70 cities rose 0.4 percent in December on the month, slowing from 0.5 percent in November and the fourth straight slowdown since a 0.8 percent increase in August.

Saturday, 18 January 2014

US industrial output rises but housing starts fall

Economic data on Friday were mixed.

In the US, industrial production rose 0.3 percent in December. This contributed to a 6.8 percent increase for the fourth quarter as a whole, the largest quarterly increase since the second quarter of 2010.

However, the preliminary January reading of the Thomson Reuters/University of Michigan consumer sentiment index came in at 80.4, down from 82.5 in December.

Homebuilding eased in December. Housing starts fell 9.8 percent last month while building permits fell 3.0 percent. However, the declines came after starts had jumped to a six-year high in November.

Elsewhere, construction production in the euro area fell 0.6 percent in November, the third consecutive decline.

However, UK retail sales rose 2.6 percent in December. From the previous year, sales rose 5.3 percent, the biggest increase since October 2004.

In Japan, the government assessed the economy as “recovering at a moderate pace” in a report on Friday as another report showed that department store sales rose 1.7 percent in December from a year earlier.

However, Japanese consumer confidence worsened in December. The Cabinet Office's consumer confidence index fell to 41.3 last month from 42.5 in November.

Friday, 17 January 2014

Bernanke defends QE as US economy shows continued growth

On Thursday, Federal Reserve Chairman Ben Bernanke came out to justify the Fed's quantitative easing. Reuters reports:

In his last planned public remarks as head of the central bank, Bernanke said concern about the potential harm to financial stability is the only risk from unconventional monetary policies "that I find personally credible."

But, he added "... we don't think that financial stability concerns should at this point detract from the need for monetary policy accommodation, which we are continuing to provide," Bernanke said.

The Fed's monetary policy does indeed appear to have kept the US economy afloat without triggering much inflation so far.

A report on Thursday showed that homebuilder confidence weakened a little in January with the NAHB/Wells Fargo Housing Market Index falling to 56 in January from 57 in December. Nevertheless, the index has now been above 50 for eight consecutive months.

Other US economic data on Thursday also pointed to continued growth.

Initial claims for state unemployment benefits fell 2,000 last week to 326,000, the second consecutive decline.

The Philadelphia Federal Reserve Bank reported that its business activity index rose to 9.4 points in January from 6.4 in December.

With sustained economic growth, consumer prices in the US increased 0.3 percent in December, pushing the annual inflation rate up to 1.5 percent from 1.2 percent in November. However, it remained below the Fed's inflation target of 2 percent.

Elsewhere in the world, Japanese economic data on Thursday were also positive. Core machinery orders jumped 9.3 percent in November to a five-year high while the tertiary index rose 0.6 percent in November after falling 0.9 percent in October.

Thursday, 16 January 2014

S&P 500 back at record high as World Bank raises global growth forecast

US stocks are finally showing a gain for 2014. The S&P 500 rose 0.5 percent on Wednesday to hit a new all-time high.

The gain in stocks came as the Federal Reserve's latest Beige Book reported “moderate” growth last month and a “positive” economic outlook in most Fed districts.

The good news on Wednesday was not restricted to the US economy. The World Bank raised its global growth forecast for 2014 to 3.2 percent from 3.0 percent in June. While the US growth forecast was unchanged at 2.8 percent, the euro area is now forecast to grow 1.1 percent this year compared to the previous forecast of 0.9 percent.

Investors also showed greater optimism on the eurozone economy on Wednesday. European stocks rose, with the STOXX Europe 600 rising 1.0 percent to hit its highest level since January 2008.

Eurozone government bonds also rose on Wednesday. Spain's 10-year yield fell five basis points to 3.77 percent. Portugal's 10-year yield fell 13 basis points to 5.16 percent, the lowest since August 2010, while the government sold one-year bills at an average yield of 0.869 percent, the lowest since November 2009.

Meanwhile, interest rates also fell in China on Wednesday, with one-year interest-rate swaps falling 14 basis points, the most in more than a week, to 4.92 percent.

The decline came after the People's Bank of China reported slower credit growth in December. New local currency loans came in at 482.5 billion yuan, down from the previous month's 624.6 billion yuan. M2 money supply rose 13.6 percent last month from a year earlier, down from a 14.2 percent rise in November. Total social financing aggregate was 1.23 trillion yuan, unchanged from the previous month.

However, Brazil's central bank remains in tightening mode. On Wednesday, its monetary policy committee voted unanimously to raise the Selic rate by 50 basis points to 10.50 percent, the highest in two years.

Wednesday, 15 January 2014

US stocks jump as retail sales rise, Japanese current account deficit hits record

US stocks rebounded on Tuesday, the S&P 500 rising 1.1 percent after having fallen 1.3 percent on Monday.

US economic data on Tuesday had been positive. Retail sales rose 0.2 percent in December. Excluding autos, retail sales rose 0.7 percent, the biggest increase since February.

The euro area also had positive news to report on Tuesday. Industrial production in the region rose 1.8 percent in November, the biggest increase since May 2010.

Elsewhere in Europe, the UK reported on Tuesday that its inflation rate fell to 2.0 percent in December. This was the first time in four years that the inflation rate had come within the Bank of England's target.

There were mixed data from Japan on Tuesday though.

The Cabinet Office's economy watchers survey for December showed that the current conditions index rose to 55.7 from 53.5 in November. The future conditions index, though, dipped to 54.7 in December from 54.8 in November.

More disappointingly, Japan's current account deficit tripled in November from the previous year to hit a record 592.8 billion yen as a weak currency pushed up the country's energy imports.

Tuesday, 14 January 2014

US stocks fall as earnings yield narrows gap with Treasury yield

US stocks fell on Monday.

The S&P 500 declined 1.3 percent, the most in two months. It is down 1.58 percent so far in 2014, the worst start to a year since 2009.

A Bloomberg article suggests that stocks may have lost their allure as valuations have become stretched.

Rising Treasury yields and the biggest equity market rally in 16 years are leading one measure of stock valuations to the most bearish level since 2011.

Profits as a percentage of the Standard & Poor’s 500 Index’s price, known as the earnings yield, totaled 5.76 percent last week, compared with the 2.86 percent payout on 10-year Treasuries, according to data compiled by Bloomberg. At 2.9 percentage points, the gap, which narrows as equities get more expensive relative to debt, is the smallest since March 2011.

The last time spreads between bond and earnings yields were this compressed, the S&P 500 posted its biggest retreat of the bull market, falling 19 percent between April and October 2011...

“We are due for a correction,” said Peter Sorrentino, who helps manage about $14.8 billion at Huntington Asset Advisors in Cincinnati and is buying options to protect against a decline in the stock market. “It’s not a question of if, but how bad.”

And the WSJ's MoneyBeat blog noted on Monday that Goldman Sachs has raised concerns about the market's valuation.

“S&P 500 valuation is lofty by almost any measure,” David Kostin, equity strategist at Goldman Sachs, wrote in a research note to clients. “We believe S&P 500 trades close to fair value and the forward path will depend on profit growth rather than [price-to-earnings] expansion.”

However, while many analysts now seem to acknowledge that the US stock market is fully or even overvalued, few expect stocks to fall this year. Goldman Sachs, for example, still sees the S&P 500 rising to 1,900 at year-end for a 3% gain.

Saturday, 11 January 2014

US stocks gain on weak employment

US stocks managed to end with a gain in its first full trading week for 2014. The S&P 500 rose 0.2 percent on Friday to end the week up 0.6 percent.

The rise in stocks was driven by lowered expectations for the Federal Reserve to reduce its monetary stimulus after a surprisingly weak employment report on Friday. US non-farm payrolls rose just 74,000 in December, the smallest gain since January 2011.

The unemployment rate did decline to 6.7 percent, the lowest since October 2008, but mainly because more people left the labour force.

The weak employment growth in December was partly attributed to weather. Figures based on the household survey showed 273,000 Americans were not at work because of weather during the survey week.

Economic data from the UK on Friday were also disappointing. Construction output shrank 4.0 percent in November while industrial production was flat in December. Data from the British Retail Consortium showed that retail sales grew 1.8 percent in December, down from 2.3 percent in November.

Nevertheless, the National Institute of Economic and Social Research said on Friday that the UK economy grew by 0.7 percent in the last three months of 2013. That was slower than the 0.8 percent growth in the third quarter but still left growth for the full year at 1.9 percent, the fastest since 2007.

Earlier on Friday, China reported that its annual trade in goods passed the $4 trillion mark for the first time in 2013. Exports had increased 4.3 percent in December while imports rose 8.3 percent.

In Japan, data on Friday showed that the leading index rose to 110.8 in November from 109.8 in October while the coincident index rose to 110.5 from 110.4.

Friday, 10 January 2014

ECB and BoE leave monetary policies unchanged

The European Central Bank left its monetary policy unchanged at its meeting on Thursday, maintaining its key interest rate at 0.25 percent.

Economic data from the euro area on Thursday had been positive. The eurozone economic sentiment indicator rose to 100.0 in December from 98.4 in November. In Germany, industrial production rose 1.9 percent in November after having fallen 1.2 percent in October.

Elsewhere in Europe, the Bank of England also left its monetary policy unchanged at its meeting on Thursday.

Meanwhile, the likelihood of easier monetary policy in China increased after a report on Thursday showed that its inflation rate fell to 2.5 percent in December from 3.0 percent in November.

Thursday, 9 January 2014

US companies add jobs, eurozone unemployment unchanged

Economic data on Wednesday were mostly positive.

In the US, ADP reported that companies added 238,000 jobs in December, the most since November 2012.

In the euro area, unemployment remained a problem with the jobless rate holding at a record high of 12.1 percent in November but retail sales jumped 1.4 percent after two months of declines.

In the euro area's largest economy, Germany, exports rose 0.3 percent in November but imports fell 1.1 percent. Industrial orders rebounded 2.1 percent in November after having fallen by the same amount in the previous month.

Wednesday, 8 January 2014

US stocks, dollar rise as central bank policies look like diverging

US stocks rose for the first time in 2014 on Tuesday. The S&P 500 climbed 0.6 percent after having fallen 1.2 percent over the first three trading days of the year.

The US dollar also rose on Tuesday after a report showed that the US trade deficit fell in November after exports rose 0.9 percent and imports fell 1.4 percent.

There were also positive data from the euro area on Tuesday. In Germany, retail sales rose 1.5 percent in November and unemployment fell by 15,000 in December.

For the euro area as a whole, inflation slowed to 0.8 percent in December from 0.9 percent in November.

The low inflation in the euro area means that the European Central Bank is likely to lean towards more stimulus even as the Federal Reserve is starting to remove monetary stimulus. Bloomberg has noted the split in the likely direction of monetary policy among the world's major central banks.

The united stimulus front of central banks is starting to splinter as 2014 dawns.

The Federal Reserve -- soon to be led by Janet Yellen, confirmed today by the Senate as the next chairman -- begins pulling back on its quantitative easing amid stronger U.S. growth, and the Bank of England is trying to cool its housing market. The European Central Bank and Bank of Japan lean toward more monetary action to fight weak inflation. The ECB and BOE both hold policy meetings this week.

The erosion of the mostly synchronized stimulus that supported the world economy for the past six years has investors anticipating a stronger U.S. dollar and weaker Treasuries...

“The world’s main central banks have very different things going on, which is an opportunity for investors,” said Scott Thiel, London-based head of the global bond team at BlackRock Inc., the world’s biggest money manager. “It’s very important to look at the economies close to inflection points on monetary policy.”

Tuesday, 7 January 2014

Global services sector slows

Data on Monday showed that global services activity slowed at the end of 2013.

In the US, the Institute for Supply Management's non-manufacturing index fell to 53 last month from 53.9 in November and Markit's services PMI fell by 0.2 point to 55.7 in December.

However, US manufacturing showed resilience as new factory orders jumped 1.8 percent in November after having fallen 0.5 percent the previous month.

In the euro area, Markit's composite output index for the region rose to 52.1 in December from 51.7 in November even though the services PMI fell to 51.0 from 51.2.

Services also slowed in the UK in December. Markit's services index fell to a six-month low of 58.8 last month from 60.0 in November, helping to pull the composite index down to 59.5 from 60.4.

Finally, China also confirmed slower growth in its services sector on Monday. The HSBC/Markit services PMI fell to 50.9 in December, its lowest since August 2011, from 52.5 in November.

Monday, 6 January 2014

US stocks expected to rise in 2014 despite higher valuation

Stocks in the United States have started 2014 on a softer note as analysts expect more muted returns for the year after the strong performance last year.

The Standard & Poor's 500 Index fell a total of 0.9 percent on the first two trading days of 2014 after hitting a record high of 1,848.36 at the end of 2013.

Stocks are expected to perform less well this year than last year. A Bloomberg report said that analysts forecast that the S&P 500 will climb by an average of 5.8 percent this year. This forecast is the lowest since 2005 and compares with a 30 percent gain in 2013.

“While valuation is by no means grossly overvalued, current levels suggest it may be more difficult for the market to continue its impressive run without equally impressive earnings growth,” Brian Belski, the chief investment strategist at BMO Capital Markets, wrote in a report last month.

Higher valuations may not have an immediately negative impact on stocks though. The Bloomberg report noted that following 156 quarters since 1936 in which the S&P 500 price-earnings ratio expanded, the index rose over the next three months 108 times. The average gain was 3 percent compared with 1.9 percent in all 308 quarters over that period.

However, Russ Koesterich, chief global investment strategist at BlackRock, noted in a blog post over the weekend that stocks do less well over the full year following multiple expansion. Since 1954, the S&P 500 has returned, net of dividends, an average of 5.85 percent following years when multiples expanded compared to an average return of over 10 percent in years following multiple contraction.

Furthermore, Koesterich noted that not only did multiples rise last year but interest rates increased as well. In the 14 instances between 1954 and 2013 when both multiples and interest rates rose, the average return on the S&P 500 in the following year was just 2.3 percent.

Nevertheless, Koesterich remains positive on US stocks, expecting them to “finish 2014 with a mid- to high-single digit gain”. He says that with bonds yields still low, they represent little competition for stocks, while a stronger economy this year should translate into faster earnings growth.

Saturday, 4 January 2014

China services slow, eurozone corporate lending falls

Economic data on Friday were mixed.

In China, the National Bureau of Statistics and China Federation of Logistics and Purchasing reported that the non-manufacturing PMI fell to 54.6 in December from 56.0 in November, indicating continued but slower growth in services activity.

In the euro area, M3 money supply grew at an annual pace of 1.5 percent in November, up from 1.4 percent in October. However, lending to companies fell 3.9 percent, the fastest rate of contraction on record.

In the UK, the Markit/CIPS construction PMI fell to 62.1 in December from 62.6 in November but remained at the second highest level in more than six years.

Indeed, other UK data on Friday showed continued strength in housing, with Nationwide reporting that house prices rose 1.4 percent in December, the biggest increase in more than four years, and Bank of England data showing that mortgage approvals rose to 70,758 in November, the highest since since January 2008, from 68,029 in October.

However, the BoE data also showed that net business lending fell by 4.7 billion pounds in November, leaving it 3.9 percent lower than a year earlier.

Friday, 3 January 2014

Manufacturing grows, stocks fall

Reports on Thursday were positive for the global economy, with manufacturing in particular showing continued growth at the end of 2013.

In the US, Markit's manufacturing PMI rose to 55.0 in December from 54.7 in November. The Institute for Supply Management’s manufacturing PMI fell to 57.0 in December from 57.3 in November but the latter had been the highest since April 2011.

Other reports from the US on Thursday showed that construction spending rose 1.0 percent in November to the highest level since March 2009 and initial claims for unemployment benefits fell by 2,000 last week to 339,000, the lowest level in a month.

Data on Thursday showed that manufacturing in the euro area also grew in December. Markit's manufacturing PMI for the region rose to 52.7 last month, its best reading in 31 months, from 51.6 in November.

UK manufacturing slowed in December though. The Markit/CIPS manufacturing PMI fell to 57.3 last month after hitting a three-year high of 58.1 in November.

Manufacturing also slowed in China in December. A report on Thursday showed that HSBC's manufacturing PMI fell to 50.5 last month from 50.8 in November. This followed a report on Wednesday from the National Bureau of Statistics showing that the official PMI fell to 51.0 last month from 51.4 in November.

The signs of continued economic growth for the end of last year did not help markets start the new year positively, however. The S&P 500 fell 0.9 percent on Thursday while the STOXX Europe 600 Index lost 0.7 percent.

Thursday, 2 January 2014

Global market winners and losers of 2013

Matthew Boesler at Business Insider tallies the market returns for 2013 and concludes that the Nikkei 225 and the S&P 500 stock indices were the best performers among the major asset classes, having risen 57 percent and 31 percent respectively.

Boesler also noted that the dollar-yen exchange rate saw a substantial rise of 22 percent, but did not note that this tempered the performance of the Nikkei 225. In US-dollar terms, the Nikkei 225 rose 29 percent, thus actually slightly underperforming the S&P 500.

According to Boesler, gold and US Treasuries were the worst performers, both losing money for the year. Emerging markets, including the Shanghai Composite, also lost money.

Wednesday, 1 January 2014

S&P 500 ends 2013 at record high

US stocks ended 2013 at another record high. The S&P 500 rose 0.4 percent on Tuesday, bringing its yearly gain to 30 percent, the best since 1997.

The US stock market was the best performer among the major markets. Including the rest of the world's stocks, the MSCI All-Country World Index also managed to rise 20 percent in 2013, its biggest annual advance since 2009.

The record-breaking run in the US has been helped by positive economic data. That continued on Tuesday.

The Conference Board said its consumer confidence index rose to 78.1 in December from 72 in November.

The S&P/Case-Shiller index of property prices in the US rose 13.6 percent in October from a year ago, the most since February 2007.

The MNI Chicago Report business barometer fell to 59.1 in December from 63.0 in November but remained well above the 50 mark that indicates growth.