BIS sees signs of trouble for financial systems

In its latest annual report released on Sunday, the Bank for International Settlements has warned of “worrying” early signs of unsustainable property price and credit growth. Reuters reports:

“Several early warning indicators signal that vulnerabilities have been building up in the financial systems of several countries,” the BIS said in its annual report.

While no early warning indicator is completely reliable, dismissing such readings as inappropriate would be too easy, it said.

In many emerging market economies and Switzerland the credit-to-GDP gap, measuring the current ratio against its long-term trend, is “well above the threshold that indicates trouble”, the Basel-based bank said.

The gap between real residential property prices and their long-term trend also suggests risks are accumulating in the housing sector, it said...

Rising rates would push the debt service ratios - the share of income used to service debt - of several countries into critical territory, the BIS said, adding that borrowers in China were currently seen as most vulnerable.

The full report can be found here.

Eurozone confidence falls, US consumer confidence rises

The euro area's economic recovery appears to have suffered a setback. The European Commission's economic sentiment indicator for the region fell to 102.0 in June from 102.6 in May.

The confidence indicator for industry fell to minus 4.3 from minus 3.1 while the indicator for services rose to 4.2 from 3.8. The indicator for consumer confidence fell to minus 7.5 from minus 7.1.

However, in the US, the Thomson Reuters/University of Michigan’s final consumer sentiment index for June showed a rise to 82.5 from 81.9 in May. The preliminary reading for June had been 81.2.

Real consumer spending falls in US and Japan as inflation accelerates

After having been flat in April, US consumer spending rose just 0.2 percent in May, according to a report on Thursday. The increase in spending last month came below the expectations of economists for a 0.4 percent rise based on a Bloomberg survey.

Personal income did better though, rising 0.4 percent in May.

Inflation also accelerated. The personal consumption expenditure price index rose 0.2 percent in May from the prior month and was up 1.8 percent from a year earlier, the biggest 12-month increase since October 2012.

After adjusting for inflation, consumer spending fell 0.1 percent last month after falling 0.2 percent in April.

Data on Friday showed that Japanese consumer spending fared even worse in May.

As Japanese consumer prices excluding fresh food rose 3.4 percent year-on-year in May, the fastest pace in 32 years, household spending plunged 8.0 percent in May year-on-year.

Encouragingly for Japan, though, retail sales fell just 0.4 percent in May from the previous year, much better than the 4.3 percent fall in April, and the unemployment rate fell to 3.5 percent last month, the lowest level in nearly 17 years.

US GDP revised lower but Markit's US index hits record high

US economic data on Wednesday were mixed.

Real GDP shrank at a 2.9 percent annual rate in the first quarter, worse than the previous estimate of a 1.0 percent contraction.

Durable goods orders fell 1.0 percent in May but orders for non-defence capital goods excluding aircraft rebounded 0.7 percent after falling 1.1 percent in April.

Markit's flash reading of the US services PMI for June came out at 61.2, the highest since the survey began in October 2009, and up from 58.1 in May. That helped push the composite index to 61.1 in June, also a record high, from 58.4 in May.

European economic data on Wednesday were also mixed.

GfK's German consumer confidence for July came out at 8.9, up from 8.6 in June and the highest since December 2006.

However, UK retail sales growth slowed in June to a seven-month low, based on the CBI distributive trades survey. The survey showed a decline in the retail sales balance to +4 this month from +16 in May.

US home sales jump, consumer confidence rises

US economic data on Tuesday were mostly positive.

The S&P/Case-Shiller composite index of house prices in 20 metropolitan areas rose just 0.2 percent in April but new home sales jumped 18.6 percent in May to the highest level since May 2008.

The Conference Board reported that its consumer confidence index rose to 85.2 in June, the highest reading since January 2008, from 82.2 in May.

However, in Germany, Ifo's business climate index fell to 109.7 in June from 110.4 in May.

US economic growth above trend, global manufacturing expands

US economic data on Monday were positive.

The Chicago Federal Reserve reported that its national activity index rose to +0.21 last month from -0.15 in April. The index's three-month average fell to +0.18 from +0.31 but still suggested that US economic growth was above its historical trend.

The US housing market is also regaining momentum. Another report on Monday showed that existing home sales rose 4.9 percent in May.

In another positive sign for the US economy, Markit's preliminary US manufacturing PMI for June hit 57.5, the highest since May 2010.

Elsewhere, Markit's preliminary June manufacturing PMIs for China and Japan also showed improvements, coming in 50.8 and 51.1 respectively and marking the return to expansion for the sector for these two Asian economies.

However, the preliminary June reading of Markit's composite index for the euro area showed a fall to 52.8 from 53.5 in May.

Hussman: This time is different

The global bull market in stocks continued last week. From Bloomberg:

The MSCI All-Country World Index jumped 1 percent for the five days, reaching a record close on June 19. The Standard & Poor’s 500 Index increased 1.4 percent to 1,962.87 and the Dow Jones Industrial Average gained 171.34 points, or 1 percent, to 16,947.08...

The Stoxx Europe 600 Index advanced 0.3 percent for the week, trading near the highest level since 2008...

The MSCI Asia Pacific Index advanced 0.4 percent for a sixth week of gains, the longest stretch of increases since August. The measure reached its highest level since June 2008 during the week.

John Hussman says in his latest article that despite overvalued, overbought, overbullish conditions, the stock market has continued to advance, unlike at the 1929, 1972, 1987, 2000 and 2007 peaks, when such conditions were followed by steep losses in short order.

So yes, this time is different. It is different because the Federal Reserve’s zero-interest rate policy has starved investors of all sources of safe return, forcing them to accept risk at increasingly higher prices and progressively dismal long-term prospective returns. More importantly, this time is different because warning signs that appeared at every major pre-crash market peak have persisted and escalated, without resolution, far longer than they have done so historically...

Unfortunately, what is not different is that rich valuations are predictably followed by dismal long-term returns, even if short-term consequences are held in suspended animation for a period of time. What is not different is that compressed risk-premiums have a tendency to surge abruptly on events that are either entirely unexpected or, more often, that stem from recognized sources of risk that produce outcomes decidedly more negative than investors had assumed. What is not different is the habit at market extremes for investors to assign elevated price/earnings multiples to earnings that are themselves elevated and unrepresentative of the long-term stream of cash flows their investments will deliver...

According to Bloomberg, the S&P 500 is trading at 16.6 times estimated earnings. The STOXX Europe 600 is trading at 15.6 times while the MSCI Asia Pacific is trading at 13.4 times.

IMF calls for QE for euro area amid collapse in market volatility

The International Monetary Fund has suggested that the European Central Bank implement quantitative easing. From Bloomberg on Friday:

“If inflation remains stubbornly low, the ECB should consider a large-scale asset purchase program,” the Washington-based IMF said in an assessment of the euro-area economy. “This would boost confidence, improve corporate and household balance sheets and stimulate bank lending.”

Speaking to reporters in Luxembourg late yesterday after making the recommendations to euro finance ministers, IMF Managing Director Christine Lagarde said inflation’s resistance to the ECB’s latest measures would represent the “stubbornness” that triggers quantitative easing.

Adding to the concerns about the eurozone economy, a report from the European Commission on Friday showed that its consumer confidence index for the region fell to minus 7.4 in June from minus 7.1 in May.

And yet, European stocks have been performing well. The STOXX Europe 600 Index rose 0.3 percent this week and is trading near the highest level since 2008.

Therein lies the dilemma for the ECB. From Bloomberg:

The European Central Bank’s unprecedented effort to fend off the threat of deflation has brought volatility in financial markets to a standstill. Policy makers aren’t so serene.

Price swings in euro-area bonds and equities have collapsed, borrowing costs for the riskiest issuers reached record lows and Cyprus accessed funding markets just a year after receiving a bailout. Rather than congratulate ECB President Mario Draghi, officials from Britain to the Bundesbank say persisting with the easing policy for too long may store up trouble.

“There’s a general discussion of whether investors are getting too complacent about risks,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “At some point we are likely to reach levels that could not give proper compensation for the risk people are taking. This is similar to what happened ahead of the financial crisis.”

Markets rise as US leading index increases again

The Federal Reserve's announcement on Wednesday that it will keep interest rates low for a “considerable time” continued to affect markets on Thursday. Gold jumped 3.3 percent on Thursday while global stocks rose to a record high.

Among economic data on Thursday, the Conference Board reported that its index of US leading indicators rose 0.5 percent in May, its fourth consecutive increase.

Another report from the US on Thursday showed that jobless claims fell 6,000 to 312,000 last week.

However, in the UK, the strong run of economic data took a break on Thursday with a report showing that retail sales fell 0.5 percent in May, the first decline since January.

Fed maintains taper, Japanese exports fall, Chinese home prices drop

The Federal Reserve decided to trim its bond-buying by $10 billion for a fifth straight meeting at its monetary policy meeting on Wednesday.

“Economic activity is rebounding in the current quarter and will continue to expand at a moderate pace,” Fed Chair Janet Yellen said at a press conference after the meeting.

However, she also noted that “underutilization in the labor market remains significant” and that while the Fed is likely to “reduce the pace of asset purchases in further measured steps”, it expects interest rates to stay low for a “considerable time” after the purchases end.

Fed officials also released a new set of quarterly forecasts, predicting that the fed funds rate will be 1.13 percent at the end of 2015 and 2.5 percent a year later. In March, they had predicted that the rate will rise to 1 percent at the end of next year and 2.25 percent in 2016.

Despite the quicker rate of rate increase being predicted, investors were optimistic enough to push the S&P 500 up 0.8 percent to another record high on Wednesday.

Meanwhile, data on Wednesday showed that the Bank of Japan's bond purchases has made it the single biggest holder of domestic government bonds for the first time.

However, the BoJ's monetary policy has done little to boost spending among Japanese firms. Nonfinancial companies’ holdings of cash and deposits rose 4.1 percent to 232 trillion yen at the end of March while their borrowing from private banks rose at the slowest pace since the final quarter of 2012.

And although the BoJ's monetary policy did weaken the yen, the effects on trade have not been wholly positive, with higher import prices pushing the trade balance into deficit.

That deficit did narrow in May as imports fell 3.6 percent from a year ago, the first decline in 19 months. However, exports also fell 2.7 percent last month.

While the US and Japanese central banks have been desperately buying bonds to stimulate the economy, such urgency has been less evident in China because of the latter's booming property market.

However, that boom may be coming to an end. A report on Wednesday showed that new home prices in China fell 0.2 percent in May, the first drop in two years. New home prices fell in 35 of the 70 cities surveyed.

US housing starts fall, inflation rises

The US housing recovery suffered a setback in May. A report on Tuesday showed that housing starts in the US fell 6.5 percent last month while building permits fell 6.4 percent.

Another report from the US on Tuesday showed that consumer prices rose 0.4 percent in May. It was the largest increase since February 2013 and pushed the 12-month inflation rate to 2.1 percent, the highest since October 2012.

In contrast, UK inflation fell to a 4½-year low of 1.5 percent in May from 1.8 percent in April, a report on Tuesday showed.

Another report on Tuesday, though, showed that UK house prices rose 9.9 percent in April, their biggest annual rise since June 2010.

IMF cuts US growth forecast as industrial production and homebuilder sentiment rise

The International Monetary Fund has cut its 2014 growth forecast for the US economy to 2.0 percent from 2.8 percent in April. The reduction was largely due to the economy’s contraction in the first quarter.

The growth forecast for 2015 was unchanged at 3.0 percent. Full employment is not expected to be attained until the end of 2017.

Meanwhile, the US economy appears to be already recovering from the first quarter weakness.

Reports on Monday showed that US industrial production rose 0.6 percent in May, the Federal Reserve Bank of New York’s factory index rose to 19.3 in June, the highest in four years, from 19 the prior month, and the National Association of Home Builders/Wells Fargo housing market index rose to 49 this month from 45 in May.

The positive data did little to boost US stocks. The S&P 500 rose just 0.1 percent on Monday as the violence in Iraq showed no sign of abating.

In Europe, the STOXX Europe 600 fell 0.5 percent.

Markets being driven by central banks

Stocks in the United States fell last week after a run that had taken it to record highs.

The Standard & Poor's 500 index fell 0.7 percent to 1,936.16, its first weekly slide in a month, despite gaining 0.3 percent on Friday and after hitting a new record high on Monday.

Notwithstanding the decline last week, trader and blogger Macro Man said in a post on Thursday that the strong performance of stocks recently has been mainly due to the combination of monetary stimulus from the Federal Reserve and high corporate profitability.

[I]s it any wonder that stocks are at their highs when corporate profits as a percentage of GDP are as well? As is corporate cash as a percentage of GDP? It's a well-known aphorism ... that the market is not the economy.

As for the Fed ... it is very much the case that the Fed's assorted piss-taking policies have significantly impacted overall liquidity conditions as well as the volatility environment...

Long-time readers may recall that Macro Man has a proprietary model...

... Macro Man can break the factors into two segments: what he would term as “growth” and “liquidity” drivers of forecast return.... [T]he liquidity factors have been very consistently high during the past few years' bull market. For most of the past several years, however, the growth components have been somewhat below average- that's the “secular stagnation” bit.

And the Federal Reserve is not the only central bank whose monetary stimulus is boosting stocks. The European Central Bank's policies have also helped European stocks do well recently, according to a Bloomberg report.

The two-year rally that has restored more than $4 trillion to European share prices is sending equity valuations to levels not seen in a decade just as investors turn away from record low bond yields.

Gains have pushed the Stoxx Europe 600 Index to 17.5 times annual earnings, the highest since 2002, data compiled by Bloomberg show...

The advance in the Stoxx 600 since June 2012 has pushed the gauge up 48 percent and sent its price-earnings ratio 26 percent above its decade average relative to reported earnings, according to Bloomberg data...

[ECB President Mario] Draghi’s policies have encouraged investors to bid up European assets from bonds to stocks and avoid cash. They’ve added $43 billion to European mutual and exchange-traded funds traded in the U.S. this year, according to EPFR Global data tracked by Bank of America Corp. Meanwhile, they poured $3.3 billion into American equities funds.

And of course, there is the Bank of Japan, whose asset purchases are now paralysing markets, according to a Bloomberg report.

The Bank of Japan’s unprecedented asset purchase program has released a creeping paralysis that is freezing government bond trading, constricting the yen to the tightest range on record and braking stock-market activity.

Historical price volatility on Japanese bonds slid to a 2 1/2-year low of 0.913 percent on June 13 and a lack of activity delayed the start of trading for four days last week. The yen has been in a 4.68-yen range since Jan. 1, the tightest since Japan ended currency controls four decades ago. Average trading on the Topix index is near its lowest level in 1 1/2 years.

Asset purchases have not only made BOJ Governor Haruhiko Kuroda the biggest player in Japan’s $9.6 trillion bond market, they have also given him the most leverage over currency and equity markets in the world’s third-largest economy...

The idea that monetary stimulus from central banks has driven up markets is not new. Many analysts have been saying this for years.

An International Monetary Fund paper published in May last year said that central banks' monetary stimulus may be leading to greater risk taking (see “Economies and markets have improved, thanks to central banks”).

The paper also said that the eventual exit from exceptionally easy monetary conditions may prove “challenging”. This view has recently been echoed by others (see “As US economy improves, monetary policy normalisation becomes a risk”).

Until then, though, Macro Man thinks that “the strategic trend in stocks (as opposed to shorter-term tactical developments) looks to be head-scratchingly higher, floating on a liquidity tide that lifts all boats (and more than a few turds.)”.

BoJ maintains monetary policy, Chinese industrial output and retail sales rise, US consumer sentiment falls

The Bank of Japan kept monetary policy unchanged at its policy meeting on Friday. In a statement accompanying the decision, the BoJ said that “Japan's economy is expected to continue a moderate recovery”.

The BoJ refrained from applying new stimulus despite a report on Friday showing that industrial production fell 2.8 percent in April, worse than a preliminary estimate of a 2.5 percent decline.

The economic data from China on Friday were more positive though.

Industrial production rose 8.8 percent in May from the previous year, up from 8.7 percent in April. Retail sales rose 12.5 percent in May, up from 11.9 percent in April.

However, fixed-asset investment slowed to a 17.2 percent rise year-on-year in the January-May period from 17.3 percent in the first four months of the year.

In the US, the Thomson Reuters/University of Michigan preliminary consumer sentiment index for June unexpectedly fell to 81.2 from 81.9 in May.

Another report on Friday showed that US producer prices fell 0.2 percent in May.

Iraq violence sends stocks down, oil up

Violence in Iraq shook markets on Thursday. US stocks fell, the S&P 500 declining 0.7 percent. West Texas Intermediate oil rose 2 percent.

Economic data on Thursday were mostly positive though.

In the US, retail sales rose 0.3 percent in May after having jumped 0.5 percent in April. However, excluding auto and gas, sales were unchanged in May.

In the euro area, industrial production rose 0.8 percent in April after having fallen 0.4 percent.

In China, new local-currency bank loans rose 12.4 percent in May while M2 money supply rose 13.4 percent. Aggregate total social financing fell to 1.4 trillion yuan in May from 1.55 trillion yuan in April.

However, in Japan, core machinery orders fell 9.1 percent in April after having jumped a record 19.1 percent in March.

New Zealand raises rates as BoE hesitates

The Reserve Bank of New Zealand raised interest rates for the third time this year on Thursday. Bloomberg reports:

“It is important that inflation expectations remain contained and that interest rates return to a more neutral level,” Governor Graeme Wheeler said in Wellington after increasing the official cash rate by a quarter-percentage point to 3.25 percent. The Reserve Bank of New Zealand left its forecast for the 90-day bank bill rate broadly unchanged, suggesting borrowing costs may rise twice more this year.

In contrast to the RBNZ, the Bank of England has been slow to tighten monetary policy despite improving economic data. Alen Mattich says that BoE policy is being pulled in two directions.

Nowhere is the central bank’s dilemma more concisely captured than in the latest set of employment data, released Wednesday. U.K. unemployment fell faster than analysts had anticipated–to 6.6% against an expected rate of 6.7% and from 6.8% in March... On a single month basis, the unemployment rate was down to 6.4%. That’s within the Bank of England’s estimated equilibrium unemployment rate–the rate consistent with stable inflation–of between 6% and 6.5%.

In normal times, reaching the equilibrium rate of unemployment at a time when official interest rates are at historic lows would send inflation alarm bells ringing...

So why is the Bank of England not rushing to raise rates? The answer lies in the average earnings data released at the same time as the unemployment numbers. Average earnings rose a mere 0.9% on the year in April. That’s well below the inflation rate of 1.8% reported the same month.

But the unemployment rate is not the only indicator suggesting a need to raise interest rates.

UK house prices rose in May, with the Royal Institution of Chartered Surveyors reporting on Thursday that its main house price balance rose to +57 last month from +55 in April. That brings it back close to March's +58, the highest reading in 12 years.

But not all BoE officials are alarmed by the house price increases. From Reuters:

Britain's housing market upturn bears little resemblance to the debt-fuelled booms of the past, Bank of England policymaker Ben Broadbent said on Wednesday, adopting a more relaxed tone on housing risks than some of his peers...

While accepting that housing was currently the main potential threat to Britain's financial stability, Broadbent said past periods of strong house price growth were marked by rapid growth of risky mortgage debt. “We are not yet at that stage,” he told British lawmakers who were questioning him about his appointment as the BoE's next deputy governor for monetary policy...

Broadbent's comments contrast with firmer warnings on the risks of another house price bubble from some of his colleagues, including from BoE Governor Mark Carney, who has warned of rising numbers of high loan-to-income mortgages.

Developed economies expected to drive global growth

Developed economies appear set to gain momentum and drive global growth for the rest of this year, according to a World Bank report on Tuesday.

In its Global Economics Prospects report for June, the World Bank said that because of a bumpy start to the year, the growth projection for the global economy for 2014 as a whole has been marked down from 3.2 percent in January to 2.8 percent. Nevertheless, growth is expected to pick up speed as the year progresses, with the bulk of the acceleration coming from developed economies.

Similarly, the Organisation for Economic Co-operation and Development reported on Tuesday that its latest leading economic indicators suggest that member economies as a whole are likely to maintain growth momentum. However, it noted that “the growth momentum is weakening in most major emerging economies”, with the indicators showing weaker than usual growth in China, Russia and Brazil.

The UK economy is among those which appear to be showing strong growth momentum. A report on Tuesday showed that its industrial production rose 0.4 percent in April. That pushed the annual increase up to 3.0 percent, the biggest since January 2011.

Earlier, though, China's supposedly slowing economy appears not to have affected inflation yet. Instead, the inflation rate accelerated to 2.5 percent in May from 1.8 percent in April.

Japanese economy shows signs of improvement in May

While Japan's economy showed strong growth in the first quarter just before the hike in the sales tax in April, economic data for April had been weak.

May data have been more encouraging though, with Markit's composite index rising from April for example.

Monday brought more positive data for May.

A report from the Cabinet Office showed that the consumer confidence index rose to 39.3 in May from 37.0 in April.

Another report from the Cabinet Office based on its economy watchers survey showed that the current conditions index jumped to 45.1 in May from 41.6 in April while the future conditions index rose to 53.8 from 50.3.

Japan's first quarter growth revised up but trade deficit rises in April

A report on Monday showed that Japan's first quarter growth rate has been revised up to 1.6 percent from the preliminary estimate of 1.5 percent.

However, Japan's trade deficit rose 10.2 percent in April from a year ago as imports of fuel and electronics parts outpaced shipments of cars.

The current account showed a surplus of 187.4 billion yen though.

In contrast to Japan, China's trade surplus rose in May, a report showed on Sunday. Exports rose 7 percent last month from a year ago while imports fell 1.6 percent.

S&P 500 at new record as US employment surpasses recession peak

Markets rose on Friday. The S&P 500 gained 0.4 percent to make another record high. The MSCI All-Country World Index rose 0.6 percent to a six-year high and within 0.3 percent of its all-time high recorded in October 2007.

Boosting market sentiment on Friday was the US employment report, which showed that payrolls rose 217,000 in April, the fourth consecutive month that employment has increased by more than 200,000. The increase in payrolls also finally pushed total employment above its peak of 138.4 million reached in January 2008 near the beginning of the last recession.

The unemployment rate was unchanged at 6.3 percent.

There were also positive economic data from Germany on Friday. Industrial production rose 0.2 percent in April while the trade surplus widened as exports jumped 3.0 percent and imports rose 0.1 percent.

In contrast, the UK trade deficit widened in April as goods exports fell 1.5 percent while goods imports rose 0.8 percent.

Also reporting negative economic data on Friday was Japan. The leading index for Japan fell to 106.6 in April from 107.1 in March. The coincident index fell to 111.1 from 114.5.

ECB pushes rate below zero, markets rally

The European Central Bank cut its deposit rate to minus 0.1 percent on Thursday, becoming the first major central bank to take one of its main rates negative as it eased monetary policy further at its latest policy meeting.

The ECB cut its benchmark rate by 10 basis points to 0.15 percent and the marginal rate by 35 basis points to 0.4 percent.

The ECB also opened a 400-billion-euro liquidity channel tied to bank lending.

Markets rallied on the news. The S&P 500 rose 0.6 percent on Thursday, hitting another record high. The STOXX Europe 600 rose 0.4 percent.

In the UK, the Bank of England left monetary policy unchanged at its policy meeting on Thursday.

The ECB's latest measures come even as the eurozone economy showed signs of strength on Thursday.

Retail sales in the euro area rose 0.4 percent in April. That pushed the increase over the previous 12 months up to 2.4 percent, the most since March 2007.

Another report on Thursday showed that German factory orders rebounded 3.1 percent in April after having fallen 2.8 percent in March.

Earlier on Thursday, however, a report from China showed that the HSBC services PMI fell to 50.7 in May from 51.4 in April. Nevertheless, the composite PMI rose to 50.2 in May from 49.5 in April.

Services activity accelerate in US and euro area

Economic data on Wednesday provided further signs that the US economy is regaining momentum.

The Federal Reserve's Beige Book reported that economic growth strengthened throughout the country last month, Markit's services PMI jumped to 58.1 in May from 55.0 in April, helping to push the composite index up to 58.4 from 55.6, and the Institute for Supply Management's non-manufacturing index rose to 56.3 from 55.2.

However, a report from ADP showed that private employment increased by 179,000 in May compared with 215,000 in April, and the trade deficit increased 6.9 percent in April.

In the euro area, first quarter economic growth was confirmed at 0.2 percent on Wednesday.

Markit's composite index for the euro area fell to 53.5 in May from 54.0 in April though even as the services PMI rose to 53.2 from 53.1.

Markit's composite index for the UK also fell to 59.1 in May from 59.4 in April after the services PMI fell to 58.6 from 58.7.

However, Markit's services business activity index for Japan rose to 49.3 in May from 46.4 in April, helping to push the composite index up to 49.2 from 46.3.

US factory orders and auto sales rise, eurozone inflation and unemployment fall

Following Monday's strong manufacturing purchasing managers data, reports on Tuesday provided further signs of good growth for the US economy.

US factory orders rose 0.7 percent in April. It was the third consecutive increase and followed a 1.5 percent rise in March.

A report from Autodata showed that US auto sales surged 11.4 percent in May from a year earlier to a seasonally adjusted annual rate of 16.77 million units, the strongest pace since February 2007.

Meanwhile, the euro area reported on Tuesday that its inflation rate fell to 0.5 percent in May from 0.7 percent in April.

While this could put pressure on the European Central Bank to ease monetary policy further, another report on Tuesday showed that the unemployment rate also fell to 11.7 percent in April from 11.8 percent in March.

Manufacturing accelerates in US, slows in Europe

US economic data on Monday pointed to a pick-up in growth in the second-quarter.

The Institute for Supply Management's manufacturing PMI rose to 55.4 in May from 54.9 in April. Markit's US manufacturing PMI rose to 56.4 last month from 55.4 in April.

Construction spending rose 0.2 percent in April to the highest level since March 2009.

In contrast, European economic data on Monday pointed to slowing growth.

In the euro area, Markit's manufacturing PMI fell to 52.2 in May from 53.4 in April.

In the UK, the Markit/CIPS manufacturing PMI fell to 57.0 in May from 57.3 in April while mortgage approvals fell to 62,918 in April, 17 percent below a six-year high in January and the fewest since last July.

In China, Markit reported on Tuesday that the HSBC manufacturing PMI rose to 49.4 in May from 48.1 in April, an improvement that still left the sector in contraction, in contrast to the improved growth indicated by the official manufacturing PMI released on Sunday.

Meanwhile, another report from China on Tuesday showed that the official non-manufacturing PMI rose to 55.5 in May from 54.8 in April.

Manufacturing accelerates in China, stabilises in Japan

The latest economic data from Asia's two largest economies were mostly positive.

In China, manufacturing activity accelerated in May. The National Bureau of Statistics reported on Sunday that its official manufacturing PMI rose to 50.8 last month from 50.4 in March.

In Japan, a report from Markit on Monday showed that manufacturing activity stabilised in May after contracting the previous month. The Markit/JMMA PMI rose to 49.9 last month from 49.4 in April.

Another report from Japan on Monday showed that capital expenditure rose 7.4 percent in the first quarter from the previous year, up from a 4.0 percent increase in the previous quarter.