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.

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.

Manufacturing data from Japan and China

A report on Monday from the Ministry of Economy, Trade and Industry showed that Japanese industrial production fell 0.7 in August.

However, the fall last month came after a 3.4 percent jump in July. A government survey accompanying the report also showed that production is expected to increase 5.2 percent in September and 2.5 percent in October.

In further indication that factory activity remains robust, another report on Monday showed that the Markit/JMMA Japan manufacturing PMI rose to 52.5 in September, the highest since February 2011, from 52.2 in August.

Another report on Monday showed that retail sales rose 1.1 percent in August from a year earlier.

Meanwhile, over in China, the final HSBC manufacturing PMI for September disappointed, coming in at 50.2. Although up from 50.1 in August and indicating expansion, it was well below last week's flash reading of 51.2.

US consumer spending rises, eurozone economic confidence improves

US economic data on Friday were mixed.

Consumer spending rose 0.3 percent in August, the fourth consecutive rise, while income rose 0.4 percent, the most in six months.

However, the Thomson Reuters/University of Michigan’s index of consumer sentiment fell to 77.5 in September, the lowest level in five months, from 82.1 in August.

In the euro area, the European Commission's economic sentiment indicator rose to 96.9 in September from 95.3 in August, its fifth consecutive increase.

Meanwhile, inflation remained subdued, with the rate in Germany staying unchanged at 1.6 percent in September.

Inflation in Japan, though, rose to the fastest pace in nearly five years in August. Consumer prices excluding fresh food rose 0.8 percent from a year earlier, mainly due to higher energy prices resulting from a weaker yen.

US and UK confirm second quarter growth

A report on Thursday confirmed that the US economy grew at a 2.5 percent annualised rate in the second quarter.

Less positively, there was also confirmation on Thursday that the recovery in the US housing market has lost momentum. Pending home sales fell 1.6 percent in August after having fallen 1.4 percent in July.

In the UK, a report on Thursday confirmed that the economy grew 0.7 percent in the second quarter, the fastest pace in three years.

Third quarter data have mostly also been positive. A report from the Confederation of British Industry on Wednesday showed that retail sales grew at the fastest annual pace since June 2012 while a report on Thursday showed that the GfK consumer confidence index rose three points to -10 in September, the highest since November 2007.

However, in a sign that the euro area's recovery remains fragile, a report from the European Central Bank on Thursday showed that loans to the private sector fell 2 percent in August from a year earlier. That was the 16th monthly decline and the biggest since the start of the single currency in 1999.

US new home sales and durable goods orders rebound weakly

US economic data on Wednesday were mixed.

New home sales rose 7.9 percent in August. This still left the annual sales rate at 421,000 after the 14.1 percent plunge in sales in July, and is less than the average 446,000 rate in the first six months of 2013.

Durable goods orders showed hardly any rebound in August, rising just 0.1 percent after having plunged 8.1 percent in July. Orders for non-defense capital goods excluding aircraft rose 1.5 percent after having fallen 3.3 percent in July.

Meanwhile, the risk of a government shutdown was made stark on Wednesday by US Treasury Secretary Jack Lew, who warned Congress that the government would exhaust its borrowing capacity no later than October 17.

US consumer confidence falls, Germany business confidence rises

Global economic data on Tuesday were mixed.

In the US, the Conference Board's consumer confidence index fell to 79.7 in September from 81.8 in August. However, the S&P/Case-Shiller index of home prices in 20 cities increased 12.4 percent in July from a year earlier, the biggest advance since February 2006.

There were also positive data on UK housing on Tuesday. The British Bankers' Association reported that mortgage approvals rose to 38,228 in August, up from 37,428 in July and the highest since December 2009.

German business confidence barely rose in September though. The Ifo institute’s business climate index edged up to 107.7 from 107.6 in August.

Purchasing managers surveys show growth in China, euro area and US

Economic data on Monday were mostly positive.

In China, HSBC's manufacturing PMI rose to 51.2 in September, a six-month high, from 50.1 in August.

In the euro area, Markit's composite PMI rose to 52.1 in September from 51.5. The increase was driven by a jump in the services index to 52.1 from 50.7 but the manufacturing PMI fell to 51.1 from 51.4.

Also slowing in September is US manufacturing, where Markit's PMI fell to 52.8 from 53.1 in August.

A report from the Chicago Federal Reserve on Monday did indicate some improvement in the economy though. Its national activity index rose to +0.14 in August from -0.43 in July.

The index’s three-month moving average also increased to -0.18 in August from -0.24 in July. However, this suggests that economic growth remained below its historical trend.

Hussman: S&P 500 to hit 1,800?

The Federal Reserve's decision last week not to slow its rate of bond purchases has forced the bearishly-oriented fund manager John Hussman to consider the possibility of a short-term surge in the stock market.

Last week, the Federal Open Market Committee surprised investors by deciding at its monetary policy meeting on Wednesday not to taper the Fed's rate of bond purchases. Chairman Ben Bernanke said at a press conference after the meeting that the tightening of financial conditions in recent months could slow economic growth even as conditions in the United States job market remain “far from what all of us would like to see”.

Stocks in the United States reacted positively to the decision. The Standard & Poor's 500 Index rose 1.2 percent on Wednesday to close at a record high of 1,725.52.

In his latest article entitled “Psychological Ether”, John Hussman says that with the Fed's decision last week, it is possible, although not necessarily his forecast, that “the conditions for a final wave of speculation may have been created” and that we could see “an advance above 1800 in the S&P 500 over a period of about 6 weeks”.

“Unfortunately, even though the equity market has been rising on what we view as nothing but noxious psychological ether, the FOMC has – perhaps unintentionally – released another tank of the stuff,” he writes.

For the longer term, however, Hussman remains pessimistic. He notes that profit margins are at an extreme level and that he expects corporate profits to contract at a rate of somewhere between 5-15 percent annually over the next 3 to 4 years.

According to Hussman, one driver of falling corporate profits is a fall in the government's fiscal deficit. According to him, increases in the combined deficit of the government and household sectors lead to increases in corporate profits and vice versa. The former deficit has been declining recently, which does not augur well for corporate profits.

Indeed, a report from the Congressional Budget Office on Tuesday showed that the budget deficit is likely to shrink this year to its smallest size since 2008. It is seen falling to about 4 percent of GDP, compared with a peak of almost 10 percent in 2009.

Furthermore, the deficit is forecast to continue shrinking over the next few years, falling to 2 percent of GDP by 2015 before gradually rising again thereafter.

So if the stock market does experience a surge in coming weeks, Hussman thinks that it could turn out to be just a “speculative blowoff” that “would only make the subsequent completion of the present market cycle that much worse”.

India raises interest rates, markets fall

While the Federal Reserve is showing hesitance in following through with its plan to reduce monetary stimulus, the Reserve Bank of India displayed no such reservation on Friday as it raised its benchmark interest rate to 7.50 percent from 7.25 percent.

Stock markets in Asia fell on Friday, with Indian stocks predictably hit hardest following the rate hike, falling 1.85 percent.

But investors around the world also lost some of the enthusiasm that they had exhibited following the Fed's decision on Wednesday not to start tapering its bond purchases. In the US, the S&P 500 fell 0.7 percent on Friday. The STOXX Europe 600 fell 0.3 percent.

European stocks fell despite a report from the European Commission on Friday showing that the consumer confidence index for the euro area rose to minus 14.9 in September, the highest level since July 2011, from minus 15.6 in August.

US leading economic index and Japanese exports rise

US economic data on Thursday were positive. The Conference Board's index of US leading indicators rose 0.7 percent in August, existing home sales rose 1.7 percent and the Federal Reserve Bank of Philadelphia’s general economic index jumped to 22.3 in September from 9.3 in August.

Japanese economic data on Thursday were also positive. The all-industry activity index rebounded 0.5 percent in July after having fallen 0.7 percent in June. Exports rose 14.7 percent in August from a year earlier, up from 12.2 percent in July, while imports rose 16.0 percent.

However, the run of strong economic data from the UK took a break on Thursday. Retail sales fell 0.9 percent in August, with food store sales falling 2.7 percent, fully reversing the previous month's gain.

US stocks at record highs after Fed pulls back from pulling back

US stocks hit record highs on Wednesday after the Federal Reserve surprised investors by refraining from tapering its bond purchases. The Dow Jones Industrial Average rose 0.95 percent to 15,676.94 and the S&P 500 rose 1.22 percent to 1,725.52.

“Conditions in the job market today are still far from what all of us would like to see,” Chairman Ben Bernanke said at a press conference after the Fed's monetary policy meeting on Wednesday. “The committee has concern that rapid tightening of financial conditions in recent months would have the effect of slowing growth.”

The latest Fed forecasts released on Wednesday showed that the US economy is now expected to grow between 2 percent and 2.3 percent this year, down from a June forecast of 2.3 percent to 2.6 percent.

Underlining the Fed's cautious stance, US housing data on Wednesday were mixed. Housing starts rose 0.9 percent in August but was weaker than expected. Indeed building permits fell 3.8 percent.

In contrast, China's housing market looks in need of further cooling. Average new home prices in China's 70 major cities rose 8.3 percent in August from a year earlier, the fastest rate in at least 2½ years, according to Reuters.

US homebuilder sentiment unchanged, inflation eases

US homebuilder sentiment was unchanged in September after four straight months of gains. The National Association of Home Builders reported on Tuesday that the NAHB/Wells Fargo Housing Market Index remained at 58 in September, unchanged from August.

Another report on Tuesday showed that US inflation eased in August. Consumer prices rose 0.1 percent last month, bringing the 12-month increase down to 1.5 percent from 2.0 percent in July.

In the UK, consumer prices rose 0.4 percent in August. That still left the annual inflation rate at 2.7 percent, down from 2.8 percent in July.

US manufacturing output up sharply, Treasury yields fall

A report from the Federal Reserve on Monday showed that US manufacturing production rebounded sharply in August, rising 0.7 percent after having fallen 0.4 percent in July.

Overall industrial production rose 0.4 percent in August after having been flat in the prior month.

A report from the Federal Reserve Bank of New York, however, showed that its general economic index eased to 6.3 in September from 8.2 last month.

Despite the growth in industrial production in August, US Treasury yields fell on Monday after Lawrence Summers withdrew his candidacy to become the next Federal Reserve chairman, leaving Fed Vice Chairman Janet Yellen as the leading candidate.

The 5-year yield fell seven basis points to 1.62 percent while the 10-year yield fell two basis points to 2.86 percent.

OECD sees most major economies improving

The Organisation for Economic Co-operation and Development reported last week that composite leading indicators point to improvements in growth in most major OECD countries while growth in China is returning to trend.

OECD composite leading indicators
	Ratio to trend, amplitude adjusted					Change from previous month
	2013					2013
	Mar	Apr	May	Jun	Jul	Mar	Apr	May	Jun	Jul
OECD area	100.3	100.4	100.5	100.6	100.7	0.10	0.10	0.09	0.09	0.08
United States	100.7	100.8	100.9	101.0	101.1	0.09	0.09	0.11	0.10	0.09
Euro area	99.9	100.0	100.2	100.3	100.5	0.15	0.14	0.16	0.17	0.17
Japan	100.7	100.9	101.0	101.1	101.1	0.23	0.20	0.15	0.08	0.03
China	99.8	99.7	99.5	99.5	99.4	-0.13	-0.15	-0.14	-0.09	-0.03

However, other economic data last week were not very positive.

In the United States, retail sales rose 0.2 percent in August, the smallest increase in four months, while the preliminary Thomson Reuters/University of Michigan’s index of consumer sentiment for September came in at 76.8, down from 82.1 in August.

In the euro area, industrial production fell 1.5 percent in July, the second decline in three months.

In Japan, core machinery orders were flat in July. The consumer confidence index fell to 43.0 in August from 43.6 in July, its third consecutive decline. The economy watchers survey's current conditions index fell for the fifth consecutive month in August to 51.2 from 52.3 in July while the future conditions index fell to 51.2 from 53.6.

However, data from China did corroborate the OECD's assessment of a return to trend growth. Industrial production rose 10.4 percent from a year earlier, the biggest increase in 17 months, while retail sales rose 13.4 percent, up from 13.2 percent in July.

US retail sales growth slows, consumer sentiment falls

Data on Friday indicate that US consumer demand has dipped recently.

Retail sales in the US rose 0.2 percent in August, the smallest increase in four months.

The preliminary Thomson Reuters/University of Michigan’s index of consumer sentiment for September fell to 76.8 from 82.1 in August.

Investor sentiment has picked up, though. The S&P 500 rose 0.3 percent on Friday to finish the week with a 2.0 percent increase, its best weekly gain in two months.

Indonesia raises interest rates again as largest emerging markets lose favour

Emerging economies have been hit by currency turmoil recently, and on Thursday, Indonesia's central bank felt compelled to raise interest rates for the second time in two weeks.

Bank Indonesia increased its benchmark rate by 25 basis points to 7.25 per cent, bringing the total increase since June to 150 basis points.

This comes even as it lowered its economic growth forecast for 2013 to between 5.5 and 5.9 per cent from 5.8 to 6.2 per cent.

However, another emerging economy that has been hit by the currency turmoil, India, did report a 2.6 percent year-on-year gain in industrial production for July on Thursday, snapping two months of contraction.

Still, a recent Bloomberg poll showed that the largest developing nations have some of the worst market opportunities, with India faring the poorest.

Not that developed economies had particularly positive data to report on Thursday.

Japan's core machinery orders were flat in July after having fallen 2.7 percent in June.

Industrial production in the euro area fell 1.5 percent in July, more than reversing the 0.6 percent increase in June.

UK jobless rate dips as economy enjoys “sugar rush”

A report on Wednesday showed that Britian's unemployment rate fell to 7.7 percent in the three months ending July, the lowest since the September-November 2012 period. The number of people claiming jobless benefit fell by 32,600 in August after having fallen by 36,300 in July, the steepest decline since June 1997.

The latest data add to other recent reports of strength in the UK economy. From Reuters:

Hailed on Monday as a “turning point” by Chancellor George Osborne, economic indicators out of the UK have surpassed even the most hopeful analysts' expectations over the last two months.

Surveys showed business activity in Britain rose last month at a pace unmatched by any of its major G20 peers, a huge contrast to the early part of the year when there was widespread talk of a “triple dip” recession...

“I think we are quite heavily reliant on a hair-of-the-dog prescription for the UK economy, and there's more debt-fuelled consumption,” said Philip Rush, UK economist at Nomura...

“I think we have entered a new upward trend for the UK economy, and in that respect what we have is sustainable for at least a few years,” said Rush.

Not everyone thinks this can be sustained though.

“We're enjoying a sugar rush at the moment,” said Alan Clarke, director of fixed income strategy at Scotiabank in London, citing pent-up demand in the housing market and government stimulus to improve access to it.

“I don't think that continues forever. We won't be seeing people increasing their spending in excess of their disposable incomes next year, which is what they're doing right now. So we're on borrowed time on that front,” he said.

Chinese economy accelerates as credit growth rebounds

China's economy accelerated in August, based on data released on Tuesday.

Industrial production rose 10.4 percent from a year earlier, up from 9.7 percent in July and, indeed, the biggest increase in 17 months.

Retail sales rose 13.4 percent, up from 13.2 percent in July.

Fixed-asset investment increased 20.3 percent in the first eight months of the year compared with the previous year, up from the 20.1 percent increase for the first seven months.

With an accelerating economy comes increased credit growth. Chinese banks extended 711.3 billion yuan in new loans in August, more than the 699.9 billion yuan in July.

Total social financing aggregate jumped to 1.57 trillion yuan in August from 808.8 billion yuan the month before.

Japan's second quarter growth revised up, China's inflation slows

Japan's second quarter growth has been revised up to 0.9 percent from the preliminary reading of 0.6 percent.

However, the good news for the second quarter was not quite matched by data for August.

The consumer confidence index for general households fell for the third consecutive month in August to 43.0 from 43.6 in July.

The Cabinet Office's economy watchers survey showed that the current conditions index fell for the fifth consecutive month in August to 51.2 from 52.3 in July. The future conditions index fell to 51.2 from 53.6.

Meanwhile, over in China, a report on Monday showed that inflation slowed to 2.6 percent in August from 2.7 percent in July. Producer prices rose 0.1 percent in August from the previous month, the first increase in six months, but were still down 1.6 percent from the previous year.

On Sunday, another report from China had shown that the trade surplus widened in August as exports rose 7.2 percent from the previous year and imports rose 7.0 percent.

Global economy improves despite disappointing US jobs data

Reports on the global economy last week were generally positive.

Surveys of purchasing managers around the world showed that the global economy accelerated in August. The JPMorgan global all-industry output index rose to 55.2 last month, its highest level since February 2011, from 54.0 in July.

JPMorgan Global All-Industry Indices
	Jul	Aug
Output	54.0	55.2
New orders	53.1	54.8
Input prices	55.4	53.9
Employment	51.0	52.2

In the United States, the Institute for Supply Management's manufacturing PMI rose to 55.7 in August from 55.4 in July while its non-manufacturing index rose to 58.6, the highest since December 2005, from 56.0.

Less positively for the US, Markit's manufacturing PMI for the country fell to 53.1 in August from 53.7 in July.

And employment increased by 169,000 in August, less than economists had expected. With the employment count in the previous two months being revised down by a total of 74,000 jobs, the latest employment report indicates a loss of momentum in US job creation.

Still, the employment situation in the US is far from bleak. Another report last week showed that initial claims for unemployment benefits fell 9,000 to 323,000 in the week ending 31 August, pulling the four-week moving average down 3,000 to 328,500, its lowest since October 2007.

In the euro area, the economy continued to show improvement with Markit's composite output index for the region rising to 51.5 in August from 50.5 in July. The manufacturing PMI rose to 51.4 from 50.3 and the service business activity index rose to 50.7 from 49.8.

China's economy also appears to be regaining momentum. The official manufacturing PMI from the National Bureau of Statistics and the China Federation of Logistics and Purchasing hit a 16-month high of 51.0 in August from 50.3 in July while HSBC's manufacturing PMI rose to 50.1 from 47.7.

In the services sector, the official non-manufacturing index fell to 53.9 in August from 54.1 in July but HSBC's services PMI rose to 52.8 from 51.3, pulling its composite output index for China back into expansion territory at 51.8 in August from 49.5 in July.

Japan's economy also showed signs of regaining momentum last week. Markit's composite output index for Japan rose to 51.9 in August from 50.7 in July, with the manufacturing PMI rising to 52.2 from 50.7 and the services business activity index rising to 51.2 from 50.6.

In addition, Japan's index of coincident economic indicators rose 0.9 point in July while its index of leading economic indicators rose 0.6 point.

US employment disappoints but Fed may still proceed with taper

Economic data on Friday were mostly weaker than expected.

In the US, employment increased by 169,000 in August, less than the median forecast of 180,000 from a Bloomberg survey. In addition, revisions subtracted a total of 74,000 jobs to the employment count for the previous two months.

The unemployment rate fell to 7.3 percent, the lowest since December 2008. However, this was due to workers leaving the labour force.

Despite the disappointing employment report, expectations for the Federal Reserve to start tapering its bond purchases soon were little changed. From Reuters:

Expectations for a modest cut in the U.S. central bank's monthly bond purchases at the upcoming meeting were mostly intact after a mixed August payroll report, released earlier on Friday.

Most economists at U.S. primary dealers expect the Fed to ease back on stimulus after the September 17-18 discussions, according to a Reuters poll which showed such bets had firmed in the last month.

Esther George, the Kansas City Fed's consistently hawkish leader, said she favored trimming bond purchases from their current $85 billion a month when policymakers next meet.

But Chicago Fed President Charles Evans, like George a voter on the policymaking committee this year, stressed a move to taper was not a done deal. He would weigh other evidence about the durability of the economic recovery, although he said he could be swayed toward a pullback.

Elsewhere in the world, German industrial production fell 1.7 percent in July, thus mostly reversing the 2.0 percent jump in June. Another report in Germany showed that exports fell 1.1 percent in July.

In the UK, manufacturing production rose 0.2 percent in July after having jumped 2.0 in June. However, overall industrial production was unchanged in July.

The UK goods trade deficit widened to 9.85 billion pounds in July as exports fell 7.6 percent while imports declined 1.0 percent.

On a more positive note, Japan reported that its index of coincident economic indicators rose 0.9 point in July while its index of leading economic indicators rose 0.6 point.

BoJ, ECB and BoE leave monetary policies unchanged

Several of the most important central banks in the world concluded their monetary policy meetings on Thursday, but none initiated any new measures.

The Bank of Japan upgraded its assessment of the economy and said that further policy moves would depend on inflation.

The European Central Bank left its key interest rate unchanged at 0.5 percent with President Mario Draghi telling a news conference that he was “very, very cautious about the recovery” and that he stands “ready to act”.

The Bank of England also left monetary policy unchanged, as did Sweden's Riksbank.

Despite the lack of fresh policy moves from these central banks, global bond yields rose on Thursday as positive economic data from the US suggest that at least the Federal Reserve may be close to slowing its bond purchases.

The Institute for Supply Management said on Thursday that its US services index rose to 58.6 in August, its highest since December 2005, from 56.0 in July.

ADP reported that private employers in the US added 176,000 jobs in August.

In another sign of an improving US labour market, new claims for jobless benefits fell 9,000 last week to 323,000 and the four-week moving average fell 3,000 to 328,500, its lowest since October 2007.

Dampening some of the optimism on the US economy, though, was a 2.4 percent fall in new orders for manufactured goods in July, the most in four months.

Also seeing a fall in factory orders in July was Germany, where orders fell 2.7 percent. However, this was mostly a reversal of the boost that orders received in June from the Paris Air Show, when orders had jumped 5.0 percent.

Europe out of recession, China and US maintain growth

A report on Wednesday confirmed that the eurozone economy grew 0.3 percent in the second quarter to bring its recession to an end. Exports to the rest of the world rose sharply in the quarter after falling for six months, while government spending made its first positive contribution to the economy since late 2009.

Another report on Wednesday showed that retail sales in the euro area rebounded 0.1 percent July after having fallen 0.7 percent in June.

In another sign of recovery in the euro area, Markit reported on Wednesday that its composite index for the region rose to 51.5 in August from 50.5 in July, with the service sector index rising to 50.7 from 49.8.

Outside the euro area in Europe, the UK reported yet more strong data on Wednesday. The Markit/CIPS UK services PMI rose to 60.5 in August, the highest since December 2006, from 60.2 in July, marking the first back-to-back readings above 60 since 1997.

Elsewhere in the world, China's services sector also showed signs of improvement in August. The Markit/HSBC services PMI for China rose to 52.8 last month from 51.3 in July.

Meanwhile, the US economy maintained a “modest to moderate” pace of expansion from early July through late August, the Federal Reserve reported in its Beige Book on Wednesday.

Indeed, the US trade deficit widened in July as improving demand led to a 1.6 percent increase in imports. Exports fell 0.6 percent though.

OECD sees improved outlook for advanced economies

The Organisation for Economic Cooperation and Development said on Tuesday that the economic outlook for advanced economies is improving.

The US is expected to lead with growth of 1.7 percent this year, although that is down from the OECD's May forecast of 1.9 percent. Japan is expected to grow 1.6 percent, unchanged from the OECD's May forecast.

Europe is now expected to join the recovery, with Germany seen growing 0.7 percent and France 0.3 percent, although Italy is still expected to contract.

Outside the euro area, the UK is expected to grow 1.5 percent, sharply up from the May forecast of 0.8 percent.

However, apart from China, which is expected to grow 7.4 percent this year, the OECD sees a slowdown in many emerging countries.

Economic data on Tuesday were mostly consistent with the OECD's outlook.

In the US, the Institute for Supply Management reported that its US manufacturing PMI rose to 55.7 in August, its highest since June 2011, from 55.4 in July.

Markit's US manufacturing PMI was not as strong, falling to 53.1 in August from 53.7 in July.

Another report from the US on Tuesday showed that construction spending rose 0.6 percent in July.

Meanwhile, the UK added to its recent string of strong economic data on Tuesday. The Markit/CIPS construction PMI rose to 59.1 last month, its highest level since September 2007, from 57.0 in July.

However, China's services activity eased a little in August. The National Bureau of Statistics reported on Tuesday that its non-manufacturing PMI fell to 53.9 last month from 54.1 in July.

Markets rise as manufacturing expands in Europe and China

After a turbulent August, markets made a positive start to September on Monday as data from Europe and China indicated expansion in manufacturing activity.

The MSCI All-Country World Index rose 0.6 percent. The STOXX Europe 600 Index in particular jumped 1.9 percent, the most in eight weeks.

A report from Markit on Monday showed that its manufacturing PMI for the euro area rose to 51.4 in August, the highest in 26 months, from 50.3 in July.

UK manufacturing performed even better. The Markit/CIPS manufacturing PMI jumped to 57.2 last month, the highest in 18 months, from 54.8 in July.

Also showing improvement, albeit more modestly, was China's manufacturing sector. HSBC's manufacturing PMI for China rose to 50.1 in August from 47.7 in July, thus indicating an end to three months of contraction.

The HSBC data on Monday followed a report on Sunday from the National Bureau of Statistics that showed the latter's manufacturing PMI for China hitting a 16-month high of 51.0 in August from 50.3 in July.

Japanese economy looking better again

After reporting some weaker economic data earlier this month, the Japanese economy is starting to look better again.

The Finance Ministry reported on Monday that capital spending was unchanged in the second quarter compared to the previous year. This was an improvement over the 3.9 percent decline in the first quarter.

Excluding software, capital spending rose 1.4 percent in the second quarter over the previous year after having fallen 5.2 percent in the first quarter.

Economic reports last Friday had also been positive.

Household spending rose 0.9 percent in July.

The unemployment rate fell to 3.8 percent in July from 3.9 percent in June.

Consumer prices excluding fresh food rose 0.7 percent from a year earlier, the biggest increase since November 2008.

Industrial production rose 3.2 percent in July after having fallen 3.1 percent in June.

And the Markit/JMMA manufacturing PMI rose to 52.2 in August from 50.7 in July, with output rising at the fastest rate in 30 months.

US report mixed data as Europe shows more signs of recovery

US economic data on Friday were mixed.

Consumer spending rose 0.1 percent in July, down from a 0.6 percent increase in June. Income also rose 0.1 percent in July, down from a 0.3 percent gain in June.

Adjusted for inflation, consumer spending was unchanged in July.

A deterioration in consumer sentiment in August also suggests slowing in consumer spending. The Thomson Reuters/University of Michigan final index of consumer sentiment fell to 82.1 in August, a four-month low, from 85.1 in July.

More positively, the Chicago Business Barometer rose to 53.0 in August from 52.3 in July.

Meanwhile, data from Europe on Friday provided more signs of recovery.

The economic sentiment indicator for the euro area rose to 95.2 in August, the highest in two years, from 92.5 in July.

Inflation slowed to 1.3 percent in August from 1.6 percent in July.

The unemployment rate for July was unchanged though at a record high of 12.1 percent.

In the UK, the GfK consumer confidence index rose 3 points to minus 13 in August, the highest in almost four years. Mortgage approvals rose to the highest in more than five years in July and the Nationwide Building Society reported that house prices rose 0.6 percent in August.

Japanese consumer prices and industrial production rise, US growth revised up

Japan's economic recovery appears to be back on track, with even inflation making a return, according to data released on Friday.

Core consumer prices, which exclude fresh food prices, rose 0.7 percent in July from the previous year, the biggest increase since November 2008.

Industrial production rebounded 3.2 percent in July after falling 3.1 percent in June while the unemployment rate fell to 3.8 percent from 3.9 percent in June.

Household spending rose 0.9 percent in July.

The positive data from Japan follows an upward revision to second quarter US GDP growth on Thursday. The US economy is now estimated to have grown at an annual rate of 2.5 percent, up from an initial estimate of 1.7 percent.

Thursday had also seen another emerging economy central bank tighten monetary policy following recent turbulence in emerging markets. In an extra policy meeting on Thursday, Bank Indonesia announced a 50-basis-point hike in its key interest rate to 7.00 per cent, its third hike in three months.

US pending home sales and German consumer confidence fall, Brazil raises interest rate

Following Tuesday's positive economic data from the US and Germany, reports on Wednesday took a negative turn.

In the US, the housing market produced more signs that it has cooled. Pending home sales fell 1.3 percent in July, the most this year and after a 0.4 percent decline in June.

In Germany, consumer confidence has slipped. GfK's consumer confidence index for September fell to 6.9 from 7.0 in August.

Weaker growth in the developed economies may not be the main concern of policy makers in emerging economies at the moment though.

On Wednesday, Brazil’s central bank raised its benchmark interest rate by half a percentage point for a third straight meeting to 9.0 percent. This move came after the real fell 10 percent in the last three months.

Economic data positive, stocks fall

Economic data on Tuesday were positive.

US home prices continued to climb in June despite higher mortgage rates. Prices rose 12.1 percent from a year ago in June, slightly down from the previous month's 12.2 percent gain, according to the S&P/Case-Shiller composite index of 20 metropolitan areas. On a seasonally adjusted basis, home prices rose 0.9 percent.

Meanwhile, US consumer confidence has also been rising. The Conference Board's consumer confidence index rose to 81.5 in August from 81.0 in July.

In Germany, the Ifo business climate index rose to 107.5 in August from 106.2 in July, adding to signs that economic recovery is taking shape in Europe.

However, in the markets, the positive economic data were overshadowed by a jump in oil prices amid concern that the US will take military action against Syria. Crude oil rose 2.9 percent on Tuesday while the MSCI All-Country World Index fell 1.4 percent.

US durable goods orders fall sharply

The outlook for the US economy dimmed a little after a report on Monday showed that durable goods orders fell 7.3 percent in July, the first decrease in four months and the biggest since August 2012.

The fall was mostly due to a 52.3 percent plunge in commercial aircraft orders. However, even excluding transportation equipment, orders fell 0.6 percent.

Orders for non-defense capital goods excluding aircraft fell 3.3 percent in July, the biggest decrease in five months.

Investors mostly shrugged off the weak report though. US stocks fell late on Monday only after Secretary of State John Kerry said the president will hold Syria’s government accountable for using chemical weapons.

The S&P 500 ended the day down 0.4 percent.

Baby Boomers to curb rise in US bond yields

US Treasury yields may have gone up recently in anticipation of the Federal Reserve tapering its bond purchases but over the longer term, this Bloomberg article says that Baby Boomers will help keep yields down.

Baby Boomers’ influence on U.S. Treasuries will help hold yields down as people born in the initial decades after World War II shift to fixed-income assets to prepare for retirement, mirroring a pattern in Japan.

The CHART OF THE DAY shows Treasury yields have gradually declined as the proportion of U.S. citizens over 65 years climbed. The age group will swell to 20 percent of the population by 2030 from 14 percent now, according to the U.S. Census Bureau. The chart tracks a similar trend in Japan, where 24 percent are over 65 years, the world’s highest ratio of seniors, up from 19 percent a decade ago.

Bloomberg's Chart of the Day

Europe shows more signs of recovery but US new home sales fall sharply

There were more signs on Friday that Europe's economy is recovering.

Germany confirmed that its economy grew 0.7 percent in the second quarter, its fastest growth rate in more than a year. Britain's second quarter growth was revised up to show the same increase as Germany's.

Confidence in the euro area is also returning. The consumer confidence indicator for the euro area rose to -15.6 in August, the highest level since July 2011, from -17.4 in July. Belgium's business confidence index rose to -8.6 in August from -12.0 in July.

In contrast, data from the US on Friday were negative.

US new home sales fell 13.4 percent in July even as the government revised its estimates for May and June lower. The sharp fall in July brought the annual rate of sales to 394,000 units, the lowest level in nine months.

US and European markets rise amid positive economic data

Markets rose on Thursday, shrugging off concerns of an impending reduction in monetary stimulus from the Federal Reserve. The S&P 500 rose 0.9 percent while the STOXX Europe 600 rose 1.0 percent.

Earlier on Thursday, however, Asian stocks had fallen. The MSCI Asia Pacific Index declined 0.8 percent, with the Shanghai Composite falling 0.3 percent.

The decline in Chinese stocks came despite a report from HSBC on Thursday showing that its manufacturing PMI for China rebounded to 50.1 in August from 47.7 in July, indicating an end to contraction.

Also showing an end to contraction on Thursday was services activity in the euro area. Markit's services index for the euro area rose to 51.0 in August from 49.8 in July. With the manufacturing PMI also rising to 51.3 from 50.3, the eurozone composite index rose to 51.7 in August from 50.5 in July.

Meanwhile, US manufacturing activity maintained its expansion in August. Markit's US manufacturing PMI rose to 53.9 from 53.7 in July.

Adding to signs of growth in the US, a report from the Conference Board on Thursday showed that its index of US leading indicators rose 0.6 percent in July.

Sustained positive economic data from the US adds to the likelihood that the Fed will taper its bond purchases. Indeed, on Thursday, Dallas Fed President Richard Fisher told reporters on the sidelines of a manufacturing conference: “Personally I think the economy is strong enough to begin the process.”

Fed tapering looms, emerging markets at risk, US stocks show overvaluation

Global markets fell again on Wednesday as the minutes of the last Federal Reserve monetary policy meeting showed support for the reduction of monetary stimulus.

Bloomberg reports the Fed minutes:

“Almost all committee members agreed that a change in the purchase program was not yet appropriate,” and a few said “it might soon be time to slow somewhat the pace of purchases as outlined in that plan,” according to the record of the Federal Open Market Committee’s July 30-31 gathering released today in Washington.

“A few members emphasized the importance of being patient and evaluating additional information on the economy before deciding on any changes to the pace of asset purchases,” the minutes show. “Almost all participants confirmed that they were broadly comfortable” with the committee moderating “the pace of its securities purchases later this year.”

While the focus has been on the Fed's monetary policy, emerging markets have also been hit. Unsurprisingly as the Fed's tapering is expected to have an economic impact on countries like Turkey, China and other Asian economies.

The focus on the direction of Fed monetary policy has also resulted in the market looking past still-positive economic data. A report on Wednesday showing that US existing home sales jumped 6.5 percent in July did little to prop up the market.

In any case, markets may have outrun fundamentals. Cullen Roche says that the US stock market is looking overvalued based on comparisons between stock prices and several fundamental indicators, including earnings, asset values, revenues and US GNP.

Stocks fall except in US

Asian stocks tumbled again on Tuesday. The Indonesian stock market was again the big loser, falling 3.2 percent, after having fallen 5.6 percent on Monday. Japanese stocks fell 2.6 percent.

Stocks also fell in Europe on Tuesday. The STOXX Europe 600 lost 0.8 percent.

However, US stocks managed to shrug off the losses elsewhere. The S&P 500 rose 0.4 percent on Tuesday as the 10-year Treasury yield fell 6.4 basis points to 2.82 percent.

Despite the gain in the US, the MSCI All-Country World Index still ended the day down 0.2 percent.

Markets have mostly fallen on anticipation of the Federal Reserve tapering its bond purchases.

However, a report from the Chicago Federal Reserve on Tuesday indicated that US economic growth remained relatively weak at the start of the third quarter.

The Chicago Fed's national activity index edged up to -0.15 in July from -0.23 in June. This pushed the three-month moving average also to -0.15 in July from -0.24 in June.

While the three-month moving average rose for the second consecutive month in July, it remained below zero, suggesting, according to the report, that US economic growth was below its historical trend.

Emerging markets lead global stocks down

Emerging markets have performed poorly recently, and that trend continued on Monday. Bloomberg reports:

The MSCI Emerging Markets Index slid 1.4 percent to 944.88. The Jakarta Composite Index dropped by the most since October 2011, while Thailand’s SET Index retreated to a one-month low. India’s S&P BSE Sensex extended a drop from its July 23 high to almost 10 percent and the rupee led losses in 23 of 24 developing-nation currencies tracked by Bloomberg. Brazil’s swap rates climbed as the real touched a level weaker than 2.4 per dollar for the first time in four years.

Indonesia’s current-account shortfall widened to $9.8 billion last quarter, the largest in data compiled by Bloomberg going back to 1989. Thailand cut its 2013 growth forecast as the country entered recession for the first time since the global financial crisis. India’s rupee plunged on speculation a strengthening U.S. economy may prompt the Federal Reserve to pare its $85 billion monthly bond-buying program.

Developed markets were not spared from Monday's declines. The STOXX Europe 600 fell 0.5 percent and the S&P 500 fell 0.6 percent as US 10-year Treasury yields rose six basis points to 2.88 percent, the highest level since 2011.

Chinese stocks managed to rise on Monday though. The Shanghai Composite Index rose 0.8 percent, its first gain in four days.

Also in China, over the weekend, the National Bureau of Statistics reported that home prices rose in July in 62 of 70 cities it monitors, slightly down from 63 in June.

Japan's trade deficit expands as exports weaken

Japan's trade data on Monday provided further signs that its economy has lost some momentum. Bloomberg reports:

Exports rose 12.2 percent from a year earlier, the Ministry of Finance said in Tokyo today, compared with the 12.8 percent median estimate of 23 economists surveyed by Bloomberg News. Imports climbed 19.6 percent, leaving a trade deficit of 1.024 trillion yen ($10.5 billion). The seasonally adjusted deficit expanded from June to 944.0 billion yen.

Indeed, on a seasonally-adjusted basis, exports fell 1.8 percent in July from the previous month even as imports rose 2.7 percent.

On a seasonally-adjusted basis, Japan's trade balance has been in deficit for 29 consecutive months, with the latest deficit in July being the third largest over that period.

US consumer confidence falls but Treasury yields rise with housing starts

US economic data on Friday were mixed.

The preliminary reading of the Thomson Reuters/University of Michigan consumer sentiment index fell to 80.0 in August from a six-year high of 85.1 in July.

Housing starts rose 5.9 percent to an annual rate of 896,000 units in July. This, however, was below economists' forecasts for a 900,000-unit rate.

Building permits rose 2.7 percent in July to a 943,000-unit pace. This, again, was below economists' expectations for a 945,000-unit pace.

Despite the mixed economic data, investors appear to have raised bets on an imminent tapering of bond purchases by the Federal Reserve.

US Treasuries fell on Friday. The 10-year Treasury yield rose six basis points to 2.83 percent, the highest since July 2011.

Markets fall on positive economic data

US stocks tumbled on Thursday with the S&P 500 falling 1.4 percent.

US Treasuries also fell. Ten-year note yields rose five basis points to 2.77 percent, hitting 2.82 percent at one point on Thursday, the highest since August 2011.

The fall in US markets came as relatively positive economic data on Thursday increased the likelihood of the Federal Reserve tapering its rate of bond purchases soon.

The National Association of Home Builders/Wells Fargo housing market index rose three points to 59 in August. This was its fourth consecutive monthly gain and brings the index to its highest level in nearly eight years.

Initial claims for state unemployment benefits fell 15,000 to 320,000 last week, the lowest level since October 2007.

The consumer price index rose 0.2 percent in July. This brought the 12-month increase in the CPI to 2.0 percent, the largest increase since February, from 1.8 percent in June.

Less positive, however, were data on Thursday on manufacturing.

The Fed reported that manufacturing output fell 0.1 percent last month, leaving industrial output unchanged in July.

The New York Federal Reserve reported that its Empire State general business conditions index fell to 8.24 in August from 9.46 in July.

The Philadelphia Federal Reserve reported that its business activity index fell to 9.3 in August from 19.8 in July.

US markets were not the only ones falling on Thursday. The STOXX Europe 600 fell 1.1 percent, with the UK's FTSE 100 in particular falling 1.6 percent.

Like the US, the fall in UK stocks followed good news on its economy. UK retail sales jumped 1.1 percent in July, pushing the annual rise to 3.0 percent, the highest since January 2011.

Europe exits recession

A report on Wednesday showed that the eurozone economy grew 0.3 percent in the second quarter, bringing its recession to an end.

The eurozone economy had contracted 0.3 percent in the first quarter, its sixth consecutive quarterly contraction.

Germany and France, the euro area’s two largest economies, led the region out of recession, growing by 0.7 percent and 0.5 percent respectively. However, Italy and Spain remained in recession.

Elsewhere in Europe, the UK saw its unemployment rate hold steady at 7.8 percent in June.

Other data though indicated improvement in the labour market.

The number of people claiming jobless benefit fell by 29,200 last month, its ninth consecutive decline and bringing the count to the lowest in more than four years. It follows a drop of 29,400 in June, the largest monthly drop since May 2010.

Average weekly earnings growth accelerated to 2.1 percent in the three months through June compared with a year earlier, the fastest growth since late 2011.

US retail sales and eurozone industrial production rise

Economic data on Tuesday were mostly positive.

US retail sales rose 0.2 percent in July, its fourth consecutive increase. While the rise in total sales was less than the 0.6 percent increase in June, retail sales excluding autos, gasoline and building materials, increased 0.5 percent last month, the most since December.

Other reports from the US on Tuesday showed that import prices rose 0.2 percent in July while business inventories were little changed in June.

In the euro area, a report on Tuesday showed that industrial production rose 0.7 percent in June after having fallen 0.2 percent in May.

In Germany, the ZEW index of investor and analyst expectations rose to 42.0 in August from 36.3 in July.

In the UK, a report on Tuesday showed that consumer price inflation slowed to 2.8 percent in July from 2.9 percent the previous month even as a July survey from the Royal Institution of Chartered Surveyors found the fastest growth in house prices since 2006.

Japanese machinery orders fall

There has been yet another negative economic report for Japan.

The Cabinet Office reported on Tuesday that core machinery orders fell 2.7 percent in June.

The fall in orders, however, was less than that estimated by economists and followed a 10.5 percent jump in May.

Of concern, though, is that companies are forecasting core orders in the July-September quarter to fall 5.3 percent from the previous quarter.

Japan's economic growth slows

The Japanese economy slowed in the second quarter and looks likely to slow further in the third quarter.

The Cabinet Office reported on Monday that Japan's economy grew by 0.6 percent in the second quarter of 2013. It was the third consecutive quarter of growth, although the growth rate was down from 0.9 percent in the first quarter.

Second quarter growth was driven by consumer spending, which grew 0.8 percent, and government spending, which grew 1.0 percent. Net exports contributed 0.2 percentage points to growth, its second consecutive quarter of positive contribution.

The second quarter appears to have ended on a weak note though. A report from the Cabinet Office last week showed that the index of coincident economic indicators fell 0.8 point in June, the first decline in seven months.

And pointing to further weakness ahead, the index of leading economic indicators fell an even larger 3.7 points.

Economic indicators for July released last week also point to weakness at the start of the third quarter.

The Cabinet Office's economy watchers survey showed that the current conditions index of service sector sentiment fell to 52.3 in July from 53.0 in June. The future conditions index was unchanged at 53.6.

The Cabinet Office's consumer confidence index fell to 43.6 in July from 44.3 in June, its second consecutive decline.

Markit's composite output index fell to 50.7 in July from 52.3 in June. The manufacturing purchasing managers index fell to 50.7 from 52.3 while the business activity index for the service sector fell to 50.6 from 52.1.

Chinese industrial production accelerates, Japan's national debt hits one quadrillion yen

Concerns of a slowdown in China eased further on Friday after a report showed that industrial production rose 9.7 percent in July from a year earlier compared with 8.9 percent in June.

Retail sales rose 13.2 percent in July from a year earlier, slightly down from 13.3 percent in June.

Fixed asset investment increased 20.1 percent in the first seven months of the year compared with the same period in 2012, the same as in the first six months.

Inflation also held steady at 2.7 percent in July, unchanged from the previous month.

Meanwhile, China's credit growth appears to be easing. New local-currency bank loans fell to 699.9 billion yuan in July, down from 860.5 billion yuan in June. Total social financing aggregate fell to 808.8 billion yuan in July from 1.04 trillion yuan the month before.

Elsewhere, Japan's economic data continue to come in weak. A report on Friday showed that the consumer confidence index fell to 43.6 in July from 44.3 in June, its second consecutive decline.

Meanwhile, Japan's debt burden has continued to climb. Another report showed that Japan's national debt hit 1.008 quadrillion yen at the end of June.

In the US, a report on Friday showed that wholesale inventories fell 0.2 percent in June. This was weaker than the government had assumed in its advance estimate of second-quarter gross domestic product released last week, suggesting that growth could be revised downward.

BoJ leaves monetary policy unchanged, OECD sees divergence in global growth

The Bank of Japan left monetary policy unchanged after its meeting on Thursday. “Japan's economy is starting to recover moderately,” the BoJ said.

A recovering economy would allow tighter fiscal policy as well, and on cue, the Japanese government announced on Thursday spending cuts of 8.0 trillion yen between April 2014 and March 2016.

Recent economic data for Japan, however, have not been impressive, and that trend continued on Thursday.

While bank lending rose 2.3 percent in July from a year earlier, up from a 2.2 percent increase in June, its current account surplus fell to 336.3 billion yen in June from 540.7 billion yen in May.

Also, a report on Thursday based on the economy watchers survey showed that the current conditions index of service sector sentiment fell to 52.3 in July from 53.0 in June. The future conditions index was unchanged at 53.6.

Trade data elsewhere on Thursday, however, were more positive.

In China, exports rose 5.1 percent in July from a year earlier and imports rose 10.9 percent. Both exports and imports had fallen from a year earlier in June.

In Germany, exports rose 0.6 percent in June. However, imports fell 0.8 percent.

The Organisation for Economic Co-operation and Development released its composite leading indicators for June on Thursday. In its report, the OECD said that the indicators point to diverging growth patterns, with moderate improvements in growth in most major OECD countries but stabilising or slowing momentum in large emerging economies.

Nikkei plunges, German industrial production jumps

Japanese stocks fell sharply on Wednesday. The Nikkei 225 plunged 4.0 percent after the yen touched a six-week high against the US dollar.

Stocks elsewhere also mostly fell on Wednesday, although by smaller amounts. The S&P 500 fell 0.4 percent while the STOXX Europe 600 fell 0.2 percent.

Bank of England Governor Mark Carney’s attempt on Wednesday to restrain expectations of higher interest rates seemed to have had little effect on markets.

“We're not at escape velocity right now,” he said at his first BoE news conference. “This remains the slowest recovery in output on record.”

“The forward guidance contained in the inflation report was broadly expected but what was unexpected were the get-out clauses,” said Lena Komileva at consultancy G+ Economics. “The BoE's pre-commitment to keeping rates at a record low is not as conclusive as it first appeared.”

Indeed, economic data from the UK and the rest of Europe have become more positive recently. On Wednesday, Germany continued that trend by reporting that its industrial production jumped 2.4 percent in June after a 0.8 percent decline in May.

Australia cuts interest rate to record low, European economy shows improvement

The Reserve Bank of Australia cut its official interest rate by 25 basis points to a record low of 2.5 percent on Tuesday. RBA Governor Glenn Stevens cited recent muted inflation and retail sales data for the cut.

Low inflation is also a reason for economists expecting more monetary stimulus from the Bank of Japan.

Data from Japan on Tuesday added weight to the case for more stimulus. The Cabinet Office reported that its index of coincident economic indicators fell 0.8 point in June, the first decline in seven months. The index of leading economic indicators fell an even larger 3.7 points.

However, economic data from Europe on Tuesday were more positive.

In the UK, industrial production rose 1.1 percent in June. Manufacturing output jumped 1.9 percent.

Other data from the UK on Tuesday showed that house prices rose in July at their fastest annual pace in nearly three years, retail sales were 3.9 percent higher than a year earlier and car sales grew 12.7 percent from a year earlier.

In Germany, factory orders rose 3.8 percent in June, the biggest increase since October.

Italy's economy shrank 0.2 percent in the second quarter, better than the 0.6 percent contraction in the first quarter. Italian industrial output rose 0.3 percent in June after having risen 0.1 percent in May.

Meanwhile, in the US, the trade deficit narrowed in June to the smallest in almost four years after exports rose 2.2 percent and imports fell 2.5 percent.

Global services improve in July

A report from the euro area on Monday showed that retail sales fell 0.5 percent in June, the first decline in three months.

Notwithstanding that report, results of global purchasing managers surveys in the services sector released on Monday were mostly quite positive.

In the euro area, Markit's services index for the euro area rose to 49.8 in July from 48.3 in June. This helped push the composite index up to 50.5 from 48.7, the first time it has risen above 50 since January 2012.

In the UK, the Markit/CIPS services PMI jumped to 60.2 in July, its highest level since December 2006, from 56.9 in June.

The Institute for Supply Management’s US non-manufacturing index also jumped to 56.0 in July from 52.2 in June.

In China, the HSBC/Markit services PMI stayed unchanged at 51.3 in July. Over the weekend, the government had reported that its non-manufacturing PMI rose to 54.1 last month from 53.9 in June.

Mixed picture for the major economies

The latest global economic data showed a mixed picture for the world's major economies.

In the United States, economic data last week showed that the economy accelerated in the second quarter and maintained growth at the start of the third quarter.

The US economy grew at an annual rate of 1.7 percent in the second quarter. This was slow growth by historical standards but was nevertheless an improvement over the 1.1 percent growth rate in the first quarter.

Sluggish growth in the US may have continued at the start of the third quarter. Nonfarm payrolls increased by 162,000 in July, the smallest increase in four months.

However, manufacturing data last week showed improvement for the sector. Factory orders rose 1.5 percent in June. The Institute for Supply Management's manufacturing PMI jumped to 55.4 in July from 50.9 in June while Markit's US manufacturing PMI rose to 53.7 from 51.9.

In the euro area, economic data last week indicated that the region's recession may be coming to an end.

Markit's manufacturing PMI for the euro area rose to 50.3 in July from 48.8 in June, indicating that the sector is no longer contracting.

Also, the European Commission's economic sentiment indicator for the euro area rose to 92.5 in July, the highest reading in 15 months, from 91.3 in June.

Meanwhile, concerns over a slowdown in China's economic growth were slightly allayed after the latest economic data.

Purchasing managers surveys on China's manufacturing sector showed a mixed picture. The official PMI from the National Bureau of Statistics and the China Federation of Logistics and Purchasing rose to 50.3 in July from 50.1 in June. However, the HSBC PMI compiled by Markit fell to an 11-month low of 47.7 from 48.2.

Purchasing managers data for the services sector were somewhat more encouraging. The official PMI rose to 54.1 in July from 53.9 in June while the HSBC/Markit PMI was unchanged at 51.3.

However, Japan's economic recovery is looking shaky after last week's data.

The Markit/JMMA Japan manufacturing PMI fell to 50.7 in July from 52.3 in June. Industrial production had fallen 3.3 percent in June.

Japan's unemployment rate did fall to 3.9 percent in June, the lowest in more than four years, from 4.1 percent in May. Still, household spending also fell 0.4 percent in June from a year earlier.

US job growth slows, S&P 500 hits record high

The US employment report on Friday showed that the economy added 162,000 jobs in July.

Last month's increase was less than the 188,000 jobs added in June and the least in four months. It was also less than the 185,000 jobs estimated by economists surveyed by Bloomberg.

Nevertheless, the unemployment rate fell to 7.4 percent from 7.6 percent in June.

Average hourly earnings fell 0.1 percent in July from the prior month and the average workweek for all workers fell to 34.4 hours from 34.5 hours.

Another report on Friday showed that US consumer spending rose 0.5 percent in June while income rose 0.3 percent.

Consumer prices rose 0.4 percent though, so real consumer spending rose just 0.1 percent.

A third report on Friday showed that US factory orders rose 1.5 percent in June, boosted by a 12 percent jump in transportation orders. Excluding transportation, orders fell 0.4 percent.

Durable goods orders rose 3.9 percent while orders for non-defense capital goods excluding aircraft rose 0.9 percent.

Despite the weaker-than-expected employment numbers, investors shrugged off early losses in the market and pushed the S&P 500 up 0.2 percent by the end of the day to another record high.

Stocks rally as ECB and BoE hold and global manufacturing improves

Global stock markets rallied on Thursday. The S&P 500 rose 1.3 percent to a new record high of 1,706.87. The STOXX Europe 600 rose 1.2 percent.

There were no new measures from the European Central Bank's monetary policy meeting on Thursday. ECB President Mario Draghi reiterated that interest rates will stay low for the foreseeable future even as economic indicators signal that the worst is over for the eurozone economy.

Indeed, a report from Markit on Thursday showed that eurozone manufacturing returned to expansion in July. Markit's manuacturing PMI for the region rose to 50.3 last month from 48.8 in June.

There were also no new measures announced by the BoE after its monetary policy meeting on Thursday.

The Markit/CIPS UK manufacturing PMI had risen to 54.6 in July from 52.9 in June.

US manufacturing also improved in July. The Institute for Supply Management’s manufacturing PMI jumped to 55.4 last month from 50.9 in June.

Markit's US manufacturing PMI also improved in July, rising to 53.7 from 51.9 in June.

Dampening the mood somewhat was another report on Thursday showing that US construction spending fell 0.6 percent in June.

Earlier on Thursday, there had been mixed data on China's manufacturing activity. The official PMI published by the National Bureau of Statistics rose to 50.3 in July from 50.1 in June but the HSBC PMI compiled by Markit fell to an 11-month low of 47.7 from 48.2.

Fed sees risk of low inflation as economy accelerates

The Federal Reserve's monetary policy meeting ended on Wednesday with only a slight change to its stance. Reuters reports:

Wrapping up a two-day gathering, the central bank said it would keep buying $85 billion in mortgage and Treasury securities per month in an effort to strengthen an economy that it said was still challenged by federal budget-tightening.

The Fed made three notable adjustments to its post-meeting statement, which economists said gave it a dovish tilt.

First, it slightly downgraded its view of the recovery, calling the pace of growth "modest" rather than "moderate," as it had consistently for most of the past year.

It also noted that mortgage rates had risen, implicitly flagging this as a potential headwind to the housing recovery.

And, importantly, it nodded to the potential dangers of inflation running too low...

Investors noted the dovish tilt and acted accordingly. Treasuries rose, with the 10-year yield falling three basis points to 2.58 percent, and the US dollar fell.

The moves in Treasuries and the US dollar were despite positive US economic data on Wednesday.

The US economy grew at an annual rate of 1.7 percent in the second quarter, accelerating from a 1.1 percent pace in the first quarter.

ADP reported that private employers added 200,000 jobs in July after having added 198,000 in June.

Another report from the US on Wednesday showed that the Institute for Supply Management-Chicago business barometer rose to 52.3 in July from 51.6 in June.

Meanwhile, reports from Europe on Wednesday provided further signs that the economy may be stabilising. Unemployment in the euro area was unchanged at 12.1 percent in June. The inflation rate held steady at 1.6 percent in July.

Japan's economy, though, may have lost some momentum. The Markit/JMMA Japan manufacturing PMI fell to 50.7 in July from 52.3 in June.

European economic confidence rises, US consumer confidence falls

There was good news for Europe on Tuesday.

The report from the European Commission showed that its economic sentiment indicator for the euro area rose to 92.5 in July, the highest reading in 15 months, from 91.3 in June, providing another indication that the region's recession may be coming to an end.

Elsewhere in Europe, GfK's UK consumer confidence index rose to -16 in July, the highest reading since April 2010, from -21 in June.

However, in the US, the Conference Board's consumer confidence index fell to 80.3 in July from 82.1 in June.

Another report on Tuesday showed that the US housing market is maintaining momentum though. The S&P/Case-Shiller index of home prices in 20 cities rose 12.2 percent in May from a year earlier, the biggest 12-month gain since March 2006.

Earlier on Tuesday, data from Japan raised doubts about its recovery. Japanese industrial production fell 3.3 percent in June while household spending fell 0.4 percent in June from a year earlier.

More encouragingly, however, another report showed that Japan's unemployment rate fell to 3.9 percent in June, the lowest in more than four years, from 4.1 percent in May.

Mixed data from UK and US

Economic data on Monday were mixed.

In the UK, the Confederation of British Industry distributive trades survey's sales balance rose to 17 in July from 1 in June.

Data from the Bank of England showed that lending to small and medium-sized firms grew at its fastest pace on record in June. However, overall lending to non-financial businesses shrank by a net 1.3 billion pounds.

Consumer credit rose by a net 489 million pounds in June, the smallest rise since January.

Mortgage approvals fell to 57,667 from 58,071 in May.

In the US pending home sales fell 0.4 percent in June. May sales, though, had been the highest since December 2006.

Chinese industrial profits growth moderates as economy faces risk of sharp slowdown

A report over the weekend showed that Chinese industrial companies’ profits increased 6.3 percent in June from a year earlier. This was well below the 15.5 percent increase in May and added to signs that China's economic growth is slowing.

Bloomberg has a story today looking at the likelihood and implications of a China slowdown to markets.

A copper price collapse of more than 60 percent, zinc cut by up to a half and oil down to $70 a barrel. That’s the fate facing world commodity markets should China’s growth dip to 3 percent in the next three years -- a scenario economists at Barclays Plc (BARC) are now examining.

They’re not the only ones building models based on a steep decline in growth in the world’s second-biggest economy. Nomura Holdings Inc. (8604) estimates a one-in-three chance of a sharp drop by the end of 2014, and Societe Generale SA sees a “non-negligible risk” of less than 6 percent growth this year and an outside chance of 3 percent average expansion for this half and next.

Indeed, Zero Hedge says that there may be “storm ahead” for China.

Demographics, capital accumulation and productivity are the three most important drivers of potential growth, and these three factors are intertwined to a certain extent. China has already entered its first stage of demographic challenge, with its GDP growth slowing on the back of all three contributors of growth...

[G]oing into 2016-20 the second stage of demographic challenge will kick in as we begin to see a decline in China’s working age population resulting in a rise in the age dependency ratio.

Japanese consumer prices rise but stocks fall; markets at risk from Fed exit

A report on Friday showed that Japan's consumer prices excluding fresh food rose 0.4 percent in June, the first increase in 14 months.

Japanese stocks, however, fell on Friday. The Nikkei 225 slid 3.0 percent to a near three-week low as the yen rose.

Stocks elsewhere mostly shrugged off the losses in Japan though. The STOXX Europe 600 fell 0.2 percent while the S&P 500 rose 0.1 percent.

Helping to boost US stocks on Friday was a report showing that the Thomson Reuters/University of Michigan consumer sentiment index rose to 85.1 in July, the highest level in six years, from 84.1 in June.

However, the International Monetary Fund warned in a report on Friday that the Federal Reserve’s exit from its asset purchase programme could trigger “excessive” interest-rate volatility. This in turn could have “adverse global implications”.

The IMF left its US growth forecast for this year unchanged at 1.7 percent.

UK economy accelerates in second quarter

Global economic data on Thursday were quite positive.

In the UK, the economy appears to have gained momentum. GDP grew 0.6 percent in the second quarter after having risen 0.3 percent in the first quarter.

Elsewhere in Europe, there was also good news from Germany. The Ifo institute’s business climate index rose to 106.2 in July from 105.9 in June.

And in the US, durable goods orders rose 4.2 percent in June. Orders for non-defence capital goods excluding aircraft rose 0.7 percent.

Manufacturing shrinks in China but euro area and US report stronger economic data

China's manufacturing sector contracted in July, an HSBC survey showed on Wednesday. Its preliminary reading of the manufacturing PMI for China fell to 47.7 this month, an 11-month low, from 48.2 in June.

In contrast, the eurozone manufacturing sector returned to expansion in July, according to a Markit report on Wednesday. Its preliminary reading of the eurozone manufacturing PMI rose to 50.1 this month from 48.8 in June.

The eurozone services PMI rose to 49.6 in July from 48.3 in June, helping to push the composite index up to 50.4, an 18-month high.

Markit's preliminary US manufacturing PMI also rose in July to 53.2 from 51.9 in June.

In more good news for the US economy, new home sales rose 8.3 percent in June to the highest pace since May 2008.

Japan's economy picking up but trade stays in deficit

The Japanese government has upgraded its assessment of the Japanese economy.

The Cabinet Office's July report on the economy on Tuesday said: “The economy is picking up steadily and shows some movements on the way to recovery.”

However, while a report on Wednesday indeed showed that Japan's exports rose 7.4 percent in June, its fourth consecutive increase, imports rose 11.8 percent, pushing the trade balance into a 180.8 billion yen deficit.

The June deficit extended the country's string of monthly deficits to the longest since a 14-month run that ended in August 1980.

US existing home sales fall

US economic data on Monday were mixed.

Existing home sales fell 1.2 percent in June. With the inventory of unsold homes rising 1.9 percent, the months' supply rose to 5.2.

Nevertheless, the median price for a previously-owned home jumped 13.5 percent from a year ago to $214,200, the highest since June 2008.

The US economy as a whole may have improved. The Chicago Fed National Activity Index rose to -0.13 in June from -0.29 in May. The three-month average rose to -0.26 from -0.37, suggesting that growth remained below historical trend.