Despite further Eurozone and
Asian economic weakness, and sovereign debt issues seemingly increasing not
retracting, positive jobs and economic data from the United States and Canada
through the week buoyed stock markets around the globe.
Unemployment numbers from the
Eurozone continue to reach record highs. September’s rate of 11.4% across the
17 member states masks wide variations, with the worst numbers still seen in
Spain, where unemployment has now hit 25.1% with over 50% of under 25’s out of
work. A poll of purchasing managers by Markit showed a further economic
retraction in the third quarter: if proved correct with official figures then
the Eurozone will officially declared in recession.
The ECB waits to activate its
bond buying program, announced last month. With the objective of pushing bond
yields down and decreasing borrowing costs for the indebted Euro nations, the
ECB is waiting for requests for assistance. Main target, Spain, is stalling
with its politicians baulking at the requirement to give up even more fiscal
and economic control to European central government. Meanwhile, mass protests
in the Catalan region – one of the more prosperous regions of Spain – are calling
for independence from the rest of Spain. The yield on Spain’s 10 year bonds,
which had fallen from above the dangerous 7% level to nearly 5.5% after the ECB’s
bond buying announcement, have risen to around 5.9%.
Greece finds its problems
deepening, as the so called troika –IMF, ECB, and European Commission – have rejected
part of the country’s austerity plans. Greece is due yet another round of
financial aid soon, and this action could put that in jeopardy.
Over in Asia, the Asian
Development Bank lowered forecasts for growth across the region, including
China and India. The downward revision is dramatic, from 6.9% to 6.1% for this
year, and 7.3% to 6.7% next year. It sees Chinese growth this year of 7.7%, but
falling next year to 5.6%.
As if to prove the Asian
Development Bank correct, Chinese service sector numbers came in weaker than
expected, though this helped to lower crude oil prices (China’s oil demand is
10% of world total).
The United States, however, is
bucking the trend of global weakness. The world’s largest economy has this week
seen manufacturing PMI numbers and New Order figures both rebounding to growth
from August’s contracting indications. Consumer confidence has risen for six
weeks in a row, with sales at store open more than 12-months increasing by
3.9%. Conversely and strangely, US Factory Orders fell by 5.2% in August: something
of a conundrum.
The big news came at the end of
the week, with massive revisions to previously-released US unemployment figures.
August’s number of payroll increase had been reported at 96,000 but has now
been revised upwards to 142,000, and July’s number of 141,000 has been upped to
181,000. September’s estimated number has come in at 162,000.
Over the week, the Dow Jones
Industrial Index rose by 1.3% to close at 13610.15, and the S&P slipped by
1.4% to 1460.93. The Nasdaq 100 gained a little less, just 0.4% to 2811.94, as
Apple and Facebook gave away gains on Friday. In the UK, the FTSE 100 Index rose
by 2.2% to stand at 5871.02.
Trading View
Everywhere the economic numbers seem to be pointing to further contraction and slowdown, and rising unemployment, except in the United States.
In fact, the United States is
showing remarkable resilience in the face of massive adversity elsewhere. The
way markets have reacted indicates a bit of ‘laisez faire’ on the part of
investors: a sense of ‘we’ve been here, seen it, done it’.
Though Spanish bond yields are
again rising, the country is putting off the inevitable. This indecision by the
Spanish may be more political than economic management. Can the country’s
leaders really afford to cede so much to the centre, when its own regions are
rising up to try to force a breakaway?
Call me a cynic, but this market
seems to have gone into political phase. In the United States, economic numbers
are improving rapidly and the unemployment rate has fallen from 8.3% to 7.8% as
the Presidential election comes ever closer. Of course, we’ve seen revisions
and revisions to numbers before: what odds on a downward lurch coming after the
election? If a new President is in, it will be his fault. If Obama stays in,
then what does he really care – he’ll have another four years.
In Europe, the masses are
protesting against further austerity measures and centralised government, and
countries like Spain and Greece are holding back the weight of pressure from
its people and the European leaders to act in the manner each side wants. It’s
a two way pull, which will snap at some time.
My view remains the same, there’s
always calm before the storm.
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