Global Markets

As investors wait — and wait — for a conclusion to the Greek talks, they turned their attention to the continuing stream of earnings reports and the slew of new economic reports globally. On the upside were the manufacturing purchasing managers’ surveys that reported stabilization and — in some — improvement in many of the major global economies. However, sentiment suffered a January post holiday sag. On Friday, the U.S. employment situation report beat all expectations by a mile. Nonfarm employment jumped by 243,000 jobs — well over consensus estimates of 135,000. The details were positive as well. Needless to say, investors in Europe and the U.S. sent equities higher while the dollar fluctuated against its major counterparts.

Most equities were up for the month of January and continued their positive performance into February despite mixed earnings reports. For the week, only the All Ordinaries and Nikkei were down. Gains ranged from 6.1 percent (Taiex) to 0.1 percent (STI). Analysts noted that investors needed to adjust to signs that global economic growth, though very fragile, may be turning out to be better than many had expected. Among the many positives in last week’s data were Japanese industrial production, Germany’s continued decline in unemployment and better than anticipated manufacturing and services purchasing managers surveys globally.

Global Stock Market Recap

Europe and the UK

Equities ended the week on a high note boosted by the surprisingly strong U.S. employment report that offered further proof of a healthier global economy. The strong U.S. data added to earlier upbeat numbers on the British services sector and Chinese manufacturing, brightening the prospects for global demand. On the week, the FTSE was up 2.9 percent while the DAX and CAC advanced 3.9 percent and 3.3 percent respectively. The SMI trailed with a gain of 2.0 percent.

Earlier in the week, stocks advanced on encouraging economic news as well as positive results of bond auctions by France and Spain. And investors continued to hope that Greece and its creditors will soon reach a deal on reducing its debt. However, at week’s end, they were still waiting. Negotiators representing bondholders said late Wednesday that the talks have progressed and would be completed in days.But talks between Greece and its foreign lenders over an expected €130 billion second bailout have rumbled on without a definite resolution, with a deal needed if the country is to meet bond redemptions due in March. On Friday, Greece’s finance minister said talks with international creditors are proving "very difficult." Eurozone finance ministers canceled a meeting that had been set for Monday to discuss Greece's second bailout.

Earlier in the week, investors welcomed the agreement of a new fiscal pact and a permanent bailout mechanism for the Eurozone. Twenty-five of the 27 EU governments had agreed on a pact to move closer to fiscal union and signed off on the details of a €500 billion permanent bailout fund for the euro bloc, which is expected to come into place in the middle of this year.

Asia Pacific

Most equities in this region were up for the week with the notable exceptions of the Nikkei and All Ordinaries which declined 0.1 percent and 0.7 percent respectively. The Taiex soared 6.3 percent after reopening following the Lunar New Years celebration while the Sensex and SET were 2.2 percent and 2.1 percent higher for the week. Mostly better than expected economic data spurred investors to take advantage of the low valuations and buy financials and growth sensitive sectors. Upbeat manufacturing data from China, Germany and the U.S. bolstered the outlook for global economic growth.

The Hang Seng I posted its fifth weekly gain, rising 1.2 percent. The Shanghai Composite was up for its third week in four — it was closed for the week of January 20^th for the Lunar New Year holidays. Fears of a global economic slowdown eased after data in the week showed U.S. factory activity expanding at its strongest pace in seven months and Germany's manufacturing sector growing for the first time in four months. And expanding manufacturing activity in India and China tempered concerns that economies across the region and the U.S. may be slowing down.

China's official purchasing managers' index reading for January was 50.5, up from 50.3 in December and ahead of expectations for a drop to 49.5. But a separate reading by HSBC/Markit put the January PMI at 48.8, edging up from December's 48.7 but below the 50 level that separates expansion from contraction. Other HSBC PMI surveys showed a continued contraction in manufacturing activity in South Korea and Taiwan, although the reading for India jumped to 57.5 in January, from 54.2 in December.

Currencies

The dollar was up against the euro and Swiss franc last week and recovered from an almost postwar low against the yen after U.S. employment was up more than forecast. This in turn dampened speculation that the Federal Reserve will add another round of asset purchases to spur growth. The Japanese currency dropped, after trading within one yen of its post World War II high against the dollar, reducing speculation that the country will intervene in the currency market to stem its appreciation.

At its meeting last month, the Federal Reserve pledged to keep its interest rate near zero until late 2014. The accommodative policy tends to drive investors away from the dollar as they seek higher yields elsewhere. Japan’s Finance Minister Jun Azumi has said he will take decisive steps against one sided moves in the yen if needed. He said that the currency’s level does not reflect economic fundamentals and falling U.S. interest rates are increasing speculative yen buying. Japan last intervened on October 31^st on concern that the yen’s advance to a record would hurt exporters.

Selected currencies — weekly results

Indicator scoreboard

EMU

January economic sentiment was 93.4, up 0.6 points from December but well below its long run average value of 100. The minor recovery in January was led by services (up 2 points to minus 2.0) and aided by smaller gains in the consumer sector (0.6 points to minus 20.7) and construction (0.6 points to minus 28.3). However, morale in industry was flat (minus 7.2). Regionally, among the larger EMU states confidence was off more than 2 points at 91.4 in France and down just over a point at 84.3 in Italy. However, Germany posted a second consecutive monthly increase, up 2.3 points at 106.6, and Spain saw a much needed 1.8 point advance to 92.2. Portugal also managed a small gain to 75.7 but this was still just 4.6 points above its all-time low. Greece was down 0.8 points at 74.9 or 3.3 points above its historical trough.

December unemployment was up by 20,000, the smallest monthly increase in eight months to leave the jobless rate unchanged at 10.4 percent. The number of people out of work now stands at 16.469 million. As usual the headline data would have looked a good deal worse but for Germany where the jobless rate was down for a third consecutive month to 5.5 percent. Elsewhere among the larger EMU states unemployment rates were up 0.1 percentage points in both France (9.9 percent) and Italy (8.9 percent) and held steady at a frighteningly high 22.9 percent in Spain. At the same time Portugal saw a very unwelcome 0.4 percentage point jump in its rate to 13.6 percent.

January final manufacturing PMI reading was 48.8, revised minimally from the 48.7 flash and nearly 2 points higher from December and a five month high. However, it remained still shy of the 50 growth threshold. Output was up only marginally, but this was still its first advance of any size since last July. However, new orders were down again, albeit at their slowest rate in some six months and backlogs also fell steeply. As a result, employment in the sector was essentially unchanged but would have fallen but for gains in France and, in particular, Germany. Regionally, the German PMI was up 2.6 points from December at 51.0, its first reading above the key 50 mark in four months. However, in France, the national index shed 0.4 points to 48.5, indicating a slightly faster pace of contraction than at year end. Similarly, small gains in both Italy (to 46.8) and Spain (to 45.1) left their respective national PMI levels still consistent with weakening activity rates.

January flash harmonized index of consumer prices was up 2.7 percent on the year, unchanged from the month before. Regionally among the larger member states, inflation was also steady in both Germany (2.3 percent) and Italy (3.7 percent) but there was a sizeable 0.4 percentage point drop in Spain (2.0 percent). Final data for the region, including the key core indexes, will not be released until the end of the February.

December retail sales were down 0.4 percent and dropped 1.6 percent on the year. The limited breakdown of the figures revealed a 0.2 percent monthly slide in purchases of food, drink & tobacco and, excluding fuel, a second successive 0.1 percent contraction in non-food demand. The headline figures would have looked rather better but for a 1.4 percent monthly slump in Germany although both France (down 0.3 percent) and Spain (down 0.8 percent) registered declines too, the latter for the fourth month in a row. Portugal unwound much of November's 2.5 percent drop with a 2.2 percent rebound but this came nowhere close to making up for earlier loses and on the year purchases were off nearly 9 percent.

Germany

January unemployment was down 34,000 to 2.849 million, lowering the unemployment rate to 6.7 percent from 6.8 percent in December. This was the second successive month in which the unemployment rate has declined. Vacancies were up 6,000. Today's figures complement the release earlier of the ILO jobs report which showed employment up a healthy 47,000 on the month at the end of 2011. The German unemployment methodology used here differs from Eurostat’s used in calculating Eurozone unemployment.

December retail sales dropped 1.4 percent and were down 1.0 percent on the year. The latest slide means that volumes have not seen a monthly increase since September with sales for the fourth quarter 0.7 percent weaker than the previous period. The deterioration compares with a third quarter advance of 1.2 percent and so warns of a marked worsening in total household spending.

France

December household spending on manufactured goods slid 0.7 percent on the month and dropped 2.4 percent on the year. Demand last month still hit its lowest level since July. December was depressed by a 0.9 percent decline in textiles, their second successive drop although this was after a 4.5 percent surge in October. However, the auto sector again held up well (1.6 percent) and while household goods were only flat, the other products area saw a 0.2 percent gain. Overall consumption also was down 0.7 percent from November within which food declined 1.0 percent and energy shrank 2.7 percent.

December producer prices slipped 0.1 percent on the month in December after an unrevised 0.4 percent increase in mid-quarter. The decline lowered annual growth of the headline index from 5.6 percent in November to 4.6 percent. Outside of electrical & electronic equipment (0.3 percent) all of the main categories posted monthly declines. Coke & refined petroleum products (down 0.4 percent) saw the steepest drop followed by transport equipment (down 0.2 percent). Food, drink & tobacco together with the other products area saw prices off 0.1 percent.

Italy

December producer prices edged up 0.1 percent and were up 4.0 percent on the year. Excluding energy, the PPI was down 0.1 percent from the previous month and up a relatively modest 2.7 percent on the year. Outside of energy where costs jumped 0.7 percent from November, no major category saw an increase in excess of 0.1 percent. Prices of intermediates fell 0.2 percent.

Asia/Pacific

Japan

December unemployment rate inched up to 4.6 percent from 4.5 percent in October and November. Analysts expected the rate to remain at 4.5 percent. Employment dropped 100,000 from a year ago after increasing by 80,000 in November. The ratio of job offers to seekers, which is seen as a coincident indicator, climbed to 0.71 from 0.69 in November. This was the highest level since November 2008.

December household spending was up 0.5 percent from a year ago after sinking 3.2 percent in November. Analysts expected expenditures to edge down 0.1 percent. Spending on medical care slid 5.8 percent while transportation & communication was 2.5 percent lower. Culture & recreation was down 2.9 percent from a year ago. Spending increased for clothing & footwear (7.6 percent) and furniture & household utensils (5.1 percent). Education spending soared 17.6 percent. Housing was up 7.0 percent and food spending edged up 0.1 percent.

December industrial production was up 4.0 percent but down 2.7 percent on the year. Industries that mainly contributed to the increase were transport equipment (12.3 percent), information & communication electronics equipment (34.8 percent) and electronic parts & devices (7.1 percent). Commodities that contributed to increased production included large passenger cars, cellular telephones and semiconductor products machinery. In its forecast for January and February, METI expects production to increase by 2.5 percent and 1.2 percent respectively. Industries that are expected to contribute to an increase are information & communication electronics equipment, transport equipment and general machinery. In February, industries that are anticipated to increase include electronic parts & devices, iron & steel and pulp & paper.

Australia

December balance on goods and services was a surplus of A$1,709 million, an increase of A$366 million on the surplus in November 2011. Exports were up 2.3 percent with non-monetary gold up 31 percent, non-rural goods up 1.0 percent and rural goods up A$12 million. Services slipped 1.0 percent. The main contributing component to the increase in rural goods exports were wool and sheepskins, 8 percent. Offsetting this increase was the cereal grains and cereal preparations component, which were down 3 percent. The main contributing component to non-rural goods which were up 1.0 percent was coal, coke and briquettes, up 8 percent. Imports were up 1.0 percent. Intermediate and other merchandise goods were up 4 percent while consumption goods were 3 percent higher. Non-monetary gold dropped 27 percent and capital goods slipped 2 percent.

Americas

Canada

November monthly GDP edged down 0.1 percent and was up 2.0 percent on the year. November's dip in total production was concentrated in the goods producing sector where output declined 0.6 percent from October, its second consecutive monthly decline. Weakness was particularly apparent in mining & oil & gas extraction which saw a 2.2 percent decline in production, but there were drops too in both utilities (0.6 percent) and construction (0.3 percent). However, it was not all bad news as manufacturing posted its third rise in as many months, up 0.6 percent. For the fourth time in a row, services output edged just 0.1 percent higher on the month. The meagre gain here was a reflection of a 0.6 percent increase in retail trade together with a 0.9 percent advance in accommodation & food (0.9 percent) and a 0.4 percent rise in professional, scientific & technical services.

December industrial product prices were down 0.7 percent on the month and were 2.8 percent higher on the year while raw materials prices were down 2.4 percent on the month and up 4.7 percent on the year. The IPPI was pulled lower on the month by a 3.7 percent drop in petroleum & coal product prices without which the headline index would have slipped just 0.3 percent. The only other declines of any real note were in chemicals (0.7 percent) and primary metals (2.4 percent). Elsewhere prices were generally little changed from November although miscellaneous non-manufactured products declined 1.0 percent. Exchange rate effects were minimal. The RMPI was undermined by a 3.0 percent monthly slide in the cost of mineral fuels. Excluding this category the overall index was down a more modest 1.7 percent, largely attributable to non-ferrous metals (down 3.3 percent). However, there were also sizeable drops in the price of vegetable products (down 2.3 percent) and animal and animal products (down 0.8 percent).

January employment was up 2,300 while the unemployment rate edged up to 7.6 percent from 7.5 percent. Full time jobs were down 3,600 leaving the gentle rise in overall employment wholly attributable to part-time positions which were up 5,900. Both private and public sector payrolls expanded in excess of 19,000 but advances here were almost offset by a hefty 37,000 drop in the number of self-employed. Within a 9,300 increase in the goods producing sector, manufacturing was up 10,100. There were smaller increases in utilities (6,400), natural resources (3,900) and agriculture (2,500). However, despite unseasonably warm weather, construction declined 13,700. Services shed 7,000 jobs mainly in professional, scientific & professional services (down 44,800) and finance, insurance, real estate & leasing (down 23,200). Health care (down 9,500) and accommodation & food (down 8,000) also recorded falls. However, there were partially offsetting gains in educational services (22,800), information, culture & recreation (18,800), trade (12,000) and business, building & other support services (6,800). Other services (13,700) also chipped in.

Bottom line

Equities advanced after mostly better than anticipated economic news outweighed mixed earnings reports and the lack of a conclusion to the Greek talks. The first three days of February built on January’s healthy advances. But investors will be paying close attention to the world's central banks in the coming week for signs of continued easy money. They also will be closely watching negotiations over a second bailout deal for Greece, while Chinese data on trade and inflation and a heavy week of corporate earnings reports lie ahead.

The Reserve Bank of Australia, European Central Bank and the Bank of England hold policy meetings this week. The ECB is not expected to change policy but the Bank of England is widely expected to increase its asset purchases by £50 billion. The Bank’s Inflation Report is expected to signal that this will be the last such move. The RBA is considered almost certain to cut interest rates by 25 basis points to 4.0 percent at its February 7^th meeting.

Looking Ahead: February 6 through February 10, 2012

Anne D Picker is the author of International Economic Indicators and Central Banks.