Global Markets

The Federal Reserve is not the only central bank where virtually every word from policy makers is parsed for policy direction by investors. The ECB, Bank of Japan and even the PBoC fall into this category as well. Investors carefully dissected speeches from U.S. Federal Reserve officials including Chair Janet Yellen, Vice Chair Stanley Fischer and regional Fed presidents William Dudley, Charles Evans and Jeffrey Lacker during the week. All are honing in on any commentary for clues about the Fed's thinking. But so far, traders complain that Fed speak has provided little clarity as to when the Fed funds rate will increase — the FOMC is made up of people with independent positions and their speeches do not necessarily walk in lock step with each other. Investors are also looking at comments from the European Central Bank for signs of additional easing at its December 3 governing council meeting.

Weak data provoke thoughts of monetary easing. That is the case in Japan where expectations are for the second consecutive quarter of negative growth in the third quarter and yet another technical recession. The recent spate of disappointing economic data from China will have analysts there monitoring the PBoC.

OECD outlook

The Organisation for Economic Cooperation and Development (OECD) has yet again reduced its forecast for global growth this year, this time to 2.9 percent amid a "further sharp slowdown" in emerging market economies and a deterioration in global merchandise trade. The OECD had already reduced its expectations for global growth this year at its last forecast in September, to 3.0 percent from 3.1 percent previously. A year ago, it had forecast 3.7 percent growth in the global economy in 2015. The OECD is particularly concerned about emerging market economies as countries such as Brazil and Russia languish deep in recession.

The OECD said that the outlook for emerging market economies is a key source of global uncertainty at present, given their large contribution to global trade and GDP growth. In China, ensuring a smooth rebalancing of the economy, while avoiding a sharp reduction in GDP growth and containing financial stability risks, presents challenges. A more significant slowdown in Chinese domestic demand could hit financial market confidence and the growth prospects of many economies, including advanced economies.

Global trade, which has already been growing relatively slowly over the past few years, appears to have stagnated and even declined since late 2014. This is deeply concerning. Robust trade and global growth go hand in hand. Trade strengthens competition, keeping domestic firms fit and prices low, and expands variety for consumers and businesses. Technology transfer through trade contributes to the diffusion of new technologies and productivity growth. World trade has been a bellwether for global output. The growth rates of global trade observed so far in 2015 have, in the past, been associated with global recession.

The organization said that the Federal Reserve should lift interest rates at a cautious pace as it highlighted the still low level of inflation in the U.S. even after six years of expansion. The OECD forecasts that U.S. will grow at a 2.4 percent pace this year and 2.5 percent next, well above the Eurozone and Japan but shy of the 3 percent growth the Fed had hoped for at the start of the year.

Global Stock Market Recap

Europe and the UK

Equities retreated last week for their poorest performance in two months. Weaker than expected Eurozone GDP data have intensified investor expectations for further stimulus measures at the next meeting of the European Central Bank. The disappointing data coupled with lingering concerns about a Federal Reserve rate increase weighed on investor sentiment. The strength of the U.S. dollar continues to contribute to weakness in commodity prices. Mining stocks extended their recent declines due to falling precious metal prices. The FTSE dropped 3.7 percent, the CAC plummeted 3.5 percent and both the DAX and SMI lost 2.5

Flash third quarter gross domestic product grew 0.3 percent from the previous three months and down from the 0.4 percent expansion in the second quarter. German economic growth moderated in the third quarter on weak investment and foreign trade, while the French economy gained momentum on the back of domestic demand.

In his testimony to the European Parliament's Economic and Monetary Affairs Committee in Brussels, European Central Bank President Mario Draghi said the Bank will re-examine the degree of monetary policy accommodation at the December meeting. He said that the governing council will closely monitor the risks to price stability and thoroughly assess the strength and persistence of the factors that are slowing the return of inflation to levels below, but close to, 2 percent. While the euro area economic recovery is progressing moderately, the return of inflation is likely to take more time than expected earlier.

Asia Pacific

Increasing odds of a December U.S. rate increase pushed Asian shares lower this week, overshadowing global central banks' stimulus which drove a rebound in the region in October. Major indexes including those in Australia, Hong Kong, South Korea, Singapore and India retreated more than 2 percent on the week. The Shanghai Composite was down 0.3 percent. The renewed focus on U.S. rates is a switch from recent weeks when hopes for easing measures by central banks in Europe, Japan and China buoyed shares.

However, there was an exception — the Nikkei bounced 1.7 percent higher. The Japanese yen, which has reached its weakest level since late August in recent days, is a boon for the country's exporters.

Investors' attention was also trained on commodity markets which slumped below key levels on Thursday. Brent crude closed below $45 a barrel and West Texas Intermediate finished below $42 as OPEC warned the oil glut had grown even bigger than during the financial crisis.

Falling commodities prices pressured Australian equities. The index has shed most of its six percent bounce from late September to late October. The All Ordinaries is down 3.3 percent so far this month with most of the losses occurring during the past week. An imminent move by the Fed is sidelining investors in Hong Kong too, according to analysts. The Hang Seng lost 2.1 percent this week with trading volumes down.

China's October data mostly disappointed. Both exports and imports tumbled from a year ago while producer prices dropped for a 44^th straight month. Consumer price inflation eased to 1.3 percent from 1.6 percent in September — a five month low in yet another sign of subdued demand and slowing growth in the country. And industrial output growth eased to 5.6 percent from 5.7 percent and was below expectations. However, retail sales were up 11 percent, beating expectations. Singles' Day, a spree of promotions for online sales held annually on November 11, is similar to Cyber Monday in the United States. E-commerce giant Alibaba Group Holding started the day of shopping in 2009 to entice single people to buy things to pamper themselves. Today, most major e-commerce websites participate by offering deep discounts appealing to all shoppers.

Concern is increasing that Chinese stocks are overvalued after the Shanghai gauge rebounded 24 percent from the August low amid a worsening outlook for the economy and earnings. On Friday, after markets closed, China moved to contain leveraged wagers on its stock market, cutting by half the amount of borrowed money investors can use to buy shares, as authorities seek to prevent a repeat of the excesses that led to a $5 trillion rout earlier this year. Margin requirements will be raised to 100 percent from 50 percent starting on November 23, the Shanghai and Shenzhen bourses said in separate statements after local exchanges closed on Friday. The rule change means that an investor with 1 million yuan ($156,895) in their account is limited to borrowing another 1 million yuan from a broker to buy more shares. Previously, they could borrow as much as 2 million yuan.

Currencies

The U.S. dollar was mixed against its major counterparts (at 1:00 PM ET). On the week, it gained against the Euro, Swiss franc and Canadian dollar but was lower against the pound sterling, yen and Australian dollar.

According to Fed Vice Chair Stanley Fischer, a strong dollar is restraining U.S. inflation and exports and has already delayed the Federal Reserve's first interest rate increase. But he said the U.S. economy is riding out the effects fairly well and it "may be appropriate" for the Fed to begin raising rates in December. He noted Fed officials have lowered their projected path for the federal funds rate since the dollar began its ascent in mid-2014, in effect holding rates lower than they otherwise would have been, "and in that sense we were running an expansionary monetary policy" to offset the effects of the dollar. Mr Fischer said the dollar's rise since July 2014 has been large, though not unprecedented historically. He said the appreciation has been partially driven by a decline in foreign interest rates relative to U.S. rates, as well as "heightened concern about the global outlook and an associated decrease in investor risk tolerance."

A stronger dollar reduces U.S. exports by making them more expensive for foreign customers, restraining overall economic growth, and Mr Fischer said the drag may persist well into next year. A stronger dollar also puts downward pressure on import prices, but he described the effect on U.S. inflation as more muted and transient than the impact on economic growth.

Selected currencies — weekly results

Indicator scoreboard

Eurozone

September industrial production (excluding construction) was down 0.3 percent but was up 1.2 percent on the year. The main area of weakness was consumer goods within which durables slumped some 3.9 percent from August while nondurables were down 1.0 percent. Capital goods also decreased 0.3 percent and although intermediates held steady, the headline drop would have been sharper still but for a 1.2 percent bounce in energy. Regionally much of the damage was caused by Germany where output contracted a monthly 1.2 percent, compounding a 0.8 percent drop last time. However, France and Italy both posted modest 0.2 percent gains and Spain advanced 1.4 percent, albeit after a 1.3 percent drop in August. Elsewhere performances were mixed but of note was a sizeable 1.4 percent decrease in Portugal, the third fall in the last four months.

Third quarter gross domestic product grew at a sluggish 0.3 percent quarterly rate. The increase in real GDP followed an unrevised 0.4 percent rise in April to June and nudged annual workday adjusted growth a tick firmer to 1.6 percent. As usual Eurostat provided no details of the GDP expenditure components but the likelihood is that a small negative contribution from net exports masked another moderate increase in final domestic demand. The core countries again failed to impress. France improved from no growth at all in the second quarter to a modest enough 0.3 percent advance but, in matching that rate, the German economy only slowed from the previous period (0.4 percent). Elsewhere, Italy saw a surprisingly small 0.2 percent gain but Spain, despite some deceleration from the second quarter's 1.0 percent rate, expanded a very respectable 0.8 percent. Among the smaller member states, Cyprus and Lithuania (both 0.5 percent) beat the average but Finland (down 0.6 percent) as well as Estonia and Greece (both down 0.5 percent) struggled while Portugal only stagnated.

Germany

September's seasonally adjusted merchandise trade surplus was €19.4 billion, little changed from its unrevised August level. The unadjusted surplus was €22.9 billion, yielding a cumulative €186.7 billion surplus during the first nine months of 2015 versus €156.3 billion over the same period last year. The minor reduction in the headline reflected a 3.9 percent monthly jump in imports that more than offset a 2.6 percent increase in exports. Unadjusted annual export growth slowed to 4.4 percent while imports were 3.9 percent higher on the year, a slight improvement on their August level.

United Kingdom

October claimant count unemployment was up 3,300 but this was effectively offset by a near-equivalent downward revision to September's increase which now stands at just 500. Joblessness increased a relatively mild 5,000 over the last three months although this still compares unfavorably with a 7,800 decline during May-July which was the first quarterly gain in nearly three years. Even so, the claimant unemployment rate in October was steady, as expected, at 2.3 percent. According to the ILO survey the number of people out of work dropped 103,000 in the third quarter, a steep enough decline to nudge its version of the jobless rate to 5.3 percent from 5.4 percent. This is its lowest mark since March-May 2008. Annual average earnings growth last quarter was only 3.0 percent, unchanged from its previous mark. Regular pay slowed from 2.8 percent to 2.5 percent. Moreover, within the latter figure, the standalone September rate was just 1.9 percent.

Asia/Pacific

Japan

Producer prices continue to deflate. October producer prices swooned a greater than expected 3.8 percent from a year ago – analysts expected a decline of 3.5 percent. On the month, the PPI was down 0.6 percent for a third month. Once again petroleum was a major factor in pulling down the overall price index. Petroleum & coal products plunged 27.1 percent from a year ago. Chemicals & related products dropped 8.5 percent, nonferrous metals were down 5.3 percent and iron & steel declined 5.1 percent. There were subcategories with price gains. Transportation prices, however, were 0.6 percent higher while textiles gained 0.5 percent. Food & feedstuffs were 1.1 percent higher from a year ago. But even with these increases, there is a long way to go before deflation is defeated.

September core machine orders surprised on the upside – they soared 7.5 percent on the month after sinking 5.7 percent in August. However, core is still negative from a year ago, down 0.5 percent. The monthly change is a popular proxy for capital expenditures. Expectations were for a monthly increase of 3.3 percent. Manufacturing orders dropped 5.5 percent while nonmanufacturing (excluding volatile orders) jumped 14.3 percent. Overseas orders were up 4.8 percent. Data like this may go some of the way to validating the Bank of Japan's decision to keep its monetary policy unchanged at the end of October. Numbers like this are a potentially positive sign for business spending, which is typically a cause for optimism in coming months.

Australia

The labour force survey beat all expectations. The unemployment rate, rather than remaining at 6.2 percent, declined to 5.9 percent. At the same time, the participation rate increased to 65.0 percent from 64.9 percent where it had been expected to remain. And employment – rather than increasing 15,000 – soared 58,600. This is the first time the jobless rate has been below 6 percent since May 2014. The gain in employment was driven by increases in full-time employment (up 40,000) and part time employment (up 18,000). The seasonally adjusted number of people unemployed decreased by 33,400 to 739,500 in October. Reserve Bank of Australia's Governor Glenn Stevens had been rather sanguine in last week's monetary policy statement about economic conditions, indicating that the RBA's 2 percent interest rate was fine for now.

China

October merchandise trade surplus was $61.64 billion, up from September's $60.3 billion. Exports dropped for a fourth consecutive month, this time by 6.9 percent from a year ago after sliding 3.7 percent the month before. Imports also sank, down 18.8 percent on the year after plunging 20.4 percent in September. Imports retreated for a 12th straight month. The report signals that the People's Bank of China is still struggling against economic headwinds even after cutting its main interest rate six times in the last year, most recently in October, and after a surprise devaluation of the currency in August. Exports to Japan slumped 9 percent in the first 10 months of the year from a year earlier while those to European Union declined 3.7 percent. Shipments to Hong Kong dropped 11.7 percent during the same period. China's exports to the U.S., its largest trading partner, jumped 5.8 percent in the first 10 months from a year earlier, while those to the Association of Southeast Asian Nations increased 4.2 percent. Shipments to India rose 8.9 percent. Imports from all 10 of the major trade partners listed by the customs administration declined in the first 10 months.

October consumer prices were up 1.3 percent from a year ago – a five year low and the slowest since May -- and down from September's increase of 1.6 percent. On the month, the CPI was down 0.3 percent. Urban CPI was up 1.3 percent, down from 1.6 percent the month before, while rural consumer prices were up 1.2 percent after 1.5 percent in September. Another slowdown in food prices pulled Chinese inflation lower even though the increase was up more than the overall index. Food prices were up only 1.9 percent after 2.7 percent in September and 3.7 percent in August. Non-food prices were up 0.9 percent after 1.0 percent and 1.1 percent in September and August respectively. Low inflation reflects weakening demand and doesn't inspire confidence about the economic shift from manufacturing to consumption, yet at the same time it should allow Beijing to enact stimulus should it seek to support the economy further.

October producer prices continued to decline, down 5.9 percent for a six year low. The PPI has been negative for 44 consecutive months, reflecting excess supply of both housing materials and raw materials and overcapacity in heavy industry. On the month, the PPI dropped 0.4 percent for a second month. Raw materials procurement, fuel & power prices dropped 6.9 percent while production materials were 7.6 percent lower. Consumer goods slipped 0.4 percent on the year. Fuel and power dropped 12.4 percent from a year ago.

October retail sales were up slightly more than expected, 11.0 percent from a year ago and the fastest pace since December last year, For the 10 months through October, sales were up 10.6 percent compared with 12.0 percent for the same 10 months in 2014. On the month, retail sales were up 0.83 percent after 0.87 percent in September. Urban sales were up 10.8 percent while rural sales increased 12.2 percent. Auto sales improved to an increase of 7.1 percent after rising a poor 2.7 percent in September. Household nondurables increased 10.1 percent after adding 8.8 percent last time. Home appliances, however, were up 7.1 percent after 11.3 percent in September. Grain & food oil sales were up 16.7 percent after jumping 19.6 percent last time. Communication equipment was up 36.6 percent after 42.2 percent in September.

Industrial output gained 5.6 percent on the year in October, below expectations for a 5.8 percent increase. On the month, output was up 0.46 percent after gaining 0.38 percent in September. For the 10 months through October, output was up 6.1 percent compared with an 8.4 percent gain for the same months in 2014. Among the subcategories, auto output gained 4.9 percent after declining for the previous three months. Communications rebounded 11.7 percent after increasing 10.5 percent in September. Cement and steel continued to decline but at slower rates. The remaining nine categories all grew at slower rates in October. They included machinery, transport equipment, textiles, chemicals and power & thermal, to mention a few.

Bottom line

The week was relatively quiet data wise. However there were key reports from China at the beginning of the week and the Eurozone at the end. China's data mostly disappointed. Japan's producer price index gave no hint of an improving deflation picture. And growth in the Eurozone was weaker than anticipated. Australia's labour force report was very strong across the board. Now analysts there are wondering if it was a one-time report or a sign of renewed strength.

The week begins with Japan's third quarter GDP data. It is expected to indicate that the country has once again slid into a technical recession — two successive quarters of contraction. The Bank of Japan meets and although there are continued expectations of yet more easing, the consensus is — not yet. In the past two years, Japanese GDP growth has been "hit and miss" coming in positive four times and negative four times. While few long-time followers of the Japanese economy will be surprised, this performance is a real disappointment after the enormous monetary policy effort by the BoJ since 2013.

Looking Ahead: November 16 through November 20, 2015

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