World Economy

Positive News Reigning In

Manufacturing in the US expanded in November at the fastest pace in five months, underscoring the healthy outlook for domestic consumer demand.Manufacturing in the US expanded in November at the fastest pace in five months, underscoring the healthy outlook for domestic consumer demand.
Soft manufacturing data and PMI readings this week highlighted broad-based signs of improvement

It’s been a big week for bullish economic data across the globe, from South Korean exports to European manufacturing figures.

The most important number of the week comes tomorrow: November’s US jobs report. The data is expected to highlight a robust labor market that will pave the way for the Federal Reserve to hike rates this month. 

According to a Bloomberg survey, employers are expected to have added 180,000 workers, compared with 161,000 in October, and the unemployment rate will hold at an eight-year low of 4.9%. If these predictions come to pass, it will cap off a good week for the global economy, just as president-elect Donald Trump prepares to usher in a new regime for global financial markets.

Here is a review of some of the positive data released so far:

China’s manufacturing purchasing managers index rose to 51.7 in November, above market expectations. The index, which is the official gauge of factory output in Asia’s largest economy, matched a post-2012 high, driven by monetary and fiscal stimulus.

Manufacturing in the US expanded in November at the fastest pace in five months, underscoring the healthy outlook for domestic consumer demand.

Sentiment among US consumers has held close to the highest level of the year, a boon for spending prospects, according to the weekly Bloomberg Consumer Comfort Index, which ticked up very slightly in the week that ended Nov. 27, to 44.9 from 44.8 the week earlier.

In the eurozone, joblessness fell to 9.8% in October from a revised 9.9% the month prior, the lowest level since July 2009, fueling hopes that an improving labor market in the single-currency bloc will incent consumer spending in the coming months.

 Profits Rise

Industrial output in the eurozone accelerated at its strongest pace in almost three years last month, suggesting a weaker euro is stimulating production and export volumes.

In Canada, third-quarter growth surprised to the upside at 3.5%. The best quarterly growth rate in two years was driven by household spending on services.

In South Korea, exports rose 2.7% year-on-year in November, after a 3.2% decline in October. That figure underscores resilient global demand and bolsters the case that external aggregate demand, a weaker yuan, and strong consumer spending in the US will all buoy Chinese exports in the coming months, given the correlation between Asia’s integrated supply chains.

In Japan, corporate profits have rebounded by over 11% year-on-year, underscoring “a broad pattern around the world that has seen the ‘earnings recession’ driven by higher dollar and lower oil/commodities start to roll off without an economic recession,” according to a note by Bespoke Investment Group.

What’s more, soft manufacturing data this week highlighted a broad-based positive story. As Bespoke points out, PMI readings by IHS Markit for Austria, the Netherlands, and Russia are both at the highest levels since the financial crisis. Meanwhile, purchasing managers indexes for Spain, Italy, France, and Germany are slowly, though, unevenly improving.

That’s good news for Russia, where manufacturing has staged a contraction of 1% in the first 10 months of the year, according to Bloomberg Intelligence, citing the national statistics agency. 

 Financial Markets in Doldrums 

It’s been a roller coaster. November marked one of the most decisive shifts for global financial markets in recent years, with a bevy of asset classes—from bank stocks, emerging-market bonds to hard commodities—staging sharp price swings in the space of a mere three weeks.

Developed-market equities have been in vogue over the past three weeks, with a rotation out of defensive stocks in favor of consumer discretionary shares, industrial commodities, and financials underscoring how a repricing of growth expectations has trumped the prospect of a higher discount rate.

Meanwhile, fixed-income has fallen firmly out of favor, stocking fears the 35-year bond bull-run is coming to an abrupt end. That signals a reversal of the perverse investment strategy in the first half of the year to snap up equities for yield, and bonds for capital gain.

November was the worst month ever for the Bloomberg Barclays Aggregate Total Return Index, which staged a 4% loss, as yields on US 10-year Treasuries climbed from 1.8% to 2.4% in swings reminiscent of 2013’s taper tantrum.

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