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An abundance of positive economic data
International Perspective - December 1, 2017
By Anne D. Picker, Chief Economist


Global Markets

While mostly positive economic data were released globally, investors were distracted by ongoing political problems in the U.S. and Europe. Positive growth data for Canada, Switzerland and Italy along with an upward revision to U.S. GDP plus key manufacturing PMIs globally dominated the week's data releases. And an upbeat global forecast from OECD also helped. But despite the positive data, most equity indexes were lower on the week, thanks to the pressing political issues.


According to the OECD, the global economy is now growing at its fastest pace since 2010, with the upturn becoming increasingly synchronized across countries. This long awaited lift to global growth, supported by policy stimulus, is being accompanied by solid employment gains, a moderate upturn in investment and a pick-up in trade growth.


However, the lingering effects of prolonged sub-par growth after the financial crisis are still present in investment, trade, productivity and wage developments. Emerging-markets growth is hampered by slowing reform efforts and financial vulnerabilities from high debt burdens, particularly in China. Financial risks are also rising in advanced economies, with the extended period of low interest rates encouraging greater risk-taking and further increases in asset valuations, including in housing markets.


Global manufacturing expanded at the fastest pace in years in November and the second-best in two decades in the Eurozone driven by robust demand. The global manufacturing sector strengthened to a reading of 54.0, up from 53.5 in October. All subindexes including output, new orders, new exports, employment and input and output prices rose at a faster rate in the month. The rates of expansion in output, new orders and employment all hit multi-year highs. Price pressures remained elevated, however, with input costs and output charges rising at accelerated and above long run average rates. Business conditions improved across the consumer, Intermediate and investment goods sectors. The strongest expansion was at intermediate goods producers and the slowest in the consumer goods category.


Growth remained sharper (on average) in developed nations compared to emerging markets. In the euro area the PMI climbed to a near-record high. Rates of increase also strengthened in Japan (44-month high), the UK (51-month high), Australia (8-month high) and Canada (2-month high). Growth slowed slightly in the US, but remained solid overall. In the main emerging nations, growth eased to a five month low in China, but accelerated in India (fastest in over a year), Brazil (81-month high) and Russia. Mexico returned to expansion after contracting in October. But efforts to reduce air pollution in China have curtailed factory activity in recent months.


Global Stock Market Recap

  2016 2017 % Change
Index Dec 31 Nov 24 Dec 1 Week Nov 2017
Australia All Ordinaries 5719.1 6063.1 6075.52 0.2% 1.4% 6.2%
Japan Nikkei 225 19114.4 22550.9 22819.03 1.2% 3.2% 19.4%
Topix 1518.61 1780.56 1796.53 0.9% 1.5% 18.3%
Hong Kong Hang Seng 22000.6 29866.3 29074.24 -2.7% 3.3% 32.2%
S. Korea Kospi 2026.5 2544.3 2475.41 -2.7% -1.9% 22.2%
Singapore STI 2880.8 3442.2 3449.54 0.2% 1.8% 19.7%
China Shanghai Composite 3103.6 3353.8 3317.62 -1.1% -2.2% 6.9%
India Sensex 30 26626.5 33679.24 32832.94 -2.5% -0.2% 23.3%
Indonesia Jakarta Composite 5296.7 6067.1 5952.14 -1.9% -0.9% 12.4%
Malaysia KLCI 1641.7 1717.2 1717.86 0.0% -1.7% 4.6%
Philippines PSEi 6840.6 8365.1 8144.02 -2.6% -1.3% 19.1%
Taiwan Taiex 9253.5 10854.1 10600.37 -2.3% -2.2% 14.6%
Thailand SET 1542.9 1695.8 1699.65 0.2% -1.4% 10.2%
UK FTSE 100 7142.8 7409.6 7300.5 -1.5% -2.2% 2.2%
France CAC 4862.3 5390.5 5316.9 -1.4% -2.4% 9.3%
Germany XETRA DAX 11481.1 13059.8 12861.5 -1.5% -1.6% 12.0%
Italy FTSE MIB 19234.6 22416.3 22106.1 -1.4% -1.9% 14.9%
Spain IBEX 35 9352.1 10053.5 10085.0 0.3% -3.0% 7.8%
Sweden OMX Stockholm 30 1517.2 1614.6 1592.2 -1.4% -3.7% 4.9%
Switzerland SMI 8219.9 9325.6 9274.6 -0.5% 0.8% 12.8%
North America
United States Dow 19762.6 23557.99 24231.6 2.9% 3.8% 22.6%
NASDAQ 5383.1 6889.2 6847.6 -0.6% 2.2% 27.2%
S&P 500 2238.8 2602.4 2642.2 1.5% 2.8% 18.0%
Canada S&P/TSX Comp. 15287.6 16108.1 16039.0 -0.4% 0.3% 4.9%
Mexico Bolsa 45642.9 47941.9 47265.3 -1.4% -3.2% 3.6%


Europe and the UK

Equities began December on a negative note, in part following the release of the disappointing Chinese manufacturing report and the looming vote in the Senate on the U.S. tax reform bill after GOP leaders were forced to delay a final vote after the legislation hit a snag. Now the vote, at this writing, is expected to take place sometime on Friday. On the week, only the IBEX (0.3 percent) managed to increase. The weekly declines were led by the DAX and FTSE (both down 1.5 percent) and followed by the CAC (down 1.4 percent) and SMI ((down 0.5 percent).


Traders were in a cautious mood ahead of Friday's vote in the Senate on the U.S. tax reform bill. GOP leaders were forced to delay a final vote on Thursday after the legislation hit a snag. Traders were also concerned by reports that former national security adviser Michael Flynn would plead guilty to lying to the FBI about conversations with the Russian ambassador last December during the presidential transition. However, activities in the U.S. were not the only politically sensitive issues for equities this week. In Germany, Angela Merkel is still trying to form a government even though it is now 2 months and counting since the election. And the Brexit negotiations continue to grind on between the UK and EU. Sterling rallied on further signs of a breakthrough in the Brexit negotiations.


For the first time since the Bank of England launched its stress tests in 2014, no bank needs to strengthen its capital position as a result of the stress test. The results of the test revealed that the UK banking system is resilient to deep simultaneous recessions in the UK and global economies, large declines in asset prices and a separate stress of misconduct costs. The BoE noted that the economic scenario in the test was more severe than the global financial crisis.


Asia Pacific

Declines and increases in equity indexes were split for the week as investors closely monitored the progress of tax reform through the U.S. Senate. Six equity indexes increased while six declined. Depressing shares at the end of the week was the weak November manufacturing PMI for China — it slipped from 51.0 in October to 50.8 in November. Both the Hang Seng and Kospi lost 2.7 percent while the Sensex retreated 2.5 percent and the Shanghai Composite was 1.1 percent lower. In November, the Shanghai Composite dropped 2.2 percent while the Kospi was 1.9 percent lower. Despite the November declines, all indexes covered here are up solidly for the year.


Once again the official Chinese manufacturing PMI and that of the private survey went in opposite directions, in part reflecting the differences in their samples. The November CFLP manufacturing PMI edged up to 51.8 from 51.6. The private survey slipped to a reading of 50.8 from 51.


Bank of Korea

The Kospi declined after the Bank of Korea shocked markets and raised its policy interest rate for the first time in more than six years, saying there is a risk of financial imbalances accumulating and heralding a tightening cycle on the back of the country's export driven economic recovery. The 25 basis point rate increase to 1.5 percent was a surprise as forecasters had expected no change for a 14th straight month.


South Korea became the first major Asian economy to raise interest rates since 2014, joining the U.S. in moving away from the post-crisis era of low rates. The country is riding the wave of a strong global economy, which has boosted demand for its chips, steel and petrochemical products.


Economists say the South Korean economy is cyclically strong enough to absorb higher rates. The Korean economy posted its fastest expansion in seven years last quarter, with real gross domestic product growth reaching 3.6 percent in the July through September period. Analysts expect the BoK to raise interest rates once or twice in the next year to 2 percent — but the pace of monetary tightening would be gradual, given the country's low inflation.



The U.S. dollar was mixed against its major counterparts on the week. It advanced against the euro, yen and Australian dollar but declined against the pound sterling, Swiss franc and Canadian dollar. The U.S. currency has been under pressure as a tax reform bill winds its way through the Senate and rumors of changes in the U.S. President's cabinet swirled in the markets.


The pound's rally came after a British newspaper said the UK is close to reaching an agreement over Northern Ireland with the European Union's Brexit negotiators. The report said British officials earlier this week made a proposal to avoid a "hard border" between the UK province and the Republic of Ireland. The British pound extended its advance as the dollar slipped pushing sterling above $1.35 for the first time since September.


Selected currencies — weekly results

2016 2017 % Change
Dec 30 Nov 24 Dec 1 Week 2017
U.S. $ per currency
Australia A$ 0.7215 0.782 0.761 -2.6% 5.5%
New Zealand NZ$ 0.6948 0.688 0.689 0.2% -0.8%
Canada C$ 0.7443 0.787 0.788 0.2% 5.9%
Eurozone euro (€) 1.0534 1.193 1.190 -0.3% 12.9%
UK pound sterling (£) 1.2333 1.334 1.347 1.0% 9.2%
Currency per U.S. $
China yuan 6.9450 6.602 6.616 -0.2% 5.0%
Hong Kong HK$* 7.7533 7.808 7.813 -0.1% -0.8%
India rupee 67.9238 64.703 64.464 0.4% 5.4%
Japan yen 116.8100 111.530 112.100 -0.5% 4.2%
Malaysia ringgit 4.4862 4.116 4.091 0.6% 9.7%
Singapore Singapore $ 1.4465 1.335 1.347 -0.9% 7.4%
South Korea won 1205.8300 1085.220 1086.380 -0.1% 11.0%
Taiwan Taiwan $ 32.3260 29.966 30.008 -0.1% 7.7%
Thailand baht 35.8100 32.681 32.598 0.3% 9.9%
Switzerland Swiss franc 1.0174 0.9795 0.977 0.3% 4.2%
*Pegged to U.S. dollar
Source: Bloomberg


Indicator scoreboard


November EU Commission's measure of economic sentiment (ESI) rose for a sixth consecutive month. At 114.6, the reading was 0.5 points above its marginally firmer revised October reading and at its highest level since October 2000. The latest gain reflected improved morale in most sectors. Confidence was up 0.2 points at a new record of 8.2 in industry and 1.2 points higher at 0.1 in the consumer sector. Construction (1.6 after 0.4) also made ground as, to a lesser extent, did services (16.3 after 16.2). This left just retail (4.2 after 5.5) to register a decline although even the drop here only reversed around a half of October's 2.5 point bounce. Regionally, the national ESI rose nearly 2 full points to 112.0 in France and was up 0.6 points at 110.8 in Spain. Italy (up 0.2 points at 112.1) also made ground but Germany (114.4 after 114.5) edged a little softer.


November flash harmonized index of consumer prices was up 1.5 percent on the year, just 0.1 percentage point firmer than its final October reading. There was also some disappointing news on the core rates, both of which were unchanged from their respective October readings. The narrowest gauge, which excludes energy, food, alcohol and tobacco, remained at just 0.9 percent, some 0.3 percentage points below its recent 1.3 percent August high. Omitting just energy and unprocessed food, the rate was steady at 1.1 percent, again a couple of ticks below its recent peak. Inflation in non-energy industrial goods and services was unchanged at 0.4 percent and 1.2 percent respectively while elsewhere, a jump in energy (4.7 percent after 3.0 percent) was essentially offset by a dip in food, alcohol and tobacco (unchanged at 2.2 percent).



October spending on manufactured goods dropped 1.6 percent — the worst performance since April 2012 — after increasing 1.6 percent in September. On the year, spending was up 0.2 percent after increasing 2.9 percent the month before. Monthly declines were broad-based. Textiles (5.2 percent) were especially soft and household goods (3.0 percent) not much better. With autos off 0.3 percent and the other products down 0.1 percent, spending dropped to its lowest level since January. Total goods consumption was even weaker, slumping fully 1.9 percent from September under the additional weight of a 6.1 percent plunge in energy and 0.3 percent fall in food.



Revised third quarter gross domestic product was unexpectedly revised down to a 0.4 percent increase from 0.5 percent. On the year, GDP increased 1.7 percent. However, the first estimates of GDP expenditure components were relatively upbeat. While private consumption gained a quarterly 0.3 percent (up from 0.2 percent in Q2), gross fixed capital formation jumped 3.0 percent. Equipment investment surged 6.0 percent, transport was up 1.9 percent and construction 0.3 percent. Government final consumption grew 0.3 percent. There was also a positive impact from foreign trade as exports increased a quarterly 1.6 percent while imports rose only 1.2 percent.



July through September total output expanded 0.6 percent from the April to June period when it rose a marginally stronger revised 0.4 percent. This was the best performance since the fourth quarter of 2014. It lifted annual growth to 1.2 percent, up from 0.5 percent last time. The pick-up in quarterly growth was due to a combination of stronger final domestic demand and a much healthier real trade balance. Household spending advanced 0.4 percent or double its second quarter rate and government expenditure increased 0.5 percent after 0.3 percent last time. Equipment and software investment was steady at a 0.9 percent rate but construction declined 0.1 percent. Inventory accumulation subtracted a sizeable 1.0 percentage points. Exports of goods (ex-valuables) jumped 2.1 percent — three times their second quarter pace, while imports dropped 1.6 percent following a 5.0 percent surge. With services exports (minus 0.4 percent) shrinking less quickly than imports (minus 0.7 percent), overall net exports were very positive. The weaker CHF has clearly had some impact.




October retail sales were down 0.2 percent on the year after increasing 2.3 percent in September. This was the first annual decline in retail sales in 12 months. The decline in sales was mainly driven by weaker sales of food & beverages, down 1.5 percent on the year after an increase of 0.6 percent in September. Sales also declined for general merchandise, machinery & equipment, and non-store retailers. Motor vehicle sales were up 3.2 percent after increasing 5.9 percent in September. However, this was partly offset by stronger growth in fuel sales, up from 4.9 percent to 6.0 percent.


October industrial production was up a monthly 0.5 percent after a revised decline of 1.0 percent in September. On the year, industrial production index increased 4.1 percent after 4.0 percent in September. Stronger headline industrial production growth reflected increased output of electrical machinery, transport equipment and general-purpose, production and business-oriented machinery. This was offset by weaker output of chemicals, petroleum and coal products and electronic parts and devices.


October consumer price index increased 0.2 percent on the year, down from an increase of 0.7 percent in September and further below the Bank of Japan's 2.0 percent inflation target. This is the weakest annual increase since March. Weaker food prices were the main factor dragging down headline inflation. These fell 1.3 percent on the year after increasing by 1.0 percent in September. Price gains were relatively steady in other major categories of spending. Fuel, light and water charges advanced 6.2 percent on the year, up slightly from 6.0 percent in September, while housing costs fell by 0.1 percent on the year after a 0.2 percent decline previously. Offsetting the weakness in food prices, transport and communications prices rose 0.6 percent on the year after no change in September. Core CPI, which excludes fresh food prices, advanced 0.8 percent on the year, up from 0.7 percent in September. This measure of inflation has been trending higher gradually over the last twelve months and has been in positive territory since the start of the year after declining over almost all of 2016.



Gross domestic product increased 6.3 percent on the year in the three months to September, up from 5.7 percent in the three months to June. The growth rate recorded in the three months to June was the weakest pace since early 2014, and the rebound seen in the three months to September was likely concentrated late in the quarter as activity recovered from the initial impact of a new goods and services tax introduced in early July. The annual increase was not reflected in all sectors of the economy. Growth in gross value added accelerated for mining, manufacturing, utilities and construction but decelerated for agriculture, the public sector and various service industries.




November employment increased a much greater than anticipated 79,500 while the unemployment rate fell by 0.4 percentage points to 5.9 percent -- the lowest rate since February 2008. Expectations were for a modest 10,000 increase in employment and a 6.2 percent unemployment rate. November saw a gain of 29,600 in full time employment and 49,900 gain in part time employment. The participation rate was unchanged at 65.7 percent. In the 12 months to November, employment was up by 390,000 with all the gains attributable to full-time work (441,000). Employment gained in wholesale & retail trade, manufacturing, educational services and construction. Employment declined in agriculture. The employment increase was largely among private sector employees, as both public sector employment and the number of self-employed were little changed. Employment was up 37,400 in goods-producing industries. This was led by a 30,400 gain in manufacturing -- the largest increase for this sector since March 2002. Services rose 42,100.


Third quarter gross domestic product slowed to 0.4 percent from the previous quarter following a 1.0 percent increase in the second quarter. On an annualized basis, GDP was up 1.7 percent. From a year ago, GDP was 3.0 percent higher. Increased household final consumption expenditure (up 1.0 percent) was the main contributor, while weaker exports (down 2.7 percent) moderated growth. Final domestic demand grew 0.9 percent, a rate similar to the previous two quarters. Slower growth had been expected after the outsized growth in the second quarter. Exports fell 2.7 percent while imports were flat in the quarter. Businesses made additions to inventories totaling C$17.2 billion in real terms, marking the third consecutive quarter of accumulation. Household final consumption expenditures were up 1.0 percent as households increased their outlays on both services and goods. The main contributor was increased expenditure by Canadians abroad in tandem with an appreciating Canadian dollar. Business gross fixed capital investment slowed to 0.4 percent from 0.7 percent in the previous quarter. Investment in non-residential structures, machinery and equipment and intellectual property products all increased, albeit at slower rates than in the strong second quarter. Investment in residential structures fell for a second consecutive quarter.


Bottom line

Equities mostly slumped on the week and were mixed for the month of November. Economic data indicated that growth worldwide is improving. The November manufacturing PMIs were strong globally and new or updated GDP data indicated growth is improving globally. In Japan, October data were split with household spending and retail sales disappointing along with industrial production while capital spending improved. In Europe, retail sales in Germany and France disappointed. The Bank of Korea surprised and increased its policy interest rate by 25 basis points to 1.5 percent.


The Reserve Banks of Australia and India along with the Bank of Canada announce their respective monetary policy decisions. Although no increases in interest rates are expected, the BoC is the bank to watch given its upbeat November labour report and third quarter GDP growth. November services and composite PMIs will be released globally. In Australia, third quarter GDP will finally be released along with the second estimate of Japan's growth data.


Looking Ahead: December 4 through December 8, 2017

Central Bank activities
Dec 5 Australia Reserve Bank of Australia Monetary Policy Announcement
Dec 6 India Reserve Bank of India Monetary Policy Announcement
Canada Bank of Canada Monetary Policy Announcement
The following indicators will be released this week...
Dec 5 Eurozone PMI Composite & Services (November)
Gross Domestic Product (Q3. 2017)
Retail Sales (October)
Germany PMI Composite & Services (November)
France PMI Composite & Services (November)
Italy PMI Composite & Services (November)
UK PMI Services (November)
Dec 6 Germany Manufacturers' Orders (October)
Dec 7 Germany Industrial Production (October)
France Merchandise Trade Balance (October)
Dec 8 Germany Merchandise Trade Balance (October)
UK Industrial Production (October)
Merchandise Trade Balance (October)
Asia Pacific
Dec 5 Japan PMI Services (November)
Australia Retail Sales (October)
Dec 6 Australia Gross Domestic Product (Q3. 2017)
Dec 7 Australia Merchandise Trade Balance (October)
Dec 8 China Merchandise Trade Balance (November)
Japan Gross Domestic Product (Q3. 2017 second estimate)
Dec 5 Canada International Trade (October)


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


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