Global Markets

It was a quiet week with important economic data concentrated on Friday's calendar. Flash data for third quarter gross domestic product were released for the Eurozone. While not contracting, the economy barely budged, eking out a 0.2 percent quarterly increase. And the latest estimate of inflation indicated it is mired at an annual increase of only 0.4 percent.

Flash third quarter gross domestic product

According to the flash report, the Eurozone economy expanded for a sixth consecutive quarter in the period just ended. GDP was up 0.2 percent from the previous quarter (revised up to 0.1 percent) and was still one of the smallest increases since total output started to grow again back in the second quarter of 2013. Annual growth was 0.8 percent, in line with the second quarter result but down from the 1.0 percent pace seen at the start of the year. This is in stark comparison to growth in both the U.S. and UK. On the quarter, UK GDP was up 0.7 percent and 3.0 percent on the year while U.S. growth was up 0.9 percent and 2.3 percent. Among other major industrial countries, Japan will release its first estimate of third quarter GDP on November 17, Canada on November 28 and Australia, December 3.

Among the larger member states, quarterly growth was much as expected — which means disappointingly sluggish or negative. France surprised with a (less than spectacular) 0.3 percent advance accounted for by government spending while domestic demand was negative. Germany's total output was up just 0.1 percent. Italy (down 0.1 percent) remained in recession leaving only Spain (up 0.5 percent) to show any real momentum. Elsewhere growth was typically modest but at least positive apart from Cyprus (down 0.4 percent) which saw yet another quarter of declining output.

Global Stock Market Recap

Europe and the UK

Equities were mixed last week with the FTSE, CAC, IBEX, OMX and SMI advancing and the DAX and MIB retreating. There was little reaction to the flash third quarter growth numbers released Friday morning. On the week, the FTSE was up 1.3 percent to a six week high, the CAC edged up 0.3 percent and the SMI added 1.1 percent. However, the DAX declined 0.4 percent and the MIB lost 0.7 percent. The IBEX inched up 0.2 percent and the OMX, 0.3 percent.

There was little economic data until Friday when the flash third quarter gross domestic product data were released for the Eurozone and most of its member states. At the same time, final October inflation data confirmed the flash release — the harmonized index of consumer prices was up 0.4 percent from a year ago. There was little market reaction.

Bank of England's Quarterly Inflation Report

As expected the Bank of England validated financial market expectations of delayed interest rate increases. Its new forecasts show interest rates need to stay at historic lows until next autumn to prevent inflation remaining below its 2 percent target. The latest economic forecasts show healthy but lower than previously expected economic growth. It also projected very weak inflation in the months ahead suggesting that there is little incentive to tighten monetary policy any time soon.

Low inflation in large part reflects downward pressure from food, energy and the prices of other imported goods and services, which were previously pushing inflation above the 2 percent target. But domestic price pressures are also weaker than previously thought. The BoE predicts inflation is unlikely to rise above target (even if interest rates do not start rising for the first time until October 2015) and are half a percentage point lower than it expected three months ago. The Monetary Policy Committee's growth forecasts were revised down from the forecasts published in August, reflecting a weaker global economic outlook and slower housing market. But this weakness was offset by lower assumptions for interest rates leaving the growth and inflation forecasts stable three years ahead.

The BoE reiterated its forward guidance that when interest rates do start to rise, "the pace of increases is expected to be gradual, with rates probably remaining below average historical levels for some time".

Asia Pacific

Most equity indexes advanced last week but pared gains as geopolitical worries and tumbling crude oil prices kept investors wary. The Nikkei was up for a fourth consecutive session in the week Friday, reversing early losses as investors continue to monitor whether Prime Minister Shinzo Abe will call a snap election next month and delay a second controversial sales tax increase. The declining yen against the U.S. currency also helped bolster equities. The Nikkei added 3.6 percent for the week and was the best performing index in the region.

The Nikkei index has been buoyed by expectations that the government will put off a planned consumption tax increase. An official in Shinzo Abe's administration said Wednesday that the prime minister is also likely to call a general election. However, the real key will be Monday's third quarter growth data, which will essentially make or break the case for putting off the tax increase. Mr. Abe's economic adviser, Etsuro Honda, said Thursday that postponing a planned sales tax increase is inevitable given weakness in the economy and called for an 18-month delay to ensure the end of deflation.

The government of Prime Minister Shinzo Abe has insisted that no decision will be made until concrete data on the shape of the economy come out. But according to a Nikkei Shimbun report, Mr. Abe has already told his party to ready themselves for an election in December, setting the stage for dissolving the lower house as early as next week. That would allow for a people's mandate on scrapping a prior three-party agreement and shelving the consumption tax increase — a scenario that has become central for many analysts.

The Hang Seng added 2.3 percent on the week as investors looked ahead to the launch of the Shanghai-Hong Kong stock connect program on Monday. The Shanghai Composite added 2.5 percent on the week despite lackluster data for the month of October. Shares in both markets advanced on the week on expectations that Chinese stocks will attract fresh capital from foreign investors. The scheme will allow global investors freer access to mainland shares. Under the program, mainland investors will also be able to trade Hong Kong listed companies directly.

A bumpy year for global markets has left Asia home to many of the world's best performing stock indexes so far, a sharp reversal from 2013 when worries about the end of easy money in the U.S. battered the region. India is on track for its best year since 2009 with a gain of 32.5 percent with six weeks remaining in 2014.  Indexes in the Philippines and Thailand are each up more than 20 percent and the Shanghai Composite has climbed 17 percent. Declining oil prices have also been a positive for Asia, especially for big energy importers like India and China, while they have pressured stocks in other emerging region including Russia and the Middle East.

China's economy lost further momentum in October, with factory growth dipping and investment growth hitting a near 13-year low, testing the government's resolve to avoid stronger stimulus measures. The soft performance cemented the view that China is on track to grow at its weakest pace in 24 years. But leaders remain reluctant to use full blown policy easing, such as cutting interest rates. Fixed asset investment, an important driver of growth, grew 15.9 percent in the first 10 months of the year from a year ago. That was the weakest pace since December 2001. October factory output was up 7.7 percent, which was higher than August's 6.9 percent but below forecasts and the second weakest pace since the height of the global financial crisis. November's reading could be weaker still, as many factories in northern China shut early in the month to reduce air pollution as Asia Pacific leaders met in Beijing. Despite a raft of stimulus measures, China's growth slowed to 7.3 percent in the third quarter, the weakest since the global financial crisis. October retail sales growth eased to 11.5 percent, the slowest pace since early 2006.

Currencies

The U.S. dollar was mixed last week — it advanced against the pound sterling and yen but declined against the euro, Swiss franc and the Australian and Canadian dollars.

The dollar edged higher against the yen as investors bet on the increased likelihood of Tokyo calling a snap election and delaying an increase in the national sales tax, both of which would lead to a weaker Japanese currency. The yen has weakened as investors considered the probability that Prime Minister Shinzo Abe would dissolve the lower house and call for an election in December. The move would give Mr. Abe a chance to solidify public support behind his fiscal and economic policies, nicknamed Abenomics, letting him launch more measures to stimulate the economy that could weigh on the yen. A snap election could also allow Mr. Abe to delay a second scheduled sales tax increase next year. The first tax increase in April is widely believed to have slowed growth in Japan; the second increase has a fair chance of halting any fragile recovery according to analysts.

The pound was down against the U.S. dollar, completing a fourth weekly decline. The currency hit a 14-month low against the U.S. dollar Thursday, with investors continuing to shun the currency after the Bank of England slashed its forecasts for growth and inflation, leading the market to delay expectations for an interest rate increase.

On Wednesday, in its closely watched Quarterly Inflation Report, the Bank of England said it expects the economy to grow 2.9 percent next year, weaker than the 3.1 percent expansion seen in August, and it foresees inflation "markedly" below the levels forecast in August over the coming 12 months, at around 1 percent. The bank said it foresees a first rate increase, which would make the currency more attractive to investors, in the third quarter of 2015.

Selected currencies — weekly results

Indicator scoreboard

EMU

September industrial production (excluding construction) was up 0.6 percent after dropping 1.4 percent in August. On the year, output was up 0.6 percent. However, September was a patchy month with only two of the five main production sectors posting monthly gains. While capital goods were up 2.9 percent (albeit after August's 4.5 percent slump) and energy advanced 0.3 percent, intermediates fell a further 0.6 percent, consumer durables sank 2.6 percent and consumer nondurables dropped 0.9 percent. Among the larger member states, monthly increases in France (0.1 percent) and Germany (1.7 percent) failed to reverse the previous period's declines and Italy, having seen its first increase in four months in mid-quarter, fell 0.9 percent. However, at least Spain (up 1.0 percent) had a good September.

October harmonized index of consumer prices was down 0.1 percent on the month and up 0.4 percent from the same month a year ago. The yearly core rate that excludes food, alcohol, tobacco and energy was up 0.7 percent, down 0.1 percentage points from its final September reading and a 5-month low. Both the other two main measures of underlying inflation similarly saw their annual rates slip to 0.7 percent. Service sector inflation was up from 1.1 percent to 1.2 percent but non-energy industrial goods saw a 0.3 percentage point drop to minus 0.1 percent, its first negative reading since June. Energy charges were 2.0 percent lower than in October 2013 after a 2.3 percent decline last time while food, alcohol and tobacco prices were up 0.5 percent following a 0.3 percent increase. Regionally Greece (down 1.8 percent) was bottom of the inflation ladder below Spain (down 0.2 percent). At the top was Austria (1.4 percent) which, along with Malta and Finland (both 1.2 percent) were the only member states to record rates above 0.7 percent.

Eurozone gross domestic product expanded for a sixth consecutive quarter in the period just ended. A 0.2 percent increase in real GDP on the quarter was still one of the smallest increases since total output started to grow again back in the second quarter of 2013. Annual growth was 0.8 percent, unchanged from the second quarter but down from the 1.0 percent pace seen at the start of the year. Eurostat provided no details on the GDP expenditure components but national statistics suggest that domestic demand again struggled and there may have been a boost from inventories.

Germany

Third quarter gross domestic product expanded 0.1 percent on the quarter in the period. The minimal gain only just reversed a shallower revised 0.1 percent drop in the second quarter and saw annual workday adjusted growth ease from 1.4 percent to 1.2 percent, less than half its 2.6 percent rate at the start of the year. As is usual with the flash release, there were no details on the GDP expenditure components but the FSO did indicate that consumer spending was up significantly and net exports also made a positive contribution to growth. However, gross fixed capital formation declined sharply, especially in machinery and equipment. Still, heavy destocking should at least provide some support for total output through the current quarter.

France

Third quarter gross domestic product was up 0.3 percent after declining 0.1 percent in the second quarter. Annual growth was 0.4 percent, up from zero last time. However, household consumption posted only a 0.2 percent quarterly increase and gross fixed capital formation contracted a further 0.6 percent (businesses minus 0.1 percent, households minus 1.7 percent) following a cumulative 1.5 percent decline over the first half of the year. Within final domestic demand, only public sector spending (0.8 percent after 0.5 percent) registered any significant strength. Rather, total output was supported by a run-up in inventories that added 0.3 percentage points to real GDP growth. Meantime, foreign trade had a negative impact as a 0.5 percent gain in exports was easily eclipsed by a 1.1 percent increase in imports. As a result, net exports subtracted 0.2 percentage points from the quarterly change in total output.

Italy

Third quarter gross domestic product contracted 0.1 percent from the previous period. This was the thirteenth consecutive quarter in which total output has failed to expand. On the year, GDP contracted 0.4 percent. The limited details provided by Istat indicated another decline in domestic demand. The headline decline would have been steeper but for a helping hand from net exports. In terms of output, an increase in activity in services failed to offset further setbacks in goods producing industries and agriculture. Total output now 5 percent below its recent peak in the second quarter of 2011 and a remarkable 9.3 percent short of its pre-crisis high in the first quarter of 2008.

United Kingdom

October claimant count unemployment was down 20,400 following a marginally shallower revised 18,400 drop in September. This means that the measure has been falling consistently for two years now. The claimant jobless rate held steady at 2.8 percent, the first month that it has not declined a tick since June 2013. The lagging ILO data painted a similarly robust picture with unemployment on this definition sliding 115,000 in the three months to September. Although still sizeable, the decline was 20,000 or so short of the 136,000 and 138,000 drops posted in the first and second quarter respectively. The latest decline left the ILO jobless rate steady at 6.0 percent.

Asia/Pacific

Japan

September tertiary industry activity index increased about as expected, up 1.0 percent on the month but was down 1.5 percent from a year ago. Among the industries that increased were wholesale & retail trade (up 2.1 percent), scientific research, professional & technical services (up 2.1 percent), transport & postal activities (up 1.2 percent), information & communications (up 0.8 percent), accommodations, eating & drinking services (up 1.5 percent) and real estate & goods rental & leasing (up 0.2 percent). Among the industries that declined were miscellaneous services except government services etc. (down 1.1 percent), electricity, gas, heat supply & water (down 1.8 percent) and finance & insurance (down 0.4 percent).

October producer prices were down 0.8 percent on the month but up 2.9 percent from a year ago. Excluding the impact of the sales tax increase in April, the PPI was down 0.8 percent on the month and 0.1 percent lower on the year. The annual change has gradually declined. Since June, the annual increase has declined from 1.6 percent to its current 0.1 percent. A similar pattern is apparent in the overall PPI. The annual increase has been drifting lower since June when the annual increase in the PPI was 4.5 percent. The pace of the declines has been increasing with October slipping 0.7 percentage points from 3.6 percent.

September private sector machinery orders, excluding volatile ones for ships and those from electric power companies, increased a seasonally adjusted 2.9 percent. They increased 5.6 percent in the July through September period. The monthly gain is the fourth in a row but the smallest gain in that streak. Machine orders are still recovering from the April sales tax increase which caused orders to plummet by a fifth in May. The total value of machinery orders received by 280 manufacturers operating in Japan increased 8.0 percent in September from the previous month on a seasonally adjusted basis. In the July through September period, orders dropped by 14.9 percent compared with the previous quarter. In the October through December period, the total amount of machinery orders was estimated to increase 9.1 percent and private sector orders, excluding volatile ones, were expected to decline 0.3 percent from the previous quarter respectively.

China

October merchandise trade surplus was $45.4 billion, up from $31.1 billion in September. Exports were up a healthy 11.6 percent while imports were 4.6 percent higher from a year ago. For the 10 months through October, exports were up 5.8 percent on the year while imports for the same time span added 1.6 percent. Bilateral trade with the U.S. shows that China's exports were up 10.9 percent on the year in October -- about the same as in September while imports were up 2.2 percent after jumping 12.7 percent. However, exports to Japan slumped 8.1 percent after declining 5.3 percent the previous month. At the same time, imports edged up 0.3 percent in October after increasing 4.4 percent in September. Exports to the European Union were up 4.1 percent in October after jumping 14.9 percent the month before. Imports from the EU were up 10.4 percent and 9.1 percent.

October consumer price index was up 1.6 percent on the year for a second month. However, it was unchanged on the month after increasing 1.5 percent last time. For the year to date, the CPI was up 2.1 percent for a second month when compared with the previous year. On the month, the CPI was unchanged. The urban CPI was up 1.7 percent for a second month while the rural CPI added 1.4 percent, also for a second month. Among the subcategories, prices for tobacco & alcohol (down 0.5 percent on the year) and transportation & communication (down 0.3 percent) declined. All other subcategories increased from a year ago. Food prices were up 2.5 percent while non-food items were up 1.2 percent. Food prices were up 2.3 percent and non-food prices were up 1.3 percent in September. Clothing prices were up 2.4 percent, household facilities gained 1.2 percent and housing was up 1.6 percent.

October producer prices dropped 2.2 percent after declining 1.8 percent on the year in September. For the year to date, the PPI was down 1.7 percent when compared with the same months a year ago. On the month, the PPI was down 0.4 percent. Most sub-category prices were down more in October than September. Production materials prices dropped 3.0 percent while raw materials procurement, fuel and power declined 2.5 percent. In September the former was down 2.4 percent and the latter, 1.9 percent. Among production goods, mining & exploration was down 8.9 percent after declining 6.7 percent the month before. Raw materials prices were down 3.7 percent after 2.7 percent the month before. Consumer goods were unchanged after increasing 0.1 percent last time. Among consumer goods, durables were down 0.7 percent. Fuel & power was down 3.8 percent after declining 2.8 percent in September.

October industrial production was up a less than expected 7.7 percent from a year ago. Analysts expected an 8.0 percent increase. On the month, output was up 0.5 percent. For the 10 months through October, output was up 8.4 percent when compared with the same months a year ago. Output was up for all sub-categories with the exception of cement, which was down 1.1 percent on the year. Textile output improved to a gain of 6.3 percent on the year after increasing 5.3 percent in September. Transport equipment was up 13.2 percent after 9.7 percent last time. Motor vehicles gained 6.8 percent after 4.5 percent in September. Communication was up 12.2 percent, lower than September's 16.6 percent jump. General equipment was up 7.8 percent after 9.5 percent last time. Machinery was up 8.2 percent, down from September's 9.5 percent gain. The data underwhelmed, indicating that China's slowdown continued.

October retail sales were up 11.5 percent, below expectations for an 11.6 percent increase. On the month, retail sales were up 0.98 percent. For the 10 months to date, sales were up 12.0 percent when compared with the same months a year ago. Urban sales were up 11.4 percent while rural sales were 12.4 percent higher on the year. Clothing sales were up 10.9 percent after increasing 11.1 percent. Household nondurables were up 11.9 percent after a 12.5 percent increase the month before. Grain & food oil sales jumped 9.5 percent after increasing 7.5 percent. Home appliance sales were up 6.5 percent, down from September's 8.5 percent increase. Communication equipment sales jumped 42.3 percent after increasing 29.5 percent in September. Auto sales gained 4.5 percent after a 6.7 percent gain the month before.

Americas

Canada

September manufacturing sales were up 2.1 percent on the month following their first decline (revised to 3.5 percent) since December 2013. Annual growth jumped to 7.3 percent, up 1.6 percentage points from last time. The rebound in nominal shipments was more than matched by volumes which advanced 2.3 percent on the month and now stand 4.5 percent above their year ago level. Within the monthly increase in nominal sales, transportation surged 9.5 percent with aerospace product & parts leaping 22.0 percent, motor vehicles up 4.8 percent and parts, 7.5 percent. Excluding motor vehicles & parts shipments were up 1.6 percent. Otherwise there were very respectable monthly gains in wood products (2.7 percent), plastics & rubber products (2.3 percent) and primary metals (5.9 percent). The steepest decline was in petroleum & coal (5.7 percent) ahead of computer & electronic products (1.7 percent). Elsewhere within the survey, new orders surged 4.6 percent from their August posting and backlogs were up 1.2 percent.

Bottom line

The Eurozone barely grew in the third quarter. Germany avoided a technical recession and France grew thanks to government spending. The Bank of England lowered its growth projections in part due to downward pressures from the Eurozone. The BoE will publish the minutes from its most recent policy meeting.

This week features forward looking indicators — the flash PMIs for November. Japan will post its third quarter GDP data after sinking at an annualized rate of 7.1 percent in the second. The Bank of Japan will meet.

Looking Ahead: November 17 through November 21, 2014

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