Equities Advance as Global Manufacturing and Services Activity Gains Momentum
International equity prices saw sustained gains in October on elevated hopes that the U.S. Federal Reserve would likely delay tapering of its bond purchases to next year. The U.S. government shutdown for two weeks following the Congressional standoff over increasing the borrowing limit was widely expected to have restricted economic output during the period. Reflecting the uncertain environment, consumer sentiment surveys also showed weaker trends during the month. In Europe, lower than expected consumer inflation led to increased expectations of a rate cut by the European Central Bank. Emerging markets outperformed during the month as the macroeconomic fundamentals of select countries such as India and Indonesia are seeing moderate improvement.
Helped by broad gains across most major regions, global manufacturing activity gained further in October. The manufacturing activity index for Japan rose to the highest level in more than three years while emerging countries such as China, Brazil, Indonesia, Korea, and Taiwan also saw increases in output. New order flows remained healthy while gains in new export orders confirmed the improving global demand outlook. Global services activity also accelerated in October, helped by gains in the U.K., the U.S., China, Brazil and Russia. The Euro-zone also saw further growth in the services sector during the month.
Near-Term Outlook
Europe continues to see moderate improvement in select economic indicators, especially in manufacturing. Growth in industrial orders for the month of September was notably buoyant in the region’s largest economy, Germany. Corporate earnings growth appears to be gradually reviving as companies are becoming more positive about their outlook. However, high unemployment levels are restricting consumer spending, especially in Spain and Portugal. Retail sales continue to contract in these countries, while consumers in healthier economies are yet to step up spending. Accordingly, consumer inflation levels remain below expectations and the European Central Bank is now expected to extend its long-term refinancing facility for banks until the second half of 2015. Outside the Euro-zone, the U.K. continues to see better than expected improvement in manufacturing growth and retail sales.
In Asia, export data suggests improving global demand, though the pace of gains has moderated since the beginning of the third quarter. Japanese exports continued to see double digit growth in September, but was below expectations. September shipments from China unexpectedly declined mostly on lower demand from the rest of Asia, but recovered strongly in October. Korea saw a rebound in October export shipments after the previous month’s fall while India is also seeing positive trends, helped partly by the cheaper currency. As domestic demand is likely to be constrained in most emerging economies, export gains are likely to be the major growth driver for the next year or so. However, the relatively subdued commodity prices are likely to constrain the recovery in major resource exporting countries such as Brazil, Russia, and South Africa.
FORWARD LOOKING STATEMENTS
Certain statements made in this article may be forward looking. Actual future results or occurrences may differ significantly from those anticipated in any forward looking statements due to numerous factors. Thomas White International, Ltd. undertakes no responsibility to update publicly or revise any forward looking statements.
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