Weekly Review, November 1 to 5

The Federal Reserve announced on November 3 its intent to buy government bonds over the coming months for $600 billion thus creating money to support the growth of the US economy. The European Central Bank and the Bank of England prefered, for the moment, not to change their monetary policy. The Bank of Japan maintained its expansionary strategy adopted in early October and, then, will start buying public and private debt in the coming days. The Bank of India and the Bank of Australia decided to increase their interest rates with the objectives of moderating economic growth and inflation. Those decisions, their consequences, particularly on exchange rates, and the world economic outlook will be part of the discussions at the G20 meeting on November 11 and 12 in South Korea.

Stock markets around the world reacted with strong gains to the Fed decision. The DJIA and the S&P 500 surpassed their respective peak of last April. Spot commodity prices increased significantly, more than 4 % in one week according to the TR/JCRB Index. The Fed decision and most of the quarterly results of public firms being known, we can ask ourselves what will drive the markets in the coming weeks.

In preparation to the G20 meeting, the OECD presented on November 3 an abstract from its Economic Outlook. The expansion will continue in the coming months, but at a slower pace than in the first semester of 2010. Non OECD countries, especially emerging markets, will be the main source of growth. The detailed outlook will be published on November 18.

 
Amongst  leading indicators published this week, positive signals came from the purchasing manager surveys of October. New orders for the manufacturing sector and new business opportunities for the service sector pointed towards faster expansion in many countries. New orders in the manufacturing sector  reported to the Census Bureau in the US increased by a little more than 2 % in September showing that the recovery in the production of goods will keep going ahead in the coming weeks. In Germany, new manufacturing orders went down in September, but the annual trend is still up.

In the coming days, I will comment the OECD leading indicators, due out tomorrow, and leading economic indicators of The Conference Board for Japan, South Korea and the United Kingdom. I will look also at the CMHC data on housing starts.