Japan stumbled into recession, PMI data for Europe weakened, the Federal Reserve minutes indicated concerns about inflation, and HSBC reported weakening manufacturing data for China… So why did the markets head north last week?

US DATA

US building permits increased by 49,000, housing starts fell by 29,000, and existing home sales increased by 80,000[1]. Consumer Price Indices stayed flat from September to October, thanks in large part to fuel prices. Core CPI (excluding volatile fuel and grocery prices increased 0.2% to 1.8%[2]. While an increase, it remains below the 2% central bank mandate. Initial jobless claims remained below 300K for the tenth straight week, the first time this streak has been achieved since 2000[3]!

INTERNATIONAL DATA

While domestic data lent itself to upward market trends, much of the global economy continued to show signs of slowing. This would typically drag markets down. The difference is the commitment to economic growth being shown by the central banks of Europe, China, and the Japanese Prime Minister.

European manufacturing and services indices softened across the board last week. The French services index was the lone upward movement, but even its upward movement was still in contractionary territory. On Friday, European Central Bank (ECB) president Mario Draghi, announced that further bond buying is on the table as they show their continued commitment to spurring on economic growth.

Wednesday HSBC reported China Manufacturing at 50.0, down from 50.4 in October[4]. While only a fall of 0.4, it stands on the verge of contractionary. 50 denotes the line between expansionary and contractionary conditions. In a quick reaction Friday, The Peoples Bank of China cut short term rates by 0.4% in an effort to stimulate their economy[5].

After Japan slipped into recession with two consecutive quarters of negative GDP, they showed their commitment to course correction. Tax cuts, cash handouts, sales tax delays, and lower house of parliament open elections are a strong indication of Japan’s intent to right the ship.

While global economic data was weak, the support from central banks, and subsequent liquidity, led to broad optimism from investors. Each indication of central bank or government support was greeted by a market surge. The sustainability of these surges will be determined by the success of the actual programs.

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[1] www.investing.com – economic calendar

[2] www.troweprice.com – weekly market wrap-ups

[3] www.mfs.com – week in review

[4] www.investing.com – economic calendar

[5] www.mfs.com – week in review