Investor confidence in the euro area rose to a seven-month high in February. The Sentix investor confidence index increased to minus 11.1 from minus 21.1 in January.
In Germany, factory orders rose 1.7 percent in December.
However, the talks on Greece's bailout drags on as the parties involved failed to reach agreement on Monday. Reuters reports:
German Chancellor Angela Merkel told Greece Monday to make up its mind fast on accepting the painful terms for a new EU/IMF bailout, but the country's political leaders responded by delaying their decision for yet another day...
The office of Prime Minister Lucas Papademos, a former central banker who heads a government of politicians, said a meeting of leaders from the conservative, socialist and far-right parties due Monday had been postponed to Tuesday.
Surveys of purchasing managers around the world showed improvements in economic activity in most countries.
In the United States, the purchasing managers indices for both manufacturing and services rose further above the 50 mark that separates expansion from contraction. The Institute for Supply Management's manufacturing PMI rose to 54.1 in January from 53.1 in December while the non-manufacturing index jumped to 56.8 from 53.0.
In the euro area, the composite index from Markit Economics rose above the 50 mark for the first time in five months in January. It increased to 50.4 from 48.3 in December after the services index rose to 50.4 from 48.8. The manufacturing index also improved to 48.8 in January from 46.9 in December.
In Japan, Markit's composite output index rose to 51.1 in January from 50.1 in December. The Markit/JMMA manufacturing PMI rose to 50.7 in January from 50.2 in December while Markit's services business activity index rose to 51.0 from 50.4.
The worldwide improvement in purchasing managers indices pushed the JPMorgan global all-industry output index up for the third consecutive month to 54.6 in January from 52.7 in December. The new orders index jumped to 54.0 from 51.5.
JPMorgan Global All-Industry Indices DecemberJanuary Output52.754.6 New orders51.554.0 Input prices56.256.7 Employment50.352.6
Continued economic growth in the US at the start of 2012 was also signalled by the employment report released on Friday. The report showed that nonfarm payrolls increased by 243,000 in January, the fastest pace in nine months. The unemployment rate fell to 8.3 percent, the lowest since February 2009, from 8.5 percent in December.
Even the eurozone economy may be able to avoid a recession. In his commentary on the purchasing managers' data, Markit's chief economist Chris Williamson said that the January data indicated that business conditions have stabilised and that “a more definitive return to growth is possible in February”.
US nonfarm payrolls increased by 243,000 in January, the fastest pace in nine months, pushing the unemployment rate down to 8.3 percent, the lowest since February 2009, from 8.5 percent in December.
Providing further evidence of a strengthening economy, the Institute for Supply Management’s non-manufacturing index rose to 56.8 in January from 53 in December.
And in manufacturing, US factory orders rose 1.1 percent in December after an upwardly-revised 2.2 percent gain in November.
Economic data from the euro area on Friday were not as positive, with retail sales falling 0.4 percent in December.
However, there was indication of improvement in the economy in January. Markit's composite index for the euro area rose to 50.4 from 48.3 in December after the services index rose to 50.4 from 48.8.
Meanwhile, the UK services sector also improved in January. The Markit/CIPS services PMI rose to 56.0, the highest in ten months, from 54.0 in December.
Today's dominant investor classes -- individual investors, hedge funds and pension funds -- have de-risked and are relatively uncommitted to equities.
A re-allocation into stocks (and out of bonds) represents an underappreciated and potentially massive (and latent) demand that could easily be the catalyst for a move to all-time highs in the S&P 500 in 2012.
Ironically enough, that appears to be what some other analysts are also saying, according to a Bloomberg article.
Strategists at the biggest banks are capitulating on their bearish forecasts after the best start to a year for global stocks since 1994 and gains of more than 7 percent in emerging-market currencies.
Just two weeks after saying that investors should “remain cautious,” Larry Hatheway, the chief economist at UBS AG (UBSN), raised his recommendations on global shares and high-yield bonds in a Jan. 23 note to customers entitled, “Wrong, but not too late.” Royal Bank of Scotland Group Plc (RBS), and Benoit Anne, the global head of emerging-markets strategy at Societe Generale (GLE) SA, said their estimates for developing nations were proven wrong.
The US led the way among developed economies as the Institute for Supply Management’s manufacturing PMI climbed to 54.1 in January from 53.1 in December.
The positive picture for the US economy was supported by reports of a 170,000 increase in private sector employment and a 1.5 percent increase in construction spending.
UK manufacturing also improved in January. The Markit/CIPS manufacturing PMI rose to 52.1 from 49.7 in December.
Manufacturing in the euro area was not as strong but showed improvement nevertheless. Markit's eurozone manufacturing PMI rose to 48.8 in January from 46.9 in December.
China's manufacturing also improved in January. The China Federation of Logistics and Purchasing manufacturing PMI rose to 50.5 from 50.3 in December while the HSBC's preliminary PMI stood at 48.8 in January, up only marginally from 48.7.
However, China's improvement paled in comparison with India's where the HSBC manufacturing PMI jumped to 57.5 in January from 54.2 in December.
Real Time Economics has a summary of the world's manufacturing PMIs.
The day started positively in Japan where the Markit/JMMA manufacturing PMI rose to 50.7 in January from 50.2 in December. Industrial output rose 4.0 percent in December, reversing a 2.7 percent fall in November. Household spending rose 0.5 percent in December from a year earlier, the first rise since February 2011. The jobless rate edged up to 4.6 percent in December from 4.5 percent in November but the ratio of job offers to job seekers also rose to 0.71 in December from 0.69 in November.
In the euro area, the December unemployment rate was unchanged from an upwardly-revised rate of 10.4 percent in the previous month but German retail sales fell 1.4 percent in December and French consumer spending fell 0.7 percent.
In the UK, the GfK NOP consumer confidence index rose to -29 in January from -33 in December but consumer credit posted its sharpest drop in nearly two decades in December even as mortgage approvals rose to the highest level since December 2009.
In the US, the Conference Board's consumer confidence index unexpectedly fell to 61.1 in January from 64.8 in December while the Institute for Supply Management-Chicago's business barometer declined to 60.2 in January from 62.2 in December. The S&P/Case-Shiller index of home prices in 20 cities declined 3.7 percent in November from a year earlier after decreasing 3.4 percent in October.
US consumer spending was flat in December but income rose 0.5 percent. Adjusted for inflation, spending dipped 0.1 percent last month.
Meanwhile, however, demand for business loans increased for the fourth quarter as a whole, according to a Federal Reserve survey of senior loan officers at banks.
And the economy continues to improve at the start of 2012, at least in Texas, where the Texas Manufacturing Outlook Survey showed that the production index rose to 5.8 in January from 0.2 in December and the general business activity index jumped to 15.3 from minus 0.3.
There are also signs of improvement in the eurozone economy, where an index of executive and consumer sentiment rose to 93.4 in January from 92.8 in December, the first increase since February 2011.
However, Europe's economy is still threatened by the debt crisis.
There were some positive development on this front for the medium to long term as 25 out of 27 EU states agreed to sign a fiscal compact to ensure budgetary discipline on Monday, with only Britain and the Czech Republic opting out, and leaders agreed that the European Stability Mechanism will enter into force in July, a year earlier than planned.
For the near term, though, there was practically no progress as Greece remains in confrontation with the rest of Europe over its debt relief package while yields on Portuguese debt continued to rise.
The United States economy showed good growth at the end of last year. The Commerce Department reported last week that real gross domestic product increased at an annual rate of 2.8 percent in the fourth quarter, faster than the 1.8 percent rate in the prior quarter.
The acceleration in growth, however, was exaggerated by an increase in inventories. The GDP report showed that private inventories added 1.94 percentage points to the fourth-quarter growth rate after having subtracted 1.35 percentage points from the third-quarter growth rate.
The underlying momentum in the economy is probably better reflected by personal consumption expenditures, which increased 2.0 percent in the fourth quarter compared with an increase of 1.7 percent in the third.
Perhaps more encouraging was the solid 10.9 percent growth in residential investment. Growth in residential investment usually leads growth in the economy as a whole.
Another indicator that pointed to a positive outlook for the US economy was the Conference Board's leading economic index. This index increased 0.4 percent in December to 94.3 after having increased 0.2 percent in November and 0.6 percent in October.
The eurozone economy has not fared as well as the US, being widely expected to have contracted in the fourth quarter. However, economic data on the euro area last week showed that things may have improved since then.
The flash reading of a composite output index for the euro area compiled by Markit Economics rose to 50.4 in January from 48.3 in December. It was the third consecutive increase in the index and the first time the index has been in positive territory in five months.
Among the sector indices, the services PMI rose to 50.5 in January from 48.8 in December while the manufacturing PMI rose to 48.7 from 46.9.
In his comments on the data, Markit's chief economist Chris Williamson said that the eurozone economy appears to have stabilised in January and that “a slide back into recession may be avoided”.
Also pointing to a better start to the year was the Ifo index of German business confidence, which rose to 108.3 in January, a five-month high, from 107.3 in December.
An improvement in consumer sentiment in January provides hope that the economic momentum can be maintained in the current quarter. The final reading of the Thomson Reuters/University of Michigan's consumer sentiment index rose to 75.0, the highest since February 2011, from 69.9 the month before.
Earlier on Friday, there was also positive news from Japan, where retail sales rose 2.5 percent in December from a year earlier.
Another report from Japan on Friday showed that consumer prices excluding fresh food fell 0.1 percent in December from a year earlier.
Meanwhile, Europe got hit by another wave of credit rating downgrades on Friday. Fitch Ratings cut the credit ratings of Italy, Spain, Belgium, Slovenia and Cyprus.
However, investors have become less pessimistic about Europe's debt problem. Italy successfully sold 11 billion euros of Treasury bills on Friday after having sold 5 billion euros of inflation-linked and zero-coupon bonds the previous day.
But Europe's problems are far from over. Even as talks on Greece's bailout and debt restructuring remain on-going, analysts are now seeing an increasing probability that Portugal will also need another bailout.
The Chicago Fed National Activity Index rose to 0.17 in December from minus 0.46 in November. The three-month moving average rose to minus 0.08, the highest value since March 2011, from minus 0.19.
Economic growth is likely to be sustained in early 2012. The Conference Board's Leading Economic Index increased 0.4 percent in December following a 0.2 percent increase in November.
Boosting the outlook for the economy was a 3.0 percent increase in durable goods orders in December. An 18.9 percent jump in orders for civilian aircraft drove the increase but even excluding transportation equipment, orders were up 2.1 percent. Orders for nondefense capital equipment goods excluding aircraft rose 2.9 percent.
Not all the US data on Thursday were positive though.
New home sales fell 2.2 percent in December. That left new home sales for the whole of 2012 at a record-low level of 302,000.
New claims for unemployment benefits rose 21,000 to 377,000 in the week ended 21 January. However, the four-week average fell 2,500 to 377,500.
Chairman Ben S. Bernanke said the Federal Reserve is considering additional asset purchases to boost growth after extending its pledge to keep interest rates low through at least late 2014.
Policy makers are “prepared to provide further monetary accommodation if employment is not making sufficient progress towards our assessment of its maximum level, or if inflation shows signs of moving further below its mandate-consistent rate,” Bernanke said at a news conference today after a Federal Open Market Committee meeting in Washington. Bond buying is “an option that’s certainly on the table.”
The extension of the duration of low rates comes as the Fed lowered its forecast for growth this year to 2.2 percent to 2.7 percent from 2.5 percent to 2.9 percent in November. The projection for next year's growth has been lowered to 2.8 percent to 3.2 percent from 3.0 percent to 3.5 percent.
The Fed also revealed on Wednesday that it has set a 2 percent target for inflation.
While recent economic data have mostly indicated that the US economy continues to grow, Wednesday did bring a negative report in the form of a 3.5 percent decline in pending home sales in December, which nevertheless left it near a 19-month high.
Meanwhile, the data from Europe has gotten better in recent days. Wednesday continued that trend with a report that the Ifo index of German business confidence rose to 108.3 in January, a five-month high, from 107.3 in December.
Somewhat less positive was the news on Wednesday that the UK economy shrank by 0.2 percent in the fourth quarter. Further declines in the UK economy looks likely to be limited though after the Confederation of British Industry reported that its total order book balance rose to -16 in January from -23 in December.
Ironically, this comes on the day when the eurozone economy is looking better. While eurozone industrial orders fell 1.3 percent in November, Markit's flash eurozone composite PMI jumped to 50.4 in January from 48.3 in December, with the manufacturing PMI rising to 48.7 in January from 46.9 in December and the services PMI rising to 50.5 from 48.8.
There was also positive news from the US on Tuesday, where the Richmond Fed's manufacturing index rose to 12 in January from 3 in December.
The news from Japan, though, has been negative.
While many fear that Europe's debt crisis may make it the next Japan, it may well be Japan that becomes the next Europe. The government said on Tuesday that it will miss its deficit reduction target. The ratio of its primary budget deficit to gross domestic product will be halved one year later than planned after it pushed back the timing of a sales tax increase. And by fiscal year 2020/21, the primary deficit is projected to be 3.0 percent of GDP, well short of its target to return to a primary budget surplus.
Japan's debt problem is being exacerbated by slow economic growth. On Tuesday, the Bank of Japan reported lowered growth estimates for the economy as it left its key interest rate unchanged at between zero and 0.1 percent. It now sees the economy shrinking 0.4 percent in fiscal year 2011, down from its previous projection of 0.3 percent growth. The BoJ also said it expected growth of 2.0 percent in fiscal year 2012, down from its previous forecast of 2.2 percent growth.
It does not help that Japan's trade surplus has vanished. A report on Wednesday showed that exports fell 8.0 percent in December from a year earlier, resulting in an annual trade deficit of 2.49 trillion yen, the first annual deficit in 31 years.
The initial estimate of the consumer confidence index in the euro area rose to minus 20.6 in January from minus 21.3 in December.
However, an indicator of French business confidence fell to 91 in January from 94 in December.
Meanwhile, the talks on Greek debt restructuring have not produced a resolution, with eurozone finance ministers rejecting the latest offer from private bondholders on Monday.
However, Simon Johnson thinks that Italy remains the biggest problem and, in a paper with Peter Boone, says that “we expect several more sovereign defaults and multiple further crises to plague Europe in the next several years” and that Europe's economy remains “in a dangerous state”.
Investors, though, may be more inclined to celebrate another kind of liquidity: that provided by central banks.
In December last year, the European Central Bank introduced three-year loans to banks with loosened collateral rules under the Long Term Refinancing Operation to boost liquidity in the euro area. This appears to have succeeded in lowering borrowing costs in the euro area.
Last week saw significant amounts of money raised in Europe, with the European Financial Stability Facility and the governments of France, Spain and several other countries selling debt at mostly lower yields than previous auctions.
Since lower sovereign bond yields also lower the probability of governments defaulting on their debt or being forced into harsher austerity programmes, last week's development, if sustained, will help to stave off a more pronounced downturn in the eurozone economy.
Equities have also benefitted from the improved liquidity and investor sentiment. The STOXX Europe 600 Index rose 2.7 percent to 255.85 last week, its fifth consecutive weekly gain. The index has risen 4.6 percent since the start of 2012, its best start to a year since 1997.
The liquidity injections of the ECB reinforce those from the Federal Reserve in the United States, which has been even more active in helping prop up bond markets over the last few years by directly buying up government securities as part of what many analysts call quantitative easing.
In the case of the US economy, despite doubts raised by many analysts over the efficacy of the Fed's securities purchase programmes, especially the one started in late 2010, economic data released last week indicate that the Fed's ultra-easy monetary policy may be gaining traction.
With the Fed now buying longer-term government securities, together with many foreign central banks who have been doing it for many years, the yield curve has lost much of its historical reliability as an indicator of monetary conditions.
The housing industry, however, has always been sensitive to monetary conditions and last week's mostly positive housing data suggest that monetary policy is helping the US economy to recover.
Housing starts, a leading indicator of the economy, hit an annual rate of 657,000 in December. Although this was down 4.1 percent from November, this rate of starts has, apart from November, been exceeded only once since the end of the last recession.
Indeed, housing starts in the fourth quarter was the highest since the fourth quarter of 2008 in the middle of the last recession.
In addition, the National Association of Home Builders/Wells Fargo housing market index, which usually correlates well with housing starts, jumped from 21 in December to 25 in January. This is the highest level in the index since June 2007 before the last recession.
Finally, existing home sales rose 5.0 percent in December, hitting an 11-month high.
So thanks to the ECB and the Fed, there is hope that the Year of the Water Dragon may not turn out as bad as some economists had feared.
There was mixed news from Japan. The all industry activity index fell 1.1 percent in November but the leading index rose to 93.2, up from an initial estimate of 92.9, from 92.0 in October.
In the UK, the Office for National Statistics reported on Friday that retail sales volume grew by 0.6 percent in December after having fallen 0.5 percent in November.
There was also positive news in the US, where the National Association of Realtors reported on Friday that existing home sales increased 5.0 percent to an 11-month high in December.
However, in the meantime, eurozone governments continued to sell debt at lower yields, France and Spain selling 14.6 billion euros of bonds on Thursday.
Meanwhile, US economic data on Thursday were mixed. Initial claims for state unemployment benefits fell 50,000 to 352,000 last week, the lowest level since April 2008, and the Philadelphia Federal Reserve Bank's business activity index rose to 7.3 from 6.8 in December. However, housing starts fell 4.1 percent in December.
The consumer price index was unchanged in December for a second straight month, held down by gasoline prices, which fell for a third month in a row. Excluding food and energy, consumer prices rose 0.1 percent in December after rising 0.2 percent in November.
However, inflation in the US could prove more stubborn than some expect in coming years as deflationary pressure from China declines with its working-age population. China's National Bureau of Statistics has reported that the proportion of people aged between 15 and 64 dropped 0.10 percentage point to 74.4 percent last year while the proportion of people aged over 65 rose by 0.25 percentage point to 9.1 percent.
The International Monetary Fund is proposing to raise its lending capacity by as much as $500 billion to cope with the European debt crisis.
In the meantime, Eurozone countries have been tapping private investors relatively successfully in recent days. That pattern continued on Wednesday, with Portugal selling the maximum target of 2.5 billion euros of securities at a sale of three-, six- and 11-month treasury bills at mostly lower yields than in previous sales while Germany sold two-year notes at a record-low yield of 0.17 percent.
Construction output in the euro area rose 0.8 percent in November after three months of contraction.
China, though, showed more signs of cooling on Wednesday. A report from the National Bureau of Statistics showed that home prices in 52 out of 70 major cities fell in December from November, with only two cities seeing price increases. Meanwhile, foreign direct investment in China fell for a second straight month in December, declining 12.7 percent year on year to $12.2 billion.
In the UK, the jobless rate rose to 8.4 percent in November, no doubt contributing to the Nationwide's consumer confidence index dropping to 38 in December, the second lowest since the survey started in 2004, from 40 in November.
In contrast, US economic data maintained their positive trend on Wednesday. Industrial production rose 0.4 percent in December, the NAHB/Wells Fargo Housing Market index rose to 25 in January from 21 in December while producer prices fell 0.1 percent in December.
Still, central bankers seem to be taking no chances. Brazil’s central bank cut its benchmark interest rate by half a point for a fourth straight policy meeting to 10.5 percent on Wednesday.
It grew by 8.9 percent in the fourth quarter from a year earlier, the slowest growth rate in ten quarters. However, the fourth quarter growth rate was higher than the 8.7 percent expected by economists.
Compared to the previous quarter, the economy grew 2 percent in the fourth quarter, lower than the 2.3 percent increase in the previous quarter.
However, industrial production increased 12.8 percent in December from a year earlier, more than the 12.4 percent increase in November.
The fourth quarter economic report helped push the Shanghai Composite Index up 4.2 percent on Tuesday, the best gain since October 2009.
There was also better-than-expected economic news from the US on Tuesday. The Federal Reserve Bank of New York’s general economic index rose to 13.5 in January, the highest level since April, from 8.2 in December.
Continuing the better-than-expected pattern on Tuesday was a surprisingly large rise in the ZEW index to minus 21.6 in January from minus 53.8 in December. It was the largest single monthly increase in the index of German investor confidence since the survey started in 1991.
In another piece of positive news for the euro area, investor confidence in the European Financial Stability Facility appears to have been little affected by S&P's downgrade of its credit rating on Monday. The EFSF sold 1.501 billion euros of six-month bills on Tuesday with a bid-to-cover ratio of 3.1 and an average yield of 0.2664 percent.
Spain also managed to sell a total of 4.88 billion euros of 12- and 18-month bills on Tuesday. Yields were lower than in similar sales in December. Belgium and Greece also managed to sell bills at lower yields on Tuesday.
A report on Tuesday showing a fall in eurozone inflation in December means that the European Central Bank will probably continue to support financial markets in its monetary policy. The inflation rate in the euro area fell to 2.7 percent, the lowest since August and below an initial estimate of 2.8 percent, from 3 percent in November.
Also seeing a fall in inflation in December was the UK. The inflation rate fell to 4.2 percent in December from 4.8 percent in November.
While France was among the countries downgraded by S&P last week, Moody's announced on Monday that it was still assessing the country's credit rating.
Perhaps more importantly, investors appear confident enough in the country's finances. France sold 1.895 billion euros of one-year notes at a yield of 0.406 percent on Monday, down from 0.454 percent on 9 January. It also sold a total of 8.59 billion euros in bills at lower yields.
Elsewhere on Monday, there was some good news from Japan, which saw a 14.8 percent jump in core machinery orders.
However, the Bank of Japan cut its assessment for seven of nine regions from three months before in a quarterly report on Monday, saying that the pace of pickup in their economies was moderating or pausing.
The Organisation for Economic Co-operation and Development reported on Thursday last week that its composite leading indicators for November pointed to a slowdown in activity among member countries, with the indicator for the OECD area as a whole falling 0.1 point in November to 100.1. The euro area has the weakest outlook among the major OECD economies while the OECD reported that Japan and the US showed “stronger signs of a positive change in momentum”.
Indeed, data on the fourth quarter last week already show shrinking economic activity in the euro area. Eurostat reported that industrial production in the euro area fell 0.1 percent in November, the third consecutive month of decline. Germany's Federal Statistical Office said last week that Europe's largest economy probably shrank in the fourth quarter.
This weakness is likely to persist as the OECD's composite leading indicator for the euro area fell 0.4 point in November to 98.3, its tenth consecutive month of decline.
In Japan, data from the Cabinet Office last week also suggested that the economy was weak in the fourth quarter. A report on Wednesday showed that the composite index of coincident economic indicators fell from 91.4 in October to 90.3 in November. The following day, data from the economy watchers survey showed that the diffusion index for current conditions rose to 47.0 in December from 45.0 in November but the index for future conditions fell to 44.4 from 44.7.
Leading indicators of the Japanese economy, though, gave somewhat more encouraging signals. The Cabinet Office's composite index of leading economic indicators rose 0.9 point to 92.9 in November, its first increase in four months. The OECD's composite leading indicator for Japan was unchanged at 101.5 in November after having fallen in the previous seven months.
In the US, data last week also provided some indications of a slowdown towards the end of last year. Retail sales rose just 0.1 percent in December after a 0.4 percent increase in November. Exports fell 0.9 percent in November, the second consecutive monthly drop.
Nevertheless, the Federal Reserve's beige book reported last week that the economy “expanded at a modest to moderate pace” from late November through the end of December.
Data last week also showed that the US economy is likely to continue to grow in early 2012. Consumer confidence improved in January, with the Thomson Reuters/University of Michigan consumer sentiment index reaching 74, the highest level since May. The OECD's composite leading indicator for the US rose 0.2 point to 101.2 in November.
There was one negative among the major forward-looking data for the US economy last week though. The Economic Cycle Research Institute's weekly leading index rose 1.0 point to 121.2 for the week ending 6 January but the growth rate fell 0.2 percentage point to minus 8.4 percent.
However, the big news on Friday was the rating downgrades by Standard & Poor's. The ratings agency cut the credit ratings of France, Austria, Malta, Slovakia and Slovenia by one notch each and those of Italy, Spain, Portugal and Cyprus by two notches. The downgrade leaves Italy with a rating of BBB+ while Portugal is pushed down to junk status.
Or maybe the news wasn't so big. Despite becoming aware of the impending downgrades during the trading day, markets were only moderately down on Friday. The S&P 500 fell 0.5 percent while the STOXX Europe 600 fell 0.1 percent.
Still, the rating downgrades were not the only negative piece of news on Friday. Negotiations on a debt swap by Greece's creditors broke up without agreement, raising the risk of a Greek default.
US economic data on Friday were mixed.
The Thomson Reuters/University of Michigan consumer sentiment index reached a preliminary reading of 74 in January. This is up from 69.9 in December and is the highest level since May.
However, the trade deficit widened in November. Exports fell 0.9 percent, the second consecutive drop, while imports rose 1.3 percent.
Investors seem to agree. The euro strengthened on Thursday and Spanish and Italian yields fell sharply after successful debt auctions by the governments in both countries.
There were also no new measures from the Bank of England after its monetary policy meeting on Thursday.
Economic data on Thursday point to possible further easing measures from both central banks later though.
In the euro area, industrial production fell 0.1 percent in November, the third month of decline. Inflation in Germany slowed to 2.3 percent in December from 2.8 percent in November. However, inflation in France was unchanged in December from the previous month at 2.7 percent.
In the UK, industrial production fell 0.6 percent in November as oil and gas extraction and electricity production were scaled back sharply. Manufacturing output fell 0.2 percent.
A Thursday report showing a fall in China's inflation to 4.1 percent in December, the slowest rate since September 2010, from 4.2 percent in November means that monetary policy there could also become easier in coming months.
Thursday's economic reports from the US also failed to provide the kind of positive data that we have become used to in recent months. Retail sales increased just 0.1 percent in December after an upwardly-revised 0.4 percent increase in November while initial unemployment claims rose to a six-week high of 399,000 last week.
Data from Japan on Thursday were mixed. The economy watchers survey showed that the current conditions index rose to 47.0 in December from 45.0 in November but the outlook index fell to 44.4 from 44.7. Meanwhile, the current account surplus fell 85.5 percent in November from a year earlier as a fall in exports pushed the trade balance into deficit.
Japanese demographics means that it can no longer consistently produce a trade surplus to drive growth. Other countries may be facing the same prospects as Japan. Alan Wheatley at Reuters says Japan's plight over the past 20 years may turn out to be the template for other mature economies, especially in Europe.
Economists have generally played down the implications of Japan's prolonged stagnation for Western economies that are now wrestling with apparently similar balance sheet recessions. These occur when firms and households are forced to reduce their excess debt by cutting consumption and investment.
But [Ajay Kapur, a strategist for Deutsche Bank in Hong Kong] said it would be a crucial error to dismiss Japan's malaise since 1990 as somehow reflecting specific national 'cultural' traits. Many other countries were displaying similar features.
In the next five years, all of the 18 developed countries for which Deutsche has property market data going back more than half a century will see a decline in their working age population ratios.
Sixty percent of them will show an absolute decline in the number of citizens of working age, something that Kapur said was unprecedented...
Karen Ward, an economist with HSBC in London, agreed that Japan's demographic profile was probably at least as much to blame as aggressive deleveraging for its economic stagnation. Growth in the labor force began falling steadily in the mid-1980s and numbers started falling outright a decade later.
Germany may be on the brink of recession after the sovereign debt crisis caused the economy to contract in the final quarter of 2011.
Europe’s largest economy shrank “roughly” 0.25 percent in the fourth quarter from the third, the Federal Statistics Office in Wiesbaden said today in an unofficial estimate. Economists such as Christian Schulz at Berenberg Bank expect gross domestic product to contract again in the current quarter. A recession is defined as two consecutive quarters of declining GDP.
While the euro area's largest economy may be on the brink of recession, the world's largest economy appears to be still growing. According to the Federal Reserve's beige book released on Wednesday, the US economy “expanded at a modest to moderate pace” from late November through the end of December.
Earlier on Wednesday, a report from Japan showed that its economy may have slowed towards the end of 2011. The Cabinet Office's index of coincident economic indicators fell 1.1 points in November. Encouragingly, however, the index of leading economic indicators rose 0.9 point in November.
Ironically, Chinese data on Tuesday had suggested economic weakness. Exports rose 13.4 percent from a year earlier in December, down from a 13.8 percent increase in November. Imports increased 11.8 percent compared with a 22.1 percent rise in the previous month.
For 2011 as a whole, exports rose 20.3 percent, down from an increase of 31.3 percent in the previous year. Imports rose 24.9 percent, much less than the 38.8 percent increase in 2010. The trade surplus narrowed to $155.14 billion from $181.51 billion in 2010.
However, economic data from Europe on Tuesday were positive.
The British Retail Consortium said on Tuesday that retail sales on a like-for-like basis rose 2.2 percent in December from a year earlier after having fallen 1.6 percent in November. Total sales grew 4.1 percent, up from a 0.7 percent increase in November.
The Bank of France’s business sentiment indicator for industry rose to 96 from a two-year low of 95 in November. Industrial production rose 1.1 percent in November.
To add to the good news for France, Fitch Ratings said that the country's credit rating would likely avoid a downgrade this year but other countries in the euro area, including Italy, may not be so lucky.
Industrial production fell 0.6 percent in November.
However, exports rebounded by 2.5 percent in November after having fallen by 2.9 percent in October. With imports falling 0.4 percent in November, the trade surplus rose to 16.2 billion euros from 11.5 billion euros in October.
No doubt, Germany's ability to maintain a surplus is a key factor in establishing its status as a safe haven among investors. Monday saw Germany sell 3.9 billion euros of six-month treasury bills at an average yield of minus 0.0122 percent, the first time these securities have been sold at a negative yield.
The other major surplus economy, China, may have debt problems of its own but data on Sunday showed that new loans rose to 640.5 billion yuan in December from 562.2 billion yuan in November.
