Global Confidence Rises as Manufacturing, Stocks Gain
Confidence in the world economy rose for a third straight month in October as gains in manufacturing and equities added to signs of recovery, a Bloomberg survey of users on six continents showed.
The Bloomberg Professional Global Confidence Index increased to a record 61.7 from 58.54 in September. The index exceeded 50 for a third month, which means there were more optimists than pessimists.
“Conditions have reached a point of stability worldwide,” said Guy LeBas, chief economist and fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who participated in the survey. “We’re seeing growth even in parts of the world that were looking dull earlier. The eurozone is coming out of the recession fairly quickly and in decent shape and the U.S. is improving.”
The global equity rally has added about $20 trillion to the value of stocks since this year’s low on March 9 as evidence mounts that the world economy is emerging from its deepest recession since the 1930s. The pace of the recovery may be tempered as stimulus measures undertaken by policy makers fade out and unemployment threatens to continue rising.
“Asset markets are rising and that’s having positive wealth effects and helping confidence come back a bit stronger,” said Robert Subbaraman, chief economist for Asia excluding Japan at Nomura International Ltd. in Hong Kong. “There are still problems with the world economy as a lot of the support is being fueled by loose policies which cannot be sustained.”
China Exports, Intel
Stocks rose today. The MSCI World Index climbed 0.9 percent to a one-year high as the decline in China’s exports slowed and Intel Corp.’s sales forecast topped analyst estimates. JPMorgan Chase & Co., the second-largest U.S. bank by assets, said profit in the third quarter soared almost sevenfold as fixed-income revenue surged.
Confidence may abate in the event that stocks erase part of their advance. The MSCI World Index has surged 67 percent since March 9, driving valuations on the gauge of 23 developed countries as high as 27.9 times annual earnings, data compiled by Bloomberg show. The Standard & Poor’s 500 Index is priced at 20.3 times profit, the highest level since 2004.
The survey of more than 1,400 Bloomberg users was conducted between Oct. 5 and Oct. 9. Since the previous survey, Group of 20 leaders vowed to keep stimulus measures until growth takes hold, the International Monetary Fund boosted its forecast for the global economy this year and next, and the Reserve Bank of Australia raised interest rates.
‘Gathering Steam’
Europe’s manufacturing and services industries expanded more than initially estimated last month, while some U.S. gauges of production are showing an acceleration in activity. India’s industrial production rose the most in 22 months in August, while China’s output gains were the fastest in almost a year.
“Investors think the recovery is gathering steam,” said Christopher Low, chief economist at FTN Financial in New York and a participant in the survey. “Manufacturing has shown the most improvement, and global trade is picking up.”
The world economy will contract 1.1 percent this year, and expand 3.1 percent in 2010, the Washington-based IMF said earlier this month.
Policy makers are debating the timing of the withdrawal of monetary and fiscal policies that have helped avert another Great Depression. Federal Reserve Chairman Ben S. Bernanke on Oct. 8 said the U.S. central bank is prepared to tighten monetary policy when the outlook for the economy “has improved sufficiently.”
Exit Strategies
New Zealand’s central bank is removing some of the liquidity facilities it put in place last year, while the Bank of Japan left its benchmark rate near zero today and refrained from saying if it would end its corporate debt purchase programs.
“The dynamic of the global recovery is very intense,” said Jose Carlos Diez, chief economist at Intermoney SA in Madrid. “If the central banks get nervous and put the brakes on too fast, that could abort the recovery.”
Bloomberg users in Spain are the most pessimistic on their economy as the nation remains mired in a recession even after France and Germany returned to growth. Spain’s index fell to a four-month low of 10 from 14.5 in September. The confidence gauge for western Europe rose to 44 from 43.2 last month.
Dollar Weakness
Confidence jumped the most in the Latin American region this month, with its index advancing to 72.9 from 65.5 in September. Brazil, the region’s biggest economy, is unwinding stimulus measures amid a resumption of growth as the central bank tightened rules for lenders to meet reserve requirements.
Sentiment fell in Japan, where a strengthening yen against the dollar is eating into company profits just as global demand stabilizes. The gauge for Japan declined to 38.8 from 48.8, while that for Asia rose to 76.2 from 73.6.
“In Asia, the biggest threat is the weakness in the dollar, because those economies are so dependent on exports to the U.S.,” Low of FTN Financial said.
The U.S. dollar may weaken further in the next six months against the world’s most actively traded currencies, as the survey showed sentiment near an 18-month low. The trade-weighted Dollar Index has fallen 7 percent this year, and gold, which usually moves inversely to the U.S. currency, is at a record. The dollar confidence index was 31.2 from 30.8 in September.
Users in Japan are less optimistic about the yen’s appreciation against the dollar, with the index falling to 56.9 from 62.1. Respondents in western Europe are still betting the euro will strengthen against its U.S. counterpart.
Stocks Sentiment Mixed
Bloomberg users were mixed on the outlook for their equity markets in the next six months. Respondents in the U.S., Japan and Spain expect shares to decline, while those in Brazil, Mexico and Italy predict their markets will extend their advances.
New York University Professor Nouriel Roubini, who predicted the financial crisis, on Oct. 3 said stock and commodity markets have gone up “too much, too soon, too fast” and may drop in the coming months as the gradual pace of the recovery disappoints investors.
Survey participants in the U.S., Europe and Latin America are also more confident short-term interest rates will rise in the next six months, the survey showed.