Stocks are indicated to start December’s first session on a positive note, with market participants hoping the favorable momentum from the last two months will continue into this seasonally positive month.
Unlike the steady growth outlook for the U.S. economy, the outlook for the rest of the world is a lot less certain. Europe’s currency crisis has moved to the background, but the deflationary risks to the region’s economy is expected to keep the European Central Bank on an easy monetary trajectory for a long time, with the central bank widely expected to add to its stimulus measures at its meeting later this week. The central bank in Japan is in a similar easy mode, as earlier hopes for Abenomics results have been slow to show up.
The picture is even weaker in many of the world’s previously faster-growing emerging economies. Questions about China’s outlook have been around for a while now. But even if China is able to avoid the hard-landing outcomes that many China-bears forecast, the country’s hyper-growth phase seems to be now behind us.
The global economy is currently going through an adjustment period in response to this slower-growing China, with the adjustments particularly painful for a number of commodity-producing nations that benefited immensely over the past decade from China’s ever-growing demand for all kinds of commodities.
Today’s report of negative Q3 GDP growth in Brazil — the third back-to-back decline in that country’s economy — can be traced back to what is happening in China. Australia, South Africa and a host of other commodity producers have been similarly hit hard by the Chinese slowdown.
Big parts of the U.S. economy have been similarly held back by the global economic slowdown, with the export-centric factory sector particularly hard hit. The manufacturing ISM index coming out a little later is barely at the dividing line between expansion and contraction – it was at 50.1 in October and is expected to come in at 50.5 for November today. The ongoing pain in the factory space, a reflection of the aforementioned global growth issues and the strong U.S. dollar, may not be enough to deter the Fed from starting the tightening process, but the Fed’s declared aim to keep the process slow and deliberate reflects this reality.
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