On the heels of the release of disappointing retail sales data, the Federal Reserve released its Beige Book report on Wednesday, saying that overall economic activity has continued to weaken across almost all of the Federal Reserve Districts.
The Beige Book, a compilation of anecdotal evidence on economic conditions from each of the twelve Federal Reserve districts, showed most districts reported reduced or low activity across a wide range of industries, although a few note some exceptions.
Most districts indicated that retail sales were generally negative, according to the report. Sales were particularly weak during the holiday season, with most districts also noting deep discounting during the holiday shopping season.
The weakness in holiday sales was reflected in the Commerce Department`s December retail sales report released earlier in the day, which showed that retail sales fell by much more than economists had been expecting. Read the rest of this entry »
The head of the U.S. Federal Reserve, one of the key figures in fighting the current economic emergency, said Tuesday that the central bank stands ready to use its powers `aggressively` to help stimulate the economy and stabilize financial markets.
Ben Bernanke, chairman of the Federal Reserve, also called for stronger regulatory oversight to prevent a similar crisis from happening again and urged policy-makers from around the world to work together to promote a sustainable recovery.
Speaking at an event at the London School of Economics, Bernanke also noted that while there is currently little risk of inflation in the short-run, the Fed has already begun thinking about how best to unwind its stimulus program so that price increases do not become a problem as the economy begins to recover.
The Fed chief said that the central bank`s toolkit includes lending facilities that will support markets and financial institutions, as well as the ability to buy longer-term securities issued by the U.S. government or by government-sponsored mortgage giants Fannie Mae and Freddie Mac. Read the rest of this entry »
Weak opens were expected again Tuesday for the New Zealand and Australia stock markets. Another negative lead was sent from Wall Street overnight, as commodities price drops hinted at further weakness in the economy.
New Zealand`s sharemarket went against the negative tide sweeping most of the region and closed with a gain on Monday on very light volume.
The benchmark NZX 50 index finished up 10.86 points or 0.39 percent at 2,768.27.
Trading volume was 23.24 million shares valued at NZ$39.32 million.
Among the day`s most actively traded stocks, Air New Zealand was unchanged, Fletcher Building was down .03, Goodman Fielder was up .08, Goodman Properties was unchanged, ING Properties were unchanged, NZ Oil & Gas was unchanged, SkyCity Entertainment was up .07, Telecom Corp of NZ was up .06 and Vector was unchanged. Read the rest of this entry »
Monday, falling commodity prices and global economic slowdown may prompt New Zealand`s central bank to cut key interest rate by 75 basis points to 4.25% in January, Bloomberg reported citing a weekly report from the ANZ Bank.
ANZ said softer commodity prices and the deterioration in the global economic picture places more downward pressure on the domestic export sector, which should reflect on lower exchange rates. Earlier, the bank was expecting only a 50 basis point reduction in January.
New Zealand`s commodity prices fell 7.4% in December, reflecting the fifth consecutive decline in prices, according to ANZ`s report published on January 7. In other recent developments, the unemployment rate in the US rose to its highest levels since 1993, while Eurozone economic sentiment reached a record low. There were also accelerating signs of weakness in the Asian markets, with exports of countries like South Korea weakening, China`s manufacturing sector slowing, and a sharp deterioration in Singapore`s quarterly GDP in December.
The Reserve Bank of New Zealand has cut the official cash rate by a cumulative 3.25% since July in order to revive the slowing economy. The ANZ Bank maintained its end point to the OCR cycle at 3.5%.
A top Federal Reserve official said Friday that he expects the economy to regain `positive momentum` at some point in 2009 and noted that the new techniques the central bank is using to stimulate the economy may have to be taken away before they lead to inflation.
Speaking to the Maryland Bankers Association Annual Economic Outlook Forum, Richmond Fed President Jeffrey Lacker said he did not believe there would be a problem with deflation, the kind of persistent decline in prices that took place in the Great Depression.
Rather, Lacker suggested that the amount of stimulus that authorities have put into the system could cause trouble down the road, by adding inflation pressures.
`Mixing monetary and fiscal policy is fraught with risks,` the Richmond Fed president said, noting that there are many historical examples of trouble caused by central banks expanding their balance sheets. Read the rest of this entry »
President-elect Barack Obama is set to make a `major speech` on the economy Thursday, in which he will reportedly urge action on an American Recovery and Reinvestment Plan.
According to Obama`s office, the president-elect will make the case for `urgent action` on a plan he feels will `save or create over 3 million jobs while investing in priorities like health care, energy, and education that will jumpstart economic growth.`
`This plan will represent not just new policy,` Obama`s office said, `but a new approach to meeting our challenges that focuses on responsibility, accountability, and transparency so that we can rebuild confidence and trust in our economy and our markets.`
Obama has not yet released specific details of his proposals to help get the U.S. out of its current financial crisis, but lawmakers are hoping this speech will shed light on his plans so they can have legislation to enact his policies by the middle of February. Read the rest of this entry »
Unsurprisingly, the minutes released on Tuesday by the FOMC showed a sharp downgrade of growth expectations, with members expecting `economic activity to contract sharply in the fourth quarter of 2008 and in early 2009. Most projected the economy would begin to recover slowly in the second half of 2009.`
However, uncertainty remains high, and downside risks `were a serious concern,` say the analysts at UBS. FOMC members expected inflationary pressures `to moderate further in coming quarters.` These projections are about in line with our own. Weak GDP through H1, followed by modest recovery in H2; an unemployment rate peak of 8.3% in Q4; and core PCE inflation slowing to 1.0% on a Q4/Q4 basis in 2009 from 1.8% in 2008.
The Fed outlined its three-part policy. First is the low fed funds rate. Second is an aggressive communication policy. And third is continued balance sheet expansion. Read the rest of this entry »
As the U.S. economy looks to bounce back from a bleak 2008, the nation`s monetary policymakers will undergo their annual rotation. Beginning at its January meeting, the Federal Open Market Committee, the policy-making arm of the Federal Reserve, will introduce four new voting members. The rotation will also move out some of the most outspoken critics of the Fed`s policy earlier this year, with two of the main champions for higher rates leaving the FOMC`s voting panel.
Fed Presidents Charles Evans of the Chicago district, Jeffrey Lacker of the Richmond district, Dennis Lockhart of the Atlanta district, and Janet Yellen of the San Francisco district will all have voting privileges in 2009.
They replace Richard Fisher of Dallas, Charles Plosser of Philadelphia, Sandra Pianalto of Cleveland, and Gary Stern of Minneapolis, who voted in 2008. Read the rest of this entry »
The stock markets across the Asia-Pacific region were trading higher on Monday following the Wall Street rally on Friday. Hopes of an economic recovery in 2009 helped lift stocks. Crude oil extended gains from Friday in early Asian trades Monday and was trading at more than $47 per barrel. In the currency market, the U.S. dollar was trading in the lower 92-yen range on Monday.
U.S. stocks ended Friday`s trading substantially higher as investors shrugged off negative economic news and picked up stocks at reduced levels following the considerable weakness that was seen last year. The Dow closed up 258.30 points or 2.9% at 9,034.69, the Nasdaq closed up 55.18 points or 3.5% at 1,632.21 and the S&P 500 closed up 28.55 points or 3.2% at 931.80.
In early Asian trades Monday, crude oil was trading at $47.42, up $1.08 or 2.33%. Oil prices rose nearly 4% on Friday, the first trading day of 2009, as fighting in the Middle East and Russia`s energy dispute with Ukraine raised concerns about future supply disruptions. Light, sweet crude for February delivery rose $1.74 to settle at $46.34 a barrel on the New York Mercantile Exchange. Read the rest of this entry »
The markets are resigned to the fact that the economy will continue to show weakness in the near term and are unlikely to react very negatively unless the pace of decline deteriorates further. A weak first-half performance may result in a permanent market bottom from where the markets should rally in the second half of the year. Consumer spending may continue to be restrained due to a rise in unemployment, as more and more companies slash jobs.
IHS Global Insight forecasts a 5.6% decline in real GDP in the fourth quarter of 2008 followed by a 5.4% drop in the first quarter of 2009. In the second half, the economy is likely to see anemic positive growth. Therefore, the recession could extend anywhere between 18 and 24 months, making it the longest in the post-war period.
The good news on the inflation front could soon turn bad, as the falling oil prices are likely to engender deflationary threat. Economists expect core consumer price inflation to fall below the Federal Reserve`s comfort zone of 1%-2% by mid-2009. Read the rest of this entry »