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November 4: Fed to keep rates low for ‘extended period’

Source: Bloomberg

Washington -- The Federal Reserve restated its intention to keep interest rates “exceptionally low” for “an extended period” as long as inflation expectations are stable and unemployment fails to decline. “Businesses are still cutting back on fixed investment and staffing, though at a slower pace,” the Federal Open Market Committee said in a statement today. “Household spending appears to be expanding, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth and tight credit,” the FOMC said after meeting in Washington.

Chairman Ben S. Bernanke is trying to determine when the recovery is strong enough to withdraw the $1 trillion the Fed injected to avert a depression. While gross domestic product rose for the first time in a year during the third quarter, figures this week are forecast to show payrolls fell further in October. Johnson & Johnson, the world’s largest health-products company, said yesterday it will fire more than 7,000 people. Officials kept their benchmark overnight lending rate at between zero and 0.25 percent, where it has been since December. The conditions they cited to keep it there are “low rates of resource utilization, subdued inflation trends, and stable inflation expectations,” the Fed said. See full story.

November 3: No hints, winks, nods from Fed about rate hikes

Source: Marketwatch

Washington -- The Federal Reserve will not give the market any hints, winks or nods about its battle plan for pushing interest rates higher after their meeting concludes on Wednesday, economists said. The overwhelming consensus is that the Fed will hold the federal funds rate steady at near-zero, where the Fed's target has been since last December. The Federal Open Market Committee begins its two-day meeting on Tuesday. An announcement is expected Wednesday at about 2:15 p.m. Eastern. "The facts on the ground -- high unemployment, low inflation, no net private-sector job creation -- suggest to us that it is inconceivable that policy will actually change on Nov. 4," said the economic team at Credit Suisse in a report to clients.

A report in the Financial Times on Oct. 23 set off a firestorm when it suggested that the Fed was considering scrapping its promise to keep rates "exceptionally low" for "an extended period." The 'extended period' phrase has been in place since March. As the dust has settled, most Fed watchers have concluded that Wednesday is too early for the central bank to edit the language. "We don't expect them to move away from the extended-period language," said Dean Maki, chief U.S. economist at Barclays Capital Inc., in New York. See full story.

November 2: Factory sector strengthens in October

Source: Marketwatch

Washington -- The nation's manufacturing firms grew at the fastest pace in more than three years in October, according to a closely followed survey of top executives released Monday. The Institute for Supply Management index rose to 55.7% from 52.6% in September, well above the 53.0% expected by economists surveyed by MarketWatch. It's the highest reading since April 2006. The production gauge also rose to a five-year high.

Readings over 50% in the ISM diffusion index indicate that more firms are growing than contracting. The ISM tracks the breadth of growth across firms, asking purchasing managers if business is better this month than last. The nation's economy, as measured by gross domestic product, grew at a 3.5% pace in the third quarter. The big question remains whether the economy can stand on its own as the stimulus wanes. See full story.

October 30: Consumer spending, confidence fall on job worries

Source: Bloomberg

Washington -- Americans cut spending for the first time in five months and a gauge of confidence weakened, signaling consumers will make a limited contribution to the recovery without government incentives. Consumer spending fell 0.5 percent in September after a 1.4 percent jump in August, Commerce Department figures showed today in Washington. The Reuters/University of Michigan final index of consumer sentiment decreased to 70.6 in October from 73.5 the month before.

Mounting jobs losses, stagnant incomes and the expiration of programs such as the cash-for-clunkers auto rebates threaten to hold back household spending as the nation emerges from a recession. An unexpected improvement in an index of business activity reported separately today supports forecasts that manufacturing may help fill the void and propel the expansion that started last quarter. “Manufacturing growth is going to be robust and broad- based,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. “Consumers are waiting to see whether the job market will improve before confidence takes another big leg up. That’s coming, but it’ll be a gradual process.” See full story.

October 29: Dollar weakens after U.S. economy grows, boosting stocks

Source: Marketwatch

New York -- The dollar declined versus major counterparts Thursday, stemming a string of gains in recent sessions, after a report showed the U.S. economy returned to growth in the third quarter, boosting stocks and reducing the appeal of the relative safety of the greenback. A separate report showed first-time jobless claims dropped in the latest week. "The better-than-expected report caused risk appetite to surge across the board," said Michael Woolfolk, senior currency strategist at The Bank of New York Mellon. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, fell for the first day in six. It traded at 75.891 recently, down from 76.456 in North American trading on Wednesday.

The euro rose for the first time in four days to $1.4847, compared to $1.4713 late Wednesday. The British pound jumped 1.1% versus the dollar to buy $1.6567. The Japanese yen, however, has been the most sensitive to risk aversion trading, falling when investors are more interested in riskier assets such as equities. Against the yen, the dollar rose to buy 91.42 yen, from 90.80 yen on Wednesday. Both the yen and dollar have declined as traders borrow in the low-yielding currencies to buy higher-yielding assets, putting on so-called carry trades. See full story.

October 28: Gold to rise to $2,000 amid 'massive' inflation, Superfund says

Source: Bloomberg

Singapore -- Gold may rise to a record $2,000 an ounce in the next three years as investors hedge against “massive” inflation sparked by governments printing money, according to Superfund Financial Singapore Pte’s Aaron Smith. “In the next few years, after the deflation cycle, we’ll see massive inflation,” Managing Director Smith, 30, said in an interview. “Soon, when you go to buy a cup of coffee, you’ll pay $20 or $30 because the dollar won’t be worth anything.”

The company’s Superfund Green Gold A Fund, which has more than doubled since its inception in 2005, has lost 15.6 percent this year because of higher volatility, said Smith, who joined in 2002. Gold rose to an all-time high this month as governments including the U.S. boosted debt to combat the global recession. “When the U.S. dollar crashes, all the paper currencies have to crash, otherwise if their currencies are too strong, their economies will be weak,” said Smith, who issued similar gold forecasts in May and earlier this month. “Another excellent buying opportunity for investors is silver.” Gold for immediate delivery, which touched a high of $1,070.80 an ounce on Oct. 14, traded at $1,039.32 at midday in Singapore. The metal has strengthened 18 percent this year, while the Dollar Index, a six-currency gauge of the dollar’s strength, fell 6.4 percent. See full story.

October 27: Confidence drops for second straight month in Oct.

Source: Marketwatch

Washington -- U.S. consumers doubt that the much-touted economic recovery is under way, according to the latest report on consumer confidence released by the Conference Board on Tuesday. The consumer confidence index was much weaker than expected, falling for the second straight month as the assessment of present-day conditions fell to its lowest level in 26 years.

"This indicator, and its component detail, appears to be pointing to a longer and more difficult journey to recovery than most would like to believe at the moment," said Josh Shapiro, chief economist at MFR Inc., in a note to clients. The Conference Board's consumer confidence index fell to 47.7 in October from an upwardly revised 53.4 in September, according to the survey of 5,000 households. Economists surveyed by MarketWatch expected the index to stay steady at around 53.2. See full story.

October 26: National index climbs above recession level

Source: Marketwatch

Washington -- A broad gauge of U.S. economic activity rose above the level that typifies recessions, the Federal Reserve Bank of Chicago reported Monday. For the three months through September, the average national activity index -- composed of fully 85 separate indicators -- increased to a reading of negative 0.63, up from negative 0.96 for the three-month interval ended in August. It's the first time since January 2008 that the three-month average has been above negative 0.70, the level that typically marks a recession.

In the past four recessions, the end of the downturn has come about the same time that the three-month average of the national index rose above negative 0.70, the Chicago Fed said. The index is designed so that a reading of zero indicates the economy's long-term growth trend. The index measures deviations from the trend. The September data take on greater importance as the government prepares to release results on gross domestic product for the third quarter on Oct. 29. See full story.

October 23: Bank failures hit 100 for year

Source: Marketwatch

New York -- A Naples, Fla., bank failed Friday, marking the first year since 1992 that at least 100 have gone under. Experts suggest we could be no more than 10% of the way through this cycle of bank collapses, which is sure to be the worst run of closures since the Great Depression. The parade of bank failures continued on Friday as the FDIC took control of Partners Bank of Naples after it was closed by the Office of Thrift Supervision. So far 100 banks have failed in 2009. See FDIC timeline of 2009's failed banks.

CreditSights, which tracks the dismal data, predicts that in the current cycle, from 2008 through 2011, as many as 1,100 banks will fail. That would wipe out 13.4% of all U.S. banks, representing 7% of U.S. banking assets. The last year in which the FDIC had that many banks to deal with was in 1992, at the tail end of the last real estate crisis. The FDIC rescued 122 in 1992, according to Keefe, Bruyette & Woods researchers. The increasing stream of bank failures is likely to run through 2011 according to some industry experts, as the fallout from the credit crisis continues. See full story.

October 22: Fed’s Rosengren sees 'risk' of relapse into recession

Source: Bloomberg

Washington -- Federal Reserve Bank of Boston President Eric Rosengren said the U.S. economy is at risk of relapsing into recession after expanding in the second half of 2009. “It’s certainly a risk,” Rosengren said today in an interview with CNBC, when asked about the danger of a relapse. “That’s why we don’t want to take the stimulus away too quickly.”

A report from the Fed’s 12 district banks yesterday portrayed an economy on the mend with little danger of inflation. District banks saw “stabilization or modest improvements” in many areas of the economy, with “little or no” price pressures, according to the Beige Book report. At their meeting last month, policy makers repeated their promise to keep interest rates exceptionally low for “an extended period” and pushed back the end-date of their program to purchase $1.45 trillion of mortgage-backed securities and housing agency bonds by three months. The jobless rate and inflation, excluding food and energy costs, are both “pretty far away from where we’d like to end up,” Rosengren told CNBC. “We need to wait until we make a little bit more progress on the economy before it’s appropriate to take some of the stimulus away.” See full story.

October 21: Dollar stays at 14-month low after Beige Book

Source: Marketwatch

New York -- The dollar slumped to a fresh 14-month low versus the euro on Wednesday, with the shared currency tapping the key level of $1.50, as optimism over U.S. earnings encouraged investors to borrow dollars to invest in riskier assets, such as stocks and commodities. The dollar also remained lower versus the British pound and other major currencies after a Federal Reserve report said the U.S. economy is slowly picking itself off the mat, but weak banking and commercial real estate are still major problem areas.

The dollar index, a measure of the greenback against a trade-weighted basket of currencies, fell to 74.983, down from 75.556 in North American activity late Tuesday. It earlier fell to 75.06, its lowest since August 2008. The euro stood above the psychologically important $1.50 level, recently trading at $1.5040 versus the U.S. dollar, compared with $1.4931 late Tuesday. It earlier rose as high as $1.5046, its highest level since last August.See full story.

October 20: Gold at $2,000 becomes inflation-adjusted bullseye for ‘80 high

Source: Bloomberg

Seattle -- Gold’s rally to a record means prices are still 53 percent below the 1980 inflation-adjusted peak. While gold rose 19 percent this year to $1,072 an ounce on Oct. 14, consumer prices almost tripled in the past three decades, eroding the metal’s value. Bullion hasn’t kept pace with the cost of bread, fuel or medical care. In 1980, gold hit a then-record $873 an ounce. In today’s dollars, that would be $2,287, according to the U.S. Labor Department’s inflation calculator.

Record government debt and interest rates close to zero percent are pushing gold higher for a ninth straight year, and options show investors expect the rally to continue. When prices reached all-time highs, the contract with the most open interest was the December call to buy the metal at $1,200. The contract to purchase at $1,500 an ounce was the third biggest. “Gold is not at any peak,” said Martin Murenbeeld, the chief economist at Toronto-based DundeeWealth Inc., which manages $58.5 billion in mutual funds and brokerage accounts. “The world’s money supply has increased and gold hasn’t kept pace,” he said. “We’re now in a period where gold is catching up.” See full story.

October 19: Einhorn bets on major currency 'death spiral'

Source: Marketwatch

New York -- Greenlight Capital manager David Einhorn said Monday that his hedge-fund firm is betting on the possibility of a major currency collapse and a surge in interest rates, citing ballooning government deficits in some of the world's most developed countries. The hedge-fund manager, who warned about Lehman Brothers' frailty before it collapsed last year, also said financial institutions that are deemed as "too big to fail," such as Citigroup Inc., should be broken up.

Greenlight has been buying physical gold this year because Einhorn is concerned that efforts to save the financial system and fuel economic recovery are undermining the value of such currencies as the U.S. dollar. On Monday, Einhorn said Greenlight has added new trades to this investment theme, buying long-dated options on much higher interest rates in Japan and other developed regions -- effectively giving the firm the chance to make big profits from a jump in rates. The options, bought from major banks, are tied to interest rates four to five years out, Einhorn noted. Einhorn also compared potential problems in sovereign debt markets to the financial crisis that engulfed markets last year. See full story.

October 16: U.S. budget deficit widened to record $1.42 trillion in 2009

Source: Bloomberg

Washington -- The U.S. government’s annual budget deficit widened to a record $1.42 trillion as the deepest recession since the 1930s crippled tax revenue and the administration increased spending to rescue the economy. The shortfall for the 12 months ended Sept. 30 was more than triple the $455 billion record set a year earlier, the Treasury Department said today in Washington.

An unemployment rate that’s projected to exceed 10 percent may further hurt revenue, even as a recovery from the recession increases receipts from corporate taxes. The country’s lagging labor market is a central reason government and private forecasters don’t expect the deficit to narrow in the current budget year. “Corporate and business income-tax collections have fallen off a steep cliff, and the old-time ‘prime-the-pump’ budget expenditures to fight recession are hitting new records,” Christopher Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York, said before the report. An estimate released Aug. 25 by President Barack Obama’s administration predicted a deficit of $1.5 trillion in fiscal 2010. According to a monthly Bloomberg News survey of economists, the shortfall as a percentage of gross domestic product will run at 9 percent in fiscal 2010. See full story.

October 15: Dollar to hit 50 yen, cease as reserve, Sumitomo says

Source: Bloomberg

Tokyo -- The dollar may drop to 50 yen next year and eventually lose its role as the global reserve currency, Sumitomo Mitsui Banking Corp.’s chief strategist said, citing trading patterns and a likely double dip in the U.S. economy. “The U.S. economy will deteriorate into 2011 as the effects of excess consumption and the financial bubble linger,” said Daisuke Uno at Sumitomo Mitsui, a unit of Japan’s third- biggest bank. “The dollar’s fall won’t stop until there’s a change to the global currency system.”

The dollar last week dropped to the lowest in almost a year against the yen as record U.S. government borrowings and interest rates near zero sapped demand for the U.S. currency. The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, has fallen 15 percent from its peak this year to as low as 75.211 today, the lowest since August 2008. The gauge is about five points away from its record low in March 2008, and the dollar is 2.5 percent away from a 14-year low against the yen. “We can no longer stop the big wave of dollar weakness,” said Uno, who correctly predicted the dollar would fall under 100 yen and the Dow Jones Industrial Average would sink below 7,000 after the bankruptcy of Lehman Brothers Holdings Inc. last year. If the U.S. currency breaks through record levels, “there will be no downside limit, and even coordinated intervention won’t work,” he said. See full story.

October 14: China, Russia aim to trade in yuan, rouble

Source: Reuters

Beijing -- China and Russia said on Tuesday that they would like to expand the use of their national currencies, the yuan and the rouble, in bilateral trade, according to media reports. The goal of denominating trade in their own currencies in order to cut reliance on the U.S. dollar and the euro was first voiced by Russian and Chinese leaders in June at a meeting in Moscow. China has started trials for settling trade in yuan with a series of neighbours, including Hong Kong, although not Russia. The trials have made little progress so far, in part because the yuan lacks full convertibility, and the vast majority of Chinese trade flows are still denominated in dollars.

China and Russia would like to expand the roles of the yuan and the rouble in trade, especially in their border regions, and may sign a bilateral monetary agreement, Chinese Vice-Premier Zhang Dejiang was quoted as saying by Caihua, a Hong Kong-based news agency. At a meeting in June, Russian President Dmitry Medvedev and Chinese President Hu Jintao said it was "essential" to put conditions in place for trade to be settled in yuan and roubles. China and Russia have advocated the creation of a new super-sovereign currency to replace the dollar as the main global reserve currency, but have acknowledged that this would be a long-term project. Both would lose a lot from any steep drop in the U.S. currency because much of their foreign exchange reserves are invested in dollar-denominated assets. See full story.

October 13: Dollar slumps, tugged by gold, stocks

Source: Marketwatch

New York -- The U.S. dollar slumped to a new 14-month low versus major counterparts on Tuesday as investors favored gold, often viewed as the most stable currency, with the greenback's losses softened by a drop in U.S. stocks amid concerns about the strength of the economy's recovery. The dollar pared some earlier losses that pushed the commodity-oriented Australian and Canadian dollars to levels not seen since before Lehman Brothers declared bankruptcy.

"It almost appears as if traders cannot stop selling dollars," said Kathy Lien, director of currency research at Global Forex Trading. "Newton's Law fully applies right now -- the dollar will continue to fall unless it has a good reason not to." The dollar index, a measure of the greenback against a trade-weighted basket of currencies, fell 0.2% to 76.003. Earlier, it fell below 75 to its lowest level in 14 months. See full story.

October 12: Dollar reaches breaking point as banks shift reserves

Source: Bloomberg

New York -- Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades. Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase.

World leaders are acting on threats to dump the dollar while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the economy as long as it doesn’t drive away the nation’s creditors. The diversification signals that the currency won’t rebound anytime soon after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991. “Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it,” said Steven Englander, a former Federal Reserve researcher who is now the chief U.S. currency strategist at Barclays in New York. “It looks like they are really backing away from the dollar.” See full story.

October 9: Banks cutting back on loans to businesses

Source: Marketwatch

Washington -- U.S. banks are reducing their lending at the fastest rate on record, tightening the credit squeeze and threatening to leave many otherwise viable businesses unable to borrow money to expand their businesses, meet their payroll or refinance their maturing debts. According to weekly figures provided by the Federal Reserve, total loans at commercial banks have fallen at a 19% annual rate over the past three months, while loans to businesses have dropped at a 28% annualized pace.

Last autumn, bank lending temporarily expanded when other sources of funding from the shadow banking system dried up after the collapse of Lehman Bros. Since then, however, total outstanding bank loans have dropped at an accelerating pace. The decline in bank lending mostly affects smaller businesses. Larger corporations have alternative sources of funding, including retained earnings, corporate bonds, securitized loans and new equity. Those other sources of capital have increased in recent months, but not enough to offset the decline in bank lending. In the first and second quarters, the U.S. private sector consumed more capital than it raised for the first time in more than 60 years. Negative net investment is "the hallmark of depression and difficult to reverse," said economist Leigh Skene of Lombard Street Research. See full story.

October 8: Initial jobless claims drop 33,000 to 521,000, U.S. says

Source: Marketwatch

Washington -- The number of initial claims filed for state unemployment benefits fell by 33,000 to a seasonally adjusted 521,000 in the week ended Oct. 3, the Labor Department reported Thursday. It's the fewest initial jobless claims since the first week of January. The four-week average of new claims fell as well, down by 9,000 to 539,750, in what also the lowest since January.

"The level of claims is still far too high, for sure, and it is certainly consistent with further declines in payrolls, but it is heading in the right direction," wrote Ian Shepherdson, chief domestic economist for High Frequency Economics. Including federal programs, the number of people claiming benefits of any kind in the week ended Sept. 19 was 9.36 million, not seasonally adjusted, down from 9.42 million in the previous week. "The less-weak reading in the labor market, while welcome, needs to be taken in the context that nearly 10 million people are filing for unemployment benefits," wrote Dan Greenhaus, economic strategist for Miller Tabak & Co. See full story.

October 7: Debt-market paralysis deepens credit drought

Source: New York Times

New York -- A year after Washington rescued the big names of American finance, it’s still hard to get a loan. But the problem isn’t just tight-fisted banks. The continued disarray in debt-securitization markets, which in recent years were the source of roughly 60 percent of all credit in the United States, is making loans scarce and threatening to slow the economic recovery. Many of these markets are operating only because the government is propping them up. But now the Federal Reserve has put these markets on notice that it plans to withdraw its support for them. Policy makers hope private investors will return to the markets, which imploded during the financial crisis.

The exit will require a delicate balancing act, government officials said. “You do it incrementally, where and when you think you can, and not sooner,” said Lee Sachs, a counselor to the Treasury secretary, Timothy F. Geithner. The debt-securitization markets finance corporate loans, home mortgages, student loans and more. In good times, they enabled banks to package their loans into securities and resell them to investors. That process, known as securitization, freed banks to lend even more money. Many investors have lost trust in securitization after losing huge sums on packages of subprime mortgages that had high default rates. The government has since spent more than $1 trillion trying to restore the markets, with mixed success. See full story.

October 6: Potential end of dollar-based oil deals helps gold shine

Source: Marketwatch

Tokyo -- Growing speculation over the potential end to dollar-based trading in the oil market may be part of the reason gold prices have rallied beyond $1,020 an ounce to stand near their highest level in 18 months. And the strength was kept even as several top officials, including Saudi central bank chief Muhammad al-Jasser, denied the report. Gulf Arab states, along with China, Russia, Japan and France, are planning to put an end to dollar-based trading in the oil market, according to an exclusive report published Tuesday in the U.K. by The Independent.

"News on gold's expected future role in oil transactions between these trading partners has sent the price past $1,020," said Peter Spina, chief investment analyst at GoldSeek.com. In place of the greenback, the nations plan to use a basket of currencies, including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar, the report said. The Independent said the plans were confirmed by both Gulf Arab and Chinese banking sources in Hong Kong. See full story.

October 5: Stiglitz says markets ‘irrationally exuberant’

Source: Bloomberg

Washington -- Nobel Prize-winning economist Joseph Stiglitz said unemployment is going to keep rising and should be the main focus for policy makers, and that gains in the stock market indicate investors have been “irrationally exuberant” about a recovery. “There’s a lot of risk going ahead of some big bumps,” he said today in a Bloomberg Television interview from Istanbul, citing housing, commercial real estate and consumers’ inability to pay off credit cards because of job losses. “There’s a very big risk that markets have been irrationally exuberant.”

The U.S. has lost 7.2 million jobs since the recession began in December 2007, and the unemployment rate reached a 26- year high in September, a Labor Department report last week showed. Joblessness is likely to reach 10 percent by the end of the year, according to economists surveyed by Bloomberg News last month. It’s “pretty clear that the situation will continue to get worse,” Stiglitz said today, citing elements of the jobs report such as the number of people who can’t find a full-time job and the pace at which Americans are dropping out of the labor force. See full story.