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July 2: Payrolls fall by faster pace in June

Source: Marketwatch

Washington -- The U.S. economy shed jobs at a faster pace in June than in May, suggesting that the turnaround in the economy may take longer than expected. Nonfarm payrolls shrank by 467,000 in June, higher than the 325,000 decline expected by economists surveyed by MarketWatch and the 322,000 jobs lost in May. Americans lost jobs at a faster pace in June, according to the latest unemployment data. Leo Tilman, president of LM Tilman & Co., talks to Kelsey Hubbard about today's report and what we might expect from a U.S. recovery. The unemployment rate ticked higher to 9.5% in June from 9.4% in the previous month. Economists had expected the unemployment rate to rise to 9.6%.

There was only a very slight 8,000-downward revision to payroll losses in April and May. The data "strongly suggest that consensus forecast for a second half recovery is overly optimistic," said Steve Ricchiuto, chief economist at Mizuho Securities in New York. Stocks sold off sharply on Thursday on the pessimistic picture painted by the data. See full story.

July 1: U.S. mortgage applications fall 19%, defying Obama

Source: Bloomberg

New York -- U.S. mortgage applications fell last week by the most since February, defying efforts by President Barack Obama’s administration to revive the housing market. The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan dropped 19 percent to 444.8 in the week ended June 26 from 548.2 the prior week. The group’s refinancing gauge declined 30 percent to the lowest in seven months, while the index of purchases fell 4.5 percent.

Unemployment, which touched a 26-year high in May, and rising borrowing costs discouraged homeowners from refinancing, while a growing number of foreclosures sidelined potential buyers waiting for house prices to stop tumbling. Pending home sales showing contracts signed in May rose 0.1 percent, compared with a gain of 6.7 percent in April, the National Realtors Association said today. “The run-up in mortgage rates is exacting a toll in terms of depressing mortgage applications,” Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts, said in an interview. “The economy is in a phase of attempting to find a bottom. Anything that comes in the way of that, like higher rates, is going to mean it takes longer.” See full story.

June 30: Delinquencies double on least-risky loans, U.S. says

Source: Bloomberg

Washington -- Delinquency rates on the least-risky mortgages more than doubled in the first quarter from a year earlier as U.S. efforts to help homeowners failed to keep pace with job losses that pushed more borrowers toward foreclosure. Prime mortgages 60 days or more past due climbed to 2.9 percent of such loans through March 31 from 1.1 percent at the same point in 2008, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said today in a report. First-time foreclosure filings on the loans rose 22 percent from the fourth quarter, the report said. “I’m very concerned about the rise in delinquent mortgages and foreclosure actions,” Comptroller of the Currency John Dugan said in a statement with the report. President Barack Obama’s plan to create “sustainable, payment-reducing modifications is a positive step that should show significant benefits in the coming months,” Dugan said.

Obama’s program, unveiled Feb. 18, aims to help as many as 4 million homeowners by modifying loans and calls for Fannie Mae and Freddie Mac to refinance mortgages for as many as 5 million borrowers who owe more than their houses are worth. Foreclosure filings surpassed 300,000 for a third straight month in May, according to RealtyTrac Inc., and the U.S. economy has shed about 6 million jobs since the recession began in 2007. “Job losses have mounted and even those with good credit that were able to get a prime mortgage are having a harder time making monthly payments with a loss of income,” said Celia Chen, an economist at Moody’s Economy.com in West Chester, Pennsylvania. See full story.

June 29: BIS sees risk central banks will raise interest rates too late

Source: Bloomberg

Frankfurt -- The Bank for International Settlements said there’s a risk central banks will raise interest rates and withdraw emergency liquidity too late, triggering inflation. History shows that policy makers “have a tendency to be late, tightening financial conditions slowly for fear of doing it prematurely or too severely,” the BIS, which oversees central banks, said in its annual report published today in Basel, Switzerland. “Because their current expansionary actions were prompted by a nearly catastrophic crisis, central bankers’ fears of reversing too quickly are likely to be particularly intense, increasing the risk that they will tighten too late.”

Central banks around the globe have lowered borrowing costs to record lows and injected billions of dollars into the financial system to counter the worst recession since World War II. While some policy makers have stressed the need to withdraw the emergency measures as soon as the economy improves, the Federal Reserve, Bank of England, and European Central Bank are still in the process of implementing asset-purchase programs designed to unblock credit markets and revive growth. “The big and justifiable worry is that, before it can be reversed, the dramatic easing in monetary policy will translate into growth in the broader monetary and credit aggregates,” the BIS said. That will “lead to inflation that feeds inflation expectations or it may fuel yet another asset-price bubble, sowing the seeds of the next financial boom-bust cycle.” See full story.

June 26: China repeats call for 'super-sovereign' currency

Source: Marketwatch

London -- A U.S.-China détente over the role of the dollar in international monetary system was called into question Friday as China's central bank repeated its assertion that a new global reserve currency is needed. "To prevent the deficiencies in the main reserve currency, there's a need to create a new currency that's de-linked from the economies of the issuers," the People's Bank of China said in its annual financial stability review, according to a report by Bloomberg News. In an apparent reference to the dollar, the review said the domination of the international monetary system by one currency was a serious defect, according to Reuters.

The report reiterated an essay written in March by People's Bank governor Zhou Xiaochuan urging the creation of a "super-sovereign" currency that would presumably take the dollar's place as the primary reserve currency. Zhou had called for an expanded role for the International Monetary Fund's special drawing rights. The central bank's comments come after Chinese officials had previously appeared to de-emphasize concerns about the dollar's reserve role following a visit to China by Treasury Secretary Timothy Geithner earlier this month, observers said. The dollar extended losses versus major rivals following the reports. See full story.

June 25: U.S. initial jobless claims jump to one-month high

Source: Marketwatch

Washington -- First-time filings for state unemployment benefits rose unexpectedly in the latest week to reclaim the highest level for this key economic benchmark since the middle of May, the Labor Department reported Thursday. For the week ended June 20, initial claims rose 15,000 to 627,000. This is the highest level since the week ended May 16. After peaking in late March, the trend has been for an incremental decline in claims. This has been one of the principal "green shoots" of recovery.

This week's rise came as an unexpected, however. Economists had been projecting that a further slight decline was in the cards. Still, no economist said the sky was falling. Jobless claims are expected to continue to decline, but analysts said Thursday's data serve as a reminder that progress would be uneven. "We have yet to see a decisive move below 600,000 that would corroborate other economic data in suggesting that the recession is coming to an end," said economists at RDQ Economics. See full story.

June 24: Goods orders jump as recession eases

Source: MarketWatch

Washington -- Orders for U.S. durable goods unexpectedly jumped in May, a sign companies are gaining confidence the recession is easing. The 1.8 percent rise in bookings for items meant to last several years matched the previous month’s increase, the Commerce Department said today in Washington. Another report showed sales of new houses unexpectedly dropped last month, indicating foreclosures made existing homes more attractive.

The durable-goods figures reinforce a trend of improvement that spurred the Organization for Economic Cooperation and Development to lift its growth forecast for the world’s most developed nations for the first time in two years. The Federal Reserve, at the conclusion of a two-day meeting, today said the pace of economic contraction is “slowing” and that financial- market conditions have improved. “The freefall environment of the first quarter and late last year is definitely over, but we have yet to see convincing signs of a vigorous recovery,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “Firms are picking up orders after basically shelving all of their investment plans over the last few months.” See full story.

June 23: U.S. dollar tumbles ahead of Fed statement

Source: Marketwatch

New York -- The U.S. dollar fell sharply against most other major currencies on Tuesday, as uncertainty ahead of the next day's Federal Reserve announcement put the greenback under strong selling pressure. The dollar index, a measure of the greenback against a basket of major currencies, tumbled to 79.810, down from 80.784 in North American trade Monday afternoon.

Michael Woolfolk, senior currency strategist at Bank of New York Mellon, said that the market has become more comfortable with risk, an environment which tends to weigh on safe-haven currencies such as the dollar and the Japanese yen. "The stock market and the broader green shoots rally appeared to have lost some momentum last week," Woolfolk said. "But it appears that risk aversion is off the table for the time being and players are looking to the FOMC meeting tomorrow." When it concludes its meeting Wednesday, the Federal Open Market Committee (FOMC) is widely expected to leave its fed funds rate target in a range of 0% to 0.25%. Investors will be watching to see whether the central bank unveils any changes to its Treasury and mortgage asset-purchase program to further boost liquidity. See full story.

June 22: World Bank warns of deeper global contraction

Source: Marketwatch

Tokyo -- The global economy will shrink 2.9% this year, the World Bank said Monday, a steeper decline than the 1.7% contraction it predicted in March. The recovery is expected to be weak, with global growth of just 2% in 2010 and 3.2% in 2011. Economies in Europe and Central Asia are expected to recover more slowly than China or the United States, the new forecast said. "The timing and strength of the eventual recovery in the global economy remain highly uncertain."

The grim forecast helped weaken markets, traders said. Stocks and commodities were trading lower Monday. The world has entered an era of slower growth that will require tighter and more effective oversight of the financial system, the World Bank said in a statement. "Unemployment is on the rise, and poverty is set to increase in developing economies, bringing with it a substantial deterioration in conditions for the world's poor and most vulnerable." Global trade volumes are projected to shrink 9.7% this year, putting many developing countries at risk of a balance-of-payments crisis. See full story.

June 19: Unemployment of 10% spreads, risking U.S. recovery

Source: Bloomberg

Washington -- More than one-quarter of American states now have unemployment rates higher than 10 percent, and all but two saw a further job-market deterioration in May. Tennessee and Indiana joined the rank of states, now 13, that have jobless rates exceeding 10 percent, and eight states - - including California, Florida and Georgia -- reached their highest level of joblessness in May since records began in 1976, the Labor Department reported today in Washington. The figures make it likely President Barack Obama, whose home state of Illinois also passed 10 percent for the first time since 1983, was correct this week in forecasting the national unemployment rate will reach that level this year. With no region escaping the rout, consumers across the country will probably curtail their spending, preventing any boom out of the deepest recession in half a century, analysts said.

“It’s tough everywhere,” said Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina. “Nobody’s really been spared.” The biggest increases in unemployment will be in states most dependent on manufacturing, construction and financial services, he said. For the country, “unless hiring magically picks up, a 10 percent unemployment rate is pretty much baked in,” Vitner said. See full story.

June 18: U.S. continuing jobless claims fall by 148,000

Source: Marketwatch

Washington -- Continuing U.S. jobless claims took a big drop in the latest week, the Labor Department reported Thursday, in a sign that fewer people are having trouble finding employment. Continuing claims fell by 148,000 to 6.68 million during the week ended June 6, the lowest level in about a month. The four-week average of continuing claims rose, however, by 2,250 to 6.75 million. It was the first time continuing claims fell since early January.

The continuing claims drop "convincingly ended the 19-week string of new all-time highs, and may suggest that the more general rate of gain for these figures is diminishing," said analysts at Action Economics. "This slower rate of climb may signal that the uptrend in the jobless rate may soon slow as well." Initial claims, meanwhile, rose slightly in the week ended June 13, up by 3,000 to a seasonally adjusted 608,000. The four-week average of initial claims fell by 7,000 to 615,750. Economists surveyed by MarketWatch were expecting initial claims to rise to 607,000 the week ended June 13. See full story.

June 17: U.S. industrial production slumps 1.1% in May

Source: Marketwatch

Washington -- The nation's industrial output tumbled 1.1% in May, led by big drops in motor vehicles, mining and high-technology products, the Federal Reserve reported Tuesday. The decrease was a bit worse than forecasts of a 1% drop. April's output was revised lower, to a decrease of 0.7% from 0.5% reported earlier. Output fell to the lowest level in 11 years in May, and is down 13.4% in the past year, the largest year-over-year decline since 1946. Output has fallen in 16 of the past 17 months since the recession began in December 2007. Since that month, industrial output is down 14.8%.

Capacity utilization in industry fell to a record-low 68.3% last month, down from 69%. Capacity utilization -- a key measurement of slack in the economy -- stands 12.6 percentage points below its long-term average. In manufacturing alone, capacity utilization fell to a record-low 65%. The government has tracked capacity data since 1948. See full story.

June 16: Dollar falls after housing, inflation data

Source: Marketwatch

Washington -- The U.S. dollar lost ground versus major rivals Tuesday, retreating from two days of strong gains, after a pair of U.S. reports showed tame inflation and housing starts jumping more than predicted, adding support to speculation the economy is recovering. The U.S. currency had been under pressure in overseas trading hours after the Bank of Japan issued an improved economic outlook and a gauge of German investor confidence rose. The euro rose to $1.3905 versus the dollar, up from $1.3780 late Monday. The dollar fell 2% versus the Japanese currency to 96.33 yen, down from 97.63 yen Monday. U.S. housing starts jumped 17.2% to a seasonally adjusted annual rate of 532,000 from a post-World War II low, the Commerce Department said. Economists surveyed by MarketWatch had expected a rebound after April's plunge, but just to an annualized rate of 485,000.

Meanwhile, currency traders were also closely following comments made by leaders of Brazil, Russia, India and China as they meet in Russia. A draft communique from the first-ever economic summit by the so-called BRIC nations, calls for a diversified and stable currency system, but makes no direct challenge to the dollar as the world's global reserve currency, Reuters reported. The official communique is expected to be released later on Tuesday. "We had hoped that the BRICs would stay mum on the dollar, and that proved to be the case for now," said strategists at Brown Brothers Harriman. "Why talk the buck down when you're sitting on piles of dollar-denominated holdings?" See full story.

June 15: Jawboning delivers dollar gains

Source: Marketwatch

London -- U.S. Treasury Secretary Timothy Geithner appears to have won a respite for the U.S. dollar, economists said Monday, after various officials voiced confidence in the greenback following the weekend meeting of the Group of Eight finance ministers in Italy. The most dramatic signal of support for the dollar came from Russian Finance Minister Alexei Kudrin on the sidelines of the G8 gathering in Lecce. Kudrin said the dollar's role as the world's main reserve currency wasn't likely to change any time soon.

"It is hard to say that in the next few years this system will change significantly," Kudrin said, according to news reports. That marked a change of emphasis for Kudrin and other Russian officials. Russian and Chinese officials have this year repeatedly called for changes in the global financial system that would downgrade the dollar's role as the world's primary reserve currency. Officials have said they fear massive U.S. borrowing will erode the value of the greenback and the value of their reserves. China is the largest holder of dollar reserves. Japan is second and Russia is third. Marketwatch

June 12: Consumer sentiment rises slightly in June

Source: Marketwatch

Washington -- U.S. consumer sentiment rose slightly in June from the prior month though it remained at relatively low levels, according to a survey released Friday by the University of Michigan and Reuters. The report diverges from prior readings that showed consumers are perking up due to future expectations rather than their current state. Friday's report indicates that higher prices for gas and continued job losses are dampening optimism about consumers' present circumstances, analysts said. "The flip in these readings which showed some pullback in expectations is partly related to the ongoing weakness in the labor market which continues to be incredibly difficult for those individuals that have lost a job in the past year, depressing expectations about the future," wrote Dan Greenhaus of the equity strategy group at Miller Tabak.

The consumer sentiment index rose to 69 in mid-June from 68.7 in May. Economists surveyed by MarketWatch were looking for a June result of 71. The index hit a 28-year low of 55.3 in November, and has averaged 88.2 over the last 10 years. Consumers' views on current conditions rose in June to 74.5 from 67.7 in May. Meanwhile, their expectations fell to 65.4 from 69.4. Consumers' expectations for one-year inflation rose to 3.1% from 2.8%. "While consumers continue to be more optimistic on a contemporaneous basis, it is the prospects for the future that is providing anxiety," wrote Ian Pollick, economics strategist with TD Securities. "The fact that the future suddenly looks bleaker is not encouraging. The U.S. consumer has been backed into the proverbial corner, and the psychology behind the traumatic events over the past two years suggests that the consumer is looking for a taste their tongue can no longer recognize." See full story.

June 11: Dollar’s reserve status may deteriorate, Roubini says

Source: Bloomberg

Athens -- The dollar’s status as the world economy’s sole reserve currency may deteriorate, said Nouriel Roubini, the New York University economics professor who predicted the financial crisis. “We may see complementary reserve currencies,” Roubini said at a conference today in Athens. While it’s “not going to happen overnight,” the development “will diminish the role of the dollar over time.” The dollar’s status has come into question as leaders of Brazil, Russia, India and China discuss substituting other assets for their dollar holdings amid a ballooning budget deficit that keeps the U.S. dependent on foreign financing. China alone owns about $744 billion of U.S. Treasury bonds among its $2 trillion of foreign-exchange reserves. Russian President Dmitry Medvedev last week renewed his call for consideration of a supranational currency to challenge the dollar. Chinese Central Bank Governor Zhou Xiaochuan said in March that the International Monetary Fund should create a “super-sovereign reserve currency.”

Roubini, 51, also said today that the U.S. can’t count on a strong economic recovery to restore its finances. The world economy will remain weak for the next two years, he said, predicting growth of 1 percent in the U.S. in 2010 and stagnation in Japan and Europe. “Recovery will be weak, anemic, subpar,” he said. Optimists are “getting ahead of the curve” and “advanced economies are going to grow at a very slow rate” after the recession is over, he added. See full story.

June 10: Russia plans to reduce U.S. Treasury holdings in its reserves

Source: Marketwatch

New York -- The Bank of Russia intends to cut the proportion of U.S. Treasurys in its foreign exchange reserves, a central bank official said Wednesday, according to media reports. Alexei Ulyukayev, first deputy chairman of Russia's central bank, said Wednesday the bank plans to reduce the amount of Treasurys it holds in reserves, the Interfax news agency and other media outlets reported.

China, which has the world's biggest foreign exchange reserves, held $767.9 billion of Treasury securities at the end of March, making it the world's largest holder of U.S. government debt, according to the Treasury Department's Web site. It is followed by Japan, which holds $686.7 billion, while Russia is number fifth with $138.4 billion. In late May, Dominique Strauss-Kahn, the IMF's managing director, said in a statement that Russia intends to invest up to $10 billion in the first-ever notes to be issued by the fund. On Tuesday, Strauss-Kahn said in a separate statement that China plans to invest up to $50 billion in IMF notes, thereby helping other fund members weather the global crisis. See full story.

June 9: Bond dealers say futures traders’ rate bets wrong

Source: Bloomberg

New York -- The Wall Street firms that trade directly with the Federal Reserve say speculators betting that interest rates may head higher this year are wrong. Policy makers will keep the target for overnight loans between banks in a range of zero to 0.25 percent this year, according a survey of the 16 primary dealers of U.S. government securities that trade with the central bank. A majority predict no increase until at least the second half of 2010.

Yields on two-year Treasury notes surged 44.4 basis points June 5 and 8, the biggest two-day increase since Sept. 18 and 19, and Fed funds futures contracts showed a 58 percent probability yesterday of a rate increase by November on signs that the economy is bottoming. Implied yields on eurodollar futures, also used to speculate on changes in central bank policy, increased even as the U.S. government said on June 5 that the unemployment rate rose to 9.4 percent, the highest since 1984. “The market seems wrong on this one,” said Eric Liverance, head of derivatives strategy in Stamford, Connecticut, at UBS AG, one of the dealers. UBS predicts that the Fed will remain on hold until June 2010. “High unemployment and a continued bad housing market will prevent the Fed from raising rates.” See full story.

June 8: U.S. home prices may fall for years, Shiller says

Source: Bloomberg

New York -- U.S. housing prices are in the midst of a decline that may last for years, according to Robert J. Shiller, a finance professor at Yale University. Shiller, who helped create home-price indexes bearing his name, wrote in a New York Times story yesterday that declines in real estate tend to be relatively long-lasting. As an example, he mentioned land prices in Japan’s major cities, which fell for 15 straight years after a 1980s housing bubble burst. Prices in the Tokyo area and in five other cities -- Kobe, Kyoto, Nagoya, Osaka and Yokohama -- sank 76 percent from 1990 through 2005.

Less than three years have passed since the Standard & Poor’s/Case-Shiller indexes of U.S. home prices peaked. The S&P/ Case-Shiller national index has fallen 32 percent from a high in the second quarter of 2006, as depicted in the chart. “Prices may continue to fall, or stagnate, in 2010 and 2011,” Shiller wrote. See full story.

June 5: Gold gets ahead at the expense of the U.S. dollar

Source: Marketwatch

Tokyo -- The U.S. dollar's appeal around the globe is souring and the greenback's decline is polishing the outlook for gold and raising the metal's status as a monetary asset. "Gold will likely be increasingly used as a safe-haven monetary asset to protect and bolster national currencies as it has been throughout history," said Mark O'Byrne, executive director at Gold and Silver Investments Ltd. But that's only part of the story. Gold may be, or has been, becoming somewhat of a replacement for the dollar in parts of the world, marking a partial return to its historical value. That view's made more obvious by the precious metal's often inverse relationship with the dollar.

"As the dollar retreats to new lows for the year, gold approaches new highs for the year," said Peter Grant, a senior metals analyst at USAGOLD-Centennial Precious Metals. Prices for the precious metal peaked at a record $1,034 an ounce back on March 17, 2008. It dropped by as much as 32% to hit a low under $700 in November. But it's now trading around $970 an ounce -- 40% above that low. "The main reason why gold has been skyrocketing is because investors are running out of places to park their money," said Kathy Lien, a currency analyst at Global Forex Trading. "The dollar's reserve status is at risk with central banks from the world talking about diversifying out of U.S. dollars," she said. And "gold offers one of the few respites from a world where fiat currencies are being crushed by quantitative easing programs." See full story.

June 4: Fed's Pianalto sees slow rebound; inflation in focus

Source: Reuters

Louisville, KY -- Extreme weakness in the U.S. economy is moderating but recovery will be slow and marked by lingering high unemployment, a top Federal Reserve policy-maker said on Thursday. Sandra Pianalto, president of the Cleveland Federal Reserve Bank, said the Fed's priority will shift as credit markets recover from preventing "unwelcome disinflation" to making sure that higher inflation does not develop from expansionary monetary and fiscal policies. "It's the job of the central bank to keep inflation under control," Pianalto said in answering questions after a speech at the INVESTKentucky Conference in Louisville, Kentucky.

Some of the U.S. central bank's special lending programs, which were created to support credit markets and the economy during the current recession, will sunset naturally, Pianalto said. But others will require action. "As we see signs that a recovery is underway, it will be our job to remove the stimulus. ... We will have to use tools and come up with a plan on how we shrink our balance sheet back as circumstances become more normal." She did not address the likely trajectory of interest rates. The policy-setting Federal Open Market Committee has set its benchmark federal funds rate in a range of zero to 0.25 percent since December. Markets expect no change in 2009. See full story.

June 3: Bernanke warns deficits threaten financial stability

Source: Bloomberg

Washington -- Federal Reserve Chairman Ben S. Bernanke said large U.S. budget deficits threaten financial stability and the government can’t continue indefinitely to borrow at the current rate to finance the shortfall. “Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth,” Bernanke said in testimony to lawmakers today. “Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.”

Bernanke’s comments signal that the central bank sees risks of a relapse into financial turmoil even as credit markets show signs of stability. He said the Fed won’t finance government spending over the long term, while warning that the financial industry remains under stress and the credit crunch continues to limit spending. The Fed chief said in his prepared remarks to the House Budget Committee that deficit concerns are already influencing the prices of long-term Treasuries. Yields on 10-year notes have climbed about 1 percentage point since the Fed announced plans in March to buy $300 billion of long-term government bonds. The notes yielded 3.54 percent at 1:35 p.m. in New York, down from 3.61 percent late yesterday, as Bernanke’s warnings on the need to reduce the deficit supported the market. See full story.