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March 11: China data point to 'overheating,' boosting rate-hike case

Source: Marketwatch

Hong Kong -- China data released Thursday showed faster-than-expected inflation, still-torrid loan growth and heavy capital investment, renewing concerns the economy may be growing too fast and suggesting emergency stimulus measures may be withdrawn early. The consumer price index rose 2.7% in February from a year earlier, accelerating from a 1.5% increase in January's CPI. The increase, as reported by the National Bureau of Statistics, was higher than the 2.4% rise estimated by analysts in a Dow Jones Newswire survey.

Deutsche Bank's chief China economist Jun Ma said in a note following the data release that the result will increase pressure for tighter monetary policy, including a possible interest-rate hike in the next two months. "A growing number of households will realize their deposits in the banking system are losing purchasing power as the real interest rate is now negative," Ma said. Food prices, which jumped 6.2% during the month, helped drive the price index higher. See full story.

March 10: U.S. posts record budget deficit of $221 billion

Source: Bloomberg

Washington -- The U.S. budget deficit widened to a record in February as the government boosted spending to help revive the economy. The excess of spending over revenue increased to $221 billion last month, compared with a shortfall of $194 billion in February 2009, according to Treasury Department figures released today in Washington. The figures show the deficit this year will likely surpass the record $1.4 trillion in the fiscal year that ended in September. Mounting deficits underscore the challenges facing President Barack Obama and Congress as they seek to preserve the recovery, spur job growth and overhaul the health-care system. The loss of 8.4 million jobs in the last two years has been limiting tax revenue, while stimulus efforts such as the first- time homebuyer credit have added to expenses.

“The Obama administration really has its work cut out for it,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “The budget deficit numbers are truly frightening. This deficit is caused not just by over-spending. The receipts side of the budget ledger is suffering from a monumental recessionary hangover.” The February deficit was in line with the $222 billion economists anticipated, based on the median of 31 estimates in a Bloomberg News survey. Projections ranged from shortfalls of $180 billion to $225 billion. The non-partisan Congressional Budget Office, in a report issued March 5, projected a deficit of $223 billion for February. See full story.

March 9: China's forex regulator sees pressure for yuan to rise

Source: Marketwatch

Hong Kong -- China's currency is under pressure to appreciate because of attractive interest rates and speculative capital flowing into the country, the country's foreign-exchange regulator was reported as saying Tuesday. The comparatively high interest rate paid on yuan deposits and expectations the currency will rise are likely to attract greater inflows of investment capital, the director of the State Administration of Foreign Exchange (SAFE) said in a statement cited by various reports. The premium on one-year yuan deposits over their U.S.-dollar deposit equivalents has reached 1.43 percentage points, according to a report by Bloomberg News.

Yi Gang, the director of SAFE and a vice governor of the People's Bank of China, said the agency will strengthen its supervision of unusual cross-border fund inflows and steadily promote yuan convertibility under the capital account. Reports also cited Yi as saying Tuesday that China's foreign-exchange reserves, which include U.S. dollars, euros and yen, are basically safe and their long-term revenues are expected to be stable. He said that China's foreign-exchange reserves are also made up of currencies from emerging markets but didn't specify which currencies. See full story.

March 8: Portugal banks take new heat from Moody's

Source: Marketwatch

Madrid -- Banks in Portugal lost traction on Monday after Moody's Investors Service said the recent weakening in the country's sovereign credit fundamentals and challenges ahead for its economy could have implications for lenders as the country outlined a fresh budget plan. Shares of Banco Espirto Santo, Banco BPI, and Banco Comercial Portugues were weaker, all down over a percent at varying points in the session. Banco Comercial Portugues was worst hit, down 1.9%. Moody's warned that the debt and deposit ratings of Portuguese banks are at risk not just from a potential downgrade of the sovereign rating, but also from "an assessment of the government's decreasing ability and, potentially, willingness to support the country's banking system."

Olga Cerqueira, a Moody's analyst who wrote the report, said the government may not support banks, firstly because it cannot due to an erosion in the its credit fundamentals, and secondly as governments across Europe phase out extraordinary support for financial systems. Moody's has a negative outlook on Portugal's Aa2 credit rating. S&P rates Portugal at A+, with a negative outlook, two notches below Moody's and Fitch. See full story.

March 5: Dollar turns down vs. euro as Greek budget passes

Source: Marketwatch

New York -- The dollar fell against the euro Friday after Greece's parliament approved a package of budget cuts to help reduce its deficit, reinforcing perceptions that the nation might be able to sidestep seeking financial help from its European neighbors. The dollar index, which measures the greenback against a trade-weighted basket of six major currencies, stood at 80.488, surrendering earlier gains and down from 80.575 late Thursday.

While turning mixed, the dollar stayed 1.4% higher against the Japanese yen on the back of a better-than-expected U.S. jobs report for February. "Resolution of the Greek debt crisis will eventually prove euro-positive and dollar-negative, with the greenback once again vulnerable," said Michael Woolfolk, senior currency strategist at BNY Mellon. "Expect the greenback to be driven more by European news than by U.S. economic fundamentals in the coming week." See full story.

March 4: Pending sales of existing homes unexpectedly drop

Source: Bloomberg

Washington -- Fewer Americans than expected signed contracts to purchase previously owned homes in January, indicating the extension of a tax credit is doing little to lure buyers. The index of purchase agreements, or pending home sales, dropped 7.6 percent after a revised 0.8 percent increase in December, the National Association of Realtors announced in Washington. Other reports today showed factory orders increased and first-time jobless claims declined.

The drop in contract signings adds to evidence the housing market at the center of the worst recession since the 1930s is struggling to rebound after reports last week showed unexpected declines in purchases of new and existing homes. The market may get another blow this month when the Federal Reserve ends planned purchases of mortgage-backed securities. “When you take away all the support from the housing market, the underlying demand for housing is a lot weaker than we thought,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We clearly pushed some demand forward, and there wasn’t that much demand to pull forward anyway. The housing recovery is going to be very, very slow.” See full story.

March 3: Services expand more than anticipated

Source: Bloomberg

Washington -- Service industries in the U.S. accelerated in February more than anticipated, indicating the economic expansion may soon create jobs following the worst employment slump in the post-World War II era. The Institute for Supply Management’s index of non- manufacturing businesses, which covers almost 90 percent of the economy, increased to 53 from 50.5 in January. Last month’s reading was the highest since October 2007 and exceeded all estimates of 73 economists surveyed by Bloomberg News.

The factory rebound that helped the economy emerge from the recession is starting to filter to other industries, giving a boost to companies such as Macy’s Inc. Stocks, which initially climbed as another report showed job losses cooled in February, later trimmed gains after the Federal Reserve said loan demand was “weak” and labor markets “soft.” “We’re starting to see a broadening of the economic recovery,” said Richard DeKaser, chief economist at Woodley Park Research in Washington, whose forecast of 52.9 was the highest in the Bloomberg survey. The data “are encouraging, to say the least.” See full story.

March 2: Greece said to announce $6.5 billion in deficit cuts

Source: Bloomberg

Athens -- The Greek government will announce as much as 4.8 billion euros ($6.5 billion) of additional deficit cuts tomorrow, bowing to pressure from the European Union and investors to do more to tame the region’s biggest shortfall, a person familiar with the plan said. The new measures will include higher tobacco, alcohol and sales taxes and deeper cuts in public workers’ bonus payments, said the person, who declined to be identified because the details aren’t public. Greek bonds advanced for a third day today on the prospect that the deficit measures might ease opposition to EU aid for Greece.

EU Monetary Affairs Commissioner Olli Rehn said yesterday that Greece must reveal new measures “in the coming days” to allay officials’ concerns that the current austerity plan falls short. The announcement would come two days before Prime Minister George Papandreou meets Germany’s Angela Merkel and may help the chancellor justify aiding Greece to taxpayers and political opponents who say the country shouldn’t be bailed out after living beyond its means. Papandreou said in a speech today to his Pasok party in Athens that the new measures will be “painful” and that civil servants, who have already seen their wages frozen and benefits cut, “will have to get by on less.” The main union for public works plans its third general strike of the year on March 16. See full story.

March 1: Manufacturing in U.S. expands for seventh month

Source: Bloomberg

Washington -- Manufacturers increased production and employment in February, signaling factories are leading the nation out of recession as the new year begins. The Institute for Supply Management’s factory index fell to 56.5 from January’s 58.4, which was a five-year high, figures from the Tempe, Arizona-based group showed. The measure exceeded 50, signaling expansion, for a seventh straight month. The group’s jobs gauge rose to the highest level since January 2005.

Combined with a report showing consumer spending in January climbed more than anticipated, the figures signaled the expansion that began late last year will be sustained into 2010. The need to rebuild inventories and invest in new equipment may keep factories hiring, prompting the rebound in employment to ripple through the rest of the world’s largest economy. “It’s a business-led recovery,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. “Manufacturing is going to be a part of it in a noticeable way and you’ll see it leak down” to other industries, he said. See full story.

February 26: Dollar drops against euro on new hope for Greece aid

Source: Marketwatch

New York -- The dollar fell as much as 0.8% against the euro and declined versus other major currencies on Friday as a report about a possible deal to help Greece meet its financial needs supported the 16-nation currency. The euro rose to $1.3606, from $1.3554 on Thursday. The single currency hit a nine-month low of $1.3440 on Thursday. The dollar index, which measures the U.S. unit against a trade-weighted basket of rivals, stood at 80.459, down from 80.744 in North American trading late Thursday.

The dollar came under pressure earlier as a pair of reports showed that U.S. consumer sentiment dipped this month and that existing-home sales fell 7.2% in January. The dollar also fell to 88.84 Japanese yen, compared to 89.19 yen on Thursday. A media report said Germany is considering whether to buy Greek bonds through state-owned bank KfW Group, easing fears that Greece will have trouble tapping the market for much-needed financial support, including a planned bond offering next week. See full story.

February 25: Weekly jobless claims jump 22,000 to 496,000

Source: Marketwatch

Washington -- The number of people filing first-time claims for state unemployment benefits rose last week by 22,000 to a seasonally adjusted 496,000, reflecting a lull in job growth so far in 2010. Jobless claims have risen in six of the first eight weeks of this year, according to data from the Labor Department.

The recent spike in claims, a reversal from the sharp drop seen during the last six months of 2009, has stoked concerns that the nation's labor market could be weakening again, although bad weather affected the data. Snowstorms in the Northeast created a backlog in completing paperwork for jobless claims, a Labor Department spokesman said. In any event, there has been little sign that companies are starting to hire. Many businesses are showing reluctance to make add workers because of weak demand for their products and uncertainty about major legislation pending in Washington, among other factors. See full story.

February 24: 11.3 million homeowners underwater on mortgage

Source: Marketwatch

Washington -- More than 11.3 million homeowners -- nearly one-fourth of all Americans with a mortgage -- owe more on their loan than their home is now worth, according to a report released Tuesday by FirstAmerican CoreLogic. More than 10% of people with mortgages owe 25% more than their home is worth. The number of underwater mortgages increased by about 620,000 from the third quarter, the firm said. Another 2.3 million mortgages had less than 5% equity in their home, which could be wiped out if home prices fall further.

In the fourth quarter, national home prices fell 1.1% compared with the third quarter, Standard & Poor's reported in a separate report on Tuesday. See full story on Case-Shiller home price index. Once the mortgage is underwater, owners cannot easily sell their home or refinance their loan. Underwater mortgages are concentrated in few states: California, Florida, Nevada, Arizona, Michigan and Georgia. In Nevada, 70% of mortgages were underwater. In California, more than a third of mortgages were underwater. See full story.

February 23: U.S. consumer confidence plunges

Source: Marketwatch

Washington -- Consumer confidence fell sharply in February as Americans turned more pessimistic about job prospects and the U.S. economy, the Conference Board reported Tuesday. Just a month after touching a 16-month high, the research group's Consumer Confidence index sank 11 points to 46.0 from an upwardly revised 56.5 in January. It's the lowest reading since April 2009. Economists surveyed by MarketWatch had been looking for a slight drop, to 55.5 points from January's previously reported level of 55.9.

In a healthy economy, the index averages about 95 points. It's ranged between 46 and 56 since last May, after having bottomed out at a record-low 25.3 in February 2009. The sharp drop in February, which follows three straight monthly gains, reflects a more worrisome outlook by consumers about the current economic recovery. Last month, the government reported that the U.S. unemployment rate fell to 9.7% from 10%, but the economy actually lost 20,000 nonfarm jobs. Economists are uncertain about when or how fast job growth will accelerate. See full story.

February 22: Yellen says U.S. economy will perform below potential

Source: Bloomberg

San Francisco -- Federal Reserve Bank of San Francisco President Janet Yellen said the U.S. economy will operate below potential this year and next and still needs low interest rates to gain strength. “When the day comes to start raising rates again, we have tools at the ready,” Yellen said in a speech today in San Diego. “For the time being, the economy still needs the support of extraordinarily low rates.” Yellen’s remarks affirm policy makers’ intent to keep the benchmark federal funds rate low for an “extended period” as they determine whether the economy is strong enough to withdraw unprecedented stimulus. The Fed last week raised the discount rate charged to banks for direct loans, and plans to end its $1.25 trillion purchases of mortgage-backed securities in March.

“This is not the time to be tightening monetary policy,” said the 63-year-old regional bank chief, who has led the San Francisco Fed since 2004. “But eventually the economy will gain enough momentum and won’t need today’s extraordinarily low interest rates.” Yellen told reporters after her speech that there’s no presumption the discount-rate move is “the first of many steps,” and that the Fed may review its plan to end purchases of mortgage-backed securities should there be a “serious” change in the economic outlook. See full story.

February 19: US bank lending falls at fastest rate in history

Source: Ambrose Evans-Pritchard, Telegraph UK

London -- Bank lending in the US has contracted so far this year at the fastest rate in recorded history, raising concerns that the Federal Reserve may have jumped the gun by withdrawing emergency stimulus. David Rosenberg from Gluskin Sheff said lending has fallen by over $100bn (£63.8bn) since January, plummeting at an annual rate of 16pc. "Since the credit crisis began, $740bn of bank credit has evaporated. This is a record 10pc decline," he said. Mr Rosenberg said it is tempting fate for the Fed to turn off the monetary spigot in such circumstances. "The shrinking in banking sector balance sheets renders any talk of an exit strategy premature," he said.

The M3 broad money supply – watched by monetarists as a leading indicator of trouble a year ahead – has been contracting at a rate of 5.6pc over the last three months. This signals future deflation. The Fed's "Monetary Multplier" has dropped to a record low of 0.81, evidence that the banking system is still broken. Tim Congdon from International Monetary Research said demands for higher capital ratios and continued losses from the credit crisis are both causing banks to cut lending. The risk of a double-dip recession – or worse – is growing by the day. "It is absurdly premature to think of withdrawing stimulus while bank credit is still sliding. To have allowed this monetary collapse to occur a full 18 months after the financial cataclysm is extreme incompetence. They seem to have forgotten that the lesson of the 1930s was the falling quantity of money," he said. See full story.

February 18: Producer prices soar 1.4% on energy costs

Source: Marketwatch

Washington -- U.S. wholesale prices rose a seasonally adjusted 1.4% in January on double-digit increases in gasoline and home heating oil, the Labor Department estimated Thursday. Core prices of finished goods -- which exclude food and energy goods -- rose 0.3% in January, led by higher prices for light trucks, airplanes and other capital goods. Drug prices jumped 1.3%. The 1.4% increase in the producer price index was higher than the 0.9% gain expected by economists surveyed by MarketWatch. The core rate of 0.3% was also higher than the 0.1% gain expected. Read our complete economic calendar and consensus forecast.

The increases in the PPI and the core PPI were the largest since November, the Bureau of Labor Statistics said. The PPI increased 0.4% in December and 1.5% in November. The core PPI was unchanged in December and rose 0.5% in November. The producer price index is up 4.6% in the past year, the largest year-over-year gain since the financial crisis began in late 2008. The core PPI is up 1% in the past year. See full story.

February 17: U.S. risks crisis without fiscal action: Hoenig

Source: Marketwatch

Washington -- U.S. fiscal policy is on an "unsustainable course" and the government must adjust its tax and spending programs or risk a crisis, Kansas City Federal Reserve Bank President Thomas Hoenig said Tuesday. "The U.S. government must make adjustments in its spending and tax programs," Hoenig said in remarks prepared for delivery at a conference about the budget. "It is that simple. If pre-emptive corrective action is not taken regarding the fiscal outlook, then the United States risks precipitating its own next crisis," said Hoenig.

Hoenig also said the current outlook for fiscal policy poses a threat to the Fed's ability to achieve price stability and long-term growth. It's therefore a threat to the Fed's independence, Hoenig said. "In time, significant and permanent fiscal reforms must occur in the United States," said Hoenig. "I much prefer this be done well before anyone feels an irresistible impulse to knock on this central bank's door." See full story.

February 16: U.S. homebuilder confidence rises more than forecast

Source: Bloomberg

Washington -- Confidence among U.S. homebuilders rose in February to a three-month high, a sign that the housing market is stabilizing amid government support. The National Association of Home Builders/Wells Fargo index of builder confidence increased to 17, higher than anticipated, from 15 the prior month, the Washington-based group said today. Readings below 50 mean most respondents view conditions as poor.

The extension and expansion of a homebuyer tax credit may give a lift to demand through the first half of the year. At the same time, builders will have to contend with mounting foreclosures and an unemployment rate that’s projected to end the year at 9.5 percent. “The housing recovery remains quite tenuous and that could be the case until employment growth resumes,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, who accurately forecast the February figure. The report shows builders are “feeling less gloomy about the outlook,” he said.

February 15: Goldman's O'Neill says 'something brewing' in China on currency

Source: Bloomberg

Paris -- Goldman Sachs Group Inc. Chief Economist Jim O’Neill said China may be poised to let its currency strengthen as much as 5 percent to slow the world’s fastest growing major economy. “I have a strong opinion that they’re close to moving the exchange rate,” O’Neill said in a telephone interview from London after China’s central bank told lenders on Feb. 12 to set aside larger reserves. “Something’s brewing. It could happen anytime.”

Chinese policy makers are seeking to restrain credit growth after their economy grew the fastest since 2007 in the fourth quarter. Banks extended 19 percent of this year’s 7.5 trillion yuan ($1.1 trillion) lending target in January as property prices climbed the most in 21 months. Officials in Beijing have resisted allowing gains in the yuan, having controlled its value since July 2008 after it strengthened 21 percent against the dollar in the previous three years. The status quo has drawn criticism from foreign policy makers who say keeping the currency undervalued has handed China’s exporters an advantage and inflated asset bubbles. See full story.

February 12: Consumer sentiment index in U.S. declined in February

Source: Bloomberg

Washington -- Confidence among U.S. consumers unexpectedly fell in February from a two-year high, signaling Americans may not be convinced the job market is turning around. The Reuters/University of Michigan preliminary consumer sentiment index dropped to 73.7 from January’s 74.4. The measure averaged 88.9 during the economic expansion that ended in December 2007. Employment unexpectedly dropped in January, while an increase in the workweek signaled companies were on the verge of boosting payrolls after economic growth picked up last quarter. The Obama administration yesterday projected employment will grow by 95,000 a month on average this year, indicating it will take a long time to recover the 8.4 million jobs since the recession began.

“The ongoing weakness in the labor market in the United States and relatively low income growth is not going to allow for any sort of meaningful bounce in any of the consumer sentiment indicators,” said Stephen Gallo, head of market analytics at Schneider Foreign Exchange in London, who accurately forecast the index. The consumer sentiment index was forecast to rise to 75, according to the median of 74 economists surveyed by Bloomberg News. See full story.

February 11: A Greek crisis is coming to America

Source: Niall Ferguson, Financial Times

London -- It began in Athens. It is spreading to Lisbon and Madrid. But it would be a grave mistake to assume that the sovereign debt crisis that is unfolding will remain confined to the weaker eurozone economies. For this is more than just a Mediterranean problem with a farmyard acronym. It is a fiscal crisis of the western world. Its ramifications are far more profound than most investors currently appreciate. There is of course a distinctive feature to the eurozone crisis. Because of the way the European Monetary Union was designed, there is in fact no mechanism for a bail-out of the Greek government by the European Union, other member states or the European Central Bank (articles 123 and 125 of the Lisbon treaty). True, Article 122 may be invoked by the European Council to assist a member state that is “seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control”, but at this point nobody wants to pretend that Greece’s yawning deficit was an act of God. Nor is there a way for Greece to devalue its currency, as it would have done in the pre-EMU days of the drachma. There is not even a mechanism for Greece to leave the eurozone.

That leaves just three possibilities: one of the most excruciating fiscal squeezes in modern European history – reducing the deficit from 13 per cent to 3 per cent of gross domestic product within just three years; outright default on all or part of the Greek government’s debt; or (most likely, as signalled by German officials on Wednesday) some kind of bail-out led by Berlin. Because none of these options is very appealing, and because any decision about Greece will have implications for Portugal, Spain and possibly others, it may take much horse-trading before one can be reached. Yet the idiosyncrasies of the eurozone should not distract us from the general nature of the fiscal crisis that is now afflicting most western economies. Call it the fractal geometry of debt: the problem is essentially the same from Iceland to Ireland to Britain to the US. It just comes in widely differing sizes. See full story.

February 10: Dollar gains after Bernanke suggests raising discount rate

Source: Marketwatch

Washington -- The U.S. dollar extended gains versus the euro and reversed a loss against the Japanese yen on Wednesday after Federal Reserve Chairman Ben Bernanke said the central bank may raise its discount rate before the more closely-watched target interest rate. "The general impression is the Fed is on the eventual road to exiting its policy," said Sophia Drossos, co-head of global foreign-exchange strategy at Morgan Stanley. The euro had been under pressure as investors sifted through ever-changing news reports on a prospective aid package for debt-troubled Greece. The eurochanged hands at $1.3740, down from $1.3796.

The dollar index, which tracks the greenback against a trade-weighted basket of six major currencies, rose for the first time in three days to 80.007, up from 79.768 in late North American trading on Tuesday. The dollar bought 89.91 yen, compared to 89.59 yen late Tuesday. Bernanke said increasing the discount rate, which sets borrowing costs directly to banks, would not be a tightening. See full story.

February 9: European officials consider Greek bailout on budget

Source: Bloomberg

Berlin -- European officials said they are considering assistance for Greece as its struggle to contain the European Union’s highest budget deficit threatens to erode confidence in the euro. “We are talking about support in the broad sense,” Olli Rehn, the EU’s new economic affairs commissioner, said in an interview in Strasbourg, France today. Michael Meister, financial affairs spokesman for German Chancellor Angela Merkel’s Christian Democratic Union, said in an interview in Berlin that aid would come “under strict conditions and if the Greek government undertakes far-reaching state reforms.”

Greece risked turning into Europe’s first victim of the increased borrowing that governments undertook to arrest the worst recession since World War II. The euro fell to a nine- month low this week and Greek bonds dropped to the lowest in almost a decade as officials struggle to convince investors they can cut a deficit worth 12.7 percent of gross domestic product. Signs a rescue may be in the works helped today eased investors’ jitters that deteriorating government finances would derail the global recovery. The euro jumped and global stocks rose as Europe’s single currency increased 1.4 percent to $1.3839, the most in more than five months, and the Dow Jones Industrial Average rose the most since July. See full story.