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September 2: Pending home sales rise in sign market steadying

Source: Bloomberg

Washington -- Pending sales of existing houses unexpectedly climbed in July from a record low, indicating the real-estate market is steadying following the end of a government tax credit. The index of purchase contracts rose 5.2 percent after a revised 2.8 percent drop the prior month, figures from the National Association of Realtors showed today in Washington. Combined with data showing claims for unemployment benefits dropped and orders to factories increased, the reports allayed concern the economy was tipping back into a recession.

“We’re growing at a mediocre clip,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “We just haven’t rebounded sufficiently from the severe recession.” Today’s reports support Federal Reserve Chairman Ben S. Bernanke’s scenario for a “modest” pace of expansion in the second half of the year. Figures from the Labor Department tomorrow are projected to show the jobless rate rose in August for the first time in four months, showing the pace of economic growth is not enough to revive employment. See full story.

September 1: Greenback falls as ISM, ADP data revive risk appetite

Source: Marketwatch

New York -- The dollar declined against the euro and other major currencies on Wednesday after a measure of U.S. manufacturing activity unexpectedly improved last month, adding to evidence of pockets of strength in the economy. The dollar and the Japanese yen came under pressure as an earlier U.S. report on employment and stronger Chinese and Australian economic data revived investors' appetite for risky assets and crimped safe-haven flows into the two currencies. The dollar index, a measure of the U.S. unit against a basket of currencies, fell to 82.514, down from 83.097 late Tuesday. It had touched 82.194 earlier.

The euro rose to $1.2799, up from $1.2679 late New York trading on Tuesday. It touched as high as $1.2855 earlier. The British pound gained to $1.5453, up from $1.5352, recovering after trimming gains following a report showing U.K. manufacturing fell unexpectedly. Against the yen -- which surged to a 15-year high against the greenback last week -- the dollar advanced to ¥84.46, compared with ¥83.87 late Tuesday. Both the yen and dollar tend to fall when investors seek riskier assets instead of the low-yielding currencies. The Institute for Supply Management's index on U.S. manufacturing activity rose to 56.3 in August from 55.5 in July. Economists surveyed by MarketWatch expected the index to slide to 53.2.See full story.

August 31: August consumer confidence rises to 53.5

Source: Marketwatch

Washington -- Confidence among consumers rose to 53.5 in August due to an improvement in their short-term outlook, but overall, consumers remain "apprehensive," the Conference Board reported Tuesday. "Employment concerns continue to weigh heavily on consumers' attitudes," said Lynn Franco, director of Conference Board's consumer research center, in a statement. "Expectations about future business and labor market conditions have brightened somewhat, but overall, consumers remain apprehensive about the future."

Economists polled by MarketWatch had expected an August level of 50. Despite the gain in August, consumer confidence is at "incredibly depressed levels," compared with prior recoveries, wrote Dan Greenhaus, chief economic strategist with Miller Tabak, in a research note. "At this stage of a 'normal' recovery, we would expect this measure to be well up into the 60s, not stuck in the low 50s," Greenhaus wrote. "But with little meaningful job creation and a preoccupation with reducing debt burdens remaining the order of the day, consumers are rightfully hesitant about the future." See full story.

August 30: Pimco's El-Erian sees 'lost decade' for U.S. jobs

Source: Bloomberg

New York -- A “lost decade” in U.S. employment reflects a change in the structure of the nation’s labor market, according to Mohamed A. El-Erian, chief executive officer at Pacific Investment Management Co. “This country has very weak safety nets,” he said in a radio interview today on “Bloomberg Surveillance” with Tom Keene. “It is built on the assumption that our labor markets are very flexible, that if you lose your job in California you move somewhere else, you get another job, and what we’re seeing is structural unemployment.”

Global growth will be below average during the next three to five years as developed economies struggle with mounting deficits and increased regulation in the wake of the 2008 collapse of credit markets, said El-Erian, who is also co-chief investment officer at Pimco. Pimco shifted to higher-quality assets in the search for yield, El-Erian said. The $234 billion Total Return Fund managed by Pimco co-founder Bill Gross has returned 11.8 percent in the past year, beating 67 percent of its peers, according to data compiled by Bloomberg. The actions of the Federal Reserve alone to boost the economy aren’t sufficient, given a “frozen” housing market, slow growth and high unemployment and significant debt, El-Erian said. See full story.

August 27: Fed will strongly resist deflation: Bernanke

Source: Marketwatch

Jackson Hole, WY -- Federal Reserve Board Chairman Ben Bernanke said Friday that the central bank would not sit idly and let the U.S. economy sink into a period of deflation. "The Federal Open Market Committee will strongly resist deviations from price stability in the downward direction," Bernanke said in a speech opening the Fed's annual summer policy retreat. The Fed would be "vigilant and proactive" if inflation falls by a significant amount, he said, though he downplayed concern that the economy would fall back into another downturn, or a double-dip recession.

He said the economy would continue to grow at a slow pace in the last four months of the year and the pace of growth would pick-up in 2011. "I expect the economy to continue to expand in the second half of this year, albeit at a relatively modest pace," he said. And despite the weak second quarter, "the preconditions for a pickup in growth in 2011 appear to remain in place," he added. See full story.

August 26: Jobless claims in U.S. decrease more than forecast to 473,000

Source: Bloomberg

Washington -- Applications for jobless benefits fell more than forecast last week, easing concern American employers are again slashing payrolls as the economy slows. Claims dropped by 31,000, the first decline in a month, to 473,000 in the week ended Aug. 21, Labor Department figures showed today in Washington. The total number of people receiving government payments exceeded 10 million for the first time in four months, reflecting an increase in those getting extended benefits.

The average number of claims over the past month climbed to the highest level since November even as the latest reading provided some relief to the drumbeat of negative economic data in recent weeks. Employers have delayed hiring plans and some have renewed firings as the year-old recovery shows signs of petering out, raising the risk consumer spending will weaken further. The trend “is consistent with a lackluster pace of job growth,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. “The private sector really hasn’t recovered enough.” See full story.

August 25: Bernanke's helicopter could move to new altitude

Source: Marketwatch

Washington -- In an all-out effort to get the economy moving again, Federal Reserve Chairman Ben Bernanke may be getting ready to take his money-creating helicopter to a new altitude. Bernanke earned the moniker "Helicopter Ben" after the then-Fed governor referenced Milton Friedman's famed "helicopter drop" favorably in a 2002 speech outlining how the Fed could defeat deflation. (Friedman had argued hypothetically that a central bank could drop currency from a helicopter to stimulate spending.) See external link to Bernanke's 2002 speech.

Nearly eight years on from that speech, Alan Greenspan's successor is due Friday at 10 a.m. Eastern to deliver another vital keynote at the Kansas City Fed's annual symposium in Jackson Hole, Wyo., with the straightforward title, "The Economic Outlook and the Federal Reserve's Policy Response." See Federal Reserve page on MarketWatch. In many ways, Bernanke's tenure as head of the world's most important central bank has followed the playbook outlined in that 2002 speech -- that to combat deflation, or a sustained negative inflation rate, the Fed would first take nominal interest rates to virtually zero and then take extraordinary action, such as buying government bonds and mortgage-backed securities. See full story.

August 24: Existing-home sales plunge 27.2%

Source: Marketwatch

Washington -- The sale of existing U.S. homes sank 27.2% in July -- the biggest one-month drop ever -- largely because of the phase-out of a federal tax credit, according to an industry trade group. The National Association of Realtors said existing-home sales fell to a seasonally adjusted annual rate of 3.83 million in July from 5.26 million the month before. Sales of single-family homes fell to the lowest rate in 15 years. A year earlier, existing home sales totaled 5.14 million in July.

Inventories of unsold homes rose 2.5% to 3.98 million, representing a 12.5-month supply, the highest level since at least 1999, the trade group said. And the supply of unsold single-family homes reached its highest rate since 1982. Economists surveyed by MarketWatch forecast the pace of annualized sales to fall to 4.70 million. See our complete economic calendar and consensus forecast. The sharp decline sent investors scurrying. The Dow Jones Industrial Average fell almost 100 points to go below 10,000 for the first time since early July. The price of Treasurys, which tend to increase on perceptions of economic weakness, rose. See full story.

August 23: Housing slide in U.S. may drag economy into recession

Source: Bloomberg

Washington -- Housing led the U.S. out of seven of the last eight recessions. This time, it may kill the recovery. Home sales collapsed after a federal tax credit for buyers expired in April. Since then, the manufacturing-led expansion, which began in the second half of 2009, has been waning, with jobless claims rising and factory orders falling. “If foreclosures continue to mount and depress home prices, that could send the economy back into a recession,” said Celia Chen, an economist who tracks the industry for Moody’s Analytics Inc. “The housing market and the broader economy are closely intertwined.”

Spending on home construction and items such as furniture and stoves accounted for about 15 percent of gross domestic product in the second quarter, according to West Chester, Pennsylvania-based Moody’s Analytics. Real estate also can influence consumer spending indirectly. When values soared in the mid-2000s, people used the boost in equity to pay for cars and vacations. After prices fell, homeowners lost that cushion and curbed spending. A report tomorrow by the Chicago-based National Association of Realtors will show July sales of existing homes plummeted 12.9 percent from June, the biggest monthly loss of 2010, according to the median estimate of economists surveyed by Bloomberg. See full story.

August 20: U.S. debt Is staying, for a change, in U.S

Source: New York Times

New York -- Nearly a decade ago, when budget deficits ballooned in the United States, it was widely said that Washington — like Blanche DuBois in “A Streetcar Named Desire” — “depended on the kindness of strangers.” In Washington’s case, foreigners — mostly foreign governments — stepped in to buy most of the new Treasury securities being issued. Budget deficits have ballooned again, but the story is different this time. Americans are buying most of the new Treasuries being issued. Foreign governments, whose purchases were once critical, were net sellers of Treasury securities in the first half of 2010, according to figures released this week. That buying has reduced the Treasury’s need to attract foreign capital and has helped to keep interest rates very low.

It is not clear, of course, how much that appetite for Treasuries reflects an eagerness to lend money to the United States government as opposed to a fear of losses from alternative investments. Before the financial crisis struck in 2008, neither Americans nor private foreign investors showed much eagerness to finance Washington’s deficits. In calendar year 2007, the Treasury borrowed a net $237 billion. Of that, 81 percent came from foreign governments, mostly from central banks. Private foreign investors took up the rest, as American companies, banks and individuals reduced their combined Treasury holdings by $13 billion. In the first six months of this year, the Treasury numbers indicate that foreign governments reduced their holdings of Treasury securities by $10 billion. Not since 2000 — when the United States government was running a surplus and did not need additional funds — have foreign governments been net sellers for a full calendar year. See full story.

August 19: Jobless claims jump to 9-month high

Source: Marketwatch

Washington -- First-time filings for state unemployment benefits rose unexpectedly last week to reclaim the highest level for this key economic benchmark since the middle of last November, the Labor Department reported Thursday. For the week ended Aug. 14, initial claims rose 12,000 to 500,000. This is the highest level since the week ended Nov. 14, 2009. "The labor market is still in a funk," said former Citigroup economist Brian Jones.

Claims had fallen as low as the 427,000 level in mid-July but have worsened steadily since and now have increased for three straight weeks. Economists are troubled by the lack of vigor in the labor market. With the unemployment rate holding stubbornly near double-digit levels, businesses and households do not have the confidence to spend and invest. "The claims data tell an important story. Since the first quarter, the recovery has lost momentum and is largely moving sideways," wrote Raymond Stone, economist at Stone & McCarthy Research Associates. See full story.

August 18: China doubles Korea bond holdings as U.S. debt sold

Source: Bloomberg

Seoul -- China more than doubled South Korean debt holdings this year, spurring the notes’ longest rally in more than three years, as policy makers shifted part of the world’s largest foreign-exchange reserves out of dollars. Korean Treasury bonds held by Chinese investors rose 111 percent to 3.99 trillion won ($3.4 billion) in the first half of the year, data from the Seoul-based Financial Supervisory Service show. China should allocate some reserves to “financial assets in major Asian economies,” Ding Zhijie, a former adviser to China’s sovereign wealth fund, said in an Aug. 16 interview. “The significance of both the dollar and euro has declined because of the global financial crisis and the European debt crisis, while the role of some emerging-market currencies rose,” said Ding, dean of finance at Beijing’s University of International Business and Economics.

China’s holdings of Treasuries fell 6 percent in the first half to $843.7 billion, Department of Treasury data released this week show, making it harder for President Barack Obama to finance record debt sales to sustain the U.S. economic expansion. Societe Generale SA predicts Chinese KTB purchases, which accounted for 19 percent of foreign inflows in the first half compared with 10 percent last year, will spur further gains. “At this rate China may buy about 4 trillion won of KTBs by year-end, and that’s a big deal,” said Christian Carrillo, the Tokyo-based head of fixed-income strategy at SocGen, France’s second-biggest bank. “That will be bullish for the market. It’ll create a severe demand-supply imbalance in the KTBs, pushing yields to fall even more aggressively.” See full story.

August 17: Gold and the yen compete for Asia's affections

Source: Marketwatch

Tokyo -- In a world where investors are scrambling to stem hefty losses, gold and the Japanese yen are unlikely adversaries. "Gold and the JPY [Japanese yen] are two of the few assets that have appreciated since the Lehman collapse in September 2008," James Steel, an analyst at HSBC Securities said in a recent note to clients.

With gold trading around a six-week high of more than $1,200 an ounce and the yen recently hitting a 15-year high against the U.S. dollar, both have proved to be reasonably safe investment vehicles, even as Asia's major stock markets continue to sink. In early afternoon trading Tuesday, Japan's Nikkei Stock Average was 0.7% lower after already posting losses in six of the last seven sessions. Hong Kong's Hang Seng was down 0.1% while Australia's S&P/ASX 200 added 0.4% and South Korea's Kospi added 0.5%. All three indexes logged losses in four of the last five sessions. See full story.

August 16: China favors euro to dollar as Bernanke shifts course

Source: Bloomberg

Beijing -- China, whose $2.45 trillion in foreign-exchange reserves are the world’s largest, is turning bullish on Europe and Japan at the expense of the U.S. The nation has been buying “quite a lot” of European bonds, said Yu Yongding, a former adviser to the People’s Bank of China who was part of a foreign-policy advisory committee that visited France, Spain and Germany from June 20 to July 2. Japan’s Ministry of Finance said Aug. 9 that China bought 1.73 trillion yen ($20.1 billion) more Japanese debt than it sold in the first half of 2010, the fastest pace of purchases in at least five years.

“Diversification should be a basic principle,” Yu said in an interview, adding a “top-level Chinese central banker” told him to convey to European policy makers China’s confidence in the region’s economy and currency. “We didn’t sell any European bonds or assets, instead we bought quite a lot.” China’s position may make it harder for the greenback to rebound after falling as much as 10 percent from this year’s peak in June as measured by the trade-weighted Dollar Index. The nation cut its holdings of U.S. government debt by $100 billion, or 11 percent, through June from last year’s record of $939.9 billion in July 2009, according to Treasury Department data released today. See full story.

August 13: Hoenig calls Fed policy 'dangerous gamble'

Source: Marketwatch

Washington -- In a sharp critique of Federal Reserve policy by a sitting policy member, Thomas Hoenig said Friday that interest rates near zero were "a dangerous gamble" in a period of moderate growth. In a speech in Lincoln, Neb., the president of the Kansas City Federal Reserve Bank warned that Fed Chairman Ben Bernanke and his allies were risking a repeat of the cycle of severe recession and unemployment. "A zero policy rate during a crisis is understandable, but a zero rate after a year of recovery gives legitimacy to questions about the sustainability of the recovery and adds to uncertainty," Hoenig said.

"Monetary policy ... cannot solve every problem faced by the United States today. In trying to use monetary policy as a cure-all, we will repeat the cycle of severe recession and unemployment in a few short years by keeping rates too low for too long," he warned. Hoenig has dissented at every Fed policy meeting this year, including at the latest meeting Tuesday, where the Fed decided to add more stimulus to the economy by purchasing long-term Treasurys to keep its balance sheet stable. "There may be ways to accelerate GDP growth, but, in my view, highly expansionary monetary policy is not a good option," he said. See full story.

August 12: Gold may rally to record $1,300, Goldman predicts

Source: Bloomberg

New York -- Gold may rally to a record $1,300 an ounce in six months, driven by low interest rates and the prospect of renewed quantitative easing in the U.S., according to Goldman Sachs Group Inc. “The recent selloff has left speculative long positions in gold oversold relative to U.S. real interest rates,” analysts David Greely and Damien Courvalin, wrote in a note yesterday. This has “set the stage for a rally to our six- month gold-price target of $1,300 an ounce,” they wrote.

The Federal Reserve has resorted to direct bond purchases, also known as quantitative easing, as part of its response to the world financial crisis. The U.S. central bank said this week that it would reinvest principal payments on mortgage holdings into long-term Treasury securities to support growth. Gold for immediate delivery, set for a 10th annual advance, touched an all-time high of $1,265.30 an ounce on June 21. The precious metal was at $1,201.35 at 3:10 p.m. in Singapore. See full story.

August 11: Wider trade gap signals weaker U.S. Q2 growth

Source: Bloomberg

Washington -- A swelling trade gap, less stockpiling and weaker construction indicate the U.S. economy slowed even more in the second quarter than the government estimated last month, economists said. Revisions due later this month may shave last quarter’s 2.4 percent annual growth rate by 1 percentage point or more, according to Morgan Stanley’s David Greenlaw and Nomura Securities International Inc.’s David Resler. The trade deficit in the U.S. unexpectedly widened by $7.9 billion to $49.9 billion in June, Commerce Department figures showed today in Washington. A surge in imports means American companies contributed less to the rise in gross domestic product, the value of all goods and services produced in the U.S., than previously estimated. Earlier reports showing smaller gains in inventories and less of a rebound in commercial construction than the government projected will also reduce the pace of expansion.

“The slowdown occurred earlier than we thought,” said Harm Bandholz, chief U.S. economist at UniCredit Global Research in New York. “We expected the recovery to lose momentum only in the second half and now it occurred in the second quarter.” Trade probably subtracted 3.25 percentage points from growth, the most since 1982 and up from the 2.78 points the government estimated last month, Bandholz said. By Resler’s calculations, the world’s largest economy probably grew at a 1.3 percent pace from April through June, while Greenlaw’s estimate is down to 1.4 percent. See full story.

August 10: Fed takes small easing step on weaker outlook

Source: Marketwatch

Washington -- Federal Reserve policy makers on Tuesday decided to take a small easing step after judging the economic recovery isn't as strong as it pegged two months ago. The Federal Open Market Committee announced that it would reinvest maturing mortgage-backed securities back into the government debt so that its balance sheet does not shrink. David Resler, chief economist at Nomura Securities, called the technical move a "shot across the bow." "It is a reminder to those Doubting Thomases that the Fed's ammunition is not spent. They have tools and they are ready, willing, and able to use them," Resler said.

Stocks briefly turned positive after the Fed statement and were well off the day's lows. Bonds climbed in value, and futures traders pushed backed their estimate on when the central bank would increase its interest rates to July 2011. As expected, the Fed kept its benchmark interest rate at a record low level. The central bank made no changes to the key pledge to keep rates "exceptionally low" for an "extended period." See full story.

August 9: Freddie taps Treasury for additional $1.8 billion in support

Source: Marketwatch

Washington -- Freddie Mac said it will tap the Treasury Department for $1.8 billion of government support after the mortgage giant lost $6 billion during the second quarter. Freddie reported a net loss of $4.71 billion in the latest quarter, versus net income of $302 million in year earlier, the company added. Including a $1.3 billion dividend payment to the Treasury Department, Freddie reported a net loss attributable to common stockholders of $6.01 billion, or $1.85 a share. That compares to a net loss of $840 million, or 26 cents a share, in the same period a year earlier.

The results left Freddie with a net worth deficit of $1.7 billion at the end of June. The Federal Housing Finance Agency, Freddie's regulator, will ask Treasury for $1.8 billion to fill the gap, the company said. That will bring total support from the Treasury to more than $64 billion. Freddie shares fell 3.4% to 41 cents in afternoon trading Monday. The stock is down about 72% so far this year. Freddie and rival Fannie Mae were bailed out by the government in 2008. Taxpayer support has increased since then as the mortgage giants stepped in to prop up a crumbing mortgage market that was deserted by banks and other private lenders. See full story.

August 6: Gross says Fed rate low for 2 to 3 year

Source: Bloomberg

New York -- Pacific Investment Management Co.’s Bill Gross said the Federal Reserve is unlikely to raise interest rates for two to three years as it seeks to keep the economy from slipping back into recession. Treasury two-year note yields dropped below 0.50 percent for the first time today after the Labor Department said the economy lost more jobs in July than economists forecast. The difference in yields between 2- and 10-year notes is 2.33 percentage points, more than double the average of 1.11 percent for the so-called yield curve over the past 20 years. The spread reached a record 2.94 percent on Feb. 18.

“When you analyze that portion of the curve, it says the Fed is on hold for a long, long time,” Gross, said today during a radio interview on “Bloomberg Surveillance” with Tom Keene. “When you get down to 50 basis points on two-years, that’s giving you a signal that there’s not much left on the table.” Gross, manager of the world’s biggest bond fund, has been benefitting from the steep yield curve by buying five-year Treasuries, holding them for a year before selling to pick up capital appreciation as well as interest income. His $239 billion Total Return Fund, which is attracting almost $1 billion a week from investors, has returned 13 percent in the past 12 months, beating 71 percent of its peers, Bloomberg data show. See full story.

August 5: Jobless claims rise 19,000 to 479,000

Source: Marketwatch

Washington -- The number of people applying for initial unemployment benefits jumped 19,000 to 479,000 in the latest week to the highest level since early April, the Labor Department reported Thursday. After falling steadily last year, state jobless claims have flattened out. They have hovered above the 450,000 range through the first seven months of 2010, reflecting sluggish hiring trends in the U.S. Claims are 5.5% higher compared to the end of 2009. "Initial claims have basically done nothing over the first half of this year and the July average of 458,000 is consistent with a labor market under a significant amount of stress," economist Neil Dutta of Bank of America/Merrill Lynch wrote in a report. Economists surveyed by MarketWatch had expected initial claims to decline to 453,000 in the week ended July 31. The four-week average of initial claims -- a better gauge of employment trends than the volatile weekly number -- rose by 5,250 to 453,250, according to government data.

Claims data for July is usually distorted by summer shutdowns at auto plants, but a Labor official suggested the latest data was not affected by the industry's annual retooling. Some economists said the increase should be view with caution but not alarm - at least not yet. "This is disappointing but not a disaster," Ian Shepherdson of High Frequency Economics said in an email. "We'll be worried if claims are still at this level in a couple of weeks' time, but for now we are curious rather than disturbed." See full story.

August 4: A Chinese gold rush

Source: Wall Street Journal

Beijing -- China said it will let more banks import and export gold, the government's clearest signal yet that it plans to loosen restrictions on trading of the yellow metal. China, the world's second-largest gold consumer after India, has boosted imports of gold in recent years as the central bank augments its reserves and as domestic interest in investment has grown. Still, with net imports totaling 31 metric tons in 2009 by private-sector estimates, the volumes are still relatively limited. China doesn't officially disclose imports of gold bullion.

The statement, issued jointly by the People's Bank of China and three other economic-policy agencies, came after Asian trading hours Tuesday. Gold futures settled $1.80, or 0.2%, higher at $1,185.20 an ounce on the Comex division of the New York Mercantile Exchange. Analysts say more Chinese demand could keep gold buoyed around record levels above $1,200. "In part, it reflects a growing class that can afford some gold," said Jon Nadler, a senior analyst with Montreal-based Kitco Metals. The modernization of China's economy has spurred demand for more complex financial instruments. Expanding the conduit for transactions in gold would benefit local traders and may encourage domestic purchases, a boon for China's miners. China is the world's biggest gold producer. See full story.