Friday, 20 February 2009

Dow falls to six-year low, BoJ to buy corporate bonds

US stocks fell again on Thursday. Bloomberg reports:

U.S. stocks dropped, sending the Dow Jones Industrial Average to a six-year low, as Hewlett-Packard Co. cut its profit forecast and concern about rising credit-card defaults dragged financial shares to the lowest level since 1995...

The S&P 500 slid 1.2 percent to 778.94, extending its 2009 loss to 14 percent in its worst start to a year. The Dow dropped 89.68 points, or 1.2 percent, to 7,465.95, the lowest since October 2002. The Russell 2000 Index declined 1.5 percent.

Among economic data released on Thursday, US producer prices rose more than forecast in January. Other data, however, indicate that the economy remains weak. Bloomberg reports:

Wholesale costs rose 0.8 percent, with prices excluding food and fuel advancing 0.4 percent, the Labor Department said today in Washington. The department also reported that the number of Americans collecting unemployment benefits surged to 4.99 million two weeks ago...

Rising joblessness argues against continued price increases. Total unemployment benefit rolls surged by 170,000 in the week ended Feb. 7, according to Labor, and first-time applications were unchanged at 627,000 last week, higher than economists projected...

The Fed Bank of Philadelphia’s general economic index dropped to minus 41.3 this month, lower than forecast, compared with minus 24.3 in January, the bank said today. Negative numbers signal contraction. Measures of employment and sales plunged to the lowest levels since the Philadelphia Fed’s records began in 1968.

It wasn't all negative though.

[A] surge in the supply of money...spurred a bigger-than-forecast gain in the Conference Board’s index of leading economic indicators in January. The gauge rose 0.4 percent, the most since December 2006, the New York-based research group said today.

The surge in money supply is of course the result of Fed efforts to inject liquidity into the financial system. The Bank of Japan is moving along similar lines. From AFP/CNA:

Japan's central bank on Thursday announced new measures to tackle a deepening recession in Asia's biggest economy as it left its super-low interest rates unchanged for a second month.

The Bank of Japan said it would maintain its key lending rate at 0.1 per cent.

At the same time it announced plans to buy up to one trillion yen (10.7 billion dollars) of corporate bonds from commercial banks as part of efforts to fight a credit crunch.

It also extended some of its existing emergency measures to keep credit flowing to struggling companies, just days after data showed the Japanese economy suffered its worst quarterly contraction since 1974...

The BoJ said earlier this month that it would buy one trillion yen (10.8 billion dollars) worth of shares held by commercial banks in an effort to keep credit flowing to cash-strapped companies.

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