Friday, 5 February 2010

ECB and BoE hold rates, markets plunge

The ECB and BoE left interest rates unchanged on Thursday. Reuters reports:

The European Central Bank kept interest rates at a record low of 1.0 percent on Thursday and reaffirmed its view that the euro zone's economic recovery would be modest and uneven this year...

The Bank of England also kept rates on hold, at 0.5 percent, and halted its quantitative easing program after 11 months of asset purchases.

There was negative news from Europe in the form of a drop in German factory orders. Bloomberg reports:

German factory orders unexpectedly dropped in December, largely canceling the previous month’s gain, as demand at home and abroad weakened.

Orders, adjusted for seasonal swings and inflation, fell 2.3 percent from November, when they jumped 2.7 percent, the Economy Ministry in Berlin said today. Economists had forecast a 0.2 percent increase for December, according to the median of 33 estimates in a Bloomberg News survey. From a year earlier, orders rose 8.4 percent.

The economic data from the US were somewhat better. Bloomberg reports:

Productivity in the U.S. surged in the fourth quarter and factories received more orders in December than anticipated, showing companies are keeping payrolls lean to rebuild profits.

Employee output per hour rose at a 6.2 percent annual rate at the end of 2009, capping the biggest annual gain in six years, the Labor Department said today in Washington. Factory bookings climbed 1 percent for a second month...

Claims for unemployment insurance unexpectedly increased last week, raising concern an improvement in the job market was stalling, other figures from the Labor Department showed. Applications rose to 480,000 in the week ended Jan. 30, the most in seven weeks, from 472,000 the prior week.

Investors apparently focused on the negatives on Thursday. From Bloomberg:

Stocks plunged around the globe, with the MSCI World Index dropping the most in nine months, and commodities tumbled on concern an unexpected increase in U.S. jobless claims and growing sovereign debt will derail the economic recovery. The euro slid to the lowest level since May.

The MSCI World Index of 23 developed markets sank 2.9 percent and the Standard & Poor’s 500 Index fell 3.1 percent at 4:30 p.m. in New York, the biggest declines since April 20. Benchmark equity indexes for Portugal and Spain plummeted the most in 15 months. Oil lost 5 percent, the biggest drop in six months, and gold tumbled the most since 2008 as a stronger dollar curbed demand for commodities. The euro lost 1.1 percent to $1.3738 and sank to an almost one-year low versus the yen.

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