Wednesday brought some positive news on the eurozone economy. From Bloomberg:
European construction output increased the most in 14 years in March led by a rebound in Germany, the region’s largest economy.
Construction in the 16-nation euro region rose 7.6 percent from February, when it fell a revised 7.2 percent, the European Union’s statistics office in Luxembourg said today. That’s the biggest gain since March 1996 and the first increase in a year. From a year earlier, output declined 5.2 percent after dropping 14.8 percent in February.
In the US, the Fed has become more confident on the growth outlook. Bloomberg reports:
Federal Reserve officials raised their U.S. growth estimates for 2010 and lowered forecasts for unemployment and inflation, according to minutes of the Federal Open Market Committee meeting on April 27-28.
U.S. central bankers said the economy will expand in a range of 3.2 percent to 3.7 percent this year, leaving their 2011 forecast unchanged at 3.4 percent to 4.5 percent, according to quarterly forecasts released today with the FOMC minutes. In January, central bankers forecast 2010 growth of 2.8 percent to 3.5 percent, according to the central tendency estimates...
Fed officials’ central tendency forecast for the average unemployment rate in the final three months fell to 9.1 percent to 9.5 percent versus 9.5 percent to 9.7 percent in January. Their estimate for 2011 unemployment was in a range of 8.1 percent to 8.5 percent versus 8.2 percent to 8.5 percent in January.
Even as the growth forecast is revised upward, the inflation forecast has been revised downward.
Fed forecasters lowered their outlook for inflation. The personal consumption expenditures price index minus food and energy will rise 0.9 percent to 1.2 percent this year, down from January’s estimates of 1.1 percent to 1.7 percent.
Estimates for 2011 core inflation were also lowered to 1 percent to 1.5 percent versus the January forecast of 1 percent to 1.9 percent.
Indeed, there has been no sign of inflation in the US recently. From Bloomberg:
The cost of living in the U.S. unexpectedly dropped in April for the first time in more than a year, reinforcing forecasts that the Federal Reserve will keep interest rates near zero for much of 2010.
The 0.1 percent fall in the consumer price index was the first decrease since March 2009, figures from the Labor Department showed today in Washington. Excluding food and fuel, the so-called core rate was unchanged, capping the smallest 12- month gain in four decades.
But housing remains a concern for the US economy.
The share of mortgages in foreclosure climbed to a record 4.63 percent in the first quarter, the Mortgage Bankers Association said in a report today. The combined share of foreclosures and delinquencies was 14 percent, or about one in every seven U.S. mortgages, as job losses caused homebuyers to fall behind on monthly payments.
That just added to the list of worries for markets. Bloomberg reports the market action on Wednesday:
Stocks and commodities slid after Germany banned some bearish bets against government bonds and banks. The euro rose from a four-year low on speculation European leaders will take steps to support the currency.
The MSCI World Index slumped 1.4 percent at the 4 p.m. close in New York for a fifth-straight drop, the longest streak since January. The Standard & Poor’s 500 Index fell 0.5 percent, erasing its gain for the year, and the S&P GSCI Index of 24 commodities tumbled 1 percent to its lowest levels since February. The euro rallied 1.6 percent to $1.2393 and gold retreated below $1,200 an ounce. Ten-year Treasury yields erased losses, rising 2 basis points to 3.36 percent.
Germany’s ban of naked short-sales fueled speculation investors will lose options to hedge against losses on risky assets and added to concerns over tighter financial regulations as the U.S. Senate moved closer to voting on a reform bill. U.S. stocks also slid on a Mortgage Bankers Association report that a record share of home loans were in foreclosure, overshadowing minutes from the latest Federal Reserve policy meeting showing policy makers are in no rush to sell mortgage securities.
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