Friday, 6 November 2009

ECB, BoE prepare exit from emergency measures, US stocks jump

The ECB is preparing to unwind its emergency programmes. Bloomberg reports:

The European Central Bank took its first step toward removing emergency stimulus measures designed to haul its economy out of recession, saying it won’t offer commercial banks 12-month loans next year.

“Not all our liquidity measures will be needed to the same extent as in the past” as the economy recovers, ECB President Jean-Claude Trichet said at a press conference in Frankfurt today after the bank kept its benchmark interest rate at a record low of 1 percent. Markets don’t expect the ECB to prolong its offer of 12-month money beyond December and Trichet said he would “say nothing to dispel this present sentiment.”

The BoE may be doing the same. From Reuters:

The Bank of England expanded its asset-purchase programme by 25 billion pounds on Thursday, halving the pace at which it buys bonds and suggesting the scheme to revive Britain's recession-hit economy may be coming to an end...

The Bank, which also left interest rates unchanged at a record low of 0.5 percent as expected, said the bond purchases would take three months to complete as it has halved the pace at which the buying would be conducted.

Economic data out of Europe were mixed on Thursday. Retail sales in the euro area fell 0.7 percent in September but UK factory output rose 1.7 percent in September.

US economic data were mostly positive. Bloomberg reports:

Worker productivity surged at the fastest pace in six years, labor costs fell and unemployment claims were lower than forecast, signaling companies may be preparing to start hiring again after cutting costs to the bone.

Productivity, a measure of employee output per hour, jumped at a 9.5 percent annual rate in the third quarter, exceeding the highest economist forecast, according to Labor Department figures released today in Washington. Initial jobless claims dropped by 20,000 to 512,000 in the week ended Oct. 31, the fewest since January...

Labor costs fell at a 5.2 percent rate, capping the biggest 12-month drop since records began in 1948 and exceeding the median forecast for a 4.2 percent decline projected by economists. Costs in the prior quarter fell 6.1 percent, more than previously estimated.

That seemed to be enough to propel stocks up on Thursday. From Bloomberg:

The Dow Jones Industrial Average rose the most since July after U.S. jobless claims and productivity beat economists’ estimates. Gold rallied for a fourth day, while the dollar and Treasuries were little changed...

The Dow increased 203.82 points, or 2.1 percent, to 10,005.96 at 4:01 p.m. in New York for the biggest advance since July 23. The Standard & Poor’s 500 Index rose for a fourth day, adding 20.13 points, or 1.9 percent, to 1,066.63. More than nine stocks gained for each that fell on the New York Stock Exchange.

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