BoC cuts rates, RBA holds, Fed launches TALF

The Bank of Canada cut rates again on Tuesday. Reuters reports:

The Bank of Canada cut its main interest rate to a record low on Tuesday and signaled for the first time that it may take extra steps to pump money into a system that remains stubbornly short of credit.

The central bank reduced its key overnight rate by a half point to 0.5 percent, as expected, for a cumulative reduction of 400 basis points since December 2007.

Somewhat surprisingly, however, the Reserve Bank of Australia left interest rates unchanged. From Bloomberg on Tuesday:

The nation’s currency surged after Governor Glenn Stevens kept the overnight cash rate target at 3.25 percent in Sydney today...

“The Australian economy has not experienced the sort of large contraction seen elsewhere,” Stevens said in a statement. The bank’s rate cuts and government spending will provide “significant support” to the economy, he said.

A bold move and statement. Today from Bloomberg:

Australia’s economy unexpectedly shrank in the fourth quarter for the first time in eight years as exports and housing slumped, increasing pressure on the central bank to resume cutting interest rates.

Gross domestic product fell 0.5 percent from the third quarter, when it increased 0.1 percent, the Bureau of Statistics said in Sydney today. The median estimate of 23 economists surveyed by Bloomberg News was for 0.2 percent growth...

Traders forecast a 72 percent chance of a half-point reduction in the central bank’s benchmark rate when policy makers meet next on April 7, a Credit Suisse Index based on swaps trading showed at 1:36 p.m. in Sydney today.

In contrast, there has been no reluctance on the part of the Federal Reserve to cutting rates. In fact, it has gone well beyond rate cuts in fighting the credit crisis. On Tuesday, it launched the Term Asset-Backed Securities Loan Facility, the latest in a string of initiatives to alleviate the credit crunch. Bloomberg reports:

The Federal Reserve said its $1 trillion program to prop up the market for auto and business loans will start disbursing funds March 25 and will probably accept securities backed by vehicle-fleet and equipment leases.

The Fed also lowered interest rates and so-called collateral haircuts for loans tied to asset-backed securities with guarantees by the Small Business Administration or to government- guaranteed student loans, the central bank and U.S. Treasury said in a statement in Washington.

Stocks fall, manufacturing contracts

Stock markets around the world took a beating on Monday. Bloomberg reports:

Stocks slid worldwide, sending the Dow Jones Industrial Average below 7,000 for the first time since 1997, and Treasuries rose after Warren Buffett said the economy is in “shambles” and American International Group Inc. posted the largest corporate loss in U.S. history...

The Dow decreased 299.64 points, or 4.2 percent, to 6,763.29. The Standard & Poor’s 500 Index dropped 4.7 percent to 700.82, the lowest close since October 1996. Europe’s Dow Jones Stoxx 600 Index tumbled 5 percent, its steepest loss in three months. Nineteen stocks fell for each that gained on the New York Stock Exchange, making it the broadest decline in almost three weeks...

The MSCI World Index of stocks in 23 developed nations fell 4.9 percent to 713.94, the lowest closing level since the Iraq War began in March 2003. The MSCI Emerging Markets Index slid 5 percent, while Hungary’s forint dropped after European Union banks spurned aid pleas for eastern Europe.

Ironically, some of the economic data released on Monday were not as bad as expected. From Bloomberg:

The Institute for Supply Management’s factory index was 35.8, compared with 35.6 in January...

The median estimate of 67 economists surveyed by Bloomberg was for an ISM reading of 33.8...

The Commerce Department also reported consumer spending rose 0.6 percent in January after declining for a record six consecutive months.

Economists had forecast a 0.4 percent increase in spending, according to the median of 62 estimates in a Bloomberg News survey. The report showed the Fed’s preferred measure of inflation cooled in the 12 months ended January.

There were disappointments too, though.

Spending on construction projects fell 3.3 percent in January after a revised 2.4 percent drop the prior month that was larger than previously reported, Commerce also reported today. Private commercial projects slumped 4.3 percent, the most since January 1994.

And gloomy economic news pervaded the globe. From Bloomberg:

Canada’s economy contracted at the fastest pace since 1991 in the fourth quarter...

Gross domestic product fell at a 3.4 percent annualized rate to C$1.32 trillion ($1.02 trillion) in the October to December quarter, after 0.9 percent growth in the previous quarter...

Meanwhile, manufacturing in Europe continues to deteriorate. The BBC reports:

Manufacturing activity in the eurozone fell to its lowest level in 12 years in February, according to new figures.

The purchasing managers index (PMI), compiled by research group Markit, fell from 34.4 in the previous month to 33.5 - its lowest level on record...

Manufacturing activity in the UK fell to 34.7, down from 35.8 in January.

But Asia reported improved PMI numbers. From Bloomberg:

China’s manufacturing shrank for a seventh month in February as the global financial crisis cut exports and growth across Asia.

The CLSA China Purchasing Managers’ Index rose to a seasonally adjusted 45.1 from 42.2 in January, CLSA Asia-Pacific Markets said today in an e-mailed statement...

And last week, Japan reported that its manufacturing PMI rose for the first time in seven months to 31.6 in February from 29.6 in January.

Economic contraction continues in early 2009

There was little to cheer about in last week's economic data. The United States economy performed even more poorly at the end of 2008 than previously estimated. And things are not looking any better for it and other major economies in early 2009.

US real gross domestic product shrank at a 6.2 percent annualised pace from in the fourth quarter of 2008, the most since 1982, the Commerce Department reported on Friday. This was considerably worse than the advance estimate of a 3.8 percent decline. Real GDP had fallen at a 0.5 percent annualised rate in the third quarter.

The Commerce Department noted that most of the major components contributed to the much larger decrease in real GDP in the fourth quarter than in the third, with the largest contributors being exports and equipment and software.

Other economic reports released last week showed that the US economy will probably continue to contract at a comparable pace in early 2009.

Manufacturing activity will probably continue to shrink. Orders for durable goods fell 5.2 percent in January, its sixth consecutive month of decline, according to another Commerce Department report.

Indeed, consumer spending as a whole is likely to remain weak. The Reuters/University of Michigan index of consumer sentiment fell to 56.3 in February from 61.2 in January.

Exports are not likely to make up for the decline in US spending. Real exports of goods and services deteriorated badly in the fourth quarter, decreasing at an annualised rate of 23.6 percent. Continued economic weakness elsewhere indicated by other recent reports means that this performance is not likely to improve soon.

Japan's economy contracted 3.3 percent in the fourth quarter of 2008. That translates into an annualised rate of 12.7 per cent.

Reports last week showed that there is no let-up in the contraction in the Japanese economy at the beginning of 2009. Household spending fell 5.9 percent in January from a year earlier. As in the US, exports are not compensating for the fall in domestic demand and have instead turned into a major drag on the economy, plunging 45.7 percent in January from a year earlier.

Japanese industrial production fell by a record 10 percent in January from the previous month. If this rate of decline is maintained for the rest of the quarter, we are likely to see another big drop in Japanese GDP in the first quarter of 2009.

Europe's economy is not in much better shape. The economy in the euro area contracted 1.5 percent in the fourth quarter of 2008 and appears to have also started off 2009 on a weak note. Last week, the European Commission reported that its economic sentiment indicator for the euro area fell to 65.4 in February from 67.2 in January.

It looks like the global economy remains firmly in recession.

Japanese exports and manufacturing output plunge in January

Japan's economy is looking very sick at the moment.

On Wednesday, a report showed that exports plunged in January. From AFP/CNA:

Japan's recession woes deepened as a record plunge in exports added to fears on Wednesday that Asia's largest economy is becoming one of the biggest victims of the global crisis...

The trade deficit ballooned to an unprecedented 952.6 billion yen (9.9 billion dollars) in January as exports plunged 45.7 per cent from a year earlier, the finance ministry reported.

Today, there was more bad news. Bloomberg reports:

Japan’s manufacturers cut production by a record 10 percent in January and household spending plunged, adding to evidence that the economy in its worst recession in 60 years.

The month-on-month decline in factory output exceeded December’s record decline of 9.8 percent, the Trade Ministry said today in Tokyo. Household spending fell 5.9 percent from a year earlier, the biggest drop in more than two years...

The ratio of positions available to each applicant slid the most since 1992 in January, dropping to 0.67 from 0.73, the Labor Ministry said today. The unemployment rate unexpectedly fell to 4.1 percent from 4.3 percent as housewives got part- time work to supplement declining incomes, said Koji Katoh, the statistics bureau’s director of labor statistics...

Consumer prices failed to rise in January for the first time in more than a year as households cut spending, the statistics bureau said today, indicating deflation may resurface in the world’s second-largest economy.

US stocks gain but consumer confidence falls

US stocks were up yesterday. Bloomberg reports:

U.S. stocks advanced the most in a month, halting a six-day decline, after Federal Reserve Chairman Ben S. Bernanke’s statement that banks need not be nationalized helped lift equities from their lowest valuations in two decades...

The S&P 500 added 4 percent to 773.14 for the biggest rally since Jan. 21. The Dow Jones Industrial Average increased 236.16 points, or 3.3 percent, to 7,350.94. The Russell 2000 Index of small companies climbed 4.5 percent to 412.48. Ten stocks gained for each that fell on the New York Stock Exchange, the broadest rally since Dec. 16.

Stocks rose despite a report showing consumer confidence plunging in February.

The Conference Board’s consumer confidence index declined more than forecast to 25 this month, the lowest level since data began in 1967, from a January reading of 37.4.

Some analysts think there's hope for more gains in the market.

“There’s overwhelming value in this market,” said Randy Bateman, who oversees $15 billion as chief investment officer of the asset management unit of Huntington Bancshares Inc. in Columbus, Ohio. “If there’s any kind of momentum in the market, people want to jump on board.”

But the falling consumer confidence may have significance for the market nevertheless. Geoffrey Rogow at MarketBeat reports:

Monday’s decline by U.S. stocks to new lows has a different flavor than the late-2008 swoon, one that’s indicative of a total lack of confidence in the outlook for equities.

As major stock indexes hit 11-year lows Monday amid a broad-based sell-off, market participants pointed to retail investors as the culprits. Those same investors played a limited role in the downturn last October and November, when selling by hedge funds and institutional investors dominated.

But with bills piling up, home prices falling, unemployment rising and credit tough to come by, consumers who need money quickly are increasingly cashing out their stock investments.

Back to 1997 and another financial crisis

Yesterday, the US stock market fell to its lowest level since 1997. Bloomberg reports:

U.S. stocks fell, sending the Standard & Poor’s 500 Index to a 12-year low, as concern that the deepening recession will erode earnings offset the government’s pledge to give more capital to banks...

The S&P 500 declined 3.5 percent to 743.33, its lowest close since April 1997. The six-day losing streak in the U.S. stock benchmark ranks as its longest since October. The Dow Jones Industrial Average tumbled 250.89 points, or 3.4 percent, to 7,114.78, its lowest since May 1997. The Russell 2000 Index lost 4 percent.

Incidentally, 1997 saw the start of the Asian financial crisis. This time around, it's the US and European financial systems that are in crisis.

Meanwhile, Martin Weiss thinks that there's worse to come.

The nation’s largest banks are so close to collapse and the world economy is coming unglued so rapidly, a major Wall Street meltdown is now imminent.

Specifically, it’s now increasingly likely that virtually all of our forecasts of recent months could come to pass in a very short period of time, including …

Stock market crash: A swift plunge in stocks to about 5000 on the Dow, 500 on the S&P 500 and 900 on the Nasdaq … or lower...

Stock markets hit new lows as economic weakness continues

Stock markets fell last week, with several markets closing at multi-year lows last Friday and threatening a renewal of the downtrend seen in 2008.

After falling dramatically for much of 2008, most stock markets had seemingly found a bottom around October or November and been moving sideways since then. This had provided hope to investors that stocks might be forming a bottom.

However, last week, several major stock market indices broke the sideways pattern to the downside, putting hopes that they have found a bottom under serious threat. In the United States, the Dow Jones Industrial Average fell 6.2 percent last week to close at 7,365.67 on Friday, its lowest close in six years. In Europe, the Dow Jones Stoxx 600 Index fell 7.5 percent to close at 176.93, its lowest close in almost six years. In Japan, the Topix fell 1.6 percent to 739.53, its lowest close in 25 years.

The breakdown in these indices occurred at a time when it was becoming obvious to investors that the global economic downturn accelerated at the end of 2008 and is likely to get worse before it gets better.

According to a report from the Organisation for Economic Co-operation and Development on 18 February, gross domestic product in the countries belonging to the group fell by 1.5 percent in the fourth quarter of 2008, the largest fall since OECD records began in 1960. Deterioration was seen in almost all the member countries for which data was available on that date, including in the United States, the euro area and Japan.

Quarterly percentage change in real GDP
	2008
	Q3	Q4
OECD - Total	-0.2	-1.5
United States	-0.1	-1.0
Euro area	-0.2	-1.5
Japan	-0.6	-3.3

The contraction in the OECD economies will almost certainly persist in at least early 2009. An earlier report from the OECD showed that the composite leading indicator for the group had fallen by 1.1 point in December, not much better than the rate of decline in the previous three months. Indeed, the accompanying chart shows that the composite leading indicators for the OECD as a whole and the major economies have been plunging since around the middle of 2008. According to the OECD, the composite leading indicators in most OECD countries have fallen to levels that were last seen during the oil shocks of the 1970s.

Other data mostly corroborate the tough outlook ahead.

A report from the Economic and Social Research Institute last week showed that its composite leading index for Japan continued to plunge at the end of last year. It fell to 80.0 in December from 81.8 in November.

In Europe, a composite index of business activity based on a survey of purchasing managers by Markit Economics fell to 36.2 in February, a record low, from 38.3 in January, based on a preliminary estimate. The manufacturing index fell to 33.6 in February from 34.4 in January while the services index fell to 38.9 from 42.2, both falling to the lowest on record.

The Conference Board's leading index for the US economy, though, did register an increase in January of 0.4 percent. However, over the past six months, the index was down 1.9 percent.

Of course, the stock market itself is a leading indicator of the economy, and if recent market movements are any indication, investors may be bracing themselves for more economic weakness ahead.

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.

Taiwan enters recession, US manufacturing and housing collapse

Another rate cut on Wednesday, this time from Taiwan. Bloomberg reports:

Taiwan’s central bank cut interest rates to a record low after the economy shrank an unprecedented 8.36 percent in the fourth quarter as exports and business investment tumbled.

Governor Perng Fai-nan and his board pared the discount rate on 10-day loans to banks to 1.25 percent from 1.5 percent in Taipei today, the seventh reduction since late September. The decline in gross domestic product from a year earlier was the biggest since official records began in 1952, and exceeded the 6.82 percent drop forecast in a Bloomberg survey of economists.

Taiwan entered its first recession since the technology bubble burst in 2001 as the global economic slump reduced demand for Taiwan Semiconductor Manufacturing Co. computer chips and Quanta Computer Inc. laptops. The central bank will pump money into the economy if Taiwan’s lenders fail to provide more credit to businesses, Perng said...

Taiwan’s economy will shrink 2.97 percent this year, the government forecast today, reversing its November estimate of 2.12 percent growth.

It doesn't help export-dependent Taiwan that the US economy continues to deteriorate. From Bloomberg on Wednesday:

The Federal Reserve’s industrial production index dropped 1.8 percent to 101.3, the lowest level in more than five years, the central bank reported today in Washington. Housing starts plunged 17 percent to an annual rate of 466,000, the fewest since records began in 1959, Commerce Department data showed...

The report from Commerce showed building permits, a sign of future construction, dropped 4.8 percent to a 521,000 annual pace.

The US government is doing its bit to help the housing market.

... President Barack Obama pledged $275 billion in a program that includes cutting mortgage payments and encourages loan modifications to keep Americans in their homes...

But in the meantime, deflationary pressure is building.

A third report today showed prices of goods imported into the U.S. fell in January for a sixth consecutive month on lower commodity costs and slumping demand. The Labor Department’s import-price index decreased 1.1 percent last month after a 5 percent drop in December. Prices were down 12.5 percent from January 2008, the most since records began in 1982.

The Fed aims to arrest the price trend.

Fed officials introduced a long-term U.S. inflation estimate, with most officials aiming to anchor public expectations at a 2 percent rate, according to minutes of the central bank’s Jan. 27-28 meeting released today in Washington. Some officials saw a risk of broad price declines, a pattern that could worsen the recession by making debts harder to repay.

Japanese economy in "worst ever crisis" in post-war era

Not for the first time, the deterioration in the Japanese economy is being described in stark terms. AFP/CNA reports the fourth quarter GDP data.

Japan's economy shrank at an annualised pace of 12.7 per cent in the fourth quarter of 2008 - its worst performance since 1974 - as the recession deepened, official figures showed Monday.

Asia's largest economy contracted by 3.3 per cent in the three months to December from the previous quarter as exports and factory output slumped due to the global economic crisis, the government said.

It was a third straight quarter of negative economic growth for Japan, which is in the midst of its first recession in seven years...

"This is the worst ever crisis in the post-war era. There is no doubt about it," Economic and Fiscal Policy Minister Kaoru Yosano said.

And the deterioration in the GDP is likely to get worse in the current quarter. From Bloomberg:

Japan’s economy may shrink at an annual 20 percent pace this quarter, the steepest drop in the postwar era, according to the Japan Research Institute...

The institute’s forecast for the three months ending March was based on a Trade Ministry survey that showed manufacturers planned to cut output by 9.1 percent in January and 4.7 percent this month. Production plunged a record 9.8 percent in December from a month earlier, revised ministry figures showed today.

Eurozone economy shrinks, US consumer confidence falls

The eurozone economy shrank in the fourth quarter. Bloomberg reports on Friday:

Gross domestic product in the euro region declined 1.5 percent from the previous three months, the European Union’s statistics office in Luxembourg said today. That was more than the 1.3 percent economists expected and the most since euro-area GDP records began in 1995. From a year earlier, GDP fell 1.2 percent in the fourth quarter, the only full-year drop on record.

In the US, the economy looks as though it is continuing to deteriorate in the current quarter. From Bloomberg:

Confidence among U.S. consumers approached its lowest level since 1980 this month after job losses mounted and the slide in home values deepened.

The Reuters/University of Michigan preliminary index of consumer sentiment fell for the first time in three months, to 56.2. The gauge reached a low of 55.3 in November.

Thursday's positive report on retail sales is looking like an anomaly.

The Commerce Department yesterday said retail sales unexpectedly halted a six-month slide in January, helped by spending on items such as clothing and food and higher prices for gasoline that boosted receipts at filling stations. Economists said the gains may not last, citing reports from other retailers and ongoing job losses.

Indeed, another report on Thursday had pointed to continuing job losses.

Reports point to further job losses. The number of Americans on unemployment-benefit rolls rose to 4.81 million in the week ended Jan. 31, the Labor Department said yesterday.

Trade falls in the US and China

Bloomberg reports that the US trade deficit narrowed in December.

The U.S. trade deficit narrowed in December to the smallest in almost six years, with both exports and imports declining for the fifth straight month as consumers worldwide pulled back their spending.

The gap between imports and exports shrank 4 percent to $39.9 billion, from a revised $41.6 billion deficit in November that was wider than previously estimated, the Commerce Department said today in Washington...

Imports in December dropped 5.5 percent to $173.7 billion, the lowest since September 2005, from $183.9 billion the prior month...

Exports in December fell 6 percent to $133.8 billion...

After eliminating the influence of prices, which yields the numbers used to calculate gross domestic product, the trade deficit widened to $43.3 billion from $40.1 billion.

Meanwhile, China also reported big falls in trade. From AFP/CNA:

China's exports fell 17.5 per cent in January from a year earlier, customs authorities said Wednesday, marking the sharpest drop in more than a decade.

The country's trade surplus remained high at US$39.1 billion, due to an even steeper drop in imports, which plunged 43.1 per cent year-on-year, according to customs data.

The weakening in the trade statistics came amid falling demand in key overseas markets and a general reduction in activity caused by the Lunar New Year holiday period, which began in January.

US Treasury unveils rescue plan, markets unimpressed

On Tuesday, the US Treasury announced its latest plan to rescue the financial system. MarketWatch reports:

In its latest effort to stabilize the broken financial system, the U.S. government will use mostly private money to create a fund of at least $500 billion to recapitalize banks and another fund of $1 trillion to support consumer and business lending, Treasury Secretary Tim Geithner announced Tuesday.

As part of the plan, all major U.S. banks will be required to undergo a rigorous stress test to determine if they can survive a more severe economic downturn. If they can, they'll be eligible for government capital.

Apparently, though, markets weren't too impressed by the plan. From Bloomberg:

U.S. stocks fell, sending the Standard & Poor’s 500 Index to its biggest drop since Barack Obama’s inauguration, while Treasuries rallied on skepticism that the government’s bank rescue will work. The dollar and gold rose.

Bank of America Corp. and Citigroup Inc. slipped more than 15 percent after Treasury Secretary Timothy Geithner said he’s still “exploring a range of different structures” to bail out lenders...

The S&P 500 Index dropped 4.9 percent, the most since Jan. 20, to 827.16. The Dow average decreased 381.99 points, or 4.6 percent, to 7,888.88. Ten-year Treasury notes rose, driving their yield down by 0.16 percentage point to 2.82 percent. The dollar gained 0.8 percent against the euro, and gold rose 2.4 percent as investors sought havens.

In other government action on Tuesday, the US Senate approved President Barack Obama's stimulus package. Bloomberg reports:

The U.S. Senate approved an $838 billion economic stimulus package, clearing the way for negotiations with the House over a compromise plan that President Barack Obama wants lawmakers to send him within days.

The Senate today voted 61 to 37 to approve its measure. The bill provides $293 billion in tax cuts and more than $500 billion in new spending that the legislation’s supporters call critical to preventing the economy from sinking deeper into recession.

China's inflation rate approaches zero

Inflation fears have completely vanished in China. From AFP/CNA:

Chinese inflation slowed further in January as activity in the world's third-largest economy weakened, government data showed Tuesday, with economists warning deflation was imminent.

The consumer price index, the main gauge of inflation, was 1.0 per cent in January, down from 1.2 per cent in December, the National Bureau of Statistics said Tuesday...

In an ominous sign of things to come, producer prices, which measure trends at the wholesale level, fell by 3.3 per cent in January, the state-run Xinhua news agency said.

In other news on China today, the country reportedly overtook the US as the largest auto market in January. AFP/CNA reports:

A total of 735,000 automobiles were sold in China last month, state television said, citing Dong Yang, deputy director of the China Association of Automobile Manufacturers.

By contrast, 656,976 vehicles were sold in the United States, according to preliminary estimates issued last week by market research firm Autodata.

However, analysts said January was an unusual month because the Lunar New Year boosts sales in China as the United States sees a post-Christmas drop, and for the full year the US was expected to remain the world's largest market.

Japan faces worst recession in half a century

There was more bad news for Japan today. From Bloomberg:

Orders for Japanese machinery fell for a third month in December and bankruptcies increased as businesses scrapped investment plans amid a collapse in exports and deteriorating earnings.

Bookings slid 1.7 percent from November, when they fell 16.2 percent, the sharpest drop since the survey started in 1987, the Cabinet Office said today in Tokyo. Corporate bankruptcies rose 15.8 percent to 1,360 cases in January, the eighth monthly increase, Tokyo Shoko Research Ltd. said in a separate report...

Japan’s current-account surplus narrowed 92 percent in December as exports slumped, the Finance Ministry said today. Overseas shipments fell a record 35 percent, causing the surplus to shrink for a 10th month, the report said...

Manufacturers are likely to delay or halt investment in capacity because of the slump in demand, the Bank of Japan’s chief economist said today. The economy is deteriorating at a pace unseen in the past half century, Kazuo Momma, head of research and statistics at the central bank, said in a speech.

There was one positive piece of data.

... A separate report today showed an index of sentiment among Japanese merchants rose to 17.1 in January from a record low of 15.9 a month earlier.

The latter, though, contrasts with a Friday report that showed that the index of leading economic indicators fell 2.0 points to 79.8 in December.

More gloomy economic data to end the week

Bloomberg reports another big fall in US employment.

The jobless rate rose to 7.6 percent from 7.2 percent in December, the Labor Department said today in Washington. Payrolls fell by 598,000, the biggest monthly decline since December 1974. Losses spanned almost all industries, from construction and manufacturing to retailing, trucking, media and finance...

With revised declines of 577,000 for December and 597,000 for November, revisions subtracted 66,000 workers from previously reported figures for the last two months of 2008. The 3.57 million jobs lost since the recession started in December 2007 marks the biggest employment slump of any economic contraction in the postwar period.

This means consumer spending is likely to be hurt, especially as consumer credit is also shrinking. From Bloomberg:

Consumer credit fell by $6.6 billion, or 3.1 percent at an annual rate, to $2.56 trillion, according to a Federal Reserve report released today in Washington. In November, credit decreased by $11 billion, more than previously estimated and the biggest drop since records began in 1943.

North of the border, jobs are also being lost. From Bloomberg:

Canada lost a record number of jobs in January, pushing the unemployment rate to a four-year high of 7.2 percent, as companies struggle to cope with the country’s first recession since 1992.

Employers cut a net 129,000 workers, three times the loss forecast by economists, after a drop of 20,400 in December, Statistics Canada said today in Ottawa. It was the largest drop since the methodology for the survey was changed in 1976.

Meanwhile, across the Atlantic, industrial production is falling. Bloomberg reports the fall in German industrial output in December.

Output fell a seasonally adjusted 4.6 percent from November, the biggest decline since records for a reunified Germany began in January 1991, the Economy Ministry in Berlin said today. It was the fourth straight monthly drop and almost twice the 2.5 percent retreat forecast by economists in a Bloomberg survey.

Reuters reports that factories in the UK suffered the biggest slump in production in nearly 35 years at the end of last year.

The Office for National Statistics said industrial production fell 4.5 percent in the three months to December -- the biggest drop since 1974 when the government imposed a three-day working week because of energy shortages during the coal miners' strikes.

Production fell 1.7 percent on the month in December, leaving it 9.4 percent down on a year ago -- the largest annual decline since January 1981...

Manufacturing output dropped 2.2 percent on the month and 5.1 percent on the quarter -- matching the record low set in the first quarter of 1974.

Investors are looking past the gloomy data though. The S&P 500 rose 2.7 percent on Friday while the Stoxx 600 gained 2.1 percent.

BoE moves closer towards ZIRP

The Bank of England took another step towards zero rates on Thursday. Times Online reports:

The Bank of England pushed deeper into uncharted territory yesterday in its fight against deepening recession, cutting interest rates to 1 per cent – the lowest in its 314-year history. The move to reduce rates by another half-point was the fifth cut in five months that have marked a fall from 5 per cent...

Explaining its decision to reduce rates again, the Bank painted a bleak picture of the state of the economy, which, official figures say, shrank by 1.5 per cent in the previous quarter.

The Bank said that it now expected a similar slump in national income in the present quarter, with the world in the throes of what it called a “severe and synchronised downturn”.

Confidence among households and businesses was sinking, while companies and families faced a continued credit drought, it added. As a result, it said, consumer spending was weak while businesses were slashing jobs and drastically cutting investment.

Ironically enough, the day also brought positive data on the UK economy.

As fearful consumers retreat from the high street and homeowners fret over plunging property values, there was some respite from the deluge of bad news yesterday as Halifax, the nation’s biggest mortgage lender, reported that house prices ticked upwards last month.

House prices rose by 1.9 per cent in January as bargain hunters snapped up cheap properties. However, prices are still 17 per cent lower than January last year.

In contrast, the data out of Germany remained negative on Thursday. From Bloomberg:

Manufacturing orders in Germany, Europe’s largest economy, dropped more than economists expected in December, extending the worst decline on record.

Orders, adjusted for seasonal swings and inflation, fell 6.9 percent from November, the Economy Ministry in Berlin said today. That’s adding to the biggest slump since data for a reunified Germany was first compiled in 1991...

From a year earlier, orders slumped 25.1 percent...

But the deterioration in the economy in Germany and elsewhere in the eurozone did not move the ECB to cut rates on Thursday. From Bloomberg:

The European Central Bank kept interest rates unchanged after four reductions since early October as officials gauge the severity of the recession before cutting borrowing costs again.

Policy makers meeting in Frankfurt left the benchmark lending rate at 2 percent...

Nevertheless, central bank rates are clearly on the downtrend. From another Bloomberg report on Thursday:

European Central Bank President Jean- Claude Trichet signaled policy makers may cut their benchmark interest rate by half a percentage point to a record low of 1.5 percent next month as a recession in the euro region deepens.

“I don’t exclude that we could reduce interest rates at our next decision,” Trichet said at a press conference in Frankfurt after leaving the key rate at 2 percent today...

Central banks in South Africa and the Czech Republic joined the U.K. in cutting interest rates today to fight the global slump. South Africa’s central bank cut its benchmark rate by 1 percentage point, the biggest reduction in more than five years, to 10.5 percent. The Czech central bank lowered the key rate for the third consecutive time, by half a point to 1.75 percent.

There is practically no more room for rate cuts in the US though, even as the economy continues to head south. From Bloomberg:

Initial applications for unemployment benefits climbed more than forecast to 626,000 last week, a Labor Department report showed today in Washington. Productivity, a measure of employee output per hour, rose at a 3.2 percent annual rate in October to December as employers cut 1.5 million from payrolls and slashed working hours by the most since 1975, the department said...

A separate Commerce Department report today showed that orders placed with U.S. factories fell for a fifth month in December as domestic and international demand crumbled. Bookings tumbled 3.9 percent, more than forecast, after a 6.5 percent drop in November. Excluding transportation equipment such as cars and aircraft, orders fell 4.4 percent after a 6 percent decrease.

Not all negative

While the global economy is undoubtedly weak, not all the recent data have been negative.

On Monday, we saw a rise in the manufacturing PMIs in some of the major economies.

Tuesday brought us news that US pending home sales rose 6.3 percent in December.

Wednesday brought us news that the ISM non-manufacturing index rose in January. Employment, however, continued to fall. From Bloomberg:

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose to 42.9, still below the reading of 50 that signals contraction...

Companies in the U.S. cut an estimated 522,000 jobs in January, a 12th consecutive reduction, a report from ADP Employer Services today showed...

The economy won’t stabilize “until we see employment start leveling off to where it’s not in that freefall,” ISM’s Nieves, said in a conference call with reporters. “I’m not seeing anything that’s instilling confidence.”

The euro area also saw an improvement in its services index, the PMI rising to 42.2 in January from 42.1 in December, but eurozone retail sales fell 1.6 percent in December from a year earlier.

Similarly, in the UK, the service sector PMI rose to 42.5 in January from 40.2 in December but the Nationwide consumer confidence index fell 8 fell points to 40.

However, as in manufacturing, Japan proved the exception with regards to the improvement in PMIs among the major economies. The Nomura Japan Services Purchasing Managers Index fell to 34.1 in January from 37.0 in December.

Meanwhile, outside the G-7, there have been more interest rate cuts recently. Australia cut rates on Wednesday, and on Thursday, we had rate cuts from Norway, Indonesia and Romania.

Amid weak US economic data, manufacturing PMIs rise

The economic reports from the US on Monday were generally weak. Reuters reports:

U.S. factory activity contracted at a slower pace in January as credit markets improved, data showed on Monday, but the general picture remained one of an economy sliding deeper into recession.

While news that the Institute for Supply Management's index of national factory activity rose to 35.6 from a nearly three-decade low of 32.9 in December gave some faint hope for the embattled economy, other reports painted a bleak image...

According to a closely watched quarterly survey of lending conditions by the Fed, a majority of domestic and foreign banks tightened lending standards to businesses and households over the last three months...

Consumer spending fell by 1 percent in December, a sixth straight monthly decline, after dropping by 0.8 percent in November. With companies cutting down on hours and reducing payrolls, incomes fell by 0.2 percent after November's 0.4 percent decline.

On an inflation-adjusted basis, consumer spending fell 0.5 percent during the month...

In a separate report...spending on construction projects dropped 1.4 percent last month, the biggest decline since July. For 2008, construction spending plunged by a record 5.1 percent.

Elsewhere, the deceleration in the manufacturing contraction was evident in Europe as well. The Markit Eurozone Manufacturing purchasing managers' index rose to 34.4 in January from 33.9 in December while the UK PMI rose to 35.8 in January from December's 34.9

There was improvement in Asia too with the CLSA China Purchasing Managers’ Index rising to 42.2 in January from 41.2 in December, although the news in Asia was marred by South Korea reporting a record 32.8 percent fall in exports in January from a year earlier.

US and Canadian economies contract

The US economy shrank in the fourth quarter, but by less than expected. Bloomberg reports:

The U.S. economy shrank the most in the fourth quarter since 1982 as consumer spending recorded the worst slide in the postwar era, a trajectory that’s likely to continue in coming months.

The 3.8 percent annual pace of contraction was less than forecast, with a buildup of unsold goods cushioning the blow. Excluding inventories, the decline was 5.1 percent, the Commerce Department said today in Washington...

The Institute for Supply Management-Chicago said today its business barometer decreased to 33.3 from 35.1 the prior month. The index has remained below 50, the dividing line for contraction, for four months. Meanwhile, consumer confidence rose less than forecast this month, a Reuters/University of Michigan index showed. The gauge climbed to 61.2 from 60.1 in December.

A separate report today showed that employment costs in the U.S. rose at the slowest pace in almost a decade in the fourth quarter as companies limited wage gains and benefits. The Labor Department’s employment-cost index rose 0.5 percent.

GDP has also been shrinking in Canada. Bloomberg reports:

Canada’s economy contracted in November by the most since the 2003 power outage, led by slumping production in the manufacturing and construction industries.

Gross domestic product fell 0.7 percent, its second straight decline and the biggest drop since August 2003 when northeastern North America was hit by a power blackout, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg said output would fall 0.4 percent, the median of 21 estimates.

Meanwhile, weakness in the eurozone economy has helped drive down inflation but pushed up unemployment. Again from Bloomberg:

Inflation in the euro region slowed to 1.1 percent in January from 1.6 percent in the prior month, the European Union statistics office in Luxembourg said today. That was below the 1.4 percent median estimate in a Bloomberg survey of economists and was the lowest since July 1999. A separate report showed the jobless rate rose to 8 percent in December, the highest in two years, from a revised 7.9 percent in the previous month.

One bright spot for the economy recently has been improvement in the credit markets. Three-month US dollar LIBOR dropped 26 basis points in January, although it rose one basis point to 1.18 percent on Friday.

Friday also saw Reuters report positive news on UK lending.

Figures from the Bank of England showed net mortgage lending rose by 1.903 billion pounds in December 2008, the biggest increase since July of that year and more than three times analysts' forecasts for a rise of 600 million.

The number of home loan approvals rose to 31,000 in December from a record low of 27,000 the previous month and confounded forecasts for a slight decrease to 26,000.

Global economic indicators continue to deteriorate

Thursday's economic data underlined how sharply the global economy is deteriorating.

In the US, Bloomberg reports that durable goods orders and new home sales were down in December.

Orders for goods designed to last several years fell in December for a fifth month, the longest slide since comparable data began in 1992, the Commerce Department said today in Washington. Sales of new homes fell to an annual pace of 331,000, a rate that would take more than a year to clear the glut of unsold properties...

Orders for long-lasting goods dropped 2.6 percent last month, exceeding the 2 percent decrease foreseen by economists surveyed, the Commerce report showed.

For the euro area, Bloomberg reports that sentiment deteriorated again in January.

European confidence in the economic outlook fell to the lowest on record in January as the region faces its worst recession since World War II, adding to arguments for the European Central Bank to cut interest rates further.

An index of executive and consumer sentiment dropped to 68.9 from a revised 70.4 in December, the European Commission in Brussels said today. That is the lowest since the index was first published in 1985. Euro-area capacity utilization fell to 75.2 percent, the lowest since 1990, in the current quarter, the report showed.

Meanwhile, Japan faces a severe recession, one that it may have entered even earlier than the US. From Reuters:

The Japanese economy is facing a severe recession amid the global economic downturn, the head of a government panel that decides dates of business cycles said.

The panel decided on Thursday that Japan likely slipped into recession in October 2007, ending the economy's longest expansion period since World War II.

"Looking forward, I think the current economic downturn will be very severe even after we have already been in one for the last 14 months," said panel chairman Hiroshi Yoshikawa, an economics professor at Tokyo University.

Indeed, a report released on Thursday showed that retail sales fell 2.7 percent in December. Today, another report showed that the Nomura/JMMA Japan Purchasing Managers Index fell to 29.6 in January from 30.8 in December.

Other reports today amplified the case that Japan is in deep recession. From Bloomberg:

Japan headed for its worst postwar recession in December as factory output slumped an unprecedented 9.6 percent, unemployment surged and households cut spending.

The drop in production eclipsed the previous record of 8.5 percent set only a month earlier, the Trade Ministry said today in Tokyo. The jobless rate soared to 4.4 percent from 3.9 percent, the biggest jump in 41 years...

Household spending slid 4.6 percent, a 10th month of declines, a separate report showed. Consumer prices excluding fresh food rose 0.2 percent in December from a year earlier, slowing from 1 percent in November.

Stocks jump as Fed holds

Stocks are having a good run at the moment. Bloomberg reports Wednesday's market action.

U.S. stocks rose, extending a global rally, as President Barack Obama prepared to set up a so-called bad bank to absorb toxic investments and Yahoo! Inc. and Germany’s SAP AG reported better-than-estimated earnings...

The S&P 500 added 3.4 percent to 874.09, with financial companies posting 19 of the top 20 gains. The Dow Jones Industrial Average climbed 200.72 points, or 2.5 percent, to 8,375.45. Europe’s benchmark, the Dow Jones Stoxx 600 Index, rose 3.2 percent and the MSCI Asia Pacific Index gained 0.5 percent.

This time, the Fed contributed little to the rally.

Benchmark indexes climbed to their highs after the Federal Reserve left its benchmark interest rate as low as zero and said it may keep it at “exceptionally low levels” for some time...

Treasuries fell, led by the biggest decline in 30-year bonds in three weeks, after the central bank failed to expand on its plan to buy government debt as a means to reducing borrowing costs. The dollar gained against the yen and euro as the Fed resolved to do whatever is needed to revive the economy.

In contrast to the Fed, the Reserve Bank of New Zealand has a lot more leeway to cut rates. Or at least it had. From the National Business Review today:

The Reserve Bank of New Zealand has cut the Official Cash Rate (OCR) from 5 percent to 3.5 percent.

Reserve Bank Governor Alan Bollard this morning announced the reduction, to its lowest ever level, since it was introduced at 4.5 percent in 1999.

There may be more rate cuts to come from central banks around the world, although, as Reuters reports, the latest economic indicators are not all deteriorating.

The IMF released revised forecasts on Wednesday, slashing its projection for 2009 global growth to just 0.5 percent -- the weakest since World War II -- from a November estimate of 2.2 percent. It warned that deflation risks were rising and that toxic assets -- high-risk debt accumulated in the global credit boom that went bust 17 months ago -- needed to be removed from the banking system.

Earlier IMF chief Dominique Strauss-Kahn said the fund would struggle if it had to meet all potential claims on its resources and that the stability of the euro zone could be in danger if its governments did not coordinate more closely...

The United Nations agency, the International Labour Organisation, said that if the global recession deepened in 2009 another 51 million jobs worldwide could be lost this year in a worst-case scenario.

The struggle to raise business funding has helped drive confidence among leaders of the world's top companies to a new low, according to a poll of more than 1,100 CEOs that set a grim backdrop for the annual meeting of the world's business and political elite in the Swiss ski resort of Davos.

Yet in France, a survey showed consumer confidence rose in January to its strongest since April last year, although it remained heavily negative and a separate report showed industrial companies expected demand for goods to continue to fall in the first quarter.

In Germany, market research group GfK's forward-looking sentiment gauge, based on a survey of 2,000 Germans, showed morale should hold steady in February. That beat expectations ECONDE and suggested that a collapse in global commodity prices since the world economy tipped into a steep downturn may be easing at least one of the pressures on consumers...

The Conference Board's Leading Economic Index for the euro zone fell 0.9 percent in December to 93.3 points after declines in November and October, the research group said.

The index "indicates that there is no improvement in sight", said Jean-Claude Manini, the Conference Board's senior economist for Europe after the index's first release for the euro zone.

And in Italy, business sentiment fell in January for the eighth month running to its lowest on record.

German business confidence up, US consumer confidence down

German business confidence unexpectedly rose in December. Bloomberg reports:

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, increased to 83 from 82.7 in December. Economists expected a drop to 81, the median of 37 forecasts in a Bloomberg News survey shows.

The same can't be said of US consumer confidence. Again from Bloomberg:

Consumer confidence in the U.S. sank to the lowest level on record in January as jobs evaporated and home values sank, signaling a further slide in spending at the start of 2009.

The Conference Board’s index, records for which go back to 1967, fell to 37.7, lower than forecast. A separate report showed the drop in house prices in major metropolitan areas deepened in November. The S&P/Case-Shiller 20-city index fell 18.2 percent from a year earlier, the most since it began in 2001.

US stocks managed to finish the day up though.

Stocks rose as better-than-forecast earnings from companies including Texas Instruments Inc. and Travelers Cos. overshadowed the grim economic news. The Standard & Poor’s 500 Index climbed 1.1 percent to close at 845.71. Treasuries moved higher, sending benchmark 10-year note yields to 2.53 percent at 4:17 p.m. in New York from 2.64 percent late yesterday.

US economic indicators turn up

There were positive surprises for US economic data on Monday. From Bloomberg:

Two measures of U.S. economic performance unexpectedly turned positive in December...

The National Association of Realtors said sales of existing homes rose 6.5 percent to an annual rate of 4.74 million last month, propelled by the biggest slump in prices since the Great Depression. The Conference Board’s index of leading economic indicators increased 0.3 percent as the supply of money expanded.

Unfortunately, job losses are also going up.

Analysts said the indicators, while reflecting Federal Reserve and Treasury efforts to stave off a complete collapse of the economy, needed to be viewed against the backdrop of surging firings -- at least 74,000 announced today alone. The job losses, they said, may deepen the pullback in consumer spending and make banks more reluctant to lend, exacerbating what’s already the longest recession since 1982.

For the Lion City, the Ox is no bull

According to the Chinese zodiac, today marks the first day of the Year of the Ox. Many investors must no doubt be hoping that the Ox brings bullish prospects for markets in the new year.

Last year, the Year of the Rat, certainly did not prove bullish for markets. Almost all asset prices declined substantially, government securities, especially United States Treasuries, being among the few exceptions. Major economies experienced slumps, including notably the US, the euro area and Japan.

Today, the Rat makes way for the Ox. With the Rat gone, is it time for investors to nibble on stocks?

According to feng shui master Raymond Lo, 2009 will be a year in which the stock market stabilises. He says that this Year of the Ox is symbolized by two elements: earth sitting on top of earth. This suggests to him harmony and peace. Therefore, he expects to see signs of more stability and calmness in the stock market. However, in the absence of a fire element, usually seen by feng shui experts as the driving force behind stock market movements, investors will remain cautious.

Historically, Ox years have seen some pretty turbulent times, especially in recent decades, but they have not generally been bad for stock markets.

In 1973, we saw the first oil crisis and stock markets tumbling around the world. In the US, the Standard & Poor's 500 fell 17.4 percent while the Nikkei 225 fell 17.3 percent.

1985, however, turned out much better. The S&P 500 rose 26.3 percent that year while the Nikkei 225 was up 13.6 percent.

In 1997, the last Ox year, we had financial crises in Asia and other emerging economies. The Nikkei 225 did not escape the fallout, declining 21.2 percent. The US market, however, was unscathed, the S&P 500 actually surging 31.0 percent that year.

While the Ox has not generally been unfriendly for the larger markets, there is one stock market which has invariably been gored by it: Singapore's.

In 1973, the Morgan Stanley Capital International (MSCI) Singapore Index fell 42.7 percent. In 1985, it fell 26.9 percent as the economy experienced its first recession since the country gained independence. In 1997, it fell 29.2 percent.

Last year, the MSCI Singapore fell 49.5 percent, the biggest decline on record. Will it fall again this year?

Since the beginning of 2009, the MSCI Singapore has fallen five percent. It is early in the year, though, and historically, two consecutive years of declines in the index have not been common.

Having said that, the plunge in 1973 was followed by a 51.3-percent fall in 1974, the decline in 1985 had been preceded by a 26.6-percent fall in 1984 and the tumble in 1997 had been preceded by a 1.8-percent fall in 1996 and was followed by a 7.3-percent fall in 1998.

In other words, years around the Ox year have always seen a multi-year bear market for Singapore stocks.

Will this time be different? If the latest economic figures from the Singapore government are any indication, probably not.

The Singapore economy fell into recession in 2008 after the economy contracted 5.5 percent in the second quarter and 5.1 percent in the third quarter on a seasonally-adjusted, annualised quarter-on-quarter basis.

A report from the Ministry of Trade and Industry on 21 January said that gross domestic product fell again in the fourth quarter, this time by 3.7 from the previous year or 16.9 percent on an annualised quarter-on-quarter basis. Furthermore, the report said that the economic downturn is expected to continue in 2009, with the ministry's growth forecast for the year being revised down to a range of -5.0 to -2.0 percent from -2.0 to +1.0 percent announced on 2 January 2009.

"The Singapore economy is going through its sharpest, deepest and most protracted recession," the ministry's second permanent secretary Ravi Menon said at a media briefing on 21 January.

That view on the economy was echoed the next day by Finance Minister Tharman Shanmugaratnam when he proposed a government budget for 2009 that included a S$20.5 billion package of measures to mitigate the impact of the downturn. "We are likely to experience the deepest recession in the Singapore economy since our independence, arising from the worst global economic decline in 60 years," he told Parliament.

With that kind of forecast from the government, investors in the Singapore stock market will be fortunate if the market avoids another sharp plunge this year. More realistically, investors should probably expect more turmoil for the stock market.

The Ox may have arrived today. The bull is likely to be much tardier.

Europe in recession

Britain officially joins the recession club. Reuters reports:

The Office for National Statistics said the economy shrank by 1.5 percent in the fourth quarter of last year, the biggest drop since 1980. That followed a 0.6 percent decline in the third quarter, fulfilling the technical definition of recession.

Meanwhile, the euro area appears to have remained in recession this month. From Bloomberg:

Europe’s manufacturing and service industries contracted for an eighth month in January as the global recession curbed demand for exports and damped spending.

A composite index of both industries was at 38.5 compared with 38.2 in December, which was the lowest reading since the survey began in 1998. Economists forecast a decline to 37.4, according to the median of 15 estimates in a Bloomberg survey. The index is based on a survey of purchasing managers by Markit Economics and a reading below 50 indicates contraction...

A gauge of manufacturing activity was at 34.5 after reaching a record low of 33.9 in December. The services index rose to 42.5 from 42.1.

US housing weakens, Canadian leading indicators decline, European industrial orders fall

The economic reports are all coming in negative now.

There is no recovery in the US housing market in sight. From MarketWatch:

Closing out the third year of the housing bust, construction on new homes took another turn for the worse in December, falling more than 15% to a seasonally adjusted annual rate of 550,000, the lowest on record, the Commerce Department reported Thursday.

Permits to build single-family homes also fell, dropping 12.3% to 363,000 last month, while total permits including apartments dropped 10.7% to a 549,000 annual rate. The figures represented record lows for both single-family and total permits...

The mood of home builders' has rarely been worse. The National Association of Home Builders reported Wednesday that its sentiment index fell to a record-low 8 in January. See full story.

Meanwhile, the US employment situation continues to deteriorate.

In a separate report Thursday, the Labor Department said first-time filings for unemployment benefits rose by 62,000 last week to 589,000. The number of new claims and continuing claims were at the highest levels since 1982. See full story.

There was also gloomy economic news north of the border. On Thursday, Statistics Canada reported that Canadian retail sales fell 2.4 percent in November while the composite index of leading indicators fell 0.6 percent in November.

And across the Atlantic, the outlook is looking gloomy too. From Bloomberg:

Industrial orders in the euro zone declined 26 percent from the year-earlier month, the European Union statistics office in Luxembourg said today. That was the biggest drop since the euro was introduced a decade ago and exceeded economists’ median estimate for a drop of 20 percent in a Bloomberg News survey. Excluding transport, orders fell 23 percent...

From the prior month, orders fell 4.5 percent in November, less than the 5 percent drop forecast by economists.

And across the English Channel as well. From Reuters:

The Confederation of British Industry's monthly industrial trends...survey's factory orders balance tumbled to -48 in January from December's -35, the lowest since July 1992...

The balance measuring companies' expectations for output over the next three months fell to -43 from -42, the weakest since September 1980.

Asian slump

The news from Asia today is pretty gloomy.

AFP/CNA reports the latest BoJ forecasts.

Japan's economy faces a two-year recession, the central bank warned Thursday as it unveiled new measures to repair battered credit markets by mopping up risky assets.

The world's second biggest economy is expected to contract by 1.8 per cent in the current financial year to March and by 2.0 per cent the following year, the Bank of Japan said, downgrading its earlier outlook.

The Bank left its key interest rate unchanged at 0.1 per cent, as expected, while announcing fresh steps aimed at unblocking credit flows.

The BoJ said it would spend up to three trillion yen (US$33.7 billion) to buy commercial paper, a type of short-term corporate debt, to make it easier for companies to secure vital credit during the recession.

Earlier, Japan had reported that exports plunged in December.

Japan reported Thursday a record 35 per cent plunge in exports in December as consumers worldwide tightened their belts, pushing Asia's biggest economy even deeper into recession.

Demand for Japanese goods plummeted, prompting warnings from analysts that the economy may have contracted 10 per cent on an annualised basis in the fourth quarter of 2008 - the worst performance in three decades.

Japan's neighbours look to be in bad shape too.

China's economy slowed sharply in the final quarter of 2008 to just 6.8 per cent as thousands of factories that sold to overseas markets shut, pulling the full-year growth figure down to 9.0 per cent, official data showed.

South Korea said its economy was in the worst shape since the East Asian financial crisis a decade ago, following a 5.6-per-cent contraction quarter-on-quarter in the final three months of last year...

Singapore reported on Wednesday it was facing its worst-ever recession after the economy contracted by 16.9 per cent in the final quarter, its biggest fall on record.

Stocks, sterling fall as BoC, BoE contemplate ZIRP

Investors didn't give the new US president much of a welcome on Tuesday. From Bloomberg:

U.S. stocks sank, sending the Dow Jones Industrial Average to its worst Inauguration Day decline, as speculation banks must raise more capital sent financial shares to an almost 14-year low.

State Street Corp., the largest money manager for institutions, tumbled 59 percent after unrealized bond losses almost doubled. Wells Fargo & Co. and Bank of America Corp. slumped more than 23 percent on an analyst’s prediction that they’ll need to take steps to shore up their balance sheets. The Dow’s 4 percent slide was the most on an Inauguration Day in the measure’s 112-year history, according to data compiled by Bloomberg and the Stock Trader’s Almanac...

The S&P 500 plunged 5.3 percent to 805.22. The S&P 500 Financials Index fell 17 percent to below its lowest closing level since March 1995 as concern European banks need more capital also weighed on the group. The Dow average slid 332.13 points to 7,949.09. Both the Dow and S&P 500 retreated to two- month lows.

Stock markets in Europe and Asia fell too.

Europe’s Dow Jones Stoxx 600 Index retreated 2.1 percent today, led by banks and technology companies... The MSCI Asia Pacific Index retreated 2.1 percent today.

ZIRP doesn't seem to have done much good for the US so far but Canada looks like it is going to try it out soon anyway. From Bloomberg:

The Bank of Canada slashed its key interest rate to the lowest since the institution was founded in 1934 and signaled that more cuts may be needed to jolt the economy out of recession and stabilize credit markets.

Governor Mark Carney cut the target rate on overnight loans between commercial banks by half a point to 1 percent, lower than the previous record of 1.12 percent in 1958 when the rate was based on treasury-bill yields. The move was anticipated by 19 of 20 economists surveyed by Bloomberg News.

The UK is a bit further behind as far as ZIRP is concerned, but that hasn't stop the BoE from talking about going beyond lowering interest rates. From Reuters:

The economy will likely shrink markedly in the first half of 2009 and policymakers need to think about using more than just interest rates to stimulate demand, Bank of England Governor Mervyn King said on Tuesday...

"With Bank Rate already at its lowest level in the Bank's history, it is sensible for the Monetary Policy Committee to prepare for the possibility -- and I stress we are not there yet -- that it may need to move beyond the conventional instrument of Bank Rate and consider a range of unconventional measures."

All this talk of monetary easing means that sterling has gotten a pounding. From Bloomberg:

The dollar advanced to $1.2873 per euro from $1.2904 late in New York yesterday. It reached $1.2845, the strongest since Dec. 9. Sterling weakened to $1.3871 from $1.3928. It touched $1.3811, the lowest since June 2001. Against the euro, the pound slid to 92.79 pence from 92.62 pence yesterday when it reached 93.25 pence, the lowest since Jan. 5.

European economy to shrink in 2009

There was more evidence on Monday that the European economy continued to deteriorate in the fourth quarter. From Eurostat:

In the construction sector, seasonally adjusted production decreased by 1.1% in the euro area (EA15) and by 1.6% in the EU27 in November 2008, compared with the previous month. In October, production fell by 0.1% in the euro area, but increased by 0.5% in the EU27.
Compared with November 2007, output in November 2008 dropped by 4.7% in the euro area and by 4.2% in the EU27.

The European economy is expected to continue shrinking this year. Bloomberg reports the latest forecast from the European Commission.

The euro-area economy will contract this year for the first time since the currency was introduced a decade ago, the European Commission forecast, cutting its outlook for the region amid the worst financial crisis since World War II.

The economy of the 16 countries sharing the euro will shrink 1.9 percent in 2009, the Brussels-based commission said today, revising a November estimate for growth of 0.1 percent. European Central Bank President Jean-Claude Trichet today said economic prospects are “substantially” worse than the ECB predicted just last month...

In Europe, the slump deepened in the fourth quarter, according to the commission, which estimates that gross domestic product shrank by 1.5 percent in the final three months of the year after a 0.2 percent contraction in the previous two quarters. The economy will continue to contract in the first two quarters of this year, it said...

The euro region will return to growth next year with an expansion of 0.4 percent, today’s forecasts show. This year, Ireland will contract 5 percent, Germany 2.3 percent and economic output in Spain will drop 2 percent. The economy of the 27 countries in the EU will shrink 1.8 percent this year, according to the commission forecasts.

Meanwhile, the UK government has been forced to come to the rescue of banks again. Reuters reports:

The government threw its troubled banks a second multi-billion pound lifeline in three months on Monday and gave its central bank the green light to pump cash into the ailing economy because interest rates are already close to zero.

The latest plan will see the government increase its stake in Royal Bank of Scotland after the bank announced the biggest loss in British corporate history: up to 28 billion pounds in 2008.

But a lack of detail in the package and fears it is one step from full nationalisation sent shares skidding: RBS crashed 70 percent to 10.5 pence, its lowest level for over 25 years, and shares in other banks all slumped heavily.

Japanese economy still deteriorating

There appears to be no imminent end to the recession in Japan. In fact, the latest data show that it may be getting worse.

On 16 January, the Bank of Japan released its Regional Economic Report for January. The report described economic conditions in the country as "deteriorating" with all nine regions having revised their assessments of economic conditions downward compared to their assessments in October 2008.

Today's economic release from the Ministry of Economy, Trade and Industry corroborated the downbeat assessments. The report showed that industrial production fell 8.5 percent in November, worse than the preliminary estimate of an 8.1 percent decline.

Economic data released last week showed the same deteriorating trend.

The Ministry of Finance's balance of payment report on 13 January showed that exports fell 26.5 percent in November from a year earlier while imports fell 13.7 percent. That left the trade balance with a deficit of 93.4 billion yen, a complete reversal of the surplus of previous years. The current account balance remained in surplus but shrank 65.9 percent from a year earlier.

Also on 13 January, the Cabinet Office's survey of workers in economically-sensitive jobs showed a deterioration in sentiment in December. The diffusion index for current conditions from the Economy Watchers Survey fell from 21.0 in November to 15.7 in December. The diffusion index for future conditions fell from 24.7 to 17.6.

Then on 15 January, another Cabinet Office report showed that investment spending in Japan is declining further. Core private sector machinery orders fell 16.2 percent in November, the biggest fall since the current survey began in 1987.

Japan's economy may have largely avoided the financial excesses seen in the West but as an export-dependent economy in a globalised world, it is not avoiding the fallout from the financial turmoil.

US consumer prices, industrial production fall in December

The latest US economic data show that the recession very likely hasn't ended. Bloomberg reports:

Consumer prices and industrial production tumbled in the U.S. as a record slide in retail sales destroyed companies’ pricing power and idled more than a quarter of factory capacity.

The cost of living fell 0.7 percent in December, capping the smallest annual increase since 1954, the Labor Department said today in Washington. Industrial output shrank 2 percent, and the capacity-utilization rate slid to 73.6 percent, the Federal Reserve said...

The Reuters/University of Michigan preliminary index of consumer sentiment rose to 61.9 from 60.1 in December.

Based on the industrial production data, Spencer at Angry Bear says that the recession in the US is likely to be severe.

From a level of 100 at the peak industrial production has now fallen to 92.0, or roughly at the average trough level for the 10 post WW II recessions of 92.3%... [T]here is little doubt that by the time this recession is over it will have been among the worse post WW II recessions. If you rely on nothing else, the current level of inventories very strongly implies that manufacturing output has yet to bottom.

Corporate profits are headed for record declines as well.

[T]he spread between falling prices as measured by the PPI and unit labor cost implies that corporate and/or S&P 500 profit margins are now falling at post WW II record rates. Together with sharply falling output and write-offs in the financial sector it clearly looks like the drop in corporate profits and/or S&P 500 earnings will set a post WW II record decline this cycle.

Indeed, Paul Krugman thinks that the US faces a real risk of deflation.

... These days I’m looking at the TIPS spread: the difference between nominal US bond rates and rates on Treasury Inflation-Protected Securities. This spread is an indicator of expected inflation. And what it shows isn’t good...

More and more, this looks like a Japan-type trap.

Still, maybe there is light at the end of the tunnel. From Reuters:

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell in the week ending Jan 9 to 108.6 from 109.3 in the previous week, initially reported as 109.4.

The index's annualized growth rate ticked up to negative 25.5 percent from negative 26.9 percent, revised from minus 26.8 percent. It marked its highest reading since the week to Oct. 24, 2008, when it was minus 22.8 percent.

ECB cuts rates as global recession looks more likely

The ECB cut interest rates on Thursday pretty much as economists expected. Bloomberg reports:

The European Central Bank cut its benchmark interest rate by half a percentage point to 2 percent, matching a record low, as the deepening recession pressed policy makers into action.

Inflation has peaked and is expected to continue falling this year.

The rate declined to 1.6 percent in December.

The ECB last month forecast inflation would average 1.4 percent this year and 1.8 percent in 2010. It predicted the economy would contract 0.5 percent in 2009 before rebounding to expand 1 percent in 2010.

This means there will probably be more rate cuts.

Investors expect the ECB to lower the benchmark rate to as low as 1.25 percent by June, Eonia forward contracts showed before today’s decision.

Elsewhere, there is plenty of evidence that the global economy is in a slump.

Bloomberg reports Thursday's US economic reports.

Initial jobless claims jumped to 524,000 in the week ended Jan. 10, the Labor Department said today in Washington. Producer prices fell 1.9 percent, capping the first annual drop since 2001. Separately, the Federal Reserve said manufacturing in the Philadelphia and New York regions shrank further in January.

Earlier, the reports from Japan showed a similar pattern. From Bloomberg:

Japanese machinery orders fell by a record 16.2 percent in November, twice as much as economists estimated, as businesses cut spending amid a deepening global recession...

Weak domestic demand and falling oil prices may herald a return to the deflation that plagued Japan for almost a decade until 2005. Producer prices rose 1.1 percent in December, the slowest pace since May 2004, a central bank report today showed. Wages tumbled 1.9 percent in November and consumers have pared spending for nine consecutive months.

And the impact of the global economic downturn is hitting China as well. Again from Bloomberg:

Foreign direct investment in China declined for a third month, adding to the toll that recessions in the U.S. and Europe are taking on the world’s third-biggest economy.

Investment fell 5.7 percent to $5.98 billion in December from a year earlier, the commerce ministry said at a briefing in Beijing today. November’s decline was 36.5 percent...

China’s economy overtook Germany’s in 2007 to become the world’s third largest, according to revised figures released yesterday by China’s statistics bureau...

So a global recession is increasingly likely. At least that's what the UN seems to think. From Reuters:

Countries around the world must boost demand with massive coordinated packages to tackle an economic outlook of unrelieved gloom, the United Nations said on Thursday.

Launching its 2009 World Economic Situation and Prospects, the U.N. said the global economy was deteriorating so fast that the report's baseline assumptions were already out of date, and the pessimistic scenario was now more realistic...

The U.N. report forecasts 1.0 percent global economic growth this year, with small recessions in developed nations offset by strong growth in developing countries including China and India.

But a pessimistic scenario projects steeper contractions in rich countries and smaller growth in emerging and developing nations, giving an overall 0.4 percent decline in world output.

[Heiner Flassbeck, director of globalisation and development strategies at UNCTAD] said this scenario was now more likely. "For the world as a whole the outcome could be zero or even slightly below zero. This is not an overly pessimistic view," he said.

US retail sales, eurozone industrial production fall

Wednesday brought yet more gloomy economic data.

Bloomberg reports that US consumers are cutting back on spending.

Sales at U.S. retailers fell more than twice as much as forecast in December as job losses and the lack of credit led Americans to cut back on everything from car purchases to eating out.

The 2.7 percent slump marked the sixth straight month of declines, the longest string since comparable records began in 1992, the Commerce Department said today in Washington... Excluding gas, retail sales fell 1.4 percent.

Meanwhile, businesses are cutting inventories.

Commerce also reported that inventories at all businesses in November dropped 0.7 percent, more than economists estimated and the third straight decrease. A 1.7 percent decline in stockpiles at retailers, as furniture stores and auto dealers cut back, paced the overall slump.

The weakening economic activity was picked up in a Fed report.

The decline in purchases and lack of credit caused a further weakening in the economy across almost all areas of the country in the past month, the Federal Reserve said today in its regional business survey. Retailers engaged in “deep discounting” during the holidays, with “sizable” price cuts, while wage pressures were “largely contained,” the Fed report found.

The weaker economy is also being reflected in import prices.

Labor Department figures showed the import-price index decreased 4.2 percent, less than economists forecast, after a revised 7 percent drop in November. Prices from a year earlier were down 9.3 percent, the largest year-over-year decline since the index was first published in 1982. Prices excluding fuels dropped 1.1 percent last month.

And it's not just the US economy that's weakening. The euro economy continues to report weak data. From Reuters:

Industrial output in the 15 countries using the euro in November fell 1.6 percent on the month and 7.7 percent year-on-year, the European Union statistics office said on Wednesday.

US and UK exports fall in November

Global trade is clearly suffering. Following the declines seen in the Asian economies earlier on Tuesday, US and UK trade numbers reported later that day also showed large falls in exports.

Bloomberg reports the US numbers.

The U.S. trade deficit narrowed in November by the most in 12 years as tumbling oil prices and slumping consumer spending cut imports.

The gap shrank 29 percent, more than forecast, to $40.4 billion, the Commerce Department said today in Washington. A record 12 percent drop in imports propelled the improvement. Exports fell for a fourth straight month...

Total U.S. exports dropped 5.8 percent to $142.8 billion, today’s report showed. Foreign purchases of automobiles were the lowest since October 2006.

In the UK, there wasn't even the consolation of a fall in the trade deficit. BBC reports:

The UK's goods trade gap with the rest of the world reached record levels in November, official figures show.

The deficit stood at £8.33bn, the Office for National Statistics said, up from October's figure, which was revised downwards to £7.631bn...

Total exports dropped by 6% in November, with imports down 2% for the month.

OECD leading indicators signal deep slowdown, Chinese and Japanese exports shrink

The latest OECD composite leading indicators show that developed economies face deep slowdowns.

The CLI for the OECD area decreased by 1.3 point in November 2008 and was 7.3 points lower than in November 2007. The CLI for the United States fell by 1.7 point in November and was 8.7 points lower than a year ago. The Euro area’s CLI decreased by 1.1 point in November and stood 7.6 points lower than a year ago. In November, the CLI for Japan decreased by 1.6 point, and was 5.5 points lower than a year ago.

Emerging economies will not escape the slowdown.

The CLI for China decreased 3.1 points in November 2008 and was 12.9 points lower than a year ago. The CLI for India fell by 1.2 point in November 2008 and was 7.6 points lower than in November 2007. The CLI for Russia decreased by 4.3 points in November and was 13.8 points lower than a year ago. In November 2008 the CLI for Brazil decreased by 1.1 point and was 2.9 points lower than a year ago.

Indeed, the latest Chinese trade data released today show the developing trend clearly. From AFP/CNA:

Chinese exports extended their decline into a second month in December as the global crisis continued to impact its heavily trade-dependent economy, state media reported Tuesday...

Exports from the world's fourth-largest economy dropped 2.8 per cent in December from a year earlier to 111.2 billion US dollars, the paper said...

Imports in December were down by an even steeper 21.3 per cent to 72.2 billion US dollars, the paper said, suggesting a rapid contraction in domestic economic activity.

Japan also reported today a fall in exports. From Bloomberg:

Japan’s current-account surplus narrowed for a ninth month in November as exports slumped by a record in the wake of the global recession...

Exports fell 26.5 percent in November from a year earlier, the most since comparable data were first made available in 1985, today’s report showed. Imports slid 13.7 percent.