November 21, 2024
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In the latest installment of DealBook’s animated series, Ben S. Bernanke, chairman of the Federal Reserve, goes to see his psychiatrist.
Animation software by Xtranormal.
Article source: http://feeds.nytimes.com/click.phdo?i=33307e6ae5ef3f534d9cf067951fa857
The central bank is often described as facing the choice of whether to do more to improve the economy. But the anticipatory behavior of investors means the Fed really faces a slightly different choice, one it has confronted often in recent years: whether to risk doing less than expected.
The overriding argument for action is the persistent weakness of the American economy, which has left more than 25 million Americans unable to find full-time work.
The Federal Reserve chairman, Ben S. Bernanke, who has made a series of unusual efforts to revive growth, has not discouraged speculation that he is ready to try again.
“I think the Fed has no choice but to act,” said Krishna Memani, director of fixed income at Oppenheimer Funds. “If the Fed were not to do anything having built market expectations to a pretty decent level, I think the markets would react quite negatively to that.”
But the Fed also faces mounting pressure against additional action, including strident criticism from Republican presidential candidates and divisions in the policy-making committee. Moreover, the options available to the central bank have less power to generate growth, a greater chance of negative consequences, or both, than those it has already tried.
Some close watchers of the central bank say investors’ behavior could let the Fed offer a token gesture now, postponing any larger move at least until its next meeting in November. After all, the Fed is reaping the benefits of action without the costs.
“There is no reason for the Fed to rush,” Lou Crandall, chief economist at Wrightson/ICAP, wrote in a recent note to clients predicting such an outcome. “It is in the Fed’s interest to milk the anticipation effect as long as possible.”
The move markets are anticipating is a new effort to reduce long-term interest rates, which would allow businesses and consumers to borrow more cheaply. Yields on the benchmark 10-year Treasury note fell to a record low of 1.88 percent at the start of last week, reflecting the Fed’s earlier efforts to lower rates and investors’ pessimism about the economy.
The hope is that an additional reduction in rates will provide a little more encouragement for companies to build factories and hire workers and for consumers to buy cars and dishwashers.
The Fed has held short-term rates near zero since December 2008, by increasing the supply of money.
To further reduce long-term rates, the Fed bought more than $2 trillion in government debt and mortgage-backed securities, reducing the supply available to investors and thereby forcing them to pay higher prices — that is, to accept lower interest rates.
The Fed could seek to amplify that effect by adjusting the composition of its portfolio, selling short-term securities and using the proceeds to buy long-term securities, which it predicts would further reduce rates.
An analysis by the forecasting firm Macroeconomic Advisers estimated that such an effort by the Fed could raise gross domestic product by 0.4 of a percentage point over the next two years, and create about 350,000 jobs. That is comparable to estimates of the impact of the central bank’s most recent aid campaign, the QE2, or quantitative easing, purchases of $600 billion in Treasury securities, which concluded in June.
Mr. Bernanke announced in August that the Federal Open Market Committee, the policy-making board, would meet for two days, extending its scheduled one-day meeting this week, to consider that and other options.
The Fed could take smaller steps, like promising to maintain current efforts longer. It may also consider options that could deliver a more powerful jolt to the economy, like increasing the size of its investment portfolio again. But more aggressive measures have little internal support.
The Fed, Mr. Bernanke said, is “prepared to employ these tools as appropriate to promote a stronger economic recovery in a context of price stability.”
He still commands a solid majority of his 10-member board despite the emergence of the largest bloc of internal dissent in two decades. Three members voted against the decision last month to declare an intention to hold short-term interest rates near zero for at least two more years, replacing a stated intention to maintain the policy for an “extended period.”
Jackie Calmes contributed reporting from Washington, and Eric Dash from New York.
Article source: http://feeds.nytimes.com/click.phdo?i=349bd1e505ec64b039b387b5e69e7cc7
Mr. Bernanke, speaking at a luncheon in Minneapolis, offered the standard explanations, including the absence of home construction and the deep and lingering pain inflicted by financial crises. He warned again that reductions in government spending amount to reductions in short-term growth.
Then he said something new: Consumers are depressed beyond reason or expectation.
Oh, sure, there are reasons to be depressed, and the Fed chairman rattled them off: “The persistently high level of unemployment, slow gains in wages for those who remain employed, falling house prices, and debt burdens that remain high.”
However, Mr. Bernanke continued, “Even taking into account the many financial pressures that they face, households seem exceptionally cautious.”
Consumers, in other words, are behaving as if the economy is even worse than it actually is.
Economic models based on historic patterns of unemployment, wages, debt and housing prices suggest that people should be spending more money. Instead, just as corporations are sitting on their money, households are holding back, too.
Why? Well, one possibility is that Americans collectively are suffering from what amounts to an economic version of post-traumatic stress disorder.
“People are on edge waiting for the other shoe to drop,” John Williams, the president of the Federal Reserve Bank of San Francisco, told the Seattle Rotary Club on Wednesday. “In fact, the latest consumer sentiment readings are near the all-time lows recorded in late 2008 during the most terrifying moments of the financial crisis.”
Moreover, the national mood is souring. Although the economy has grown this year — albeit slowly — surveys of consumer confidence keep finding increasing pessimism about the future.
Mr. Williams noted a recent survey finding that 62 percent of households expected their income to stay the same or decline over the next year, the bleakest outlook in the last three decades.
“It’s hard to have a robust recovery,” he said, “when Americans are so dispirited.”
There is a longstanding debate among economists about the importance of confidence. Research has found that consumers are not very good at predicting the future. Optimism often fails to correlate with growth; pessimism doesn’t necessarily foreshadow a recession.
Still, it seems intuitive that a lack of confidence can drag on the economy. As pessimistic people pull back — deciding that there is no point in looking for work; that this is not the year to go on vacation; that it may make sense to stop eating in restaurants — the economy shrinks.
There is a natural instinct to address this problem by trying to cheer people up. Mr. Bernanke in recent speeches has been careful to note that he continues to think that the American economy has a bright future.
There is also the possibility, however, that the national mood is a more accurate reflection of the economic reality than any of the other, sunnier statistics.
“Confidence is mostly reflective of fundamentals,” said Eric Sims, a professor of economics at the University of Notre Dame. As a result, he said, the only way to cheer people up is to improve the condition of the economy. “You’ve got to give people a reason to have confidence.”
Article source: http://feeds.nytimes.com/click.phdo?i=3f856022a19f027b914e76751208740e
Stocks were lower in afternoon trading on Wall Street Thursday as investors awaited President Obama’s evening speech on jobs.
The Dow Jones industrial average was down 74 points, or 0.7 percent, at 11,340. The Standard Poor’s 500-stock index was down 9 points, or 0.8 percent, to 1,190, and the Nasdaq composite fell 15 points, or 0.6 percent, at 2,534.
The price of the 10-year Treasury note rose, with its yield falling to 1.993 percent.
In Europe, the FTSE 100 index of leading British shares was up 0.4 percent at 5,340, while Germany’s DAX was steady at 5,408. The CAC-40 in France was 0.4 percent higher at 3,085.
“Global equity markets are attempting to rebound on building hopes for fresh stimulus from the global authorities to support growth,” said Lee Hardman, an analyst at the Bank of Tokyo-Mitsubishi UFJ.
Investors were looking for other signals throughout the day. While both the Bank of England and the European Central Bank kept their interest rates unchanged, President Barack Obama was expected to announce measures to lift job creation in the United States.
Already negative, stocks slid a bit further after Federal Reserve Chairman Ben S. Bernanke offered no hints that the central bank may take steps to help the ailing economy. He spoke Thursday afternoon to the Economic Club of Minnesota.
Some investors have anticipated that the Fed would take additional steps to stimulate the economy at its two-day meeting that begins Sept. 21.
The hopes that policymakers will do more to shore up growth, including at a weekend meeting of finance ministers of the Group of Seven industrialized countries, has helped stocks recover over the last couple of days. A German court decision backing the government’s involvement in Europe’s bailouts has also helped calm concerns over the debt crisis ahead of a meeting of euro zone finance ministers next week.
Earlier in the day, Asian shares posted modest gains. Japan’s Nikkei 225 index rose 0.3 percent to close at 8,793.12 as a softening yen helped Japan’s exporters.
Article source: http://feeds.nytimes.com/click.phdo?i=33955a94fbf1a8090a6f53282e701539
With a late-day surge, all of the sectors of the Standard Poor’s 500-stock index closed higher, led by a nearly 3 percent rise in financial stocks, capping off a day that wavered between modest gains and losses.
It was the third consecutive session that the major indexes had pushed ahead, partly as investors scooped up stocks that had become cheaper after recent sell-offs. Gold futures fell more than 5 percent, or more than about $100 an ounce, on the Comex in New York, and prices of the benchmark 10-year Treasury bond fell.
Some investors have been betting on the likelihood of more stimulus from the Federal Reserve, whose chairman, Ben S. Bernanke, will speak at the Fed’s symposium at Jackson Hole, Wyo., on Friday. Mr. Bernanke outlined stimulus options at the same meeting in 2010 in response to the economic slowdown.
At the close of trading, the S. P. was up 15.25 points, or 1.3 percent, at 1,177.60. The Dow Jones industrial average was up 143.95 points, about 1.3 percent, at 11,320.71. The Nasdaq composite index was up 21.63 points, or 0.88 percent, at 2,467.69.
The rally in stocks eased demand for bonds. The Treasury’s 10-year note fell 1 7/32, to 98 16/32. The yield rose to 2.29 percent, from 2.16 percent late Tuesday.
“You are seeing a lot of people, rightly or wrongly, sitting on the sidelines until they see what Bernanke says in Jackson Hole,” said Brian Lazorishak, portfolio manager at Chase Investment Counsel, before the day’s final kick.
“People are adopting a wait-and-see attitude,” he added.
The financial sector was led by Bank of America, up about 11 percent at $6.99.
Bloomberg News reported that the bank had sent a memo to employees dismissing speculation that it was considering a merger with JPMorgan Chase, and described as “just wrong” a report that it needed to raise as much as $200 billion.
Gold, which sagged sharply on Tuesday only to rise in Asian trading, fell further on the Comex exchange. It was down $104.20 to $1,754.10 an ounce for the August contract. The metal had been used as a safe haven in recent market volatility and risen to record nominal highs, and some analysts saw Wednesday’s decline as a technical reversal.
Jeffrey Nichols, the managing director of the American Precious Metals Advisors, said that the recent run-up in gold had been “so large in magnitude and fast” that “to have a significant correction here really makes sense.”
“Some of the rally was a function of speculative demand by short-term-oriented institutional traders,” he said, adding that the consequence would be for them to sell, take profits and move on to other instruments. But he said that the long-term economic outlook was basically unchanged.
On Wednesday, the Commerce Department reported that overall orders for durable goods rose 4 percent last month, the biggest increase since March. But a category that tracks business investment plans fell 1.5 percent, the biggest drop in six months.
Analysts noted that, considering recent talk of another recession, it would take more than one economic data point to convince investors that the economy was on solid footing. But Abigail Huffman, director of research at Russell Investments, added that some of Wednesday’s early gains may have been a result of the durable goods numbers and the market’s momentum from the previous day.
Stocks in Europe rose as some investors bet that the Federal Reserve would act soon to strengthen the economy and that the sharp stock market drops earlier this month were overdone.
The Euro Stoxx 50 index closed 1.8 percent higher in Europe, while Germany’s DAX index increased 2.7 percent and France’s CAC 40 index rose 1.8 percent.
Stock markets in Asia slipped as investors took in the downgrade by Moody’s Investors Service of its rating on Japanese government debt.
The Nikkei 225-stock index ended down 1.1 percent at 8,629.61 points. Similarly, the yen remained persistently strong in the international currency markets, hovering at about 76.60 yen per United States dollar.
In Hong Kong, the Hang Seng index was 1 percent lower by midafternoon, the Straits Times index in Singapore fell 0.4 percent, and in India, the Sensex was down 0.8 percent by the afternoon.
Julia Werdigier and Bettina Wassener contributed reporting.
Article source: http://feeds.nytimes.com/click.phdo?i=4d042e9e4fd3b2b1f7f3cee50633da73
After four weeks of brutal losses, stocks recovered slightly on Monday following gains earlier in the day in Europe.
By noon in New York, the Standard Poor’s 500-stock index was up 0.2 percent at 1,125.91 points. The Dow Jones industrial average was ahead 52.75 points, or 0.5 percent, at 10,870.40. The Nasdaq composite index was 0.1 percent higher, at 2,344.45.
Stocks fell more than 4 percent last week as Wall Street saw more wild swings, including a 419-point drop for the Dow on Thursday. The main drivers of those losses were fears about stalling global growth and the European debt crisis. Investors marked down share prices as they cut their expectations of corporate earnings based on how severe they expect the new economic slowdown to be.
But those fears appeared to ease a little on Monday. Traders’ attention was turning to the Federal Reserve’s annual symposium later this week in Jackson Hole, Wyo., with some analysts expecting the chairman, Ben S. Bernanke, to announce some further if limited economic stimulus.
“We do not expect Bernanke in his Aug. 26 address to unilaterally announce the start of a bold new easing initiative,” said Neal Soss, an economist at Credit Suisse, wrote in a report. “But we are looking for the chairman to hint strongly that further monetary policy accommodation is on its way — with the most likely candidate being an extension of the maturity structure of the Fed’s current $1.6 trillion Treasury portfolio. Other easing options include expanding the Fed’s balance sheet through additional asset purchases and lowering the 0.25 percent interest rate that the Fed pays on bank reserves.”
Analysts at Brown Brothers Harriman said in a note that the “market sentiment is improving on the hopes of a policy response from the Fed.”
By Friday, the Standard Poor’s 500 index had fallen 18 percent from its recent peak on April 29, close to bear market territory, which is officially defined as a peak to trough drop of 20 percent.
Many investors still remained nervous about the economic slowdown and whether Europe’s policy makers can get ahead of their debt problems, which have been a special drag on some of the Continent’s banks.
Last week’s negative sentiment about the United States economy was spurred by a signal of weak manufacturing activity from a survey by the Philadelphia Federal Reserve, and by stronger than expected inflation numbers.
But some analysts said Monday that the big sell-offs now presented a buying opportunity for investors.
“We suspect that the recent market downdraft will eventually be viewed as a buying opportunity for those who are willing to look beyond the most recent data point,” Barclays Capital analysts said in a research note.
It was in Jackson Hole last year that, faced with economic slowdown, Mr. Bernanke signaled a second round of large-scale bond purchases, or quantitative easing, called QE2 for short. Following the announcement of the program, stocks rose 28 percent between August and February this year.
But as the economy has slowed again this year, investors raised new questions about whether the Fed has done enough to fix problems in the economy. Earlier this month, the Fed made the extraordinary pledge to keep short-term interest rates close to zero until the middle of 2013. But some in the markets expect it may even do more at Jackson Hole.
“No one in America is complaining that interest rates are too high; the country’s problems are not monetary in nature,” wrote Mr. Soss. “Nonetheless, we would not expect Fed officials to stand idly by as cyclical economic momentum fizzles, and high unemployment takes on increasingly structural characteristics.”
In Europe, where losses in recent sessions have been as severe as in the United States, stocks were mixed. In Britain, the FTSE 100 was up 1.1 percent. In Germany, the DAX was down 0.1 percent. The French market index, the CAC 40, was 1.1 percent higher.
As Libyan rebels advanced in Tripoli, oil prices fell as investors anticipated a return to international oil markets of one of the world’s biggest oil producers.
North Sea oil prices were falling as Col. Muammar el-Qaddafi’s grip on power appeared to be dissolving; Brent crude fell about $1.41 to $107.21 a barrel, while U.S. crude oil prices fell 9 cents to $82.17. Shares of the Italian oil company Eni, which was the biggest foreign oil producer in Libya, were up 6.3 percent in late trading Monday.
Still, some analysts warned that many investors remained nervous as the sovereign debt crisis in Europe was still unresolved, and said it would not take much to push the markets back into negative territory.
“We’re just seeing a natural reaction after the sharp falls at the end of last week,” said Elisabeth Afseth, a fixed-income analyst at Evolution Securities in London. “But the situation is still very uncertain and fragile.”
Chancellor Angela Merkel of Germany reaffirmed her opposition to issuing bonds backed by all of the euro zone members as a way to fix the region’s sovereign debt crisis.
“The markets want to force us to do certain things,” she told the German television channel ZDF. “That we won’t do. Politicians have to make sure that we’re unassailable, that we can make policy for the people.”
The four weeks of declines in global stock markets have wiped trillions of dollars from investment portfolios, partly because of fears about a continued unwillingness by political leaders in Europe to take bold steps to tackle a sovereign debt problem.
“Risk aversion is still at acute levels,” Ashley Davies, an analyst in Singapore for Commerzbank, wrote in a note on Monday. “There is massive liquidity out there but few assets that investors feel truly comfortable with.”
Gold and silver continued to rise, and the Swiss franc and the Japanese yen weakened.
Earlier in the day, the Kospi index in South Korea fell nearly 2 percent, and the key index in Australia slipped 0.5 percent. In Japan, where policy makers kept up their barrage of comments aimed at damping the ascent of the yen, the Nikkei 225 average retreated 1 percent.
But in Hong Kong, the Hang Seng index rose 0.4 percent. The Sensex in Mumbai climbed 1.2 percent.
Julia Werdigier contributed reporting from London and Bettina Wassener contributed from Hong Kong.
Article source: http://www.nytimes.com/2011/08/23/business/daily-stock-market-activity.html?partner=rss&emc=rss
European markets rose and Wall Street was poised for a higher open Monday as hopes the Federal Reserve might take action to keep the United States from slipping back into recession offset fears of a global slowdown.
Brent crude fell to near $106 a barrel as Libyan rebels captured most of Tripoli, bolstering hopes that oil exports from the OPEC country could resume soon.
Investors in Europe and the United States appeared to recover from a spout of panic selling late last week, when they dumped shares and bought up save-haven assets like gold and the Swiss franc amid concerns about the health of the American and global economies.
However, analysts warned that markets would likely stay volatile in the coming weeks as worries remain about levels of bank funding without a lasting solution for Europe’s debt troubles.
In London, the FTSE 100 jumped 1.1 percent while the DAX in Frankfurt inched up 0.4 percent. The CAC 40 in Paris gained 1.5 percent.
Wall Street was also set to open higher.
The improved mood came following a jittery day of trading in Asia, where most markets closed in the red.
Throughout the week, investors will be looking with anticipation to a speech Friday by the Federal Reserve chairman Ben S. Bernanke at a retreat in Wyoming.
The Fed pledged earlier this month to keep interest rates super-low through mid-2013. Investors wonder whether Bernanke will announce, or at least preview, further steps to help the economy including a third round of bond purchases known as quantitative easing.
“Given the absence of deflation risk, we do not expect him to announce QE3,” analysts at UniCredit in Milan wrote in a note, referring to a new round of bond buying. “But he is likely to reiterate that the Fed is prepared to ease monetary policy further if needed.”
With no crucial economic indicators scheduled for Europe Monday, investors will be looking at the European Central Bank’s disclosure of how much money it spent on government bonds from struggling countries like Italy and Spain last week. Analysts expect the figure to reach around 15 billion euros or $21.6 billion, down from a record 22 billion euros or $28.8 billion the week before.
Even though most economists see the central bank’s purchases as only temporary sticking plaster in the euro zone’s fight against the debt crisis, they have succeeded in keeping the yields, or interest rates, on Italian and Spanish 10-year bonds below 5 percent, more than a percentage point below record levels seen in the week before the ECB resumed its bond buying program.
Over the weekend, Chancellor Angela Merkel of Germany and the president of the European Union Herman Van Rompuy both ruled out the introduction of eurobonds — debt backed by all 17 euro countries — anytime soon, squashing investor hopes that a more lasting solution to the currency union’s debt troubles may be in the works.
Germany’s finance minister, meanwhile, sought to calm fears that growth in Europe’s biggest economy was running out of steam, saying the Germany economy was still on course to grow by 3 percent this year despite an unexpectedly weak second-quarter performance.
Earlier in Asia, markets ended the day mostly in negative territory, as investors reacted to a steep sell-off of U.S. stocks Friday.
Japan’s Nikkei 225 index lost 1 percent to close at 8,628.13 — a five-month low — as a persistently strong yen rattled nerves. A strong yen hurts exports by making them more expensive.
Japan intervened in currency markets earlier this month to try to reverse the yen’s climb. The decision to sell the yen and buy the dollar worked initially, sending the greenback toward 80 yen. But the dollar has been weighed down by the dimming outlook for U.S. economy and is back down to mid 76-yen levels.
The Shanghai Composite Index lost 0.7 percent to 2,515.86 while the Shenzhen Composite Index lost 0.9 percent to 1,124.17. Hong Kong’s Hang Seng, meanwhile, swung into positive territory to eke out a 0.5 percent gain at 19,486.87.
Asian markets were the first to open after the developments in Libya, with the apparent crumbling of Moammar Gadhafi’s regime after rebels entered the capital of Tripoli on Sunday. Oil prices are expected to fall if the situation can quickly stabilize.
In London, Brent crude for October delivery dell $2.22 per barrel to $106.40 on the ICE Futures exchange.
Benchmark oil for September delivery, however, was up 5 cents to $82.31 a barrel in electronic trading on the New York Mercantile Exchange.
Libya used to export about 1.5 million barrels of oil a day, but production all but ground to a halt in recent months as rebels battled to overthrow Gadhafi.
In currency markets, the dollar dipped to 76.78 yen, while the euro rose 0.3 percent to $1.44.
Article source: http://feeds.nytimes.com/click.phdo?i=a17246fadf9874b528ad85d4f6291b52
On Monday, stock indexes had finally recovered from the huge sell-off of the previous week, after the downgrade of United States long-term debt by Standard Poor’s late on Aug. 5 unleashed days of painful market turmoil.
But by midweek, stocks were falling again, as investors worried about Europe’s debt crisis, and the possibility of recession in the United States intensified. The Standard Poor’s 500-stock index slid 1.5 percent on Friday, and closed down more than 4 percent for the week.
It was the fourth consecutive week of market declines as investors remained rattled. The latest signs of strain came from some European banks laden with debt from the region’s troubled economies — strains that could spread across the Atlantic.
Despite a meeting in Paris earlier in the week between the leaders of Germany and France to pledge greater economic coordination between nations sharing the euro, confidence quickly eroded in the markets over whether Europe’s policy makers have solutions to the Continent’s debt crisis.
In the United States, dismal economic data on Thursday pointed to an unexpectedly abrupt slowdown in manufacturing and a pickup in inflation.
Next week, the market’s attention will turn to the Federal Reserve’s annual symposium in Jackson Hole, Wyo., for signs of how confident the chairman of the Fed, Ben S. Bernanke, is about the strength of the American recovery.
At last year’s symposium, faced by a similar midyear slowdown, Mr. Bernanke paved the way for a second round of large-scale bond purchases, or quantitative easing.
But after the Fed this month already promised to keep short-term interest rates close to zero for the next two years, few economists expect further stimulus from the Fed.
On Friday, markets closed sharply lower in Asia and Europe, and that sentiment then carried over into the United States. Stocks had been briefly higher in the morning hours, but then slipped. Some analysts attributed the slide to technical factors and thin volume.
At the close, the S. P. 500 was down 17.12 points, or 1.5 percent, at 1,123.53. The Dow Jones industrial average fell 172.93 points, or 1.57 percent, to 10,817.65. The Nasdaq composite index lost 38.59 points, or 1.62 percent, to 2,341.84.
For the week, the S. P. was down 4.6 percent, the Dow fell 4 percent and the Nasdaq slid 6.6 percent. The steepest declines were on Thursday, when the indexes slipped more than 3 percent on persistent worries about the economy and Europe’s debt problems.
Stocks of companies most susceptible to slow growth and those related to banks have been hit. Technology, financials and industrials were among the sectors down more than 1 percent on Friday.
“You are still seeing a lot of the economically sensitive names leading us on the way down,” said Seth Setrakian, co-head of United States equities at First New York.
Some of the downturn on Wall Street was attributed to technical reasons. Friday, for example, was a day when options contracts expire, an event that can fuel volatility or market moves.
Analysts were also quick to point out that on a day before a summer weekend, low volumes could unfold into a “bleed” toward the end of the trading session — and indeed, what had been a relatively placid session in New York turned downward in the final hours.
“Just as importantly, any important policy makers that can come up with anything constructive are on vacation,” said Mr. Setrakian. “So what good news can come over the weekend?”
“So everyone is playing much lighter and much tighter,” he said. “It is very simply the data that has been coming out economically has not been constructive.”
Gold continued the sharp ascent it has seen over the last months, demonstrating that nervousness remained intense. Gold futures were up $30, to $1,848.90 an ounce.
Europe’s major stock indexes ended the day lower. The FTSE 100 in London fell 1 percent and the Euro Stoxx 50, a barometer of European blue-chip stocks, pulled back 2.15 percent.
Asian markets were also lower. The Nikkei 225 index in Japan lost 2.51 percent, and the major market indexes in Singapore and Hong Kong closed down more than 3 percent.
Tension on money markets, which some analysts said was overblown, awoke unpleasant memories of the seizure in interbank lending that came after the collapse of Lehman Brothers in 2008.
“Everybody is taking risk off the table,” said George Rusnak, national director of fixed income for Wells Fargo. “This is probably going to be a trend over the next several weeks. There is not a lot of robust trading going on right now.”
Mr. Rusnak and other analysts again noted that concerns had mounted about the banking sector, especially with respect to the exposure of American banks to their European counterparts.
One drag on the American markets, and specifically the tech sector, on Friday was Hewlett-Packard, which is considering plans to spin off the company’s personal computer business into a separate company and is spending $10 billion on Autonomy, a business software maker. Shares of Hewlett-Packard fell 20 percent, or $5.91, to $23.60.
The benchmark 10-year Treasury note was unchanged, and the yield remained at 2.07 percent. It had touched record lows below 2 percent in intraday trading on Thursday.
“The growth outlook being hurt in Europe, and the ongoing sluggish data we have seen in the United States is the underlying issue the stock market is trying to grapple with,” said Robert S. Tipp, a managing director and chief investment strategist for Prudential Fixed Income.
He said the crisis of confidence was evident as investors parked money in cash and short-term fixed-income assets.
One thing to worry about next week will be whether the European Central Bank can continue to hold down yields on Italian and Spanish bonds. If not, Italian and Spanish borrowing costs might reach the point where they became too expensive, raising the risk of default.
On Friday, Italian bonds and Spanish bonds dipped to 4.96 percent.
Jack Ewing and Julia Werdigier contributed reporting.
Article source: http://www.nytimes.com/2011/08/20/business/daily-stock-market-activity.html?partner=rss&emc=rss
Such laws, unfortunately, do not exist. Economists agree that federal borrowing must be reduced, but they do not agree about the proper mix of tax increases and spending cuts. Basic considerations, like the impact of higher taxes on saving and investment, remain the subjects of wide-ranging disagreements despite decades of intensive research.
The absence of a clear mainstream is one underappreciated reason for the standoff between the Obama administration and Congressional Republicans over raising the federal debt limit before Aug. 2, when the Treasury Department says it will run out of borrowing authority.
Washington no longer suffers from a dearth of “one-handed” economists, as Harry S. Truman famously lamented. The problem now is that experts are lined up behind every political position, in part because the decisions are not purely economic. The value of defense or education or justice extends beyond dollars and cents.
“I just don’t think economists have any comparative advantage” in answering these questions, said Joel Slemrod, a University of Michigan professor and a leading expert on taxation. “There are a lot of reasons why sensible people might disagree about the answers to the fiscal questions that we face. It’s a value judgment that the citizens of the country have to make.”
President Obama and Congressional leaders did not meet over the weekend as Mr. Obama had said they might. Instead, with talks on a long-term debt-reduction deal at an impasse, action this week shifts to Congress, where Republican leaders intend to press for votes on a balanced budget amendment and other economic measures that have almost no chance of success, given Democrats’ opposition.
Last week, after lawmakers pressed for guidance from the Federal Reserve chairman, Ben S. Bernanke, he responded that Congress needed to make the decision.
“I want to see the numbers add up,” he said. “I want to see the revenues and expenditures balanced. As for how to do it — that’s your job.”
The key point of contention is whether the government should pay any part of its debts by raising revenue, or solely by spending less.
Industrialized nations have almost always adopted a combination of the two to cut debt, according to an International Monetary Fund survey last year. The fund, which examined 30 instances dating to the 1980s, found that nations on average closed half the gap with tax increases and half with spending cuts.
Both approaches cause immediate economic pain, but the dominant school of economic theory predicts that tax increases should be somewhat less painful to the nation’s economy. A $100 spending cut reduces economic activity by $100, while an equivalent tax hike will be paid partly from savings, so that spending is reduced by a smaller amount.
Recent studies, however, have found the opposite: Countries that rely primarily on spending cuts tend to experience less economic pain in the short term. Moreover, in some cases, the cuts seem to spur faster growth.
The monetary fund study reported that a 1 percent fiscal consolidation achieved primarily through tax increases reduced economic activity by 1.3 percent over two years, while an identical consolidation driven primarily by spending cuts reduced activity by 0.3 percent.
“It’s coming to be accepted wisdom that it’s better to have spending cuts than tax increases,” said Alan Auerbach, an economics professor at the University of California, Berkeley.
As with most economic questions, however, there are no certain answers. Economists do not understand why rebounds happen. They are also not sure whether the economy of the United States, the world’s largest, would respond in the same way as the economies of smaller countries. One of the studies that found in favor of spending cuts says in its preface, “It is fair to say that we know relatively little about the effect of fiscal policy on growth.”
Jackie Calmes contributed reporting.
Article source: http://feeds.nytimes.com/click.phdo?i=0734ab6dd29a9c04e9c6671be37468e4
Worries about stubbornly high unemployment pushed the Thomson Reuters/University of Michigan’s index of consumer sentiment to 63.8, the lowest level since March 2009, a report showed on Friday. Economists had expected the index to rise to 72.5, from 71.5 in June.
Separate data from the Federal Reserve showed that industrial production rose a modest 0.2 percent in June after two months of slight declines. Output was held back partly by supply disruptions in the auto industry related to the March 11 earthquake in Japan.
The reports were the latest in a series, including weak retail sales and employment, to suggest that an anticipated step-up in growth in the second half of the year might not be as strong as initially thought.
“We still expect an improvement in the second half, but the question is, How much can we grow?” said Yelena Shulyatyeva, an economist at BNP Paribas in New York. “Our view is the rebound is not going to be anything like in the prior cycles because we are growing at a lower potential rate right now.”
The Federal Reserve chairman, Ben S. Bernanke, said this week that the central bank was prepared to act if growth faltered further but made it clear that the Fed was not yet at that point.
The economy was hit by a combination of high commodity prices and bad weather, causing growth to slow sharply to a 1.9 percent annual rate in the first quarter after a brisk 3.1 percent in the final three months of 2010.
Disruptions to motor vehicle production and still-high gasoline prices are expected to have held growth to a rate of 1.5 to 2 percent in the second quarter. The government will release its initial second-quarter gross domestic product estimate on July 29.
Manufacturing in the second quarter posted its weakest rise since the recession ended in mid-2009. There are indications that manufacturing maintained its weak tone as the third quarter started.
The decline in consumer sentiment, which came even as gasoline prices dropped from a peak of more than $4 a gallon in May, does not bode well for consumer spending.
The debate in Washington over raising the country’s debt ceiling is adding to economic uncertainty.
Hard-pressed consumers could get a reprieve from declining commodity prices. Labor Department data showed that the Consumer Price Index fell 0.2 percent in June as gasoline prices tumbled 6.8 percent. Despite declines in the last two months, gas prices are up 35.6 percent over the previous 12 months.
The drop in consumer prices was the first in a year. Prices increased 0.2 percent in May.
Stripping out food and energy, however, the core index rose 0.3 percent after a similar gain in May. The rise in core inflation reflected a lagged pass-through from high commodity prices, and economists saw no threat of an upward spiral in price pressures.
In the 12 months to June, core inflation rose 1.6 percent after increasing 1.5 percent in May. This narrower measure of prices was pushed up by rises in housing, new vehicles, used trucks and apparel. Apparel prices recorded their biggest jump since March 1990, while the rise in used cars and trucks was the biggest in more than one and a half years. Fed officials would like to see core inflation closer to 2 percent.
Wage growth remained benign, with average hourly earnings flat in June. In the 12 months through June, average hourly earnings rose 1.9 percent. In addition, capacity use at factories was unchanged at 76.7 percent in June, pointing to slack in the economy.
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