March 28, 2024

Common Sense: Investors and Fed Talk Past Each Other

So why did the Fed’s action reap a blast of criticism?

Reuters said 33 of 48 economists it polled faulted the Fed for being “unclear” in its communications, adding, “It is rare for a consensus of economists to criticize a major central bank.” The Wall Street Journal said Mr. Bernanke’s announcement was “the latest in a series of communications missteps.”

But perhaps their ire would have been better directed at the lawmakers in Washington who are trying to shut down the government and are threatening to default on the national debt. “Nobody knows what will happen with the budget and the national debt ceiling,” Alan Blinder, a professor of economics and public affairs at Princeton University and a former vice chairman of the Federal Reserve, told me this week. “The second of those is a major hazard to markets and the economy. It doesn’t take a genius to figure out that this might have given the Fed some second thoughts” about tightening.

The Fed’s action clearly surprised many professional investors, who were betting the Fed would start to tighten monetary policy, driving down stock and bond prices. When their bets turned out to be wrong, many of them aired their complaints with the Fed in the media.

The criticism plainly exasperated the usually unflappable Fed chairman, who has made greater communication and transparency a hallmark of his tenure. At a news conference on Sept. 18, he said, “I don’t recall stating that we would do any particular thing in this meeting,” and added somewhat tartly that the Fed’s mandate is to do what’s best for the economy and not what’s best for a small group of professional investors. “We can’t let market expectations dictate our policy actions,” he said.

Professor Blinder agreed with the chairman. “A small number of bond traders got burned by this, and when bond traders get burned they tend to blame the Fed,” he said. “And they should realize the Fed is not there to please them.”

At least some market professionals read the Fed’s signals right. Michael Hanson and Brian Smedley, analysts at Bank of America Merrill Lynch, presciently warned before the Fed’s meeting that “the markets believe a September taper is a done deal,” but “we anticipate the Fed will attempt to recalibrate market expectations at this meeting. In our view, the best way to do that is by not tapering in September.”

Bill Gross, Pimco’s founder and widely followed bond and interest rate expert, also warned that market expectations had gotten ahead of reality, suggesting the Fed was more likely to “tinker” than “taper.”

Justin Wolfers, a professor of economics at the University of Michigan who is currently at the Brookings Institution in Washington, told me this week that investors shouldn’t have been so surprised. “Bernanke never promised to taper in September,” Professor Wolfers said. “He always said the decision was data-dependent.” It turned out that “the data were worse than when he first started talking about tapering.” And with a fiscal showdown looming in Congress, tightening monetary policy now would have been reckless, he said.

“There’s no reason to do it now when the Fed can wait a few months and see if this crisis is averted. Market professionals are whining about the Fed’s poor communication skills,” he said. “But the Fed has a clear statutory mandate, and keeping traders happy is not one of them.”

Even so, he and other economists I interviewed also agreed that Mr. Bernanke and the Fed bore at least some responsibility for the market’s confusion, especially given the Fed’s stated goal to reduce uncertainty and avoid market surprises. In June, Mr. Bernanke said that the Fed might begin to scale back its stimulus program before the end of the year, which many analysts interpreted as hinting at a September date. And he set a specific unemployment rate target of 7 percent for ending its monthly purchases of government bonds. Now, he’s saying the reduction in bond purchases might still begin before the end of the year, but he left open the option of continuing it beyond then. And he played down the importance of the unemployment data in setting Fed policy.

Article source: http://www.nytimes.com/2013/09/28/business/the-fed-and-investors-in-need-of-talk-therapy.html?partner=rss&emc=rss

Sunnier Data From China Lifts Wall Street Trading

The stock market moved sharply higher on Monday, with the Nasdaq composite index ending at its highest since September 2000, after upbeat data from China increased optimism about the health of the global economy.

Investor sentiment was also lifted by merger activity and easing concern about a potential American military strike on Syria.

The Standard Poor’s 500-stock index closed higher for a fifth straight session, posting its best daily performance since Aug. 1, while all 10 S. P. sectors ended higher. More than 70 percent of companies that trade on the New York Stock Exchange and Nasdaq exchange posted gains.

Basic materials shares led the day’s gains, rising 1.5 percent, after China’s August exports handily beat market expectations while consumer inflation there held steady. United States Steel shares jumped 66 cents, or 3.5 percent, to $19.53, while Alcoa rose 16 cents, or 2 percent, to $8.08.

“This is more proof that the Chinese government’s attempts to stabilize the country’s economy are helping, and that really got us up and running,” said Donald Selkin, chief market strategist at National Securities.

Equities added to their gains in afternoon trading as it appeared less likely that a resolution authorizing military strikes against Syria would be approved easily by Congress.

Geopolitical uncertainty related to Syria has been a major market driver in recent weeks, with investors especially concerned about the potential impact on the oil market.

Senator Harry Reid, Democrat of Nevada and the majority leader, scheduled a test vote for later this week, but it was unclear whether the measure would attract enough backing to clear anticipated procedural roadblocks.

“Every poll shows it would be very difficult for Obama to get authorization, and that might be enough to delay any action or at least make the action more cautious,” Mr. Selkin said. “Both of those would give the market a leg up.”

Separately, a Russian proposal to place Syria’s chemical weapons under international control was welcomed by the government in Damascus, which praised the Kremlin for seeking to “prevent American aggression.”

The Dow Jones industrial average rose 140.62 points, or 0.94 percent, to 15,063.12. The S. P. 500 gained 16.54 points, or 1 percent, to 1,671.71. The Nasdaq picked up 46.17 points, or 1.26 percent, to 3,706.18.

Deal news gave a further lift to market confidence.

Koch Industries agreed to buy the electronic connectors maker Molex for about $7.2 billion.

Ares Management and the Canada Pension Plan Investment Board reached a deal to buy the privately owned luxury retailer Neiman Marcus for $6 billion.

Molex shares surged $9.29, or 31.7 percent, to $38.63 as the S. P.’s top gainer.

Shares of home builders rallied as investors bet that the rise in mortgage rates was nearly over. Pulte Group stock added $1.16, or 7.5 percent, to $16.63.

In the bond market, interest rates eased. The price of the Treasury’s 10-year note rose 6/32, to 96 15/32, while its yield dipped to 2.91 percent, from 2.93 percent late Friday.

Article source: http://www.nytimes.com/2013/09/10/business/daily-stock-market-activity.html?partner=rss&emc=rss

Asia Stocks Lower After Weak U.S. Economy Indicators

BANGKOK (AP) — Asian stock markets were mixed in holiday-thinned trading Monday after weak U.S. indicators dulled optimism about prospects for the world’s biggest economy.

Several markets were closed including Hong Kong, Singapore, Australia, Indonesia, Malaysia and New Zealand. Oil traders were also on holiday. Wall Street and European stock markets are closed Monday because Christmas fell on a Sunday this year.

Japan’s Nikkei 225 stock index finished up 1 percent at 8,479.34 after being closed for a public holiday Friday while South Korea’s Kospi fell 0.6 percent to 1,856.70.

China’s Shanghai Composite Index shed 0.7 percent to 2,190.11. Markets in India and the Philippines gained while benchmarks inTaiwan and Thailand fell.

Figures showing that U.S. consumer spending and personal income rose by a modest 0.1 percent in November were below market expectations. The headline 3.8 percent increase in durable goods orders last month masked a decline in a crucial investment measure, benefiting from big orders for Boeing aircraft.

The data offset some of the optimism in markets about the U.S. economy following a run of largely positive indicators. Since Thursday, investors have taken heart from figures showing that the number of initial jobless claims in the U.S. unexpectedly fell 4,000 last week to 364,000, the lowest level since April 2008.

While the U.S. economy has been the dominant driver in markets the past few days, Europe’s debt crisis is likely to remain the key market focus next year.

The Dow Jones industrial average rose 124.35 points, or 1 percent, to 12,294 on Friday in quiet pre-holiday trade. The Nasdaq composite index gained 19.19 points, or 0.7 percent, to 2,618.64. The Standard Poor’s 500 index added 11.33 points, or 0.9 percent, to 1,265.33.

In currencies, the euro was up 0.1 percent at $1.3068. The dollar was down 0.1 percent at 77.96 yen.

Article source: http://www.nytimes.com/aponline/2011/12/25/business/AP-World-Markets.html?partner=rss&emc=rss

Global Stocks Rebound

Investors were encouraged by the German Constitutional Court’s rejection of challenges that aimed to block German participation in bailouts for other countries in the euro area. But it said future financial rescues must be approved by Parliament’s budget committee.

The ruling is bringing relief to financial markets, said Carsten Brzeski, an analyst at ING in Brussels, “as a total chaos scenario has been avoided.”

But he warned against “euphoria” at the development.

“A bigger say for the German Parliament in future bailouts could easily find copycats in other euro zone countries, undermining the clout of the beefed-up” European bailout fund, he said.

“I wouldn’t overplay the German decision,” Andrew Milligan, head of global strategy at at Standard Life Investments in Edinburgh, said.

There was some relief in the markets because the announcement “removed one hurdle to an overhaul of the European problem,” he said, “but it is still extremely uncertain how the overall situation will play out.”

He added that it is unlikely that bonds of the non-core euro-zone members would pick up much momentum from the court decision.

“You might still want to hold German bonds,” he said, “but do you really want to hold other European bonds?”

Even before the ruling, European stocks were higher, helped by bargain hunters after the recent slide as well as news that German industrial production rose 4 percent in July from June, far better than market expectations for a 0.5 percent gain.

A late recovery in stocks on Wall Street Tuesday and expectations that President Barack Obama would use a speech Thursday to announce significant steps to revitalize the labor market also helped sentiment.

“The market is perhaps due for a relief rally after some sharp declines since last Friday,” said Colin Tan, an analyst at Deutsche Bank.

In afternoon trading, the Euro Stoxx 50 rose 2.2 percent, although it is still down more than 20 percent for the year. In London, the FTSE 100 index rose 1.7 percent.

Standard Poor’s 500 index futures rose, indicating U.S. markets will start with a rebound from three days of losses.

The Nikkei 225 index in Japan, which closed at its weakest level since April 2009 on Tuesday, recouped some of the previous session’s losses with a rise of 2 percent.

The Japanese central bank kept interest rates unchanged at their already ultra-low levels, and announced no new economic stimulus measures at the end of its policy meeting on Wednesday — though pressure for more action is mounting. In Australia the economy expanded by 1.2 percent in the second quarter from the previous period, against expectations of a gain of 1 percent.

In Australia, the S. P./ASX 200 closed 2.7 percent higher. The Hang Seng in Hong Kong closed up 1.7 percent, while the Shanghai composite index gained 1.8 percent.

Unexpectedly solid services sector data from the United States, released Tuesday, had helped set a more positive tone, for the U.S. market. Stocks on Wall Street fell, but the losses were modest by the close as some of the earlier losses were reversed. The Dow Jones industrial average dropped 0.9 percent, and the Standard Poor’s 500 index ended down 0.7 percent.

Still, analysts caution that investors will stay nervous, and markets volatile, as the euro zone debt crisis plays out and concerns about the pace of growth in the United States and Europe linger.

HSBC on Wednesday hammered home the point that global economic fundamentals are now significantly weaker than before.

The bank’s team of economists lowered their growth forecasts for this year and next, with particularly marked revisions for the developed world. They forecast that developed economies will expand just 1.3 percent this year, down from a previous projection of 1.8 percent.

Growth in emerging economies will likely hit 6.2 percent, rather than 6.3 percent, they said.

“The developed world has succumbed to economic permafrost,” the team, headed by the global economist Stephen King, wrote in its report. “The message is simple: despite massive policy stimulus, healthy economic recovery is now but a distant dream.”

The dollar was mostly lower against other major currencies. The euro rose to $1.4033 from $1.3998 late Tuesday in New York, while the British pound rose to $1.5987 from $1.5944. The dollar fell to 77.20 yen from 77.66 yen.

The dollar was also at 0.8580 Swiss franc, xxx from xxxx. The franc was hovering around 1.20 to the euro after the Swiss national bank on Tuesday surprised investors by saying it would seek to cap the Swiss franc’s value at that level — a move designed to cushion Swiss exporters from the impact of the currency’s strong rise in recent months.

David Jolly reported from Paris. Bettina Wassener contributed reporting from Hong Kong

Article source: http://feeds.nytimes.com/click.phdo?i=b166d14e39793e262150d64e0c3eb94f

Global Markets Mixed After Big Sell-Off

The turmoil of recent weeks showed no signs of letting up, with gold hitting another record high and the currency market jolted by action from the Swiss authorities to weaken the franc, which has soared because of its role as a safe haven.

European shares posted modest gains after a withering retreat Monday that knocked more than 4.1 percent off the broad market. In morning trading, the Euro Stoxx 50 index, a barometer of euro zone blue chips, and the FTSE 100 index in London were both up around 1 percent.

Concerns about the outlook for the global economy and the sovereign debt crisis that is haunting the euro zone have created conditions worryingly similar to those of the sell-off that followed the collapse of Lehman Brothers in 2008, Deutsche Bank’s chief executive, Josef Ackermann, said Monday.

Asian shares continued to lose ground. Having fallen 1.9 percent on Monday, the Nikkei 225 stock average in Japan sank an additional 2.2 percent on Tuesday, taking it to 8,590.57 points, its lowest close since April 2009.

The main Sydney market index, the SP/ASX 200, fell 1.6 percent, and the Shanghai composite index fell 0.4 percent. In Hong Kong, the Hang Seng index bucked the trend, rallying from a loss to close 0.5 percent higher.

Standard Poor’s 500-stock index futures fell, indicating that the market would likely sag when Wall Street reopens. The crucial American market indexes had slumped more than 2 percent on Friday after jobs data for August showed that the United States economy had added no jobs.

“Key economic data continues to disappoint as global business sentiment surveys weakened further and the U.S. employment report printed well below market expectations,” analysts at Barclays Capital commented in a research note.

“Increasing concerns over global growth appear to have halted the brief rally in risk assets in the last week of August,” they noted, and investors are likely to remain edgy, and financial markets volatile, over the next few weeks.

Policy makers around the region voiced similar concerns on Tuesday.

“Asia will not be immune to a global slowdown,” said Tharman Shanmugaratnam, the finance minister of Singapore, Reuters reported. Singapore’s small, open economy is particularly susceptible to the ups and downs of the global economy.

“We are already at stall speed in the U.S. and Europe, which means we are now more likely than not to see a recession,” he said.

Separately, Huang Guobo, the chief economist at China’s currency regulator, the State Administration of Foreign Exchange, said the pace of growth in China could slow to less than 9 percent next year, partly because of what is happening in the rest of the world.

“The Chinese economy is facing serious challenges despite strong growth,” said Mr. Huang, Reuters reported. “The weakening global demand for Chinese exports will be a challenge.”

In Zurich, the Swiss National Bank said it was setting a minimum value of 1.2 francs per euro and was prepared to spend an “unlimited” amount to defend it. The central bank was acting to help the country’s exporters, who fear being priced out of foreign markets by the strong franc.

The euro immediately rallied, rising as high as 1.24 Swiss francs from 1.11 francs late Monday. The euro has traded as low as 1.03 francs this summer.

Currency trading, which had been relatively quiet, was thrown into upheaval as the market sought a new equilibrium. The euro rose to $1.4184 from $1.4098 late Monday, while the British pound gained to $1.6125 from $1.6118. The dollar rose to 77.35 yen from 76.89 yen and soared to 0.8475 Swiss francs from 0.7872 francs.

Gold futures climbed to above $1,923 an ounce in Asian trading before on Tuesday — a new nominal record high for the precious metal — before easing back to $1,889.60.

Government bond prices were little changed, with the yield on the United States 10-year note at 1.97 percent. In Asian trading, the yield fell to 1.91 percent, a record low, according to Bloomberg News.

Bettina Wassener reported from Hong Kong.

Article source: http://feeds.nytimes.com/click.phdo?i=82e4a9919b53ccca2189c8a252e672fd