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Joblessness Edges Higher to Hit a Euro Zone Record

July 1, 2013 by Leave a Comment

The jobless rate in the 17 countries that belong to the euro zone was 12.1 percent in May, adjusting for seasonal effects, according to a report from Eurostat, the European Union statistics agency. That figure compared with 12 percent in April, which was revised down from 12.2 percent reported earlier. Based on the revised figures, May unemployment was at a record high.

Eurostat estimated that 19.2 million people in the euro area were jobless in May, an increase of 67,000 from April. For all 27 countries in the European Union, the unemployment rate was unchanged at 10.9 percent. The European bloc expanded to 28 countries on Monday when Croatia officially joined.

Joblessness in the euro zone has been rising almost without interruption since early 2008, when the financial crisis began, declining only briefly at the beginning of 2011. And analysts see little prospect for a sustained decline anytime soon.

While economists expect the euro zone economy to stabilize in the course of this year, growth will most likely remain too slow to generate large numbers of jobs.

“The measure that offers the greatest potential for job creation in the short to medium term is an easing of credit conditions,” Marie Diron, an economist who advises the consulting firm Ernst Young, said in a statement. “This would allow companies to invest and as a result recruit in the euro zone.”

The European Central Bank will hold its monetary policy meeting on Thursday, but it is not expected to introduce more stimulus to the euro zone economy. A cut in the benchmark rate, to 0.25 percent from a record 0.5 percent, is possible, but many say it would be unlikely to do much to encourage lending in troubled countries like Spain and Italy.

Banks in those countries are trying to cope with rising numbers of bad loans and are reluctant to lend no matter how cheaply they can borrow from the European Central Bank. And the central bank remains reluctant to effectively print more money, as the Federal Reserve in the United States and Bank of England have done, because of opposition from Germany to more aggressive action.

Eurostat also reported on Monday that inflation in the euro zone rose to 1.6 percent from 1.4 percent because of a surge in energy prices. While inflation remains below the central bank’s target of about 2 percent, the uptick is likely to provide a further argument against increasing the benchmark interest rate.

Compounding the bank’s challenge, the numbers released showed that there remained a big difference in economic performance among euro zone countries. These differences make it difficult for the central bank to form a monetary policy that is appropriate for all members.

Unemployment rates in Spain and Greece were about 27 percent in May, with youth unemployment remaining well above 50 percent. In contrast, unemployment in Austria was 4.7 percent and in Germany was 5.3 percent. Both had youth jobless rates below 9 percent.

If there was any good news, economists said, it was that unemployment may not go up much more. “An end to the euro zone labor market downturn is not yet imminent,” Martin van Vliet, an economist at ING Bank, said in a note to investors. “However, with the recession across the euro zone petering out, the peak in unemployment should not be too far away, either.”

Article source: http://www.nytimes.com/2013/07/02/business/global/euro-zone-joblessness-rises.html?partner=rss&emc=rss

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More Spending Cuts for Britain, but Austerity Pill Is Sugared

June 26, 2013 by Leave a Comment

In a speech to parliament, interrupted by jibes from opposition Labour party MPs, Osborne spelled out 11.5 billion pounds in cuts for the 2015/16 fiscal year, including steps to trim the welfare budget.

Tens of thousands of British pensioners living abroad in warm climates and unemployed foreign jobseekers in Britain unable to speak English are among those who stand to lose out.

Osborne said the budgets of the justice ministry and local government department had been cut by a nominal 10 percent, but said the government planned to spend 3 billion pounds on affordable housing projects.

The debate over the cuts, which will take effect just weeks before the general election in 2015, draws the battle lines for that vote as Labour and the ruling Conservatives try to prove their economic credentials to the public.

“While recovery from such a deep recession can never be straightforward, Britain is moving out of intensive care – and from rescue to recovery,” Osborne told parliament.

The Conservatives say they inherited the biggest peacetime deficit from Labour when they came to power in 2010 and have cut it by a third. Their favourite line of attack is that Labour can never be trusted to manage the economy again.

But Labour accuses Prime Minister David Cameron’s government of pushing through too many cuts too quickly, a tactic it says is stifling growth and delaying a recovery.

It believes in more stimulus, but has been reluctant to promise to borrow more for fear of being branded irresponsible. Labour reminded Osborne of his 2010 pledge to eliminate the budget deficit by 2015.

“The Chancellor (Osborne) spoke for over 50 minutes today, but not once did he mention the real reason for this spending review – his comprehensive failure on living standards, growth and on the deficit,” said Ed Balls, Labour’s finance spokesman.

“Surely the Chancellor should be taking bold action now to boost growth this year and next.”

Economists said further pain lay ahead as the government sought to eliminate the deficit by 2017/18. “While today’s cuts will be very painful they’re only a precursor to steeper cuts after the 2015 election,” said Matthew Whittaker at the Resolution Foundation, a thinktank which focuses on issues facing lower-income Britons.

POLL LEAD

Labour is 10 percent ahead in the polls, but voters rate its ability to manage the economy lower than the Conservatives. Labour leader Ed Miliband’s party has tried to win back voter confidence by pledging to stick with the cuts if it wins the election.

Despite cutting spending aggressively, weak economic growth and a costly welfare system have frustrated the government’s plan to wipe out a budget deficit of 11.2 percent of GDP.

The loss of Britain’s triple-A credit rating and calls from the International Monetary Fund to defer near-term cuts and increase infrastructure investment have reflected shifting international attitudes towards austerity.

“Just as the rest of the world decides up front austerity is a bad idea, it seems the UK political establishment has agreed there is no alternative,” said Trevor Greetham, asset allocation director at Fidelity Worldwide Investment.

In an effort to stem mounting criticism that sustained spending cuts were crimping economic growth, Osborne promised a total of 300 billion pounds of capital spending between now and 2020 – in line with existing budget projections.

A third of the capital spending plans will be detailed in an announcement on Thursday.

“Investing in new energy capacity, new roads and faster rail links is critical to our competitiveness,” said Terry Scuoler, of the EEF manufacturers group. “However, to date, the record so far on delivering major infrastructure projects is woeful.”

Labour said the infrastructure plans weren’t enough and called for an extra 10 billion pounds of stimulus spending.

“If he took that action now, that might mean in two years’ time we might not need these appalling cuts that he’s pencilling in,” said Chris Leslie, a Labour economics spokesman.

Osborne announced a 9.5 percent cut in the welfare budget on Wednesday and pledged to introduce a cap on the large proportion of spending which varies on a year-to-year basis and falls outside the scope of the spending review.

He said benefit payments would be withheld from jobseekers refusing to take state-funded English lessons to improve their language skills to that of a 9-year old – a change affecting around 100,000 people.

The government also hopes to save 30 million pounds by abolishing winter fuel payments for pensioners living abroad in warmer countries such as Spain, Cyprus and Portugal, he said.

(Additional reporting By Guy Faulconbridge; Editing by Andrew Osborn/Jeremy Gaunt)

Article source: http://www.nytimes.com/reuters/2013/06/26/business/26reuters-britain-spending.html?partner=rss&emc=rss

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Wall Street Gaining

June 26, 2013 by Leave a Comment

Stocks advanced for a second straight day on Wednesday as a broad measure of economic growth was revised down, easing investors’ concerns that the Federal Reserve would begin to withdraw its stimulus early.

In afternoon trading the Standard Poor’s 500-stock index and the Dow Jones industrial average were both 1 percent higher, and the Nasdaq composite was 0.9 percent higher.

The Commerce Department reported that United States economic growth was more tepid than previously estimated in the first quarter, held back by a moderate pace of consumer spending, weak business investment and declining exports. The report provided reassurance to investors fearful that the Fed is about to give up on its stimulus.

The effect of the GDP report “is that despite all the rhetoric and fear about tapering, this will keep the Fed firmly planted in stimulus, which is a positive for the market,” said Michael Mullaney, chief investment officer at Fiduciary Trust Co. in Boston.

Global stocks and bonds had a second day of strong gains, as healthy data out of the United States, moves by China to calm bank fears and supportive signs from Europe’s central banks extended the rebound from last week’s global sell-off.

All combined to soothe nerves about plans for a reduction in Federal Reserve stimulus and recent worries about a credit squeeze in China, after a day of sustained buying in European and Asian markets.

Gold and silver, however, both slumped to near three-year lows. Gold fell over 2 percent to $1,230 an ounce and silver dropped 4 percent to leave both at their lowest levels since September 2010 and gold facing its biggest quarterly drop on record. After almost nine years of near unbroken gains, signs that the worst of the global financial turmoil may be over and that central banks might begin reducing stimulus, has sparked a major shift in investor attitude toward bullion.

Bond markets in Europe and benchmark United States Treasuries also continued to claw back ground, although investors remained wary the rebound could give way with markets likely to need more time to acclimatize to new environment.

“At this point in time, having seen an incredibly violent sell-off in the Treasury markets that took everything with it, there is a certain amount of settling back going on,” said Kit Juckes, a market strategist at Société Générale in London.

“I’m not sure we are done with position adjustment yet, though,” he added. “So I wouldn’t declare this as anything more than things are looking a little bit quieter.”

Data on Tuesday showed United States consumer confidence jumped in June to its highest level in more than five years, supporting the view that the Fed will press ahead with plans to reduce its $85 billion a month support program later this year.

Mario Draghi, the president of the European Central Bank, reiterated that the bank remained ready to cut rates again if needed, adding that he and his colleagues would look “with great attention to the potential volatility consequences.”

Mr. Draghi’s comments helped pushed the euro to a three-week low of $1.3035 against a broadly stronger dollar and helped trim yields on the bonds of peripheral euro zone economies which have jumped by more than half a percent over recent weeks.

Article source: http://www.nytimes.com/2013/06/27/business/daily-stock-market-activity.html?partner=rss&emc=rss

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Optimistic Fed Outlines an End to Its Stimulus

June 19, 2013 by Leave a Comment

Mr. Bernanke, offering new details, said the central bank intends to scale down gradually its monthly purchases of Treasury securities and mortgage-backed bonds beginning later this year and ending when the unemployment rate hits 7 percent, which the Fed expects to happen by the middle of next year.

The central bank would then take several more years to unwind the rest of its extraordinary stimulus campaign, slowly raising short-term interest rates from essentially zero to more normal levels after the jobless rate has fallen to 6.5 percent or lower.

He emphasized, however, that the timing of the retreat depends on the health of the economy; if growth falters, the central bank would slow, or even reverse, the process. The expectations of Fed officials for the next several years, published Wednesday, are more optimistic than the consensus of private forecasters.

Pulling back “would basically say that we’ve had a relatively decent economic outcome in terms of sustained improvement in growth and unemployment,” Mr. Bernanke said. “If things are worse, we will do more. If things are better, we will do less.”

Mr. Bernanke’s comments, which followed a two-day meeting of the Fed’s policy-making committee, appeared to disappoint investors on Wall Street who had hoped that the central bank would do more for longer. Stocks fell, with the broad Standard Poor’s 500-stock index dropping 1.39 percent; interest rates rose.

The impact on the economy will take longer to judge. The Fed’s goal is to pull back as the economy gains strength so its departure is barely felt, like a parent who lets go of a bike at the moment a child is ready to ride. But the Fed has removed its hands too soon several times in recent years. On the other side of the equation, the central bank, at some point, runs the risk of pushing too hard for too long, which can also cause crashes.

Gennadiy Goldberg, an analyst at TD Securities, described the market’s reaction as “emblematic of the lumpy path toward normalization,” illustrating the limits of the Fed’s ability to control the way that the economy will respond to its retreat.

The housing market is an example. The Fed, deciding last year that it needed to do more, began to buy mortgage bonds in an effort to drive down borrowing costs. The lower rates spurred a wave of refinancing and home buying. But now, as the recovery gains momentum and the Fed signals that it plans to pull back, interest rates are beginning to rise and mortgage refinancing is beginning to wane.

Mr. Bernanke said on Wednesday that the rate increases were a “good thing,” a sign that the economy is returning to health.

But Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the Fed still runs the risk of withdrawing its extra support for the economy too soon.

“Later in the cycle, we will be happy to take that view too,” Mr. Shepherdson wrote Wednesday. “But not now, and it is very odd coming from a Fed chairman who has placed so much emphasis on the role of housing in the recovery. We do not think the market is yet ready to absorb higher rates.”

The Fed, in a statement released after the meeting of the Federal Open Market Committee, sounded notes of increased optimism about the economy, but unusually, the statement did not describe the bond-buying timeline. Mr. Bernanke said he had been “deputized” to share the details at the news conference.

The statement said that the economy was expanding “at a moderate pace” and that the job market was improving. Most significantly, it noted that risks to growth had “diminished since last fall,” an important assertion because the Fed has been trying in part to shield the economy from the consequences of reductions in federal spending. Those consequences have been milder than expected.

Article source: http://www.nytimes.com/2013/06/20/business/economy/fed-more-optimistic-about-economy-maintains-bond-buying.html?partner=rss&emc=rss

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Economix Blog: Live Updates on the Fed Announcement

June 19, 2013 by Leave a Comment

Markets are in a state of almost eerie calm as investors await the Federal Reserve statement.

Through early afternoon, the major stock indexes were trading within 0.2 percent of Tuesday’s close. Traders have talked about saving up their firepower to respond to the Fed later in the day. A note from RBS strategists said that the markets they were watching “were very narrow as we wait for today’s Fed meeting.”

This is a sharp departure from the volatility in the markets over the last few weeks, as investors have furiously tried to divine the Fed’s future intentions and prepare their portfolios for any change.

Since Mr. Bernanke said on May 22 that the central bank could look at changing policy “in the next few meetings,” the Standard Poor’s 500-stock index has had five days with at least a 1 percent move.

On days when it appeared that the Fed might be preparing to pull back on the stimulus, stocks have generally sold off, while indications that the Fed might continue on with the stimulus have led markets up. The swings back and forth have left the benchmark index down slightly from where it was on May 22.

Some of the most serious action has been taking place in the bond markets, which are particularly sensitive to the possibility that the Fed could step back from its purchases of government and mortgage bonds. The yield on the 10-year Treasury note, which goes up when investors sell bonds, has risen from 1.6 percent in early May to 2.2 percent on Tuesday. This has pushed up mortgage rates, which has already driven down the number of homeowners refinancing their mortgages.

Much of the activity has been about preparing for what the Fed’s statement will say, and how Mr. Bernanke will explain it in his news conference. If Mr. Bernanke gives any indication that the Fed is looking at “tapering” its bond purchases, stocks and bonds are expected to sell off.

There are also some hopes that Mr. Bernanke will provide clarity about whether he plans to leave the Fed when his term runs out in January, which would probably influence the future direction of Fed policy.

— Nathaniel Popper

Article source: http://economix.blogs.nytimes.com/2013/06/19/live-updates-on-the-fed-announcement/?partner=rss&emc=rss

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Eyes on Fed, Wall Street Ends Higher on Job Data

June 7, 2013 by Leave a Comment

Yet many of them are spending a lot of energy trying to get inside the head of Ben S. Bernanke, the Federal Reserve chairman, and making bets on what they think he sees.

Stocks, bonds and currencies around the globe had a chaotic week as traders and strategists reassessed how Mr. Bernanke viewed the economy and whether those views would prompt the central bank to pull back on the bond buying that has supported markets in recent years.

“The market is looking at every piece of incoming data through Fed sunglasses,” said Rebecca Patterson, the chief investment officer at Bessemer Trust. “It’s not what does this data mean, it’s what you think the Fed thinks about this data.”

The middling jobs report on Friday appeared to soothe the nerves of investors for the moment.

Many on Wall Street agreed that the 175,000 jobs created in May was strong enough to keep the economy on a steady path but not so strong as to encourage the Fed to let up on its stimulus sooner than expected. The Fed can afford to be patient.

With this interpretation prevailing, stocks rose in trading on Friday. The benchmark Standard Poor’s 500-stock index ended up 1.28 percent to close out a week that also experienced one of the worst days of the year.

The sharp movements in stocks, bonds and currencies this week reflect the peculiar anxiety felt by investors. There is confusion over when and by how much the central bank may withdraw its support. But even if there were clear signals about a pullback, there is little precedent for what kind of effect those policies will have on the markets. A decision to pare back the stimulus could be a good thing if the economy is growing fast. But it could also throw markets into disarray given the degree to which investors have come to rely on the Fed’s bond-buying programs over the last five years.

All of which suggests that the markets could be in for a bumpy summer.

“This hasn’t really been seen at this scale ever,” said James Swanson, the chief investment strategist at MFS Investment Management in Boston. “We don’t know how they will get out of it,” he added, referring to Fed officials.

Central-bank watching is not a new sport on Wall Street. But for most of the last few years, many other events, including the European debt crisis and the prospect of a double-dip recession in the United States, have been at least as important as the Fed in driving markets. What’s more, the Fed had been steadily ramping up its bond-buying programs, not looking at cutting back.

The prospect of a reversal came to the fore on May 22, when Mr. Bernanke said in Congressional testimony that he and his colleagues might consider paring back their bond-buying programs “in the next few meetings” if the economy is showing signs of improvement.

As investors have speculated on what exactly Mr. Bernanke meant, and what might prompt him to act, the markets have been on a wild ride. The S. P. 500 experienced two consecutive weeks in the red for the first time this year as investors prepared for a future without support from Mr. Bernanke.

The bond market has experienced more violent swings because the Fed has supported the economy by buying government and mortgage bonds. In anticipation of the Fed buying fewer bonds, investors sold off all kinds of bonds, pushing up interest rates to their highest level in over a year.

Concerns over a Fed pullback persisted on Friday. Bond prices slumped, pushing the yield, which moves in the opposite direction, on the benchmark 10-year Treasury to 2.18 percent from 2.08 percent on Thursday.

Mr. Bernanke and his colleagues have made it clear that they are not planning to suddenly stop the bond-buying programs that have been so important to investors. Instead, they are likely to “taper” back the $85 billion in bond purchases they are making each month, and could step back up if the economy shows signs of flagging.

There is still significant disagreement on Wall Street about whether the economy will improve enough for Mr. Bernanke to begin this process.

Article source: http://www.nytimes.com/2013/06/08/business/daily-stock-market-activity.html?partner=rss&emc=rss

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Economix Blog: For the Markets, a Steady Outlook

June 7, 2013 by Leave a Comment

10:04 a.m. | Updated with reaction in the bond market.

The latest jobs report appears to maintain the status quo, and for Wall Street, that’s not a bad thing.

Stocks rose on Friday morning after the Bureau of Labor Statistics announced that the United States economy had created 175,000 jobs in May. Soon after the opening bell, the Standard Poor’s 500-stock index rose 0.4 percent.

The number of jobs created in May was slightly higher than many on Wall Street had expected, but the much more important consideration for most strategists was what the number will mean for the policy makers at the Federal Reserve.

“These days, the specifics of the report are far less important to our clients than is the effect it may or may not have on Fed activity,” Dan Greenhaus, the chief strategist at the brokerage BTIG, wrote to clients immediately after the data was released.

The consensus so far is that the number isn’t so low that it points to a shrinking economy, but it also isn’t so high that it will force the Fed to reconsider its monetary stimulus programs. Wall Street has been worried for the last few weeks that the Fed might be looking to pull back on its stimulus sooner than had been previously expected if the economy showed signs of faster-than-expected growth.

“Today’s report, is exactly as we predicted; it does nothing to change the broader view that the Fed is set to steadily reduce its pace of asset purchases at the September meeting and that all else equal, good news should be taken as good news,” Mr. Greenhaus wrote.

Because the Fed has been injecting money into the economy by buying government bond markets, those bond prices are a closely watched indication of sentiment about the Fed. In early trading on Friday morning, investors were buying United States government bonds in a bet that the Fed will be doing so as well. That helped push down the interest rate on the benchmark 10-year bond to 2.11 percent, from 2.08 percent on Thursday night.

Article source: http://economix.blogs.nytimes.com/2013/06/07/for-the-markets-a-steady-outlook/?partner=rss&emc=rss

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Unemployment Hits Record High in Euro Zone

May 31, 2013 by Leave a Comment

LONDON — Unemployment in the euro zone continued its relentless march higher in April, according to official data published Friday, hitting yet another record amid a prolonged recession and the lack of a coordinated response by policy makers.

The jobless rate for the 17 countries that use the common currency rose to 12.2 percent, from 12.1 percent a month earlier, with 19.4 million people out of work, according to Eurostat, the E.U. statistics agency. Nearly a quarter of job-seekers under age 25 were unemployed. Some analysts said the jobless rate could hit 20 million by the end of the year.

Despite the rise, most analysts do not expect the European Central Bank to cut interest rates or take other action to stimulate growth when its policy-making council meets in the coming week. Separate data from Eurostat showed that inflation in the euro zone rose to 1.4 percent from 1.2 percent, which could prompt the E.C.B. to wait for clearer signs that there is no risk of higher prices.

Analysts said the continued rise in youth unemployment was particularly alarming. It reached 62.5 percent in Greece and 56.4 percent in Spain in April, Eurostat said, threatening to become a long-term drag on growth as young people are unable to start their careers.

“Youth joblessness at these levels risks permanently entrenched unemployment, lowering the rate of sustainable growth in the future,” Tom Rogers, an economist who advises the consulting firm Ernst Young, said in an e-mail message.

A decision by E.U. leaders to allow distressed countries more time to cut their government budgets will help, he said, as would a cut in the benchmark interest rate by the E.C.B. last month. But Mr. Rogers added, “Much more remains to be done to stimulate a recovery.”

For the moment, though, there is little prospect of major additional stimulus from governments or the E.C.B. The central bank remains reluctant to undertake more radical measures like those used by the U.S. Federal Reserve or the Bank of England. The E.C.B. benchmark interest rate is already at a record low of 0.5 percent, and it is unlikely that a further cut would do much to relieve a credit crunch in countries like Italy.

The E.C.B. aims for inflation of about 2 percent, and still has room for additional measures without violating its mandate to maintain price stability. But the uptick in inflation reported Friday, caused primarily by a rise in prices for food, alcohol and tobacco, could quiet those who have argued that the euro zone is in danger of sinking into deflation, a sustained decline in prices that can be even more destructive than inflation because it is so hard to reverse.

In one bit of good news, unemployment in Ireland fell to 13.5 percent, from 13.7 percent, and down from 14.9 percent a year earlier. The improvement is a sign that Ireland is slowly recovering from the banking and debt crisis that began in 2008.

Article source: http://www.nytimes.com/2013/06/01/business/global/euro-zone-economic-data.html?partner=rss&emc=rss

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Japanese Stocks Fall 5% With Market Uncertain Over Growth

May 30, 2013 by Leave a Comment

HONG KONG — The Japanese stock market lurched downward again on Thursday, sinking more than 5 percent at the close in Tokyo, as nervousness over the prospects for economic growth in Japan and elsewhere lingered.

A wave of optimism about Prime Minister Shinzo Abe’s efforts to haul the Japanese economy out of years of listless growth had sent Japan’s stock markets on a six-month rally that began in November. The gains came to a sharp end last Thursday, when the Nikkei 225-share index slumped 7.3 percent.

Trading has been volatile ever since, as investors have taken stock of signs that the U.S. Federal Reserve may, before long, begin to scale back its stimulus efforts in the United States, and weighed the pros and cons of taking profits after the previous rally.

Higher bond yields in Japan and an end to a welcome weakening in the yen also have contributed to the nervousness.

The Nikkei’s fall on Thursday took the index to its lowest level since early May. The index has fallen more than 10 percent from a high reached last week, though it remains well above where it began the year.

A batch of data due out Friday is likely to be closely watched for evidence of how far Mr. Abe’s policies have succeeded in reinvigorating economic activity and combating the deflationary pressures that have weighed on Japan for years.

The data, for the month of April, are expected to show that industrial production has improved and that deflation has abated somewhat. Analysts polled by Reuters forecast that core consumer prices have fallen 0.4 percent from a year earlier, an improvement on the 0.5 percent decline recorded in March.

“We think data will show that the Japanese economy has maintained a modest recovery trend” in the second quarter of this year, analysts at DBS said in a research note.

On the other hand, the probability that prices continued to fall in April also highlights how tough it has been to combat deflation, and underlines the concerns of many analysts that the central bank’s aim of reaching 2 percent inflation in about two years will be tough to attain.

Analysts and investors also are eager for progress on promised structural overhauls, which many see has crucial to the overall economy-lifting efforts of Mr. Abe’s government.

The challenges are whether the government’s long-term growth strategy and fiscal reform plan will be “able to bolster investor confidence about Japan’s growth prospects and address their concerns about Japan’s fiscal health,” the DBS analysts said. “A credible reform plan is needed to avoid a deeper correction in the equity and bond markets.”

Article source: http://www.nytimes.com/2013/05/31/business/global/japanese-stocks-fall-5-with-market-uncertain-over-growth.html?partner=rss&emc=rss

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Wall Street Lower on Fed Worries

May 24, 2013 by Leave a Comment

United States stocks fell for a third day on Friday, putting indexes on track for their first negative week since mid-April, on lingering concern the Federal Reserve may scale back its support to the economy.

In afternoon trading, the Standard Poor’s 500 Index dropped 0.4 percent, the Dow Jones industrial average fell 0.2 percent, and the Nasdaq Composite Index was 0.3 percent lower.

The three major indexes were on track to post their first negative week in five.

Global markets looked vulnerable to further falls on Friday, with better economic news from Europe doing little to encourage investors who are worried that central bank stimulus may curtailed.

MSCI’s world equity index, which shed 1.4 percent for its second biggest daily loss of the year on Thursday, was virtually unchanged, with losses in Europe canceling out a rise of nearly 1 percent in Japan’s turbulent Nikkei.

Trading has been choppy in the second half of the week as market participants assess the Federal Reserve’s evolving stance toward markets. The Fed’s stimulus measures have been instrumental in a rally that has driven stocks to record highs this year.

“We’ve had some volatility this week that we really haven’t experienced in a month or so, so it’s got a little bit of uncertainty here,” said Joe Bell, a senior equity analyst at Schaeffer’s Investment Research in Cincinnati.

Friday may also be a natural time for investors to take profits heading into the long weekend, with markets closed on Monday for the Memorial Day holiday, Mr. Bell said.

Even as there is some fear that the Fed will exit too soon, many analysts say the eventual tapering of the central bank’s stimulus will come with an expansion of the economy and corporate earnings, which will continue to support equities.

“A lot of people have only been giving the Fed credit for this rally and not been talking about some of the improvement in the labor market or housing data,” Mr. Bell said. “The economy in general has been on a lot better footing than perhaps people have given it credit for.”

Procter Gamble shares rose 4 percent after the company, the world’s largest household products maker, brought back A.G. Lafley as chief executive Thursday, replacing Bob McDonald, in the midst of a major restructuring.

Abercrombie Fitch was the S.P. 500’s biggest loser in the morning after the teen clothing retailer cut its profit forecast and said quarterly comparable sales fell 15 percent, which it blamed in part on inventory shortages. Its stock lost 10.2 percent.

Shares of Sears Holdings tumbled 14 percent after the company reported a bigger-than-expected quarterly loss on Thursday. Sears said cooler spring weather hurt its results.

Over all, the Wall Street’s pullbacks have been short and shallow since November as traders have taken any weakness as an opportunity to increase long positions.

Since Wednesday, the markets have been focused on the possibility that the Fed’s $85 billion per month in bond purchases will be scaled back later this year, in the wake of recent congressional testimony by the Fed chairman, Ben S. Bernanke, and the minutes from the Federal Open Market Committee’s latest meeting.

The minutes showed a degree of fracture among the committee’s members “in terms of the approach moving forward, specifically the time frame” of the unwinding of the Fed’s stimulus efforts, said Peter Kenny, chief market strategist at Knight Capital in Jersey City.

The Wall Street losses came despite a Commerce Department report that said durable goods orders rose 3.3 percent last month, exceeding expectations for an increase of 1.5 percent. Previous readings for orders were revised to show a smaller decline in March than previously estimated.

Thursday’s sell-off was concentrated in Japan’s stock market which suffered its biggest one-day percentage drop in two years, but also rattled European and American markets and sent the yen to near two-week highs against the dollar.

Japanese shares have gained nearly 70 percent in the last six months on the back of Japanese Prime Minister Shinzo Abe’s prescription of aggressive monetary and fiscal stimulus.

“The fact the market has had such a huge run over a relatively short period has left it incredibly vulnerable,” said Shane Oliver, strategist at AMP Capital.

Europe’s broad FTSE Eurofirst 300 index fell again, declining 0.2 percent after posting its biggest one-day fall in nearly 12 months on Thursday.

Although a key business survey showed sentiment in Germany was better than expected, this reduced expectations the European Central Bank would cut rates.

The Ifo survey found optimism over the economic outlook in Europe’s largest economy may be improving. A view reinforced by earlier data on German consumers.

The euro rose to hit a day’s high of $1.2959 after the German survey data, while German Bund futures cut some of the gains they had seen from the sell-off in equity markets.

Article source: http://www.nytimes.com/2013/05/25/business/daily-stock-market-activity.html?partner=rss&emc=rss

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