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Fed Fears Shake Global Markets but Fade on Wall St.

May 23, 2013 by Leave a Comment

Fears that the Fed is about to reduce its stimulus helped send stock, bond and currency prices on a wild ride on Wednesday and Thursday, with Japanese stocks experiencing their worst one-day decline since the 2011 tsunami and United States indexes slumping before ending the day down slightly.

Japan’s losses were fed in part by disappointing data on the Chinese economy. Around the world, though, traders debated the significance of the statement made on Wednesday before Congress by the Fed’s chairman, Ben S. Bernanke, that a change could come in “the next few meetings” of the central bank’s policy-setting committee.

The stimulus programs initiated by Mr. Bernanke have helped feed a four-year rally in United States stock prices and inspired other central banks to follow suit. But even fans of the Fed’s efforts have said that the size and scope of the stimulus make it hard to know what will happen once the Fed begins to take its foot off the gas, paving the way for unanticipated consequences and more market volatility.

“There are no neat answers, because we’ve never been in this situation before,” said Marshall Front, co-founder of the money manager Front Barnett Associates, who has been preparing his firm’s portfolios for uncertainty.

Fed officials are aware of the confusion that lies in store and have emphasized that any changes are still a ways off and likely to be carried out slowly. The president of the St. Louis Federal Reserve Bank, James Bullard, said in a speech in London on Thursday that even after the central bank begins to slow monetary stimulus, policy makers could step in again if the economy seems to falter.

The nerves of at least some American investors were calmed by the end of Thursday. After starting the day down more than 1 percent, the Standard Poor’s 500-stock index recovered to finish the day down 0.3 percent, or 4.84 points, at 1,650.51. The Dow Jones industrial average dropped 0.1 percent, or 12.67 points, to close at 15,294.50. The Nasdaq composite index fell 3.88 points, or 0.1 percent, to 3,459.42. In the market for United States government bonds, the price of the benchmark 10-year Treasury rose 6/32, to 97 20/32, and the yield fell to 2.02 percent from 2.04 late on Wednesday.

Other stock markets were hit harder. In Tokyo, the benchmark Nikkei index suffered a 7.3 percent rout. Leading indexes were down about 2.1 percent in Germany, France and Britain.

Speculation that the Fed will slow its monthly purchases of government bonds has been growing for months. Investors have known that the central bank’s efforts could not continue forever, and many asset managers have begun to prepare their portfolios for the day when the Fed pulls back.

Mr. Front’s firm has sold all of its long-term bonds to reduce exposure to any future changes in interest rates, and it no longer holds any Treasury bonds. In a more optimistic vein, the firm has been shifting money into riskier stocks on the assumption that rising interest rates will be accompanied by growing economies around the world.

Before this week, even many close Fed watchers assumed that any change would not come before the end of the year. But Mr. Bernanke’s comments on Wednesday led many strategists to bump up their forecasts a few months to September.

“This might be closer than we thought,” said John Bellows, a former Treasury Department official who now works at Western Asset.

When the Fed does shift gears, Mr. Bernanke has indicated, the process will be gradual and will begin with a slow tapering of bond purchases. Even that will commence only if the labor market grows stronger and unemployment falls further.

The economic data coming out of the United States on Thursday showed slight signs of improvement. The number of people who filed for unemployment benefits last week was 340,000, lower than analysts had expected and lower than the week before. And the number of new homes sold rose more than expected, to the highest level since 2010.

David Jolly contributed reporting from Paris, Hiroko Tabuchi from Tokyo, and Bettina Wassener from Hong Kong.

Article source: http://www.nytimes.com/2013/05/24/business/daily-stock-market-activity.html?partner=rss&emc=rss

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Stocks Fall on Fed Uncertainty

May 17, 2013 by Leave a Comment

The three major stock indexes earlier traded in a tight range, supported by a gain of more than 12 percent in Cisco Systems shares and as investors took in a batch of economic data that pointed to slower growth.

But the Standard Poor’s 500-stock index finished near its session low after the comments from John C. Williams, the president of the Federal Reserve Bank of San Francisco, who also said the Fed could end its bond purchases this year, assuming the labor market continued to grow stronger. Mr. Williams is not a voter on the Fed’s policy-setting panel this year.

“When a Fed governor is out there and mentions this possibility, it does spook the market a little, because I don’t think anybody quite knows how the stock market is going to react” after the stimulus ends, said Timothy M. Ghriskey, chief investment officer of Solaris Group in New York.

The Fed’s purchases of $85 billion a month in bonds have been a significant driver of the rally in equities that has taken indexes to highs and pushed the S. P. 500 up nearly 16 percent this year.

Analysts also said the comments could have been viewed as a reason to take a pause after such a strong run-up in stocks.

“It turned a boring day into a bit of profit-taking,” Mr. Ghriskey said.

The Dow Jones industrial average dropped 42.47 points, or 0.28 percent, to 15,233.22 at the close. The S. P. 500 fell 8.31 points, or 0.50 percent, to end at 1,650.47. The Nasdaq Composite Index slipped 6.38 points, or 0.18 percent, to finish at 3,465.24.

Earlier, the Dow reached a new intraday high, at 15,302.49.

The Nasdaq fared better than the other two major indexes as Cisco shot up 12.6 percent, to $23.89, after it posted a higher-than-expected quarterly profit and said current-quarter revenue could increase.

Economic data set a lackluster tone in markets early in the day as factory activity in the mid-Atlantic region contracted, while housing starts plummeted 16.5 percent in April. New claims for jobless benefits unexpectedly jumped last week.

However, investors had speculated that soft underlying inflation also meant the Fed had room to continue its economic stimulus.

Wal-Mart Stores fell 1.7 percent, to $78.50, and dragged on the Dow after it posted a quarterly profit that missed expectations, with sales down 1.4 percent at United States stores open at least a year.

Tesla Motors shares gained 8.7 percent, to $92.25, after the carmaker said it aimed to raise $830 million through a stock-and-debt offering that would be used to repay its Energy Department loans with interest. The stock has surged more than 50 percent since the company reported earnings last week.

The price of the benchmark 10-year Treasury note rose 18/32, to 98 27/32, dropping the yield to 1.88, from 1.94 on Wednesday.

Article source: http://www.nytimes.com/2013/05/17/business/daily-stock-market-activity.html?partner=rss&emc=rss

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Household Spending in Japan Soars at Fastest Pace in 9 Years.

May 1, 2013 by Leave a Comment

TOKYO (Reuters) — Japan’s household spending surged in March at the fastest pace in nine years in a sign that Prime Minister Shinzo Abe’s bold efforts to end two decades of stagnation are lifting consumer confidence and setting the stage for an economic revival.

Household spending soared 5.2 percent in March from a year earlier in price-adjusted terms, the Ministry of Internal Affairs and Communications said on Tuesday, as some individual investors cashed in on stock gains to increase spending on cars and home repairs.

The figure far exceeded the median estimate for a 1.8 percent annual increase and was the fastest gain since a 5.3 percent rise in the year to February 2004.

Such a big increase in spending is unlikely to be sustained, and some worry that wages have been slow to improve. Still, analysts said they expect consumer spending to continue to expand at a more reasonable pace as investors cash in on stock market gains.

A recent run of data has provided encouraging early hope that Mr. Abe’s push for aggressive fiscal and monetary policies can get the country’s economy, the world’s third-largest, moving again.

Household spending is crucial to reigniting growth, and in this respect the data should come as a relief to Haruhiko Kuroda, governor of the Bank of Japan, who hopes to see the economy generate 2 percent inflation in roughly two years.

On the whole, the figures suggest that expectations for Mr. Abe’s combination of fiscal spending, monetary stimulus and structural change, known as Abenomics, are having a positive impact on Japanese households, though the corporate sector is lagging.

“I expect first-quarter gross domestic product growth to exceed an annualized 2 percent, and if the corporate sector catches up with households, the pace of growth could accelerate,” said Yoshiki Shinke, senior economist at the Dai-Ichi Life Research Institute.

Mr. Abe’s policy mix has driven the yen to a four-year low against the dollar and led to a 50 percent rally in Japanese share prices from last November, which has helped buoy consumer sentiment.

Article source: http://www.nytimes.com/2013/05/01/business/global/household-spending-in-japan-soars-at-fastest-pace-in-9-years.html?partner=rss&emc=rss

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Fed Officials Consider Early End of Easing

April 10, 2013 by Leave a Comment

Federal Reserve policy makers were considering scaling back their huge stimulus effort slightly earlier than expected if the economy shows signs of strength, according to minutes released Wednesday of their most recent meeting last month.

While experts interpreted the comments as being slightly less accommodative in terms of monetary policy than anticipated, they were quick to note that the meeting took place before last Friday’s report on unemployment and job creation in March, which was much weaker than expected.

Since last year, the Fed has been purchasing $85 billion a month in Treasury bonds and mortgage-backed securities in an effort to keep interest rates ultralow and spur economic growth.

Despite the possibility the Fed might pull back on stimulus efforts early, stocks on Wall Street rallied to new highs in midday trading Wednesday, with the Standard Poor’s 500-share index and the Dow Jones industrial average both rising by more than 1 percent.

Until the most recent report on unemployment, there were signs the labor market was picking up steam, a crucial criteria in helping Fed policy makers decide when to scale back the bond purchases.

Since Friday’s report, however, worries have returned that slow levels of job creation will keep unemployment at historically high levels. The jobless rate was 7.6 percent in March, much higher than normal for this stage of a recovery. And the economy created only 88,000 jobs in March, a far cry from the 268,000 jobs added in February.

“They were seeing a different world than they’re seeing today,” said Michael Hanson, senior United States economist at Bank of America Merrill Lynch. Besides the weak jobs figures, recent data for manufacturing has been soft, while consumer confidence remains mixed.

The meeting, held on March 19 and 20, came after a series of more positive indicators in January and February, Mr. Hanson said.

The Federal Reserve has said it plans to continue the stimulus efforts until there is “substantial improvement” in the labor market outlook.

The minutes of the policy meeting show that the more dovish Fed officials favored continuing the bond purchases at least through the end of the year, while more hawkish ones argued the purchases should be scaled back in the middle of 2013 and finish by December.

“Several” members of the Fed’s Open Market Committee “thought that if the outlook for labor market conditions improved as anticipated, it would probably be appropriate to slow purchases later in the year and to stop them by year-end,” according to the minutes.

Two members of the committee indicated the purchases should continue at the current pace through the end of 2013, while one argued they should be trimmed back immediately. More hawkish Fed officials worry the stimulus efforts could artificially push up prices, while increasing the risk of a rapid run-up in rates once the stimulus is withdrawn.

The chairman of the Federal Reserve, Ben S. Bernanke, has been supportive of the continued asset purchases.

“But it does seem that outside his core supporters, members are wavering,” said Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors. “But remember the March payroll data were not known at this meeting, and the tone will likely be different next time. Still, our antennas are twitching a bit.”

The Fed was forced to release the minutes five hours early, at 9 a.m. Eastern time, after officials realized they had inadvertently been distributed Tuesday afternoon to more than 100 Congressional staff members and trade organization officials.

The minutes are closely watched by traders and investors for any clue about Fed policy, making them among the most market-sensitive documents the government releases. Participants in the multitrillion dollar bond market follow the zigs and zags of the Fed especially intently, since even a small move in rates can move bond prices sharply.

“The reason is they were inadvertently sent early to a list of individuals who normally receive the minutes by e-mail shortly after their usual release time,” the Federal Reserve said in a statement. The error was traced to the Fed’s Congressional liaison office and a mistake there by an employee, Brian Gross, who has worked at the Fed for a decade. “This was human error,” said one Fed official who insisted on anonymity because of the sensitivity of the matter.

There was no indication that any of the recipients profited through the early release by trading on the information, but the Federal Reserve’s inspector general has been asked to review release procedures in light of the incident. The Fed also said it alerted the Securities and Exchange Commission as well as the Commodity Futures Trading Commission.

Like many experts, Mr. Hanson foresees growth slowing in the second and third quarter of 2013, following what he estimates was a 3 percent increase in output in the first quarter.

Most of that is because of tightening fiscal policy from Washington, Mr. Hanson said, as the government’s automatic spending cuts imposed by Congress go into effect. He estimated growth would come in at 1.3 percent in the second quarter and 1.5 percent in the third quarter.

Despite the more hawkish tone of the minutes, Mr. Hanson said, “We think the Fed’s going to be buying into 2014, tapering off in the spring and not finishing until the fall of 2014.”

Article source: http://www.nytimes.com/2013/04/11/business/economy/fed-officials-split-over-end-of-easing.html?partner=rss&emc=rss

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World Stocks Fall on Weak US Jobs Data

April 5, 2013 by Leave a Comment

Japan’s Nikkei stock index was a notable standout, hitting a four-year high when it closed earlier as investors cheered the central bank’s new policies.

In other regions, attention was focused on the U.S. data, which showed an increase of only 88,000 jobs in March, far below the expected rise of about 195,000. Although the unemployment rate fell to 7.6 percent from 7.7 percent, that was only because more people gave up looking for work.

Analysts said the figures showed the U.S. recovery, which had been advancing at a good pace in recent months, would be uneven. They suggested it would be only a temporary slowdown, however.

“We don’t anticipate the slowdown becoming too severe, not when the housing recovery is firing on all cylinders, but it is a reminder that the US is still unable to sustain what used to be just average rates of growth,” said Paul Ashworth, chief U.S. economist at Capital Economics.

Britain’s FTSE 100 ended Friday 1.41 percent lower at to 6,254 while Germany’s DAX dropped 2 percent to 7,658. France’s CAC 40 index lost 1.7 percent to 3,663.

The jobs data sent Wall Street lower, with the Dow shedding 0.75 percent to 14,497 and the broader SP 500 down by 0.9 percent to 1,546.

Earlier, the attention in markets had been on Japan, where the Nikkei surged for a second straight day after the central bank’s new governor, Haruhiko Kuroda, unveiled plans to pump huge amounts of money into the financial system to spur price rises, spending and borrowing in an economy that has stagnated for years.

The central bank said it wanted to double the money supply and achieve a 2 percent inflation target within about two years. Kuroda described the scale of monetary stimulus as “large beyond reason,” but said the inflation target would remain out of reach if the central bank stuck to incremental steps.

“The size of monetary easing announced yesterday far exceeded expectations,” said analysts at DBS Bank Ltd. in Singapore in a commentary.

The Nikkei 225 in Tokyo closed 1.6 percent higher at 12,833.64, its highest finish since Sept. 1, 2008. Earlier in the day it surged more than 3 percent, breaking the 13,000 level.

Stock markets in Asia outside of Japan sagged, however.

Hong Kong’s Hang Seng tumbled 2.7 percent to 21,726.90. Analysts said the fall reflected some nervousness about a recent outbreak of deadly bird flu in China. Six people have died and authorities have ordered the slaughter of all poultry at a Shanghai market where the virus was detected. The news hurt tourism and travel-related shares. Hong Kong-listed Air China plunged 9.8 percent and China Southern Airlines sank 8.5 percent.

South Korea’s Kospi dropped 1.6 percent to 1,927.23, dragged down by political jitters over the latest tensions with Pyongyang. Australia’s SP/ASX 200 lost 0.5 percent to 4,891.40 as investors took profits after recent rallies

In Japan, the monetary easing measures pushed the yen sharply lower. On Friday, the dollar was up to 97.09 yen from 96.13 yen late Thursday.

Mark Williams, chief Asia economist at Capital Economics, said that the Bank of Japan’s credibility rests on the success of the new direction the bank is taking.

“Markets are giving it the benefit of the doubt for now. But if the broad monetary aggregates and inflation don’t show signs of a shift, the new-found trust in the capacities of the BoJ will rapidly fade,” Williams said in a written commentary.

Benchmark oil for May delivery was down 67 cents to $92.59 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.19 on Thursday.

The euro rose against the dollar, to $1.3017 from $1.2939 late Thursday in New York.

___

AP Business Writer Pamela Sampson contributed from Bangkok

Article source: http://www.nytimes.com/aponline/2013/04/05/world/asia/ap-world-markets.html?partner=rss&emc=rss

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E.C.B. Chief Says Cyprus Shows Commitment to Euro

April 4, 2013 by Leave a Comment

“Cyprus is no turning point in euro policy,” Mario Draghi, president of the E.C.B., said at a news conference. And he rejected suggestions that Cyprus or any other country might leave the euro, or be better off if it did.

There is “no Plan B,” Mr. Draghi said.

Nor is there, for now at least, a Plan B even for the European Union’s bigger, but moribund, economies. Survey data published Thursday showed a further slide in business confidence on the Continent.

The E.C.B. left its benchmark interest rate unchanged Thursday at 0.75 percent, while the Bank of England held its rate steady at 0.5 percent. With both central banks’ rates already at record lows, there might be little room to use interest rates as a stimulus. But the euro zone economies, like that of Britain, are stagnant and in need of help wherever they can find it.

Mr. Draghi said the E.C.B. was looking for new ways to stimulate lending in the weak euro zone economy, and could move quickly. It was unclear, though, what options might be available.

“We will assess all the data in coming weeks and we stand ready to act,” he said, without offering many clues about what measures he might have in mind.

The global financial crisis in recent years has forced central banks around the world to do much more than simply tweak the official interest rate as they had in the past. On Thursday, Haruhiko Kuroda, the new governor of the Bank of Japan, announced that it would seek to double over two years the amount of money in circulation, initiating a bid to end years of falling prices.

But the E.C.B., with its mandate to defend price stability above all else, is more constrained than its counterparts in other developed nations.

During the past year, Mr. Draghi has managed to quiet financial markets, cap government borrowing costs and contain the euro zone crisis by making it clear that the E.C.B. would not allow the 17-country euro currency union to unravel. He repeated those reassurances Thursday. But it is not clear what tools he sees at his disposal.

Making sure that “credit will flow to the real economy seems to be the E.C.B.’s number one priority,” Carsten Brzeski, an economist at ING Bank, wrote in a note to investors. “However, judging from today’s press conference, the E.C.B. looks rather clueless on how to tackle the problem.”

Mr. Draghi said there was a consensus among the 23 members of the central bank’s Governing Council not to cut rates even lower “for the time being.” The bank also discussed other, unconventional ways to help countries where credit remains tight, he said.

“We will continue to think about this issue in a 360-degrees way,” Mr. Draghi said. “The experiences of other countries tell us we have to think deeply before we can come up with something useful and consistent within our mandate.”

Large-scale purchases of corporate debt, which have been used by the Federal Reserve to stimulate lending in the United States, would be more difficult in Europe because most companies get their credit directly from banks, Mr. Draghi indicated.

With inflation already below the E.C.B.’s target of about 2 percent, some analysts have worried that, like Japan, the euro zone also faces a risk of deflation — a broad decline in prices that can be more destructive and difficult to cure than inflation. Mr. Draghi said, however, that risks to price stability were “broadly balanced,” indicating that he did not yet see a major risk of deflation.

Mr. Draghi found himself devoting much of the hourlong news conference trying to dispel fears that Cyprus represented an ominous new phase of the euro zone crisis.

He acknowledged that an initial decision by officials from the European Union, the International Monetary Fund and the E.C.B. to impose a tax on small bank deposits was “not smart, to say the least.” But he pointed out that euro zone officials quickly corrected that error.

Article source: http://www.nytimes.com/2013/04/05/business/global/european-central-bank-holds-steady-on-interest-rate.html?partner=rss&emc=rss

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Federal Reserve, Expected to Continue Stimulus, Tries to Reassure Investors

March 17, 2013 by Leave a Comment

When the Fed’s policy-making committee meets on Tuesday and Wednesday, its members are likely to spend a lot of time talking about the potential costs of the current stimulus campaign. Then the Fed’s chairman, Ben S. Bernanke, will probably seek to reassure investors that the Fed plans to press on.

The central bank is buying $85 billion a month in Treasury and mortgage-backed securities because it wants unemployment to fall more quickly. While recent economic data suggests that growth is quickening, Mr. Bernanke has said that the situation remains unacceptable and that the pace of progress is uncertain.

Mr. Bernanke and the Fed’s vice chairwoman, Janet L. Yellen, “have been abundantly clear in recent commentary that the improvement in the labor market to date falls far short of what they will need to see before reducing monetary policy accommodation,” Joseph LaVorgna, chief United States economist at Deutsche Bank, wrote last week in a note to clients.

Also, the federal government has just embarked on another round of spending cuts, known as sequestration, and the extent of the resulting drag on the economy may not be evident for several months.

“The Fed will not take overt steps to scale back its asset purchases any time soon,” Lou Crandall, chief economist at Wrightson ICAP, a New York-based financial research firm, wrote last week. “The Fed is not going to take any chances until it is sure that we have avoided another spring/summer swoon.”

The central bank has said that it plans to hold short-term interest rates near zero at least as long as the unemployment rate remains above 6.5 percent. It was 7.7 percent in February. The asset purchases are intended to hasten the arrival of that moment by further reducing long-term borrowing costs for businesses and consumers.

Mr. Bernanke built a broad consensus among Fed officials last year in favor of taking both steps, and analysts say that supporters of the policy remain firmly in the majority of the Fed’s 12-member Federal Open Market Committee. Only one official dissented at the most recent meeting in January.

But Fed officials who disagree with the policy, including some who do not hold votes on the committee this year, have become increasingly vocal in their criticisms. And among officials who support the purchases, there is disagreement about how much longer the Fed should keep its foot on the gas.

The focus of those concerns has shifted from the remote threat of inflation to the possibility that low interest rates could destabilize financial markets, in part by encouraging investors to take outsize risks.

Such concerns can dilute the impact of the Fed’s efforts by causing investors to doubt how much longer rates will remain low. In response, Mr. Bernanke and other supporters of the current policies have tried in recent weeks to persuade markets that the purchases will continue because the benefits far outweigh the potential costs. Indeed, Mr. Bernanke argued recently that pulling back could pose even larger risks to stability by weakening the economy.

“In light of the moderate pace of the recovery and the continued high level of economic slack, dialing back accommodation with the goal of deterring excessive risk-taking in some areas poses its own risks to growth, price stability and, ultimately, financial stability,” he said this month. “Indeed, as I noted, a premature removal of accommodation could, by slowing the economy, perversely serve to extend the period of low long-term rates.”

In seeking to persuade markets that it plans to press forward, the Fed must also contend with evidence that the economy is gaining strength. Fed officials projected in December that the economy would expand 2.8 percent to 3.2 percent this year, the fastest growth since the recession. Analysts expect an updated forecast on Wednesday to be modestly more optimistic.

The Fed has said that it will continue to stimulate the economy for an unusually extended period, even as the recovery gains strength. Since the benefits of that policy depend on its credibility, it is searching for ways to communicate more clearly with investors so that expectations of its eventual retreat do not become a premature drag on growth.

“At this stage in the business cycle, central bankers obsess that market participants will expect policy tightening to come sooner and more sharply than is consistent with sustained economic expansion,” said Vincent R. Reinhart, chief United States economist at Morgan Stanley.

Article source: http://www.nytimes.com/2013/03/18/business/economy/federal-reserve-expected-to-continue-stimulus-tries-to-reassure-investors.html?partner=rss&emc=rss

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In Hong Kong, a Budget With a Surfeit of Surpluses

February 27, 2013 by Leave a Comment

HONG KONG — As the United States prepares for mandatory budget cuts Friday under so-called sequestration legislation, Hong Kong is grappling with a very different problem: spending money as fast as it sluices into government coffers.

John Tsang, the financial secretary of the semiautonomous Chinese territory, announced Wednesday a budget that calls for a long list of one-time subsidies, particularly for the poor and elderly.

The stimulus measures follow heavy criticism in Hong Kong that the government consistently produces large budget surpluses, even during periods of weak economic growth, including the past year. The Hong Kong economy grew only 1.4 percent last year, well below its average of 4.5 percent over the past decade.

The Asian financial hub consistently runs budget surpluses mainly because it has low social spending and no military to fund. By comparison, the federal government in the United States dedicates about half its spending to assistance to the elderly and directs another quarter of its spending to the military.

The Hong Kong government is sharply increasing social spending in percentage terms, but from such a low base, this expenditure still falls short of revenues. And after years of accumulated surpluses, the city is sitting on fiscal reserves accumulated from previous surpluses equal to 23 months’ total spending.

Some of the heaviest criticism of previous budgets has come from activists speaking on behalf of what are known locally as the “multiple have-nots.”

These are low-income residents, often young, who have not been on the waiting list long enough to qualify for public rental housing, so they will not benefit from the two-month rent waiver announced Wednesday by Mr. Tsang, the financial secretary. Nor are they destitute enough to qualify for the extra month of welfare payment that was announced. And they live in shared apartments where they may not benefit directly from the government’s subsidy in the coming fiscal year of 1,800 Hong Kong dollars, or about $230, for each residential electricity bill.

Focusing help on this group of people, Mr. Tsang announced that the government would give an extra 15 billion dollars to the government-controlled Community Care Fund, which conducts social work, like offering rent assistance.

“I have every confidence that we will be able to assist more people in need, particularly that group of people who used to complain that they were being left out from the budget relief measures — the so-called multiple have-nots,” Carrie Lam, the territory’s chief secretary, said Wednesday.

Marcellus Wong, a senior adviser in the Hong Kong office of PricewaterhouseCoopers, noted that Mr. Tsang’s figures showed that government spending had risen twice as fast as economic output over the past 15 years, and expenditures were creeping above 20 percent of output. “The government needs to closely monitor this benchmark,” he said.

The Hong Kong government uses very conservative budget forecasts, consistently predicting small deficits that turn into large surpluses. The government predicted a year ago that it would run a deficit of 3.5 billion dollars for the fiscal year through the end of March, but its most recent estimate is that it will run a surplus of 64.9 billion dollars instead. Mr. Wong predicted that the final figure would be a surplus of more than 70 billion dollars.

Social spending has stayed low until now partly because Hong Kong has a single-payer government health care system with low pay for doctors and nurses by U.S. standards But recurrent social spending is on track to rise 33 percent in the coming year, mainly because the government is introducing a monthly payment of 2,200 dollars to all low-income elderly residents.

Hong Kong has also begun gradually building a mandatory retirement savings system based on bank-managed mutual funds. But many elderly residents retired before it was started.

In western Hong Kong island, an area with a large population of senior citizens, four elderly people on the street each said that they did not expect much money from the government because they lived with their children.

A fifth, Wu Jinyao, a retired construction worker who is recovering from oral cancer, complained that the government was too frugal in promising an extra one-month payment of disability allowances in the coming fiscal year, because he had high medicine and transportation costs. “I have been to the various government agencies and they tell me to come back when I am down to my last 500 Hong Kong dollars. What system is this?” he said.

Hilda Wang contributed reporting

Article source: http://www.nytimes.com/2013/02/28/business/global/hong-kong-officials-unveil-budget.html?partner=rss&emc=rss

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Economic Data Points to a Steady Fed Policy

February 21, 2013 by Leave a Comment

WASHINGTON (Reuters) — A range of economic data on Thursday like claims for unemployment benefits, factory activity and consumer prices pointed to a still-tepid recovery and supported the argument for the Federal Reserve to maintain its monetary stimulus.

The Fed is currently buying $85 billion in bonds a month and has said it would keep up purchases until the labor market outlook improves substantially, although officials are increasingly divided over the wisdom of that course.

“The economy is in a holding pattern. It’s not going to strengthen sufficiently to justify an end of the current program,” said Millan Mulraine, senior economist at TD Securities.

Initial claims for state unemployment benefits increased 20,000 last week to a seasonally adjusted 362,000, unwinding the bulk of the previous week’s decline, the Labor Department said.

A second report from the department showed that consumer prices were flat for a second consecutive month in January as gasoline prices fell and the cost of food held steady.

In the 12 months through January, consumer prices rose 1.6 percent, the smallest gain since July, suggesting there was little inflation pressure to worry the Fed.

News on the manufacturing sector, which has supported the economy’s recovery from the 2007-9 recession, was downbeat.

The Philadelphia Fed’s business activity index dropped to minus 12.5 in February, the lowest level since June. The index, which measures factory activity in the mid-Atlantic region, had fallen to minus 5.8 in January. A reading below zero indicates contraction in the region’s manufacturing sector. The survey covers factories in eastern Pennsylvania, southern New Jersey and Delaware.

The American economy braked sharply in the fourth quarter, but grew at a 2.2 percent clip for the full year. Output is being hampered by lackluster demand as employment struggles to gain traction.

Job growth has been far less than the at least 250,000 a month over a sustained period that economists say is needed to significantly reduce the ranks of unemployed. The unemployment rate rose 0.1 percentage point to 7.9 percent in January.

Last week’s data on initial jobless claims covered the survey period for the government’s closely watched monthly tally of nonfarm jobs. Jobless claims were up 27,000 between the January and February survey periods.

However, the increase probably does not suggest any material change in the pace of job growth given that claims have been very volatile since January because of difficulties smoothing the data for seasonal fluctuations.

Despite the weak factory and jobs data, there is reason for optimism about the economy. The housing market recovery is gaining momentum. A report from the National Association of Realtors showed existing home sales rose 0.4 percent last month, pushing the supply of homes on the market to a 13-year low. The median home price rose 12.3 percent from a year-ago.

Although consumer prices excluding food and energy rose 0.3 percent — the largest gain since May 2011 — most of that reflected outsize increases in apparel and education costs.

“January is a tough month because you get a lot of price hikes at the start of the new year and the seasonals have a hard time sort of adjusting,” said Omair Sharif, an economist at RBS. “I don’t expect the core C.P.I. to maintain that pace of increase in the near-term.”

The Conference Board said its index of leading economic indicators rose 0.2 percent in January to 94.1, after an 0.5 percent increase in December.

Article source: http://www.nytimes.com/2013/02/22/business/economy/claims-for-jobless-benefits-rise.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Shares Close at Five-Year High

January 4, 2013 by Leave a Comment

Stocks advanced on Wall Street on Friday, with the Standard Poor’s 500-stock index eclipsing its five-year closing high, after a jobs report showed American employers kept the pace of hiring steady in December.

The S.P. 500 ended up 0.5 percent at 1,466.47, the Dow Jones industrial average gained 0.3 percent, and the Nasdaq composite index added a point. For the week, the S.P. 500 added 4.6 percent, the Dow rose 3.8 percent and the Nasdaq jumped 4.8 percent, their largest weekly percentage gains in more than a year.

The Labor Department said payrolls outside the farming sector grew by 155,000 jobs last month, slightly below November’s level. Gains in employment were distributed broadly throughout the economy, from manufacturing and construction to health care.

Though the jobs data showed that lackluster economic growth was unable to make a dent in the still-high unemployment rate in the United States, it appeared to calm fears about the possibility of the Federal Reserve ending its highly stimulative monetary policy.

“When it comes to Fed policy, this report should keep policy steady,” said Tom Porcelli, chief United States economist at RBC Capital Markets in New York.

Minutes from the Fed’s December policy meeting, released Thursday, showed Fed officials were increasingly worried about the risks of asset purchases on financial markets, though they looked set to continue with the open-ended stimulus program for now.

The Fed’s policy of easy credit helped push the S.P. 500 to a 13.4 percent gain in 2012. Ending that policy would remove an incentive for investors to purchase riskier assets like stocks.

Eli Lilly said it expected 2013 earnings to increase to $3.75 to $3.90 a share excluding items, from $3.30 to $3.40 per share in 2012. The stock rose 2.5 percent.

Japan’s Nikkei share average climbed nearly 3 percent to a 22-month high on its first trading day of 2013 on Friday, as a deal in Washington to avert fiscal disaster buoyed investors’ appetite for risk, and the weaker yen lifted exporters such as Toyota. Japan’s markets were closed Thursday for a holiday.

European stock markets ended the day higher.

Article source: http://www.nytimes.com/2013/01/05/business/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,
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