Category: Currency

Economics Update

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OK, the FOMC released its report today, and when the Federal Reserve speaks, people listen.

What the Fed said is that it intends to keep rates low for an, “Extended Period,”.

The Fed speak is that economic conditions, “warrant exceptionally low levels of the federal funds rate for an extended period,” this means that they will not raise rates at their next meeting or probably the one after that.

Most likely you will see at least, and possibly 2 statement changes from the Fed before they raise rates, but they are closing the taps a bit by, “closing the special liquidity facilities that it created to support markets during the crisis,” and it reaffirmed that it will be closing the TALF will on June 30.

In real estate, home starts fell in February, though doubtless a lot of that was the Snowpocalypse.

The Fed’s statement pushed oil up by $1.80/bbl and similarly pushed the dollar down.

Full FOMC statement after break.


(emphasis mine)

Press Release
Federal Reserve Press Release

Release Date: March 16, 2010
For immediate release

Information received since the Federal Open Market Committee met in January suggests that economic activity has continued to strengthen and that the labor market is stabilizing. Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly. However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

In light of improved functioning of financial markets, the Federal Reserve has been closing the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities and on March 31 for loans backed by all other types of collateral.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability.
2010 Monetary Policy Releases

Headlines that Take the Starch Out of Your Shorts

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Beijing studies severing peg to US dollar.

Truth be told, the hed is a bit alarmist: The Chinese are talking about starting to talk about allowing the Yuan to appreciate a bit:

China’s central bank chief laid the groundwork for an appreciation of the renminbi at the weekend when he described the current dollar peg as temporary, striking a more emollient tone after months of tough opposition in Beijing to a shift in exchange rate policy.

Zhou Xiaochuan, governor of the People’s Bank of China, gave the strongest hint yet from a senior official that China would abandon the unofficial dollar peg, in place since mid-2008. He said it was a “special” policy to weather the financial crisis.

“This is a part of our package of policies for dealing with the global financial crisis. Sooner or later, we will exit the policies.”

Pretty weak tea,* actually, and I think that everyone, even the PBC realizes that the current peg is unsustainable, and my guess, based on absolutely nothing, is that they are talking about talking because it’s a way to kick the can down the road.

*Pun not intended.†
†No, really, it was unintentional.

Economics Update

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Well, Ben Bernanke went before Congress, and said that there needs to be an extended period of low rates to ensure that the recovery.

Of course, in terms of real estate, the question is whether or not the Fed continues its policies to keep mortgage rates low, and considering the fact that new home sales fell to the lowest level on record in January, and mortgage applications fell this week, with the purchase index hitting its lowest level since 1997, housing is still on life support.

For that matter, so is commercial real estate, with the architecture billings index falling in January.

In any case, Bernanke’s talk about continued low rates drove the dollar down, which in turn drove oil up.

Economics Update

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The lede today is that consumer confidence fell much more than expected, down to 46.0, when the consensus forecast was 55.0, a 10 month low.

Additionally, home prices fell in the 4th quarter, though the housing optimists are noting that the year over year drop is “only” 2½%.

When one considers the fact that the 4th quarter was juiced by tax credits, it’s worse than it looks.

Japan, on the other hand, Japan’s exports grew sharply in the 4th quarter, with a 40.9% year over year, the biggest jump since 1980, largely on increases in exports to China.

Still the dismal consumer confidence numbers put the market in a mind to doubt that there will soon be a robust recovery, which drove oil prices down, and led to a flight to safety which pushed the Yen and the dollar up.

Economics Update

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I already blogged about the big news of the day, the increase in the rate for the discount window, so the lede here, as it is every jobless Thursday, is initial unemployment claims, which rose by 31,000 to 473,000, though the 4 week moving average fell slightly, and continuing claims were unchanged.

The Federal Reserve Bank of Philadelphia released its index of regional manufacturing activity, and the index is positive, indicating continued growth, for the 6th straight month.

In Wally World, Wal-Mart’s same store sales fell in the 4th quarter.

I’m not sure if this is just generally bad news, or if it implies that shoppers are moving upscale and spending more.

The rest of the news is driven by today’s Fed announcement, which drove treasuries down, and thus yields up, as well as pushing the dollar, and crude oil higher.

Economics Update

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Mortgage applications fell last week, with home purchases leading the way relative to refinancing on the way down.

Even so, housing starts rose sharply, though as Calculated Risk notes, a lot of this is likely from home builders trying to complete houses in time before the latest round of housing tax credits expire at the end of April.

In the world of actually making stuff, US industrial output rose more than expected in January.

In the “looming train wrecks” category, the newly released minutes from the Fed’s January meeting show increasing confidence in the economy, it appears that there are some strong voices for the Federal Reserve to significantly shrinking their balance sheet, would would likely result in a significant, probably in excess of 50 basis points (½%), increases in mortgage rates, which would make an already shaky real estate market even more problematic.

In any case, the news on housing starts and industrial output drove both oil and the dollar is higher.

Economics Update

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Capital One charge-off rates, H/t Calculated Risk

Well, the New York Federal Reserve Bank just released its Empire State Manufacturing, Index, and it rose more than expected, from 15.9 in December to 24.9 in January, though I have no clue as to how the numbers went up:

……The details of the report were mixed. New orders slowed to 8.8 in February from 20.5 in the prior month. Shipments inched lower. However, inventories were flat in February after 17 straight negative monthly readings. Employment was positive for the second straight month……

I’m a little bit confused, but it appears that what we are seeing here is almost entirely stronger inventories, so as been noted before, it appears to be an inventory bounce.

In consumer credit, things appear to be moderating, in that default rates for the major card companies did not increase last month, or more accurately they didn’t rise last month for major credit card companies, except for Capital One, whose charge off rates rose from 10.14% to 10.41% in January. (See chart pr0n)

In real estate the National Association of Home Builder confidence index rose last month, albeit from an amazingly unambiguously crappy 15 to startlingly unambiguously crappy 17, where 50 is neutral.

In England, inflation rose sharply in January, to a 3.5% annual rate, which really isn’t scary at all, and additionally it should be noted that much of this was driven by the VAT (sales tax) increasing from 15% to a 17.5 as that stimulus measure expired, as shown by the fact that the, “CPIY rate of inflation, which strips out the effect of indirect taxes, fell from 2.8 per cent in December to 1.9 per cent in January.”

I just want to say, once again, that low inflation is a part of the problem, and another parts are the inflation hawks, both among regulators and among bond investors.

In currency, the dollar fell on reduced concerns about the Greek financial meltdown, which increased risk appetite.

I am not sure why investors had reduced concerns about Greece though. (I’ll get to the Greek crisis in more detail later)

Additionally, we have a report that the Bank of Japan is planning more quantitative easing if the Yen strengthens to OJ May Expand Easing Should Yen Reach ¥87:$1.00.

In any case, the falling dollar had commodity traders buying oil, which drove the price higher.

Economics Update

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H/t Calculated Risk


It appears that inventories are now in line with sales.
Downward trend is the result of increased efficiencies
H/t Calculated Risk

In the good news/bad news dichotomy, we see that retail sales rose ½% in January but consumer confidence fell:

January sales at U.S. retailers climbed more than anticipated, while consumer confidence unexpectedly fell this month from a two-year high, showing a recovery in household spending may be gradual.

Retail purchases increased 0.5 percent, the third gain in the past four months, Commerce Department figures showed today in Washington. The Reuters/University of Michigan’s consumer sentiment gauge dropped to 73.7 from 74.4 the prior month.

Not sure what this all means, to tell the truth.

Sometimes teasing meaning out of the data is like drinking from a fire hose.

On the other hand, the data from Europe, where disappointing GDP numbers from Italy and Germany have unexpectedly fallen in the 4th quarter, is pretty easy to understand, as is the fact that Bloomberg’s Professional Global Confidence Index, fell on concerns that deficit problems among some nations in the Euro zone will hinder recovery.

By some countries, I mean, of course, the PIIGS (Portugal, Italy, Ireland, Greece and Spain), who are largely hamstrung in their ability to deal with the crisis because of deficit requirements of, and the fixed exchange rate from, being in the Euro zone.

BTW, here’s a story that we may here more of in the next few months: there has been a surprising outflow of funds from “junk bond mutual funds:

High-yield, high-risk bond mutual funds last week had their biggest outflows since 2008, adding to signs that the junk debt market may be set for a “reversal.”

Investors withdrew $1.13 billion from mutual funds invested in high-yield debt, including exchange-traded funds, in the week ended Feb. 5, according to research firm EPFR Global. That’s the most since early in the third quarter of 2008 and reverses a $335.6 million inflow from the previous week, according to Cambridge, Massachusetts-based EPFR.

I do not know what is up (or more accurately down) here but someone out there knows something and is acting on it.

In any case, the problems in Europe, along with new Chinese actions to reign in lending by increasing bank reserve requirements, have raised concerns about the economy which driven crude oil down, and led to a flight to safety which has driven the dollar up.

Economics Update

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H/t Calculated Risk

We have the numbers for the December trade deficit, and it increased by 10.4%, largely on the increases in energy imports. (See graph pr0n)

In the nexus of banking and real estate, home mortgage demand fell last week, despite the fact that rates fell on the 30 year fixed mortgage, and as the Mortgage Bankers Association notes, the fall is in new home purchases, refinancing continues apace:

The Refinance Index increased 1.4 percent from the previous week and the seasonally adjusted Purchase Index decreased 7.0 percent from one week earlier. The unadjusted Purchase Index decreased 1.1 percent compared with the previous week and was 7.5 percent lower than the same week one year ago.

In international finance, the Bank of Korea kept its benchmark steady 2%, largely in response to surging unemployment in South Korea.

Australia, on the other hand, experienced the largest growth in the workforce in 3 years.

In currency, the dollar was mixed, largely on reports that a deal may be in the offing in the Euro Zone for Greece’s debt mess, news of which also drove oil prices slightly higher.

Economics Update

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Normally, I don’t talk stock prices, particularly the Dow, which is an arbitrary and not particularly accurate metric of the stock market, but the fact that the DJIA closed below 10,000 today has a significant effect on the thinking of the markets, or at least on the thinking of the financial journalists.

On the other hand we do have some good signs, most notably that the interest rate premoum on junk bonds appears to be falling, which generally implies that financing is becoming more available.

Additionally, it appears that some sort of deal is in the offing with the EU to bail out Greece, which has driven voth the Yen and the dollar lower, because investors are not looking so hard for safe havens.

As is the norm, the falling dollar has driven oil higher.

Economics Update

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Scary graph pr0n of the day, option ARM resets
h/t Calculated Risk

Well, today is “Jobless Thursday,” and initial claims unexpectedly rose to 480,000, rather than dropping as forecast, as did the rather more significant 4-week moving average, while continuing claims remained flat, though better productivity numbers might indicate a bit of an upswing.

Additionally, factory orders rose more strongly than forecast in December, which also is good news.

In the class half empty/full division. we have home listings rising for the first time in 18 months, which could presage a turn around in the market (full), or the fact that sellers who were trying to wait out the downturn are finally capitulating to the real estate market (empty), which would indicate further price declines ahead.

Me, I’m a bear on this.

Meanwhile, over on the other side of the pond, the Bank of England kept its benchmark rate at 0.5%, but perhaps more significantly, it announce that it is “pausing” in its quantitative easing (printing money) through buying bonds.

I’m not sure if they are just taking a month to survey the landscape, or if they think that recovery is, “just around the corner.”

Meanwhile, the recent swings in global stock markets, along with the jobs number, have investors worried, which has them buying up dollars, and these concerns also drove oil and other commodities lower.

Economics Update

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Well, we had mixed signals, with factory activity rising faster than expected and construction spending falling faster than expected.

As to what you follow, I’ll go with disposable personal income and personal consumption expenditures, where spending went up less than income, increasing the savings rate, meaning that the consumer is still well into the “paradox of thrift”, and as The Big Picture observes, most of the increase in personal income is from government stimulus spending, but Obama has decided to go all 1937 on the budget. (Separate post for the budget)

Meanwhile in central bank/bond finance land, the Obama’s budget, along with the industrial growth reading pushed bond prices down, and yields up.

Meanwhile, in Oz, the Reserve Bank of Australia kept its benchmark rate at 3.75%, it had been expected to raise the rate to 4%, and so its currency took a hit.

Meanwhile in currency and energy, the ISM’s index of national factory activity drove both oil and the dollar up.

Economics Update

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Worst post-Depression recession
H/t Economic Policy Institute

So, US GDP grew at a 5.7% annual rate in the 4th quarter, according to the advance estimate from the Bureau of Economic Analysis.

Some points: First, 5.7% is a spectacularly good number, the best in about 6 years, second, I expect that as more data comes in, future revisions will be downward, third, much of this growth was from a low “deflator” number, basically meaning that the numbers were juiced by the extraordinarily low inflation numbers, and fourth, as Krugman notes, it was an inventory blip, with over half of the growth being restocking of depleted inventories, not real growth.

Even with this number, as the graph pr0n shows, we are still down from peak more than any other recession since WWII.

Still, the Reuters/University of Michigan Surveys of Consumers was up more than forecast, to 74.4, and given that consumer spending is most of our economy, it is a big deal.

As to energy and currency, the GDP numbers did what was expected, with the dollar strengthening, and the stronger dollar pushing oil down.

[on edit]
Just in, in 2009, wages and benefits rose the least since statistics began to be kept in 1982.

Economics Update

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Well, the news has been pretty good today with the American Trucking Association Truck Tonnage Index rising in December, and the Conference Board’s consumer confidence index rose sharply in January, while across both ponds, the UK GSP rose in the 4th quartter opf 2009, indicating an possible end to their recession, and Japanese exports rose for the first time since the Lehman collapse.

I will note that ex-consumer confidence, these could be temporary blips from the need to restock inventories.

In the old standards of oil and currency, oil fell, largely on concerns about a downgrade on Japanese sovereign debt, while the dollar was mixed, up vs the Euro and Pound, but down vs. the Yen, and I’m just confused about that.

Mostly, I think that the markets are holding their breath waiting for the Fed’s meeting this week to finish.

Economics Update (a Day Late)

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So, we now have some idea just how much the new home buyer tax credit artificially inflated the market, because existing home sales fell 16.7% from November to December.

Since existing home sales are recorded at closing, and in order to qualify for the tax credit, the sale had to close before the end of November, this (seasonally adjusted) number shows that just anemic residential real estate is.

In overseas central banks, the Bank of Japan has kept its benchmark rate at 0.1% (effectively 0%) as they continue to fight what is now a nearly 20 year long deflationary spiral.

In energy, oil was up slightly, while in currency, the US dollar fell slightly.

Economics Update

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Decline in job openings since 2007
h/t Zero Hedge

The US trade deficit grew by 9.7% in November, largely on the recent run up in oil prices.

The National Federation of Independent Business’s small business optimism index fell for the 2nd straight month in December, indicating that the small business segment is still not ready to start hiring.

In central bank land, the yield on 30-year treasuries fell again, indicating an expectation that rates would remain low, while in China, the central bank raised the reserve requirement for banks by 50 basis points.

In energy, oil continues to fall on the promise of warmer weather.

In currency, the dollar rose, both on investor jitters, and on the Federal Reserve Bank of Philadelphia President being a complete moron and talking up rate hikes. (more on this later)

Economics Update

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Slow news day, with the only non-energy/currency news being that non-foreclosure U.S. Mortgage Delinquencies 9.8% in November, a 5.5% increase over October, and a 21% increase year over year.

In the old reliables of energy and currency, we see gasoline prices back in the news, the the price of a gallon of regular unleaded approaching $3.00, though crude oil fell on forecasts of warmer weather in the US and Europe.

In currency, the dollar fell to a 3 week low, largely on the expectation of continued low rates, as well as indications of a recovery, and higher interest rates, in China.

Economics Update

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Deleveraging: The recession continues until it’s done
h/t Calculated Risk


H/t Calculated Risk

Well, the NFP came out, and the non-farm payroll fell by 85,000, and unemployment (U3) remained at 10%, which kind of gives the lie to all those forecasts that predicted an increase.

On bright spot, however, was that “November payrolls were revised to show the economy actually added 4,000 jobs rather than losing 11,000,” so the 22 month losing streak is broken….Kind of. (BLS link)

Consumer spending is not bouncing back either, as US consumer credit fell by $17.5 billion, a new record, indicating that consumers are continuing to deleverage and pay down their debts, taking us yet further into the paradox of thrift.

The fact that US office vacancies hit 17 pct, a 15-year high, reinforces the idea that things are still not turning around, though a surprise increase in wholesale inventories weighs in on the other side of the ledger.

Treasuries rose. and the dollar fell on the jobs report, as investors fled the dollar, and ran to treasuries, because of concerns about the strength of the recovery.

Of more concern is the fact that oil still rose after the abysmal NFP report, which implies that the new stable level for oil prices is above $80/bbl, which would have the effect of further crippling any recovery.

Economics Update

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first time unemployment claims rose slightly this week, up 1,000 to 434,000, down from the 490,000 at this time last year, and the 4 week average fell to 450,250.

I would note that this number needs to be below about 400K before non-farm payroll increases, and if the December numbers show an increase in NFP, it’s seasonal adjustment bull sh$#.

The numbers are better, but it’s still, “better in a not getting worse as fast,” way.

That being said, retail sales surprised on the upside, with December sales up 3% over the 2008 numbers, though still down by about 2-3% FROM 2007.

We also had some big news in central bank land, with China’s central bank raising its benchmark rate, with 3-month bills increasing to 1.3684%, up 4.04 basis points (0.0404%) from the rate that it had maintained for the past 4 months.

It indicates that they will be tightening on the money supply, which could get interesting, because much of the Chinese stock market is smoke and mirrors. Additionally, it may be a first step in allowing the Yuan to drift higher, as higher returns make the currency more attractive.

On the less surprising side of stupid central bank tricks, the Bank of England left both rates and policy unchanged, which means that they are still printing money hand over fist.

Also, Treasurys fell slightly, though I think that this is concern regarding the NFP payroll data.

Energy and currency surprised. The surprise increase in Chinese rates would normally presage an increase in oil prices, because there is the assumption that there is additional demand that is being tamped down, and the dollar down, because the Yuan becomes more attractive, but in fact, oil fell slightly, to below $ 83/bbl, though that might be profit taking, and the dollar rose fairly sharply.