Archive for November, 2008

China slashes rates, EU launches stimulus plan (Reuters)

Wednesday, November 26th, 2008 | Finance News

LONDON (Reuters) –
Massive stimulus plans to drive the world out of recession took center stage on Wednesday with the European Union asked to provide a 200 billion euro boost and China announcing its biggest interest rate cut in 11 years.

The moves came on the heels of an $800 billion credit market bailout from the U.S. Federal Reserve.

Underscoring the severity of the downturn, U.S. consumer spending plunged at the steepest rate in more than seven years and Toyota Motor Corp had its top-notch credit rating cut for the first time in a decade.

U.S. President-elect Barack Obama, meanwhile, was expected to name former Fed chairman Paul Volcker to head a special advisory panel on the financial market and economic crisis.

China's cut in banks' benchmark lending and deposit rates by 108 basis points came a day after the World Bank said Chinese growth next year would be around 7.5 percent, the slowest rate since 1990.

The People's Bank of China (PBOC) also reduced reserve requirements by 1 percentage point for big banks and by 2 percentage points for smaller banks.

"It's certainly a lot more aggressive than anything they've done recently. I think it speaks volumes about just how much China has slowed down," said Anthony Muh of AT Asset Management in Hong Kong.

The European Commission approved a package it hopes will be taken up by EU member states aimed at giving the sagging European economy a sharp, temporary boost with a 200 billion euro ($260 billion) spending plan across the 27-nation bloc, an EU source said.

The plan, higher than initially thought, calls for a targeted and temporary fiscal stimulus of 1.5 percent of EU gross domestic product. National measures would account for around 170 billion euros, or 1.2 percent of GDP, and EU and European Investment Bank budgets around 30 billion euros.

The Commission wants the EU's 27 countries to unite on a two-year dash for growth, even if it means breaking the region's national deficit targets.

Some EU countries were cautious. German Chancellor Angela Merkel warned EU partners against competing to produce big stimulus packages for their economies and defended her plans for Germany as policies of "measure, middle ground and reason."

Germany and Britain have already launched stimulus programs, and France is poised to. Berlin said it assumed its existing plan would be enough.

FISCAL WORRIES

Stock markets slipped over worries about the impact of huge stimulus programs on national accounts. Japan's Nikkei average shed 1.3 percent and the index of top European shares was down 2.3 percent.

Wall Street looked set for a poor start after three positive days in a row.

In Cairo, European Central Bank President Jean-Claude Trichet said the bank could cut interest rates next week as long as there was evidence that inflation pressures have eased.

There is -- German inflation likely slowed for a fourth month running in November as fuel costs fell, pointing to easing price pressures in the broader euro zone, state data showed.

Trichet's comments were the latest in a series of comments from central bankers that have led to widespread expectations of earlier monetary policy ahead.

The stimulus moves in Europe and China followed Tuesday's announcement by the U.S. Federal Reserve of an $800 billion plan to buy mortgage-related debt and back consumer loans.

Under the life-support intervention, the Fed is putting $600 billion toward mortgage-related debt and securities and $200 billion to support consumers.

US BUYING STRIKE

Data on Wednesday showed U.S. consumers cut spending during October at the steepest rate in more than seven years. Spending plunged 1 percent, slightly more than the 0.9 percent decline that Wall Street economists had forecast.

Authorities across the world are struggling to keep their economies from sliding deep into recession and have already pumped billions into banks, money markets and now their broader economies as well as slashing interest rates.

The Organization for Economic Cooperation and Development forecast on Tuesday that growth among its 30 member nations would contract by 0.4 percent next year, with "negative growth" in 19 countries.

Elsewhere, Indonesia approached Australia, the World Bank and other creditors to help cover its budget deficit next year, an Indonesian finance ministry official said.

Evidence of the sharp global downturn's impact on business came when Fitch Ratings downgraded Toyota's long-term foreign and local debt ratings to AA from AAA, with a negative outlook.

"The negative developments in the industry are so substantial and fundamental that even the strongest player -- Toyota -- can no longer support an 'AAA' rating," said Fitch Director Tatsuya Mizuno.

(Additional reporting by Reuters bureaux worldwide, editing by Mike Peacock)

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EU, China, US unleash global assault on crisis (AFP)

Wednesday, November 26th, 2008 | Finance News

BRUSSELS (AFP) –
The EU was to call on members to spend their way out of recession on Wednesday as China cut its interest rates and the United States injected another 800 billion dollars into the economy.

The new global assault came as new evidence of the social effects of the financial crisis and economic slowdown emerged, with officials in China reporting riots by unemployed workers.

In Brussels, the European Commission was to urge countries to launch a "significant" two-year tax and spending campaign to jolt their embattled economies, according to draft proposals obtained by AFP.

"Only through a significant stimulus package can Europe counter the expected downward trend in demand, with its negative knock-on effects on investments and employment," said the draft document.

Countries across the world have launched tax and spending programmes designed to encourage spending and business activity, with a coordinated EU-wide plan seen as more effective than individual country efforts.

The European draft did not say how much the stimulus package could be worth, but commission chief Jose Manuel Barroso has said it should be at least one percent of EU output, which would amount to about 130 billion euros (170 billion dollars).

China launched a 586-billion-dollar economic stimulus package in early November and the country's central bank announced another cut in interest rates on Wednesday to spur growth in the emerging giant.

The emerging Asian giant is seen expanding at a slightly slower 8-9 percent rate this year.

China's central bank slashed its benchmark one-year rate by 1.08 percentage points on Wednesday.

Also in China, hundreds of workers sacked from a toy factory in China clashed with police and smashed buildings, authorities said, in the latest bout of violent unrest linked to rising unemployment.

The riot occurred Tuesday in Guangdong province, southern China's export heartland where similar protests have flared recently, after about 2,000 workers gathered to demand severance pay, according to the local government.

In other changes linked to the global slowdown, the number of jobseekers applying to the civil service in Hong Kong has soared amid widespread redundancies by private sector firms hit by the global crisis.

The Civil Service Bureau said it had received more than 24,000 applications for just 400 assistant clerical officer vacancies.

In Washington Tuesday, the Federal Reserve said it would pump a massive 800 billion dollars more into the economy to try to stabilise the staggering US financial system.

Up to 600 billion dollars will go towards purchases of mortgage securities, and a separate 200 billion dollars for asset-backed securities to help get credit to consumers.

The new efforts aim to thaw credit markets, promote liquidity and bring down borrowing costs for the housing market, which is at the center of the economic storm that has dragged down the global economy.

Elsewhere, in Argentina, President Cristina Kirchner proposed tax and investment incentives to help cushion the impact of the global financial crisis on the nation and encourage repatriation of capital.

She also unveiled a massive public spending plan to pump more than 21 billion dollars into Argentina's infrastructure.

On global stock markets, Asian shares closed mixed, while European markets were under pressure after two days of large gains.

Tokyo's Nikkei-225 index ended 1.3 percent lower, weighed down by concerns about a stronger yen, and Sydney slipped 2.3 percent. But Seoul closed up 4.7 percent and Hong Kong's Hang Seng was 3.4 percent higher by lunch.

In Europe, French shares fell by 1.42 percent to 3,162.74 points on the CAC 40 index in early trading, London was down 0.75 percent while Frankfurt was off 0.70 percent.

In gloomy news Tuesday, a report by the Organization for Economic Co-operation and Development said many rich countries faced their worst economic crisis since the 1980s.

The OECD said eight million more people could be thrown out of work by 2010 in the 30-country zone of industrialised nations.

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Shares fall as stimulus weighed (Reuters)

Wednesday, November 26th, 2008 | Finance News

LONDON (Reuters) –
World stocks struggled on Wednesday, with European and Japanese markets falling, while the low-yielding Japanese yen rose as investors counted the cost of global fiscal stimulus packages to boost flagging economies.

Europe was considering a more than 130 billion euro plan following the U.S. Federal Reserve's $800 billion effort to bolster credit and mortgage markets on Tuesday.

China also cut interest rates by 108 basis points, aiming to ensure liquidity in the banking system and to help to boost slowing economic growth.

Positive reaction to the financial resuscitation efforts was starting to give way to concern about the bottom-line impact on government balance sheets.

"The Fed's measures were supposed to be good for risk," said Geoffrey Yu, currency strategist at UBS in London. "It's obviously positive for some aspects of the economy, but people are starting to worry about balance sheet risks ... In general, problems on the U.S. economic front haven't changed at all."

Real economy malaise also continued to sap sentiment toward risk. Toyota Motor Corp had its top-notch credit rating cut for the first time in a decade.

World stocks as measured by the MSCI index were slightly lower, while European stocks were down 0.4 percent, off their lows. Tokyo's Nikkei 225 index earlier fell 1.3 percent.

Falling crude prices weighed on oil shares in Europe, adding to a general air of deflating sentiment as the stimulus packages were digested, leaving investors to wonder what it would take to get interbank markets working properly again.

"You can't force banks to lend if they don't want to. Earnings worries are still there," said Bernard McAlinden, investment strategist at NCB Stockbrokers in Dublin.

Interbank lending rate ranges for three-month dollar, euro and sterling funds held relatively steady on Wednesday versus a day ago, while spreads between interbank and expected policy rates stayed at high levels.

Skepticism about the Fed and other stimulative packages kept investors' preference for the yen intact.

The low-yielding Japanese unit, a bellwether of attitudes toward risk, stayed firm versus the euro at 123.50 yen, but gains were trimmed after the China rate cut. Deleveraging flows also kept the dollar well-supported against a basket of currencies and the euro.

"There have been so many steps taken by the U.S. authorities, leaving the impression they are doing anything in their capacity, but not necessarily with consistency," said Mitsuru Sahara, a senior manager at Bank of Tokyo-Mitsubishi UFJ.

"The market reaction has become increasingly cool, as it has become accustomed to new measures coming one after the other without feeling that the market has hit a bottom," he said.

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