ECB poised for big rate hike in face of record inflation

FRANKFURT, Germany - After raising interest rates for the first time in over a decade at their last meeting, European Central Bank policymakers are poised to deliver another bumper hike on Thursday in a show of determination to tame soaring inflation.

Steep increases in the price of energy in the wake of the Russian invasion of Ukraine have heaped pressure on households and sent the pace of consumer price rises to new highs. 

Eurozone inflation hit 9.1 percent in August, a record in the history of the single currency and well above the two-percent rate targeted by the ECB.

Meanwhile on Monday, the euro fell to a 20-year low against the dollar Monday, dropping below $0.99 as fears of a eurozone recession grew.

The ECB was unlikely to raise its rates "with the explicit goal of strengthening the currency", said Frederik Ducrozet, head of macroeconomic research at Pictet, but the euro's struggles against the greenback could "have some bearing on its decision-making".

The Frankfurt-based institution is playing catch-up with other central banks in the United States and Britain that started raising rates harder and faster in response to inflation.

The "only question" for the ECB's meeting this week was "whether it will be a 50 or 75 basis point hike," said Carsten Brzeski, head of macro at the ING bank.

Speaking at the annual Jackson Hole central banking symposium at the end of August, ECB board member Isabel Schnabel said the central bank needed to show "determination" to tame price rises.

Under this approach, the central bank would respond "more forcefully to the current bout of inflation, even at the risk of lower growth and higher unemployment", she said.

In her speech in the US, Schnabel stressed the need for the people to "trust" that the ECB will restore their purchasing power.

The ECB's 25-member governing council surprised with a 50-basis-point hike at its last meeting in July, bringing an end to eight years of negative interest rates in one fell swoop.

So-called forward guidance issued by the ECB, which limited its scope for action, has been ditched. Policymakers would now take their decisions "meeting-by-meeting", the ECB President Christine Lagarde announced in July.

With that, the door has been opened for the ECB to follow in the footsteps of the US Federal Reserve and raise rates by a 75 basis points.

Following August's red-hot inflation numbers, the influential head of the German central bank, Joachim Nagel, said the ECB needed a "strong rise in interest rates in September".

"Further interest rate steps are to be expected in the following months," the Bundesbank president predicted.

But the ECB's chief economist, Philip Lane, has counselled colleagues to follow a "steady pace" of interest rate rises.

Hiking at a rate that was "neither too slow nor too fast" was important due to the "high uncertainty" around the economy and the future path of inflation.

Alongside its policy decisions, the ECB will also share an updated set of economic forecasts for the eurozone.

In its last estimates, published in June, the ECB said it expected inflation to sit at 6.8 percent in 2022 before falling to 3.5 percent next year, while growth would slow from 2.8 percent this year to 2.1 in 2023.

But a more severe energy shock as Russia reduces gas deliveries to Europe could push the eurozone into a "deeper winter recession" and hold growth to zero percent in 2023, said Ducrozet.

At the same time, the soaring cost of energy would drive inflation close to double digits by the end of the year, he predicted.

The ECB had "no choice but to commit to faster monetary tightening as long as inflation keeps rising" even as a recession loomed, said Ducrozet. 

Agence France-Presse

China deal lifts US stocks into record territory

NEW YORK - Wall Street on Monday set records for a third straight day as investors absorbed a new US-China trade deal and Beijing released upbeat economic data.

US and Chinese officials on Friday announced a partial trade deal, with Washington cancelling and reducing tariffs in exchange for Chinese pledges to increase purchases of US exports and reform its trade practices.

All three main US stock indexes finished at records, joining the upward drift in Europe where Paris, London and Frankfurt all posted strong gains. 

Chris Low of FTN Financial told AFP the markets' jubilance may not be entirely justified.

"The best you can say is that it eliminates some of the negative scenarios people were worried about," he said.

"I think the market is rallying simply because the worst case scenario of US-China trade plummeting is off the table."

Officials in Beijing released data showing China had had a better-than-expected pickup in the retail and industrial sectors in November, a spot of good news at the close of a difficult year for the world's second-largest economy.

London's FTSE 100 which benefitted from continued post-election optimism and a dip in the value of the pound.

In the eurozone, Frankfurt's DAX 30 index climbed 0.9 percent to close just shy of a record high.

And the Paris CAC 40 won 1.2 percent, briefly breaching the 6,000 points level for the first time in 12 years.

The eurozone's economy meanwhile remained at a near standstill in December, extending the worst quarterly performance since 2013, according to a closely-watched survey compiled by IHS Markit research group.

While the removal of uncertainty surrounding Brexit -- following the Conservatives' commanding victory in last week's British elections -- allowed markets to breathe a huge sigh of relief, analysts urged caution with the saga having some way to run.

"This is just the end of the beginning," noted Quentin Fitzsimmons at T. Rowe Price. 

"The real work of negotiating the UK's future trading relationship with the EU lies ahead and that has the potential to become very complicated."

- Key figures around 2300 GMT - 

New York - Dow: UP 0.4 percent at 28,235.89 (close)

New York - S&P 500: UP 0.7 percent at 3,191.45 (close)

New York - Nasdaq: UP 0.9 percent at 8,814.23 (close)

London - FTSE 100: UP 2.3 percent at 7,5519.05 points (close)

Frankfurt - DAX 30: UP 0.9 percent at 13,407.66 (close)

Paris - CAC 40: UP 1.2 percent at 5,991.66 (close)

EURO STOXX 50: UP 1.1 percent at 3,772.74 (close)

Tokyo - Nikkei 225: DOWN 0.3 percent at 23,952.35 (close)

Hong Kong - Hang Seng: DOWN 0.7 percent at 27,508.09 (close)

Shanghai - Composite: UP 0.6 percent at 2,984.39 (close)

Pound/dollar: DOWN at $1.3286 from $1.3331 at 2200 GMT on Friday

Euro/pound: UP at 83.82 pence from 83.42 pence

Euro/dollar: UP at $1.1139 from $1.1121

Dollar/yen: UP at 109.60 yen from 109.38 yen

Brent North Sea crude: UP 0.2 percent at $65.34 per barrel

West Texas Intermediate: UP 0.2 percent at $60.21 per barrel

source: news.abs-cbn.com

IMF cuts euro zone growth forecasts, as Germany slows and Italy stalls

BRUSSELS - Euro zone economic growth is set to slow more than expected as the bloc's manufacturing crisis could spill over to the larger services sector under protracted global trade tensions, the International Monetary Fund said on Wednesday.

The IMF said the 19-country euro zone would grow by 1.2 percent this year, revising down its earlier estimates from April of 1.3 percent growth for the bloc. That is a significant slowdown compared to last year's 1.9 percent expansion.

The bloc's economy would grow by 1.4 percent in 2020 and 2021, the IMF said, cutting its previous estimate of 1.5 percent growth in both years.

The slowdown is mostly due to anaemic growth in Germany, the euro zone's largest economy, and stagnation in Italy, the third-biggest, the fund said, revising down its earlier forecasts for both countries.

Germany is now expected to grow by only 0.5 percent this year, slower than the 0.8 percent the IMF had predicted in April. That would be one-third of 2018 growth.

The IMF also cut its growth forecast for France, the bloc's second-largest economy, despite better-than-expected output estimates for the third quarter released last week. The country is now expected to grow by 1.2 percent this year, instead of the 1.3 percent previously forecast.

To counter the slowdown, the fund reiterated its call for a "synchronized fiscal response" by euro zone governments, in a clear message to Berlin to invest more.

It said the slowdown, so far mostly caused by the impact of global trade tensions on the bloc's export-driven industry, could spill over to services, the largest economic sector in the euro zone.

Britain's process to leave the European Union was also a cause of concern, with a no-deal Brexit causing vast negative effects on both Britain and the EU.

In the event of an orderly Brexit, which could occur by the end of January, the IMF confirmed its earlier estimates that Britain's economy would grow by 1.2% this year and 1.4 percent next. Growth was 1.4 percent in 2018.

Inflation in the bloc is expected by the IMF to be 1.2 percent this year, 1.4 percent next and 1.5 percent in 2021, short of the European Central Bank's target of a rate close but below 2 percent.

(Reporting by Francesco Guarascio @fraguarascio; Editing by Catherine Evans)

source: news.abs-cbn.com

Weak economic data, tariff concerns weigh on stocks globally

NEW YORK -- Modest gains in US stocks helped global equity indices edge higher on Tuesday as investors weighed a US-China trade truce against Washington's threat to impose additional tariffs on European goods.

Global stock indices traded lower for most of the day after data showing factory activity in the euro zone shrank at a faster pace than expected last month and another report showing US manufacturing activity slowed in June.

In addition, the US Trade Representative's office released a list of additional European products that could be subject to tariffs, on top of products worth $21 billion that were announced in April. These included olives, Italian cheese and Scotch whisky.

Yet gains in dividend-oriented US utilities and real estate stocks helped push the benchmark S&P 500 to a record high ahead of Friday's US jobs report.

"We’ve got a wait-and-see on the trade deal, a wait-and-see on the Fed, a wait-and-see on earnings and all of that is in front of us by at least two weeks," said Art Hogan, chief market strategist at National Securities in New York.

"I am not surprised at all to see this market shift into sideways action."

MSCI's All Country World Index, which tracks stocks in 47 countries, rose 0.2 percent.

On Wall Street, the Dow Jones Industrial Average rose 69.25 points, or 0.26 percent, to 26,786.68, the S&P 500 gained 8.68 points, or 0.29 percent, to 2,973.01 and the Nasdaq Composite added 17.93 points, or 0.22 percent, to 8,109.09.

The pan-European STOXX 600 index rose 0.3 percent following modest gains in Asian equities.

Tuesday was the last full trading day before Friday's monthly US jobs report, a closely watched data point before the US Federal Reserve's meeting in late July. Market participants still expect the Fed to cut interest rates despite the developments in trade talks.

"While the threat of additional tariffs on EU imports is still an overhang for investors, the market is more likely taking a breather until new macro-economic data comes out," said Peter Cardillo, chief market economist at Spartan Capital Securities.

Stocks rallied globally on Monday after US President Donald Trump postponed imposing more tariffs on Chinese products and the two countries agreed to continue negotiations.

Investors, meanwhile, continued to move into safety plays despite the modest gains in equity markets.

Benchmark 10-year notes last rose 17/32 in price to yield 1.9757 percent, from 2.033 percent late on Monday.

The dollar index, which tracks the dollar against major rivals, was 0.1 percent lower at 96.749.

Oil prices slipped as concerns that the global economy could be slowing outweighed an agreement by producer cartel OPEC on Monday to extend supply cuts until next March.

Brent crude fell 3.8 percent to $62.57 per barrel. US crude fell 4.7 percent to $56.32 a barrel.

source: news.abs-cbn.com

Global stocks mostly rise after solid US data, earnings

NEW YORK -- Global stocks mostly rose on Thursday on more benign statements from the United States about trade and a batch of solid economic data and corporate earnings.

Investors took solace in reports from Wednesday that the Trump administration would hold off for 6 months on imposing tariffs on auto imports.

The gains also came after US data showed better-than-expected housing construction and a dip in US jobless claims, while Dow members Walmart and Cisco Systems both rallied after solid earnings reports.

Markets largely shrugged off President Donald Trump's announcement effectively barring Chinese telecom giant Huawei from the US market, a move that prompted a warning from Beijing against further harming trade ties.

"The combination of easing trade tensions, upbeat domestic economic numbers, and bullish earnings have boosted investor sentiment," said Gorilla Trades strategist Ken Berman.

Wall Street stocks rose for a third straight session, with the Dow gaining 0.8 percent to 25,862.68, only about 80 points below the close on May 10 prior to Monday's selloff on US-China trade tensions.

Eurozone stock markets were up well over one percent by the close, with London not far behind, mostly thanks to a weak pound.

Oil prices rose against the background of high Saudi-Iran tensions ahead of an OPEC meeting that is to take stock of the cartel's production cut deal.

POUND IS PRESSURED

The dollar was firmer against all its major rivals but the British pound suffered a particularly strong decline amid intense speculation that Prime Minister Theresa May will step down if her next attempt to get parliament to approve her Brexit deal fails, dealers said.

"The pound tumbles as Theresa May looks set to leave in June," said Joshua Mahony, senior market analyst at IG.

"For markets this is ramping up the likeliness of a hard Brexit, as pushes for a more hardline Brexiteer to take over is raising fears that we could see the UK leave the EU without a deal in October," he said.

Boeing jumped 2.4 percent as it announced that it has completed a software upgrade on the 737 MAX, which has been grounded following two crashes. The aerospace giant will now work with regulators to win approval to return the jets to service.

But Tesla Motors fell 1.6 percent after the National Transportation Safety Board said its "Autopilot" software was engaged by a driver who died in a March crash in Florida.

The company also confirmed that its communications director was exiting the company, the latest example of turnover at the electric car maker.

KEY FIGURES AROUND 2100 GMT (5 a.m. Friday in Manila)

New York - Dow: UP 0.8 percent at 25,862.68 (close)

New York - S&P 500: UP 0.9 percent at 2,876.32 (close)

New York - Nasdaq: UP 1.0 percent at 7,898.05 (close)

London - FTSE 100: UP 0.8 percent at 7,353.51 (close)

Frankfurt - DAX 30: UP 1.7 percent at 12,310.37 (close)

Paris - CAC 40: UP 1.4 percent at 5,448.11 (close)

EURO STOXX 50: UP 1.6 percent at 3,338.56 (close)

Tokyo - Nikkei 225: DOWN 0.6 percent at 21,062.98 (close)

Hong Kong - Hang Seng: FLAT at 28,275.07 (close)

Shanghai - Composite: UP 0.6 percent at 2,955.71 (close)

Euro/dollar: DOWN at $1.1174 from $1.1201 at 2100 GMT

Pound/dollar: DOWN at $1.2798 from $1.2845

Dollar/yen: UP at 109.85 yen from 109.60 yen

Oil - Brent Crude: UP 85 cents at $72.62 per barrel

Oil - West Texas Intermediate: UP 85 cents at $62.87 per barrel

source: news.abs-cbn.com

Global stocks little changed as Easter break saps volumes

NEW YORK -- Global stocks finished little changed Monday following a quiet session as investors eyed the latest in trade diplomacy and US banks reported mixed earnings.

The eurozone's main stock markets edged higher in subdued deals, with many investors away for the Easter holiday break.

US stocks, meanwhile, nudged lower as results from Goldman Sachs and Citigroup got the ball rolling on a heavy week of earnings reports.

With the S&P 500 up nearly 16 percent this year, analysts say it will be harder for the market to rise further without an obvious catalyst.

Analysts expect earnings to decline overall compared with the year-ago period, although some believe companies will have an easy time topping the reduced expectations.

"There seem to be winners and losers this earnings season," Meeschaert Financial Service's Gregori Volokhine said of the banking results thus far.

"The market is still looking for something to inspire it to go higher."

US and Japanese negotiators opened the first round of trade talks in the latest front in President Donald Trump's aggressive, multi-pronged strategy to address "chronic US trade imbalances."

US Trade Representative Robert Lighthizer welcomed the team from Tokyo led by Japan's Economy Minister Toshimitsu Motegi at the start of two days of trade talks looking for a rapid deal.

In other trade news, sentiment was partly supported by comments from US Treasury Secretary Steven Mnuchin about trade talks with China, who said he was "hopeful we're getting close to the final round of concluding issues."

Investors set aside last week's concerns about a possible new trade war between the US and the European Union after Trump threatened to hit the bloc with tariffs over subsidies to aviation giant Airbus.

They were given a boost on Monday when the EU member countries gave the final green light to begin new trade talks with the US.

Dealers noted that, for once, Brexit was not hogging the headlines this week due to Britain's parliament being shut for the Easter holiday until April 23.

Britain's Conservative government will resume talks with the main opposition Labour party next week on how to resolve the deadlock over Brexit, a senior minister said Sunday.

British employment data is due Tuesday, followed by inflation numbers on Wednesday and retail sales figures on Thursday.

KEY FIGURES AROUND 2045 GMT (4:45 A.M. TUESDAY IN MANILA)

New York - Dow: DOWN 0.1 percent at 26,384.77 (close)

New York - S&P 500: DOWN 0.1 percent at 2,905.58 (close)

New York - Nasdaq: DOWN 0.1 percent at 7,976.01 (close)

London - FTSE 100: FLAT at 7,436.87 (close)

Frankfurt - DAX 30: UP 0.2 percent at 12,020.28 (close)

Paris - CAC 40: UP 0.1 percent at 5,508.73 (close)

EURO STOXX 50: UP 0.1 percent at 3,450.46 (close)

Tokyo - Nikkei 225: UP 1.4 percent at 22,169.11 (close)

Hong Kong - Hang Seng: DOWN 0.3 percent at 29,810.72 (close)

Shanghai - Composite: DOWN 0.3 percent at 3,177.79 (close)

Pound/dollar: UP at $1.3093 from $1.3074 at 2100 GMT on Friday

Euro/pound: DOWN at 86.32 pence from 86.40 pence

Euro/dollar: UP at $1.1302 from $1.1299

Dollar/yen: UP at 112.03 yen from 112.02 yen

Oil - Brent Crude: DOWN 37 cents at $71.18 per barrel

Oil - West Texas Intermediate: DOWN 49 cents at $63.40 per barrel

source: news.abs-cbn.com

US, European stocks mostly rebound from prior session selloff

NEW YORK - US and European stocks mostly rose Wednesday as investors took a more optimistic stance on the Italian political crisis that sent them fleeing in the prior session.

The crisis in Italy continued to hover, with anti-establishment leader Luigi Di Maio seeking to resurrect a populist coalition that collapsed at the weekend by offering the president a compromise over a controversial pick for economy minister.

Yet investors adopted a more benign view of the situation, bidding up shares that tumbled in Tuesday's session on what-ifs that included a eurozone implosion or widespread defaults.

"Yesterday was a bit overdone," said Nathan Thooft of Manulife Asset Management.

"The reality is that the Italian political dynamics aren't going to be solved any time soon," he said. "The market today is realizing we don't really know what the outcomes are going to be but we are not going to bet on the worst-case scenario."

Ian Shepherdson of Pantheon Macroeconomics struck a similar note, rejecting worries that Italy could leave the eurozone.

"In the long run, anything can happen, given the massive fundamental structural flaws in the construction of the euro, but we detect no great wave of anti-euro sentiment in Italy, and the elections likely to take place in the summer probably won't deliver a clear mandate to exit the single currency," he said in a research note.

"It's not even clear that any of the parties likely to attract significant support will campaign on a platform of euro exit."

The broad-based S&P 500 climbed 1.3 percent, boosted by a strong performance in banking shares and in energy companies that benefited from higher oil prices.

European stocks also had a fairly good day, with Milan itself winning 2.1 percent. London and Frankfurt both rose, although Paris finished slightly lower.

The euro climbed back from the 10-month lows against the dollar it had fallen to on Tuesday. 

A main focus in the days ahead will be the US jobs report for May released on Friday.

Payrolls firm ADP estimated US private sector job growth at 178,000 in May, down from the 204,000 in April and a bit below analyst expectations.

A Federal Reserve's "beige book" survey of economic conditions described companies as largely optimistic, despite worries about a trade war and growing labor shortages.

Economic activity expanded moderately in late April and early May," and businesses are "generally upbeat" about growth in the near term, the 12 Federal Reserve districts reported.

KEY FIGURES AROUND 2100 GMT (5 a.m. Thursday in Manila)

New York - Dow Jones: UP 1.3 percent at 24,667.78 (close)

New York - S&P 500: UP 1.3 percent at 2,724.01 (close)

New York - Nasdaq: UP 0.9 percent at 7,462.45 (close)

Milan - FTSE MIB: UP 2.0 percent at 21,797.82 (close)

London - FTSE 100: UP 0.7 percent at 7,689.57 (close)

Paris - CAC 40: DOWN 0.2 percent at 5,427.35 (close)

Frankfurt - DAX 30: UP 0.9 percent at 12,783.76 (close)

EURO STOXX 50: UP 0.1 percent at 3,430.93 (close)

Tokyo - Nikkei 225: DOWN 1.5 percent at 22,018.52 (close)

Hong Kong - Hang Seng: DOWN 1.4 percent at 30,056.79 (close)

Shanghai - Composite: DOWN 2.5 percent at 3,041.44 (close)

Euro/dollar: UP at $1.1664 from $1.1540

Pound/dollar: UP at $1.3281 from $1.3249

Dollar/yen: UP at 108.91 yen from 108.77 yen

Oil - Brent Crude: UP $2.11 at $77.50 per barrel

Oil - West Texas Intermediate: UP $1.48 at $68.21 per barrel

source: news.abs-cbn.com

Global stocks, euro rocked by Italian turmoil

NEW YORK - US and European stock markets and the euro plunged again Tuesday as political uncertainty in Italy stoked fears about the country potentially crashing out of the eurozone.

Asset prices came off the day's worst levels briefly as Italian top bankers called for calm, saying the economy was in decent shape despite political jitters, but then slid again towards the close.

Worries that Spain also is entering political crisis sparked further nervousness about the finances of the eurozone's southern flank.

The Milan and Madrid stock exchanges closed the day sharply lower, as did all the main European equity markets.

"The fear of another election and political uncertainty in Italy is driving significant losses throughout Europe," said Joshua Mahony, market analyst at IG traders.

Italy's 10-year bond yields surged to more than 300 basis points above Germany's, reflecting investor worry over the prospect of a fresh eurozone crisis.

Bankers tried but failed to stop the hemorrhage.

'ONLY EMOTIONAL'

"There can be only emotional reasons for what we are seeing on the markets today," Bank of Italy Governor Ignazio Visco said.

And Carlo Messina, CEO of the Intesa Sanpaolo bank, said "frankly, the fundamentals of the country a very solid" so the market movements were "completely disconnected" from the fundamentals.

The euro meanwhile struck the lowest level against the dollar since last July.

Italy, the eurozone's third-biggest economy after Germany and France, has been plunged into crisis with President Sergio Mattarella at the weekend vetoing the nomination of a fierce eurosceptic as economy minister.

The move led the prime minister-designate to step down, scuppering the bid by the anti-establishment Five Star Movement and the far-right League to form a government.

'HEIGHTENED UNCERTAINTY'

Mattarella then named Carlo Cottarelli, a pro-austerity economist formerly with the International Monetary Fund, to lead a technocrat government, with another election likely in the autumn.

The chaotic developments have spooked investors, who fear another election could see a better result for the essentially anti-EU parties.

"We may now be in for an extended period of heightened uncertainty ahead of fresh elections," Ray Attrill, head of foreign exchange strategy at National Australia Bank in Sydney, said in a note to clients.

Adding to the selling pressure was a brewing crisis in Spain, where Prime Minister Mariano Rajoy faces a no-confidence vote after his party was found guilty of benefiting from illegal funds in a massive graft trial.

US stocks also fell sharply, with the Dow dropping 2 percent at one point, as financial shares felt the burden of uncertainty over Italy. 

Karl Haeling of LBBW pointed to numerous other items on the global worry list, including ongoing trade frictions between the US and China, anxiety over the US pullout of the Iran nuclear deal and the chaotic back-and-forth between the US and North Korea over nuclear talks.

"Geopolitically, the world is a bit of a mess right now," Haeling said.

KEY FIGURE 2100 GMT (5 a.m. Wednesday in Manila)

Milan - FTSE MIB: DOWN 2.7 percent at 21,350 points (close)

Madrid - IBEX 35: DOWN 2.5 percent at 9,521.30 (close)

London - FTSE 100: DOWN 1.3 percent at 7,632.64 (close) 

Paris - CAC 40: DOWN 1.3 percent at 5,438.06 (close) 

Frankfurt - DAX 30: DOWN 1.5 percent at 12,666.51 (close) 

EURO STOXX 50: DOWN 1.6 percent at 3,428.14 (close)

New York - DOW: DOWN 1.6 percent at 24,361.45 (close)

New York - S&P 500: DOWN 1.2 percent at 2,689.86 (close)

New York - Nasdaq: DOWN 0.5 percent at 7,396.59 (close)

Tokyo - Nikkei 225: DOWN 0.6 percent at 22,358.43 (close)

Hong Kong - Hang Seng: DOWN 1.0 percent at 30,484.58 (close)

Shanghai - Composite: DOWN 0.5 percent at 3,120.46 (close)

Euro/dollar: DOWN at $1.1537 from $1.1661

Pound/dollar: DOWN at $1.3258 from $1.3312

Dollar/yen: DOWN at 108.68 yen from 109.55 yen 

Oil - Brent Crude: UP 9 cents at $75.39 per barrel

Oil - West Texas Intermediate: DOWN $1.15 at $66.73 per barrel 

source: news.abs-cbn.com

Global stocks rise as Dow ends at another record

NEW YORK - Global stocks rose Tuesday, with the Dow finishing at its fifth straight record, following a round of generally solid economic data and earnings.

Analysts attributed the gains to strong international economic data, including reports showing eurozone growth accelerated slightly in the second quarter and Chinese manufacturing activity rose in July.

US economic data were mixed, however. A key measure of inflation was flat in June for the second straight month, while the annual rate declined.

Manufacturing activity continued to expand in July, but at a slightly slower pace than in June, according to the Institute for Supply Management.

But US earnings have been strong. Through July 28, companies in the S&P 500 earned 9.1 percent more in the second quarter compared with the year-ago period, according to Factset.

The Dow rose 0.3 percent to 21,963.92, its fifth straight record, after getting to within 10 points of hitting 22,000 for the first time.

"It's a continuation of the bullish momentum," said Karl Haeling of LBBW. "Earnings are good."

London's FTSE 100 rose 0.7 percent, with engines-maker Rolls-Royce shooting over 10 percent higher after exceeding expectations by posting a half-year pre-tax profit of £1.94 billion ($2.57 billion), traders said.

Rolls topped the FTSE with a gain of 10.3 percent to 979 pence.

Energy giant BP, which announced a return to profit, jumped 2.4 percent.

Eurozone stock markets also rose, with Paris up 0.7 percent and Frankfurt jumping 1.1 percent higher as data showed growth in the bloc accelerating slightly in the second quarter to 0.6 percent.

Asian stock markets meanwhile started the month on a high, boosted by strong earnings results and gathering optimism over the global economy.

Equity indexes from Shanghai to Seoul chalked up gains, with confidence fueled by positive Chinese manufacturing data and figures showing South Korean exports surged 20 percent in July from a year earlier.

Sydney's main index recorded gains of almost one percent after Australia's central bank held interest rates at a record low of 1.50 percent.

But the central bank warned that the strengthening "Aussie" was hurting an already soft domestic economy.

Oil prices fell with the WTI contract dropping back below $50 per barrel, having climbed above it on Monday for the first time since May amid optimism that output curbs are cutting back oversupply and reducing stockpiles.

KEY FIGURES AROUND 2050 GMT (4:50 a.m. in Manila)

New York - Dow: UP 0.3 percent at 21,963.92 (close)

New York - S&P 500: UP 0.2 percent to 2,476.35 (close)

New York - Nasdaq: UP 0.2 percent to 6,362.94 (close)

London - FTSE 100: UP 0.7 percent at 7,423.66 points (close)

Frankfurt - DAX 30: UP 1.1 percent at 12,251.29 (close)

Paris - CAC 40: UP 0.7 percent at 5,127.03 (close)

EURO STOXX 50: UP 0.9 percent at 3,478.76

Tokyo - Nikkei 225: UP 0.3 percent at 19,985.79 (close)

Hong Kong - Hang Seng: UP 0.8 percent at 27,540.23 (close)

Shanghai - Composite: UP 0.6 percent at 3,292.64 (close)

Euro/dollar: DOWN at $1.1801 from $1.1840 Monday

Pound/dollar: DOWN at $1.3206 from $1.3208

Dollar/yen: UP at 110.36 yen from 110.25 yen

Oil - Brent North Sea: DOWN 87 cents at $51.78 per barrel

Oil - West Texas Intermediate: DOWN $1.01 at $49.16 per barrel

source: news.abs-cbn.com

Asian shares flat but on track for weekly gains

TOKYO - Asian shares flatlined on Friday but were on track for robust weekly gains, while the euro caught its breath after sliding when the European Central Bank trimmed the size of its asset purchase program and also extended it for longer than many had expected.

MSCI's broadest index of Asia-Pacific shares outside Japan wobbled close to the previous session's close in early trading, poised for a weekly gain of 2.2 percent.

Japan's Nikkei stock index was up 0.6 percent, up 2.4 percent for the week in which the dollar gained 0.6 percent against the yen.

The dollar was up 0.1 percent at 114.18 yen.

The euro was licking its wounds at $1.0615. It had been as high $1.0875 before collapsing when markets realized the ECB's actions were actually very dovish.

The ECB said it would reduce its monthly asset buys to 60 billion euros ($63.68 billion) as of April, from the current 80 billion euros, and extend purchases to December from March - three months longer than what some analysts had forecast.

That dragged down two-year yields across Europe and sharply steepened the yield curve, a gift for banks that typically borrow short maturities and lend long.

The promise of lower rates for longer was taken as a green light for carry trades, where investors borrow euros at cheap rates to invest in higher yielding currencies.

"This effective and extended easing may make euro a funding currency of choice and so puts euro-crosses in focus," Westpac analyst Tim Riddell said in a note.

ECB President Mario Draghi said the unexpected move was not an outright winding-down of the central bank's quantitative easing (QE) program, and the central bank reserved the right to increase the size of purchases again if the eurozone economy falters.

The ECB's bond purchase changes came less than a week before the Federal Reserve's policy meeting next Tuesday and Wednesday.

Interest rates futures, implied traders saw a 98 percent chance the US central bank would raise interest rates by a quarter point next week, and about a 50 percent chance it would raise rates by at least another quarter point by June 2017, according to CME Group's FedWatch program.

Despite the impending rate hike, major US stock indexes climbed again on Thursday and set fresh record highs as Wall Street continued its month-long rally following the election of Donald Trump to president.

"We're at a point in time between big announcements from a couple of the big central banks after the ECB, and looking forward to fed next week, so the current momentum underway seems to be the path of least resistance at this point in time," said Bill Northey, chief investment officer of the private client group at US Bank in Helena, Montana.

"We've come a long way, and I wouldn't expect us to keep same pace, but the trajectory might be correct" for dollar strength, he said.

The dollar index, which tracks the greenback against a basket of six major rival currencies, was steady on the day at 101.12, up 0.3 percent for the week.

Oil rebounded on growing optimism that non-OPEC producers might agree to cut output following a cartel agreement to limit production.

US crude added 0.3 percent to $51.01 a barrel.

source: news.abs-cbn.com

French economy minister doubts China growth data

DAVOS - France's economy minister, Emmanuel Macron, said Friday he believes China's official figures overstate the true pace of its economic expansion, warning that the tough international climate will not help Europe.

The minister cast doubt on the reliability of China's figures, including its announcement this week that its economy grew by 6.9 percent in 2015, the slowest rate in a quarter century.

"I said a few months ago that I don't believe for a second the figures that are being given. I think those that are still being officially announced are probably well above the reality but we just have to live with it," Macron said at a gathering of the business and political elite in the Swiss ski resort of Davos.

Concerns that the slowdown in Chinese economic growth may be more brutal than Beijing admits have contributed to deep concern on world financial markets.

The global economic environment is unlikely to be helpful to the French or European economies, the minister said, underscoring the need to pursue economic reforms.

"What is really worrying is to see to what extent we have an economic and geopolitical environment that has become extremely volatile," Macron told reporters.

'RADICAL REFORM'

"Honestly, to be clear, we cannot expect any surprise events to boost French and European growth," he added.

"Truly, if we should focus on something this year it is to reform our economy as radically as possible," said the minister, who is fighting to push through economic reforms including making it easier for shops to open on Sundays.

Besides the slowdown in growth in China, the world's second largest economy after the United States, slumping oil prices were also destabilising petroleum-exporting countries, he said.

Adding to global uncertainties were the problems facing emerging economies, financial market volatility, conflict in the Middle East, the refugee crisis and jihadist terror attacks in Europe, he said.

The Europe Union's internal tensions compounded the difficulties, he said.

"We have the risks of fragmentation, the divergence of our economies, of our political choices, of our collective preferences," he said, evoking notably terrorism and European nations' response to the huge flow of refugees from fighting in the Middle East.

France emerged from three years of economic stagnation last year with growth of more than 1.0 percent, but 650,000 people have been added to the jobless total since Francois Hollande became president in 2012.

Hollande pledged Monday to spend more than 2.0 billion euros ($2.2 billion) on tackling France's "state of economic emergency".

Joblessness, which stands at around 10 percent or 3.57 million people in the eurozone's second-largest economy, was the "only issue that ranks above security for the French people", the president said.

source: www.abs-cbnnews.com

Spanish parliament approves new Greece bailout

MADRID, Spain - Spanish lawmakers Tuesday overwhelming approved Greece's third bailout package following a debate in parliament which the ruling party used to defend its economic record ahead of a year-end general election.

Members of the lower house of parliament voted 297-29 in support of the 86-billion-euro (96-billion-dollar) aid package with only the tiny far-left United Left party voting against it.

Spain, which received European financial aid for its ailing banks in 2012, will supply 10.15 billion euros to the latest Greek bailout.

Unlike other eurozone nations such as Germany, Spain was not required to have its parliament approve the bailout but Prime Minister Mariano Rajoy said he decided to put it to a vote because Madrid's contribution to the aid package is "significant".

The vote was guaranteed to pass because Rajoy's conservative Popular Party (PP) has an absolute majority in the assembly.

The PP used the debate to promote itself as the guarantor of Spain's economic recovery going into elections due at the end of the year where they face a stiff challenge from new anti-austerity party Podemos, a close ally of Greece's radical left ruling Syriza party.

"There are three lessons to learn from the Greek crisis. First of all, we can't get around the obstacle (of reforms). Secondly, populist siren songs only end in mirages," Economy Minister Luis de Guindos told the assembly.

"Finally... irresponsible policies have a price," he added.

During an interview with news radio Cadena Ser, the Podemos secretary for political affairs, Inigo Errejon, accused the government of debating the Greek bailout in parliament "for propaganda reasons".

Rajoy is betting on Spain's economic recovery to win re-election to a second term despite poor personal approval ratings.

Spain emerged in 2013 from five years of on-off recession, and the government forecasts the economy will grow by 3.3 percent this year -- more than twice the average forecast for eurozone countries -- and by 3.0 percent next year.

But unemployment stood at 22.4 percent in the second quarter, the second-highest rate in the eurozone after that of bailed-out Greece.

Eurozone finance ministers on Friday gave the green light to the latest Greek bailout package, which averted the country's expulsion from the euro but will require more sacrifices from Greeks.

Finland, one of the eurozone countries most sceptical about pouring more aid into Greece, also backed the bailout last Thursday. The German parliament will vote on it on Wednesday.

source: www.abs-cbnnews.com

China shoppers snap up Chanel bags as euro drops

SHANGHAI - Chinese shoppers are mobbing Chanel stores and counting their savings after the French fashion house slashed handbag prices in the world's biggest luxury market due to the slumping euro.

Long lines formed at Chanel stores in commercial hub Shanghai and shopping mecca Hong Kong, a special administrative region of China, this week as word spread of deep discounts, according to media reports.

China is widely considered the world's biggest luxury market as a rising middle class and corrupt officials drive a shopping frenzy, but domestic prices are high due to hefty import taxes and huge retail mark-ups.

At one branch of Chanel in Shanghai, dozens waited anxiously in line for their turn, fearing the shelves might be stripped bare before a shop assistant could escort each person one-by-one into the tightly guarded store.

Miao Sijia, a well-dressed woman in her 20s who said she does not work, rushed 50 kilometres from a nearby city to buy a limited-edition, gold-coloured 2.55 bag for a discounted 19,700 yuan ($3,200).

"I rushed from Kunshan to buy a Chanel bag after a store clerk told me they were making a special price adjustment," Miao, a VIP customer of the store, told AFP.





Chanel said it was harmonising the prices of its products around the world, including the 2.55, 11.12 and Boy bag collections, but did not specify the size of the discounts in China, or price rises in the eurozone.

According to China-based luxury publisher the Hurun Report, Chanel is considered the second best brand for gifting to women, behind Apple but ahead of French fashion compatriot Louis Vuitton.

White collar worker Wang Lei, also in her 20s, gave up 5,500 yuan ($894) of her salary to buy a Cambon purse but marvelled at the 21 percent discount. "It was almost 7,000 yuan ($1,138) before," she told AFP.

source: www.abs-cbnnews.com

In blow to Greece, ECB restricts banks' access to cash

FRANKFURT - The European Central Bank on Wednesday cut off Greek banks' access to a key source of much-needed cash, piling fresh pressure on the country's new government to reach a deal with international creditors.

In a decision that rattled financial markets, the ECB said it would no longer allow Greek banks to use government debt, which has a junk rating, as collateral for loans.

The announcement came just hours after new Greek Finance Minister Yanis Varoufakis held his first talks with ECB chief Mario Draghi as part of the country's push to renegotiate Athens' 240-billion-euro ($270 billion) EU-IMF bailout.

Stock markets fell on the news, while the euro tumbled by more than one percent against the dollar.

The ECB move will likely feature heavily in Varoufakis's keenly-awaited first talks with German Finance Minister Wolfgang Schaeuble on Thursday, whose country is seen as the strongest opponent of any easing in the terms of the massive debts Greece has built up.

Both Prime Minister Alexis Tsipras and Varoufakis -- whose far-left Syriza party stormed to victory in elections on January 25 -- have been touring Europe in recent days to build support for a new debt agreement with creditors.

Elected on a pledge to end austerity policies imposed on Greece as part of its bailout, Tsipras faces the delicate task of convincing his European partners to reverse course while ensuring Athens still gets the aid required to avoid a default.

In Brussels, Tsipras struck an upbeat note after talks with European Commission chief Jean-Claude Juncker and EU president Donald Tusk, saying he was optimistic of a "viable and mutually acceptable solution".

A Greek government source said Tsipras and Juncker discussed plans to "jointly" create a four-year reform plan for Greece, as well as a bridging deal to give Athens time to draw up plans for reforms including on corruption and tax evasion.

But Tusk acknowledged that resolving the showdown over Greece's debt was likely to be "difficult" and needed "cooperation and dialogue as well as determined efforts by Greece."

'Fruitful' ECB talks

Ahead of the ECB talks in Frankfurt, Varoufakis told the German weekly Die Zeit that the ECB "should support our banks so that we can stay afloat", acknowledging that Greece was "a bankrupt country".

The former economics professor later described his talks with Draghi as "very fruitful".

But after a meeting of its policy-setting governing council late Wednesday, the ECB said it was taking the step to end the special waiver for Greece because "it is currently not possible to assume a successful conclusion of the programme review".

The waiver, which will end on February 11, had allowed banks to pledge their Greek bonds as collateral, even though the securities did not meet standards for a minimum credit rating.

Separately, a Financial Times report suggested that Draghi might block a key element of Athens' plan.

According to the FT, which cited officials involved in the deliberations, the ECB is refusing to raise an agreed cap on the amount of short-term treasury bills that Athens can issue from 15 billion euros to 25 billion euros.

Greece faces key payments on its debt at the end of February and again at the end of May.

Next stop: Berlin

The International Monetary Fund -- the third part of the so-called "troika" that oversees Greece's bailouts along with the European Commission and ECB -- said meanwhile it was not in debt talks with the Greek government.

The new Greek government has blamed its fiscal problems mainly on the austerity shackles fixed by German Chancellor Angela Merkel.

Athens says these restrictions have choked growth in an economy that has shrunk by a quarter, failed to cut unemployment that stands at over 25 percent, and made it impossible to service a mountain of debt worth 1.75 times its annual economic output.

But Merkel tried to squash the talk that Syriza could play on divisions within Europe, insisting that there were no substantial differences between major eurozone nations.

"I don't think that the positions of the member states of the eurozone with regard to Greece differ, at least in terms of substance," Merkel said.

In a bid to quell western worries over the new Greek government's closeness to Russia at a time of Cold War-style tensions, Varoufakis said meanwhile that Athens would "never" seek loans from Moscow.

Greece's defence minister Panos Kammenos also told AFP that Athens remained committed to its NATO role despite its relationship with Russia.

Greece's political turmoil continued at home in the meantime, as judges sent 72 members of neo-Nazi party Golden Dawn, including its leaders, for trial for crimes including murder.

source: www.abs-cbnnews.com

PSEi hits 8th record close for the year

MANILA, Philippines - Philippine shares on Wednesday closed to its 8th all-time high this year, joining a region-wide cheer on the three-day rally in oil prices and as concerns of a Greek exit from the eurozone eased.

The Philippine Stock Exchange index (PSEi) closed at 7,716.06, up by 1.4 percent. It was the first time the main index closed at the 7,700 level.

The previous record close was 7,689.91 on January 30, 2015.

"While the PSEi trekked higher mostly in-step with Wall Street and other Asian markets, the Philippine story remains attractive to investors. The positive expectations continue to support the market’s uptrend," said PSE President and CEO Hans B. Sicat.

The PSEi also climbed to a new all-time intraday high at 7,738.12.

The Lucio Tan Group was the biggest gainer, as it surged over 8 percent to a three-month high.

Reuters said tobacco sales of PMFTC Inc, the joint venture of LT Group and Philip Morris International Inc, are seen improving this year on higher disposable income resulting from lower oil prices, says Luis Limlingan, analyst at Regina Capital Development Corp in Manila.

Petron also continued its rally for a fourth day, still on the recent rise in global oil prices.

Other big gainers include Semirara Mining and PLDT.

At the foreign exchange market, the peso strengthened to P44.11 against the US dollar. - With Reuters and ANC

source: www.abs-cbnnews.com

Current Mortgage Rates for Wednesday, January 28, 2015

Despite your standard intraday swings, mortgage backed securities were largely flat yesterday. Mortgage rates were effectively flat.  A lot of domestic data was issued yesterday, and it was largely mixed.  The Durable Goods report for December was very poor, and the Richmond Fed Manufacturing Index showed weakness, while Consumer Confidence and New Home Sales jumped. Very low trading volumes (largely a result of the snowstorm that shut down a lot of the transportation in the northeast), the prospect of today’s Federal Reserve meeting announcement, and overseas events pretty much kept our bond markets on an even keel yesterday.

This morning, mortgage backed securities are just slightly in the green, and I think things are going to be choppy.  Not a lot of data is being issued with the exception of today’s Fed announcement (which I guess could be termed “data.”). Any improvement that we’re seeing is likely a result of a flight to safety from the disaster that is Europe at the moment.

Click here to see our current mortgage rates.


Today’s Economic Data:

Not much today, but since we have space to fill, it’s worth discussing Greece and Europe for a bit. This is going to be a simplified explanation (I’m not an expert in the Eurozone), but here goes: As part of a bailout deal back in 2012, the European Central Bank, the IMF, and the European Commission imposed very severe austerity measures on Greece (the Germans, in particular, had a big hand in these austerity measures).  the austerity measures caused widespread unemployment to become worse, and sent poverty levels soaring.





In response the Greek people elected new Prime Minister Alex Tsipras from the anti-austerity Syriza party (which is an acronym for “The Coalition of the Radical Left).  Jacobin Magazine – yes I know, hardly an unbiased source – has a pretty good rundown of the party’s platform and what it could mean for Greece moving forward here.

Tsipras has already began fighting the austerity measures, remarking “We won’t get into a mutually destructive clash, but we will not continue a policy of subjection.”  He has said that Greek will not default on its debts, but the markets don’t seem to be buying, and a Bloomberg article says that Greek credit-default swaps are signalling a 70 percent probability of some form of default in the next five years.  Furthermore, there is a concern that this win will embolden leftists in some of the other countries where austerity has been imposed, particularly Spain, Italy, and Ireland.  If Greece’s creditors blink, it may embolden the populist movements in these countries.  A disorderly break-up of the Eurozone still seems pretty unlikely to me, but it’s a little more in play than it was before the weekend.

TL; DR: Greece’s rejection of austerity measures is roiling European debt markets, and we’re seeing a flight to the safety of U.S. bonds.  This should be of benefit to mortgage rates.

Today’s Fed Meeting:

I don’t know that I can bring myself to recap this again.  For more background, you could read yesterday’s blog, Tim Duy’s recent work, or Jon Hilsenrath’s preview.  Long and short is that while there is some risk to rates today, I don’t think there will be much impact from the statement.  If it is interpreted as being more dovish, we’ll benefit a little, and if it is more hawkish, rates will rise a bit in response.  But I expect that this will be more of a “stay the course” type deal, and that the Fed is still balancing what to do in the face of global headwinds, inflation that is low and likely to be going lower, a stronger dollar, low oil prices, and weak wage gains.  I don’t think we’ll glean much today.  If there’s something of interest, perhaps I’ll write up something additional this afternoon.

This Week’s Scheduled Economic Data That Could Impact Mortgage Rates:

Monday:

• Greek election: Syriza wins – ultimate outcome very uncertain.

Tuesday:

• Durable Good Orders: Headline expectation: 0.7 percent, actual, -3.4 percent.  Core expectation: 0.8 percent, core actual: -0.8 percent.
• S&P/Case-Shiller Home Price Index for November: Expected seasonally adjusted month-over-month expectations: 0.6 percent.  Actual: 0.7 percent.
• New Home Sales: Expectation: SAAR of 452k.  Actual: 481k.
• Consumer Confidence:  Expectation: 96, actual: 102.9.

Wednesday:

• Fed meeting:

Thursday:

• Weekly Jobless Claims:

Friday:

• Advance Estimate Q4 GDP:
• Chicago PMI:
• Consumer Sentiment:

source: totalmortgage.com
 

PSEi closes at new all-time high

MANILA, Philippines - The Philippine Stock Exchange index (PSEi) on Tuesday breached the 7,600 level, setting a new record close.

The main index ended the day at 7,630.57, up 0.6 percent. This was the fourth time the PSEi reached a new record close this year.

"Investor interest continues to be fuelled by expectations of good 2014 economic data and revenue growth. We are also pleased to note that fund managers remain upbeat about the market’s prospects," said PSE President and CEO Hans B. Sicat.

The PSEi also set a new all-time intraday high today at 7,631.85.

Philippine stocks joined a regional rally on waning concerns over the win of an anti-austerity party in Greece.

Investors were optimistic the coming into power of the Syriza party in Greece won't automatically translate to the country's exit from the Euro bloc.

Among the day's gainers were Aboitiz Power Corp, Metrobank, BDO
First Gen Corp and Meralco.

At the foreign exchange market, the peso finished stronger at P44.06 against the US dollar.

Asian stocks advance

The euro extended its gains against the dollar Tuesday while most Asian equities climbed on hopes Greece's new government will be able to negotiate a bailout deal with the EU and IMF that will avoid it leaving the eurozone.

Regional dealers were given a lift from advances in Europe and New York, where news of Sunday's Greek election win for anti-austerity party Syriza had been largely factored in, analysts said.

However, Hong Kong and Shanghai suffered heavy selling on profit-taking after rallying over the past week.

Tokyo rallied 1.72 percent, or 299.78 points, to 17,768.30, Sydney added 0.82 percent, or 45.38 points, to close at 5,547.2 and Seoul rose 0.86 percent, or 16.72 points, to close at 1,952.40.

But Shanghai fell 0.89 percent, or 30.22 points, to 3,352.96 and Hong Kong eased 0.41 percent, or 102.62 points, to 24,807.28.

Shanghai had rallied more than eight percent since last Monday, when it plunged 7.70 percent in response to a government crackdown on margin-trading.

Markets have been buoyed by rhetoric coming out of Athens and its creditors that raises hopes the two sides can reach an agreement over Greece's repayment of its 240-billion-euro bailout.

Syriza had campaigned on renegotiating terms of the lifeline -- which included swingeing spending cuts and painful tax hikes -- and there are concerns it will default on its repayments, leading to its possible exit from the eurozone.

But International Monetary Fund head Christine Lagarde said she was prepared to continue its financial support to the country, while some European finance ministers suggested they were willing to talk, as long as Syriza did not demand its debt be wiped out.

'Risk-on mode'

The messages coming out of Europe helped shares higher. In Europe, equities in London, Paris and Germany all closed with healthy gains, although Athens lost more than three percent.

Dow edged 0.03 percent higher, the S&P 500 added 0.26 percent and the Nasdaq put on 0.29 percent.

"The Greek elections had the potential to unnerve the market," Nader Naeimi, at AMP Capital Investors in Sydney, told Bloomberg News.

"It's quite encouraging that the new government and the EU are willing to negotiate. The market is in a risk-on mode."

And Gavin Parry, managing director of Parry International Trading, added: "Concerns have eased that the anti-austerity policies of the new government will force Greece to exit the eurozone."

The euro plunged to as low as $1.1098 at one point in Asia Monday, the lowest level since September 2003, before recovering later in the day to close out in New York at $1.1234.

On Tuesday in Asia it bought $1.1250.

It also sank to 131.55 yen Monday in Asia before bouncing to end the day at 133.12 yen. It bought 132.90 yen in Tokyo Tuesday.

The dollar edged down to 118.11 yen from 118.49 yen in US trade.

Oil prices slipped despite a warning from the OPEC cartel that prices could punch $200 owing to shrinking investment in exploration.

US benchmark West Texas Intermediate for March delivery fell 10 cents $45.05 while Brent crude for March eased 12 cents to $48.04.

Gold fetched $1,278.96 an ounce, against $1,281.39 late Monday. - With Agence France-Presse and ANC

source: www.abs-cbnnews.com

Confused about quantitative easing, deflation? Read this

FRANKFURT - The European Central Bank unveiled Thursday an eagerly-awaited programme of sovereign bond purchases, known as quantitative easing or QE, to ward off deflation in the eurozone.

After the ECB held its key interest rates at their current all-time lows at its first policy meeting of 2015, central bank chief Mario Draghi said a programme would be launched to buy 60 billion euros of private and public bonds per month starting in March.

QE is already used by other central banks around the world to stimulate their economies, but is contested in Europe because it is seen as a way of printing money to pay the way for governments out of debt, which the ECB is expressly forbidden from doing under its statutes.

And while consumer prices in the single currency area actually fell for the first time in five years in December, analysts and ECB officials insist that there is no sign of deflation in the region just yet.

What is deflation?

Deflation is defined as an extended period of falling prices where consumers begin to put off purchases in expectation they will fall further, sparking a damaging cycle of falling production, employment and prices.

Consumer prices in the eurozone fell by 0.2 percent year-on-year in December, the first drop in more than five years, driven down mainly by tumbling oil prices.

But a one-off like that is not synonymous with deflation, economists say. And ECB officials, too, have repeatedly stated that they see no sign of the eurozone sliding into deflation for now.

Normally, central banks keep inflation (and deflation) in check by adjusting their key interest rates.

If the economy is in downturn and companies are nervous about the future and scaling back on investment, a central bank can reduce the overnight rate that it charges banks, reducing their funding costs and encouraging them to make more loans.

In the wake of the financial crisis, the ECB, like other central banks around the world, slashed their overnight interest-rates to close to zero. But that still failed to spark a sustained recovery, so they resorted to more unconventional tools to encourage banks to pump money into the economy, including QE.

What is QE?

Under QE, a central bank in effect creates money by buying securities such as government bonds from banks with electronic cash that did not exist before.

The aim is to stimulate the economy by encouraging banks to issue more loans: the banks take the new money and then buy assets to replace the ones they have sold to the central bank. That raises stock prices and lowers interest rates, which in turn boosts investment.

In theory, the central bank can also purchase corporate debt, but the market for sovereign debt is much bigger and would therefore have a much bigger impact.

In order to get round the ban on government financing, the ECB buys bonds that have already been issued via the so-called secondary market.

In the past, the ECB has already bought up the sovereign bonds of a number of the countries hit hardest by the crisis, such as Greece, Portugal and Ireland. But these purchases were not considered to be QE because they were targeted specifically at the countries concerned and not on a wide scale.

Does it work?

The US Federal Reserve launched three QE programmes, buying up around $4.0 trillion of debt in total. The Bank of England also used QE several times, first in 2009 and then in 2011 and 2012.

Berenberg Bank economist Rob Wood estimated that Britain and the US averaged 3.0-percent nominal growth since embarking on QE, while the eurozone had only managed to clock up growth of 1.1 percent.

The Bank of Japan was the first to use QE as tool, back in the early 2000s, but the Japanese economy is still entrenched in deflation.

Nevertheless, QE for the eurozone is different because the ECB will buy the debt not of just one country, as was the case in the US or Japan, but of 19 different countries in very different states of economic health.

That raises a number of issues, since the sovereign debt of one country may be riskier than another.

Critics had expressed concern that European taxpayers would have to foot the bill if any one country defaulted on its debt.

But the ECB plan has been designed so that only 20 percent of those risks would be shared, with the other 80 percent to be shouldered by the national central banks of the countries concerned.

source: www.abs-cbnnews.com

US stocks sink as oil tumbles to fresh multi-year low

US stocks fell again Tuesday on another stormy day for global financial markets as oil prices plummeted to a fresh multi-year low.

The Dow Jones Industrial Average dropped 130.01 points (0.74 percent) to 17,371.64.

The broad-based S&P 500 tumbled 17.97 (0.89 percent) to 2,002.61, after spending a good chunk of the session below 2,000. The tech-rich Nasdaq Composite Index sank 59.84 (1.29 percent) to 4,592.74.

US oil prices tumbled to a fresh 5.5-year low of $47.93 a barrel. Other worries pertained to the drop in US Treasury bond yields and the eurozone.

"The market doesn't like uncertainty and the volatility in oil and the volatility in interest rates have certainly created uncertainty," said David Levy, portfolio manager at Kenjol Capital Management.

"The situation in Europe is also very uncertain and we're lacking a positive catalyst as of today."

Banking stocks fell. Dow member JPMorgan Chase lost 2.6 percent, Citigroup tumbled 3.5 percent and Wells Fargo shed 2.1 percent.

Petroleum-linked stocks continued to drop. ConocoPhillips slumped 4.1 percent while oil services giant Schlumberger gave up 2.0 percent.

Microblog company Twitter surged 6.5 percent on speculation that activist investor Carl Icahn could buy a stake in the company.

Michael Kors, a retailer of handbags and clothing, tumbled 8.4 percent following a downgrade by Credit Suisse. The note cited "a dramatic ramp in promotional activity seen across the retail landscape" for Kors handbags, which account for 80 percent of salse.

Coach, which also sells handbags among other upscale accessories, fell 1.2 percent after it announced it will buy Stuart Weitzman Holdings, which makes women's luxury footwear, in a deal worth up to $574 million.

Bond prices rose sharply.

The yield on the 10-year US Treasury fell to 1.94 percent from 2.04 percent Monday, dipping below 2.0 percent fro the first time since October. The yield on the 30-year bond declined to 2.50 percent from 2.60 percent. Bond prices and yields move inversely.

source: www.abs-cbnnews.com

OECD sees Europe joining US recovery

Slowing emerging economies seen weighing on global growth

PARIS - Led by firm U.S. growth, the outlook is gradually improving for advanced economies while even crisis-weary Europe is at last joining the recovery, the OECD said on Tuesday.

Nonetheless, a slowdown in many emerging economies meant that global growth would remain sluggish, the Organisation for Economic Cooperation and Development said.

"The bottom line is that advanced economies are growing more and emerging economies are growing less," OECD chief economist Pier Carlo Padoan told Reuters.

Among major economies, the United States would lead the recovery with growth this year of 1.7 percent, the think tank said, trimming its estimate from a May forecast of 1.9 percent.

Boosted by massive monetary stimulus from the central bank, Japan was seen on course for growth this year of 1.6 percent, unchanged from the OECD's May forecast.

Meanwhile Europe, which has been a drag on growth in recent years as it struggled with its debt crisis, at last offered good news with recoveries underway in France and Germany prompting the OECD to raise its forecasts for them.

France was seen on course for growth of 0.3 percent this year, up from a contraction of 0.3 percent in the OECD's May forecast, while Germany, Europe's biggest economy, was set to grow 0.7 percent, up from 0.4 percent previously.

Outside the euro zone, Britain was seen growing 1.5 percent, raised sharply from a forecast of 0.8 percent in May.

Though major developed economies are picking up, a slowdown in many emerging countries was likely to weigh on broader global growth, the OECD said.

China was the exception among emerging economies, with its growth forecast to accelerate over the course of the year and achieve a rate of 7.4 percent this year.

With the U.S. economy on track to keep growing at steady clip, the OECD said it was appropriate for the Federal Reserve to start slowing bond purchases, the main measure in the central bank's exceptionally monetary easing policies.

The Fed signalled in May that it was contemplating slowing the pace of the purchases, which have been the flagship measure for reviving the world's biggest economy since the 2008-2009 financial crisis.

In the euro area, the OECD said the ECB should keep the possibility of an interest rate cut on the table in case the recovery there peters out.

With Italy's economy forecast to contract 1.8 percent this year, Padoan said that the debt-laden economies of southern Europe still needed loose monetary policies there.

source: www.abs-cbnnews.com