US stocks rose Thursday despite GDP data showing that the economy shrunk in the third quarter.
The Doe Jones Industrial Average closed 189.73 points higher, up 2.1%, at 9180.69, boosted by advances in twenty-six of its 30 components.
Nasdaq Composite Index was up 2.5% and the S&P 500 rose 2.6%.
The US Commerce Department said third-quarter gross domestic product fell at a 0.3% annual rate in July to September.
“The drop in third quarter output is also a harbinger of much worse things to come. We now expect that GDP will contract at an average 3% annualized pace in the fourth quarter and first quarter of 2009, generating the worst recession since 1981-82,” said Abiel Reinhart of J.P. Morgan Chase. Economists at J.P. Morgan say the recession will be worse than the past two relatively mild (1990-91, 2001) recessions. And the recovery will be painfully slow, too.“From the perspective of wealth losses and declines in real consumption, the current recession is likely to prove more severe than any of the previous ten in the post World War II era,” they said
|
AMERICAN RECESSIONS SINCE WORLD WAR II |
| Start of Recession |
Worst two quarters |
Change peak-to-trough |
Change in unemployment rate* |
Quarters in recession |
Quarters of slow growth |
| 1948 |
-3.5 |
-1.7 |
3.3 |
4 |
0 |
| 1953 |
-4.3 |
-2.6 |
3.4 |
4 |
5 |
| 1957 |
-7.4 |
-3.2 |
3.4 |
3 |
8 |
| 1960 |
-2.3 |
-0.5 |
1.9 |
3 |
4 |
| 1969 |
-1.3 |
-0.2 |
2.6 |
4 |
10 |
| 1973 |
-3.1 |
-3.1 |
4.1 |
5 |
8 |
| 1980 |
-4.3 |
-2.2 |
2.0 |
2 |
7 |
| 1981 |
-5.6 |
-2.6 |
3.3 |
5 |
7 |
| 1990 |
-2.5 |
-1.3 |
2.4 |
2 |
11 |
| 2001 |
-0.1 |
0.3 |
2.2 |
3 |
11 |
| 2008 (forecast) |
-3.0 |
-1.6 |
3.1 |
3 |
12 |
|
Source: J.P. Morgan Chase *Change over the entire period in which the output gap was falling. In all cases, this period is longer than the official recession period. |
“We continue to believe that the policy measures now in place — along with those that appear to be in the pipeline — will be sufficient to produce some healing in credit conditions and eventually lead to some stability in the overall economy,” said David Greenlaw at Morgan Stanley.“However, this process will take time and a collapse in economic activity is just getting underway.”
The number of Americans filing new claims for unemployment insurance remained steady last week, at an elevated level indicates recessionary conditions.
The US Department of Labor reported Thursday that initial filings for state jobless benefits rested at a seasonally adjusted 479,000 for the week ended Oct. 25.
In Asia, the MSCI Asia Pacific Index fell 2.1% on Friday.
Japan's Nikkei 225 Stock Average fell 5% ending a three-day 26% advance, despite the Bank of Japan's decision to cut its benchmark interest rate to 0.3% in a split decision.
Asia-Pacific - benchmarks
UK bank Barclays said Friday it has secured £7.3 billion in capital from Arab investors in a move that will enable the bank to avoid taking government bailout funds.
The bank's new capital will come from about £4.3 billion in reserve capital instruments and £3 billion in mandatory convertible securities. The main investors are reported to be based in Qatar and Abu Dhabi.
Barclays jumped over 8% in London.
Most European markets are trading down Friday.
In Dublin, the ISEQ Index is up 0.69%.
Elan has rebounded today with a rise of 8%.
Europe -benchmarks
Irish Share Prices
Euribor Rates
AIB Daily Report
Bank of Ireland Daily Report
Goodbody Stockbrokers economist Dermot O'Leary says today that Irish household savings ratio now has more scope to rise: "Some months ago, we noted our surprise when fresh economic data from the CSO revealed that the household savings ratio dipped below 5% in 2006, from a level of c.7% the year before. Yesterday, it was confirmed by the CSO that the savings ratio fell further in 2007 and stood at an estimated 2.8%. Although this is above current levels in the UK and the US, the thesis that Irish consumers have been very cautious with their spending recently is being put to the test. More importantly, as the economy goes through its first recession in 25 years, the scope for savings to increase over the coming years is larger than we thought. As we dealt with in our recent note - Deleveraging the Irish Economy, 17 October 2008 - the historical evidence shows that households can curtail spending quite aggressively in tougher economic times.
For example, in the Swedish and Finnish downturns of the late 1980s/early 1990s, the household savings ratio increased from negative territory (-1% and -2%, respectively) to 10% over a four to five year time period after the onset of the recession. Irish consumers have already started to retrench on spending, as reflected in the 6% yoy fall in retail sales in August. However, with employment set to decline in 2009, the key driver of household spending will be quite weak for some time. Moreover, with the clear scope for Irish households, in aggregate, to increase savings, it is now patently clear that consumer spending will fall quite markedly in 2009. We assume consumer spending falls by 0.5% in 2008 and by 3% in 2009. This was the main contributory factor to our recent forecast downgrade. We expect GDP to decline by 4% next year. Unfortunately, the latest evidence suggests that this scary Halloween tale will prove to be very close to the mark."
Davy Stockbrokers economist Rossa White says rebuilding of savings will have a huge influence on Irish macro performance: "The Irish equivalent of the US "flow of funds" was released yesterday . These institutional sector accounts are not as detailed as their US counterpart but provide useful insights, particularly about household savings. The data reveal that household saving was low in 2007 – the year of large-scale SSIA spending. The rebuilding of savings from a ratio of as low as 3% of disposable income is hurting consumer spending in 2008. It will have an even bigger bearing in 2009.
Annual saving is simply the difference (or residual) between disposable income and consumer expenditure. That gap narrowed significantly in 2006 and 2007 as consumers spent a chunk of their SSIA stash. In 2007, net saving fell by €735m to €2.4bn or 2.8% of disposable income (note that the savings figures between the institutional sector accounts and the national accounts are not exactly comparable: the treatment of taxes on capital is different).
The sharp fall in Irish consumer spending since the end of last year has as much to do with higher savings as it does with the slowdown in incomes. Incomes will actually grow in real terms in 2008 versus 2007, yet spending will drop by at least 0.5% as the savings ratio jumps. Of course, slowing income prospects indirectly affect savings patterns. The loss of wealth is the other key factor that has made households more prudent. The Irish ratio (2.8%) was almost as low as the UK figure (2.5%) in 2007. Those economies, along with the US, are going to see a major household balance sheet overhaul in the next couple of years."
Currencies
The euro is trading at $1.2717 and at £0.7850.
For live currency updates, check the right-hand column of the Finfacts home page.
The US dollar fell to $1.6038 per euro on Tuesday, July 15, 2008 - an-all time record.
Commodities
Crude oil for December delivery is currently trading on the New York Mercantile Exchange (Nymex) at $64.17 per barrel down $1.79 from Thursday's close. In London, Brent for December delivery is trading on the International Commodities Exchange at $61.79 up $1.92.
Gold spot price
Gold is trading at $724.80 down $10.90 cents from Thursday's spot price close in New York.
