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Markets News Friday; Japan warns of deflation - central bank more upbeat; One in 10 US homeowners with mortgages missing payments in Q3 2009
By Finfacts Team
Nov 20, 2009 - 9:15:44 AM
Almost one in 10 US homeowners with mortgages was delinquent, with at least one payment behind in the Q3 of 2009, the Mortgage Bankers Association said on Thursday -- that's about five million households.
Thursday's data underlined the level of stress on the housing market.
“Despite the recession ending in mid-summer, the decline in mortgage performance continues. Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP. Over the last year, we have seen the ranks of the unemployed increase by about 5.5 million people, increasing the number of seriously delinquent loans by almost 2 million loans and increasing the rate of new foreclosures from 1.07% to 1.42%,” said Jay Brinkmann, MBA’s chief economist.
Bank of Japan and deflation
The Bank of Japan (BoJ) announced today a decision to hold its benchmark interest rate unchanged at 0.1% saying it will "provide steady support for economy to return to a sustainable growth path with price stability."
The BoJ said: "Japan's economy is picking up mainly due to various policy measures taken at home and abroad, although the momentum of self-sustaining recovery in domestic private demand remains weak."
In the previous month, the bank has said the economy was"starting to pick up."
It said it expects"the pace of improvement of the economy is likely to remain moderate until around the middle of fiscal 2010."
However, both Deputy Prime Minister Naoto Kan and Finance Minister Hirohisa Fujii said that the economy was in deflation, leading to concerns that the recovery may slide into reverse.
Consumer prices fell an an annual rate of 2.3% in September
The BoJ said:"With regard to prices, there is a possibility that inflation will rise more than expected due to a rise in commodity prices brought about by higher growth rates in emerging and commodity-exporting economies. On the other hand, there is a risk that the rate of inflation might decline due, for example, to a decline in medium to long-term inflation expectations."
Davy chief economist comments: "The Bank of Japan continued the four main central banks' commitment to loose monetary policy. It kept its overnight rate at 0.1% and maintained its stance on its plans for the immediate future. On the economy, it is more confident that growth will accelerate in H2 2010. Like the Bank of England, ECB and Fed, it is unlikely to withdraw any stimulus until Q2 2010 at the very earliest.
The key line on the monetary policy outlook was left more or less unchanged: 'the Bank will aim to maintain the extremely accommodative financial environment'. Note that the previous October 30th statement in turn had been a little stronger than the one released on October 14th by including a similar line. Going back to the penultimate meeting five week ago, the commitment had been as follows: 'the Bank, paying attention for the time being to the downside risks to economic activity and prices, will continue to exert its utmost efforts'.
The bank is quite sanguine on the economy. For now, it notes that the recovery is not quite self-sustaining yet, and it sees only moderate improvement until mid-2010. But it believes that activity will strengthen thereafter. Taken together with the commitments from Asian politicians in the last fortnight, it suggests that monetary and fiscal conditions will remain pretty helpful in the region for some time yet."
"A lot of the profits of companies that we've seen are partly artificial because governments have put in so much liquidity in the system and produced all kinds of plans," Philippe Gijsels from Fortis Global Markets said Friday. "Maybe the earnings estimates for next year are probably too optimistic." He is "wary" on the markets:
UK housing starts up for the third consecutive quarter
Goodbody chief economist Dermot O’Leary comments:"We talked yesterday about the similarities and differences in supply responses in the US and Irish housing markets over the recent past. Right on cue, the latest statistics on housebuilding for Q3 were released for the UK. How do these trends compare to the US and Irish cases? Housing starts peaked in England (using England as a proxy as it is provided on a seasonally-adjusted basis and accounts for c.80% of output) in Q1 2006, the same time that starts peaked in Ireland. From the peak, housing starts dropped by 66% (versus -75% in the US and -95% in Ireland using the house registrations as a proxy), but the new data confirm the improvement in the fortunes for the UK housing market of late.
In Q3, UK housing starts increased by 18% quarter-on-quarter, representing its third consecutive improvement. From that trough in Q4 2008, housing starts are up by an impressive 59%. Given that starts are still 46% below the peak, there is probably a lot more to go on this improving trend. Housing output is clearly well below household formation, as has been pointed out repeatedly in recent years. The Barker Report, for example, recommended that the UK market should be producing 250,000 units per annum. In 2009, output will amount to only 90,000. This amounts to only 1.5 units per 1000 of the population, which compares to an expected 5 per 1,000 in Ireland in 2009 (but only 2.7 in 2010), a current pace of 1.7 per 1000 in the US and a European average of 3.9. With supply remaining tight, population still growing and prices now on the up again, the UK will lead the international housing market recovery."
Lou Dobbs, former CNN anchor discusses Treasury Secretary Geithner being asked to step down and foreign trade relations:
US markets
In New York Thursday, the Dow dipped 94 points or 0.90% to 10,332.
The Nasdaq declined 1.66% and the S&P 500 dropped 0.45%.
Intel fell 4.1% after it was included among eight chipmakers downgraded by Bank of America Merril Lynch.
Dell reported after the markets' close that that quarterly earnings fell 54% and revenue dropped 15%.
The company said net profit declined to $337m, or 17 cents a share, in the third quarter from $727m, or 37 cents a share, a year ago. Revenue dipped to $12.9 billion from $15.2 billion a year ago.
Asian capital controls?
Bloomberg reports that Asian policy makers are studying capital controls to limit “hot money” inflows that may stoke asset bubbles and force their currencies to appreciate.
Officials from India, South Korea and Indonesia are among those who have expressed concern over the funds flooding into their markets, prompting gains in stocks, real estate and other assets. Taiwan last week banned foreign investors from placing funds in time deposits on concern about currency speculation.
Asia is leading the world’s recovery from its deepest recession as demand for the region’s goods improves. Policy makers are concerned that stronger currencies will stymie the potential rebound in exports and encourage capital inflows that may bring instability to financial systems and spur inflation.
The Chinese capital markets are still relatively shallow and that is a limiting factor to the free float of the yuan, says Rachel Ziemba, senior research analyst, China & oil exporting economies at RGE Monitor, speaking with CNBC's Martin Soong & Sri Jegarajah:
Asia Markets
The MSCI Asia Pacific Index fell 0.5% on Friday and is up 66% from a 5-year low on March 9th last.
The Nikkei fell 0.54%; the Shanghai Composite declined 0.37% and India's BSE Sensex 30 dropped 0.88%.
China said today it is “passive” on the value of the US dollar after pressure during a visit from US President Barack Obama to end the fixed peg of China's currency against the US dollar.
Central bank Governor Zhou Xiaochuan said, signaling that policy makers aren’t yet prepared to loosen controls on the yuan.
“It’s like watching a tournament,” Central bank Governor Zhou Xiaochuan at the BusinessWeek CEO Forum in Beijing today. “We just watch the game. Regardless who wins or loses, the issue of whether the winner or loser benefits the spectator doesn’t arise.”
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.
The global recovery will be partial and protracted into 2010, according to Control Risk. The consultancy firm has created a 2010 'risk map' where it analyzes the business, economic and political risk landscape for each country. Jake Stratton discusses the report's findings: