Daily Market Commentary for January 24, 2012
On Wednesday, after months of preparation, the Federal Reserve will reveal its own facelift that has economists sitting on the edge of their seats, awaiting the Fed forecast. (read more at Millennium-Traders.Com)http://www.millennium-traders.com/news/newscommentary.aspx
Citing growing financial strains and rising downside risks as Europe’s debt crisis entered a 'perilous new phase', the International Monetary Fund cut its forecast on Tuesday for global economic growth during 2012 and 2013. The Washington-based institution said in an update of its World Economic Outlook that it expects world economic output to grow by 3.3% in 2012, down from 3.8% in 2011 and from a September forecast of 4%. Global output is forecast to expand 3.9% in 2013, down from a previous forecast of 4.5%. “Global growth prospects dimmed and risks sharply escalated during the fourth quarter of 2011, as the euro-area crisis entered a perilous new phase,” the IMF said. Rising sovereign bond yields and deleveraging by banks to push the euro-zone economy into a 'mild recession' in 2012, is expected by the IMF. .The IMF expects the 17-nation euro-zone economy to shrink 0.5% in 2012, followed by growth of 0.8% in 2013. Previously, the IMF had projected growth of 2.1% in 2012 and 1.5% in 2013. IMF Managing Director Christine Lagarde warned, just a day earlier, that the global economy could slide into a '1930s moment' unless Europe gets a grip on its debt crisis and other economic engines, including the United States and China, meet their responsibilities. Lagarde emphasized the need for stronger, growth-oriented policies, as well as larger firewalls and deeper fiscal integration across the euro zone. The IMF left its forecast for U.S. economic growth in 2012 unchanged at 1.8%, but pegged 2012 growth at 2.2%, down from an earlier projection of 2.5%. Japan is forecast to rebound from a 0.9% contraction during 2011 to grow 1.7%, down from a September forecast of 2.3% and forecast to grow 1.6% in 2012, down from the earlier estimate of 2%. The report from the IMF included updated projections that included 'seeing global activity decelerating but not collapsing'. While the IMF expects most advanced economies to avoid falling back into recession, emerging and developing economies are forecast to slow from a fast growth pace in 2011. The IMF report emphasized that the forecast is based on the assumption that euro-zone policy makers intensify their efforts to address the crisis and that policies limit deleveraging by euro-zone banks, avoiding a severe credit crunch. Overall, emerging and developing economies are forecast to see 2012 growth of 5.4%, down from a September estimate of 6.1% and growth is forecast at 5.9% for 2013, down from the September outlook of 6.5%. Expectations for China are that they are now expected to see growth slow from 9.2% in 2011 to 8.2% in 2012, re-accelerating to 8.8% in 2013 with a prior IMF previous forecast growth of 9% in 2012 and 9.5% in 2013.
On Tuesday as was widely expected, the Central Reserve Bank of India reportedly held interest rates unchanged with its key lending rate at 8.5% and the borrowing rate at 7.5%. The Reserve Bank cut the level of cash reserves it requires banks to maintain, saying that easing liquidity conditions is necessary to protect economic growth. The Reserve Bank lowered its growth forecast for 2012 to March to 7%, down from 7.6% previously but, maintained its forecast, calling for an inflation rate of 7% for the year. In its quarterly review statement, the Reserve Bank said, “Based on the current inflation trajectory, including consideration of suppressed inflation, it is premature to begin reducing the policy rate.” Weakness in the India currency sharply lifted the bill for India’s huge oil requirements, most of which are imported and then subsidized by the government to shield the poor. The Reserve Bank lowered the cash reserve ratio banks have to maintain to 5.5% from 6%, a move that should inject 320 billion rupees or $6.4 billion, into the system. The persistence of 'tight liquidity conditions' that threatens to disrupt the flow of credit to 'productive' parts of the economy and further fuel risks to growth, remains a concern of the Reserve bank.
Richmond Federal Reserve's regional manufacturing survey rose to 13.5 in January from 8.2 in December.
Britain’s Office for National Statistics said net public debt, excluding the effects of any financial interventions now stands at 1 trillion pounds ($1.6 trillion), or about 64.2% of gross domestic product, striking the highest level since records began in 1993. When net debt was ?883 billion, the figure represents a 13.7% increase in December 2010. The debt data came in line with government expectations given by Treasury Chief George Osborne in November during a budget statement to Parliament. In November, Osborne said the debt to GDP ratio would likely stand at 67% in 2011 and added that debt reduction was 'not happening as quickly as we had wished because of the damage done to our economy by the ongoing financial crisis.' Stronger tax receipts pushed public borrowing down to ?13.7 billion in December, compared with the year-earlier figure of ?15.9 billion with ONS data showed that British public-sector borrowing was falling. The ONS reported that a new bank tax imposed on financial institutions boosted tax receipts by ?2.4 billion in the 2011-2012 financial year.
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