US payrolls surge, bolster Fed rate hike prospects

WASHINGTON - US employment gains surged in February, the clearest sign yet of labor market strength that could further ease fears the economy was heading into recession and allow the Federal Reserve to gradually raise interest rates this year.

Nonfarm payrolls increased by 242,000 jobs last month, the Labor Department said on Friday. The unemployment rate held at an eight-year low of 4.9 percent even as more people piled into the labor market.

"This is the best news the Fed could have expected going into the meeting. With jobs bouncing back, you can be sure that rate hikes are just around the corner," said Chris Rupkey, chief economist at MUFG Union Bank in New York.

The economy added 30,000 more jobs in December and January than previously reported. The only blemish in the report was a three-cent drop in average hourly earnings, but that was mostly because of a calendar quirk.

The average length of the workweek also fell last month.

Economists had forecast employment increasing by 190,000 last month and the jobless rate holding steady.

The employment report added to data such as consumer and business spending in suggesting the economy had regained momentum after growth slowed to a 1.0 percent annual rate in the fourth quarter. Growth estimates for the first quarter are around a 2.5 percent rate.

Fears of a recession in the wake of poor economic reports in December and slowing growth in China sparked a global stock market rout at the start of the year, causing financial market conditions to tighten.

Financial markets have priced out bets of a rate rise at the Fed's March 15-16 policy meeting and see a roughly 50 percent chance of a hike at the September and November meetings, according to CME FedWatch.

Economists, however, believe the strong jobs market and improved growth outlook, together with signs that inflation is creeping up, could prompt the Fed to lift borrowing costs in June.

The Fed raised its key overnight interest rate in December for the first time in nearly a decade.

Prices of U.S. Treasuries fell after the data, while U.S. stock index futures rose. The U.S. dollar gained against the euro and hit session highs against the yen and Swiss franc.

Slower wage growth
Fed Chair Janet Yellen has said the economy needs to create just under 100,000 jobs a month to keep up with growth in the working-age population.

The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, increased two-tenths of a percentage point to 62.9 percent, the highest level in just over a year.

Adding to the report's strength, a broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment fell two-tenths of a percentage point to 9.7 percent.

The employment-to-population ratio also increased to 59.8 percent last month, the highest since April 2009, from 59.6 percent in January.

While wage growth weakened in February, it was largely payback for January's jump, which was driven by a calendar quirk. Growth in wages is seen accelerating as the labor market settles into full employment.

The drop in average hourly earnings lowered the year-on-year gain in earnings to 2.2 percent from 2.5 percent in January. The average workweek fell to 34.4 hours from 34.6 hours in January.

In February, job gains were almost broad-based, though manufacturing and mining employment fell. The services sector created 245,000 jobs after adding 153,000 jobs in January. Mining lost a further 18,000 jobs after shedding 9,000 positions in January.

Mining payrolls have declined by 171,000 jobs since peaking in September 2014, with three-fourths of the losses in support activities. More losses are likely after oilfield services provider Halliburton Co. said last month it would cut a further 5,000 jobs because of a prolonged slump in oil prices.

Manufacturing employment lost 16,000 jobs, reversing some of January's surprise increase. Private education jobs rebounded after plunging in January. Construction payrolls increased 19,000 and government added 12,000 jobs.

source: interaksyon.com

Bernanke blasted after surprise no-taper decision

WASHINGTON - Economists and market analysts on Thursday blasted Federal Reserve chief Ben Bernanke after the Fed stunned markets with its unexpected decision to not cut its stimulus.

Bernanke came under fire for having stoked nearly unanimous expectations that the Fed would announce the "taper" of its $85 billion a month bond-buying program after its policy meeting Wednesday.

The decision cost investors who bet on a stimulus cutback hugely, though benefiting many with long positions in global stocks.

Many blamed Bernanke and fellow members of the Federal Open Market Committee (FOMC) for having since May repeatedly suggested a September taper of the quantitative easing (QE) program.

University of Michigan economist Justin Wolfers called the surprise "the result of a needless miscommunication.

"This whole taper debate is one that should never have happened," he wrote.

After Bernanke first spoke of a stimulus cut in May and June, "taper-talk came to dominate the financial headlines, and a monetary meme was quickly born. The result... was that markets over-reacted," he said.

"Despite Bernanke's effort yesterday in the press conference to paint the FOMC decision as entirely consistent with earlier communication from the FOMC, it was not," said Chris Low at FTN Financial.

"The Fed may have done the right thing for the economy... but the Fed's communications credibility is shredded."

Speaking after the FOMC announced its decision, Bernanke argued that all along he has stressed that any decision to taper had to be backed by data showing steady gains in the economy, especially "continued improvements in the labor market."

"I think there's no alternative in making monetary policy but to communicate as clearly as possible, and that's what we try to do," he said.

But Bernanke had not just pointed to a taper beginning late this year. The explicit details he provided fed the consensus that cuts were imminent.

He said that QE should be wound up when unemployment falls to 7 percent, with the expectation that that will happen by mid-2014.

FOMC members repeated those details in speeches, some emphasizing "as early as September."

When the unemployment rate fell in August to 7.3 percent, not far from the threshold and with no caution from the Fed, the die was cast, as far as markets were concerned.

But the result was that interest rates shot up in expectation of tighter money conditions, apparently impacting economic activity, including home buying, something that Bernanke referred to when explaining the non-taper decision.

"The irony to all of this is that the backup in interest rates was due mainly to the chairman's May 22 comments," said economist Joseph LaVorgna of Deutsche Bank.

He questioned whether financial conditions have really tightened, but added: "If the Fed believes they did tighten, why did not the chairman or another Fed governor attempt to communicate this at some point" to prevent markets from getting ahead of policy?

"We are worried that when the time comes to taper, and someday tighten, the Fed will not have the courage to follow-through on its actions because market expectations will likely be well ahead of where the Fed is. "

Many analysts still praised the decision itself, saying persistent weaknesses in the economy, and with a turbulent battle over government budgeting and debt ahead, require continued stimulus.

"The economy has not pulled away from its near two percent trend growth rate of recent years," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

And most still expect the Fed to embark on trimming the bond buys in the near future.

"For now, we maintain the view that the Fed will taper in December. But much depends on developments in Washington and in the housing market," said Paul Edelstein, IHS Global Insight

But at the same time, they said markets will doubt more than before anything they hear from Fed policy makers.

"It will be hard now to take seriously Fed officials' speeches and testimonies," said Shepherdson.

"Yesterday's decision confirms that the real modus operandi of the FOMC is to base its view on the state of the economy on the latest backward-looking data."

source: interaksyon.com

Asian shares jump, yields and dollar fall as Fed stuns

SYDNEY - Asian shares and currencies rallied broadly on Thursday after the Federal Reserve stunned markets and decided not to taper its asset-buying program, sending U.S. bond yields and the dollar into a tailspin.

With U.S. stocks at a fresh record high, MSCI's broadest index of Asia-Pacific shares outside Japan jumped 0.9 percent to its highest in almost four months.

Australia's main index gained 1.1 percent to a five-year high and Japan's Nikkei managed to brush aside a rise in the yen to climb 0.8 percent to a two-month peak.

The prospect that U.S. rates could stay low for longer was further underlined by news from the White House that noted-dove Janet Yellen was the front-runner to take over the Fed when Ben Bernanke steps down.

"The Fed today chose an extremely dovish course of action," said Michelle Girard, a senior U.S. economist at RBS. "It did not just postpone tapering for three months - today's developments open the door for a longer-lasting QE3 program."

"This, in turn, may open the door for a later start date for rate hikes."

All of which was a major relief to emerging markets, which have been suffering as higher yields in the rich world attracted away much-needed foreign capital.

"The surprise from the Fed means that bond yields are going to be lower than we previously expected by the end of the year," said Tony Morriss, head of interest rate research at ANZ.

"This is good news for a renewed search for yield, credit spread performance and easing of some selectively intense pressure in EM markets."

We protest

The Fed's decision to keep its asset buying at $85 billion a month was seen as a rebuff to the sharp rise in Treasury yields over recent months, which was proving a headwind for the housing market and the economy in general.

"This is a major Fed protest against the tightening of financial conditions," said Alan Ruskin, global head of foreign exchange strategy at Deutsche Bank in New York.

"The Fed is very worried that recent tightening of financial conditions is sizable and, probably more important, the back-up in yields is too swift to be able to comfortably conclude that the economy will not slow too much."

The bond market got the message and 10-year Treasury yields tumbled 16 basis points to 2.69 percent. That was an effective easing in world financial conditions since Treasuries set the benchmark for borrowing costs almost everywhere.

Yields on Japanese debt, for instance, promptly dropped to four-month lows.

Futures contracts for the Fed funds rate and Eurodollars romped higher right out to 2016 as the market also pushed back the likely timing of the first hike in U.S. rates.

That in turn sent the dollar tumbling across the board. The euro was up at $1.3522, having already gained 1.2 percent on Wednesday to its highest in almost eight months.

The dollar was down at 98.10 yen, after shedding a full yen overnight. Against a basket of currencies, the dollar dived 1.1 percent to its lowest since February.

Equity investors cheered as the Dow Jones industrial average gained 0.74 percent, while the S&P 500 added 0.92 percent to a fresh record.

All of which should boost hard-hit emerging market (EM) currencies such as the Indonesian rupiah and Indian rupee. The Thai baht, Malaysian ringgit and Singapore dollar were all trading markedly higher.

However, that also created a headache for central banks in Australia and New Zealand which would much prefer their currencies to be weaker.

The Australian dollar surged 1.5 percent to $0.9490, an effective tightening in conditions that will pressure the Reserve Bank of Australia to cut rates to compensate.

In contrast the extension of U.S. stimulus was seen as positive for global commodity demand, and prices.

Spot gold stormed ahead to $1,363.16, a gain of over $60 from early Wednesday, while copper futures jumped 1.6 percent to $7,297.25.

Brent crude added another 13 cents to $110.74 a barrel, up from a low of $107.64 on Wednesday. U.S. crude reached $108.49 compared with $105.32 early on Wednesday.

source: interaksyon.com

US Fed surprises, sticks to stimulus as it cuts growth outlook

WASHINGTON - The U.S. Federal Reserve defied investor expectations on Wednesday by postponing the start of the wind down of its massive monetary stimulus, saying it wanted to wait for more evidence of solid economic growth.

Investors responded by propelling U.S. stocks to record highs and driving down bond yields. Yields on U.S. Treasury debt had risen over the summer on expectations the Fed would cut back its $85 billion a month in bond purchases that have been the cornerstone of its efforts to spur the economy.

Furthermore, Fed Chairman Ben Bernanke refused to commit to reducing the bond purchases this year, and instead went out of his way to stress the program was "not on a preset course." In June he had said the Fed expected to cut back before year end.

"There is no fixed calendar schedule. I really have to emphasize that," he told a news conference. "If the data confirm our basic outlook, if we gain more confidence in that outlook ... then we could move later this year."

The reaction in markets was swift and sharp. The U.S. dollar fell to a seven-month low against major currencies and the price of gold, a traditional inflation hedge, soared more than 4.0 percent.

"The Federal Reserve remains quite concerned about the overall sluggishness of the economy, preferring to take the risk of being too loose for too long as opposed to tighten prematurely," said Mohamed El-Erian, co-chief investment officer at Pimco, which manages the world's largest mutual fund.

Some economists said it was possible the Fed might not begin to wind down its bond buying until after Bernanke's term as Fed chairman expires in January. That would leave the tricky task of unwinding the stimulus to his successor, quite likely Fed Vice Chair Janet Yellen, who was identified by a White House official on Wednesday as the front-runner for the job.

Bernanke declined to comment on his future, beyond saying he hoped to have more information soon.

A Reuters poll of 17 top Wall Street bond dealers found that nine were now looking for the U.S. central bank to trim its bond purchases at a meeting in December, but few held much confidence in their forecasts. One looked for a reduction in October, while two more said the Fed would wait until next year.

Earlier this month, 13 of 18 of these so-called primary dealers polled forecast a September tapering of the purchases.

Lowers economic growth forecast

In fresh quarterly forecasts, the Fed cut its projection for 2013 economic growth to a 2.0 percent to 2.3 percent range from a June estimate of 2.3 percent to 2.6 percent. The downgrade for 2014 was even sharper.

It cited strains in the economy from tight fiscal policy and higher mortgage rates in explaining why it decided not to cut back on its asset purchases.

"The tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market," the Fed said in a statement.

Nevertheless, it said the economy was still making progress despite higher tax hikes and the budget cuts in Washington that were part of the "sequester" implemented by Congress.

"Taking into account the extent of federal fiscal retrenchment, the committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy," it said.

"The (policy-setting) committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases," the Fed added.

Bernanke had stated in June that officials expected to begin slowing the pace of bond purchases this year and would likely end the program by mid-2014, at which point the central bank forecast the unemployment rate would be around 7.0 percent.

In his statement on Wednesday, he said a jobless rate of 7.0 percent was not a "magic number" that would govern when the Fed would turn off the monetary spigot.

"We could begin later this year. But even if we do that, the subsequent steps will be dependent on continued progress in the economy," Bernanke said. "We don't have a fixed calendar schedule. But we do have the same basic framework that I described in June."

Fed sees first rate hike in 2015

The Fed has held overnight interest rates near zero since late 2008 and has more than tripled its balance sheet to more than $3.6 trillion through three rounds of bond buying aimed at holding borrowing costs down.

The decision not to taper bond purchases faced a single dissent. Kansas City Federal Reserve Bank President Esther George, who has dissented at every Fed policy meeting this year, repeated her concerns that the low-rate policy could lead to asset bubbles.

Fed Governor Sarah Raskin, who has been nominated to take a top job at the U.S. Treasury, did not participate in the meeting.

The central bank reiterated that it would not start to raise rates at least until the unemployment rate fell to 6.5 percent, as long as inflation did not threaten to go above 2.5 percent. The U.S. jobless rate in August was 7.3 percent.

Most policymakers, 12 out of 17, projected the first rate hike would not come until 2015, even though the forecasts suggested they could hit their threshold for considering a rate rise next year.

Following the unexpected decision, market participants pushed back their projections for the first rate hike by several months, to late January 2015, based on prices of interest rate contracts traded at the Chicago Board of Trade.

source: interaksyon.com

Exports, spending pull euro zone out of recession in second quarter

BRUSSELS - A rebound in exports and a return to spending by households and governments pulled the euro zone out of recession in the second quarter of this year, data showed on Wednesday, in the first signs of recovery after the bloc's longest slump.

Stronger-than-expected growth from Germany to Portugal helped the euro zone's economyexpand 0.3 percent in the April-to-June period, the European Union's statistics office Eurostat said in its first breakdown of the data.

Exports to the rest of the world rose sharply in the quarter after six months of falling sales, while government spending made its first positive contribution to the economy since late 2009 whenGreece plunged the euro zone into its debt crisis.

The softening of the austerity policies that many economists blame for worsening the euro zone's longest ever recession was also accompanied by the first quarterly rise in household spending since late 2011.

Cuts in public sector spending from education to health aimed to curtail budgets that ballooned during the boom of the euro's early years, but record unemployment has meant Europeans are buying less and forcing companies to cut output and staff.

The euro zone's fragility was evident in the muted shopping of Europeans during July, when retail trade volumes increased just 0.1 percent, Eurostat said in a separate release.

That was not enough to make up for the 0.7 percent fall in June and was below economists' expectations for a 0.4 percent increase in the month.

Economists now expect economic growth to continue in the third quarter of this year following positive business surveys in August, but there are few hopes of a rapid recovery.

"We do not interpret a second consecutive solid gain as the start of a strong upturn," said Christoph Weil, an economist at Commerzbank. "After all, the imbalances in the periphery have yet to be fully corrected and several core countries are increasingly facing problems," he said in a report.

source: interaksyon.com

Fed likely to back low-rate policies despite gains

WASHINGTON (AP) - The US economy is strengthening on the fuel of more job growth, rising home prices and solid retail sales. Just don't expect the Federal Reserve to let up in its drive to keep stimulating the economy with record-low interest rates.

Not yet, anyway.

That's the view of economists as Fed policymakers hold a two-day meeting that starts on Tuesday.

On Wednesday, the Fed will issue a policy statement and update its economic forecasts, and Chairman Ben Bernanke will hold a news conference.

source: straitstimes.com