U.S. markets skid
RTGAM
A weak employment report helped knock Canada's benchmark stock market lower Friday while U.S. stocks plunged after fears that the credit-related trouble in the financial sector is far from over.
A Canadian government report showed that the economy unexpectedly shed 18,700 positions last month after seven straight months of job creation. It was a sharp contrast to November, when the economy added a whopping 42,600 positions, and further evidence the economy is losing steam.
The S&P/TSX composite index fell 10.08 points to 13,632.57. The gold sector climbed 2 per cent as bullion futures rose to a record $900.10 (U.S.) an ounce on speculation that U.S. interest rates are going down.
Research in Motion Ltd. stock was actively traded Friday, dropping 6 per cent in Toronto after the company was both upgraded and a downgraded by separate analysts.
On Wall Street, the Dow industrials plummeted 246.79 points lower to close the week at 12,853.09. In the broader U.S. market, the Nasdaq dropped 48.58 points while the S&P 500 lost 19.31 points.
"Equity markets continued to face the stiff headwinds of a struggling U.S. economy and subprime-related writedowns this week," said Robert Kavcic, an economist with BMO Nesbitt Burns Inc.
"Indeed, equity markets are now screaming recession," he said. "While the S&P 500 is down year-over-year for the first time since 2003, the Dow, S&P 500 and TSX have all experienced the often fatal death cross - the 50-day moving average falling below the 200-day moving average."
U.S. credit-card company American Express Co. set an early negative tone Thursday with a lower-than-expected profit forecast that increased concerns that tighter credit may be reducing consumer spending and crippling economic growth. The stock tumbled 10 per cent on Friday, the biggest decliner among the 30 stocks on the Dow.
A media report that Merrill Lynch might take a $15-billion (U.S.) hit from its exposure to soured subprime mortgage investments added to the general unease among investors. Merrill, Citigroup and JPMorgan Chase & Co. are all slated to release their earnings next week.
Shares of Countrywide Financial fell 18.32 per cent after Bank of America stepped in with a $4-billion rescue bid to buy the largest U.S. mortgage lender. Investors were disappointed that the takeover bid was not higher.
With files from wires.
Copyright 2001 The Globe and Mail
Friday, January 11, 2008
A weak employment report helped knock Canada's benchmark stock market lower
Bernanke signals U.S. central bank will move to stave off a recession
Washington–U.S. Federal Reserve Board chair Ben Bernanke sent a strong signal yesterday that the central bank will lower interest rates again this month as it attempts to stave off a recession.
Bernanke said the downturn in the credit and housing markets posed substantial risks to economic health and predicted that consumer spending and overall growth would slow in 2008.
"We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," Bernanke said in a speech in Washington.
Calling monetary policy the "Fed's best tool" for regulating the economy, Bernanke said that "additional policy easing may well be necessary" to maintain growth levels as consumer spending and home values face a steep decline next year.
His remarks lifted the expectations of investors that Fed officials will lower the overnight lending rate by as much as half a point at their next policy meeting on Jan. 29 and 30. Stock markets rallied after the remarks were released, erasing morning losses but quickly falling back. The Standard & Poor's 500-stock index closed up 11.2 points, or 0.79 per cent, to 1,420.33 and the Dow Jones industrials showed an increase of 117.78 points to 12,853.09.
Investors typically cheer rate cuts, which grease the wheels of the economy by making it easier for banks and businesses to lend to consumers and one another. But Bernanke's starkly negative forecast for 2008 may have trumped investors' short-term hopes by raising the spectre of a long-term slowdown in spending.
Some analysts have expressed concern that rising core inflation would hinder the Fed's ability to lower rates, even amid the current financial turmoil. In his remarks, Bernanke acknowledged that the Fed was closely monitoring inflation levels and that a flare-up in prices would reduce its ability to stimulate growth through monetary policy.
But he appeared more focused on the coming risks to overall growth, and he said that the Fed would be "prepared to act in a decisive and timely manner" to maintain economic stability.
He cited high oil prices, plummeting home prices and the struggling stock market as factors that "seem likely to weigh on consumer spending as we move into 2008."
A lacklustre employment report in December, which showed the unemployment rate rising by 0.3 of a percentage point, also appeared to give the chair pause. He called the report disappointing and noted that the labour market had previously been a source of stability amid a difficult economic situation.
"It would be a mistake to read too much into any one report," Bernanke said. "However, should the labour market deteriorate, the risks to consumer spending would rise."
The Fed has tried to counter the credit crunch by starting a system of anonymous auctions, which allow banks to borrow money from the government without the stigma of appearing desperate for credit. Bernanke said the new program, known as the Term Auction Facility, has been successful and "may thus become a useful permanent addition to the Fed's toolbox," pending a public vetting.
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