A look at economic developments, activity in stock markets around the world Tuesday
A look at economic developments and stock-market activity around the world Tuesday:
LONDON -- Lower energy costs helped inflation in Britain fall to a five-month low in November, prompting the Bank of England's chief to suggest interest rates could drop further in the months ahead. The office for National Statistics said the consumer price index (CPI), the government's preferred measure of inflation, was up 4.1 percent in the year to November, less than October's equivalent rate of 4.5 percent and September's peak of 5.2 percent. The consensus in the markets was for inflation to have fallen to around 3.9 percent. Despite the smaller than anticipated drop, the Bank of England's governor Mervyn King remained hopeful inflation will fall back toward the target in the coming months because of lower commodity prices, the recession and the government's recent decision to cut sales taxes. However, he warned that the recent fall in the pound will likely moderate the scale of the decline as it will push up the cost of imported goods. The FTSE 100 index of leading British shares closed up 31.52 points, or 0.7 percent, at 4,309.08.
FRANKFURT, Germany -- German Chancellor Angela Merkel said her government will wait to see whether the new U.S. administration passes another economic stimulus package before considering further measures for Germany in a keynote speech before the Center for European Economic Research in the southwestern German city of Mannheim. Meanwhile, the euro zone economy contracted at a sharper pace in December, a closely watched survey showed Tuesday, suggesting the European Central Bank is likely to cut interest rates again early next year to prevent the economy from sliding deeper into recession. The preliminary estimate of the purchasing managers index (PMI) for the services sector in the 15-nation single currency zone fell to 42.0 in December from 42.5 the previous month, the lowest in the survey's 10-year history. Meanwhile, the equivalent manufacturing PMI slumped to 34.5 in December from 35.6 in November -- also the lowest in the survey's history. The composite reading, which combines both PMIs, dropped to 38.3 from 38.9. Again this was the lowest in the survey's 10-year history. The DAX closed 75.09 points, or 1.6 percent, higher at 4,729.91, while the CAC-40 in France rose 66.00 points, or 2.1 percent, at 3,251.66.
SHANGHAI, China -- China's domestic investment in assets grew by 26.8 percent in the first 11 months of the year over a year earlier, cooling as companies crimped spending on real estate and factories. The January-November figure, released by the National Bureau of Statistics, compared with a 27.2 percent increase in the first 10 months of the year. Stocks opened in the red but bounced back modestly after the head of China's central bank said more rate cuts could be in the offing. Shanghai's key index rose 0.5 percent to 1,975.01.
ROME -- Fiat Group SpA has for the first time shut down most of its Italian plants for a month, laying off nearly 50,000 workers for an extended holiday as it copes with the precipitous drop in demand for new cars. The shutdowns through mid-January affect 14 of Fiat's 20 Italian plants, and 48,000 blue collar workers out of its nearly 80,000-strong Italian work force. Under the temporary layoff scheme, part of the workers' salaries are paid by a government-administered fund that includes industry contributions. Italy's MIB 30 index finished up 1.1 percent at 20,036.
SAO PAULO, Brazil -- Most Latin American stocks closed higher in response to the U.S. Federal Reserve's rate cut. Brazil's Ibovespa index rose 4.4 percent to close at 39,993, while Mexico's IPC index jumped 4.7 percent to close at 22,033. Chile's IPSA rose 0.5 percent to close at 2,336 and Argentina's Merval index climbed 2.5 percent to close at 1,143. Colombia was the exception: The IGBC index slid 0.1 percent to close at 7,803.
TOKYO -- Japan's Nikkei 225 stock average closed down 96.64 points, or 1.1 percent, to 8,568.02. Elsewhere in Asia, Hong Kong's Hang Seng index was 83.26 points, or 0.6 percent, higher at 15,130.21, and South Korea's Kospi edged up 0.3 percent to 1,161.56. Thailand's key SET index rose 1.9 percent to 445.31, while Australia's benchmark index declined about 1 percent.
MOSCOW -- Russia's industrial production plunged beyond expectations in November, fresh evidence that the economy may be entering a recession that will be deeper than previously feared. Output fell a stunning 10.8 percent from October to November, an official from the Federal Statistics Service's press office said. Production contracted 8.7 percent in November from the same month last year, marking the biggest falls since the 1998 financial crash. Manufacturers have been strangled by choked credit markets and plunging demand for commodities, particularly metals.
CAIRO, Egypt -- Saudi Arabia's central bank cut two key lending rates by 50 basis points, as the Arab economic powerhouse pivotal to the region's economic health battles the effects of the global financial crisis. The Saudi Arabian Monetary Agency's decision to cut the repurchase rate and the reverse repurchase rate marked its latest efforts at boosting liquidity and supporting private sector growth in the kingdom. SAMA lowered the repo rate -- the rate at which it lends money to commercial banks -- to 2.5 percent from 3 percent, and reduced the reverse repo rate to 1.5 percent from 2 percent.
STOCKHOLM, Sweden -- Sweden's government cut its forecasts for economic growth until 2011 due to the effects of the global financial crisis.The government now expects gross domestic product to fall by 0.8 percent in 2009. It had previously forecast an increase of 1.3 percent. The unemployment rate is now expected to reach 7.7 percent in 2009, compared with 6 percent in previous forecasts. It is then expected to continue climbing to 8.5 percent in 2010 before falling back to 8.2 percent in 2011. The 2010 GDP forecast was downgraded to a growth rate of 1.5 percent from 3.1 percent previously, while the growth prediction for 2011 was cut to 3 percent from 3.5 percent. The OMX Stockholm 30 index ended down 1.3 percent at 651.18.
PODGORICA, Montenegro -- The International Monetary Fund warned that Montenegro's economy -- one of the fastest growing in Europe -- will slow down dramatically next year amid the global financial crisis. An IMF official said Montenegro's growth rate in 2009 could slide to only 2 percent, way down on the 8 percent expected this year, because of the expected slowdown of foreign investments.
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A Look At Economic Developments Around the World
Oil touches $50-a-barrel mark as OPEC preps cut
Oil prices retreated after briefly topping $50 a barrel Monday as concerns about the economy overshadowed a possible production cut from OPEC.
U.S. crude for January delivery rose $1.13 to $47.41 a barrel, but not before touching a high of $50.05. The January contract expires at the end of this week.
Reports indicate that ministers from the Organization of Petroleum Exporting Countries, a trade organization that produces about 40% of the world's oil, will call for a production cut at its meeting in Algeria on Wednesday.
"They must cut production to maintain the price," said Jim Williams, energy economist with WTRG Economics in Arkansas.
OPEC nations have expressed concern about oil prices, which have fallen rapidly since hitting a record high of $147.27 a barrel in mid-July. The group pledged in late October to cut production by 1.5 million barrels a day in order to bolster prices, but the cut had little effect on the market at that time.
After prices dipped below $45 a barrel earlier this month, OPEC President Chakib Khelil said in an Associated Press interview that the market would see another "severe" cut in production at its meeting on Dec. 17 in Algeria.
"If their goal is to stem the price (decline) 1.5 million to 2 million (barrels a day) will do it," said Williams. However, if they want to get the price back up to about $70 a barrel, the cartel needs to cut "3 million at least by the end of February, early spring."
OPEC Secretary General Abdalla Salem El-Badri said at the beginning of the month that the ideal price for crude was between $70 a barrel to $90 a barrel, according to Dow Jones.
However, OPEC has a tough road to travel if it wants to overcome the dour economy, according to Phil Flynn, senior market analyst with Alaron Trading in Chicago.
"Even if they cut production, if the economy is weak, who's going to buy their oil?" asked Flynn. Raising prices is not going to spur demand, he added.
Auto bailout: The White House said Friday it may use part of the $700 billion allocated for banking sector bailouts to keep automakers General Motors and Chrysler from collapsing.
A plan to provide $14 billion in loans to the automakers to keep them from going bankrupt before March failed in the Senate last week.
"If they don't bail them out [the recession] will get much worse," said Williams, pointing out the increasing number of jobs that have been lost in the U.S. already.
Last week, the Labor Department said that the number of Americans applying for state unemployment benefits rose to a 26-year high.
The U.S. auto industry employs about 2 million workers, according to the Center for Automotive Research. That total includes GM, Ford and Chrysler workers, as well as dealers and workers at parts manufacturers.
As the economy slows, consumers and businesses have cut back on the consumption of petroleum-based fuels.
Americans drove 100 billion fewer miles during the 12-month period between November 2007 and October 2008 compared with the prior year, according to the Transportation Department.
"The weaker the (U.S.) economy gets, generally the weaker the world economy gets, and the weaker the world economy gets, the lower oil prices go," said Williams.
Dollar: Oil prices gained some measure of support as the dollar weakened against the 15-nation euro and the British pound.
Since oil, like other commodities, is priced in dollars, a decline in the U.S. currency makes oil cheaper for foreign investors, which spurs buying.
"The strength in commodities is the follow-through in dollar weakness," said Brian Dolan chief currency strategist with online brokerage Forex.com.
The dollar has declined in value as an easing credit crunch has caused investors to unwind some of their dollar hedges, and a deepening recession continues to weigh on the U.S. economy, according to Dolan.
Plus, the existing relationship between the two types of investments is being amplified because one of the mathematical models used in trading software is triggering dollar-oil trading orders, he added.
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