Global stocks are mixed but lower in Europe and the US today on news that Northern Rock Plc requested more emergency funds from the Bank of England. In Asia the Nikkei closed down -0.28%, Hong Kong closed up +0.29% at another record high, China closed +2.82% and Australia closed +0.45%. In Europe the DJ Stoxx 50 is trading down -0.32%.
The Financial Times reported today that Northern Rock Plc, a UK bank, approached the Bank of England for more emergency loans, rekindling concern about the credit markets. Northern Rock borrowed a further 5 billion pounds ($10 billion) from the central bank to stay in business, the Financial Times reported. The BOE agreed to bail out Northern Rock on Sep 14 after Northern Rock requested an emergency credit line after mounting losses associated with the subprime mortgage crisis made it increasingly difficult for the bank to operate. Northern Rock has now borrowed close to 8 billion pounds from the BOE since Sep 14.
China raised interest rates on some mortgages and increased minimum down payments to curb property speculation after real-estate prices rose last month at their fastest pace in more than 2-years. Loans for second homes and commercial sites will be charged 1.1 times the benchmark lending rates, up fom 0.9 times, and down payments will rise to 40%, from 30%, for housing loans and to half a property's value for commercial real estate. The PBOC is trying to slow a housing bubble as housing prices in 70 major cities rose 8.2% last month, the biggest gain since the government began the monthly survey in August 2005.
The research department of the PBOC also said today that they expect the economy to expand Core PCE deflator – Today’s Aug personal income and spending report is expected to show an increase of +0.4% for both series, following July’s report of +0.5% and +0.4%, respectively. The market will mainly be watching the Aug core PCE deflator, which is expected to ease to +1.8% y/y from +1.9% y/y in July. The FOMC last week cut the funds rate target by 50 bp to 4.75%, but the FOMC in its post-meeting statement had an inflation warning, suggesting that the Fed might not cut rates another notch without some further improvement in the inflation statistics. A decline in today’s core PCE deflator, which is the Fed’s preferred inflation index, would be a step in the right direction.
Chicago Purchasing Managers index – Today’s Sep Chicago purchasing managers index is expected to show a –0.8 point decline to 53.0, more than reversing the small +0.4 point increase to 53.8 seen in August. The purchasing managers survey is useful in the current environment since it gives some insight into whether business executives are panicking in the wake of the financial market crisis that started in early-August. So far, business executives seem to be taking the credit market crisis in stride, perhaps because the stock market has remained remarkably strong through the crisis.
US consumer confidence – The final-Sep US consumer confidence index from the University of Michigan is expected to show a small upward revision by +0.2 points to 84.0 from the early-Sep level of 83.8. The early-Sep level of 83.8 was up by +0.4 points from Aug, thus stabilizing after the sharp –7.0 point decline seen in August from the 7-month high of 90.4 posted in July. The markets are keying heavily on consumer confidence and spending in the wake of the credit market crisis, which began in early August11.6% this year, faster than earlier forecasts of 10.8% and consumer prices will rise 4.6% this year, up fom a previous forecast of 3.2%.
Core PCE deflator – Today’s Aug personal income and spending report is expected to show an increase of +0.4% for both series, following July’s report of +0.5% and +0.4%, respectively. The market will mainly be watching the Aug core PCE deflator, which is expected to ease to +1.8% y/y from +1.9% y/y in July. The FOMC last week cut the funds rate target by 50 bp to 4.75%, but the FOMC in its post-meeting statement had an inflation warning, suggesting that the Fed might not cut rates another notch without some further improvement in the inflation statistics. A decline in today’s core PCE deflator, which is the Fed’s preferred inflation index, would be a step in the right direction.
Chicago Purchasing Managers index – Today’s Sep Chicago purchasing managers index is expected to show a –0.8 point decline to 53.0, more than reversing the small +0.4 point increase to 53.8 seen in August. The purchasing managers survey is useful in the current environment since it gives some insight into whether business executives are panicking in the wake of the financial market crisis that started in early-August. So far, business executives seem to be taking the credit market crisis in stride, perhaps because the stock market has remained remarkably strong through the crisis.
US consumer confidence – The final-Sep US consumer confidence index from the University of Michigan is expected to show a small upward revision by +0.2 points to 84.0 from the early-Sep level of 83.8. The early-Sep level of 83.8 was up by +0.4 points from Aug, thus stabilizing after the sharp –7.0 point decline seen in August from the 7-month high of 90.4 posted in July. The markets are keying heavily on consumer confidence and spending in the wake of the credit market crisis, which began in early August
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