THE UK ECONOMY shrank more than economists forecast in the fourth quarter as manufacturers cut output and services stagnated, leaving Britain on the brink of another recession. GDP has fallen by 0.2% since Q3, and Bank of England Governor Mervyn King said that policy makers could increase stimulus again if needed to guard against a “renewed severe downturn.”
FEDERAL Reserve officials said their benchmark interest rate will stay low until at least late 2014 and anticipate that unemployment will remain high and inflation “subdued.” The Fed extended its previous pledge to keep rates low at least until the middle of 2013 as inflation remains tame and more than two years of economic growth have failed to push unemployment below 8.5%.
GERMAN business confidence jumped more than economists forecast in January to a five-month high, signalling Europe’s largest economy may avoid a recession.
A SENIOR member of Chancellor Angela Merkel’s government rejected suggestions that the European Central Bank take losses on its Greek debt holdings, backing the ECB in a dispute with the IMF.
Markets:
US STOCKS rallied, erasing an earlier loss in the S&P 500 Index, as the Federal Reserve said interest rates would remain low until late 2014 and Apple rallied after earnings more than doubled.
HONG KONG shares started the Year of the Dragon stronger, lifted by fresh buying in commodities-related stocks and outperforming Asian peers on pent up demand after a three-day Lunar New Year holiday.
JAPAN’S NIKKEI average retreated from a three-month high as disappointing results from Fanuc and Fuji Electric weighed, though the Fed‘s signal of its readiness to further stimulate the US economy provided support.
EUROPEAN shares are set to rise today, tracking gains on Wall Street, after a promise from the Federal Reserve to keep rock-bottom rates for at least two more years.
Currencies:
THE DOLLAR weakened against the euro to the lowest level in a month after the Fed extended its pledge to hold its target for the federal funds rate low until late 2014 amid a “highly accommodative” monetary policy. THE YEN held a three-day loss against the euro as Asian stocks extended gains in US equities, reducing demand for haven assets.
Demand for the euro was limited before talks on a Greek debt swap resume today.
Energy:
OIL ROSE as Federal Reserve officials said the US benchmark interest rate will stay low until at least 2014 and the Energy Department reported that US fuel demand increased last week. Futures advanced above $100 a barrel after the Fed extended its previous pledge to keep rates low at least until the middle of 2013 to bolster economic growth and cut unemployment. The Energy Department reported that total fuel consumption increased 7.5% to 19.2 million barrels a day in the week ended January 20th.
Commodities:
GOLD provided the best returns of all commodities in the past five years when adjusted for volatility, and Goldman Sachs Group says the rally will continue as options traders signal no change in the metal’s relatively low risk. Bullion, which has seen 11 years of gains as investors sought a haven amid two bear markets in stocks and a sovereign debt crisis, also posted the safest return in the past 12 months, even as it fell from a record high to a five-month low in the second half of last year and gold investors suffered losses.
