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December 31, 2010

Goldman Sachs Boosts Global Growth Forecasts 2011

 

Goldman Sachs Boosts Global Growth Forecasts 2011

 Economists at Goldman Sachs Group Inc., the most profitable Wall Street firm, increased their forecasts for U.S. and global growth in 2011, predicted an acceleration in 2012 and recommended investors buy banks.

 The U.S. economy will grow at a 2.7 percent rate next year, up from a previous forecast of 2 percent, and 3.6 percent in 2012, economists led by Jan Hatzius in New York said in a report today. The global economy will grow 4.6 percent in 2011 and 4.8 percent in 2012, Dominic Wilson, senior global economist, said in a separate report.

 They recommended U.S. bank stocks, junk bonds, commodities, Japanese stocks and China’s currency as the first of the firm’s “top trades” for 2011. The forecasts are a departure from the pessimism that characterized Goldman Sachs’ projections since 2006.

 “This outlook represents a fundamental shift in the thinking that has governed our forecast for at least the last five years,” Hatzius said in the report. “The hand-off from policy stimulus to private demand — which seemed elusive just a couple of months ago — now appears to be developing.”

 U.S. stocks started what is historically their best month with a rally today after ADP Employer Services data showed companies added 93,000 jobs last month, the Federal Reserve said the economy gained strength across most of the nation and manufacturing in China expanded at the fastest pace in seven months. The Standard & Poor’s 500 Index advanced as much as 2.3 percent, the most since Sept. 1.

 Underlying Demand

 The Goldman Sachs economists said underlying demand, a measure of growth that excludes the effects of fiscal stimulus and inventory restocking, has strengthened and is on track to expand at a 5 percent rate in the fourth quarter.

 On average, economists surveyed by Bloomberg expect the U.S. economy to grow 2.5 percent next year and 3.1 percent in 2012. The Organization for Economic Cooperation and Development lowered its forecast for global growth last month to 4.2 percent for 2011 from 4.5 percent, and predicted 4.6 percent for 2012.

 Even as growth accelerates, U.S. unemployment will remain elevated by historical standards, declining to 8.5 percent by the end of 2012 from 9.6 percent in October, the economists said. The jobless rate increased to 10.1 percent in October 2009, the highest monthly figure since 1983.

 Inflation, Unemployment

 Core inflation, which excludes food and energy prices, is likely to be 0.5 percent in each of the next two years, Goldman Sachs said. The combination of high unemployment and low inflation is likely to keep the Federal Reserve from raising interest rates, the economists said.

 Conditions will be “positive for risky assets,” they wrote. The S&P 500, the main benchmark for American equities, will likely end next year at 1,450, up 20 percent from 1,206.07 at 4 p.m. in New York.

 The S&P 500 has gained 8.2 percent this year and recouped three-fifths of its decline from a record in October 2007. Concerns about the economic fallout from government debt reduction by some European countries caused rallies to stall in April and November and are the principal risk to Goldman’s outlook, the economists said.

 Growth in emerging markets may slow next year as acceleration in the U.S. prompts China, other Asian economies and Brazil to tighten monetary policy, the economists said.

 For its top trades, Goldman recommended betting on a decline in the value of the U.S. dollar against the Chinese renminbi via two-year non-deliverable forwards for an expected return of 6 percent.

 Bets on the KBW Bank Index will return 25 percent, and selling protection on high-yield corporate bonds via credit- default swaps will return 8.7 percent, they predicted.

 Japan’s Nikkei 225 Stock Average is likely to return 20 percent next year, while a basket of crude oil, copper, cotton, soybeans and platinum will gain 28 percent, they said.

November 12, 2010

Fed to buy $105B worth of bonds in first phase

Filed under: Uncategorized — bigcapital @ 8:52 am
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Fed to buy $105B worth of bonds in first phase

The euro was little changed against other major currencies. At present, the euro is worth 1.3771 against US Dollar

WASHINGTON (AP) -Thursday, November 11, 2010- The Federal Reserve will buy a total of $105 billion worth of government bonds starting later this week as it launches a new program to invigorate the economy.

The bonds will be purchased through a series of 18 operations that start on Friday and end on Dec. 9, the Federal Reserve Bank of New York said Wednesday. The purchases are the first since the Fed announced last week that it will buy a total of $600 billion worth of Treasury bonds over the next eight months.

The Fed will buy $75 billion of government debt as part of the new program. And, it will buy another $30 billion, using the proceeds from its vast mortgage portfolio.

That totals $105 billion for the first phase of the Fed’s government bond buying. The Fed last week said it anticipates buying on average $110 billion a month.

The Fed’s announcement on Wednesday helped boost stocks and bond prices.

— The Dow Jones industrial average closed up 10.29 points to 11,357.04.

The euro was last at $1.3771 , little changed from late Wednesday in New York

— Treasurys moved higher after the auction of $16 billion in 30-year bonds and after the Fed laid out its bond-buying schedule.

In late afternoon trading, the 10-year note was up 37.5 cents on the day. The slight gain lowered the yield to 2.65 percent from 2.66 percent late Tuesday as bond prices and yields move in opposite directions. The yield on the 2-year note inched lower, from 0.45 percent to 0.43 percent. The 30-year bond traded at 4.25 percent, compared with 4.24 percent late Tuesday.

Through the bond purchases, the Fed intends to push rates even lower on mortgages, corporate debt and other loans. Mortgage rates have sunk to their lowest levels in decades just in anticipation of the Fed’s action.

The goal: Cheaper borrowing costs will lure Americans to boost spending. Lower corporate bond rates will spur business investment. Higher stock prices will boost households’ wealth, which was clobbered by the recession. Fed Chairman Ben Bernanke said such a chain of events would produce a “virtuous cycle, which will further support economic expansion.” Faster economic growth in turn would prompt companies to boost hiring.

However, some Fed officials and economists don’t think the program will do much to rev up the economy and lower unemployment, which has been stuck at 9.6 percent.

And, there’s fears inside and outside the Fed that the program could lead to new problems: runaway inflation and inflated prices for commodities, bonds or stocks, creating new speculative bubbles. Gold prices have jumped. Some investors see the precious metal as a hedge against inflation.

The Fed’s program also has struck a nerve overseas. China and other countries have complained that the Fed’s bond-buying program could hurt them. Because the Fed’s program could weaken the U.S. dollar further, that makes other countries’ currencies more expensive, cutting into their exports, and fueling inflation.

December 18, 2009

Fed To Leave Rates Low For ‘Extended Period’

Fed To Leave Rates Low For ‘Extended Period’

 

WASHINGTON — The Federal Reserve pledged Wednesday to hold interest rates at a record low to drive down double-digit unemployment and sustain the economic recovery.

The Fed noted that the economy is growing, however slowly. And turning more upbeat, it pointed to a slowing pace of layoffs.

Still, Fed Chairman Ben Bernanke and his colleagues gave no signal that they’re considering raising rates anytime soon. They noted that consumer spending remains sluggish, the job market weak, wage growth slight and credit tight. Companies are still wary of hiring, they said.

Against that backdrop, the Fed kept its target range for its bank lending rate at zero to 0.25 percent, where it’s stood since last December. And it repeated its pledge, first made in March, to keep rates at “exceptionally low levels” for an “extended period.”

In response, commercial banks’ prime lending rate, used to peg rates on home equity loans, certain credit cards and other consumer loans, will remain about 3.25 percent. That’s its lowest point in decades.

Super-low interest rates are good for borrowers who can get a loan and are willing to take on more debt. But those same low rates hurt savers. They’re especially hard on people living on fixed incomes who are earning measly returns on savings accounts and certificates of deposit.

Noting the stabilized financial markets, the Fed said it expects to wind down several emergency lending programs when they are set to expire next year. That seemed to strike a confident note that the Fed thinks it can gradually lift supports it provided at the height of the financial crisis.

The central bank made no major changes to a program, set to expire in March, to help further drive down mortgage rates.

The Fed in on track to buy a total of $1.25 trillion in mortgage securities from Fannie Mae and Freddie Mac by the end of March. It has bought $845 billion so far. It’s also on pace to buy $175 billion in debt from those groups under the same deadline. So far, the Fed has bought nearly $156 billion.

Its efforts to lower mortgage rates are paying off. Rates on 30-year loans averaged 4.81 percent, Freddie Mac reported last week. That’s down from 5.47 percent last year.

The Fed said it has leeway to hold rates at super-low level because it expects that inflation will remain “subdued for some time.”
Fed policymakers repeated their belief that slack in the economy — meaning plants operating below capacity and the weak employment market — will keep inflation under wraps.

A government report out Wednesday showed that inflation is in check despite a burst in energy prices. Energy prices, however, are already in retreat.

Bernanke, who’s seeking a second term as Fed chief, has made clear his No. 1 task is sustaining the recovery. Last week, he and other Fed officials signaled they are in no rush to start raising rates.

At the same time, Bernanke has sought to assure skeptical lawmakers and investors that when the time is right, he’s prepared to sop up all the money. Some worry that the Fed’s cheap-money policies will stoke inflation.

Some encouraging signs for the economy have emerged lately. The economy finally returned to growth in the third quarter, after four straight losing quarters. And all signs suggest it picked up speed in the current final quarter of this year.

The nation’s unemployment rate dipped to 10 percent in November, from 10.2 percent in October. And layoffs have slowed. Employers cut just 11,000 jobs last month, the best showing since the recession started two years ago.

Still, the Fed predicts unemployment will remain high because companies won’t ramp up hiring until they feel confident the recovery will last.

Consumers did show a greater appetite to spend in October and November. But high unemployment and hard-to-get credit are likely to restrain shoppers during the rest of the holiday season and into next year.

-Financial Post-

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