Morning Economic News - October 22, 2008

Tuesday's economic news brought a reflection of just how massive the exit from stocks to debt securities, especially Treasuries, has been. The State Street Investor Confidence Index, which measures institutional investors confidence by surveying their actual investments in stocks versus debt securities fell 17.5 points to 58.2, the lowest level for the global index since 1999. The North America Index fell the furthest, perhaps because US investors were at the head of the flight to quality.

Oil had fallen 4% in overnight trading at the time of writing [2:23 AM Eastern] despite the likelihood of an OPEC production cut at this week's meeting. The Nikkei average was down nearly 7% despite better than expected earnings from two component companies (Mitsubishi and KDDI). The dollar was down against the yen, but up against the euro, the pound and most Asian currencies. Dow Jones Industrial Average futures were down 1.5%.

State Street Index - October 2008

• Global Index: 58.2


• Monthly Change: Down 17.5


• Year-to-year Change: Down 23.8

Bank of Canada reduces rate for second time in two weeks

The Bank of Canada dropped interest rates a quarter percent Tuesday, less than two weeks after participating in the global rate cut of one-half percent
with several other central banks in early October. The Bank expects
inflationary pressures to reduce well below the 2% target, largely due
to lower commodity export prices

German Leading Index down further, Coincident Index up 0.5%

The German Leading Index fell another 0.2% in August following the 1.4% drop in July. The Coincident Index rebounded by 0.5%, defying a string of three consecutive drops of 1% or more in the Leading Index.

New home sales to slide further, existing home sales to rebound in 2009

The Mortgage Bankers Association is predicting existing home sales to
rebound by about 3% next year, while new home sales are expected to
drop another 12%. The Association’s forecast is based on projections of
negative economic growth for the next 6 to 8 months, unemployment
rising as high as 7.7% (currently 6.1%) and Fixed Rate Mortgage rates
dropping slightly. Prices are expected to continue to fall slightly and
2009 mortgage origination activity (including refinances) is projected
to be about 70% of 2007 levels.

Fed to Aid Money-Market Investors

The Fed said it will lend as much as $540 billion to the money-market
mutual-fund industry in another move to bolster fragile credit markets.

U.K. Warns of Recession

The U.K. economy appears to be entering a recession, said Bank of England
Gov. King. He also said the pound could fall faster and more than
expected.

Bernanke warms to second stimulus plan

WASHINGTON
(Reuters) - Federal Reserve Chairman Ben Bernanke told Congress on
Monday that another wave of government spending may be needed as the
economy limps through what could be an extended period of subpar
growth. 

Argentine Default Looms as Seizure of Private Pensions Roils Bonds, Stocks Argentina's planned seizure of $29
billion of private pension funds stoked concern the nation is
headed for its second default in a decade.

New Home Sales in U.S. Will Decline by 12% Next Year, Mortgage Bankers Say U.S. new-home sales will fall 12
percent next year as housing starts drop by a record, Mortgage
Bankers Association Chief Economist Jay Brinkmann said.

King Says Bank of England Will Act `Promptly' as Recession Seems Likely Bank of England Governor Mervyn King
said Britain's worst banking crisis since World War I is likely to
push the economy into a recession, requiring policy makers to act
``promptly'' to prevent inflation from slowing too much.

Thailand Proposes Asia Pool $350 Billion to Help Protect Financial Systems Thailand will propose that Asian
countries pool $350 billion, or 10 percent of their foreign
exchange reserves, to help protect financial systems from a
looming global recession.

Bank of Japan May Pay Interest on Deposit Reserves, Morgan Stanley Says The Bank of Japan may announce next
week that it will start paying interest on reserves lenders
deposit at the central bank to counter the global financial
turmoil, Morgan Stanley said.

New Zealand May Slash Benchmark Rate By Record 100 Basis Points Tomorrow New Zealand central bank Governor
Alan Bollard will probably cut interest rates tomorrow by a
record amount to limit damage from the global financial crisis.