Morning Economic News - December 19, 2008

Commentary and Overnight Trading

The Bank of Japan returned to a near Zero Interest Rate Policy (ZIRP) that it had only abandoned in the last couple of years, after the Fed's ZIRP announcement Tuesday, and announced that it will buy corporate debt to inject money into businesses. The European Central Bank announced it was cutting interest it pays on deposits in the hope of spurring banks to loan to each other rather than deposit excess reserves. Central banks and governments worldwide are matching the US Federal Reserve move for move in easing monetary policy, which should help support the dollar. On the other hand, with increasing good signs in credit markets and liquidations wringing some of the riskiest excesses from financial markets, investors are not flocking to the dollar as a stable haven. The flight to quality is reversing - bad news for US citizens traveling overseas, but good news for US exporters.

Asian stocks are down in early overnight trading (1:30 AM Eastern) driven partly by drops in commodity stocks. The S&P/ASX 200 is up 0.96%, while the Hang Seng and Nikkei are each down less than 1%. US stock market futures are down less than 1% as well. Crude oil has recovered 0.6% after dropping nearly 10% Thursday. The dollar is down against many currencies, including the yen, euro and pound, but is up against the Canadian dollar and several Asian currencies. ;

Thursday's Economic News

Mortgage rates below 5%

The Mortgage Bankers Association and Freddie Mac both reported good
news for those needing to refinance mortgages and those with resetting
ARMs with the MBAA reporting an average 15-year Fixed Rate Mortgage
(FRM) rate below 5% and Freddie Mac reporting a 1-year ARM rate below
5% and 15-year FRM rates below 5%. Even 30-year FRM rates are flirting
with 5% according to both reports.

Jobless Claims - December 18, 2008

• Initial Claims: 554,000


• Change from Last Week: Down 21,000


• 4-Week Moving Average: 543,750

Money Supply - December 18, 2008

• M1 Seasonally Adjusted Prior Month: $1525.0 billion


• M1 Annual Change (Unadjusted): Up $160 billion

Leading Index (US) - November 2008

• Leading Index: Down 0.4%


• Coincident Index: Down 0.3%


• Lagging Index: Up 0.1%

What I'm Reading

Bank of Japan Cuts Interest Rate

The Bank of Japan became the latest central bank to cut rates to rock-bottom levels, reducing the benchmark rate to 0.1%.

ECB Moves to Foster Interbank Lending

The ECB widened its interest-rate corridor and cut the return it gives
banks for holding cash with it as it seeks to prod interbank money
markets back to normality.

RBS slashes China '09 GDP growth forecast to 5 pct 

BEIJING, Dec 19 (Reuters) - Royal Bank of Scotland on Friday
slashed its forecast for China's 2009 gross domestic product
growth to 5 percent, from 8 percent, warning about the potential
for increasing social tensions as the economy falters.

Mexico to cut import tariffs to support industry

Bank of Japan Cuts Benchmark Rate to 0.1%, to Start Buying Corporate Debt The Bank of Japan cut its benchmark
interest rate to 0.1 percent and said it would buy corporate
debt as a deepening recession chokes off funding for businesses.

ECB's Trichet Says Deposit-Rate Cut May Help Revive Money-Market Lending European Central Bank President
Jean-Claude Trichet said financial companies may begin lending
more to each other after policy makers made it less attractive
to turn to them for support.

Japan Says Economy Won't Grow in Fiscal 2009 as Global Recession Deepens Japan’s government slashed its
economic growth forecast for next fiscal year as the global
slowdown prompts companies to cut business investment.

U.S. Leading Economic Indicators Index Falls 0.4% as Outlook Deteriorates A gauge of the economy’s future
performance posted its biggest annual drop since 1991 in November
as the declines in housing and job markets accelerated, showing
little sign the U.S. contraction will ease in early 2009.

Paulson May Ask Congress to Release Next $350 Billion in Bank-Rescue Funds Treasury Secretary Henry Paulson may
ask Congress for the second half of the $700 billion bank rescue
program, concerned that the deepening recession may spark
further financial turmoil.

Harvard Economist Feldstein Says Recovery Won't Start for Another Year The U.S. economy likely won’t start
recovering from a recession for at least another year, making
this the longest downturn since the 1930s, said Harvard
University economist Martin Feldstein, a member of the
committee that charts American business cycles.

Greenspan Says Financial Markets Are Likely to Rebound in 6 to 12 Months Financial markets, which have been
depressed by “fear” not seen since at least the 1930s, are
likely to rebound in the next six to 12 months, former Federal
Reserve Chairman Alan Greenspan said in a commentary published
by The Economist online.

Philippines Posts Third Straight Monthly Budget Deficit on State Spending The Philippine government posted its
third straight monthly budget deficit in November as it boosted
spending to counter the global recession.

World Economy to Contract for First Time in Almost 50 Years, Bankers Say The world economy will contract next
year for the first time in almost 50 years, as industrial
nations are wracked by recession, and growth in emerging markets
is cut almost in half, a banking industry group said.