March 12, 2009

Economic Outlook: Tuesday’s False Alarm

Stocks in Asia and Europe sputtered Thursday, answering the question of whether global market gains on Tuesday marked an economic turning point.

Apparently, not.

In U.S. markets Wednesday, the rally had cooled to nominal advances. By Thursday morning, the Nikkei 225 was off sharply, losing 177 points. The Singapore Straits Times index drifted down 0.33 percent and the Hang Seng in Hong Kong posted a lukewarm 0.59 percent rise.

European stocks also faltered with stocks in London, Paris and Frankfurt down on average 1.2 percent. Futures in the United States also pointed lower.

The wobbling trend is under close scrutiny as investors look to piece together evidence that the bottom of a prolonged recession is close at hand and whether predictions of a slow recovery in the second half of 2009 prove accurate.

Recent evidence suggests otherwise.

Despite moratoriums on foreclosures announced by the Federal Home Loan Mortgage Corp., the Federal National Mortgage Association and several major banks, foreclosures in the United States rose 30 percent in February, RealtyTrac said. Freddie Mac, by itself, lost $23.9 billion in the fourth quarter, prompting the Federal Housing Finance Agency, which oversees the mortgage brokerage, to ask the federal government on Freddie's behalf for an additional $30.8 billion on Wednesday.

Germany reported its manufacturing sector plunged 8 percent in January, an acceleration from a 7.6 percent drop in December. In China, the trade balanced dropped from a $39.1 billion surplus in January to a $4.84 billion surplus in February, as exports plummeted more than 25 percent in a month.

Bailout relief has slowed and soured. Some banks have reported conditions on mortgage modifications attached to government funds put banks at further risk, while others bemoan the public-appeasing efforts to curb extravagant executive pay in a time of bank losses. Signature Bank of New York went so far as to announce it would return the $120 million in bailout funds it received due to the restrictions on executive pay, The New York Times said.

And, while the new administration's popularity remains high with the public, economists gave U.S. President Barack Obama and Treasury Secretary Tim Geithner failing grades recently.

In a Wall Street Journal/NBC poll, economists gave the president a grade of 59 out of a possible 100, while Geithner was given a 51. Federal Reserve Chairman Ben Bernanke fared better, with a score of 71, the Journal reported.

Investors will be looking U.S. retail sales figures and jobless claims Thursday and trade figures Friday. In a bittersweet twist, the recession caused the U.S. trade gap to shrink in December as U.S. exports and energy prices and domestic demand slowed.