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Economic Outlook: An uneasy two-week stall

October 5, 2009

U.S. markets turned higher Monday despite ominous signs the economic recovery was flattening after a six-month run up from March.

The clearest sign that life has improved on Wall Street is that big banks are back on their feet and stock markets have recovered from March lows. But six months of improved numbers, including 15 percent gains in the Dow Jones industrial average in the third quarter, have recently evolved into a tenuous two-week skid. Investors are wondering if the corporate reporting season — starting Wednesday with a report from Alcoa — can turn the trick, providing investors with renewed confidence.

In Britain, the Financial Services Authority has issued new rules requiring banks to buy up to $175 billion in government bonds as a measure of providing liquidity in tough times. But the measure has set up a debate, with banks asking the regulator to wait until the scheme becomes international. The FSA, however, opted for long-term soundness, announcing the new rules will require changes to firms’ business models and will bring substantial long-term benefits to the competitiveness of the U.K. financial services sector, The New York Times reported Monday.

Low levels of financial soundness cannot provide sustainable long-term competitive advantage, the FSA said, pledging to evoke the new rule once the economic recovery in Britain was under way.

In Washington, President Barack Obama signaled in a radio address the White House economic team would explore additional options to promote job creation.

We’re thinking through all addition potential strategies for accelerating job creation, senior White House adviser David Axelrod said.

Democrats are considering plans to extend the $8,000 tax credit for first time home buyers, set to expire in November, and long-term unemployment benefits, the Times reported. In addition, Obama’s team is considering a per hire tax credit, which was left out of the original stimulus package due to fears business owners would manipulate the system, the Times said.

The bottom line: The government is finding it easier to extend benefits while the market works through its own corrections than to create jobs out of artifice or executive decree.

At the same time, the economy itself is not yet healthy enough to propel itself forward without the aid of the government. That is the consensus, said Marc Pado a market strategist at Cantor Fitzgerald.


Source: upi



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