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The argument is over.
So what makes it so obvious? The employment numbers. The
“The 63,000 decline in US non-farm payrolls in February is the clearest and most reliable indication yet that the economy is now in recession”, said Paul Ashworth of Capital Economics. And if you thought that was bad, the decline of 101,000 in private sector payrolls last month, compared to a modest 26,000 drop in January “screams recession”.
The debate, says Ashworth, is “essentially over’…
No jobs, no salaries, no mortgages
So what next? Nothing good. People are losing jobs. And when they have no salary going into their bank accounts every month they can’t pay for anything, including their mortgages. So rising unemployment suggests more pain for the mortgage markets and by extension for all the banks. Expect the banks to keep getting kicked about in the markets.
All this is making us – and finally everyone else – nervous. On Friday, it was the turn of Larry Summers, the former US Treasury secretary to up the stakes. Not only is the economy “currently in recession”, he said but probably seeing the “most serious combination of macroeconomic and financial stresses that the
With cheerleaders like this it should be no surprise that the yield on 3-month
Meanwhile, banks are getting increasingly cautious about who they lend money to and when they do lend they are charging more for it than they have in some time: sterling three-month libor, the rate at which banks lend to one another, is rising. On Monday, it stood at around 5.78%, up from 5.4% in January.
How long will all this last? Ethan Harris, Chief Economist at Lehman Brothers, has a rather gloomy forecast. He predicts growth rates of -0.5% and -1% for the first and second quarters of 2008. The classic definition of a recession is two concurrent quarters of negative growth. “The economy is likely to experience an extended period of very weak growth, a rising unemployment rate and significant further Fed rate cuts,” he added. “This is a bigger, but more gradual, shock to the economy than either the 1990 or 2001 recession.”
So with the economy dominating the news, we can now be clear on two things that not too long ago seemed rather impossible…
Two impossible things…
The first, is that as the faltering economy kicks
Blue collar voters along the depressed economic rust belt, the
The second thing is that the decoupling theory has been completely debunked. As the
Chinese jobs are already going too. Expect them to keep doing so as the
Investors – and central bankers – should prepare for things to get a lot worse.
Turning to the wider markets…
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Bovis weighs on housebuilding sector
Oil tops $108 a barrel
Crude oil futures were trading below yesterday’s record high of $108.21 this morning, at $107.75. And in
Spot gold had fallen to $973.70 from $974.10 and silver had risen to $19.83 this morning. Meanwhile, platinum rallied 4% to $2,060 from $1,926 – its lowest level in four weeks – as speculators stepped in.
Turning to the currency markets, sterling had fallen back from a three-month high of 2.0220 against the dollar and was last trading at 2.0139, as the latest RICS data (see below) increased expectations of rate cuts.
RICS: housing slump worst since 1990
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