3 June 2009

Worst seen past for world economy

The following is extracted from today's edition of “globeandmail.com”.

Modest but surprising growth in Australia and a jump in U.S. pending home sales added to evidence the world economy, while not rebounding, has come through the worst of the slump.

Stocks in Asia hovered close to eight-month highs on Wednesday, but investors were wary about whether markets had run ahead of themselves in pricing in a recovery amid fears that a spike in global bond yields could choke off growth….

The U.S. Federal Reserve has committed to buy $300-billion (U.S.) in government bonds as part of its efforts to keep long-term interest rates low, and will purchase some on Wednesday.

Fed Chairman Ben Bernanke may give more detail on the Fed's Treasury buying plans in testimony to Congress later on Wednesday, while employment and factory orders data will give further clues to the state of the U.S. economy.

Australia's economy grew a stronger-than-expected 0.4 per cent in the first quarter as the best trade performance in almost half a century helped offset a slump in business and housing investment. Australia has fared better than most countries during the financial crisis and its aftermath, thanks to quick and deep interest rate cuts, hefty stimulus spending and a solid contribution from its commodity-based exports.

But investment remains weak and the prospect of rising jobless numbers means it is not out of the woods yet….

The Reserve Bank of Australia left interest rates on hold at 3 per cent on Tuesday, saying there were signs of improvement and the full impact of its earlier cuts had not come through yet.

Indonesia's central bank cut interest rates by 25 basis points on Wednesday, as expected. Some analysts believe this could mark the end of the easing cycle in Southeast Asia's largest economy as rising commodity prices increase inflationary pressures.

Global stock markets have surged since March, fuelled by recovery hopes, which have also powered up prices for oil, copper and other commodities.

The U.S. dollar hit a 2009 low against the Australian dollar and sterling as risk appetite remained buoyant, but some analysts are questioning how much further the rally should run….

Major U.S. indexes rose by a modest 0.2 to 0.4 per cent on Tuesday, buoyed by surprisingly strong housing data….

In another critical sector of the U.S. economy under pressure from the recession, auto sales fell by about 30 per cent in May from a year earlier but at a lower annual rate than expected, making May the best sales month of 2009….

“The market ... seems to be making an assessment that credit problems are manageable and that the environment is improving,” said Gary Townsend, co-founder of Hill-Townsend Capital in Chevy Chase, Maryland.