Federal Reserve Bank of Dallas President Richard Fisher said he expects the central bank would raise the benchmark U.S. interest rate should the public begin to expect greater gains in consumer prices.
“If inflationary developments and, more important, inflation expectations continue to worsen, I would expect a change of course in monetary policy to occur sooner rather than later, even in the face of an anemic'' economy, Fisher said yesterday in a speech in San Francisco.
Fed bank presidents, including Gary Stern of Minneapolis and Thomas Hoenig of Kansas City, have expressed growing concern this month about rising prices. Fisher, 59, is the only member of the Federal Open Market Committee to dissent three times from decisions to lower the overnight bank-lending rate, favoring either no change or less aggressive reduction.
“I don't know a single person on the committee that isn't concerned about inflation,'' the Dallas Fed chief said after his speech to the Commonwealth Club of California. “The question is, `what is the right treatment?' That is subject to debate.''
Fed policy makers estimated in April that consumer prices, minus food and energy costs, will rise this year by 2.2 percent to 2.4 percent, up from a range of 2 percent to 2.2 percent in January forecasts, according to central bank figures released on May 21. U.S. gross domestic product will increase by 0.3 percent to 1.2 percent this year, down from the 1.3 percent to 2 percent growth Fed officials predicted in January.
Anemic Growth
The U.S. “is in for a period of anemic economic activity'' that will probably last “for a while,'' Fisher said after his speech payday advance how to get a free credit report. When the economy quickens, the U.S. may be “encumbered by a higher rate of inflation than we ordinarily would like to have.''
Most central bank officials considered the decision to cut the federal funds rate last month as “a close call,'' according to minutes of the April 29-30 meeting. Fisher and Charles Plosser, president of the Philadelphia Fed, preferred no change because of the “more worrisome development'' in inflation, the records show.
Futures traders estimate a 96 percent probability of no change in the benchmark interest rate at the Fed's next meeting in June. The Federal Reserve has lowered the main U.S. interest rate by 2.25 percentage points this year, the most aggressive cuts in two decades.
Fisher devoted most of his speech to the federal government's long-term fiscal situation, which he called “a frightful storm brewing in the form of untethered government debt.''
`Debauching of Credit'
“Unless we take steps to deal with it, the long-term fiscal situation of the federal government will be unimaginably more devastating to our economic prosperity than the subprime debacle and the recent debauching of credit markets,'' he said.
Minneapolis Fed bank President Gary Stern said in a speech yesterday in Altoona, Wisconsin that inflation is too high and the central bank will need to consider the timing and magnitude of any reversal in interest rate reductions.
When the housing crisis hit last summer, it became very hard for borrowers to land the jumbo loans they needed to buy homes in high-priced areas, like California and New York.
So as part of the Economic Stimulus Act, Congress tried to get funds for jumbo loans flowing again by temporarily raising the dollar limits for mortgages that Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) can buy. The two government-sponsored entities (GSE) had previously only been permitted to buy so-called conforming loans of up to $417,000 and then resell them on the secondary market.
The new limits raised that conforming loan cap to as much as $729,750 in some high-priced metro areas through Dec. 31, in order to make home loans more readily available to help stabilize falling markets.
But the move hasn’t juiced the market, and so the House Financial Services Committee is holding a hearing Thursday to examine why.
"The liquidity crisis in mortgages has given added impetus to expanding the conforming loan limit in high-cost areas. As the correction took hold last fall and winter, jumbo and other non-conforming lending all but ground to a halt in many markets," said Thomas Lund, executive vice president for Fannie Mae in his testimony.
Despite the increased caps, these new "conforming jumbo" loans - between $417,000 and $729,750 - are still more expensive than the conforming loans below $417,000.
For months after the conforming jumbos were introduced, interest rates for them ranged between a point and a point and a half higher than on regular conforming loans. That made jumbo loans much more expensive; for a $600,000 mortgage, a borrower paid an extra $400 to $600 a month.
In the past, the spread between jumbo and conforming loans was much smaller, a quarter point or so.
"[The raised caps] produced less activity than I thought they would," said Rep. Barney Frank, D-Mass., in opening remarks at the hearing.
"Beneficial effects have be slow to materialize," added Spencer Bachus, R-Ala., ranking member on the committee.
The problem: The investors who buy mortgages on the secondary market still consider these new conforming jumbo loans riskier than the original conforming loans, and put a higher risk premium on them.
"The ultimate investor was not comfortable with the prices of the new jumbos," said Rob McDonald, director with the global business advisory firm FTI Consulting. "The secondary market participants needed to accept the prices Fannie and Freddie were offering."
That reluctance comes despite the fact that buyers who use jumbo mortgages tend to be better credit risks and often put more money down, McDonald said.
Part of the problem is simply that fear is contagious.
"If there’s a credit squeeze, despite the higher credit profiles of jumbo loans, there’s hesitancy on the part of mortgage backed securities buyers," he said. "This gets to the correlation between subprime secondary mortgage markets and conforming secondary markets."
Indeed, Fannie and Freddie don’t actually package conforming jumbos for sale to investors in the same way they treat sub-$417,000 conforming loans. They are not what’s called "TBA-eligible." These are "to-be-announced" transactions where the purchase price is settled at some future date.
The Securities Industry and Financial Markets Association decided in February to exclude jumbo conforming loans from TBA-eligible pools cashadvance.com pay day loan. But the TBA market is well established and understood by investors, according to Jay Brinkman, an economist with the Mortgage Bankers Association.
"Buyers of securities feel very secure about this market," he said. "They’re accustomed to the pricing and they know how the securities perform."
The exclusion of conforming jumbos from that market makes them a somewhat unknown security. "No one is sure what their performance will be, so no one is sure how to price them," said Keith Gumbinger of HSH Associates, a publisher of mortgage market information.
The Mortgage Bankers Association argued that the new conforming jumbos should be issued as TBA products, but there was resistance to this. Others were hesitant to introduce any new element that might harm the conforming loan market.
"They said, ‘The conforming market is the only one really functioning. Don’t mess it up by adding jumbos to it,’" said Brinkman. Indeed, jumbos perform differently for investors than conforming loans.
Jumbo borrowers are more likely to pay off their loans early, which cuts off the revenue stream of their interest payments for investors, while those with $100,000 mortgages tend to keep making the same monthly payment year after year.
If jumbos were packaged with these in the same mortgage-backed securities, investors would require higher interest rates to purchase them. Borrowers of conforming loans would have to pony up the increased interest, in effect subsidizing more affluent, jumbo loan borrowers.
There are other risk factors that makes investors wary. Jumbos are, by definition, less diverse geographically; they’re only available in about 70 metro areas - many of the most challenging markets in the nation.
"Look at the markets where these are offered," said Gumbinger. "It’s where home prices are falling. An investor will say, ‘I’ll buy them but I have to get more yield out of them.’"
In early May, Fannie changed in the way these loans are handled; instead of packaging them for sale on the open market, they are keeping them in their portfolios. Fannie can set the price itself and is doing so as if the loans were TBA-eligible.
And weekly mortgage application statistics show that the pipeline for the loans has opened up during the last couple of weeks.
In March 2007, 12.1% of all mortgage loans requests were for jumbos. A year later, only 4.4% were. During the past couple of weeks, jumbos have accounted for 5.8% of all applications.
According to Freddie Mac Vice President Patricia Cook, interest rates for conforming jumbos are now a full point below regular jumbos and only two-tenths of a percentage point higher than conforming loans.
Gumbinger confirms that spreads between conforming and jumbo conforming have narrowed down to below half a point, good news for home buyers in high-priced areas.
Meanwhile, however, interest rates for non-conforming jumbo loans have not improved much, according to Gene Choi, president of Commodore Mortgage Group. "In that market, the pricing is still much higher," he said.
"In January, I had a guy buying a $1.4 million home in New Jersey whose loan was going to be in the upper sevens, 7.875% or so," said Choi. "He was very surprised."
Many U.S. small business owners say soaring fuel costs are eating their profits at a time when the economy is already weak, making them more cautious about expanding or hiring.
“In theory we could pass on extra costs with fuel surcharges,” said Vince Puente, part owner of Southwest Office Systems Inc , Mittelnight has his crews work longer days on-site to reduce commuting. But his weekly fuel bill has still risen to $1,000 from $350 in the past year.
Mittelnight said he is now reluctant to hire technicians who live too far away. His technicians drive company trucks home and are on-call for servicing jobs.
“I can’t have people driving too far to service clients because then they’re commuting on my fuel bill,” he said.
Mary Galvan owns GLM DFW Inc, a Dallas company with about 50 employees and annual sales of $20 million that arranges recycling services for large firms nationwide.
She says some prospective employees have demanded higher salaries to offset the cost of driving to work.
“But it’s too hard to justify paying them more than employees who have been here for years,” she said.
Galvan said any investment, from paper to office furniture, is now weighed more carefully quick payday loan no fax payday advances. She employs only people she knows can double or triple up by taking on different jobs.
The addition to my telephone bill came weeks after I saw an advertisement on the Internet and took a chance at winning a fancy cellphone. I assumed the manufacturer or distributor were behind it, but I was wrong.
That led to my second mistake. I did not check carefully for pricing details. They were set out in the fine print at the bottom of the ad, and in abbreviated form in a follow-up text message, which you would have to scroll to the bottom to read in full.
It turned out I was billed $2 per message, three to four times a week, whether I replied to a trivia question or not. Had I known, I would have replied "STOP" sooner, or have not entered.
Several readers have written to say they were similarly surprised by charges. Some had dealt with the same game provider, some with others. Some had no recollection of signing up. Some felt tricked, some merely foolish. Some got refunds from their telephone company.
The marketer of my contest – TMG Co. of Amsterdam – informs me I actually attempted to register four times. How stupid was that?
Maybe my readers and I are all exceptionally gullible, impatient or green in the use of cellphones. But, after testing the sign-up procedure for another TMG contest, this one for an Apple laptop computer, I have a suggestion:
USE LARGER TYPE.
President Hans de Back pointed out in an interview: "We are not using the word free." In a lengthy reply to questions, the company said: "Unfortunately, we cannot force someone to read the information we provide; however, we can only hope that when the user decides to participate and subscribe, he/she has educated him/herself fully on the consequences of the service."
That is all true freecreditscore bad credit payday loans. But if it’s possible for even a minority of customers to miss the pricing information, maybe it’s not prominent enough.
The online advertisement for the contest for the laptop computer has large moving text at the top. Images of the computer float in and out of view. The small print on the bottom is in a light colour on a dark background. The $2 price appears at the far right, and within the large block of text after 118 words. It would not be visible on some computer screens without scrolling down.
From what I have seen and what the company says, TMG complies with rules set down by the Canadian Wireless Telecommunications Association. But those standards do not specify the size or positioning of text used when disclosing prices.
TMG, and spokespersons for Bell Mobility, Rogers, Fido and Telus insist they receive relatively few complaints about billings for premium message servives. Unsolicited advertising is a far greater source of complaints, says Jim Johannsson of Telus.
At my request, Kenneth Hardy, a professor of marketing at the Richard Ivey School of Business in London, Ont., looked at TMG’s ad. He found the manner for disclosing the price was lacking.
"I think it is essentially a common sense standard that, if there is a charge, that it be prominent enough that a customer realizes there is a charge, and that it hinges on the number of messages that are sent. The (secret to) long-term success of marketing enterprises is to be completely forthcoming, and have satisfied users."
James Daw, CFP, appears Tuesday, Thursday and Saturday. He can be reached at jdaw@thestar.ca
Chile's gross domestic product expanded at the slowest pace since 2003 in the first quarter as mining output slumped and a drought cut hydroelectricity supplies.
Chile's economy expanded 3 percent in the first quarter from the year-earlier period, slower than a 4 percent rise in the previous quarter and less than the 3.2 percent median estimate in a Bloomberg survey of 20 economists.
The worst drought in 50 years in Chile lowered hydropower reserves as shortages of natural gas curtailed output by generators, resulting in a slowdown in economic activity and industrial production. Chile's President Michelle Bachelet this week promised to solve energy problems after the central bank cut its growth forecast for the year to as low as 4 percent.
“Economic activity is facing supply restrictions in sectors like manufacturing, mining and electricity generation because of gas shortages, bad weather and strikes,'' said Alfredo Coutino at Moody's Economy.com Inc. in West Chester, Pennsylvania. “Those things should be transitory, so we could see a rebound of economic activity in the second quarter.''
Mining output declined 2.7 percent because of labor disputes and lower yields from mines. Copper output fell 8.4 percent in March from a year earlier, the National Statistics Institute said. Chile is the world's biggest copper producer.
Output from the utility industry dropped 16 percent, the central bank said. Electricity generation fell 2.2 percent in March because of the drought and gas shortages.
Recent Rainfall
Energy Minister Marcelo Tokman today said recent rainfall will help replenish reservoirs, reducing the risk of power shortages free credit report .com no teletrak payday loans. Shares of Santiago-based hydroelectricity generator Colbun SA rose 12 percent this week as dams filled.
“If this process continues, if we have more water, that's good news for the cost of energy,'' Finance Minister Andres Velasco said today. “As we've seen, if the energy sector is running better, the whole economy runs better.''
In central and southern Chile, where Codelco, Antofagasta Plc, Anglo American Plc and Freeport-McMoRan Copper & Gold Inc. have mines, between 45 percent and 70 percent of the electricity comes from water-driven turbines.
In an annual address to lawmakers, Bachelet said Chile will develop ethanol from woodlands, consider plans for solar power plants in the desert and encourage hydroelectric development. The government will increase spending on infrastructure such as roads, ports and dams by 60 percent this year, and set up a $6 billion fund abroad to finance overseas study for postgraduate students, she said.
Public Holidays
The economy grew 5.8 percent in the first three months, taking into account public holidays, and should accelerate in the second quarter, Velasco said today. Investment rose 15 percent in the first three months of the year, and foreign direct investment reached almost 10 percent of quarterly GDP, he said.
“For all the respect I have for Velasco, he'll find the bright spot in anything,'' said Luis Arcentales, a New York- based economist at Morgan Stanley.
Italian consumer confidence in May unexpectedly rose to its highest this year as Prime Minister Silvio Berlusconi formed a new government that announced tax cuts and relief for homeowners facing higher mortgage payments.
The Rome-based Isae Institute's index, calculated from a survey of 2,000 families, rose to 103.2 from a revised 99.9 last month. Economists had expected a decline to 99.4, according to the median forecast of 16 predictions. The increase was the second gain since the index fell to a four-year low in March.
“The change of guard and the fiscal pledges will provide a short-term boost, even though the scenario in the long run remains bleak,'' said Marco Valli, an economist at UniCredit Group in Milan.
Berlusconi's first legislative act yesterday was to scrap the country's main residential property tax and reduce levies that workers are charged on overtime pay. The government also announced an agreement with banks to allow homeowners to freeze mortgage payments at 2006 rates, a measure that could affect 1.25 million families. More than 70 percent of Italians back the measures, a survey by polling company IPR Marketing showed today.
Consumer optimism about their short-term prospects surged to 101.7 from 95.6, while confidence about the economic situation rose to 84.9 from 79.6, Isae said today in its report.
Berlusconi won the April elections with a bigger-than- expected majority in parliament.
Tax Pledges
“The end of the political uncertainty with the victory of the center right and the promises to adopt measures to help wage earnings, could have had a positive effect,'' Chiara Corsa, an economist at UniCredit Group, said in an interview with Bloomberg television.
Still, “today's positive number doesn't change expectations that there won't be any dynamic change in consumption,'' she said payday loans americashadvance.
The government is trying to combat the effects of higher food costs and oil prices above $135 a barrel, which are stifling consumer spending. Household consumption accounts for two-thirds of the $2 trillion economy and the drop in spending is leaving Italy on track to be the 15-member euro region's worst- performing economy this year.
No `Easy Fixes'
So far, Italians are pleased with the direction of economic policy-making. Eighty-seven percent of Italians support the removal of ICI, a tax property tax homeowners pay to local authorities, IPR said. The pollster surveyed 1,000 Italians yesterday, after Berlusconi held his first policy making cabinet meeting and confirmed the abolition of the tax. No margin of error was given.
Still, finance minister Giulio Tremonti said this week Europe's fourth-biggest economy will stall this year and that there are no “easy fixes.'' Families have been on tight budgets and Italian retail sales have been tumbling for the past 14 months, a monthly Bloomberg survey showed.
The government's outlook is even gloomier than the European Commission's forecast of 0.5 percent growth, which would probably make Italy the slowest-growing economy in the euro region in 2008. The Italian economy may have already slipped into recession in the first quarter, some economists say, and has suffered three recessions between 2001 and 2005.
The national statistics office, Istat, tomorrow releases growth figures for the fourth quarter and first quarter of 2008 at 11 a.m. Rome time. The April consumer confidence number was revised from 99.8.
The Isae survey was conducted between May 2 and May 19.
Billionaire investor George Soros said the “acute phase'' of the global credit crisis is over, and the fallout will lead to recessions in the U.K. and the U.S.
“Financial institutions have been severely damaged and we are currently in a situation that will probably, I think almost inevitably, result in a recession certainly in the United States and most likely in England also,'' he said in an interview with BBC Radio 4 today.
Policy makers in the U.S. and Britain have cut interest rates to protect their economies from falling house prices, and banking losses from the subprime mortgage collapse that now total $379 billion. The Bank of England said last month that the credit crisis may abate, and Governor Mervyn King says the economy may face “an odd quarter or two'' of contraction.
“We've had a pretty serious crunch, but the acute phase is behind us,'' Soros said. “Now we have to feel the effects. In the case of the U.K., you've had a housing bubble that in terms of price increases has been greater than in the U.S.''
U.K. house prices had their first annual decline since 1996 in April after tripling in the past decade, reports by HBOS Plc and Nationwide Building Society have showed.
Home prices in 20 U.S. metropolitan areas fell in February by the most on record. The S&P/Case-Shiller home-price index dropped 12.7 percent from a year earlier, the most since the figures were first published in 2001. The gauge has fallen every month since January 2007.
Bank Collapses
Soaring interbank borrowing costs led to the collapse of Bear Stearns & Cos faxless payday advances no qualifying payday advance. earlier this year and sparked a run on Newcastle, England-based mortgage lender Northern Rock Plc in September.
European Central Bank President Jean-Claude Trichet refrained from saying that the worst of the credit crisis is over, in an interview with the BBC Radio 4, broadcast yesterday. He said the world faces “an ongoing, very serious market correction.''
“We're entering a period of much greater instability because we've got the threat of recession and at the same time the threat of inflation,'' Soros said.
The Bank of England signaled last week that it has little scope to lower borrowing costs further to counter slowing economic growth because inflation will exceed the government's 3 percent upper limit for “several quarters.''
The U.K. central bank has cut the benchmark rate three times since December to the current 5 percent to ward off the first recession since 1991. The Federal Reserve has reduced its benchmark rate seven times since September to 2 percent.
Soros told the BBC in a separate interview that the U.K. central bank's actions were “like a Greek tragedy'' because it couldn't lower its rate until too late. He urged central bankers worldwide to focus on fighting what he called asset bubbles, such as the boom in U.K. house prices, rather than bailing out the financial industry whenever it got into trouble.
Japan's economy grew 3.3 percent last quarter, faster than economists estimated, as exports to Asia and emerging markets helped the nation weather the U.S. slowdown.
Gross domestic product in the three months ended March 31 was better than the 2.5 percent median estimate of 32 economists surveyed by Bloomberg. Fourth-quarter growth was revised to 2.6 percent from 3.5 percent, the Cabinet Office said today in Tokyo.
Today's figures came a day after Germany reported its economy expanded at the fastest pace in 12 years, resisting the U.S. slowdown. Japan's Nikkei 225 Stock Average has surged 21 percent in the past two months as companies including Matsushita Electric Industrial Co. forecast record profit.
“The big slowdown isn't happening,'' said Jesper Koll, director of Tantallon Research Japan, a hedge fund. “The world is resilient. Global demand is strong.''
The yen traded at 104.38 per dollar at 4:11 p.m. in Tokyo from 104.87 before the report. The currency has fallen 7 percent against the dollar since climbing to a 12-year high of 95.76 on March 17, easing the burden on exporters' earnings. The yield on Japan's 10-year bond rose 2 basis points to 1.695 percent.
From the fourth quarter, Japan expanded 0.8 percent, the fastest pace in a year. Figures yesterday showed Europe grew a more-than-anticipated 0.7 percent, led by the 1.5 percent expansion in Germany. The U.S. economy grew only 0.1 percent in the same period, and 0.6 percent on an annualized basis.
Middle East, Russia
Matsushita President Fumio Ohtsubo last month said the Beijing Olympics and demand for Panasonic televisions in the Middle East and Russia will help profit climb 10 percent to a record in the year ending March 31.
Other companies are less optimistic. Toyota Motor Corp., the nation's biggest automaker, expects falling U.S. sales, higher commodity prices and the stronger yen to erode earnings. Sony Corp. this week said profit at its electronics division will fall this year because of the currency's gains.
Companies plan to pare orders of machinery, a key indicator of capital spending, by 10.3 percent this quarter, a report showed yesterday.
Finance Minister Fukushiro Nukaga and Economy Minister Hiroko Ota said today that they're concerned about the outlook for business investment, which fell 0.9 percent last quarter.
“The negative effect of the U.S. slowdown is going to hit after a time lag,'' said Seiji Shiraishi, chief economist at HSBC Securities in Tokyo. “Both households and the corporate sector could be in pretty bad shape, at least through summer.''
Consumers Pessimistic
Household confidence slumped to a five-year low in April, a separate report showed today, as inflation quickened to the fastest pace in a decade bad credit payday loan payday loan. Consumer spending, which accounts for more than half of the economy, grew 0.8 percent last quarter.
Prices of everyday goods rose at more than twice the pace of wages in March. Japanese workers are likely to see summer bonuses increase by the smallest amount since 2002, the Nikkei newspaper reported this week.
“Real income is declining'' and households may tighten their purse strings, said HSBC's Shiraishi. “Inflation in prices of necessities has a negative impact on psychology.''
The risk of weaker growth prompted the Bank of Japan last month to shelve its policy of gradually raising interest rates. Governor Masaaki Shirakawa and his board are expected to hold the key rate at 0.5 percent, the lowest in the industrialized world, at the end of their next meeting on May 20 and most economists say borrowing costs will stay unchanged this year.
Export Growth
Net exports — the difference between exports and imports — accounted for most of Japan's growth, contributing 0.5 percentage point to the quarterly increase. Domestic demand added 0.3 percentage point.
“Even if the U.S. goes into recession, demand from Europe and Asia should hold up reasonably well,'' said Julian Jessop, chief international economist at Capital Economics Ltd. in London.
Goldman Sachs Group Inc. and Morgan Stanley last month dropped predictions the world's second-largest economy would slip into a recession, ending the nation's longest postwar expansion.
Residential investment rose 4.6 percent from the previous three months. Housing starts are recovering after plunging since June because of a permit logjam caused by government regulations designed to stop building fraud.
The higher cost of imports probably means that the real GDP growth rate overstates the strength of the economy. In nominal terms, which don't take into account price changes, Japan expanded 0.4 percent on the quarter, half the pace of real growth.
“Imported inflation is squeezing domestic profit margins and wages,'' said Hiroshi Shiraishi, an economist at Lehman Brothers in Tokyo.
Goldman Sachs says annual earnings at Japanese companies will fall for the first time in seven years. That could stifle investment and hiring.
Today's numbers may have also exaggerated growth because some components don't adjust for the leap year. Yuji Shimanaka, chief economist at Mitsubishi UFJ Research and Consulting in Tokyo, said the extra day in February accounted for about half of the increase in consumer spending.
China ordered banks to set aside more deposits as reserves for the fourth time this year after inflation accelerated, approaching the fastest pace since 1996.
Banks must park a record 16.5 percent of deposits with the central bank, up from 16 percent, the People's Bank of China said today on its Web site. Consumer prices rose 8.5 percent in April from a year earlier driven by food costs, the statistics bureau said today.
The increase will freeze about 208 billion yuan ($30 billion) in the banking system, helping to cool the world's fastest-growing major economy by restraining lending. A 7.5 percentage point increase in the requirement since the start of last year has failed to stop lending growth that's helped Chinese banks to record profits.
“The central bank needs to do more and do it sooner rather than later,'' said Kevin Lai, senior economist at Daiwa Institute of Research in Hong Kong. “The reserve requirement is not sufficient to curb inflation.''
The ratio becomes effective May 20.
Inflation quickened from 8.3 percent in March and topped the 8.2 percent median estimate of 22 economists surveyed by Bloomberg News. It's the fastest in the world's 10 biggest economies and compares with 5.04 percent in Brazil and 4 percent in the U.S.
The yuan closed at 6.9882 versus the dollar at 5:30 p.m. in Shanghai, from 6.9833 before the inflation data was released. The CSI 300 Index of stocks gained 0.7 percent.
Banks' Profits
Central banks around the world are grappling with faster inflation and slowing growth. In Asia, Bank Indonesia on May 6 raised interest rates for the first time in more than two years and the Reserve Bank of India last month twice ordered lenders to set aside more reserves.
China's economy expanded 10.6 percent in the first quarter from a year earlier, down from 11.9 percent pace for all of 2007, as exports cooled. China's 12 publicly traded lenders posted an average 118 percent jump in profit.
Consumer prices rose 8.7 percent in February, the biggest gain since May 1996.
“If we don't handle financial risks well, this could cause turbulence in the overall economy and undermine social and political stability,'' Vice Premier Wang Qishan said May 9.
Interest Rates
China will raise the bank reserve ratio to 19 percent by year's end and “it is doubtful whether this alone will be enough to temper inflation expectations,'' said Mark Williams, an economist at Capital Economics Ltd. in London. “A hike to interest rates would send a stronger message and must now be considered likely.''
Central bank Governor Zhou Xiaochuan said May 5 that there's a possibility rates will rise no teletrak payday loans payday loan. The central bank has kept the benchmark one-year lending rate unchanged at a nine-year high of 7.47 percent this year after six increases in 2007. The government has also slowed the pace of yuan gains since April.
The government is concerned that rates higher than in the U.S. and the strengthening yuan are attracting overseas money to an economy already awash with trade cash — threatening to fuel inflation.
China's foreign-exchange reserves, the world's largest, surged 40 percent to $1.68 trillion at the end of March from a year earlier. Foreign direct investment climbed 59 percent in the first four months from a year earlier to $35 billion, the government said today.
Currency Gains
China's currency has climbed about 0.4 percent versus the dollar since March 31 after a 4.2 increase in the first quarter that was the biggest jump since the end of a fixed exchange rate in 2005.
“There is a need to combine exchange rate policy with other monetary policies, including interest rates, to reduce the trade surplus and contain inflationary pressures,'' said Ha Jiming, chief Asia economist at China International Capital Corp. in Beijing.
Food costs, which increased 22 percent in April from a year earlier, are driving this year's surge in inflation. Meat prices climbed 48 percent last month.
Grain “may lead another wave of food price inflation'' as meat shortages ease in the second half of this year, said Sun Mingchun, an economist at Lehman Brothers Holdings Inc. Food prices remain the government's biggest challenge and inflation's spread into other areas “is still limited,'' Sun said.
Wheat Prices
Wheat has climbed 63 percent in the past year and rice, a staple for half the world, has more than doubled. United Nations Secretary-General Ban Ki-moon said April 29 that basic foods were becoming beyond the reach of the world's poorest people.
Soaring inflation helped trigger the Tiananmen Square protests that were crushed by the army in June 1989.
The government is targeting inflation of 4.8 percent this year, the same as the actual rate in 2007. Non-food prices rose 1.8 percent in April, an unchanged pace.
“While we expect the impact of food prices will start to mitigate late this year, we do now start to see some filtering- through of raw material prices as well,'' said Louis Kuijs, senior China economist with the World Bank in Beijing
EnCana Corp (ECA.TO: Quote, Profile, Research), Canada’s biggest energy company, said on Sunday it plans to split into two separate oil and natural gas firms in an effort to wring out more value with crude prices at record highs.
EnCana, a $65 billion gas and oil sands producer formed in a merger six years ago, said the move should help investors better gauge the parts of its business and remove a discount it says it suffers in the stock market.
The new producers will be evaluated against “pure play” companies that are rewarded with higher stock market values, Chief Executive Randy Eresman told reporters.
“The expectation of us and the advice that we’ve gotten from our financial advisers suggests there’s a likelihood that, with time, we would see an increase in our overall multiples,” Eresman said.
The new oil firm, worth about a third of the enterprise value, will operate Alberta oil sands and U.S cash advance today payday loans. refining assets, which EnCana holds as part of a joint venture with ConocoPhillips (COP.N: Quote, Profile, Research). It will also hang onto Canadian plains natural gas assets.
The natural gas firm will operate Canadian foothills and U.S. properties, located mainly in the Rocky Mountain states and Texas. It will be North America’s second-largest natural gas producer, EnCana said.
Eresman acknowledged investors in the new gas firm will be exposed to higher commodity-price risk. But he said he expects prices to stay at recent high levels.
Investors will get one share in each new company for each EnCana share they have. The split is scheduled to be completed in early 2009.
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