While you were sleeping: BusinessWire overnight wrap

Wednesday 14th January 2009

The US reported a record budget deficit in the three months that started on October 1 of US$485.2 billion as the federal government used funds to buy stakes in banks to support the financial system.

The deficit in the first three months of fiscal 2009 exceeded the deficit for the whole of 2008, at US$454.6 billion, giving President-elect Barack Obama less scope to enact campaign pledges. The budget deficit is the biggest as a percentage of gross domestic product since the American Civil War and the two world wars.

"We are inheriting a daunting fiscal position," said Peter Orszag, Obama's choice for White House budget director.

Fiscal stimulus alone may not be enough to ensure the US economy's recovery, Federal Reserve chairman Ben Bernanke said in a speech to the London School of Economics.

"Fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system," Bernanke said. "More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets."

The US trade deficit shrank by about 29% in November, the biggest contraction in 12 years, as the prolonged recession sapped demand for imported goods and the price of oil fell.

The trade gap was US$40.4 billion, the smallest since 2003, according to the Commerce Department.

The US dollar strengthened against the euro after the trade figures. The dollar rose to $1.3191 per euro from $1.3362. It traded at 89.04 yen.

Crude oil fell for a sixth day in a row on expectations sliding demand for fuel in the world's biggest economy will drive up stockpiles.

Crude for February delivery fell 1.2% to US$37.15 a barrel on the New York Mercantile Exchange. Oil has slumped about 60% in the past 12 months.

Shares on Wall Street were mixed. The Dow Jones Industrial Average fell 0.8% to 8405.95, the Standard & Poor's 500 Index fell 0.1% to 869.63 and the Nasdaq Composite fell 0.1% to 1537.6.

Bank of America fell 7.6% to US$10.58 and General Motors slid 4.3% to US$3.97. General Electric declined 5.7% to US$14.94 after analysts at Barclays Capital said the company's fourth-quarter earnings may be at the low end of its forecast range.

Alcoa Inc. fell 5.7% to US$9.49 after the biggest producer of aluminium in the US posted a bigger-than-expected fourth-quarter loss of US$1.19 billion as prices tumbled. The company said demand for the metal will weakn in 2009.

JPMorgan Chase rose 5.4% to US$26.24 on the prospects of further federal support for banks after Bernanke's comments.

In the UK, Barclays Plc announced plans to eliminate 2,100 jobs at its investment banking and investment management units. Some 1,300 jobs will be shed from Barclays Capital, about 300 from Barclays Global Investors and 500 from Barclays's private bank. The jobs cuts add to about 400 IT job cuts announced last week.

Shares of Barclays fell 10%, leading the FTSE 100 Index down by 0.6% to 4399.15. UK lenders fell after the Royal Institution of Chartered Surveyors said home sales fell to the lowest level since 1978. Royal Bank of Scotland declined 7.1% and Lloyds TSB Group fell 5.5%. Rio Tinto dropped 3.2% after the company halted the expansion of a copper mine.

Copper prices rebounded, reflecting a broader gain by metals. Copper futures for March delivery rose 2.9% to US$1.5315 a pound on the New York Mercantile Exchange.
The Reuters/Jefferies CRB Index of 19 raw materials rose 0.9%.

Gold futures for February delivery fell 30 cents to US$820.70 an ounce in New York.

Automakers also extended job cuts as they reduced production to cope with the slump in demand. Volvo said it planned to eliminate 1,620, adding to the more than 3,000 jobs cuts last year. Volvo fell 4.8% on the Stockholm stock exchange.

Worldwide auto sales may drop 8.2% this year, according to analysts at J.D. Power.

The Dow Jones Stoxx 600 Index fell 1.4% to 201.66. Germany's DAX 30 fell 1.8% to 4399.15, paced by a 7.7% drop for Volkswagen and a 4.5% decline for BMW.

Germany unveiled a 50 billion euro stimulus package yesterday, the second such infusion of funds for Europe's largest economy, mired in its worst recession since WWII.

France's CAC 40 fell 1.5% 3197.89, with France Telecom falling 1.6% after UBS AG cut the shares to 'sell.'

Comments from our readers

No comments yet