The US economy grew at a much slower rate from October to December than originally predicted, the US Commerce Department said.
US gross domestic product (GDP) grew at an annualised rate of 2.4% in the fourth quarter of 2013, down from an initial estimate of 3.2%.
The revision is down to weaker than expected consumer spending.
Severe winter weather in the US is expected to slow growth further in the current quarter.
The Commerce Department initially predicted consumer spending had expanded by 3.3%, but spending is now estimated to have grown at a 2.6% annual rate.
Consumer spending accounts for roughly 70% of US economic activity.
Bad winter weather has cut into vehicle sales, among other purchases.
Despite the revised GDP estimate, US growth should be regarded as strong, the financial information firm Markit said.
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The British pound has posted slight gains on Friday. In the European session, the GBP/USD is trading in the low-1.67 range. Taking a look at economic news, British Nationwide HPI matched the forecast. In the US, it’s a busy day with three key events on the schedule - Preliminary GDP, Chicago PMI, and Pending Home Sales.
Federal Reserve Chair Janet Yellen testified on Thursday before a Senate committee. As expected, Yellen said that the Fed remains committed to tapering QE and would like to wind up the bond-buying scheme by the fall. At the same time, she acknowledged the string of weak US releases recently and said that the Fed would closely monitor to what extent the weak numbers are due to cold weather and what portion can be attributed to a “softer outlook”. The next Fed policy meeting takes place in mid-March and the markets will be looking for another $10 billion cut to QE.
Thursday was a mix for US key releases. Manufacturing data looked strong, as Core Durable Goods Orders jumped 1.1% in January. This surprised the markets, which had expected a decline of -0.1%. However, Unemployment Claims did not look as sharp, as the key indicator rose to 348 thousand, well above the estimate of 333 thousand. Meanwhile, a nasty streak of weak US releases ended on Wednesday as New Home Sales jumped by 468 thousand, crushing the estimate of 406 thousand. It was the housing indicator’s best showing since last June, and helped allay concerns about the health of the housing sector, following weak housing numbers last week. We’ll get another look at key housing data on Friday, with the release of Pending Home Sales. The markets anticipate a strong gain after a miserable reading in December.
British releases have enjoyed a strong week. Second Estimate GDP posted a gain of 0.7%, matching the forecast, as British economic activity continues to head in the right direction. Preliminary Business Investment sparkled with a gain of 2.4%. This was a strong improvement from the 1.4% gain in the previous release. However, the indicator fell short of the estimate of 2.6%. Earlier in the week, CBI Realized Sales and BBA Mortgage Approvals looked strong, with both improving in January.
China’s central bank has pumped RMB29 billion ($4.8 billion) of money into the financial system, its first market-wide injection in three weeks, as it looks to put an end to the cash crunch that has rattled the economy.
Chinese banks have been hoarding money, charging each other nearly 9 percent to borrow cash in a near doubling of rates from just one week earlier, a sign of extreme stress in the interbank market.
Over the past week the central bank had provided targeted money to cash-strapped lenders but it had yet to offer any liquidity via its open-market operations, a more transparent and powerful channel for influencing the financial system.
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Gold advanced for the first time in three days as the smallest gain in U.S inflation in five months bolstered expectations that Federal Reserve policy makers meeting today will delay curbing stimulus measures.
Consumer prices increased 1.2 percent in the 12 months through September, the lowest since April, a government report showed today. U.S. central bankers are set to maintain $85 billion in monthly bond purchases until March, a Bloomberg News survey of economists on Oct. 17-18 showed. Bullion rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system.
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West Texas Intermediate crude decreased, extending a second monthly loss, after a government report showed that U.S. inventories surged to a four-month high.
Futures fell after the Energy Information Administration said stockpiles rose 4.09 million barrels to 383.9 million last week. A 2.4 million-barrel gain was projected in a Bloomberg survey. The EIA, the Energy Department’s statistical arm, said supplies at Cushing, Oklahoma, the delivery point for WTI traded in New York, increased 2.18 million barrels to 35.5 million, a two-month high.
WTI for December delivery declined $1.17, or 1.2 percent, to $97.03 a barrel at 10:37 a.m. on the New York Mercantile Exchange. The contract traded at $97.15 before the release of the report at 10:30 a.m. in Washington. The volume of all futures traded was 25 percent lower than the 100-day average. Prices are down 5.2 percent this month after losing 4.9 percent in September.
Brent for December settlement rose 15 cents to $109.16 a barrel on the London-based ICE Futures Europe exchange. Volume was 21 percent below the 100-day average. The European benchmark traded at an $12.13 premium to WTI, up from $10.81 yesterday.
Crude supplies gained 7.9 percent in the six weeks ended Oct. 25. The U.S. will account for about 21 percent of global oil demand this year, almost double the estimate for China, the second-largest consumer, according to forecasts from the International Energy Agency in Paris.
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Central banks should be independent in setting monetary policy but they should also be tasked with monitoring financial market stability under political supervision, the International Monetary Fund’s (IMF) chief economist said.
Olivier Blanchard also told Handelsblatt newspaper’s Friday edition that Germany should take on a stronger role in Europe and needed to invest more rather than focus on saving.
“If there is one lesson to be learned from the crisis, it must be: it’s not enough to keep an eye on monetary stability. We must also look at the stability of the financial system,” Blanchard was quoted as saying.
“(Central bank) independence should be tiered. Classical monetary policy must remain independent. The control of the financial markets by the central bank, however, should be put under some kind of political supervision.”
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Asia’s economies face sluggish growth and high macro risks, weakened by the influx of easy money and China’s slowing growth, according to Nomura.
“Asia overall has become addicted to easy money, and this has weakened economic fundamentals,” said Rob Subbaraman, chief economist for Asia ex-Japan at Nomura, in a note. “As a consequence – and quite pervasively across the region – there has been a rapid build-up of private domestic credit, frothy property markets, slowing productivity growth and a sizable shrinkage in current account surpluses (turning to deficits in India, Indonesia and Hong Kong).
In addition, the quantitative-easing fueled capital inflows have reduced the market discipline to pursue structural reforms, he added.
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Oil prices declined by mid-morning in New York after Libya announced it would halt further military actions against anti-Gaddafi protesters. The move came after the UN passed a resolution giving the Security Council authorization to impose a “no-fly zone” giving the UN authority to take military action to protect citizens.
Brent crude prices rose to a high of $117.29 shortly after the UN announcement as traders feared this could lead to wider conflict and could jeopardize the flow of oil in the region. However, after Libya said it would order its military to stand down and the threat of increased fighting eased, crude prices began to tumble.
Despite Libya’s announcement, the situation is far from resolved and tensions in the country remain high. Concern also remains elevated in Bahrain where thousands of demonstrators fought with government forces in the heart of the financial district.
Markets were buoyed this morning on news that European governments were prepared to provide a package of incentives to help ease the financial crisis threatening to take down yet another European country. Insiders say the plan under consideration for Portugal includes up to 60 billion euros ($78 billion) in debt buybacks and low interest loans.
German Chancellor Angela Merkel has also stated her country’s intentions to support Portugal saying “we will do whatever is necessary and everything will be discussed step by step,” Merkel told reporters today in Berlin. “Germany will do whatever is necessary so that the euro remains stable.”
The amount of new public sector borrowing hit a fresh record high in November, according to the Office for National Statistics (ONS).
Net borrowing totalled £23.3bn last month, up from £17.4bn a year ago, and more than analysts had expected.
The borrowing figure was pushed higher by increased spending on health, defence and the EU.
The latest figures are likely to raise concerns about the government’s efforts to reduce the UK’s budget deficit.
While the government spent 10.8% more in November than the same month last year, its VAT receipts fell 0.1%.
A Treasury spokesman said: “November’s borrowing figures show why the government has had to take decisive action to take Britain out of the financial danger zone.
“These outturns are also in line with the Office of Budget Responsibility’s latest forecast for borrowing to fall by almost £10bn this year compared to last, and for tax receipts to increase by over 7% year-on-year.”
The ONS said public sector net debt now stood at 58% of UK GDP.