EUROPE: Rescue Package Needed

The economy is on the move again in the United States, but the Federal Reserve will keep rates low for few more months. In Europe, instead, concerns over the European fiscal and sovereign debt are still keeping the European currency under pressure. The next important support level is at 1.37 against the U.S. dollar.


U.S.: Fed’s policy confirmed for now


The U.S. economy is clearly improving, albeit the recovery remains challenged by high unemployment rate and tight credit conditions. Beating expectations, the first estimate of the fourth-quarter 2009 Gross Domestic Product (GDP) grew 5.7% compared to both the forecasted 4.8% and the up-move of 2.2% in the third-quarter of last year. The increase was broad-based with final sales increasing at a 2.2% pace. The up-trend should continue this year as well. Household spending rose on goods and services, but consumers will remain caution over the year. In effect, consumer confidence moved up to 55.9 in January from December’s 53.6, as consumers expect the current situation to improve, although prospects of job conditions remained tepid. Nonetheless, durable goods orders increased 0.3% in December stopping two months slide. Uncertainty over the extension of the first time home buyer tax credit (it was extended until the end of April 2010) weighted instead on home sale numbers in December. As a result, existing home sales fell almost 17% month-on-month, while home prices rose 1.5% compared to the previous year. Both condos and single homes showed heavy losses and the month of supply of unsold houses rose to 7.2 months from 6.5. New home sales fell 7.6% during the same month, while inventories of unsold new homes rose to 8.1 months from 7.6 months in November. Declines were broad-based, but sales stay above the record low of 329,000 registered in January 2009. The Federal Reserve should keep rates low for few more months, although it expects the economy to continuing strengthening. The Fed also confirmed it will decrease the pace of purchase of agency debt and agency MBS and will complete the program by the end of March.