T-Waves Market Report

by Stephen Tetreault, T-Waves | March 19, 2009

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It’s a potential toss-up for tomorrow….though I am leaning toward a bearish-posture (55:45 probability of bearishness as we closed weak off of the relative highs on some program trading We could see some market manipulation  if the future player emerge 0400-0500 with buying-orders in hand…likely in my opinion we should see additional malaise early tomorrow (Fair disclosure I went short the futures into the close looking for a drop of 10-15 points throughout the evening and I also bought the 2X pro-funds leveraged on the SHORT-side) due to the following reaction to earnings and guidance of firms in after hours trading….we are extremely overbought on multiple time frames and a correction is very overdue…markets do not lift off 15-20% in a matter of a few days on less than average volume with out getting exhausted. As such I believe that this up-trend could be-near and exhaustion state and that we could start to see some new near-term bearishness ….I’ll be watching the Asian and Euro markets and looking to see if they follow through on our bullishness and/and reverse their prior bullish tonality along with any signs of a continued timely-orchestrated large-cap upgrades or down-grades…we will need to watch crude futures and the dollar index as well as they will definitely provide valuable insight.  

The question to be answered in this moderate-volume head-line-short-squeeze environment is whether we setting up for a “bull” trap. As such please take on LONG positions very carefully as I do not see a positive bullish catalyst in the making other than a potential short squeeze, and at this juncture any gap-up/pop should in my opinion be sold into.  This recent bounce has undoubtedly pulled many new-bulls (I call them bag-holders) back into the fray, please be cautious and do not get sucked into a long-position without being very careful and using some hedging vehicles….we need to see follow thru and some decent volume (which has been sorely acting of late)….the index price action is moderately positive but we lack true conviction/volume!  The daily VIX is confirming a mix-signals; and I am monitoring it very closely…we are at the crossroads of this recent rally and its up to the bulls to press full steam ahead of risk losing their tonality to the bad-news-bears again!

Always remember that Greed and Fear are tremendously strong market drivers and as such hedge-funds that have been stricken with another round of redemptions, institutional investors and many funds have been found to almost always over-leverage and over-extend their positions….with the FED stepping strongly on the accelerator of their printing presses (global central banks are doing so as well), we could have some more upside ahead before the bulls run off the proverbial cliff again.  Once again I’ll be watching the Transports, Small/Mid-caps along with the SOX for early directional indicators/ signals and clues along with the overnight Asian markets.   

Remember folks never forget the power of greed and fear, and the propensity for investors wanting to own stocks (taking long-side) remember there are usually 4-5-bulls (participants) to every bearish investor, so the propensity for bullishness is almost always stronger! However the reason that the market drops 4-5 times faster then it goes up is that liquidity and lack of buyers due to fear, which can feed on itself very quickly like a plague or a quick acting cancer. So prepare yourselves for a rollercoaster ride during the next several days as the battle ensures.  Please, remember when in doubt as to market conditions/direction CASH is always king (or queen depending on your gender ) please trade cautiously and be quick to protect your profits AND PLEASE ALWAYS PROTECT YOUR CAPITAL BY USING STOPS, as if the trade goes against you will save your precious resource. 

The Dow gained 91 points, or 1.2%, during the secession to close at 7,486, after reaching a relative intraday near-term bottom on 3/9 at 6,470 the Dow has in just 7+/- trading secessions rallied 1000+ points, a huge feat and one that I called correctly (though a few-days early) a massive 15% rally…I foretold you all that bear-market relief rallies are swift and abrupt…but this rally is nearing its exhaustion state and we are due for a 35-50% pull-back of this up thrust move very-soon (One reason I hedge our long 2x pro-fund positions by buying the short funds today) The Dow is running into a wall of OHR at the 7,575-7,600 level and thereafter we have the down-trending 50Dsma at 7,730-7,740 [61.8% Fibonacci retracement comes into play at 7,614] where the sellers will line up to book profits…if they can break through this level they will make an exhaustive run to the 72Dema at 7,925+/-…if the bears come back after getting splattered these past several days due to anemic volume and headline short-squeezes then they will look to drop the index back down to 7,310+/- thereafter 7175-7200+/-

The big-winner today…..The Russell-2000 gained 14.04 points, or a whopping 3.48%, during the secession to close at 417.63, after reaching a relative intraday near-term bottom on 3/9 at 342.60 the Russell-2000 has in just 7+/- trading secessions rallied 75+ points, a mega relief rally and that you all knew was coming as I called correctly just a few-days early…this is a massive 21.9% relief rally (technically we are in a bull-market now as we have gained over 20% from the near-term bottom….remember I said technically)…I have stated many times that bear-market relief rallies are swift and abrupt and this 7-day run sure has led-up to its reputation…but this rally is nearing its exhaustion state and we are due for a 35-50% pull-back of this up thrust move very-soon..and this would be just a normal retracement (One reason I hedge our long 2x pro-fund positions by buying the short funds today) The Russell-2000 is running into a wall of OHR at the  427-431 level and thereafter we have the down-trending 100Dsma at 450+/- [61.8% Fibonacci retracement comes into play at 423-424] where the sellers will line up to book profits…if they can break through this level they will make an exhaustive run to the 50Wsma at 448-450+/-…if the bears come back after getting stampeded over these past several days due to then they will look to drop the index back down to 398-400+/- thereafter 382-384+/-

The SPX gained 16.33 points, or 2.09%, during the secession to close at 794.35 and like the Dow after reaching a relative intraday near-term bottom on 3/9 at 666.75 the SPX has in just 7+/- trading secessions rallied  128+ points, a huge relief rally and our long-positioning was right on the money (though a few-days early) a massive 19% intra-secession rally…this rally is nearing its exhaustion state and we are due for a 35-50% pull-back of this up thrust move very-soon (One reason I hedge our long 2x pro-fund positions by buying the short funds today) The SPX is running into a wall of OHR at the 805*812 level (Daily 50sma at 803.75) and thereafter we have the down-trending 72Dsma at 725-830 where the sellers will line up to book profits…if they can break through this level they will make an exhaustive run to 855-860+/-…if the bears come back after getting hammered these past days due to anemic volume and headline short-squeezes then they will look to drop the index back down to 770+/- thereafter 752-753+/-

The Nasdog gained 29.11 points, or 1.99%, during the secession to close at 1,491.22 after reaching a relative intraday near-term bottom on 3/9 at 1,265.62 the Nasdog has in just 7+/- trading secessions rallied 225.60+ points, a huge undertaking.…a massive 17.5% rally…but like the other indexes I believe we are just a few-hours/days away from a near-term exhaustion topping event and we are due for a 35-50% pull-back of this up move very-soon (One reason I hedge our long 2x pro-fund positions by buying the short funds today) The Nasdog is running into a wall of OHR  (weekly 20ema at 1,505) and the 1,515-1,520 level and thereafter we have the down-trending 20Wema at 1,560-1570 [50.0% Fibonacci retracement comes into play at 1,540] where the sellers will line up to book profits…if they can break through this level they will make an exhaustive run to the 1,600+/- level…if the bears come back after getting splattered these past several days due to anemic volume and headline short-squeezes then they will look to drop the index back down to 1,435-1445+/- thereafter 1,400+/-

Wow what a wild trading day…and what wild volatility thanks to the B-52 man (may have to start calling him the Hindenburg man) Bernanke as he and his band of merry warriors sure did move the markets today (Bond market especially) when they stated that they will buy $1.3+ trillion in securities and other assets in order to put a floor under the Battered Economy, (strange as I thought he said this weekend that things were looking better and that the recession would end this year…one must ask why they are committing taxpayer money again to bailout these banking/lenders. The Federal Reserve announced that it will inject about $1 trillion into the markets to help the battered housing market and lift the country out of recession…and the markets took off like a tiger with its tail on fire! This is the start of the Hindenburg-Inflation Genie in my opinion!

What do these fed-heads see that is still unknown to make such a radical-fearful move…are they out of their bloody minds….These ridiculous Fed purchases should boost Treasury prices and drive down their respective rates and we sure saw that today. That would ripple through and lower rates on other kinds of debt. The last time the Fed set out to influence long-term interest rates was during the 1960s. The bond market went nuts on the FOMC's surprise move wherein they detailed the expansion of their ridiculous “quantitative easing,” with longer dated treasury holders getting smacked. The 30-yr was initially up over 6-points until the Fed said they would be concentrating their efforts on the on 2-to-10-year portion of the curve. The 10-year yield was hammered over 500-ticks almost 50 basis points, the biggest 1 day move since 1962, before settling out at 2.533, down 47.00 basis points. The bond market was caught completely off guard as many were looking for further insight of the policy makers so called “bazooka” instead the fed-heads dropped a tactical nuke on the bond-markets with out any warning as the markets was hit hard when they actually put a huge number and timeframe ($300B and 6-months) on their market intervention!

The lamebrains at the Fed also said they will buy more mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac to help that battered market. The central bank will buy an additional $750 billion, bringing its total purchases of these securities to $1.25-1.40 trillion; and they will boost its purchase of Fannie and Freddie debt to $200 billion. In addition, the Fed-heads stated that a $1 trillion program (we through trillions around like I through Bennie’s) to jump-start consumer and small business lending could be expanded to include other financial assets (they will buy all of that which is worthless and the taxpayer will be the scapegoat JMHO)

The program which is rolling out this week currently is focused on spurring lending for autos, education, credit cards and loans for business equipment. The government already has announced an expansion to include commercial real-estate assets. Any broadening of the program would be beyond that area and a benefit to the lecherous lenders.

Within their bias statement (which was ignored) the fed-heads stated that since they meet in late January, “the economy continues to contract and job losses, declining equity and housing wealth and tight credit conditions have weighed on consumer sentiment and spending.” Businesses, meanwhile, are facing weaker sales prospects and credit troubles have them cutting inventories. Problems overseas have crimped demand for U.S. exports, dealing domestic companies another blow, they stated….is this an environment of improvement that Bernanke spoke so endearingly about?

The FOMC-Statement

Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract.  Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending.  Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment.  U.S. exports have slumped as a number of major trading partners have also fallen into recession.  Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth. (Hell they are throwing everything including the kitchen sink at this contagion in the hopes something will stick)

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued (Guess they missed today’s CPI report).  Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability.  The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.  To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion.  Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.  The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets.  The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of evolving financial and economic developments.

When will this unless stream stop….its like the energizer bunny….just keep going! Obama B-52-man has urged Americans to be very patient, saying it will take time for their (taxpayer bailout) economic revival programs to work. Bernanke has repeatedly in an almost un-ending chorus that stabilizing the nation's financial system (bailing out and making sure the lecherous whores prosper) is a major key to turning around the economy. He stated if that can be done, then the recession might end this year, setting the stage for a recovery next year, this is a mighty big if. 

Our greenback was taken to the woodshed as the dollar index choked up 3.39% or 2.64-points….this is a near-term positive for the precious metal stocks (Gold, Silver….AEM, NEM, GLD, SLV. FCX, RTP etc.) and other commodity stocks like the agro-players (MON, MOS, AGU, TNH) The dollar tore lower with the euro rocketing up to just short of 1.35, where it ran into some OHR but should be able to take it out, and make a run to 1.40.

My personal opinion the markets today totally misinterpreted the dead-head-fed-head action as their actions hint at FEAR, (did China indicate a refusal to buy our bonds…why is the fed panicking?) and in my opinion the action is not only going to keep mortgage rates depressed low for a significant period of time. Though the mere announcement caused many a short to scramble and it did produce a huge yield drop this is only a honeymoon effect and though it may bring mortgage rates down to even lower levels in the coming days/weeks this time next year I suspect that the 10-year note will be trading near 5-6% or better.

The Fed's action today added some huge fuel to this recent rally. After being down earlier in the day, the indexes reversed hard after the announcement…only to give up some of the ill begotten gains later in the trading secession:

The Fed’s cowering admittance today that they are going to have to buy up to $300 billion in longer-term Treasuries and buy hundreds of billions of dollars more in toxic paper….mortgage-backed securities in an effort to aid the ailing economy…is a position of Fear and downright uncertainty from my vantage point. Despite the fact that the move shocked the various markets, causing an immediate rally in stocks and pushing bonds and precious metals (Gold and Silver) up dramatically….within mere minutes of the announcement of the Fed's move. It's sort of admittance to me that their past endeavors hasn't worked so, they're taking more of a shock-and-awe approach (sort of a blind-siding-the-markets). The Fed's blind-siding move today served as a reminder that the bubble-creators [inflation creators] at the federal-reserve still have powerful ammo to shock the markets and likely to impact the recession. By buying Treasuries, the def-heads are increasing the amount of money in the system in a similar fashion to reducing interest rates. The move could lead to lower mortgage rates and more favorable spreads for banks…as banks in the near-term will be able to borrow money more cheaply and hopefully make smart-loans thus lending more profitably hence (C, BAC, JPM, WFC, ZION, MS, GS should benefit in the long-term).

Despite the fact that interest rates are close to zero, the FOMC showed today it still has a number of nasty tricks up its sleeve that can be used to help stimulate the flow of credit and resuscitate economic activity despite the contagion to inflation which they never see as an issue (they just want to bailout their buddies). In to the headline news of buying treasuries the bias statement noted that it is the FOMC's expectation that the Term Asset-Backed Securities Loan Facility is likely to be expanded to include other financial assets. The Fed-heads reiterated their view and premise that inflation should remain subdued and possibly persist below rates for a time (they never see inflation till it passes them by). The Fed-heads in their infinite wisdom said they think that what they are doing (they better be right), in conjunction with the fiscal stimulus, will contribute to a gradual resumption of sustainable economic growth. In January, it was said that the committee thought a gradual recovery in economic activity will begin later this year, but that the downside risks to that outlook are significant. What's remarkable is that it took additional initiatives like the ones announced today to make a similar statement…this though pattern perplexes me as to me it shows that prior actions still weren't considered adequate enough and today's announcement simply underscores just how bad conditions are right now [they are seeing contagions that are still masked to us in my opinion] for the economy. It's was a very-unsettling thought for me but the equity market, ran with today's news anticipating a better economy ahead (this marks just another program of the month approach, and these rallies have yet to hold). It's still a huge leap of faith, though, given that such presumptions were supposedly embedded in the Fed's prior 8-moves...and they just keep throwing money at the cancerous contagions hoping something works…and once again here we are seeing the Fed commit to expanding its balance sheet by a huge unprecedented amount. The low interest rates will help with mortgage financing needs in the near-term, but the Fed-heads are running a huge risk contributing to a Treasury mega bubble and risks inviting a huge Tsunami wave of inflation pressures with its decision to buy Treasuries. In my opinion there will likely be some long-term, unintended (or are they) consequences of this effort to get the economy jumpstarted in the near-term, as the Fed just created a much bigger challenge for itself in managing monetary policy when economic evidence shows we are emerging from this crisis.

 The market also got a lift today when it was reported that the Obama Administration is considering using the TALF (which was designed to spur consumer lending) to buy distressed toxic assets from banks' balance sheets.....the Treasury has been expected to unveil further details about its Public-Private Investment Fund idea ("PPIF"), with details expected later this week or next week (the Geithner brain-fart). This idea of using the TALF to buy distressed assets from banks may be a part of that plan, as the broadened acceptance of securities would allow for banks to eliminate more troubled assets from their balance sheets...onto the backs of taxpayers.

These number could soar in the coming weeks….We saw today that the volume of mortgage applications filed last week rose a seasonally adjusted 21.2% compared with last week, driven by a surge in refinancing activity, according to the Mortgage Bankers Association. Lower interest rates on fixed- and adjustable-rate mortgages attracted many home owners as well as folks seeking to buy homes at distressed prices. On a week-to-week basis, applications for mortgages to buy homes rose a seasonally adjusted 1.5%, while filings to refinance existing home loans increased 29.6%.  We saw that refinancings also had out paced applications activity. Rates on 30-year fixed-rate mortgages averaged 4.89% last week, down from 4.96% the week before, while the average rate on 15-year fixed-rate mortgages dropped to 4.52%, down from 4.54%. And the rate on one-year ARMs averaged 6.20%, down from 6.21%.  Refinancings made up 72.9% of last week's mortgage applications, up from 67.9% the week before.

NO Inflation right….what did I miss    With energy prices rising at the fastest rate in over 7-months, U.S. consumer prices increased a seasonally adjusted 0.4% in February, according to the Labor Department reported.

The 0.4% gain in the consumer price index was the second increase in a row and the largest increase since 7/2008….in January, the CPI rose 0.3%...this could be a dangerous development.

• Energy prices increased 3.3% in February, the report stated, including an 8.3% gain in gasoline prices.
• Food prices dropped a mere 0.1%, the first decline in nearly three years.

Excluding food and energy prices, the core CPI increased 0.2% for the second month in a row, boosted by higher prices for new cars, clothes and cigarettes. The February inflation and core inflation figures were higher than expected. The increases for car and clothing prices seemed strange, as according to my data auto dealers had their worst sales month in over 10-years, and reports of heavy discounts were prevalent across all retailers.

The CPI report much to my surprise showed that clothing prices rose at the fastest pace in over 19 years in February; as retailers discounted heavily in January to clear out their unsold merchandise; and with many retailers putting out their spring merchandise at the regular prices, it looked like an increase I conclude.

In the past year, the CPI is up 0.2%. The core CPI is up 1.8% in the past year, up from 1.7% during the past 12 months and the Federal reserve sees no inflationary affects? 

Over the past three months, the CPI has fallen at a 0.5% annual rate, while core prices are rising at a 1.5% pace. The Fed-heads and government officials as hoping (I believe manipulating) that the CPI will decline on a year-over-year basis throughout the summer, which means retirees, veterans and service-men/women are likely to get no cost-of-living adjustment next year.

At the margin, the CPI report should have weighed against aggressive new credit-easing measures from the Fed, such as buying Treasuries…but that was not the case today….because it could contribute to deflation. I still believe that Deflation still poses a very credible threat to our economy and, even if they do not actually use the word deflation, the FOMC will almost surely have to eventually acknowledge these concerns…though they did not today.

Over the longer term, the massive fiscal and monetary stimulus being pumped into the economy threatens to unleash a huge wave of inflation.

• Real (inflation-adjusted) weekly earnings of workers dropped 0.3% in February.
• Energy prices rose 3.3% in February, the most since July.
• Gasoline prices rose 8.3%, the most since June.
• Food prices fell 0.1%, the first decline since April 2006. Prices of food consumed at home dropped 0.4%, the biggest drop in over seven years.
• A huge contagion:  Medical care prices rose 0.3%, including a 0.6% increase in drug prices.
• Apparel prices rose 1.3%, the biggest increase in 19 years.
• Transportation prices increased 1.9% on higher fuel bills.
• New car prices rose 0.8%, the most in four years. Used car prices tumbled 1.7%.
• Recreation prices increased 0.4%. Education and communication prices rose 0.2%. Tobacco prices increased 0.7%.

 Yesterday The markets were buoyed today by some less-then-dismal economic releases. The Producer Price Index (PPI) release showed that the PPI index rose only slightly in February by a mere 0.1%. The increase in the headline number came from the gains in the energy sector after the steep drop-off into the end of the year. We saw that the overall core number as related to the inflation rate, excluding food and energy, declined slightly posting a mere gain of only 0.2%. On the deflation-side of the equation we saw that core intermediate goods prices declined sharply by 0.6% adding to the sharp declines in the prior five months (deflation is getting ugly). We are still not in a full-fledged depression but inflation is still not a factor as yet. The Fed will have no reason to concern themselves about keeping their rates near-zero over the months ahead.

The deflation contagion….we saw that according to the labor department U.S. wholesale prices rose in February for the second straight month, and the details of the report show deflation can't be ruled out. The numbers are moderately warm to hot though the markets embraced the report as a positive because the numbers hinted that prices may be stabilizing, and not falling off a cliff into a severe deflationary spiral that could significantly extend and make worse the global recession.

• Strangely we saw that the price of crude goods (mostly commodities) fell for the seventh straight month, down 4.5%...though it has rebounded lately.
• Prices of intermediate goods (which are partially processed goods) dropped for the seventh straight month, down 0.9%.
• Prices of core intermediate goods dropped 0.6% in February and are now down 0.1% in the past year.

Over the past six months, farm product prices have dropped at a 35% annual rate, a dismal trend while we have seen that chemical prices are falling at a 25% rate. Metals prices have fallen at a 38% rate, including an 80% annualized drop in copper scrap prices. As you all are aware simple supply and demand functions always rule and commodity prices are ruled by the forces of global supply and demand, so their path will be determined largely by how deep the global slump turns out to be and how quickly it abates and subsequently turns. Thank goodness it takes more than significantly dropping commodity prices to get a trend of persistent deflation in consumer prices…the next element that is needed is to see that labor costs need to drop as well (and its extremely likely in a deteriorating labor market they will) though it hasn't happened yet, to a large degree as yet but as the unemployment rate inevitably rises, the pressure on workers to accept substandard and lower wages will increase.

The second key report that helped to buoy bullish tonality yesterday was the new residential home construction for February. Housing starts were up sharply, rising a whopping 22% from January to 583,000 annualized units; and this was the first increase in over six months; strangely the Census Bureau also revised January permits higher as well as completions…however within the details of the report we saw that there were a large number of multifamily starts in the total. Apparently many speculators/investors and developers are now expecting many to have to rent in the near future rather than be able to buy homes. As the headline number was boosted by an 82% increase in construction of apartment buildings. Building permits, which are less volatile than the starts data, rose 3% in February to a 547,000 annual rate…strangely permits for single-family units rose 11% to a 373,000 rate, the largest percentage gain in over 18 years. Construction of new housing units had plunged 38% in the past three months before February's unexplained jump. Despite February's gain, housing starts are still down 47% from a year ago, and are down 74% from the peak in early 2006. Meanwhile permits are down 44% in the past year. The mood of home builders' has rarely been worse. The National Association of Home Builders reported Monday that its sentiment index was stuck at 9 on a scale of 1 to 100 in March.

The so called guru’s on CNBC are hopeful that this the rise in residential building is a signal the housing sector is experiencing a rebound.

 Larry Summers, a top economic adviser to President Obama, said yesterday that there is no alternative to the plan for massive spending and near-term deficits to try to give the economy a “jolt.” If the jolt is not successful, there could be “continuing grading deflation like the Japanese did,” earlier this decade, Summers said in an interview on CNBC. Once the recovery is underway, spending will be cut back and taxes will be raised in order to bring the deficit down. Summers said the Obama economic plan is not designed to move the stock market over the short-term

If things are improving so dramatically why is the needed?     The FDIC voted to extend their debt-guarantee program that has helped banks and financial institutions access debt markets at reasonable prices. The Temporary Liquidity Guarantee Program (TLGP) will now be available through October, instead of the previous end set for June. The FDIC will also add a surcharge starting in the second quarter on debt maturing in more than one year, on top of current fees to participate, in order to gradually phase-out the program. The TLGP, which allows banks to issue debt with the full faith and credit of the government, has been instrumental in enabling companies to rollover their short-term debt. It was part of the effort to enable banks to fund operations and make loans. The guarantee is only applicable to debt maturing before 2012. More than $252 billion in debt has been issued under the program since it was created last October, including debt guaranteed by other governments.

NOT very bullish……..The World Bank cut China's gross domestic product estimate for 2009 to 6.5% a forecast that fell below China’s own projection of an 8.0-9.0% expansion this year. In their latest view of the Chinese economy released today, the World Bank said the exports from the mainland “have been hit badly” in the wake of the global financial turmoil, significantly affecting the country's manufacturing sector.

The global monetary authority's latest view on the Chinese economy follows recent downgrades of its projections for global GDP growth and imports in 2009. In November, the World Bank had cut China's 2009 GDP estimate to 7.5% from 9.2%.

China's economic growth slowed to 6.8% in the fourth quarter of 2008 from the year-earlier period, capping full-year growth to 9%, preliminary figures showed in January. In 2007, their economy ballooned 13%.

The World Bank revision comes barely a week after Chinese Premier Wen Jiabao said the country could achieve the 8.0% plus growth target this year, helped by the strength of their domestic market and the government's economic stimulus measures.

As I wrote about last week we saw pro forma data released (it could have been far worse, yet communist China in my opinion is not a reliable data source) nevertheless it showed that Chinese exports tumbled 25.7% to $64.8 billion in February from the year-earlier period, underscoring the impact of the weakening global demand for Chinese goods and services amid this economic downturn.

Still, other figures showed increased bank lending and an increase in February fixed-asset investments, reflecting efforts by the Chinese government to support the economy by introducing various measures to boost spending and to encourage banks to make loans to domestic companies.

 

Copyright © 2009 Stephen Tetreault
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