Overseas Headlines- February 7, 2019

United States:

U.S. Jobless Claims Fall Less Than Expected After Shutdown Ends

Filings for U.S. unemployment benefits fell by less than expected last week, signaling it may take longer for the labor market to return to its previous trend following the partial government shutdown. Jobless claims declined to 234,000 in the week ended Feb. 2, above economist forecasts for 221,000 after the highest reading in more than a year, Labor Department figures showed Thursday. The four-week average, a less volatile measure, increased to 224,750, an eight-week high. he smaller-than-expected decline in claims suggests some effects of the longest-ever U.S. federal shutdown may still be rippling through the economy. Even so, the Labor Department’s monthly employment report last week showed job gains remained robust in January. While federal workers’ claims aren’t factored into the headline numbers, contractors and businesses were hit by the shutdown, potentially boosting the weekly figures. Recent claims figures may also reflect typical seasonal volatility around holidays, as the prior week included Martin Luther King Jr. Day. Initial filings by federal employees, data reported with a one-week lag, fell by 8,070 to 6,669 on an unadjusted basis in the week ended Jan. 26, the final week of the shutdown. While the prior week’s jump in overall claims may continue to reverse now that agencies have reopened, the closure likely reduced economic growth in the first quarter, and President Donald Trump has threatened to shut down the government again if his demands for a U.S.-Mexico border wall aren’t met.



Carney Says Brexit Uncertainty Is Cascading Through the Economy

Growing Brexit uncertainty is cascading through the U.K. economy, delaying business decisions and hurting consumers, according to Bank of England Governor Mark Carney. Carney was speaking after the central bank cut its growth forecast and predicted a dramatic slump in investment. The “fog of Brexit” is creating tensions, Carney said, with uncertainty hitting the housing market and pushing down confidence. The U.K. is now 50 days away from March 29 deadline to leave the European Union, and an agreement for its new relationship settled has yet to be settled. The economy isn’t ready for a no-deal, no-transition Brexit, Carney said, adding that such an outcome would increase the chance of a quarterly contraction in economic output. The BOE now forecasts 1.2 percent growth this year, down from 1.7 percent predicted three months ago, the biggest downgrade since the 2016 referendum. The global backdrop has also weakened, as highlighted in the European Commission’s sweeping cuts to the euro-area economic outlook on Thursday. The pound extended its decline after the report was published in London. It was down 0.2 percent to $1.2904 as of 12:58 p.m. The BOE’s decision follows recent dovish statements from the U.S. Federal Reserve and European Central Bank. U.K. officials noted the impact of China’s slowdown and said trade wasn’t contributing as much to growth as they expected.



How Japan (Eventually) Changed the World With Zero Rates

Long before the U.S. and Europe embraced radical monetary policies last decade during the global financial crisis there was the Bank of Japan. Twenty years ago this month — back when the American economy was running hot under Federal Reserve Chairman Alan Greenspan and the euro was making its debut on the world stage — the BOJ adopted zero interest rates, taking central banking into uncharted waters. Barely two years later, while benchmark rates in the U.S. and Europe were around 5 percent, it doubled down with a quantitative easing program to flood the banking system with cash. The BOJ’s strategies were seen as both extreme and peculiar to Japan — that is until the 2008 financial markets conflagration and resulting economic contractions forced the Federal Reserve and the European Central Bank down similar paths. Fast forward to 2019 and the Fed is normalizing policy while the ECB is laying the groundwork to do the same. Despite moving first, the BOJ finds itself the outlier again, locked into an even more radical negative-rate regime and asset purchases of bonds, stocks and property trusts that dwarf anything attempted elsewhere. Japan’s 20-year experience shows the limits of what central banks can do on their own and underscores the importance of broader economic reform and fiscal policy that dovetails with monetary programs. Perhaps the most pertinent lesson for the Fed and ECB is the danger of reversing course too soon.


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