Thursday, November 6, 2008

BOE, ECB Slash Rates as Economic Conditions Worsen

The Bank of England slashed its benchmark interest rate by 1.5% to 3%. the lowest since 1955.  The European Central Bank lowered its interest rate for the second time in less than a month by 50 basis points to 3.25%.  Here in the US, the fed funds target sits at 1% (for those who have lost track due to all the frenzied slashing.)  Market participants expect the Fed to lower rates even further, with some economists anticipating a Japanese-style zero interest rate environment.  Today's reported 1.1% rise in productivity has been the only positive economic news to hit the tape in some time, although an increase in productivity generally means that companies are cutting labor expenses.  The market is bracing itself for a truly horrendous employment report tomorrow.  Yesterday's ADP employment report showed that companies cut 157,000 jobs in October.  This prompted many economists to revise their estimates higher for the number of jobs lost when the non-farm payroll number is released.  
As if a bad payroll number wasn't enough, GM is also slated to report earnings tomorrow.  Yesterday, a top GM executive claimed that the next 100 days were critical for GM.  With auto sales dropping like a stone and financing scarce, the company is pleading for a government bailout.  Given all of this scary news, investors should expect a horrendous earnings report from the automaker.       

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