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US job losses likely to spur more rate cuts

A report on Friday expected to show the biggest monthly US jobs loss in 26 years is set to pile more pressure on the Federal Reserve to slash rates again and add urgency to an automaker bailout as the global economic crisis deepens.

Australia was also trying to protect its automobile business, pledging A$2 billion ($1.29 billion) to help car dealers, while South Korea repeated promises to do more to boost suffering companies, including the automobile industry. The chief executives of General Motors and Chrysler told deeply skeptical lawmakers on Thursday they would restart merger talks to win a slice of up to $34 billion in emergency aid being considered in Washington.

Investors have been nervous about the fate of the cash-starved industry, the failure of which would hit a chain of parts suppliers and financiers that spans the world. “Concerns have spread that financial institutions including Japanese ones wouldn’t be able to escape unscathed if big US automakers were to go bankrupt,” said Tsuyoshi Segawa, an equity strategist at Shinko Securities in Tokyo. “We have no idea where and what could happen if a huge corporation like them failed.”

US Treasury Secretary Hank Paulson, in Beijing for a round of talks on greater cooperation with China, stressed the need to let a market-determined currency promote balanced economic growth. Washington has long urged Beijing to let its yuan currency rise to help shrink China’s huge trade surpluses.

JOB CUTS GROW

Companies such as US phone company AT&T, Swiss bank Credit Suisse and Japanese brokerage Nomura Holdings were already cutting their workforce by thousands, bracing for a long and hard global recession. The US economy, in the thick of a year-long recession, probably shed 340,000 jobs in November, according to economists polled by Reuters. Ahead of the latest employment data, dealers priced in a 3-in-5 chance the Fed would cut rates by 75 basis points to 0.25% on December 16.

Central banks throughout Europe and Asia have slashed rates aggressively this week, with other more radical actions expected, as policymakers raced to stabilize financial markets and stop deflationary forces from getting further out of control. The European Central Bank dropped its benchmark rate by 0.75 percentage point to 2.50%, the euro zone’s biggest cut ever. Sweden lopped a record 1.75 percentage points off its policy rate to 2.0%, while the Bank of England chopped rates by 1.0 percentage point to 2.0%, the lowest level since 1951.

OTHER ACTIONS

In addition to slashing borrowing costs, central bankers have been considering more direct actions to protect their economies. After cutting rates, the Bank of England is mulling buying up government debt and flooding markets with cheap cash to prevent a more severe recession, said an unsourced report from The Daily Telegraph newspaper. Key central bankers at the Fed, facing skepticism they are increasingly powerless as benchmark rates approach zero, assured on Thursday they had other weapons in their arsenal to battle the deteriorating labor market and falling consumer spending.

Wall Street stocks fell overnight, dragged down by energy companies as oil prices plumbed their lowest since January 2005. However, Asian stocks gained after the massive interest rate cuts around the world emboldened investors to pick up some bargains. Governments were trying to align their efforts with the deluge of central bank rate cuts.

Korean officials said that if needed more help was on the way to the economy and financial markets. “Aggressive counter-measures are required for the automobile, semiconductor and petrochemical sectors due to a rapid decline in export demand, falling export prices, an intensifying global competition and a supply glut,” The Ministry of Knowledge Economy said in a report.

France announced a €26-billion stimulus plan targeting infrastructure and investment projects for its faltering economy as data showed the unemployment rate rose in the third quarter to 7.7%.

Time was of the essence though, as economic data globally reflected rapidly worsening conditions. “I believe we could lose General Motors by the end of this month,” Ron Gettelfinger, president of the United Auto Workers told lawmakers. “Honestly, we’re down to the wire.” (Reuters)