5 Dec 2008

Big US job losses likely to spur more rate cuts

7:57 pm on 5 December 2008

A report on Friday expected to show the biggest monthly US jobs loss in 26 years is set to pile more pressure on America's central bank 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 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 sceptical lawmakers on Thursday they would restart merger talks to win a slice of up to $US34 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.

The US has long urged Beijing to let its yuan currency rise to help shrink China's huge trade surpluses.

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 16 December.

Latest round of cuts

Central banks throughout Europe, in Asia, Australia and New Zealand have slashed rates aggressively this week, with other more radical actions expected, as policymakers raced to stabilise 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% points off its policy rate to 2%, while the Bank of England chopped rates by one percentage point to 2%, the lowest level since 1951.

New Zealand slashed its benchmark rate by 1.5 percentage points to 5%, while Australia has also cut its official rate to 4.25%.

Key central bankers at the US Federal Reserve, facing scepticism they are increasingly powerless as benchmark rates approach zero, assured on Thursday they had other weapons in their arsenal to battle the deteriorating labour 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.