Global Round Up - Fed Cuts Quarter Percentage Point, Q1 GDP Unexpectedly Rises

Wednesday, April 30, 2008 2:39:37 PM - Wednesday was one of the most important days on the economic calendar so far this year, highlighted by the Federal Reserve's decision to cut interest rates by a quarter percentage point.

The FOMC voted 8-2 to cut the Fed funds rate. Richard Fischer and Charles Plosser dissented, preferring no change to the overnight rate. The accompanying statement said that labor market have softened and the financial markets are under stress. Addressing price growth concerns, The Fed said that uncertainty about the inflation outlook remains high and the Fed will act to maintain price stability.

Traders were also treated to some rather encouraging economic news for a change. Easing concerns about the possibility of a recession, the U.S. economy continued to see modest growth in the first three months of 2008, according to a report released by the Department of Commerce on Wednesday.

The report showed that gross domestic product increased at an annual rate of 0.6 percent in the first quarter, matching the growth seen in the fourth quarter. The increase came in slightly above economist estimates of an increase of about 0.4 percent.

Also Wednesday morning, Automatic Data Processing, Inc. (ADP) released its report on private sector employment in the month of April, showing that employment unexpectedly increased compared to the previous month.

ADP said that non-farm private employment increased by 10,000 jobs in April following a downwardly revised increase of 3,000 jobs in March. Economists had expected the report to show a decrease of about 60,000 jobs.

Rounding out the day's economic reports, business activity in the Chicago area continued to contract in the month of April, according to a report released by the National Association of Purchasing Management - Chicago on Wednesday, although the index of activity unexpectedly increased.

The report showed that the Chicago purchasing managers index edged up to 48.3 in April from 48.2 in March, with a reading below 50 indicating a contraction. Economists had been expecting the slip to 47.5.

The price of oil came under further pressure on Wednesday, moving back towards $114 a barrel following the release of the Energy Information Administration's report on oil inventories in the week ended April 25.

The report showed that crude oil inventories increased by 3.8 million barrels following an increase of 2.4 million barrels in the previous week. The increase exceeded analyst estimates of an increase of about 1.6 million barrels.

While the increase lifted crude oil inventories to 319.9 million barrels, they remain in the lower half of the average range for this time of year.

Across the Atlantic, a report from the European Commission revealed that Eurozone's economic confidence weakened more-than-expected to 97.1 in April from 99.6 in March. Economists had expected a level of 98.9 in April. Among others, the industrial confidence indicator declined to minus 2, while economists expected a reading of minus 1.

Elsewhere, a flash estimate from the statistical agency Eurostat pegged the 15-nation economy's annual inflation at 3.3% for April. Economists were looking for a rate of 3.4%. April's estimate is lower than the March figure of 3.6%. Annual inflation continues to stay well above the central bank target, which is to keep the inflation rate “below, but close to, 2% over the medium term”.

The news on the beleagured UK housing sector was not good, with a report from the Nationwide building society showed that UK house prices dropped 1.1% month-on-month in April, bigger than the 0.7% fall in March. UK house prices fell for the sixth month in a row in April. Year-on-year, house prices dropped 1% in April, after rising 1.1% in March. It was the first year-on-year fall in prices since March 1996.