News Archive


Wall Street surges at end of awful January


Wall Street surged over 2 percent on Friday after the Bank of Japan unexpectedly cut interest rates and Microsoft led a major rally in technology shares, repairing some of the damage to the SP 500’s worst January since 2009.

Slammed by collapsing oil prices that have fed doubts about the health of the global economy, stocks have had a volatile start to the year. At one point last week, the SP’s loss for 2016 reached 11 percent before recovering to end the month down 5 percent.

The index rose 2.48 percent on Friday, its strongest day since September.

“Sentiment certainly had swung to a wildly negative scenario. In the short term, I’m not sure the sentiment backdrop we’ve seen was warranted,” said Michael Church, president of Addison Capital Management in Philadelphia.

“What happens if there is not a recession? What happens if China stabilizes and the Fed doesn’t raise rates aggressively?”

Global equities got a surprise boost on Friday after Japan’s central bank cut a benchmark rate below zero to stimulate its economy.

Stocks were also lifted by weak fourth-quarter U.S. gross domestic product growth data, which bolstered arguments that the Federal Reserve might go slower than expected on future rate hikes.

While the Fed has not ruled out a rate hike in March, many investors believe recent global economic and financial turmoil may lead it to wait.

Microsoft shares (MSFT.O) jumped 5.83 percent on better-than-expected results.

The software company was the biggest influence on the SP 500 and the Nasdaq and helped push the SP tech sector up 3.6 percent, its strongest session since August.

Fourth-quarter corporate reporting season is well under way, with SP 500 companies on average expected to post a 4.1 percent drop in earnings, according to Thomson Reuters I/B/E/S. Excluding energy companies, earnings are seen rising 2.1 percent.

The Dow Jones industrial average .DJI ended 2.47 percent higher at 16,466.30 while the SP 500 .SPX gained 46.88 points or 2.48 percent higher to end at 1,940.24.

The Nasdaq Composite .IXIC surged 2.38 percent to 4,613.95.

For the week, the Dow gained 2.3 percent, the SP added 1.7 percent and the Nasdaq increased 0.5 percent.

That left the Dow down 5.5 percent for the month and the Nasdaq 7.9 percent lower, its largest monthly loss since May 2010.

In Friday’s trading, Amazon (AMZN.O) slumped 7.61 percent after its quarterly profit missed expectations.

Xerox (XRX.N) gained 5.63 percent after announcing a deal with Carl Icahn to split itself into two.

U.S. crude oil CLc1 rose 1.4 percent after trimming early gains on a report that Iran would not participate in a possible deal between OPEC and other producing countries to reduce output.

Advancing issues outnumbered decliners on the NYSE by 2,789 to 339. On the Nasdaq, 2,290 issues rose and 584 fell.

The SP 500 index showed 16 new 52-week highs and seven new lows, while the Nasdaq recorded 28 new highs and 100 new lows.

About 10.0 billion shares changed hands on U.S. exchanges, above the 8.3 billion daily average for the past 20 trading days, according to Thomson Reuters data.

(Additional reporting by Abhiram Nandakumar in Bengaluru; Editing by Nick Zieminski and James Dalgleish)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/loNhQGQUm2A/story01.htm

Boeing 737 MAX jet successfully completes first flight


Boeing Co’s (BA.N) 737 MAX aircraft completed its first flight on Friday, taking off from rain-slick tarmac and conducting tests for about three hours before landing safely at Boeing Field in Seattle.

The smooth flight of the new aircraft marks another step toward scheduled delivery to airlines in 2017.

Live video supplied by Boeing showed the smooth take-off at 9:46 a.m. (1746 GMT) and landing at about 12:33 p.m. (2033 GMT)

The plane is the fourth version of the original 737, which made its first flight in 1967 and has become one of Boeing’s most profitable aircraft.

The 737 MAX features new engines from CFM International, a joint venture of General Electric (GE.N) and Safran SA of France (SAF.PA), and other refinements that improve fuel efficiency by 14 percent compared with the current generation 737.

Boeing has sold 3,072 of the planes and is racing to sell more as it battles for market share against rival Airbus’s (AIR.PA) competing A320neo, which earlier this month was delivered to its first customer, Lufthansa (LHAG.DE).

Boeing is expected to deliver its first 737 MAX to customers in 2017. Southwest Airlines Co (LUV.N) is scheduled to be the first airline to add the 737 MAX to its fleet.

The first flight of the plane, which is filled with test equipment, was expected to last about 2 1/2 hours. Tracking web sites showed the aircraft cruising west over the Olympic Peninsula, the western part of Washington State.

Boeing surprised analysts on Wednesday when it said the company would slightly reduce output of current-generation 737s this year to allow the factory to build the 737 MAX. Boeing stock tumbled 8.9 percent that day, its biggest daily decline since October 2001, to close at $116.58 on the New York Stock Exchange.

Many analysts later said Boeing shares are likely to recover because the company’s outlook for cash flow remains strong, as does its commitment to share buybacks and dividends.

On Friday, the stock was trading up 1.6 percent at $119.60.

(Reporting by Alwyn Scott; Editing by Grant McCool and Bill Trott)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/V7iqueB9jaM/story01.htm

GM pitches new product strategy to skeptical investors


DETROIT General Motors Co (GM.N) executives used to boast about how frequently the company redesigned cars and trucks. Now, the automaker wants to double the lifespan of vehicle platforms as part of a broader effort to slash and redirect capital spending, GM executives said.

Starting with the new Chevrolet Cruze compact, the basic underpinnings of vehicle lines could last a dozen years or more, GM President Dan Ammann told Reuters.

The move underscores the balancing act the automaker faces in tackling conflicting challenges as the growth of auto sales in the U.S. and China slows. GM and its rivals face increasing pressure to prove they can keep core product lines fresh, meet stricter emissions and safety standards, and forge a future in ride-sharing and autonomous vehicles – all while returning more cash to shareholders.

Over the next several years, the company will undertake the most extensive overhaul of its vehicle development process in decades, GM executives said.

The goal is to design its global fleet of vehicles with just a few basic building blocks, spreading the engineering and research costs for a given lineup of cars and SUVs over millions more vehicles.

A single platform, underpinning multiple models, might stay largely same for more than a decade, GM executives said. Global product development chief Mark Reuss said the company aims for up to 2.5 million sales a year from a variety of models built on the same platform as the Cruze compact, including the mechanically similar European Opel Astra.

Exterior styling will change more often, with updates of sheet metal or plastic skins – so-called “top hats” in GM parlance. The automaker also plans to freshen electronic features with software updates delivered over the internet.

The move to fewer and long-lasting platforms poses multiple risks.

GM could end up with platforms that are technologically outdated, analysts cautioned, or not appealing to diverse customers in different global markets. Further, most of GM’s rivals are also moving to slash the number of different vehicle platforms they use.

“The advantage could be short-lived,” said Jeff Schuster, senior vice president at LMC Automotive, a forecasting company.

SHIFTING SPENDING

Making the company leaner will also require increased spending in the short term.

GM said it plans to initially increase capital spending to about $9 billion a year through 2019, up from $7 billion a year in 2014.

For the period 2016 through 2019, capital spending will rise to between 5 percent and 5.5 percent of revenue, up from 4.4 percent in 2014.

After that, Ammann said, capital spending will fall closer to 2014 levels as a share of revenue, with much of it directed to new priorities. Spending less on dies and welding machines will allow for more investment in developing autonomous vehicles, delivering services through high-speed internet connections in cars, and new businesses such as ride sharing, executives said.

GM earlier this month invested $500 million in ride-hailing company Lyft, and last week it said it was launching car-sharing ventures under the new brand, Maven. On Thursday, GM grouped all its autonomous and electric vehicle engineering under one executive in a move to speed development of those technologies.

The short-term increase in capital spending will pay for projects such as a $1.4 billion overhaul of the Arlington, Texas factory that builds GM’s cash cows – large sport utility vehicles such as the Cadillac Escalade.

SKEPTICAL INVESTORS

The increased spending makes it critical for GM Chief Executive Mary Barra to deliver the promised savings over the long term. The company has largely failed over the past three decades to execute previous plans to control engineering costs.

GM executives said longer-lived vehicle designs are just one element of the cost-cutting strategy. Others include longer-term contracts to suppliers that could allow for cheaper parts and using less steel and plastic as engineers shave hundreds of pounds from future models.

The automaker is also launching a $5 billion effort with Shanghai Automotive Industry Corp to engineer a new, low-cost vehicle line for sale in emerging markets. The partnership is the most extensive attempt yet by GM to collaborate with its Chinese partner.

GM has discovered it can build the complex dies used to stamp metal vehicle parts in China for 20 to 40 percent less than it would spend in the U.S. or Europe, Ammann said.

The automaker’s overhaul could be a tough sell to investors.

GM shares are down nearly 15 percent since Jan. 1, despite the automaker’s record profits and its plans to return $16 billion to shareholders in buybacks and increased dividends from 2015 to 2017. Other automakers’ shares are also off sharply, as analysts warn that global auto sales and profits have likely peaked for now.

Intensified competition in a flat market could force automakers to cut prices, potentially nullifying the benefit of any savings from more efficient engineering, said Bernstein analyst Max Warburton.

“The auto industry,” he said, “has a proven ability to invest to the point of zero return.”

(Editing by Brian Thevenot)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/WAIFk_U1Dis/story01.htm

U.S. economy hits soft patch in fourth quarter as inventories, trade weigh


WASHINGTON U.S. economic growth braked sharply in the fourth quarter as businesses stepped up efforts to reduce an inventory glut and a strong dollar and tepid global demand weighed on exports.

Gross domestic product increased at a 0.7 percent annual rate, the Commerce Department said on Friday in a report that showed a further cutback in investment by energy firms grappling with lower oil prices. Growth in consumer spending also slowed as unseasonably mild weather cut into spending on utilities.

But with the labor market strengthening and some of the impediments to growth largely temporary, economists expect output to pick up in the first quarter of 2016. First-quarter growth estimates are for now mostly above a 2 percent rate.

“The economy took its lumps late last year. It’s not going to be smooth sailing in 2016, but we don’t see the ship sinking either, and the rising concern about a recession later on this year triggered by China, those fears need a reality check,” said Chris Rupkey, chief economist at MUFG Union Bank in New York.

The Federal Reserve on Wednesday acknowledged that growth “slowed late last year,” but also noted that “labor market conditions improved further.” The U.S. central bank raised interest rates in December for the first time since June 2006.

Though the Fed has not ruled out another hike in March, weaker growth and financial markets volatility could see that delayed until June. Excluding inventories and trade, the economy grew at a 1.6 percent pace in the fourth quarter.

The fourth-quarter growth pace was in line with economists’ expectations and followed a 2 percent rate in the third quarter. The economy grew 2.4 percent in 2015 after a similar expansion in 2014.

The GDP data, together with a surprise decision by the Bank of Japan to cut a benchmark interest rate below zero in a bold move to stimulate the Japanese economy, buoyed the dollar against a basket of currencies. Prices for U.S. Treasuries rose and U.S. stocks were trading higher.

In the fourth quarter, businesses accumulated $68.6 billion worth of inventory. While that was down from $85.5 billion in the third quarter, it was a bit more than economists had expected, suggesting inventories could remain a drag on growth in the first quarter.

The small inventory build subtracted 0.45 percentage point from the first estimate of fourth-quarter GDP growth.

 

LIMITED SPILLOVER

Consumer spending, which accounts for more than two thirds of U.S. economic activity, increased at a 2.2 percent rate. Though that was a step-down from the 3.0 percent pace notched in the third quarter, the gain was above economists’ expectations.

Unusually mild weather hurt sales of winter apparel in December and undermined demand for heating through the quarter.

With gasoline prices around $2 per gallon, a tightening labor market gradually lifting wages and house prices boosting household wealth, economists believe the slowdown in consumer spending will be short-lived.

“The consumer will continue to power ahead, as spillovers from the weak mining and manufacturing sector to services industries remain limited,” said Harm Bandholz, chief U.S. economist at UniCredit Research in New York. 

Income at the disposal of households after accounting for taxes and inflation increased 3.2 percent in the fourth quarter after rising 3.8 percent in the prior period. Savings rose to a lofty $739.3 billion from $700.6 billion in the third quarter.

While a separate report from the University of Michigan showed a dip in its consumer sentiment index in January because of the recent stock market sell-off, consumer optimism remained at levels consistent with steady economic growth.

The dollar, which has gained 11 percent against the currencies of the United States’ trading partners since last January, remained a drag on exports, leading to a trade deficit that subtracted 0.47 percentage point from GDP growth in the fourth quarter.

The downturn in energy sector investment put more pressure on business spending on nonresidential structures. Spending on mining exploration, wells and shafts dropped at a 38.7 percent rate after plunging at a 47.0 percent pace in the third quarter.

Investment in mining exploration, wells and shafts fell 35 percent in 2015, the largest drop since 1986.

As oil prices appear to level off, the energy sector drag on the economy is expected to ease in the coming quarters. Oil prices have plummeted more than 60 percent since mid-2014, forcing oil field companies such as Schlumberger (SLB.N) and Halliburton (HAL.N) to slash their capital spending budgets.

Business spending on equipment contracted at a 2.5 percent rate last quarter after rising at a 9.9 percent pace in the third quarter. Investment in residential construction remained a bright spot, rising at a 8.1 percent rate.

With consumer spending softening, inflation retreated in the fourth quarter. A price index in the GDP report that strips out food and energy costs increased at a 1.2 percent rate, slowing from a 1.4 percent pace in the third quarter.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/zhnnhR8fWcA/story01.htm

Fed will be patient on US policy given global risks: Kaplan


NEW YORK The Federal Reserve will be patient as it decides how trouble overseas could hit the U.S. economy, a Fed policymaker said in an interview, suggesting the central bank will be slower to raise interest rates this year.

Dallas Fed President Robert Kaplan said on Friday it was “significant” that the Fed decided this week to no longer describe the risks to the U.S. economy as being “balanced,” a term that meant officials were comfortable with their view of the outlook.

“It should be saying to people (that) we are going to take some time here to understand what is going on,” Kaplan told Reuters in the first public comments by a top policymaker since the central bank’s decision on Wednesday to hold rates steady.

The Fed raised rates for the first time in a decade in December, at which time policymakers signaled four further hikes would come in 2016. But since then economic weakness in China, Europe and Japan have prompted deep skepticism among investors, who now see only one hike this year.

Kaplan’s comments seem to support that cautious view.

Global equities and oil prices plunged through most of January and Kaplan said he expected overseas challenges to affect the U.S. economy. He characterized as “clumsy” China’s policy moves over the last six weeks to counter turmoil in Chinese financial markets.

“When you put all that together I think there is good reason to be patient (and) take more time to assess the impact on the U.S. economy,” said Kaplan, who does not have a formal vote on Fed policy this year but who takes part in all deliberations.

Kaplan declined to say how quickly he expects the Fed to lift interest rates this year.

But he said a tightening of global financial conditions, including relatively steeper lending rates for investment grade companies, was getting his attention.

The Fed’s next policy meeting is in March, when policymakers will also release new forecasts on how steep the path of interest rates will be this year.

“It’s not going to be any steeper,” said Kaplan, who took the reins at the Dallas Fed in September.

While the Fed has embarked on what it hopes will be a gradual tightening path, other major central banks are headed in the opposite direction with stimulus that has boosted the dollar’s value and helped keep U.S. inflation well below the Fed’s 2 percent target.

The Bank of Japan on Friday made the shock decision to cut rates below zero, prompting some to warn of “currency wars” that do little for global growth.

Kaplan, who in the 1990s ran Goldman Sachs’ Asian banking operations out of Tokyo, said the move “will have some effect clearly on the dollar and we are very mindful of that,” adding that Japan is “doing what it needs to do.”

He said Chinese officials are still learning how to manage their whip-sawing financial markets. The country used so-called “circuit breakers” to halt trading when its stock markets were plunging this month, but scrapped the tool after it appeared to exacerbate the selloff.

“It’s unusual for them in my experience to appear as clumsy as they were over the last six weeks and that clumsiness has jarred people,” Kaplan said, adding that China was unlikely to “melt down” in part because of its substantial dollar reserves.

Wall Street’s biggest banks still see three Fed rate hikes this year, though many others now see the Fed getting overtaken by a global economic downturn.

The Fed’s statement “signaled that it is now hostage to international developments and markets,” said Mohamed El-Erian, the chief economic advisor at Allianz, who expects two hikes this year and possibly none at all if economic and financial market conditions worsen.

(Reporting by Jonathan Spicer and Jason Lange in New York; Editing by Chizu Nomiyama)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/Pu4hJd8Cayo/story01.htm

Nissan recalling 930,000 cars for hood latch problem


Nissan Motor Co said Friday it will recall nearly 930,000 Nissan cars worldwide for potentially faulty hood latches, marking the third time since 2014 the automaker has recalled vehicles to address the problem.

The Japanese automaker (7201.T) said it is recalling the 2013-2015 Nissan Altima, because its secondary hood latch may bind on account of improperly applied rust coating and remain in the unlatched position when the hood is closed. That could result in the hood unexpectedly opening while driving.

The U.S. National Highway Traffic Safety Administration, which said on Friday that 846,000 vehicles in the United States would be recalled, has received complaints from owners of Altimas whose hoods unexpectedly opened. Altimas accounted for about 25 percent of Nissan’s U.S. brand sales last year.

Transport Canada in an online posting on Friday said 24,895 vehicles were affected. Nissan spokesman Steve Yaeger said 58,644 vehicles are being recalled outside North America. No crashes or injuries have been reported related to the recalls, he said.

Nissan said the previous recall fixes may not have been performed consistently to remove the safety risk. Dealers will replace the hood latch with a new one starting next month.

The new hood latch has an improved coating designed to avoid rust. Prior recall fixes included inspecting and cleaning the hood latch and applying a lubricant.

(Reporting by David Shepardson; Editing by Bill Trott)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/gqb7sw5z0Bo/story01.htm

Oil trims gains as Iran shuns talk of output cuts


NEW YORK Oil prices trimmed early gains in volatile trade on Friday after news that Iran had dashed the possibility of participating in a possible deal between OPEC and other producing countries to trim output.

Prices rose early on prospects that a deal between major exporters to cut production could help reduce one of the biggest oil supply gluts in history. Brent hit as high as $35 a barrel, up about 25 percent from the 12-year lows hit last week.

But oil retraced early gains, with both contracts briefly turning negative, after the Wall Street Journal cited an Iranian oil official as saying the country would not join an immediate OPEC production cut. The paper said Iran wants to boost crude exports by 1.5 million barrels a day.

Russia, a major non-OPEC producer, this week said it could cooperate with the Organization of the Petroleum Exporting Countries on production curbs, something it had been refusing to do for 15 years.

Brent March futures LCOc1, which expires on Friday, rose 51 cents to $34.40 a barrel by 12:25PM EST. On Jan. 20, the contract hit its lowest since 2003 at $27.10 a barrel.

U.S. crude CLc1 rose 24 cents to $33.46 per barrel, a 0.7 percent gain, having hit a high of $34.40.

Moscow has been sending mixed signals, as Deputy Prime Minister Arkady Dvorkovich said on Friday the state would not intervene to balance the market. Those comments fed growing doubts about a possible deal mentioned by Russian Energy Minister Alexander Novak on Thursday.

But a few hours later, Russia’s foreign ministry said veteran minister Sergei Lavrov, who almost never comments on oil policies, would visit the UAE and Oman to discuss oil markets.

“The market has rewarded these statements about the possibility of a deal, even though I think it’s ridiculous,” said John Kilduff, partner at Again Capital LLC in New York.

He noted that Iran and Iraq were determined to boost production, and were unlikely to come together with Saudi Arabia, which has made no official statement on a deal, to cut OPEC output.

“This is a rally on false hopes, unfortunately”

Oil prices also drew support from weak U.S. GDP data that raised expectations the U.S. Federal Reserve may slow down on any planned interest rate hikes.

Some analysts said oil prices may have found a bottom and could rally as high as $45 by year-end if non-OPEC supply is reduced and global demand improves.

“With more energy companies announcing cuts and OPEC contemplating a cut, it looks like oil is forming a bottom,” said Phil Flynn, an analyst at Price Futures Group in Chicago.

U.S. shale producers have been slashing 2016 capital spending plans, with one saying prices would need to rise more than 20 percent just to turn a profit.

“Now the question becomes how high can they go. The charts look like a test near $40 is on the cards.”

(Additional reporting Simon Falush and Dmitry Zhdannikov in London, Meeyoung Cho in Seoul and Henning Gloystein in Singapore; Editing by Marguerita Choy and David Gregorio)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/rOuGRqgxyI0/story01.htm

U.S. economic growth slows to a 0.7 percent rate in fourth quarter


WASHINGTON, U.S. economic growth braked sharply in the fourth quarter as businesses stepped up efforts to reduce an inventory glut and a strong dollar and tepid global demand weighed on exports.

Gross domestic product increased at a 0.7 percent annual rate, the Commerce Department said on Friday, also as lower oil prices continued to undermine investment by energy firms and unseasonably mild weather cut into consumer spending on utilities and apparel.

The growth pace was in line with economists’ expectations and followed a 2 percent rate in the third quarter. The economy grew 2.4 percent in 2015 after a similar expansion in 2014.

But some of the impediments to growth – inventories and mild temperatures – are temporary and the economy is expected to snap back in the first quarter. Excluding inventories and trade, the economy grew at a 1.6 percent pace.

Nevertheless, the GDP report could spark a fresh wave of selling on the stock market, which has been roiled by fears of anemic growth in both the United States and China.

The Federal Reserve on Wednesday acknowledged that growth “slowed late last year,” but also noted that “labor market conditions improved further.” The Fed, the U.S. central bank, raised interest rates in December for the first time since June 2006. Though the Fed has not ruled out another hike in March, financial markets volatility could see that delayed until June.

 

SMALL INVENTORY BUILD

In the fourth quarter, businesses accumulated $68.6 billion worth of inventory. While that is down from $85.5 billion in the third quarter, it was a bit more than economists had expected, suggesting inventories could remain a drag on growth in the first quarter.

The small inventory build subtracted 0.45 percentage point from the first estimate of fourth-quarter GDP growth.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 2.2 percent rate. That marked a step-down from the 3.0 percent pace notched in the third quarter.

Unusually mild weather hurt sales of winter apparel in December and undermined demand for heating through the quarter.

With gasoline prices around $2 per gallon, a tightening labor market gradually lifting wages and house prices boosting household wealth, economists believe the slowdown in consumer spending will be short-lived.

The dollar, which has gained 11 percent against the currencies of the United States’ trading partners since last January, likely remained a drag on exports, leading to a trade deficit that subtracted 0.47 percentage point from GDP growth in the fourth quarter.

The downturn in energy sector investment put more pressure on business spending on nonresidential structures. Spending on mining exploration, wells and shafts plunged at a 38.7 percent rate after dropping at a 47.0 percent pace in the third quarter.

Investment in mining exploration, wells and shafts fell 35 percent in 2015, the largest drop since 1986.

Oil prices have dropped more than 60 percent since mid-2014, forcing oil field companies such as Schlumberger (SLB.N) and Halliburton (HAL.N) to slash their capital spending budgets.

Business spending on equipment contracted at a 2.5 percent rate last quarter after rising at a 9.9 percent pace in the third quarter. Investment in residential construction remained a bright spot, rising at a 8.1 percent rate.

With consumer spending softening, inflation likely retreated in the fourth quarter. A price index in the GDP report that strips out food and energy costs increased at a 1.2 percent rate, slowing from a 1.4 percent pace in the third quarter.

 

 

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/zhnnhR8fWcA/story01.htm

El-Erian says countries weakening currencies in fight for global growth


NEW YORK Mohamed El-Erian, the chief economic advisor at Allianz, said on Friday the Bank of Japan’s shocking move to take one of its main interest rates into negative territory underscored the country’s hope to weaken the yen to re-inflate its economy.

“Countries are pursuing their domestic objectives almost regardless of the international consequences,” El-Erian said in an interview at Reuters’ New York offices.

“You see this most clearly on the currency front, where with the exception of the United States, the vast majority of countries hopes to weaken their currencies. I would put the Bank of Japan action in that category.”

While many investors had anticipated an expansion of the BOJ’s asset-purchase program this year, few expected Japan to join the European Central Bank and the central banks of Sweden, Denmark and Switzerland in negative territory on Friday.

El-Erian said the BOJ’s move heralds a new reality of divergent central bank policies and a lack of global policy coordination.

“We are going to see the Federal Reserve continue to try to very carefully ease its foot off the accelerator while the other three systemically important central banks – the ECB (European Central Bank), BOJ, PBOC (People’s Bank of China) – are going to be pressing harder on the stimulus accelerator,” he said.

The yen fell sharply against the dollar after the Bank of Japan set the country’s first-ever negative interest rate and signaled that further cuts were possible.

El-Erian said if the dollar strengthens another 5-10 percent, “the Fed will start worrying.”

Indeed, the U.S. Federal Reserve kept interest rates unchanged after a two-day policy meeting Wednesday and said it was “closely monitoring” global economic and financial developments.

El-Erian said “countries are fighting for a small amount of global growth as opposed to pursuing policies that create the incremental growth that the system is capable of. That’s the big tragedy – the system is capable of growing much faster but it’s being held back.”

In the wake of slowing global economic growth and market turmoil, El-Erian said his base case is for just two rate hikes this year, as opposed to the four the Fed had been forecasting, and possibly even one or none if economic and financial market conditions worsen.

“There’s a much higher probability of fewer (rather) than more” rate hikes this, said El-Erian, whose new book, ‘The Only Game In Town: Central Banks, Instability, and Avoiding the Next Collapse,’ was launched this week.

(Editing by Bernadette Baum)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/wMHzCzelu5Y/story01.htm