The U.S. consumer will not drive a global economic recovery and the United States is still at risk from high unemployment and souring commercial real estate loans, said Federal Reserve Chairman Ben Bernanke on Wednesday.
U.S. bank Wells Fargo & Co (WFC.N) , the nation's fourth-largest bank and largest mortgage lender, reported growing losses in commercial real estate loans, while investment bank Morgan Stanley (MS.N) posted a bigger-than-expected loss, helping to limit gains on Wall Street after a strong run-up.
The American consumer is not going to be the source of a global boom by any means, said Bernanke in a question and answer session at the U.S. Senate Banking Committee hearing, before concluding his mid-year congressional testimony.
Bernanke said Asian countries would need to substitute the American consumer with their own domestic demand. We're seeing some motion in that direction, he said.
Outside the United States, World Trade Organization Director-General Pascal Lamy said it was too early to see if measures to improve trade financing were working, while Japan hinted it may do more to ease credit.
The European Union's executive arm insisted the bloc's fiscal stimulus package to fight the economic crisis is sufficient, rebuffing calls for more spending, even as Eurozone industrial orders plunged nearly a third in May.
On Wall Street, the third consecutive loss for Morgan Stanley and Wells Fargo's rising credit woes weighed on Wall Street, with the broad based S&P 500 index .SPX edging lower and the Dow industrial average .DJI breaking a seven-day winning streak.
Today's the earnings news wasn't as good as it's been. said Mike O'Rourke, chief market strategist at BTIG LLC, an institutional brokerage in New York. People are just finding a reason not to be as excited.
But in one bright spot in the financial sector, General Electric Co's (GE.N) financial arm, GE Capital, said it received approval to step back from a U.S. government-backed debt program.
GE's hefty finance arm has been the subject of intense investor concern over the past 16 months as the financial crisis threatened to engulf the largest U.S. conglomerate.
Earlier on Wednesday, Bank of Japan Deputy Governor Hirohide Yamaguchi hinted he could favor extending the central bank's steps to ease credit beyond a December deadline, and suggested policymakers would focus on downside risks.
The cautious Japanese stance was mirrored in London as Bank of England policymakers voted unanimously this month to defer whether to change their quantitative easing policy until August, when they will have a quarterly inflation report.
HAS TRADE FINANCING WORKED?
That cautious tone chimed with the WTO's Lamy, who said it was too early to see if measures to improve trade financing were working.
Has it worked? A bit too soon to say, Lamy told a news conference in Singapore after talks there with ministers from the United States, China and other Asia Pacific Economic Cooperation members.
The WTO said world trade volumes will shrink 10 percent this year, though Lamy said Asia was leading a trade recovery.
Although markets rallied strongly in the spring as the global economy pulled out of a severe downward spiral, hopes of a second-half recovery have been dampened due to disappointing economic data in Europe and the United States.
Eurozone industrial orders did nothing to alleviate this, plunging nearly a third year-on-year in May and fell from April despite expectations of a rebound.
These orders are disappointing. We were looking for a substantial increase really on a monthly basis in May, Juergen Michels, an analyst at Citigroup, said.
Michels said the orders data looked inconsistent with other indicators from the eurozone area, but if confirmed by other data it would show the region remained mired in crisis in the second quarter.
FRENCH CONSUMER SPREE
French consumer spending last month rose much more than expected, showing shoppers were helping the eurozone's second-largest economy.
But the Bank of Japan's Yamaguchi, speaking in Hakodate, Japan, emphasized downside risks to the economy. Analysts said Yamaguchi's cautious view suggested it could be some time before the bank exits its corporate funding support measures.
In London, analysts said they believed the Bank of England's Monetary Policy Committee was finely balanced on whether to spend another 25 billion pounds buying assets to boost credit and keep interest rates at 0.5 percent.
It might mean they don't sanction the extra 25 billion pounds at the next meeting, said George Buckley, chief UK economist at Deutsche Bank. But it's a close call. Unless the data surprises on the downside, I suspect they won't.
The BoE has the leeway to take the easing total to 150 billion pounds ($245.9 billion). Beyond that it would have to get permission from the government.