It was a turbulent week for global financial markets. News of growing U.S. economic strength was welcomed. However, China’s vigorous economy, still growing by 10% per year even after numerous government efforts to slow it down, was seen as a potential problem. The prevailing concern of many economists is that Chinese leaders will have to put the brakes on an economy that the rest of the world has come to depend on as a catalyst for consumption of commodities and other goods. Stock markets around the world fell during the week while U.S. Treasury yields rose on diminished demand for safe havens. Prices for commodities – including oil, gold, silver, and copper – fell on anticipated slowing demand. Meanwhile, crude oil inventories rose, creating further downward pressure on prices.
Global economic news
U.S. manufacturing bellwether expands for fourth month
Manufacturing activity in the Philadelphia region expanded for a fourth consecutive month, according to the Federal Reserve Bank of Philadelphia’s Business Outlook Survey. However, the gauge edged down slightly to 19.3 in January from a revised December reading of 20.8. Although the survey pertains to the Philadelphia region, it is seen as a bellwether for broader trends in manufacturing.
U.S. home resales increase 12%
Sales of previously owned homes rose 12% in December, reported the National Association of Realtors. The sales growth easily surpasses the average estimate of 4.7% that was projected by economists surveyed by Dow Jones Newswires. However, the 2010 total of 4.9 million homes sold was the weakest annual total since 1977 and is down 4.8% from 2009.
Initial jobless claims drop in the United States
The number of Americans who filed claims for jobless benefits fell by 37,000 to 404,000 in the week ended January 15, according to the U.S. Department of Labor. The weekly figure beat analysts' expectations of 420,000 new claims.
Conference Board’s leading indicator up 1%
The Conference Board’s Leading Economic Index rose 1.0% in December to 112.4 after gaining 1.1% in November. As with the latest home resale and initial jobless claims numbers, this economic indicator was more favorable than anticipated, surpassing the 0.6% mark forecast by economists.
China’s economy grows 9.8%; inflation rises 4.6%
China’s robust economy continued to expand, which could be seen as good news or bad news. Its fourth-quarter gross domestic product (GDP) grew by 9.8% from a year earlier. For all of 2010, the country’s economy grew 10.3%. Meanwhile, China’s consumer price index rose 4.6% in the fourth quarter from a year earlier, well above Beijing’s target of 3%. Economists expect China to raise interest rates several times in 2011. In 2010, China raised interest rates twice and increased its reserve requirement ratio for state-controlled banks seven times. Observers fear that more serious measures to curb growth and control inflation could dampen global demand for commodities.
German economic expectations up sharply
Germany’s economic expectations rose considerably in January, according to the Centre for European Economic Recovery. Its ZEW Indicator of Economic Sentiment for Germany rose for the third consecutive month – climbing to 15.4 points from 4.3 points in December. German business confidence hit an all-time high in January, reported Ifo, a German research institute. Its business-climate index reached 110.3 from 109.8 in December. Germany’s GDP rose 3.6% in 2010, its strongest increase since 1992.
Global corporate news
Bank of America absorbs huge losses
Bank of America, the United States' largest bank by assets, posted a $1.24 billion fourth-quarter loss because of write-downs and charges related to the weak housing market. The bank took a $4.1-billion provision to cover the repurchase of troubled loans from Fannie Mae and Freddie Mac. In addition, it took a $2 billion charge to reflect a write-down of the value of its mortgage operations.
General Electric lights up its earnings
General Electric’s fourth-quarter profit rose 51% on increased revenue, reduced costs, and a lower-than-expected tax rate. Equipment orders grew and its sales increased for the first time since September 2008.
Morgan Stanley profits rise 35%; Goldman Sachs earnings plummet
Morgan Stanley posted a 35% increase in fourth-quarter profit on strength in its investment banking, wealth, and asset-management businesses. The firm’s trading activity declined, reflecting an industry slowdown. Net revenue rose 14%. In contrast, rival investment banking firm Goldman Sachs, posted a significant drop in fourth-quarter earnings, 53% less than its year-earlier period. Goldman’s fixed-income, currency, and commodities trading business performed below expectations. Overall, its revenue fell 10% from a year earlier.
Freeport-McMoran profit jumps 50%
Freeport-McMoran Copper & Gold, the world’s second-largest copper producer, posted a fourth-quarter profit that was 60% higher than a year ago. The increase reflected higher prices for commodities. Copper prices rose 31% in the quarter while gold prices were 25% higher. In addition, both copper and gold production rose. The company’s revenue increased 22% from a year earlier.
Southwest Airlines profit rises
Southwest Airlines, the largest U.S. airline by passenger numbers, posted a 13% gain in earnings. The travel and tourism industry experienced a rebound in demand. Excluding hedging, charges related to acquisitions and other factors, earnings were up 50% while revenue rose 15%.
Google has easy search for new CEO
Google co-founder Larry Page will take over as chief executive officer in April when Eric Schmidt steps down from a very successful decade as head of the world’s most-used search engine. Google’s fourth-quarter profit beat analysts’ estimates, benefiting from a boost in online advertising. Its net income rose 29% from a year earlier.
Boeing cuts work force while Rockwell Collins expands
Boeing announced that it plans to cut about 1,100 jobs in the next two years as it trims production of a line of military cargo aircraft. Meanwhile, aerospace group Rockwell Collins said it plans to grow its work force by about 4%, or 800 employees, including 550 engineers, in 2011.
Friday, January 21, 2011
Friday, January 14, 2011
U.S. Economic News Week Ending January 14, 2011
Global financial markets grew modestly this week on generally positive news. However, hints of inflation gave rise to speculation about a possible European Central Bank interest rate hike. Signs of economic growth in Germany boded well as did growth in eurozone industrial production, while mixed U.S. economic reports were supportive of growth. Overall, the market’s mood was calm, with major stock indices advancing moderately. U.S. Treasury yields fell slightly. The bonds rallied in response to the U.S. Federal Reserve Board's larger-than-expected purchase of $8.4 billion of seven-year U.S. Treasuries, part of its latest economic stimulus efforts.
U.S. retail sales rise again
Retail sales rose in December for the sixth consecutive month. Sales rose by 0.6% from November after climbing 0.8% from October, the U.S. Department of Commerce reported. Online sales were particularly strong, with U.S. Internet sales up 15.4% in December, according to MasterCard SpendingPulse.
Core inflation remains tame in the United States
The latest Consumer Price Index (CPI) and Producer Price Index (PPI) both indicated that U.S. core inflation remains benign. However, both indices reflected rising energy costs. The seasonally adjusted CPI rose 0.5% in December from November, the U.S. Department of Labor reported. However, the monthly core CPI – excluding food and energy costs – was up just 0.1%. For all of 2010, the overall CPI rose 1.5% while core inflation was up just 0.8%, well below the Fed’s target of 1.7% to 2.0%. The PPI rose a seasonally adjusted 1.1% in December from November and 4.0% for 2010 overall. However, the core PPI, excluding food and energy costs, rose only 0.2% last month and 1.3% for the year.
U.S. trade deficit narrows
The U.S. trade deficit narrowed unexpectedly in November, the Department of Commerce reported. It was the third consecutive month of a narrowing gap between U.S. exports and imports. The value of U.S. imports exceeded its exports by $38.31 billion, down from a difference of $38.42 billion the previous month. However, the country’s trade deficit with China grew slightly.
Agencies warn on U.S. credit rating
Two prominent credit rating agencies cautioned the United States on its credit rating. Moody’s Investors Service said the United States will have to reverse an upward trend in its debt ratios to maintain its "AAA" rating. The federal debt-to-revenue ratio is projected to average four times the U.S. gross domestic product for the next decade. The ratio of interest payments to revenue is forecast to rise to 17.6% by 2020 from 8.6% in 2010. Standard & Poor’s also raised concerns about the worsening U.S. fiscal situation. Both companies have issued previous warnings that have been generally ignored by the financial markets.
U.S. jobless claims rise
For the second consecutive week, more Americans filed initial unemployment claims, after the weekly number had dropped below 400,000 at the end of 2010. Initial claims for unemployment benefits rose by 35,000 to 445,000 in the week ended January 8.
Eurozone industrial output grows
Industrial production in the eurozone rose at a faster-than-expected pace in November, according to Eurostat, the European Union statistics agency. Production was up 1.2% in November from October. Annual figures showed a 7.4% increase from a year earlier, surpassing a projected rise of 5.8%. The European industrial sector is offsetting current weakness in consumer spending.
German economy hits record growth
Economic activity in Germany grew faster last year than in any year since the country’s reunification in 1992, the country's Federal Statistics Office reported. In price-adjusted terms, Germany’s GDP rose 3.6% in 2010 after declining 4.7% in 2009.
Global corporate news
Intel posts best-ever results
Microprocessor maker Intel reported its best quarterly and annual results on robust sales as strong corporate demand offset weak consumer sales. Much of Intel’s 8.4% increase in fourth-quarter revenue came from sales of server systems to companies trying to keep up with the Internet’s growth. Intel’s quarterly profit soared 48%. Its annual revenue grew 24%.
JPMorgan Chase profit up 47%
The fourth-quarter profit picture bodes well for big banks as JPMorgan Chase, the first of the major banks to report results, posted a 47% jump in quarterly profit on rising revenue and sharply reduced loan-loss reserves.
SAP revenue rises
Germany’s SAP, a leading software and related service vendor, posted a 27% increase in fourth-quarter revenue from software and software-related service. SAP did not provide an earnings number as it still is assessing the impact of a copyright infringement lawsuit it lost to rival Oracle.
Cargill profit triples
Commodity processing and trading giant Cargill more than tripled its sales in the quarter ended November 30 from a year earlier, benefiting greatly from rising commodity prices and surging global demand. Year-over-year profit rose in four of Cargill’s five business units.
Homebuilders’ profits down
Quarterly earnings at two large homebuilding firms fell, indicating the housing recovery has a long way to go. KB Home reported an 83% decline in its fourth-quarter profit, while Lennar Corp’s profit fell 10%. The residential housing market remains affected by continued erosion of housing values and by tepid demand amid high unemployment.
Airbus lands large plane order from India
France’s Airbus has signed a preliminary agreement with an Indian budget airline firm, IndiGo, for 180 A320 airliners, worth $15.6 billion. Airbus said the order is the largest ever in terms of number of planes and one of the largest by value. The contract is expected to be finalized within a few weeks.
U.S. retail sales rise again
Retail sales rose in December for the sixth consecutive month. Sales rose by 0.6% from November after climbing 0.8% from October, the U.S. Department of Commerce reported. Online sales were particularly strong, with U.S. Internet sales up 15.4% in December, according to MasterCard SpendingPulse.
Core inflation remains tame in the United States
The latest Consumer Price Index (CPI) and Producer Price Index (PPI) both indicated that U.S. core inflation remains benign. However, both indices reflected rising energy costs. The seasonally adjusted CPI rose 0.5% in December from November, the U.S. Department of Labor reported. However, the monthly core CPI – excluding food and energy costs – was up just 0.1%. For all of 2010, the overall CPI rose 1.5% while core inflation was up just 0.8%, well below the Fed’s target of 1.7% to 2.0%. The PPI rose a seasonally adjusted 1.1% in December from November and 4.0% for 2010 overall. However, the core PPI, excluding food and energy costs, rose only 0.2% last month and 1.3% for the year.
U.S. trade deficit narrows
The U.S. trade deficit narrowed unexpectedly in November, the Department of Commerce reported. It was the third consecutive month of a narrowing gap between U.S. exports and imports. The value of U.S. imports exceeded its exports by $38.31 billion, down from a difference of $38.42 billion the previous month. However, the country’s trade deficit with China grew slightly.
Agencies warn on U.S. credit rating
Two prominent credit rating agencies cautioned the United States on its credit rating. Moody’s Investors Service said the United States will have to reverse an upward trend in its debt ratios to maintain its "AAA" rating. The federal debt-to-revenue ratio is projected to average four times the U.S. gross domestic product for the next decade. The ratio of interest payments to revenue is forecast to rise to 17.6% by 2020 from 8.6% in 2010. Standard & Poor’s also raised concerns about the worsening U.S. fiscal situation. Both companies have issued previous warnings that have been generally ignored by the financial markets.
U.S. jobless claims rise
For the second consecutive week, more Americans filed initial unemployment claims, after the weekly number had dropped below 400,000 at the end of 2010. Initial claims for unemployment benefits rose by 35,000 to 445,000 in the week ended January 8.
Eurozone industrial output grows
Industrial production in the eurozone rose at a faster-than-expected pace in November, according to Eurostat, the European Union statistics agency. Production was up 1.2% in November from October. Annual figures showed a 7.4% increase from a year earlier, surpassing a projected rise of 5.8%. The European industrial sector is offsetting current weakness in consumer spending.
German economy hits record growth
Economic activity in Germany grew faster last year than in any year since the country’s reunification in 1992, the country's Federal Statistics Office reported. In price-adjusted terms, Germany’s GDP rose 3.6% in 2010 after declining 4.7% in 2009.
Global corporate news
Intel posts best-ever results
Microprocessor maker Intel reported its best quarterly and annual results on robust sales as strong corporate demand offset weak consumer sales. Much of Intel’s 8.4% increase in fourth-quarter revenue came from sales of server systems to companies trying to keep up with the Internet’s growth. Intel’s quarterly profit soared 48%. Its annual revenue grew 24%.
JPMorgan Chase profit up 47%
The fourth-quarter profit picture bodes well for big banks as JPMorgan Chase, the first of the major banks to report results, posted a 47% jump in quarterly profit on rising revenue and sharply reduced loan-loss reserves.
SAP revenue rises
Germany’s SAP, a leading software and related service vendor, posted a 27% increase in fourth-quarter revenue from software and software-related service. SAP did not provide an earnings number as it still is assessing the impact of a copyright infringement lawsuit it lost to rival Oracle.
Cargill profit triples
Commodity processing and trading giant Cargill more than tripled its sales in the quarter ended November 30 from a year earlier, benefiting greatly from rising commodity prices and surging global demand. Year-over-year profit rose in four of Cargill’s five business units.
Homebuilders’ profits down
Quarterly earnings at two large homebuilding firms fell, indicating the housing recovery has a long way to go. KB Home reported an 83% decline in its fourth-quarter profit, while Lennar Corp’s profit fell 10%. The residential housing market remains affected by continued erosion of housing values and by tepid demand amid high unemployment.
Airbus lands large plane order from India
France’s Airbus has signed a preliminary agreement with an Indian budget airline firm, IndiGo, for 180 A320 airliners, worth $15.6 billion. Airbus said the order is the largest ever in terms of number of planes and one of the largest by value. The contract is expected to be finalized within a few weeks.
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