U.S. and global economic news
Bernanke makes no promises about aid to economy
In a much-anticipated speech, U.S. Federal Reserve Board Chairman Ben Bernanke said the Fed is ready to provide more support to the economy, but he did not indicate that a move was imminent. Throughout the week, investors had pushed stocks higher on the hopes that Bernanke, in remarks delivered Friday to global monetary policymakers in Jackson Hole, Wyoming, would announce a third round of quantitative easing. At the same meeting last year, Bernanke's promise to stimulate the economy through U.S. Treasury purchases sparked an eight-month rally in the equity market.
U.S. economy grows less than expected
U.S. gross domestic product rose at a 1% annual rate in the second quarter. The gain was less than expected, and the report, released by the U.S. Department of Commerce, showed that consumer spending grew at a 0.4% annual rate, the smallest gain in more than a year. On a more positive note, corporate profits grew, and wages and salaries were revised upward at the start of the year to show the biggest gain in more than four years.
Moody's downgrades Japan
Moody's Investors Service downgraded Japan's debt rating by one notch, citing concerns over the government's ability to reduce its debt and implement long-term sustainability measures. The rating now stands at Aa3, three levels below Aaa. Moody's added that the outlook is stable and that there is little chance the country would experience a crisis in its debt market anytime soon. However, the rating agency said the frequent change in political leadership is a key factor impeding the implementation of the fiscal measures necessary to reduce the debt.
New home sales fall more than expected
Sales of new U.S. homes fell more than expected in July, to the lowest level in five months. The medium sales price of a new home increased 4.7% from July 2010, to $222,000. Last week, mortgage applications for purchases fell 2.4%, to a nearly 15-year low, amid increased fears over the economy.
Weekly U.S. jobless claims rise
U.S. jobless claims unexpectedly rose last week, climbing by 5,000 to 417,000. The numbers were pushed higher by the labor dispute at Verizon Communications. At least 8,500 applications were filed by workers at Verizon last week, compared with the 12,500 filed in the previous week, according to the Commerce Department.
U.S. durable goods orders rise more than expected
U.S. durable goods orders rose 4% in July, more than expected and the most in four months. Rising demand for aircraft and autos made up for a decrease in business equipment, whose orders fell 1.3% in June. Orders excluding the volatile transportation category rose 0.7%.
German economy shows more signs of faltering
A sharper-than-expected drop in Germany's Ifo business confidence survey added to evidence that the German economic recovery is faltering. The index fell to 108.7 from 112.9. Investors' confidence also fell more than expected in August, to its lowest level in more than two-and-a-half years, as fears mounted that Europe's debt crisis will curb growth. Likewise, eurozone growth remained at a two-year low in August. On an annualized basis, eurozone gross domestic product rose 0.7% in the second quarter. The ZEW Center for European Economic Research said its index of investor and analyst expectations, which tries to predict developments six months in advance, fell to -37.6 from -15.0 in July. That is the lowest level since December 2008 and the largest drop since July 2006.
Japan announces moves to curb yen's rise
In an effort to help its export-dependent manufacturing base, the Japanese government announced a package of incentives and regulations aimed at curbing the surge of the yen. The announcement had little effect on the Japanese currency, which has been bought by investors as a safe haven amid worries about U.S. and eurozone finances. The package comprises a $100 billion fund to encourage Japanese businesses to increase acquisitions of companies outside Japan and a rule requiring major financial institutions to report currency trading positions twice daily.
China's manufacturing activity declines
HSBC reported that its China Manufacturing Purchasing Managers Index showed a decline in manufacturing activity for the second month in a row.
U.S. and global corporate news
Buffett to invest $5 billion in Bank of America
Warren Buffett will invest $5 billion in Bank of America in an effort to shore up the company. Bank of America's shares rose 15% after the announcement. Buffett's move follows similar efforts to help prop up Goldman Sachs and General Electric during the 2008 financial crisis. Bank of America's stock has suffered as investors, fearing that the bank is still burdened by billions of dollars in problem mortgages, dumped the stock. The cost of insuring BofA's bonds against default surged to a record this week amid investor concern over the bank's creditworthiness.
Jobs announces resignation
Technology stocks fell after Apple's Steve Jobs announced his resignation as chief executive officer. Jobs, who has been on medical leave since January, will remain with the company as chairman. Tim Cook, formerly chief operating officer, was named CEO.
UBS and ABN Amro announce job cuts
UBS announced plans to lay off more than 5% of its work force, mainly in its investment banking division. The move, which will eliminate 3,500 jobs, is part of a plan to save two billion Swiss francs annually and comes as the bank experiences weaker earnings, tighter regulation, and a rise in the Swiss franc. ABN Amro Bank also announced this week that it will cut an additional 2,350 jobs in the coming years in an effort to cuts costs as it prepares for privatization.
BHP posts record profit
BHP Billiton, the world's largest mining company, posted record full-year profits but cautioned about the future amid rising costs. BHP benefited from strong prices for iron ore and other commodities. The company's net profit rose 86%, to $23.65 billion in the year ended June 30, a record for an Australian company.
Toll Brothers profits jump 54%
Luxury homebuilder Toll Brothers reports its fiscal third-quarter earnings jumped 54% after getting a boost from a larger tax benefit. However, the company said it expects revenues to fall by double digits as home deliveries fall.
Friday, August 26, 2011
Saturday, August 20, 2011
U.S. economic news for the week ended August 19, 2011
U.S. and global economic news
Global stocks dropped sharply this week amid concern that the U.S. economic recovery is faltering and Europe's debt crisis will worsen. Investors turned cautious after German and French leaders failed to come up with concrete proposals to address sovereign debt problems in the region. A spate of negative U.S. news, reports that European banks lack sufficient capital, and downgrades of the U.S. and global economy by three U.S. banks sent the market careening lower throughout much of the week.
Gold prices, benefitting from safe-haven flows, jumped well about $1800 per ounce, and U.S. Treasuries surged, with the yield on the 10-year note falling below 2% for the first time in 50 years. Canadian and British debt of similar maturities also hit record lows. Amid fears of a slowing global economy, crude prices dropped below $84. This month alone, global equities markets have lost more than $6 trillion of their value.
U.S. and global economic news
Worries mount that Europe's banks lack sufficient capital
Speculation that European banks lack sufficient capital further unnerved investors this week. Worries about the health of the bank system mounted after the European Central Bank announced that a lender will borrow dollars for the first time in six months, and The Wall Street Journal reported that regulators were scrutinizing the U.S. operations of Europe's largest lenders to assess their vulnerability.
Swiss National Bank moves to weaken its currency
The Swiss National Bank (SNB) made yet another effort this week to weaken its currency, the franc (CHF), which has been driven higher as investors seek refuge from the eurozone debt crisis and fiscal worries in the United States. The bank nearly doubled the amount of liquidity available to the money market to CHF200 billion from CHF120 billion, but stopped short of announcing tougher moves, such as adopting a currency target or pegging the currency to the euro. The SNB said it would also continue to repurchase outstanding SNB bills and use foreign-exchange swap transitions. The move was the third effort n the last several weeks to weaken the franc by flooding the market with liquidity.
Fitch confirms U.S. top credit rating
Fitch Ratings confirmed the United States' top-notch credit rating and gave a vote of confidence to Washington's deficit reduction efforts. Fitch also maintained its stable outlook on its U.S. rating. This affirmation comes two weeks after Standard & Poor's downgraded the United States to AA+ with a negative outlook. Fitch did threaten to add a negative outlook to its rating if U.S. lawmakers fail to implement the $2.1 trillion in savings that were agreed to earlier this month or if the economy deteriorates significantly.
German growth slows sharply
News that Germany's economic growth slowed sharply in the second quarter of 2011 roiled markets and called into question the European Central Bank's decision to raise interest rates. The country's gross domestic product rose 0.1% in the second quarter from the first, and by 2.7% in annual terms. The German numbers, together with last week's data that showed flat growth in France, raised concern about the health of core European countries. The German report showed that net exports, private consumption, and construction activity weighed on growth in the second quarter.
U.S. economic news shows more weakness
While U.S. economic data were mixed this week, investors largely focused on the negative. In another sign of a persistently weak U.S. labor market, jobless claims rose more than expected by 9,000 to 408,000, in the week ended August 13. A Philadelphia-area manufacturing report took on added significance amid the economic jitters after it showed that area manufacturing shrank in August by the most since 2009. The U.S. Department of Commerce Department reported that housing starts dropped 1.5% in July. On the flip side, in July, industrial production in the United States climbed 09%, the most in a year, as carmakers began to shake off the effect of the disaster in Japan and as temperatures boosted utility use.
U.S. banks cut global and U.S. growth forecasts
Morgan Stanley cut its forecast for global economic growth this year to 3.9% from 4.2%, citing and insufficient policy response to Europe's debt crisis and weakening confidence. Morgan Stanley also cuts its 2012 GDP growth forecast to 0.5% from a previous estimate of 1.2%. Citigroup, citing "political paralysis" and fiscal tightening steps cut its 2011 U.S. growth forecast to 1.6% from 1.7%, and JPMorgan, noting that the risks of recession are "clearly elevated," said it now expects growth in the fourth quarter of 1%, rather than the 2.5%, previously forecast, and 0.5% in the first quarter of 2012, instead of 1.5%
U.S. consumer and wholesale costs rise more than expected
Consumer and wholesale costs in the United States rose more than expected in July. Consumer prices rose 0.5% from June, and the core rate, which excludes volatile food and energy costs, rose by a monthly 0.2%. On an annualized basis consumer prices were up 3.6% in July, above the U.S. Federal Reserve Board's inflation target. Wholesale prices rose 0.2%, led by higher prices for tobacco, trucks, and pharmaceuticals. The report, released by the U.S. Department of Labor, showed that the cost of crude products dropped in July for the third month in a row, led by declines in prices of food and petroleum. However, it suggests that falling commodity prices have yet to show up in consumer prices. The core measure however, which excludes volatile food and energy, rose 0.4%, the most since January. Compared with July 2010, companies paid 7.2% more for good last month, while core prices climbed 2.5% in the 12-month period.
U.S. and global corporate news
Google buys Motorola Mobility
Google, the largest maker of smart phone software, agreed to buy Motorola Mobility for $12.5 billion in cash. The deal ups Google's rivalry with Apple and gives it more control over wireless patents while expanding its hardware business.
Target and Staples report strong profits
Target, the second-largest discount U.S. retailer reported that it s profit jumped 3.7% in the second-quarter on higher sales. Staples, the biggest office supply retailer, forecast earnings that topped analysts' expectations. The company also reported that its fiscal second-quarter earnings rose 35% as its business units showed progress even as office suppliers struggle overall.
Hewlett-Packard falls short of expectations
Hewlett-Packard forecast fiscal fourth-quarter and full-year earnings that missed analysts' expectations as dull consumer spending failed to offset corporate purchases of printers, computers and servers.
Global stocks dropped sharply this week amid concern that the U.S. economic recovery is faltering and Europe's debt crisis will worsen. Investors turned cautious after German and French leaders failed to come up with concrete proposals to address sovereign debt problems in the region. A spate of negative U.S. news, reports that European banks lack sufficient capital, and downgrades of the U.S. and global economy by three U.S. banks sent the market careening lower throughout much of the week.
Gold prices, benefitting from safe-haven flows, jumped well about $1800 per ounce, and U.S. Treasuries surged, with the yield on the 10-year note falling below 2% for the first time in 50 years. Canadian and British debt of similar maturities also hit record lows. Amid fears of a slowing global economy, crude prices dropped below $84. This month alone, global equities markets have lost more than $6 trillion of their value.
U.S. and global economic news
Worries mount that Europe's banks lack sufficient capital
Speculation that European banks lack sufficient capital further unnerved investors this week. Worries about the health of the bank system mounted after the European Central Bank announced that a lender will borrow dollars for the first time in six months, and The Wall Street Journal reported that regulators were scrutinizing the U.S. operations of Europe's largest lenders to assess their vulnerability.
Swiss National Bank moves to weaken its currency
The Swiss National Bank (SNB) made yet another effort this week to weaken its currency, the franc (CHF), which has been driven higher as investors seek refuge from the eurozone debt crisis and fiscal worries in the United States. The bank nearly doubled the amount of liquidity available to the money market to CHF200 billion from CHF120 billion, but stopped short of announcing tougher moves, such as adopting a currency target or pegging the currency to the euro. The SNB said it would also continue to repurchase outstanding SNB bills and use foreign-exchange swap transitions. The move was the third effort n the last several weeks to weaken the franc by flooding the market with liquidity.
Fitch confirms U.S. top credit rating
Fitch Ratings confirmed the United States' top-notch credit rating and gave a vote of confidence to Washington's deficit reduction efforts. Fitch also maintained its stable outlook on its U.S. rating. This affirmation comes two weeks after Standard & Poor's downgraded the United States to AA+ with a negative outlook. Fitch did threaten to add a negative outlook to its rating if U.S. lawmakers fail to implement the $2.1 trillion in savings that were agreed to earlier this month or if the economy deteriorates significantly.
German growth slows sharply
News that Germany's economic growth slowed sharply in the second quarter of 2011 roiled markets and called into question the European Central Bank's decision to raise interest rates. The country's gross domestic product rose 0.1% in the second quarter from the first, and by 2.7% in annual terms. The German numbers, together with last week's data that showed flat growth in France, raised concern about the health of core European countries. The German report showed that net exports, private consumption, and construction activity weighed on growth in the second quarter.
U.S. economic news shows more weakness
While U.S. economic data were mixed this week, investors largely focused on the negative. In another sign of a persistently weak U.S. labor market, jobless claims rose more than expected by 9,000 to 408,000, in the week ended August 13. A Philadelphia-area manufacturing report took on added significance amid the economic jitters after it showed that area manufacturing shrank in August by the most since 2009. The U.S. Department of Commerce Department reported that housing starts dropped 1.5% in July. On the flip side, in July, industrial production in the United States climbed 09%, the most in a year, as carmakers began to shake off the effect of the disaster in Japan and as temperatures boosted utility use.
U.S. banks cut global and U.S. growth forecasts
Morgan Stanley cut its forecast for global economic growth this year to 3.9% from 4.2%, citing and insufficient policy response to Europe's debt crisis and weakening confidence. Morgan Stanley also cuts its 2012 GDP growth forecast to 0.5% from a previous estimate of 1.2%. Citigroup, citing "political paralysis" and fiscal tightening steps cut its 2011 U.S. growth forecast to 1.6% from 1.7%, and JPMorgan, noting that the risks of recession are "clearly elevated," said it now expects growth in the fourth quarter of 1%, rather than the 2.5%, previously forecast, and 0.5% in the first quarter of 2012, instead of 1.5%
U.S. consumer and wholesale costs rise more than expected
Consumer and wholesale costs in the United States rose more than expected in July. Consumer prices rose 0.5% from June, and the core rate, which excludes volatile food and energy costs, rose by a monthly 0.2%. On an annualized basis consumer prices were up 3.6% in July, above the U.S. Federal Reserve Board's inflation target. Wholesale prices rose 0.2%, led by higher prices for tobacco, trucks, and pharmaceuticals. The report, released by the U.S. Department of Labor, showed that the cost of crude products dropped in July for the third month in a row, led by declines in prices of food and petroleum. However, it suggests that falling commodity prices have yet to show up in consumer prices. The core measure however, which excludes volatile food and energy, rose 0.4%, the most since January. Compared with July 2010, companies paid 7.2% more for good last month, while core prices climbed 2.5% in the 12-month period.
U.S. and global corporate news
Google buys Motorola Mobility
Google, the largest maker of smart phone software, agreed to buy Motorola Mobility for $12.5 billion in cash. The deal ups Google's rivalry with Apple and gives it more control over wireless patents while expanding its hardware business.
Target and Staples report strong profits
Target, the second-largest discount U.S. retailer reported that it s profit jumped 3.7% in the second-quarter on higher sales. Staples, the biggest office supply retailer, forecast earnings that topped analysts' expectations. The company also reported that its fiscal second-quarter earnings rose 35% as its business units showed progress even as office suppliers struggle overall.
Hewlett-Packard falls short of expectations
Hewlett-Packard forecast fiscal fourth-quarter and full-year earnings that missed analysts' expectations as dull consumer spending failed to offset corporate purchases of printers, computers and servers.
Friday, August 12, 2011
U.S. economic news for the week ended August 12, 2011
Following a controversial downgrading of U.S. debt by ratings agency Standard & Poor’s late Friday, August 5, investors sent stock prices tumbling and gold prices soaring Monday. That set off a turbulent week of extreme financial market volatility around the world. Jittery nerves swept through Asia and Europe and back to the Americas, as fears grew regarding the escalating European debt crisis and a global economic slowdown. The stock selloff put more than half of the countries in the MSCI All-Country World Index in bear-market territory, with losses of 20%-plus since recent highs.
An attempt by U.S. President Obama to calm investors on Monday fell flat, as U.S. stock indices gave up more than 5%. The U.S. Federal Reserve Board’s pledge Tuesday to hold interest rates low until mid-2013 temporarily calmed markets. However, all of Tuesday's stock market gains were erased on Wednesday, as investors focused on the Fed's projection of two years of slow growth, which was why the Fed had made its low-rate pledge. The Chicago Board of Options Exchange (CBOE) Volatility Index reached 48 on Monday, and the major stock indices gained or lost 4% or more daily for four consecutive days, a level of volatility not seen since the fall of 2008. CBOE Volatility Index values greater than 30 are generally associated with a large amount of volatility as a result of investor fear or uncertainty. Optimism returned Thursday, on Cisco Systems’ positive earnings report and a drop in weekly U.S. jobless claims. Thursday marked the seventh straight day in which the Dow Jones Industrial Average reversed its previous day’s direction. The volatility has been magnified by leveraged exchange-traded funds that add to the market’s movements each day.
Through all this, despite the debt downgrade, U.S. Treasuries ironically retained their status as safe-haven investments, as investors lacked confidence in other alternatives amid so much uncertainty and volatility. Gold futures contracts set a record of $1,817 per ounce during the week. However, accounting for inflation, gold would have to reach $2,400 per ounce to equal its previous record high. As projections of future economic growth faded, the price of a barrel of oil fell to just above $80 Wednesday, before rebounding to $86 by Friday.
U.S. and global economic news
European debt concerns grow; ECB buys more bonds
On Monday and again Tuesday, the European Central Bank bought Italian and Spanish government bonds to stabilize borrowing costs for the European Union’s third- and fourth-largest economies in a critical and dramatic move to stem Europe’s growing debt crisis. The ECB’s bond purchase program had been inactive for four months before the central bank resumed purchases of Portuguese and Irish bonds last week.
Eurozone production slips
Eurozone industrial production shrank 0.7% from May to June, the European Union’s statistics office reported. France’s economy had no growth in the second quarter, while Greece’s economic output contracted 6.9% from a year earlier.
U.S. Treasuries continue to serve as safe haven
Despite the downgrade of U.S. sovereign debt from AAA to AA+ by Standard & Poor’s, demand for U.S. Treasury securities remained very high this week. Yields, moving in the opposite direction to bond prices, fell to 2.10% for the 10-year Treasury note on Wednesday and just 0.17% for the two-year note. Yields rose slightly by Friday – to 2.25% and 0.19%, respectively – as a more optimistic mood settled the market somewhat. Few alternatives exist to U.S. Treasuries, given their depth and liquidity, with more than $9.3 trillion in debt outstanding.
U.S. consumer confidence plummets
Confidence among U.S. consumers fell in August to its lowest point since May 1980. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment plunged to 54.9 from 63.7 in July. A decline to 62 was expected in a Bloomberg News survey. Rising pessimism after the downgrade of U.S. debt and the current stock market volatility could weigh down consumer spending.
Gold benefits from heightened unease
Gold lived up to its reputation as an investment to hold amid uncertainty and volatility. The price of an ounce of gold in a forward contract rose to $1,817 on Wednesday before dipping below $1,800 Thursday.
U.S. retail sales rise
Retail and food services sales were 0.5% higher in the United States in July from June, as consumers spent more on gasoline, electronics, and other merchandise.
U.S. productivity weakened in second quarter
U.S. worker productivity fell for the second consecutive quarter, as employee output per hour declined at an annual rate of 0.3% in the second quarter of 2011 after falling 0.6% the previous three months. Declining efficiency and rising costs are disincentives for companies to hire more staff or increase pay.
Jobless claims ease
Initial claims for unemployment benefits by U.S. workers fell by 7,000 to a seasonally adjusted 395,000 in the week ended August 6, according to the U.S. Department of Labor. The four-week moving average of new claims fell by 3,250 to 405,000.
German exports drop
German exports declined in June, in another sign of economic weakness in Europe. Exports from Germany fell 1.2% from May while imports rose 0.3%. Demand for German-produced goods eased as neighboring countries sought to reduce spending because of the sovereign debt crisis and the demand for fiscal restraint.
U.S. and global corporate news
Commerzbank hurt by Greek debt exposure
Commerzbank, Germany’s second-largest bank, had a 93% drop in its net profit in the second quarter from the year-earlier period after writing down all of its Greek sovereign debt exposure. Operating profit fell 77%. However, Commerzbank said its core bank is on track for a 2011 operating profit higher than last year’s 1.98 billion euros.
McDonald’s same-store sales up 5.1%
Same-store sales at McDonald’s restaurants rose 5.1% in July, as the fast-food giant’s sales grew in all regions. McDonald’s continues to benefit from competitive pricing and an increasingly diverse menu. The company’s system-wide sales grew 14% in July.
Macy’s, Polo, Kohl’s profits up, Penney flat
Department store chain Macy’s increased its earnings 64% in the second quarter from a year earlier. Same-store sales grew 6.4% while online sales were up 40%. Polo Ralph Lauren posted a 52% rise in first-quarter earnings and projects revenue growth in the high teens to low-20% range. Kohl’s reported a 17% increase in profits, but sales were up less than 4%, below analysts’ expectations. JCPenney had flat profits and lower sales, reflecting its departure from its catalog business.
Cisco Systems
Networking equipment maker Cisco Systems had a 36% drop in net income in its fiscal fourth quarter as a result of a $772 million restructuring charge. Its revenue rose 3.3% from the year-earlier period, higher than analyst expectations, and the firm’s CEO, John Chambers, said Cisco was making solid progress on turning its fortunes around.
An attempt by U.S. President Obama to calm investors on Monday fell flat, as U.S. stock indices gave up more than 5%. The U.S. Federal Reserve Board’s pledge Tuesday to hold interest rates low until mid-2013 temporarily calmed markets. However, all of Tuesday's stock market gains were erased on Wednesday, as investors focused on the Fed's projection of two years of slow growth, which was why the Fed had made its low-rate pledge. The Chicago Board of Options Exchange (CBOE) Volatility Index reached 48 on Monday, and the major stock indices gained or lost 4% or more daily for four consecutive days, a level of volatility not seen since the fall of 2008. CBOE Volatility Index values greater than 30 are generally associated with a large amount of volatility as a result of investor fear or uncertainty. Optimism returned Thursday, on Cisco Systems’ positive earnings report and a drop in weekly U.S. jobless claims. Thursday marked the seventh straight day in which the Dow Jones Industrial Average reversed its previous day’s direction. The volatility has been magnified by leveraged exchange-traded funds that add to the market’s movements each day.
Through all this, despite the debt downgrade, U.S. Treasuries ironically retained their status as safe-haven investments, as investors lacked confidence in other alternatives amid so much uncertainty and volatility. Gold futures contracts set a record of $1,817 per ounce during the week. However, accounting for inflation, gold would have to reach $2,400 per ounce to equal its previous record high. As projections of future economic growth faded, the price of a barrel of oil fell to just above $80 Wednesday, before rebounding to $86 by Friday.
U.S. and global economic news
European debt concerns grow; ECB buys more bonds
On Monday and again Tuesday, the European Central Bank bought Italian and Spanish government bonds to stabilize borrowing costs for the European Union’s third- and fourth-largest economies in a critical and dramatic move to stem Europe’s growing debt crisis. The ECB’s bond purchase program had been inactive for four months before the central bank resumed purchases of Portuguese and Irish bonds last week.
Eurozone production slips
Eurozone industrial production shrank 0.7% from May to June, the European Union’s statistics office reported. France’s economy had no growth in the second quarter, while Greece’s economic output contracted 6.9% from a year earlier.
U.S. Treasuries continue to serve as safe haven
Despite the downgrade of U.S. sovereign debt from AAA to AA+ by Standard & Poor’s, demand for U.S. Treasury securities remained very high this week. Yields, moving in the opposite direction to bond prices, fell to 2.10% for the 10-year Treasury note on Wednesday and just 0.17% for the two-year note. Yields rose slightly by Friday – to 2.25% and 0.19%, respectively – as a more optimistic mood settled the market somewhat. Few alternatives exist to U.S. Treasuries, given their depth and liquidity, with more than $9.3 trillion in debt outstanding.
U.S. consumer confidence plummets
Confidence among U.S. consumers fell in August to its lowest point since May 1980. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment plunged to 54.9 from 63.7 in July. A decline to 62 was expected in a Bloomberg News survey. Rising pessimism after the downgrade of U.S. debt and the current stock market volatility could weigh down consumer spending.
Gold benefits from heightened unease
Gold lived up to its reputation as an investment to hold amid uncertainty and volatility. The price of an ounce of gold in a forward contract rose to $1,817 on Wednesday before dipping below $1,800 Thursday.
U.S. retail sales rise
Retail and food services sales were 0.5% higher in the United States in July from June, as consumers spent more on gasoline, electronics, and other merchandise.
U.S. productivity weakened in second quarter
U.S. worker productivity fell for the second consecutive quarter, as employee output per hour declined at an annual rate of 0.3% in the second quarter of 2011 after falling 0.6% the previous three months. Declining efficiency and rising costs are disincentives for companies to hire more staff or increase pay.
Jobless claims ease
Initial claims for unemployment benefits by U.S. workers fell by 7,000 to a seasonally adjusted 395,000 in the week ended August 6, according to the U.S. Department of Labor. The four-week moving average of new claims fell by 3,250 to 405,000.
German exports drop
German exports declined in June, in another sign of economic weakness in Europe. Exports from Germany fell 1.2% from May while imports rose 0.3%. Demand for German-produced goods eased as neighboring countries sought to reduce spending because of the sovereign debt crisis and the demand for fiscal restraint.
U.S. and global corporate news
Commerzbank hurt by Greek debt exposure
Commerzbank, Germany’s second-largest bank, had a 93% drop in its net profit in the second quarter from the year-earlier period after writing down all of its Greek sovereign debt exposure. Operating profit fell 77%. However, Commerzbank said its core bank is on track for a 2011 operating profit higher than last year’s 1.98 billion euros.
McDonald’s same-store sales up 5.1%
Same-store sales at McDonald’s restaurants rose 5.1% in July, as the fast-food giant’s sales grew in all regions. McDonald’s continues to benefit from competitive pricing and an increasingly diverse menu. The company’s system-wide sales grew 14% in July.
Macy’s, Polo, Kohl’s profits up, Penney flat
Department store chain Macy’s increased its earnings 64% in the second quarter from a year earlier. Same-store sales grew 6.4% while online sales were up 40%. Polo Ralph Lauren posted a 52% rise in first-quarter earnings and projects revenue growth in the high teens to low-20% range. Kohl’s reported a 17% increase in profits, but sales were up less than 4%, below analysts’ expectations. JCPenney had flat profits and lower sales, reflecting its departure from its catalog business.
Cisco Systems
Networking equipment maker Cisco Systems had a 36% drop in net income in its fiscal fourth quarter as a result of a $772 million restructuring charge. Its revenue rose 3.3% from the year-earlier period, higher than analyst expectations, and the firm’s CEO, John Chambers, said Cisco was making solid progress on turning its fortunes around.
Monday, August 8, 2011
U.S. economic news for the week ended August 5, 2011
Global markets went into a tailspin this week as investors returned their focus to the myriad signs of slowing global growth and the spread of the eurozone debt crisis. Fallout from the debt crisis in Europe, the political standoff on the U.S. government's borrowing limit, and concerns about slower U.S. and global growth sent central banks around the world into crisis mode, cutting interest rates, intervening to support their currencies, and buying bonds in an effort to protect their economies from the spreading crises.
Investors also went into crisis mode, dumping any asset considered risky. On Thursday the Dow Jones Industrial Average dropped 512 points, and the Standard & Poor's 500 Stock Index lost 4.8%. On Friday a better-than-expected U.S. jobs number helped calm market fears. Throughout the week, gold rallied, hitting an intraday record of $1,684.90 per ounce on Thursday, as investors sought a hedge against global market turmoil.
Gloom set in midweek, despite a last-minute deal by U.S. lawmakers to raise the debt ceiling, a measure that allowed the United States to avoid default. Worries that Europe's debt crisis would soon spread to Italy and Spain, whose yields soared to euro-era highs this week, exacerbated market fears, pushed the European Central Bank into action, and sent investors seeking the safety of U.S. Treasuries, whose yields fell to the lowest level of the year.
U.S. and global economic news
U.S. lawmakers agree on deal to raise debt limits, cut spending
On Tuesday President Barack Obama signed a long-debated debt deal that raised the U.S. debt limit and cuts spending. The bill increases the government borrowing limit by $2.4 trillion and cuts $917 billion in federal spending. Moody Investors Service and Fitch Ratings said they would keep the United States at their top "AAA" rating but with a negative outlook. They warned that downgrades were possible if lawmakers fail to enact debt reduction measures and if the economy weakens.
BOJ and SNB intervene to support currencies
The Bank of Japan and Swiss National Bank both intervened in currency markets to stem the rise of their currencies. The BOJ sold yen on Thursday. The move caused the currency to weaken as much as 4% against the U.S. dollar after rising some 5% against the U.S. currency in July. The Bank of Japan also expanded an asset-purchase fund that includes government bonds, real estate investment trusts, and corporate debt to ¥15 trillion from ¥10 trillion. Additionally, it boosted by ¥5 trillion a program aimed at encouraging banks to lend. The SNB unexpectedly cut interest rates and said it would inject $65 billion to stem the franc's record-breaking gains against the euro and the dollar. The Swiss franc has gained about 35% against the U.S. dollar in the past year.
ECB resumes bond buying
After being absent from the market for 18 weeks, the European Central Bank resumed bond purchases and will offer banks more cash in an effort to stop the region's debt crisis from spreading to Italy and Spain, whose yields soared to levels unseen since the euro was introduced. The ECB kept its benchmark interest rate at 1.5%. European officials are essentially trying to build a firewall around these third- and fourth-largest economies to avoid their being forced to seek external aid.
U.S. economy adds more jobs than expected
The U.S. economy added more jobs than expected in July, and the unemployment rate edged down. Nonfarm payrolls rose by 117,000 last month, and payroll data for the previous two months were revised higher by a total of 56,000. The unemployment rate dropped to 9.1% in July from 9.2% in June. Economists had forecast jobs would rise by 75,000 and the unemployment rate would remain at 9.2%.
Turkey cuts rates
Turkey's central bank lowered its key interest rate to a record low of 5.75%, while the Bank of England kept its key rate at 0.5%.
U.S. consumer spending flat; factory activity slumps
U.S. consumer spending was essentially flat in June, falling 0.2%, the biggest drop since September 2009. Personal income increased 0.1%, while wages and salaries that fuel consumer spending declined slightly. The Institute for Supply Management gauge of factory activity showed that the pace of manufacturing slowed sharply in July.
U.S. and global corporate news
Toyota's profit drops 99%; GM sees income double
Toyota Motor's profit fell 99% as it grappled with the yen's surge and crippled output. General Motors' second-quarter profits nearly doubled, as the company sold more vehicles globally and was able to charge more for cars and trucks in the United States.
Comcast, Dunkin, P&G, and LinkedIn report profits
Comcast profits rose 16% as it lost fewer pay-TV customers and sales grew at NBC Universal. Dunkin' Brands profits fell 1% as sales declines at Baskin-Robbins masked growth at Dunkin Donuts and abroad. Proctor & Gamble's fiscal fourth-quarter profit jumped 15% as sales grew across the world, and LinkedIn's second-quarter profit rose 5.1% on strong revenue growth.
Investors also went into crisis mode, dumping any asset considered risky. On Thursday the Dow Jones Industrial Average dropped 512 points, and the Standard & Poor's 500 Stock Index lost 4.8%. On Friday a better-than-expected U.S. jobs number helped calm market fears. Throughout the week, gold rallied, hitting an intraday record of $1,684.90 per ounce on Thursday, as investors sought a hedge against global market turmoil.
Gloom set in midweek, despite a last-minute deal by U.S. lawmakers to raise the debt ceiling, a measure that allowed the United States to avoid default. Worries that Europe's debt crisis would soon spread to Italy and Spain, whose yields soared to euro-era highs this week, exacerbated market fears, pushed the European Central Bank into action, and sent investors seeking the safety of U.S. Treasuries, whose yields fell to the lowest level of the year.
U.S. and global economic news
U.S. lawmakers agree on deal to raise debt limits, cut spending
On Tuesday President Barack Obama signed a long-debated debt deal that raised the U.S. debt limit and cuts spending. The bill increases the government borrowing limit by $2.4 trillion and cuts $917 billion in federal spending. Moody Investors Service and Fitch Ratings said they would keep the United States at their top "AAA" rating but with a negative outlook. They warned that downgrades were possible if lawmakers fail to enact debt reduction measures and if the economy weakens.
BOJ and SNB intervene to support currencies
The Bank of Japan and Swiss National Bank both intervened in currency markets to stem the rise of their currencies. The BOJ sold yen on Thursday. The move caused the currency to weaken as much as 4% against the U.S. dollar after rising some 5% against the U.S. currency in July. The Bank of Japan also expanded an asset-purchase fund that includes government bonds, real estate investment trusts, and corporate debt to ¥15 trillion from ¥10 trillion. Additionally, it boosted by ¥5 trillion a program aimed at encouraging banks to lend. The SNB unexpectedly cut interest rates and said it would inject $65 billion to stem the franc's record-breaking gains against the euro and the dollar. The Swiss franc has gained about 35% against the U.S. dollar in the past year.
ECB resumes bond buying
After being absent from the market for 18 weeks, the European Central Bank resumed bond purchases and will offer banks more cash in an effort to stop the region's debt crisis from spreading to Italy and Spain, whose yields soared to levels unseen since the euro was introduced. The ECB kept its benchmark interest rate at 1.5%. European officials are essentially trying to build a firewall around these third- and fourth-largest economies to avoid their being forced to seek external aid.
U.S. economy adds more jobs than expected
The U.S. economy added more jobs than expected in July, and the unemployment rate edged down. Nonfarm payrolls rose by 117,000 last month, and payroll data for the previous two months were revised higher by a total of 56,000. The unemployment rate dropped to 9.1% in July from 9.2% in June. Economists had forecast jobs would rise by 75,000 and the unemployment rate would remain at 9.2%.
Turkey cuts rates
Turkey's central bank lowered its key interest rate to a record low of 5.75%, while the Bank of England kept its key rate at 0.5%.
U.S. consumer spending flat; factory activity slumps
U.S. consumer spending was essentially flat in June, falling 0.2%, the biggest drop since September 2009. Personal income increased 0.1%, while wages and salaries that fuel consumer spending declined slightly. The Institute for Supply Management gauge of factory activity showed that the pace of manufacturing slowed sharply in July.
U.S. and global corporate news
Toyota's profit drops 99%; GM sees income double
Toyota Motor's profit fell 99% as it grappled with the yen's surge and crippled output. General Motors' second-quarter profits nearly doubled, as the company sold more vehicles globally and was able to charge more for cars and trucks in the United States.
Comcast, Dunkin, P&G, and LinkedIn report profits
Comcast profits rose 16% as it lost fewer pay-TV customers and sales grew at NBC Universal. Dunkin' Brands profits fell 1% as sales declines at Baskin-Robbins masked growth at Dunkin Donuts and abroad. Proctor & Gamble's fiscal fourth-quarter profit jumped 15% as sales grew across the world, and LinkedIn's second-quarter profit rose 5.1% on strong revenue growth.
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