Stocks declined this week as ongoing concerns about the eurozone debt crisis forced investors to the sidelines. The cost of insuring against a default on European sovereign debt approached record levels amid the ongoing search for an exit strategy that is acceptable to all. Investor disappointment that the U.S. Federal Reserve Board refrained from taking new action to bolster U.S. growth further pressured markets.
U.S. and global economic news
Euro drops to lowest level in nearly a year
The euro dropped to its lowest level against the dollar in nearly a year amid concerns about the eurozone economy. Doubts about efforts to contain the debt crisis continued to unsettle investors this week as the region's leaders debated solutions to the financial woes. Rates that banks charge each other for short-term borrowing in dollars hit their highest level since July 2009, and yields on Italian bonds jumped above 7%, a level that makes it difficult for Italy to borrow.
Fed maintains easy monetary policy
The Fed this week reaffirmed its belief that current economic conditions will likely warrant exceptionally low interest rates through at least mid-2013. This week's stable inflation numbers gave the central bank further leeway to keep a lid on rates. U.S. consumer prices were unchanged in November as a drop in energy costs offset a slight rise in food prices. Other news showed some year-end strengthening of the economy. Jobless claims fell unexpectedly last week to their lowest level in three years, and manufacturing in the New York region expanded in December to the highest level in seven months.
Indonesia regains investment-grade rating
After 14 years, Indonesia regained an investment-grade rating for its sovereign debt from Fitch Ratings. The country, Southeast Asia's largest economy, had its long-term foreign and local currency debt raised to BBB- from BB+. It had lost its investment-grade rating in December 1997 during the Asian financial crisis. Fitch said that the upgrade reflects the country's strong and resilient economic growth, low and declining public debt ratios, strengthened external liquidity, and prudent overall macro policy framework.
U.S. and global corporate news
Two European banks take emergency measures to address deepening crisis
Crédit Agricole, France's third largest bank, said it will exit 21 of 53 countries in which it operates in an effort to shore up its finances. It also announced that it will sell its private equity business to investment fund Coller Capital as part of its plan to boost capital ratios. Commerzbank, Germany's second largest bank by assets, is in negotiations to transfer suspect assets to a government-owned "bad bank." Transferring its bad assets to this government bank will allow Commerzbank to shore up its balance sheets, while avoiding the appearance of a taxpayer bailout.
RIM's stock falls to seven-year lows
Blackberry maker Research in Motion's stock fell to a seven-year low after it announced its fiscal third-quarter earnings fell 71% on charges related to the troubled launch of a tablet competitor to Apple's iPad. The company further disappointed investors with news that its long-awaited product revamp will be delayed until later in 2012.
Zynga raises $1 billion in IPO
Zynga, the largest maker of games for Facebook, raised $1 billion in its initial public offering of 100 million shares of common stock at $10 per share. The offering is the biggest by a U.S. Internet company since Google raised $1.9 billion in its 2004 IPO. The stock will trade under the symbol ZNGA.
Morgan Stanley to cut 1,600 jobs
Morgan Stanley announced plans to cut 1,600 jobs, or 2.6% of its workforce. The layoffs come as Wall Street profits are hit by volatile markets and customer hesitancy toward investing. The cuts are the largest for the company since late 2008 and early 2009, when it laid off more than 2,500 workers in the midst of the financial crisis.
Sunday, December 18, 2011
Friday, December 9, 2011
U.S. economic news for the week ended December 9, 2011
Amid mounting pressure from financial markets and policymakers to come up with a workable plan to contain the eurozone debt crisis, the European Union's all-night effort to save the eurozone from debt contagion met with mixed reviews. Throughout the week investors bid stocks higher and lower as efforts to shore up the region's financial woes were met with news of ratings agency downgrades of eurozone countries and many if its banks. By Friday, investors were left to scrutinize the EU agreement that calls for a tightening of fiscal coordination and to examine the details of an intergovernmental treaty that is still in the works.
U.S. and global economic news
EU leaders seal blueprint for closer fiscal union
After a marathon meeting this week, European leaders agreed to cap the European Stability Mechanism at 500 billion and that EU nations would provide up to 200 billion in loans to the International Monetary Fund to increase its funding ability. In spite of opposition from the United Kingdom, the 17 countries of the eurozone also agreed to run only minimal budget deficits in the future and allow the European Court of Justice the right to strike down national laws that do not properly enforce such discipline.
S&P puts 15 eurozone nations on negative credit watch
Standard & Poor's Ratings Service put the long-term debt ratings of 15 eurozone nations on negative watch. That warning includes Germany and five AAA members and comes as turmoil deepens in the currency bloc. The warning typically means that there is a 50% chance of a downgrade within 90 days. S&P also said it placed the long-term credit rating of the European Financial Stability Facility on credit watch negative. The move puts the bailout fund's rating on review for a possible downgrade. In another follow-up to its warning on Monday, S&P said some of the eurozone's largest banks, such as BNP Paribas and Deutsche Bank, could have their ratings cut, following a potential downgrade of eurozone countries.
Central banks weigh rate cuts
Central bankers around the world continue to weigh faltering growth prospects against weaker currencies as the sovereign debt crisis threatens to spill over from Greece. The European Central Bank cut interest rates for the second month in a row, lowering the benchmark interest rate by a quarter of a percentage point to 1% to match a record low. Meanwhile, the Bank of England kept the size of its asset-purchase program unchanged at 275 billion and left its key interest rate at 0.5%. The Reserve Bank of Australia cut its rate for the second month in a row as Europe's fiscal crisis threatened to slow its commodity exports, which would in turn send its currency lower. The bank lowered the rate by a quarter of a basis point to 4.25%. Serbia's central bank unexpectedly lowered its rate for the sixth time since June on concerns the European debt crisis will damp exports demand and slow growth. South Korea, New Zealand, and Indonesia left rates unchanged.
German industrial production rises; Italy and United Kingdom see declines
Germany's economy showed signs of life in October as industrial production rose more than expected after falling for the previous two months. Industrial production numbers from Italy showed a decline at the fastest rate in two years. U.K. factories decreased their output in October to the weakest annual rate since January 2010.
U.S. trade deficit narrows
In October, the U.S. trade deficit narrowed to its lowest level for the year. The gap shrank 1.6% as imports declined to a level not seen since April. That drop resulted almost entirely from a decrease in demand for oil. Imports of capital goods rose an indication that consumer spending is still keeping the economy afloat. Exports to China and South and Central America reached records, a sign that U.S. companies are benefiting from rising demand for their products in developing nations.
Japan's machinery orders fall
Japan's machinery orders unexpectedly fell for a second month in October, a signal that a strong yen and global slowing are prompting companies to postpone investment. Orders, an indicator of capital spending, fell 6.9% from a month earlier.
U.S. and global corporate news
Moody's cuts ratings of big French banks
Moody's Investors Service cut the credit ratings of BNP Paribas, Socit Gnrale, and Crdit Agricole amid funding constraints and deteriorating economic conditions. Moody's cut the long-term ratings for BNP and Crdit Agricole by one level to Aa3, the fourth-highest investment grade. Socit Gnrale's rating was cut to A1, the fifth highest. Moody's also cut the standalone assessments of financial strength of the three banks.
European banks face 114.7 billion shortfall
The European Banking Authority said European banks have a capital shortfall of 114.7 billion. The new figure is 8 billion more than the EBA estimated in October and published in the EBA's bank recapitalization plans that are among measures agreed to by the European Council in October in response to the European debt crisis.
Citigroup to cut 4,500 jobs
Citigroup announced that it will cut about 4,500 jobs over the next few quarters as volatile financial markets and new regulations hit profits. The company will take a $400 million charge in the fourth quarter to cover severance and other expenses.
Ford Motor declares first dividend since 2006
Ford Motor declared a $0.05 quarterly dividend, its first payout to shareholders since September 2006. The announcement came as part of Ford's news that it earned $1.65 billion in the three months ended in September. This marked the company's tenth-consecutive profitable quarter.
U.S. and global economic news
EU leaders seal blueprint for closer fiscal union
After a marathon meeting this week, European leaders agreed to cap the European Stability Mechanism at 500 billion and that EU nations would provide up to 200 billion in loans to the International Monetary Fund to increase its funding ability. In spite of opposition from the United Kingdom, the 17 countries of the eurozone also agreed to run only minimal budget deficits in the future and allow the European Court of Justice the right to strike down national laws that do not properly enforce such discipline.
S&P puts 15 eurozone nations on negative credit watch
Standard & Poor's Ratings Service put the long-term debt ratings of 15 eurozone nations on negative watch. That warning includes Germany and five AAA members and comes as turmoil deepens in the currency bloc. The warning typically means that there is a 50% chance of a downgrade within 90 days. S&P also said it placed the long-term credit rating of the European Financial Stability Facility on credit watch negative. The move puts the bailout fund's rating on review for a possible downgrade. In another follow-up to its warning on Monday, S&P said some of the eurozone's largest banks, such as BNP Paribas and Deutsche Bank, could have their ratings cut, following a potential downgrade of eurozone countries.
Central banks weigh rate cuts
Central bankers around the world continue to weigh faltering growth prospects against weaker currencies as the sovereign debt crisis threatens to spill over from Greece. The European Central Bank cut interest rates for the second month in a row, lowering the benchmark interest rate by a quarter of a percentage point to 1% to match a record low. Meanwhile, the Bank of England kept the size of its asset-purchase program unchanged at 275 billion and left its key interest rate at 0.5%. The Reserve Bank of Australia cut its rate for the second month in a row as Europe's fiscal crisis threatened to slow its commodity exports, which would in turn send its currency lower. The bank lowered the rate by a quarter of a basis point to 4.25%. Serbia's central bank unexpectedly lowered its rate for the sixth time since June on concerns the European debt crisis will damp exports demand and slow growth. South Korea, New Zealand, and Indonesia left rates unchanged.
German industrial production rises; Italy and United Kingdom see declines
Germany's economy showed signs of life in October as industrial production rose more than expected after falling for the previous two months. Industrial production numbers from Italy showed a decline at the fastest rate in two years. U.K. factories decreased their output in October to the weakest annual rate since January 2010.
U.S. trade deficit narrows
In October, the U.S. trade deficit narrowed to its lowest level for the year. The gap shrank 1.6% as imports declined to a level not seen since April. That drop resulted almost entirely from a decrease in demand for oil. Imports of capital goods rose an indication that consumer spending is still keeping the economy afloat. Exports to China and South and Central America reached records, a sign that U.S. companies are benefiting from rising demand for their products in developing nations.
Japan's machinery orders fall
Japan's machinery orders unexpectedly fell for a second month in October, a signal that a strong yen and global slowing are prompting companies to postpone investment. Orders, an indicator of capital spending, fell 6.9% from a month earlier.
U.S. and global corporate news
Moody's cuts ratings of big French banks
Moody's Investors Service cut the credit ratings of BNP Paribas, Socit Gnrale, and Crdit Agricole amid funding constraints and deteriorating economic conditions. Moody's cut the long-term ratings for BNP and Crdit Agricole by one level to Aa3, the fourth-highest investment grade. Socit Gnrale's rating was cut to A1, the fifth highest. Moody's also cut the standalone assessments of financial strength of the three banks.
European banks face 114.7 billion shortfall
The European Banking Authority said European banks have a capital shortfall of 114.7 billion. The new figure is 8 billion more than the EBA estimated in October and published in the EBA's bank recapitalization plans that are among measures agreed to by the European Council in October in response to the European debt crisis.
Citigroup to cut 4,500 jobs
Citigroup announced that it will cut about 4,500 jobs over the next few quarters as volatile financial markets and new regulations hit profits. The company will take a $400 million charge in the fourth quarter to cover severance and other expenses.
Ford Motor declares first dividend since 2006
Ford Motor declared a $0.05 quarterly dividend, its first payout to shareholders since September 2006. The announcement came as part of Ford's news that it earned $1.65 billion in the three months ended in September. This marked the company's tenth-consecutive profitable quarter.
Friday, December 2, 2011
U.S. economic news for the week ended December 2, 2011
An upbeat week for markets stood in sharp contrast to the previous week’s large financial market declines. The key was a decisive move by central banks to allow for less expensive overseas borrowing of U.S. dollars, particularly helpful to the European Central Bank’s effort to avert an immediate worsening of the eurozone debt crisis. Other positive signs include a drop in the U.S. unemployment rate to 8.6%, accompanied by a healthy increase in the number of U.S. jobs, and a sharp rise in U.S. consumer confidence. Strong early holiday-season sales among U.S. retailers are also encouraging.
For the week, major stock indices around the world posted gains of 5% or more, highlighting once again the abnormally volatile period for global markets. U.S. Treasury yields rose in response to the unexpected drop in the U.S. unemployment rate, while the euro rallied earlier in the week in reaction to the improved prospects for European liquidity.
U.S. and global economic news
Global central bank action sparks market rally
Central banks including the U.S. Federal Reserve, the Bank of Canada, the European Central Bank (ECB), the Bank of England, the Bank of Japan, and the Swiss National Bank on Wednesday announced a plan to cut in half the cost of borrowing dollars from the Fed. The move is designed to assure financial markets that the ECB will have the money it needs to lend to struggling eurozone banks and therefore avoid a deepening of the debt crisis. However, the measure is seen as only a temporary way to alleviate market concerns, and doesn’t directly address the deep financial troubles facing European governments.
Belgian credit rating cut
Belgium’s government credit rating was cut by Standard & Poor’s by one notch to AA. The country’s borrowing costs rose to their highest levels in 11 years after it agreed to buy Dexia’s Belgian bank unit and guarantee part of its liabilities for the next decade.
Unemployment rate down; jobs numbers up
The U.S. labor market strengthened in November, as a rise of 120,000 jobs in the nonfarm payroll total was accompanied by a drop in the unemployment rate to 8.6% from 9.0% in October. Also positive are upward revisions of the October and September payroll numbers. October’s figure rose to a gain of 100,000 from a previously reported 80,000, and September was revised to a 210,000 gain from 158,000, as more reports from small businesses came in.
U.S. consumer confidence rises sharply
Consumer confidence rose sharply in November, according to three domestic U.S. indices. The Conference Board’s index increased to 56 from 40.9 in October, its biggest jump since April 2003. The Thomson Reuters/University of Michigan final index of consumer sentiment rose to 64.1 from 60.9, and the Bloomberg Consumer Comfort Index’s monthly expectations gauge also rose.
Weekly jobless claims rise above 400,000
Initial claims for unemployment benefits among U.S. workers rose unexpectedly last week, climbing by 6,000 to a seasonally adjusted 402,000. Economists surveyed by Dow Jones Newswires had expected a drop of 3,000. This was the first week since October that new claims for jobless benefits were above 400,000. The four-week average for new claims increased by 500 to 395,750.
House prices fall again
The S&P/Case-Shiller index of property values in 20 cities dropped 3.6% in September from a year earlier while the figure for the 10-city index was 3.3% lower than September 2010, demonstrating that the housing market has yet to find its bottom.
Fitch cuts U.S. credit outlook to negative
Fitch Ratings downgraded the outlook for U.S. government debt to negative from stable following the failure of the congressional super committee on deficit reduction to come to an agreement by the end of November after being given a mandate to cut the federal budget deficit by $1.2 trillion over 10 years.
Manufacturing weakens in eurozone and Asia
Separate reports from the eurozone and Asian countries point to the same thing –– a contracting manufacturing sector. The eurozone manufacturing purchasing managers’ index (PMI), a monthly survey by Markit, fell to its lowest point in 28 months, 46.4 in November, from 47.1 in October. Anything below 50 denotes contraction. China, South Korea, Taiwan, and Australia also reported shrinking manufacturing activity. India’s PMI was barely positive at 51, down from 52 the previous month.
China shifts stance to monetary easing
In response to signs that its economy is slowing, the Chinese government unexpectedly changed direction with its monetary policy, reversing a trend toward monetary tightening with the announcement that it would allow commercial banks to keep a smaller percentage of their profits as reserves at the central bank. The reserve requirement ratio is now 21% for large banks and 19% for smaller banks.
U.S. and global corporate news
Moody’s cuts loom for European banks
Moody’s Investors Service has placed the subordinated debt ratings of 87 banks in 15 European nations, including France, Italy, and Spain, on review for a downgrade. The move reflects the potential impact of the removal of government support to all subordinated, junior-subordinated, and Tier 3 debt ratings of banks in countries where subordinated debt assumes a level of government support.
American Airlines’ parent files for bankruptcy
AMR, the parent of American Airlines, filed for bankruptcy protection despite having more than $4 billion in cash. American was the only U.S. legacy airline that had not yet sought bankruptcy protection. Over the past decade, AMR has lost more than $10 billion, struggling to compete against rivals United Airlines and Delta Air Lines, who had benefited from court protected restructurings and mergers.
Retailers boast surge in early holiday sales
November was a good month for many major retailers, who started the critically important holiday sales season with better figures than last year’s. Close to two dozen retailers tracked by Thomson Reuters were on target for a 3.1% growth in sales at stores open for more than a year. This included Macy’s (up 4.8% in same-store sales), Saks registered a 9.3% sales rise, and Costco had 7% sales growth. However, sales at Kohl’s fell 6.2%, Target’s same-store sales grew by 1.8%, and J.C. Penney had a 2% decline.
November a hot month for U.S. car sales
Domestic and foreign automakers benefited from an outpouring of pent-up consumer demand in November, as sales of automobiles in the United States were boosted by lower gas prices and a wider availability of Japanese vehicles. Among U.S. manufacturers, Chrysler’s domestic sales rose 45%, Ford Motor’s sales were up 13%, General Motors had a 7% increase in sales.
Foreign automakers generally had a strong month in U.S. sales, with increases by Kia Motor (up 39%), Hyundai Motor (up 22%), Mazda Motor (up 20%), Nissan Motor (up 19%), and Toyota Motor (up 6.7%). Not faring as well were Honda Motor (sales off by 6.7%), Mitsubishi Motors (down 13%) and Suzuki Motor (down 22%).
American Eagle profit soars
American Eagle Outfitters posted a 59% increase in its fiscal third-quarter earnings versus a charge it took a year ago and reported a strong Black Friday shopping weekend. The company started 2011 with weak sales, but results have improved as the year has progressed.
Canadian banks post strong results
Four of Canada’s large chartered banks posted strong quarterly results in sharp contrast to beleaguered European banks. Royal Bank of Canada’s fiscal fourth-quarter earnings rose 43%, Toronto-Dominion Bank’s net income rose 58%, Canadian Imperial Bank of Commerce had a 59% rise in quarterly profit, and Bank of Nova Scotia’s fourth-quarter earnings rose by 11%. Canada’s banks generally benefited from minimal exposure to highly indebted European countries.
For the week, major stock indices around the world posted gains of 5% or more, highlighting once again the abnormally volatile period for global markets. U.S. Treasury yields rose in response to the unexpected drop in the U.S. unemployment rate, while the euro rallied earlier in the week in reaction to the improved prospects for European liquidity.
U.S. and global economic news
Global central bank action sparks market rally
Central banks including the U.S. Federal Reserve, the Bank of Canada, the European Central Bank (ECB), the Bank of England, the Bank of Japan, and the Swiss National Bank on Wednesday announced a plan to cut in half the cost of borrowing dollars from the Fed. The move is designed to assure financial markets that the ECB will have the money it needs to lend to struggling eurozone banks and therefore avoid a deepening of the debt crisis. However, the measure is seen as only a temporary way to alleviate market concerns, and doesn’t directly address the deep financial troubles facing European governments.
Belgian credit rating cut
Belgium’s government credit rating was cut by Standard & Poor’s by one notch to AA. The country’s borrowing costs rose to their highest levels in 11 years after it agreed to buy Dexia’s Belgian bank unit and guarantee part of its liabilities for the next decade.
Unemployment rate down; jobs numbers up
The U.S. labor market strengthened in November, as a rise of 120,000 jobs in the nonfarm payroll total was accompanied by a drop in the unemployment rate to 8.6% from 9.0% in October. Also positive are upward revisions of the October and September payroll numbers. October’s figure rose to a gain of 100,000 from a previously reported 80,000, and September was revised to a 210,000 gain from 158,000, as more reports from small businesses came in.
U.S. consumer confidence rises sharply
Consumer confidence rose sharply in November, according to three domestic U.S. indices. The Conference Board’s index increased to 56 from 40.9 in October, its biggest jump since April 2003. The Thomson Reuters/University of Michigan final index of consumer sentiment rose to 64.1 from 60.9, and the Bloomberg Consumer Comfort Index’s monthly expectations gauge also rose.
Weekly jobless claims rise above 400,000
Initial claims for unemployment benefits among U.S. workers rose unexpectedly last week, climbing by 6,000 to a seasonally adjusted 402,000. Economists surveyed by Dow Jones Newswires had expected a drop of 3,000. This was the first week since October that new claims for jobless benefits were above 400,000. The four-week average for new claims increased by 500 to 395,750.
House prices fall again
The S&P/Case-Shiller index of property values in 20 cities dropped 3.6% in September from a year earlier while the figure for the 10-city index was 3.3% lower than September 2010, demonstrating that the housing market has yet to find its bottom.
Fitch cuts U.S. credit outlook to negative
Fitch Ratings downgraded the outlook for U.S. government debt to negative from stable following the failure of the congressional super committee on deficit reduction to come to an agreement by the end of November after being given a mandate to cut the federal budget deficit by $1.2 trillion over 10 years.
Manufacturing weakens in eurozone and Asia
Separate reports from the eurozone and Asian countries point to the same thing –– a contracting manufacturing sector. The eurozone manufacturing purchasing managers’ index (PMI), a monthly survey by Markit, fell to its lowest point in 28 months, 46.4 in November, from 47.1 in October. Anything below 50 denotes contraction. China, South Korea, Taiwan, and Australia also reported shrinking manufacturing activity. India’s PMI was barely positive at 51, down from 52 the previous month.
China shifts stance to monetary easing
In response to signs that its economy is slowing, the Chinese government unexpectedly changed direction with its monetary policy, reversing a trend toward monetary tightening with the announcement that it would allow commercial banks to keep a smaller percentage of their profits as reserves at the central bank. The reserve requirement ratio is now 21% for large banks and 19% for smaller banks.
U.S. and global corporate news
Moody’s cuts loom for European banks
Moody’s Investors Service has placed the subordinated debt ratings of 87 banks in 15 European nations, including France, Italy, and Spain, on review for a downgrade. The move reflects the potential impact of the removal of government support to all subordinated, junior-subordinated, and Tier 3 debt ratings of banks in countries where subordinated debt assumes a level of government support.
American Airlines’ parent files for bankruptcy
AMR, the parent of American Airlines, filed for bankruptcy protection despite having more than $4 billion in cash. American was the only U.S. legacy airline that had not yet sought bankruptcy protection. Over the past decade, AMR has lost more than $10 billion, struggling to compete against rivals United Airlines and Delta Air Lines, who had benefited from court protected restructurings and mergers.
Retailers boast surge in early holiday sales
November was a good month for many major retailers, who started the critically important holiday sales season with better figures than last year’s. Close to two dozen retailers tracked by Thomson Reuters were on target for a 3.1% growth in sales at stores open for more than a year. This included Macy’s (up 4.8% in same-store sales), Saks registered a 9.3% sales rise, and Costco had 7% sales growth. However, sales at Kohl’s fell 6.2%, Target’s same-store sales grew by 1.8%, and J.C. Penney had a 2% decline.
November a hot month for U.S. car sales
Domestic and foreign automakers benefited from an outpouring of pent-up consumer demand in November, as sales of automobiles in the United States were boosted by lower gas prices and a wider availability of Japanese vehicles. Among U.S. manufacturers, Chrysler’s domestic sales rose 45%, Ford Motor’s sales were up 13%, General Motors had a 7% increase in sales.
Foreign automakers generally had a strong month in U.S. sales, with increases by Kia Motor (up 39%), Hyundai Motor (up 22%), Mazda Motor (up 20%), Nissan Motor (up 19%), and Toyota Motor (up 6.7%). Not faring as well were Honda Motor (sales off by 6.7%), Mitsubishi Motors (down 13%) and Suzuki Motor (down 22%).
American Eagle profit soars
American Eagle Outfitters posted a 59% increase in its fiscal third-quarter earnings versus a charge it took a year ago and reported a strong Black Friday shopping weekend. The company started 2011 with weak sales, but results have improved as the year has progressed.
Canadian banks post strong results
Four of Canada’s large chartered banks posted strong quarterly results in sharp contrast to beleaguered European banks. Royal Bank of Canada’s fiscal fourth-quarter earnings rose 43%, Toronto-Dominion Bank’s net income rose 58%, Canadian Imperial Bank of Commerce had a 59% rise in quarterly profit, and Bank of Nova Scotia’s fourth-quarter earnings rose by 11%. Canada’s banks generally benefited from minimal exposure to highly indebted European countries.
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