In the wake of the proposed extension of Bush-era tax breaks and a payroll tax cut, many investors are turning away from U.S. Treasury bonds toward stocks. Prices on U.S. Treasuries and municipal bonds slumped this week as yields on 30-year Treasuries neared a seven-month high and the 10-year Treasury yield reached its highest level since June. The Dow Jones Industrial Average neared and the Standard & Poor’s 500 Stock Index reached a two-year high before faltering during the week amid concerns over the lack of consensus on the domestic tax package and disagreement among the European Union about the extent of bailouts for struggling eurozone countries.
U.S. economic news
Democrats push back against tax compromise plan
Democrats in the U.S. House of Representatives withheld support for President Obama’s tax package on Thursday by agreeing not to vote on the newly negotiated tax package in its current form. A leading Republican said the deal, highlighted by extensions of Bush-era tax cuts for two years and long-term jobless benefits, is flawed because it fails to address fiscal austerity measures that will be needed to help reduce the mounting federal deficit. Despite the House Democrats’ nonbinding resolution, the tax measure moved closer to passage in the Senate.
Consumer credit jumps in October
The U.S. Federal Reserve Board reported that the level of consumer borrowing in the United States rose to $2.4 trillion in October, an increase of $3.4 billion from September. The increase, the most in more than two years, was largely the result of a $9 billion increase in nonrevolving credit, which includes categories such as car loans, to $1.6 trillion. Revolving credit, almost entirely credit card debt, dropped 8.4% for the month, meaning that credit card use has fallen for a record 26th straight month.
Jobless claims drop
The U.S. Department of Labor said that the number of Americans filing initial unemployment claims fell to 421,000 in the week ended December 4. The figure is a decrease of 17,000 from a revised 438,000 claims filed the previous week.
U.S. and global corporate news
Three retailers head into holiday season with strong earnings
Talbots reported that its profit for the fiscal third quarter ended October 30 increased to $17 million from $14.6 million on higher margins. Still, the retailer lowered its earnings forecast for the year, raising concerns about its turnaround plan. Despite cutting debt, buying out its largest shareholder, and revamping its clothing line, the company's revenue in stores open at least one year fell 7.1% for the same period.
Neiman Marcus Group, operator of its namesake store and Bergdorf Goodman, said its profit rose to $25.7 million for the quarter ended October 30. The latest figure, more than triple the $8.5 million profit the company reported a year ago, could be an indication that sales of luxury goods are on the rebound.
Costco posted a profit of $312 million for its first quarter ended November 21, up 18% from $266 million a year earlier. Revenue increased 11% to $19.24 billion, while sales increased 11% to $18.82 billion.
Global economic news
Eurozone officials disagree over size of bailout fund
Eurozone finance ministers met this week to discuss a number of issues, including the rescue package for Ireland, the creation of a temporary bailout fund for other struggling economies, and the possible establishment of a debt agency to issue “e-bonds” in lieu of national debt. Officials are split on the need to increase the size of any bailout fund as German Chancellor Angela Merkel rejected calls from Belgium and central bankers to boost the European Union’s 750 billion euro emergency fund or begin joint bond sales to save countries such as Portugal and Spain.
Ireland’s credit rating cut three levels
Ireland’s credit rating was lowered to “BBB+” from “A+” by Fitch Ratings. It is the second downgrade of the country by Fitch in two months. Ireland agreed to an 85 billion euro bailout from European governments and the International Monetary Fund on November 28.
RBA, BOE hold rates steady
Australia’s central bank voted this week to keep its benchmark interest rate unchanged at 4.75%. The Reserve Bank of Australia (RBA) said it expects inflation to remain contained over the “next few quarters.” The Bank of England’s Monetary Policy Committee also left its key interest rate unchanged at its all-time low rate of 0.5%.
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