The worlds focus remained fixed on the Middle East this week, with investor anxiety rising as violence escalated in Libya, the third-largest oil producer in Africa. Oil prices rose and currencies of countries reliant on oil exports, including Indias rupee and South Koreas won, fell. Stock markets gave back recent gains on fears unrest could spread to larger oil producers, such as Saudi Arabia or Iran.
The U.S. economy grew at a slightly slower pace than had been estimated for the fourth quarter of 2010. However, other economic reports were encouraging, including lower first-time U.S. jobless claims and rising consumer confidence in the eurozone and United States. Corporate profits rose as well. Particularly noteworthy was General Motors, which reached a major milestone by posting an annual profit just two years after almost collapsing under the weight of its debt.
While major stock indices fell almost universally this week on fears of a potentially widespread economic setback from oil interruptions and soaring prices, the price rose for U.S. Treasuries, a classic safe-haven asset.
Global economic news
Oil futures crest at $100 a barrel
Crude oil prices reached their highest levels in more than two years as a result of growing violence and oil supply disruptions in Libya. Oil futures in London hit $120 a barrel on Thursday before receding to $112. The April contract on the New York Mercantile Exchange traded above $103 a barrel on Thursday before retreating below $98. Prices stabilized after Saudi Arabia, the United States, and the International Energy Agency reassured markets that global supplies would be sufficient, even without Libya's production. Just last week, oil had traded in the range of $86 to $87 a barrel.
U.S. economy grows, but shy of the 3.2% forecast
U.S. real gross domestic product grew at an annual rate of 2.8% in the fourth quarter of 2010, below the estimate of 3.2%, the U.S. Department of Commerce reported. Real GDP increased 2.6% in the third quarter. Personal consumption expenditures, exports, and nonresidential fixed investments contributed to growth, while personal inventory investment and state and local government spending detracted. Imports, which are deducted from GDP, decreased. Overall, the 2.8% growth figure is consistent with forecasts of a slow-growth economic recovery.
First-time U.S. jobless claims decrease again
U.S. initial jobless claims declined for the third time in four weeks, and the four-week average dipped to its lowest level in two and a half years, the U.S. Department of Labor reported. For the week ending February 19, first-time unemployment claims dropped by 22,000 to a seasonally adjusted 391,000. The four-week average fell to 402,000.
U.S. new home sales fall more than expected
Sales of new homes in the U.S. fell more than forecast in January, slipping 13% to a pace of 284,000 a year, according to a report from the Commerce Department. Tight credit standards and 9% unemployment are weighing down home construction. However, mortgage rates fell to 4.95% for a 30-year mortgage, a result of the drop in Treasury yields, as investor demand for safe-haven assets rose. Lower rates could help stimulate home sales.
Eurozone confidence rises
Economic confidence within the eurozone, as measured by the European Commissions Economic Sentiment Indicator, rose to 107.8 from 106.8 in January, its highest reading since September 2007.
U.S. consumer confidence climbs
Consumer confidence in the United States rebounded to its highest level since April 2008, based on the Bloomberg Consumer Comfort Indexs -39.2 reading in the week ended February 20, up from -43.4 the previous week.
Global corporate news
GM posts first profit in six years
General Motors earned $4.7 billion in 2010, its best annual performance in more than a decade and its first yearly profit since 2004. GMs global sales rose 12.2% in 2010, to 8.39 million. It sold just 30,000 fewer vehicles than Toyota, the automaker that a year ago displaced GM as the worlds largest.
Boeing lands $35 billion government contract
The U.S. Air Force awarded Boeing a $35 billion contract to build aerial refueling tankers, preserving Boeings longstanding position as a leading Air Force supplier.
RBS registers small quarterly profit
Royal Bank of Scotland posted a modest profit in the fourth quarter of 2010 and reduced its annual loss to 1.13 billion from 3.6 billion pounds in 2009. Net profit for the fourth quarter was 12 million pounds. The banks net interest margin rose while income at its investment banking division fell substantially.
Allianz increases earnings, raises dividend
Allianz, Europes largest insurer by gross premium income, reported an 11% increase in fourth-quarter net profit on improvements in its property and casualty business, higher revenues, and fewer natural-disaster claims.
European telecom giants stumble
Spanish telecommunications giant Telefonica posted a 45% drop in fourth-quarter net profit because of sharply higher operating costs, while Deutsche Telekoms loss deepened as a result of steeper impairment and restructuring charges (400 million) in 2010.
Toyota recalls 2.2 million vehicles
Toyota announced a recall of 2.2 million vehicles over the much-publicized sticky-accelerator pedal problem, which has caused pedals to become trapped under floor mats because of faulty design.
Friday, February 25, 2011
Wednesday, February 23, 2011
U.S. Economic News Week Ending Febuary 18, 2011
Despite ongoing unrest in the Middle East, global financial markets enjoyed a strong week overall. Pushing markets higher were more signs of an increasingly healthy U.S. economy, an Organization for Economic Cooperation and Development (OECD) report indicating widespread global economic growth, and substantial profits posted by large European banks, mining giants, and other multinationals.
While investors around the world are closely monitoring Middle East tensions, for now the impact is confined to demonstrations and some street violence in Egypt, Yemen, Bahrain, and Libya. Potential confrontations this weekend loomed in Iran, Iraq, Algeria, and Tunisia. In Egypt, banks were shuttered this week because of labor unrest. The Egyptian stock market will remain closed until next Monday at the earliest. The presence of Iranian warships in the Suez Canal led investors back to safe-haven assets. Crude oil prices rose slightly during the week, to around $87 per barrel.
It has been a strong quarter overall for stock earnings. Of the first 387 companies in the Standard & Poor’s 500 Stock Index that have reported quarterly earnings since January 10, 72% have beaten analysts’ expectations, and per-share earnings are up 35% overall from a year ago, Bloomberg reported.
Global economic news
U.S. inflation still tame
Wholesale prices in the United States rose a seasonally adjusted 0.8% from December to January, the U.S. Department of Labor said. However, core inflation, stripping out food and energy prices, was up just 0.5%. Year over year, the core index of producer prices increased 1.6%. U.S. consumer prices rose more modestly in January, by 0.4%, and just 0.2% excluding food and energy. For the year, consumer prices rose 1.6% before seasonal adjustments, and core inflation was 1.0%, below the U.S. Federal Reserve Board’s 2.0% target.
U.S. mortgage delinquencies drop
Fewer U.S. households were behind on mortgage payments at year-end than at any time in the past two years. Nearly 12.9% of homes — 6 million households — were 30 days or more past due or in foreclosure at the end of December, according to the Mortgage Bankers Association quarterly survey. This figure represents a decrease of 14% from one year ago but is higher than the 11% delinquency rate of two years ago.
Leading U.S. regional manufacturing index has best month in seven years
Manufacturers in the mid-Atlantic area had their strongest monthly showing since January 2004, according to the Federal Reserve Bank of Philadelphia’s general business activity index, which rose to 35.9 in February from 19.3 in January. The report, which is seen as an economic bellwether, is in keeping with other regional surveys of manufacturing activity.
U.S. deficit projected to reach $1.65 trillion
The White House projects the U.S. federal deficit will reach a record $1.65 trillion this fiscal year. However, the administration also forecasts that the deficit will decline to $1.1 trillion in fiscal year 2012 and shrink to $627 billion by 2017, or to 3% from 10.8% this year.
German producer prices rise sharply
Producer prices in Germany rose 1.2% in January and 5.7% from a year earlier, the Federal Statistics Office reported. Energy prices rose 2.3% for the month and 9.3% for the year.
OECD indicators point to global growth
Most developed economies will continue to grow in the coming months, predicts the OECD. Its leading indicator of economic activity in the 33 member countries rose to 102.8 in December from 102.5 in November. Growth was projected to be highest in Germany, Japan, and the United States, with Italy and China heading for a decline.
U.S. jobless claims rise
After reaching a two-year low in initial claims for unemployment benefits the previous week, the number of American workers filing new claims rose last week, by 25,000 to 410,000, the Labor Department reported. The four-week average of new claims rose to 417,750.
China overtakes Japan as number-two global economy
China officially overtook Japan as the world’s second-largest economy in 2010, according to figures from both governments. China’s gross domestic product reached $5.88 trillion last year, an annual growth rate of 9.8%, surpassing the showing of Japan’s $5.47-trillion economy. Both economies are far behind the United States’ 2010 GDP of $14.66 trillion.
Chinese trade surplus shrinks in January
China’s trade surplus fell to $6.45 billion in January from $13.1 billion in December, according to customs data. Although China’s exports rose 38% from a year earlier, imports were up 51%, reflecting robust domestic demand within the world’s most populous country and supporting a 10% annual economic growth rate.
Global corporate news
European financial firms in solid standing
Reports from European large financial firms were encouraging. London-based Barclays’ annual earnings were 36% higher than a year earlier. Dutch financial services company ING returned to a profit in the fourth quarter, on strong performance by its banking business, which enjoyed higher interest rate margins and lower loan losses than a year earlier. French lender Société Générale reported a fourth-quarter net profit almost four times higher than a year earlier on strength in retail banking, a recovery by its corporate investment bank, and smaller provisions against bad loans.
Megacorporations post large profits, reflecting recovery
Swiss food-making giant Nestlé tripled its 2010 net profit from a year earlier, helped by the sale of its eye-care unit and a growth in sales in emerging markets and its nutrition division.
Swiss electrical engineering firm ABB posted a 30% growth in fourth-quarter net profit. Sales rose 5% and orders, reflecting future revenue growth, increased 17%.
Anglo-Australian mining giant BHP Billiton netted a 72% growth in profits in the first half of its fiscal year, benefiting from strong demand in China and other rapidly growing regions of the world. BHP is a leading producer of coking coal that is used in steelmaking, copper, iron ore, nickel, and silver.
Anglo American, another massive mining company, reported that its annual profit nearly tripled, as demand and prices increased for its commodities — platinum, copper, nickel, coal, and iron ore.
Growth propels John Deere into higher gear
Deere & Company more than doubled its first-quarter profit from a year ago on strong sales of farm and construction machinery. The world’s largest farm equipment manufacturer beat quarterly analyst expectations and raised its sales and profit forecasts for the fiscal year.
Sanofi to buy Genzyme
France’s Sanofi-Aventis has agreed to purchase Genzyme for more than $20 billion. The acquisition gives Sanofi a dedicated U.S. research team with better ties to other U.S. researchers in the biotechnology industry and academic world.
While investors around the world are closely monitoring Middle East tensions, for now the impact is confined to demonstrations and some street violence in Egypt, Yemen, Bahrain, and Libya. Potential confrontations this weekend loomed in Iran, Iraq, Algeria, and Tunisia. In Egypt, banks were shuttered this week because of labor unrest. The Egyptian stock market will remain closed until next Monday at the earliest. The presence of Iranian warships in the Suez Canal led investors back to safe-haven assets. Crude oil prices rose slightly during the week, to around $87 per barrel.
It has been a strong quarter overall for stock earnings. Of the first 387 companies in the Standard & Poor’s 500 Stock Index that have reported quarterly earnings since January 10, 72% have beaten analysts’ expectations, and per-share earnings are up 35% overall from a year ago, Bloomberg reported.
Global economic news
U.S. inflation still tame
Wholesale prices in the United States rose a seasonally adjusted 0.8% from December to January, the U.S. Department of Labor said. However, core inflation, stripping out food and energy prices, was up just 0.5%. Year over year, the core index of producer prices increased 1.6%. U.S. consumer prices rose more modestly in January, by 0.4%, and just 0.2% excluding food and energy. For the year, consumer prices rose 1.6% before seasonal adjustments, and core inflation was 1.0%, below the U.S. Federal Reserve Board’s 2.0% target.
U.S. mortgage delinquencies drop
Fewer U.S. households were behind on mortgage payments at year-end than at any time in the past two years. Nearly 12.9% of homes — 6 million households — were 30 days or more past due or in foreclosure at the end of December, according to the Mortgage Bankers Association quarterly survey. This figure represents a decrease of 14% from one year ago but is higher than the 11% delinquency rate of two years ago.
Leading U.S. regional manufacturing index has best month in seven years
Manufacturers in the mid-Atlantic area had their strongest monthly showing since January 2004, according to the Federal Reserve Bank of Philadelphia’s general business activity index, which rose to 35.9 in February from 19.3 in January. The report, which is seen as an economic bellwether, is in keeping with other regional surveys of manufacturing activity.
U.S. deficit projected to reach $1.65 trillion
The White House projects the U.S. federal deficit will reach a record $1.65 trillion this fiscal year. However, the administration also forecasts that the deficit will decline to $1.1 trillion in fiscal year 2012 and shrink to $627 billion by 2017, or to 3% from 10.8% this year.
German producer prices rise sharply
Producer prices in Germany rose 1.2% in January and 5.7% from a year earlier, the Federal Statistics Office reported. Energy prices rose 2.3% for the month and 9.3% for the year.
OECD indicators point to global growth
Most developed economies will continue to grow in the coming months, predicts the OECD. Its leading indicator of economic activity in the 33 member countries rose to 102.8 in December from 102.5 in November. Growth was projected to be highest in Germany, Japan, and the United States, with Italy and China heading for a decline.
U.S. jobless claims rise
After reaching a two-year low in initial claims for unemployment benefits the previous week, the number of American workers filing new claims rose last week, by 25,000 to 410,000, the Labor Department reported. The four-week average of new claims rose to 417,750.
China overtakes Japan as number-two global economy
China officially overtook Japan as the world’s second-largest economy in 2010, according to figures from both governments. China’s gross domestic product reached $5.88 trillion last year, an annual growth rate of 9.8%, surpassing the showing of Japan’s $5.47-trillion economy. Both economies are far behind the United States’ 2010 GDP of $14.66 trillion.
Chinese trade surplus shrinks in January
China’s trade surplus fell to $6.45 billion in January from $13.1 billion in December, according to customs data. Although China’s exports rose 38% from a year earlier, imports were up 51%, reflecting robust domestic demand within the world’s most populous country and supporting a 10% annual economic growth rate.
Global corporate news
European financial firms in solid standing
Reports from European large financial firms were encouraging. London-based Barclays’ annual earnings were 36% higher than a year earlier. Dutch financial services company ING returned to a profit in the fourth quarter, on strong performance by its banking business, which enjoyed higher interest rate margins and lower loan losses than a year earlier. French lender Société Générale reported a fourth-quarter net profit almost four times higher than a year earlier on strength in retail banking, a recovery by its corporate investment bank, and smaller provisions against bad loans.
Megacorporations post large profits, reflecting recovery
Swiss food-making giant Nestlé tripled its 2010 net profit from a year earlier, helped by the sale of its eye-care unit and a growth in sales in emerging markets and its nutrition division.
Swiss electrical engineering firm ABB posted a 30% growth in fourth-quarter net profit. Sales rose 5% and orders, reflecting future revenue growth, increased 17%.
Anglo-Australian mining giant BHP Billiton netted a 72% growth in profits in the first half of its fiscal year, benefiting from strong demand in China and other rapidly growing regions of the world. BHP is a leading producer of coking coal that is used in steelmaking, copper, iron ore, nickel, and silver.
Anglo American, another massive mining company, reported that its annual profit nearly tripled, as demand and prices increased for its commodities — platinum, copper, nickel, coal, and iron ore.
Growth propels John Deere into higher gear
Deere & Company more than doubled its first-quarter profit from a year ago on strong sales of farm and construction machinery. The world’s largest farm equipment manufacturer beat quarterly analyst expectations and raised its sales and profit forecasts for the fiscal year.
Sanofi to buy Genzyme
France’s Sanofi-Aventis has agreed to purchase Genzyme for more than $20 billion. The acquisition gives Sanofi a dedicated U.S. research team with better ties to other U.S. researchers in the biotechnology industry and academic world.
Friday, February 11, 2011
U.S. Economic News Week Ending Febuary 11, 2011
Protestors cheered, and investors breathed an initial sigh of relief Friday when embattled Egyptian President Hosni Mubarak gave in to protestor demands and resigned from office. The departure turned the weeks of protests in Cairo's Tahrir Square into celebrations. The army will now take control of the country. The past three weeks of demonstrations caused some worried investors to seek safety in what has come to be known as the "risk off" trade. The U.S. dollar and Treasuries gained, and Brent crude prices hovered above $100 per barrel, amid speculation that the unrest may curb oil flows through Egypt's Suez Canal.
The crisis, combined with some disappointing earnings news from technology bellwether Cisco Systems, forced the Dow Jones Industrial Average lower for the first time in nine days on Thursday. That was one day after the blue chip index hit a 30-month high. The tensions in the Middle East and worries about faster inflation in the emerging world sparked the biggest losses in the MSCI Emerging Markets Index since November.
Global economic news
China raises rates again
Policymakers in emerging market countries continued to raise interest rates this week to fight accelerating inflation. China raised its lending and deposit rates for a third time in four months. The Bank of Korea, however, surprised markets and opted to keep its key lending rate on hold at 2.75%. Last week, the Bank of Indonesia increased borrowing costs for the first time in more than two years. Speculation that policymakers will take further steps to curb inflation has weighed on stocks in the region.
BOE keep stimulus in place
The Bank of England maintained its emergency stimulus measures and held its benchmark interest rate unchanged at a record low 0.5%.
U.S. jobless claims fall
The number of U.S. workers filing new claims for unemployment benefits fell more than expected last week. Claims dropped 36,000 to 383,000 in the week ended February 5. It was the lowest reading since July 2008 and points to the continued improvement in the job market as the economy picks up speed.
U.S. consumer confidence picks up
The Thomson Reuters/University of Michigan preliminary index of consumer confidence for the month showed confidence among U.S. investors increased to the highest level in eight months.
U.S. trade gap widens
The U.S. trade gap widened 5.9% in December, and the full-year gap gained the most in 10 years. Imports rose 2.6%, and exports grew 1.8%, with both categories hitting levels not seen in over two years.
U.K. manufacturing unexpectedly declined in December
Manufacturing activity fell as economic activity was hampered by the coldest weather seen in a century. Factory output declined for the first time since April, falling 0.1% from November.
Global corporate news
Takeover deals dominate corporate news
The Deutsche Börse announced this week that it is in talks to buy the New York Stock Exchange in a deal valued at almost $10 billion. Meanwhile, the London Stock Exchange made a $3.1 billion bid for TMX Group. The week began with news that AOL would buy the Huffington Post for $315 million. In a merger that would step up consolidation in the offshore oil drilling industry, Ensco agreed to buy Pride International for $7.3 billion. Looking to gain a stronger foothold in the diagnostics industry, Danaher said it would buy Beckman Coulter for $5.87 billion. Kindred Healthcare disclosed it would acquire RehabCare for about $1.3 million in the latest health care deal driven by cost cutting. Overall, analysts say the trend reflects increased corporate confidence and economic recovery.
Nokia announced a partnership with Microsoft
In what is being billed as a major strategy shift for the handset maker, Nokia said it will adopt Windows Phone as its main smartphone platform. The move is part of Nokia's broad strategic partnership with Microsoft.
Cisco disappoints
Technology bellwether Cisco Systems disappointed investors this week as it announced its profits fell 18%; the company also reported its fourth consecutive quarterly decline in margins. Both were viewed as sign of growing competitive pressures in Cisco's core network switching business.
Credit Suisse hit by tougher regulations, capital requirements
Credit Suisse Group reported that its fourth-quarter net income rose a less-than-expected 6%. The company, which is Switzerland's second-largest bank, cut its 2010 dividend as well as future profit targets, saying that tougher regulations and capital requirements will likely cut into its bottom line in years to come.
Other profit news mixed
PepsiCo reported a 5% drop in its fourth-quarter profit and cut its earnings outlook, saying it faces headwinds from high unemployment, cost inflation, and a potentially tough pricing environment. Allstate, the largest publicly traded home and auto insurer in the United States said fourth-quarter profit fell 43% because of an increase in disaster claims. Sprint Nextel's fourth-quarter loss narrowed slightly, and Whole Foods lifted its 2011 forecasts for profits and sales. Kraft Foods' net income fell 24% amid higher costs for meat, packaging and other inputs.
The crisis, combined with some disappointing earnings news from technology bellwether Cisco Systems, forced the Dow Jones Industrial Average lower for the first time in nine days on Thursday. That was one day after the blue chip index hit a 30-month high. The tensions in the Middle East and worries about faster inflation in the emerging world sparked the biggest losses in the MSCI Emerging Markets Index since November.
Global economic news
China raises rates again
Policymakers in emerging market countries continued to raise interest rates this week to fight accelerating inflation. China raised its lending and deposit rates for a third time in four months. The Bank of Korea, however, surprised markets and opted to keep its key lending rate on hold at 2.75%. Last week, the Bank of Indonesia increased borrowing costs for the first time in more than two years. Speculation that policymakers will take further steps to curb inflation has weighed on stocks in the region.
BOE keep stimulus in place
The Bank of England maintained its emergency stimulus measures and held its benchmark interest rate unchanged at a record low 0.5%.
U.S. jobless claims fall
The number of U.S. workers filing new claims for unemployment benefits fell more than expected last week. Claims dropped 36,000 to 383,000 in the week ended February 5. It was the lowest reading since July 2008 and points to the continued improvement in the job market as the economy picks up speed.
U.S. consumer confidence picks up
The Thomson Reuters/University of Michigan preliminary index of consumer confidence for the month showed confidence among U.S. investors increased to the highest level in eight months.
U.S. trade gap widens
The U.S. trade gap widened 5.9% in December, and the full-year gap gained the most in 10 years. Imports rose 2.6%, and exports grew 1.8%, with both categories hitting levels not seen in over two years.
U.K. manufacturing unexpectedly declined in December
Manufacturing activity fell as economic activity was hampered by the coldest weather seen in a century. Factory output declined for the first time since April, falling 0.1% from November.
Global corporate news
Takeover deals dominate corporate news
The Deutsche Börse announced this week that it is in talks to buy the New York Stock Exchange in a deal valued at almost $10 billion. Meanwhile, the London Stock Exchange made a $3.1 billion bid for TMX Group. The week began with news that AOL would buy the Huffington Post for $315 million. In a merger that would step up consolidation in the offshore oil drilling industry, Ensco agreed to buy Pride International for $7.3 billion. Looking to gain a stronger foothold in the diagnostics industry, Danaher said it would buy Beckman Coulter for $5.87 billion. Kindred Healthcare disclosed it would acquire RehabCare for about $1.3 million in the latest health care deal driven by cost cutting. Overall, analysts say the trend reflects increased corporate confidence and economic recovery.
Nokia announced a partnership with Microsoft
In what is being billed as a major strategy shift for the handset maker, Nokia said it will adopt Windows Phone as its main smartphone platform. The move is part of Nokia's broad strategic partnership with Microsoft.
Cisco disappoints
Technology bellwether Cisco Systems disappointed investors this week as it announced its profits fell 18%; the company also reported its fourth consecutive quarterly decline in margins. Both were viewed as sign of growing competitive pressures in Cisco's core network switching business.
Credit Suisse hit by tougher regulations, capital requirements
Credit Suisse Group reported that its fourth-quarter net income rose a less-than-expected 6%. The company, which is Switzerland's second-largest bank, cut its 2010 dividend as well as future profit targets, saying that tougher regulations and capital requirements will likely cut into its bottom line in years to come.
Other profit news mixed
PepsiCo reported a 5% drop in its fourth-quarter profit and cut its earnings outlook, saying it faces headwinds from high unemployment, cost inflation, and a potentially tough pricing environment. Allstate, the largest publicly traded home and auto insurer in the United States said fourth-quarter profit fell 43% because of an increase in disaster claims. Sprint Nextel's fourth-quarter loss narrowed slightly, and Whole Foods lifted its 2011 forecasts for profits and sales. Kraft Foods' net income fell 24% amid higher costs for meat, packaging and other inputs.
Friday, February 4, 2011
U.S. Economic News Week Ending Febuary 4, 2011
Implications of political developments in Egypt
The ongoing tensions in Egypt, Tunisia, and other Middle Eastern countries have led to an increased sense of uncertainty among investors and raised questions and concerns about prospects for the region and global markets.
Other than the daily transit of 1.5 million barrels of crude oil through the Suez Canal, MFS® does not see many direct implications for the global economy from the political turmoil in Egypt and the surrounding region. U.S. crude oil prices rose above $91 per barrel this week, while prices for ICE Brent crude, the benchmark grade for two-thirds of the world’s oil market, pushed above $103 per barrel amid fears that any escalation of the situation in Egypt could lead to a disruption of the movement of oil through the canal.
Despite the political developments in Egypt, lingering concerns about sovereign debt in the eurozone and fresh concerns about how rising oil prices and accelerating inflation might impact the overall health of global financial markets, the Dow Jones Industrial Average closed above 12,000 on Tuesday for the first time since June 2008. Strong U.S. corporate earnings and mostly positive economic indicators in January, including strong manufacturing activity, helped boost investor confidence that the nation’s economy may finally be moving from recovery to expansion. Still, the political turmoil in Egypt may affect global financial markets as investors assess the impact of the crisis.
Global economic news
Biggest U.S. companies report strong fourth-quarter profits
Approximately 50% of U.S. companies have reported fourth-quarter earnings, and results have been exceptionally strong. Excluding financial firms, weighted earnings for the companies in the Standard & Poor’s 500 Stock Index are up 17% on an as-reported basis for companies representing 54% of the group’s market value. S&P forecasts that when all 500 companies report their fourth-quarter earnings, they will show an increase of approximately 32% from a year earlier.
ISM’s U.S. non-manufacturing index unexpectedly jumps
The Institute for Supply Management’s index of nonmanufacturing businesses rose to 59.4 in January from 57.1 the previous month.
U.S. home prices continue to drop
Home prices in all of the 28 major U.S. metropolitan areas tracked by The Wall Street Journal’s quarterly survey fell in the fourth quarter of 2010 compared with a year earlier. Home values fell the most in cities already rocked by the housing bust, including Atlanta, Chicago, Miami, and Orlando, according to data from real estate Web site Zillow.com. Several markets that had previously escaped the housing market downturn, such as Seattle, Washington, and Portland, Oregon, also saw significant price declines over the same period.
U.S. economy adds fewer-than-expected jobs last month
The U.S. economy added just 36,000 jobs in January, falling below economists’ expectations. Still, the unemployment rate dropped to 9.0% last month. The U.S. Department of Labor also revised payroll numbers for all of 2010. Overall, there were 215,000 fewer jobs added last year than previously reported.
Americans spend at fastest pace since 2007
The U.S. Department of Commerce reported that consumer spending in the United States rose 0.7% in December, the sixth-straight monthly increase. Consumer spending increased at a 3.5% rate for all of 2010, the most since 2007.
Sales of municipal bonds fall to 10-year low
Municipal bond sales in January fell to their lowest level in more than 10 years. Through January 28, states, cities, and other municipalities issued nearly $12 billion of bonds, according to data provider Thomson Reuters. That figure is down approximately 63% from the same month a year ago and the smallest monthly total since January 2000, when $9.6 billion of debt was sold.
Eurozone inflation accelerates at fastest pace since late 2008
Despite eurozone inflation accelerating in January at its fastest rate since late 2008, the European Central Bank voted to keep its main lending rate at a record-low 1% for a 21st straight month. Saying inflation risks are “broadly balanced,” ECB President Jean-Claude Trichet allayed fears among investors that the central bank was planning to raise interest rates at least in the short term. Eurozone inflation was at 2.4% in January, moving further above the ECB’s target rate of 2.0%.
Global food price index hits record high
The United Nations said that its monthly food price index reached its highest level since the organization began keeping records in 1990. The UN’s Food and Agriculture Organization Index rose to 231 points in January. The seventh consecutive monthly increase for the index occurred partly because of higher global prices for cereal, sugar, and vegetable oils. The FAO index is a measure of the monthly change in international prices of a basket of commodities. It is closely watched by investors and analysts as a global benchmark for food price trends.
Global corporate news
Nippon Steel, Sumitomo Metal to merge
Nippon Steel and Sumitomo Metal Industries, Japan’s number-one and number-three steelmakers by output, agreed to merge by 2012. The merger would create the world’s number-two steelmaker, with combined revenue of 4.8 trillion yen ($58.5 billion USD) as of the fiscal year that ended last March. The deal, the first major consolidation in the Japanese steel industry in a decade, will result in stronger competition against rival companies in China and India.
Time Warner to purchase NaviSite
Time Warner Cable announced that it is purchasing NaviSite for approximately $230 million. NaviSite hosts applications on remote servers. The move will help Time Warner offer more Web-based services to its business customers. The purchase also gives Time Warner access to NaviSite’s 1,200-plus customers.
Exxon profit surges 53%, tops Wall Street projections
Exxon Mobil’s profit rose 53% in the fourth quarter on higher oil prices and a jump in production. The world’s largest publicly traded oil company posted earnings of $9.25 billion, up from $6.05 billion a year earlier.
Merck posts fourth-quarter loss, forecasts lower-than-expected 2011 earnings
Merck, the second-largest U.S. drugmaker, reported a fourth-quarter net loss of $531 million after taking a $1.7 billion charge to write down its experimental blood thinner. The company, which also forecast 2011 earnings that were below analysts’ estimates, said it is moving ahead with plans to cut 15,000 jobs and close facilities to save $3.5 billion annually by 2012.
New York Times sees drop in profit
New York Times’ fourth-quarter profit decreased 26% from a year ago. The publisher posted a profit of $67.1 million, down from $90.9 million a year earlier. Still, core earnings for the company increased as costs dropped at a faster rate than revenue.
Dow Chemical profit nearly triples
Dow Chemical said its profit rose to $511 million from $172 million a year ago as the chemical giant benefited from increased demand and price increases. Revenue increased 10% to $13.8 billion.
The ongoing tensions in Egypt, Tunisia, and other Middle Eastern countries have led to an increased sense of uncertainty among investors and raised questions and concerns about prospects for the region and global markets.
Other than the daily transit of 1.5 million barrels of crude oil through the Suez Canal, MFS® does not see many direct implications for the global economy from the political turmoil in Egypt and the surrounding region. U.S. crude oil prices rose above $91 per barrel this week, while prices for ICE Brent crude, the benchmark grade for two-thirds of the world’s oil market, pushed above $103 per barrel amid fears that any escalation of the situation in Egypt could lead to a disruption of the movement of oil through the canal.
Despite the political developments in Egypt, lingering concerns about sovereign debt in the eurozone and fresh concerns about how rising oil prices and accelerating inflation might impact the overall health of global financial markets, the Dow Jones Industrial Average closed above 12,000 on Tuesday for the first time since June 2008. Strong U.S. corporate earnings and mostly positive economic indicators in January, including strong manufacturing activity, helped boost investor confidence that the nation’s economy may finally be moving from recovery to expansion. Still, the political turmoil in Egypt may affect global financial markets as investors assess the impact of the crisis.
Global economic news
Biggest U.S. companies report strong fourth-quarter profits
Approximately 50% of U.S. companies have reported fourth-quarter earnings, and results have been exceptionally strong. Excluding financial firms, weighted earnings for the companies in the Standard & Poor’s 500 Stock Index are up 17% on an as-reported basis for companies representing 54% of the group’s market value. S&P forecasts that when all 500 companies report their fourth-quarter earnings, they will show an increase of approximately 32% from a year earlier.
ISM’s U.S. non-manufacturing index unexpectedly jumps
The Institute for Supply Management’s index of nonmanufacturing businesses rose to 59.4 in January from 57.1 the previous month.
U.S. home prices continue to drop
Home prices in all of the 28 major U.S. metropolitan areas tracked by The Wall Street Journal’s quarterly survey fell in the fourth quarter of 2010 compared with a year earlier. Home values fell the most in cities already rocked by the housing bust, including Atlanta, Chicago, Miami, and Orlando, according to data from real estate Web site Zillow.com. Several markets that had previously escaped the housing market downturn, such as Seattle, Washington, and Portland, Oregon, also saw significant price declines over the same period.
U.S. economy adds fewer-than-expected jobs last month
The U.S. economy added just 36,000 jobs in January, falling below economists’ expectations. Still, the unemployment rate dropped to 9.0% last month. The U.S. Department of Labor also revised payroll numbers for all of 2010. Overall, there were 215,000 fewer jobs added last year than previously reported.
Americans spend at fastest pace since 2007
The U.S. Department of Commerce reported that consumer spending in the United States rose 0.7% in December, the sixth-straight monthly increase. Consumer spending increased at a 3.5% rate for all of 2010, the most since 2007.
Sales of municipal bonds fall to 10-year low
Municipal bond sales in January fell to their lowest level in more than 10 years. Through January 28, states, cities, and other municipalities issued nearly $12 billion of bonds, according to data provider Thomson Reuters. That figure is down approximately 63% from the same month a year ago and the smallest monthly total since January 2000, when $9.6 billion of debt was sold.
Eurozone inflation accelerates at fastest pace since late 2008
Despite eurozone inflation accelerating in January at its fastest rate since late 2008, the European Central Bank voted to keep its main lending rate at a record-low 1% for a 21st straight month. Saying inflation risks are “broadly balanced,” ECB President Jean-Claude Trichet allayed fears among investors that the central bank was planning to raise interest rates at least in the short term. Eurozone inflation was at 2.4% in January, moving further above the ECB’s target rate of 2.0%.
Global food price index hits record high
The United Nations said that its monthly food price index reached its highest level since the organization began keeping records in 1990. The UN’s Food and Agriculture Organization Index rose to 231 points in January. The seventh consecutive monthly increase for the index occurred partly because of higher global prices for cereal, sugar, and vegetable oils. The FAO index is a measure of the monthly change in international prices of a basket of commodities. It is closely watched by investors and analysts as a global benchmark for food price trends.
Global corporate news
Nippon Steel, Sumitomo Metal to merge
Nippon Steel and Sumitomo Metal Industries, Japan’s number-one and number-three steelmakers by output, agreed to merge by 2012. The merger would create the world’s number-two steelmaker, with combined revenue of 4.8 trillion yen ($58.5 billion USD) as of the fiscal year that ended last March. The deal, the first major consolidation in the Japanese steel industry in a decade, will result in stronger competition against rival companies in China and India.
Time Warner to purchase NaviSite
Time Warner Cable announced that it is purchasing NaviSite for approximately $230 million. NaviSite hosts applications on remote servers. The move will help Time Warner offer more Web-based services to its business customers. The purchase also gives Time Warner access to NaviSite’s 1,200-plus customers.
Exxon profit surges 53%, tops Wall Street projections
Exxon Mobil’s profit rose 53% in the fourth quarter on higher oil prices and a jump in production. The world’s largest publicly traded oil company posted earnings of $9.25 billion, up from $6.05 billion a year earlier.
Merck posts fourth-quarter loss, forecasts lower-than-expected 2011 earnings
Merck, the second-largest U.S. drugmaker, reported a fourth-quarter net loss of $531 million after taking a $1.7 billion charge to write down its experimental blood thinner. The company, which also forecast 2011 earnings that were below analysts’ estimates, said it is moving ahead with plans to cut 15,000 jobs and close facilities to save $3.5 billion annually by 2012.
New York Times sees drop in profit
New York Times’ fourth-quarter profit decreased 26% from a year ago. The publisher posted a profit of $67.1 million, down from $90.9 million a year earlier. Still, core earnings for the company increased as costs dropped at a faster rate than revenue.
Dow Chemical profit nearly triples
Dow Chemical said its profit rose to $511 million from $172 million a year ago as the chemical giant benefited from increased demand and price increases. Revenue increased 10% to $13.8 billion.
U.S. Economic News Week Ending January 28, 2011
It was a busy week for financial markets, both in the United States and abroad. Nearly half of the companies in the Dow Jones Industrial Average were scheduled to release quarterly reports this week. The U.S. Federal Reserve Board, during its first meeting of 2011, voted to uphold its $600 billion U.S. Treasury bond-buying program, and leaders from around the world met in Davos, Switzerland, to discuss key issues affecting global financial markets. As the Dow crossed the 12,000 mark for the first time in almost three years, the U.S. dollar slid to a two-month low against the euro, and gold futures hit a three-month low on decreased demand.
Global economic news
Americans more optimistic about economy
The Conference Board Consumer Confidence Index surged to 60.6 in January from 53.3 in December. The index is based on a survey of 5,000 U.S. households. The latest figure exceeded projections of economists, surveyed by Briefing.com, who had estimated the index to increase slightly to 53.5.
New home sales in U.S. reach lowest level in 47 years
Sales of new single-family homes in the United States rose to a 329,000 unit annual pace in December, up from 280,000 in November. Despite the 17.5% increase in sales for the month, the U.S. Department of Commerce estimated that only 321,000 homes were sold for all of 2010, a 14% decrease from 2009 and the lowest number of annual home sales on record dating back to 1963. A homebuyer tax credit in California was one reason for the surge in December sales.
U.S. gas prices continue upward climb
Gasoline prices continued to rise in the United States amid strong global demand for oil and a lack of supply. Gas prices have risen $0.12 per gallon, or 4%, in just the last month, according to AAA, and prices are up 14% over the past year. The nationwide average price for gas is currently $3.12 per gallon, less than a dollar below the record high of $4.11 per gallon set in July 2008. Crude oil prices also continued to climb, currently trading at just under $90 per barrel.
Home prices decline again
U.S. home prices fell 1% in November from October, according to the latest Standard & Poor’s/Case-Shiller Home Price Indices of 20 metropolitan markets. Prices reached new lows in a number of U.S. cities, and the overall index fell for the fifth straight month. San Diego was the only market in the 20 included markets that did not drop, posting a slight increase of 0.1%.
Hiring in U.S. companies tops layoffs by most in 12 years
According to a survey released this week by the National Association for Business Economics, the percentage of businesses expecting to add to payrolls in the next six months was 42%, compared with just 7% who expect to lay off workers. The quarterly survey includes the views of 84 economists for private companies and trade groups who are NABE members.
Initial jobless claims rise last week
The U.S. Department of Labor reported that 454,000 Americans filed new jobless claims in the week ended January 22. The latest figure represents an increase of 51,000 claims over the previous week.
World leaders, bankers, and investors gather in Davos
While the mood at this year’s World Economic Forum in Davos, Switzerland, was more optimistic than at the past two, it was still mostly reserved. Leaders, bankers, and investors from around the globe met to discuss a range of topics, including mounting fears of inflation worldwide and ways to ease the sovereign debt crisis in the eurozone. For the first time, the BRIC (Brazil, Russia, India, China) nations and other emerging economies had a more significant presence at the summit with a record number of executives representing their countries in attendance.
French consumer confidence drops
French household confidence fell in January for a second month as the number of people actively looking for work increased by 27,100 in December to 2.725 million, the highest level since December 2003. Sentiment declined to 85 in January, from 86 in December, according to the Paris-based National Statistics Office Insee.
German pace of inflation picks up slightly; eurozone inflation concerns mount
The Federal Statistics Office in Wiesbaden reported that the inflation rate in Germany rose to 2% in January, from 1.9% in December, on higher food and energy costs. While the country’s inflation rate is the highest since October 2008, economists had projected an increase to 2.2%. European Central Bank President Jean-Claude Trichet cautioned that inflationary pressures in the eurozone must be monitored closely. He urged central bankers to help ensure that higher energy and food prices do not disrupt recent gains in the global economy. The ECB did raise the possibility that it may raise interest rates in the future.
S&P downgrades Japan credit rating for first time in nine years
Standard & Poor’s lowered Japan’s long-term sovereign credit rating by one notch to “AA-” from “AA.” The surprise downgrade, the first for Japan since April 2002, puts its debt on the same level as China’s. S&P cited the country’s tremendous debt burden, exacerbated by persistent deflation and demographic pressures, as reasons for the rating cut.
Hungary raises interest rate
The National Bank of Hungary’s Monetary Policy Council raised its policy rate by 0.25%, to 6.00% from 5.75%. It is expected that the central bank’s third increase in the past three months will deepen the rift between the bank, which is trying to keep inflation in check, and the government, whose primary goal is to revive the country’s economy.
Global corporate news
Earnings season in full swing
Johnson & Johnson reported a 12% drop in profit and a disappointing outlook amid decreased spending in health care markets and product recalls. For the fourth quarter, the maker of products ranging from Band-Aids to drugs and medical devices posted earnings of $1.9 billion, compared with $2.2 billion a year earlier. The latest quarter included expenses related to litigation settlements, product liability costs, and last year’s recall of hip-replacement products.
Halliburton posted a fourth-quarter profit of $605 million, up from $243 million a year earlier, as the oil field services company continued to benefit from a resurgence of drilling in North America. In addition to more than doubling its profit, the company’s revenue jumped 83% from a year earlier.
McDonald’s fourth-quarter earnings were in line with analysts’ estimates, increasing to $1.24 billion from $1.22 billion a year earlier. Revenue for the fast-food giant increased 4% to $6.21 billion as global same-store sales rose 5%.
Microsoft reported a profit of $6.63 billion for its fiscal second quarter, down slightly from $6.66 billion a year ago. The latest figures showed an increase on a per-share basis, rising from $0.74 per share to $0.77 per share. Overall, the software maker’s latest earnings topped analysts’ estimates.
AT&T recorded revenue that missed Wall Street projections as the mobile operator added fewer wireless subscribers than expected in its fiscal fourth quarter. The company also said its profit fell to $1.09 billion for the quarter from $2.7 billion a year earlier.
Other corporate news
Google is planning its biggest hiring year yet in 2011. The company expects to surpass its 2007 hiring record, when the company added more than 6,000 employees to its ranks, and last year when 4,500 people were hired. A company source cited tremendous growth in Google’s Android mobile operating system, Chrome browser, and the Google Apps platform as leading reasons for the company’s continued growth and expected hiring binge.
French drugmaker Sanofi-Aventis extended its $18.5 billion offer for Genzyme for a second time. The $69 per share offer now lasts until February 15, at midnight. The terms of the bid remained unchanged and discussions between the two companies are ongoing.
Global economic news
Americans more optimistic about economy
The Conference Board Consumer Confidence Index surged to 60.6 in January from 53.3 in December. The index is based on a survey of 5,000 U.S. households. The latest figure exceeded projections of economists, surveyed by Briefing.com, who had estimated the index to increase slightly to 53.5.
New home sales in U.S. reach lowest level in 47 years
Sales of new single-family homes in the United States rose to a 329,000 unit annual pace in December, up from 280,000 in November. Despite the 17.5% increase in sales for the month, the U.S. Department of Commerce estimated that only 321,000 homes were sold for all of 2010, a 14% decrease from 2009 and the lowest number of annual home sales on record dating back to 1963. A homebuyer tax credit in California was one reason for the surge in December sales.
U.S. gas prices continue upward climb
Gasoline prices continued to rise in the United States amid strong global demand for oil and a lack of supply. Gas prices have risen $0.12 per gallon, or 4%, in just the last month, according to AAA, and prices are up 14% over the past year. The nationwide average price for gas is currently $3.12 per gallon, less than a dollar below the record high of $4.11 per gallon set in July 2008. Crude oil prices also continued to climb, currently trading at just under $90 per barrel.
Home prices decline again
U.S. home prices fell 1% in November from October, according to the latest Standard & Poor’s/Case-Shiller Home Price Indices of 20 metropolitan markets. Prices reached new lows in a number of U.S. cities, and the overall index fell for the fifth straight month. San Diego was the only market in the 20 included markets that did not drop, posting a slight increase of 0.1%.
Hiring in U.S. companies tops layoffs by most in 12 years
According to a survey released this week by the National Association for Business Economics, the percentage of businesses expecting to add to payrolls in the next six months was 42%, compared with just 7% who expect to lay off workers. The quarterly survey includes the views of 84 economists for private companies and trade groups who are NABE members.
Initial jobless claims rise last week
The U.S. Department of Labor reported that 454,000 Americans filed new jobless claims in the week ended January 22. The latest figure represents an increase of 51,000 claims over the previous week.
World leaders, bankers, and investors gather in Davos
While the mood at this year’s World Economic Forum in Davos, Switzerland, was more optimistic than at the past two, it was still mostly reserved. Leaders, bankers, and investors from around the globe met to discuss a range of topics, including mounting fears of inflation worldwide and ways to ease the sovereign debt crisis in the eurozone. For the first time, the BRIC (Brazil, Russia, India, China) nations and other emerging economies had a more significant presence at the summit with a record number of executives representing their countries in attendance.
French consumer confidence drops
French household confidence fell in January for a second month as the number of people actively looking for work increased by 27,100 in December to 2.725 million, the highest level since December 2003. Sentiment declined to 85 in January, from 86 in December, according to the Paris-based National Statistics Office Insee.
German pace of inflation picks up slightly; eurozone inflation concerns mount
The Federal Statistics Office in Wiesbaden reported that the inflation rate in Germany rose to 2% in January, from 1.9% in December, on higher food and energy costs. While the country’s inflation rate is the highest since October 2008, economists had projected an increase to 2.2%. European Central Bank President Jean-Claude Trichet cautioned that inflationary pressures in the eurozone must be monitored closely. He urged central bankers to help ensure that higher energy and food prices do not disrupt recent gains in the global economy. The ECB did raise the possibility that it may raise interest rates in the future.
S&P downgrades Japan credit rating for first time in nine years
Standard & Poor’s lowered Japan’s long-term sovereign credit rating by one notch to “AA-” from “AA.” The surprise downgrade, the first for Japan since April 2002, puts its debt on the same level as China’s. S&P cited the country’s tremendous debt burden, exacerbated by persistent deflation and demographic pressures, as reasons for the rating cut.
Hungary raises interest rate
The National Bank of Hungary’s Monetary Policy Council raised its policy rate by 0.25%, to 6.00% from 5.75%. It is expected that the central bank’s third increase in the past three months will deepen the rift between the bank, which is trying to keep inflation in check, and the government, whose primary goal is to revive the country’s economy.
Global corporate news
Earnings season in full swing
Johnson & Johnson reported a 12% drop in profit and a disappointing outlook amid decreased spending in health care markets and product recalls. For the fourth quarter, the maker of products ranging from Band-Aids to drugs and medical devices posted earnings of $1.9 billion, compared with $2.2 billion a year earlier. The latest quarter included expenses related to litigation settlements, product liability costs, and last year’s recall of hip-replacement products.
Halliburton posted a fourth-quarter profit of $605 million, up from $243 million a year earlier, as the oil field services company continued to benefit from a resurgence of drilling in North America. In addition to more than doubling its profit, the company’s revenue jumped 83% from a year earlier.
McDonald’s fourth-quarter earnings were in line with analysts’ estimates, increasing to $1.24 billion from $1.22 billion a year earlier. Revenue for the fast-food giant increased 4% to $6.21 billion as global same-store sales rose 5%.
Microsoft reported a profit of $6.63 billion for its fiscal second quarter, down slightly from $6.66 billion a year ago. The latest figures showed an increase on a per-share basis, rising from $0.74 per share to $0.77 per share. Overall, the software maker’s latest earnings topped analysts’ estimates.
AT&T recorded revenue that missed Wall Street projections as the mobile operator added fewer wireless subscribers than expected in its fiscal fourth quarter. The company also said its profit fell to $1.09 billion for the quarter from $2.7 billion a year earlier.
Other corporate news
Google is planning its biggest hiring year yet in 2011. The company expects to surpass its 2007 hiring record, when the company added more than 6,000 employees to its ranks, and last year when 4,500 people were hired. A company source cited tremendous growth in Google’s Android mobile operating system, Chrome browser, and the Google Apps platform as leading reasons for the company’s continued growth and expected hiring binge.
French drugmaker Sanofi-Aventis extended its $18.5 billion offer for Genzyme for a second time. The $69 per share offer now lasts until February 15, at midnight. The terms of the bid remained unchanged and discussions between the two companies are ongoing.
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