In a week of sharp contrasts, encouraging economic news from the United States, Europe, and Asia mixed with fresh concerns regarding Portugal, which is now the third eurozone member to request a financial bailout. Meanwhile, the U.S. federal governments budget showdown was going down to the wire, with potential widespread impacts. The U.S. dollar weakened on uncertainty over the possible government shutdown. And just as Japan was taking steps toward regaining a sense of normalcy after the March 11 earthquake, a less powerful earthquake, measuring 7.1, hit the northeast area of the country Thursday, shaking buildings and nerves. Unrest continued in the Middle East, pushing the price of oil higher.
Late in the week, light crude oil for May delivery was trading at more than $111 per barrel. Gold for June delivery was above $1,470 while silver reached a 31-year high, rising above $40 an ounce partly in response to U.S. dollar weakness.
Trading in major global stock indices was fairly calm, as investors appeared hopeful the signs of economic recovery might offset the short-term political uncertainty.
Global economic news
U.S. budget battle showdown down to wire
With high stakes and credibility on the line, and facing a firm deadline of midnight Friday, Democrats and Republicans in the U.S. Congress kept negotiating the 2011 federal budget overnight Thursday into Friday morning. At issue: proposed spending cuts of $33 billion to $40 billion and political differences on various issues. At stake: shutting down all-but-essential government services, furloughing 800,000 federal employees, and cutting off paychecks to workers. Among many ripple effects: suspending government mortgage loan guarantees to lower-income families, closing national parks and leaving tourist industry workers without pay, and stopping government economic data collection. A 20-day government shutdown in late 1995 reportedly cut economic growth by a full percentage point in that quarter.
U.S. jobless claims shrink further
The number of new claims for unemployment benefits fell by 10,000 to 382,000 during the week ended April 2, marking the seventh decrease in 10 weeks. The four-week average fell by 5,750 to 389,500.
U.S. service sector growth eases
The U.S. nonmanufacturing sector grew in March, but at a slower pace than February, according to the Institute for Supply Management. The ISM nonmanufacturing purchasing managers index fell to 57.3 from 59.7 in February.
March retail sales strong
American consumers spent more freely in March, allowing retailers from discounters to sellers of luxury brands - to post strong sales figures. A group of 25 retailers tracked by Thomson Reuters posted a 1.7% rise in same-store sales in March. Costco reported a 13% rise in same-store sales, while Victoria Secrets parent firm Limited Brands increased sales by 14%. Higher-end retailers Saks and Nordstrom also had robust results. Target, Kohls, and JC Penney were among the retail chains with declining same-store sales.
ECB raises interest rates
The European Central Bank raised its benchmark interest rate on Thursday by 0.25 percentage points, as was widely anticipated. The ECB must walk a fine line, between controlling inflation, already at a 2.6% annual rate last month, and not creating obstacles to economic recovery for troubled eurozone member countries Greece, Ireland, and Portugal.
China raises interest rates for fourth time; inflation still high
Chinas central bank raised interest rates for the fourth time in six months in its latest effort to tame inflation and stop the worlds fastest-growing economy from overheating. Consumer prices in China rose 4.9% in February while producer prices were 7.2% higher. Even with tighter controls in place, many economists cited in The New York Times see Chinas economy growing 9% in 2011 with a 3% annual inflation rate.
Portuguese government to receive bailout package
The Portuguese government is seeking financial assistance from the European Union as it strives to regain solid financial footing. A package worth 90 billion ($129 billion) is being worked on involving the European Commission, European Central Bank, and International Monetary Fund. It could take several weeks to work out an austerity program that would accompany the bailout. Portugal is the third nation in the eurozone, after Greece and Ireland, to ask for a bailout.
Portuguese debt downgrade led to rising yields
Portugals debt rating continued to plummet and its government bond yields soared this week after Moodys Investor Service downgraded Portugals long-term bonds by one level, to "Baa1" from "A3." Standard & Poors lowered its rating for Portuguese debt by three notches in two cuts in the last couple of weeks. The Portuguese government paid an average yield of 5.117% on six-month Treasury bills at an auction on Wednesday, compared with 2.984% at a March 2 auction. The average yield on 12-month Portuguese Treasury bills rose to 5.902%, from 4.441% on March 16.
Japanese business confidence falls
Japanese business sentiment is sagging after Marchs devastating earthquake and tsunami, according to a quarterly survey released Monday by Japans central bank. Sentiment went from a reading of plus 3 before the earthquake to minus 2 afterwards. Economists believe overall industrial production slumped by 10% in March compared with February and the economic fallout could continue for months. Meanwhile, a so-called "economy watchers survey" that regularly questions hotel and restaurant workers, barbers, and tax drivers on economic sentiment fell to 27.7 in March from a reading of 48.4 in February.
Toyota, Japanese airlines to resume activity
Toyota said it would resume limited production from April 18 to 27 at its Japanese plants, where half of all its vehicles sold globally are built. Japans major airlines plan to restart flights to the Sendai airport, which had shut downs after the March 11 tsunami.
Eurozone business growth eases slightly
Private-sector growth in the eurozone eased a bit in March, according to a survey released this week by financial information firm Markit. Its eurozone composite output index eased to 57.6 from 58.2 in February. Any reading above 50 indicates economic growth.
German manufacturing orders, industrial production rise
German manufacturing orders were 2.4% higher in February than January, as domestic and eurozone demand improved. This adds to a 3.1% increase in January orders. Meanwhile, German industrial production rose 1.6% in February from January and 14.8% from February 2010, another strong sign of economic recovery in Germany.
Global corporate news
TI chips in $6.5 billion for National Semiconductor
Texas Instruments offered $6.5 billion in cash to buy its rival semiconductor chipmaker National Semiconductor. The bid represented a 78% premium over Nationals stock price at the time of the bid, indicating how highly TI values Nationals niche of making chips based on analog technology that are used in cell-phone radio signals and in the management of power consumption in computers.
Bombardier profits take off
Canadian plane, train and snowmobile maker Bombardier rode a big pickup in business-jet orders to much higher fourth-quarter earnings. The Montreal-based firm almost tripled its net aerospace orders in its latest quarter while selling 10 times as many business aircraft as a year earlier, propelling its profits 82% higher than the year-earlier quarter.
Bite taken out of Apples size on Nasdaq 100
Apple will have a large bite taken out of its weighting on the closely tracked Nasdaq 100 Index as part of a large and rare rebalancing of the index on May 2. After the rebalancing, Apple will make up 12% of the Nasdaq 100 versus 20% today. The rebalancing was partly driven by Apples meteoric rise, as the firms shares have grown more than fourfold in two years, causing Apple to have too great an impact on one of the most heavily traded stock indices. More than $330 billion of assets track the Nasdaq 100 through ETFs, mutual funds, options, and futures.
KB Home loss grows on weak home sales
Home builder KB Home saw its first-quarter loss more than double from a year earlier on falling orders and a substantial decrease in revenue. Deliveries fell 28% and net orders were 32% lower. The year-over-year comparison was unfavorable partly because of the temporary boost provided by last years federal tax credit for homebuyers.
Toyota faces possible downgrade
Moodys Investor Service said it has put Toyota Motor and its subsidiaries on review for a possible downgrade as a result of the financial impact caused by the March 11 earthquake and tsunami and the resulting interruption of automobile and auto parts production. Moodys is also closely watching the quakes impact on Nissan Motor and Honda Motor.
Dish wins Blockbuster deal
In a dramatic marathon bankruptcy auction, Dish Network made a winning $320-million bid for the assets of Blockbuster, the movie-rental chain. Dish may use some Blockbuster stores to sell subscriptions to its service and is reportedly interested in some synergies from Blockbusters on-demand business in a potential effort to challenge Netflix.
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