Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


Doubts about US growth hit dollar
ByPeter Garnham
Copyright The Financial Times Limited 2010
Published: July 15 2010 11:46 | Last updated: July 15 2010 11:46
http://www.ft.com/cms/s/0/dd1d61e0-8fed-11df-91b6-00144feab49a.html


The dollar dropped to a fresh two-month low on a trade-weighted basis on Thursday after a dovish outlook from the Federal Reserve raised the prospect of further monetary easing in the US.

The minutes of the Fed’s June policy meeting revealed a clear shift in emphasis from the central bank, showing increasing concerns over the sustainability of US economic activity.

The Fed lowered its 2010 growth forecast and reduced its inflation projections. This raised speculation that the central bank might have to consider further monetary policy easing measures to stimulate the economy.

Indeed, the Fed said that while testing would continue on draining liquidity out of the financial system as part of its exit strategy from its ultra-loose monetary policy, it would also have to consider further easing measures if the outlook was to worsen “appreciably”.

Derek Halpenny at Bank of Tokyo-Mitsubishi UFJ said the Fed statement was crucial and implied clearly that weak economic data from the US would now encourage short-term yield falls as investors priced in the risk of renewed monetary easing.

“Given the Fed minutes the dollar may therefore be vulnerable to weak US economic data,” he said.

The dollar index, which tracks the currency against a basket of six leading currencies, fell to a low of 83.020, its weakest level since May 10.

The dollar also dropped to fresh two-month lows against the euro and the pound, dropping 0.5 per cent to $1.2796 and losing 0.4 per cent to $1.5323 respectively, and fell 0.4 per cent to a three-month low of SFr1.0476 against the Swiss franc.

Against the yen, the dollar fell 0.4 per cent to Y88.01 as the Bank of Japan raised its growth outlook after its policy meeting.

Commodity-linked currencies failed to join in the rally against the dollar, however, as Chinese economic data came in weaker than expected.

Chinese growth, retail sales and inflation all came in slightly weaker than consensus expectations, raising concerns over global growth and the country’s appetite for natural resources.

Hans Redeker at BNP Paribas said the figures were in line with China’s policy of damping overheating sectors of its economy and returning to a more sustainable level of growth, however, and that investors should use any weakness in commodity-linked currencies as a buying opportunity.

Indeed, he said China had reaffirmed that it would be maintaining an active fiscal policy with a moderately loose monetary setting to achieve this objective.

“A dovish Fed and continued growth-supportive policy in China provide the environment for global risk appetite to persist, which should generate renewed interest in the commodity-linked currencies,” said Mr Redeker.

“Hence, we would use any correction in the commodity currencies to re-establish bullish strategies.”

The dollar rose 0.3 per cent to $0.8811 against the Australian dollar, climbed 0.2 per cent to $0.7219 against the New Zealand dollar and edged 0.1 per cent higher to C$1.0318 against the Canadian dollar.


US inflation muted as wholesale prices fall
By Alan Rappeport in New York
Copyright The Financial Times Limited 2010
Published: July 15 2010 14:29 | Last updated: July 15 2010 14:29
http://www.ft.com/cms/s/0/06afaffa-900b-11df-91b6-00144feab49a.html


Inflation in the US remained muted in June as the falling cost of food and energy suppressed wholesale prices.

Separately, official figures showed a bigger-than-expected decline in jobless claims, as fewer factories shut down for the summer.

The producer price index fell by a larger-than-expected 0.5 per cent from May to June, labour department figures showed on Thursday. Compared with a year ago, wholesale prices were up by 2.8 per cent.

“The underlying trend of the core finished goods PPI is benign and it remains our belief that copious global spare capacity will keep it that way for the foreseeable future,” said Joshua Shapiro, chief US economist at MFR.

June was the third month running that prices fell, buttressing the argument that the Federal Reserve has room to maintain its near-zero interest rate policy without prices overheating.

The monthly decline was caused by a 2.2 per cent drop in food prices and a 0.5 per cent decline in energy prices. Core prices, which exclude food and energy, ticked up by 0.1 per cent.

Food prices were held back last month by big drops in the cost of fresh and dry vegetables, fruits and meats.

On Wednesday, the Federal Reserve released minutes from its latest meeting, and noted that “substantial slack in labour and resource markets” were likely to reduce inflation. Fed officials reduced their inflation outlook for the next couple of years and some cited the risk of deflation.

Jamie Dimon, JPMorgan Chase’s chief executive, said in a call with analysts on Thursday that he was not “terrified over deflation”, but acknowledged that economic growth appeared to be slowing.

On Friday, the labour department will release its closely watched consumer price index report.

Meanwhile, initial jobless claims fell by 29,000 to 429,000 last week. Claims have declined for two consecutive weeks, but still remain stubbornly elevated.

Economists at RDQ Economics note that the drop in claims was largely due to General Motors keeping most of its plants open because of a shortage of inventory.

The number of Americans continuing to claim unemployment benefits jumped by 247,000 to 4.68m. Analysts forecast this to fall in the coming weeks, when unemployed people see their benefits expire because a deadlock in Congress has prevented an extension.


JPMorgan quarterly profits soar 76%
By Alan Rappeport in New York
Copyright The Financial Times Limited 2010
Published: July 15 2010 12:19 | Last updated: July 15 2010 14:49
http://www.ft.com/cms/s/0/50b43ed4-8f7c-11df-8df0-00144feab49a.html


JPMorgan Chase on Thursday said that profits had soared 76% in the second quarter thanks to narrower loan losses and easing credit costs.

The US bank reported net income of $4.8bn, or $1.09 a share, up from $2.7bn or 28 cents a share in the same period a year ago. That beat expectations of Wall Street analysts who forecast earnings of 72 cents a share.

Jamie Dimon, chief executive, cautioned that a $1.5bn reduction of loan losses did not reflect “normal ongoing earnings” and said that delinquencies and charge-offs remained unacceptably high.

“We saw solid performance in our other businesses,” Mr Dimon said, noting reduced charge-offs and credit costs in the bank’s wholesale business.

Three months ago Mr Dimon sounded a bullish note on the economy, forecasting a strong recovery on the back of resurgent consumers. Since then economic fundamentals have soured, with the housing market, consumer confidence and spending showing signs of stalling.

“We see in the economy that maybe growth will slow down a little bit,” Mr Dimon told analysts on Thursday. However, he said that he was not fearful of deflation and that underlying indicators such in sectors such as manufacturing were encouraging.

JPMorgan is the first of the big US banks to report quarterly earnings, with Citigroup and Bank of America due to release their results on Friday.

Revenues fell 8 per cent to $25.6bn in the second quarter on lower trading results and investment banking fees. Investment banking revenue fell by 13.3 per cent to $6.3bn, as fees fell by 37 per cent.

Retail banking and credit card services, which lost money in the previous quarter, both swung into profit during the second quarter.

Meanwhile, the bank’s tier one capital – a key measure of financial strength – was 12.1 per cent, up from 9.7 per cent in the same period last year. JPMorgan bought back $500m in stock and said it would continue to do so “opportunistically”.

Investors have been keeping a close watch on financial regulation developments, which analysts have said could cut into banks’ earnings. The financial sector has won some partial victories in recent weeks, including the elimination of a proposed $19bn tax, a $150bn bank levy and an order that banks spin off their swaps desks.

“We recognise a number of positive aspects of the pending regulatory reform legislation, including systemic risk oversight and resolution authority,” Mr Dimon said. “However, many challenges and uncertainties remain which may result in unintended consequences for our clients, the markets and our businesses.”

JPMorgan’s results come three weeks after it announced a major reshuffling of its top ranks, raising speculation that Mr Dimon is preparing his succession plan.

The bank promoted Doug Braunstein to chief financial officer and appointed Michael Cavanaugh, his predecessor, to run JPMorgan’s treasury and securities services business. Heidi Miller, who ran treasury and securities, was given a new role as president of the bank’s international operation.

On Wednesday, JPMorgan named Jeff Urwin and Kevin Willsey, two rising stars at the bank, to co-head its investment banking business in the US and Canada.

Shares in JPMorgan slipped by 0.5 per cent to $40.15 in early trading on Thursday.





China economy shows signs of cooling
By Geoff Dyer in Beijing
Copyright The Financial Times Limited 2010
Published: July 15 2010 04:15 | Last updated: July 15 2010 10:00
http://www.ft.com/cms/s/0/6bf81ecc-8fb8-11df-8df0-00144feab49a.html


The Chinese economy grew at 10.3 per cent in the second quarter over the year before, down from the previous three months as government efforts to cool the housing market and infrastructure investment began to bite.

The second quarter result compared with the growth rate of 11.9 per cent in the first quarter when many economists feared China was close to overheating. For the first half of the year the economy expanded by 11.1 per cent.

Although the slowdown was expected, other figures released on Thursday indicated that the economy could be cooling more quickly than forecast. Industrial production posted 13.7 per cent year-on-year growth in June, compared with a 16.5 per cent increase in May.

The government said it was relaxed about the reduced pace of economic activity. Sheng Laiyun, spokesman for the National Bureau of Statistics, said the slowing would “help our economy avoid overheating and assist in the transformation of our economic model”.

However, the new weakness in the Chinese economy has unnerved investors at a time when many were hoping that China can help sustain the global economy that shows some signs of faltering in the US and Europe. It could also put Beijing under domestic pressure to unwind some of its recent tightening measures.

“Evidence of a slowing economy, and risks to growth going forward, will test the resolve of the government on deflating the real estate bubble,” said Tom Orlik, economist at Stone & McCarthy in Beijing.

China publishes growth figures on a year-on-year basis but does not release a sequential, seasonally-adjusted growth figure which would give a more accurate impression of the direction of economic activity.

Private sector estimates vary considerably, with Goldman Sachs putting the implied quarter-on-quarter growth rate at 8 per cent on an annualised basis, while Standard Chartered estimated a growth rate of 10 per cent.

While the pace of new lending has been slowing since last autumn, the principal tightening measure has been the campaign since mid-April to try and limit speculation in the property market, including new restrictions on mortgages for second homes.

The government has also tried to limit the flow of loans to the investment companies operated by local governments which were behind a significant proportion of the new infrastructure projects started last year.

The weakening in activity appears to have blunted the recent surge in inflation, with the consumer price index falling from 3.1 per cent in May to 2.9 per cent in June. Meanwhile, factory-gate inflation was down from 7.1 per cent in May to 6.4 per cent.

At the same time, exports and consumption have remained robust, with the government announcing on Thursday that retail sales grew 18.3 per cent in June over the same month last year, following a 44 per cent year-on-year increase in exports in June.

“China’s economy is slowing but not falling apart,” said Stephen Green at Standard Chartered. “The aims were to take the heat out of over-stimulated parts of the economy ... and get back to a more sustainable growth path. They have achieved all that, at least for the moment.”

He added that the government was likely to relax policy again from the fourth quarter of the year, as signs of decelerating activity gather pace in the coming months.

The official China Securities Journal said in a front-page editorial this morning that the government should extend active fiscal policy and refrain from further policy tightening to prevent a sharper slowdown.

“In the second half of the year, external demand will gradually weaken and the dividend from the trade surplus will fall. This requires an increase in overall social investment and a halt to tightening of both fiscal policy and monetary policy,” the paper wrote.