Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


Earnings trump Bernanke uncertainty
ByJamie Chisholm, Global Markets Commentator and Telis Demos
Copyright The Financial Times Limited 2010
Published: July 22 2010 07:46 | Last updated: July 22 2010 16:36
http://www.ft.com/cms/s/0/89730518-954c-11df-b2e1-00144feab49a.html


Thursday 16:30 BST. A solid bunch of European economic data and US company earnings has countered the caution left over from Federal Reserve chairman Ben Bernanke’s poorly-received comments about the US economy on Wednesday.

The FTSE All-World equity index has reversed an early decline and is now up 1.8 per cent, commodities are higher and core bond yields are moving higher. The S&P 500 index in New York is 2.1 per cent higher, its best performance in two weeks.

Uncertainty is a market’s kryptonite. So, when Ben Bernanke, Federal Reserve chairman, said late on Wednesday that the outlook for the US economy was “unusually uncertain”, it swiftly weakened traders’ resolve, and US markets fled from risk.

However, it was soon noticeable that Asian markets on Thursday appeared less prepared to flounce in response to Mr Bernanke’s comments – he did, after all, reiterate his growth forecasts and pledged to take action if conditions deteriorated – and this tempered early losses in Europe.

And those falls turned to gains after UK retail sales, and eurozone services, manufacturing and industrial orders data all beat forecasts, reducing fears about economic fragility.

Those of a more bullish bent may also point to the good batch of earnings delivered over the past couple of days – with Caterpillar, UPS, AT&T and 3M presenting strong quarters just before the opening bell, including positive forecasts – and signs that eurozone credit market tensions continue to be easing. Credit Suisse, like Morgan Stanley yesterday, posted decent earnings, with earnings rising 1 per cent over last year.

Notably, US traders were not cowed by an up-tick in initial jobless claims, which were dismissed as mere summer volatility from seasonal auto-plant shut-downs. New claims are still below the fear level of 500,000. They were also cheered by less-than-forecast dips in existing home sales and the leading economic indicators.

The market is also expecting relief from another uncertainty: the European bank stress tests. The stage has been set for a positive result to the stress tests. Various media reports suggest that Greek and Spanish banks will do quite well, though all is still in the realm of rumour. Their ultimate impact on sentiment may also be blunted by fears that the conditions used were not terribly stressful.

Mr Bernanke himself, during his second day of testimony, also served to counter his own sound bites. He acknowledged that recent economic data did “radically change our basic outlook” of a moderate recovery. He also stressed what the Fed can do – rather than yesterday, when he emphasised what it could not do – if the economy were to falter substantially, including lowering the interest rate on excess reserves.

☼ Factors to Watch. A very busy day for corporate earnings in Europe and the US. Across the pond, Amazon, American Express, and Microsoft are the likely highlights.

In economic data, US, June existing home sales may have an impact, though initial jobless claims did not. ☼

● Asia. The FTSE Asia-Pacific index closed up 0.1 per cent as the region reacted relatively calmly to Wall Street’s drop. Most of the damage was been done by Tokyo, where the Nikkei 225 fell 0.6 per cent as the rising yen again battered exporters.

Hong Kong added 0.5 per cent and the increasingly maverick Shanghai market climbed 1.1 per cent. This is the fourth day in a row that the mainland benchmark has gained ground and has left investors hoping that the previously underperforming exchange may have put in a floor.

● Europe. Bourses opened lower by about 0.6 per cent in reaction to Wall Street’s late slide, but the upbeat economic data and hopes for an early release of the bank stress tests soon encouraged buyers. The FTSE 100 in London is up 1.7 per cent and the FTSE Eurofirst 300 is higher by 1.9 per cent as banks and miners gain ground.

Energy producers were also among the top performers, following an announcement that the world’s biggest oil companies, sans BP, had agreed a $1bn fund for spill clean-ups.

● Forex. The dollar is giving up the gains it made after Mr Bernanke’s comments saw traders choosing the buck for its supposed haven status rather than worry about US growth prospects. The dollar is today down 1 per cent on a trade-weighted basis and is off 1.3 per cent versus the euro at $1.2917.

The yen was again the beneficiary of broader market malaise early on as the Japanese unit continues to be the reluctant haven of choice. However, the improvement in sentiment has seen the yen pull back. It is down 0.1 per cent versus the dollar at Y86.93, though still close to its strongest level in 20 months, and down 1.4 per cent against the surging euro at Y112.36.

● Debt. The market’s pessimistic interpretation of Mr Bernanke’s downbeat remarks saw a flight to US government debt and though yields are a touch higher today, they remain close to recent lows. Indeed, the two-year note yield is just above a record low of 0.56 per cent, while the 10-year yield is up 5 basis points at 2.94 per cent.

Europe’s periphery received a boost after investors purchased the entirety of a Hungarian auction of 12-month bills. Though the yield was 5.75 per cent, 32bp higher than the previous sale of such bills, to sell the whole run was a relative success. Investors balked at two auctions last week, following the International Monetary Fund’s concerns that Hungary’s austerity measures were insufficient.

Greek bonds were higher, with the 10-year falling 14 basis points to yield 10.50 per cent, though Portugese and Spanish debt yields ticked upwards.

● Commodities. A greater aversion to risk and pared growth expectations initially led to selling in the metals complex. However, most metals are now higher. Copper is up 2.9 per cent at $7,044 a tonne, its highest mark in two months.

Oil has also turned things round and is now up 3 per cent at $78.87 a barrel. Gold is moving away from two-month lows below $1,180 and is currently up 0.3 per cent at $1,195 an ounce.



US jobless claims climb higher
By Alan Rappeport in New York
Copyright The Financial Times Limited 2010
Published: July 22 2010 14:44 | Last updated: July 22 2010 16:12
http://www.ft.com/cms/s/0/624448de-9593-11df-a2b0-00144feab49a.html


First-time filings for jobless benefits continued to climb in the US, as firing staff remained stubbornly high, official figures showed on Thursday.

Separately, the National Association of Realtors said that sales of existing homes fell for the second straight month in June, as the housing market struggles to cope wtih the expiration of a government tax credit incentive for first time buyers.

Initial jobless claims rose by a more-than-expected 37,000 to 464,000 last week, according to the labour department. In the last month, weekly claims have averaged 456,000.

Emergency claims for jobless benefits plunged earlier this month, as Congress debated extending unemployment insurance, leading to delays. Earlier this week the US Senate voted to extend unemployment insurance, advancing legislation that would deliver up to $34bn in additional fiscal stimulus to the economy.

Economists argue that new claims need to fall to the low-400,000 level before the US can begin sustainably creating jobs. Joshua Shapiro, chief US economist at MFR, said stubbornly high levels of jobless claims could signal that recent gains in overall payrolls could be overstated.

However, the number of Americans continuing to claim jobless benefits eased last week, declining by 223,000 to 4.487m.

Leading the rise of new jobless claims was New York, where more than 18,000 made fresh filings do to job cuts in the transportation and public administration industries. Indiana experienced a jump in job cuts in the car sector, while Georgia saw more lay-offs in construction.

“We’re hiring people but also firing a lot of people and that both creates and reflects uncertainty in the labour market,” said Jerry Webman, chief economist at OppenheimerFunds. “Uncertainty means companies don’t want to take risks and add workers.”

On Wednesday, Ben Bernanke, Federal Reserve chairman, noted “unusual” uncertainty in the US economy and said the central bank would be ready to act if more stimulus was needed.

Meanwhile, existing home sales declined by 5.1 per cent last month to an adjusted annual rate of 5.37m. That was a smaller decline than analysts predicted and left sales of existing homes up by 9.8 per cent from the same month a year ago.

“Broadly speaking, sales closed after the home buyer tax credit will be significantly lower compared to the credit-induced spring surge,” said Lawrence Yun, NAR’s chief economist. “Only when jobs are created at a sufficient pace will home sales return to sustainable healthy levels.”

Foreclosures continue to account for a large proportion of home sales and June, 32 per cent of all existing homes sold were “distressed”. That is keeping pressure on prices, which have climbed by just 1 per cent to $183,700 across the US.






Caterpillar shrugs off industrial concerns
ByHal Weitzman in Chicago
Copyright The Financial Times Limited 2010
Published: July 22 2010 13:52 | Last updated: July 22 2010 13:52
http://www.ft.com/cms/s/0/4760da3a-958b-11df-a2b0-00144feab49a.html


Caterpillar, the world’s biggest maker of earth-moving equipment, brushed off worries about a slowdown in global industrial demand on Thursday, saying its strong order book was defying concerns about the world economy as it raised its forecast for full-year profits and reported earnings for the second quarter of the year that were far ahead of Wall Street expectations.

The company – which is widely seen as a bellwether for the global industrial economy – made a net profit in the quarter of $707m or $1.09 per share, up from $371m or 60 cents per share in the same period last year and beating analysts’ consensus forecast of about 85 cents per share.

Caterpillar’s revenues in the second quarter were $10.4bn, up from $8bn last year and above expectations of about $9.8bn. Two-thirds of the manufacturer’s revenues come from outside the US.

The company increased its outlook for the full year, saying it expected 2010 profits of $3.15-$3.85 per share on revenues of $39bn-$42bn, up from its previous forecast of $2.50-$3.25 per share and revenues of $38bn-$42bn.

Doug Oberhelman, chief executive, said the improved forecast reflected “an increase in sales and revenues and a more significant increase in profit” as a result of cost-cutting.

“While there are significant economic concerns around the world that we are watching closely, orders have continued to outpace our shipments, and we expect to increase production in the second half of the year,” Mr Oberhelman said.

The company said it had taken on 3,650 employees so far this year to help ramp up production, 1,250 in the US and 2,400 outside the US. Caterpillar has plans to take on 9,000 workers this year.

Caterpillar shares were up slightly in pre-market trading at $66.90.