Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


US data temper flight from risk
Copyright The Financial Times Limited 2010
Published: August 31 2010 08:33 | Last updated: August 31 2010 17:51
http://www.ft.com/cms/s/0/ed7247bc-b4bf-11df-b0a6-00144feabdc0.html


Tuesday 17:40 BST. Better than expected US housing and consumer confidence data have been unable to fully dispel investors’ nagging concerns about the prospects for global growth.

Throughout much of Tuesday’s session there has been an overriding sense that fiscal and monetary authorities are bumbling their lines in the face of a dangerous plot twist for the global economy, pushing traders away from stocks and back into havens such as core government bonds.

Risk appetite has improved somewhat since the Case-Shiller house price index was shown rising more than forecast in June and a reading of US household sentiment rebounded from a five month low. These reports have helped push the S&P 500 on Wall Street up 0.4 per cent.

However, a poor display in Asia leaves the FTSE All-World equity index down 0.1 per cent and industrial commodities are struggling to make headway. It is pertinent that yields on US government bonds are inching closer to recent cyclical lows despite the small rally in stocks in New York. The yen, one of the favoured currencies in times of strife, is again flirting with 15-year highs against the dollar.

The Japanese unit’s strength stands in contrast to – indeed, is partly the cause of – the stock market’s slide into bear market territory. The Nikkei 225 is down 22 per cent since April’s peak, having lost 3.6 per cent on Tuesday as investors worried that the previous day’s announcement of stimulus measures by the government and the Bank of Japan were insufficient to drag the economy out of its slough.

The Market Eye
“Double dip fears” may have pushed “fiscal woes” off the headlines of late, but concerns regarding the latter are still bubbling beneath the service. Yields on Greek 2-year notes are up 102 basis points to 11.30 per cent, a near 4 month high, as investors continue to fret about Athens having to restructure its debt. Ten-year notes yield 11.55 per cent, also close to their highest level since the start of May, when fiscal funk was most fierce. Greek credit default swaps are 953 basis points, barely 60bp off their peak.

Meanwhile, the impact of the nation’s austerity measures is shown in news today of a 4.4 per cent annual fall in retail sales. The Athens stock market fell 0.4 per cent as banks again falter, taking the losses in August to 7 per cent, nearly twice the fall of the FTSE All-World index.

Traders had reacted to evidence of just such a lack of confidence in the US. Overnight, the S&P 500 on Wall Street retraced a big chunk of Friday’s gains, which had come following the promise from Ben Bernanke, Federal Reserve chairman, that he stood ready to act if the economy continued to deteriorate.

Investors appear to have reassessed the chances of any Fed move proving successful and have reverted to worrying about recent poor economic data and the prospect that this week’s heavy batch of reports – climaxing with Friday’s jobs report – will only confirm that US growth is stalling.

Monday’s speech on the US economy by president Barack Obama also failed to inspire.

Wall Street’s slow grind lower on Monday was all the more debilitating for bulls because it came during a session populated by generally positive corporate news, with bid activity again to the fore and a proposed $10bn share buy-back by Hewlett-Packard.

This has been a long running theme: benign corporate data battling with rotten macroeconomic numbers. Today’s news that Canada’s economy slowed more sharply than expected in the second quarter is another example of this conflicting trend.

In addition, the uncertainty is affecting trading activity. Volume in New York has been pitiful in recent days – beyond the seasonal torpor. For example, only about 5.6bn shares traded on the three main exchanges on Monday, the slowest day for Wall Street so far this year, according to Reuters.

Both bulls and bears of risk may claim succour from that statistic. Equity optimists could argue that a decline on such meagre activity shows a lack of serious selling. Pessimists might say the refusal of punters to participate is symptomatic of not only a cyclical, but also a structural malaise affecting stocks.

The Vital Statistics
New York-based Strategas Research Partners notes that the American Association of Individual Investors survey last week showed bullish sentiment at 20.7 per cent, one of the lowest levels in the last 5 years. “Since 1987, we’ve counted only 34 readings lower than last week’s print. Over the next one month, the S&P 500 is up, on average, +2.6%,” says Strategas.

☼ Factors to Watch. Minutes of the Fed’s last policy meeting will be scanned for evidence of disagreement within the committee regarding the course of monetary policy. ☼

● Asia. The FTSE Asia-Pacific index fell 1.7 per cent. Hong Kong initially joined Tokyo in registering a sharp drop on worries about global growth; though losses were later pared and the Hang Seng finished down 1 per cent. Shanghai fell 0.5 per cent, while Sydney shed 1.1 per cent.

India’s Sensex outperformed with a decline of just 0.3 per cent, after news of a faster-than-forecast 8.8 per cent annual economic growth rate cushioned stocks from the sour mood elsewhere.

● Europe. Major indices started with sharp declines, spooked by Asia and Wall Street’s falls. However, with US futures coming off lows bourses were able to stabilise mid-morning, rallying further following the US data.

The FTSE Eurofirst 300 is up 0.1 per cent and the FTSE 100 in London has come back from Monday’s holiday to register a 0.5 per cent advance after banks turned losses into gains.

● Forex. The yen is up 0.6 per cent against the dollar at Y84.10 as traders continue to play chicken with the Bank of Japan and the market’s current haven darling attracts flows.

The dollar is down 0.1 per cent on a trade-weighted basis. Sterling is down 1 per cent against the euro, and off 0.8 per cent versus the dollar despite news that UK mortgage approvals had risen unexpectedly.

● Debt. Core bond yields are approaching the lows seen last week as some traders remain risk-averse on US recovery fears. The US 10-year note is down 5 basis points at 2.48 per cent, while the Bund is off 1bp at 2.11 per cent. Ten-year gilt yields are down 7bp to 2.83 as they play catch-up following Monday’s holiday.

● Commodities. Growth worries are crimping demand for industrial commodities, with oil down 1.8 per cent at $72.94 a barrel. Metals are mixed, leaving the Reuters-Jefferies CRB index down 0.5 per cent.

Gold has slowly turned round an early decline and is hitting fresh two month highs, up 0.9 per cent at $1,248 an ounce.

Follow Jamie Chisholm’s market comments on Twitter: @JamieAChisholm





US housing woes compound job fears
By James Politi in Washington
Copyright The Financial Times Limited 2010
Published: August 30 2010 22:01 | Last updated: August 30 2010 22:01
http://www.ft.com/cms/s/0/b06ce534-b474-11df-8208-00144feabdc0.html


Concerns that the depressed US housing sector will remain a drag on the US labour market have mounted following the loss of nearly 120,000 jobs in construction and related businesses in the last three months for which statistics were available.

According to Financial Times analysis, the decline in housing-related employment was the biggest weight on private sector job creation as it slowed to an average of 51,000 jobs a month during the May-July period from 153,000 a month in February-April.

US Labor Department data show that some 61,000 construction jobs were lost between May and July, with another 56,000 positions shed in ancillary areas, such as furniture, building products and financial services related to property.

New employment data for August will be released on Friday, and economists expect little improvement in the current anaemic rate of private sector job creation, which is not enough to bring the unemployment rate down.

“The fact is that too many businesses are still struggling, too many Americans are still looking for work, and too many communities are far from being whole again,’’ President Barack Obama said on Monday as he revealed that his advisers were considering further tax cuts designed to encourage job creation.

Analysis: US housing

As Americans struggle to shake off the hangover from the property bubble, officials are questioning policies that have long promoted ownership as a national birthright, writes Suzanne Kapner

Construction and associated businesses were among the hardest hit sectors in the recession, accounting for about 3m of 6.6m jobs lost after the collapse of the housing bubble in 2006.

The manufacturing sector lost more than 2m jobs in the same period, but appears to be emerging from the downturn in a healthier state. Manufacturing added 88,000 jobs between May and July, and 73,000 positions between February and April.

Construction and related industries added some 18,000 workers to their payrolls in the February-April period. The return of significant job losses in these sectors will increase worries among economists and policymakers of a further jump in long-term unemployment, as many of these workers struggle to find jobs in different industries or locations.

Construction’s contribution to overall US employment – measured by private non-farm payrolls – was about 6 per cent between 1980 and the early part of this decade, peaking at 6.7 per cent in October 2006. Construction now accounts for just 5.1 per cent of private sector jobs.







US consumers’ outlook brightens
By Shannon Bond in New York
Copyright The Financial Times Limited 2010
Published: August 31 2010 14:29 | Last updated: August 31 2010 15:52
http://www.ft.com/cms/s/0/c77d9d9c-b4fe-11df-b0a6-00144feabdc0.html


Confidence among US consumers rose more than expected in August as their outlook brightened, but shoppers remained pessimistic about the current state of the beleaguered labour market.

The Conference Board’s confidence index rose 2.5 points to 53.5 in August from a revised 51.0 in July, beating economists’ expectations.

While the gain reflected “the result of an improvement in consumers’ short-term outlook,” Americans remain pessimistic about current conditions as job fears persist, said Lynn Franco, director of the Conference Board’s research centre.

The number of consumers who said jobs were “hard to get” rose to 45.7 per cent in August from 45.1 per cent, and the number who said jobs were “plentiful” fell to 3.8 per cent from 4.4 per cent. Fewer people described business conditions as “good” – 8.7 per cent compared with 8.8 per cent in July, but the number of people who described business conditions as “bad” also declined to 41.9 per cent from 43.4 per cent.

Consumers are slightly less pessimistic about the next six months, however. The number who expect more jobs increased to 14.6 per cent from 14.2 per cent, but they are still outnumbered by those who expect fewer jobs - 19.4 per cent in August compared with 20.6 per cent in July.

“Consumers will remain cautious,” said Michelle Meyer, an economist at Bank of America Merrill Lynch. “The improvement we saw today just brought us back to the June levels. I think it’s still clear that although expectations have improved, consumers are still worried relative to the trend.”

Confidence is a closely watched measure because it closely tracks consumer spending, which accounts for about 70 per cent of US gross domestic product.

The pace of consumer spending rose 0.4 per cent in July, commerce department figures showed on Monday, faster than economists had expected.

Separately, US home prices rose more than expected in June, but the pace slowed for the first time in 16 months.

The S&P/Case-Shiller index on Monday showed house prices in the 20 biggest US cities rose 4.2 per cent in June from a year ago. The increase was higher than the 3.9 per cent economists had expected, but slowed from May’s 4.6 per cent rise, which was the biggest year-on-year increase since 2006.

Further signs of flattening were evident in the 1 per cent monthly gain, down from a 1.3 per cent month-on-month rise in May.

Analysts warn that price increases are unlikely to be sustained as the last effects of the government’s first-time homebuyer tax credit, which expired in April, wear off and July’s drop in home sales weighs on the housing market.

“Seasonally this is the strongest time of the year for home prices, and residual demand from the homebuyer tax credit is exaggerating the strength,” said Joshua Shapiro, chief US economist at MFR. “We’ve seen demand fall apart after the tax credit expired, and so we’re going to see a fairly dramatic softening of prices as we get into the late summer and autumn.”

“Supply is way outstripping demand. The smallest dose of common sense will tell you what that will do to prices,” Mr Shapiro said.

Since the tax credit expired, the housing market has weakened, with new home sales hitting a record low in July and sales of existing homes dropping to a 15-year trough.

“If this relative weakness in demand continues, it will likely filter through to home prices in coming months,” said David Blitzer, chairman of S&P’s index committee.

Nationally, prices rose 3.6 per cent in the second quarter from a year ago and 4.4 per cent from the previous three months.

Seventeen of the 20 cities recorded price rises from May to June. Chicago, Detroit and Minneapolis saw the strongest monthly increases, while Las Vegas was the only city where prices declined.

Fifteen cities recorded yearly increases, led by San Francisco, where prices rose 14.3 per cent from June 2009, and San Diego, where prices rose 11.2 per cent. Prices fell most in Las Vegas, down 5.2 per cent from last year.





Eurozone jobless rate flat despite growth
By Stanley Pignal in Brussels and Quentin Peel in Berlin
Copyright The Financial Times Limited 2010
Published: August 31 2010 11:59 | Last updated: August 31 2010 15:36
http://www.ft.com/cms/s/0/876698d4-b4e6-11df-b0a6-00144feabdc0.html


Robust growth in the eurozone in the second quarter failed to dent its near-record unemployment rate, which remained flat for a fourth consecutive month in July, although prospects are brighter for the revived German economy.

The 10 per cent overall eurozone figure once again masked a chasm between the “core” economies led by Germany, which are doing well, and the “peripheral” group, such as Spain, which continues to struggle.

Germany’s seasonally adjusted unemployment rate, as measured by the European Commission’s statistical arm, remained flat at 6.9 per cent in July, below its own pre-crisis levels, though its national figures point to a small decline in joblessness.

By contrast, Spain’s unemployment rate nudged up to 20.3 per cent, the highest figure ever seen in a eurozone country since the single currency was introduced in 1999. In Spain, 41.5 per cent of young people are now looking for work, compared to 19.6 per cent across Europe.

Joblessness in Ireland also rose, from 13.3 per cent to 13.6 per cent, but fell in Portugal from 11.0 per cent to 10.8 per cent; Greece no longer releases monthly data.

Somewhere between the two extremes, France remained flat at 10 per cent and Italy fell 0.1 per cent, to 8.4 per cent.

Germany simultaneously unveiled its first estimates for August unemployment, which showed a continuing slow but steady decline, with a seasonally-adjusted drop of 17,000 to 3.19m, leaving the jobless rate constant at 7.6 per cent.

The figure was greeted by economic analysts as confirmation of the resilience of the export-driven German economic recovery, although they continue to expect slower growth figures towards the end of the year.

Unemployment has been falling in Germany, the largest economy in the eurozone, for over a year. Compared with August 2009, the latest figure is down by 283,000, as German employers have stepped up recruitment and cut back on the number of workers whose working hours had been temporarily reduced.

Several economists expressed the hope that the positive figures from the German labour market would herald a revival of domestic demand to complement the rapid recovery in exports.

Business confidence rose to its highest level in August for more than three years, while consumer confidence was also increasingly positive.

“It is not only the drop in unemployment which bodes well for private consumption, but also job creation,” Carsten Brzeski of ING Financial Markets told Reuters. He said that the impressive performance of the labour market would only become “a real success story” if it led to a pick-up in private consumption. “All ingredients are in place for this to happen now,” he said.

Economists expect eurozone unemployment to peak in the coming months as labour market measures designed to stimulate the economy during the downturn start to be withdrawn.

Some are warning that the spurt of growth experienced in the second quarter – at 1 per cent, much higher than had been expected – will not automatically feed through to lower unemployment.

“The pick-up in eurozone economic activity since early-2010 is clearly feeding through to help the labour market,” says Howard Archer of IHS Global Insight, a consultancy. “However, there remains a substantial risk that eurozone unemployment will rise again later in 2010 and during 2011.”




Indian economy shows 8.8% growth
By Amy Kazmin in New Delhi
Copyright The Financial Times Limited 2010
Published: August 31 2010 08:58 | Last updated: August 31 2010 17:43
http://www.ft.com/cms/s/0/a04512e6-b4d1-11df-b0a6-00144feabdc0.html


India’s economy grew a brisk 8.8 per cent in the June quarter year-on-year, its fastest pace since early 2008, highlighting the strength of the economy despite the impact of high inflation on consumer spending.

Growth during the first quarter of India’s April to March financial year accelerated from the 8.6 per cent last quarter, driven by robust manufacturing and services growth, and a pick-up in farm production.

The strong performance will encourage the Reserve Bank of India to persist with its’ aggressive monetary tightening to control inflation, which has dropped slightly - to 9.97 per cent in July – from its previous double-digit peak, but remains uncomfortably high.

“The first order of business for the government should be to contain the price pressure by raising interest rates,” said Frederic Neumann, managing director of HSBC, the investment bank. “Stabilising prices is almost a precondition to reviving household spending.”

The pick-up in private consumption weakened from last quarter, growing just 0.3 per cent year on year, slowing from a 2.6 per cent growth year on year during the previous quarter. “The big puzzle is why consumption hasn’t taken off,” said Mr Neumann. “It’s the missing leg of India’s recovery – and the most likely culprit is rising inflation.”

FT blog: Beyond Brics

Emerging markets: News and comment from emerging economies, headed by Brazil, Russia, India and China

New Delhi is forecasting that India’s economy will expand 8.5 per cent during this year, after growing 7.4 per cent last year, despite a severe drought that hit farm production and contributed to sky-rocketing food prices.

Montek Singh Ahluwalia, deputy chairman of the planning commission, told reporters the pace of growth of India’s manufacturing sector – which expanded 12.2 per cent in the first quarter – will slow due to statistical effects as India moves further away from the downturn, and deeper into its recovery.

But he said farm output - up 2.8 per cent in the first quarter - would be substantially stronger. India has received bountiful monsoon rains – crucial for agriculture - and India’s sown acreage is now 10 per cent higher than it was at the same time last year

India has also recorded a sharp 18.8 per cent drop in its foreign direct investment inflows, to $10.78bn, during the first six months of 2010. The drop was particularly precipitous in June, when FDI fell 46.5 per cent, to $1.38bn, from a year earlier.

With renewed concerns about the strength of the global economy, the Confederation of Indian Industry, a powerful industry group, urged New Delhi to do more to improve the domestic business climate to ensure strong investment inflows . It also appealed for domestic interest rates to remain low to foster domestic consumption.

The RBI, which has already raised interest rates several times so far this year , is due to meet again on September 16.

With the notable exception of Japan, much of Asia has been growing at a blistering pace this year, with annualised second quarter GDP growth rates coming in at rates not far short of or well into double digits – 9.1 per cent inThailand, 10.9 per cent in China and a staggering 17.9 per cent in Singapore, for example.

However, growth is widely expected to moderate in the second half as the impact of extraordinary monetary and fiscal stimulus measures implemented in the wake of the global financial crisis begins to wane.

Finance ministers and central banks will be keeping a close eye on a raft of purchasing managers’ indices for August due for release on Wednesday for signs that a slowdown may already have begun. The July indices, released a month ago, suggested that the pace of growth in manufacturing activity was easing in most countries, although India was an exception.