Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


Stocks retreat as US data disappoint
Copyright The Financial Times Limited 2010
Published: September 13 2010 06:14 | Last updated: September 16 2010 16:40
http://www.ft.com/cms/s/0/483c5a1a-bedf-11df-a755-00144feab49a.html


Thursday 16:35 BST. A flurry of differing catalysts and a poor performance out of Shanghai, seem to have left investors somewhat bewildered, prompting stocks to retreat from near five-month highs.

The FTSE All-World index is down 0.5 per cent, but metal prices have reversed early declines as traders appear unsure about their risk profiles. Gold has hit a new high of $1,278 an ounce and the US Treasury yield curve is steepening.

On Wall Street the S&P 500 is down 0.5 per cent, held back by a poorly-received first-quarter earnings report from FedEx – the logistics group considered a useful gauge of broad commercial activity – and a second consecutive negative reading of the Philly Fed manufacturing survey.

A slightly better than forecast survey of US weekly initial jobless claims has been brushed off, with some analysts noting the gauge’s improvement remains tortuous.

Negative force is also being supplied by reports that China’s banks face increased capital requirements – raising fears that any resultant contraction in lending could cause one of the main pistons in the engine of global growth to falter. Chinese stocks have fallen sharply in response.

In addition, today’s release of much weaker-than-expected UK retail sales in August is playing on traders’ minds.

Meanwhile, a ratcheting-up of the rhetoric between Beijing and Washington over the level of the renminbi is being eyed warily lest it develop into a broader trade dispute. Timothy Geithner, US Treasury secretary, is due to address the renminbi issue on Capitol Hill today and it is surely a coincidence that the Chinese unit’s rate of appreciation has accelerated, taking its gains versus the dollar over the past six sessions to more than 1 per cent.

It may be difficult to determine the impact on traders’ psyche of news that India has raised interest rates more aggressively than expected. Optimists can argue the Reserve Bank of India’s move to crimp inflation signals its confidence that such a decision will not derail robust growth. Pessimists may note that the global economy can well do without the risk of Indian and Chinese growth slowing at the same time as monetary tightenings bite. India’s Sensex index fell 0.4 per cent.

Supporting risk appetite, however, is the performance of US equities over the past few sessions. The S&P 500 has twice bounced off its 200-day moving average of 1,116, in spite of being faced with downbeat data that might have provided an excuse to take profits following a 7.2 per cent gain so far in September.

Finally, good demand for Spain’s €4bn bond auction on Thursday has eased fears that the “peripheral” eurozone faces sovereign debt funding difficulties.

● Europe. The FTSE Eurofirst 300 is down 0.8 per cent and London’s FTSE 100 lost 0.5 per cent, with precious metals groups seeing profit taking despite gold’s continued advance. Madrid is outperforming, down just 0.3 per cent, as the country’s banks find support following the successful debt auction.

● Asia-Pacific. Shares were mostly lower across the region, with Japanese exporters paring gains as Wednesday’s currency intervention by Tokyo to weaken the yen begins to fade. The Nikkei 225 gave up an initial advance to close down 0.1 per cent after the nation’s car manufacturing trade body warned that the yen would need to weaken to Y95 to the dollar.

The FTSE Asia-Pacific Index closed down 0.6 per cent, as reports that China’s banks face higher capital requirements revived concerns that a fall in lending could hamper growth across the region and beyond. The Shanghai Composite lost 1.9 per cent and Hong Kong’s Hang Seng fell by 0.2 per cent.

Other Asian stock markets were lower with South Korea’s Kospi down 0.7 per cent and Australia’s S&P/ASX 200 off 1.2 per cent, their performance influenced by lacklustre overnight US economic data. New Zealand’s NZX 50 index closed flat after the country’s central bank left its benchmark interest rate unchanged.

● Forex. The yen is off its lows as shorts take profits and, possibly, as bulls of the currency start to test the Japanese Ministry of Finance’s resolve to intervene. The yen, which fell more than 3 per cent on Wednesday, is up 0.1 per cent versus the dollar to Y85.68.

Naoto Kan, Japanese prime minister, reiterated on Thursday that Tokyo would take decisive action on the yen’s strength if needed. Money market data from the Bank of Japan suggest about $21bn may have been used to stem the yen’s rise on Wednesday.

The dollar is down 0.3 per cent on a trade-weighted basis and down 0.6 per cent against the euro to $1.3086 as the Spanish bond auction appears to support the single currency. Sterling is softer following the retail sales numbers, losing 0.7 per cent to 83.80p versus the euro.

● Commodities. Metal prices are firmer as the falling dollar trumps fears that a clampdown on Chinese bank lending may cause a drop in demand. Copper is up 0.9 per cent to $7,698 a tonne. Oil is down 1.5 per cent to $75.12 a barrel as an important pipeline between the US and Canada is due to come back on line.

Gold is up 0.7 per cent at $1,275, having earlier hit a new nominal high of $1,277.7, helped by the the weakening dollar.

● Rates. US 10-year yields are up 5 basis points at 2.77 per cent, an unusual move given the pullback in equities, which usually encourages the buying of bonds, but a trend that may reflect news that producer prices rose more than expected in August. Short-dated notes are seeing buying, however, with the 2-year yield down 1 basis point to 0.48 per cent, pushing the yield curve to its steepest since early August.

Yields on Spanish benchmark 10-years are up 4 basis points to 4.22 per cent – following the broader trend – despite news Madrid was able to sell a total of €4bn of new 10- and 30-year bonds at lower yields than those seen at previous auctions. German Bund yields are up 7 basis points to 2.48 per cent as the Spanish auction nevertheless appears to reduce haven flows.

Follow the market comments of Jamie Chisholm and Telis Demos on Twitter: @JamieAChisholm and @telisdemos





US considering ways to push up renminbi
By Alan Beattie in Washington
Copyright The Financial Times Limited 2010
Published: September 16 2010 02:06 | Last updated: September 16 2010 02:06
http://www.ft.com/cms/s/0/c1cd6de2-c12d-11df-afe0-00144feab49a.html


The US is considering a range of tools to push China into allowing its currency to appreciate faster, Tim Geithner, Treasury secretary, told Congress on Thursday.

In text prepared for delivery to committees in the Senate and the House of Representatives, Mr Geithner repeated his view that the renminbi is rising too slowly and argue that a combination of direct and multilateral measures could be used to encourage the Chinese authorities to allow a swifter rise.

“We are examining the important question of what mix of tools, those available to the United States and multilateral approaches, might help encourage the Chinese authorities to move more quickly,” his statement said. Since China unpegged the renminbi from the dollar on June 19, a move Mr Geithner said was an important step, Beijing has continued to intervene in the foreign exchange markets to prevent anything more than minimal appreciation against the dollar.

A twice-yearly currency report prepared by the US Treasury is due in mid-October, and Mr Geithner will have to decide whether or not formally to name China a currency manipulator, a step it has so far not taken despite calls to do so from Congress. “We will take China’s actions into account as we prepare the next Foreign Exchange Report,” his testimony said. “The exchange rate must display a sustained, trend appreciation.”

Congress is considering a range of tools to use against China, including classifying exchange rate misalignment as an illegal export subsidy, which would allow the US to impose emergency tariffs on Chinese imports to correct for the undervaluation. Sander Levin, chairman of the House of Representatives ways and means committee, said on Wednesday he was attracted to the idea of taking a case against China to the World Trade Organisation, though that could take several years to resolve.

So far the administration has not taken a strong stand on which of these tools might be appropriate, and has generally counselled caution about adopting a combative stance towards Beijing.

The US will seek to use the forthcoming meeting of the G20 countries in Seoul, South Korea, to put pressure on China to loosen its exchange rate policy, which has also drawn complaints from several other G20 nations. But its campaign may be complicated by Japan’s decision on Wednesday to intervene in foreign exchange markets to hold down the yen for the first time in six years, a move that Mr Levin described as “deeply disturbing”. China and Japan were pursuing “predatory” exchange rate policies, Mr Levin said.






Fall in US jobless claims offers hope
By Alan Rappeport in New York
Copyright The Financial Times Limited 2010
Published: September 16 2010 14:30 | Last updated: September 16 2010 15:07
http://www.ft.com/cms/s/0/a88c9c2a-c18e-11df-8e03-00144feab49a.html


New claims for jobless benefits fell to a two-month low last week, government figures showed on Thursday, offering a glimmer of hope that the US labour market could be stabilising.

Separately, wholesale prices rose more than expected in August, easing fears that a slowing economic recovery could lead to deflation.

Initial jobless claims fell by 3,000 to 450,000, according to the labour department. Economists were expecting an increase after another surprise drop the previous week and the less volatile four-week average of claims is down by 13,500 to 464,750.

The number of Americans continuing to claim unemployment insurance also fell, declining by 84,000 to 4.485m. That fall reflects both a drop in job cuts but also idle workers seeing their benefits expire.

Economists argue that jobless claims need to fall to the low-400,000 level before the US economy can add jobs in a sustainable way. Stubbornly high unemployment has been a persistent political problem for the Obama administration leading up to the November mid-term elections.

Analysts at Capital Economics argue that the US may be facing a “structural” unemployment scenario, where employers are seeking workers, but are unable to find suitable ones for their job openings.

“A higher structural unemployment rate means that any polices aimed at stimulating labour demand are likely to be less effective in bringing down the unemployment rate,” said Paul Dales, US economist at Capital Economics. “Policymakers may therefore need to implement supply-side measures, such as retraining workers.”

The ongoing struggles of the labour market were underlined on Thursday, as FedEx, the US package shipping company, said it would cut 1,700 workers as it consolidated part of its business.

Layoffs eased in states such as Florida and New York, where there were fewer job cuts in the construction and transportation sectors.

Meanwhile, the producer price index increased by 0.4 per cent last month, labour department figures showed. It was the second month running that wholesale prices increased and it was led by the first rise in energy costs since March.

Year on year, wholesale prices are up by 3.1 per cent.

Core prices, which exclude food and energy, ticked up by a modest 0.1 per cent in August, led by increases in prices for pharmaceutical items, light motor trucks and metals.

Ben Bernanke, chairman of the Federal Reserve, has said consistently that prices will remain “subdued” for some time. Thursday’s data support his argument that measures to stimulate the economy are unlikely to spur inflation in the near term, but that demand remains sufficient to prevent disinflation or falling prices.





US workers’ poverty at 50-year high
By Robin Harding in Washington
Copyright The Financial Times Limited 2010
Published: September 16 2010 18:21 | Last updated: September 16 2010 18:21
http://www.ft.com/cms/s/0/2c34e206-c1b4-11df-9d90-00144feab49a.html


Poverty among the working-age population of the US rose to the highest level for almost 50 years in 2009, as the human cost of the deepest economic downturn since the Great Depression was laid bare in new census data.

Poverty among those aged 18 to 64 rose by 1.3 percentage points to 12.9 per cent – the highest level since the early 1960s, prior to then-president Lyndon Johnson’s “War on Poverty”. The overall poverty rate rose by 1.1 percentage points to 14.3 per cent, the highest since 1994.

The rise in working age poverty was driven by the jump in the unemployment rate to 10 per cent during 2009. It is a bitter blow to Barack Obama, US president, who campaigned on a promise to cut poverty, and the data may further harm the already difficult prospects for Democrats in November’s mid-term elections to Congress.

“The overall message is that we’ve erased all of the gains in poverty that were made in the 1990s,” said Elise Gould of the Economic Policy Institute, a left-of-centre Washington think tank.

“Even before the recession hit, middle class incomes had been stagnant and the number of people living in poverty in America was unacceptably high, and today’s numbers make it clear that our work is just beginning”, Mr Obama said on Thursday.

The Census Bureau said that 43.6m people were living below the poverty line in 2009, the highest number in 51 years of data, although the overall poverty rate is still 8.1 percentage points lower than it was in 1959.

The rise in poverty was worse than in any other recession since 1969 save that of 1980-82, when the rate jumped by 3.9 percentage points.

Elderly people were shielded from the effects of the recession by social security and Medicare, however, with poverty among people over 65 dropping by 0.8 percentage points to 8.9 per cent.

By race, the poverty rate rose above 25 per cent for black and Hispanic people, more than double the 12.3 per cent rate among white people.

The Census Bureau uses an absolute measure of poverty that compares a household’s income to the cost of a basket of goods such as food and clothing. A family of two adults and two children is defined as poor if its income is less than $21,756.

That definition is often criticised because it does not reflect the cost of goods with higher than average inflation, such as education, healthcare and housing.

One way families have responded to the recession is by moving in together: there was an 11.6 per cent increase in multi-family households, and the number of adult children living with their parents rose sharply. “There is evidence that the number of families sharing households has risen over the past two years,” said David Johnson of the Census Bureau.

The data also showed the number of Americans without health insurance rose to a record 50.7m as people losing work also lost their health benefits. In 2009, 16.7 per cent of the population had no health insurance in 2009 – the highest since the series began in 1987.

The healthcare reforms passed this year are unlikely to do much to lower that rate until 2014, when some of the main provisions come into effect.

Median household income fell by 0.7 per cent to $49,777. The Gini coefficient for income inequality rose slightly to 0.468.

“The steady erosion of employer-sponsored insurance in the 2000s became a landslide in 2009 when the unemployment rate took its largest one-year jump on record.” said Ms Gould.