debt crisis

Retailers Are Slashing Prices Ahead of Holiday

December 23, 2011 by NewsMaker Leave a Comment

Aggressive last-minute deals in the days before Christmas are good for procrastinators, but they could be an alarm bell for the retail industry.

While scattered markdowns are standard every year, discounts across entire stores — which analysts say are more widespread than last year — suggest merchants are stuck with too much merchandise.

“It’s really a game of chicken,” said David Bassuk, managing director and head of the retail practice at the consultant firm AlixPartners.

Many retailers entered the season “with pretty optimistic plans” that shoppers would rush into stores and pay full price, Mr. Bassuk said. But that did not pan out, and the final days before Christmas have retailers being “much more aggressive in terms of promotions being offered,” he said.

Shoppers are filling their holiday lists against the backdrop of an uncertain year, with stubbornly high unemployment, increased food prices, volatile gas prices and unpredictability for stocks and Europe’s debt crisis. The government on Thursday said that third-quarter economic growth had not been as brisk as it previously estimated, because of a drop in consumer spending on services like health care.

Toys “R” Us announced on Thursday new deals on dozens of items for Friday and Saturday, including ‘buy one, get one half off” on popular toys like Legos. A sampling of other promotions: Up to 70 percent off toys at Amazon; up to 50 percent off gifts at Restoration Hardware; 40 percent off almost everything at American Eagle Outfitters, Talbots, Limited and Wet Seal; and 30 percent off everything at J. Crew.

“There’s been kind of a waiting game with retailers,” Gerald L. Storch, the chief executive of Toys “R” Us, told CNBC last week. “And it looks like the consumer wins.”

Paul Lejuez, an analyst at Nomura Equity Research, surveyed mall deals over the weekend and said he was concerned. “It looks like 40 percent is the new level you have to be at, 40 percent off, to drive traffic. Those that weren’t at that level weren’t getting their fair share,” he said.

Going into the holiday season, inventories had grown more than three times as fast as sales at several retailers, including American Eagle Outfitters, Aéropostale, Gap Inc., Urban Outfitters, Chico’s and Talbots. “If inventory is growing ahead of sales growth, there is a need to be more promotional to move the goods,” Mr. Lejuez said.

Although sales over Thanksgiving weekend were surprisingly strong, Mr. Lejuez said they seemed to have cut into shopping that more typically would occur in December. Sales were sluggish the first two weeks after Thanksgiving, though they improved in the third week, according to the International Council of Shopping Centers.

In e-mail inboxes, the promotional cadence is rapid. Retailers sent about 5.6 e-mails each last week on average, according to the e-mail marketer Responsys. That was a 26 percent increase over the same week last year, and matched the record high hit during the week of Cyber Monday this year.

Stores including Macy’s and Toys “R” Us are offering 24-hour shopping in the days before Christmas, and many stores moved “Super Saturday,” a promotion that falls on the final Saturday before Christmas, back a week hoping to spur sales.

The deals are a boon for people who have put off shopping.

“Last-minute Christmas shopping,” posted a Twitter user named Samra Tekeste. “Literally everything is on sale, LOL. Knew my procrastination would come in handy some day.” Another Twitter user with the handle BossNugget suggested that the King of Prussia mall near Philadelphia hang up a sign saying “It’s Almost Christmas, and Everything Is on Sale.”

The big discounts mean that retailers are willing to sacrifice profits for revenue.

“More and more each year, sales become less of the issue, and it’s more about what retailers have to do to get those,” Mr. Lejuez said. “There’s a little more pressure on that out-the-door price than we would have thought, and, I think, what the market would have anticipated.”

And, after Christmas, the value of most merchandise slides.

“The inventory is worth so much less in two weeks,” said the chief executive of a retailer, who asked not to be named because he did not want to reveal his store’s strategy. “With that kind of inventory, you’ve got to get rid of it. Whatever the margin is today, it’s that much lower next week and the week after when traffic stops.”

Article source: http://feeds.nytimes.com/click.phdo?i=e6b7b0158eca26bbb0dbcf399d150ddb

Filed Under: Business News Tagged With: days before christmas, debt crisis, wet seal

Asian Shares Up as U.S. Data Spurs Year-End Bounce

December 23, 2011 by NewsMaker Leave a Comment

Wall Street stocks had risen for a third straight day on Thursday, leaving the SP 500 index virtually flat for the year, after data showed new claims for unemployment benefit dropped to their lowest in 3- years.

The euro crept higher, but remained subdued amid doubts over whether this week’s European Central Bank tender of cheap loans will be effective enough to ease the financial strain on troubled euro zone economies.

“The highlight is the continuation of good data on the U.S. economy. China also seems to have managed to orchestrate a soft landing…,” said Ben Le Brun, market analyst with OptionsXpress in Sydney. “The problem child is still Europe.”

MSCI’s broadest index of Asia Pacific shares outside Japan rose 1.3 percent, with Australian and Korean shares both rising more than 1 percent. Tokyo’s financial markets were closed for a holiday.

Asian share markets, both developed and emerging, have sharply underperformed U.S. stocks in 2011, with the MSCI Asia ex-Japan losing 17 percent, and the Nikkei share average down about 18 percent, while Australia’s benchmark has lost about 13 percent.

The MSCI World index fared slightly better, losing only 10 percent this year.

Citigroup equity strategists said in a note that Asia had seen its worst December fund outflows in 20 years as investors continued to pull money out of global equity funds.

EURO LOOKS FOR SUPPORT

The euro crawled up to around $1.3065, from $1.3050 late in New York, in thin trade.

The ECB’s first ever tender of ultra-cheap three-year loans on Wednesday, which saw 523 banks gorge on a total of 489 billion euros, has failed to win the single currency much support.

But despite the long-running debt crisis the euro is only down around 2.4 percent for the year, having found support from higher ECB interest rates in the first half of 2011 that pushed it to a year high near $1.50 in May.

“People are diversifying away from U.S. dollars and that’s what it comes down to,” said David Scutt, a trader at Arab Bank Australia in Sydney.

“Despite the fact the U.S. economy is strengthening, there are still expectations in the marketplace that the Fed has showed it’s very keen to print at the best of times, and that’s helping the likes of the euro.”

The U.S. Federal Reserve has kept interest rates near zero for more than three years and has signalled it will keep them there through at least mid-2013. It has also bought $2.3 trillion in long-term securities to push down borrowing costs.

The New Zealand dollar dipped briefly on news of another earthquake near Christchurch but soon steadied as there were no reports of casualties or widespread damage, unlike the previous quake in February.

It was trading at $0.7743, up from $0.7724 late in New York.

The rosier picture painted by the U.S. data supported commodities, with copper, which is sensitive to expectations of industrial demand, rising 0.5 percent to $7,578 a tonne, on course for its first weekly gain in three weeks.

U.S. crude oil edged up slightly, drawing closer to $100 a barrel, while Brent crude was little changed just below $108.

Gold rose 0.4 percent to around $1,613 an ounce.

The precious metal has shed more than $300 since racing to a record above $1,920 in September, an appreciation driven partly on fears that the Federal Reserve’s monetary easing steps would stoke inflation against which it has traditionally been seen as a hedge, but remains up nearly 14 percent on the year.

(Additional reporting by Francis Kan in Singapore and Cecile Lefort in Sydney; Editing by Ramya Venugopal)

Article source: http://www.nytimes.com/reuters/2011/12/22/business/business-us-markets-global.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: debt crisis, street stocks, thin trade

New Jobless Claims Are Lowest Since ‘08

December 22, 2011 by NewsMaker Leave a Comment

Initial claims for state unemployment benefits dropped 4,000 to a seasonally adjusted 364,000, the Labor Department said on Thursday. That was the lowest amount since April 2008.

In other economic news, a survey released Thursday showed that consumer sentiment rose in December to its highest level in six months. And a gauge of future economic activity increased more than expected in November because of a sharp pickup in new permits to build homes.

But revised data showed that the nation’s economic growth was slower than previously estimated in the third quarter because of a sharp drop in health care spending. Stronger business investment and a fall in inventories pointed to a pickup in output in the current period.

The United States economy has shown signs it is gaining steam as the year ends, although the recovery still could be derailed by any big flare-up in Europe’s debt crisis. The economy also faces risks from the fight in Congress over extending special unemployment benefits and a payroll tax cut.

Jobless Claims

The decline in jobless claims last week was a more positive development than expected. Economists polled by Reuters had forecast claims rising to 375,000 last week.

The prior week’s jobless claims data was revised up to 368,000 from the previously reported 366,000.

The level of unemployment claims has fallen in recent weeks, and analysts say fewer layoffs means employers are probably more likely to hire.

Economists at Goldman Sachs said earlier in the week that weekly claims below 435,000 pointed to net monthly gains in jobs. Their research was based on figures available through October.

In November, the jobless rate dropped to a two-and-a-half-year low of 8.6 percent. The Federal Reserve last week acknowledged an improvement in the jobs market, but said unemployment remained high and left the door open for further measures to help the economy.

Consumer Sentiment

In a fresh sign of economic hope, a survey released Thursday showed that Thomson Reuters University of Michigan’s final reading on the overall index on consumer sentiment rose to 69.9 points in December from 64.1 the previous month.

It topped the median forecast of 68 points among economists polled by Reuters and beat December’s preliminary figure of 67.7.

Over all, real spending is expected to increase by 1.8 percent in 2012 as long as action is taken on extending the payroll tax cut, the survey said.

The survey’s barometer of current economic conditions rose to 79.6 points from 77.6, while the survey’s gauge of consumer expectations gained to 63.6 points from 55.4. All three indexes were at their highest level since June.

“I think it’s a reflection of improving job statistics, we’re seeing an increase in retail sales and even housing seems to be going up,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “A lot of the key bookends of our economy appear to be really strengthening and that’s supporting confidence.”

Leading Indicators

A report released Thursday by the Conference Board suggested that economic momentum could increase by spring.

The private firm’s Leading Economic Index rose 0.5 percent in November to 118 points, following a 0.9 percent increase in October. It was the seventh straight monthly gain in the index.

“The risk of an economic downturn in the near term has receded,” said Ataman Ozyildirim, an economist at the Conference Board.

Ken Goldstein, another Conference Board economist, said the index suggested the economy could pick up steam by spring.

Analysts polled by Reuters had expected the index to rise 0.3 percent in November.

Economic Output

In a separate report released on Thursday, the Commerce Department said in its final estimate that gross domestic product grew at a 1.8 percent annual rate in the July-September quarter, down from the previously estimated 2 percent.

Economists had expected growth to be unrevised at 2 percent. Though spending on health care dropped by $2.2 billion, spending on durable goods was stronger than previously estimated, indicating household appetite to consume remains healthy.

Health care spending had previously been reported to have increased at a $19.7 billion rate. Health care spending subtracted about 0.1 percentage point from the G.D.P. change in the final revision, whereas the previous estimate had it adding 0.61 percentage point to growth.

Despite the downward revision, the third quarter growth is still a step up from the April-June period’s 1.3 percent pace. Part of the pickup in output during the last quarter reflected a reversal of factors that held back growth earlier in the year.

A jump in gasoline prices weighed on consumer spending earlier in the year, and supply disruptions from Japan’s big earthquake and tsunami in March curbed auto production.

The government revised consumer spending to a 1.7 percent growth rate from 2.3 percent because of adjustments to health care services, in particular nonprofit hospitals.

Spending on durable goods was, however, revised up to a 5.7 percent pace from 5.5 percent.

Business inventories dropped by $2 billion, which sliced off 1.35 percentage points from G.D.P. growth. Inventories had previously been estimated to have declined $8.5 billion.

The drag from inventories was offset by strong business spending, which increased at a 15.7 percent rate, instead of 14.8 percent.

Article source: http://feeds.nytimes.com/click.phdo?i=b043ce80eb59335e8618bf879b992e1f

Filed Under: Economy News Tagged With: debt crisis, inventories, layoffs

World Stocks Rise as Data Shows U.S. Layoffs Easing

December 16, 2011 by NewsMaker Leave a Comment

BANGKOK (AP) — World stocks rose Friday amid improving U.S. jobs and manufacturing data and the expected approval in Italy of an austerity plan intended to get the country’s finances under control.

Benchmark oil hovered near $94 per barrel while the dollar rose against the euro and the yen.

European shares rose in early trading, following gains in Asia. Britain’s FTSE added 0.3 percent to 5,415.04. Germany’s DAX inched up 0.3 percent to 5,745.07. France’s CAC-40 was steady at 2,997.89. Wall Street also appeared ready to head higher. Dow Jones industrial futures rose 0.4 percent to 11,872 while SP 500 futures gained 0.6 percent to 1,218.80.

Japan’s Nikkei 225 index was 0.3 percent higher to close at 8,401.72. South Korea’s Kospi rose 1.2 percent to 1,839.96 and Hong Kong’s Hang Seng added 1.4 percent to 18,285.39. Benchmarks in Singapore, Taiwan and Indonesia also rose.

Mainland China shares ended a six-session losing streak, with the benchmark Shanghai Composite Index gaining 2 percent to close at 2,224.84.

Analysts stopped short of calling the gains a recovery, as trading was light ahead of the holidays. The Hang Seng, snapping a six-day losing streak, was higher on a technical rebound, said Linus Yip, a strategist at First Shanghai Securities in Hong Kong.

“The market dropped for six straight days. Now it may find some excuse for a technical rebound. So the U.S. job figures may be the excuse,” Yip said.

Later Friday, the Italian government will hold a critical confidence vote in the lower house of parliament on a multibillion euro austerity package.

Despite widespread opposition, the plan aimed at persuading bond markets that the country can emerge from the widening European debt crisis is expected to pass. The country now sits on a 1.9 trillion euros ($2.5 trillion) powder keg of debt that could spark a global economic recession if a default occurs.

“While the plan will very likely get the required support from MPs, it will be important to see whether amendments are proposed in terms of spending cuts and implementation schedule, in particular,” Frederik Ducrozet, an economist at Credit Agricole CIB, said in a research note.

Signs emerged that the Chinese central bank may have intervened in the currency market by offering dollars to support the Chinese yuan, which has been weakening in recent sessions. That raised speculation that authorities may plan more market-boosting measures.

The yuan strengthened to a record 6.3294 against the U.S. dollar, but later eased to 6.3446. Weakness in the yuan could raise tensions with countries such as the U.S. that complain it is already undervalued.

Among Japanese stocks, online game firm Gree rose 0.8 percent after Nomura Holdings rated the stock a “buy” on an expected increase in profits, Kyodo News Agency reported. Major automakers fell, including Toyota Motor Corp., down 1.8 percent, and Mazda Motor Corp. dropping 2.2 percent.

Retailers led Australia stocks down. JB Hi-Fi tumbled 14.9 percent after surprising investors with a profit warning late Thursday. Myer Holdings fell 2.6 percent.

Investor sentiment rose after the U.S. government reported that the number of people applying for unemployment benefits dropped sharply last week to 366,000, the fewest since May 2008. That’s a sign that layoffs are easing, a first step toward bringing down the unemployment rate, which currently stands at 8.6 percent.

Traders were also encouraged by a report from the Federal Reserve of New York that its index measuring regional manufacturing jumped to the highest level since May. That was far more than economists were expecting. A similar report from the Philadelphia branch of the Fed also increased more than analysts anticipated.

The Dow Jones industrial average rose 0.4 percent to 11,868.81. The Standard Poor’s 500 rose 0.3 percent to 1,215.76. The Nasdaq rose marginally to 2,541.01.

Benchmark oil for January delivery was up 12 cents to $93.99 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.08 to finish at $93.87 per barrel on Nymex on Thursday.

In currency trading, the euro fell to $1.3009 from $1.3011 late Thursday in New York. The dollar rose to 77.94 yen from 77.91 yen.

___

AP Business Writer Elaine Kurtenbach in Shanghai contributed to this report.

___

Follow Pamela Sampson on Twitter at http://twitter.com/pamelasampson

Article source: http://www.nytimes.com/aponline/2011/12/15/business/AP-World-Markets.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: confidence vote, debt crisis, kospi

DealBook: Stress Test Reveals European Banks Need More Capital

December 8, 2011 by NewsMaker Leave a Comment

European regulators told many of the region’s biggest banks, including Deutsche Bank and Commerzbank, on Thursday to raise more capital, as signs mount that the European sovereign debt crisis may worsen.

With the region’s leaders gathering in Brussels in their latest bid to shore up the euro, the European Banking Authority announced that banks over all needed to raise 114.7 billion euros, or $152.7 billion, in the event the debt crisis is not resolved soon. That was more than estimate of 106 billion euros in October.

The banking authority’s assessment showed that banks in Germany, Italy and Spain would have to raise more capital than previously thought, while banks in France had all they needed. In all, the stress tests showed that 31 of 71 banks needed stronger reserves.

Bank shares took a hit on Thursday. Commerzbank was 9.5 percent; Deutsche Bank, off 4.3 percent; and Unicredit, down 7.2 percent.

The banking authority came under fire earlier this year for conducting tests in which it did not consider the possibility that a euro-zone country might default. Bowing to pressure, the latest test took into account potential losses on the vast amounts of bonds banks hold from troubled European governments.

American banks hold smaller amounts of European sovereign debt. But the Federal Reserve is also planning new tests to gauge the ability of banks in the United States to weather with any further deterioration in Europe, which is also on the cusp of a recession.

The crisis has become a looming concern for President Obama, who has warned it could impact the country’s economic recovery. The Treasury secretary, Timothy F. Geithner, visited several European capitals this week, urging leaders to address the debt crisis more urgently.

The banking authority’s test results came after the European Central Bank unveiled new support for Europe’s banks, which have been having trouble getting other financial institutions to lend them money amid an erosion of confidence. More European banks have had to rush to borrow from the central bank recently to help finance their operations, a process the E.C.B. said it would now make easier.

With their financing squeezed, some banks could face trouble raising new capital. Already, BNP Paribas, Société Générale, Commerzbank and other giants have said they would sell assets to raise new money. A number of banks have claimed that the capital requirements would force them to cut lending to businesses and consumers — a step that would further depress Europe’s teetering economy.

Mario Draghi, the president of the E.C.B., expressed concern Thursday that the tougher standards for banks could prompt them to stop making loans, creating a credit crunch.

While the additional capital ‘‘should improve the euro-area banking sector’s resilience over the medium term,’’ he said at a news conference, ‘‘it is essential that national supervisors ensure that the implementation of banks’ recapitalization plans does not result in developments that are detrimental to the financing of economic activity in the euro area.’’

In response to fears that banks will curtail lending, regulators expanded the definition of reserves to include so-called contingent capital, which is borrowed money that automatically converts to equity in a crisis. That concession should make it easier for banks to meet the requirements.

Banks are also restructuring their debt to bolster their reserves. Some financial firms are buying back or exchanging hybrid securities, in a complex maneuver that allows them to improve their capital levels without raising additional money.

‘‘There’s no magic bullet to this problem,’’ said Karl Goggin, a banking analyst at NCB Stockbrokers in Dublin. He said banks had three options to raise capital: tap private investors, sell assets or turn to their government.

‘‘Most will turn to the first two options, but some will have to consider state aid,’’ he said.

The test of 71 banks revealed new problems in Germany, where banks will have to raise new capital totaling 13.1 billion euros, more than twice the amount thought just a month ago. Deutsche Bank, the country’s largest lender, will need to raise 3.2 billion euros, while Commerzbank must increase its reserves by 5.3 billion euros.

The German Finance Ministry said Wednesday it planned to propose legislation to revive the government fund it used in 2008 to rescue banks to help banks increase their reserves. In a break from previous practice, the government will be able to force banks to accept aid.

Banks in Spain must raise 26.2 billion euros. The nation’s banking giants, including Grupo Santander, are looking to assets sales to supplement their capital. The banking authority has said Italian banks must raise 15.4 billion euros.

For years, banks in Europe and the United States loaded up on the bonds of euro-zone governments. Regulators encouraged banks to buy more by deeming the bonds risk free, based on the assumption that no sovereign nation in the 17-member euro monetary union would ever default.

The banking authority’s assessment on Thursday underscored how those assumptions had been shattered, especially as the sovereign crisis swirls to Italy and larger countries.

‘‘As sovereigns go, so the banks will go,’’ said Gary Jenkins, a strategist at Evolution Securities in London. ‘‘If the sovereign situation deteriorates, the entire banking sector will deteriorate with it very quickly.’’

Jack Ewing contributed reporting from Frankfurt, and Julia Werdigier and Mark Scott from London.

Article source: http://dealbook.nytimes.com/2011/12/08/stress-test-reveal-european-banks-need-more-capital/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: debt crisis, european capitals, stress test

DealBook: European Banks Shuffle Bonds to Bolster Capital

December 8, 2011 by NewsMaker Leave a Comment

Chris Ratcliffe/Bloomberg NewsBNP Paribas of France is one of the European banks raising capital by rejiggering bond holdings.

LONDON — European regulators are pressing banks to shore up their balance sheets and bolster their capital cushions as the sovereign debt crisis continues to wreak havoc on the Continent.

But some financial firms, including Barclays of Britain, Commerzbank of Germany and BNP Paribas of France, are rejiggering their bond holdings in a complex maneuver that allows them to improve their capital levels without raising additional funds. It’s a costly accounting strategy that may drain cash, leaving firms more vulnerable to the economic turmoil.

“Banks have to conjure up extra capital from thin air,” said Bridget Gandy, co-head of European banks at Fitch Ratings in London. “New debt is expensive if they have to refinance using the capital markets.”

Faced with a tight deadline to raise new capital, many big European banks are reorganizing existing debt to increase their buffers. The strategy, known as liability management, involves buying back or exchanging hybrid securities — investments that pay dividends like bonds, but can be converted into equity — at a discount.

DealBook: Britain Takes Aim at Bank Pay and Dividends

December 6, 2011 by NewsMaker Leave a Comment

Chris Ratcliffe/Bloomberg NewsMervyn A. King, governor of the Bank of England.

LONDON — The Bank of England has suggested that British banks cut employee compensation and shareholder dividends as a way to bolster their capital reserves, according to the minutes of the November meeting of the central bank’s Financial Policy Committee, which were released on Tuesday.

The recommendation comes as banks continue to have difficulty raising capital in the face of sluggish earnings, tight debt markets and the European sovereign debt crisis.

“In order to boost capital, the committee concluded that dividend policies should be used actively and saw a strong case for limiting distributions to staff, although this might not be costless,” the minutes said.

Separately, the Bank of England said on Tuesday that it would offer a new sterling liquidity facility to alleviate any potential short-term pressure to obtain funding “in light of the continuing exceptional stresses in financial markets.”

“There is currently no shortage of short-term sterling liquidity in the market,” the central bank said, according to the minutes. “But should that position change, the new facility gives the bank additional flexibility.”

Mervyn A. King, governor of the Bank of England, urged British banks last week to improve their capital reserves because the debt crisis in the euro zone was getting worse and was a threat to the stability of the banking sector. Mr. King said there were some signs of a credit crisis that could make it harder for financial institutions to access funds.

The Financial Policy Committee said it recognized that many British banks had already reduced or suspended their dividends — and that others viewed a steady dividend as a way to attract investors and capital — but it said all banks should “build capital levels further.”

“Banks should limit distributions and give serious consideration to raising external capital in the coming months,” the committee said.

Bank pay practices have been a focus of investor anger. The Association of British Insurers, whose members manage investments that amount to about 26 percent of Britain’s total net worth, wrote letters to every publicly listed bank in Britain on Monday to ask them to “fundamentally restructure” their compensation policies.

“As bank remuneration is currently structured, our members are concerned about the level of returns that shareholders receive compared to the returns given to employees,” said one of the letters, to Standard Chartered. “The reduction in employee payout ratios needs to be achieved by reducing individual remuneration payouts to highly paid employees, including executive directors, and not by just reducing employee numbers.”

The association also said it wanted banks to retain more capital but that it “should not be solely funded by a reduced payment of dividends.” Given the current market conditions, the group expects “significantly lower bonus pools and individual awards,” the letter said.

Article source: http://dealbook.nytimes.com/2011/12/06/britain-takes-aim-at-bank-pay-and-dividends/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: debt crisis, dividend policies, euro zone

Germany’s Merkel Says Euro Crisis ‘Resembles a Marathon’

December 2, 2011 by NewsMaker Leave a Comment

Mrs. Merkel was speaking to the German Parliament as Europe’s leaders prepare for yet another round of talks on the issue, which has roiled markets across the continent and forced the collapse of governments in Greece, Italy and elsewhere. Mrs. Merkel spoke in sober and serious tones, and her words drew sustained if not overly enthusiastic applause from lawmakers.

“Resolving the sovereign debt crisis is a process, and this process will take years,” Mrs. Merkel said.

Marathon runners believe that their efforts become particularly difficult after the “35 kilometer mark,” she said, adding, “but they also say that you can get to the finish if you are conscious of the magnitude of the task from the very start.”

“The future of the euro is inseparable from European unity. The journey before us is long and will be anything but easy,” she said. “But I am convinced that we are on the right path. It is the right path to take to reach our common goal: a strong Germany in a strong European Union that will benefit the people in Germany, in Europe.”

Later on Friday, President Nicolas Sarkozy of France met in Paris with British Prime Minister David Cameron — whose country is not part of the single currency but belongs to the European Union and whose economy is heavily dependent on continental trade.

“We need the euro zone to resolve their crisis. We need the countries of the euro to stand behind their currency,” George Osborne, Britain’s chancellor of the Exchequer, said shortly before Mr. Cameron traveled to Paris. “We do need the countries of the euro to work more closely together to sort out their problems.”

“Britain doesn’t want to be a part of that integration — we’ve got our own national interests — but it is in our economic interest that they do sort themselves out. The biggest boost that could happen to the British economy this autumn would be a resolution of the euro crisis,” Mr. Osborne said.

Mr. Cameron’s discussions in Paris came in advance of talks between Mr. Sarkozy and Mrs. Merkel on Monday to be followed by a summit of European leaders in a week’s time.

Mrs. Merkel’s speech came after Mr. Sarkozy said on Thursday night that Europe could be “swept away” by the euro crisis if it does not change. He said that Europe would “have to make crucial choices in the next few weeks,” and that France and Germany together were supporting a new treaty to tighten fiscal discipline and promote economic convergence in the euro zone.

The European Union needs “an overhaul,” Mr. Sarkozy said, to remain relevant and competitive, but he was vague about the details of what needs to be done.

“If Europe does not change quickly enough, global history will be written without Europe,” he said. “Europe needs more solidarity, and that means more discipline.”

On Friday, Mrs. Merkel again appealed for a strengthening of fiscal cooperation across the euro zone in what she called a “union of stability” able to enforce controls on individual European economies.

“Where we today have agreements, we need in the future to have legally binding regulations,” she said.

Mrs. Merkel said it was time to fix the “mistakes of construction” in the euro zone. “We must strengthen the foundations of the economic and monetary union in a sustainable way.”

“We are not only talking about a stability union, but we are beginning to create it,” she said, advocating changes in European treaties so as to create a fiscal union — a measure likely to be opposed by Britain.

Evoking the spirit of German leaders past, from Konrad Adenauer to Helmut Kohl, Mrs. Merkel said Germany wanted to “avoid divisions” by creating a two-speed Europe split between those inside the euro zone and those outside it.

She again ruled out so-called euro bonds backed by all 17 members of the existing currency union, which embraces many different levels of economic strength ranging from struggling Greece to the export-driven German economy which is seen as the powerhouse of Europe. She called the idea of euro bonds “unthinkable.”

Germany, she said, did not wish to dominate Europe. “That is far-fetched,” she said.

“Germany and European unity are two sides of the same coin,” she said. “That is something we will never forget.”

Frank-Walter Steinmeier, parliamentary leader of the opposition Social Democrats, accused Mrs. Merkel of “talking past the heart of the matter” and said her “tactical approach was not making things stable.”

But Rainer Brüderle, the head of the parliamentary group of Mrs. Merkel’s junior coalition partner, the Free Democrats, offered an important token of support, saying Mrs. Merkel was “fighting for the future of Europe and we stand behind her.”

Nicholas Kulish reported from Berlin, and Alan Cowell from London. Steven Erlanger contributed reporting from Paris, and Victor Homola from Berlin.

Article source: http://feeds.nytimes.com/click.phdo?i=355239a00b797809ba331ba4865e8afc

Filed Under: Business News Tagged With: debt crisis, president nicolas sarkozy, single currency

Markets Surge on Action By Several Central Banks

December 1, 2011 by NewsMaker Leave a Comment

As the crisis has worsened over the last 18 months, pronouncements of plans to fix the euro zone debt problems have led to more than a half-dozen rallies that just as quickly withered as the proposals fell short of hopes.

Wednesday’s rally was among the biggest yet, with the three main indexes on Wall Street rising 4 percent or more, and the Dow Jones industrial average rising 490.05 points, its largest gain since March 23, 2009. Still, some analysts warned that the central banks’ action addressed only some symptoms of the euro financial crisis, so this rally, too, could evaporate.

“It helps to prop up the banks for a while which is going to buy time for Europe to fix the problem,” Burt White, the chief investment officer for LPL Financial, said. “This is basically a Band-Aid.”

Financial shares in particular were lifted by the news.

Bank of America shares, which on Tuesday fell more than 3 percent, to $5.07, their lowest closing level since March 2009, were up 7.3 percent, at $5.44, on Wednesday. JPMorgan rose more than 8 percent to $30.97. Morgan Stanley was up more than 11 percent at $14.79.

On Wednesday, the Federal Reserve, the Bank of England, the European Central Bank, the Bank of Japan, the Bank of Canada and the Swiss National Bank, trying to bolster financial markets as the euro zone debt crisis grinds on, announced that they would reduce by about half the cost of a program under which banks in foreign countries could borrow dollars from their own central banks, which in turn get those dollars from the Fed. The banks also said that loans would be available until February 2013, extending a previous deadline of August 2012.

The move is intended to free up liquidity and ensure that European banks have funds during the sovereign debt crisis. But some analysts saw it as a stop-gap measure to avoid a looming crisis that some compared to that set off by the collapse of Lehman Brothers in 2008.

“What it does do is take off some of the pressure from this boiling pot,” Mr. White said.

As the exuberance set in and funding pressures appeared to ease, bond prices fell, commodity prices rallied and financial shares soared as investors bought shares on the hope that the central banks had smoothed the way for Europe to take more forceful action in advance of a European summit meeting Dec. 9. The jump in stocks was also an extension of the turmoil and volatility that have characterized global markets for more than a year.

It was unclear even after Wednesday’s move whether banks would loosen up lending or whether the market enthusiasm would last.

Some noted sharp gains in equities in previous trading sessions have often failed to carry through, as European leaders had tried many times over the last two years to stave off a deterioration in the debt crisis. A recent attempt was on Oct. 27, when the broader market as measured by the Standard Poor’s 500-stock index rallied 4 percent on the hope that a new European plan could solve its problems. But it failed to sustain its gains.

That rally was one of eight times that the S. P. had spiked up at least 4 percent since the end of 2008, while in the same period it experienced 10 declines of that size.

In addition, a summit meeting in July caused a global stock rally that collapsed in the subsequent days, with the S. P. eventually sinking to its lowest level for the year.

Analysts were skeptical about whether Wednesday’s market enthusiasm would endure, and they also warned that the central banks’ move addressed only some symptoms of the euro zone financial crisis. Stanley A. Nabi, chief strategist for the Silvercrest Asset Management Group, said the coordinated action on Wednesday signaled that the problem had reached a crisis point, and that the central banks recognized there was a “lot of danger” in letting the current situation continue.

Steve Blitz, the senior economist for ITG Investment Research, said the central banks “are going to do what they can to ring-fence the European financials’ problems and keep them inside Europe.”

“They are trying to prevent them from seizing up global liquidity and capital flows and impacting banks and financial institutions throughout the world,” he said.

The S. P. 500-stock index closed up 51.77 points, or 4.33 percent, at 1,246.96. The Dow was up 4.24 percent, to 12,045.68, and pushed into positive territory for the year and for the month of November. The Nasdaq composite index rose 104.83 points, or 4.17 percent, to 2,620.34.

Interest rates were higher. The Treasury’s benchmark 10-year note fell 24/32, to 99 12/32, and the yield rose to 2.07 percent, from 1.99 percent late Tuesday.

Ralph A. Fogel, head of investment strategy for Fogel Neale Wealth Management, said rates would probably remain low.

As for equities after the central bank announcement, Mr. Fogel said “the fear is off that there is going to be any sort of tremendous move down like there was in 2008,” referring to the financial crisis.

Analysts said they believed the central banks’ action targeted one of the symptoms, rather than the root or cause, of the euro zone problems.

Energy, materials and industrial sectors all powered ahead by more than 5 percent.

The dollar fell against an index of major currencies. The euro rose to $1.3433 from $1.3328.

The Euro Stoxx 50 closed up at 4.3 percent, and the CAC 40 in Paris ended up 4.2 percent, while the DAX index in Germany was up almost 5 percent. The FTSE 100 in London rose 3.16 percent.

Article source: http://feeds.nytimes.com/click.phdo?i=889c015f4f575e78492b43186a11b6ee

Filed Under: Business News Tagged With: debt crisis, sovereign debt, swiss national bank

Obama Meets With European Union Leaders on Debt Crisis

November 29, 2011 by NewsMaker Leave a Comment

Again, he urged an immediate resolution to the debt crisis, saying the issue is “hugely important” for the United States but stressing that the answer to Europe’s problems lies in Europe.

The White House press secretary, Jay Carney, told reporters, “We continue to believe that this is a European issue, that Europe has the resources and capacity to deal with it, and that they need to act decisively and conclusively to resolve this problem.”

Mr. Obama met Monday with José Manuel Barroso, president of the European Commission; Herman Van Rompuy, president of the European Council; and Catherine Ashton, the European foreign policy chief.

The summit meeting came as the United States received a reminder of its own debt woes. Fitch Ratings lowered the country’s ratings outlook to negative from stable, though it maintained its sterling AAA grade for United States debt.

Fitch had said in August that a failure by the special bipartisan committee in Congress on deficit reduction would probably result in a negative rating.

Senior Obama administration officials describe a two-pronged policy response, expected to last for months, to the European crisis. First, in numerous private conversations and increasingly forceful public statements, policy makers are urging their European counterparts to take big steps and move fast to reassure markets. Second, Washington is increasing efforts to shelter American institutions from European turbulence.

President Obama and his policy team have said that there is no greater threat to the fragile American recovery than a contracting and destabilized Europe — a belief repeated on Monday.

“I communicated to them that the United States stands ready to do our part to help them resolve this issue,” Mr. Obama said. “If Europe is contracting, or if Europe is having difficulties, then it’s much more difficult for us to create good jobs here at home.”

On Monday, the Organization for Economic Cooperation and Development warned that the euro crisis was a drag on global economic growth. “Decisive policies must be urgently put in place to stop the euro area sovereign debt crisis from spreading and to put weakening global activity back on track,” it said.

In light of the continuing troubles, Mr. Obama and Mr. Carney repeated the administration’s belief that Europe needed to quiet debt markets immediately. In past weeks, Treasury officials including Secretary Timothy F. Geithner and Lael Brainard, under secretary for international affairs, have made the same call.

“It is crucial that Europe move quickly to put in place a strong plan to restore financial stability,” Mr. Geithner said at the Asia-Pacific Economic Cooperation meeting in Hawaii this month.

Mr. Obama said Monday that the United States stood “ready to do its part.” The administration has held scores of private conversations, with everyone from Mr. Obama to Treasury aides involved, to help ease the crisis in the past months.

Treasury officials say that European policy makers need to build a “fire wall” to stabilize borrowing costs for afflicted euro zone members. Then, they need to begin to repair individual countries’ balance sheets. They describe their talks with Europe as advisory, often repeating that the solution must be European.

Administration officials say that they frequently refer to Washington’s experience in thawing the credit squeeze and backstopping financial markets after the failure of Lehman Brothers in September 2008.

“It is unbelievably hard to create new mechanisms during a crisis,” a senior administration official said. “They are facing legitimately difficult political and institutional constraints.”

The administration officials have provided European officials with background on the construction of American emergency programs to ease credit markets, like the Troubled Asset Relief Program and the Term Asset-Backed Securities Loan Facility. They have also discussed Washington’s efforts to stabilize and recapitalize banks.

Given the United States’ own recent financial crisis, the Obama administration is also watching closely for signs of contagion and urging banking institutions to cut their exposure to Europe.

The Financial Stability Oversight Council, established by the Dodd-Frank financial law, has held repeated calls on the European situation. The discussions have included top financial regulators, like Mr. Geithner and the Federal Reserve chairman, Ben S. Bernanke, as well as lower-level aides.

“The continued rise in sovereign-debt spreads for some countries, more generalized market volatility, and political turmoil that we have seen in recent days speak to the need for forceful action,” Janet L. Yellen, vice chairwoman of the Federal Reserve, said in a speech this month discussing the government’s oversight policies.

The Fed, she said, is “actively engaged in ensuring that U.S. financial institutions are appropriately managing their credit and liquidity risks.”

The Federal Reserve last week ordered the biggest American banks to perform rigorous stress tests of their portfolios, to ensure they have enough capital to cover losses in a significant economic deterioration.

To address the euro zone crisis, the Federal Reserve also said the six largest firms would test the impact of a “global market shock” incorporating “potential sharp market price movements in European sovereign and financial sectors.”

Article source: http://feeds.nytimes.com/click.phdo?i=eba48757e54f64062683b9542b52ccc8

Filed Under: Business News Tagged With: bipartisan committee, debt crisis, herman van rompuy