September 23, 2021

Consumer Concerns Weigh Down French Economy

PARIS — On a recent Sunday at the sprawling Marché aux Puces de St. Ouen, France’s largest and most famous flea market, crystal chandeliers glinted in a rare patch of Parisian sun.

An ornate Napoleon III-era clock perched on a marble mantelpiece, and sales signs peeked from vintage clothing, vinyl LPs and other curios that have long drawn throngs of shoppers here, jostling for a bargain.

But something seemed amiss on this afternoon, as it has almost every weekend for more than a year. As with so much else now bedeviling France, the economy is to blame. French consumers simply are not spending the way they used to, and that is an impediment not only for the merchants of the Marché aux Puces, but also for the country’s ability to emerge from recession.

“It used to be elbow to elbow here,” said Hamidou Debo, a shoe vendor who sat quietly in his outdoor stall as a handful of people browsed through silver-hued sandals and black leather high-tops before shuffling away without buying. “Now the crowds are around half what they used to be.”

For Mr. Debo and 2,500 other merchants in the 17-acre market on the northern edge of Paris, an economic slowdown has gripped business, and there is no telling when things might turn around. Last year, he said, he regularly made 300 to 400 euros, or $390 to $520, in sales by lunchtime. Now he barely makes 100 euros.

“It’s the crisis,” Mr. Debo said. “People are no longer spending. They are worried about what the future will bring.”

Europe’s long-running economic troubles have been, for the most part, confined to the feeble countries of Europe: Greece, Spain, Portugal and Italy. But more and more they are coming home to roost in France, raising questions about whether one of the Continent’s biggest economies may become the next sick man of Europe.

By many measures, France is already moored in malaise. Unemployment is at its highest point since the current record-keeping system began in 1996 — 10.8 percent — and job creation has been on a downward trajectory for more than a year.

Coupled with tax increases and government spending cuts intended to keep France’s deficit and rising debt under control, the country is now struggling to exit a shallow recession, its second in four years. Even if the recession does end this quarter, the economy is expected to remain stagnant at best, contracting by 0.1 percent this year, according to the French statistics agency Insee.

No wonder French households have tightened their purse strings. But that has become part of the problem, given that consumer spending represents 56 percent of the country’s economic activity.

“The consumer has always been the motor of the French economy,” said Jean-Paul Fitoussi, a professor of economics at the Institut d’Études Politiques de Paris. “If that economic engine does not work, then where is the growth going to come from?”

President François Hollande, who recently acknowledged the economic situation was serious, is offering a grab bag of measures meant to stimulate growth, including a program to create thousands of subsidized jobs for the rising ranks of unemployed youths. This week he announced a plan to invest 12 billion euros in the energy, digital, aerospace and health industries.

Mr. Hollande is also urging the French to be optimistic by citing forecasts that France and the euro zone will begin to emerge from their slump by next year, if all goes well.

But convincing the French may be no easy task.

On Wednesday, the French employers union Medef warned that Mr. Hollande’s policies were destroying 8,000 jobs a day. The chief executives of Peugeot and other French corporations called for “urgent measures” to stem unemployment.

In June, consumer confidence hit its lowest level in France since records started being kept in 1972. With unemployment still rising, households were more pessimistic than ever about the prospects for future living standards, according to Insee. Consumer spending, which contracted last year by 0.4 percent, is expected to remain stagnant for the foreseeable future, despite a slight pickup last month, the agency said.

Article source: http://www.nytimes.com/2013/07/12/business/global/consumer-concerns-weigh-down-french-economy.html?partner=rss&emc=rss

China Trade Figures Rise, but Weaknesses Persist

HONG KONG — Trade figures for April released by the Chinese government on Wednesday morning were slightly better than economists expected, but still indicated that demand was fairly weak in foreign markets and in China itself.

Exports and imports both increased last month compared with a year earlier, but the figures were harder than usual to interpret because April of last year was so weak. Imports and exports all but stopped growing in April of last year as a wide range of industries, perceiving a short, sharp domestic economic slowdown that would last until early autumn, stopped buying industrial commodities, even as foreign buyers cut orders as well.

Compared with that weak base, China’s trade figures for last month looked somewhat better. Exports rose 14.7 percent from a year ago, while imports increased 16.8 percent.

But the trade figures were far from strong enough to suggest that foreign demand could pull China out of what seems to be a deepening economic malaise. Although official figures still show the economy steaming along at a growth rate of nearly 8 percent, a range of purchasing manager surveys last month showed growing worry among business executives across China.

“China is in a very difficult position now,” as American and European consumers seem wary of further increases in the coming months in their purchases of Chinese goods, said Diana Choyleva, an economist in the Hong Kong office of Lombard Street Research, an economic analysis firm.

The discouraging shift in sentiment, after a fairly weak economic performance in March as well, comes despite enormous lending through the autumn, winter and early spring. China’s leaders were able to turn the sharp economic slowdown a year around by flooding the economy with bank and trust loans, and other credit.

But the heavy lending has brought about considerably less economic growth than earlier rounds of monetary easing, raising worries that China’s investment-dominated economy is running out of economically viable projects to pursue and may not be able to shift quickly enough to consumer-led growth.

China has scheduled the release of April inflation data on Thursday, and a wide range of April economic statistics next Monday, including including industrial production, fixed asset investment and retail sales.

Another uncertainty about Wednesday’s trade data lies in whether the export figures are even accurate, or whether they have been artificially inflated. A gradual rise in the value of the renminbi against the dollar over the last year, together with expectations that this rise will continue, has created an incentive for exporters to overstate the value of the goods they ship out of the country, as a way to bypass China’s currency controls and bring more dollars into the country to convert into renminbi.

The Chinese government has opened an investigation into whether exporters are overinvoicing clients, after export data in the first quarter showed unusual patterns, including a surge in reported Chinese exports to Hong Kong that did not match Hong Kong data.

Louis Kuijs, an economist in the Hong Kong office of the Royal Bank of Scotland, estimated that overinvoicing of exports accounted for more than half of the year-on-year growth in China’s exports last month. By adjusting for this, he said that the true growth in China’s exports last month appeared to be more like 5.7 percent than 14.7 percent.

 There has been little sign of manipulation of import figures, which appear to show that domestic demand is holding up a little better than overseas demand.

 

Article source: http://www.nytimes.com/2013/05/08/business/global/china-trade-figures-rise-slightly-but-weaknesses-persist.html?partner=rss&emc=rss

Gloom in Commodities Markets Ends a Rally

A four-day rally in the stock market came to an end on Friday as signs of a slowing economy rattled commodity markets, weighing down energy and mining companies.

The price of crude oil dropped 2 percent, to $91 a barrel, as weak United States economic reports followed forecasts for diminished demand for oil.

Gold plunged $64, to $1,501 an ounce, reaching its lowest level since July 2011.

One cause for the latest plunge was a government report that wholesale prices in the United States fell the most in 10 months in March. Traders tend to sell gold when inflation wanes. Traders also pushed gold prices lower on reports that Cyprus may sell some of its gold reserves, possibly prompting other weak European countries like Italy and Spain to do the same.

Compared with the commodities markets, the stock market looked stable. The Dow Jones industrial average dropped just 0.08 of a point to close at 14,865.06. The Standard Poor’s 500-stock index lost 4.52 points, or 0.3 percent, to 1,588.85.

The two major indexes finished the week with strong gains: The Dow rose 2.1 percent, and the S. P. 500 rose 2.3 percent.

David Joy, the chief market strategist for Ameriprise Financial, said it was as if the stock market was telling a different story from the bond and commodity markets.

Copper and other industrial metals slid along with gold on Friday, while Treasury yields sank near their lows for the year. He said the moves implied that traders in those markets were more worried about an economic slowdown.

“It gives me pause,” Mr. Joy said. “Commodities and bonds are telling stock investors: don’t be in such a hurry to say the U.S. economy is in great shape.”

The sharp drop in gold futures tugged down mining companies. Barrick Gold shares lost 8.5 percent, to $22.62, Newmont Mining stock fell 5.9 percent, to $36.37, and Freeport-McMoRan shares fell 2.7 percent, to $31.92.

Materials and energy stocks fell the most of the 10 industry groups in the S. P. 500, with materials stocks down 1.5 percent and energy shares off 1.3 percent.

The Nasdaq composite dropped 5.21 points, to 3,294.95, a fall of 0.2 percent.

A handful of reports issued Friday heightened concerns. Sales at retailers fell in March, and companies restocked their shelves at a much slower pace in February than in the month before. That is usually a sign that companies expect weaker spending from consumers and businesses. A measure of consumer sentiment from the University of Michigan also slumped.

Still, the stock market has held up well, leaving “a lot of investors scratching their heads,” said Lawrence Creatura, a fund manager at Federated Investors.

This earnings season will most likely determine which direction the market takes, Mr. Creatura said. Next week, when Bank of America, Google and other big names turn in their quarterly results, could make the difference.

Wells Fargo reported stronger quarterly profits on Friday, but its revenue fell short of Wall Street’s forecasts. The bank’s stock lost 0.8 percent, to $37.21.

Treasury yields were near their lows for the year. The yield on the 10-year note dropped to 1.72 percent, from 1.79 percent late Thursday. The low point of the year, 1.69 percent, was reached April 5. The price rose

21/32, to 102 17/32.

Article source: http://www.nytimes.com/2013/04/13/business/economy/daily-stock-market-activity.html?partner=rss&emc=rss

China Promises Flexibility on Renminbi

BEIJING — China will press ahead with currency overhauls to allow more flexibility in the renminbi’s exchange rate, while maintaining a relatively steady value, a senior central bank official said Wednesday.

The comments from Yi Gang, who reiterated an assertion that the central bank — the People’s Bank of China — had reduced intervention in the foreign exchange market, emphasize the stability that Chinese policy makers want to ensure, even as they try to turn the renminbi into a more freely traded currency.

“We will continue to reform and open up. I’m confident that the renminbi exchange rate will be more balanced and flexible and basically stable,” Mr. Yi said on the sidelines of the annual meeting of the National People’s Congress.

“The renminbi exchange rate is closer to its equilibrium,” added Mr. Yi, who is a deputy governor at the central bank and also head of the State Administration of Foreign Exchange, China’s foreign exchange regulator.

Official remarks that the renminbi is near its equilibrium contrast with data this week suggesting that demand for the currency may be rising again as China recovers from its economic slowdown in 2012, the worst in 13 years.

The renminbi hit a seven-week high Wednesday, a day after data from the People’s Bank of China showed the central bank and commercial banks in China had bought a record 683.7 billion renminbi, the equivalent of $109.9 billion, worth of foreign exchange in January.

Economists say the purchase indicates capital is flowing back into China, although the central bank’s governor, Zhou Xiaochuan, played down the idea Wednesday.

“You can’t draw any conclusions from one month’s data. The volume every day is very high,” said Mr. Zhou, also speaking on the sidelines of China’s parliamentary session. “Sometimes there is more demand for renminbi and sometimes for foreign exchange.”

Large purchases of foreign currency by China’s central bank and commercial banks amount to base money creation and can fuel inflation in the country unless the People’s Bank of China soaks up the excess renminbi injected into the system. Mr. Yi said China would use open market operations to mop up excess cash stemming from foreign exchange inflows.

The foreign exchange committee said last month that China faced greater risks as capital flowed rapidly in and out of the country this year against a backdrop of economic uncertainty worldwide.

Ting Lu, an economist at Bank of America Merrill Lynch, said the record purchases of foreign currency in January showed pent-up demand for the renminbi as confidence in the Chinese economy rebounded.

But Mr. Lu said he did not think such large purchases would be sustained, as the central bank has signaled that there is little room for the renminbi — also known as the yuan — to rise.

“The room for further yuan appreciation against the dollar is limited, as is signaled by the People’s Bank of China’s recent interventions,” he said.

Despite the central bank’s declarations that it has reduced its foreign exchange interventions, currency dealers say they still spot aggressive buying or selling of dollars by the authorities.

China’s central bank wants to turn the renminbi into a convertible, or less controlled, currency that becomes a major medium of exchange in global commerce and one day would rival the dollar as an investment in government reserves.

Article source: http://www.nytimes.com/2013/03/07/business/global/china-promises-flexibility-on-renminbi.html?partner=rss&emc=rss

Cost-Cutting Helped Air France-KLM Trim Operating Loss in 2012

Air France-KLM, Europe’s third-largest airline by passengers, recorded an operating loss of 300 million euros, or about $400 million, for 2012, compared with a 353 million euro loss a year earlier, as efforts to rein in seat capacity led to higher average fares. Revenue for the year rose 5.2 percent to 25.6 billion euros, while net debt declined to 6 billion euros from 6.5 billion euros in 2011.

But one-time expenses associated with a deep restructuring begun last year widened the airline’s net loss to 1.19 billion euros from 809 million euros in 2011.

“They have made a good start, but it is an improvement that is still just barely visible,” said Yan Derocles, an airline analyst at Oddo Securities in Paris.

Air France-KLM unveiled plans last June to shave more than 2 billion euros in costs, reduce debt and return to profit by the end of 2015. Despite the modest improvements achieved in the plan’s first six months, Jean-Cyril Spinetta, the group’s chief executive, stressed Friday in a statement that the company had laid the ground work for a more significant recovery this year.

“In 2013, we will maintain strict discipline in terms of capacity management, investments and costs,” Mr. Spinetta said.

Air France-KLM said passenger traffic rose by 2.1 percent last year, while seat capacity increased by just 0.6 percent. But while revenues per available seat rose by 5.9 percent from a year earlier, cargo revenues continued to slide, falling by 6.3 percent despite a 3.5 percent drop in capacity, as the economic slowdown reduced goods shipments.

Despite intense pressure from the French government to avoid layoffs, Air France-KLM moved ahead with plans in 2012 to slash more than 5,100 jobs at its Air France unit by the end of this year — just over 10 percent of its work force of 49,000. Another 1,300 jobs are being eliminated at its smaller KLM unit.

Philippe Calavia, the group’s chief executive officer, said Friday that the group had reduced staff by around 2,000 in 2012 through early retirements and other voluntary departures. Restructuring costs linked to those job cuts amounted to 471 million euros in 2012.

Labor costs have been a major drain on profit at Air France-KLM for years — equivalent to more than 30 percent of the group’s total revenue and even exceeding its fuel bill, which amounts to around 26 percent. By contrast, labor costs as a share of revenue are less than 10 percent at its low-cost rival Ryanair and 12.4 percent at EasyJet, according to the Center for Aviation in Brussels.

Given the uncertain outlook for the European economy this year, Air France-KLM declined to provide a forecast for 2013, although Mr. Calavia maintained the company’s targets of reaching net profit within two years. Analysts said they expected a modest improvement in operating profit this year, although annual restructuring costs were also expected to rise, possibly above 500 million euros.

Air France-KLM continues to lag behind its larger rival, Lufthansa of Germany, in its efforts to return to profitability. Lufthansa, which announced its own painful restructuring last year that involved 3,500 job losses. Lufthansa this week reported a net 2012 profit of 990 million euros, bolstered by asset sales, compared with a loss of 13 million euros in 2011. The German carrier also suspended dividend payments to shareholders in order to make more cash available to finance its turnaround.

Article source: http://www.nytimes.com/2013/02/23/business/global/23iht-airfrance23.html?partner=rss&emc=rss

France Reaches Deal to Save 600 Jobs at Steel Plant

The deal, announced by Prime Minister Jean-Marc Ayrault, ends a tense, two-month standoff that escalated this week with the threat of a possible nationalization of the plant.

In a televised announcement, Mr. Ayrault said that while ArcelorMittal had agreed “unconditionally” to keep all 2,700 employees at its site in Florange, in northeastern France, two idled blast furnaces — at which 600 of those people worked — would remain offline until flagging European steel demand improved. Workers will be redeployed to other areas of the plant, he said, and there will be no layoffs.

“The government has decided against the idea of a temporary nationalization,” Mr. Ayrault said.

Nicola Davidson, a spokeswoman for ArcelorMittal, confirmed that an agreement had been reached but declined to discuss the details before a formal announcement on Saturday.

The accord appeared to end the ugly dispute, which had pitted the French state, in its traditional role as defender of industry, against a company with mounting debts that was trying to reduce capacity in response to the economic slowdown in Europe. ArcelorMittal, the world’s largest steel maker, had sought to close the two blast furnaces at the Florange plant permanently but wanted to continue operating a part of the facility that processes steel for the car industry.

In all, ArcelorMittal employs about 20,000 people in France.

With unemployment hovering above 10 percent, the Socialist government of President François Hollande is desperate to avoid more layoffs by name-brand companies. Several big employers, including PSA Peugeot Citroën, Air France and Sanofi, have announced significant job cuts this year. But some analysts said that by taking such a strongly interventionist stance to protect steelworkers, France risked sending the wrong signal to multinational companies, whose investment the economy needs if it is to stave off long-term decline.

ArcelorMittal had agreed to give the government until midnight Friday to find a buyer for the furnaces, offering them for a symbolic single euro, despite skepticism that a buyer would be interested in anything less than the entire factory.

Arnaud Montebourg, France’s industry minister, had previously insisted that the company agree to sell the whole plant and said that two companies were interested, although he declined to identify them.

It was Mr. Montebourg who first raised the possibility of a “temporary nationalization” of the Florange plant in a newspaper interview published this week. In the interview, the minister accused Lakshmi N. Mittal, the Indian-born billionaire who serves as the company’s chairman and chief executive, of “failing to respect France.”

Mr. Mittal, who built ArcelorMittal from the 2006 merger of his Mittal Steel with Arcelor, then the largest European steel maker, had promised at the time to help modernize the European steel sector. But the company said the Florange plant was already scheduled to close under Arcelor, its previous owner.

Stanley Reed contributed reporting from London.

Article source: http://www.nytimes.com/2012/12/01/business/global/france-reaches-deal-to-save-jobs-at-steel-plant.html?partner=rss&emc=rss

DealBook: The Selective Memory of the Fed’s Stress Tests

The Federal Reserve Bank of New York.Seth Wenig/Associated PressThe Federal Reserve Bank of New York.

The Federal Reserve seems to be hoping that an ugly chapter in America’s economic history won’t repeat itself.

As part of the regulatory overhaul that took place after the financial crisis, the Fed now has to conduct annual stress tests of the banking system. In these tests, the central bank tries to assess whether the banks have the financial strength to get through some pretty dire conditions. On Thursday, the Fed outlined those circumstances, giving theoretical forecasts for things like economic growth, bond yields and house prices.

But there’s a certain type of dire possibility that the Fed doesn’t seem to want to contemplate: the sort of economic turbulence that affected the United States in the 1970s and 1980s. Back then, inflation would get out of control and the Fed would have slam on the economic brakes by hoisting key interest rates. An economic slowdown would ensue.

In its latest stress test documents, the Fed supplies a baseline case, an adverse situation and a severely adverse one. In the latter two, the Fed does envision a lot of nasty things. In the severe one, for instance, it assumes the unemployment rate exceeding 12 percent in early 2014.

But what the Fed doesn’t consider is the country’s cost of borrowing rising to the peaks seen during the 1970s and 1980s.

In the severe case, the yield on the 10-year Treasury note is at 1.2 percent during the theoretical slump. In the merely adverse case, the Fed assumes it goes as high as 4 percent during a putative recession that goes from the end of 2012 to the beginning of 2014. The 10-year Treasury yield exceeded 10 percent for sizable part of the 1980s.

Granted, high Treasury yields may be introduced in some form. The Fed said Thursday that in the next couple of weeks it will provide a “market shock” scenario, to be applied only by large banks with Wall Street operations. This will factor in “a broad increase in U.S.Treasury yields.”

It’s highly unlikely that runaway inflation will return any time soon, forcing interest rates back to 1980s levels. And if we start to move into an economy with higher inflation, the Fed can always adjust its stress tests to reflect that reality.

Still, stress tests are meant to capture the unexpected. Remember that housing crash hardly anyone foresaw? Perhaps there needs to be a fourth stress test possibility: the super severe retro recession.

Article source: http://dealbook.nytimes.com/2012/11/16/the-selective-memory-of-the-feds-stress-tests/?partner=rss&emc=rss

DealBook: Goldman Sachs Draws Up Deeper Cuts

The headquarters of Goldman Sachs. The bank is bracing for what could be one of its worst quarters since it went public.Scott Eells/Bloomberg NewsThe headquarters of Goldman Sachs. The bank is bracing for what could be one of its worst quarters since it went public.

Goldman Sachs, bracing for what could be one of its worst quarters since it went public 12 years ago, is preparing to expand its cost-cutting initiative by hundreds of millions of dollars, a move that could lead to additional job losses at the Wall Street bank.

This summer, Goldman said that it would wring out $1.2 billion in costs from its operations by mid-2012 and cut roughly 1,000 jobs, about 3 percent of its work force. But as the market turmoil has weighed on trading and other businesses in recent weeks, senior executives have been debating even deeper reductions, according to people briefed on the matter who were not authorized to speak publicly.

With the company’s third quarter closing on Friday, Goldman has been revising its plans, potentially raising the cuts by as much as $250 million, to $1.45 billion. Based on its 2010 spending, such reductions would amount to 5 percent of the firm’s expenses.

Along with the possibility of additional layoffs, the firm is expected to reduce employee pay, much of which is handed out later in the year. It is also sharpening its focus on noncompensation expenses, like real estate and travel, according to one of the executives with knowledge of the discussions.

The executive warned that no final decision had been made on size of the cuts, and that the numbers could change quickly if the market improved or weakened. The financial firm may address the matter when it releases its earnings on Oct. 18, he added.

Goldman’s move underscores the broader problems on Wall Street. Financial firms have been under pressure for months, amid the European debt crisis and an economic slowdown in the United States, and a raft of regulatory changes is expected to crimp future profits. But the financial situation has deteriorated in recent weeks, as the market rout has ravaged revenue across Wall Street.

With the stock market slumping, analysts are quickly revising their estimates for third quarter earnings, which the banks are set to report in mid-October. Analysts are tempering their predictions for JPMorgan Chase, Morgan Stanley, Citigroup, Bank of America and others. Goldman is now expected to earn $1.35 a share in the third quarter, less than half what the firm earned in the same period of 2010, according to consensus estimates from Thomson Reuters. A month ago, analysts predicted the bank would make $2.65 a share.

The financial picture could be even more bleak, as analysts at both Barclays Capital and Bank of America Merrill Lynch have predicted a loss for Goldman. The company has reported a quarterly loss only once since going public in 1999; it lost $2.12 billion in the fourth quarter of 2008, months after Lehman Brothers filed for bankruptcy.

“This is an extremely challenging environment, and I am sure every bank will be taking another hard look at expenses after the recent market downturn,” said Glenn Schorr, an analyst at Nomura, the Japanese bank.

In anticipation of a slowdown, banks began trimming their budgets earlier this year and took aim at the biggest expense: compensation. Bank of America, which continues to have losses from the mortgage crisis, has had some of the most severe cuts. It has announced that it would eliminate 30,000 jobs, nearly 10 percent of its total work force, over the next few years. Over all, the bank is looking to cut $5 billion in annual expenses.

JPMorgan Chase is in the midst of a five-year, $1.3 billion cost-cutting plan that will eliminate roughly 3,000 jobs. Morgan Stanley cut some low-producing brokers in its wealth management division, and Credit Suisse laid off administrative assistants in its investment banking unit last week as part of a larger reduction of 2,000 employees.

Wall Street executives are also preparing their staffs for smaller year-end bonuses, although the change is not yet reflected in the expenses. During the first six months of the year Citigroup, JPMorgan, Goldman, Morgan Stanley and Bank of America set aside $65.69 billion to cover compensation and benefits, up 8 percent from a year ago, according to data provided by Nomura. But financial firms tend to wait until the fourth quarter to make the call on the annual payouts.

“The third quarter was rough and revenue is sure to be down, so compensation levels will follow,” said Mr. Schorr.

As Wall Street looks to drive down costs in a bid to protect profits, no expense has been overlooked. Goldman Sachs recently downsized the drinking cups in its New York headquarters to 10 ounces from 12 ounces, saving thousands of dollars. It has also gone mostly cashless in the cafeteria and other areas, eliminating the need to pay armored truck companies to haul away the money.

Barclays, which has said it plans to cut 3,000 jobs this year, recently issued a memo reminding employees that work-issued cellphones are to be used “for valid business purposes only.” In addition to closing two-thirds of its 63 data centers, Bank of America did not host an annual field day for its municipal bond department, a country club affair in New Jersey that in past years included sport stations outfitted with beer kegs.

Even foliage is not safe from the chopping block. James P. Gorman, the chief executive of Morgan Stanley, faced questions about plants at a town hall meeting this summer. An employee told Mr. Gorman that he had noticed decidedly less greenery around the office.

“Every dollar we don’t spent is a dollar available for the bottom line,” Mr. Gorman responded.

Article source: http://feeds.nytimes.com/click.phdo?i=cfa80db8751bdca4b585558a92bdd475

Airline Trade Group Sees Bigger Profits This Year

PARIS — Worldwide demand for air travel remains well above average, despite clear signs of a broad economic slowdown, an industry group said Tuesday as it substantially raised its profit forecast for the year.

But the deepening debt crisis in Europe and stagnant jobs growth in North America are likely to put the squeeze on both business and leisure travel by the year-end holiday season, the International Air Transport Association said. It said demand was likely to remain weak well into the first half of next year.

The association, which represents most of the world’s airlines, raised its forecast for combined 2011 profit to $6.9 billion, a big improvement from the $4 billion predicted in June. But collective profits in 2012 are likely to drop to $4.9 billion, the trade body said.

“Airlines are going to make a little more money in 2011 than we thought. That is good news,” said Tony Tyler, who took over as the association’s director general in July. “Given the strong headwinds of high oil prices and economic uncertainty, remaining in the black is a great achievement.”

The revised profit forecast for this year is still well below the $8.6 billion the association forecast March 2 — just days before the earthquake, tsunami and nuclear accident in Japan, which has sharply curtailed air travel to Japan, one of the world’s largest economies. That disaster coincided with a series of popular uprisings in North Africa and the Middle East, which led to a surge in oil prices to more than $100 a barrel.

“Even with the extra shocks this year, people are still flying,” Mr. Tyler said.

The new outlooks are a sharp drop from the nearly $16 billion that carriers earned in 2010. Mr. Tyler said that the coming months would be challenging for an industry that has historically delivered profit margins in the low single digits.

“It looks like we are headed for another year in the doldrums,” he said. “Business confidence is declining. It is difficult to see any potential for significant profitable growth.”

Asian airlines are once again expected to deliver the bulk of global profits this year, to the tune of $2.5 billion — although that is a fraction of the $8 billion earned in the region in 2010. The decline was largely the result of a sharp drop in air cargo traffic after the disasters in Japan; the association said it expected a strong rebound later this year and continuing into 2012.

Meanwhile, European carriers have benefited from an increase in inbound tourist traffic, fueled by a relatively weaker euro. But while the region’s airlines are likely to make a profit of about $1.4 billion in 2011, down from $1.9 billion in 2010, that is expected to plummet to just $300 million next year as the effects of government austerity and declining economic growth takes hold.

“A long slow struggle lies ahead,” Mr. Tyler said.

In North America, the association predicted airlines would achieve a collective net profit of $1.5 billion this year, down from $4.1 billion in 2010.

The association, which revises its financial forecast quarterly, represents 230 airlines that account for 93 percent of international air traffic.

Article source: http://feeds.nytimes.com/click.phdo?i=2e83395d0de1912d17ab4810d991148b

Wall Street Stocks Rise After Long Losing Streak

After four weeks of brutal losses, stocks recovered slightly on Monday following gains earlier in the day in Europe.

By noon in New York, the Standard Poor’s 500-stock index was up 0.2 percent at 1,125.91 points. The Dow Jones industrial average was ahead 52.75 points, or 0.5 percent, at 10,870.40. The Nasdaq composite index was 0.1 percent higher, at 2,344.45.

Stocks fell more than 4 percent last week as Wall Street saw more wild swings, including a 419-point drop for the Dow on Thursday. The main drivers of those losses were fears about stalling global growth and the European debt crisis. Investors marked down share prices as they cut their expectations of corporate earnings based on how severe they expect the new economic slowdown to be.

But those fears appeared to ease a little on Monday. Traders’ attention was turning to the Federal Reserve’s annual symposium later this week in Jackson Hole, Wyo., with some analysts expecting the chairman, Ben S. Bernanke, to announce some further if limited economic stimulus.

“We do not expect Bernanke in his Aug. 26 address to unilaterally announce the start of a bold new easing initiative,” said Neal Soss, an economist at Credit Suisse, wrote in a report. “But we are looking for the chairman to hint strongly that further monetary policy accommodation is on its way — with the most likely candidate being an extension of the maturity structure of the Fed’s current $1.6 trillion Treasury portfolio. Other easing options include expanding the Fed’s balance sheet through additional asset purchases and lowering the 0.25 percent interest rate that the Fed pays on bank reserves.”

Analysts at Brown Brothers Harriman said in a note that the “market sentiment is improving on the hopes of a policy response from the Fed.”

By Friday, the Standard Poor’s 500 index had fallen 18 percent from its recent peak on April 29, close to bear market territory, which is officially defined as a peak to trough drop of 20 percent.

Many investors still remained nervous about the economic slowdown and whether Europe’s policy makers can get ahead of their debt problems, which have been a special drag on some of the Continent’s banks.

Last week’s negative sentiment about the United States economy was spurred by a signal of weak manufacturing activity from a survey by the Philadelphia Federal Reserve, and by stronger than expected inflation numbers.

But some analysts said Monday that the big sell-offs now presented a buying opportunity for investors.

“We suspect that the recent market downdraft will eventually be viewed as a buying opportunity for those who are willing to look beyond the most recent data point,” Barclays Capital analysts said in a research note.

It was in Jackson Hole last year that, faced with economic slowdown, Mr. Bernanke signaled a second round of large-scale bond purchases, or quantitative easing, called QE2 for short. Following the announcement of the program, stocks rose 28 percent between August and February this year.

But as the economy has slowed again this year, investors raised new questions about whether the Fed has done enough to fix problems in the economy. Earlier this month, the Fed made the extraordinary pledge to keep short-term interest rates close to zero until the middle of 2013. But some in the markets expect it may even do more at Jackson Hole.

“No one in America is complaining that interest rates are too high; the country’s problems are not monetary in nature,” wrote Mr. Soss. “Nonetheless, we would not expect Fed officials to stand idly by as cyclical economic momentum fizzles, and high unemployment takes on increasingly structural characteristics.”

In Europe, where losses in recent sessions have been as severe as in the United States, stocks were mixed. In Britain, the FTSE 100 was up 1.1 percent. In Germany, the DAX was down 0.1 percent. The French market index, the CAC 40, was 1.1 percent higher.

As Libyan rebels advanced in Tripoli, oil prices fell as investors anticipated a return to international oil markets of one of the world’s biggest oil producers.

North Sea oil prices were falling as Col. Muammar el-Qaddafi’s grip on power appeared to be dissolving; Brent crude fell about $1.41 to $107.21 a barrel, while U.S. crude oil prices fell 9 cents to $82.17. Shares of the Italian oil company Eni, which was the biggest foreign oil producer in Libya, were up 6.3 percent in late trading Monday.

Still, some analysts warned that many investors remained nervous as the sovereign debt crisis in Europe was still unresolved, and said it would not take much to push the markets back into negative territory.

“We’re just seeing a natural reaction after the sharp falls at the end of last week,” said Elisabeth Afseth, a fixed-income analyst at Evolution Securities in London. “But the situation is still very uncertain and fragile.”

Chancellor Angela Merkel of Germany reaffirmed her opposition to issuing bonds backed by all of the euro zone members as a way to fix the region’s sovereign debt crisis.

“The markets want to force us to do certain things,” she told the German television channel ZDF. “That we won’t do. Politicians have to make sure that we’re unassailable, that we can make policy for the people.”

The four weeks of declines in global stock markets have wiped trillions of dollars from investment portfolios, partly because of fears about a continued unwillingness by political leaders in Europe to take bold steps to tackle a sovereign debt problem.

“Risk aversion is still at acute levels,” Ashley Davies, an analyst in Singapore for Commerzbank, wrote in a note on Monday. “There is massive liquidity out there but few assets that investors feel truly comfortable with.”

Gold and silver continued to rise, and the Swiss franc and the Japanese yen weakened.

Earlier in the day, the Kospi index in South Korea fell nearly 2 percent, and the key index in Australia slipped 0.5 percent. In Japan, where policy makers kept up their barrage of comments aimed at damping the ascent of the yen, the Nikkei 225 average retreated 1 percent.

But in Hong Kong, the Hang Seng index rose 0.4 percent. The Sensex in Mumbai climbed 1.2 percent.

Julia Werdigier contributed reporting from London and Bettina Wassener contributed from Hong Kong.

Article source: http://www.nytimes.com/2011/08/23/business/daily-stock-market-activity.html?partner=rss&emc=rss