December 9, 2019

Lowering Forecast, European Central Bank Keeps Rate Steady

FRANKFURT — Defying some calls for bolder action, the European Central Bank left its benchmark interest rate unchanged on Thursday, even as it changed its economic forecast to a gloomier reading for the rest of the year.

The E.C.B. left its main rate at 0.5 percent, as expected. Despite ever more insistent calls from economists for more aggressive moves to stimulate lending in the euro zone, the E.C.B. may have decided it needed to assess the significance of a slight uptick in inflation as well as some evidence that consumers and business managers are becoming less pessimistic.

In a news conference after the announcement, Mario Draghi, the president of the E.C.B., cited “downside risks surrounding the economic outlook for the euro area.” Those, he said, include the possibility of weaker-than-expected domestic and global demand and slow or insufficient policy changes in euro zone countries.

He also said the central bank was lowering its 2013 economic forecast for the euro area, now expecting the region’s economy to shrink by 0.6 percent this year, worse than the 0.5 percent decline previously forecast. But the central bank expects growth in the euro zone of 1.1 percent next year — slightly higher than previous forecasts.

The E.C.B. had hinted in recent months the bank was considering additional unconventional measures to fix a credit crunch in southern Europe. That might even include the unprecedented step of obliging banks to pay to store their money at the central bank, rather than earning interest on it — resulting in a so-called negative deposit rate. The goal would be to force banks to put their money to work, by lending it. Mr. Draghi indicated that the central bank’s governing council, which met before he spoke, had considered that move but decided not to proceed with it.

Judging from recent speeches by E.C.B. policy makers, they are concentrating more on getting banks to deal with problem loans and other issues that may be interfering with their ability to lend.

Mr. Draghi called for euro zone policy makers to move forward with a uniform system for winding down failing banks in an orderly manner.

Marie Diron, an economist who advises the consulting firm Ernst Young, said that, while fixing weak banks was a worthy goal, it was unlikely to yield dividends for some time.

While “a cleanup of banks’ balance sheets is necessary to ensure sustained growth in the medium term, it would probably be negative for growth in the short term,” Ms. Diron wrote in an e-mail before the meeting Thursday. “It is not clear why the E.C.B. seem to have changed its focus since early May.”

Some recent economic indicators have kept alive hope that the euro zone is close to hitting bottom. Surveys have shown that businesses and consumers are a little less pessimistic than they were. And inflation has accelerated slightly, although it is still below the E.C.B. target of about 2 percent.

Many economists have urged the E.C.B. to be bolder, as unemployment remains a persistent problem, with joblessness in the euro zone at a record high of 12.2 percent. France on Thursday reported a 10.8 percent unemployment rate for the first quarter, also a record high

James Bullard, president of the Federal Reserve Bank of St. Louis, said in Frankfurt last month that the E.C.B. should consider so-called quantitative easing similar to that undertaken by the Fed — large bond purchases meant to drive down market interest rates.

It is very unusual for central bankers to put pressure on their peers so publicly. But Mr. Bullard warned that Europe was acting as a dead weight on the global economy.

“You have to be concerned,” he told an audience in Frankfurt. “The European Union as a whole is the biggest economy in the world.”

Article source: http://www.nytimes.com/2013/06/07/business/global/ecb-keeps-interest-rates-unchanged-in-hopes-for-recovery.html?partner=rss&emc=rss

E.C.B. Keeps Interest Rates Unchanged in Hopes for Recovery

FRANKFURT — Defying some calls for bolder action, the European Central Bank left its benchmark interest rate unchanged on Thursday, even as it changed its economic forecast to a gloomier reading for the rest of the year.

The E.C.B. left its main rate at 0.5 percent, as expected. Despite ever more insistent calls from economists for more aggressive moves to stimulate lending in the euro zone, the E.C.B. may have decided it needed to assess the significance of a slight uptick in inflation as well as some evidence that consumers and business managers are becoming less pessimistic.

In a news conference after the announcement, Mario Draghi, the president of the E.C.B., cited “downside risks surrounding the economic outlook for the euro area.” Those, he said, include the possibility of weaker-than-expected domestic and global demand and slow or insufficient policy changes in euro zone countries.

He also said the central bank was lowering its 2013 economic forecast for the euro area, now expecting the region’s economy to shrink by 0.6 percent this year, worse than the 0.5 percent decline previously forecast. But the central bank expects growth in the euro zone of 1.1 percent next year — slightly higher than previous forecasts.

The E.C.B. had hinted in recent months the bank was considering additional unconventional measures to fix a credit crunch in southern Europe. That might even include the unprecedented step of obliging banks to pay to store their money at the central bank, rather than earning interest on it — resulting in a so-called negative deposit rate. The goal would be to force banks to put their money to work, by lending it. Mr. Draghi indicated that the central bank’s governing council, which met before he spoke, had considered that move but decided not to proceed with it.

Judging from recent speeches by E.C.B. policy makers, they are concentrating more on getting banks to deal with problem loans and other issues that may be interfering with their ability to lend.

Mr. Draghi called for euro zone policy makers to move forward with a uniform system for winding down failing banks in an orderly manner.

Marie Diron, an economist who advises the consulting firm Ernst Young, said that, while fixing weak banks was a worthy goal, it was unlikely to yield dividends for some time.

While “a cleanup of banks’ balance sheets is necessary to ensure sustained growth in the medium term, it would probably be negative for growth in the short term,” Ms. Diron wrote in an e-mail before the meeting Thursday. “It is not clear why the E.C.B. seem to have changed its focus since early May.”

Some recent economic indicators have kept alive hope that the euro zone is close to hitting bottom. Surveys have shown that businesses and consumers are a little less pessimistic than they were. And inflation has accelerated slightly, although it is still below the E.C.B. target of about 2 percent.

Many economists have urged the E.C.B. to be bolder, as unemployment remains a persistent problem, with joblessness in the euro zone at a record high of 12.2 percent. France on Thursday reported a 10.8 percent unemployment rate for the first quarter, also a record high

James Bullard, president of the Federal Reserve Bank of St. Louis, said in Frankfurt last month that the E.C.B. should consider so-called quantitative easing similar to that undertaken by the Fed — large bond purchases meant to drive down market interest rates.

It is very unusual for central bankers to put pressure on their peers so publicly. But Mr. Bullard warned that Europe was acting as a dead weight on the global economy.

“You have to be concerned,” he told an audience in Frankfurt. “The European Union as a whole is the biggest economy in the world.”

Article source: http://www.nytimes.com/2013/06/07/business/global/ecb-keeps-interest-rates-unchanged-in-hopes-for-recovery.html?partner=rss&emc=rss

Labor Data Fuels Market Rally

Shares on Wall Street traded higher on Friday, with the Standard Poor’s 500-stock index on track for a sixth-straight day of gains after a much-stronger-than-expected payrolls report.

In midday trading, the S.P. 500 rose 0.3 percent, while the Dow climbed 0.4 percent and the Nasdaq composite index added 0.2 percent.

Data showed hiring increased in February, with payrolls jumping by 236,000, easily beating expectations for a gain of 160,000 jobs. The unemployment rate fell to 7.7 percent, the lowest since December 2008.

“Great report — there just isn’t anything that I can pull out negative at all about this report,” said Darrell Cronk, regional chief investment officer for Wells Fargo Private Bank in New York. “It is taking a little bit of this argument off the table that the Fed is doing all the heavy lifting in the economy. There is a trend building in the economic data that, while not off-the-charts-great, is definitely moving in the right direction.”

The data helped add to earlier gains triggered by data from China. Exports in the world’s second-biggest economy soared 21.8 percent in February from a year ago, exceeding expectations and suggesting that global demand may also be on the mend. Imports fell 15.2 percent to 13-month lows.

The benchmark S.P. 500 has advanced 1.7 percent this week, its biggest weekly gain so far this year. The Dow Jones industrial average ended Thursday at a record high for a third-consecutive session.

But investors were mindful of the possibility of a pullback, as the last correction for the S.P. 500 was nearly a year ago — a 9.9 percent slide between April and the start of June.

McDonald’s gained 1.8 percent after the fast-food hamburger chain said that February sales at established restaurants fell just 1.5 percent, a little better than expected.

Pandora Media shares jumped 25.3 percent on stronger-than-expected quarterly results. The company also said in a surprise announcement that its chief executive, Joseph Kennedy, was stepping down.

SkullCandy shares tumbled 18.9 percent after the headphone maker reported higher-than-expected fourth-quarter revenue but said it expected to post a loss in the current quarter.

Article source: http://www.nytimes.com/2013/03/09/business/daily-stock-market-activity.html?partner=rss&emc=rss

China Posts Surprising 22% Surge in Exports

BEIJING — Chinese exports soared beyond forecasts to rise by a fifth in February from the level of a year ago, data from China’s General Administration of Customs showed Friday, a sign that the country’s modest economic revival is intact and a suggestion that global demand might also be on the mend.

Chinese imports, however, were surprisingly weak, falling 15.2 percent from a year earlier to a 13-month low, the customs data showed.

Exports rose 21.8 percent in February from a year earlier. A Reuters poll of 22 economists had forecast that February exports would grow 10.1 percent, while imports would fall 8.8 percent. Export growth to the United States was the strongest in a year, and export growth to the euro zone the strongest in 18 months.

The strength in China’s exports is apparent when the January and February performances are combined, to remove distortions from the Lunar New Year holiday — which came in January this year but was in February last year — when many factories are shut. Customs data on the two months combined showed exports rising 23.6 percent from the same period last year, while imports increased 5 percent. Analysts expected a 17.6 percent increase in exports and 10 percent growth in imports.

Chen Deming, the Chinese commerce minister, said Friday that he was hopeful that the country’s export sales would improve this year. “I myself am optimistic that trade growth will exceed last year’s 6.2 percent,” he said, without giving a forecast. He was speaking on the sidelines of China’s legislative session.

The buoyant Chinese exports contrast with sluggish growth in South Korea and Taiwan, two other trade bellwethers, casting doubt on the strength of any pickup in global demand. South Korean exports fell 8.6 percent last month, and shipments from Taiwan dropped by 15.8 percent.

Zhang Zhiwei, an economist at Nomura, said the inconsistency might be explained by capital inflows. Chinese exporters might be overstating export revenues, while importers might be underreporting their trade to try to get around strict Chinese capital controls and bring money into the country. “Reported exports may be higher than they actually are,” Mr. Zhang said.

Still, on balance, most analysts were upbeat about the trade data, suggesting the figures indicated that a modest pickup in growth during the fourth quarter of 2012 had extended into 2013.

The stronger export figures were also supported by comments from Ningbo Port Group, one of the largest port operators in China. It is based in the Yangtze River Delta manufacturing hub.

“Our data in the first two months shows the foreign trade situation is improving,” Ningbo’s chairman, Li Linghong, said before the trade data’s release. Ningbo Port’s container volumes rose 13.6 percent in January and February from a year earlier, while cargo volumes increased 12.4 percent, Mr. Li said. “Usually the first two months are a peak season for companies to deliver orders, but it still shows the demand from the international market,” he said.

Article source: http://www.nytimes.com/2013/03/09/business/global/china-posts-surprising-22-surge-in-exports.html?partner=rss&emc=rss

Inside Asia: Currencies in Asia Won’t Settle Down Soon

SINGAPORE — The roller coaster ride for Asian currencies, which saw only the yen and the renminbi post significant gains for the year against the dollar, is set to continue in 2012.

While Japan actively sought to stem the yen’s rise — drawing U.S. criticism last week — China intervened to ensure that the renminbi ended the year at a new high. Each currency appreciated about 5 percent in 2011 against the dollar.

The opposite approaches illustrate a dilemma facing Asian policy makers as they try to smooth out foreign exchange rate volatility, which shows no sign of abating in the new year. If the currency is too strong, exports get more expensive. Too weak, and imported inflation spikes and domestic buying power fades.

Singapore and South Korea provide two examples of how inflation can stay surprisingly high, even as declining global demand curbs exports and saps growth. Both the Singapore dollar and the won slipped against the greenback in 2011.

For Japan, which has been battling deflationary forces for two decades, rising prices would be a welcome change. Three times in 2011, Tokyo intervened in the currency market to try to weaken the yen, once with the help of Group of 7 nations after the March earthquake and tsunami, and twice unilaterally.

It was the solo moves that drew Washington’s ire. The Treasury Department pointed out in its Dec. 27 report to Congress on world currencies that the United States “did not support these interventions” and said Japan would be better served by taking steps to increase the dynamism of its domestic economy.

“The United States is saying, ‘Our recovery is dependent on the dollar not becoming too strong,”’ said Yukon Huang, an economist at the Carnegie Endowment for International Peace in Washington. “It’s worried that there will be a global move for people to depreciate” their currencies, he added.

The twice-a-year currency report was mandated by Congress in 1988, when the trade imbalance with Japan was the main concern. More recently, such imbalances have become a source of friction with China.

Even the critique of Japan in the latest report may have been intended as a message for Beijing.

“The criticism is accurate, but it’s 20 years old and resuscitated as cover,” said Derek Scissors, a research fellow at the Heritage Foundation, a conservative research institute in Washington. “It’s so they don’t appear to be picking on China.”

If the U.S. Treasury determines that a country is manipulating its currency to gain a trade advantage, it can call in the International Monetary Fund to press for a realignment.

Some U.S. lawmakers, businesses and unions want Washington to label China a manipulator, but the Treasury declined to do so yet again in its latest report. It did, however, mention China twice as many times as it referred to Japan.

While there may be politics at play in the currency report, a closer look at trading in the renminbi suggests Beijing may have earned its reprieve this time.

The United States has long argued that a stronger renminbi is in China’s best interest because it can help ease inflationary pressures and lift domestic spending power.

The Chinese central bank keeps the currency on a tight leash by setting a daily trading midpoint and then allowing a move of only half a percent on either side.

In the first half of December, the renminbi traded at the bottom of the set range nearly every day, partly because of demand for dollars but also because of increasing fears that the Chinese economy would falter as export demand slowed and the housing market declined.

The People’s Bank of China intervened Dec. 16 and again last Friday to prop up the renminbi, traders said. That left the renminbi up 4.7 percent against the dollar in 2011, even though China’s exports had cooled over the previous six months and will probably slow even more in 2012.

The renminbi’s performance makes it more difficult for the United States to claim China is intentionally weakening its currency to gain a trade advantage.

“The argument gets weaker when China is moving toward a smaller trade surplus,” said Mr. Huang of the Carnegie Institute, who is a former World Bank country director for China.

Why would China favor a stronger currency now? It helps defuse political tension with the United States and discourage traders from assuming that the renminbi is a safe one-way bet, and it can also neutralize imported inflation.

China’s annual inflation rate has dropped dramatically since it hit a three-year peak of 6.5 percent in July, but it is still above the government’s goal of 4 percent.

With oil trading around $100 per barrel even though the world economy looks shaky, it would not take much of a shock to push the oil price back up to the $115 it reached in May, which threatened to choke off the global recovery.

This complicates currency policy across Asia. Aside from the renminbi and yen, most Asian currencies weakened in 2011. South Korea, Indonesia and India stepped in to try to cap currency volatility, but countries across the region seemed content to allow a gradual decline.

That may change in 2012. In Singapore, considered a regional bellwether because the city-state is so closely tied to the global economy, annual inflation spiked unexpectedly to 5.7 percent in November. Trade-dependent Singapore uses the exchange rate as its primary monetary policy tool, and has slowed the pace of appreciation to try to support growth. But that leaves it vulnerable to imported inflation.

In South Korea, a measure of factory activity fell to its lowest level in nearly three years in December, figures released Monday showed, yet the country’s inflation rate came in above the central bank’s goal. The Bank of Korea said last week that fighting inflation would remain the top policy priority in 2012. That suggests Seoul may rethink the wisdom of letting the won weaken.

“We believe the government’s tolerance for a weak won is waning,” Wai Ho Leong, an economist at Barclays, wrote in a note to clients Friday.

Article source: http://www.nytimes.com/2012/01/03/business/global/currencies-in-asia-wont-settle-down-soon.html?partner=rss&emc=rss

Tiffany’s Net Income Rises 30 Percent

Tiffany Company’s net income rose 30 percent in the second quarter, propelled by strong growth across all regions as high-income shoppers continued to be drawn to its jewelry and other goods.

The results handily beat Wall Street’s expectations, and the company raised its full-year profit forecast again as a result. Tiffany said it earned $90 million, or 69 cents a share, in the quarter, up from $67.7 million, or 53 cents a share, a year earlier.

Excluding 16 cents a share in costs tied to relocating its New York headquarters employees, adjusted profit totaled 86 cents a share, topping the 70 cents that analysts surveyed by FactSet had forecast.

Revenue in the period, which ended July 31, rose 30 percent to $872.7 million, which was well above the $785.6 million that Wall Street predicted.

Stock in Tiffany rose $5.90, or 9.3 percent, to $69.01 a share.

Mark L. Aaron, vice president for investor relations, said in a conference call that sales across all jewelry categories rose more than 10 percent.

High-end, engagement and gold jewelry all sold well, Mr. Aaron said. Silver jewelry, which sold well during the recession since it is relatively lower priced, posted a “reasonably good” sales increase, he added.

Rising diamond and precious metal costs have prompted Tiffany to raise some prices. Mr. Aaron said the price increases had occurred in most regions this year.

The chief operating officer, James N. Fernandez, said rough diamond prices had climbed nearly 40 percent in the last year.

“The outlook for diamonds over the long term certainly looks as though rising global demand will continue to put pressure on supply and therefore price,” he explained.

Tiffany’s best performance in the quarter came in the Asia-Pacific region, where sales surged 55 percent to $173.2 million on strong performances in China and Korea. Sales in Europe rose 32 percent. Foreign tourists, particularly those from China and Russia, contributed to the increase in Europe, the company said.

Sales in the Americas, which comprises the United States, Canada and Latin America, gained 25 percent.

Sales at the company’s flagship New York store, a favorite of foreign tourists, rose 41 percent, Mr. Aaron said.

Even Japan, which is still regaining its footing after an earthquake, tsunami and nuclear scare earlier this year, posted a 21 percent sales increase.

“We are extremely pleased by these results, which confirm the growing global appeal of Tiffany’s product offerings,” the chief executive, Michael J. Kowalski, said in a statement.

Revenue at stores open at least a year increased 22 percent. Mr. Kowalski said the retailer’s first-half performance raised confidence about the rest of the year, even though economic uncertainty remained.

Tiffany is now predicting that its full-year earnings will be $3.65 to $3.75 a share, compared with a previous forecast of $3.45 to $3.55 a share.

Analysts foresee earnings of $3.55 a share.

Article source: http://feeds.nytimes.com/click.phdo?i=b299747b945d86f412ad932a5d0cd881

Fundamentally: Beyond the Surge in Corporate Profits

EARNINGS season got under way last week, and at first glance it seemed as if nothing had changed.

As was the case throughout 2010, a vast majority of companies that reported their results beat Wall Street’s estimates — and companies in commodity-oriented sectors like energy posted some gaudy numbers. And for the sixth quarter in a row, profits among companies in the Standard Poor’s 500 index are on track to post double-digit growth.

But that’s about where the similarities end.

For starters, “the easy comparisons are over,” said John Butters, senior earnings analyst at FactSet. He noted that earnings growth exceeded 30 percent for five consecutive quarters partly because profits had sunk so low in the miserable years that preceded them.

Today, “earnings are pretty much back to where they were before the financial crisis,” Mr. Butters said. S. P., in fact, now estimates that S. P. 500 operating profits will likely grow to a record $96.59 a share, up from the previous peak of $87.72 in 2006. Because there have already been such big gains, first-quarter profits are expected to have risen by a more modest 15 percent.

Moreover, many of the tail winds that drove earnings growth in 2010 — like disinflation, low interest rates and aggressive cost-cutting that reduced jobs and bolstered productivity — are either gone or nearing an end.

That’s why market strategists say investors should look past the still fairly rosy profit expectations and focus instead on several important trends.

Start with revenue growth. This was a big concern last year, when analysts feared that much profit growth was a result of layoffs and other cost-cutting, instead of robust growth in demand.

Today, many strategists are looking at revenue in a different light. Global demand for goods and services has been strong, but a new fear has arisen. Many economists worry that increasing inflationary pressures — particularly in energy and food costs — might soon start to cut into consumer purchases.

“I’ll be looking at revenue to see if there’s any evidence of demand destruction caused by oil and other rising costs,” said Jack A. Ablin, chief investment officer at Harris Private Bank in Chicago.

He noted that with the recent increase in fuel prices, gas purchases have jumped to nearly 12 percent of total retail sales. “The last time that figure was persistently over 10 percent was in December 2007, near the beginning of the downturn,” he said. “So that’s a concern.”

Since retail sales are crucial, Jeffrey N. Kleintop, chief market strategist at LPL Financial in Boston, wrote recently that he is monitoring whether commodity prices are hurting sales at businesses driven by consumer spending.

Already, revenue among consumer companies is expected to grow at around 5 to 6 percent, slower than the 8 percent forecast for the broad market, according to Thomson Reuters. If those numbers ratchet down even further, it could be a sign that rising food and gas costs are weighing down consumers.

Of course, if inflation is truly seeping into the economy, it won’t affect only demand. It can also raise expenses, because rising energy and commodity prices would also increase the costs of raw materials for manufacturers.

So investors should also pay attention to trends in corporate profit margins. Mr. Ablin noted that gross margins for the S. P. 500 have declined to 43.7 percent from 44.9 percent last August, about the time oil prices started to climb higher. Any signs of a further squeeze in margins could start to drive down profit forecasts for later in the year.

FINALLY, strategists say, it makes sense to pay close attention to the fortunes of technology companies during this earnings season.

Why? S. P. 500 profits have recently been bolstered by fast-growing overseas sales. And tech companies derive a greater share of their sales from overseas than companies in other sectors.

The weakening dollar, which has lowered the price of goods sold abroad, has helped to improve those numbers. But much of that can be attributed to robust economic growth in emerging economies like China, strategists say.

Yet central banks in many emerging markets have begun to raise interest rates in an attempt to slow that growth and keep a lid on inflation. So if investors worry about how that might affect foreign demand, the tech sector may be the canary in the coal mine.

There’s another reason to focus on tech: the effect of Japan’s earthquake and tsunami on global sales and the supply chain. Because Japan is so important as both a buyer of tech products and a supplier of tech components, tech earnings could be affected first.

The software maker Adobe, for instance, was one of the first companies to cite Japan as a factor in its quarterly report. It lowered its guidance for second-quarter revenue by $50 million — reducing its forecast for Japanese sales by one-third after citing disruptions in that important market.

For the broader market, Japan’s problems alone aren’t likely to threaten the earnings outlook. But add them to rising consumer prices that might crimp global demand, and profit growth could slow further. And stocks may not respond well to that kind of change.  

Paul J. Lim is a senior editor at Money magazine. E-mail: fund@nytimes.com.

Article source: http://feeds.nytimes.com/click.phdo?i=fc2f9d150785958e3bcc224f7a87ef91