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Italy Turns Its Focus to Stimulating Economy

December 29, 2011 by Leave a Comment

The benchmark 10-year bond was priced at an auction Thursday to yield 6.98 percent, down from a euro-era record of 7.56 at the previous sale in late November. The Italian Treasury also sold bonds maturing in 2014, priced to yield 5.62 percent, down from 7.89 percent.

The total of €7 billion, or $9.1 billion, sold Thursday in thin holiday markets was less than the goal of €8.5 billion.

At an auction of €9 billion in short-term Treasury bills Wednesday, rates fell by half from previous levels. But the sale Thursday was seen as a more significant signal of market sentiment about the longer-term outlook for Italy’s struggling economy.

The continuing high yields on 10-year bonds, just shy of the 7 percent level that many economists consider unsustainable, indicated the continuing challenges ahead. Mr. Monti acknowledged the point at a news conference after the bond sale. “We absolutely don’t consider the market turbulence to be over,” he said. “There is much more to do.”

In the near term, Mr. Monti said, his government plans to stimulate growth in the Italian economy through a package of measures that he suggested could be called “Grow Italy” — a contrast to the €30 billion austerity package, known as Save Italy, that was passed by Parliament this month.

The growth package will include moves to further open up Italy’s closed professions and guilds, encourage competition and develop an outdated economic infrastructure, which many analysts say keep production costs high and uncompetitive in world markets.

The government will also tackle labor policy, a thorny issue for unions as well as for some political parties that support Mr. Monti’s government. The prime minister said the changes would be matched by an increase in welfare services for the unemployed and for Italian youth.

The austerity package, the fourth since August, is designed to eliminate Italy’s budget deficit by 2013. It is likely to be the last for some time, as Mr. Monti said Thursday that he did not foresee the need to ask Parliament to authorize new spending in the near future.

He also said his government was “not excluding anything” in looking for ways to lower a public debt of 119 percent of gross domestic product, the second-highest ratio in the euro zone, after that of Greece.

“I know people are worried” about paying higher taxes, he said.

The austerity package and the growth measures are a two-pronged approach to steering Italy out of a debt crisis that has placed the global economy at risk, a strategy that early indicators suggest has only been partly successful.

Italy had its biggest decline in Christmas retail sales in 10 years, according to data released this week by the consumer group Codacons.

Critics of the government’s economic program have complained that it is too tax-heavy and not incisive enough when it comes to cuts to public spending.

They also criticize the lack of measures to stimulate growth, though some analysts say Mr. Monti is bound by restrictions, imposed primarily by Germany and other euro zone partners, that hamper any real growth.

If Italy is required to pursue policies that bind it to lowering its debt and balancing the budget by 2013, then “welcome to a future of stagnation and recession,” Gustavo Piga, a professor of economics at the University of Rome Tor Vergata, said Thursday.

“Do you think that if you liberalize Roman taxi drivers you’ll generate growth tomorrow?” Mr. Piga asked. “It’s important to start reforms, but you also need to stimulate demand.”

“The deal that needs to be struck is to ensure that Italy does not go through a recession like Greece,” he said. “The problem is larger than us.”

Mr. Monti said Thursday that, as an economist, he was aware that the austerity package pledged by the previous government of Silvio Berlusconi had “many drawbacks.” But not passing the measures would have had a more serious and even more recessionary outcome, he said.

He added that a long-term solution required that “work must be done in Europe” within a more integrated framework. Some of the measures, he said, could be drafted in time to present them to a meeting of euro zone finance ministers in Brussels on Jan. 23.

“Italy is making a great effort. It is looking to build a better future on less ephemeral foundations, to safeguard future generations,” Mr. Monti said.

Mr. Monti also said that the euro zone bailout fund, the European Financial Stability Facility, needed “significantly greater” resources, even if those resources were never to be effectively used.

Harvey Morris reported from London.

Article source: http://www.nytimes.com/2011/12/30/business/global/italys-long-term-borrowing-costs-decline.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Shares Fall on Wall Street

October 17, 2011 by Leave a Comment

It was a quiet start after the upswing last Friday, which saw the Dow Jones industrial average and the Nasdaq indexes pushing above their levels at the end of 2010, and the broader market as measured by the Standard Poor’s 500-stock index rallying nearly 6 percent over the five-day trading period.

At the end of the day, the three indexes floundered with declines of about 2 percent. The Dow and the Nasdaq were once again down for the year, and the SP pressed deeper into negative territory, down more than 4 percent compared with 2.63 percent for the year as of last Friday.

Analysts noted that a number of the drivers of market sentiment in recent weeks — economic data and the prospect for some form of decisive action in Europe — were uninspiring. Stocks that traded in the sectors most sensitive to economic growth took hits, with industrials, materials and financials more than 2 percent lower near the end of the trading session on Monday.

But they also attributed the declines on Monday to technical reasons, as key levels in the indexes proved resistant to breakthrough.

“The market was heavily oversold,” said Quincy Krosby, a market strategist for Prudential Financial. “Whenever that happens you are due for a bounce. It moved up too far, too fast.”

Ms. Krosby added that last week’s gains were not accompanied by strong volumes, which suggests that the rally was not viable enough to extend the gains.

“It means that new buyers are not coming in,” she said. “The conviction is not there. Volume is always the conviction of the bulls.”

The gains from last week had ridden the crest of improved retail data in the United States and took place just ahead of a meeting of finance ministers from the Group of 20, when analysts said that they believed fear about Europe’s debt crisis had faded somewhat in the last few days.

But on Monday, Germany sought to play down expectations of a decisive breakthrough at an another meeting, a summit of European leaders this weekend on the euro zone troubles.

At a news conference, Chancellor Angela Merkel’s spokesman, Steffen Seibert, said that the chancellor had pointed out that “the dreams that are once again cropping up, that by Monday this package will have solved everything and it will all be over, once again cannot be fulfilled.”

“These are important working steps on a long path,” he said. “This is a path that with certainty runs far into next year and also additional working steps will have to follow.”

“Part of the reason the market was able to move up was on the hopes and prayers that the Europeans would craft a credible plan in time for the meeting,” Ms. Krosby said. “They just threw cold water on that.”

The Dow Jones industrial average was down 2.13 percent at 11,397.00. The S.P. 500-stock index was 1.9 percent lower, or down 23. 72 points, at 1,200.86. The Nasdaq composite index was down 1.9 percent at 2,614.92.

The benchmark Euro Stoxx 50 closed down 1.68 percent.

Interest rates were slightly lower. The yield on a 10-year Treasury note was 2.15 percent compared with 2.25 percent.

“Optimism is fading,” Frank M. Pavilonis, MF Global’s senior market strategist, said, referring to Europe.

Economic data from the United States on regional manufacturing and another report on industrial production were weak, or “market neutral,” as Jonathan Lewis of Samson Capital Advisors put it.

“We are really operating in a twilight zone for markets,” Mr. Lewis said, referring to what he described as a lack of clarity from the economic data and the euro zone situation.

In the United States, economic data has been mixed.

On Monday, a report from the Federal Reserve Bank of New York on regional manufacturing showed no improvement in its index for overall business conditions in October. In a research note, economists from Goldman Sachs said that suggested “generally downbeat” views of the current economic situation, although some components of the index stabilized.

Industrial production as reported by the Federal Reserve showed a month-on-month 0.2 percent rise for September, just as analysts had forecast. Manufacturing production firmed 0.4 percent in that period, which economists said reflected some recovery from the disruptions related to the Middle East turmoil and the earthquake in Japan earlier in the year.

“With a mixed performance in September, the U.S. manufacturing sector now seems to have fully recovered from the supply chain shocks caused by the Japanese tsunami,” said Cliff Waldman, economist for the Manufacturers Alliance, in a statement.

Analysts said that as financial results trickled in, stocks would continue to weather the outlook for the United States economy. Financial stocks were hardest hit, falling as a sector about 3.3 percent. That was on a day when more banks weighed in with quarterly results.

Wells Fargo, the largest consumer lender in the United States, was down 8.4 percent at $24.42. It reported Monday that its third-quarter earnings rose 21 percent, even as a drop in revenue indicated a disappointing sign for the San Francisco-based bank.

Citigroup announced a profit of $3.8 billion, or $1.23 a share, beating analyst consensus estimates of 81 cents per share. It was down 1.6 percent at $27.93.

Shares in companies in the materials sector declined 3 percent, with Alcoa down 6.6 percent at $9.58 and United States Steel more than 6 percent at $22.98.

Eric Dash, Ben Protess, Stephen Castle and Liz Alderman contributed reporting.

Article source: http://www.nytimes.com/2011/10/18/business/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Stocks & Bonds: Indexes End the Day Up, but Down for the Month

September 1, 2011 by Leave a Comment

Capping a period characterized by wild swings of hundreds of points, all three major indexes finished the month lower, despite rising for the day.

On Wednesday, shares shifted between gains and declines, running from flat to more than 1 percent, in a market weighed down by news that the Justice Department would seek to block ATT’s proposed acquisition of T-Mobile USA.

Shares shot up after the opening, but the ATT news dragged down the telecommunications sector. Then the three main indexes lost steam after a Federal Reserve official said that policy adjustments were not justified now.

In the last half hour, a bounce sent the Dow Jones industrial average above its starting point for 2011, but there was still not enough momentum to finish the month higher.

The Dow was up 53.58 points, or 0.46 percent, to 11,613.53 at the close, just above its 2011 start of 11,577.51. It was down more than 4 percent for the month. The Standard Poor’s 500-stock index was up 5.97 points, or 0.49 percent, to 1,218.89, but down more than 5 percent for the month.

The Nasdaq composite index rose 3.35 points, or 0.13 percent, to 2,579.46. It closed down more than 6 percent for August.

ATT was the second-most actively traded stock in the telecommunications sector, behind Sprint. It fell 3.85 percent, to $28.48. Its rival Sprint Nextel was up nearly 6 percent to $3.76.

August was punctuated by volatility in the broader markets, as choppy economic data renewed discussions about whether the economy was headed for another recession. Concerns about euro zone debt, fiscal uncertainty in the United States and the potential for further economic stimulus from the Federal Reserve also affected market sentiment.

Those issues persisted this week when the Fed released minutes from its Aug. 9 meeting, where its policy makers considered changing the size or composition of the Fed’s balance sheet or reducing the interest rate paid on banks’ excess reserve balances.

Fed policy makers have agreed to consider other options at their next meeting in September. Some analysts said the Fed might need more information before deciding on further stimulus.

On Wednesday, Dennis P. Lockhart, the president of the Federal Reserve Bank of Atlanta, appeared to tamp down the prospect.

“We may find, as economic circumstances evolve, that policy adjustments are required,” Mr. Lockhart said in speech to the Chamber of Commerce in Lafayette, La. “In more adverse scenarios, further policy accommodation might be called for. But as of today, I am comfortable with the current stance of policy, especially considering the tensions policy must navigate between the short and long term and between recovery and the need for longer-term structural adjustments.”

The Treasury’s benchmark 10-year note fell 17/32 to 99 1/32, pushing the yield to 2.23 percent, up from 2.18 percent late Tuesday.

Mark T. Lamkin, the chief executive officer of Lamkin Wealth Management, said the late-day swoon in shares could be attributed to short-term technical profit-taking, before the release of the national jobs report for August on Friday. It could also be a reaction to Mr. Lockhart’s remarks, he said.

Britain’s FTSE 100 gained 2.4 percent, and Germany’s DAX gained 2.5 percent. In Paris, the CAC 40 rose 3.1 percent. Asian markets were broadly higher on Wednesday.

On Wednesday, new data on factory orders and jobs set up a rise in shares that carried over from markets in Asia and Europe.

The Commerce Department showed that factory orders for July rose 2.4 percent, the largest increase since March. Demand for automobiles and commercial airplanes propelled the orders.

A report on employment from ADP Employer Services showed new jobs on private payrolls totaled 91,000 for August, below forecasts.

Those reports were made public before the release Friday of one of the most closely watched indicators, the Labor Department’s national report on the job situation. Analysts were forecasting a gain of 70,000 in new nonfarm payroll jobs for August, compared with 117,000 the previous month, while the unemployment rate of 9.1 percent was not expected to change, according to a survey by Bloomberg News.

“We are still not seeing job losses, which is what you would see in a recession,” said Anthony G. Valeri, a senior vice president and market strategist for LPL Financial.

Goldman Sachs economists said that the ADP report, which is used to help estimate the outcome of the national report, could mean lower forecasts for Friday’s numbers.

Article source: http://feeds.nytimes.com/click.phdo?i=9017821925f27179688c6b506c049c9a

Filed Under: Economy News Tagged With: , ,

U.S. Stocks Resume Their Slide After a One-Day Rally

August 10, 2011 by Leave a Comment

The sharp declines of more than 3 percent on the Dow and two other main indexes in less than an hour after the opening bell on Wednesday sent a message to investors: That the rally of about 4.7 percent in the broader market on Tuesday had no basis to last. Stocks had surged after the Federal Reserve announced that while it would not be coming to the rescue with some new program to stimulate the economy, it would leave interest rates unchanged for a couple of years.

But the rally stalled Wednesday morning. As it had been in recent weeks, market sentiment was shaken by the confluence of events that had plagued it, including the Standard Poor’s downgrade of the United States credit rating, weak data related to the United States economy, and the euro zone’s fiscal problems.

As the flight from risky assets heated up, 10-year government bonds prices rose. Yields declined to 2.14 percent from 2.25 percent on Tuesday.

“The market psychology is such that investors no longer seem to know who or what to root for and all that they do know is, according to the Fed, that rates will remain low until the middle of 2013,” said Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan Company.

By midmorning the Dow was down 410 points, or 3.65 percent. The Standard Poor’s 500-stock index lost 41.33 points, or 3.52 percent, and the Nasdaq composite index was off 80.09 points, or 3.23 percent.

Financial stocks, in particular, were trading lower, down by about 6 percent.

The Fed is hoping that its statement, which three of the 10 members of the Federal Open Market Committee voted against, will encourage investment and risk-taking by keeping the cost of borrowing extremely low until at least mid-2013. Still, it suggested that the United States monetary authorities are now adopting the same policy pursued by the Bank of Japan over the last decade with marginal effect.

The Fed’s pledge to hold short-term interest rates near zero for at least two more years to support the faltering United States economy “has helped to stabilize sentiment in equities and other risky asset markets — at least for now,” analysts at Standard Chartered wrote in a research commentary. However, they added: “The heavy emphasis on downside risks to growth suggests the pendulum of investor sentiment can quickly rotate back to a more risk-averse stance in coming days.”

The strong rally on Tuesday in the United States had spilled over when Asian markets opened on Wednesday but then lost steam when the baton was passed to Europe.

Stocks turned sharply downward in European afternoon trading, led by banking shares. French banking stocks dropped amid rumors that a downgrade of France’s AAA credit rating was imminent, though none of the major ratings agencies has recently signaled that such a move was on the horizon. The French bank Société Générale fell about 18 percent, while its rival BNP Paribas fell more than 9 percent. Intesa Sanpaolo, the Italian lender, fell almost 11 percent.

Laetitia Maurel, a spokeswoman for Société Générale, declined to comment on the share price decline, but said the bank’s fundamentals remain strong, with a first-half 2011 net profit of 1.663 billion euros, even after booking losses for its share of the Greek rescue. “The market seems to fear a global recession, but I don’t think that’s going to happen,” Valérie Cazaban, a fund manager at Stratège Finance, said. “Emerging markets are still strong and the United States, though manufacturing is weakening, should avoid returning to recession.”

“For the short term, I think we’ve seen the worst for stocks,” she added. “Valuations are very low considering companies’ profitability and balance sheets. Volatility will stay high, but stock prices aren’t far from their lows.” Still, she said, governments and central banks, having ruled out further fiscal stimulus, have no tools other than liquidity injections left to address the ongoing crisis, meaning that “over the longer term, considering the possibility of inflation, we may not have such a brilliant future. We’ll still have problems left to deal with.”

President Nicolas Sarkozy of France returned from vacation on the French Riviera to meet with officials, including his finance minister and the governor of the Bank of France, on what his office called “the economic and financial situation.”

David Jolly and Bettina Wassener contributed reporting.

Article source: http://www.nytimes.com/2011/08/11/business/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,