April 2, 2023

Looking Ahead: Economic Reports for the Week of Oct. 29

ECONOMIC REPORTS Economic information to be released this week includes personal income and spending for September and the Chicago Federal Reserve Midwest manufacturing index (Monday); the Standard Poor’s/Case-Shiller home price index for August and consumer confidence for October (Tuesday); the Institute for Supply Management manufacturing index for October, construction spending for September, weekly jobless claims, retail sales for October and ADP employment for October (Thursday); and unemployment for October (Friday).

CORPORATE EARNINGS Companies scheduled to release quarterly earnings reports include Burger King Worldwide (Monday); Deutsche Bank, Standard Chartered, UBS, Ford Motor, Chrysler, Pfizer and BP (Tuesday); Barclays and General Motors (Wednesday); Exxon Mobil, American International Group and Starbucks (Thursday); and Royal Bank of Scotland, Chevron, the Washington Post Company and Chesapeake Energy (Friday).

IN THE UNITED STATES On Monday, the insider trading trial of Anthony Chiasson and Todd Newman, formerly of the hedge fund Level Global, begins with jury selection in Federal District Court in Manhattan, and the federal bankruptcy court in Manhattan will take up a deal under which Eastman Kodak would pay its retirees $7.5 million in cash and grant them $650 million in claims.

On Tuesday, American Airlines’ parent, AMR, will ask the bankruptcy court for permission to obtain up to $1.5 billion in new bond financing.

On Thursday, automakers will report their North American sales for October.

OVERSEAS On Monday, Prime Minister Mariano Rajoy of Spain is set to meet the Italian prime minister, Mario Monti, in Madrid for talks on the economic crisis.

On Thursday, Chancellor Angela Merkel of Germany is scheduled to meet Prime Minister Enda Kenny of Ireland for talks.

Article source: http://www.nytimes.com/2012/10/29/business/economy/economic-reports-for-the-week-of-oct-29.html?partner=rss&emc=rss

Doubts Emerge After European Union’s Euro Deal

The market bid the value of the euro down below $1.30 for the first time since January, and pushed the interest rates the Italian government must pay on new bond issues up again, apparently unconvinced that a little more austerity and a little more bailout money would save the euro.

The European Central Bank continued to face pressure to step up its purchases of euro zone government bonds. But the head of Germany’s central bank, the Bundesbank, Jens Weidmann, repeated that his country opposed using the European Central Bank too rashly to back up governments that need to reform themselves first. Mr. Weidmann also said the Bundesbank would provide new money as a loan to the International Monetary Fund only if countries outside Europe did so as well.

In a speech on Wednesday at the German Finance Ministry in Berlin, Mr. Weidmann called the Brussels deal “encouraging,” but insisted that the idea of “creating the necessary money through the printing presses” be abandoned. He spoke instead in the moralizing tones for which the Germans have become known during the crisis.

“It would be fatal to completely remove the disciplinary effect of rising interest rates,” Mr. Weidmann said. “When credit becomes expensive for states, the appeal of further borrowing sinks. Good fiscal policy must be rewarded through the credit costs, bad punished.” Rescue funds, Mr. Weidmann said, can accomplish only one thing: “Buying time, time that must be used to solve the fundamental problems.”

Meanwhile, at least four more European Union members — none of them using the euro — have expressed reservations about the agreement, which only Britain definitively opposed at the summit meeting. Some leaders said in Brussels that they wanted to consult their parliaments. Hungary, Sweden, Denmark and the Czech Republic now say they want to see the text of the proposed treaty, which is meant to enforce strict limits both on members’ annual budget deficits and on their cumulative debts, before fully committing themselves. France and Germany hope to have a draft of the treaty approved by the end of March and ratified by the end of 2012.

The fiscal strictures are meant to prevent future crises, but the financial markets appear to be much more focused on whether the euro zone nations will put their money where their mouths are now, when they say they will defend the euro and its members. Beyond the bailout funds already in place, the Brussels agreement calls for member nations’ central banks to provide 200 billion euros ($259 billion) to the I.M.F. to create a bigger “firewall” of money that would help protect heavily indebted euro zone states from speculative pressure.

The hope is that outside countries will contribute as well. In Brussels on Wednesday, a senior European official said Russia might provide up to 10 billion euros; Russia holds about 40 percent of its foreign-currency reserves in euros and wants a stable currency, the official said.

Some in Europe say more firepower is needed. Ireland’s European affairs minister, Lucinda Creighton, said in Paris on Wednesday that the European Central Bank should become a lender of last resort for the euro zone. “Having a fiscal compact in place by March is desirable, but I don’t think it’s going to save the euro,” she said.

What she wants, Ms. Creighton said, is “ideally a very clear declaration from the E.C.B. that it is prepared to do whatever is necessary to save the currency, and it is the ultimate backstop.” She added, “I don’t think we’re there yet, but I feel we will end up there.”

Germany, of course, disagrees.

The markets also appear to want more aggressive action by the European Central Bank while new prime ministers in Italy and Spain push through difficult economic changes. But the bank may also want to keep pressure on the Italian and Spanish Parliaments and governments to follow through. On Wednesday, Italy — with 1.9 trillion euros of cumulative debt — had to pay 6.47 percent annual interest to sell its five-year bonds, up from 6.30 percent last month, while Germany, perceived as safe, sold two-year notes priced to yield 0.25 percent, a record low.

Steven Erlanger reported from Paris, and Nicholas Kulish from Berlin. David Jolly contributed reporting from Paris, Alan Cowell from London, and Stephen Castle from Brussels.

Article source: http://feeds.nytimes.com/click.phdo?i=17e4b89f6641238ac8083a181a10e022

Lenders Flee Debt of European Nations and Banks

Financial institutions are dumping their vast holdings of European government debt and spurning new bond issues by countries like Spain and Italy. And many have decided not to renew short-term loans to European banks, which are needed to finance day-to-day operations.

If this trend continues, it risks creating a vicious cycle of rising borrowing costs, deeper spending cuts and slowing growth, which is hard to get out of, especially as some European banks are having trouble meeting their financing needs.

“It’s a pretty terrible spiral,” said Peter R. Fisher, head of fixed income at the asset manager BlackRock and a former senior Treasury official in the George W. Bush administration.

The pullback — which is increasing almost daily — is driven by worries that some European countries may not be able to fully repay their bond borrowings, which in turn would damage banks that own large amounts of those bonds. It also increases the already rising pressure on the European Central Bank to take more aggressive action.

On Friday, the bank’s new president, Mario Draghi, put the onus on European leaders to deploy the long-awaited euro zone bailout fund to resolve the crisis, implicitly rejecting calls for the European Central Bank to step up and become the region’s “lender of last resort.”

The flight from European sovereign debt and banks has spanned the globe. European institutions like the Royal Bank of Scotland and pension funds in the Netherlands have been heavy sellers in recent days. And earlier this month, Kokusai Asset Management in Japan unloaded nearly $1 billion in Italian debt.

At the same time, American institutions are pulling back on loans to even the sturdiest banks in Europe. When a $300 million certificate of deposit held by Vanguard’s $114 billion Prime Money Market Fund from Rabobank in the Netherlands came due on Nov. 9, Vanguard decided to let the loan expire and move the money out of Europe. Rabobank enjoys a AAA-credit rating and is considered one of the strongest banks in the world.

“There’s a real sensitivity to being in Europe,” said David Glocke, head of money market funds at Vanguard. “When the noise gets loud it’s better to watch from the sidelines rather than stay in the game. Even highly rated banks, such as Rabobank, I’m letting mature.”

The latest evidence that governments, too, are facing a buyers’ strike came Thursday, when a disappointing response to Spain’s latest 10-year bond offering allowed rates to climb to nearly 7 percent, a new record. A French bond auction also received a lukewarm response.

Traders said that fewer international buyers were stepping up at the auctions. The European Central Bank cannot buy directly from governments but is purchasing euro zone debt in the open market. Bond rates settled somewhat Friday, with Italian yields hovering at 6.6 percent and Spanish rates around 6.3 percent; each had been below 5 percent earlier this year.

For Spain, the recent rise in rates means having to spend an extra 1.8 billion euros ($2.4 billion) annually to borrow, rapidly narrowing the options of European leaders. For Italy, every 1 percent rise in rates translates to about 6 billion euros (about $8 billion) in extra costs annually, according to Barclays Capital.

If officials simply cut spending to pay the added interest costs, they face further economic contraction at home. If they ignore the bond market, however, they could find themselves unable to borrow and pay their bills.

Either situation risks choking off growth in Europe and threatens the stability of the Continent’s banks, which would further undermine demand and business confidence in the United States and around the world.

Experts say the cycle of anxiety, forced selling and surging borrowing costs is reminiscent of the months before the collapse of Lehman Brothers in 2008, when worries about subprime mortgages in the United States metastasized into a global market crisis.

Graham Bowley and Liz Alderman contributed reporting.

This article has been revised to reflect the following correction:

Correction: November 19, 2011

A previous version of this article misstated Peter R. Fisher’s title and experience. He is the head of fixed income at the asset manager BlackRock, not a vice chairman, and he was a senior Treasury official in the administration of President George W. Bush, not President Bill Clinton.

Article source: http://www.nytimes.com/2011/11/19/business/global/lenders-flee-debt-of-european-nations-and-banks.html?partner=rss&emc=rss