January 20, 2022

Relief Rally Disappears After Fresh Economic Data

Stocks on Wall Street followed European and Asian financial markets higher Monday but their sigh of relief over the last-minute agreement in Washington to raise the United States debt limit was short-lived.

After a short burst that put the three main Wall Street indexes up more than 1 percent, they turned negative as the reality of the challenges ahead for the recovery caught up with investors.

That dip also coincided with the release of new data that showed American manufacturing growing more slowly. The Institute for Supply Management reported that its index registered 50.9 percent in July; with a reading over 50, that means the manufacturing sector expanded for the 24th consecutive month. But it did so at a slower rate, registering below the 55.3 of June, the survey showed. Production and employment also showed continued growth in July, but at slower rates than in June.

The latest ISM index was particularly bad news on the heels of the government’s report last week that the nation’s gross domestic product grew at an annual rate of less than 1 percent in the first half of 2011, with the first quarter and the second quarter at 0.4 percent and 1.3 percent, respectively. The G.D.P. data was revised going back to 2003, showing the recession was deeper and the recovery weaker than originally thought.

“I think when the market opened up, there was a sigh of relief,” said Nick Kalivas, vice president of financial research at MF Global. “There was some expectation that a deal would get done, so the reaction was not extreme or overly strong.”

But now, he said, “The market is focusing on the global growth picture.”

By midmorning, the benchmark Standard Poor’s 500-stock index was down 6.65 points, or 0.51 percent, to 1,285.63. The Dow Jones industrial average, after gaining 125 points, was off 46.17, or 0.38 percent, to 12,097.07 , and the Nasdaq fell 9.85 points, or 0.36 percent, to 2,746.53.

In London, the FTSE 100 index was up 0.45 percent to 5,841.57, although concerns about the outlook for Europe remained apparent.

Speaking before the American markets opened, Stefan de Schutter, an asset manager at Alpha Trading in Frankfurt, said: “We’re seeing a relief rally on the U.S. debt deal, which was the cause of much uncertainty last week. There’s more of an appetite for risk today. But if we look ahead, we’ll see a return to the focus on the economic problems in Europe.”

The key index in Japan jumped 1.3 percent and the Hang Seng index in Hong Kong added 1 percent, picking up steam after the deal in Washington was announced by President Obama.

In Japan, investors were also encouraged by the fall of the yen against the United States dollar after the debt deal.

The debt woes in the United States had undermined the dollar’s value in international currency markets in recent weeks, especially against the yen — a worrying trend for Japanese exporters, as a strong yen makes their goods more expensive for shoppers overseas.

Around midday in London on Monday, the dollar bought 77.1 yen, about 1 yen more than on Friday in New York.

The euro rose slightly against the dollar as some investors moved into currencies previously perceived to be higher risk. The euro stood around $1.4426 in London on Monday.

Expressing a general sense of guarded optimism about the debt deal, Yukio Edano, Japan’s chief cabinet secretary, said Monday, “We welcome the deal, which we hope will lead to market stability.”

Similarly, Wayne Swan, the Australian treasurer, said the debt agreement was an important first step, but that United States fiscal consolidation was necessary to ensure global growth.

Aside from the details of the debt reduction plans, analysts said uncertainty remained about the subsequent ratification by Congress and the reaction of the ratings agencies.

“Last night’s deal is a good step forward but uncertainty will remain,” said Elsa Lignos, a senior currency strategist at Royal Bank of Canada in London.

The debt-ceiling debate, said David Carbon, an economist at DBS in Singapore, “has made people realize just how much there is left to do on the fiscal front.”

United States economic growth has been slow over several quarters, Mr. Carbon said, and the risk of a double-dip recession is now much greater than it appeared a year ago.

Gold, which has struck multiple record highs amid the uncertainty of the past weeks, fell nearly 1 percent to $1,613 an ounce. Oil rose about $1 to $97 a barrel.

The announcement of a deal between the Republicans and Democrats “could take some of the froth out of the gold market,” said Caroline Bain, economist with the Economist Intelligence Unit in London. “However, we expect the market to remain strong at least until 2013 when we expect the normalization of O.E.C.D. monetary policy to start in earnest.”

Christine Hauser reported from New York and Matthew Saltmarsh reported from London. Bettina Wassener contributed reporting from Hong Kong and Hiroko Tabuchi contributed from Tokyo.

Article source: http://feeds.nytimes.com/click.phdo?i=4f4139f9c29de73ba881bd6a98c0c3ec

Digital Strategy Paying Off for Publicis

PARIS — When Microsoft this month awarded a big chunk of its North American advertising account to Publicis Groupe, the Paris-based marketing company, the news felt like vindication for the chief executive of Publicis, Maurice Lévy.

In the tradition-bound advertising industry, Mr. Lévy has been one of the strongest advocates of new digital forms of marketing, and he has backed up his words by writing big checks. Five years ago, he spent $1.3 billion of Publicis shareholders’ money to buy Digitas, an Internet advertising agency, prompting rivals and some analysts to sneer that he had paid too much. Yet Mr. Lévy pushed ahead, adding other digital agencies, including Razorfish for $530 million in 2009.

Now, as the advertising industry recovers more strongly than expected from a deep downturn, with digital advertising leading the way, Mr. Lévy is not shy about saying “I told you so.” The company’s growth has outpaced the market, he noted during an interview, and the digital skills it has acquired are helping it with technology-conscious clients like Microsoft, for which Publicis will manage more than $600 million in North American ad spending.

“We looked at digital and we invested in digital early on,” he said. “We then decided that the shift would be huge, so we invested massively. It happens that we were right.”

After a 2009 that many people in the advertising industry would like to forget, Publicis, which owns agencies like Saatchi Saatchi and Leo Burnett, reported last month an 8 percent increase in its revenue for 2010, after adjustments for currency fluctuations and other factors, and a 30 percent gain in earnings.

The recovery, in which other advertising companies have shared, has prompted a sigh of relief across the ad industry. So much for the idea, in vogue not long ago, that the combined effects of the digital revolution and the recession would hasten the obsolescence of paid-for advertising, as well as the media that rely on it for financial support. Instead of killing the ad industry, the digital revolution has proved to be one of its primary drivers of growth.

ZenithOptimedia, a media buying agency owned by Publicis, predicts that overall ad spending will rise about 5 percent a year worldwide over the next three years. Internet spending will rise a total of 48 percent during that period, the agency says. Mr. Lévy said he expected digital ads to account for a fifth of global spending within the next seven years, up from about 13 percent now.

“Advertising came out of the downturn much more strongly than expected,” Mr. Lévy said. “Can it continue to grow? My contention is yes.”

Digital business accounted for 28 percent of revenue at Publicis last year, putting it neck and neck with WPP Group, the world’s biggest advertising company. While WPP also invested in digital advertising, it did so less aggressively. But it too is reaping the benefits of the recovery, reporting solid gains in revenue and profit for last year.

“What we have seen since the beginning of 2010 — it was almost like somebody turning on a light switch,” said Martin Sorrell, chief executive of WPP, during a Deutsche Bank Securities conference in Palm Beach, Florida, this month.

Nevertheless, the advertising turnaround has been uneven. While some traditional media, like print, continue to lag behind, spending has bounced back strongly on television. And emerging markets, which barely stumbled during the crisis, continue to push ahead.

Not everyone in the ad industry is convinced that big acquisitions are the right way to prepare for the digital future. Omnicom Group, the second-largest advertising company, has shied away from large-scale deals after overspending on digital agencies during the dot-com boom.

John D. Wren, the chief executive of Omnicom, which is based in New York, has said it was unwise for ad agencies to commit large amounts of shareholders’ money on deals that turn them into technology wannabes, while Internet companies like Google and Facebook retain the real expertise. Despite a smaller exposure to digital business, Omnicom was not far behind Publicis last year in revenue growth, and ahead of some other industry leaders.

Yet as the market improves, other advertising companies are redoubling their efforts to expand their digital capabilities. Havas, which like Publicis is based in Paris, recently announced plans to spend €750 million on acquisitions, with Internet advertising a main area of focus.

Analysts say that even if agencies are playing catch-up with technology giants, it is important for them to appear up to speed with the latest technological developments.

Article source: http://www.nytimes.com/2011/03/28/business/media/28levy.html?partner=rss&emc=rss