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E.C.B. Fails in Bid to Quell Sovereign Debt Crisis

August 4, 2011 by Leave a Comment

The show of force initially bolstered Italian and Spanish bonds. But the move appeared to backfire as stock markets in Europe and the United States fell sharply after Jean-Claude Trichet, the central bank’s president, warned of dangers ahead. The modest scale of the bank’s bond buying apparently fell short of what investors considered adequate.

The market downturn began in Europe but quickly spread to the United States as soon as trading opened Thursday morning on intensifying investor fears about a slowdown in global economic growth and worries about Europe’s debt crisis, which is centered now on Italy and Spain.

In another response to the escalating crisis, the E.C.B. moved to prop up weaker banks that may be having trouble raising funds, expanding its lending to euro zone institutions at the benchmark interest rate. The central bank left that rate unchanged at 1.5 percent, while the Bank of England left its benchmark rate at a record low of 0.5 percent.

Mr. Trichet declined to say what bonds the bank was buying or how much. He said the bank acted in response to “renewed tensions in some financial markets in the euro area.” It was the first such intervention since March.

Mr. Trichet also said that uncertainty created by the U.S. budget debate had unsettled European markets.

“It’s clear the entire world is intertwined,” he said. “What happens in the U.S. influences the rest of the world.”

As markets demanded higher risk premiums on Spanish and Italian bonds during the past week, analysts began to speculate that the E.C.B. would return to the bond market. But most had not expected the bank to act so quickly.

The E.C.B. will not disclose the scope of its bond buying until next week at the earliest, but early indications were that the amounts were relatively modest.

“It might be interpreted as more of a warning shot rather than a broad-based onslaught,” analysts at Barclays Capital wrote in a note.

The E.C.B. first began buying bonds in the open market in May 2010, but tapered off the interventions earlier this year, a move investors may have interpreted as a lack of resolve. Michael T. Darda, chief economist at MKM Partners in Stamford, Connecticut, warned Thursday that half-hearted forays into the bond market “will fail, just like they did last year.”

“In each case, the debt crisis got worse instead of better,” he wrote in a note.

The E.C.B. also responded to signs of stress in interbank markets as institutions, wary of each other’s exposure to troubled government paper, became reluctant to lend to each other. One worrisome sign was a spike in the cost for European banks to borrow dollars in the open foreign exchange market.

Mr. Trichet said that next week the E.C.B. would lend banks as much cash as they wanted for six months at the benchmark interest rate, assuming the banks could provide collateral. A six-month term is longer than is customary.

The central bank’s actions on Thursday provided another example of the E.C.B. acting as the euro zone’s firefighter in the debt crisis.

European leaders decided last month to authorize the European Financial Stability Facility — the European Union’s bailout fund — to buy bonds in open markets, relieving the E.C.B. of that responsibility.

But it will take months before the rescue fund. known as the E.F.S.F., is able to start making purchases. In addition, European leaders did not increase the size of the fund, leaving questions about whether it would be up to the task if a country as big as Italy or Spain needed help.

Speaking to reporters Thursday after a regular meeting of the E.C.B. governing council, Mr. Trichet beseeched political leaders to speed up efforts to cut their budget deficits and remove impediments to growth, like overly protected labor markets. “The key for everything is to get ahead of the curve, in fiscal policy and structural reform,” he said.

With Italy in danger of being swept over the same waterfall as Greece, Prime Minister Silvio Berlusconi on Thursday pledged sweeping changes to increase growth.

At a news conference later, the Italian finance minister, Giulio Tremonti, said Italy was in contact with the European Union, International Monetary Fund and Organization for Economic Cooperation and Development on strategies for growth.

Article source: http://www.nytimes.com/2011/08/05/business/global/bank-of-england-and-european-central-bank-news.html?partner=rss&emc=rss

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China’s Economy Slowed a Bit in the 2nd Quarter

July 13, 2011 by Leave a Comment

China’s economy, the second-largest in the world after that of the United States, expanded 9.7 percent year-on-year during the first quarter of 2011, and 9.8 percent in the last three months of 2010.

While the reading was strong compared with the expansion in the United States, Europe and Japan and was slightly firmer than analysts had projected, it underlined how much more moderate China’s expansion has become in recent months.

Much of the slowdown has been deliberately engineered by the authorities in Beijing, who have over the last year gradually tightened the spigot on the ample lending that has fueled growth, but also contributed to sharp rises in property prices and overall consumer prices. The central bank has also raised interest rates five times since last October, most recently last week.

The tightening has caused some concern that China’s economy could slow down more rapidly than intended, thus weakening what has become a critical pillar of growth for the entire world.

However, most economists believe that China is headed for a soft — rather than a hard — landing, and Wednesday’s robust figures appeared to support those expectations.

However, inflation remains stubbornly high, at least for now, with data from Saturday showing consumer prices rose 6.4 percent in June from the same month last year. The prices of some foodstuffs, like pork, have risen even more sharply.

Inflation has become a major concern for policy makers in Beijing, who worry that price rises could fuel discontent among the many millions of ordinary Chinese.

The government has repeatedly pledged to lower inflation, and a spokesman for the national statistics bureau repeated this mantra. “We should stick to our effort to control prices,” he said, according to The Associated Press.

The combination of slower growth and persistent inflation has put the government in a quandary, analysts say: While more aggressive tightening could mitigate inflation, it also risks stifling economic growth.

“The government’s desire to maintain growth by sustaining a healthy level of liquidity expansion is counterbalanced by the need to rein in inflation, in part caused by an abundance of liquidity,” Jing Ulrich, chairman of global markets for China at JPMorgan, wrote in a note on Wednesday.

Article source: http://www.nytimes.com/2011/07/13/business/global/chinas-economy-shows-signs-of-slowing-down.html?partner=rss&emc=rss

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Carmakers See Slower Growth in Auto Sales in June

July 1, 2011 by Leave a Comment

G.M. estimated that the industry’s seasonally adjusted, annualized selling rate fell to its lowest level of the year, slightly below May’s level of 11.8 million. The selling rate, a closely watched measure of the industry’s health, fell to 11.8 million in May after topping 13 million in February, March and April.

But company officials and analysts said they still expect sales to rebound later in the year.

“We continue to believe the economy will recover from the current short-term slowdown into the second half of the year,” Don Johnson, G.M.’s vice president for United States sales operations, said on a conference call. “Some consumers have decided to sit on their hands and delay purchases, but we view this as temporary.”

Sales rose 10 percent at both G.M. and the Ford Motor Company last month, compared with a year earlier. Excluding 2010 sales by the Volvo brand, which Ford has since sold, Ford’s sales were up 14 percent.

Chrysler, meanwhile, said its sales rose 30 percent.

G.M. and Ford said passenger cars accounted for the bulk of the increase, though they said truck sales were up as well. Executives said buying patterns shifted toward larger vehicles later in the month as gas prices dropped in much of the country.

“Strong demand for Ford’s fuel-efficient cars and crossovers continues, and we now are seeing truck buyers return to the market with significant appetite for our fuel-efficient V-6 engines,” Ken Czubay, Ford’s vice president for United States marketing, sales and service, said in a statement.

For the first half of 2011, G.M. sales were 17 percent higher than in the same period of 2010. Ford’s sales from January through June were up 9 percent.

Volkswagen said its sales rose 35 percent last month. Subaru, which had to cut output due to parts shortages, said sales were down 8 percent. Other automakers were scheduled to report their June sales Friday afternoon.

The slowdown in May and June has raised some concerns about the strength of the economy over all. Rising auto sales were a bright spot in the early part of the year.

“June’s sluggish sales rate will likely fuel the debate whether there is deterioration in underlying demand due to the softening in the macro environment,” Brian A. Johnson, an analyst with Barclays Capital, wrote in a report to clients.

Japanese automakers have been struggling since March to deal with production disruptions caused by the earthquake and tsunami in their home country. Many Toyota dealerships are sold out of the Prius, a hybrid car made in Japan, and other models built in North America have become relatively scarce because they contain Japanese-made parts that were in short supply for several months.

Toyota responded to the inventory shortages by pulling many discounts, but it introduced new deals in June after traffic at dealerships slowed dramatically.

“Things actually were going along pretty well in March and April, and the shortage hit us badly,” said Earl Stewart, owner of Earl Stewart Toyota in North Palm Beach, Fla.

His dealership sold 88 Prius cars in March but only 12 in June before running out. Mr. Stewart said his new-car department was profitable early in the year but lost money in May and June, as sales went from an average of 265 a month to about 140 in May and then 180 last month.

“They put the incentives back on, but you can’t un-ring a bell,” Mr. Stewart said. “The message got out to a lot of people. It had a psychological negative impact on the Toyota buyer.”

To keep shoppers from sitting on the sidelines — or worse, choosing a competitor’s readily available vehicle — Toyota and Honda have begun offering incentives to people who order a car even if it does not arrive at the dealership for several months. Normally, incentives are available on vehicles that are in stock or delivered in the same month.

“Fortunately for them, Honda and Toyota customers are loyal to their brands and they’ve likely deferred their new-car purchases until inventory is available,” Jessica Caldwell, director of industry analysis at Edmunds.com, a Web site that provides car-buying information to consumers.

Toyota increased incentives by 31 percent from May, though the level remained about $500 a vehicle below the industry average of $2,165, Edmunds.com reported.

Tight supplies of Japanese vehicles have helped push up prices across the industry, by giving other carmakers less motivation to offer big discounts. Prices for small cars have risen the most, given the increased demand for fuel efficiency.

The industry’s average transaction price topped $30,000 for the first time ever in June, rising 2.9 percent from a year earlier to $30,009, according to TrueCar.com, which tracks vehicle sales and pricing.

Analysts said they expected sales to remain somewhat sluggish through much of the summer but pick up later in the year. Toyota and Honda have said their production levels will return to normal within the next few months, though it could take a while for dealer stocks to reach ideal levels.

“Incentive levels $500 below the first-quarter average and depleted vehicle inventory have added to the pressure as the month progressed,” said Jeff Schuster, the executive director of global forecasting for the research firm J.D. Power and Associates. “However, the fundamentals remain in place for a marked return to the recovery pace set in the first four months of the year.”

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Consumer Inflation Shows Small Rise for May

June 15, 2011 by Leave a Comment

Taken together, the reports reflect the impact of some of the global events that took place in recent months.

“Both of them are reflective of the slowdown in the economy that we have experienced over the last few months,” said Russell Price, a senior economist with Ameriprise Financial.

The Labor Department said in its monthly report that the Consumer Price Index, the most widely used measure of inflation, was up 0.2 percent in May, compared with 0.4 percent in April, and up 3.6 percent from a year earlier before seasonal adjustment.

The monthly rise in the C.P.I. was the lowest since November, when the index was up 0.1 percent, the department’s Bureau of Labor Statistics said.

Analysts had forecast smaller increases, expecting a monthly rise of 0.1 percent in May and a 3.4 percent rise for the 12-month period.

The overall C.P.I. index reflected rising food prices, with the food index up 0.4 percent, the same as the previous month. The energy index fell by 1.0 percent in May, including a 2.0 percent decrease in the gasoline component in May, making it the first time gasoline has declined since June 2010.

When the traditionally volatile prices for energy and food are stripped out, the core C.P.I. index in May recorded its largest increase since July 2008. It edged up 0.3 percent in May, compared with 0.2 percent in April, and reached 1.5 percent in the 12-month period, the department said. The monthly indexes for May were above analysts’ forecasts of 0.2 percent and 1.4 percent for the year.

Prices for clothes, shelter, new vehicles and recreation contributed to the price acceleration last month, the department said, while there were declines in airline fares, tobacco, and personal care.

In another report released on Wednesday, manufacturers in the New York region reflected less optimism about business conditions. The Empire State Manufacturing Survey, released by the Federal Reserve Bank of New York, indicated that conditions for New York manufacturers deteriorated in June, as measured by the survey’s general business conditions index, which fell 20 points to -7.8, dipping below zero for the first time since November of 2010.

Analysts had forecast a decline in the index but that it would remain above zero, at 14.

In addition, the future general business index fell compared with its level in May, suggesting that optimism about the next six months has deteriorated. It was down 30 points to 22.5, its lowest level since early 2009, the survey said.

The new-orders and shipments indexes posted steep declines and fell below zero, the report said. The indexes for number of employees, prices paid and prices received were also lower.

Mr. Price noted that automobile production in the United States declined in April after the March earthquake and tsunami in Japan, contributing to a moderation in business activity. Demand has softened because of the recent spike in gasoline prices.

“It affects just about every region,” Mr. Price said. “In the manufacturing report, the component shortages were the No. 1 factor, and then the broader softening that went along with the higher gasoline prices.”

A third report from the Federal Reserve showed that industrial production rose 0.1 percent in May, after no growth in April because of the Mississippi river flooding and the effects on business related to Japan, analysts said. The report showed a 0.4 percent increase in manufacturing production in May that was mostly offset by a 3.3 percent decline in electric utility production. 

“It is clear that supply chain problems emanating from Japan are still an issue — motor vehicle production fell again in May, but overall manufacturing is robust,” Daniel J. Meckstroth, the chief economist for the Manufacturers Alliance/MAPI, said in a statement. 

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Inside Asia: For Bankers, a Week of Difficult Calls

June 6, 2011 by Leave a Comment

SINGAPORE — Predicting the next interest rate moves out of South Korea or China was hard enough before the global economy wobbled. Now it’s looking like a coin toss.

Five central banks in the Asia-Pacific region hold policy-setting meetings this week — Australia, New Zealand, Indonesia, South Korea and Sri Lanka. All except South Korea are expected to remain on hold, and even the economists forecasting a Bank of Korea rate increase acknowledge that it has become a close call.

Even if they all stick to the script, officials’ comments merit careful parsing for any indication about how they interpret the recent run of weak economic data. Is it merely a Japan-induced, short-lived lull or something more worrisome?

Policy makers must balance powerful, conflicting forces: The softening global outlook cools exports and therefore growth prospects, but home-grown demand remains strong in most countries, keeping up the inflationary pressure.

Richard Prior-Wandesforde, a Credit Suisse economist in Singapore, said that as long as inflation remained uncomfortably high and interest rates below normal, most Asian central banks would keep tightening monetary policy to reduce the flow of cheap credit. China, South Korea, India and Thailand may be even more aggressive than investors expect, he said.

“We only expect the region to suffer a few quarters of subtrend growth, not a return to recession,” Mr. Prior-Wandesforde said. “In fact, economic activity is unlikely to be soft enough to put an end to Asia’s rate-hiking cycle for a few months yet.”

But for central bankers inclined to put more emphasis on growth than inflation, even a modest slowdown may be reason enough to delay tightening. U.S. employment softened last month, and businesses around the world trimmed factory orders, so export-focused economies have reason for concern.

South Korea is arguably the toughest call. The Bank of Korea has developed a reputation for unpredictability, and it surprised markets yet again at its May meeting by holding rates steady. But it was a split decision, with two of the six board members expressing concerns about rising inflation expectations.

Many economists expect a quarter-point increase at the bank’s meeting Friday as steep food and energy costs filter into the prices of other goods and services. Core inflation, which excludes food and energy prices, has crept higher.

Doubts, however, are growing. Nomura dropped its call for a June rate increase, arguing that the Bank of Korea seemed more concerned about the risk of faltering growth than about inflation.

“The inherently pro-growth Korean government may have influenced the B.O.K.’s monetary policy,” said Young Sun Kwon, Nomura’s senior Korea economist in Seoul.

Jiwon Lim, a JPMorgan Chase economist also based in Seoul, is sticking with a forecast for a rate increase this week but said it “now becomes a close call” after the recent run of weak economic data.

Australia’s rate decision is also looking like less of a sure thing than it was a week ago, when the government released data showing that flooding had pushed first-quarter economic output down 1.2 percent, slightly worse than economists had expected.

Although economists are still banking on no change to monetary policy, some think the Reserve Bank of Australia might want to burnish its inflation-fighting credentials by springing a surprise interest rate increase Tuesday.

Even if it holds its fire at this meeting, the Reserve Bank of Australia will probably lay the groundwork for higher rates soon. Inflation accelerated in the first quarter despite the negative reading on growth, and with unemployment at a tight 4.9 percent, the economy does not have much slack.

It is a very different story in Indonesia, where economists expect no change in monetary policy. Inflation readings have looked benign, helped by Jakarta’s subsidies for fuel, keeping consumer prices down.

The global cooldown has taken some of the pressure off commodity prices, particularly for oil. That will eventually filter into Asian economies and reduce concerns about overheating. Indeed, many economists think inflation will peak soon.

But that does not mean central bankers can afford to wait it out. China in particular has a few tricky months to navigate before it can be sure that inflation will not go higher.

Drought and power shortages mean China’s food and energy costs may keep rising even after global prices begin to fall. Although Beijing raised power prices last week, a move that could make it more cost-effective for energy companies to increase production, demand is still running far ahead of supply.

Jian Chang, a China economist for Barclays in Hong Kong, said Beijing probably would not deviate from its planned tightening course and could raise rates before it releases May consumer price data next week.

Still, for central bankers already leaning toward keeping monetary policy looser, the combination of inflation peaking and growth slowing may be too much temptation.

Frederic Neumann, co-head of Asian economic research at HSBC in Hong Kong, said the bad economic news did not justify a pause in the tightening cycle, pointing out that interest rates in the region remain “structurally far too low.”

“But, central bankers may see something nastier on the horizon and opt to hold. This week will bring important clues as to what they are thinking,” Mr. Neumann said.




Emily Kaiser is a Reuters correspondent.

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Intel’s Quarterly Profits Are Lifted by Sales of Chips for High-End Servers

April 20, 2011 by Leave a Comment

Despite facing one challenge after another in the first quarter, Intel posted strong profits on higher sales across its product line. The results surprised many investors, as well as Intel executives, who had projected a far bleaker quarter after a product recall, consolidation after two acquisitions and the effects of the Japanese earthquake on production.

The first quarter “was a very strong quarter and significantly better than we expected,” Stacy J. Smith, Intel’s chief financial officer, said in an interview on Tuesday.

The company had exceptionally strong sales of chips for high-end server computers that power corporate data centers and the Internet. This market for “cloud computing” is helping Intel weather the slowdown in other areas of the computer market.

“Intel continues to have a very strong position in the higher end of the market,” said Ashok Kumar, an analyst with Rodman Renshaw. “Their position there is golden.”

Intel appears to have managed to turn a disastrous product introduction into one of its most successful chips. A technical error in a companion chipset to the company’s long-awaited Sandy Bridge processor led the company to quickly issue a recall, fix those chips and then to reissue the product. The problem, Intel executives said, did not hurt Intel’s bottom line.

“Early demand has been outstanding,” said Paul S. Otellini, Intel’s chief executive, in a conference call with analysts.

Quarterly profit rose 29 percent to $3.16 billion, or 56 cents a share, up from a profit of $2.44 billion, or 43 cents a share, in the first quarter last year. Revenue for the quarter was $12.8 billion, up 25 percent from $10.3 billion a year ago. Revenue in Intel’s data center group grew 32 percent.

The report beat Wall Street’s forecasts handily. Analysts surveyed by Thomson Reuters had forecast revenue of $11.6 billion and earnings of 46 cents a share for the quarter. Intel’s profit margin was 61 percent for the quarter, in line with expectations.

Intel forecast second-quarter revenue of $12.5 billion to $13.3 billion.

The company announced the results after the close of the markets on Tuesday. Shares of Intel rose almost 5 percent in after-hours trading, after closing up 24 cents at $19.86.

With the PC industry facing mounting pressure from low-price tablet computers and smartphones, Intel executives said that the company planned to pursue both those areas. “We remain committed to success in the smartphone market,” Mr. Otellini said.

Kevin Cassidy, an analyst with Stifel Nicolaus, said the strong results showed that smaller devices had not hurt PC demand as much as some might have thought. “It shows there’s still a need for PCs in the world,” he said.

During the quarter, Intel closed on the acquisitions of Infineon Wireless Solutions and McAfee. The combination of both acquisitions contributed revenue of $496 million. Mr. Otellini told analysts that the earthquake and tsunami in Japan had closed its offices in the area but that Intel’s supply chain was not seriously affected.

Intel’s results come amid concerns about the overall health of the PC market. Just last week, the research company IDC released a report saying that the global PC market declined 3.2 percent during the first quarter, the first major contraction since the economic recession began. The company originally predicted quarterly growth of 1.5 percent over last year.

In explaining its gloomier view, the report pointed to rising fuel and commodity prices, combined with supply constraints caused by the recent earthquake and tsunami in Japan.

The Intel executives assured analysts that the company was not experiencing such a contraction, but rather the opposite, particularly in emerging markets. However, demand in the United States market remained soft, the executives said.

In the fourth quarter, Mr. Otellini said that he expected Intel’s revenue to grow about 10 percent for the full year. But in January, company executives said growth would probably be in the mid- to high teens. On Tuesday, Mr. Otellini adjusted that forecast yet again, projecting revenue growth of more than 20 percent.

“All of our product segments are growing,” Mr. Otellini said. “Over all, we are beginning 2011 with great momentum.”

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