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Consumers Trade Down – US-FOREX.US

Forex-Publisher — Thu, 13 Aug 2009 20:46:05 +0000

Cash-strapped consumers are looking to get the most bang for their buck, forcing retailers to adapt to new spending habits, says Claire Gruppo, co-founder and managing director of investment bank and M&A firm Gruppo, Levey.”People aren’t comfortable paying for brands or an experience if they don’t feel it’s worth it,” Gruppo said, “and the trend we’re seeing across most brands is consumers seem to be trading down for ticket prices.” Americans have become more careful with their money, but the key to their behavior isn’t price, but value. For example, instead of buying a 20 t-shirt at Ann Taylor
, consumers will purchase it for 5 at Wal-Mart
or Kohl’s
. They’re still buying a t-shirt, but not at 20.The environment is very difficult. Instead of rising 0.7% as expected, on Thursday, the U.S. Commerce Department reported retail sales fell by 0.1% in July, and would have dropped by 0.6% if it were not the government’s “clash for clunker” program. Department store stales sunk 1.6%, while broader general merchandise stores, which includes mega-retailers like Target
, saw sales decrease 0.8%. The data reinforces the thesis held by many on Wall Street that business, rather than consumers, will lead the economic recovery.To navigate this trend, some retailers have become more careful in managing their inventory, by reducing product lines and offering fewer items within a line. The strategy is simple: offer the consumers what they’ll actually purchase. This way businesses are better able to streamline inventory and not tie upa lot of capital in items that aren’t going to move. The trick is to reduce inventories without shoppers thinking that they have fewer choices.”Good retailers are thinking not so much about discounting as much as adding items of lines of merchandise at different price points that they’re not going to have to sell at 50% off retail,” Gruppo said. “They’re starting different offerings at lower price points.”Gruppo highlighted Macy’s
recent performance as an example of this approach. “They beat expectations and raised their forecast for the year,” Gruppo said. “The brand has always been known for good value at department stores, and it’s the first piece of good news from something other than a big-box discounter.”
Gruppo expects retailers to operate in this fashion until consumer spending begins to turn around. “Until unemployment and lack of credit ease more than what we’ve seen this will be what the retail landscape will look like,” Gruppo said. The businesses that will have an edge through the end of the year will be the ones that offer lower prices but with strong value, Gruppo added.

The Euro Strikes Back – US-FOREX.US

Forex-Publisher — Thu, 13 Aug 2009 18:46:06 +0000

The euro-zone has hit back at the dollar’s recent gains with the out-of-left-field announcement that its economy barely contracted between April and June.On Thursday the 16-member euro zone reported its gross domestic product fell by only 0.1% during the second quarter, a significant improvement from the 2.5% drop it recorded in the first. The news was a shot in the arm to euro-boosters, who were set back after Friday’s U.S. labor report indicated economic improvement in America is free of inflation pressure, despite massive liquidity injections by the Federal Reserve and Treasury. Yet, more than the broader euro zone’s surprisingly strong quarter, the euro reached a one-week high against the greenback, 1.43, because its largest economies, France and Germany, managed to actually grow in the second quarter. The British pound meanwhile exchanged hands at 1.68, in midday trading. PowerShares DB US Dollar Index Bullish
fell 0.6%, or 14 cents, to 23.33, while PowerShares DB US Dollar Index Bearish
rose 0.6%, or 15 cents, to 27.37.The pro-euro argument has been that its central bank’s relative temperance in stimulating its recovery will benefit in the long-term by preventing inflation. The argument stands against Britain and the United States, who have injected massive amounts of stimulus cash into their economies in the hopes it will man-handle their nations’ dark economic forces into submission. The English-speaking measures have raised inflationary concerns throughout the financial world. The U.S. Federal Reserve has rejected these arguments by contending that the economic recovery in the U.S. will be too slow to spark inflation, and that the excess capacity in the States will be able to absorb the growth. In addition to Europe’s good news, the dollar was hampered by disappointing jobs and retail data, both of which indicated continued consumer prudence. “Retail sales were miserable once again in July,” said Mike Feroli, a senior economist at JPMorgan Chase. Total sales only fell 0.1%, but the figure was spurred by the government’s “cash for clunkers” program. When auto sales are excluded, sales decline 0.6%. The data comes one day after the Federal Open Market Committee said economic activity is leveling out, though it promised to keep policy at historic lows, while employing all necessary means to support the recovery process.
The weak economic news lowered the Japanese Yen to 95.27, and dragged the yield on the benchmark 10-year U.S. Treasury note to 3.67%, from 3.71%. Meanwhile, the iShares Barclays 10-20 Year Treasury Bond
exchange-traded fund, which follows long-dated Treasuries, rose 0.4%, or 43 cents, to 107.62, and the iShares Barclays 1-3 Year Treasury Bond
ETF gained 0.1%, or 5 cents, to 83.52.

Auf Wiedersehen Recession – US-FOREX.US

Forex-Publisher — Thu, 13 Aug 2009 11:46:27 +0000

It seems like exceptionally good news. Germany, Europe’s biggest economy, has just confounded expectations and emerged from its recession, thanks to reporting a quarter-on-quarter growth rate of 0.3% for the second quarter, instead of the contraction of 0.2% that was expected. A margin of five basis points is quite a difference-but don’t get too excited. The real reason Germany’s economy was able to post growth was that its government has been doing everything it can to stimulate domestic demand. Germany is one of the world’s biggest exporters-think cars, chemicals and engineering services-and with the collapse of global consumer demand for goods, the state has enacted policies to keep its citizens buying things. There’s been the success of Germany’s car scrapping program, which vastly outweighs America’s “cash for clunkers” program in scale and effect-it boosted new car registrations to 3.5 million in 2008, up from 3.1 million the year before. And there’s also Germany’s short-term work program, through which the state subsidizes companies’ wages so that they don’t have to fire workers. This has cushioned German unemployment, so that at 8.3%, it trails the rate of unemployment for the euro zone, which is at 9.5%. But the German government can’t forever subsidize the labor market and car industry. Germany’s Federal Statistics said that it was only able to report growth because price-adjusted imports declined far more sharply than exports, tipping the balance in favor of exports. While this is a good start, the country needs the United States and the rest of Europe to pick up steam and start buying its cars, chemicals and engineering services, in order to keep that growth sustained. There are risks to the country’s economy if it doesn’t. Bank lending in Germany is still woefully low. Ernst & Young said earlier this week that 37% of the medium-sized German businesses it had surveyed said financing through their principal bankers had become more difficult. That’s up from 14% in January. Germany’s liquidity problem will have wider implications once the government’s stimulants run their course, which means economic growth in the next two quarters won’t be anything to cheer about either.

France Out Of Recession Into Uncertainty – US-FOREX.US

Forex-Publisher — Thu, 13 Aug 2009 10:46:28 +0000

U.S. Senator Jim Bunning famously thought he had “woken up in France” when the United States government took control of mortgage finance lenders Fannie Mae and Freddie Mac last year. On Thursday, waking up in France didn’t seem like such a bad idea: The home of fine wines and luxury goods reported a surprise exit from recession, posting 0.3% growth in the second quarter, boosted by government stimulus spending and exports.Neighboring Britain and even the United States might look on enviously, given that their recession-wracked economies shrank in the second quarter, but France shouldn’t party too hard either. Government spending and the humble consumer were the main motors of growth in the second quarter, and their future is hardly secure: President Nicolas Sarkozy’s stimulus package won’t last forever, while rising oil prices and the strength of the euro relative to other currencies may end up keeping French shoppers in check.”France must not let its guard down for the coming quarters,” said Marc Touati, a Paris-based economist with Global Equities. “Though there should be gross domestic product growth in the next quarter as well, the recovery could be limited.”The euro rose against the dollar, to 1.4248, from 1.4185, and also against the Japanese yen, to 137.325 yen, from 137.250 yen. The 16-nation euro zone shrank less than expected in the second quarter, by 0.1%.Bank of America economist Matthew Sharratt said that France’s return to growth-along with Germany’s, which also exited recession in the second quarter-was symptomatic of the wider global stabilization in demand and the inventory re-stocking process. He said that even though pressures on the consumer would still exist going forward, the financial health of euro-zone households was much better than it was in countries like Britain.”There are no big adjustments that need to be made on the household side in the euro zone, outside of Spain and Ireland,” said Sharratt. “Debt levels are around the 40%-60% of GDP threshold, while in Britain they are at 100%. And if you look at savings rates, they are much higher [in the euro zone], in the 10%-12% [of disposable household income] range.”
The French economy also saw a surprise trade surplus in the second quarter, with exports up 1%-after a first-quarter plunge of 7.1%-while imports were down 2.3%. The euro’s strength will likely put the brakes on such a trend, according to Touati, which was in itself unusual for France’s domestically-driven economy. France’s customs department said that French aerospace exports performed strongly in May, while automobile and refined petroleum exports did well in June.

Exports Rise But Trade Deficit Widens – US-FOREX.US

Forex-Publisher — Wed, 12 Aug 2009 17:47:00 +0000

U.S. exports are on the rebound, but rising oil prices widened the trade deficit in June.”The global business cycle is in a state of repair and that involves trade building itself back up, even if it means a modest widening of the deficit,” said Steven Wieting, chief U.S. economist at Citigroup. The trade deficit widened in June to negative 27 billion, from negative 26 billion in May, due to rising oil prices lifting imports for the first time in nearly a year, according to the Commerce Department. Meanwhile, despite the increase in the nominal deficit, real balance of goods tightened to negative 35.6 billion, from 36.3 billion, maintaining a trend that began in 2006.Exports increased 2.0% June, after a 1.6% increase in May. The jump kept the deficit from stretching to negative 28.5 billion, which Wall Street had expected, and was led by foreign demand for industrial supplies and materials, and capital goods. This is good news for the economy, which has seen that metric drag over the past year. “The rise in exports – the second straight monthly increase – can be viewed as a positive comment on the beginning recovery in world trade,” said Vincent Farrell chief investment officer of Soleil Securities in a note to clients Wednesday.Export growth was outmatched by the 2.3% rise in imports, as petro imports increased by nearly a quarter during June, yet about three-fourths of the jump was due to higher prices. The cost of energy dropped in July though, which will probably lead to a decline in imports during the month. Since January, the Energy Select Sector SPDR
exchange-traded fund rose 6.6%.Growth in activity in both directions is indicative of a rebound in global trade, though Wieting noted that the trade sector had recently ground to a halt. Global trade is strikingly short of what it was even a year ago. For example, the trade gap for the first half 2009 totaled nearly 173 billion, which is more than 50% lower than last year’s corresponding period. At the current pace, the U.S. trade deficit for the entirety of 2009 will be the lowest since 265 billion in 1999.
Abiel Reinhart, an economist at JPMorgan Chase, expects exports to continue to grow in the months ahead as global economic activity turns positive, adding that non-petroleum imports should also rebound soon because of rising domestic demand. It’s difficult to see domestic demand go anywhere but up, as imports of consumer products fell to the lowest since November 2005.

Chinas Recession Isnt Over July Statistics Show – US-FOREX.US

Forex-Publisher — Tue, 11 Aug 2009 06:46:20 +0000

TOKYO -
The green shoots that some economists see peeking up through the recession may not be bamboo just yet. China’s economy continues to suffer, a raft of economic figures released for July reveal, but Beijing’s enormous 585 billion stimulus program seems to be catalyzing spending at home. “With the global recovery unlikely to be smooth, domestic demand is likely to remain the primary engine of growth in the remainder of 2009,” Jing Ulrich, the chairman of China equities at Morgan Stanley, wrote in a research note. China’s explosive growth, as in much of Asia, has been a story about exports. But with the recession making it harder for Chinese companies to sell their goods to cash-strapped foreign buyers, the central government needed to pump money back into the economy to encourage both consumers and Chinese companies to spend more.As a result, fixed asset investment levels increased 32.9% in July as infrastructure projects boomed. The effort to boost spending continues: Ulrich noted that the country’s Vice Minister of Commerce recently said China might slash duties on luxury goods, which could lure spending away from duty-free meccas like Hong Kong.
July’s results show a mixed scorecard for the Chinese economy.
Industrial production, the engine of the country’s growth, has risen 10.8% so far in 2009, which set a nine-month record but came in below analysts’ estimates. Monthly exports also rose in July, although they remained 23% below last year’s levels. Although both the consumer and producer price indices declined in July for the sixth and eighth straight month respectively, economists are worried more about inflation than deflation as the recovery ramps up. The market for A-shares is up 95% this year and housing prices are climbing again. Steel prices have been rising since October and are expected to continue to rise over the next two months, while retail sales have risen 15.2% so far this year.
Reuters contributed reporting to this article.

All Quiet On The FOMC Front – US-FOREX.US

Forex-Publisher — Mon, 10 Aug 2009 19:46:26 +0000

Economic improvement, nonthreatening inflation and successful quantitative easing projects should make for an uneventful Federal Open Market Committee meeting on Tuesday and Wednesday.On Tuesday, the branch of the Fed that determines policy will meet for the sixth time this year to assess the effect of its initiatives and map out the future. The central bank has taken bold action to prop up the financial system, such as its purchase of U.S. Treasuries. “At this point everything seems to be working, which makes for a boring meeting, but at this point boring is good,” said Kurt Karl, chief U.S. economist at Swiss Re. In other words, the FOMC will probably maintain its “steady-as-she-goes” attitude, leaving the federal funds rate in place. Furthermore, if recent official commentary provides any indication, the FOMC will argue that the massive swelling of the central bank’s balance sheet is not inflationary, and that the economic recovery will be slow by historic standards.The meeting follows a week of positive data from the housing market, as pending home sales rose to their highest level in two years, while residential construction also moved upward. “We now expect residential investment to add to GDP growth in the third quarter for the first time since late-2005,” said Michelle Meyer, a U.S. economist at Barclays Capital.The job market also appears to be improving, though problems remain. On Friday, the Labor Department reported 247,000 Americans lost their jobs in July. Surprisingly, though, the unemployment rate fell to 9.4%, rather than jump to 9.7%, as had been expected. The news sent stocks soaring, but the declining level was spurred by a 422,000 drop in the labor force, pulling the participation rate down by 0.2%. Mike Feroli, senior economist at JPMorgan Chase, said that while the 0.4% point decline in the participation rate over the past two months helped contain the unemployment rate, it has only reversed the 0.4%increase made in March and April. The conclusion: Participation is now back to where it was at the beginning of the year. Nonetheless, Friday’s report, along with other labor data, marked a favorable shift of momentum in the labor market, and included a number of encouraging indicators that the pace of the economic decline is slowing. The labor market is a significant variable in the recovery and the unemployment rate expected to peak sometime next year. A major concern though isn’t how high unemployment figures get, but how long they will stay elevated. Extended joblessness has left many Americans without options as unemployment benefits become exhausted.
The weak labor market has already pressured credit card companies such as American Express
and Capital One Financial
, which have had to contend with late payments. Other financial institutions such as JPMorgan
, Citigroup
and Wells Fargo
have also been faced with rising delinquency levels. The Fed recently released its latest Beige Book, an anecdotal survey of its 12 regions from June through July 20, which found the recession to be less severe. Fed chairman Ben Bernanke has also taken a more confident, proactive approach in his leadership role, epitomized by his recent town-hall-style meeting, broadcast over three nights on public television.

Reality Check From The Bank Of – US-FOREX.US

Forex-Publisher — Thu, 06 Aug 2009 12:46:13 +0000

Britain has recently been reveling in positive economic data that gave the impression its economy was suddenly and inexplicably on the mend. But the Bank of England smartly put a stop to all that on Thursday. The British central bank is expanding its quantitative easing program by a larger-than-expected 50 billion pounds , to further increase the amount of money it is putting into the economy. In doing so, it has raised its quantitative easing target to 175 billion pounds from the 150 billion pound limit authorized by the Treasury in March.Judging by public letters between the Chancellor and the Bank of England and minutes from the Bank of England’s monetary policy committee, the 175 billion-pound figure seems to have been discussed as recently as the committee’s meeting on Thursday.
Its decision took the market by surprise: the pound sank to 1.684 from 1.699, soon after the announcement.But far from being a gloomy omen, some think the move is a healthy dose of reality for the market. “It’s brilliant, inspired and sensible,” said David Buik of BGC Capital Markets. “I’m so pleased they made it up to 50 billion-pound mark. All this euphoric stuff over recent economic data is just nonsense.”
Buik also thinks it ridiculous that sterling recently reached 1.70 after a series of positive economic indicators. They included data from mortgage lender Halifax that showed house prices in Britain had risen by 1.1% in July. Then the Chartered Institute for Purchasing and Supply said earlier this week that Britain’s services sector had grown at its fastest rate in nearly a year-and-a-half in July. Industrial and manufacturing production numbers released this week were also better than expected.
Britain’s FTSE 100, which has risen by 12% in the last month, was up 1.3% at 4,708 points after the decision. British bonds were also resilient: yields across the board were up on Thursday afternoon. “I think it sends a very clear message to the market that we are far, far from the end game in restoring free-flow liquidity for lending in the U.K. market,” said Manus Cranny, senior analyst at MF Global Spreads. “The reality over where we are at with defaults in consumer credit and mortgage lending is a lot more painful than the market seems to have provided for this week.” Economists and market participants in Britain had been at odds over whether the Bank of England should or shouldn’t increase its asset purchase program, in which it aims to increase the amount of money in the British economy by buying assets like Government and corporate bonds. The British Chamber of Commerce and the Institute of Economic Affairs’ Shadow Monetary Policy Committee were in favor of a 25 billion pound increase, while the Times Monetary Policy Committee opposed any change.The Bank of England had surprised the market in July when it decided to keep its assets purchase program on hold. With interest rates at minimal levels, the role of central banks has been shifting from that of controlling the cost of borrowing, to keeping liquidity flowing between banks to help revive the economy.

Fresh Writedowns For SocGen – US-FOREX.US

Forex-Publisher — Wed, 05 Aug 2009 10:46:19 +0000

Can nothing dent confidence in the banking sector? French lender Societe Generale, in stark contrast to rival BNP Paribas, said on Wednesday its second-quarter profits had halved over the year, thanks to pre-announced losses on credit default swaps and derivatives. But the balance was tipped in favor of strong investment banking results, continuing the industry trend, and shares rose as a result.Shares of Societe Generale
were up 6.5%, or 3.01 euros , to 49.32 euros , during morning trading in Paris. BNP Paribas
gained only 0.4%, to 52.92 euros ; its stock is down only 15% over the year, compared with a 26% drop at SocGen. SocGen’s investment-banking revenues nearly doubled over the year, to 1.3 billion euros , though the division reported a loss for the quarter. The bank said that low interest rates and a return to normality in financial markets had boosted the top line, while mark-to-market valuations had hurt credit default swaps taken against corporate bonds, as well as SocGen’s own credit spreads, weighing on the bottom line.Chief Executive Frederic Oudea, who took over from his embattled predecessor Daniel Bouton last year, said the investment banking performance had been “excellent” despite the negative “accounting” writedowns totaling 1.3 billion euros . SocGen is clearly becoming a less risky proposition: The bank sold 3 billion euros worth of assets in the quarter, and provisions on loans were down 20% from the first quarter.SocGen reported a 52% drop in net profit, to 309 million euros , but this was better than expectations of slightly above break-even. “In corporate and investment banking, the underlying performance was at or near a record level in all three businesses, fixed income, equities and financing,” said Guillaume Tiberghien, an analyst with Credit Suisse. He noted that the bank’s asset management division was slightly less impressive, with outflows of 3 billion euros and flat growth in assets under management.
Markets to the east like Russia, where Societe Generale has taken extra steps to penetrate, struck a more subdued note. SocGen said the cost of risk in Russia had shot up to 5.6% in the quarter, from 2.2% at the end of 2008, and that the bank had accelerated integration and restructuring as a result.

Savings And Income Decline – US-FOREX.US

Forex-Publisher — Tue, 04 Aug 2009 21:46:11 +0000

Americans are strapped for cash, as personal income flattened in June while gas prices rose, further tightening the grip many individuals and families feel from mortgage payments, credit card bills and a weak labor market.The lift in May income from the one-time Social Security stimulus payments has long past and personal income fell to 1.3% in June. Income growth was also stymied by labor compensation, which itself fell 0.3%. Personal income dropped 1.8% accounting for inflation and taxes. An increasing amount of Americans have been running out of options, as jobless benefits become exhausted. Much of the personal income data were already included in Friday’s second-quarter gross domestic product report, but Tuesday’s release sheds more light on the monthly pattern of spending and income. Consumer spending, when excluding the affects of inflation, fell 0.1% in June. Nominal consumer spending though rose 0.4%, a little stronger than expectations, yet much of the bump was due to higher gas prices.Weak spending has touched every aspect of the U.S. economy, and will continue to do so as it slowly recovers, and major firms from Walt Disney
to Alcoa
to American Express
have all had to contend with weak demand.Personal savings also dropped to 4.6% in June, from 6.2% in May, due to the combination of weaker income, as well as higher nominal spending. Most analysts have forecast a long-term rise in personal savings in the U.S. as well as depressed consumption and slower growth because of it. But the June drop suggests that absent government stimulus money, the American consumer really can’t save much more and that the rise in savings rates might be less a sign of a new thriftiness than it is a short-term tendency to hoard anything extra that comes in.”The monthly up-and-down pattern in the saving rate over the course of the second quarter reflects nothing more than consumer smoothing through transitory income fluctuations-in this case, due to the one-time stimulus payments,” said Mike Feroli, senior economist at JPMorgan Chase.
The Personal Consumption Expenditure price index rose 0.5% in June, again due to higher gas prices. Excluding food and energy, the index increased 0.2%, and only 1.5% on a year-to-year basis.