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High Hopes For Metals – US-FOREX.US

Forex-Publisher — Thu, 20 Aug 2009 03:14:24 +0000

While recent pullbacks across raw materials may stoke fears of the bubble bursting, commodities bulls are undeterred. Inventories, after all, are extremely low and will have to be replenished once demand improves. Until then, volatility is just part of the game.Fears that China’s inventory build is over and that the economic recovery won’t be as robust may pressure prices of industrial metals in the near-term, but the sector’s long-term growth prospects remain promising. Thus far, China has been a main driver behind metals price growth but, according to Barclays Capital analyst Kevin Norrish, “the potential still exists for a significant boost to global metals consumption over the coming months as the industrialized work manufacturing sector recovers from double-digit declines registered in the first half of 2009.”The firm hiked its price forecasts for the metals on Wednesday, citing expectations for demand among developed countries that will be swifter than the market is anticipating. “We expect metal inventories to be rundown through the second half of 2009 with the recovery in OECD demand likely to be sharp and strong,” said analyst Gayle Berry. On Wednesday, the Materials SPDR
exchange-traded fund closed ahead by 35 cents, or 1.2%, at 29.44; and the SPDR S&P Metals and Mining
ETF closed up by 22 cents, or 0.6%, at 40.17. Year-to-date, the funds have gained nearly 30% and 45%, respectively.

Spains Pains – US-FOREX.US

Forex-Publisher — Fri, 14 Aug 2009 23:50:32 +0000

Pity Spain. While stimulus packages offered by the German and French governments quickly helped lift those nations out of recession in the past quarter, Spain had no such luck, and shrank by a more-than-expected 1% quarter-on quarter, its National Statistics Institute said Friday.It also doesn’t look like the situation will pick up any time soon. “We are likely to see a few more quarters of negative growth into late next year,” said Dominic Bryant, an economist at BNP Paribas in London. “Spain will under-perform France, Germany and even Britain.” The International Monetary Fund predicts that Germany’s economy will contract by 6.2% this year, versus Spain’s 4%, but the Germans have been helped by a combination of various stimulus measures offered by Angela Merkel’s government, such as a car scrapping scheme, and short-term state subsidies of wages.
What France – which had been forecast to shrink 3% by the IMF – has going for it is a more diversified economy – its domestic demand isn’t as weak as Germany’s is so it’s less vulnerable. Spain’s trouble is that its companies and residents are going to have be weaned off the massive lending spree they’ve been living off which will make a recovery more protracted and more painful. Household debt levels have traditionally been in the region of 90% of gross domestic product, compared to a 55% to 60% average for the euro zone excluding Spain, according BNP Paribas estimates. While the credit crisis has forced the population to move from being net borrowers to net savers, its corporate sector is still grappling with its dependence on debt. “Banks that were willing to lend to these companies during the boom years are no longer willing to lend or when it comes to renewing loans don’t extend it, or give a smaller amount or a higher rate of interest,” says Bryant.Spain’s massive corporate sector troubles have forced many companies to lay off workers – in June, the unemployment rate rose to a staggering 17.9%, triggering the government to approve a special payment program whereby 340,000 jobless would be eligible for a monthly payment.At least, things don’t seem to be getting worse: in the first quarter of the year the economy shrank by 1.9%.
One upside for Spain: unlike countries such as Britain, Switzerland, Germany and France, which have had to spend billions on supporting banks such as Royal Bank of Scotland
and UBS
, the regulatory system that Spain has had in place for many years has meant that despite the huge increase in bad loans on both the corporate and consumer side, Banco Santander
and BBVA
- the country’s two largest banks – won’t need any state support. Under Spain’s nifty system they had to put extra money aside in the good times to prepare for dark days like these.

Retailers Cant Wait For School – US-FOREX.US

Forex-Publisher — Thu, 13 Aug 2009 20:46:10 +0000

American shoppers can’t decide if they’re ready to spend again or should hold off on that new plasma screen in case they lose their job, their home or their life savings. Big retailers also can’t decide. They posted better July sales figures than some had expected but a mixed batch of second-quarter earnings. Today the Commerce Department said July retail sales fell a tenth of a percent in July when economists had been expecting a gain of 0.7%. Excluding cars and gas the numbers look even worse, a drop of 0.6% last month. .With that in mind, investors are eyeing the fall shopping season, which for many chains actually means the end of summer, to tell them whether the recession is ending. Analyst Deborah Weinswig at Citigroup
points out a few factors that could boost back-to-school sales for stores but says the season is likely to be a challenging one for many firms as shoppers cut back on more expensive “wants” in favor of cheaper “needs.”Helping out is a later Labor Day this year, the latest in ten years, which means many schools start later, too. That will extend the school shopping season a bit and many states have shifted their annual sales tax holidays to August, too, lending an added incentive for people to hit the mall. The tax holidays could add 1.5% to 2.5% to August sales, Weinswig estimates. .Also favoring your local Target
, Costco
or J.C. Penney
, is a lower price for gas than last year, adding 140 billion to consumers’ wallets, says the Citigroup analyst. Similarly, as oil plummeted from last year’s high, so have other commodities. The global downturn has taken a bite out of prices for everything from crops to metals and that is translating into lower wholesale costs for stores. With merchandise costing them 5% less than last year, some firms will have the option of passing those savings on to consumers if their sales are weak. If sales are strong, they’ll get to pocket the difference for their bottom lines.But stores can’t ignore the recession and its effects on American spending. Citigroup found that nearly half of shoppers plan to spend less this back-to-school season than they did last year. Many families will be buying only what they think they need, cutting back on discretionary items, says Weinswig. For August and September, Weinswig estimates a sales decline of between 3% and 4% compared to last year. That’s more optimistic, she notes, than colleagues at the National Retail Federation . .For her money, Weinswig likes department store J.C. Penney, although she rates it a high-risk investment. Penney is cutting back on opening new stores during the recession but has the right mix of merchandise and advertising for the long-term, even though the near-future could be painful, she says.
Also a buy, but with less risk, is CVS Caremark, the pharmacy chain that now manages prescription benefits, too. The firm has acquired rivals and invested in new ideas like drop-in clinics that should help it dominate its industry.

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.

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.

Euro Losing Friends – US-FOREX.US

Forex-Publisher — Tue, 11 Aug 2009 21:46:25 +0000

The Euro is losing its friends, said Andrew Wilkinson, a senior market analyst at Interactive Brokers Group, and could fall as low as 1.33 by the end of the summer.The argument for the euro has centered on the Eurozone’s tempered measures in stimulating its economy, at least compared Britain and the United States. Many on Wall Street and in other financial capitals have been concerned that the massive sums of liquidity injected into the U.S. economic recovery will eventually lead to inflation. But Friday’s labor report indicated that the economy was recovering, while inflation is far from a threat. Naturally, the Federal Reserve has argued that inflation is not a risk, saying that there is enough excess capacity to absorb the government’s massive injections. Furthermore, a number of Fed officials have also said the economy’s slow recovery blunts inflationary threats. So far that position has proven valid. U.S. interest rate futures dropped last week after Friday’s labor report as market begun wondering when the Fed might start to raise policy. Sensibly, the market has since pulled back, but the move was indicative of the optimism that exists below the surface. On Tuesday the euro was worth 1.42, while the pound went for 1.65. The PowerShares DB U.S. Dollar Index Bullish
rose 2 cents to 23.58.The British pound continues to fall against the greenback on account of economic concerns, while China’s position as the global economy’s engine hasn’t panned out as well as expected. The US Treasury auctioned 37 billion in 3-year Treasury bonds on Tuesday and investors happily bought the short duration debt. Auctions of 7 and 10 years bonds have also gone well recently. An undersubscribed Treasury auction remains the dollar’s biggest threat. So far, the world’s appetite for U.S. debt remains.
Still the long-term risks to the dollar remain, especially as the global economy recovers. Any serious uptick in commodities demand will favor metal, oil and gas exporting countries.

Profit Potential – US-FOREX.US

Forex-Publisher — Tue, 11 Aug 2009 16:46:18 +0000

A surge in earnings among S&P 500 companies may keep the stock rally going into the fall. That’s what economist Steven Wieting of Citigroup believes could happen as industrial companies ramp up production to meet a rebound in demand. The S&P 500 is up 15% in the last four weeks and nearly 50% from its March low point. Much of that increase has come from a stabilization in the credit markets following the financial crisis, writes Wieting. Earnings season and accompanying data on unemployment and economic growth have also led many investors to conclude the worst of the recession is in the past. That still leaves most of them wondering how long a recovery will take and how fast corporations can get back to selling, and earning, what they were before the financial crisis.For the largest U.S. firms, says Wieting, a recovery in profits is now likely to come this year or next, rather than dragging on as some have speculated. He recently raised his estimates of what the S&P 500 companies will earn this year to 60 a share from 56. Next year they should turn a per-share profit of 68, up from his prior forecast of 62. Certain industries, like energy and information technology, could see even faster growth.Behind the rebound Wieting sees an industrial economy that cut too far, too fast, as the credit crisis turned into an all-out global recession. “Production declines were far more profound than the consumer downturn,” he says. So while demand for goods was coming back last quarter, production rates and capital expenditures were plummeting. In other words, companies were making fewer widgets than they were selling. Wieting points to the auto industry as an example. At the end of June, U.S. car companies were making one new car for every two being sold as managers slashed production ahead of falling sales. Now that GM and Chrysler have declared bankruptcy and moved to reorganizing, companies are planning to boost vehicle manufacturing by half this quarter. That will still leave them making fewer cars than are being sold, Wieting predicts.So how should investors react? Wieting notes that economic conditions are still dire in many ways. Unemployment is high, sales are way down and the financial system could still relapse into a volatile mess. Wieting thinks profits are coming back soon, and so he’s lowered the index’s earnings growth rate over the next four years to 10% from 12%.
The markets will likely get more clues on the economy’s direction when the Federal Reserve ends its two-day policy meeting on Wednesday. Don’t expect a change in interest rates, but investors will be interested to know if the Fed’s economists share Wieting’s views on a quick profit rebound.
Thomson Reuters contributed to this report.

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.

July Job Cuts Expected To Wane – US-FOREX.US

Forex-Publisher — Thu, 06 Aug 2009 18:46:12 +0000

Wall Street may be encouraged by the waning level of job losses on Friday, but it will mean little to Americans stuck in unemployment lines and struggling to make ends meet.On Friday, the U.S. Labor Department is expected to announce that the national unemployment rate rose to 9.7% in July, as 300,000 Americans lost their jobs. Though large, the reading would be below June’s drop of 467,000. Dean Maki, chief U.S. economist at Barclays Capital, expects nonfarm payrolls to fall by 275,000 in July, which would mark the weakest contraction since August of 2008. Maki’s view is held by fellow economist Abiel Reinhart of JPMorgan Chase, who also expects payrolls to fall by 275,000.No matter what the figure ultimately is, it will be seen only as another jobless increase by the general public. Not only is unemployment at its highest level since the early 1980s, but also Americans have been out of work for the longest amount of time since 1948, when the government began keeping track. The average length of unemployment in June was 24.5 weeks, while 29% of the unemployed had been out of a job for 27 weeks or more. In a recent interview, Christian Weller, a senior fellow at the Center for American Progress and associate professor of public policy at the University of Massachusetts, Boston, argued that the current labor market is not comparable to that of the early 1980s because of the length of time it has taken to find a new jobs. Furthermore, the unemployment rate itself does not account for those working part-time jobs who would rather have full-time work.Prolonged unemployment has become a pressing problem for Americans, and policymakers, as an increasing number of individuals and families exhaust their jobless benefits, leaving them without the means to pay their mortgages, credit card bills, and food, not to mention the normal discretionary items that spur economic growth. Stagnated unemployment is also expected stymie the current recovery effort, as the U.S. economy loses the power of its vaunted consumer. Consumer weakness was exhibited in July weak retail sales. Forced to focus on the necessities, venders reported results slightly below expectations, pressuring shares of Wal-Mart Stores
, Costco Wholesale
, and Target
. The SPDR S&P Retail
exchange-traded fund on the other hand actually rose 0.8% in midday trading.
The only measure of solace Americans can take is that the intensity of payroll cuts have shown signs of waning. On Thursday the Labor Department reported individuals applying for jobless benefits for the first time fell to 550,000 for the week ending Aug. 1, down from an upwardly revised figure of 588,000 in the previous week. Furthermore, initial jobless claims declined an average of 57,000 from June to July, though partly owing to seasonal distortions. Friday’s employment report follows one delivered Wednesday by ADP Employer Services, which found the U.S. private sector terminated 371,000 positions in July. The finding was well below June’s revised 463,000 reading, but slightly ahead of the 345,000 fall analysts had expected. The data were developed with Macroeconomic Advisers.To be sure, problems remain. Global outplacement consultancy Challenger, Gray & Christmas, said planned layoffs at U.S. firms increased in July for the first time in six months to 97,373, and more than 30% from June when it had hit a 15-month low. Meanwhile, of people continuing to claim benefits rose last week by 69,000 to 6.3 million, after dropping for three straight weeks.

Pink Slips On The Wane – US-FOREX.US

Forex-Publisher — Wed, 05 Aug 2009 21:46:12 +0000

The U.S. economy is doling out fewer and fewer pink slips, as the labor market appears to be on the path of stabilization. Even so, Wall Street and Main Street are still worried that the jobless rate will stagnate and handcuff the recovery.The ADP Employer Services report found the U.S. private sector slashed 371,000 positions in July, well below a revised total of 463,000 in June, but still ahead of the 345,000 drop Wall Street had expected. The data were developed with Macroeconomic Advisers.Wednesday’s reading comes ahead of the “official” report released by the Labor Department on Friday. Wall Street expects job cuts to have reached 300,000 in July, pushing the unemployment rate to 9.7%. Abiel Reinhart, an economist at JPMorgan Chase said he continues to expect a 275,000 drop, even though the ADP reading is significantly greater. Meanwhile, global outplacement consultancy Challenger, Gray & Christmas, said planned layoffs at U.S. firms increased in July for the first time in six months to 97,373, and more than 30% from June when it had hit a 15-month low. The market wasn’t happy with the news. Adding to its problems were consumer stocks, which were hurt after Procter & Gamble
announced its quarterly earnings dropped by nearly a fifth. By midday trading its shares fell 2.8%, while the Consumer Staples Select Sector SPDR
exchange-traded fund slipped 0.7%. Demand for U.S. Treasuries also fell, as the iShares Barclays 10-20 Year Treasury Bond
ETF, which follows long-dated bonds, deccreased 1.1%.Reinhart found that since December, the average miss between first prints from the ADP report, and the unemployment report from the Department of Labor has been 105,000. The ADP’s lack of credibility could be derived, at least in part, from its sample base. “The ADP numbers come primarily from the companies ADP does payroll for, so it’s sort of a self-selecting group,” said David Wyss, chief economist at Standard and Poor’s. “That may be part of the problem, or may just be random noise.” Wyss also noted that the ADP is based on a smaller sample, but it has argued that they’re more balanced because the survey includes more mid-sized companies than the Labor Department.In any case, Wednesday’s release indicates that payroll losses are moderating, as each month has come with fewer and fewer pink slips. “In the last few months most of the moderation in the ADP numbers have come from the goods-producing sectors,” Reinhart noted. Jared Franz, an economist at T. Rowe Price, said the data corroborates the indications from Monday’s ISM manufacturing labor market assessment, as well as Wednesday’s Challenger, Gray & Christmas tally of layoff announcements in manufacturing industries. He expects the Labor Department to report a drop of 300,000 on Friday.
Though the payroll cuts may be waning, both Wall Street and Main Street are worried about the jobless rate will remain high after it stabilizes. Chronic high unemployment will hinder the broader recovery, as individuals and families struggle with jobs, wages, and bills.Separately on Wednesday, the ISM non-manufacturing index slipped to 46.4 in July, from 47.0 in June. Both of these indices are seen as predictors of GDP, and highlight manufacturing will probably be the main cause of an increase in the GDP rises this quarter, Reinhart argued. “In contrast, the non-manufacturing sector still looks more like it will achieve stability,” Reinhart said. Factory orders rose 0.4% in June. The increase was entirely accounted for by higher shipments from petroleum refiners, where price increases lifted the dollar value of shipments, said Mike Feroli, a senior economist at JPMorgan.