Business News
SEC Moves To Rule Out Naked Shorting
WASHINGTON (AP) — Federal regulators on Monday made permanent an emergency rule aimed at reducing abusive short-selling, put in at the height of last fall’s market turmoil.
The Securities and Exchange Commission announced that it took the action on the rule targeting so-called “naked” short-selling, which was due to expire Friday.
Short-sellers bet against a stock. They generally borrow a company’s shares, sell them, and then buy them when the stock falls and return them to the lender — pocketing the difference in price.
“Naked” short-selling occurs when sellers don’t even borrow the shares before selling them, and then look to cover positions sometime after the sale.
The SEC rule includes a requirement that brokers must promptly buy or borrow securities to deliver on a short sale.
At the same time, the SEC has been considering several new approaches to reining in rushes of regular short-selling that also can cause dramatic plunges in stock prices.
Investors and lawmakers have been clamoring for the SEC to put new brakes on trading moves they say worsened the market’s downturn starting last fall. SEC Chairman Mary Schapiro has said she is making the issue a priority.
The five SEC commissioners voted in April to put forward for public comment five alternative short-selling plans. One option is restoring a Depression-era rule that prohibits short sellers from making their trades until a stock ticks at least one penny above its previous trading price. The goal of the so-called uptick rule is to prevent selling sprees that feed upon themselves — actions that battered the stocks of banks and other companies over the last year.
Another approach would ban short-selling for the rest of the trading session in a stock that declines by 10 percent or more.
In addition to making the “naked” short-selling rule permanent, the SEC and its staff are working with major stock exchanges to make data on short-sale transactions and volumes publicly available through the exchanges’ Web sites, the SEC announcement said. It will result in “a substantial increase” over the amount of information currently required, the agency said.
“Today’s actions demonstrate the (SEC’s) determination to address short-selling abuses while at the same time increasing public disclosure of short-selling activities that affect our markets,” Schapiro said in a statement.
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By Patrick Rial and Shani Raja
July 27 (Bloomberg) — Asian stocks rose for a 10th day, driving the MSCI Asia Pacific Index to its longest winning streak since 2004, on confidence a rebound in regional economies will boost earnings.
Nomura Holdings Inc., Japan’s largest brokerage, rose 3.1 percent after the Nikkei newspaper said the company may post its first quarterly profit since 2007. China Mobile Ltd., the world’s No. 1 provider of mobile-phone services by subscribers, climbed 4.2 percent in Hong Kong on speculation it will sell shares on the mainland. Lotte Shopping Co., South Korea’s No. 1 department store operator, jumped 5.8 percent after the nation’s consumer confidence rose to a seven-year high.
“Earnings have come in ahead of expectations and the economic data is quite reasonable,” said Matt Riordan, who helps manage about $3.2 billion at Paradice Investment Management in Sydney. “It’s given people encouragement that we’re moving into a recovery phase.”
The MSCI Asia Pacific Index climbed 1.1 percent to 109.19 as of 7:32 p.m. in Tokyo, the highest level since Sept. 29. An acceleration in China’s economic growth and better-than-expected U.S. earnings have helped drive an 11 percent climb in the past 10 days. That’s the longest winning streak since January 2004.
Japan’s Nikkei 225 Stock Average advanced 1.5 percent, completing a nine-day win streak that was the longest since 1988. Hong Kong’s Hang Seng Index gained 1.4 percent to close above 20,000 for the first time since the September collapse of Lehman Brothers Holdings Inc.
Emergency Measures
Sichuan Expressway Co. tripled in its first day of trading in Shanghai. Hitachi Ltd. rallied 3.4 percent in Tokyo after the Nikkei reported the company will take over five affiliates. Rio Tinto Group, the world’s No. 3 mining company, climbed 3.8 percent in Sydney as nickel and aluminum prices rose.
Futures on the Standard & Poor’s 500 Index added 0.3 percent. The gauge added 0.3 percent on July 24 after Federal Reserve Chairman Ben S. Bernanke said the central bank is “winding down” emergency measures aimed at curbing the financial crisis. Analysts are raising U.S. earnings estimates for the first time since credit markets froze two years ago, data compiled by Bloomberg show.
Stocks on the MSCI Asia Pacific Index are valued at an average 24.5 times estimated net income, the most expensive level since March 31. The gauge has climbed 55 percent from a more than five-year low on March 9 on speculation stimulus policies worldwide will revive the global economy.
Better Than Expected
U.S. companies including Intel Corp. and Apple Inc. this month reported better-then-expected results. Government figures due July 31 may show that the contraction in the U.S. economy narrowed to a 1.5 percent pace in the second quarter, following a 5.5 percent drop in the first three months of 2009, economists surveyed by Bloomberg News predicted.
“We seem to be witnessing a natural recovery, regardless of the stimulus that’s been put in,” said Paradice’s Riordan. “I suspect the recovery will continue.”……
European Markets Move Higher For the 11th Consecutive Day
By Adam Haigh
July 27 (Bloomberg) — European and Asian shares advanced, pushing the MSCI World Index higher for an 11th consecutive day, on speculation corporate profits will improve as the global economic slump eases.
Pearson Plc jumped 9.1 percent as the owner of the Financial Times newspaper reported an increase in first-half earnings. Nomura Holdings Inc., Japan’s largest brokerage, rose 3.1 percent after the Nikkei newspaper said the company may post its first quarterly profit since 2007. BHP Billiton Ltd. led gains among raw-material producers as metals rallied.
The MSCI World added 0.6 percent as of 11:19 a.m. in London, the longest winning streak since June 2003. The gauge of 23 developed nations has rallied 12 percent since July 10 after better-than-expected earnings at companies from Goldman Sachs Group Inc. to Roche Holding AG and Apple Inc. and U.S. Federal Reserve Chairman Ben S. Bernanke said the world’s largest economy is showing “tentative signs of stabilization.”
“We have had much better macro news and we’ve had much better micro news,” said James Bevan, who helps manage $10 billion as chief investment officer of CCLA Investment Management in London. “Companies are coming to the table and saying it’s not nearly as bad as we had expected,” he told Bloomberg Television.
Europe’s Dow Jones Stoxx 600 Index advanced 0.7 percent today. The MSCI Asia Pacific Index rose 1.2 percent as Japan’s Nikkei 225 Stock Average posted the most consecutive daily gains in more than two decades.
U.S. Futures
Futures on the Standard & Poor’s 500 Index added 0.2 percent as Honeywell International Inc., the maker of airplane cockpit equipment and thermostats, posted second-quarter profit of 60 cents a share, matching analysts’ forecasts.
Analysts are raising U.S. earnings estimates for the first time since credit markets froze two years ago. Wall Street firms raised forecasts on S&P 500 companies 896 times in June and lowered 886, according to data compiled by JPMorgan Chase & Co. The last time analysts were bullish on a net basis was in April 2007, before more than $1.5 trillion of bank losses tied to subprime loans spurred the first global recession since World War II, the data show.
U.S. stocks gained on July 24 after Bernanke said the central bank is “winding down” emergency measures aimed at curbing the financial crisis.
Sales of new homes in the U.S. probably climbed in June to the highest level in four months, adding to evidence the housing slump that began in 2005 is stabilizing, economists said ahead of a Commerce Department report due at 10 a.m. in Washington.
German Confidence
German consumer confidence rose for a third month on retreating inflation and signs the economy is starting to recover. GfK AG’s sentiment index for August, based on a survey of about 2,000 people, increased to 3.5 from a revised 3 for July, a 14-month high, the market-research company said today.
The cost of three-month loans in dollars fell to below 0.50 percent for the first time today, according to the British Bankers’ Association. The London interbank offered rate, or Libor, for such loans declined to 0.496 percent, from 0.502 percent on July 24, the BBA said. The Libor-OIS spread, a gauge of banks’ reluctance to lend, was little changed at 31 basis points.
Pearson surged 9.1 percent to 661 pence as it expanded the international education business and reduced reliance on advertising revenue. Net income was 28 million pounds ($46 million), compared with a loss of 62 million pounds a year earlier. Sales rose 22 percent to 2.4 billion pounds.
European Results
More than half of per-share earnings at European companies that have reported results since July 8 beat analyst forecasts, according to Bloomberg data. Profits in the Stoxx 600 fell 31 percent on average in the period, while 41 out of 75 companies have reported better-than-estimated results, the data show.
Japan’s three largest brokerages, Nomura, Daiwa Securities Group Inc. and Nikko Cordial Corp., likely swung to profit last quarter on rising mutual fund sales and underwriting fees, the Nikkei said yesterday. Nomura jumped 3.1 percent to 820 yen. Daiwa rose 4.5 percent to 559 yen. The Nikkei 225 climbed 1.5 percent to 10,088.66, its second-highest close for 2009.
BHP Billiton, the world’s largest mining company, gained 1.5 percent to 1,578 pence. Antofagasta Plc added 3.1 percent to 773 pence. Copper rallied to the highest in almost 10 months in London on speculation demand will rise on a global economic recovery.
Solarworld
Solarworld AG advanced 5.1 percent to 18.30 euros after Germany’s third-largest solar company confirmed its sales outlook for 2009.
Ryanair Holdings Plc slumped 8.5 percent to 3.08 euros after Europe’s largest low-cost airline said full-year earnings will be at the low end of its forecast. The carrier said yields, a measure of ticket prices, will be “significantly lower” in the fiscal second quarter as it reported first-quarter net income of 123 million euros ($175 million), missing a 143 million-euro median estimate of five analysts surveyed by Bloomberg News.
Rexam Plc sank 11 percent to 288.75 pence. The world’s biggest beverage-can maker said it’s considering a sale of shares to help defend its credit rating against a drop to junk.
By ALEX KENNEDY p {margin:12px 0px 0px 0px;}
SINGAPORE (AP) – Oil prices rose above $68 a barrel Monday in Asia as a rally fueled by an improving economic and corporate outlook extended into a third week.Benchmark crude for September delivery was up 52 cents to $68.57 a barrel by late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. On Friday, the contract rose 89 cents to settle at $68.05.
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Oil has rebounded from $58.78 a barrel earlier this month as stronger economic results from the U.S. and China boosted investor optimism.
The Dow Jones industrial average has risen about 11 percent during the last 10 days.
“Oil is completely mirroring equity markets,” said Jonathan Kornafel, Asia director for market maker Hudson Capital Energy in Singapore. “There’s less risk aversion so more investment in commodities.”
Many companies have reported better than expected second quarter company results, bolstering investor sentiment that the worst of a severe global recession is over.
But U.S. gasoline demand so far this summer has remained weak, raising doubts about whether the economy can emerge this year with a strong recovery.
“I think a lot of the green shoots we’ve seen over the last few month have a lot to do with the government stimulus which are eventually going to run out,” Kornafel said. “The fundamentals should definitely have us lower.”
In other Nymex trading, gasoline for August delivery rose 2.01 cents to $1.94 a gallon and heating oil gained 1.86 cents to $1.80. Natural gas for August delivery fell 6.8 cents to $3.63 per 1,000 cubic feet.
In London, Brent prices rose 52 cents to $70.84 a barrel on the ICE Futures exchange.
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By DAVID ENRICH and DAN FITZPATRICK
Lending continues to slow as bankers and borrowers refrain from taking risks, in a bearish sign for the economy.
The total amount of loans held by 15 large U.S. banks shrank by 2.8% in the second quarter, and more than half of the loan volume in April and May came from refinancing mortgages and renewing credit to businesses, not new loans, an analysis by The Wall Street Journal shows.
The numbers underscore two related trends weighing on the economy. Financial institutions are clamping down on lending to conserve capital as a cushion against mounting loan losses. And loan demand is falling as companies shelve expansion plans and consumers trim spending to ride out the recession.
That combination is making it harder for the U.S. economy to rebound, and some analysts predict that loan portfolios won’t start growing until the second half of 2010.
“I think it is good for banks if we continue to be prudent as an industry and not reach to get loan growth by reducing our underwriting,” Richard Davis, chief executive of U.S. Bancorp, said last week. The Minneapolis regional bank’s overall loan portfolio declined 1.2% to $182 billion from March to June, despite issuing $16 billion of mortgages. Most of the mortgages came from refinancing existing loans.
The loan figures reviewed by the Journal include giants such as J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc., as well as regional banks such as Fifth Third Bancorp, based in Cincinnati, and Regions Financial Corp., of Birmingham, Ala. The 15 banks hold 47% of federally insured deposits and got $182.5 billion in taxpayer-funded capital infusions through the Troubled Asset Relief Program. As of June 30, the banks had $4.2 trillion of loans on their balance sheets, down from $4.3 trillion as of March 31.
Loan portfolios shrank at 13 of the big banks, with the steepest decline at Comerica Inc., Dallas, where the loan total was down 4.3% to $46.6 billion in the latest quarter. Just $1.6 billion of the $10.2 billion in credit extended by Comerica in the second quarter came from new commitments. A bank spokesman said many borrowers “are being cautious.”
Bank of America, Charlotte, N.C., reported its loan portfolio slipped 3.6% to $942.2 billion in the second quarter. A spokesman for the largest U.S. bank by assets said the decrease reflects higher loan losses and lower loan demand as borrowers pay off outstanding debts. “There were fewer opportunities to make high-quality loans because of the recession,” he added.
Some borrowers complain banks aren’t trying hard enough to expand credit. Ernie Cambo, a principal with Miami real-estate developer CPF Investment Group, had to halt work earlier this year on a 2.5-million-square-foot project called Ace Aviation and Commerce Center because he couldn’t line up financing beyond the initial phases.
Now he isn’t certain he will be able to find bank financing for a planned $4 million building for a South Florida auto auctioneer, despite having a signed lease. “You will find no more frustrated borrower than me right now,” said Mr. Cambo, 39 years old. “I am growing in this downturn, and I can’t get any incremental debt.”
The slow pace of lending has created political heat for the Obama administration. On Friday, Rep. Spencer Bachus (R., Ala.) pressed Treasury Secretary Timothy Geithner to “tell me why we didn’t really see that multiplier effect” from banks funneling their TARP money into lots of loans.
“I think you did,” Mr. Geithner responded. Each dollar of taxpayer-funded capital gave banks $8 to $12 of lending capacity, and the initial $200 billion infusion by the Bush administration prevented a decline of more than $1 trillion in the overall loan supply, the Treasury secretary said.
Supporters of the bank bailout concede that lending has dipped, but note that the program wasn’t meant to expand loan volume, but rather to prevent a collapse — and has succeeded on that score.
Richard Neiman, a member of the committee formed by Congress to assess the effectiveness of TARP, said in an interview that “you need to be cautious in reading too much into these numbers.” Congress intended to “stabilize the financial markets,” he added, and there “is no specific reference to increasing lending” in the rescue-program legislation that was signed into law last year.
The 15 banks reported about $803 billion in loan volume in the second quarter, up 12.7% from the first quarter. But nearly 60% of the increase in April and May came from refinancing mortgages and renewing business loans, according to data Treasury collected from the banks. In contrast, new home purchases accounted for just 23% of all mortgage loans. May is the latest month for which the government’s figures are available.
At BB&T Corp., of Winston-Salem, N.C., a surge in mortgage refinancing fueled the regional bank’s increase of 0.1% in the size of its overall loan portfolio, which hit $100.3 billion as of June 30. Mortgage lending “is really booming,” CEO Kelly King said, but loan growth slowed in May and June, “especially in the commercial area.”
Banking analysts said the fact that less than half of loan volume is coming from new loans shows how far the economy still has to go to dig out of the recession. “You are looking for net new loans in the marketplace to be a signal of true change, and we have not seen that yet,” said Christopher Marinac, research director at FIG Partners in Atlanta.
“You’ve got to have fewer people paying down loans…and you’ve got to get banks to loosen underwriting standards,” said RBC Capital Markets analyst Gerard Cassidy. “That is when you will see loan balances in the U.S. banking system expand from where they are today. When that happens, you will see the economy really start to blossom.”
On a year-over-year basis, total loans held by the 15 big banks rose 17% from $3.6 trillion in 2008’s second quarter. The increase was skewed by the impact of acquisitions that included J.P. Morgan’s takeover of the banking operations of Washington Mutual Inc. and Wachovia Corp.’s purchase by Wells Fargo & Co. Excluding purchases, loan portfolios shrank by about 10% as of June 30 from a year earlier.
The figures are a strong but imperfect indicator of loan activity. For example, loans sold to other institutions aren’t counted on a bank’s balance sheet at the end of the quarter. Since the financial crisis erupted, though, sales of loans have withered.
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U.S. To Lobby Against Hedge Fund Strict Regulation in Europe
By ALISTAIR MACDONALD
As its hedge-fund and private-equity industries worry about new rules, the U.S. is quietly lobbying Europe to change the terms of proposed financial regulation that could place strict new rules on any U.S. hedge- or private-equity fund doing business in the region, according to a senior Treasury official.
The move wades the U.S. into a fierce battle between the U.K. and other parts of Europe over how tough regulation should be. Some nations, led by Germany and France, are calling for wholesale regulation of financial services in the wake of last fall’s crisis, but the U.K. says that overly stringent rules would damage its large financial sector and close off U.S. and other funds to European investors.
The U.S. and U.K. are lining up to change the European Union’s proposed Alternative Investment Funds Directive, a sweeping bid to overhaul regulation of hedge funds, private equity and other alternative investment funds. In its current form, the directive would, among other things, place limits on how much debt funds can take on; require them to hold capital to cover potential losses and redemptions; and place strict disclosure requirements on private-equity portfolios.
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Bernanke Playing Defense in The Heartland
By Ros Krasny
KANSAS CITY, Missouri (Reuters) – Federal Reserve Chairman Ben Bernanke traveled to the U.S. heartland to defend the central bank’s actions and reaffirm his assessment of an improving, but still vulnerable, U.S. economy.
Taping a special that will air on television network PBS over three days this week on its program The NewsHour, Bernanke said a financial crisis that rivaled that of the 1930s needed decisive actions.
“I was not going to be the Federal Reserve Chairman who presided over the second Great Depression,” Bernanke said.
“When you’re in a situation like this, a perfect storm, sometimes you have to do things that are a little unorthodox, out of the box.”
About 190 citizens from the Kansas City area, assembled by a nonpartisan civic group, were on hand for the taping at the Kansas City Fed, moderated by veteran news anchor Jim Lehrer.
Some two dozen peppered the chairman with questions ranging from the Fed’s role in consumer protection actions, to efforts to stem foreclosures, to the outlook for the dollar.
Bernanke sought to demystify the role of the Federal Reserve, and especially debunk ideas that the Fed has almost unfettered power as an unelected fourth branch of government.
“I’m answerable to the American people,” Bernanke said.
PEDAL TO THE METAL
Bernanke said the Fed is doing all it can to turn the U.S. economy around, and that he was confident the nation would be back on a strong growth track within a few years.
“The Federal Reserve has been putting the pedal to the metal,” he said, adding that “recessions happen,” even though the current one is especially long and painful.
Bernanke’s core message was similar to that he delivered last week in congressional testimony: that the recession should end soon, but that considerable risks remain — especially relating to the labor market.
It takes GDP growth of about 2.5 percent to keep the jobless rate constant, Bernanke noted. But the Fed expects growth of only about 1 percent in the last six months of the year.
“So that’s not enough to bring down the unemployment rate,” he said.
Latest government data show the U.S. unemployment rate at 9.5 percent, the highest since 1983, and many forecasters expect the rate to keep climbing even after the recession technically comes to a end. Continued…
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China Comes To Washington For Discussions On Chimerica
By Bloomberg News
July 27 (Bloomberg) — The dollar may be the focus of Chinese-U.S. talks starting in Washington today as China presses the Obama administration on how it will tame the fiscal deficit and protect the U.S. currency’s value, Morgan Stanley said.
Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton will host two days of meetings spanning topics from the economic crisis to North Korea. The Strategic and Economic Dialogue is the Obama administration’s first with China.
“If the key issue in the past was the renminbi’s exchange rate, now it’s the U.S. dollar,” said Wang Qing, an economist at Morgan Stanley in Hong Kong. The yuan is a denomination of the renminbi. “What China cares about the most is the stability of the dollar and the stability of U.S. policy.”
The global slump has highlighted the common interests of the economies, ranked first and third largest in the world, as Vice Premier Wang Qishan seeks to preserve the value of the world’s biggest Treasury holdings and the U.S. pushes China to rely more on domestic demand and not exports for growth.
“Raising personal incomes and strengthening the social safety net to address the reasons why Chinese feel compelled to save so much would provide a powerful boost to Chinese domestic demand and global growth,” Geithner and Clinton wrote in a joint article published in today’s Wall Street Journal.
The talks this week will move beyond economic matters for the first time.
‘Fragile States’
Few global problems “can be solved without the U.S. and China together,” Geithner and Clinton wrote. “The strength of the global economy, the health of the global environment, the stability of fragile states and the solution to nonproliferation challenges turn in large measure on cooperation between the U.S. and China.”
The two sides will probably discuss ways to revive the dormant six-party negotiations aimed at persuading North Korea to give up its nuclear program, a U.S. official said last week.
“From the provocative actions of North Korea, to stability in Afghanistan and Pakistan, to the economic possibilities in Africa, the U.S. and China must work together to reach solutions to these urgent challenges,” Geithner and Clinton wrote.
China’s exchange-rate policy will be discussed, an Obama administration official said at a press briefing last week. The U.S. wants a more flexible yuan, though Geithner has avoided a showdown on the issue, declining to repeat comments he made in written remarks to lawmakers after his Senate confirmation hearing in January that China was “manipulating” its currency.
‘Unfortunate Timing’
“This was a most unfortunate thing to say publicly,” said Donald Straszheim, managing principal of Straszheim Global Advisors in Los Angeles. “They think the playing field is basically tilted by China managing its currency.”
Both nations are pumping cash into their economies to revive growth in the face of the worst financial crisis since the Great Depression. Though Premier Wen Jiabao said in March he was worried about the safety of the nation’s U.S. assets, China bought $38 billion of U.S. notes and bonds in May, taking its holdings to $801.5 billion.
The U.S. deficit may reach a record $1.85 trillion for the fiscal year ending Sept. 30, almost four times the previous fiscal year’s $455 billion shortfall, according to the Congressional Budget Office.
Federal Reserve Chairman Ben S. Bernanke will brief Chinese officials about how the U.S. plans to keep inflation in check over the next few years, people advised of the plan said this month. In June, Geithner told China that the U.S. wants to shrink its budget gap as soon as an economic recovery takes hold.
“Both nations must avoid the temptation to close off our respective markets to trade and investment,” Geithner and Clinton wrote. “Both must work hard to create new opportunities for our workers and our firms to compete equally, so that the people of each country see the benefit from the rapidly expanding U.S.-China economic relationship.”
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VALE Resists China’s Request For Price Breaks
By Diana Kinch
July 27 (Bloomberg) — Vale SA, the world’s biggest iron- ore producer, is resisting Chinese demands for record price cuts as the steel industry recovers from its biggest collapse since World War II.
Vale agreed last month to a 28 percent lower price on iron ore supplied to Japanese steel mills under annual contracts, the first reduction in seven years, while China pressed for a discount of as much as 45 percent. Iron ore in the open market has jumped 38 percent since this year’s contract prices were first set, weakening China’s position.
Chief Executive Officer Roger Agnelli said June 25 that he won’t give Chinese customers bigger discounts in what have become the longest-running price talks ever. China’s detention of iron-ore executives from Rio Tinto Group, the world’s second-largest iron-ore exporter, on allegations of espionage has created a split between Australia and China that may also benefit Vale, according to McKinsey & Co.
“The possibility of Chinese steelmakers achieving a bigger discount is very, very unlikely,” Paul Cliff, a mining analyst with Nomura Securities in London, said in a July 22 interview. “Either the Chinese agree to the current benchmark already set or they buy on the spot market.”
Vale, based in Rio de Janeiro, has risen 35 percent in Sao Paulo this year, compared with a 45 percent gain for the Bovespa stock index. Rio advanced 97 percent in London, while BHP Billiton Ltd., the world’s third-biggest iron-ore exporter, rose 23 percent. Rio is based in London and BHP in Melbourne.
China Steel
China’s steel output, which accounts for about half the world’s total, rose 1.2 percent in the first half, the World Steel Association said July 20. Production will climb about 5 percent this year as the nation’s $586 billion infrastructure stimulus package takes effect, according to Gilberto Cardoso, an analyst with Banif Securities in Rio…..
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Hong Kong Exports Posts Its Lowest Drop in 7 Months
By Sophie Leung
July 27 (Bloomberg) — Hong Kong exports fell by the least in seven months in June as a revival in the mainland Chinese economy bolstered demand.
Overseas sales dropped 5.4 percent to HK$211.1 billion ($27.2 billion) from a year earlier, the government said today on its Web site, after shrinking 14.5 percent in May. The median estimate of 12 economists surveyed by Bloomberg News was for a 7.9 percent decline.
Japan, South Korea and Singapore reported smaller declines in overseas shipments in June, signaling that global demand is picking up as the worst financial crisis since the Great Depression begins to ease. Hong Kong is a trade hub for China, where the economy rebounded in the second quarter on record bank lending and a 4 trillion yuan ($586 billion) stimulus package.
“Hong Kong’s exports have already seen their worst in January and February this year,” said Kevin Lai, an economist at Daiwa Institute of Research in Hong Kong. “Exports may have slight positive growth as early as August.”
Imports fell 7.9 percent in June from a year earlier, leaving a trade deficit of HK$16.5 billion.
Exports to China rose 9.3 percent, snapping seven months of declines. Shipments to the U.S. fell 23.7 percent, a bigger drop than in the previous month.
Exports probably passed their worst in the first quarter, the government said in the statement, predicting a “relative improvement” in the months ahead. The global economy “remains weak with signs of a strong rebound not yet in sight,” it said.
Slide Into Recession
Improved export demand helps the government’s efforts to revive Hong Kong’s economy, which slid into recession in the third quarter of last year.
Financial Secretary John Tsang said July 6 that Hong Kong’s economy probably grew in the second quarter of this year from the first as the decline in exports slowed. Hong Kong has allocated HK$87.6 billion, or about 5.2 percent of gross domestic product, to stimulus and relief spending since 2008, creating temporary jobs and handing out subsidies and tax cuts.
The city’s GDP shrank 7.8 percent in the first quarter from a year earlier, the biggest decline in a decade, as exports slid by the most since 1954. The economy may shrink by as much as 6.5 percent this year, the government forecasts.
Overseas shipments may fall as much as 12 percent in 2009 from a year earlier, the Hong Kong Trade Development Council said June 16. That compares with a 5.1 percent gain in 2008.
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Iceland Figures If You Can’t Beat Them Then Join Them
By James G. Neuger and Patrick Donahue
July 27 (Bloomberg) — Iceland cleared the first procedural hurdle en route to joining the European Union, starting a process that may take three years or more.
EU foreign ministers called on the European Commission, the bloc’s executive arm, to prepare an assessment of the financially hobbled North Atlantic island’s readiness to join.
“There’s certainly no fast track,” Swedish Foreign Minister Carl Bildt told reporters at an EU meeting in Brussels today. Noting that Iceland’s fishing rules are at odds with the EU, he added “there could be substantial challenges yet to overcome.”
EU enlargement has stalled since Bulgaria and Romania were admitted in 2007, with Germany and France leading the opposition to bringing in more countries in southeastern Europe, especially Turkey.
As one of Europe’s richer countries, with gross domestic product per capita of $37,392 in 2007, Iceland has a head start. The country of about 300,000 already observes two-thirds of EU laws and allows passport-free travel to most EU countries.
Iceland’s parliament this month voted 33-28 to seek EU membership in a verdict that reflected the split view in the country over whether joining the EU is the answer to the island’s economic crisis. The failure of Iceland’s biggest banks in October led to an 80 percent slump in the krona against the euro from a year earlier in offshore trading.
The fastest opinion on a would-be member took 14 months. Sweden, current holder of the EU presidency, is pushing the commission to complete its assessment by December so entry talks can start in early 2010.
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Europe Gets Ready For Credit Card Default
Lenders in Europe bracing themselves for a rising wave of consumer debt defaults as the credit card crisis that has caused billions of dollars in losses among US banks spreads across the Atlantic.
The International Monetary Fund estimates that of US consumer debt totalling $1,914bn, about 14 per cent will turn sour.
It expects that 7 per cent of the $2,467bn of consumer debt in Europe will be lost, with much of that falling in the UK, the continent’s biggest nation of credit card borrowers.
National Debtline of the UK said that the number of calls it had received from UK consumers worried about loans, credit cards and mortgage arrears had reached 41,000 in May – double the 20,000 calls it had received in May 2008. It added that the number of calls showed no sign of abating.
In the US, credit card defaults have been rising for months as a spike in unemployment and the most severe economic downturn since the Great Depression took their toll on overstretched consumers.
Banks such as Citigroup, Bank of America, JPMorgan Chase and Wells Fargo and credit card issuers such as American Express have suffered billions of dollars in losses in their credit card portfolios and have warned of more to come.
The rate of US credit card losses has overtaken the rate of unemployment in recent months – a highly unusual occurrence that makes it more difficult for card issuers to forecast future losses.
In the UK, the latest credit card indices from Moody’s, the ratings agency, show that annualised charge-off rates have risen from 6.4 per cent of loans in May 2008 to 9.37 per cent in May 2009. In the US, that rate is above 10 per cent.
Analysts expect further defaults as UK unemployment rises and personal insolvencies, which reached 29,774 in the first quarter of the year, continue to increase.
The falling UK housing market and more stringent lending requirements by banks has also meant that indebted consumers can now no longer rely on withdrawing equity from their homes to pay off other debts such as credit cards or unsecured loans.
Jonathan Pierce, analyst at Credit Suisse, said in a recent note that UK credit card securitisation had suffered “a very sharp rise in arrears to a level well beyond the previous peak seen in 2006”.
UK banks, which begin reporting their first-half results next week, have already warned that they faced a sharp increase in credit card debts, although this is relatively small in the context of writedowns in other areas such as commercial lending.
Barclays, the UK’s biggest credit card lender with 11.7m UK customers through Barclaycard, said in May that UK credit card delinquencies had increased in the first quarter of the year, reflecting adverse economic conditions and rising unemployment.
As a result it had been reducing credit limits and tightening approval rates for new credit cards which were running at less than 50 per cent in March……
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AAPL Is A Busy Bee With Record Labels
Apple is working with the four largest record labels to stimulate digital sales of albums by bundling a new interactive booklet, sleeve notes and other interactive features with music downloads, in a move it hopes will change buying trends on its online iTunes store.
The talks come as Apple is separately racing to offer a portable, full-featured, tablet-sized computer in time for the Christmas shopping season, in what the entertainment industry hopes will be a new revolution. The device could be launched alongside the new content deals, including those aimed at stimulating sales of CD-length music, according to people briefed on the project.
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The End To The End Of The Recession From Zero Hedge
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Earnings Highlights: AET*, ACE, AMGN, ANR*, CF, GLW*, HON*, FNF, FCL*, SOHU*, TZOO, & VZ*
Scrolling Headlines From Yahoo in Play
NEW YORK (AP) — Health insurer Aetna Inc. said Monday its profit skidded 28 percent in the second quarter due to higher medical expenses in its commercial business, which it expects to continue for the rest of the year.
The Hartford, Conn., company said it earned $346.6 million, or 77 cents per share, compared with $480.5 million, or 97 cents per share. Adjusted earnings per share were 68 cents. Revenue grew 11 percent to $8.67 billion from $7.83 billion.
Thomson Reuters says analysts expected 78 cents per share and revenue of $8.56 billion.
Aetna said its medical benefit ratio, which measures the portion of premium dollars spent on providing care, rose to 86.8 percent from 81.9 percent a year ago. Costs in the commercial, Medicare and Medicaid business all increased.
Premium revenue grew 12 percent, and medical membership was flat at 19.1 million.
The company had been scheduled to post its earnings on Wednesday, but announced Sunday it would be reporting on Monday. It did not give a reason for the change.
Aetna said commercial medical costs increased due to use of more expensive services, and more tests and procedures per visit. That lead to higher costs for emergency room, urgent care, laboratory and preventive services. Aetna said its prices did not fully account for the higher costs, and said health plan providers are changing their behavior due to the recession.
It cut its annual profit forecast for the second time in two months. The company now expects to earn between $2.75 to $2.90 per share. On June 2, it lowered its profit estimate to a range of $3.55 to $3.70 per share, also because of greater commercial medical costs and lower Medicare revenue. Analysts expect earnings of $3.53 per share and $34.35 billion in revenue.
Aetna expects to spend between 84 and 84.5 percent of its commercial premium revenue on providing medical care.
The Wall Street Journal reported Monday that Aetna is shopping its pharmacy benefits management business, which had about 11.2 million members at the end of the second quarter. Aetna has reportedly been considering a sale for several months and no deal was said to be imminent.
According to the report, independent pharmacy benefits managers CVS Caremark Corp. and Medco Health Solutions Inc. have looked into buying the Aetna business. Another health insurer, WellPoint Inc., sold its pharmacy benefits management unit to Express Scripts Inc. in April.
ROCHESTER, N.Y. (AP) — Corning Inc. says it earned $611 million in the second quarter on a rebound in demand for glass used in flat-screen televisions.
The world’s largest maker of liquid-crystal-display glass says its profit in the April-June period was down from $3.2 billion, or $2.01 a share, a year earlier when it recorded a one-time gain of $2.43 billion.
Excluding special items, however, its profit of 39 cents a share easily beat Wall Street’s forecast of 32 cents a share.
Corning says sales fell 18 percent to $1.4 billion but that also tops analysts’ forecasts of $1.36 billion.
BEIJING, July 27 /PRNewswire-Asia/ — Sohu.com Inc. (Nasdaq: SOHU – News), China’s leading online media, communications, search, online games and mobile value-added services company, today reported unaudited financial results for the second quarter ended June 30, 2009.
Explanation of the Company’s non-GAAP financial measures and related reconciliations to GAAP financial measures are included in the accompanying ”Non-GAAP Disclosure” and the “Reconciliation to Unaudited Condensed Consolidated Statements of Operations.”
Dr. Charles Zhang, chairman and CEO of Sohu.com, commented, ”We are pleased to report another quarter of solid financial results from a unique combination of our two core businesses, our portal business and online game business. Even in this weak economic environment, our portal business continues to show modest growth and a strong ability to grab market share. Our ongoing investment in branding, content offering, and technological products has continued to strengthen our leading position as one of the most powerful mainstream media platforms in China.
”Our online game business delivered another quarter of record revenues and as a strong defensive play in a difficult economic environment it continues to be an ideal complement to our portal business. We are resolute in our efforts to build the online game business for the long-term by utilizing Changyou’s game development platform, player feedback system and strong R&D capabilities to deliver quality games that improve the user experience. We remain confident that this focus and growing user base, will allow our online game business to maintain its upward momentum.”
Dr. Zhang continued, ”As we continue to execute on our strategy, we expect ongoing synergies between our portal business and our online game business to secure long-term and sustainable growth for Sohu.”
Commenting on Sohu’s brand advertising business, Ms. Belinda Wang, Sohu.com co-president and chief marketing officer, added, “Despite tough year-on-year comparisons from heavy ad spending leading up to the 2008 Beijing Olympic Games, brand advertising revenues grew at 5% year-on-year, demonstrating that our continual investments in branding, content offering and technological products are paying off. On the advertising business front, advertisers have begun to deploy their budgets in response to signs of economic recovery in China and increasingly look toward internet media as a cost-effective alternative to advertising in traditional media. Our strong user growth, robust media platform and continually evolving technologies make Sohu well-positioned to capitalize on these trends.”
Second Quarter Financial Results
Revenues
Total revenues for the second quarter ended June 30, 2009 were US$127.1 million, representing an increase of 10% sequentially and an increase of 25% year-on-year.
Brand advertising revenues for the second quarter of 2009 totaled US$43.6 million, representing a sequential increase of 12% and a year-on-year increase of 5%.
Online game revenues for the second quarter of 2009 were US$66.6 million, representing an increase of 8% sequentially and 39% year-on-year.
Wireless revenues for the second quarter of 2009 were US$15.0 million, an increase of 12% sequentially and 63% year-on-year. The increase in wireless revenues was mainly because the Company promoted its products through a greater number of channels.
Gross Margin
Gross margin was 77% in the second quarter of 2009, compared to 76% in the first quarter of 2009, and 76% in the second quarter of 2008. Non-GAAP gross margin for the second quarter of 2009 was 78%, compared with 76% in both the first quarter of 2009 and the second quarter of 2008……
* Q2 revenue $385.4 mln vs Wall St. view of $382.6
* Sees Q3 rev “flat to up by mid-single-digit” vs Q2
NEW YORK, July 27 (Reuters) – Network equipment maker Tellabs Inc (TLAB.O) on Monday reported an 11 percent drop in quarterly earnings as phone companies cut back on technology spending.
The supplier of network gear to major operators such as AT&T Inc (T.N) and Verizon Communications Inc (VZ.N), said second-quarter revenue fell to $385.4 million from $432.5 million a year earlier.
The drop was a bit more moderate than Wall Street had expected. The average analyst forecast was for revenue of $382.6 million, according to Reuters Estimates.
Net profit for the quarter fell to $15.7 million, or 4 cents a share, down from $39.0 million, or 10 cents a share, a year earlier.
Profit excluding special items rose to 8 cents a share from 4 cents. This comparison excluded a 9-cent tax benefit in the year-ago quarter.
Tellabs, which competes with Alcatel-Lucent (ALUA.PA), forecast third-quarter revenue to be “flat to up by a mid-single-digit percentage” from the previous quarter.
WASHINGTON (AP) — Honeywell International Inc. says its second quarter earnings dropped 38 percent as the company’s businesses in troubled sectors like automobiles and construction continued to drag down its results.
The company says it doesn’t expect any recovery this year from the recession.
The Morristown, N.J.-based diversified manufacturer said Monday it earned $450 million, or 60 cents per share, the the three months ended June 30. That’s down from $723 million, or 96 cents per share, a year ago but matches analysts’ expectations.
Honeywell says its revenue fell 22 percent to $7.56 billion. Analysts were expecting revenue of $7.73 billion.
Honeywell says it expects 2009 earnings of $2.85 per share on revenue of $31.5 billion, at the low end of its previous guidance. Analysts foresee $2.83 per share and revenue of $32.61 billion.
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Asian Markets Continue Bull Run
By Shani Raja and Jonathan Burgos
July 24 (Bloomberg) — Asian stocks rose for a ninth day, driving the MSCI Asia Pacific Index to its longest winning streak since 2004, as South Korea’s economic growth accelerated and brokerages upgraded Panasonic Corp. and Quanta Computer Inc.
Murchison Metals Ltd. surged 17 percent after saying Chinese groups were interested in helping develop an iron-ore project. Panasonic, the world’s No. 1 manufacturer of plasma televisions, climbed 8.3 percent in Tokyo. Notebook computer maker Quanta added 5.6 percent in Taipei. Samsung Electro- Mechanics Co., which makes electronic parts, rose 2.4 percent to a seven-year high as a brokerage raised its stock estimate.
The MSCI Asia Pacific Index added 0.9 percent to 107.97 as of 7:16 p.m. in Tokyo, its best week in two months. The gauge has gained 10 percent in the past nine days, the longest winning streak since August 2004, amid growing speculation the global economy is recovering.
“The rally has gone on longer than expected,” said Pearlyn Wong, an investment analyst at Bank Julius Baer & Co. in Singapore, which manages $350 billion. “We’ve probably seen the worst in terms of earnings but we’re still quite cautious. Valuations have priced in a recovery.”
Hong Kong’s benchmark Hang Seng Index briefly climbed above the 20,000 level for the first time since the September collapse of Lehman Brothers Holdings Inc. It closed 0.8 percent higher. Japan’s Nikkei 225 Stock Average rose for an eighth day, gaining 1.6 percent. South Korea’s Kospi Index advanced 0.4 percent.
Consumer Stocks
Australia’s S&P/ASX 200 Index gained 0.6 percent. Nufarm Ltd., the country’s biggest supplier of farm chemicals, climbed 9.2 percent and New Zealand Refining Co. jumped 3.5 percent in Wellington on takeover speculation.
Consumer-staple shares were the only industry group of the MSCI Asia Pacific Index’s ten to fall amid speculation a possible tobacco tax will hurt profit at Japan Tobacco Inc. and as JPMorgan Chase & Co. downgraded Australia’s Woolworths Ltd.
Futures on the Standard & Poor’s 500 Index added 0.3 percent. The gauge climbed 2.3 percent yesterday, as EBay Inc. and Ford Motor Co. posted better-than-estimated results. Sales of existing U.S. homes advanced 3.6 percent last month from May, surpassing the 1.5 percent gain estimated by economists.
The increased sales fanned speculation demand for resources will recover, lifting prices for metals and oil. A gauge of six metals in London rose for a ninth day yesterday, the longest winning streak since December 2005. Crude oil in New York jumped 2.7 percent yesterday to a level not seen in three weeks.
Improving Sentiment
“Global market sentiment continues to rise,” said Ben Potter, an analyst at IG Markets in Melbourne. “The collapse of the housing market started this whole crisis and its recovery is certainly needed for any sustained economic improvement.”…….
European Markets Rise on Recovery & German Business Confidence
By Adria Cimino
July 24 (Bloomberg) — European stocks climbed for a 10th day, extending the Dow Jones Stoxx 600 Index’s longest winning streak since 2006, as German business confidence rose more than forecast and Vodafone Group Plc reported increased sales.
Vodafone, the world’s largest mobile-phone company, advanced 2.4 percent. TeliaSonera AB jumped 6.8 percent after increasing its margin forecast. Panasonic Corp. surged 8.3 percent in Tokyo after JPMorgan Chase & Co. recommended the shares. Merck KGaA plummeted 12 percent after European Union regulators rejected its Erbitux drug for a form of lung cancer.
The Stoxx 600 added 0.4 percent to 220.72 at 11:17 a.m. in London, having earlier dropped as much as 0.5 percent. The benchmark index for European equities is heading for a 4.8 percent gain this week, extending the rally since July 10 to 12 percent as results from Goldman Sachs Group Inc. to Johnson & Johnson and Apple Inc. topped analysts’ estimates.
“The rebound is impressive and it seems we’ve exited the crisis,” said Benoit de Broissia, an analyst at KBL Richelieu Gestion in Paris, which oversees $2 billion. “Companies have been proactive to preserve their margins. Economic statistics are encouraging.”
German business confidence increased for a fourth month in July, suggesting Europe’s largest economy is shaking off its worst recession since World War II. The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, rose to 87.3 from 85.9 in June. Economists expected a reading of 86.5, the median of 32 forecasts in a Bloomberg News survey showed.
Reviving Demand
Europe’s manufacturing and service industries shrank more slowly in July as reviving demand helps the region recover from its worst recession in more than half a century. A composite index of both industries for the 16 euro nations based on a survey of purchasing managers by Markit Economics advanced to 46.8, from 44.6 in June. A reading below 50 indicates a contraction.
Even so, the U.K. economy shrank more than twice as much as economists forecast in the second quarter. Gross domestic product fell 0.8 percent from the first quarter, the Office for National Statistics said today. Economists had predicted a 0.3 percent drop, according to the median of 32 forecasts in a Bloomberg News survey. From a year earlier, the economy contracted 5.6 percent, the most since records began in 1955.
‘Beaten Expectations’
The Standard & Poor’s 500 Index yesterday recovered 50 percent of the losses suffered after the September collapse of Lehman Brothers Holdings Inc., as a record number of U.S. companies beat analysts’ earnings estimates. Among S&P 500 companies that have posted second-quarter results, 74 percent beat the average analyst forecast, according to data compiled by Bloomberg. That would be the highest full-quarter figure on record, Bloomberg data going back to 1993 show……
Oil Stays Steady Despite Reserves Being Full Up
Oil prices held above $67 a barrel Friday, adding to gains made overnight, as world stock markets rallied on signs of improvement in the U.S. economy.
By midday in Europe, benchmark crude for September delivery was up 11 cents to $67.27 a barrel in electronic trading on the New York Mercantile Exchange. On Thursday, the contract added $1.76 to settle at $67.16.
Evidence that the recession-hit U.S. economy is strengthening has bolstered investor optimism and triggered a rally from $58.78 a barrel two weeks ago. While crude demand hasn’t rebounded yet, traders have begun to have more faith that consumption will eventually pick up.
“We haven’t seen demand increase yet, but all the good news about the economy seems to be adding fuel to the fire,” said Gerard Rigby, an energy analyst with Fuel First Consulting in Sydney. “Just the fact that things are improving is enough to change the sentiment of a lot of people.”
Investors were cheered by a National Association of Realtors report Thursday that said sales of previously occupied homes rose for the third month in a row. The last time that happened was in the middle of the housing boom in early 2004.
The Dow Jones industrial average rose 2.1 percent Thursday to above 9,000 for the first time since January. The Dow is up 11 percent in the last nine days, while on Friday stock markets in Asia and Europe were mostly higher.
“If the current optimism lifting shares is totally unfounded then the current strength in oil will probably not hold,” said Olivier Jakob of Petromatrix in Switzerland. “But if the global destruction of the economy has indeed bottomed … then so should have the oil markets.”
Most second quarter corporate results have beaten analyst expectations, but reports late Thursday from Microsoft Corp., American Express Co. and Amazon.com disappointed investors, suggesting the recovery could be bumpy.
“I wouldn’t say the current fundamentals support oil at $65 to $70,” Rigby said. “A lot of countries aren’t out of the woods yet.”
“It’s putting the cart before the horse, but that’s what the market does.”
Rigby said he expected oil to rise over the next few weeks and test an eight-month high of $73.23 a barrel reached on June 30.
According to JBC Energy in Vienna, while oil demand continues to be weak, “extremely volatile oil prices will hardly manage to buck overall sentiment” and are likely to follow the current rally in the stock markets.
“In Japan, crude imports fell by almost 20 percent in June as oil demand is evaporating,” JBC said. “Refiners in the world’s third-largest oil consuming country ran their facilities at about 71 percent of capacity, according to latest official figures.”
In other Nymex trading, gasoline for August delivery rose 0.29 cent to $1.9161 a gallon and heating oil gained 0.75 cent to $1.7719. Natural gas for August delivery jumped 4.7 cents to $3.597 per 1,000 cubic feet.
In London, Brent prices rose 23 cents to $69.48 a barrel on the ICE Futures exchange.
By Ilaina Jonas – Analysis
NEW YORK (Reuters) – For the past six months or so, Wall Street has been bracing for what many fear may be the next shoe to drop on the already battered U.S. economy: a U.S. commercial real estate bust that could rival the housing market collapse.
Yet, lenders have been keeping that shoe in the closet — forestalling foreclosures by extending loans, despite rapidly rising mortgage default rates.
“In today’s environment, it’s obviously not very attractive to foreclose on a borrower,” said Matthew Anderson, co-founder of real estate consulting services firm Foresight Analytics.
The U.S. commercial real estate sector has been grappling with a credit crisis that has dried up some of its most important sources of lending. That has left many borrowers unable to refinance maturing mortgages. Even when they can obtain financing, borrowers are often obtaining much less than they need.
Lending is based on a percentage of a property’s value and prices are off 34.8 percent from their peak in October 2007. Many see the decline reaching 45 percent.
But banks have been loathe to foreclose on the mortgages and are extending them.
“They’re taking loans that don’t have a cash-flow problem, but definitely have a valuation problem, and they’re pushing those out to the future,” Anderson said.
About 4.5 percent of bank commercial real estate loans were 30 or more days delinquent in the second quarter, up from 3.6 percent in the first quarter, according to Foresight Analytics. Nonaccrual — or the percentage of the loan balances that banks believe borrowers will fail to repay — rose to 2.6 percent in the second quarter from 2 percent the prior quarter.
Banks account for about $1.7 trillion, or half, of U.S. commercial mortgages outstanding. The delinquency rates have been increasing since the second quarter 2007, when they were 1.2 percent, according to Foresight.
Yet foreclosed loans as a percentage of nonaccruals has been declining, down to 19.7 percent in the first quarter from over 30 percent three years ago, according to the most recent statistics from Foresight.
The practice of extending loans has become so prevalent, it has earned its own catch phrases — “push-outs,” “kicking the can down the road” and “a rolling loan gathers no loss.”
THE PERVERSE LESSON
Banks have many reasons not to foreclose…..
One Sign Things Are Getting Better
Great chart here showing just how low the quality of the earnings are so far in Q2:
Rail Traffic Shows a different picture
Singapore Posts First Drop In Output in The Last 3 Months
By Shamim Adam
July 24 (Bloomberg) — Singapore’s industrial production fell for the first time in three months in June as electronics and chemicals output dropped and a surge in pharmaceuticals manufacturing eased.
Manufacturing, which accounts for about a quarter of Singapore’s economy, declined 9.3 percent from a year earlier following a revised 2.1 percent gain in May, the Economic Development Board said today. The median forecast in a Bloomberg survey of nine economists was for a 6.4 percent drop.
The government said this week the recent improvement in drugs and electronics output may falter, preventing a quick recovery from the country’s deepest recession since independence 44 years ago. Singapore raised its 2009 economic forecast July 14, after the manufacturing industry posted its best performance in five quarters in the three months to June.
“The decline in June manufacturing activity reflects the lingering concern of sustainable recovery of demand for the overall manufacturing sector,” said Alvin Liew, an economist at Standard Chartered Bank in Singapore. “Pharmaceuticals output is still a key support for manufacturing as electronics remain weak.”
Singapore’s manufacturing slid 2.4 percent in the second quarter, more than the 1.5 percent decline estimated by the government last week, today’s report showed.
Industrial production fell a seasonally adjusted 9.2 percent in June from the previous month, when it slid a revised 1.8 percent.
Gradual Recovery
Demand for goods from the world’s biggest economies in the U.S., Europe and Japan is still weak, and any pick-up in trade will be “bumpy,” Trade Minister Lim Hng Kiang said this week.
“We have to wait for a more general demand recovery, especially in the developed countries, for Singapore’s economy to be on a sustained growth path,” Lim said. “We should not expect a V-shaped sharp recovery. We’re looking at a more gradual recovery.”
Electronics production plunged 20.4 percent from a year earlier last month, following a revised 22.9 percent decline in May. Electronics make up about 26 percent of total manufacturing output, and shipments of such products have dropped every month for more than two years.
Pharmaceutical production, which accounts for about 20 percent of manufacturing, climbed 14 percent after surging a revised 139 percent in the previous month. Excluding biomedical manufacturing, production contracted 14.6 percent in June, after shrinking a revised 17.6 percent in May.
South Korea’s Economy Grows @ The Fastest Pace
By Seyoon Kim
July 24 (Bloomberg) — South Korea’s economy expanded at the fastest pace in almost six years last quarter as exports and household spending jumped.
Gross domestic product rose 2.3 percent from the first quarter, when the nation skirted a recession by growing 0.1 percent, the Bank of Korea said today in Seoul. That was better than the 2.2 percent growth estimated by economists.
Samsung Electronics Co. today joined exporters Hyundai Motor Co. and LG Electronics Inc. in reporting profit surged last quarter, helped by a weaker currency and demand fed by $2.2 trillion in stimulus worldwide. Consumer spending climbed 3.3 percent from the first quarter, the most in seven years, fueled by interest rates at a record-low 2 percent.
“Exports have improved more than expected while domestic demand got a big boost from the fiscal and monetary policy steps,” said Lee Sang Jae, economist at Hyundai Securities Co. in Seoul. “I expect Korea to remain on a recovery path” even after the boost from the stimulus measures wanes, he said.
The Kospi stock index rose 0.4 percent today in Seoul, taking the year’s gains to 34 percent after a 41 percent drop in 2008. The won rose 0.2 percent to 1,249.55 per dollar.
Last quarter’s expansion was the fastest since the economy grew 2.6 percent in the last three months of 2003. Exports gained 14.7 percent, also the biggest advance in almost six years. From a year earlier, GDP shrank 2.5 percent.
China, Singapore
South Korea joins China and Singapore in leading a regional rebound, marking a turnaround for an economy whose currency tumbled 26 percent last year on concern companies would be unable to repay foreign debt.
President Lee Myung Bak’s approval rating plunged by more than half in the wake of the financial turmoil. To counter the crisis, in January he sacked his finance minister and created an economic war room in an underground bunker.
He also pumped money into the banking system, boosted fiscal spending by 67 trillion won ($54 billion) and set up funds to replenish banks’ capital. The central bank formed a dollar-swap agreement with the U.S. and cut interest rates.
“The economy got help from various stimulus measures and the second-quarter numbers show the steps worked,” said Kim Seung Hyun, head of research at Taurus Investment Securities Co. in Seoul. “A weaker currency helped the nation’s exporters gain competitiveness.”
Samsung’s Profit
Samsung Electronics, which alone accounts for 15 percent of the country’s exports, today reported net income rose 5.2 percent to 2.25 trillion won in the three months ended June, the biggest quarterly profit in more than two years.
U.K. Economy Shrink Twice Expectations
By Jennifer Ryan
July 24 (Bloomberg) — The U.K. economy shrank more than twice as much as economists forecast in the second quarter as a record annual slump in construction, banking and business services kept Britain mired in the recession.
Gross domestic product contracted 0.8 percent from the first quarter, the Office for National Statistics said today in London. Economists predicted a 0.3 percent drop, according to the median of 32 forecasts in a Bloomberg News survey. From a year earlier, the economy shrank 5.6 percent, the most since records began in 1955.
Prime Minister Gordon Brown’s Labour Party trails the opposition Conservatives in polls less than a year before an election as the recession drives up unemployment. Bank of England policy maker Andrew Sentance said yesterday that the British economy may start to pick up in the second half of the year.
“It’s a very sizeable recession indeed,” said George Buckley, chief U.K. economist at Deutsche Bank AG in London. “I think we’ve seen the worst, but what will the post-recession environment look like? There is a risk in the medium term that growth will be weaker than we’re used to.”
The pound dropped as much as 0.5 percent against the dollar after the report. The U.K. currency traded at $1.6468 as of 11:18 a.m. in London.
IMF Forecasts
Today’s report is the first among the Group of Seven nations for the second quarter. The International Monetary Fund forecasts the U.K. will contract 4.2 percent this year, compared with 4.8 percent in the euro area and 2.6 percent in the U.S.
Brown said today that the Group of 20 nations need to take steps to revive the world economy.
“We are at a point where banks have been stabilized, but we don’t yet have a strategy for a return to growth,” Brown said at the opening of a meeting in his office in London.
Brown, who must call a general election by June, has trailed David Cameron’s Conservatives in every opinion poll this year. A July 19 survey by Ipsos-Mori Ltd. showed the ruling party lagging the biggest opposition party by 16 points.
“Today’s figures are fresh evidence of the sheer scale of the global downturn we’re fighting,” said Liam Byrne, a junior Treasury minister. “But they also show the pace of slowdown is easing compared to the winter, which is why we remain cautious but confident that growth will return towards the end of the year.”
Economic Contraction
The data show the economy has now shrunk by 5.7 percent since the recession began last year. That compares with a total 6 percent slump in the recession period that ended in 1981, the statistics office said.
Construction fell 2.2 percent on the quarter and 14.7 percent from a year earlier, which was the biggest annual drop since records began in 1948. Business services and finance slumped 0.7 percent on the quarter and had a record annual decline of 4.4 percent, the statistics office said.
While the government has committed as much as 1.4 trillion pounds ($2.3 trillion) to revive lending and rescue banks such as Royal Bank of Scotland Group Plc, it hasn’t stopped joblessness from increasing.
Unemployment in the quarter through May increased by 281,000, the most since records began in 1971. The jobless benefit roll has reached 1.56 million, the most in 12 years.
BOE Vote
Policy makers unanimously voted on July 9 to keep the key interest rate at a record low of 0.5 percent and said they’ll review the size of their 125 billion-pound plan to print money in August, when they publish forecasts on growth and inflation.
The bank will “make a judgment about whether we need to add further to that stimulus” once the new quarterly predictions are available, Sentance said yesterday in an interview. “The economy is already benefiting from a big monetary stimulus as we go into the second half of this year and next year.”
Former policy maker David Blanchflower said in an interview on Bloomberg Television yesterday that the economy may not be through the worst, and the central bank risks stifling the recovery were it to raise rates or reverse the bond purchase program prematurely.
“My worry is that the tightening comes too soon and people kill off any recovery that’s coming,” he said. “It’s very early days to say that you know the endgame is even in sight.”
Words Of Caution From Rosenburg
” Thats the way it is “…..Enjoy your weekend folks !
