NEW$ & VIEW$ (15 May 2012)

Lightning  Euro-Zone Economy Steadies; Split Emerges  The euro-zone economy steadied in the three months to March as a surprisingly strong rebound in Germany was balanced by contractions in Italy and Spain

The European Union’s official statistics agency Eurostat on Tuesday said euro-zone GDP was unchanged from the fourth quarter, and from the first quarter of 2011. That followed a contraction of 0.3% in the fourth quarter.

Like Italy, the Dutch economy contracted for a third straight quarter, by 0.2%.  (…) a number of economies in central and Eastern Europe with close trade and investment ties to the euro zone contracted. The Czech economy shrank by 1%, while Hungary’s economy contracted by 0.7% and Romania’s economy contracted by 0.1%.


High five  Don’t cheer too loudly on this “better than expected” performance as Markit warns:

The PMI business surveys have tracked the downturns in growth in all major Eurozone countries over the past twelve months, which following strong upturns early last year, and for all four largest euro nations the
surveys suggest that growth turned down again in April, suggesting that the region as a whole was contracting at a quarterly rate of around 0.5% at the start of the second quarter.

Germany is likely to be the strongest performer again in the second quarter, though the PMI for April is merely signalling stagnation and any further decline would suggest GDP could contract over the quarter as a whole.

image image



Steelmakers Give Grim Forecasts

Germany’s two largest steelmakers forecast sharp drops in full-year operating profits as a fragile economy continues to weigh on demand and prices for their products.

ThyssenKrupp AG and Salzgitter AG both warned that the sovereign debt crisis in the eurozone as well as rising prices for energy and raw materials still pose considerable threats for the global economy.

They added, however, that trading conditions are expected to improve in the remainder of the year, echoing comments from the world’s largest steelmaker by output—ArcelorMittal —which last week said demand for its products is steadily improving.

Spanish banks eye four-way merger
Madrid backs talks that may create €270bn lender
Lightning   Greece set for fresh elections
Talks on forming government collapse
Greece Gets Hint of Leeway From Euro Officials

“The government would have to stand by the program,” Juncker told reporters after chairing a meeting of euro-area finance ministers in Brussels late yesterday. “If there are dramatic changes in circumstances, we wouldn’t close ourselves off to a debate over extending the deadlines.”

But, this am:



Lightning   Dutch austerity consensus unravels
Centrist politicians are failing to grasp the new political reality

G4407X, appetite for cutsBut even as the Dutch right splits over austerity policies, a poll released on Monday highlights similar divisions on the left. It suggests voters are turning against the last-minute budget deal reached after the government fell between the ruling liberals and centre-left opposition parties.



Storm cloud   China Foreign Investment Falls Again

Foreign direct investment into China fell for the sixth straight month in April, the latest sign of trouble for the world’s second-largest economy.

FDI into China fell 0.74% from a year earlier to $8.4 billion in April, the ministry said in a statement. In March, FDI fell 6.1% from a year earlier to $11.76 billion. In the first four months of the year, FDI fell 2.38% from a year earlier to $37.9 billion.

FDI from the U.S. rose by 1.9% to $1.05 billion in January to April, while FDI from the European Union plummeted by 27.9% to $1.9 billion, the ministry said. FDI from Japan, however, rose 16% to $2.7 billion in first four months.

Storm cloud   China investment boom starts to unravel
Electricity output data hints at a steeper slowdown

Less closely watched economic data released in recent days, including figures for electricity, rail cargo and bank loans, have all shown a steep drop in activity that appears to have caught policymakers by surprise.

China's electricity productionChina’s electricity consumption in April hasn’t been published yet but electricity output increased just 0.7 per cent last month from a year earlier, compared with a 7.2 per cent increase in March and an 11.7 per cent annual increase in April 2011.

Rail cargo volumes in the first few months of the year increased by low single digits or about half the pace they were growing this time last year and banks extended far fewer new loans than expected.

High five  Well, China’s power consumption stats came out last night:

Power use growth lowest in 16 months   China’s power consumption increased 3.7 percent in April to 389 billion kilowatt-hours, the slowest in 16 months.

imageThe growth rate was 3.3 percentage points lower than that of the previous month, and 7.5 percentage points slower year-on-year. It was the lowest rate since Jan 2011.

Less power consumption in industrial sectors, which dropped to only 1.56 percent from 11.2 percent last year, was a main reason for the decrease. Power consumption by residents and service sectors still maintained double digit growth. (Chart above, courtesy of ISI)

Rainbow  Companies Aim to Start Spending Trillions They’re Hoarding  Only 34% of CFOs say they’re sticking with a strategy of building rainy-day funds. That’s a notable change from last year, when 62% of respondents said they were preserving cash in case of emergency.

North American executives are especially bullish: 56% of those surveyed planned to spend reserves instead of saving compared with 28% who said the opposite. Drilling down, U.S. respondents were more willing to open their wallets than their peers, with nearly two-thirds talking about using cash on mergers and acquisitions.

In Latin America, 61% of respondents were pro-spending, while in Europe, 44% were pro-spending, and 35% anti-spending. The Asia-Pacific region was the anomaly: 33% of respondents there talked about spending, while 41% wanted to keep hoarding.

Just kidding   Economists See Slow, Steady Growth 

Forecasters surveyed by The Wall Street Journal expect the economy to grow slowly but steadily this year, with the unemployment rate barely budging.

When is the last time we saw steady growth?

Clock  The Union Pension Bomb   Multi-employer plans look to be in big trouble.

Multi-employer plans in the U.S. are underfunded by some $369 billion. An estimated $43 billion of that off-balance-sheet liability belongs to the 44 S&P 500 companies that are exposed to multi-employer plans. The other 88% of the $369 billion is borne by small, mid-cap or private firms that may be even less prepared to cover the obligations. The report says Safeway’s $6.9 billion in liabilities amount to 76% of the company’s market cap, for example.

All of this ought to be especially embarrassing to Washington, which requires annual filings to the Department of Labor on multi-employer plans and measures their financial health. But Labor uses an “actuarial” reading of the numbers, which envisions an average (and hefty) 7.5% rate of return on investments, smoothed over five years. Even under that generous view, about 500 plans—or 37%—are less than 80% funded and thus considered financially troubled.

Credit Suisse applies a more realistic “fair value” reading—which uses a lower rate of return and current liabilities. By that standard, only 4% of multi-employer plans are healthy and many are exposed as accounting scams.



Switzerland Sets Ceiling for Franc Switzerland took drastic action to protect its exporters by setting a cap on the franc’s exchange rate against the euro, roiling currency markets and setting itself up as a big buyer of euro-zone assets. The central bank said that with immediate effect it will no longer tolerate the euro trading below 1.20 francs.

Gold Hits New High Spot gold returned to record-breaking territory, as risk aversion and a steadying dollar provided the right ingredients for a renewed move toward $2,000 a troy ounce.

Europe Signals Global Gloom International financial markets tumbled as a darkening global economic outlook and deepening fissures in Europe over its debt crisis fueled fears the world economy could slip into a period of prolonged malaise.

European Stocks Rebound From Two-Day Tumble The Euro Stoxx 50 of the biggest euro-area companies rose 0.9 percent to 2,125.15 at 11:38 a.m. in London after tumbling 8.6 percent over the previous two days. The gauge declined 14 percent in August amid concern global economic growth is slowing as Europe’s debt crisis spreads.

Europe Bank Shares Drop Battered European banks suffered further steep share-price declines on Monday as investors grew more concerned about the banks’ access to funds.

Obama Mulls Tax Cuts Beyond Republican Plans  In a speech to a union crowd in Detroit yesterday, Obama said he would challenge Republicans on taxes. “You say you’re the party of tax cuts?” Obama said before the annual Metro Detroit Central Labor Council rally. “Well then, prove you’ll fight just as hard for tax cuts for middle- class families as you do for oil companies and the most affluent Americans.”

Obama Speech: On Friday, Ed Henry quoted an unnamed presidential aide telling Fox News that while he didn’t want to “downplay the speech,” he needed to shoot down “the idea that this is the be-all and end-all.”

Fed ‘hawk’ Lacker says stimulus will only hit inflation Policymaker reveals extent of central bank divisions.

German Manufacturing Orders Fall German manufacturing orders fell sharply in July, initial data from the Economics Ministry showed. Seasonally-adjusted data for July showed new orders falling 2.8% compared with June. Foreign orders fell 7.4% on a monthly basis, while domestic orders increased 3.6%. The biggest monthly drop was in capital goods orders, which fell 7%, with foreign orders dropping 12.8% and domestic orders growing 3.6%.

Italy hit by anti-austerity strike The country’s largest labour union shuts down air, land and sea transport and curtailed other public services.

Italy: eurozone crisis decider If Italy becomes infected, the eurozone does not have the resources to rescue Rome.

Government bond spreads

Food Prices in China Continue Climb China’s food prices continued to rise last week with pork prices hitting a record high, signaling that inflationary pressures have yet to ease significantly.

World Bank Chief: Inflation China’s Top Concern World Bank President Robert Zoellick, on a visit to China, said inflation remains Beijing’s most pressing immediate concern.

Banks start mopping up more liquidity China’s commercial banks will put a total of 900 billion yuan ($140.79 billion) in reserve over the next six months starting Sept 5 as the government takes a new approach to mopping up market liquidity.

China Vanke sales fall 12.6% in Aug China Vanke Co, the country’s largest property developer by market value, said Sept 5 that its sales for August fell 12.6 percent from a year earlier.

Gap in US corporate pension plans hits $388bn Schemes’ assets worth only 77% of their liabilities.


Travel on all roads and streets rose 0.9% YoY in February 2011. Cumulative Travel for 2011 rose 0.6%. March stats will be more telling since prices spiked up late in February.

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Greek Deficit Exceeds Forecasts Greece’s budget deficit in 2010 was 10.5% of gross domestic product, significantly higher than forecast by either the Greek government or the European Union authorities.

Prices Jumping for Diapers, Other Family Basics Betting that parents are less stingy when it comes to junior’s needs, Kimberly-Clark and P&G, two of the country’s biggest makers of diapers and wipes, are pushing through price increases. Kimberly-Clark Corp. plans to raise prices on its Huggies diapers and wipes by 3% to 7% while Procter & Gamble Co. announced a 7% rise in prices for its Pampers diapers and 3% increase on wipes. Clorox Co., which reports next week, says it is raising the price of Glad trash bags by 9.5% beginning in May. The cost of some of its salad products, like Hidden Valley ranch dressing mix, will also rise.

The cost of goods sold for major beverage companies jumped 5% in the first quarter from a year ago, Goldman estimates, after declining in 2009 and increasing just 1.4% in 2010.

Quake Ripples at Ford, Johnson Reverberations from damages to Japan’s auto-parts makers are still being felt around the world. Ford idled plants in Taiwan, South Africa and China, while battery-maker Johnson Controls said the auto-makers’ cutbacks would shave third-quarter profit and sales.

Lee Warns of Further Inflation for U.S. Former Singapore Prime Minister Lee Kuan Yew said a stronger local currency could help ease inflation in the city-state, even as he warned of a continued weak U.S. dollar—and potentially more inflation—in the U.S.

Rousseff voices alarm as inflation nears bank limit Analysts warn of more rate rises. “We are immensely worried about inflation and there’s no situation under which the government would let its guard down when it comes to controlling inflation,” Ms Rousseff told reporters.

Yemen Protesters Accept Deal Yemen’s opposition coalition accepted a deal to remove President Ali Abdullah Saleh from power in exchange for immunity for himself and his relatives, clearing the way for the country’s first political transition in its modern history.

Syria Steps Up Violence At least 35 people were killed across Syria, as the government intensified its crackdown on antiregime unrest.

US policy shift builds pressure on Syria ‘Targeted sanctions’ signal change in western stance
Gideon Rachman: Egypt’s liberals are losing the battle   The crushing defeat of the liberal camp in the referendum came as a bad shock to them, since it was the first political trial of strength between Islamists and liberals since the revolution. It should serve as a wake-up call, galvanising liberals to unify and organise.

New-Home Sales Provide Small Lift New-home sales increased in March from an all-time low a month earlier, a small boost for a struggling part of the economy.

Silver: Is it different this time?

Fed Sweats Details of News Conference The Federal Reserve is doing some careful stage planning for its first-ever public news conference Wednesday afternoon following a two-day policy meeting.

US states face big pension gap Shortfall for retirement benefits put at $1,260bn

Bill Gates largest shareholder in CN The Microsoft Corp. founder now controls more than 46 million CN shares, or 10.04 per cent of the Montreal-based railway.

Barron’s Alan Abelson: Mr. Trump has chosen an auspicious moment for his political debut, what with concerns growing about the nation’s dangerous accretion of debt. For he’s the only candidate able to boast more than passing experience with bankruptcy: As we recall, one of the hotel and casino entities bearing his name has been forced to seek that ignominious refuge not once but three times when the wolves (politely known as creditors) began howling at its door.



Japan Sees Over $300 Billion in Damages The Japanese government said damage from the earthquake and tsunami that struck the northeast region would be more than $300 billion, raising the possibility that the economy may contract in the first half of fiscal year that starts April 1.

NRG Energy Casts Doubt on Reactor Plans NRG Energy’s CEO said the power company’s plans to build two big reactors at its South Texas nuclear plant could be delayed, or even canceled, in light of earthquake-related failures at a Japanese nuclear plant.

Canadian Government Likely to Fall The Conservative, minority government of Canadian Prime Minister Stephen Harper failed to win opposition-party approval for its budget, all but ensuring that his government will fall in coming days and be forced to seek new national elections.

Portugal Leader’s Fate Hinges on Budget Vote The future of Portuguese Prime Minister José Socrates hangs in the balance as the outcome of an austerity vote could lead to his resignation and push the government closer toward a financial bailout.

Housing Market’s Weakness Persists U.S. home prices fell for a third straight month in January, adding to evidence that the housing market is weakening even though the economy is improving


Dallas Fed President Richard Fisher: “I think it’s very important that a central bank keep its word. We’re only as good as our word because we have a faith-based currency. And people have to maintain faith that when the central bank says it’s going to do something it will get it done.”

Dallas Fed President Richard Fisher:

I speak to more business operators than most of my colleagues. We all have different compositions, but I’m the least academic. I’m the dullest knife in the drawer in that Committee. I survey some 50 businesses. What I’m hearing to a person, without exception, in every sector in every size whether they’re public or private is they’re all looking at ways to price more aggressively because their costs are going up. And that concerns me. And when you press them…you’re beginning to hear numbers in the 3%-plus level.

I spent last week in England, and in addition to meetings at the Bank of England I did what I like to do, which is I talked to quite a few business operators. I was hearing English business operators in my direct conversations talking about 4% not (being) so bad and that they might concede wages increase accordingly. That sends a shiver up the spine of any right-thinking central banker. So if it can happen in the U.K…it can certainly happen in the United States, and it can happen here in Europe.

Disruption in Japan Slows Rise in Oil Price  In addition to Japan’s nuclear power industry, the earthquake and tsunami also damaged nine oil refineries, disrupting nearly one-third of the country’s refining capacity. Many factories and businesses have ground to a halt, and vehicle traffic in Japan’s bustling cities has eased. Oil shipments have been curtailed by damage at seaports along the tsunami-ravaged coast that will take months to repair. All told, Japanese demand for oil has been reduced by an estimated 1 million barrels a day. That is nearly one-quarter of what Japan imports, and roughly the same amount of oil that has been withdrawn from world markets by the unrest in Libya.

Stress Tests Loom For Ireland’s Banks Looming stress tests on four troubled Irish lenders will attempt to reach a definite count of the losses lurking in their loan books but could still fail to restore confidence in Ireland’s banking system.

IMF Lowers New Zealand Growth Forecast The IMF lowered its growth forecast for New Zealand, in a further blow to the nation’s economy that is being squeezed by the cost of two earthquakes and continuing weakness in the housing and retail industries.


Martin Wolf charts

A chart of global vehicle sales



German Consumer Prices Rise 2.1% Consumer prices rose 0.5% from a month earlier in February.

U.K. Producer Prices Rise at Fastest Rate in 2 Years Output prices, those charged at the factory gate, rose 5.3% from a year earlier. Prices rose 0.5% from a month earlier, slower than January’s 1.1%. Producers’ input prices also rose at their fastest rate since October 2008, by an annual rate of 14.6%. That was an increase from January’s 14.1%. Core output price inflation—which strips out food, alcohol, energy and tobacco prices—dropped to 3.1% on the year from 3.2% a month earlier. Core factory-gate prices rose just 0.1% from a month earlier, down from January’s 0.7% increase.

Families Slice Debt To Lowest in 6 Years U.S. families —by defaulting on their loans and scrimping on expenses— shouldered a smaller debt burden in 2010 than at any point in the previous six years, putting them in position to spend more.



Pension Rates and Collective Bargaining The pension replacement rate, or percentage of a worker’s preretirement income that his pension replaces, varies widely from state to state. And it seems to bear little correlation to the percentage of state workers who are covered by a collective bargaining agreement.




Third-quarter results at U.S. corporations are soaring—with about 75% of the Standard & Poor’s 500-Index reporting thus far profits are up 36% over a year ago—. Based on current expectations, fourth quarter profit growth will fall to an 8.7% gain, according to S&P, and rebounding to a 23% gain in the first quarter of next year. Much of that, of course, depends upon how the economy performs and consumers fare over the next year.

Unfunded pension plans: Already analysts are projecting S&P 500 companies will face a record pension deficit this year. Bank of America Merrill Lynch put it at $380 billion at the end of September; the Analyst’s Accounting Observer had it at $424 billion as of August; and Credit Suisse projected $402 billion as of mid-September.

BNP Paribas Profit Rises 46% France’s largest bank by market capitalization, BNP Paribas, Thursday reported a 46% rise in third-quarter net profit to $2.7 billion.

DBS Profit Up on Trading DBS Group Holdings, southeast Asia’s largest bank by assets, posted a 28% rise to a record net profit in the third quarter on higher net trading income and investment gains, but earnings from the bank’s mortgage book continued to decline.

Alcatel-Lucent Returns to Profit Telecom-equipment maker Alcatel-Lucent swung to profit in the third quarter, driven mainly by strong demand in North America, India, China and Russia.

Time Warner Cable Profit Rises Time Warner Cable’s third-quarter earnings rose 34%, beating analysts’ estimates, as revenue increased, but the company lost subscribers.

Emerging Markets Lift Unilever Consumer-products group Unilever said third-quarter net profit rose 19%, boosted by growth in emerging markets.

Adidas Lifts Full-Year Forecast The sporting-goods maker said net profit in the three months ended Sept. 30 was €266 million ($375.6 million) compared with €213 million a year earlier. Revenue increased 20% to €3.47 billion from €2.88 billion. For the 2010 fiscal year, Adidas now forecasts sales to rise around 8%, driven by strong growth at Reebok, exposure to emerging markets and the 2010 soccer World Cup. Looking to 2011, Adidas said sales are now expected to increase at a "mid-single-digit rate," with a jump in net profit also expected.

Alstom’s Profit Slides 29% Alstom reported a 29% fall in fiscal first-half net profit as the costs of acquiring its new power grid unit weighed, but the company confirmed its full-year forecast even as orders remained sluggish.

BCE profit dips on tough competition  The company generated $528-million of profit and earnings per share of 70 cents, compared to $558-million and 72 cents during the same quarter last year – a drop of 5.4 per cent and 2.4 per cent respectively, results that were below or in-line with analysts’ estimates.

Suncor Energy (SU): Q3 EPS of $0.42 beats by $0.01.

Canadian Natural Resource (CNQ): Q3 EPS of $0.55 beats by $0.10.

DirecTV Group (DTV): Q3 EPS of $0.55 in-line. Revenue of $6B (+10.2%) in-line.

Burlington Resources (BR): FQ1 EPS of $0.10 misses by $0.02. Revenue of $421M (-3.8%) vs. $450M.