Disappointing housing data, optimism about permits
Groundbreaking for new U.S. homes fell more than expected in December to the lowest in over a year, suggesting the battered housing sector remains a major roadblock to economic recovery. U.S. housing starts dropped to an annual rate of 529,000 units, the Commerce Department said on Wednesday, down from November's 553,000 and well below forecasts around 550,000 in a Reuters poll. At current levels, starts account for less than a quarter of their boom-time peaks. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity rose 5% in the week ended January 14. At the same time, building permits soared, possibly a hint of optimism about future demand. Permits jumped 16.7% to 635,000, far above a median forecast of 560,000 and the biggest jump since June 2008. Financial markets had a muted reaction to the figures, though gold prices did hit a session high following their release.
Growth view rises according to Reuters poll
Recent evidence a U.S. economic recovery may be gaining traction has led economists to raise their forecasts for the pace of growth in the world's largest economy, according to a Reuters poll released on Wednesday. The poll of around 80 economists suggested U.S. gross domestic product will rise by 3.0% on an annualized basis in 2011, up from 2.7% in a similar poll in December and 2.3% in a November poll. The median of forecasts for 2010 GDP rose to growth of 2.9% from 2.8% in the December poll. Economic data from late last year spurred big revisions to forecasts for growth in the fourth quarter of 2010, which climbed to 3.4% from 2.5% in the December poll. Growth expectations for the first and second quarters of this year also jumped dramatically, to 3.2% from 2.7% and 2.8% respectively in last month's poll. According to some analysts, the upgrade was due to better data and more fiscal stimulus in 2011 than expected.
China visit to US lands Boeing with huge deal
The United States and China reached agreement on export deals worth $45 billion including a major contract with Boeing, the White House said on Wednesday at the formal start of Chinese President Hu Jintao's state visit. The agreements included China's final approval of a $19 billion contract to buy 200 Boeing aircraft for delivery between 2011 and 2013, which U.S. officials estimated would support 100,000 American jobs. Other deals involved Honeywell, Caterpillar and Westinghouse Electric, a unit of Toshiba Corp. Chinese companies had signed 70 contracts worth $25 billion in U.S. exports from 12 states. Altogether, the Boeing and other deals will support an estimated 235,000 American jobs, they said. According to Reuters, the deals appeared at least partly intended to answer U.S. criticism that China does not play by the rules as it amasses economic power and uses a number of policies to maintain a large trade surplus with the United States.
Inflation pressures in China
China finished 2010 with a bang, its growth soaring past expectations while inflation slowed less than expected, which could prod the government to tighten policy. Food costs, the main driver of Chinese inflation, have picked up in recent weeks. But other important December data, from factory output to investment, painted a picture of stable expansion, suggesting the world's second-largest economy was free from overheating, despite the surprise jump in growth.
China's annual gross domestic product growth sped up in the fourth quarter to 9.8% from 9.6% in the third quarter, the National Bureau of Statistics (NBS) said on Thursday, defying expectations for a slowdown to 9.2%. Consumer prices rose 4.6% in December from a year earlier, slowing from a 28-month high of 5.1% in November but staying above forecasts for a steeper fall to 4.4%.
Economists polled by Reuters forecast that Chinese consumer price inflation will average 4.3% this year, remaining above the government's target of capping it at 4%. Economic growth is expected to slow to 9.3% in 2011 from 10.2% notched up last year.
IMF and EU prepare new stress tests for banks
The International Monetary Fund is running a health check of top banks in Britain, Germany and three more countries just as Europe hammers out details of its own tougher industry "stress test." The round of IMF health checks in Europe will start in Britain, three sources told Reuters, to be followed by Sweden, the Netherlands, Germany and Luxembourg.
Separately, the European Banking Authority (EBA) plans a tougher test of Europe's banks than a health check last year, which was slammed for finding only a small capital shortfall just before spiraling problems at banks forced an international bail-out of the Irish government. The EBA's test will be based on a capital definition close to core Tier 1, rather than the less-strict Tier 1 ratios used last year, a person briefed by German regulators said. The number of banks tested will be similar to last year's 91. The EBA's process is expected to include a liquidity test, which was missing last year.
The tests come as a rating agency study found more than 30 of the world's top banks – including Credit Suisse, Bank of America and Mizuho Financial – have insufficient capital to withstand a big problem. Standard & Poor's said most banks had improved their capital adequacy in the past two years but many still fell short and the risk-adjusted capital (RAC) positions of banks was "generally a rating weakness."
Asian shares set for worst losses in five months
Cracks deepened in Asian equities on Thursday, with markets set to post their worst daily performance in more than five months. The MSCI index of Asia and Pacific shares excluding Japan fell 1.3%, retreating further from a two-month peak tested on Wednesday and set for its biggest daily fall since mid-August 2010 as investors booked profits. Emerging market equities have been the laggards so far in 2011 with the MSCI Asia ex-Japan index up just 0.3% so far this year compared to MSCI U.S. index, which was up 2% at the close of Wednesday.
According to Reuters, a combination of investor fatigue after record performances in 2010 along with rising inflationary pressures, particularly in Indonesia and India, have prompted investors to rotate funds out of emerging markets and into developed markets. Both Poland and Brazil delivered interest rate hikes this week with India expected to follow with another quarter point rate increase next week.
Flying euro, falling dollar
The euro rose to an eight-week high on Wednesday on increasing optimism that Europe can defuse its debt crisis. Traders said Asian sovereigns were again big buyers of the euro, forcing enough short-covering to help it outperform the U.S. dollar for the seventh session in the last eight. The euro climbed more than 1% to hit a session high of $1.3538 after slumping last week to a four-month low of less than $1.30 on worries that a debt crisis that had engulfed Greece and Ireland in 2010 would spread. Solid bond auctions in Spain and Portugal have boosted spirits and talk that German officials were drafting contingency plans in case Greece defaults suggested they were working to prevent a deeper crisis. The dollar was down against a basket of major currencies, with the U.S. Dollar Index off 0.48% at 78.586.
Opening prices of currencies
$ per € 1.3437 -0.27%
$ per £ 1.5955 -0.26%
¥ per $ 82.14 +0.22%
¥ per € 110.37 -0.05%
€ per £ 1.1871 +0.03%
Prices are from 1030 CET
Cold morning on the exchanges
Stocks in Tokyo were poised to open lower, with the March futures contract that trades in Chicago for the Nikkei 225 down slightly by 10 points at 10,475. The Standard & Poor's 500 Index suffered its biggest decline in nearly two months after disappointing results at Goldman Sachs Group Inc and Wells Fargo & Co. Financials and technology stocks have fueled a surge that has pushed the benchmark index up nearly 10% since the start of December, leading some investors to say stocks are primed for a pullback. The Dow's decline was limited by International Business Machines Corp, which climbed 3.4% following the release of strong earnings after the close on Tuesday. Japan's Nikkei, which has raced up 14% since November, fell 1.1% after weaker-than-expected earnings by key U.S. technology and banking firms and strong Chinese growth data. Foreigners were net buyers of Japanese equities last week for the 11th straight week, with buying at a 9-month high, data showed, but market players said the trend could be nearing its end after the Nikkei's sharp run-up in recent months.
Opening of world stock indices
FTSE 100 5,926 -0.85%
S&P 500 1,282 -1.01%
Eurofirst 300 1,148 -0.40%
Nikkei 225 10,437 -1.13%
Shanghai Comp 2,678 -2.92%
DJIA 11,825 -0.11%*
DAX 7,053 -0.43%*
Data is in the given exchange’s currency, prices are from 1030 CET
* change at previous day closing
Oil stays shy of $100
Brent oil futures rose above $98 a barrel on supply concerns in the North Sea, but worries in the equity market about the economic recovery kept prices off the key $100 level and saw U.S. crude ease for a second day. ICE Brent crude for delivery in March rose 36 cents to settle at $98.16 a barrel. U.S. crude oil futures for February delivery fell 52 cents to settle at $90.86 a barrel, one day ahead of the contract's expiry, in relatively thin trade. Copper retreated from a fresh record high in London, as profit-taking pressures mounted in response to weak U.S. equities and another large build in London inventories. Gold rose for a third straight day on a weaker dollar and strong Asian physical demand, while an improving global economic outlook took platinum and palladium to multiyear highs. U.S. gold futures rose $2 to settle at $1,370.20.
Opening prices of commodities
WTI Crude $90.25 -0.67%
Brent Crude $97.68 -0.49%
Gold $1,368 -0.18%
Copper $4.32 -1.03%
Corn $6.43 +0.27%
Prices are from 1030 CET
IBM shares rose more than expected
International Business Machines Corp's quarterly profit blew past Wall Street estimates, and a long-hoped-for recovery in its services business raised optimism that global companies were confident enough to spend more on technology. IBM shares rose 2.7% after-hours after the company reported fourth-quarter net income rose 9% to $5.3 billion. Its earnings per share of $4.18 easily exceeded its $3.59 of the year-earlier quarter and Wall Street's average forecast of $4.08, according to Thomson Reuters I/B/E/S. IBM, which has been shifting its focus from commoditized hardware to higher-margin services and software over the past decade, said it signed services contracts worth $22.1 billion during the quarter, up 18%. IBM's price-to-earnings ratio of 12 lags behind multiples of around 14 for both Oracle Corp and Accenture but is higher than those of Dell Inc and Hewlett-Packard Co., Reuters pointed out. The shares rose to $154.80 after closing earlier on Tuesday at $150.65, up 5.5% from 3 months ago.
Solid earnings likely for key U.S. aerospace firms
U.S. suppliers of planes and aircraft parts are likely to post solid quarterly results on better air traffic as defense contractors are challenged by a tough budgetary environment. Rockwell Collins will kick off a round of financial reporting for aerospace and defense companies on Thursday. Next week, investors will be eyeing 2011 outlooks from key companies including plane maker Boeing Co, defense industry leader Lockheed Martin Corp and missile maker Raytheon Co.
Analysts expect U.S. aerospace companies to benefit from rising plane orders and higher demand for parts and maintenance as global airlines rebound from the economic downturn. Boeing this week revised its delivery schedule for the 787 Dreamliner, bringing a sense of relief after a November electrical fire on a test plane cast doubt over the program. For 2011, analysts expect Boeing to report a profit of $4.54 a share, up from the $4.00 consensus estimate for 2010, according to Thomson Reuters I/B/E/S. Many defense companies, on the other hand, could face slower growth as global governments look to trim budget deficits.
Apple's bright view outshines Jobs's plight
Apple Inc landed blockbuster results and a strong outlook on dazzling sales of the iPhone and iPad, making investors hope that visionary CEO Steve Jobs's medical leave will have no impact on growth. Jobs is seeking medical treatment for an unspecified condition for an indefinite time. Apple reported earnings for the fiscal first quarter ended December 25 of $6 billion, or 6.43 cents a share, up 78% from a year-ago net profit of $3.4 billion, or $3.67 a share. Revenue rose 71% to $26.7 billion, much better than Wall Street's forecast for revenue of $24.4 billion.
All key product lines exceeded expectations. The company sold 16.2 million iPhones in the quarter, up 86% from the year-ago quarter. It also had strong sales of 7.33 million iPads, and Mac sales rose 23% on a unit basis to 4.1 million units. Executives again said they could not build enough iPhones to meet demand. But it was the iPad, which executives claimed about four out of five Fortune 100 companies were now field-testing, that caught investors' attention. And at more than 7 million sold versus the roughly 6 million expected, Apple's iPad has not only virtually created the tablet market, but has become a significant slice of business for the consumer electronics powerhouse.
Strong sales in the Asia Pacific region also kept growth sizzling: Apple saw revenue nearly triple to some $5 billion in the first quarter, propelled by a booming market in China.
Cargill to spin off its majority stake in fertilizer producer
Agribusiness giant Cargill Inc plans to spin off its $24 billion majority stake in Mosaic Co, a move that could eventually lead to a takeover of Mosaic, the world's second-largest fertilizer producer. The distribution of the 64% stake in Mosaic will allow Cargill to maintain its private company status while enabling Cargill family trusts to diversify their holdings, Cargill said. Mining investment bankers said Cargill's spin-off could put Mosaic in play, with global mining giants being the likely bidders.
Goldman profit slides as bond trading wilts
Goldman Sachs Group Inc posted a 53% decline in fourth-quarter profit as trading revenue tumbled, dashing hopes that the Wall Street bank had bucked a tough trading climate in debt markets. Quarterly net income after payment of preferred stock dividends fell to $2.23 billion, or $3.79 per share, from $4.79 billion, or $8.20 per share, a year earlier. Net revenue declined 10% to $8.64 billion. Profit fell for a third straight quarter, and revenue fell short of estimates, with year-over-year declines in investment banking and most other business segments. Goldman shares closed down $8.19, or 4.7%, at $166.49 on the New York Stock Exchange, their biggest one-day percentage decline since last April 30, Reuters data showed.
Alibaba, partners to spend up to $4.5 billion on logistics
Alibaba Group, China's largest e-commerce firm plans to invest up to $4.5 billion to set up a network of warehouses across the country to tap into a growing appetite for online shopping. The $3-4.5 billion investment will be made over three to five years and will be aimed mainly at building warehouses and logistics firms, the company said on Wednesday. Alibaba Group is planning to reach 52 cities instead of the current 20.
Jack Ma, the founder of Alibaba Group believes that China's logistics market is fragmented and customer service for goods bought on the Internet could be improved. China's e-commerce market was worth 119.1 billion yuan ($17.93 billion) in transaction value in the second quarter, of which Alibaba unit Taobao, a consumer-oriented shopping website, had a 75.2% market share. Taobao, which handled online transactions worth around 400 billion yuan ($60.77 billion) in 2010, will look to provide value added services in logistics, an Alibaba executive said. Taobao's daily orders could reach 20 million in 2012, up from 8 million currently, Ma said.
EBay profit beats estimates, forecast is bullish
Online marketplace eBay Inc exceeded Wall Street profit estimates for its holiday fourth quarter, helped by more items sold and at higher prices, and gave a bullish 2011 outlook. Its shares rose 1.7% in after-hours trade. EBay is in the last year of a three-year plan to turn around its marketplaces business, which connects online buyers with sellers. The company, which pioneered the online auction, is hoping to prove to shareholders that improvements to its site and user experience, including a more targeted search engine and daily deals, is encouraging traffic and delivering more consistent sales. For the full year, eBay expects adjusted earnings of $1.90 to $1.95 on revenue of $10.3 billion to $10.6 billion. That compares with the $1.85 per share on revenue of $10.19 billion expected by Wall Street. Net income for the fourth quarter was $559.2 million, or 42 cents per share, compared with $1.36 billion, or $1.02 per share, a year earlier.
Google expected to show Q4 jump
Google Inc is expected to report a 22% jump in fourth-quarter revenue thanks to a busy holiday season, though it will face questions about long-term growth when it unveils results on Thursday. Google, which is facing increased competition from social networking giant Facebook and iPhone maker Apple Inc, has embarked on a recruiting and acquisition spree, adding more than 3,500 employees to its payroll in the first nine months of 2010 and buying dozens of companies. In October, Google gave investors what it said was a "one-time" peek at some of its businesses beyond search, showing that it was generating $2.5 billion in revenue from display advertisements on an annualized run rate, and $1 billion from its mobile business.