2010/08/02 15:47DJ German Min Urges Banks To Repay State Funding Quickly - Report
FRANKFURT -German Economics Minister Rainer Bruederle is asking banks to step up efforts to repay state funds used to prop up banks during the financial crisis, the daily Handelsblatt reports Monday. 'I hope the federal government will be able to entirely withdraw from Commerzbank AG (CBK.XE) at the latest within three years,' Bruederle is quoted as saying. Bruederle added there is hardly anything worse than government participation in banks. 'This sort of thing must remain an absolute exception,' he said. Germany's state-controlled Landesbanken will require state funds for several years longer, but rapid consolidation among these banks would be desirable, Bruederle added. This is the first time a German government official has set a deadline to repay the funds. The finance ministry has said there is little point to setting a deadline, since repayment depends on the situation of the individual finance institution. Newspaper website: http://www.handelsblatt.com
2010/08/02 15:26DJ Tokyo Shares End Up On Short-Covering, Robust Earnings Reports
TOKYO -Tokyo stocks rose on Monday on a combination of short-covering after the prior session's fall, and robust earnings reports from bellwether companies such as Honda Motor and Sumitomo Corp. The Nikkei Stock Average rose 33.01 points, or 0.4%, to 9570.31 following Friday's 1.6% sell-off. The Topix index of all the Tokyo Stock Exchange First Section issues also rose 1.19 points, or 0.1%, to 850.69. Shares rose from the open as investors covered short positions with the yen easing from Friday levels against both the dollar and the euro, while strong earnings reports from heavyweight companies kept enthusiasm relatively high until afternoon profit-taking in the futures market trimmed most of the early gains. 'With a U.S. jobs report coming out on Friday, investors will keep close tabs on currency developments,' said Phoenix Securities manager Mamoru Nakajo. His futures range for this week is 9400-9700. September Nikkei 225 futures closed up 30 points, or 0.3%, at 9560 on the Osaka Securities Exchange. Earnings reports were key individual share drivers as a slew of high-profile and blue-chip firms reported business results after Friday's market close. Among them, Honda Motor's record first quarter net profit and surprise upward revision to its full-year net and operating profit outlooks--based largely on strong sales in Asia--helped power its shares to a 4.0% gain to Y2,818 on heavy volume. 'It's a little difficult to digest positive earnings figures while the market is nervous about the strong yen,' said Yoshihiro Okumura, general manager at Chibagin Asset Management. The dollar was seen trading against the yen at the mid-Y86 level as of 0600 GMT, well under Honda's new repatriation rate assumption of Y87 for the full fiscal year. Trading company Sumitomo Corp. also closed up 6.6% at Y979 as investors priced in its strong first quarter. Although the firm actually released its results during market hours on Friday, the sour overall market mood meant investors couldn't buy the stock even if they wanted to, according to one fund manager at a Japanese asset management firm. Sumitomo said its on-year net profit nearly tripled to Y58.2 billion, and while it didn't formally raise its net profit target for the full fiscal term, it expressed confidence that results would beat its own Y160 billion target. Sumitomo also benefited from a Nomura Securities upgrade to Buy from Neutral. All Nippon Airways also closed up 2.4% to Y300 after its net loss narrowed sharply in the latest three-month business period. Bank Of America Merrill Lynch said one point of interest is how much demand the firm can expect from the Haneda airport expansion. Nomura Holdings closed up 1.5% to Y488 after posting a profit for its April-June quarter, which struck some as a surprise. 'A lot of people were expecting the company to post a loss,' one Japanese brokerage manager said. Nevertheless, Nomura's group net profit plunged 80% in the quarter on-year, as recent volatility in financial markets weighed on trading revenue. Tokyo Electron also ended up 2.4% at Y4,750 after the semiconductor production equipment maker said Friday it returned to the black in its April-June quarter on increasing demand for personal computers and digital home appliances. For the fiscal half, the company also plans to lift its dividend to Y34 per share, up from the its previously predicted Y25. Seiko Epson rose 10% to Y1,249 after it forecast a net profit against an earlier-projected net loss, mainly on solid printer sales and semiconductor demand. On the other hand, Sumitomo Heavy Industries dropped 7.9% to Y466 after disappointing investors on the lack of any positive surprise in its Friday earnings release. Its first quarter net profit was up over 93% on-year, but revenue still declined almost 14%.
2010/08/02 15:01DJ Forex Options: Yen Options Up As Dollar Nears Key Y85 Mark
TOKYO -Dollar/yen currency options rose in Tokyo Monday as the greenback's nearing to a psychologically important mark of Y85.00 last week increased demand for hedging. The U.S. unit fell to Y85.95 last Friday, its lowest since Nov. 30 when it touched Y85.86. Investors said they are willing to push the dollar down to below Y85.00, a level last visited on Nov. 27. Such a level would not be welcomed by Japanese exporters, who are therefore showing increased interest in buying hedge contracts against the dollar's downside risk. As a result, the benchmark one-month at-the-money implied volatilities rose to 10.65%/11.35% from 10.45%/11.15% Friday. An options dealer at a major Japanese bank said they may rise to 12% or above in the near term. So far in Asia Monday, few investors have actually bought contracts because the greenback has recovered to the mid-Y86 level. They may start buying in earnest, though, if the dollar falls below Y86 again, the dealer said.
2010/08/02 14:22=DJ BIG PICTURE: Weak Labor Cost Data Darken Consumer Outlook
NEW YORK -To get a handle on the outlook for the recovery, look past Friday's gross domestic product report and focus on a report released at the same time: the employment cost index for the second quarter. Compensation is barely growing and that highlights an obstacle to growth: consumers--even those with jobs--are strapped for cash. Without household spending rising at a healthy clip, the recovery will struggle to gain traction. Employment costs for civilian workers rose a mere 0.5% in the second quarter. Benefits, up 0.6% in the quarter, outpaced wages and salaries, up 0.4%. On a year-over-year comparison, wages and salaries are up 1.6%. While that is slightly better than the 1.5% yearly gain in the first quarter, it's down from 1.8% in the second quarter of 2009 and 2.9% averaged in the last expansion that began end-2001 and lasted to 2007. Benefit costs--comprising 30% of the employment cost index--have also slowed dramatically, rising 2.5% over the past year, from almost 5.0% in the past expansion. Businesses have been able to pare down labor costs dramatically during this downturn by cutting pay, freezing retirement-fund contributions, and reducing non-mandated benefits. That has been great for profits. The benchmark revisions to three years of data, released with the second-quarter GDP report, showed corporate earnings mushroomed 38% in the year ended in the first quarter, but wage and salaries edged up just 0.6%. While economy-wide profit numbers aren't available for the second quarter, the yearly gain for wages and salaries accelerated to just 1.1%. Without fatter paychecks, consumers--whose spending accounts for 70% of GDP--cannot lead the recovery. Household spending ratcheted down slightly in the second quarter, growing at an 1.6% annual rate from 1.9% in the first. Overall real GDP rose 2.4%, just a notch below expectations. The benchmark revisions lowered the level of first-quarter real GDP by about $100 billion, implying a bigger gap between where the economy is and where it should be given trends in labor and capital. As a result, it will take even longer before the unemployment rate comes down to more normal levels that make it easier for workers to negotiate bigger raises. Businesses, on net, are finally hiring, but workers also need pay raises and longer workhours, whether through overtime or by transitioning from part-time to full-time. Only then will incomes grow at a faster pace, allowing consumers to both repair balance sheets and boost spending. Consider that after the severe 1981-82 recession, the bounceback in the labor markets was so strong that wages and salaries grew 3.5% in the first year of recovery compared with 1.1% rise posted in the second quarter, assuming the recession ended last summer. It's not that workers, for the most part, can't justify a pay increase. Productivity has boomed: First-quarter output per hour worked at nonfarm businesses jumped 6.1% from a year ago. In turn, unit labor costs plunged 4.2%. Second-quarter productivity and costs will be released August 10. One small sign that incomes may be turning around came from the Institute for Supply Management-New York's July business survey released Friday. In a special question, the ISM-NY asked about compensation. The majority of companies--85%--expect to hold compensation steady over the next six months, while 15% planned raises. No companies reported plans to cut pay. While not spectacular, these results are a big shift from a year ago. In July 2009, no companies planned to raise pay, while 13% expected to cut compensation.
2010/08/02 13:32DJ Japan Domestic Auto Sales Up 15% On Year In July
TOKYO -Japan's domestic sales of new cars, trucks and buses increased 15.0% from a year earlier in July, rising for the 12th consecutive month, the Japan Automobile Dealers Association said Monday. Sales totaled 333,403 vehicles in July, up from 289,927 in the year-earlier month, the association said, as government buying incentives continued to support demand. Auto sales, as measured by registrations of vehicles with the government, are monitored by economists since they are the first consumer spending numbers released each month. The figures don't include sales of mini-cars or mini-trucks. Web site: http://www.jada.or.jp
2010/08/02 10:27=DJ FED WATCH: Fed's Easing Debate To Intensify As Economy Softens
WASHINGTON -As bad news about the U.S. economy continues, the debate within the Federal Reserve on what can be done about it will intensify. It was just over a month ago the Fed downgraded its outlook for the economy slightly, citing the financial market fallout from Europe's debt crisis. But those forecasts already look too rosy. Friday's second-quarter gross domestic product report from the Commerce Department, which included downward revisions of growth estimates all the way back to the start 2007, serve as further evidence the U.S. economy remains weak. Growth slowed sharply in April to June to a 2.4% annualized rate as consumers contributed less to growth and imports were a big drag. The recession was deeper and subsequent recovery slower than earlier believed, the government revisions showed. At its last meeting June 22-23, the Fed's policy-setting body trimmed its GDP prediction to around 3.3% this year and to some 3.8% in 2011. Fed Chairman Ben Bernanke stuck to that scenario in testimony before Congress last week, probably more out respect for the Federal Open Market Committee than because he's convinced they are still right.Since the June meeting, there have been increasing signs that the recovery is losing momentum and could be stalling. June retail sales and consumer confidence indicators point to a slowdown in consumer spending from already low levels. The unemployment rate remains painfully high, giving little hope that Americans will boost shopping again any time soon. Housing is still in the doldrums and the expansion in manufacturing is slowing. In its latest beige book out this week, the Fed said activity ground to a halt in several areas of the U.S. in June and the first half of July.Economic predictions by private-sector economists may be closer to the mark. In the latest Wall Street Journal survey published July 15, they forecast, on average, that growth will come in just below 3% both this year and next.'If I look at the Fed's forecasts, I think they're behind the curve,' said Laurence Meyer, a former Fed board governor now with economic consulting firm Macroeconomic Advisers LLC. He added the Fed will almost certainly downgrade its economic outlook again when central bank officials next meet Aug. 10.Up until June, the economy looked to be on course for a steady, if moderate, recovery. Accordingly, the Fed's focus was on its 'exit strategy,' or how it would unwind the massive stimulus used to fight the deep recession so as to avoid an outbreak of inflation later on. After the string of disappointing economic reports of the past few weeks, a 're-entry strategy' could be the main topic of conversation when Fed officials next meet in 10 days.Bernanke said last week the Fed stands ready to act if the economy doesn't continue to improve, but cautioned officials have not fully reviewed their options yet. The Fed can do little with the benchmark tool it traditionally uses to steer the economy since short-term interest rates are already close to zero.But the Fed has at least three options left: It could signal to markets that interest rates will stay near zero for longer in the policy guidance statement released after its next meeting; it could lower the interest rate on reserves banks place at the central bank; or it could revive a program used during the crisis and buy mortgage bonds and Treasurys.If 2011 growth forecasts are cut to around 2.5%, the Fed could change its policy guidance, reduce the bank interest on reserves, and/or reinvest the mortgage bonds that expire, according to Macroeconomic Advisers economists Meyer and Antulio Bomfim. Anything below that would prompt the Fed to buy assets and expand its balance sheet again.Within the Fed, the first signs of debate on a re-entry strategy emerged on Thursday.St. Louis Federal Reserve President James Bullard, a voting member in the FOMC who is usually more worried about inflation than a weak economy, suggested he's now more concerned about deflation. In order to avoid a Japanese-style weak economy with falling prices, he said buying government debt would be more effective than just promising to keep interest rates low for an 'extended period.'Refuting this view, Federal Reserve Bank of Dallas President Richard Fisher, who doesn't have a vote on the Fed's policy-making body this year, said he sees little left for the central bank to do to buoy the economy.
2010/08/02 09:52DJ Japan PM Kan: BOJ Cooperating Significantly With Government
TOKYO -Japanese Prime Minister Naoto Kan indicated Monday he is content with the Bank of Japan's efforts to beat deflation, saying the central bank is closely cooperating with his administration.'My understanding is that from a practical standpoint, (the central bank) is working with us in a significantly coordinated manner,' Kan said during the session of the Lower House's Budget Committee.
2010/08/02 08:54DJ Japan Fin Min Noda: Excessive Forex Moves Bad For Econ
TOKYO -Japan's finance minister reiterated Monday that excessive volatility in foreign exchange rates could hurt economic activity, signaling his discomfort with the yen's renewed strength. 'Excessive fluctuations or disorderly movements (in foreign exchange rates) are not desirable for the stability of economies and financial markets, and from this perspective, I will properly monitor daily market movements,' Yoshihiko Noda told reporters at the Ministry of Finance. Rises in the yen could take steam out of Japan's export-driven recovery, by making the nation's products less competitive on global markets, and by reducing the yen value of international trade gains.
