Blog - Financial News »

For the week ended July 2, 2009

Job losses mount
Manufacturing shrinks at slower pace
Housing market shows signs of recovery
Stock mutual funds mark largest quarterly gain in decade
ECB keeps rates on hold
Moody’s cuts Ireland’s debt rating
China’s manufacturing picks up, while Japan’s Tankan disappoints
U.S. stocks dropped in light trading this week after a worse-than-expected employment report deepened concerns that rising job losses will prolong the recession. The declines began one day after the Standard & Poor’s 500 Stock Index posted its best quarter since 1998. Improvements in manufacturing and home sales added to gains earlier in the week, presenting further proof that the worst of the recession may be over. U.S. markets will be closed on Friday in observance of Independence Day.

U.S. economic news

Job losses raise concerns about recovery…
Employers in the United States cut a more-than-expected 467,000 jobs in June, and the unemployment rate rose to 9.5%, the highest rate since August 1983. The U.S. economy has lost approximately 6.5 million jobs since the recession began in December 2007.

while manufacturing gauges signal worst may be over
The Institute for Supply Management reported that manufacturing, which accounts for 12% of the economy, shrank in June at the slowest pace in 10 months as inventories approached levels where production will have to pick up.

Housing market picking up
The National Association of Realtors reported that the number of Americans signing agreements to buy previously owned homes rose in May for the fourth consecutive month, a sign that sales may be stabilizing. In April home prices experienced the smallest drop in six months falling 18% as real estate values in 20 major cities fell from a year earlier, according to the S&P/Case-Shiller index. The Case-Shiller index has fallen by more than a third since the market peak in mid-2006. Many analysts believe prices must stop falling before a broader market recovery can begin. Mortgage delinquencies are still problematic, however, and a surge in their numbers sent stocks lower this week. Delinquency rates on the least-risky mortgages more than doubled in the first quarter from a year earlier.

Confidence drops
Consumer confidence unexpectedly fell in June, according to the Conference Board. The board’s survey showed that consumers are feeling worse about the current state of the economy and about where they expect it to be in six months. Only 17.4% of those surveyed said they expected more jobs to appear in the months ahead.

U.S. global and corporate news

Stock mutual funds mark largest quarterly gain in decade
According to Morningstar, U.S. stock mutual funds rose an average of 19% in the second quarter, marking the largest quarterly increase in almost a decade. It was the first time in almost a year that equity funds experienced a gain.

Earnings season begins next week
Earnings season kicks off next week. Analysts estimate that S&P profits will decline 34% in the second quarter and 22% in the third quarter of the year. They expect profits to rebound 62% in the fourth quarter, according to Bloomberg.

Car sales mixed
The drop in U.S. auto sales may have slowed in June, with analysts predicting that a stabilizing U.S. economy may have led car sales to their strongest month of the year.

Sales at Ford Motor, the healthiest of the Big Three automakers, dropped a smaller-than-expected 11% in June versus a year earlier, while Chrysler Group posted a steeper-than-expected 42% decline. At Chrysler car sales were down 48%, while truck sales fell 40%. Honda Motor and Nissan Motor both reported U.S. sales that were better than expected. General Motors, which filed for bankruptcy on June 1, and Toyota Motor posted worse-than-expected results. Toyota’s sales fell 32%; GM’s dropped 34%. This week, Toyota’s credit rating was cut two notches to “A+” by Fitch Ratings on concerns that demand for autos is likely to remain weak.

Global economic news

ECB keeps rates on hold
The European Central Bank kept interest rates unchanged at a record low of 1% and maintained its focus on nonstandard measures to revive the eurozone economy as it battles the region’s worst recession since World War II. The ECB will maintain the increased lending policy it began last week when it lent banks a record $621 billion for 12 months. It is hoped that banks will pass on cheaper credit to companies and households. The ECB will also start buying 60 billion euros of covered bonds this month to encourage lending.

Evidence that the U.K. recession is easing
The U.K. index of manufacturing rose more than expected in June to show the smallest contraction in more than a year.

Moody’s downgrades Ireland’s debt
Moody’s Investors Service cut Ireland’s credit rating one step, to “Aa1” from “Aaa,” citing the country’s rising debt burden and its “sudden and brutal economic and financial adjustment.” The European Union projects that Ireland’s economy will shrink by about 8% this year, which is a faster pace of decline than any other economy in the euro region. Its deficit is expected to soar to 10.8% of gross domestic product, more than three times the EU limit.

China’s manufacturing picks up, stocks soar
China’s manufacturing expanded for a fourth month as the country’s $585 billion stimulus plan and record bank lending revived the economy. The Shanghai Composite Index rose above 300 points for the first time in a year as the outlook for the global economy brightened. The country’s central bank advisor this week said the country’s recovery will be u-shaped with export growth returning to normal by 2010.

Japan’s Tankan weaker than expected
In Japan, the Bank of Japan’s Tankan index showed that sentiment among large manufacturers rose less than economists estimated in June. The survey cast doubt on the sustainability of the recovery in the country. Large companies reported they planned to cut spending at a faster rate than predicted three months ago as profits declined and factories lay idle amid weak global demand. The survey, combined with new concerns about a revival in industrial production, job prospects, and deflation, indicates that expansion experienced in the first-quarter may be short lived. Large manufacturers and service companies remain more pessimistic than they were at any time during the previous recession, which ended in 2002. Also this week, reports showed that Japan’s unemployment rate jumped to a five-year high of 5.2% in May, and wages fell for the twelfth month.

Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times.

Arturo E. Miranda C.
VP International Sales
Thales Securities