Archive for August, 2009

No need for second U.S. fiscal stimulus package: survey (Reuters)

Sunday, August 30th, 2009 | Finance News

WASHINGTON (Reuters) –
The U.S. economy does not need a second fiscal stimulus package, instead the government should cut spending over the next two years, according to a survey of business economists released on Monday.

Most economists in the National Association for Business Economics (NABE) semi-annual poll were concerned about the outlook for the U.S. government budget. Also, they doubted health-care reforms proposed by the Obama administration would lower costs while increasing access and maintaining quality.

"This is one of the fastest-moving and most controversial economic policy environments we have experienced in a generation," said NABE president Chris Varvares. "The more vexing policy challenges about which there is less agreement are federal health-care ... budget policies."

The government early this year stepped in with a $787 billion package of spending and tax cuts to break the worst recession since the Great Depression of the 1930s. Separately, it bailed out banks to prevent the financial system from collapsing.

Those actions left the economy saddled with a $1.58 trillion budget deficit in fiscal 2009, and a shortfall of about $9 trillion between 2010 and 2019.

The ballooning budget deficit is causing alarm and feeding into opposition to President Barack Obama's central policy priority of overhauling the U.S. health-care system, whose price tag is $1 trillion.

While economists in the NABE survey acknowledged that the stimulus package had helped to brake the pace of the economy's decline in the second quarter, only 35 percent viewed fiscal policy as being "about right".

Half of the respondents saw fiscal policy as too stimulative. About 266 members took part in the poll which was conducted between August 3-18. The U.S. economy contracted at a 1.0 percent annual rate in the second quarter after collapsing 6.4 percent in the first three months of the year.

"Fully 76 percent do not believe a second stimulus package is needed. Three-quarters responded that they would like to see fiscal policy become more restrictive over the next two years, but only 28 percent expect that it will be," the NABE said.

"In fact, the largest share, nearly 42 percent, expects fiscal policy to become even more stimulative than it is now."

Just over half believed that fiscal stimulus would add between 0.5 and 1.5 percentage points to gross domestic product growth in the second half of 2009, while over a third saw it as adding less than half a percentage point.

About 58 percent felt the stimulus would add between half and 1.5 percentage points to growth from the fourth quarter of 2009 to the fourth quarter of 2010, the survey showed.

Nearly 70 percent of economists believed that monetary policy was "about right". About 56 percent of respondents expected the Federal Reserve to keep interest rates unchanged over the next six months, while 44 percent saw an increase.

The Fed has cut interest rates almost to zero and pumped around $1 trillion into financial markets via a range of credit easing measures to prevent lending from freezing up, amid a global credit crisis sparked by the collapse of the U.S. housing market.

"Half of the economists do not believe quantitative easing actions of the Fed will be inflationary over the next couple of years, while 41 percent think they will," the NABE said.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)


Yen firmer as election over, busy week ahead (Reuters)

Sunday, August 30th, 2009 | Finance News

SYDNEY (Reuters) –
The yen was trading modestly firmer on Monday after the Democratic Party of Japan (DPJ) ousted the ruling Liberal Democratic Party in a landslide, so putting an end to election uncertainty.

Investors are now waiting to see exactly what policies the new government will follow and how it will differ from the old. DPJ officials have said they would respect the independence of the Bank of Japan and are unlikely to intervene to weaken the yen, maintaining Japan's five-year absence from currency markets.

The yen was quoted at 93.36 per dollar, compared to 93.56 in New York on Friday, and at 133.42 per euro from 133.80. The U.S. dollar was steady on a basket of currencies (.DXY).

"The reaction has been very muted as the differences between the party on policy are more of nuance than of substance," said Stephen Roberts, an economist at Nomura in Sydney.

"The DPJ may favor the consumer more, which ultimately could be favorable for the economy, but that's a long-run thing."

Analysts say the DPJ's policies are unlikely to threaten the economy's gradual recovery from its worst recession in 60 years, since the party has given priority to reviving the economy over fixing state finances.

The party plans to fund spending plans by mostly cutting waste, although economists worry that their pledge not to raise sales taxes could inflate an already huge public debt.

"Investors might be concerned about the potential for increased government spending if the DPJ chooses to expand bond issuance excessively, raising concerns about Japan's long-term fiscal stability," Geoffrey Yu of UBS wrote in a note.

On the other hand, if concerns over the U.S. dollar grow in the future, the market will be worried about the DPJ's policy in managing U.S. dollar denominated assets.

"In the past DPJ comments have suggested that the party does not want Japan to acquire more U.S. dollar denominated bonds. In this scenario, the dollar will come under heavy pressure against the yen," Yu added.

For more on recent comments from leading Democratic Party members on areas of economic and financial policy click on [nT331528]

Elsewhere, the euro slipped to $1.4288 against the dollar, from $1.4300 late on Friday, and still capped by the month's $1.4445 high with support around $1.4220.

Investors were cautious ahead of a busy week for data and central bank meetings. The U.S. payrolls report on Friday is expected to show a drop of around 225,000, which would continue the improving trend in the labor market.

Auto sales figures on Tuesday should show a boost from the "cash for clunkers" program, while the ISM report is expected to show a move into growth at 50.5.

Central banks meeting this week include the Reserve Bank of Australia, the European Central Bank and Sweden, while the Group of 20 meet in London on September 4 to 5.

(Reporting by Wayne Cole and Anirban Nag; Editing by James Thornhill)


U.S. second-quarter earnings tough to beat (Reuters)

Sunday, August 30th, 2009 | Finance News

NEW YORK (Reuters) –
For corporate America and Wall Street, the second quarter may be a tough act to follow.

Just as investors were closing the book on second-quarter earnings, Dell Inc (DELL.O) drew them back in by accidentally releasing earnings that beat expectations just minutes before Thursday's closing bell.

Despite this minor misstep by Dell, the world's No. 2 personal computer maker, investors reacted to the news the way they did to many other pleasant surprises this quarter -- by hungrily snapping up Dell's stock and lifting tech shares.

This was the pattern throughout the latest earnings period, as a bevy of surprises provided the fuel to drive the benchmark Standard & Poor's 500 Index (.SPX) up 11.5 percent since July 1. The rally lifted the S&P 500 to a 10-month high this week.

Intel Corp (INTC.O), which reported quarterly results that surpassed expectations last month, surprised the Street again on Friday morning by raising its revenue outlook.

But the broader market's initial euphoric response to the news soon fizzled. That left participants wondering: In the dearth of earnings, what will push stocks higher from here?

"This market has about as much good news baked into it as it can take," said Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets in Baltimore.

"We're at that point now where there is no more good news that could come out that can really juice this market."

For the past week, the S&P 500 rose 0.3 percent, while the blue-chip Dow Jones industrial average (.DJI) gained 0.4 percent. The Nasdaq Composite Index (.IXIC) also finished the week up 0.4 percent.


With just a handful of companies left to report, the S&P 500's second-quarter earnings are projected to decline 27.3 percent from a year ago, according to Thomson Reuters data. That compares with a forecast for a 36 percent decline from the year-earlier quarter at the start of the earnings period, and a 35.5 percent drop in the year's first quarter from the same period in 2008.

Some 73 percent of the companies that reported results beat estimates, well above the 61 percent average for a typical quarter, Thomson Reuters data showed.

Wall Street used the abundance of positive surprises as the catalyst to keep the stock market's rally going.

But it remains to be seen whether the broad market's buoyant reaction can be repeated in coming weeks.

Intel shares rose sharply, and boosted semiconductors, but the market itself struggled on Friday.

And even glittering results from jeweler Tiffany & Co (TIF.N), which reported a higher quarterly profit on Friday in tandem with cost cutting, could not get the market excited.

Analysts say expectations are not as dire as they were when headed into the second quarter. Estimates are for third-quarter earnings to decline 20.8 percent from a year ago. The change in expectations may reduce the impact of positive earnings guidance, which will start to trickle out in a few weeks' time.

"I don't think we will get surprises of the magnitude we got in the second quarter," said Hugh Johnson, chief investment officer of Johnson Illington Advisors, in Albany, New York.


Beside deep cost cuts, corporate balance sheets have benefited from stimulus packages, including the "Cash for Clunkers" auto program and other measures designed to kick-start sales, said Cummins Catherwood, managing director at Boenning & Scattergood in West Conshohocken, Pennsylvania.

"Are we just making a lot of money because we had artificial demand placed on top of very low overhead?" he said. "(The stimulus deals) are sucking sales out of the future. There's no question about it."

Should that be the case, stocks may be vulnerable headed into the seasonally soft September. David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates in Toronto, said car dealership surveys show traffic falling 10 percent from June's already low levels, and late-year growth is not assured.

Weak growth would expose the soft underbelly of corporations that were helped by cutting costs, but are still having trouble with sales. Revenue was down 14 percent year-over-year in the second quarter, compared with a 10.6 percent decline in the first quarter, Thomson Reuters data showed.

Analysts have been quick to point out that corporate earnings will falter without a boost in revenue, which has lagged as recession-weary consumers remain tight-fisted with money.

"A lot of the second-quarter euphoria was (due to) some good strategic cost-cutting measures," said Alan Lancz, president of Alan B. Lancz & Associates Inc., an investment advisory firm in Toledo, Ohio.

"There's only so much they can cut, and so now they are positioned well, (but) if we don't get that top-line growth, that's where we could have disappointment."

(Additional reporting by Chuck Mikolajczak; Editing by Jan Paschal)