Archive for August, 2011

Eurozone inflation data suggest no more rate hikes

Wednesday, August 31st, 2011 | Finance News

BRUSSELS – Inflation in the 17 euro countries remained steady at 2.5 percent in August, adding to expectations the European Central Bank will hold off from raising interest rates — and may even consider cutting them — as economic growth slows.

Wednesday's figure is still above the ECB's target of just below 2 percent, but underlines that prices in the eurozone are not rising as quickly as earlier in the year. In June, inflation was 2.7 percent.

Although European Union statistics agency Eurostat did not release a breakdown of the inflation data, the number adds to expectations that the ECB may not raise its key interest rate beyond the current 1.5 percent any time soon.

ECB President Jean-Claude Trichet said Monday that the central bank was reassessing inflation risks for the euro area, after insisting in previous months that there were strong upward pressures on prices.

Since then, however, the economic recovery in the eurozone has slowed amid concerns about the currency union's debt troubles. Even the region's economic powerhouse Germany expanded a meager 0.1 percent during the second quarter, signaling that the dire economic conditions in countries like Greece, Ireland and Portugal are starting to affect the continent's core.

"These data should help to convince the ECB that its earlier fears of a sharp rise in inflation were unwarranted, perhaps opening the door to interest rate cuts in the not too distant future," Jennifer McKeown, senior European economist at Capital Economics, wrote in a note.

Underlining the weakness of Europe's recovery were unemployment statistics showing hardly any improvement from a year earlier.

Eurostat said that eurozone unemployment remained high at 10 percent in July, after revising June's figure up from 9.9 percent. That's not far from the 10.2 percent unemployment in July last year.

Unemployment was highest in Spain, where 21.1 percent of people were out of a job. It was lowest in Austria, at just 3.7 percent, and the Netherlands, where it stood at 4.3 percent.

In the 27-country EU, which also includes non-euro countries, unemployment remained at 9.5 percent, after the June rate was revised up from 9.4 percent.

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Investors slash equities in August melt: Reuters poll

Wednesday, August 31st, 2011 | Finance News

LONDON (Reuters) – Global investors slashed their holdings of equities below 50 percent this month and piled into cash, reflecting what was lining up to be the worst August for world stocks since 1998.

They also lifted exposure to bonds in North America, Britain and, to a lesser extent, the euro zone, where Germany is considered a safe haven.

Reuters polls of 57 leading investment houses in the United States, Europe ex-UK, Japan and Britain showed the average stock holding in a balanced or model portfolio falling to 49.2 percent.

It was the lowest since at least February 2009, when the current questionnaire was introduced. July's reading was 52.2 percent, the second month in a row that it had risen.

Bond holdings rose to 36.1 percent in August from 35.3 percent. Cash -- where investors go in times of trouble -- jumped to 5.8 percent from 4.5 percent.

The moves came as investors fled riskier assets because of signs that the global economy is worsening. The month also saw the credit downgrading of the United States and the euro zone debt crisis continuing.

"While we had been expecting a 'soft patch' in terms of economic data during the summer months, the weakness evident in many macroeconomic releases has proven to be greater than many market participants had predicted," said Paul Amer, investment manager at Insight Investment.

MSCI's all-country world stock index, one of the broadest gauges of world stocks, lost around 7.75 percent in the month with less than one day of trading to go.

This was likely to be the worst monthly performance since May last year and the worst August since 1998, when it dropped more than 14 percent during the Russian default crisis.

Among the most radical moves in the past month was that by Germany's Deka Bank, which dumped all its equity holdings.

"Due to the ongoing turbulences following the sovereign debt crisis and a negative outlook on the economy, we decided to reduce the equity portion to zero," said Steffen Selbach, head of fund-based asset management.

REGIONALLY

U.S. money managers cut their exposure to equities in August and raised bonds.

The average allocation in August of equity assets fell to 63.0 percent from 65.4 percent the previous month, according to a poll of 14 U.S.-based asset management firms.

They had higher bond allocations at 28.7 percent compared with 27.6 percent in July. Cash holdings fell to 2.6 percent from 2.7 percent in July.

European investors slashed equities and sharply raised cash holdings.

The survey of 17 Europe-based asset management firms outside Britain showed a typical balanced portfolio held 41.2 percent of equities in August, the lowest in at least a year

Bond holdings, including government and corporate debt, stood at 41.9 percent, its highest in at least a year, compared with 41 percent last month. Cash holdings leapt to 10.4 percent from 6.8 percent in July.

Japanese fund managers cut their global stock weighting to a 12-year low in August and their average global bond weighting climbed to match a record high.

The poll of 12 Japan-based institutional investors showed the average equities weighting in model portfolios falling to 42.1 percent from 43.3 percent the previous month and marking its lowest level since January 1999.

Bonds rose to 49.6 percent from 49.0 percent and cash was lifted to 4.9 percent from 4.7 percent.

British fund managers also cut back on equities, but raised their cash holdings considerably.

The 14 funds in the UK poll held 50.4 percent of their money in stocks versus 52.6 percent in July. Bonds rose to 24.4 percent from 23.5 percent.

A fifth poll from China, not included in the overall aggregate because of differences in polling, showed Chinese mutual funds cut their recommended exposure to stocks to the lowest level in 14 months.

(Additional reporting by Herbert Lash in New York, Natsuko Waki and Chris Vellacott in London, Yoko Matsudaira in Tokyo, Samuel Shen and Kazunori Takada in Shanghai, and Bangalore Polling Unit. Reporting by Jeremy Gaunt; editing by Stephen Nisbet)

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Private sector adds 91,000 jobs in August

Wednesday, August 31st, 2011 | Finance News

NEW YORK (Reuters) – The pace of U.S. private sector job growth slowed in August for the second month in a row with employers adding 91,000 positions, a report by a payrolls processor showed on Wednesday.

Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 100,000 jobs. July's private payrolls were revised down to an increase of 109,000 from the previously reported 114,000.

August's gain was the smallest number of private jobs added since May's disappointingly small reading of 35,000.

The ADP figures come ahead of the U.S. government's much more comprehensive labor market report on Friday, which includes both public and private sector employment.

Economists often refer to the ADP report to fine-tune their expectations for the payrolls numbers, though it can be erratic in predicting the outcome.

"I don't think this was a bad number, and I don't think it changes people's forecasts for Friday's employment number. A small miss is not the end of the world, and we all know ADP can be unreliable, though it's been better lately," said Steven Butler, director of FX trading at Scotia Capital in Toronto.

The jobs report at the end of the week is expected to show a rise in overall nonfarm payrolls of 75,000 in August, based on a Reuters poll of analysts, and a rise in private payrolls of 105,000.

Government payrolls are expected to shrink for the ninth month in a row, but the decline may not be as steep as in the past three months since 23,000 state workers in Minnesota returned to the job after a partial government shutdown.

A strike by about 45,000 Verizon Communications Inc employees is also expected to put a dent in Friday's numbers. Neither factor affects the ADP report and Macroeconomic Advisers LLC Chairman Joel Prakken said that could cause nonfarm payrolls to be a good deal weaker than indicated by Wednesday's data.

While fears the economy is falling back into recession have increased this month, some of the recent data has been consistent with a slow-growth scenario rather than a contraction.

Slower than expected economic growth has fueled speculation the Federal Reserve could launch another round of bond buying -- known as quantitative easing -- but such a move would likely face political opposition both domestically and abroad.

Markets saw little impact from the data. Wall Street opened higher open as comments from Fed officials boosted hopes of more monetary stimulus.

A separate report earlier on Wednesday showed the number of planned layoffs at U.S. firms declined in August after rising for three months in a row, but the cuts were still up sharply from a year ago amid government job losses.

Employers announced 51,114 planned job cuts, down 23 percent from 66,414 in July, according to the report from consultants Challenger, Gray & Christmas, Inc. July's figure had been a 16-month high.

But August's job cuts jumped compared to a year ago, rising 47 percent from 34,768. Cuts at the federal government level led the way and more are expected to come with the United States under pressure to cut federal budgets, the report said.

The Mortgage Bankers Association said on Wednesday applications for U.S. home mortgages tumbled last week as demand for refinancing sagged for the second week in a row.

The industry group said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, dropped 9.6 percent in the week ended Aug 26.

But other data on the housing market was somewhat more cheery as U.S. home prices edged up for the fourth month in a row in July, while the yearly rate of decline moderated.

CoreLogic Inc's July home price index rose 0.8 percent from the month before. Prices declined 5.2 percent compared to last year, an improvement from June's year-over-year decline of 6.0 percent. June's yearly figure was revised from a decline of 6.8 percent.

(Additional reporting by Steven C. Johnson; Editing by Padraic Cassidy)

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