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Topwrap 8 – Some good signs in US economy, “but investors cautious”

Posted on: April 19, 2009


Reuters – Saturday, April 18

* GE, Citigroup beat Q1 forecasts

* U.S. stocks end higher for sixth week, oil prices gain

* California unemployment hits record 11.2 percent

* Euro zone Feb trade data shows exports off 24 percent

* GM says bankruptcy more probable

By Jackie Frank

WASHINGTON, April 17 – Bolstering hopes that the U.S. economy is stabilizing, Citigroup Inc <C.N> and General Electric Co <GE.N> on Friday posted better-than-expected results, and U.S. consumers reported more confidence, but the good news came packaged with warnings for the recovery.

Global stocks rose for a sixth straight week and oil prices rose above $50 a barrel on the upbeat mood of consumers and quarterly earnings. But the boost was tempered by caveats from both Citigroup — worried about deteriorating consumer credit — and GE — worried about fallout from commercial real estate losses.

For the week, the Dow Jones industrial average <.DJI> climbed 0.6 percent to 8,131.33. For more, see: [ID:nN17354641]. The dollar rose 0.96 percent against a basket of currencies at 86.02 and gold fell about 1 percent on the stock rally and dollar rise. [ID:nN17352506]

“The rate of deceleration in the economy is slowing,” said David Lutz, managing director of trading at Stifel Nicolaus Capital Markets in Baltimore, who pointed to signs of improvements in credit markets.

At the same time, the European Central Bank said bold, unconventional measures are needed to ensure recovery in 2010.

Although the banking industry’s problems are far from over, the smaller-than-expected loss from Citigroup, following good profit reports from Goldman Sachs Group Inc <GS.N>, JPMorgan Chase & Co <JPM.N>, Wells Fargo & Co <WFC.N> and others gave investors reason to believe government efforts to jump-start the economy are helping. [ID:nN17310824]

Banks would be the focus of any unconventional measures the European Central Bank unveils next month, ECB President Jean-Claude Trichet said. He is expected to join others in moving beyond rate cuts to spur the economy and credit markets.

“Confidence today relies equally upon the audacity of our immediate decisions and upon the soundness of our exit strategies,” Trichet said in a speech in Tokyo. [ID:nT254073]

Central banks in the United States, Japan and Britain have said they will buy debt from lenders in “quantitative easing” aimed at freeing up banks to lend more to firms and households — a step some analysts fear will trigger future inflation.

U.S. consumer confidence showed a rebound in April to the highest level since September, yet consumers still expected any economic recovery to come slowly, according to a Reuters/University of Michigan survey. [ID:nN17323537]

Federal Reserve Board Chairman Ben Bernanke on Friday called for more regulation of credit to protect consumers. In a speech in Washington, he said, “The damage from this turn in the credit cycle — in terms of lost wealth, lost homes and blemished credit histories — is likely to be long-lasting.”

Translation of the improved consumer feelings into retail sales cannot come too soon for the beleaguered U.S. car industry. General Motors Corp <GM.N> Chief Executive Fritz Henderson said bankruptcy was more probable for the once-formidable automaker.

CITIGROUP, GE BOOST

Citigroup’s shareholder loss for the quarter narrowed to $966 million, or 18 cents per share, from $5.19 billion, or $1.03, a year earlier. Revenue roughly doubled to $24.79 billion. Analysts on average had expected a loss of 30 cents per share on revenue of $21.73 billion, according to Reuters Estimates.

“It was slightly better than anticipated, but we probably underestimated how much government support would be a wind at their back,” said analyst Michael Holland, of Holland & Co in New York.

Viewed as a barometer of the economy because of the size and breadth of its operations, GE’s better-than-expected quarterly profit was attributed to strong performance at its large energy operation, which offset declines at the GE Capital finance and NBC Universal units.

“The numbers are showing stabilization in the global economy and in the performance of GE stock,” said Jim Hardesty, president of Hardesty Capital Management in Baltimore, which owns GE shares. “The result still wasn’t good, though.”

GE’s net income attributable to common shareholders fell 36 percent to $2.74 billion, or 26 cents per diluted share, down from $4.3 billion, or 43 cents per diluted share a year earlier.

Analysts, on average, looked for profit of 21 cents per share, according to Reuters Estimates.

The largest U.S. conglomerate said its order backlog — a key indicator for sales of electricity-producing turbines, jet engines and other heavy equipment — held steady at $171 billion, and its finance arm was headed to a profitable year.

GLOBAL ACTION

IMF Managing Director Dominique Strauss-Kahn said a “coherent and coordinated” response by countries was vital to recovering from crisis in 2010 and warned that the global economy faced “deeply negative territory” this year.

“Until this is done, attempts to restore demand are likely to falter,” he said in a speech late Thursday. [ID:nN16293353]

In a sign of slumping global trade has it the economy, euro-zone exports plunged by a quarter in February from a year earlier, and imports fell by more than a fifth.

The crisis threatens to create a “jobs crisis” in Britain this year, Danny Blanchflower, a member of the Bank of England’s Monetary Policy Committee, wrote in a newspaper article published on Friday.

In the U.S., in the most populous state, California, unemployment rose to a record 11.2 percent in March, and analysts expected another six months of job losses. The state’s rate was well above the national unemployment rate of 8.5 percent. [ID:nN17341199]

NEAR-TERM PESSIMISM

The central bank bosses of Japan and Switzerland underscored the tough months ahead as policy-makers tackle slowing economies and still-tight credit markets.

“Japan’s financial environment remains severe as a whole with more companies, regardless of their size, saying funding conditions and banks’ lending attitude are severe,” BOJ Governor Masaaki Shirakawa said in a speech. [ID:nT305532]

On Thursday, the head of the Atlanta U.S. Federal Reserve forecast a return to growth later this year, but the head of the San Francisco Fed warned of the potential for an even deeper contraction. [ID:n16263075]

 (Additional reporting by Scott Malone in Boston, Kevin Krolicki in Detroit, Dan Wilchins in New York, Jim Christie in San Francisco and Leika Kihara in Tokyo; Editing by Dan Grebler and Padraic Cassidy)

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