Week in Review: Upbeat U.S. economy and tight eurozone finances highlight quiet week
For the week ended December 30, 2011
U.S. consumer confidence rises
- U.S. retailers have merry Christmas
- Weekly jobless claims up; four-week average drops
- Eurozone private lending tightens
- Japanese industrial output slumps
Several encouraging U.S. economic reports pointed to improvements in the job market, housing market, and overall outlook, helping to keep the quiet holiday trading week on the bright side. U.S. consumers are reportedly more confident, jobless claims trended downward in December, and retailers had stronger sales this Christmas season than a year earlier.
Overnight borrowing from the European Central Bank spiked Thursday, to its highest point since February, as eurozone banks sought to keep cash flowing and meet year-end capital requirements. Meanwhile, private lending in the eurozone is tightening as cautious bankers are less reluctant to take on risk. In a sign of a slight gain in bond buyers' confidence, yields dropped on Italy’s government bonds from a month earlier. However, 10-year Italian bond yields remained stubbornly high. Overall, the markets had a mild and quiet week on light trading and minimal volatility.
U.S. and global economic news
ECB overnight loans jump
European Central Bank overnight loans to eurozone banks spiked Thursday to more than €17.3 billion, up sharply from €4.3 billion a day earlier. Two factors appeared prominent –– the need for liquidity amid a strain in private sector lending as well as the need to meet certain end-of-year capital requirements.
U.S. consumer confidence rises
Confidence among U.S. consumers hit an eight-month high in December, reflecting an improving job market. The Conference Board’s index rose to 64.5, up from 55.2 in November. The Bloomberg Consumer Comfort Index also improved, rising to -45 in the week ended December 18, from -49.9 a week earlier, its biggest weekly gain since January.
U.S. pending home sales hit 19-month high
More Americans agreed to buy an existing home in November than in any month since April 2010. The National Association of Realtors’ seasonally adjusted index for pending sales of existing homes rose 7.3% to 100.1. However, the Standard & Poor's/Case-Shiller Home Price Indices in 20 cities fell 3.4% from October 2010 to October 2011 as foreclosures continued to weigh on the U.S. housing market.
Christmas season was merry for U.S. retailers
U.S. retail sales are headed for a 3.8% rise in November and December from a year ago, according to the International Council of Shopping Centers. Retailers started the Christmas season with a surge of sales over Thanksgiving weekend, and they benefited from a last-minute surge of shoppers lured by extended hours and large discounts.
Weekly jobless claims rise; four-week average drops
Although initial claims for U.S. unemployment benefits rose 15,000 to a seasonally adjusted 381,000 for the week ended December 18, the four-week average eased 5,750 to 375,000, its lowest level since June 2008.
Eurozone private lending tightens
Private sector lending in the eurozone fell in November to its lowest level in more than a year, signaling tightening monetary conditions. The European Central Bank reported that private sector lending fell 0.1% from October to November. Fears of a eurozone credit crunch are growing as banks become increasingly cautious.
Italy’s bond yields ease, as confidence rises
Yields on some Italian government bonds fell substantially this week from elevated yield levels in late November. Comparing yields with those issued one month earlier, six-month bills yielded 3.251%, down from 6.504%, and three-year bonds sold for 5.62% down from 7.56%. However, 10-year bonds were priced at 6.98%, lower than November’s 7.56%, but still very elevated.
Spain’s projected budget deficit grows
The Spanish government says its budget deficit will be much larger than earlier forecast, growing to close to 8% of the country’s gross domestic product, up from 6% of GDP. As a result, Spain is introducing a €8.9 billion austerity package, including tax increases and the freezing of civil servants’ salaries.
Japanese industrial production falls
Industrial production in Japan fell 2.6% in November, largely as a result of flooding in Thailand, a key production center for Japanese manufacturers. Other factors included the global economic slowdown and the yen’s rise. However, forecasts for December and January are strong. Japan’s Ministry of Economy, Trade and Industry forecasts a 4.8% increase in output in December and a 3.4% rise in January.
U.S. and global corporate news
Sears to close 100+ stores
Sears Holdings expects to close 100 or more underperforming stores to cut costs as the company continues to struggle with sales declines. Sears reported that same-store sales slid 5.2% so far this quarter. The company, which has close to 2,200 Kmart and Sears stores, could generate $140 million to $170 million in cash from inventory sales and subleased or sold real estate.
Fitch cuts Sears credit rating, S&P to review it Fitch Ratings cut the credit ratings for Sears Holdings three notches — to CCC from B — citing the large retailer’s declining sales and profits and its inability to resolve these issues. Standard & Poor’s Ratings Services also is reviewing Sears’ credit rating for a possible downgrade based on Sears' disappointing quarterly performance.
Lowe’s buys online retailer
Home improvement retailer Lowe’s is buying ATG Stores, an online home improvement retailer, in order to expand its Web presence and product offerings. ATG Stores will be an independent, wholly owned unit of Lowe's. The companies plan to maintain separate branding and say that no jobs will be lost.
Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times; Forbes.com; CNNMoney.com; msnbc.com. The Wall Street Journal Digital News
This is not a loan commitment. Programs are subject to change without notice and are only available to qualified borrowers. Underwriting terms and some restrictions may apply
The week ahead Jan 3 - 6 2012
- Amgen and Monsanto announce their quarterly earnings on Thursday, January 5.
- ADP monthly employment report is released on Thursday, January 5.
- The U.S. weekly unemployment claims are released on Thursday, January 5.
- The Bloomberg Consumer Comfort Index is published on Thursday, January 5.
- The monthly U.S. employment situation report is published on Friday, January 6
Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times; Forbes.com; CNNMoney.com; msnbc.com.
This is not a loan commitment. Programs are subject to change without notice and are only available to qualified borrowers. Underwriting terms and some restrictions may apply.