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Perhaps Barack Obama’s trip to China this month was not such a flop after all.

Obama was criticized for kowtowing to the Chinese and apparently returning empty-handed, but movement from Beijing last week on Iran’s nuclear program and climate change suggests the U.S. president got further than it seemed at first.

Obama went to China with three major issues on the table — economic relations, climate change and denuclearization — and seems to have made progress on at least two of them.

But analysts said it was unclear exactly how much the U.S. leader had actually influenced the Chinese, or what the long-term impact would be of what was announced last week.

“The Chinese were pressed in a very focused fashion on both of those issues,” said Kenneth Lieberthal, director of the John L. Thornton China Center at the Brookings Institution in Washington.

“I think their position does reflect, in fact, the impact of the Obama visit and of American diplomacy,” he said.

China offered rare backing on Friday to a vote by the U.N. nuclear watchdog to rebuke Iran for building a uranium enrichment plant in secret, the first such vote against Tehran in almost four years.

China, like Russia, backed the measure, smoothing its 25-3 passage through the International Atomic Energy Agency and departing from an earlier pattern of blocking global attempts to isolate trading partner Iran.

Obama stressed in Beijing that Iran’s nuclear program could disrupt the Middle East and world energy supplies, experts and administration officials said.

The Washington Post reported that U.S. officials had argued that Israel saw Iran’s nuclear ambitions as an existential threat, and implied Israel could one day attack Iran to disrupt those ambitions. That argument helped bring the Chinese on board to take a firmer line on Tehran, it reported.

“Obama pressed very hard with the Chinese,” Lieberthal said. “And they went the right way today.”

On Thursday, Beijing said Premier Wen Jiabao would go to U.N.-led climate talks in Copenhagen next month and offered its first firm carbon intensity target, pledging to cut the amount of carbon dioxide produced for each yuan of national income by 40-45 percent by 2020, compared with 2005 levels.

‘THESE THINGS ARE INCREMENTAL’

Washington gave only a guarded welcome to China’s emissions announcement, saying the world would watch progress by the top greenhouse gas emitter. Observers said measuring and verifying implementation would be central going forward.

Bonnie Glaser, a China expert and senior fellow at the Center for Strategic and International Studies in Washington, said China’s 40-45 percent reduction target was disappointing, but it was a good sign that they made an announcement at all. 

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The U.K. inflation rate rose more than economists forecast in October, climbing for the first time in eight months as fuel costs and air fares climbed.

Consumer prices gained 1.5 percent from a year earlier, compared with 1.1 percent the previous month, the Office for National Statistics said today in London. The median forecast in a Bloomberg News survey of 30 economists was 1.4 percent. On the month, prices rose 0.2 percent.

Bank of England policy maker Andrew Sentance said in an interview yesterday that there may be “volatility” in inflation, which risks exceeding the 2 percent target after two years. He said it is still too soon to consider tightening policy after the central bank expanded its bond-purchase plan to 200 billion pounds ($336 billion) to combat deflation.

“This is the first of a period of sharp increases in headline inflation over the next few months,” James Knightley, an economist at ING Financial Markets in London, told Bloomberg Television. “Given the spare capacity in the economy, there’s no real need to tighten monetary policy any time soon. Inflation is likely to move quite sharply lower again through the back end of next year.”

The yield on the two-year government bond slipped 1 basis point to 1.32 percent. The pound fell 0.1 percent to $1.6788 as of 11:36 a.m. in London.

Bond Purchases

Policy makers decided this month to increase their program to buy bonds with newly created money by 25 billion pounds as they left they key interest rate at a record low of 0.5 percent. Bank of England Governor Mervyn King said last week that he has an “open mind” on whether to expand it further installment payday loans.

The inflation rate increased as prices of fuels and lubricants fell less this year than they did in the same month a year earlier, the statistics office said. The cost of second- hand cars increased by a record on the month because of a shortage of stock, while air fares climbed this year compared with a drop in 2008.

EasyJet Plc, Europe’s second-biggest discount airline, said today revenue per seat at constant currency, a proxy for ticket prices, rose 4.1 percent in the year ending Sept. 30 as the recession buoyed demand for low-cost carriers.

The Bank of England published new quarterly growth and inflation forecasts Nov. 11 showing the inflation rate won’t return to the 2 percent target until 2012, though will rise above the goal around the turn of the year as a temporary cut in value-added tax expires.

Inflation Pressure

“In the short term, inflation is likely to be below target, though we’re also likely to see a bit of volatility,” Sentance said in an interview with Bloomberg Television. “As the recovery develops, there will be some upward pressures on inflation.”

By contrast, Federal Reserve Chairman Ben S. Bernanke said yesterday that inflation “seems likely to remain subdued for some time” as reduced bank lending and a weak labor market restrain the pace of growth. The Fed’s preferred inflation gauge, which excludes food and energy prices, rose 1.3 percent in September from a year earlier, below the 2 percent goal preferred by the majority of Fed policy makers.

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A senior Citigroup Inc executive said the bank is comfortable with its valuation for an asset that one accounting expert expects to be written down.

Citigroup has a roughly $38 billion deferred tax asset, which essentially represents expected cash flow from future tax benefits. Accounting expert Robert Willens said on a conference call late last month that he expects the bank to write the asset down by about $10 billion in the fourth quarter. That would represent about 7 percent of the bank’s net worth as measured by the reported value of the company’s shareholder equity.

Any writedowns would sting Citigroup, which has taken $45 billion of government help in three separate rescue efforts. Taxpayers now hold about a third of the bank.

Speaking at a conference on Wednesday, Citigroup Vice Chairman Ned Kelly said the bank stands by its deferred tax asset valuation.

“We are comfortable with the valuation,” Kelly said, adding that the bank looks at its deferred tax asset at the end of each quarter quick cash advance. About $16 billion of the deferred tax asset must be realized by around 2016, and the rest has a much longer time frame, Kelly added.

Kelly was chief financial officer at Citigroup but stepped down over the summer soon after he was quoted in The Wall Street Journal describing the Federal Deposit Insurance Corp as the bank’s “tertiary regulator.” The newspaper article described how the FDIC was pushing for new leadership at the bank.

On Wednesday, in response to a question about whether U.S. regulators would be as harsh to banks receiving government aid as European regulators have been, Kelly pointed to Citigroup’s successful efforts to reduce its assets and said the bank is working well with the government.

“I think we have a very constructive relationship with all of (our regulators),” Kelly said.

(Reporting by Dan Wilchins; editing by John Wallace)

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Major U.S. auto dealerships see only a grudging recovery in demand in 2011, a cautious outlook at odds with the consensus view that the battered industry could see a double-digit percentage rebound.

“We can feel that there is demand, but it is very cautious demand,” Asbury Automotive Group Chief Executive Officer Charles Oglesby said in an interview on Thursday.

Asbury, which ranks sixth in sales among U.S. dealerships, said it was basing its own planning decisions on the view that 2010 U.S. auto sales would be only flat with the 10.5 million vehicles projected for this year.

“While that may prove to be conservative, we feel that’s the prudent way to run the business,” Asbury Chief Financial Officer Craig Monaghan also told Reuters.

That view echoed the line taken earlier this week by Sonic Automotive. The No. 3 U.S. auto retailer also set its 2010 industry sales forecast at 10.5 million vehicles.

That is sharply lower than most industry forecasts, including those from major auto manufacturers.

CSM Worldwide has forecast industrywide U.S. sales of 11.8 million cars and light trucks for 2010, while J.D. Power is expecting 11.5 million.

Ford Motor Co, the only U.S. automaker to avoid bankruptcy and the most bullish in its projection for a recovery, has forecast sales of more than 12 million.

General Motors Co GM.UL has said it expects sales of about 11.5 million vehicles in the United States next year low fee payday advance.

The gap between the outlook of auto retailers and major manufacturers could be an issue for the industry as dealerships look to restock inventories that plunged to record lows this summer in the wake of the brief boom touched off by the U.S. government’s “Cash for Clunkers” sales incentive program.

Automakers are in the process of setting production plans for next year. If the industry fails to see the stronger growth expected, it could force automakers to discount more heavily, a step that those based in the United States have vowed to avoid.

Both GM and Chrysler went through government-funded bankruptcies this year to slash their operating costs and give them flexibility to run factories at lower volumes.

AutoNation CEO Mike Jackson said he believed the industry’s crisis this year and the changes made under pressure from U.S. officials had killed a failed “push” model in which automakers set output targets without regard to demand.

Jackson expects U.S. auto sales to recover to above 11 million vehicles in 2010, a level that he said was still deeply depressed by historical standards.

He said he was encouraged by “signs of life” in the market for financing near-prime and subprime borrowers and for underwriting vehicle leases. Last year’s credit crisis had shut down those riskier areas of the auto market. 

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French consumer confidence climbed in October for a third month as lower energy prices improved disposable income and government support spurred growth.

A gauge of household sentiment rose to minus 35 from minus 36 in September, Paris-based national statistics office Insee said today. Economists expected a reading of 35, a Bloomberg survey showed.

French consumers, helped by tax cuts, state incentives to buy cars and falling oil prices, have boosted the economy this year, lifting France out its deepest recession since World War II. Whether they’ll keep spending as energy prices recover and unemployment rises will be key to Europe’s second-largest economy in the months ahead.

“The behavior of consumers will be crucial” for 2010, said Gilles Moec, an economist at Deutsche Bank AG in London. “Households will have to face the disappearance of the deflation windfall” and a deteriorating labor market.

Consumer prices dropped from last year’s levels in each of the past five months as the price of crude oil fell from the record highs hit in mid-2008.

That effect is diminishing just as joblessness is rising. Jobless claims rose by 21,600 in September to 2.57 million, the Labor and Finance ministries said yesterday.

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U.K. gross domestic product unexpectedly dropped in the third quarter as enduring slumps in services, manufacturing and construction kept the economy mired in its longest recession on record.

Gross domestic product dropped 0.4 percent from the previous three months, the Office for National Statistics said today in London. Economists predicted a 0.2 percent increase, according to the median of 33 forecasts in a Bloomberg News survey. The economy has now contracted in six quarters, the most since records began in 1955.

Chancellor of the Exchequer Alistair Darling said this week he will focus on spurring economic growth as he struggles to cement a recovery in time for a general election due by June. Today’s data may add to pressure on Bank of England officials to expand bond purchases at their Nov. 5 decision after completing a plan to buy 175 billion pounds ($291 billion) in assets.

“The main picture for the government going into the general election isn’t particularly promising,” said David Tinsley, an economist at National Australia Bank in London who used to work at the central bank. “There hasn’t been a great deal of evidence on the recovery. It would seem a very inopportune moment to end quantitative easing.”

The data, the first for the third quarter from a Group of Seven nation, suggests Britain may turn out to be the last of them to exit the recession sparked by the worst financial crisis since the Great Depression.

Central banks in Canada and Italy both forecast slumps in their economies ended in the same period, and the U.S. probably also returned to growth then, according to the median forecast of economists in a Bloomberg News survey. France, Germany and Japan exited their recessions in the second quarter.

Services Drop

U.K. services industries, which account for 76 percent of the economy, shrank 0.2 percent on the quarter, the statistics office said. The drop was led by distribution, hotels and catering, followed by transport, storage and communication, and business services and finance.

Industrial production shrank 0.7 percent as manufacturing contracted 0.2 percent, the statistics office said. Construction slumped 1.1 percent.

The economy’s output is “well below” the levels of a year earlier and there should be no illusion of a “smooth and painless” return to sustainable growth, Bank of England Governor Mervyn King said this week. Officials said at the Oct. 8 meeting that there is still a danger of further losses.

Credit losses and writedowns worldwide now total $1.6 trillion. Lloyds Banking Group Plc and the government are weeks away from an agreement on whether the lender can escape a program to insure up to 260 billion pounds of potentially toxic assets, a person familiar with the matter said yesterday.

Setback for Brown

Today’s report is a setback for Prime Minister Gordon Brown as his ruling Labour party struggles to erode the poll lead held by David Cameron’s Conservatives. The opposition party had a 17 percentage-point gap over Labour in an ICM Research poll for the Guardian newspaper published on Oct. 21.

The economy will contract 4.4 percent this year and then expand 1.3 percent in 2010, according to forecasts released this week by the National Institute of Economic Research.

Some companies are weathering the slump. British Sky Broadcasting Group Plc, the U.K.’s biggest pay-television provider, said today that first-quarter profit rose. “We have won more clients despite the tough economic environment and I’m confident that we will continue to grow,” Chief Financial Officer Andrew Griffith said in an interview on Bloomberg TV.

Slump Damage

Today’s data show the recession shrank the U.K. economy by 5.9 percent, compared with a total 6 percent slump in the recession that ended in 1981, the statistics office said.

Unemployment may keep rising even after the end of the recession as a lagged effect of the slump. St. Ives Plc, the U.K. printer of the Economist and Vogue magazines, has shed about 12 percent of workforce, Finance Director Matt Armitage said on Oct. 19.

Niesr says that the Bank of England should pause its bond purchase program at the Nov. 5 decision, when officials will have revised forecasts on the economy. The British Chambers of Commerce has called for a further expansion of the plan to reach 200 billion pounds to secure the recovery.

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Tech stocks rallied on Wednesday after bellwether Intel Corp reported quarterly earnings and a revenue forecast that blew past expectations, buoying investor hopes of a recovery.

Investors have been scrutinizing the battered tech sector for signs of strength after the economic crisis depressed demand and severely crimped corporate spending.

Advanced Micro Devices Inc and Nvidia Corp should see a direct impact from Intel’s strong report, and there could be secondary impact on companies like Intersil Corp, said Oppenheimer & Co analyst Rick Schafer.

“It sets the tone. It sets the pace for semiconductor companies, particularly those with PC exposure.”

“Valuations for chip stocks look attractive, particularly when you consider we believe there is a positive bias, or an upward bias to earnings,” he said.

Intel’s shares rose more than 2 percent on Wednesday after analysts raised their price targets for the stock following the strong quarterly earnings report and revenue forecast on Tuesday. The shares are trading at roughly 31 times forward earnings, compared with a semiconductor industry figure of 17 times forward earnings.

Chief rival AMD is not currently profitable. Tech companies Google Inc and International Business Machines Corp are respectively trading at 24 times forward earnings and 13 times forward earnings. All three companies are due to report on Thursday.

Despite Intel’s strong results, some analysts were cautious. Robert W. Baird and Co analyst Tristan Gerra reiterated his neutral rating on the company.

“We expect gross margin to peak in this December quarter, and historically, the stock peaks when gross margins peaks,” he said.

Gerra said in a note that Intel’s business is still highly sensitive to consumer demand and the company’s push into smartphones and set-top boxes is “unlikely to materially impact revenue growth in 2010-2011.”

UBS raised its price target for Intel shares to $27 from $24 after the report while Lazard Capital increased its price target to $26 from $24.

“Intel is benefiting from strong demand for retail notebooks and Nehalem servers. With better control of costs and prices, we see a structural improvement in Intel’s margin profile,” Needham & Co analyst Edwin Mok said in a research note in which he announced a price target increase to $28.

Computer maker Dell Inc saw its shares rise more than 2 percent after Intel forecast fourth-quarter revenue of $10.1 billion, well above Wall Street expectations of $9.5 billion. Microsoft Corp shares were up 1.5 percent.

In 2010, Mok said, technology investors could look forward to a boost in computer sales after Microsoft releases its Windows 7 computer operating system on October 22.

“Beyond the near-term, we believe Windows 7 will drive a much-needed corporate refresh in 2010, leading to further revenue growth and substantially higher earnings,” Mok said.

FBR Capital Markets analyst Craig Berger said Intel’s fourth-quarter revenue guidance “is back to levels achieved … before the credit driven financial meltdown.” 

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Morgan Stanley likely broke a string of three straight losses in the third quarter, while chief rival Goldman Sachs Group Inc extended its dominance.

The growing mismatch between the last two big names on Wall Street is illustrated by analysts’ forecasts: Goldman earnings are expected to more than double, while Morgan Stanley is seen just eking out a profit, lagging far behind its year-earlier results.

Analysts say the third quarter was a resilient one for the banks, with strong sales and trading results and gains in asset management.

“These are two companies that have two less major competitors than they did last year with the failure of Lehman Brothers and Bear Stearns,” said Bill Hackney, chief investment officer with Atlanta Capital Management. “We think the outlook for both of these companies is very strong.”

Goldman is expected to post earnings of $4.24 per share before one-time items, up from $1.81 a year earlier, according to analysts polled by Thomson Reuters I/B/E/S. Morgan Stanley is expected to report 29 cents a share, down from $1.32, hurt by debt-valuation adjustments.

Goldman, whose embarrassment of riches is setting it up for a possible bonus bonanza at year-end, earned $4.93 per share in the second quarter, while Morgan Stanley lost $1.10 per share.

Goldman plans to report third-quarter results on October 15; Morgan Stanley has not yet set a date bad credit pay day loans.

MORGAN REBOUND

If Morgan Stanley did manage to turn a profit in the third quarter, it was with a sigh of relief. The bank has suffered three straight quarterly losses and has been slow to join Wall Street’s rebound party after the near-collapse of the financial services industry a year ago.

Analysts remain concerned about the bank’s continued losses on real estate principal investments and the accounting ramifications of improvements in its debt prices.

In recent years banks recorded big gains on the declining market value of debt they issued, because they could buy back the debt cheaply. But as banks’ prospects have improved in the last few quarters, the value of their debt has jumped, forcing them to reverse earlier gains, weighing on earnings.

Morgan Stanley “will take some pain in terms of writing up their own debt yet again,” said Steve Stelmach, an analyst with FBR Capital Markets.

Goldman, though, looks to be well past the troubles that continue to plague its rivals.

BONUS BONANZA

“Goldman is in a very sweet spot and they should do very well,” said Marshall Front, chairman of Front Barnett Associates. 

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U.S. holiday sales in 2009 will likely be almost flat with the anemic showing of a year ago, a new survey predicted, following in a line of cautious early forecasts for the period.

Overall sales in the holiday shopping season will likely rise only 0.03 percent this year to over $90 billion, according to a survey by data and media firm Nielsen Co.

On the basis of sales by the number of items sold, sales would be flat to down 0.11 percent in the period, the survey showed.

Holiday sales, usually measured in the November-December shopping period, can ring up anywhere between 25 and 40 percent of annual sales for retailers. Last year’s holiday sales season was the worst in nearly 40 years by some measures.

Early forecasts for the 2009 holiday shopping season call for sales to be anywhere from up 2 percent to down 1 percent.

Nielsen surveyed more than 22,000 U.S. households in early September for the survey, which has a margin or error of plus or minus 2 percent.

(Reporting by Aarthi Sivaraman, editing by Gerald E. McCormick)

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It helped Elizabeth Poelker buy her house.

It probably helped Paul Medler sell his.

But is the $8,000 tax credit for first-time homebuyers really helping the economy all that much? Enough to warrant extending it for another year, at an estimated cost of $15 billion? Enough to maybe even expand it to $15,000 apiece, for everyone?

That’s a question Congress is wrestling with these days, as the program starts to near its Nov. 30 closing date, and the real estate industry ramps up a full-throated campaign to keep the credits flowing. It’s unclear at this point what will be decided.

Nearly everyone agrees that the credits have helped keep the housing market afloat during a tough time. After they were enacted as part of the $787 billion federal stimulus Congress passed in February, existing home sales rose for four straight months, before dipping in August. The rate of sales is up 12 percent since March, according to the National Association of Realtors.

About 1.4 million people have already claimed the credit on their taxes, according to the IRS, with probably more awaiting paperwork or delaying until they file in the spring.

And, along with low prices and historically low interest rates, real estate agents say the credits are sparking interest in home-buying.

"There’s no question it’s had a positive impact on our business," said Jim Dohr, president of Coldwell Banker Gundaker, which has 25 offices in the St. Louis region. That’s especially true at lower price points. Coldwell’s business is up 23 percent from last year on homes sold for less than $100,000 and 16 percent for homes sold for $150,000 or less.

"Much of the action in our business is at the lower end, and it’s really being fueled by the first-time tax credit," Dohr said.

What is less clear is how many of those sales would have happened anyway.

Prices and interest rates are low, after all. And people still need a place to live.

Out of a projected 1.8 million sales that will use the tax credit this year, economists estimate that between 350,000 and 400,000 would not have happened without it. And a recent survey commissioned by real estate tracking firm Zillow found that, if the credit is extended another year, it would be a major deciding factor for 18 percent of first-time homebuyers — spurring an additional 334,000 sales in all.

That’s nothing to sneeze at, said Zillow chief economist Stan Humphries. But at $15 billion, it works out to almost $45,000 for every sale generated.

"It’s an expensive program," he said. "For every five homes, four were going to get purchased anyway."

But there’s still that other one — people such as Poelker.

She’s 25 and works at an accounting firm. Her lease in Maryland Heights was coming up this summer, and she had grown tired of renting but didn’t think she could afford a down payment. When the tax credit passed, she started looking.

Soon, she found a nice townhouse in Manchester, put in an offer, and closed in June.

"It really helped me make it work," said Poelker, who noted that her brother and a friend had also used the tax credit to buy houses. "I probably would have purchased in the next couple of years, but it helped me do it sooner."

Still, that raises another question about the tax credit. Is it just borrowing sales from the future?

Skeptics point to Cash for Clunkers, the government-funded program to help spur auto sales. After a surge of car-buying in July and August, September is expected to be car dealers’ worst month of the year, according to a recent report from JD Power. The same thing, critics say, could easily happen whenever the homebuyer credit expires.

But supporters say that’s all the more reason to prolong it, at least for a few months. The economy is still shaky. Any housing recovery is fragile at best. Winter is typically a slow season in real estate. The timing, said Scott Dettmer, general manager of Dettmer Homes in Cottleville, is bad all around.

"You’re taking the single biggest impetus for home sales in at least three years, and you’re going to expire it at what is normally a bad time anyway?" he said. "I’d like to see it extended at least through the spring, to give a bridge over what are normally a tough few months."

At least 20 bills have been proposed in Congress to extend the plan, including one co-sponsored by Sen. Majority Leader Harry Reid that would push it into June. Another bill — to extend the credit and make it $15,000 for all homebuyers — reportedly has 15 co-sponsors.

But that measure was stripped from the stimulus bill in February, and there seems to be a limited appetite for it now, as Congress wrestles with health care reform and other pricey legislation. Many observers don’t expect a resolution until the Nov. 30 deadline draws nearer.

And that will probably keep Paul Medler waiting.

He sold his home in Kirkwood in June to a first-time buyer who used the tax credit. It probably helped make the deal happen, Medler said. Now he’s renting, and waiting to find a good deal to buy, but prices in the neighborhoods where he’s looking still seem too high for this market.

Medler’s hoping the credit either gets extended to everybody — so he can use it — or ends in November as planned.

"After this stops I feel like we might have another dive in housing prices," he said.

And, at least in his case, that would be a good thing.

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