Welcome to Finance World

Germany’s Federal Statistics Office says the country saw exports rise by 14.7 percent in the first half of 2011 compared to the same time period the previous year.

The office said Thursday that from January to June 2011 exports came in at euro525.6 billion ($721.60 billion), up from euro458.3 billion in the first six months of 2010. When adjusted for prices, the rise was 10.1 percent.

Second quarter exports rose an unadjusted 10.8 percent to euro264.7 billion compared to euro238.8 billion in the same quarter last year.

The Wiesbaden-based agency said the exports saw particularly strong growth to non-European Union countries, including Turkey, Russia and China.

Source

Italy’s Senate approved Premier Silvio Berlusconi’s disputed austerity package Wednesday, ending weeks of uncertainty that roiled financial markets unsure that the government was serious about cutting its deficit and avoiding becoming Europe’s next debt crisis victim.

The upper chamber voted 165-141 with three abstentions to approve the package, which the government put to a confidence vote to ensure Berlusconi’s allies united behind him after weeks of bickering over details of the plan.

The proposal now goes to the lower Chamber of Deputies, where Berlusconi’s allies also maintain a majority.

The final package aims at reducing the country’s deficit by more than euro54 billion ($70 billion) over three years through budget cuts, tax hikes and changes to the country’s costly pension system. Italy’s deficit to GDP ratio now stands at 120 percent, one of Europe’s highest.

Had the vote failed, Berlusconi would have been forced to resign, a prospect lawmakers clearly wanted to avoid given the nervousness with which financial markets have already viewed Italy’s flip-flopping proposals and ability to balance the budget by 2013.

The European Central Bank had demanded stiff austerity measures to calm the markets, but it’s not clear whether the package passed Wednesday is sufficient. The ECB has spent billions over the last month buying up Italian government bonds to get Italy’s borrowing costs lower and help them avoid becoming the next eurozone nation to need an international bailout.

“We did our job,” proclaimed Maurizio Gasparri, head of Berlusconi’s party in the Senate, after the vote, saying the “robust” package should assure markets and the ECB.

The package was bitterly opposed by Italy’s main labor union, which staged a general strike on the eve of the vote. A few dozen protesters launched smoke bombs in front of the parliament building Wednesday.

Lawmaker Angelo Bonelli of the opposition Greens said the plan targeted Italy’s weakest, saying they were “shouldering the brunt of the crisis.”

Finance Minister Giulio Tremonti’s office confirmed Wednesday that the final changes in the plan, including pension reform that had been resisted by Berlusconi’s coalition allies, significantly increases the dent in Italy’s deficit. Italian media reported the latest new taxes and spending cuts totaled euro4 billion ($5.7 billion).

When the deficit-battling package was first unveiled Aug. 12, the package added up to euro45.5 billion ($64.1 billion). But weeks of waffling by squabbling coalition allies whittled down the new or higher taxes and spending cuts, further shaking the markets’ confidence, and the government beefed up the measures at a Cabinet meeting Tuesday.

“The decisions taken yesterday by the Cabinet have strengthened the measures significantly,” Antonio Azzollini, the head of the Senate’s budget committee, told the assembly.

Azzollini, from Berlusconi’s party, said sales taxes on goods and many services would be raised from 20 percent to 21 percent, an additional income tax of 3 percent would be on levied on incomes exceeding euro300,000 (nearly $450,000), and the timetable for raising the retirement age for women would be speeded up from 2016 to 2014.

Berlusconi had originally shied away from putting the package to a vote of confidence in his government, but decided to speed up its passage after ECB president Jean-Claude Trichet, during a visit Saturday, appealed for quick, decisive action to save Italy’s credit reputation.

Source

World stock markets took a beating Monday over fears that the U.S. economy was heading back into a recession just as the European debt crisis was heating up and the eurozone’s economic indicators were slumping.

Any troubles in the world’s largest economy cast a long shadow over the markets, and a report Friday that the U.S. economy failed to add any new jobs in August caused European and Asian stock markets to sink sharply Monday.

But the news from Europe was also discouraging. Wall Street, which was closed Monday due to the Labor Day holiday, braced for losses Tuesday after the yields in so-called peripheral eurozone countries _ Greece, Italy and Spain _ rose sharply against those of Germany, whose bonds are widely considered a safe haven.

Although retail sales in the 17-nation eurozone rose unexpectedly in July, a survey of the services sector Monday showed a slowdown across the continent for the fifth consecutive month. The purchasing managers’ index for the eurozone showed the services sector was still growing _ unlike the manufacturing sector _ but only barely. That will add pressure on the European Central Bank to keep interest rates on hold when it meets this week.

“There’s so much uncertainty, so much fear, that investors don’t know what to do,” said David Kotok, chairman and chief investment officer at Cumberland Advisors. “I don’t remember the last time stocks were so cheap and nobody wanted them.”

Investors were also shaken by signs that the Italian government’s commitment to its austerity program is wavering. Prime Minister Silvio Berlusconi’s government has backtracked on some deficit-cutting measures, prompting EU officials to urge Italy to stick to its promised plan.

The difference in interest rates between the Greek and benchmark German 10-year bonds, known as the spread, spiraled to new records on Monday, topping 17.3 percentage points. Yields on the Greek bonds were above 18 percent.

Mario Draghi, the incoming chief of the European Central Bank, told a conference in Paris that among the common currency’s problems was a lack of coordinated fiscal policies and that the solution was more integration.

He dismissed the idea of eurobonds _ debt issued jointly by the eurozone countries. Some have argued this would help weaker countries borrow more easily because they wouldn’t have to pay such high interest rates. But stable countries like Germany would likely see their rates rise.

Instead, Draghi suggested the eurozone should adopt rules that would require more budget discipline.

Renewed jitters over the eurozone debt crisis also contributed to the slump in financial stocks amid concerns the banks would need to raise new capital. Deutsche bank closed down 8.9 percent in Frankfurt, while Societe Generale in Paris shed 8.6 percent.

The U.S. unemployment crisis has prompted President Barack Obama to schedule a major speech Thursday night to propose steps to stimulate hiring. Until then, however, traders coming back from the U.S. holiday weekend will have little to hold onto.

The August jobs figure was far below economists’ already tepid expectations for 93,000 new U.S. jobs and renewed concerns that the U.S. recovery is not only slowing but actually unwinding. U.S. hiring figures for June and July were also revised lower, only adding to the gloom flexcheck cash advance.

Many traders have already pulled out of any risky investments _ such as stocks, particularly financial ones, the euro and emerging market currencies _ and pile into safe havens: U.S. Treasuries, the dollar, the Japanese yen and gold.

With Wall Street closed, investors focused their selling in Asia and Europe, where the equity losses Monday were some of the heaviest this year.

“We’ve got some rough riding ahead,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago, adding he was “concerned that we could see a second wave of selling when most traders are back at their desks.”

Dow futures were down 1.8 percent at 11,010 points while the broader S&P 500 futures were 2.0 lower at 1,145.70.

After Asian indexes closed lower, with the Japan’s Nikkei 225 shedding 1.9 percent, European shares booked sharp losses. Britain’s FTSE 100 closed the day down 3.6 percent to 5,102.58. Germany’s DAX slumped a massive 5.3 percent to 5,246.18, and France’s CAC-40 tumbled 4.7 percent to 2,999.54.

The health of the U.S. economy is crucial for the wider world because consumer spending there accounts for a fifth of global economic activity. The U.S. imports huge amounts from Japan and China and is closely linked at all levels with the European market. The U.S. has seen a slump in consumer and business sentiments.

Traders were hoping for signs that the Federal Reserve might take action at its September meeting to support the economy _ perhaps a third round of bond purchases, dubbed quantitative easing III or QE3, analysts said.

“Right now the possibility has increased,” said Linus Yip, a strategist at First Shanghai Securities in Hong Kong. “I think they have to do something. The markets are expecting QE3.”

Banking stocks were among the hardest hit Monday, partly because the U.S. government on Friday sued 17 financial firms for selling Fannie Mae and Freddie Mac billions of dollars worth of mortgage-backed securities that turned toxic when the housing market collapsed.

Among those targeted by the lawsuits were Bank of America Corp., Citigroup Inc., JP Morgan Chase & Co., and Goldman Sachs Group Inc. Large European banks including The Royal Bank of Scotland, Barclays Bank and Credit Suisse were also sued.

In Asia, Australia’s S&P/ASX 200 followed the broaden trend to close down 2.4 percent and South Korea’s Kospi slid 4.4 percent. Hong Kong’s Hang Seng slid 3 percent. Benchmarks in Singapore, Taiwan, New Zealand and the Philippines also were down.

Shanghai’s benchmark Composite Index down 2 percent to 2,478.74, its lowest close in 13 months. The Shenzhen Composite Index lost 2.4 percent.

In currencies, the euro weakened to $1.4100 from $1.4187 in New York late Friday. The dollar was roughly flat at 76.87 yen. Last month, the dollar fell under 76 yen, which was a new post-World War II high for the Japanese currency.

Benchmark oil for October delivery was down $2.12 to $84.33 a barrel in electronic trading on the New York Mercantile Exchange. Crude fell $2.48 to settle at $86.45 on Friday.

In London, Brent crude for October delivery was down $1.63 at $110.70 on the ICE Futures exchange.

Source

It looks like the J.C. Penney catalog outlet store at Jamestown Mall may not be doomed after all, though everyone is being very hush-hush about it for now.

Sales associates said they have been told that plans are in the works for the store to be bought by another company, which would run the store by a similar name

Zoltek Companies reported a loss of $1.461 million in the June quarter, compared to a loss of $444,000 in the same period last year.  The loss was 4 cents per share in the recent quarter, compared to a 1 cent loss a year earlier.

The carbon fiber maker has lost $8.1 million in the first nine months of its fiscal year, compared to $5.9 million in the same period last year.

The company said the June quarter earnings drop doesn’t represent “negative fundamentals best payday advance.”  Instead, last year’s quarter showed “large customer delivery requirements” that fluctuated greatly.  The company said it is expecting improving operating results.

Source

AIG, one of the largest global insurance companies, reported earnings of $1.8 billion in the second quarter, reversing a loss of $2.7 billion a year ago.

American International Group Inc.’s equity stake in insurance company AIA, which went public in Hong Kong in October, produced income of $1.5 billion. Its income from both property casualty and life insurance were slightly lower than last year. AIG’s earnings in the second quarter last year were wiped out by a $3.3 billion goodwill impairment charge for discontinued operations.

AIG reported earnings per share of $1 per share. Operating income of 69 cents per share was below the 94 cents that analysts were expecting.

In January, the insurance firm laid the groundwork to start repaying the American taxpayer the $182 billion in bailout money received during the financial crisis. AIG paid back a portion of the government’s loans and renegotiated the rest of the package which led to the government owning a 92 percent stake in AIG.

The U.S. government is closely monitoring AIG’s performance, because American taxpayers’ investment is at stake. The government plans to sell its shares over the next two years. On May 27, the government sold 200 million shares, reducing its stake in AIG to 77 percent.

“Our continued improving operating results should provide a catalyst for the U.S. Treasury to sell its shares at a profit for the taxpayers,” said AIG CEO Robert Benmosche.

AIG’s property and casualty business reported operating income of $789 million, compared to operating income of $955 million in the second quarter of 2010. The business had $539 million in catastrophe losses related to tornadoes in the Midwest, Southeastern and Northeastern regions of the United States, and also an earthquake in New Zealand in June.

The life insurance division, SunAmerica, reported income of $743 million, compared to $858 million in the second quarter of 2010. Its earnings fell due to reduced income from investments. However, its premiums and deposits were up 23.7 percent to $6.1 billion from last year.

Source

QUOTE OF THE WEEK

“Encouraging people to remain on unemployment for 99 weeks can literally disable them psychologically for a lifetime. Two years of inactivity can be so debilitating as to render men and women psychologically crippled, and in need of extraordinary interventions to rekindle mood, confidence and motivation.”

Express Scripts Inc.’s takeover of Medco Health Solutions Inc. may fuel acquisitions of specialty pharmacy benefit managers by rivals seeking to gain enough size to negotiate lower prices with drug makers.

Once the deal closes, the number of people served by St. Louis-based Express Scripts would rise by 50 percent, to 135 million, based on current data, said Art Henderson, an analyst at Jefferies & Co. The next biggest rival, CVS Caremark Corp., serves 85 million people.

Pharmacy services companies negotiate prices with drug makers for employers and governments, and manage worker claims. More customers give them added leverage to insist on lower prices, providing savings that may be used by the companies to reduce expenses or compete for contracts. Size also helps companies accumulate data to develop efficient disease management programs and weigh treatment cost effectiveness.

“Fifty percent more purchasing power in an industry that hangs on scale is really very significant,” Henderson said.

Express Scripts last week said it agreed to buy Medco for $29.1 billion to become the largest pharmacy-benefits manager in the U.S. The next two in size would be CVS Caremark and the pharmacy unit of UnitedHealth Group Inc.

The agreement, the largest in at least a decade among U.S. companies that manage drug benefits, will likely get “a very, very close look” by the Federal Trade Commission because of the scale issue, said Bob Leibenluft, who led the agency’s health unit from 1996 to 1998 and is a partner at Hogan Lovells LLP, a Washington law firm.

Dave Shove, a New York-based analyst at Bank of Montreal, said the deal “raises the bar for the other major players, no doubt. Health care reform demands data, low costs and efficiency. The only way for for-profit companies to achieve that quickly is to merge.”

Helene Wolk, an analyst at Sanford C. Bernstein & Co. in New York, said CVS’ Caremark unit may be offered up as a possible acquisition, although she said she thinks CVS will keep it.

Larry Merlo, CVS president and chief executive officer, said in May that “despite conjecture in the marketplace, there are no plans to split up the company.”

Source

McDonald’s said Friday net income rose 15 percent in the second quarter as the world’s biggest burger chain continues to get customers to buy new menu items even as they cut back spending in other areas during the economic downturn.

McDonald’s Corp. has consistently outperformed its fast-food peers throughout the recession and its aftermath despite that it’s raised prices this year, in part because of its strategy to give customers more reasons to frequent its restaurants.

The chain is upgrading its restaurants, offering wireless access, expanding the number of locations with 24-hour service, introducing healthier food like oatmeal and smoothies, and selling fancy coffee drinks. It’s also testing changes to improve customer service, such as sending an employee to walk through the drive-thru and punch orders into a hand-held device.

Pete Bensen, the chief financial officer, said customers are telling McDonald’s that “the service is friendlier, the food is hotter, the restroom is cleaner.”

McDonald’s has bucked the trend as the recession has been brutal for the restaurant industry as economic woes have caused consumers to scrutinize their discretionary spending. At the same time, companies have been squeezed by higher costs for everything from tomatoes to fuel. They’ve had to walk a fine line between raising their prices to offset their costs without turning off customers completely.

McDonald’s, which has raised its prices twice this year, said it, too, is grappling with higher costs and trying to figure out how much of those it can pass on to customers. McDonald’s increased menu prices an average of 1.4 percent at the end of May, on top of a 1 percent increase in March. The price increases also helped the company’s results.

McDonald’s net income rose 15 percent to $1.4 billion, or $1.35 per share, during the quarter. Revenue was up 16 percent to $6.9 billion, topping analysts’ estimates of $6.6 billion.

Bensen said the company will continue to consider more price increases but doesn’t want to drive away customers. Normally, he said, a price increase of 2 to 3 percent is enough for the company to maintain margins, so “something more” could be needed this year low fee pay day loans. The restaurant has some flexibility, he said, because customers are paying more for groceries anyway.

McDonald’s, based in Oak Brook, Ill., said it expects costs for most of its ingredients to rise 4 to 4.5 percent in the U.S. and Europe this year. That’s the same prediction it made three months ago, implying costs may have stabilized. The costs for beef, corn and fuel and other materials that McDonald’s needs to make and transport its products are down from highs this spring but still up from a year ago.

McDonald’s will also face rising costs in other areas. It said it expects an income tax rate of 31 to 32 percent for the year, up from the 29.3 percent effective tax rate it paid last year. It expects interest expenses to rise 8 to 10 percent in 2011, based on current rates. Also, McDonald’s employees are staying longer, which leads to higher pay. So labor costs have also increased slightly.

Like many companies, McDonald’s is investing in emerging markets like China and seeing strong growth there. What sets McDonald’s apart is that it is still making strides in the U.S.

Revenue in the U.S. grew 4 percent. That’s a metric that many companies would envy, but it was lethargic compared with the 25 percent revenue growth in Africa, the Middle East and Asia, and 21 percent in Europe. McDonald’s President Don Thompson did caution that Europe “is still fragile,” citing high unemployment rates.

The U.S. continues to become a smaller proportion of overall revenue. The U.S. accounted for 31 percent of total revenue, down from 35 percent in the same period a year ago. Europe made up 41 percent of revenue, up from 39 percent a year ago. Asia, the Middle East and Africa accounted for 22 percent of revenue, up from 20 percent a year ago.

McDonald’s stock rose 3 percent mid-day trading to $89.11.

Source

Germany and France have overcome differences over how to combat the continent’s spreading debt crises and agreed on a common position ahead of an emergency European summit Thursday, the French president’s office said.

The leaders of the eurozone’s biggest economies held last-ditch talks for seven hours in Berlin late Wednesday, amid pressure for a big announcement that could boost market confidence and contain the turmoil.

German Chancellor Angela Merkel and French President Nicolas Sarkozy “reached agreement on a common Franco-German position,” Sarkozy’s office said in a statement early Thursday, without elaborating on what the position is.

Germany had downplayed calls for anything “spectacular” while France had pushed for a strong, long-term aid plan for Greece at Thursday’s summit in Brussels.

The stakes are high. Markets have been extremely volatile over the past weeks on fears the crisis might spread to larger countries like Italy. The International Monetary Fund warned that leaders must do more to keep debt troubles from poisoning the entire continent’s economy.

Merkel and Sarkozy met with European Central Bank chief Jean-Claude Trichet on Wednesday as they worked toward a plan. They told EU President Herman Van Rompuy about their agreement so that he can take it into account in his consultations ahead of Thursday’s meetings, expected to start midday in Brussels, the French statement said.

Earlier Wednesday, Merkel’s spokesman Steffen Seibert said the leaders would discuss “all the options on the table and agree, if possible, on a joint position.”

But he reiterated Merkel’s stance that the talks will not yield a “spectacular solution” that fixes Greece’s problems quickly, but will be merely a stepping stone in a longer process. Merkel had said there would be no decision to restructure Greece’s debt or create eurobonds that link debt across countries.

The French government and the European Commission, however, warned that it was urgent that the EU come up with a significant deal.

French Finance Minister Francois Baroin told France-Info radio that “there should be a strong message tomorrow, from the highest level.”

European Commission president Jose Manuel Barroso said “nobody should be under any illusion, the situation is very serious.”

He said that at the very least, leaders need to present how they will make Greece’s debt sustainable, under what terms private creditors will have to contribute to a new bailout for the country, and what new powers to give to their bailout fund.

European leaders have faced criticism for their slow, piecemeal efforts to stem the debt crisis.

The IMF urged European leaders to act more boldly, warning that there is “no consistent roadmap ahead” and that this could produce “possible significant regional and global spillovers.”

“Market participants remain unconvinced that a sustainable solution is at hand,” the report said. “Limiting any further damage is now crucial.”

Borrowing rates have risen particularly sharply in Italy and Spain and while they eased slightly a day ahead of the summit, sentiment remains fragile as investors see no immediate way through Europe’s policy stalemate.

Merkel has opposed a restructuring of Greece’s debt that would force losses upon private sector creditors as well as any notion of creating eurobonds _ debt that links different countries together.

Such jointly guaranteed bonds for the entire eurozone would make borrowing cheaper for countries with shaky finances but more expensive for nations with a top rating such as Germany. Unsurprisingly, Berlin is the main country to oppose such a measure.

Germany and France stressed that both nations must seek a joint position to make the summit of the 17 eurozone nations’ leaders a success.

“Germany and France _ as Europe’s unification has shown _ must reach an agreement, if that doesn’t happen Europe does not advance,” Merkel’s spokesman Seibert said.

So far, discussions on the contribution of private creditors have revolved around three options, according to a paper from a eurozone officials’ working group dated July 16.

The first would see the eurozone’s bailout fund finance a buyback of Greek government bonds at their current distressed prices, paired with guarantees that the remaining bonds would be repaid. That option would give the Greek state the biggest short-term relief, but may be the most expensive for the eurozone.

The eurozone would not only have to fund the buybacks and repayment guarantees, but the paper says they would likely be seen as a default by rating agencies. That would force the eurozone to come up with the liquidity support for Greek banks that would be cut off from the European Central Bank’s financial lifelines.

The second option reverts to a proposal made by French banks several weeks ago. Banks would reinvest part of the money they collect from maturing Greek bonds into new bonds with long repayment deadlines.

However, that proposal would still trigger a “selective default” rating, requiring liquidity and capital support for Greek banks. It would provide significant short-term relief for Greece, the paper says, but should come with lower interest rates and longer maturities for the eurozone loans.

The third option is the only one that would avoid a default rating, but will likely run into huge opposition from banks that don’t hold Greek bonds. It proposes a tax on the financial sector to recoup part of the cost of rescuing Greece. However, it would only result in small short-term relief for Greece.

By the time the leaders’ top advisers meet Thursday morning ahead of the summit, the paper will most likely be narrowed down to two possible plans: one that would trigger a default _ a combination of option one and two _ and one that won’t, said a eurozone official. The official was speaking on condition of anonymity, because talks were still ongoing.

Greece, meanwhile, is struggling to reduce its budget deficit from 10.5 percent of Gross Domestic Product in 2010 to 7.5 percent this year as it implements harsh austerity measures that have pushed the country into recession.

Data released Wednesday showed revenues euro3 billion in arrears, with the January-June deficit reaching euro12.7 billion on a fiscal basis _ against a budgeted euro10.3 billion.

“Tomorrow’s summit will determine the future of the country and of Europe,” government spokesman Elias Mossialos said in Athens.

Source