The UK Consumer Price Index saw a rise in the annual rate for January 2010, from 2.9% to 3.5%. Despite the longest recession since World War II, talk has already turned to the future - and the worry that inflation could take hold if the fiscal stimuli used to try and prompt recovery stay in place too long.
Inflation has been low for a while now. Back in the late 80s and 90s, monthly inflation figures were much higher - peaking at 8.5% in April 1991. But some will remember the economic slump of the 1970s, which was triggered by double-digit inflation - and may be nervous.
As recently as mid 2008, we saw inflation around 5%, driven by energy costs and higher prices for vegetables, furniture, and cigarettes. House prices and housing costs also impacted. This threat passed as the recession extended and the Bank of England and the Government put a lot of new money into the economy to try and encourage some growth. However, they now need to be careful how this works through or inflation could easily take hold again.
At the moment, there is probably less reason for concern than in the 1970s and early 1980s. The economic outlook is still nervous as lower than expected, growth in Q4 2009, despite confirming an end to the recesson for now, could indicate that growth might halt again as consumers consider tightening up on spending after the Christmas spree.
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Thursday, 18 March 2010
UK housing market still struggling
The UK housing boom reached its peak in 2007 but since then, house prices have taken a knock, ravaged by the credit crisis and the effects of the recession. However, data for 2009 suggest the market is now showing signs of recovery. The Nationwide declared that house prices rose by nearly 6% over the year (albeit from a low base) which should come as welcome news for many beleaguered householders – but does it herald the start of a sustainable recovery?
The British Bankers’ Association (BBA) November release announced that the number of mortgage approvals for house purchase was holding up and were back to similar levels of two years ago. However, the average value of those mortgages remained slightly lower than 2007 and remortgages are virtually non-existent as existing borrowers revert to low variable rates when their mortgage deals end. Ernst & Young’s Item Club expects the UK housing market to get worse before it gets better as tight credit conditions linger, warning that current signs of recovery are a "false dawn" caused by a shortage in supply.
For now, however, exceptionally low interest rates are attracting some buyers, with the growth in demand particularly strong amongst buy-to-let investors and cheaper properties. However, UK unemployment is still over 2.4 million and, despite a small fall, the outlook for jobs is not all positive. Even if the UK economy maintains its faltering signs of growth in Q1 2010, this can only keep the pressure on a still-fragile market.
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The British Bankers’ Association (BBA) November release announced that the number of mortgage approvals for house purchase was holding up and were back to similar levels of two years ago. However, the average value of those mortgages remained slightly lower than 2007 and remortgages are virtually non-existent as existing borrowers revert to low variable rates when their mortgage deals end. Ernst & Young’s Item Club expects the UK housing market to get worse before it gets better as tight credit conditions linger, warning that current signs of recovery are a "false dawn" caused by a shortage in supply.
For now, however, exceptionally low interest rates are attracting some buyers, with the growth in demand particularly strong amongst buy-to-let investors and cheaper properties. However, UK unemployment is still over 2.4 million and, despite a small fall, the outlook for jobs is not all positive. Even if the UK economy maintains its faltering signs of growth in Q1 2010, this can only keep the pressure on a still-fragile market.
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Wednesday, 17 March 2010
Bond sales fall on growing budget deficits
Pan-European corporate bond sales fell during February, amid escalating worries about soaring budget deficits in continental Europe and the UK. These concerns were concentrated around Greece, which is struggling to contend with the largest budget deficit in the eurozone.
However, every country in the 16-member grouping is set to register a budget deficit for 2009 that falls above the EU’s 3% threshold. Bond issuers developed cold feet, cancelling bond sales during the month amid growing fears these spiralling budget deficits could derail the global economic recovery. Concerns over the outlook for Greece led to a rise in the cost of protecting European corporate bonds from the risk of default. In general, bond investors adopted a wait-and-see approach until the situation stabilises. Looking ahead, once the outlook clears and investor sentiment strengthens, bond supply could be swelled by a backlog of new issues.
The pound reached a nine-month low against the US dollar towards the end of the month. Speculation that ratings agencies are set to downgrade Greece’s debt rating fuelled fears the UK might have difficulty in coping with its own soaring budget deficit. However, Mervyn King, the governor of the Bank of England, said he would be “immensely surprised” if the UK were to lose its top AAA credit rating. The UK registered a £4.3bn budget deficit in January as the recession negatively affected tax receipts – its first January budget deficit since records began in 1993.
UK economic growth for the fourth quarter of 2009 was revised upwards from an initial estimate of 0.1% to 0.3%. Throughout the recent recession – the most severe on record for the UK – the UK economy contracted by 6.2% since the first quarter of 2008. The Bank of England reduced its forecast for UK economic growth in 2010 from 2.2% to 1.4%.
Consumer spending rose by 0.4% and posted its fastest increase since the first three months of 2008. UK consumer confidence reached its highest level for four months during February. Inflation hit 3.5% during January, forcing King to write a letter of explanation to the Chancellor of the Exchequer. UK house prices dropped for the first time in 10 months during February, hampered by unusually wintry weather and the return of stamp duty on purchases below £175,000. Overall, house prices remain 13% below their October 2007 highs.
However, every country in the 16-member grouping is set to register a budget deficit for 2009 that falls above the EU’s 3% threshold. Bond issuers developed cold feet, cancelling bond sales during the month amid growing fears these spiralling budget deficits could derail the global economic recovery. Concerns over the outlook for Greece led to a rise in the cost of protecting European corporate bonds from the risk of default. In general, bond investors adopted a wait-and-see approach until the situation stabilises. Looking ahead, once the outlook clears and investor sentiment strengthens, bond supply could be swelled by a backlog of new issues.
The pound reached a nine-month low against the US dollar towards the end of the month. Speculation that ratings agencies are set to downgrade Greece’s debt rating fuelled fears the UK might have difficulty in coping with its own soaring budget deficit. However, Mervyn King, the governor of the Bank of England, said he would be “immensely surprised” if the UK were to lose its top AAA credit rating. The UK registered a £4.3bn budget deficit in January as the recession negatively affected tax receipts – its first January budget deficit since records began in 1993.
UK economic growth for the fourth quarter of 2009 was revised upwards from an initial estimate of 0.1% to 0.3%. Throughout the recent recession – the most severe on record for the UK – the UK economy contracted by 6.2% since the first quarter of 2008. The Bank of England reduced its forecast for UK economic growth in 2010 from 2.2% to 1.4%.
Consumer spending rose by 0.4% and posted its fastest increase since the first three months of 2008. UK consumer confidence reached its highest level for four months during February. Inflation hit 3.5% during January, forcing King to write a letter of explanation to the Chancellor of the Exchequer. UK house prices dropped for the first time in 10 months during February, hampered by unusually wintry weather and the return of stamp duty on purchases below £175,000. Overall, house prices remain 13% below their October 2007 highs.
Tuesday, 16 March 2010
Eurozone continues to decline
The spectre of a double-dip recession raised its head in parts of Europe last month as fourth-quarter GDP data disappointed. This was particularly evident in Germany, which saw no growth in the last three months of 2009.
While the problems were not entirely unexpected and exports held up, the jobless rate also rose and the figures ignited fears that the recovery would not survive the withdrawal of stimulus measures.
This weakness was evident in much of the remainder of the eurozone as well and indeed the region as a whole only grew by 0.1% in the final quarter. The Italian economy was the first to do a proper double-dip, with GDP falling 0.2% in the final quarter, reversing growth of 0.6% in the third quarter. Spain has still not emerged from recession and saw its economy shrink by 0.1%. France was the only significant bright spot. It saw a 0.6% rise in GDP, which was better than expected.
In general, Germany’s bad news is the eurozone’s bad news – particularly as it is seen as the main source for bail-out funds if Spain, Portugal or Ireland follow in Greece’s unenviable footsteps. Having been studiously vague at the height of the crisis, Germany finally said its support for Greece would be political rather than financial.
The Greek situation may have passed its crisis point but worries rumbled on. That said, the country’s government did managed to get a €5bn (£4.53bn) bond issue away after the month-end, assuaging fears that international investors would turn their backs completely.
European Central Bank president Jean-Claude Trichet continued to insist recovery was on track and pressed ahead with the dismantling of the stimulus packages, though he admitted recovery would remain uneven. The effects of a weaker euro are already starting to be felt by some businesses and could help revive German growth although the eurozone’s purchasing managers’ index remained unchanged from January to February.
The European markets were substantially weaker than those of the UK and US in February. The FTSE Eurofirst index fell 0.23%, compared to rises of 3.2% for the FTSE 100 and 2.85% for the S&P 500. Only the Nikkei did worse, falling 0.85%. Of the individual markets, the French CAC fell 1.54% and the German Dax rose 0.2% but Spain’s Ibex was hit hard, falling 6.7%. The Europe ex UK grouping remains the worst-performing sector for the year to date. It is down 4.13%, compared to a fall of just 0.39% in the UK All Companies sector.
While the problems were not entirely unexpected and exports held up, the jobless rate also rose and the figures ignited fears that the recovery would not survive the withdrawal of stimulus measures.
This weakness was evident in much of the remainder of the eurozone as well and indeed the region as a whole only grew by 0.1% in the final quarter. The Italian economy was the first to do a proper double-dip, with GDP falling 0.2% in the final quarter, reversing growth of 0.6% in the third quarter. Spain has still not emerged from recession and saw its economy shrink by 0.1%. France was the only significant bright spot. It saw a 0.6% rise in GDP, which was better than expected.
In general, Germany’s bad news is the eurozone’s bad news – particularly as it is seen as the main source for bail-out funds if Spain, Portugal or Ireland follow in Greece’s unenviable footsteps. Having been studiously vague at the height of the crisis, Germany finally said its support for Greece would be political rather than financial.
The Greek situation may have passed its crisis point but worries rumbled on. That said, the country’s government did managed to get a €5bn (£4.53bn) bond issue away after the month-end, assuaging fears that international investors would turn their backs completely.
European Central Bank president Jean-Claude Trichet continued to insist recovery was on track and pressed ahead with the dismantling of the stimulus packages, though he admitted recovery would remain uneven. The effects of a weaker euro are already starting to be felt by some businesses and could help revive German growth although the eurozone’s purchasing managers’ index remained unchanged from January to February.
The European markets were substantially weaker than those of the UK and US in February. The FTSE Eurofirst index fell 0.23%, compared to rises of 3.2% for the FTSE 100 and 2.85% for the S&P 500. Only the Nikkei did worse, falling 0.85%. Of the individual markets, the French CAC fell 1.54% and the German Dax rose 0.2% but Spain’s Ibex was hit hard, falling 6.7%. The Europe ex UK grouping remains the worst-performing sector for the year to date. It is down 4.13%, compared to a fall of just 0.39% in the UK All Companies sector.
Emerging Markets Recover from a poor January
The emerging markets sector made up some ground in February as investors once again embraced riskier assets. Having languished at the bottom of the league tables for January and most of February, a last-minute surge has left funds in the sector up 4.1% on average.
The Asia Pacific excluding Japan sector is slightly lower with a 2.93% gain. The weakest area was, predictably, Eastern Europe, which was hit by the fall-out from the Greek sovereign debt crisis. The MSCI Emerging Europe index was down 5.93% over the month with Hungary and the Czech Republic faring only a little better, dropping 3.45% and 3.85% respectively. A number of commentators have suggested Eastern Europe is the region most likely to house ‘the next Greece’.
Russian markets were also weak in spite of a small rise in the oil price, with the MSCI Russia index down 6.33%. Russia’s fourth-quarter GDP rose 0.3% over the previous quarter but weak export activity continues to weigh on the manufacturing sector.
In Asia, China continued to work its magic. It posted growth of 10.7% in the final quarter but said it will continue to target 8% growth in 2010. The government surprised markets by introducing a small level of monetary tightening though this was welcomed by those who see a nascent asset bubble in the region. Inflation dropped to its lowest level in two and a half years with factory gate prices falling 3.3%. A short period of deflation remains a possibility.
China’s neighbours have enjoyed the fruits of its riches. Thailand and Taiwan – both big exporters to China – have seen a speedy rebound in GDP, with the latter seeing a rise of 9.2% in GDP in the final quarter of 2009. Thailand meanwhile saw a rise of 5.8%. South Korea and Indonesia are also doing well, but have seen domestic demand grow as well.
The FTSE Xinhua index rose 2.16% over February, the Hang Seng rose 3.1% and the Shanghai 180 index of Chinese-listed shares rose 2.3%. The Chinese investment community also saw a new champion in the form of veteran investor Anthony Bolton, who launched his Fidelity Chinese Special Situations trust at the end of the month.
Elsewhere, Brazil’s Bovespa index paused after its strong run, rising 1.7% over the month. However, the biggest news in the region was the earthquake disaster in Chile. This appeared to have little impact on markets, which were flat, and the copper price ticked up, though not significantly, and indeed investors look to be hoping the devastating human cost is not matched by an economic nightmare.
The Asia Pacific excluding Japan sector is slightly lower with a 2.93% gain. The weakest area was, predictably, Eastern Europe, which was hit by the fall-out from the Greek sovereign debt crisis. The MSCI Emerging Europe index was down 5.93% over the month with Hungary and the Czech Republic faring only a little better, dropping 3.45% and 3.85% respectively. A number of commentators have suggested Eastern Europe is the region most likely to house ‘the next Greece’.
Russian markets were also weak in spite of a small rise in the oil price, with the MSCI Russia index down 6.33%. Russia’s fourth-quarter GDP rose 0.3% over the previous quarter but weak export activity continues to weigh on the manufacturing sector.
In Asia, China continued to work its magic. It posted growth of 10.7% in the final quarter but said it will continue to target 8% growth in 2010. The government surprised markets by introducing a small level of monetary tightening though this was welcomed by those who see a nascent asset bubble in the region. Inflation dropped to its lowest level in two and a half years with factory gate prices falling 3.3%. A short period of deflation remains a possibility.
China’s neighbours have enjoyed the fruits of its riches. Thailand and Taiwan – both big exporters to China – have seen a speedy rebound in GDP, with the latter seeing a rise of 9.2% in GDP in the final quarter of 2009. Thailand meanwhile saw a rise of 5.8%. South Korea and Indonesia are also doing well, but have seen domestic demand grow as well.
The FTSE Xinhua index rose 2.16% over February, the Hang Seng rose 3.1% and the Shanghai 180 index of Chinese-listed shares rose 2.3%. The Chinese investment community also saw a new champion in the form of veteran investor Anthony Bolton, who launched his Fidelity Chinese Special Situations trust at the end of the month.
Elsewhere, Brazil’s Bovespa index paused after its strong run, rising 1.7% over the month. However, the biggest news in the region was the earthquake disaster in Chile. This appeared to have little impact on markets, which were flat, and the copper price ticked up, though not significantly, and indeed investors look to be hoping the devastating human cost is not matched by an economic nightmare.
Japan still showing signs of weakness
After a strong start to the year, it didn’t take much to knock the Nikkei off course again and the index dropped 0.85% over the month. This was a worse showing even than Europe, where the FTSE Eurofirst only dipped 0.23% in spite of the fallout from the Greek crisis.By comparison, the FTSE 100 rose 3.2% and the S&P 500 was up 2.85%.
The ongoing problems at Toyota contributed to the weakness of Japan’s stock market – the shares fell from Y2,662 (£354) to Y2,335 as the carmaker’s woes continued – but elsewhere the news was surprisingly good. The economy grew faster than expected in the fourth quarter, rising 1.1% though some of this growth was ‘inherited’ from the previous quarter where growth figures were revised down from 1.2% to 0.3%. Exports continued their strength, in spite of Toyota’s problems, and industrial output rose for the 11th consecutive month.
More importantly, domestic demand began to emerge. While it would be premature to suggest the Japanese consumer is going to change the habits of the past 20 years and start spending, there were undoubtedly signs of life in retail spending figures. They rose for the first time in 17 months, up 2.6% year-on-year for January. Some analysts took this as a sign that government family-friendly policies, which have focused on putting money back in the pockets of householders, may be paying off.
However, deflation continues to act as a drag on spending. The GDP deflator – the level of prices for new, domestically produced goods and services – saw a 3% annual fall and consumer prices fell for the 11th month running. The government made tentative steps towards dealing with the problem, setting the Bank of Japan an inflation target for the first time – it was only 1%, but it was at least a statement of intent. The lack of an inflation target has been a long-standing criticism of the Japanese government’s policy and its introduction marks a break with the previous administration.
In spite of the relative weakness of the Nikkei, Japan funds are still ahead of the pack for the year to date, with the average fund in the IMA Japan sector delivering 7.37% while the average Japanese Smaller Companies fund is up 7.33%. The next best performer is the North American Smaller Companies sector, which has delivered 4.55% in comparison. Japan fund managers remain relatively optimistic, arguing valuations of Japanese companies are low relative to history and to their global peers.
The ongoing problems at Toyota contributed to the weakness of Japan’s stock market – the shares fell from Y2,662 (£354) to Y2,335 as the carmaker’s woes continued – but elsewhere the news was surprisingly good. The economy grew faster than expected in the fourth quarter, rising 1.1% though some of this growth was ‘inherited’ from the previous quarter where growth figures were revised down from 1.2% to 0.3%. Exports continued their strength, in spite of Toyota’s problems, and industrial output rose for the 11th consecutive month.
More importantly, domestic demand began to emerge. While it would be premature to suggest the Japanese consumer is going to change the habits of the past 20 years and start spending, there were undoubtedly signs of life in retail spending figures. They rose for the first time in 17 months, up 2.6% year-on-year for January. Some analysts took this as a sign that government family-friendly policies, which have focused on putting money back in the pockets of householders, may be paying off.
However, deflation continues to act as a drag on spending. The GDP deflator – the level of prices for new, domestically produced goods and services – saw a 3% annual fall and consumer prices fell for the 11th month running. The government made tentative steps towards dealing with the problem, setting the Bank of Japan an inflation target for the first time – it was only 1%, but it was at least a statement of intent. The lack of an inflation target has been a long-standing criticism of the Japanese government’s policy and its introduction marks a break with the previous administration.
In spite of the relative weakness of the Nikkei, Japan funds are still ahead of the pack for the year to date, with the average fund in the IMA Japan sector delivering 7.37% while the average Japanese Smaller Companies fund is up 7.33%. The next best performer is the North American Smaller Companies sector, which has delivered 4.55% in comparison. Japan fund managers remain relatively optimistic, arguing valuations of Japanese companies are low relative to history and to their global peers.
UK equities perform well in February
Despite ongoing concern about the size of the UK’s budget deficit, investor sentiment in February was boosted by strong earnings announcements from the banking sector, positive news from the mining sector and an upward revision to UK economic growth for the fourth quarter of 2009.The FTSE 100 index rose by 3.2% over the month.
Royal Bank of Scotland (RBS) announced smaller-than-expected full-year losses. Controversially, the UK’s largest government-controlled bank also announced a 44% rise in pay and bonus deals for its investment bankers, although CEO Stephen Hester decided to forgo his £1.6m bonus. Amid sustained taxpayer resentment against the banking sector, the Government has urged banks to reduce or defer bonuses. Barclays, which avoided a government bailout, announced full-year profits that more than doubled.
Lloyds Banking Group reported a larger-than-expected full-year loss, exacerbated by bad loan losses resulting from its takeover of HBOS. CEO Eric Daniels waived his £2.3m bonus, following the example of his peers at Barclays and RBS. Lloyds remains the UK’s largest mortgage lender, but has lost market share after cutting loans. Meanwhile, Banco Santander’s share of the UK mortgage market has increased by almost five percentage points to 18.6%.
Mining company Rio Tinto reported a profit for the second half of its fiscal year, boosted by higher commodity prices, and reinstated its dividend payment. Xstrata also announced it was reinstating dividend payments, despite reporting a drop in full-year profits. Elsewhere in the sector, Anglo American announced profits for 2009 that were ahead of expectations and also expects to resume dividend payments during 2010.
The world’s largest drinks manufacturer, Diageo, announced first-half earnings that undershot consensus expectations. Profits growth was dampened by fragile consumer demand in Europe and the US. The share price of Rolls-Royce was boosted by the news of higher-than-expected profits and a dividend increase. Shares in fixed-line telecoms provider BT fell sharply following the news the pensions regulator is concerned about its plans to tackle its spiralling pension deficit, which amounted to £8.8bn at the end of December.
January’s unexpectedly wintry weather took its toll on UK retail sales, which fell by more than twice as much as expected. Sales fell by 1.2% according to the Office for National Statistics, compared with consensus estimates of a 0.5% drop. Home-improvement retailer Kingfisher reported disappointing fourth-quarter sales, citing poor weather and the return of VAT at 17.5%.
UK Equities performance
Royal Bank of Scotland (RBS) announced smaller-than-expected full-year losses. Controversially, the UK’s largest government-controlled bank also announced a 44% rise in pay and bonus deals for its investment bankers, although CEO Stephen Hester decided to forgo his £1.6m bonus. Amid sustained taxpayer resentment against the banking sector, the Government has urged banks to reduce or defer bonuses. Barclays, which avoided a government bailout, announced full-year profits that more than doubled.
Lloyds Banking Group reported a larger-than-expected full-year loss, exacerbated by bad loan losses resulting from its takeover of HBOS. CEO Eric Daniels waived his £2.3m bonus, following the example of his peers at Barclays and RBS. Lloyds remains the UK’s largest mortgage lender, but has lost market share after cutting loans. Meanwhile, Banco Santander’s share of the UK mortgage market has increased by almost five percentage points to 18.6%.
Mining company Rio Tinto reported a profit for the second half of its fiscal year, boosted by higher commodity prices, and reinstated its dividend payment. Xstrata also announced it was reinstating dividend payments, despite reporting a drop in full-year profits. Elsewhere in the sector, Anglo American announced profits for 2009 that were ahead of expectations and also expects to resume dividend payments during 2010.
The world’s largest drinks manufacturer, Diageo, announced first-half earnings that undershot consensus expectations. Profits growth was dampened by fragile consumer demand in Europe and the US. The share price of Rolls-Royce was boosted by the news of higher-than-expected profits and a dividend increase. Shares in fixed-line telecoms provider BT fell sharply following the news the pensions regulator is concerned about its plans to tackle its spiralling pension deficit, which amounted to £8.8bn at the end of December.
January’s unexpectedly wintry weather took its toll on UK retail sales, which fell by more than twice as much as expected. Sales fell by 1.2% according to the Office for National Statistics, compared with consensus estimates of a 0.5% drop. Home-improvement retailer Kingfisher reported disappointing fourth-quarter sales, citing poor weather and the return of VAT at 17.5%.
UK Equities performance
The US economy starts to recover
The US economy grew by 5.9% during the fourth quarter of 2009, boosted by increased business investment and restocking as companies rebuilt inventories. Ben Bernanke, chairman of the Federal Reserve, described the US economic recovery as “nascent” and emphasised the ongoing need for low interest rates.
Bernanke believes that high unemployment and low inflation will help the Fed to keep US interest rates low for “an extended period”, but went on to warn that the Fed will have to begin raising rates “at some point”. Unemployment fell unexpectedly to 9.7% during January, its lowest level since August 2009. Job openings increased for the first time in three months last December, boosting hopes that employers are becoming more optimistic about prospects for the US economic recovery. Meanwhile, wholesale prices grew at a faster-than-expected pace, boosted by higher prices for energy, pharmaceuticals and light trucks
.US equity prices rose over February as a whole while the S&P 500 index increased by 2.9%. Investor sentiment was boosted by some encouraging economic data and corporate earnings announcements. Of the 456 companies in the S&P 500 that have reported fourth-quarter earnings since 11 January, three-quarters announced profits that beat consensus forecasts. However, investors’ morale was somewhat dampened by speculation over soaring budget deficits in some European countries and their possible negative effect on the global economic recovery.
US retail sales increased for the third time in four months during January, boosting hopes that consumers will be at the forefront of the economic recovery. Consumer activity makes up 70% of Us GDP. Retail sales grew more quickly than expected, climbing by 0.5%, although consumer confidence posted an unexpected drop.
According to the International Council of Shopping Centers, sales at 31 chains rose more quickly than expected, registering growth of 3%. Retailers avoided excessive discounting activity through the effective control of their inventories. Gap, Saks and Abercrombie & Fitch announced better-than-expected January sales, while department-store operator Macy’s announced stronger-than-forecast sales growth that was boosted by online sales. Overall, online spending rose by 2.6% year-on-year in the fourth quarter of 2009, led by strong performance from Wal Mart and Amazon.
Insurer AIG, the recipient of a controversial and high-profile bailout by the US government in September 2008, reported fourth-quarter losses of $8.87bn (£xxbn) that were magnified by the company’s decision to put aside additional reserves to pay insurance claims and pay back bailout funds.
Bernanke believes that high unemployment and low inflation will help the Fed to keep US interest rates low for “an extended period”, but went on to warn that the Fed will have to begin raising rates “at some point”. Unemployment fell unexpectedly to 9.7% during January, its lowest level since August 2009. Job openings increased for the first time in three months last December, boosting hopes that employers are becoming more optimistic about prospects for the US economic recovery. Meanwhile, wholesale prices grew at a faster-than-expected pace, boosted by higher prices for energy, pharmaceuticals and light trucks
.US equity prices rose over February as a whole while the S&P 500 index increased by 2.9%. Investor sentiment was boosted by some encouraging economic data and corporate earnings announcements. Of the 456 companies in the S&P 500 that have reported fourth-quarter earnings since 11 January, three-quarters announced profits that beat consensus forecasts. However, investors’ morale was somewhat dampened by speculation over soaring budget deficits in some European countries and their possible negative effect on the global economic recovery.
US retail sales increased for the third time in four months during January, boosting hopes that consumers will be at the forefront of the economic recovery. Consumer activity makes up 70% of Us GDP. Retail sales grew more quickly than expected, climbing by 0.5%, although consumer confidence posted an unexpected drop.
According to the International Council of Shopping Centers, sales at 31 chains rose more quickly than expected, registering growth of 3%. Retailers avoided excessive discounting activity through the effective control of their inventories. Gap, Saks and Abercrombie & Fitch announced better-than-expected January sales, while department-store operator Macy’s announced stronger-than-forecast sales growth that was boosted by online sales. Overall, online spending rose by 2.6% year-on-year in the fourth quarter of 2009, led by strong performance from Wal Mart and Amazon.
Insurer AIG, the recipient of a controversial and high-profile bailout by the US government in September 2008, reported fourth-quarter losses of $8.87bn (£xxbn) that were magnified by the company’s decision to put aside additional reserves to pay insurance claims and pay back bailout funds.
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