Wall Street fell by more than 1%; US interest rates remained low, with Wednesday’s big gains intact; the US dollar fell, the Aussie raised a touch, gold soared, as did oil, broaching the $US50 a barrel (Pleasing OPEC), copper soared for a second day and agricultural commodities were sharply higher.
Welcome to a second day of the US Fed’s “quantitative easing”.
Oil prices raced above the $US50 a barrel level, while gold jumped by over $US60 an ounce to extend its bound beyond the $950 mark while grains and copper rose much more strongly than they did in late trading on Wednesday. The Fed’s statement came too late for some US and European traders.
Traders said the Fed’s move was positive for commodity markets as it should support economic recovery and would push investors out of government debt and into riskier asset classes.
But the Fed’s plans produced concerns about the outlook for the dollar and inflation, and that’s why gold and silver in particular soared. That’s why the US dollar fell and why the Australian dollar was close to 69 US cents this morning, the highest it has been for more than a month.
But while the headlines were still focused on the fall out from the Fed’s dramatic move to print money by buying $US300 billion of US Government debt from the banks and buying another $US1 trillion more of mortgage backed debt, there was a string of reminders from the real economy in the US and Europe of how intense the slum is becoming.
So what do American jobless numbers, falling profits at a giant German industrial company, America’s biggest freight express group, car sales in Russia, the UK, Singapore and Australia, and a key US economic indicator all have in common?
They all support the contention of the IMF and the Fed that things in the global economy are going to worsen, before they get better.
But some American commentators remain desperate to hail any apparent improvement, however small. Other commentators are now saying March’s job losses will be above 600,000.
But 646,000 first time benefits claimants isn’t good news at all, especially when the average for the past four weeks surged to a record 5.473 million people at the end of last week. That rolling average figure was up 185,000 over the week. Now that’s BAD news.
The US Conference Board’s index of leading indicators, which attempts to look at the economy’s direction over the next three to six months, fell 0.4% in February, a report from the Fed said manufacturing in the Philadelphia area shrank for the 15th time in 16 months (to go with a similar reading for manufacturing in and around New York State).
And then there was transport giant, Fed Ex, (a so-called bellwether stock for the economy because it carries so much air and road freight). Nothing positive at all from the third quarter: a 75% fall in third quarter profit, and plans for a second round of cost and job cuts to save $US1 billion.
Fed Ex’s sales fell for the first time in a decade and the company doesn’t expect any improvement. It will be the second $US1 billion cost cutting campaign for the company in as many years.
Late last year it cut pay for the company’s 36,000 executives, including the chairman and CEO. The company said industrial production and other areas of output had worsened in recent weeks, meaning more pressure on its emptying fleet of trucks and planes.
In Germany the huge ThyssenKrupp steel group is becoming the first major German employer to cut full time company staff; having cut all its temporary contract workers. The Financial Times said 3000 of the company’s 200,000 staff will be retrenched in the first compulsory sackings of the recession, a move that will put the company on track for a brawl with the unions and the various state and federal German Government ahead of looming elections.
The company reported a second quarter loss, is still forecasting a profit in the year to next September, but that is dependant on the European economy not worsening expecting to report losses. The company is cutting back on some activities in a 1 billion euro cost cutting plan announced late last year. Three directors are to leave the board as their divisions are wound down and sold off.
BMW this week abandoned its care sales targets for the next year. BMW’s current assumption is that sales volumes will decrease by 10 to 20 percent in automotive markets over the course of 2009.
BMW CEO, Norbert Reithofer, says the carmaker will miss the 2012 sales target of 1.8 million cars by more than 100,000, given the dire market conditions. And executives said there’s a strong chance that the 2010 sales target of 1.6 million units will also be missed.
In the past year, BMW’s sales dropped by 4.3% to 1.44 million vehicles, as the company was hammered in the US, Eastern Europe and in its home market.
BMW reported a 718 million euro loss in the fourth quarter, as further provisions on residual values of leased cars and credit write-downs took their toll. But it has close to 2 billion Euros in cash on hand and falling stocks, unlike rival Daimler.
Still with cars and Inchcape are a major distributor and importer of a range of cars across Europe, Asia and Australia. Subaru is their major brand here and they also sell Volkswagen and other marquees. Profits halved in the 2008-09 financial year, despite a small rise in sales. Debt was cut, but the company was forced to go to the market to raise 232 million pounds in a deeply discounted offering at 6 pence a share in London. 4.2 billion shares will be issued in the raising.
Inchcape operates mostly in the UK, Australia, Belgium, Greece, Hong Kong and Singapore, but it also has dealerships in 20 other countries, including China, Russia, the Baltic states and Eastern Europe. The latter is where much of the damage was done as economies and sales tanked.
In Australia profits fell in the year to 41.3 million pounds (43.8 million pounds a year ago), despite a small rise in sales to 695 million pounds. The company is expecting a sharp slide in car sales in Australia this year.
And finally a good news story amid the gloom and many trade unionists and fellow travellers will be enraged by it.
The world’s biggest retailer, Wal-Mart Stores Inc is awarding approximately $US2 billion to hourly employees in its American stores via financial incentives, including handing out $US933.6 million in bonuses overnight. Reuters newsagency said Wal-Mart CEO Mike Duke said told staff in a memo that the company is awarding roughly $2 billion to US hourly employees, which includes $933.6 million in bonuses, $788.8 million in profit sharing and 401(k) contributions, (pension plans) millions of dollars in merchandise discounts, and contributions to its employee stock purchase plan.
That was after the company rewarded shareholders with a 15% rise in the annual dividend last month to $US1.09 a share. The retailer has benefited from the recession driving millions of people to it from other retailers as they seek to get more value for their dwindling pay or cash reserves. For its 2009 financial year, Wal-Mart’s total sales rose 7% to $US401.24 billion.
A year ago, Wal-Mart said it awarded almost $US1.2 billion in financial incentives to its US hourly employees, including more than $US636.4 million in bonuses, which are based on store performance.
But that was a rare bit of good news. Overnight the US Treasury revealed plans for a $US5 billion payout to the American car parts sector. Suppliers will get a guarantee that money owed them for products will be paid, regardless of what happens to car companies. The program will be run through the automakers.
Suppliers had asked for $US18.5 billion last month. The slump in car sales has forced some suppliers to fail, some into the hands of their banks, and others to look to former car company owners for support. The problems at Ford, GM and Chrysler have hurt, as has the uncertainty about the future strength and presence of GM and Chrysler.