Myer flat: Myer has confirmed that its March quarter sales were flat. It told the ASX this morning that  top-line sales growth was flat in the March quarter, while same store sales rose 0.3%. That was after a 2% rise in the six months to December and a 1.2% rise in same store (like-for-like) sales. In the nine months to April 24, “total sales grew by 1.4% to $2,468 million and like-for-like sales were up 0.9% compared to the previous corresponding period”. Even though that represents a slowing, it is still better than the Target and Big W chains of Coles (Wesfarmers) and Woolies, which saw same store sales contract in the March quarter. Myer joins the likes of Coles, Woolies, Harvey Norman, Clive Peeters, Fantastic Furniture and JB Hi-Fi in reporting a slowing in March quarter sales growth.

Are you being served? First-quarter reporting season for American retailers continues this week with the biggies, Wal-Mart and its No.2, Target, due to report in the next two days. Friday there were  mixed reports from Kohl’s, Macy’s, Nordstrom and JC Penny. In particular, Pennys and Nordstrom produced weak first-quarter sakes and earnings that automatically cast doubt on the strength of the consumer recovery. That was despite better-than-expected rises in all measures of retail sales in April. Sales in April rose 0.4%%, down from the 2.1% rise in March, but double market estimates. But such is the uncertainty in the US that if Wal-Mart, Target or some of the other retailers reporting this week disappoint, US investors will be in a tizz.

Output solid: The Fed said US industrial production rose 0.8% in April, again better than market forecasts. That was up from the 0.2% rise in March. There were sold rises in manufacturing. But it wasn’t all good; capacity utilisation rose to 73.7%, the highest since November 2008, from 73.1% in March. That’s still 6.9% under its long-term average. That gives us an idea of what the concept of the output gap is (it’s the difference between the actual level of output in the economy and the productive potential of the economy). At this level, there’s little to suggest the US is facing a surge in inflation, despite the concerns of all those gold bugs and bears out there, who are worried about government spending.

Rates down: There are plenty of measures use to illustrate the level of market risk and fear, but there’s one that its always accurate and that’s the level of US interest rates in times of stress and trouble. Naturally they have been falling in the past couple of weeks as worries about Europe, the euro and the health of the European and Chinese economies raises fears of another global slowdown. On Friday, yields fell sharply, with the US government 10-year bond finishing about 3.44% in New York, down from 3.54% on Thursday. With European and US share markets falling sharply as well, there seems to have been a very rapid rise in markets fears. There were stories going around financial websites in Europe that the German government was abandoning the euro at midnight last night and would be back on the Deutsche mark first thing today. So far, nothing sighted. No wonder German purchases of gold coins (especially Krugerrands) boomed on Thursday and Friday. Except for the May 6 flash crash, the 3.44% yield on Friday was the lowest 10-year bond yields have been for several months.

Euro going down, and down: The euro hit another 18-month low in trading on Friday in European and US trading. The Aussie dollar finished weaker as well, about 88.50 US cents. Over the week, its only down a touch, but from the high on Thursday of just over 90 US cents, the Aussie is off 1.5 USc in a day’s trading. There’s now lots of talk about how the euro is falling to parity against the greenback (the greenback certainly isn’t rising for any fundamental reason, it’s the safe haven effect) because there are growing fears the European currency might not last.

Now deflation stalks Spain: Next the rest of Europe? Lot’s of talk about the spectre of deflation advancing on some or all of the eurozone after “core” consumer prices in Spain, excluding energy and fresh food, fell 0.1% from a year earlier. That was a surprise seeing prices rose 0.2% in March on the same basis. It was the first annual fall for 24 years. Some economists reckon the slumping euro will keep deflation at bay in the eurozone, but perhaps not in Greece, Portugal and Spain. But with these three countries all planning to chop heavily into spending, the three economies will slide in coming months (Greece remains in recession). Wages are being cut, taxes raised, so consumption and output will all weaken as the output gap in the trio of economies bears down on prices. That pressure could end up being the biggest threat to stability.

Experts galore: Even our local experts  are weighing in on the eurozone and euro’s problems with sage advice, telling us what we already knew from previously written articles; that Greece sank itself and Germany wants tough rules on spending. The latest article, by Paul Sheehan in the Sydney Snoring Herald, rightly tells us part of the problem was the greedy unions and their political masters (more than 20% of Greece’s 5 million work force are employed in the public sector). But its more than just the unions and their political masters. Tax avoidance and cheating has been routine, more so than acknowledged in the article. Business cheated (a Greek Cypriot ship-owner was fined $US40 million earlier this month for hiding property under other names). The Financial Times reported at the weekend that 60 doctors and dentists have been named for rorting the systems. Surgeons took €5000 bribes to push people wanting cosmetic surgery up waiting lists, and then did it, called the procedure something acceptable and had it paid for by the government, when it is not allowed.

Germany is no saint: And for all of Germany’s huff and bluff, we only got to the stage of last week’s €750 billion bailout (which is still not properly in place and designed) because of the political miscalculation by the government and Chancellor Angela Merkel. Read this far better informed opinion piece from someone who is at the heart of European reporting. “What is completely missing in Brussels – and even more so in Berlin — is an understanding of the urgency of the situation. None of the governance reform proposals that are currently discussed even attempt to answer the questions of how Spain is going to get out of this hole, and how the competitiveness gap between the north and the south of the eurozone is going to be closed.” It is as much German hubris (a wonderful Greek phrase) and continuing arrogance that will go on creating strains and stresses. Will the rest of Europe go on cutting spending and consumption simply to allow Germany to continue building up huge trade surpluses? One day the cuts in Spain and elsewhere will start cutting that surplus and Germany will have a crisis.

The US bank collapses continue: Four more small to medium local US banks failed last week, taking to 72 the number that have collapsed this year. That’s slightly more than half the 140 that went under in 2009, in four and a half months. The biggest of last Friday’s failures was Midwest Bank and Trust Co of Illinois, which had more than $US5 billion in deposits and assets. Banks in Michigan, Missouri and Georgia were also shut (that was the 38th Georgian bank so far in this crisis). Total cost to the US taxpayer through the FDIC was about $US300 million dollars

How’s this for a loss? According to London media reports,  British Airways will reveal losses of £600 million  (more than $A1 billion), the largest deficit posted by the airline since it was sold off by the UK government in 1987. The losses will be for the 2010 financial year to the end of March. And things are not improving: the airline and its cabin crew are returning to the trenches for a new round of strikes. Volcanic ash has again interrupted European air travel; the company has a huge pension black hole worth billions of dollars and the new UK government looks like putting up taxes (such as the VAT), which will increase costs. And there’s the merger with Iberia to start bedding down, whenever.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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