Business Blog Posts

The International Air Transport Association, whose airlines carry more than 90 percent of global air traffic, may be forced to cut its benchmark forecast for 2011 industry profits at a major annual gathering in Singapore.

It is the latest sign of concern that the economic rebound that pulled many companies out of financial trouble in 2010 may be screeching to a halt. Such fears reflect Japan's earthquake, recent instability in the Arab world and a rise in oil prices.

IATA most recently predicted an industry-wide profit of $8.6 billion in 2011 after a $16 billion surplus in 2010 -- a year in which the economy had seemed to be recovering quickly.

Although drastic cost cuts and a tight lid on capacity appear to have prevented the industry from plunging back into the red, most analysts say the current forecasts are too optimistic.

The industry's outlook is often seen as a guide to the strength of cyclical performance in developed markets and growth in emerging economies, which rely heavily on air transport.

Airline chiefs arrived at the conference sounding off against European Union plans to curb emissions from aviation, which they say would threaten their recovery and discriminate against carriers located the farthest away from Europe.

The EU plans will require all airlines flying to Europe to be included in an Emissions Trading Scheme (ETS) from January 1.

The system forces polluters to buy permits for each metric ton of carbon dioxide they emit above a certain cap.

The plan is meant to tackle growing emissions from the $500 billion aviation industry, which is responsible for about 2 percent of mankind's greenhouse gas pollution.

Airlines say it will only increase costs and add to pressures caused by a faltering global economy.

WARNING OF TRADE CONFLICT

Governments and airlines have been piling on pressure, some describing the forced inclusion of global airlines as illegal.

"The last thing that we want to see is a trade war," said Giovanni Bisignani, director-general of the International Air Transport Association. The EU had to heed a "growing chorus of countries strongly opposing an illegal extraterritorial scheme."

European airlines and Airbus have written to the European Commission warning of a "trade conflict with the world's most powerful economic and political players," over the plans that are opposed by the United States and China.

The letter, signed by Airbus Chief Executive Tom Enders and Virgin Atlantic Chief Executive Steve Ridgway on behalf of European airlines, says the measures are perceived as a tax.

U.S. airlines are challenging the move in EU courts.

Industry and diplomatic sources say China has threatened retaliation against European airlines and planemaker Airbus if the EU goes ahead with its plans.

But Europe's climate chief insisted on Sunday the EU would stand firm against any threats of retaliation.

"When some parties start to threaten specific European companies, I think Europe should be very firm," Climate Commissioner Connie Hedegaard told Reuters in Brussels.

The EU has offered to exempt airlines of countries that can prove they are taking equivalent steps to cut emissions.

Airlines are meanwhile involved in a growing number of bilateral trade disputes over access rights as Gulf airlines seek markets for planes such as Airbus A380s that they have ordered.

(Additional reporting by Alison Leung, Harry Suhartono, Pete Harrison; Editing by Maureen Bavdek)

With weak job growth and the end of the Federal Reserve's stimulus program staring investors in the face, the 5 percent drop in the S&P 500 from last month's high is half way toward the market's definition of a correction -- a 10 percent fall from a recent peak.

The broad market index on Friday recorded its worst week since mid-August and its fifth straight week of declines.

But fund managers displayed caution rather than distress. Most see the recent data confirming a soft patch, or slowdown, after the government said the economy created a meager 54,000 jobs in May. Others say the economy may be headed for a double-dip recession.

The sharp fall in bond yields also points to a similar concern, but a full-blown downturn in equities isn't in the cards yet, investors say. For the year, stocks are still positive, with the Dow up 5 percent, while the S&P 500 and the Nasdaq are each up about 3 percent.

"The markets will be choppy. They'll be looking for validation that this is just a soft patch we're going through, not the economy rolling over," said Mike Ryan, the New York-based head of wealth management research for the Americas at UBS Financial Services Inc, which oversees about $641 billion.

Some concede the stock market could see further declines from sovereign debt problems in Europe or a spillover of violence in Yemen into Saudi Arabia, which could lift oil prices, hurting the consumer.

The lack of market-moving economic data or corporate earnings this week could also make nervous investors hit the sell button more often than not. But the market mantra of "buying the dip," which has worked since the Fed started round two of its quantitative easing in August could prevail.

"Is another 5 percent (decline) possible here? I don't see why it wouldn't be, given the risk of contagion in Europe," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, which manages about $14.8 billion.

"The market is constantly reconciling the fact that it's a slow recovery. We had a painful crash and a crisis and we are painfully, gradually getting out it. This pullback, and potentially further pullbacks from here in the next couple of months -- I view these as attractive entry points for longer-term investors."

Data that showed net inflows into global equity funds could confirm investors are not ready to throw in the towel.

Equity funds tracked by EPFR Global saw inflows of $1.7 billion in the week ending last Wednesday, distributed evenly between developed and emerging markets. The data comes after three weeks of outflows totaling $18 billion. Bond funds took in some $3.5 billion in net inflows, a sixteenth straight week of inflows.

From a technical standpoint the U.S. stock market showed some resilience also, despite the dismal jobs data.

The S&P 500 on Friday managed to close just above 1,300, keeping the April low just under 1,295 as strong near-term support.

To be sure, not all investors see just a soft patch in the economic data. Friday's payrolls report confirmed the loss of momentum in the economy, which was already flagged by other data from consumer spending to manufacturing.

And the end of the Fed's QE2, which helped lift the S&P 500 30 percent in the eight months to the end of April, is robbing the market of a much-needed source of liquidity.

"We'll see a sell-off in the risk-on trades, in commodities and in global and U.S. stocks and the money is going short-term into the bond market," said Charles Biderman, chief executive of TrimTabs Investment Research in Sausalito, California.

"I just don't see where the money is coming from to take stocks higher if the government is not going to be providing it."

(Reporting by Rodrigo Campos; additional reporting by Caroline Valetkevitch, Lucia Mutikani and Ryan Vlastelica; Editing by Kenneth Barry)

The cabinet will Monday hold an informal discussion of the medium-term plan, the office of Socialist Prime Minister George Papandreou said Sunday.

Papandreou would then present the plan, which also promises a new privatization agency to speed up sales of state assets, to the political council of his PASOK party Tuesday before the cabinet clears on it Wednesday and sends it to parliament.

Interior Minister Yannis Ragousis has warned doubters within the ruling party that they risk pushing Greece over a cliff if they resist attempts to get the plan, agreed Friday with the European Union and IMF, through parliament.

Few details of the new three-year bailout or the Athens government's medium-term plan have yet been officially announced. But the unhappiness is likely to spill well beyond Greece's borders as taxpayers elsewhere in the euro zone begin to discover how much more rescuing Athens may cost.

German news magazine Der Spiegel reported Sunday the new package could end up costing more than 100 billion euros, if Athens still needs foreign aid in 2013 and 2014.

Spiegel cited estimates by experts from the German Finance Ministry and the "troika" of the EU, International Monetary Fund and European Central Bank. In Berlin, the finance ministry declined to comment on the weekly's report.

Greece agreed its first, 110 billion-euro bailout a year ago. But this assumed that Athens could resume borrowing commercially early next year, which now appears inconceivable. Athens is struggling to avoid defaulting on its existing debt and yields on its bonds are sky-high in the secondary market.

So far, Athens has received 43 billion euros under the first bailout, although it urgently needs another 12 billion which had been due in late June to cover debt repayments and for its day-to-day running costs. The troika said Friday that money should now be forthcoming in July.

GREEK EFFORTS "INSUFFICIENT"

Euro zone finance ministers and the IMF board must still back the new bailout, which would supersede last May's rescue.

Greece's commercial creditors are likely to be unhappy with the latest bailout plan, which is expected to demand that they share some of the cost of Greece's huge funding needs.

A source close to negotiations on the bailout involving EU officials in Vienna last Thursday said it would involve some participation of private investors.

Spiegel also reported that German Finance Minister Wolfgang Schaeuble had ordered his deputy Joerg Asmussen not to agree to any second rescue package at the Vienna talks that does not include the participation of private creditors.

Public opinion in Germany is hostile to helping Greece due to Athens's failure to get to grip with its finances, and electorates in Finland and the Netherlands are also restive.

"Greece is trying, but its efforts are insufficient," said Volker Kauder, an ally of German Chancellor Angela Merkel.

Kauder, who leads her Christian Democrat party in parliament, dismissed nightly protests in Athens against austerity, corruption and mismanagement.

"We can't let ourselves be influenced by the demonstrations in Greece," she told Bild newspaper. "It's time that Greece finally becomes a state with central European standards."

The European Central Bank opposes any attempt to cut the overall value of creditors' bond holdings, known as a haircut, fearing this would badly hurt banks which hold Greek debt and provoke a violent reaction on international financial markets.

However, creditors may be asked to buy new Greek bonds when old ones mature, to avoid Athens having to produce more money.

Nevertheless, a Greek newspaper said Sunday the central bank planned to ask the country's banks, which have major Greek government bond holdings, to boost their capital adequacy.

This was aimed at easing market fears over the impact of any haircut, newspaper Kathimerini said, citing banking sources.

"This does not mean that the Bank of Greece accepts there will be a haircut. On the contrary, as a member of the European Central Bank it is against any type of debt restructuring," Kathimerini said.

(Additional reporting by Erik Kirschbaum in Berlin; writing by David Stamp; editing by Andrew Roche)

With weak job growth and the end of the Federal Reserve's stimulus program staring investors in the face, the 5 percent drop in the S&P 500 from last month's high is half way toward the market's definition of a correction -- a 10 percent fall from a recent peak.

The broad market index on Friday recorded its worst week since mid-August and its fifth straight week of declines.

But fund managers displayed caution, rather than distress. Most see the recent data confirming a soft patch, or slowdown, after the government said the economy created a meager 54,000 jobs in May. Others say the economy may be headed for a double-dip recession.

The sharp fall in bond yields also points to a similar concern, but a full-blown downturn in equities isn't in the cards yet, investors say. For the year stocks still are positive, with the Dow up 5 percent, while the S&P 500 and the Nasdaq are each up about 3 percent.

"The markets will be choppy. They'll be looking for validation that this is just a soft patch we're going through, not the economy rolling over," said Mike Ryan, the New York-based head of wealth management research for the Americas at UBS Financial Services Inc, which oversees about $641 billion.

Some concede the stock market could see further declines from sovereign debt problems in Europe or a spillover of violence in Yemen into Saudi Arabia, which could lift oil prices, hurting the consumer.

The lack of market-moving economic data or corporate earnings next week could also make nervous investors hit the sell button more often than not. But the market mantra of "buying the dip," which has worked since the Fed started round two of its quantitative easing in August could prevail.

"Is another 5 percent (decline) possible here? I don't see why it wouldn't be, given the risk of contagion in Europe," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, which manages about $14.8 billion.

"The market is constantly reconciling the fact that it's a slow recovery. We had a painful crash and a crisis and we are painfully, gradually getting out it. This pullback, and potentially further pullbacks from here in the next couple of months -- I view these as attractive entry points for longer-term investors."

Data that showed net inflows into global equity funds could confirm investors are not ready to throw in the towel.

Equity funds tracked by EPFR Global saw inflows of $1.7 billion in the week ending last Wednesday, distributed evenly between developed and emerging markets. The data comes after three weeks of outflows totaling $18 billion. Bond funds took in some $3.5 billion in net inflows, a sixteenth straight week of inflows.

From a technical standpoint the U.S. stock market showed some resilience also, despite the dismal jobs data.

The S&P 500 on Friday managed to close just above 1,300, keeping the April low just under 1,295 as strong near-term support.

To be sure, not all investors see just a soft patch in the economic data. Friday's payrolls report confirmed the loss of momentum in the economy, which was already flagged by other data from consumer spending to manufacturing.

And the end of the Fed's QE2, which helped lift the S&P 500 30 percent in the eight months to the end of April, is robbing the market of a much-needed source of liquidity.

"We'll see a selloff in the risk-on trades, in commodities and in global and U.S. stocks and the money is going short-term into the bond market," said Charles Biderman, chief executive of TrimTabs Investment Research in Sausalito, California.

"I just don't see where the money is coming from to take stocks higher, if the government is not going to be providing it."

(Reporting by Rodrigo Campos; additional reporting by Caroline Valetkevitch, Lucia Mutikani and Ryan Vlastelica; Editing by Kenneth Barry)

"We are restoring (production) at fast speeds despite ongoing aftershocks," Akio Toyoda, the grandson of the company's founder, told reporters during a visit to South Korea.

"We expect our output to recover to normal from November ... For Japan's domestic production, we expect to resume 90 percent of our normal output this month," he said.

Toyota and its local rivals have been plagued by shortages of hundreds of components after a magnitude 9.0 earthquake and tsunami on March 11 damaged factories in Japan's northeast.

Production at Toyota is returning to pre-quake levels faster than the company anticipated, with output in June likely to reach90 percent of pre-quake levels, a company spokesman confirmed on Wednesday.

That more optimistic outlook compares with a prediction last month for production to return to 70 percent of normal.

The president said in April that a complete recovery was expected in November or December.

Still, in 2011 overall production may be almost a million vehicles less than Toyota had planned to build at the beginning of the year. Lost output by the end of May was 900,000 cars.

Because Toyota builds 38 percent of its cars in Japan compared with a smaller 25 percent at Nissan Motor Co Ltd (7201.T) and Honda Motor Co Ltd (7267.T) the impact at Japan's biggest auto company has been greater.

The president visited South Korea, a small market for the auto giant, to "encourage dealers," a Toyota Korea representative said, at a time when the automaker is suffering from sales slump in the wake of the quake and a recall crisis.

Toyota's Lexus sales dived 51 percent in April in South Korea from a year ago, while other Toyota vehicle sales slid 41 percent, even as the imported vehicle market grew 14 percent led by vehicles from German carmakers, according to data by Korea Automobile Importers and Distributors Association.

Last year, Toyota sold a combined 10,486 Lexus and other models in the South Korean market dominated by Hyundai Motor (005380.KS) and Kia Motors (000270.KS).

A shortage of parts resulting from disrupted supply chains means it has lost ground in overseas markets. On June 2, Toyota said it sold only 38,500 cars in China during May, 35 percent less than a year ago.

In the United States, its main foreign market, sales in May slumped 28 percent.

In contrast, South Korean rivals Hyundai Motor and Kia Motors posted double-digit sales growth and a record-high combined market share last month in the key market, putting their combined U.S. sales almost on par with that of Toyota.

(Additional reporting by Tim Kelly in TOKYO; Editing by Robert Birsel)