Business Blog Posts

Wednesday's data which showed the U.S. economy expanded at a slightly higher-than-expected pace of 2.6 percent in the third quarter came after recent data such as retail sales indicated economic activity has accelerated in the last few months.

The Asia-ex Japan index for commodity shares as measured by MSCI .MIAPJMT00PUS climbed within sight of a recent 2- year peak as investors bet that a healing U.S. economy along with the ongoing rise of China and India would continue to fuel demand for commodities amid tight supplies.

The S&P/Goldman commodities index .SPGSCI, which has a higher weighting of oil and is therefore more relevant to Asia due to its huge demand, also approached a fresh 26-month peak.

U.S. crude oil for delivery in February traded at $90.68 per barrel at 0647 GMT (1:47 a.m. ET), 12 cents below Wednesday's peak.

The 30-day correlation between the S&P 500 and the same commodities index has been between a high 0.87 and 0.94, indicating that investors view both asset classes with a similar degree of bullishness.

That brightening growth view has encouraged analysts to revise upwards their projections for the U.S. and pushed Treasury yields up nearly 100 basis points since the start of November, when the Fed launched its second round of quantitative easing.

"The global economy looks a whole lot happier than it did six months ago. Fears of a double-dip have faded," HSBC economists said in a note while upgrading their 2011 global growth forecasts by nearly half a percentage point to 3.3 percent led by Asia.

That growing optimism was reflected in latest Reuters polls which showed investment houses raising their equity holdings, increasing exposure to high-yield credit and cutting back on government debt.

FAIRLY PRICED

Asia Pacific stocks as measured by MSCI .MIAPJ0000PUS were slightly higher. Thin year-end liquidity and a holiday in Japan meant activity was limited after investors recently banked some profits when Asian stocks hit 2- year peaks.

According to Thomson Reuters IBES data, 12-month forward price/earnings multiples for Asia-ex Japan shares was hovering close to its 10-year average of 12.83 -- indicating that stocks are fairly priced at current levels.

But in a grim reminder that the euro zone's debt crisis is far from over, the euro plumbed to a record low versus the Swiss franc overnight, with traders citing some buying interest emerging from players in the region including central banks.

While the 2011 outlook for the euro continues to be bearish, it seems sandwiched between good sovereign demand in the high 1.30's and decent selling interest on 100 pip rallies.

Ten-year U.S. Treasuries were largely unchanged at 3.35 percent with benchmark yields holding below a seven-month high tested last week. Ten-year Treasury futures expiring in March 2011 were largely unchanged.

"The crisis showed us that it is not sufficient to limit public debt as foreseen in the Maastricht Treaty. Ireland stuck to these criteria and finds itself nevertheless in difficulty," Lagarde said in an interview with the Sueddeutsche Zeitung.

"The EU must not look just at the budgets, it must monitor how the economies in the member states develop."

Countries that set out to boost exports and increase investment in a certain sector, for example, would directly affect other EU countries.

"I don't think it is possible to take away sovereignty over budgets from national states, but we could coordinate with each other already when we are preparing tax legislation. Germany and France plan exactly that - more and more we want to coordinate already when we draft our budget plans for the coming years," she explained.

"Furthermore, I can also imagine creating an arbitration body (for closer economic policy coordination)," Lagarde said.

European countries' diverging tax rates have become a subject of tension. In negotiations on Ireland's EU/IMF bailout last month, France and Germany wanted Ireland's ultra-low corporation tax rate -- long seen by higher-tax European countries as unfair competition -- to be addressed but Dublin made clear the tax rate was non-negotiable.

Lagarde, in the interview, acknowledged that all 27 member EU states were unlikely to agree to such a wide-ranging move to coordinate economic policy, with the UK likely to vent fierce opposition, but she said some countries outside the euro zone would be interested.

"I doubt that a coordinated economic governance would be possible with all 27 states. Great Britain, for example, disagrees entirely on certain things. But that shouldn't hold up all the others," she said.

Lagarde rejected the idea of issuing common euro zone bonds -- which some European policymakers and analysts say would help ease market concerns about peripheral euro zone debt -- at least until member states have aligned themselves more closely.

"Definitely not at present," she said, when asked under what conditions France would support debt jointly issued by all 16 states.

"Before we introduce euro bonds, we first need a closer economic governance," she said.

She also told the newspaper that the French government was committed to lowering its debt and was currently planning to propose a tax reform prior to presidential elections in 2012.

(Reporting by Christiaan Hetzner; Editing by Susan Fenton)

Gross domestic product growth was revised up to an annualized rate of 2.6 percent from 2.5 percent, reflecting a higher than previously estimated pace of inventory accumulation, the Commerce Department said in its final estimate of third-quarter GDP on Wednesday.

Separately, sales of existing homes rose 5.6 percent to a seasonally adjusted annual unit rate of 4.68 million units, the National Association of Realtors said, slightly below expectations for 4.71 million unit pace.

Economists, who had expected GDP growth to be revised up to a 2.8 percent pace, were little fazed and pointed out that recent data suggested growth picked up in the fourth quarter.

"The more recent data suggests we're seeing reasonably healthy retail sales growth, pretty healthy investment spending, some growth in employment, so maybe the core growth or final sales growth is starting to accelerate in the fourth quarter," said Zach Pandl an economist at Nomura Securities International in New York.

U.S. stocks edged higher to extend four days of gains that drove the broader Standard & Poor's 500 index to levels not seen since before Lehman Brothers went bankrupt two years ago. Prices for U.S. government debt were slightly down, while the dollar was flat against a basket of currencies.

The economy expanded at a 1.7 percent rate in the second quarter.

Economists expect growth to remain supported in 2011 by an $858 billion tax deal, which will help plug the gap from the fading boost from the rebuilding of inventories by businesses and winding down of the government's $814 billion stimulus package.

The tax plan, widely viewed as a second fiscal stimulus for the economy, is seen complementing the Federal Reserve's program to buy $600 billion worth of government bonds to shore up the recovery.

Third-quarter growth estimates were revised to reflect a $121.4 billion increase in business inventories rather than the $111.5 billion rise reported last month. Inventories added 1.61 percentage points to GDP growth.

Excluding inventories, the economy expanded at a 0.9 percent pace rather than 1.2 percent.

CONSUMER SPENDING NOT AS ROBUST

The increase in consumer spending was revised down to a 2.4 percent rate from 2.8 percent. Consumer spending accounts for more than two-thirds of U.S. economic activity and contributed 1.67 percentage points to growth in the July-September period.

Still, consumer spending during the quarter was the fastest since the first quarter of 2007 and was a pick-up from the second quarter's 2.2 percent pace.

Government spending was trimmed to show a 3.9 percent rate rise rather than 4.0 percent. There were also slight downward revisions to business investment as spending on equipment and software estimates were lowered.

Business spending increased at a 10.0 percent rate instead of 10.3 percent. That was slower than the second quarter's brisk 17.2 percent rate. Spending on software and equipment grew at a 15.4 percent rate instead of 16.8 percent.

JPMorgan, whose investment bank has been run by Jes Staley since last year, withstood the poorest period for advisory income in Europe for eight years to maintain a slim lead on its rivals, Thomson Reuters data showed on Wednesday.

But its investment banking income in Europe almost halved compared to last year as the debt crisis stunted issuance and hit profits at most banks, according to the data which was co-produced with research firm Freeman Consulting.

The fee erosion at JPMorgan was particularly apparent in equity capital markets (ECM) in Europe. The bank was down by more than $500 million in equity fees compared with last year, dropping to second place behind Goldman Sachs (GS.N).

JPMorgan also slipped down the ECM fee rankings in Asia, 2010's biggest income battleground after a rush of first time listings there helped global initial public offerings (IPOS) double globally compared to last year.

The bank dropped from second to fourth place, overtaken by Goldman Sachs and Morgan Stanley (MS.N) as Switzerland's UBS (UBSN.VX) held on to the top spot.

JPMorgan missed out on the lion's share of the commission on some of the biggest Asian IPOs this year, featuring as one of the lower-ranking banks handling deals such as AIA Group's listing.

The bank relinquished the top ECM fee spot on a global basis to Morgan Stanley (MS.N), which managed to increase its market share in Asia this year.

But JPMorgan once again pocketed the biggest share of global debt capital markets (DCM) fees, even as bond issuance by companies, sovereigns and other borrowers also fell 6 percent worldwide compared to 2009.

In a shrinking market, JPMorgan gained on its rivals, raking in $1.582bn in global DCM fees -- marginally more than it made during a record 2009 for most banks.

This helped JPMorgan clinch the top spot in the worldwide investment banking fee rankings, with overall fees brought in by all banks actually growing to their highest level since 2007, the data showed.

The overall growth came despite a tough year in Europe, where billions of dollars worth of initial public offerings (IPOs) being pulled or postponed.

Debt issuance in euros so far this year fell by 23 percent compared to the corresponding period in 2009, a drop mirrored by the investment banking fees up for grabs dwindling to $13.5 billion, marking an eight year low.

JPMorgan's fee income in Europe almost halved compared to 2009, coming in at $994 million, less than $100 million higher than what closest rival Deutsche Bank pocketed. Last year, JPMorgan took home $1.72bn in European investment banking fees. (Additional reporting by Kylie MacLellan; Editing by Greg Mahlich)

Gross domestic product growth was revised up to an annualized rate of 2.6 percent from 2.5 percent, the Commerce Department said.

Economists had expected GDP growth, which measures total goods and services output within U.S. borders, to be revised up to a 2.8 percent pace. The economy expanded at a 1.7 percent rate in the second quarter.

But data so far suggests growth accelerated in the fourth quarter and will remain supported in 2011 by an $858 billion tax deal, which will help plug the gap from the fading boost from the rebuilding of inventories by businesses and winding down of the government's $814 billion stimulus package.

The tax plan, widely viewed as a second fiscal stimulus for the economy, is seen complementing the Federal Reserve's program to buy $600 billion worth of government bonds to shore up the recovery.

Third-quarter growth estimates were revised to reflect a $121.4 billion increase in business inventories rather than the $111.5 billion rise reported last month. Inventories added 1.61 percentage points to GDP growth.

Excluding inventories, the economy expanded at a 0.9 percent pace rather than 1.2 percent.

The increase in consumer spending was revised down to a 2.4 percent rate from 2.8 percent rate. Consumer spending accounts for more than two-thirds of U.S. economic activity and contributed 1.67 percentage points to growth in the July-September period.

Still, consumer spending during the quarter was the fastest since the first quarter of 2007 and was a pick-up from the second quarter's 2.2 percent pace.

Government spending was trimmed to show a 3.9 percent rate rise rather than 4.0 percent. There were also slight downward revisions to business investment as spending on equipment and software estimates were lowered.

Business spending increased at a 10.0 percent rate instead of 10.3 percent. That was slower than the second quarter's brisk 17.2 percent rate. Spending on software and equipment grew at a 15.4 percent rate instead of 16.8 percent.

Import growth was unrevised, but exports were a bit stronger that previously estimated, leaving a trade deficit that lopped off 1.70 percentage points from GDP.

Residential investment was little changed, contracting at a 27.3 percent rate, instead of 27.5 percent.

The government also revised after tax corporate profits to show a 0.2 percent rise in the third quarter -- the weakest reading since the fourth quarter of 2008 -- instead of 1.0 percent, after increasing 3.9 percent in the April-June period.

The report also showed no inflation pressures in the economy. The Fed's preferred inflation measure, the personal consumption expenditures price index, excluding food and energy, rose at an annual rate of 0.5 percent instead of 0.8 percent.

That was the smallest increase since records began in 1959. The index increased 1.0 percent in the second quarter.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)