Business Blog Posts

A combination of rising gasoline prices and bad weather has prompted a number of big banks to cut their forecasts for U.S. economic growth in the first quarter.

The preliminary snapshot of U.S. GDP growth, which a Reuters survey puts at 2.0 percent, will be released on April 28.

In the UK, where weak consumer demand is expected to weigh on first-quarter output, the preliminary reading will be released on Wednesday.

"The GDP figures will probably zoom in the focus more closely on fundamentals. A disappointment in the UK and U.S. may temper some of the buoyancy behind commodity and equity prices," said Lena Komileva, global head of G10 currency strategy at Brown Brothers Harriman in London.

Many economists, including Federal Reserve Chairman Ben Bernanke, believe commodity price rises will prove temporary, and will thus have no lasting impact on inflation or growth.

But the most recent data suggests the U.S. economy won't regain momentum soon. On Thursday, data showed factory activity in the Middle Atlantic states braked sharply in April.

Slower U.S. growth coupled with persistently high unemployment suggests the Fed is in no hurry to raise interest rates, even as it is almost certain to end a $600 billion bond buying program in June as planned.

Bernanke will get a chance to explain the Fed's thinking when he faces the media April 27 for his first post-meeting press conference.

"Communication is an extremely important tool for the Fed -- now more than ever -- to continue to manage down rate (hike) expectations at a time when it is too early for the economy to bear a rate hike," Komileva said.

Most analysts expect the Fed will hold support for the economy steady by maintaining the size of its balance sheet after June.

The Bank of England faces more pressure than the Fed to reverse course, with inflation seen rising again, and analysts say the GDP data may be important in influencing the BoE's decision on the timing of rate hikes.

Like the Fed, the BoE has kept rates at a record low for more than two years. In contrast, the European Central Bank raised borrowing costs this month for the first time since July 2008.

Weak GDP data would strengthen the hand of those Bank of England members worried what raising interest rates would do for fragile demand.

On the fiscal side, the UK is already undergoing strict austerity measures and may offer a preview of what lies in store for the United States when it starts to tighten its belt.

"The UK data is probably a little more due to fiscal austerity. That's something the U.S. ought to contend with next year, and the UK is contending with now," said Michael Feroli, U.S. economist at JPMorgan.

Standard & Poor's on Monday threatened to downgrade the United States' prized triple-A credit rating unless the Obama administration and Congress find a way to slash the yawning federal budget deficit within two years.

President Barack Obama on Wednesday warned that if the U.S. slashes spending too deeply, it could face a second recession.

"If all we are doing is spending cuts, and we are not discriminating about it, if we are using a machete instead of a scalpel, and we are cutting out things that create jobs, then the deficit could actually get worse because we could slip back into another recession," he said.

Complicating things further, the United States won't learn the full impact on its economy from last month's catastrophic earthquake and tsunami until the second quarter is well under way.

Feroli said the impact could be "pretty significant."

Japan, though, will get its first post-earthquake look at some important indicators, including inflation, household spending and industrial production.

The Bank of Japan is also set to provide an update of its growth and inflation forecasts.

(Editing by James Dalgleish)

Companies like Microsoft, PepsiCo, and Coca-Cola, unloved on Wall Street, could turn out to be good buys if they can show they justify higher valuations than investors are now willing to give them.

"If you see these Cokes and Pepsis and these kinds of multinational consumer names post good results, I think it is going to give the perception that the equity market can overcome a lot of these domestic issues," said Nick Kalivas, an analyst at MF Global in Chicago.

Before the recession, the consumer and financial sectors benefited from huge credit expansion. Not so any more.

Growth is now concentrated in industrial, materials and energy stocks that benefit from strong demand in emerging markets, as well as a technology sector boosted by robust demand from businesses.

Average earnings growth across those sectors amounts to almost 33 percent in the first quarter over a year ago, according to Thomson Reuters data. That is more than double the estimated growth for the S&P 500 and towers over the 5 percent growth in a financial sector burdened by a weak housing market.

Investors will also want to see at least stable performance in developed markets as they gear up for a press conference by U.S. Federal Reserve Chairman Ben Bernanke next week. Tough questions will be asked about what monetary policy will look like after the Fed's easy money policies come to a close at the end of June.

EMBRACING THE UNLOVED

Growth is scarce and it is driving up valuations in sectors where it is concentrated.

During the week, investors chased a host of relatively expensive technology names like Apple and VMware. Some valuations look extreme: Cloud computing company Saleforce.com is priced at nearly 300 times current earnings.

The trailing price-to-earnings ratio in the S&P's materials sector is more than 20 times current earnings compared with 16.3 for the whole market, according to data from Thomson Reuters' StarMine.

For investors like Whitney Tilson, a hedge fund manager at T2 Partners in New York, that is creating opportunities in unloved blue chips, where he is focusing his attention instead.

"There are a lot of big-cap blue-chip companies that are trading at moderate prices," he said.

"At a time when everyone is getting enamored with high- growth darlings and commodities, that is precisely the time when we look to play defense and own boring companies that we think have a lot of growth."

One of those less favored companies set to report next week is Microsoft. The company suffers from a reputation for slow growth and its price at nearly 11 times current earnings clearly reflects that.

Comparing Microsoft to Apple, Tilson says that the former is an inherently better business as it is focused on software with marginal incremental production costs compared to Apple's consumer hardware business.

Apple is "a fabulous business, but I'm simply pointing out that you can own a better business, albeit one that is not growing as quickly -- but still growing nicely -- for half the price in terms of price-to-earnings multiple," Tilson said.

Blowout earnings from Apple and exceptionally strong results from other big tech and industrial companies drove the three major U.S. stock indexes higher for the week. The blue-chip Dow Jones industrial average ended the holiday-shortened week on Thursday at 12,505.99, its highest close for the year and its best closing level since June 5, 2008. For the week, the Dow and the benchmark Standard & Poor's 500 Index each gained 1.3 percent, while the Nasdaq Composite Index climbed 2 percent.

U.S. financial markets were closed for Good Friday.

EARNINGS FRENZY, TALKING FED

Next week, 180 of the S&P 500 companies are set to report earnings. Of companies that have reported to date, 75 percent beat analysts' expectations. That is just above the average over the last four quarters, but well above the average of 62 percent since 1994, Thomson Reuters data showed.

"As people are lowering GDP (estimated) numbers seemingly weekly, the companies are still maintaining some pretty solid revenue growth and margins are staying intact," said Jerome Heppelmann, portfolio manager and chief investment officer of Old Mutual Focused Fund in Berwyn, Pennsylvania.

"I see it more as a broad-based continuation of the economic recovery," he said. "In some cases, the technology names are going to be more exposed and more levered to it."

While earnings are driving ahead at full force, investors will also focus on the first of the Federal Reserve's press conferences. The press briefing on Wednesday is scheduled to start after the rate-setting Federal Open Market Committee wraps up its two-day meeting. Bernanke, the Fed chairman, intends to give four press briefings a year.

There will likely be questions raised about the type of monetary policy the Fed will pursue when its $600 billion bond-buying program, known as quantitative easing, or QE2 on Wall Street, draws to a close at the end of the June.

One school of thought says that QE2 drove the rally in stocks and commodities by underwriting the government's budget deficit and forcing money that would have gone into Treasury bonds into equity and commodity markets instead.

"What happens when QE2 ends and the government starts to withdraw some of that liquidity?" Tilson asked. "How much of this is just artificial, deficit-driven, money-printing stimulus? And how much of it is really genuine? I don't know the answer to that, but I worry."

(Reporting by Edward Krudy; Editing by Jan Paschal)

Mizuho was hit by the glitch last month after accounts were flooded with donations for a magnitude 9.0 earthquake and tsunami in northeast Japan that killed up to 28,000 people.

The computer troubles forced shutdowns of Mizuho's automatic teller machines and disrupted transactions, adding to the woes of businesses and households already badly shaken by the disasters.

Mizuho Bank's president, Satoru Nishibori, is seen compiling a plan to prevent a recurrence of such glitches and formally announce his resignation by a shareholders' meeting in June, the Asahi said, without citing a source.

Candidates to replace him include Manabu Yoshidome, Mizuho Bank's deputy president, and Takashi Nonaka, president of Mizuho Trust & Banking, the Asahi added.

Some form of punishment for Mizuho Financial Group President and CEO Takashi Tsukamoto is also being considered, the newspaper said.

(Reporting by Chisa Fujioka; Editing by Robert Birsel)

Gold hit a fresh all-time high of $1,509 an ounce, extending its record-breaking rally to a sixth session, as the weaker dollar prodded investors toward assets less reliant on the U.S. economy.

The dollar index .DXY was steady at 73.99 against a basket of major currencies after slipping to its lowest since mid-2008 on Thursday, weighed down by expectations that the Federal Reserve will keep interest rates at record lows for some time to come and by bitter divisions in Washington over how to slash the gaping budget deficit.

Analysts said it could extend recent losses next week, with all eyes now on its record low of 70.698 struck in March 2008.

"The biggest reason behind the fall is waning investor confidence in U.S. assets. The market is waking up to the fact that fiscal problems are not limited to euro periphery countries," said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp in Japan. ID:nL23389078]

Trade was expected to remain thin into early next week with most markets around the world closed from Friday through Easter Monday.

Japan's Nikkei-225 share average .N225 ended down 0.04 percent but pared initial losses after news that Renesas Electronics 6723.T., a major chip supplier to the auto industry, would resume operations at an earthquake-hit factory earlier than expected

Tokyo stocks had slipped in early trade as dollar weakness boosted the value of the yen.

In Seoul, one of the other few Asian markets open on Friday, the Korea composite Stock Price Index .KS11 edged down 0.03 percent, while Shanghai .SSEC fell 0.7 percent, shrugging off gains in U.S. markets overnight.

Wall Street posted its first positive week in three as healthy earnings news boosted the Dow Jones industrial average by 0.42 percent, though gains were offset by the fact that 180 S&P names were due to report financial results next week. .N

DOLLAR WOES

Adding to pressure on the dollar, data overnight showed the U.S. economy was struggling to regain momentum.

Factory activity in U.S. Middle Atlantic states slowed sharply in April, new jobless claims fell less than expected and other reports showed steep declines in home prices in February.

Data next week is expected to show U.S. growth slowed significantly in the first quarter.

China's yuan hit another record high, trading at 6.5096 to the dollar in early afternoon as the central bank fixed its mid-point at an all-time high.

Like many other Asian governments this year, Beijing appears to have decided to allow more gains in its currency to help tame imported inflation.

But analysts discounted any notion that the People's Bank of China would oversee a one-off currency revaluation as it did in July 2005, a move that could hurt exporters and place huge pressure on the government.

Oil prices also remained high, with the weaker dollar attracting more buying. U.S. Crude oil futures ended higher for the third straight day on Thursday and Brent crude stood at just over $124 a barrel.

This week's revised bid "is substantially the same as what was previously rejected," NYSE Euronext Chairman Jan-Michiel Hessels said in a statement.

In similar language to the board's first rejection on April 10, Hessels said the new offer "does not provide compelling value, has unacceptable execution risk and is therefore not in the best interests of NYSE Euronext shareholders."

Though the decision was expected, it could further pave the way for a bidding war, and it reinforces the need for Nasdaq and ICE to convince NYSE shareholders that their proposal can survive a tough U.S. antitrust review.

Hours after the board's decision, Nasdaq and ICE issued a statement repeating that their bid was superior and that they would continue direct discussions with shareholders.

"Nasdaq OMX and ICE have directly met each of the specific concerns initially raised by NYSE Euronext's board and their response is now vague generalities unsupported by the actual facts," the exchanges said.

The NYSE board reaffirmed its support for a friendly $9.8 billion takeover offer from Deutsche Boerse. Though it is 14 percent lower than the unsolicited $11.2 billion offer from Nasdaq and ICE, NYSE Euronext argues it fits with the company's strategy to grow internationally with more diverse revenues.

Nasdaq and ICE bid for the New York Stock Exchange parent company on April 1. On Tuesday, they promised to pay NYSE Euronext $350 million if regulators blocked a merger -- a pledge meant to ease the board's antitrust worries and draw them to the negotiating table.

The pair -- which were left out of a wave of global merger plans among exchanges earlier this year -- said they secured committed financing for the deal from banks, and said antitrust regulators would start a review soon.

STANDING FIRM

The battle for the Big Board has grown increasingly bitter, and its outcome could revamp ownership of many of the largest market operators in Europe and the United States.

Both offers face tough regulatory reviews on both sides of the Atlantic, complicating things for investors betting on which bid, if any, will prevail.

While NYSE Chief Executive Duncan Niederauer said on Monday competitors were trying to disrupt, distract and discredit his company, Nasdaq CEO Robert Greifeld said on Wednesday he will consider "all options available" as he and ICE pursue NYSE to the "endgame."

"They're both pursuing their strategies, and right now you're seeing the NYSE board stand firm," said Richard Repetto, analyst at Sandler O'Neill. "But if you take Greifeld at his word, and there's no reason not to, he's in it for the long run."

Greifeld -- like Niederauer known as an aggressive deal-maker -- said in a statement on Thursday that he and ICE would not be "deterred by the board's attempts to protect an inferior transaction."

In a separate statement, Deutsche Boerse said it is moving ahead with integration planning. It called Nasdaq and ICE's proposal "lacking in business logic" and "a major step backward in the evolution of the global exchange industry."

NYSE shareholders are set to meet on April 28 for their annual vote on the company's directors. "The way the vote goes will be a modest referendum on how the shareholders feel about the board's decisions," Repetto said.

The shareholders will likely vote on the Deutsche Boerse tie-up in July.

(Reporting by Jonathan Spicer. Additional reporting by Clare Baldwin and Paritosh Bansal. Editing by Robert MacMillan, Gary Hill)