U.S. Markets Struggle, Manufacturing Index Expands

Arthi Gupta
03 Oct, 2011
New York City

The U.S. indexes traded higher after manufacturing expanded in September but global indexes declined on the Greek woes as the struggling nation battles weak economy, rising unemployment and falling tax revenues. Ratings agency revised down world growth outlook for 2011.

[R]10:15 AM New York – The U.S. indexes traded higher after manufacturing expanded in September but global indexes declined on the Greek woes as the struggling nation battles weak economy, rising unemployment and falling tax revenues. Ratings agency revised down world growth outlook for 2011.[/R]

The U.S. stocks gained after the release of the manufacturing data. The latest manufacturing index released by the Institute for Supply Management for September increased to 51.6% from 50.6% in August and new orders were steady.

However, global indexes dropped after the Greek finance ministry on Sunday conceded that the government will not be able to meet the deficit reduction targets imposed by the European Union and the International Monetary Fund for this year and the next.

In 2011, the country''s budget shortfall is estimated at 8.5% of the gross domestic product, above the 7.6% target set by the international lenders. The deficit will be reduced to 6.8% of GDP in 2012, but still short of the 6.5% target.

The Greek Finance Ministry said that the country''s deficit is expected to reach €18.69 billion, or 8.5% of gross domestic product, this year compared to the target of €17.1 billion, or 7.8% of GDP.

The wider than estimated deficit forecast has led to concerns about the possibility of a default by Greece. Greece is also seeking larger reduction in loans of 21% agreed on the bailout talks in July. Greece is likely to seek as much as 40% cut in loan repayment and some economists are estimating that any loan payment of more than 40% of original loans are not likely.

In addition, Greece also imposed €6.6 billion in new austerity measures, including a ''labor reserve'' plan that would see 30,000 public sector workers either laid off or given reduced pay. The plan would save the government about €300 million from the public sector wage bill in 2012.

The European Finance ministers are scheduled to meet in Luxembourg today to discuss the debt crisis and discuss options for leveraging the European Financial Stability Facility. Greece needs €8 billion or $11 billion tranche of the €110 billion rescue loan, as its cash reserves are expected to be exhausted by mid-October.

Denmark’s first woman prime minister, Helle Thorning-Schmidt agreed to form a three-party center-left coalition government on Monday.

China''s purchasing managers'' index for the non-manufacturing sector rose 1.7 points from a month earlier to 59.3 in September, survey results from the China Federation of Logistics and Purchasing showed.

Global Growth Outlook Lowered

Fitch Ratings lowered the growth forecast for the global economy and all major advanced economies on Monday citing weaker than expected second quarter outturns.

The rating agency revised down world growth forecast for 2011 based on market exchange rates to 2.6% from 3.1%. The projection for next year was lowered to 2.7% from 3.4% and the outlook for 2013 was cut to 3.1% from 3.4%.

AGCO to Acquire GSI Holdings

AGCO, the manufacturer and distributor of agricultural equipment agreed to acquire GSI Holdings Corp. from affiliates of New York-based Centerbridge Partners, L.P. for $940 million.

The deal will enable AGCO to extend its reach in the agricultural industry and provide its customers with a wider range of products and services.

Earnings Review

Arch Coal Inc. ((ACI)), the coal producer lowered its adjusted earnings guidance for the full-year 2011, citing lower production at the Mountain Laurel complex. The company estimates adjusted earnings for the quarter in a range of $1 to $1.40 per share, lower than previous estimate of $1.75 to $2.15 per share.

Tower Group, Inc. ((TWGP)), the provider of property and casualty insurance products and services estimates catastrophe and severe weather-related losses will reduce its third quarter earnings per share by $0.80 to $0.95.

Wolverine World Wide, Inc. ((WWW)), a manufacturer of work-related footwear and apparel said third quarter revenues grew 12.9% to $361.59 million from $320.4 million in the same quarter a year ago. Net earnings in the quarter increased 18.5% to $40.44 million or 82 cents per diluted share compared to net earnings of $34.14 million or 70 cents per share reported last year.