U.S. Consumer Spending Rises, Dollar Drops

123jump.com Staff
28 Sep, 2007
New York City

Consumer spending rose 0.6% and personal income added 0.3% in August according to the Commerce Department. Consumers showed resilience in the aftermath of credit market turmoil. Construction spending fell 0.2% from July and 1.7% from a year ago. Chicago purchase index rose to 54.2. The strenght in the consumer spending surprised the market in the early trading but indexes dropped. Unemployment in Japan rose in August and retail sales fell in Germany. Euro at yet another record to dollar.

[R]10:30AM New York – Consumer in the U.S. shows resilience in spending. German retail sales fell. Unemployment in Japan edged higher.[/R]

After one hour of trading in New York, stocks meandered on the last day of trading. In the overnight trading in Asia market closed higher but near the end of day stocks in Europe weakened. Volatile third quarter left several markets nervous ahead of earnings season due in the next two weeks.

The Commerce Department reported August personal income increased 0.3% and consumption added 0.6%. Construction spending rose 0.2% from July and fell 1.7% from a year ago to $1.167 trillion. Earlier in the week August consumer price index fell 0.2% from July but added 2% from a year ago and core rate in the index fell 0.1% and up 1.8% from a year ago.

The Reuters/University of Michigan survey of consumer sentiment was unchanged in September from August and was reported at 83.4. Chicago purchasing managers’ index increased to 54.2 in September from 53.8 in August.

Economic reports in Japan indicated a mild rise in consumer spending in August and sharp rise in industrial production of 3.4% as automakers revved up manufacturing after earthquake. Unemployment in Japan rose to 3.8% in August from 3.6% in July.

In Germany, retail sales declined in August unexpectedly declined 1.4% and economic outlook for the next year was revised lower to 1.9% from 2.2% earlier in the week. Housing prices edged up a fraction defying the credit market turmoil as reported during the week.

[R]9:00 AM New York – 1:00PM London – Stocks in Europe are trading lower. Deutsche Telekom purchased Orange Netherlands for 1.33 billion euros. Retail sales in Germany fell.[/R]

European equities fell in early trade on Friday as investors took a cautious attitude to the last day of trade in the third quarter.

During the turbulent third quarter the CAC 40 has been one of the worst performing European indices, down 5.4% over the period. The Xetra Dax, however, has lost 1.6%, with the FTSE 100 down 1.8%. London’s FTSE 100 gave up on Friday as Tate & Lyle tumbled after a trading update and Northern Rock resumed its decline after two sessions of gains.

In the trading in London, the last trading day of a highly volatile third quarter saw the blue-chip FTSE 100 trading at 6,471.3, down 0.2% on the session. Over the quarter, the FTSE index was down 1.8%, but up 11% from its year low, hit on August 17.

Tate & Lyle, the sugar and sweetener producer fell 24% to 420p after warning on its outlook due to higher European corn prices and a poor performance in its sugar trading. The company added that the weak dollar would also hit profits.

In the banking sector, Northern Rock was again under pressure after Financial Times reports that it was forced to borrow additional 5 billion pounds from the Bank of England. The troubled mortgage lender had climbed strongly during the previous two sessions on speculation of a rescue bid, but Friday’s news pushed the shares 5.3% lower to 184p.

Enterprise Inns said it was too early to fully assess the likely impact on profits of the smoking ban enforced in England and Wales since July. The company said average core earnings per pub increased by more than 6% over the past year. The shares, however, fell 1.6% to 590p on concerns over delays to its £750m debt refinancing, postponed due to volatile markets.

JJB Sports, the mid-cap retailer, reported a 38% slide in first-half profit from a year ago on the boost from the World Cup. The shares climbed 5.8% to 155½p after the company said its second half was likely to be similar to that of a year ago after revenues in the last eight weeks climbed 4.9%.

Frankfurt''s DAX 30 nudged down 0.04% to 7,850.94 as traders were cautious on the last trading of the quarter.

Germany’s Federal Statistics Office reported August month retail sales decline of 1.4% from July and lost 2.2% from a year ago. Inflation adjusted retail sales data after normalizing for seasonality were widely anticipated to increase. Earlier in the week German economic growth was lowered to 1.9% from 2.2%. The economy is expected to grow at 2.5% this year. High energy prices and a rise in unemployment has put consumers on the edge and curtail its spending.

Deutsche Telekom agreed to pay 1.33 billion euros in cash for Orange Netherlands to France Telecom. The Dutch unit of France Telecom in a crowded mobile phone market was deemed a laggard and was on the block at the end of the last year. Orange Netherlands has 2 million subscribers. According to a press release on the France Telecom web site ‘This transaction has been approved by the France Telecom Board of Directors after having obtained a positive advice from the Workers Council of Orange Nederland. Since all necessary authorizations have been obtained, in particular the European Commission''s approval, the closing could occur as soon as October 1, 2007.

According to a press release in German on the web site of Deutsche Telekom, its T-Mobile unit in the Netherlands will jump from the fourth place to market leader with the acquisition. The press release also stated that the network consolidation between the two carriers will generate savings of 1 billion euros. The combined company is expected to maintain its market share of 51% in the Netherlands with nearly 4.5 million subscribers.

Merck KGaA slid 3% to 88.1 euros on the worries that the profit at the chemical unit may decline prompting Deutsche Bank analyst to cut its rating to ‘hold’ from ‘buy’ and lowered target price to 91 euros from 96 euros according to a report on New Ratings financial data site.

[R]6:00AM New York, 7:00PM Tokyo - Stocks in Tokyo fell but for the week added nearly 3%. Unemployment level rose to 3.8%. Core consumer prices fell 0.1% and industrial production increased 3.4%.[/R]

In Tokyo trading Japan’s stock index slipped from a 6-week peak reached yesterday to close 0.28% weaker or 46.53 to 16,785.69. However, the index added 2.8%, while Topix gained 3.8% for the week. Financial stocks retreated. Commodity-related stocks and exporters rose on resurgent oil and metal prices. Oil jumped 3% in international trading lifting stocks of trading companies and oil refiners. Inpex, Japan Petroleum Exploration, and Sumitomo trading edged higher.

Of the Nikkei 225 stocks, 79 climbed, 139 slumped and 7 were unchanged. Thirty stocks gained 1%.

The Statistics Bureau revealed today Japan’s jobless rate increased 0.2% for the first time in eleven months to 3.8% in August, up from a nine-year low of 3.6% in July. The available jobs to job seekers ratio narrowed marginally from 1.07 to 1.06, while the unemployment rate for women edged up from 3.3% to 3.7%.

Finance Minister Fukushiro Nukaga however said the overall employment situation continued to improve. Nukaga commented that “I heard that a growing number of women job seekers led to a rise i in jobless rate. Although unemployment rates vary by region, the overall employment situation continues to improve.”

Core consumer prices, excluding fresh food, also slumped for the seventh month, shedding 0.1% from a year earlier as retailers increased prices. Prices of electronics also fell markedly, while the cost of mobile phone use also plummeted on promotions to attract new subscribers.

The Ministry of Economy, Trade and Industry revealed today industrial production 3.4% in July and household spending increased 1.2%. Automakers revved up production after the earthquake to meet inventory levels at dealers. Real consumer spending also surged 1.6% from a year earlier, beating analyst estimate of a 1.2% rise. Similarly, retail sales grew by 0.5% while spending on entertainment, education and labor spiked 11.3% stocking expectations that growing domestic demand will help forestall an economic slowdown. Steady job market has kept retail spending at healthy level but it is growing at anemic growth rate.

The Tankan survey to measure corporate confidence is expected on Monday next week.

Japanese companies are relying on exports to increase earnings as demand growth in the domestic remains anemic. The expected slowdown in the U.S. has left Japanese companies with few markets in the world to sell more. Middle East, China, India, and the rest of Asian nations are few bright spots for the Japanese companies. Companies with exposure to these markets are likely to outperform than the companies focused on domestic markets.

Asahi Newspaper report quoted on Bloomberg News service that according to the National Tax Agency the economic difference continues to increase, noting people earning less than 2 million yen increased ($17,000) by 420,000 to more than 10 million people, while those earning more than 10 million yen increased.

The yen rose against the dollar rebounding from one week low on renewed worries related to losses associated to the global credit crunch will spread from the U.S and Europe to the rest of Asia. Financial Times reports that Northern Rock had borrowed an additional 5 billion pounds to strengthen its financial position and comments by U.S. mortgage lender Fannie Mae CEO Daniel Mudd in television interview that the housing slump will extend beyond next year triggered yen buying.

The yen was quoted at 114.90, up from 115.06 to the dollar, while it rose 163.31 from 163.63 to the euro. It also gained to 232.93 against the pound from 234.45, while strengthening to 101.71 from 101.75 against the Australian dollar.

Oil and metal prices gained spurred by speculation of a further rate cut by the U.S. Federal Reserve and sustained growth from China and India. Crude oil rose 3.2% to $82.88 per barrel, the second highest close ever. Japan’s largest oil explorer gained 0.85% as a result.

Zinc, aluminium and copper climbed 3%, 1.2% and 1% correspondingly.

Of the Nikkei 225 index, NSK Limited led the gainers with a rise of 5.22% followed by rises of 4.79% in Mitsubishi Motor Company, 4.55% in Daiichi Sankyo, 3.93% in Mitsubishi Heavy Industry, and 2.71% in Sharp.

Metal processor NSK Limited led the gainers with a surge of 5.22% followed by Mitsubishi Motors Company rising 4.8%. Mitsubishi Motors revised half-year operating profit upwards from 5 billion yen to 136 billion yen. Sales forecasts were reviewed up from 1.17 trillion yen to 1.27 trillion yen.

Nisshin Oillio led the decliners with a loss of 5.81% followed by losses in Unitika Limited of 4.20%, in GS Yuasa Corporation of 4.18%, in Daiwa Securities of 4.04% and in Ebara Corporation of 3.63%.

Daiichi Sankyo, Japan’s third biggest drugmaker, won U.S. approval for a new blood pressure treatment that combines its Benicar with active ingredient in Norvasc.

Circle K Sunkus fell 2.7% after warning that it expects first half profits to fall by 20%. The company has more than 600 convenience stores.

Mitsubishi UFJ Financial Group lowered its first half profit forecast by 44% to 100 billion from 146.8 billion yen for the period ending on Sept 30, according to filing with the Tokyo Stock Exchange. Tighter consumer lending rules in Japan have battered stocks of several consumer lending companies including the largest Acom. Mitsubishi affiliate, Acom lost 50% of its market value in the last six months of trading after the new law took effect.