The Week in Review for the week ending January 11, 2013
Last week, timid economic data from Europe contrasted with bullish reports from Asia. In Japan, in spite of signs of economic weakness, its nine-week stock market rally continued. Positive Chinese trade data boosted Asian markets, but rising Chinese inflation led to a pullback in Chinese stocks.
In Europe, the eurozone unemployment rate reached another record high. German exports declined more than expected and a UK triple-dip recession appeared more likely. Yields on the Spanish 10-year government bond, which had risen to more than 7.5% last summer, fell below 5% for the first time since last March as investor risk appetites rose.
US unemployment claims rose slightly, small business confidence remained weak and the US trade gap widened as imports of consumer goods more than offset falling oil prices. The quarterly earnings season began with strong reports from Alcoa, Monsanto and Wells Fargo.
Amid this environment the DJIA was up 0.4%, the S&P 500 was up 0.4%, the Russell 2000 was up 0.2%, the Global Dow Ex-US was up 1.0% and crude oil rose 0.5%.
Japan’s government approved a ¥10.3 trillion ($116 billion) emergency stimulus package to jump-start its long-stagnant economy. The government also pledged to work closely with the Bank of Japan to overcome deflation and promote economic growth. A new report of a sharply widening Japanese current account deficit led the yen to weaken further. Japanese stocks hit a 22-month high, while the yen dropped to multi-year lows against major currencies.
China’s trade surplus increased sharply in December as a result of growth in exports. The surplus widened to $31.6 billion, from $19.6 billion in November. This adds to a more bullish outlook on China’s resurgent growth, which in previous months was driven by domestic factors. For the year China’s trade surplus widened by 48% to $231 billion. China’s trade surplus with the United States rose just 8.2% last year. However, the China-US trade gap of $218.9 billion remained by far the largest component of its overall trade surplus.
Unemployment in the eurozone continued to worsen in November, reaching a new high of 11.8%. Spain’s unemployment rate was highest, at 26.6%, followed by Greece at 26.0%. Unemployment reached 10.5% in France, the eurozone’s second largest economy. Germany’s economy contracted in the fourth quarter, according to the country’s economy ministry. German exports declined 3.4%, more than forecast, in November, while imports fell 3.7%. German factory orders declined in November as well, reflecting weakening demand in the eurozone and globally. The United Kingdom’s service sector had its fourth-straight month of shrinking exports in November, according to official UK trade data. A separate report from the European Commission showed confidence within the service sector had its sharpest monthly drop in December since data were first compiled in 1997. The UK economy grew in the third quarter of last year, boosted by the London Olympic Games, after three quarters of recession. A fourth-quarter contraction could mean the United Kingdom is on the brink of its third recession since 2008.
Samsung Electronics anticipates record earnings for the fourth quarter of 2012. Samsung said it expects ₩8.8 trillion ($8.3 billion) in operating profit, an increase of 89% from a year earlier. The company recently passed Apple in smartphone market share and Nokia in sales of mobile handsets, and its operating profit is rising faster than its sales. Samsung’s market share of smartphone shipments rose to 31.3% in the fourth quarter while Apple had only a 14.6% slice, down from 23% a year earlier.
Alcoa reported a profit of $242 million for the fourth quarter after losing $191 million in the year-earlier period. Alcoa achieved the turnaround by cutting costs, developing sales in the higher-profit aerospace business and curtailing production in an oversupplied market.
Monsanto tripled its profit on a 21% sales jump in its fiscal first quarter, benefiting from strong corn seed sales. The company’s earnings and sales were significantly higher than analysts had forecast.
Wells Fargo, the fourth largest US bank, posted a 24% rise in fourth-quarter profits on strong mortgage banking income and credit. However, its net interest margin fell more than anticipated. The bank’s revenue rose 6.5%. As part of a 10-bank settlement with US regulators on foreclosure practices, Wells Fargo agreed to pay $766 million. It also committed $1.2 billion for foreclosure prevention actions.