By Lynn Thomasson and Whitney Kisling - Nov 8, 2010 6:39 PM GMT+0800
More U.S. executives than ever are increasing earnings forecasts compared with those lowering them, helped by almost $2 trillion of Federal Reserve spending and a recovery in the global economy.
EBay Inc., United Parcel Service Inc. and 196 other companies raised profit estimates above analysts’ projections last month as 130 firms cut them, the biggest gap since Bloomberg began tracking the data in 1999. Shipping companies and computer makers boosted forecasts the most, pushing the Morgan Stanley Cyclical Index of businesses most tied to the economy up 27 percent since July 2. That beat the 20 percent rally in the Standard & Poor’s 500 Index.
Companies are raising the outlook for U.S. profits at the same time the Fed is trying to prevent deflation and reduce unemployment by purchasing an additional $600 billion in Treasuries. The last time executives were this optimistic, stocks climbed 39 percent over the next 3 1/2 years, data compiled by Bloomberg show.
“It’s important for the rally and for the general health of the market that investors continue to anticipate higher earnings,” said Dean Gulis, who manages $3 billion for Loomis Sayles & Co. in Bloomfield Hills, Michigan. “That companies themselves are expecting better profits is very positive. As we see rising earnings, we’ll see improving stock prices.”
GDP Growth
About 1.5 U.S. companies boosted earnings estimates above analysts’ forecasts for each that cut projections in October. That’s about three times the average of 0.59 in the past 10 years, data tracked by Bloomberg show. The ratio fell to a record low of 0.1 in December 2008, three months after New York- based Lehman Brothers Holdings Inc. filed for bankruptcy. When it reached 1.1 in March 2004, the S&P 500 rose from 1,126.21 to a record 1,565.15 in October 2007, Bloomberg data show.
The S&P 500 has gained 203 points since falling to a 10- month low on July 2 after companies from Baltimore-based T. Rowe Price Group Inc. to Google Inc. in Mountain View, California, topped analysts’ estimates and investors speculated the Fed would act to boost growth. The benchmark measure of U.S. stocks rose 3.6 percent to 1,225.85 last week, the fifth-straight gain. S&P 500 futures expiring in December slipped 0.4 percent to 1,218.3 at 10:37 a.m. in London.
Earnings at EBay, the owner of the second most-visited e- commerce site, are getting a boost as consumers make more purchases online and use its PayPal service to handle money transfers. The San Jose, California-based company forecast more fourth-quarter sales and earnings than analysts estimated on Oct. 20, spurring the biggest gain in the shares in nine months.
Credit Expansion
Consumer borrowing in the U.S. unexpectedly increased in September by the most in two years, led by a surge in non- revolving credit such as college loans and auto financing, the Federal Reserve said on Nov. 5. The report was released the same day the Labor Department said employers added 151,000 jobs in October, more than twice the median economist prediction.
“We have outperformed our expectations through the first three quarters of the year, and enter the holiday season with confidence in our payments business,” said Bob Swan, EBay’s chief financial officer, on a conference call following the earnings release. “From a business standpoint, our global footprint is expanding.”
Rising international demand for everything from transportation services to tobacco and power tools is helping drive profits at companies such as UPS, Philip Morris International Inc. and Danaher Corp. While forecasts for U.S. gross domestic product in 2011 have fallen to 2.4 percent from 2.9 percent in July, the biggest emerging markets are expected to expand at least twice as fast, based on economist estimates and International Monetary Fund forecasts compiled by Bloomberg.
Freight Traffic
UPS, the world’s largest package-delivery company, raised its estimate for 2010 income on Oct. 21 and projected growth of 51 percent to 53 percent for the year. That would be the biggest annual earnings increase for the Atlanta-based firm since before 2000, data compiled by Bloomberg show.
Freight-train traffic has risen 16 percent since July 9, according to the Association of American Railroads. The index of carloads at the largest U.S. lines plunged 31 percent from its highest level in 2008 to May 2009, Bloomberg data show.
“Looking towards peak season, customer sentiment is mixed, but leaning towards cautious optimism,” UPS CFO Kurt Kuehn told investors and analysts on Oct. 21. “We’re expecting a good, strong fourth quarter, and I’m extremely confident we’re on our way back to the high levels of profitability that we’ve demonstrated in the past.”
Overseas Edge
Investors are betting profits at S&P 500 companies with the most sales outside the U.S. will beat the market. Corporations getting at least 50 percent of their revenue from foreign sources rose 10 percentage points more than American-focused stocks since July 2.
Earnings for the 30 companies in the Morgan Stanley index of economically sensitive shares will grow 25 percent next year, almost twice the rate of the S&P 500, according to analyst estimates compiled by Bloomberg. The cyclicals gauge trades for 12.2 times estimated 2011 earnings, or 0.5 point lower than the S&P 500, Bloomberg data show.
Philip Morris said on Oct. 21 that currency fluctuations, lower taxes and rising sales in countries from Algeria to Indonesia led the New York-based company to increase its 2010 income projection. The biggest publicly traded tobacco maker has advanced 30 percent since July 2.
“We have strong business momentum going into the fourth quarter and will benefit from higher margins in Japan as well as price increases in Argentina, France, Indonesia, Italy, Poland, Portugal, Russia and the U.K.,” said Hermann Waldemer, the CFO, in a conference call. “We have market leadership and are growing volume and overall share in emerging markets.”
Craftsman Tools
Danaher cited faster growth in emerging markets as one of the reasons for increasing its 2010 profit forecast on Oct. 21 to between $2.25 and $2.30 a share, the highest since at least 1999, up from a range of $2.16 to $2.23. The Washington-based maker of Craftsman tools said on Nov. 4 that it gets about 20 percent of revenue from developing nations.
Increased regulation of the financial and health-care industries is leading businesses to outsource computer services, Cognizant Technology Solutions Corp. said on Nov. 1. The Teaneck, New Jersey-based provider of data systems support raised its 2010 earnings forecast and beat analysts’ third- quarter estimates. The shares are up 28 percent since July 2.
“Clients continue to search for cost savings in order to fund growth and innovation in other areas,” Chief Executive Officer Francisco D’Souza said on the call after the quarterly profit report.
Already Rallied
Stock prices have already risen to account for higher corporate earnings and shares will require a strengthening economy to climb more, said Trym Riksen, chief investment officer for the private-banking division of DnB NOR ASA. The valuation for the companies in the S&P 500 has climbed to 15.4 times reported profit from the past year, from a 14-month low of 13.7 in July, according to data compiled by Bloomberg.
“This huge wave of positive guidance has already been priced into the market,” said Riksen, whose Oslo-based firm oversees the equivalent of about $391 billion. “It would be very surprising if that huge wave were to be prolonged.”
Rising raw-material prices are reducing profitability for Clorox Co., a maker of household-cleaning products, and apparel company Jones Group Inc. Earnings are being squeezed as companies struggle to pass costs onto shoppers at a time when year-over-year gains in the consumer price index have averaged 1.8 percent in 2010, compared with a 10-year average of 2.5 percent, data compiled by Bloomberg show.
Record Cotton
Clorox lowered its annual profit forecast on Nov. 2, citing weakening U.S. growth and higher commodity costs. Shares of the Oakland, California-based company fell the most in almost two years. Jones Group cut its 2010 sales projection on Oct. 27 amid soaring cotton prices, which reached a record $1.446 a pound on Nov. 5. Shares of the New York-based clothing maker are down 6.9 percent this year.
Gains in U.S. GDP are trailing the average pace following a contraction, according to data compiled by the National Bureau of Economic Research and Bloomberg. NBER said the worst recession since the 1930s ended in June 2009, and Bloomberg data show GDP growth will average 2.5 percent a quarter through June 2011, or half the average rate in the two years following contractions since 1949.
Most companies are earning more than analysts expected. More than 70 percent in the S&P 500 beat profit forecasts in the July-to-September period for the sixth straight quarter, the longest streak in Bloomberg data going back to 1993. S&P 500 earnings since Oct. 7 were 7 percent higher than analysts predicted, the data show.
Biggest Nations
Brazil, Russia, India and China, the biggest developing nations, are forecast to expand more than the U.S. next year. Their growth will average 6.6 percent, according to the median economist forecasts in a Bloomberg survey and IMF projections.
“Earnings have been phenomenal out of corporate America,” Robert Doll, who oversees $3.45 trillion as chief equity strategist at New York-based BlackRock Inc., said in a Nov. 3 interview on Bloomberg Television’s “First Up” with Susan Li. “They’ve delivered versus expectations, yet again outshining the tepid economic recovery. I think that’s the real story.”
Monday, November 8, 2010
Tuesday, October 19, 2010
Gold Closes Lower after China Rate Hike
James Hyerczyk, Futures Hound
Published 10/19/2010 - 8:58 p.m. EST
December Gold sold off on Tuesday after China’s central bank raised interest rates. The move by China surprised traders who began selling riskier currencies and commodities.
The People’s Bank of China raised its benchmark one-year lending and deposit rate by 25 basis points effective from October 20, the first increase in nearly three years. The move was most likely tied to pressure from the U.S. to increase the value of the Yuan. Others believe it was an effort to prevent the economy from overheating. The action by China triggered a rally in the U.S. Dollar, thereby weakening demand for gold and silver.
The current break in the gold market is the largest in terms of price and time on the daily chart in a few months. This could be an indication that further downside movement is coming.
The current main bottom on the daily swing chart is $1325.60. A trade through this price will turn the main trend down.
Based on the current closing price reversal formation, the first down side target is the 50% level at $1313.00, followed by the Fibonacci level at $1295.30. On Wednesday, an uptrending Gann angle comes in at $1293.00. This makes $1295.30 to $1293.00 an important support cluster.
Published 10/19/2010 - 8:58 p.m. EST
December Gold sold off on Tuesday after China’s central bank raised interest rates. The move by China surprised traders who began selling riskier currencies and commodities.
The People’s Bank of China raised its benchmark one-year lending and deposit rate by 25 basis points effective from October 20, the first increase in nearly three years. The move was most likely tied to pressure from the U.S. to increase the value of the Yuan. Others believe it was an effort to prevent the economy from overheating. The action by China triggered a rally in the U.S. Dollar, thereby weakening demand for gold and silver.
The current break in the gold market is the largest in terms of price and time on the daily chart in a few months. This could be an indication that further downside movement is coming.
The current main bottom on the daily swing chart is $1325.60. A trade through this price will turn the main trend down.
Based on the current closing price reversal formation, the first down side target is the 50% level at $1313.00, followed by the Fibonacci level at $1295.30. On Wednesday, an uptrending Gann angle comes in at $1293.00. This makes $1295.30 to $1293.00 an important support cluster.
Wanna know when the BOJ will intervene?
By Sean Lee || October 18, 2010 at 22:48 GMT
If so, keep a sharp eye on this page from the BOJ, http://www.boj.or.jp/en/type/stat/boj_stat/fx_daily10/index.htm, and add it to you favourites. The number to watch is the trade weighted index down the bottom of each pdf. The BOJ intervened when the index got close to 120 and as its now back above 124, the pressure is probably off.
If so, keep a sharp eye on this page from the BOJ, http://www.boj.or.jp/en/type/stat/boj_stat/fx_daily10/index.htm, and add it to you favourites. The number to watch is the trade weighted index down the bottom of each pdf. The BOJ intervened when the index got close to 120 and as its now back above 124, the pressure is probably off.
Tuesday, October 12, 2010
Dollar Trades Near a 15-Year Low Versus Yen After Federal Reserve Minutes
By Candice Zachariahs and Catarina Saraiva - Oct 13, 2010 7:15 AM GMT+0800
The dollar traded near the weakest in 15 years against the yen and a record low versus the Swiss franc on speculation Federal Reserve officials will reiterate they are poised to resume bond purchase to support growth.
The Dollar Index, which tracks the greenback against major trading partners, was near its lowest since January after the Fed said yesterday in minutes of its September meeting that it was set to take more credit-easing steps “before long.” The bank will announce increases in Treasury purchases, or so-called quantitative easing, in November, Goldman Sachs Group Inc. has said. The euro was near a nine-month high before a report likely to show European industrial production rose in August.
“The Dollar Index will remain under pressure,” said Kurt Magnus, executive director of foreign exchange sales at Nomura Australia. A second round of quantitative easing “is imminent and the minutes suggest that it will be large and aggressive.”
The dollar traded at 81.81 yen as of 8:02 a.m. in Tokyo, from 81.72 yesterday in New York. It reached 81.39 on Oct. 11, the lowest level since April 1995. The euro fetched $1.3915 from $1.3924 yesterday and touched $1.4029 on Oct. 7, the most since Jan. 28. The yen traded at 113.84 against the euro from 113.79.
The Dollar Index, used by IntercontinentalExchange Inc. to track the greenback against currencies including the euro, yen and Swiss franc, slid 0.1 percent to 77.363 yesterday. It touched 76.906 on Oct. 7, the lowest level since Jan. 15.
The index will decline to 76.70 this week, corresponding to the euro advancing through $1.41, Magnus said.
The gauge of the U.S. currency has fallen 3.8 percent since Sept. 21, when the central bank said in a statement following its policy meeting that it’s prepared “to provide additional accommodation if needed” to support the recovery.
‘Before Long’
That phrase was meant to be in accord “with the members’ sense that such accommodation may be appropriate before long,” according to the central bank’s minutes yesterday.
The Fed will announce increases in its Treasury purchases at its policy meeting Nov. 2-3, helping the U.S. avoid the “very bad” economic outcome of a renewed recession, New York- based Jan Hatzius, chief U.S. economist at Goldman Sachs, said yesterday via e-mail.
Fed Chairman Ben S. Bernanke will discuss business innovation in Pittsburgh today and speak on monetary policy objectives and tools in Boston on Oct. 15.
The Swiss franc traded at 95.71 centimes after yesterday gaining as much as 1 percent to 95.56 centimes against the dollar. It touched 95.55 centimes on Oct. 7, the strongest ever.
Weber Comments
Industrial production in the euro region probably rose 0.8 percent in August, economists forecast before the European Union’s statistics office report today.
The report supports European Central Bank Governing Council member Axel Weber’s comments yesterday that the risk of Europe sliding back into recession is “negligible.” The central bank should stop its bond-buying program, he said.
“These securities purchases should now be phased out permanently,” said Weber, who also heads Germany’s Bundesbank, in a speech delivered in New York yesterday. With policy makers debating when to withdraw other emergency measures, Weber said the risk of “exiting too late” is greater than the danger of “exiting too early.”
The dollar traded near the weakest in 15 years against the yen and a record low versus the Swiss franc on speculation Federal Reserve officials will reiterate they are poised to resume bond purchase to support growth.
The Dollar Index, which tracks the greenback against major trading partners, was near its lowest since January after the Fed said yesterday in minutes of its September meeting that it was set to take more credit-easing steps “before long.” The bank will announce increases in Treasury purchases, or so-called quantitative easing, in November, Goldman Sachs Group Inc. has said. The euro was near a nine-month high before a report likely to show European industrial production rose in August.
“The Dollar Index will remain under pressure,” said Kurt Magnus, executive director of foreign exchange sales at Nomura Australia. A second round of quantitative easing “is imminent and the minutes suggest that it will be large and aggressive.”
The dollar traded at 81.81 yen as of 8:02 a.m. in Tokyo, from 81.72 yesterday in New York. It reached 81.39 on Oct. 11, the lowest level since April 1995. The euro fetched $1.3915 from $1.3924 yesterday and touched $1.4029 on Oct. 7, the most since Jan. 28. The yen traded at 113.84 against the euro from 113.79.
The Dollar Index, used by IntercontinentalExchange Inc. to track the greenback against currencies including the euro, yen and Swiss franc, slid 0.1 percent to 77.363 yesterday. It touched 76.906 on Oct. 7, the lowest level since Jan. 15.
The index will decline to 76.70 this week, corresponding to the euro advancing through $1.41, Magnus said.
The gauge of the U.S. currency has fallen 3.8 percent since Sept. 21, when the central bank said in a statement following its policy meeting that it’s prepared “to provide additional accommodation if needed” to support the recovery.
‘Before Long’
That phrase was meant to be in accord “with the members’ sense that such accommodation may be appropriate before long,” according to the central bank’s minutes yesterday.
The Fed will announce increases in its Treasury purchases at its policy meeting Nov. 2-3, helping the U.S. avoid the “very bad” economic outcome of a renewed recession, New York- based Jan Hatzius, chief U.S. economist at Goldman Sachs, said yesterday via e-mail.
Fed Chairman Ben S. Bernanke will discuss business innovation in Pittsburgh today and speak on monetary policy objectives and tools in Boston on Oct. 15.
The Swiss franc traded at 95.71 centimes after yesterday gaining as much as 1 percent to 95.56 centimes against the dollar. It touched 95.55 centimes on Oct. 7, the strongest ever.
Weber Comments
Industrial production in the euro region probably rose 0.8 percent in August, economists forecast before the European Union’s statistics office report today.
The report supports European Central Bank Governing Council member Axel Weber’s comments yesterday that the risk of Europe sliding back into recession is “negligible.” The central bank should stop its bond-buying program, he said.
“These securities purchases should now be phased out permanently,” said Weber, who also heads Germany’s Bundesbank, in a speech delivered in New York yesterday. With policy makers debating when to withdraw other emergency measures, Weber said the risk of “exiting too late” is greater than the danger of “exiting too early.”
Sunday, September 19, 2010
Britain shows no sign of double-dip recession-Cable
LIVERPOOL, England, Sept 19 (Reuters) - Britain shows no signs of a double-dip recession and manufacturing is growing strongly, Business Secretary Vince Cable said on Sunday.
"On the double dip recession, there is no sign of it," Cable told an event at his Liberal Democrat party's conference in Liverpool.
"In fact, the private sector is growing quite strongly in certain areas, particularly manufacturing," Cable added.
"Certainly we are not heading for a double-dip recession. It's an outside risk. I can't promise that it won't happen, but it certainly looks improbable," he said.
Slowing growth in Britain's services sector have prompted concerns the economy may go into reverse only months after emerging from the worst recession in generations following the global financial crisis.
British service sector activity grew last month at its slowest pace since April 2009, with a marked fall in hiring as employers worried about an economic slowdown and public spending cuts, according to the latest Markit/CIPS services purchasing managers' index. (Reporting by Tim Castle, editing by Maureen Bavdek)
"On the double dip recession, there is no sign of it," Cable told an event at his Liberal Democrat party's conference in Liverpool.
"In fact, the private sector is growing quite strongly in certain areas, particularly manufacturing," Cable added.
"Certainly we are not heading for a double-dip recession. It's an outside risk. I can't promise that it won't happen, but it certainly looks improbable," he said.
Slowing growth in Britain's services sector have prompted concerns the economy may go into reverse only months after emerging from the worst recession in generations following the global financial crisis.
British service sector activity grew last month at its slowest pace since April 2009, with a marked fall in hiring as employers worried about an economic slowdown and public spending cuts, according to the latest Markit/CIPS services purchasing managers' index. (Reporting by Tim Castle, editing by Maureen Bavdek)
Tuesday, September 14, 2010
Australian Dollar Trades Near Two-Year High on Growth View, Fed Purchases
By Candice Zachariahs - Sep 14, 2010 4:22 PM PT
The Australian dollar traded near its strongest level in two years as a strengthening domestic economy and concern the Federal Reserve will expand efforts to keep down borrowing costs spurred demand for the currency.
New Zealand’s currency was near a seven-week high as speculation increased that U.S. policy makers will buy additional Treasury securities this year to help sustain growth as the recovery falters. Gains in the so-called kiwi were tempered on speculation the Reserve Bank of New Zealand will leave interest rates unchanged at a meeting tomorrow.
“Aussie can probably track a bit higher,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation’s largest lender. “The Australian economy is outperforming the rest and the market’s pricing in the prospect of quantitative easing in the U.S.”
The Australian dollar traded at 93.96 U.S. cents as of 9:22 a.m. in Sydney from 93.97 cents in New York yesterday, when it climbed to 94.58 cents, the highest level since July 2008. The currency was at 78.01 yen from 78.03 yesterday.
New Zealand’s dollar bought 73.28 cents from 73.43 cents yesterday when it advanced to 73.95, the strongest since July 27. It traded at 60.84 yen from 60.97.
Economists at Goldman Sachs & Co. expect the Fed to announce as early as November a program of asset purchases to support a weak economy. Treasury purchases may total about $1 trillion in another round of quantitative easing, said Jan Hatzius, chief U.S. economist at Goldman Sachs.
Benchmark interest rates are 4.5 percent in Australia and 3 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.
The Australian dollar traded near its strongest level in two years as a strengthening domestic economy and concern the Federal Reserve will expand efforts to keep down borrowing costs spurred demand for the currency.
New Zealand’s currency was near a seven-week high as speculation increased that U.S. policy makers will buy additional Treasury securities this year to help sustain growth as the recovery falters. Gains in the so-called kiwi were tempered on speculation the Reserve Bank of New Zealand will leave interest rates unchanged at a meeting tomorrow.
“Aussie can probably track a bit higher,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation’s largest lender. “The Australian economy is outperforming the rest and the market’s pricing in the prospect of quantitative easing in the U.S.”
The Australian dollar traded at 93.96 U.S. cents as of 9:22 a.m. in Sydney from 93.97 cents in New York yesterday, when it climbed to 94.58 cents, the highest level since July 2008. The currency was at 78.01 yen from 78.03 yesterday.
New Zealand’s dollar bought 73.28 cents from 73.43 cents yesterday when it advanced to 73.95, the strongest since July 27. It traded at 60.84 yen from 60.97.
Economists at Goldman Sachs & Co. expect the Fed to announce as early as November a program of asset purchases to support a weak economy. Treasury purchases may total about $1 trillion in another round of quantitative easing, said Jan Hatzius, chief U.S. economist at Goldman Sachs.
Benchmark interest rates are 4.5 percent in Australia and 3 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.
Sunday, September 5, 2010
ECB Trichet: Strong 2Q Confirms No Double Dip
First Published Sunday, 5 September 2010 05:37 pm - © 2010 Need to Know News
--But Too Early To Declare "Victory"
PARIS (MNI) - The Eurozone's strong second quarter growth performance confirms that there won't be a double-dip recession, but there are plenty of challenges in the coming years, ECB President Jean-Claude Trichet said in a newspaper interview published Saturday.
"I've already said on many occasions that I didn't foresee a double dip in Europe, and the latest results confirm it," Trichet told the French daily Le Figaro.
He warned against reading too much into quarterly figures, however, saying that the economy must be judged in a longer-term perspective. "That said, I am delighted with the growth in the second quarter and with the upward revision to the European Central Bank staff forecasts that I announced last Thursday," he added.
However, "with regard to growth in the coming years, we remain cautious and are not declaring victory," Trichet said.
Trichet and his ECB colleagues have said many times recently that they do not expect growth in the second half of this year to match the second quarter's torrid pace. They expect momentum to slow in the third quarter and even more so in the fourth, though they believe a modest recovery will continue.
The Eurozone economy surpassed expectations in the second quarter with a robust 1.0% q/q growth rate, driven largely by Germany's dizzying 2.2% quarterly pace. Largely on the basis of the strong second quarter, the ECB staff revised upward its midpoint growth forecast for 2010 to 1.6% from the previous projection of 1%.
Trichet suggested that the strong 2Q performance cannot be attributed to the euro's weaker tone in foreign exchange markets, which many say has been a big boon for exports - especially Germany's.
"I note with great interest that the Eurozone's second quarter growth rests above all on its domestic demand [consumption and investments]: a total contribution of 0.7% to growth of 1%, with a contribution of 0.1% from foreign trade and 0.2% from inventories," the ECB president said.
He downplayed the idea that Germany's disproportionate share of 2Q EMU growth meant that a "two-speed" Europe was emerging.
"Germany is the biggest economy in the [currency] union and the top market for the exports of the near-totality of the other countries. When it improves, it is clearly good for the Eurozone as a whole," Trichet said.
He lauded Germany, saying its success was the fruit of the measures it has undertaken in recent years to reduce production costs and increase productivity, as well as the adaptability of German companies to the realities of globalization.
In a comment that could be aimed at France, which is facing a week of strikes, protests and general tension over the government's pension reform plan, Trichet noted that Germany's success was built on "a high degree of confidence among social partners [unions and employers], which we be desirable to regain in all countries of the Eurozone."
Given its attention to production costs and the reforms it has undertaken to make the economy "more flexible," Germany "can serve as an example to all its neighbors," Trichet said.
Asked to explain why the U.S. Federal Reserve was worried about deflation while the ECB was not, Trichet said there were "important structural differences on the two sides of the Atlantic, and that the fear of deflation "manifested itself from time to time in the United States, even if, very fortunately, the risk has not materialized."
In Europe, he added, "we are lucky to have a remarkable anchoring of inflation expectations in line with our definition of price stability of less than but close to 2%." He repeated, as he has for many months, that "the ECB considers the current interest rates appropriate to give us medium-term price stability, without inflation or deflation."
Trichet also repeated his criticism of the big three ratings agencies, saying "it is not necessarily healthy" that the important task of evaluating securities be share among only three institutions at the global level. "I don't think the solution is necessarily the creation of a public institution. We must continue to reflect," he said, adding that, "the right answers in this domain as in others can only be worldwide ones."
Trichet also renewed his call for China to exercise "greater flexibility" with regard to the exchange rate of its currency, the yuan. "From this point of view, I appreciated, along with all the [finance] ministers and [central bank] governors of countries with floating currencies, the move in the direction of more flexibility that was made public by China last June 19," he said.
--But Too Early To Declare "Victory"
PARIS (MNI) - The Eurozone's strong second quarter growth performance confirms that there won't be a double-dip recession, but there are plenty of challenges in the coming years, ECB President Jean-Claude Trichet said in a newspaper interview published Saturday.
"I've already said on many occasions that I didn't foresee a double dip in Europe, and the latest results confirm it," Trichet told the French daily Le Figaro.
He warned against reading too much into quarterly figures, however, saying that the economy must be judged in a longer-term perspective. "That said, I am delighted with the growth in the second quarter and with the upward revision to the European Central Bank staff forecasts that I announced last Thursday," he added.
However, "with regard to growth in the coming years, we remain cautious and are not declaring victory," Trichet said.
Trichet and his ECB colleagues have said many times recently that they do not expect growth in the second half of this year to match the second quarter's torrid pace. They expect momentum to slow in the third quarter and even more so in the fourth, though they believe a modest recovery will continue.
The Eurozone economy surpassed expectations in the second quarter with a robust 1.0% q/q growth rate, driven largely by Germany's dizzying 2.2% quarterly pace. Largely on the basis of the strong second quarter, the ECB staff revised upward its midpoint growth forecast for 2010 to 1.6% from the previous projection of 1%.
Trichet suggested that the strong 2Q performance cannot be attributed to the euro's weaker tone in foreign exchange markets, which many say has been a big boon for exports - especially Germany's.
"I note with great interest that the Eurozone's second quarter growth rests above all on its domestic demand [consumption and investments]: a total contribution of 0.7% to growth of 1%, with a contribution of 0.1% from foreign trade and 0.2% from inventories," the ECB president said.
He downplayed the idea that Germany's disproportionate share of 2Q EMU growth meant that a "two-speed" Europe was emerging.
"Germany is the biggest economy in the [currency] union and the top market for the exports of the near-totality of the other countries. When it improves, it is clearly good for the Eurozone as a whole," Trichet said.
He lauded Germany, saying its success was the fruit of the measures it has undertaken in recent years to reduce production costs and increase productivity, as well as the adaptability of German companies to the realities of globalization.
In a comment that could be aimed at France, which is facing a week of strikes, protests and general tension over the government's pension reform plan, Trichet noted that Germany's success was built on "a high degree of confidence among social partners [unions and employers], which we be desirable to regain in all countries of the Eurozone."
Given its attention to production costs and the reforms it has undertaken to make the economy "more flexible," Germany "can serve as an example to all its neighbors," Trichet said.
Asked to explain why the U.S. Federal Reserve was worried about deflation while the ECB was not, Trichet said there were "important structural differences on the two sides of the Atlantic, and that the fear of deflation "manifested itself from time to time in the United States, even if, very fortunately, the risk has not materialized."
In Europe, he added, "we are lucky to have a remarkable anchoring of inflation expectations in line with our definition of price stability of less than but close to 2%." He repeated, as he has for many months, that "the ECB considers the current interest rates appropriate to give us medium-term price stability, without inflation or deflation."
Trichet also repeated his criticism of the big three ratings agencies, saying "it is not necessarily healthy" that the important task of evaluating securities be share among only three institutions at the global level. "I don't think the solution is necessarily the creation of a public institution. We must continue to reflect," he said, adding that, "the right answers in this domain as in others can only be worldwide ones."
Trichet also renewed his call for China to exercise "greater flexibility" with regard to the exchange rate of its currency, the yuan. "From this point of view, I appreciated, along with all the [finance] ministers and [central bank] governors of countries with floating currencies, the move in the direction of more flexibility that was made public by China last June 19," he said.
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