Bernanke Defends Record Before Senate; Service Sector Slumps in November; Retailers Hit by Bargain Hunters; New Rules May Grant Relief to Banks; Mortgage Rates Hit Record Lows; ECB Keeps Rates at 1%; American Outbids Delta for JAL Partnership
- U.S. Federal Reserve Chairman Ben S. Bernanke defended his record yesterday (Thursday) before a skeptical Senate tasked with backing President Barack Obama’s nomination of him for a second term. “We played a central role in efforts to quell financial turmoil," Bernanke told the Senate Banking Committee. "The outcome could have been markedly worse." Despite pointed and sometimes angry questions from senators, President Obama’s nomination is widely expected to be approved.
The Institute for Supply Management’s (ISM) index of service industries in the United States unexpectedly contracted in November, adding to concerns that mounting unemployment will hurt sales. The index of non-manufacturing businesses that comprise nearly 90% of the economy fell to 48.7 last month from 50.6 in October, according to the Tempe, Ariz.-based group. Fifty is the dividing line between an economic expansion and contraction. “We just see the service sector continuing to lag manufacturing in the recovery,” Kim Whelan, an analyst at Wells Fargo Securities (NYSE: WFC) in Charlotte, N.C., told Bloomberg News. “With the labor market still in an extremely weakened state, we won’t see too many gains.” The ISM figure compared with economists’ median forecast for a gain to 51.5, according to a Bloomberg survey.
- Retail sales were much weaker than expected in November, as shoppers focused only on big bargains at the start of the key holiday selling season. The Thomson Reuters Corp. (NYSE: TRI) same-store sales index rose 0.5% for the month, falling far short of Wall Street’s call for a 2.1% increase. Analysts warned retailers not to expect December to rescue the holiday season, with tight credit and high unemployment combining to dim hopes for a consumer recovery. "This might be another season where it is a fight for share of wallet versus total increase in spending," Chris Donnelly, a partner in Accenture PLC’s (NYSE: ACN) retail practice, told Reuters. "It's pretty clear this is not a consumer who is going to be buying a lot of full-priced products." Many retailers said the weak sales were in line with expectations and that margins should remain intact due to inventory cuts and other cost-saving measures.
Citigroup Inc. (NYSE: C), JPMorgan Chase & Co. (NYSE: JPM) and other large banks may get a reprieve from raising capital to support billions of dollars of securities that firms will have to bring onto their balance sheets, Federal Deposit Insurance Corp. (FDIC) Chairman Sheila Bair said yesterday (Thursday). The FDIC, the U.S. Federal Reserve and other government agencies are considering financial industry requests to permit a phase-in of capital requirements, which rise starting next month under a rule change approved by the Financial Accounting Standards Board (FASB). The rule, passed in May, eliminates off-balance-sheet trusts known as Qualifying Special Purpose Entities, forcing banks to move billions of dollars of assets and liabilities onto their books. “We support bringing all this back on balance sheet,” Bair told Bloomberg News. “It should have been on, frankly, all along. And we know that now.”
- U.S. mortgage rates fell for a fifth straight week, dropping to a record low in the latest week, a survey by Freddie Mac (NYSE: FRE) obtained by Reuters showed Thursday (yesterday). Interest rates on U.S. 30-year fixed-rate mortgages, the most widely used loan, averaged 4.71% for the week ending Dec. 3, down from the previous week's 4.78%. The lowest mortgage rates in decades and high affordability have helped the hard-hit housing market find some footing this year after a three-year slump.
- The European Central Bank (ECB) kept its key lending rate at a record-low 1%, and will conduct the last of its 12-month refinancing operations this month as it begins to wind down capital injections for banks, President Jean-Claude Trichet said. The central bank will link the interest rate on the Dec. 15 tender to the average of its benchmark this year, instead of charging a fixed 1% as it did in previous offers. Still, Trichet stressed the move doesn’t mean the ECB will raise its interest rate. Following the news, the euro increased to $1.5075, almost a16-month high against the U.S. dollar.
- Gold futures once again inched up to a record high yesterday (Thursday), settling at $1,218.30 an ounce on the New York Mercantile Exchange. "Physical gold continues to be piling up in vaults,” Andrew Montano, a director at Toronto-based bullion dealer ScotiaMocatta, told Reuters. “There is a lot of metal built up in vaults owned by exchange-traded funds (ETFs), as well as private funds," he added.
- American Airlines Inc. (NYSE: AMR) boosted its efforts to preserve its partnership with Japan Airlines (OTC ADR: JALSY) by promising a $1.1 billion investment amid an offer from rival Delta Air Lines Inc. (NYSE: DAL), the Financial Times reported. The investment more than doubles a bid of $500 million from Delta and its SkyTeam partners, prompting the group to announce yesterday (Thursday) it might find an outside investor to increase the bid. JAL is seen by both U.S. carriers as a key link to the growing Asian market.