By William Patalon III
Executive Editor
Money Morning/Money Map Report
Top financial officials from the Group of Eight (G8) industrialized nations on Friday issued an upbeat evaluation of the global financial crisis, describing signs that markets were stabilizing around the world and warning that it was necessary to devise “exit strategies” to disengage from stimulus programs that have been put in place.
The G8 met for two days in Lecce, Italy. Eight world finance ministers – including U.S. Treasury Secretary Timothy F. Geithner, and his global counterparts from Britain, Canada, France, Germany, Italy, Japan and Russia – also agreed to create "a set of common principles and standards governing the conduct of international business and finance," The Washington Post reported.
In a communiqué called "the Lecce Framework" – which described the strategy for obtaining those goals – the finance ministers called on government leaders to fill in the regulatory gaps that led to the global financial crisis, including breakdowns caused by financial firms that operated in multiple economies.
Strikingly more rigorous initiatives already are being adopted in Europe, where new measures aimed at creating more-rigorous oversight of the credit-rating agencies – especially those involved with creating securitized securities, whose U.S. breakdowns have been identified as a key contributor to the credit crisis. The United States will offer its own broad proposals for "more conservative standards" when it unveils a much-anticipated reform plan to overhaul domestic financial regulation later this week, Geithner said in an interview after the meeting.
The U.S. will include tougher proposed capital standards and oversight for banks, better coordinated oversight of global financial institutions, and improve monitoring and transparency in global derivatives markets, The Post reported.
"Because risk does not respect borders, we will put forward several international proposals in our reform package to help raise standards globally," Geithner told journalists after the meeting.
With recent rebound in stock markets and a flurry of upbeat economic reports, finance ministers said they were cautiously optimistic about the state of the world economy.
Market Matters
Despite some last minute drama at U.S. Supreme Court, Chrysler LLC closed on its deal with Fiat SpA (OTC ADR: FIATY) and effectively moved beyond bankruptcy. While Supreme Court Justice Ruth Bader Ginsburg gave the would-be deal-breakers (Indiana pension funds) some false hope, the Supreme Court ultimately disallowed their objections and let the transaction proceed.
General Motors Corp. (OTC: GMGMQ) announced the hiring of a former AT&T Inc. (NYSE: T) exec to guide its rebirth and moved closer to selling its Saab unit as it “speeds” through its own restructuring.
In a “sign of financial repair,” the U.S. Treasury Department has granted its blessing to 10 major banks to repay $68 billion in Troubled Asset Relief Program (TARP) loans; JPMorgan Chase & Co. (NYSE: JPM) ($25 bln), Morgan Stanley (NYSE: MS)($10 bln), and American Express (NYSE: AXP) ($3.4 bln) expect to take the plunge in the next few days.
And in a sign of renewed economic strength, Texas Instruments Inc. (NYSE: TXN) raised its outlook for the second quarter amid growing demand for semiconductors. Meanwhile, Bank of America Corp. (NYSE: BAC) and U.S. Federal Reserve officials took a grilling from (grandstanding) politicos as the “he said/he said” controversy over the Merrill Lynch (NYSE: SAR) acquisition continued. The Obama administration ended its plan to limit compensation within financials and also is reevaluating prior proposals about consolidating regulatory bodies.
In transactional news, BlackRock Inc. (NYSE: BLK) acquired ETF-giant Barclays Global Investors to form the largest global asset manager.
Energy prices continued the upward trek as an International Energy Agency suggested that global demand for 2009 would be stronger than previously predicted. On the supply side, a BP PLC (NYSE ADR: BP) report showed that global reserves fell in 2008, the first such decline in 10-years. Crude surged past $72 a barrel for the first time this year as traders analyzed the supply/demand issues in conjunction with the ongoing prospects for an economic recovery. Likewise, gas prices rose again (for 42 straight days) to above $2.60 per gallon nationally and consumers began to feel the pinch at the pumps as summer travel season arrives. Inflation anyone?
| Market/ Index |
Year Close (2008) |
Qtr Close (03/31/09) |
Previous Week |
Current Week |
YTD Change |
|
Dow Jones Industrial |
8,776.39 |
7,608.92 |
8,763.13 |
8,799.26 |
+0.26% |
|
NASDAQ |
1,577.03 |
1,528.59 |
1,849.42 |
1,858.80 |
+17.87% |
|
S&P 500 |
903.25 |
797.87 |
940.09 |
946.21 |
+4.76% |
|
Russell 2000 |
499.45 |
422.75 |
530.36 |
526.84 |
+5.48% |
|
Global Dow |
1526.21 |
1347.38 |
1,680.43 |
1,694.76 |
+11.04% |
|
Fed Funds |
0.25% |
0.25% |
0.25% |
0.25% |
0 bps |
|
10 yr Treasury (Yield) |
2.24% |
2.68% |
3.86% |
3.79% |
155 bps |
Economically Speaking
Economists are at it again. With little substantive data on the calendar, The Wall Street Journal announced results of its latest forecasting survey and a majority of respondents expect the recession to end by late summer (though the subsequent recovery may not be as swift as many had hoped). About half even believe the Fed will be inclined to raise the benchmark Federal Funds rate (from virtually 0% today) by the middle of 2010. Despite the potential for an economic rebound, the labor market is expected to remain weak as unemployment is projected to climb just below 10% by the end of the year.
On the inflation front, the rapid rise in oil prices does not seem to be worrying most economists surveyed (or they simply have not been paying attention), as they pegged the price of crude at $72 a barrel by December 2010, very close to today’s level.
Retail sales rose in May for the first time in three months, though much of the increase reflected rising gasoline prices which is bad news for a consumer-driven economy. Discretionary spending seems to be going to the gas pumps rather than for household or luxury items. Still, consumer sentiment is improving as the latest Reuters/University of Michigan confidence index rose to its highest level in nine months.
The trade deficit jumped for the second month in a row as oil imports climbed, also the result of higher crude prices. Home foreclosures actually declined in May, a positive sign for housing, though its elevated level was still the third highest ever reported. The Fed "Beige Book" was released during the week and the messages were mixed, at best. While certain regions of the country have begun to experience resurgence in economic activity (or, at least, less contraction), others remained quite weak and ongoing challenges in the labor markets threaten to hinder any sustained recovery. Despite the recent increase in interest rates, many Fed watchers do not expect the policymakers to commit to additional Treasury and mortgage-related securities purchases at the next open market committee meeting.
Weekly Economic Calendar
| Date |
Release |
Comments |
|
June 10 |
Balance of Trade (04/09) |
Deficit expanded for 2nd month in row |
|
|
Fed Beige Book |
Economy remains weak with signs of recession easing |
|
June 11 |
Retail Sales (05/09) |
Strong showing, but due to rising gas prices |
|
|
Initial Jobless Claims (06/06/09) |
19th straight week of record continuing claims |
|
The Week Ahead |
|
|
|
June 16 |
PPI (05/09) |
|
|
|
Housing Starts (05/09) |
|
|
|
Industrial Production (05/09) |
|
|
June 17 |
CPI (05/09) |
|
|
. |
Initial Jobless Claims (06/13/09) |
|
|
|
Leading Eco. Indicators (05/09) |
|
News and Related Story Links:
- U.S. Supreme Court:
Government Web Site. - Money Morning:
BlackRock to Become the World’s Largest Money Manager with Purchase of Barclays Fund. - InvestorWords.com:
Beige Book. - The Washington Post:
Global Finance Chiefs Cite Signs of Stability. - Money Morning News:
Fraud and Greed of Trusted Rating Agencies Helped Spread the Credit Crisis. - Money Morning News:
Chrysler-Fiat Deal Cleared by Supreme Court
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.