Possibly the most optimistic comments in a set of Federal Reserve minutes for over a year and when read with encouraging news on industrial output, inflation, not to mention some one or two better than expected quarterly profit figures and the optimism erupted.
Wall Street popped a few corks and had its best day for a couple of months as the Fed and some official figures fed a renewed feeling of optimism that the end is now in sight to the crippling recession.
Of course, in its usual fashion, the Street ignored what lies ahead for the world’s biggest economy, especially the possible collapse tomorrow of a big business finance lender.
And there was a reminder before trading opened of the big problem: foreclosures: with a record 1.5 million happening in the first half of 2009, up 15% on a year ago.
But thanks to those comments in the minutes of the last Federal Reserve Open Markets Committee meeting, and better than expected industrial production figures, the markets celebrated.
A bullish quarterly report from Intel, the big chipmaker also helped, as did the lingering aftermath of Goldman Sachs huge profit rise (completely unbalanced as it came from trading, not banking); although smarter investors saw strong signs of stock rebuilding in the Intel outlook for sales the next six month.
Results from Philips, the big European electronic and consumer goods group and Posco, the big South Korean steel maker, told of a steadying in the slump, some upside, but nothing much that could be said to be sustainable in growth terms.
CSX, a big American railroad and Gannett, the country’s biggest newspaper group, did better than expected because they cut costs and staff.
But the outlook was as muted as the past quarter was with sales down 22% in the case of CSX and over 40% in some parts of Gannett’s ad revenues in the US and UK, where it also operates.
But healthcare giant, Johnson & Johnson did better than expected with earnings off just 3.5%.
Revenue is being looked at as a more accurate proxy for the true performance of reporting companies because that’s where the slump is having an impact that can’t be disguised by cost cuts or the impact of lower raw material costs such as oil and metals.
Wall Street’s joy at rediscovering the upside so early in the reporting period was tempered overnight when business finance group, CIT.
Its shares were suspended yesterday pending an announcement of help from the US Government. Now it seems that help won’t be forthcoming (Source).
"Cash-starved small business lender CIT Group said Wednesday evening that it has been told it won’t be getting a government bailout anytime soon.
"There is "no appreciable likelihood of additional government support being provided over the near term," the company said in the statement.”The CIT board and executives are evaluating alternatives."
That means the company could very well file for bankruptcy protection. If it does it will be the biggest financial collapse since Washington Mutual failed last year.
CIT has some $US75 billion in assets, according to figures at the end of March.
It has lost $US3.3 billion over the past year or so and has struggled to renew financing lines in recent months and had been looking for help from the US Government to guarantee a refunding.
CIT’s immediate outlook could be decided after banking giant JPMorgan reported a solid second quarter profits of $US2.7 billion, with big trading profits, but big and rising losses from credit cards, mortgages and business loans.
Tonight, our time sees the two basket cases of US banking report, Bank of America and Citigroup.
Weekly unemployment improved, but the figures were skewed by factory closures and openings which cannot be seasonally adjusted.
The ‘good news’ was from the Fed: it saw unemployment peaking at 10.1% later this year, (its now 9.5%) and the board members said they believe the end of the recession could be in sight.
According to the minutes of the June 24 meeting, members of the Fed’s rate-setting committee agreed that "the decline in [economic] activity could cease before long."
"Almost all participants viewed the near-term outlook for domestic output as having improved modestly relative to the projections they made at the time of the April FOMC meeting, reflecting both a slightly less severe contraction in the first half of 2009 and a moderately stronger, but still sluggish, recovery in the second half," the document said.
The Fed said its staff economists also raised their outlook based on recent data even though the rate of unemployment was higher than expected.
"In the forecast prepared for the June meeting, the staff revised upward its outlook for economic activity during the remainder of 2009 and for 2010."
"Consumer spending appeared to have stabilized since the start of the year, sales and starts of new homes were flattening out, and the recent declines in capital spending did not look as severe as those that had occurred around the turn of the year."
"Moreover, it seemed likely that economic activity was in the process of leveling out, and the considerable improvements in financial markets over recent months were likely to lend further support to aggregate demand."
The Fed also raised its forecast for
