Major Themes for the week
12 August- Crude oil rose to a record for a fifth straight day, touching $67.10 a barrel in New York on speculation that increased fuel demand may outpace production capacity. At least 14 disruptions at U.S. refineries since July 20 increased concern that fuel supplies will be insufficient. U.S. refineries operated at 95 percent of capacity last week as they tried to meet peak gasoline use. The U.S. consumes 25 percent of the world's oil. Prices rose 53 percent this year as producers failed to make up for declining output at older fields.
Asian stocks gained this week, helping a regional benchmark to its biggest weekly advance in 17
Months. The Morgan Stanley Capital International Asia-Pacific Index, which tracks more than 1,000 stocks in the region, jumped 4.6 percent to 106.29, the biggest weekly advance since the period ended March 19, 2004. Japan's Topix index jumped 4.7 percent and the Nikkei 225 Stock Average gained 4.2 percent. Both indexes touched four-year highs on optimism an election called by Prime Minister Junichiro Koizumi for next month won't derail economic growth and corporate
earnings.
The U.S. budget deficit narrowed to $52.8 billion in July from a year earlier as tax revenue surged on higher incomes and business profits. The deficit compares with a shortfall of $69.2 billion in July 2004 and was the smallest for the month since 2002, the Treasury reported today in Washington. Revenue rose 5.7 percent to a July record of $142.1 billion and spending fell 4.3 percent.
Economic Data
US
Federal Reserve policy makers raised their benchmark U.S. interest for a 10th straight time to stay ahead of inflation as the world's largest economy accelerates. The Federal Open Market Committee lifted the overnight bank- lending rate a quarter-point to 3.5 percent today in Washington and repeated a plan to carry out further increases at a ``measured'' pace. Futures traders kept their bets for quarter- point increases at each of this year's three remaining meetings.
The U.S. imported record levels of crude oil and Chinese goods in June as the economy began to accelerate, propelling the nation's trade deficit to a wider-than- expected $58.8 billion. The trade gap swelled 6.1 percent to the third-widest ever from $55.4 billion in May, the Commerce Department said. Imports rose faster than exports, while both were at all-time highs. Record fuel costs pulled down Americans' confidence in August, a University of Michigan report showed today.
U.S. consumer confidence fell in August from the highest level of the year as Americans confronted record prices at the gasoline pump. The University of Michigan's preliminary consumer sentiment index declined to 92.7 from July's 96.5, the first drop in three months and the lowest since May's 86.9. The
reading was below the lowest estimate of 93.5 in a Bloomberg News survey of 50 economists. Average gasoline prices reached an unprecedented $2.41 a gallon this month, threatening to siphon spending from other goods and services. While an improved job market and income gains have helped Americans cope with the higher prices, economists said the higher fuel prices may be starting to take a toll.
U.S. labor costs over the last year rose by the most since 2000, and productivity among workers grew at a slower pace in the second quarter, keeping pressure on the Federal Reserve to raise interest rates. The cost to companies of employing workers was 4.3 percent higher in the second quarter than in
the same three months last year, the Labor Department said today. Productivity, a measure of how much an employee produces for every hour of work, rose at a 2.2 percent annual rate, the slowest in nine months, after a 3.2 percent increase the previous three months. Rising compensation costs, which account for two-thirds of goods and services prices, support forecasts that Fed policy makers will keep raising interest rates through the first half of 2006.
EUROLAND
Retail sales in the 12 nations sharing the euro rose for a second month in three in July as supermarkets and department stores cut prices to lure shoppers, adding to evidence that economic growth may accelerate in the second half. The Bloomberg purchasing managers index, a measure of retail sales adjusted for seasonal swings, rose to 51 from 49.1 in June, according to a survey of 1,000 retailing executives for Bloomberg Research published today. A reading above 50 signals growth.
UK
The Bank of England said U.K. economic growth, which reached a 12-year low in the second quarter, will accelerate to above 3 percent by 2007, making it less likely that the bank will cut interest rates for a second time this year. ``The central projection is for GDP growth to be rather subdued in the near term,'' Bank of England Governor Mervyn King said at a press conference to present the bank's quarterly Inflation Report. The central bank said Europe's second-largest economy will grow 2 percent in 2005, less than the 2.5 percent it forecast in May. Inflation will accelerate above its 2 percent target this year amid record oil prices, dip through most of 2006 and rise above target by 2007.
U.K. retailers had their poorest July in a decade, the British Retail Consortium said, as the July 7 terrorist attacks in London and a faltering housing market tempered consumers' willingness to spend. Sales in stores open at least a year fell for the fourth month, sliding 1.9 percent from July last year, said the London- based lobby group, which represents 80 percent of U.K. retailers. The drop followed a 0.5 percent decline in June. The three-month rate improved to a decrease of 1.7 percent from a drop of 2.4 percent in the period ended June.
FRANCE
The French economy grew 0.1 percent in the three months through June, lagging behind the dozen nations using the euro for a second quarter as consumers curbed spending. France, whose economy accounts for about a fifth of the euro region's, released its first growth estimate for the quarter a day after the European Union's statistics office said the euro region expanded 0.3 percent in the same period. In the first quarter, French gross domestic product rose a 0.4 percent from the previous three months, the Paris-based statistics office Insee said.
GERMANY
Germany's domestic economy expanded in the second quarter for the first time in almost a year as evidence mounts that growth will accelerate in the second half. Domestic demand, which includes consumer and government spending and corporate investment, rose from the first quarter and gained for the first time since the three months through September, the statistics office in Wiesbaden said. It will publish a full breakdown on Aug. 23. Total gross domestic product was unchanged in the second quarter from the first after the price of oil rose to a record and imports outweighed exports.
ITALY
The Italian economy, Europe's fourth largest, emerged from recession in the second quarter and grew at the fastest pace I more than four years as a decline in the euro helped exports. Gross domestic product expanded 0.7 percent in the second quarter after contracting 0.5 percent in the previous three months, statistics office Istat said in Rome today. The rise was the biggest since the first quarter 2001 and better than the 0.2 percent median forecast of 28 economists surveyed by Bloomberg.
Industrial production in Italy, Europe's fourth-largest economy, fell in June for the third month in four as record oil prices pushed up costs for manufacturers such as Fiat SpA. Output at Italian factories, utilities and mines fell 0.7 percent from the previous month, from a revised contraction of 1.1 percent in May, Rome-based national statistics office Istat said. The drop was bigger than the 0.1 percent median forecast of 17 economists surveyed by Bloomberg.
ASIA
China had its second-highest trade surplus on record in July, reflecting a surge in exports that has led the U.S. and Europe to threaten sanctions. The surplus widened to $10.4 billion from $1.97 billion a year earlier and $9.68 billion in June, the Beijing-based customs bureau said on its Web site today. Overseas sales rose 28.7 percent to $65.6 billion from a year earlier, more than double the 12.7 percent gain in imports.
Japan's Prime Minister Junichiro Koizumi called elections for Sept. 11 after lawmakers from his own party joined the opposition to reject plans to sell the state- owned postal service. Koizumi, who after four years in office is the longest- serving prime minister since 1987, is risking his career in a new election as the world's second-largest economy emerges from its fourth recession since 1991. The upper house of Parliament rejected, by a vote of 125 to 108, Koizumi's proposal to end government control of Japan Post, the world's largest savings bank with 350 trillion yen ($3.1 trillion) in assets. The proposed sale was the centerpiece of his plan to overhaul the economy and the political bureaucracy.
Japan's economy expanded for a third straight quarter as increases in business and consumer spending signaled a recover from recession will be sustained. The world's second-largest economy grew at an annual 1.1 percent pace in the three months to June 30, the Cabinet Office said today in Tokyo. The rate
was less than economists expected, partly because gross domestic product for the first quarter was revised to show a 5.4 percent pace of growth, from 4.9 percent.
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