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China Still Not Stable China Still Not Stable

July 16, 2012- Wen Jiabao, the Premier of China warned that the economic rebound of China was not yet stable and difficult times could continue for an unknown period of time. He said the growth rate of the economy was still in the target range the government set in the beginning of the year and the government’s policies for stabilization were working. He expressed that the economy was operating at a more stable pace, but was slower than before.

Wen reported that the economic fundamentals in China remain strong and sound and the growth potential was huge in the country. As examples of this, he mentioned the successful summer grain harvest, the increase in household incomes and the decline in inflation.

During the second quarter of this year, the gross domestic product in China increased by 7.6% from the second quarter of last year, but was down from the 8.1% during the first quarter of this year. That marked the slowest growth in GDP since the first three months of 2009. The entire year’s GDP growth was set at 7.5% by Beijing earlier this year.

Wen said he would discuss with other government officials about providing tax breaks and financial aid to companies that are suffering slow growth in exports. During the second six months of 2012, the Chinese government is planning to fine-tune its economic policies and make them more foresighted, targeted and effective, said Wen.

Opel Fires CEO, Peugeot Slashes 8,000 Jobs Opel Fires CEO, Peugeot Slashes 8,000 Jobs

July 13, 2012- The woes in the auto industry in Europe continued on Thursday as Opel in Germany fired its third CEO in the past three years and Peugeot Citroen announced it was cutting 8,000 jobs from its payroll.

The two car makers, one an icon in France, while the other a principal subsidiary in Europe of General Motors, are both struggling against growing losses and pursuing plans to restructure that could create political tension in Europe.

Only five months prior to Thursday’s announcements the two automakers announced a procurement and product development alliance, which aimed to produce efficiencies in costs for both automakers.

To help underpin the new alliance, GM purchased 7% of Peugeot. However, the majority of the savings that had been projected would not take hold for a number of years and currently the two companies are hampered by plummeting sales, as the economy in Europe is once again nearing a recession.

The two announcements highlighted the differences between the method the U.S. government used to help restructure the auto industry in Detroit in 2009 and the European governments’ strategies of aiding their auto industries.

Detroit was given state aid by agreeing to cut jobs and close factories, while governments in Europe insisted its automakers not shut down factories or cut jobs. That left a number of the automakers with huge losses that now have threatened thousands with job losses that the governments originally tried to save.

J.C. Penney Shares Fall J.C. Penney Shares Fall

July 11, 2012- Troubled retailer J.C. Penney announced it is eliminating 350 additional jobs at its Plano, Texas headquarters, as it struggles under the leadership of Ron Johnson, the former executive at Apple.

Shares of the retailer’s stock soared last winter after Johnson announced a new strategy for pricing and on February 9 hit their peak of $43.13, but since then have lost close to 50% of their value.

On Tuesday, the shares dropped 5%, as investors became worried that slumping sales are deepening amid customer confusion over the pricing plan the retailer has that eliminates sales events throughout the year in favor of daily low prices. Also hurting the retailer is the deteriorating environment in the economy. The job cuts on Tuesday followed 600 the company made in April at its headquarters as well.

Penney’s is trying to cut costs while turning around the business, which is not easy. It is going through a complete overhaul of every part of its operation from new brands to the new pricing plan. The pricing plan has turned shoppers away and a bigger than expected loss was reported by the company after the first quarter.

At this time, Penney’s workforce is 3,100 at its Plano headquarters, down 29% from 4,400 it had prior to layoffs in April. Overall, the company has a total workforce of 159,000.

Stocks And Euro Drop As Investors Await Jobs Report Stocks And Euro Drop As Investors Await Jobs Report

July 6, 2012- On Thursday, the euro and U.S. stocks declined, as stimulus measures from major banks failed to heighten investor confidence. Investors were awaiting the June jobs report from the U.S. government to see any signs that the debt crisis in Europe is weighing down the recovery in the U.S.

The Central Bank in Europe cut its interest rate to a new record low. China surprised many investors by cutting its main lending rate again, after doing so less than two months ago. The euphoria of the measures initially helped drove up equities in Europe to a high of two-months, but had disappeared once Wall Street’s opening bell was heard.

As the day went on, investors wondered if the Federal Reserve would extend any new stimulus packages that could help get Wall Street and the economy running once again. One strategist said that if one or two more bad jobs reports were released then the Fed would have to release more stimulus.

On Thursday, payroll services giant ADP announced that the private sector had added 176,000 jobs in June. In May, the increase was 136,000. Initial claims for unemployment benefits also drop last week. Nevertheless, investors were still worried about Friday’s federal jobs report, which is expected to reveal only a slight increase in new jobs, if any.

 

Ex-Barclays CEO Sounds Off Ex-Barclays CEO Sounds Off

July 5, 2012- The former CEO of Barclays, Bob Diamond, who resigned over the scandal involving marketing-fixing, said that an official of the Bank of England did not encourage him to report data the was false during the heat of the 2008 credit crunch. 

On Tuesday, Diamond resigned from the bank and on Wednesday was asked a number of questions by a parliamentary committee, over his talks with Bank of England deputy governor Paul Tucker in October of 2008. Barclays disclosed the conversation on Tuesday. The conversation is the focus of questions about false data that Barclays submitted from 2005 to 2009, which last week earned them a fine by British and U.S. authorities of $453 million. 

The question is a crucial one in the development of the scandal because it would help determine whether authorities in Britain had been encouraging banks to report rates that were lower than the actual borrowing rates so as to ease any market concerns over the financial health of the bank. 

On a daily basis, banks borrow from one another and report the rate they received the money. A higher rate could indicate the bank has trouble borrowing because it could be experiencing financial problems. Those reports form a benchmark interest rate known as the LIBOR or London interbank offered rate. The rate is used to price mortgage and business loans worldwide. 

Diamond, in his testimony, said he did not feel a conversation between he and Tucker contained any order or encouragement on Tucker’s part about lowering the borrowing rates. Diamond said one of his subordinates misunderstood the contents of the memo and ordered the reported rates to be lowered.

 

Manufacturing Declines In June Manufacturing Declines In June

July 3, 2012- Manufacturing in the U.S. shrank during June for just the first time in nearly 36 months, as new orders dropped. The Institute for Supply Management announced Monday that its index of activity in factories in the U.S. dropped to 49.7 from May’s 53.5. The estimate set forth by a group of economists had been 52.0. This was the starkest sign yet seen that indicates the economy is in a slowdown.

In June, it was the first time since July of 2009 that the index had dropped below 50, the mark that is a separating point for growth and contraction. The last time it shrank was just after the U.S. emerged from the financial crisis and subsequent recession.

During the recovery of the U.S. economy, manufacturing has emerged as one of the drivers, which now appears as if it is losing steam over fears of the debt crisis in Europe, a slowdown in Asia and continued uncertainty about U.S. fiscal policy.

Economists said that the slowdown in manufacturing is the biggest sign thus far that the economy in the U.S. is experiencing the slowdown that has already taken hold in China and Europe. The report, said on economist, is equal to an economy growing at a yearly rated of below one percent after a 1.9% growth during the first three months of the year. Economists’ dismissed the thought the U.S. was in another recession, as they said the index would have to be under 47 for that to be certain.

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