Actual finance blog

Air Canada has reported a third-quarter loss of $132 million during the busy summer travel season, citing rising fuel costs and the impact of fuel-hedging contracts negotiated before the price of oil tumbled.

The country’s largest airline, which is flying out of a period of record fuel prices into a global economic recession, said it lost $1.32 per share during the three-month period versus a profit of $273 million, or $2.73 a share, in the year-earlier period.

Sales, meanwhile, rose 4.1 per cent to $3 billion.

Investors, who had expected a profit, responded by pushing the airline’s stock down 91 cents, or nearly 17 per cent, to $4.49 on the Toronto Stock Exchange.

Montie Brewer, the airline’s chief executive, told analysts during a conference call that high fuel prices still hurt operations during the third quarter, even as the price of oil began to fall after hitting a high of $147 (U.S.) per barrel in July.

"As the great proportion of our tickets are sold in advance of the date of travel, the prices we charge simply could not match the pace in the rise of fuel prices," Brewer said.

Air Canada said its fuel expenses increased $348 million in the third quarter to $1 cheapest cash advance.1 billion, up 49 per cent, compared with the third quarter of 2007.

At the same time, the airline incurred mark-to-market losses of $93 million on financial instruments, consisting mostly of fuel hedge contracts, and net losses on foreign currency of $87 million.

Analysts expressed concern that Air Canada’s liquidity situation was tightening just as it headed into a seasonally weak period. As well, the opportunity to borrow money is limited by the ongoing credit crunch.

In June, Air Canada said it was scaling back flying by 7 per cent and slashing up to 2,000 jobs to combat a fuel bill expected to soar by nearly $1 billion for the year.

Brewer said yesterday that the recent fall in oil prices – a barrel of crude now trades for about $60 (U.S.) – does not change Air Canada’s plan to cut back flights.

"Although oil prices have since retreated, the tight capacity strategy remains valid as we are expecting demand to weaken, given the global financial crisis and weakening customer confidence."

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Insurance firm Hartford Financial Services Group Inc. said Monday its capital position should be sufficient to maintain "AA" ratings levels at the end of the year, even assuming further deterioration in the markets.

Hartford Financial (HIG, Fortune 500) said that, to maintain investment-grade "AA" level ratings, it would need to have excess capital of about $2 billion if the Standard & Poor’s 500 index fell to 900. The company said its capital reserve totaled about $3.5 billion as of Oct. 6.

The S&P 500 closed Friday at 968.75.

The insurance firm also said its risk-based capital ratio was well above the levels historically associated with "AA" level ratings.

Should further capital be needed, Hartford Financial said it would not have to tap public markets during the ongoing credit crisis and instead could use a $500 million contingent capital facility and a $1 loan till payday.9 billion bank credit facility. Amid the downturn in credit markets, it has become difficult and expensive for financial firms to raise new cash.

Shares of Hartford Financial fell sharply last week after the company said it lost $2.6 billion, or $8.74 per share, during the third quarter, compared with a profit of $851 million, or $2.68 per share, in the year-ago period.

Hartford Financial shares plummeted 58% during the week, to close at $10.32. Shares fell as low as $8.23 during the week. 

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Sunrise Senior Living and Conrad Properties Corp. are capitalizing on one of the few bright spots in the depressed housing market: They are reopening Clayton on the Park this week for luxury independent senior living.

They have transformed the nine-year-old property from a luxury boutique hotel and apartments into Clayton on the Park, a Sunrise Senior Living Residence, with 208 designer apartments and top amenities.

A grand-opening celebration is scheduled for Saturday so the public can tour the converted building at Bonhomme Avenue and Brentwood Boulevard.

Sunrise spent $12.5 million to gut and remodel the first three floors, including the area where the old Finale nightclub was located, and to refurbish all the residences. Residents of the 23-story high-rise will have a clear view of downtown Clayton’s business towers or of Shaw Park’s public pool and gardens.
Sunrise expects to attract residents who want a top-flight building that’s in many ways like a luxury hotel, but who also want special support services.

"This is for vibrant seniors who want to continue their lifestyle and opportunity in a maintenance-free, worry-free environment," said Stacy Tew-Lovasz, who is executive director.

Rents will be begin at $2,800 a month for a studio and go up to $9,200 for the six three-bedroom, two-bathroom units. That includes housekeeping, laundry, utilities and "an incredible array of programs and services," including a concierge, said Tew-Lovasz bad credit payday loans. The building has 24-hour security and special emergency-response systems in each apartment.

Those who knew the building as a hotel will see a new art studio with floor-to-ceiling windows, a theater, a remodeled business center, a spa, a brain-fitness gym, new dining rooms, a wine bar and new art and colors around the building.

Tew-Lovasz said that "in keeping with Clayton’s focus on the arts, we have original art that includes two Chihuly pieces."

Wendy Timm, chief financial officer of Conrad Properties, said the Clayton-based company had enjoyed success in the original Clayton on the Park, with its 213 luxury apartments and boutique hotel suites. But, she said, the proposal from Sunrise was too good to pass up.

"We had a high-performing asset with Clayton on the Park," Timm said. "Sunrise approached us with a compelling opportunity to convert and operate as independent living luxury senior apartments as an operating joint venture."

Under the joint venture, Conrad Properties and its chairman, Bob Saur, manage and maintain the majority ownership of the building, Timm said. Sunrise is the manager of the senior living operation and has an ownership interest in the property, she said.

"In the real estate business, it’s always about timing," Timm said. "It was good timing and compell

Defunct developer Pyramid Construction Inc. has found a buyer for another of its downtown properties.

Sherman Associates, a Minneapolis-based developer that helped renovate the 192-unit Syndicate building on Olive Street downtown, has reached a deal to buy the Jefferson Arms building on North Tucker Boulevard, said Steve Goldstein, an attorney for Pyramid owner John Steffen.

Goldstein would not disclose terms of the deal, which he said would likely close next year, but said any proceeds would go to Pyramid’s bank, Citicorp. Sherman did not return a call seeking comment.

Pyramid bought the Jefferson Arms, a 496-unit apartment building, in 2006 for $19 million and planned a $75 million renovation. But earlier this year, the company shut down due to financing troubles and began selling off its properties, which include a number of prominent downtown buildings.

Several still remain on its rolls, including the Mercantile Library building, at 510 Locust Street; and the Arcade Building, at 814 Olive Street paydayloans. Pyramid is trying to get all of them into the hands of new developers, Goldstein said.

"There are irons in the fire on virtually all of them," he said. "But it took a number of years to assemble these projects, and there are a number of different constituencies involved. Progress is slow but steady."

tlogan@post-dispatch.com | 314-340-8291

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OTTAWA–The number of new housing starts in Canada grew last month on an acceleration of condominium building in Ontario, according to the country’s national housing agency.

Canada Mortgage and Housing Corporation says the seasonally adjusted annual rate of housing starts moved up to 211,000 units in August, from 186,500 units in July.

"After a brief pause in July, the volatile multiple segment bounced back to a level of activity that is more consistent with our forecast for this year," said Bob Dugan, chief economist at CMHC’s market analysis centre. "Most of the volatility in housing starts over the last three months reflected swings in multiple starts in Ontario."

Multi-unit starts, essentially condos, were up 9.3 per cent year over year in the last three months to 9,465 units from 8,675, but single-family starts were down 23 per cent from last year, to 6,406 units from 8,526.

New housing construction in larger cities jumped 81 per cent in Ontario, but dropped just about everywhere else.

Urban housing starts in the Prairies sagged 22.5 per cent and were down 11.5 per cent in Atlantic Canada. There were smaller declines in Quebec and British Columbia.

"While the decline in single-family starts is discouraging, it’s still not in the same league as the 40-per-cent-plus dive seen south of the border," said economist Robert Kavcic of BMO Capital Markets.

He noted the trend in Ontario residential construction has turned up since the start of 2008, with average starts over the last year the highest since late 2006 – likely thanks to the Toronto condo market.

Meantime, Alberta’s 12-month trend is now at its lowest since mid-2005, while B.C payday loans lenders. has lost momentum and Saskatchewan has also slowed down.

"Canadian residential construction activity has held steady since 2003 thanks to strong multiple-unit starts and strength in Western Canada," Kavcic said.

"However, with that region slowing and other factors – job losses, declining confidence – pointing to further housing market weakness, expect more downward pressure on housing in the coming quarters."

TD Bank economist Pascal Gauthier said Ontario’s, and particularly Toronto’s, condo starts "have trended up precisely when Alberta starts started pulling back in the fall of last year, offsetting that decline" in other parts of Canada’s new homebuilding sector.

The Canadian Press

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Thailand raised its benchmark interest rate for a second straight month to tame inflation, putting the central bank in conflict with a government that called two days ago for borrowing costs to be left on hold.

The Bank of Thailand increased its one-day bond repurchase rate by a quarter point to 3.75 percent, the central bank said today in Bangkok. The decision was expected by 14 of 21 economists surveyed by Bloomberg. The others predicted no change.

Slowing growth and lower oil prices mean this may be the last rate increase this year. Deputy Finance Minister Suchart Thadathamrongvej said rates should be kept on hold, and has called on Governor Tarisa Watanagase to resign if the central bank's policies clash with government efforts to bolster the economy.

“This will be the last increase,'' said Prakash Sakpal, an economist at ING Groep NV in Singapore. “The economy is slowing. This will shift the central bank's policy focus from inflation to growth.''

Thailand's economic growth slowed more than estimated in the second quarter as higher exports of rice and rubber failed to offset a decline in domestic spending. The $245 billion economy expanded 5.3 percent from a year earlier after gaining 6.1 percent in the first quarter.

The baht rose 0.5 percent to 34.06 per dollar as of 4:55 p.m. in Bangkok. The currency gained earlier today after Prime Minister Samak Sundaravej said police won't use force to break up protests calling for his resignation. The benchmark SET Index climbed 1 percent, paring its loss this year to 21 percent.

Samak Under Fire

Thai police surrounded Samak's office today, laying siege to the almost 5,000 protesters demanding he step down. Samak, who called the demands “unreasonable,'' said police will be “soft and gentle'' with demonstrators to avoid violence.

“The central bank didn't discuss the political situation in the meeting today,'' Assistant Governor Duangmanee Vongpradhip told reporters in Bangkok. “Political uncertainty, which has existed for quite some time, has already been factored in to our economic model unless there is major bloodshed.''

The higher rate would continue to support economic growth, Duangmanee said, adding that inflation remains the key risk because of uncertainties over oil prices payday advances.

“The rate hike will anchor inflation expectations,'' she said, helping “reduce the possibility that the inflation rate will rise to double-digits.''

Inflation in Thailand accelerated to 9.2 percent last month, the fastest pace since 1998. Crude oil has tumbled 22 percent from a record $147.27 a barrel on July 11.

Oil Costs Ease

“A correction of oil prices appears to have alleviated the central bank's concerns on inflation,'' said Usara Wilaipich, an economist at Standard Chartered Plc in Bangkok. “Inflation will peak in the third quarter and ease off in the fourth quarter given fuel tax cuts.''

Thailand raised its key rate last month for the first time in two years, joining Indonesia, India, Vietnam and the Philippines in increasing borrowing costs as a deepening global slowdown threatens Asian growth. At least half of the 14 economists in the Bloomberg News survey who predicted today's rate decision expect no further increases this year.

The decision to raise rates to 3.5 percent last month has been criticized by members of the government. Suchart, the deputy finance minister, said Aug. 25 that borrowing costs shouldn't be raised further because it would hurt consumers and companies.

Governor Tarisa on Aug. 21 vowed to “stand straight'' and continue to act in “the best interest of the country'' after King Bhumibol Adulyadej praised the Bank of Thailand for its handling of monetary policy.

Policy Still Stimulative

Still, some economists said the central bank should keep increasing borrowing costs because its policy stance remains stimulative and will fuel inflation. Adjusted for the pace of price increases, Thailand's real deposit rates stood at minus 6.6 percent and real lending rates were at minus 1.65 percent, the central bank said July 16.

“The current stance of monetary policy is accommodative,'' Cem Karacadag, an economist at Credit Suisse in Singapore, said before today's announcement. “We see the Bank of Thailand hiking the one-day repo rate to 4.25 percent in the reminder of 2008 mainly to lift negative real interest rates.''

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Malaysia's central bank kept its benchmark interest rate unchanged to avoid exacerbating an economic slowdown, breaking with its neighbors in betting inflation won't spread beyond food and fuel.

Bank Negara Malaysia maintained its overnight policy rate at 3.5 percent for a 19th straight meeting today, it said in a statement in Kuala Lumpur. The decision was predicted by 12 of the 20 economists surveyed by Bloomberg News. The other eight expected an increase to 3.75 percent.

Malaysia has avoided following Thailand, Indonesia, India, Vietnam and the Philippines in raising borrowing costs this year as a deepening global slowdown threatens Asian growth. Central Bank Governor Zeti Akhtar Aziz has said she expects commodity prices, which drove inflation to a 26-year high last month, to ease next year as expansion cools around the world.

“Inflation in June and July showed no strong secondary effect beyond food and fuel,'' said Suhaimi Ilias, an economist at Aseambankers Malaysia Bhd. “The risk of secondary inflation is also being kept in check by the risks of a slowing economy and a softening job market, with extra relief from the retreat in commodity prices.''

Malaysia's economic expansion probably slowed in the second quarter, a Bloomberg survey of economists shows ahead of an Aug. 29 central bank release. The U.S., Malaysia's largest export market, is close to a recession and Japan's economy contracted in the second quarter.

`Avoid' Downturn

Crude oil in New York has fallen by more than a fifth since reaching a record $147.27 a barrel on July 11, allowing Malaysia's government last week to reverse some of the fuel price increases it announced in June.

“With the expected moderation in inflation in the medium term, the greater priority is to avoid a fundamental downturn in economic activity,'' the central bank said in today's statement.

Malaysia's inflation accelerated to 8.5 percent in July after the government increased retail gasoline prices 41 percent and diesel rates 63 percent in June to prevent subsidies that keep pump costs artificially low from spiraling amid soaring oil prices. Electricity rates also rose in July.

Prime Minister Abdullah Ahmad Badawi, who is trying to prevent opposition leader Anwar Ibrahim from winning a by- election tomorrow, announced a 5.6 percent cut in gasoline prices and a 3.1 percent reduction in diesel costs last week, saying he wants to ease the burden of consumers and reduce inflationary pressure payday loan.

`Tricky' Decision

Today's decision may reduce the chances of rate increases in the remaining months of 2008, said Wan Suhaimi Saidi, an economist at Kenanga Investment Bank Bhd. in Kuala Lumpur, who had expected the central bank to raise the benchmark today to prevent inflation from further outpacing savings rates.

“They might raise rates but the propensity to do so is less as growth concerns could overtake inflationary risk,'' he said. “The decision was tricky because the negative real rates have widened a lot. It is made trickier by the fact that the Permatang Pauh by-election is tomorrow. The powers that be don't want to be seen to be making unpopular policy decisions.''

Voter anger over rising prices contributed to opposition gains in March elections that deprived Prime Minister Abdullah's ruling coalition of its two-thirds majority in parliament. Anwar, a former deputy premier, would return to the legislature for the first time in a decade should he win tomorrow's vote.

By-Election

Anwar, 61, is now the leader of an alliance of opposition parties and has said he plans to lure enough lawmakers from the ruling coalition to form a new government next month. He has promised to reduce fuel prices should he seize power.

Bank Negara, which hasn't raised borrowing costs since April 2006, last month increased this year's inflation forecast to between 5.5 percent and 6 percent. Slowing growth will cause inflation to ease in the second half of 2009, the central bank said today.

“The weaker economic conditions will reduce the likelihood of second-round effects that will generate persistent inflationary trends,'' today's statement said.

Still, failure to increase interest rates may add downward pressure on the ringgit, after other Asian central banks raised their benchmarks, said Kenanga's Wan Suhaimi.

“The currency will have a weakening bias after this decision,'' he said. A weaker currency would cause import costs to rise and hurt consumer demand, he added.

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The economy, boosted by $90 billion in stimulus checks, grew at a faster pace in the spring but not as strongly as expected, the government reported Thursday.

The Commerce Department also lowered its readings on growth in the two previous quarters, resulting in the first contraction in the economy since the 2001 recession. The report is likely to spur further debate over whether the economy has fallen into a recession.

The gross domestic product, the broadest measure of the nation’s economic activity, grew at an annual rate of 1.9% in the three months ended in June. That’s up from a revised 0.9% growth rate in the first quarter.

Still, the reading was weaker than expected, as economists surveyed by Briefing.com had forecast growth of 2.3%.

The first-quarter reading was revised lower from a 1% growth estimate a month ago.

The Commerce Department revised the fourth-quarter 2007 reading to a decline of 0.2%. The previous fourth-quarter reading was 0.6% growth.

Key to second-quarter growth was the economic stimulus program, which boosted consumer spending in the face of higher prices. Also adding to growth were strong exports, which were helped by a weak dollar that made U.S. goods and services more competitive overseas.

"This shows that the stimulus package is clearly working," Commerce Secretary Carlos Gutierrez told CNNMoney Thursday.
"Trade was great. If I could find a stronger word than great, I would use that."

An advisor to Republican presidential candidate John McCain said the GDP report shows the importance of free trade agreements.

"While growth continues to be disappointing, trade provides one of the few bright spots in an otherwise gloomy economic picture, raising questions about Barack Obama’s policy of economic isolationism," said Doug Holtz-Eakin, McCain’s senior policy advisor on the economy.

Gutierrez conceded that growth is still weaker than the administration would prefer. But he said he’s hopeful the stimulus checks will continue to support spending in the second half of the year. He dismissed calls by Democrats, including Democratic presidential candidate Obama, for a new stimulus package.

"This stimulus package is just barely starting," he said. "Let’s see how this works before we throw any more short-term money [at the economy.]"

But Jason Furman, Obama’s economic policy director, pointed out that a separate report issued Thursday showed that worker pay, when adjusted for inflation, posted the largest drop on record in the second quarter.

"Nothing in today’s GDP numbers was positive for families trying to find a job or pay to fill up their tank," he said. "That is why we need a second $50 billion stimulus package that both relieves the burden on middle-class families and helps to jump-start job creation."

Despite Gutierrez’s optimism about the second half of this year, some economists, most notably Federal Reserve Chairman Ben Bernanke, have expressed worries that with those checks already cashed, spending and economic activity could slow even further.

Gross domestic purchases, a measure of how much American consumers, businesses and governments are buying, fell 0.5%, after a 0.1% rise in the first quarter and a 1% drop in the fourth quarter, a sign of underlying weakness in the economy.

Robert Brusca of FAO Economics described the report as weaker than the 1.9% growth rate would suggest, saying that if it weren’t for changes in imports and exports GDP would have declined in the quarter free instant credit score estimator.

"The consumer adds only 1.1 percentage point to overall growth, and this is with a rebate check in hand," he said. "GDP was net negative on the domestic front. As we look to the second half of the year foreign growth is fading so U.S. exports are sure to slow. Also the rebate checks no longer are a factor. Meanwhile the housing sector is still a negative."

Mark Vitner, senior economist for Wachovia, said the report indicates growth is just narrowly above what would be seen in a recession and that domestic demand is at the weakest level seen since the 1991-92 recession.

He said that while stimulus checks helped support spending, most was apparently spent on items such as food and gasoline, rather than big-ticket items. Spending on services by consumers also was weak due to a pullback in travel, Vitner said.

"We have long held that the best measure of the economy most consumers interact with on a daily basis is final sales to domestic purchasers," said Vitner. "On this basis the economy has actually been weaker than it was in the last recession."

Investment in housing fell for the 10th straight quarter, down 15.6% in the second quarter. Housing subtracted 0.6 percentage points from GDP. A weak auto sector subtracted nearly 1.1 percentage points, as spending on autos and parts plunged 9.4% in the face of record high gas prices.

But the report did include some good news on a closely watched inflation measure, the so called core PCE deflator, which reflects prices paid by consumers on items other than food and energy. The core PCE deflator rose 2.1% annually, down from a 2.3% increase in the first quarter.

Experts say the Fed likes to see that measure rise between 1% and 2%.

The rate of overall price increases also slowed. Overall prices rose 1.1% in the quarter, well below forecasts. Prices increased 2.6% in the first quarter. But other price measures in the report that include food and energy prices showed a jump in overall inflation.

Nonetheless, the Fed is widely expected to leave a key short-term interest rate unchanged at its next meeting on Tuesday. It also held rates steady in May after cutting them seven times between September 2007 and April this year in an effort to spur the economy and help jittery financial markets.

The Fed has a dual mandate to support sustainable economic growth and fight inflation. The central bank typically raises rates when it is more worried about inflation and lowers them when an economic slowdown is the predominant concern. 

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Taxpayers got some good news Friday: Freddie Mac wants to take your money just as little as you want to hand it over.

The struggling mortgage giant said Friday that it plans to raise $5.5 billion by selling common and preferred stock to shore up its balance sheet - a step that could reduce fears that a government bailout is around the corner.

Freddie had previously said it would raise that money, but on Friday it finally registered its stock with the Securities & Exchange Commission, a move that allows the company to proceed. Freddie didn’t specifiy when the offer would come.

By diluting the stake of existing shareholders and saddling the company with costly preferred dividend obligations, raising capital could be costly for Freddie (FRE, Fortune 500) and its shareholders, who have seen the value of their investments drop 75% over the past year.

Raising, say, $2.75 billion by selling common stock at current prices would entail issuing more than 300 million shares - reducing current investors’ stake in the company by a third.

Freddie would presumably raise the rest of the money by selling preferred stock, but that won’t come cheap either. Freddie’s preferred dividend tab tripled from a year ago in the first quarter, to $272 million.

Despite the dilution that would come with a new stock offering, shares of Freddie surged for the third straight day in heavy trading Friday, as investors wagered that by raising new money the company would put itself in better position to weather the mortgage meltdown and resume making money when the economy rebounds.

Freddie and its larger cousin, Fannie Mae (FNM, Fortune 500), agreed to register with the SEC under a 2002 deal with legislators designed to put the two government sponsored enterprises on the same footing as other public companies when it comes to their financial reporting. Fannie registered with the SEC in 2003, but Freddie’s registration was delayed after accounting issues surfaced. Together the companies own or guarantee $5 trillion in home mortgages.

It’s been a head-spinning two weeks for Fannie and Freddie. The companies’ shares lost more than half their value last week, amid fears that falling house prices will lead to big losses on the mortgages the companies own and on the mortgage-backed securities they insure.

The selloff prompted Treasury Secretary Henry Paulson to announce Sunday that the government stood ready to buy the companies’ shares or provide them with expanded credit lines. Paulson & Co. want to ensure that Fannie and Freddie can continue to support the mortgage market amid a flight of private investors from that arena.

Paulson’s comments heightened concern that shareholders could be wiped out. Preferred stock shares that Fannie Mae issued in a May traded as low as 32 cents on the dollar Tuesday advance america cash advance. Just a month earlier they had fetched three times that.

But the companies’ common stock has bounced back over the past three days, following SEC Chairman Christopher Cox’s announcement Tuesday that the agency would tighten the rules governing short sales of big financial stocks. Since then, shares in Fannie have nearly doubled and those in Freddie have jumped 80%, though both remain far below their highs earlier this year.

Raising new money could help to ease fears that government assistance will be necessary soon. Freddie has repeatedly noted that it is adequately capitalized by the standards of its regulator, the Office of Federal Housing Enterprise Oversight, and has plenty of cash on hand. The company said Friday it expects to be in compliance with OFHEO capital guidelines when it reports second-quarter numbers next month.

Still, skeptics note that at the end of the first quarter, when Freddie was also in compliance with OFHEO targets, it had just $16 billion in shareholder equity - a measure of net worth and the company’s cushion against future losses - supporting more than $800 billion in mortgages and other assets.

The prospect of rising losses as house prices fall, together with the heavy use of leverage, has prompted critics such as hedge fund manager William Ackman - who is betting against the companies’ shares - to propose that the companies be recapitalized.

Ackman’s plan - which would certainly benefit him - would wipe out current shareholders and give holders of the firms’ senior unsecured debt control of the reconstituted companies’ equity, via an arrangement under which the bondholders would take a 10% haircut on their debt holdings and receive an equivalent amount of stock in the new companies.

Others believe Fannie and Freddie should be nationalized, wiping out shareholders and putting an explicit government guarantee behind the companies’ obligations. But Treasury Secretary Paulson has said he believes the companies should continue to be shareholder-owned.

And even if the companies eventually need government aid, there could be a case for letting them keep their stock exchange listings.

Josh Rosner, principal at Graham-Fisher in New York, says he sees a parallel in the Chrysler bailout of the early 1980s, in which the government took warrants in the automaker in exchange for providing an emergency loan guarantee. When Chrysler returned to health later in the decade, the government was able to cash in the warrants, allowing taxpayers to share in the fruits of the company’s recovery.  

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Oil prices will likely take on more importance for the stock market next week as the summer driving season officially kicks off and as more companies are seen feeling the pinch of higher energy prices on their profit margins.

For the week, the Dow fell 3.9 percent, the S&P 500 shed 3.5 percent and the Nasdaq dropped 3.3 percent. For all three indexes, it was their worst weekly percentage drop in three months.

Pressure from higher energy costs is already being felt, with Kimberly-Clark (KMB.N: Quote, Profile, Research) announcing it intends to hike prices on its consumer goods products by 6 to 8 percent in the third quarter. The maker of Kleenex tissues and Huggies diapers said higher energy and raw materials costs were to blame for the price hikes.

Earlier in the week, Ford Motor Co (F.N: Quote, Profile, Research) said it no longer expected to return to profitability in 2009, with analysts saying the automaker’s recent gains have been overrun by a weak U.S. economy and spiraling oil prices.

With the earnings agenda nearly empty, investors will pay close attention for any other intermittent announcements about energy prices and their impact on profitability.

The industries most likely to downgrade their earnings outlooks are those “which have less elasticity of demand, such as the consumer discretionary sector, restaurants in particular,” said Bucky Hellwig, senior vice president at Morgan Asset Management, in Birmingham, Alabama payday loan. “All they can do it make portions smaller or raise their prices, neither which are popular.”

The Dow Jones U.S. Restaurants & Bars index .DJUSRU fell 4.5 percent this week, its worst five-day percentage decline since the first trading week of the year.

More price hikes are likely to come from staples producers, which could help the individual shares, but may stoke overall inflation fears, said Brandon Thomas, chief investment officer with Portfolio Management Consultants in Chicago, a unit of Envestnet Asset Management. 

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