Actual finance blog

European stocks faltered Wednesday after two days of gains but Asian markets jumped on speculation Japan might take new measures to spur its economy.

Stocks in Europe recovered their poise this week after a run of losses, with sentiment bolstered by solid U.S. corporate earnings, a surprise improvement in German investor sentiment and relatively well-received Spanish bond auctions. An upward revision to the International Monetary Fund’s global growth forecast also underpinned confidence.

How European markets close out the week will depend on Spain’s ten-year bond auction on Thursday. If it goes badly, investors will likely fret once again about the country’s ability to get a handle on its debts.

Spain has become the main source of concern in Europe’s debt crisis as investors worry about the government’s ability to push through a raft of austerity measures at a time when unemployment stands at a startling 23 percent and the economy is in recession.

The yield on the country’s ten-year bond on Monday spiked above 6 percent, not far off the 7 percent rate that eventually forced Greece, Ireland and Portugal into seeking financial help from their partners in the eurozone.

In the past two days, however, it has edged back down to more manageable levels. On Wednesday, it was down a further 0.15 of a percentage point at 5.74 percent.

Despite the drop in the yield, Spanish stocks continued to oscillate wildly. On Wednesday, the main IBEX index down 2.2 percent. Elsewhere in Europe, the FTSE 100 index of leading British shares was 0.1 percent lower at 5,760 while Germany’s DAX fell 0.5 percent to 6,769. The CAC-40 in France was 1.1 percent lower at 3,254 poor credit personal loans.

The euro was also faring poorly in the risk-averse environment, trading 0.4 percent lower at $1.3074.

Wall Street was poised for modest losses at the open after registering one of its strongest gains in a month. How it will actually perform will depend on the next run of U.S. quarterly corporate earnings.

“With the U.S. earnings season in full flow, investors will be looking to see if earnings reports continue to beat expectations,” said Chris Beauchamp, market analyst at IG Index.

Earlier in Asia, sentiment was buoyed by indications that the Bank of Japan may do more to prop up the economy. Kyodo news agency reported that Deputy Governor Kiyohiko Nishimura’s suggested the central bank might take additional stimulus steps to tackle deflation.

That helped the Nikkei 225 index in Tokyo to soar 2.1 percent to 9,667.26 and the dollar to rise 0.5 percent to 81.46 yen.

Other stock markets were up too, including Hong Kong’s Hang Seng, which gained 1.1 percent to 20,780.73.

Mainland Chinese shares rose on hopes for financial reforms aimed at regulating private lending and creating new institutions to serve private borrowers better, analysts said. The benchmark Shanghai Composite Index rose 2 percent to 2,380.85. The Shenzhen Composite Index gained 2.1 percent to 956.49.

Oil markets were subdued, with the benchmark New York rate down 6 cents at $104.14 a barrel.

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Pamela Sampson in Bangkok contributed to this report.

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General Electric Co.

Hosni Mubarak’s former vice president said he decided to run for president to prevent Islamists from turning Egypt into a “religious state.”

Omar Suleiman, who was also Mubarak’s long-serving intelligence chief, said in an interview published Thursday that the Muslim Brotherhood’s fielding of a presidential candidate”horrified” Egyptians. The Islamic fundamentalist Brotherhood, which has emerged as Egypt’s most powerful political bloc after last year’s uprising, reversed an earlier decision not to field a candidate.

Suleiman told the weekly El-Fagr that the Brotherhood would control all state institutions if it wins the presidency and warned Egypt would be isolated internationally if that happened. The Brotherhood already controls just under half of parliament’s seats and is the single largest bloc. Together with other Islamists, they have a 70 percent majority in the chamber.

“It is my belief that those who demand that I run, like a majority of this nation’s citizens, are in a predicament and indeed the whole state is in a predicament, especially after the Brotherhood decided to field one of its leaders for the presidency after it pledged not to,” Suleiman, 75, said in the interview.

“That change struck horror in the souls of members of the Egyptians society. If the Brotherhood’s candidate wins the presidential election, Egypt will be turned into a religious state. All state institutions will be controlled by the Brotherhood.”

Suleiman’s comments came as the Islamist-dominated parliament debated a draft bill to strip top figures from the Mubarak regime of their political rights, including voting and running for office, for 10 years. If adopted, the law would disqualify Suleiman from running in the May 23-24 presidential election along with another candidate, Ahmed Shafiq, who was Mubarak’s last prime minister.

During Mubarak’s three-decade secular presidency, the Muslim Brotherhood was repressed with thousands of its members jailed payday loan companies.

Government representatives told the legislature on Thursday that the draft law violated the constitution, with the Justice Minister Mohammed Attiyah saying that no one should be stripped of their political rights without a court order.

Lawmakers countered that the nation remains in a “revolutionary state” that empowers the legislature to make such a law.

Others warned that a Suleiman presidency would mean the imprisonment of lawmakers and what one lawmaker described as the return of Israel’s influence in Egypt. Suleiman was a frequent visitor to Israel while Egypt maintained the Arab world’s first and longest standing peace treaty with the Jewish state.

“We are in a state of self-defense, we are defending Egypt and ourselves,” said independent Islamist lawmaker Mahmoud Khodeiri, one of the country’s top legal experts. “Omar Suleiman means Mubarak returns to the palace, and we all go to prison, and these are the lucky ones because others will be sent to the gallows.”

Mubarak is on trial for his life, charged with complicity in the killing of protesters in the uprising that toppled his regime. He was arrested in April last year, but has since been detained in hospital.

Other presidential candidates are also facing legal challenges, including the Brotherhood’s Khairat el-Shater. Some have challenged el-Shater’s candidacy on the grounds he served time in prison in connection to his political activity under Mubarak. He was pardoned by the military generals who succeeded Mubarak, but his detractors argue that more time must pass before he can run, according to the law.

The election of a president is the last stage of Egypt’s turbulent transition to democratic rule. The ruling generals who took over from Mubarak have promised to step down by July 1.

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A California “social lending” company will offer to return $461,000 to at least 175 Missouri investors under an agreement with Missouri Secretary of State Robin Carnahan.

Lending Club, based in San Francisco, sells notes to individual investors, and uses the money to fund loans to individuals.  The loans back the notes.  The company seeks both borrowers and investors over the Internet.

Carnahan’s office said the company violated state law by failing to renew its state registration.  The law requires that most securities be registered before they can be sold to investors.

Lending Club registered its investments with the state in 2008, but let the registration lapse in 2010.

In a settlement with Carnahan, the company agreed to offer refunds, along with interest calculated at 8 percent annually, to investors who want them.  The firm also will pay $100,000 to the state’s Investor Education and Protection Fund and $5,000 to the Secretary of State’s office.

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A Japanese utility sought government approval Monday to restart two nuclear reactors even though some key upgrades to prevent another nuclear crisis will take three years.

All but one of Japan’s 54 reactors are offline for regular safety checks, and the last will be shut down in May. Residents fear another disaster like the Fukushima crisis, but Japan faces a severe power shortage if reactors are not restarted.

The government issued new safety guidelines to address residents’ worries, but it gave no deadline for when the improvements must be finished. Utility officials say the full upgrades will take three years.

Kansai Electric Power Co. submitted its safety plans for two reactors in Fukui prefecture, and the government’s final decision on whether to restart the reactors is reportedly expected later this week.

“We’ll aim to achieve the world’s top-class safety at our plants,” said Kansai Electric President Makoto Yagi as he handed the safety improvement roadmap to Economy and Industry Minister Yukio Edano.

However, more than one third of the necessary upgrades on the list are still incomplete, utility officials said.

Filtered vents that could substantially reduce radiation leaks in case of an accident threatening an explosion, a radiation-free crisis management building, and fences to block debris washed up by a tsunami won’t be ready until 2015 faxless pay day loans. This means the plant, as well as plant workers and residents won’t be fully protected from radiation leaks if a Fukushima-class accident occurs while the measures are being taken.

Currently, the crisis management headquarters at the Ohi plant is in the basement. The plant is relocating the function to a room next to the control room for the two reactors. None of Japan’s 54 nuclear reactors are equipped with filtered vents, although their operators are moving to install them in coming years.

“The operators are expected to take initiative to improve safety and reliability, and never dwell on the safety myth,” Edano told Yagi, urging the utility to expedite the process.

The startup guidelines are based on recommendations adopted last month by the Nuclear and Industrial Safety Agency. The most crucial measures to secure cooling functions and prevent meltdowns as in Fukushima were incorporated in the government’s guidelines, but the rest were not.

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BNP Paribas SA (BNP) economist Ryutaro Kono, rejected by lawmakers as a nominee for the Bank of Japan (8301)

For the stock market, it was a triumphant first quarter. But for earnings growth, the past three months were just ho-hum.

Analysts are expecting earnings for companies in the Standard & Poor’s 500 index to decline 0.1 percent compared to a year ago, according to FactSet. It’s a tiny number but a significant turning point. Earnings growth was on a winning streak for the previous nine quarters. Year-over-year earnings growth has been at least 10 percent for all but the most recent period, when it was 6 percent.

The reasons for the expected slowdown range from global (a weak Europe hurts everybody) to mathematical (it’s hard to top double-digit quarters). Whatever the cause, the stagnation in earnings growth is a stark reminder that the economy’s problems are far from solved. Just three months ago, analysts were predicting 3 percent earnings growth for the first quarter.

We’ll soon see if the expectations are on target. Earnings season gets under way Tuesday when the aluminum producer Alcoa becomes the first major U.S. company to release its first-quarter results.

Should this batch of earnings contain a lot of bad surprises, it could upend a stock market rally that pushed the S&P 500 index up 12 percent in the first three months of the year.

Here’s what you need to know:

_Are earnings really that bad?

It depends on how you look at it. People are blaming the slowdown on several factors including higher oil prices and Europe’s debt crisis. Those are legitimate concerns. High prices for oil and gas make it more expensive for companies to ship their products and leave people with less money to spend on other things. Europe’s debt crisis means that the U.S. can’t sell as many products there. It also hurts fast-growing economies like China and India that export to Europe. That, in turn, affects U.S. companies that count on growth in emerging markets to boost their own sales.

Keep in mind that this deceleration follows an extended period of big gains. Earnings surged 19 percent in the first quarter of 2011, and that was on top of 53 percent growth the year before as companies bounced back from a dismal first quarter of 2009. Aggregate earnings of companies in the S&P 500 were $96 per share last year, a record, according to FactSet senior earnings analyst John Butters. Investors realize that companies can’t sustain warp speed indefinitely.

“It’s supposed to be a very weak quarter,” says Sam Stovall, chief equity strategist at S&P Capital IQ, “but Wall Street is not freaking out because they understand why.”

_Does the market care about earnings?

Sure, to an extent. More often than not, a company’s stock moves in the same direction as its earnings.

Investors tend to trade on what they expect to happen in the coming months. By the time a company actually announces its quarterly results, chances are they’ve already been baked into the stock price and won’t have much of an immediate effect unless there’s a big surprise. A company’s predictions about the future are what investors really listen to.

“A lot of what we’re going to get now,” Butters says, “is already in the rear-view mirror.”

Butters also notes the outsized impact of Apple’s earnings on the overall figure for the S&P 500. Strip out Apple, Butters says, and the prediction for the first quarter falls from minus 0.1 percent to minus 1.6 percent.

Besides, one quarter of earnings growth hardly means a company is solid. Earnings can be a deceptive measurement, and will rise even when revenue falls if a company slashes jobs and other expenses. Share buybacks and accounting charges can also inflate profits and mask a company’s struggles.

“You can always juggle earnings,” says Stovall. “It’s a lot harder to fudge sales.”

_What’s the big picture?

Despite all the hubbub about The End of Earnings Growth, analysts are expecting only a short-term decline. Earnings growth is expected to return to 7 percent in the second quarter and 5 percent in the third quarter, according to FactSet. Bigger jumps of 16 percent, 14 percent and 13 percent are predicted for the three quarters after that, through the middle of 2013. Analysts also expect per-share earnings in the S&P to rise to more than $105 in 2012, another record, according to Butters.

That reflects investors’ belief that Europe will stabilize by the end of the year. Even if it doesn’t, the thinking goes, companies will have adjusted to turmoil in Europe as a new normal that they can function under, rather than something that sets off constant fears of another cataclysm.

Machinery company Caterpillar said in its last earnings call that the company expects its sales in Europe to continue to rise despite the problems there.

“It’s been going on a long time and hasn’t tanked the place yet,” said chief financial officer Edward Rapp. “We don’t think it will.”

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The European Central Bank held its main interest rate at 1.0 percent on Wednesday as persistently high inflation offset pressure to respond to the euro zone’s shaky economic recovery.

The ECB also said the interest rate on its deposit facility would remain at 0.25 percent, and the rate on the marginal lending facility would stay at 1.75 percent.

ECB President Mario Draghi will explain the Governing Council’s decision at a 8.30 a.m. EDT (1230 GMT) news conference cash advance payday loan.

Markets are looking for hints on how long the ECB is planning to keep its wait-and-see stance on interest rates.

They also expect Draghi to be grilled on whether the central bank has started discussing exiting from its non-standard measures, which include pushing a 1-trillion-euro wall of cash into money markets in 3-year loans.

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FRANKFURT, Germany _ Europe is searching for something to get growth going again and pull the eurozone’s heavily indebted countries out of their troubles _ but with little luck.

Unemployment and manufacturing indicators suggest the 17 countries that use the euro are headed for an official recession. Adding to these worrying signs is the realization that many of the traditional tools to give growth a shove _ government spending, tax cuts and lower central bank interest rates _ are off the table.

The absence of growth will be a big concern for European Central Bank President Mario Draghi and the bank’s governing council when they meet Wednesday to decide the eurozone’s benchmark refinancing rate. No change in the rate _ which is at a record low of 1 percent _ is expected this time around.

A recent round of economic indicators will be prominent in the governing council’s minds when it meets. On Monday, the Markit index of industrial activity for the eurozone strongly suggested that the region’s economy is still contracting after shrinking 0.3 percent in the last three months of 2011. Two straight quarters of falling output are a common definition of recession. Meanwhile, unemployment across the 17-country group crept up to a record 10.8 percent, official figures also released on Monday showed. And national jobless rates paint an even more disturbing picture _ especially among the countries hit worst by the debt crisis: Spain at 23.6 percent unemployed, Greece 21.0 percent, Ireland 14.7 percent.

The European Union’s executive commission estimates that the eurozone economy will shrink by 0.3 percent this year, while Greece faces shrinkage of 4.4 percent in the fifth year of a deep recession. Italy faces 1.3 drop in output according to commission forecasts while Spain will fall 1.0 percent.

Short-term answers are scarce. The debt crisis hitting the eurozone means governments can no longer spend their way out of a downturn_ in fact, they are doing the opposite and embarking on rounds of austerity cuts.

On top of this, the ECB is restrained from cutting interest rates by the eurozone’s stubbornly high inflation rate, which has been pushed up oil prices and some taxes to 2.6 percent. The ECB is concentrating on getting price increases down to under 2 percent and lowering interest rates would push inflation up.

The region could even face the prospect of so-called “stagflation” _ a period of no or very little economic growth accompanied by inflation _ according to Carsten Brzeski, an economist at ING.

“The fact that the recovery of the eurozone economy would be slow and bumpy was already clear,” Brzeski wrote in a note to investors.

“Now, high energy prices have even increased the risk of stagflation in the eurozone, a worst-case scenario which should cause concern at the Eurotower in coming months” _ a reference to the ECB’s Frankfurt skyscraper headquarters payday loans.

Brzeski adds that the stubborn inflation rate meant that “further rate cuts should be off the table”.

Another weapon in the ECB’s arsenal has also put beyond use. The (EURO)1 trillion program of “all-you-can-eat” loans to banks in December and February did manage to take some heat off the debt crisis that was crippling governments including Spain and Italy. Some banks used the cheap money flooding the markets to snap up government debt. The program has helped lower costs at which governments borrow on the financial markets and stopped the recession from becoming much deeper.

But the ECB loans are seen as a stopgap at best. The bank is currently in a holding pattern before it can start further, similar, measures as it waits to see whether that money finds its way through to loans to businesses and the wider economy.

The problem remains: Countries that don’t slash spending risk being unable to borrow money from bond investors because the borrowing costs set by those investors _ the so-called yields _ are too high. Once they are of cut off from the bond market by prohibitively high yields, a bailout is the only alternative to default. Greece, Ireland and Portugal have already been forced to seek help from the other eurozone member countries and the International Monetary Fund.

Spanish and Italian yields were hitting the dangerously high levels around 7 percent late last year before the ECB stepped in with its cheap loans. The countries’ yields dropped to more manageable levels, but are beginning to creep up again. Spanish 10-year bond yields have edged up to 5.42 percent on Tuesday, from under 5 percent a month ago. Italy’s 10-year bonds yielded 5.15 percent, also up from under 5 percent last month.

The solution to the debt crisis, eurozone officials, the ECB and economists all say, is structural reforms to make indebted countries more business-friendly by slashing regulation and eliminating costly restrictive labour practices.

As the economy gets bigger, the relative size of the debt pile shrinks, and higher tax revenues and stronger finances reassure bond investors _ so they will loan money at affordable rates.

But those changes to labor markets take time to win approval in parliaments _ often against resistance from labor and business special interests. Then they may years to show results in terms of higher growth.

“The kind of structural reforms that we are talking about will take five, six, seven years to really have a full impact,” said Guntram Wolff, deputy director of the Bruegel research institute in Brussels.

For short-term growth, aside from the ECB loans, “we really don’t have a story there,” Wolff warns.

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