Actual finance blog

Wholesale prices in the U.S. fell in April for the first time in four months, led by a decline in fuel costs that signals inflation may cool.

The producer price index dropped 0.2 percent after no change in March, Labor Department figures showed today in Washington. Economists projected the gauge would be unchanged in April, according to the median estimate in a Bloomberg News survey. The 1.9 percent increase over the past 12 months was the smallest since October 2009.

Falling raw-material costs mean companies will have less incentive to charge customers more. Slowing inflation would underscore views of some Federal Reserve policy makers who have said higher fuel prices will have only a temporary effect, allowing the central bank to stick to its plan to keep interest rates low at least until late 2014.

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Treasury 10-year note yields fell for the sixth week in a row, matching the longest streak since June, as slowing growth and concern Europe

Swedish truck maker AB Volvo said Thursday that higher costs contributed to a 2 percent drop in profits in the first quarter even though a buoyant performance in North America helped it record its strongest-ever sales for the period.

The sales performance impressed investors and the company’s share price spiked 5 percent to 94.10 kronor ($13.97) in early market trading on the Stockholm stock exchange.

The Goteborg-headquartered group recorded a net profit of 4.01 billion kronor ($595 million) for the first three months of the year, down slightly from the 4.08 billion kronor earned in the same period a year earlier. Costs, and especially those linked to research and development, dragged the bottom-line figure down compared with last year.

However, revenues jumped 10 percent to 78.84 billion kronor however _ the highest Volvo has ever recorded during a first quarter. They were boosted primarily by sales in the company’s key truck unit in North America. The trend in Europe stayed more or less unchanged from the previous year after a fall in demand in the fourth quarter, it said.

CEO Olof Persson said his company “showed its strength in being a global operation, when setbacks in some of our important markets were offset by positive developments in other markets.”

He also said that Volvo will keep investing in growth markets “by developing new products and further strengthening the sales and service networks.”

Volvo appeared a bit more optimistic about the European outlook as it revealed plans to ramp up production and raised its forecast for the heavy-duty truck market. It now expects an order intake of 230,000 trucks in 2012.

The forecast for North America remained unchanged, while production will be reduced in South America in May and June as the market switches over, and adapts to stricter emission requirements.

“We anticipate the demand will rise again in the second half of the year,” Persson said, noting the full-year forecast for Brazil therefore remains unchanged.

The outlook for Japan was also kept unchanged.

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European Central Bank officials led by President Mario Draghi resisted calls from the International Monetary Fund and U.S. Treasury to do more to stem the debt crisis roiling the euro-area economy.

As talks of global finance chiefs ended yesterday in Washington, euro-area central bankers from Draghi to Bundesbank President Jens Weidmann argued they have done enough by cutting interest rates and issuing more long-term bank loans.

The cost of one of the country

China

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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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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