Investors want to believe eurozone policymakers can resolve the debt crisis. But the risk of a prolonged recession is rising, and with it the chances that more action will be needed to shore up the currency area.
A full 86% of fixed-income investors surveyed by Fitch Ratings said the European Central Bank’s commitment to buy bonds of troubled eurozone nations, and European Union’s plans for a banking union represent major positive steps, although 81% acknowledged “significant economic, financial and political risks remain.”
Private forecasters think the European Commission is overly optimistic in its view that the eurozone will return to growth next year, after contracting by 0.4% in 2012, as deep spending cuts and tax rises take effect.
A weaker-than-expected performance would undermine those and other assumptions underpinning bailout programs in Greece and Portugal. It would also pile pressure on Spain to seek a formal bailout and further hobble core economies, such as France and Germany.
“The view embodied in our forecast is essentially that 2013 is going to be another extremely challenging year,” said James Nixon, economist at Societe Generale, which sees the eurozone economy shrinking by 0.3% next year.
“The governments of Greece, Spain and Italy have embarked on multi-year consolidation programmes and next year is the second of three,” he said.
Oxford Economics recently forecast a shallower eurozone contraction in 2013, but predicted overall domestic demand would fall by 0.7%.
“We’re already in the (fiscal) cliff this year and there is further fiscal tightening to come in 2013,” said Marie Diron, director of macro forecasting at Oxford Economics.
Spending by governments on goods and services, which has a direct impact on economic activity, would fall by 0.8%, compared with just 0.1% in 2012, Diron said, pointing to cuts in Spain and Italy that have not yet been implemented.
Southern Europe’s woes have already begun to affect the core. Germany has seen growth slow, and Moody’s stripped France of its AAA credit rating Tuesday, citing its exposure to shocks from the eurozone periphery.
Reaction was muted — the euro dipped and French government bonds were broadly stable — but Moody’s warned that any further deterioration in France’s economic prospects or ability to implement reform could trigger another cut.
The downgrade could presage cuts for those top-rated countries, said Steven Englander, global head of G10 FX Strategy at , Fortune 500).
“Little of what they cite is new and the downgrade reflects a reality that has probably long applied to France and applies to a number of the remaining AAA countries as well,” said Englander.
Germany, the Netherlands and Austria are feeling the effects of the eurozone slowdown and like France, are also funding existing bailouts.
Market nerves were calmed in September when the ECB announced its bond-buying program. The program, known as outright monetary transactions or OMT, requires governments to seek a formal bailout first.
Spain, which has already received pledges of support to recapitalize its banking system, has held off asking for a bailout but has a mountain to climb in 2013 to meet its fiscal targets.
“The government’s plan so far seems to have been to wait-and-see and it is unclear why this should change unless markets were to sell off more broadly or economic activity to fall even more sharply, creating a stronger sense of urgency,” UBS FX strategist Beat Siegenthaler said in a note.
“The risk of a broader sell-off has certainly increased over recent weeks as the OMT-induced rally has run its course and, apart from a favorable Greek review decision, there seems little on the policy horizon in terms of supportive events,” he added.
Underscoring the challenges facing southern Europe, Moody’s also kept a negative outlook on Italy’s banks, and said the ratio of problem loans was rising faster than it expected, driven by the impact of the recession on companies.
“This trend shows no sign of abating; combined with bank deleveraging and a corresponding contraction in the supply of credit, further pressures on asset quality are inevitable,” the agency said.
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Giant health insurers have been gobbling up smaller ones, partly to strike gold with a new government experiment allowing them to manage care for millions of the nation’s sickest, poorest and oldest patients.
Some 15 states are in different stages of creating demonstration programs that allow managed care companies to care for so-called “dual-eligible” patients — those enrolled in both Medicaid, which benefits poor Americans, and Medicare, a program for the elderly.
On Monday, , Fortune 500) announced it was buying , Fortune 500), which already works closely with state Medicaid programs. The announcement came a month after , Fortune 500) said it will buy , Fortune 500), another insurer that focuses on Medicaid. Last year, , Fortune 500) bought HealthSpring, which serves 122,000 dually eligible beneficiaries, its president Shawn Morris said in July.
What could be at stake, eventually, is the welfare of some 9 million poor, sick and older Americans, whose care costs federal and state governments more than $300 billion each year.
Whether the mergers will lead to better care or cost savings is a matter of debate. The eagerness of bigger health insurers to jump into serving dual-eligible patients is sending red flags to consumer advocates.
“From the consumers’ point of view, this is a bad idea,” said John Metz, chairman of JustHealth, a watchdog group in California. “With larger insurers taking more control, they tend to be even less accountable. With large insurers, we see that consumers are frequently having benefits, to which they’re legitimately entitled to, being delayed or denied with no redress.”
Health insurers disagree, saying that the bigger insurers are best equipped to provide the quantity and quality of services needed to launch these new programs, which are part of the health care law championed by President Obama.
“We believe we have the right capabilities to effectively manage these individuals to high quality outcomes and generate a reasonable return for our shareholders,” said Mark Bertolini, Aetna CEO, about expanding into managed-care programs for “high-acuity” patients Payday Loan for Bad Credit.
States have been flocking to get into these demonstration projects in hopes of improving care and lowering the costs for the priciest and sickest patients.
Right now, care and cost for dual-eligible patients is split. State-based Medicaid pays for long-term care, such as nursing homes, and federal Medicare pays for emergency hospital visits. The idea is that with one managed-care company overseeing all the care, there will be more coordination and cost savings, as companies seek the cheapest and most efficient way of keeping these individuals as well as possible.
So far, the federal government has doled out $1 million awards to 15 states, including New York and California, to coordinate care for dual-eligible beneficiaries through managed care starting in 2013. The program could expand into 26 states, ultimately affecting a population of 3 million, health care policy experts say.
As a group, dual-eligible beneficiaries are more likely to suffer pricey diseases such as diabetes, lung disease, stroke, Alzheimer’s disease and mental illness, said Melanie Bella, director of the Medicare-Medicaid Coordination Office at the Centers for Medicare & Medicaid Services, in testimony before a Senate panel in July.
In Medicaid, the dual eligibles are 15% of enrollees but make up 39% of all Medicaid costs. In Medicare, they are 18% of enrollees and 31% of total costs.
Consumer advocates are worried about the demonstration programs, especially since big health insurers suggest that they expect to make money.
“There’s a perception that this is going to be easy for the large insurers. That they’re just going to have to cut costs,” said Kevin Prindiville, deputy director at the National Senior Citizens Law Center. “But these people need a lot of services. They’re sick and have chronic conditions. It’s not a matter of just getting them to their primary care doctor. They have real needs.”
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Mortgage borrowing got cheaper again this week, as rates on 30-year and 15-year fixed-rate loans fell to record lows.
The 30-year mortgage dropped to 3.53% from 3.56% last week, Freddie Mac said in its weekly report. The 30-year fixed rate has matched or hit new lows for 12 of the past 13 weeks. Twelve months ago, the 30-year fixed rate stood at 4.52%.
Meanwhile, the 15-year fixed rate fell to 2.83% from 2.86% last week, Freddie Mac said. A year ago, it was 3.66%.
The consistently low rates are having a positive impact on the still-recovering housing market, according to Federal Reserve chairman Ben Bernanke.
More signs of a housing rebound
"In part because of historically low mortgage rates, both new and existing home sales have been gradually trending upward," he said in testimony before Congress on Tuesday.
First-time homebuyers and others who want to minimize their monthly payments usually choose 30-year fixed-rate mortgages. Those who take out a $200,000 loan at the current rate would have payments of $901 a month and would pay less than $125,000 in interest over the life of the loan.
For some trade-up buyers and many homeowners looking to refinance their loans, the 15-year fixed-rate mortgage is the more popular choice. The higher payments enable borrowers to pay the loan off quicker and minimize the total interest paid.
At the current rate, a borrower financing $200,000 with a 15-year mortgage would pay $1,365 a month and spend a total of just under $46,000 in interest.
Related: Where home prices are rising fastest
Rates have been in a steady, slow decline all year, going above 4% for the 30-year only once, back in March. Otherwise, the weekly average rate has moved between 3.53% and 3.99%.
According to Keith Gumbinger of HSH.com, a mortgage information company, that kind of stability helps homebuyers plan, execute and complete their transactions.
"Knowing that the mortgage rate you will get at the end of the buying transaction will be the same or even better than when you started can provide a potential homebuyer a strong boost of confidence, making it easier to want to start the process in the first place," he said.
The flip side is that loans are often hard to get. Since the mortgage meltdown began in 2007, banks have moved from very liberal to very strict lending standards. Now, they closely scrutinize employment records, income and other debt, which can disqualify many borrowers.
In 2009, with default rates soaring, mortgage giants Fannie Mae and Freddie Mac hiked minimum credit scores for conventional loans to 620 from 580, presenting another potential hurdle.
Banks are also more careful about the value of the property backing the mortgage.
About 20% to 25% of home sales in contract don’t close because the homes fail to appraise at the value needed to obtain a mortgage or because of inspection problems, according to Lawrence Yun, chief economist for the National Association of Realtors.
"The appraisal issue is very frustrating," he said.
Many of those sales eventually complete but may require buyers to come up with extra cash or sellers to drop their prices to reflect the conservative appraisal values.
French President Francois Hollande said the proposed banking union agreed at the June 29 European summit is the
Starbucks will continue to grow beyond its coffee roots, announcing plans to open a tea-only store under the Tazo brand.
At the 1,700-square-foot store, set to open near the company’s headquarters in Seattle’s University Village in the fall, tea enthusiasts will be able to choose from over 80 varieties of loose-leaf tea priced by the ounce, something that regular Starbucks (, Fortune 500) locations don’t offer.
The shop’s tea bar will sell the standard iced teas and lattes that customers are accustomed to, but the hallmark of the new location will be its blending station. Employees, dubbed partners, will be on hand to help create personalized tea blends for customers to take home in pouches or brew in store.
"It’s very much about personalization and interaction and immersing yourself in all-things tea," said Holly Hart, a spokeswoman for Starbucks. "It’s not going to be the typical grab-and-go experience."
Hart said this interactivity should be a big enough draw that customers will seek out the specialty shop instead of heading to one of Starbucks’ other 17,000 locations worldwide.
"If you think about going to wine tastings where you’re standing up, sipping and talking about the flavor profile, that’s what this store will look like," she said. "You’re not going to walk in, get your tea and leave. It’s about the interaction, talking about the flavor and the blend of the tea."
The new store comes on the heels of several other deals aimed at expanding the brand beyond coffee. Earlier this month, Starbucks announced plans to buy Bay Bread for $100 million, and in November, it bought the Evolution Fresh juice brand for $30 million.
The company has also teamed up with Green Mountain Coffee Roasters () to market Starbucks-branded K-Cups and will begin selling the Verismo, its own single-serve machine, later this year.
Starbucks cools off
Tazo has been a successful expansion brand for the company because it’s multi-channel, Hart said, meaning that it’s sold in grocery stores, at Starbucks locations and soon in its own branded shop.
"We see this brand living on its own. It’s a brand that can live beyond the green dot," she said.
Starbucks purchased Tazo for $8.1 million in 1999, and Hart says it’s now a $1.4 billion brand.
The company has no plans to open other tea-centric locations, but it will continue to focus on growing the Tazo brand.
"The Tazo tea platform is uniquely set up for success and we’re putting emphasis on how to elevate it," Hart said. "The retail platform is the first place you’ll see that."
Starbucks shares closed down 2.7% to end at $54.12 on Thursday.
Japan
The average American family lost 38.8 percent of its wealth from 2007 to 2010, with the biggest losses concentrated among households with the most assets tied to their homes, a Federal Reserve study shows.
Median net worth declined to $77,300 in 2010, an 18-year low, from $126,400 in 2007, the central bank said in its Survey of Consumer Finances. Mean net worth fell 14.7 percent to a nine-year low of $498,800 from $584,600, the central bank said today in Washington.
Italian business confidence fell more than economists forecast, declining this month to the lowest level in almost three years as the country
Attention plus-sized women, jewelry buffs, and tweens/teens: there are a handful of new stores opening in area malls aimed at your demographic.
Among the new arrivals:
For the plus-sized: Ashley Stewart has just opened a 3,500 square foot store in St. Clair Square. And coming to the same mall in October is Torrid. For tweens/teens: Monsoon Kids, a concept out of the UK, will open a store at Chesterfield Mall in July. (It’s also opening a store across from the St. Louis Galleria.) Pink by Victoria’s Secret is coming to St. Clair Square in August. Zumiez, a retailer aimed at the skater set, will open a number of new stores including ones in St. Clair Square in August, Mid Rivers Mall in September and West County Center in October. And Crazy 8, part of the Gymboree family of brands, will open a store in August at South County Center payday loans. (American Eagle Outfitters also recently expanded its store in St. Clair Square.) And finally, for jewelry lovers: James Avery will open its first store in the region at West County Center in October. And Francesca’s Collections is opening a store in South County Center this month, following another store it opened in Chesterfield Mall last month.
Of course, this is not an exhaustive list. But it’s a snapshot of some of the annual comings and goings at regional malls owned by CBL & Associates.
A positive report on U.S. manufacturing overshadowed concerns about weaker global growth and sent stocks higher Monday.
The Institute for Supply Management said after trading began that its index of manufacturing activity rose strongly this month. A measure of manufacturing employment rose to a nine-month high.
Stocks in the U.S. had opened broadly lower after mixed economic news from China and Europe. European stocks were mixed before the report. Markets on both sides of the Atlantic turned up on the news.
The Dow Jones industrial average rose 69 points to 13,280. The Standard & Poor’s 500 index gained 12 to 1,420. The Nasdaq composite index added 25 to 3,116.
The gain came on the first day after stocks’ best first quarter in more than a decade. The Dow rose 8 percent and the S&P 12 percent, the best for those indexes since 1998, and the Nasdaq rose 19 percent, its best first quarter since 1991.
Groupon plunged 11 percent on the first trading day after the company said its internal controls are weak and its fourth-quarter loss was bigger than initially reported.
Still, the rally was broad, lifting all 10 of the S&P 500’s industry groups. Rising commodity prices bumped materials and energy companies to the strongest gains.
A weaker report on U.S. construction activity helped keep the rally in check. Builders slowed their activity for a second straight month in February, pushing construction spending down by the largest amount in seven months.
The conflicting U.S. economic reports followed disappointing data from overseas.
A survey of Chinese purchasing managers by the bank HSBC slipped, after adjusting for seasonal factors. The survey reflects export activity in China. Its average reading for the first quarter was the weakest in three years no fax payday loans.
And a survey of European manufacturing executives by financial data firm Markit fell to a three-month low. It indicated that manufacturing activity there is contracting.
Unemployment in the 17 countries that use the euro has risen to 10.8 percent, according to official figures also released on Monday. That is the highest level of unemployment there since the launch of the euro in 1999, adding to fears about the depth of the recession there.
The nervous tone boosted demand for ultra-safe Treasurys, sending the yield on the 10-year Treasury note down to 2.18 percent from 2.24 percent earlier Monday.
Many traders were looking ahead to the U.S. February jobs report, due out Friday. Economists expect that job creation slowed modestly after three of the strongest months for the labor market since the recession.
European markets soared in their final 90 minutes of trading, after the U.S. factory report was released. France’s CAC 40 rose 1.1 percent, London’s FTSE 100 gained 1.8 percent and Germany’s DAX added 1.6 percent.
In corporate news:
_ Avon Products Inc., which makes hair goo, makeup and watches, leaped 14 percent after the company rejected a $10 billion buyout offer from Coty Inc., a giant German perfume company.
Avon reported a fourth-quarter loss earlier this year and is in the hunt for a new CEO. The company has struggled as it attempts to put behind it an overseas bribery investigation that began in 2008.
_ Express Scripts rose 3 percent after it completed its $29.1 billion acquisition of Medco Health, creating the country’s largest pharmacy benefits manager.
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