Consumer electronic makers are bracing themselves for slower growth in the second half of this year and in 2009, but count on consumers turning to home entertainment amid tougher economic times and tighter budgets.
“When people don’t have much money, they cut on big stuff and buy things that make their lives a little bit better, like consumer electronics,” TomTom (TOM2.AS: Quote, Profile, Research, Stock Buzz) co-founder Corinne Vigreux said.
Vigreux said she expected the satellite navigation device company to be largely unaffected by the slowing economy in Europe and the United States, but retailers were being “very careful” on inventory levels in the run-up to Christmas.
Consumer electronics makers from around the world have descended on Berlin to showcase their products at the IFA electronics fair which runs from August 29 to September 3 free credit report instantly.
Many companies count on the fair for new orders as retailers shop for the upcoming holiday season, but are worried that a gloomy macroeconomic environment is casting a pall over sentiment.
“The overall market in 2008 is not very good and Europe is even worse,” Shin Ik Kang, president and CEO of LG (066570.KS: Quote, Profile, Research, Stock Buzz) Digital Display.
A global economic slowdown, oil price increases and the subprime crisis had taken their toll, Kang added.
Euro zone retail sales posted their biggest ever yearly fall in June and British retail sales dropped at their sharpest pace in at least 25 years in August.
Students in Xavier University’s executive MBA program will take the “ultimate route” to leadership training when they participate in a Sept. 6 event at Camp Friedlander in Loveland.
“Ultimate Route” is a live simulation game offered by the Xavier Leadership Center in which participants apply and learn risk-management concepts by building a virtual road. Participants are asked to choose to build a road using five different route possibilities. Teams are given data on each route and are required to cope with unanticipated changes throughout the simulation. Teams are judged on their overall progress in building the road and minimizing risks associated with each of their road-building strategies.
“Students participating in this event come away with skills, knowledge, and a physical learning that leave a lasting impression,” said Raghu Tadepalli, dean of the graduate school of business at Xavier cash advance usa. “Ultimate Route changes who they are, how they lead, and the impact they have in the corporate world.”
Stocks rallied Wednesday, with financial services companies among the big gainers, as investors shrugged off higher oil prices and instead focused on a surprisingly strong reading on durable goods orders.
The Dow Jones industrial average (INDU) and the broader Standard & Poor’s 500 (SPX) index both added around 0.8%. The Nasdaq composite (COMP) gained 0.9%.
Investors also seemed to breathe a sigh of relief that oil prices gave up bigger session gains. Oil had spiked in the morning after a weak inventory report and in response to Tropical Storm Gustav, which is heading for the Gulf Coast.
The rise in durable goods orders was making investors feel a bit more positive about the economic outlook, said Gary Webb, CEO at Webb Financial Group. Additionally, comments from Fed officials both this morning and in recent days have implied that inflationary pressures are waning and that the central bank won’t have to raise rates in the near term.
However, stocks are extremely volatile and the perception of "good news" could change swiftly, he said.
"So today the good news is outweighing the bad and that’s helping people overlook oil prices," Webb said. "But this could all change by tomorrow or even the end of the day."
Stocks had rallied between mid-July and mid-August as investors welcomed a drop in crude oil prices from a record over $147 a barrel, and a recovery in the U.S. dollar.
However, in the last week or so, stocks have been struggling in a narrow range as oil prices have moved back up.
Thin trading volume is also adding to market volatility right now, with many Wall Street pros taking the last week of August off. Thursday was the lightest trading day of the year on the New York Stock Exchange, with just 820 million shares changing hands. Volume on the NYSE was 1.58 billion, also low. On both the NYSE and the Nasdaq, market breadth was positive, with advancers topping decliners by a decided margin.
Both trading volume and the attention of investors will pick up after Labor Day weekend, said Bill Flaig, portfolio manager of the Arrow Alternative Solutions Fund (ASFFX).
"Post-Labor Day, there’s going to be a lot of focus on the economic news," Flaig said. In particular, investors will be looking to see if the downward trend in weekly jobless claims continues and how well retailers are holding up despite the end of the government stimulus checks.
That, in combination with a "gut check" over the financial services sector is really going to set the tone for September, he said.
Fannie Mae was among the stocks likely to be active Thursday after the company announced late Wednesday the departure of three executives, including the chief financial officer and the promotion of three other executives. (Full story)
Thursday also brings reports on second-quarter gross domestic product growth and weekly jobless claims.
Durable goods orders: Orders for big-ticket manufactured goods jumped for a second straight month, the government reported Wednesday. Orders rose 1.3% in July, easily outpacing the 0.1% gain economists were expecting, on average. The rise was in line with the upwardly revised 1.3% increase reported in June.
The strength was largely due to a rise in demand for commercial aircraft, as well as for motor vehicles faxless payday advances. Experts don’t expect demand for autos to stay strong, considering the tough industry conditions. A category of the report seen as a proxy for business spending also rose soundly, seeing its best result in three months. (Full story).
Fuel prices: While the strong durables report was a positive, investors remained concerned about the spike in oil prices as Tropical Storm Gustav neared the Gulf of Mexico and U.S. oil facilities.
Investors also took in the weekly inventory report, which showed a surprise drop in crude supplies and a bigger-than-expected decline in gas supplies. (Full story).
U.S. light crude oil for October delivery rose $1.88 to settle at $118.15 a barrel on the New York Mercantile Exchange, giving up bigger morning gains.
Retail gas prices continued to drop overnight, extending the downward trend, according to a survey of gas station credit-card activity. Gas prices are down over 10% from all-time highs hit in mid-July. (Full story.)
Financials: Shares of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) gained for the third-straight session, as analysts questioned whether a government bailout was unavoidable. Freddie’s $2 billion debt sale Monday received a positive response and some analysts think the companies may have enough capital to absorb billions of dollars in losses from bad mortgage bets, at least for the near term.
A number of financial shares rose, including Dow components AIG (AIG, Fortune 500), American Express (AXP, Fortune 500), Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500) and JP Morgan Chase (JPM, Fortune 500).
The gains were broad based, with 25 of 30 Dow components rising.
Airline stocks got hammered as oil prices rose, with air carriers’ profits taking a direct hit from the rise in fuel costs. Delta Air Lines (DAL, Fortune 500), AMR (AMR, Fortune 500), Northwest Airlines (NWA, Fortune 500) and UAL Corp (UAUA, Fortune 500) all tumbled. The Amex Airline (XAL) index dropped 3%.
The rising oil prices gave a lift to oil stocks, including Valero Energy (VLO, Fortune 500), Exxon Mobil (XOM, Fortune 500) and Sunoco (SUN, Fortune 500).
In merger news, Japan’s Ricoh, a copier and printer maker, will buy U.S. office-gear distributor Ikon Office Solutions (IKN).
Fed’s Lockhart: In a speech Wednesday morning, the Atlanta Fed President discussed the Consumer Price Index, one of the closely watched measures of consumer inflation. He said the latest CPI was a high and worrisome number but that it is more likely to be transitory than persistent, according to reports.
Lockhart also said that the recent rise in the dollar has been helpful. The recent strength in the currency has put pressure on dollar-traded commodities, such as oil and gold.
Other markets: In the bond market, Treasury prices inched higher, lowering the yield on the benchmark 10-year note to 3.76% from 3.77% late Tuesday. Prices and yields move in opposite directions.
The dollar was little changed versus the euro and the yen.
COMEX gold for October delivery rose $4.50 to $828.70 an ounce.
New Zealand consumers are more optimistic about the housing market amid expectations interest rates will fall, according to an ASB Bank Ltd. survey.
Thirty seven percent of 600 people surveyed said it is a good time to buy property compared with 25 percent in the previous survey in May, ASB said in a statement e-mailed to Bloomberg News. The proportion saying it is a bad time to buy dropped to 25 percent. The 9 point difference was the most optimistic since 2003, ASB said.
Reserve Bank Governor Alan Bollard cut the benchmark interest rate in July for the first time in five years and said further declines are likely because the economy is slowing. Fewer consumers expect home-loan interest rates will rise, fanning confidence in the property market, said ASB Chief Economist Nick Tuffley.
“The high cost of debt servicing has undoubtedly been a key factor in the slowdown by pricing people out of the housing market,'' said Tuffley. “Lower interest rates have the potential to put a floor under the market after a time by improving affordability.''
Just 37 percent of those surveyed expect home-loan interest rates will rise compared with 62 percent in May cash advance. Thirty percent expect lower borrowing costs.
Still, the more optimistic outlook on interest rates will be offset by increased pessimism on house prices, said Tuffley. Sixty-four percent expect prices will fall over the next year, the most since the survey began in 1996.
“Respondents might view some improvement in their ability to fund a purchase, but their outlook for prices suggests they will be in no hurry to act,'' he said.
High credit costs and falling house prices have forced buyers out of the market, sending house sales to a 16-year low in June, according to Real Estate Institute figures.
ASB expects prices will remain weak for the rest of 2008, and predicts any pickup in 2009 will be modest, said Tuffley.
Netflix Inc. said Thursday that major technical problems over the past 3 days have severely limited the number of DVDs it could send out.
The unspecified problems affected all of the Los Gatos, Calif.-based company’s 55 shipping centers and marked the biggest disruption in service since Netflix launched its DVD-by-mail subscription business 9 years ago.
It was unclear when normal shipments from the online DVD-rental leader would resume.
Netflix spokesman Steve Swasey said the company was able to send out some discs on Wednesday, but shipped none on Tuesday and hadn’t shipped any Thursday morning either.
About a third of the company’s 8.4 million subscribers are currently waiting for DVDs held up by the problems. Affected customers were promised a credit to their accounts for the delay.
The glitches didn’t affect Netflix’s Web site or its service for streaming movies and television shows instantly to customers’ computers.
Previously, Netflix’s longest disruption had been in July 2007, when its Web site went down for 18 hours easy payday loans. The company suffered another outage in March of this year, when the site was down for about 11 hours, resulting in a 1-day delay in delivering DVDs.
Swasey said that was the first time Netflix was unable to deliver DVDs for an entire day.
"When we miss on that, it’s a big deal," Swasey said.
The company hasn’t specified the problems that triggered the latest outage, nor has it identified the root cause.
Shares in Netflix rose 34 cents, or 1.1%, to $31.50 in mid-afternoon trading Thursday.
Stocks tumbled Tuesday, with blue chips leading the way, as a slew of financial companies warned about the ongoing impact of credit market problems, overshadowing any relief about lower oil prices.
The Dow Jones industrial average (INDU) lost 1.2%, with the average’s financial components leading the selloff. The broader Standard & Poor’s 500 (SPX) index fell 1.2%. The Nasdaq composite (COMP) dropped 0.4%.
The major gauges were in negative territory for most of the day, although the Nasdaq composite made a few forays into positive territory, thanks to lower oil prices.
"Financial issues are getting hit today on worries about the credit market, as always," said John Forelli, portfolio manager at Independence Investments.
Forelli said the struggle between concerns about the financial sector and relief that some inflationary pressures are dwindling will remain day-to-day for investors in the near term.
"Until oil prices started coming down a few weeks ago, there were twin worries of the economy slowing and inflation accelerating," Forelli said. "Now inflation worries are diminishing, but we are still struggling with the growth side."
He said that these concerns will continue to limit stock moves in the next few weeks and months.
Crude prices have lost over 20% since peaking above $147 a barrel in mid-July, something that has helped stocks recover since hitting 2008 lows in mid-July.
While there’s a good probability stocks put in a so-called bottom in mid-July, the negative market psychology is going to continue to keep a lot of investors on the sidelines, said Tom Sowanick, chief investment officer at Clearbrook Financial LLC.
"Because we’ve been trained in the last 12 months to be fearful, we are going to have to go through a retraining cycle," he said. "Investors need to be convinced that the trend is shifting and the momentum buyers are coming back."
After the close, Applied Materials (AMAT, Fortune 500) reported sales and earnings that tumbled from a year ago due to the tough industry environment. Nonetheless, results edged out analysts’ estimates. Shares gained 3% in extended-hours trading.
Wednesday brings key economic reports on July retail sales, June business inventories and the weekly crude inventories report.
Financial sector: JPMorgan Chase (JPM, Fortune 500) said in a regulatory filing that trading conditions have deteriorated in the third quarter versus the second quarter, and that it has written down $1.5 billion in credit market losses in the quarter.
Morgan Stanley (MS, Fortune 500) said late Monday that it will repurchase $4.5 billion in auction-rate securities after the attorney general’s office said its investigation of the sale of such securities will include the firm.
The repurchase plan won’t stop the investigation from continuing, the attorney general’s office said following the news. Also, Moody’s cut Morgan’s debt rating.
Wachovia (WB, Fortune 500) said it was revising its second-quarter loss to $9.11 billion from $8.86 billion, in advance of any potential settlement it may need to make with the government over auction-rate securities cash advance in one hour. The bank also said it was cutting 600 more jobs.
Goldman Sachs (GS, Fortune 500) slipped after three banks cut either their rating or earnings forecasts on the investment bank this week.
Deutsche Bank downgraded Goldman to "hold" from "buy" Tuesday and cut its 12-month price target. Also Tuesday, Oppenheimer & Co. cut its third-quarter, full-year and 2009 earnings forecasts. Earlier this week, Ladenburg Thalmann lowered its third-quarter and full-year forecast. (Full story).
UBS (UBS) reported its fourth straight quarterly loss Tuesday and said it would split its investment banking unit from its wealth management unit, after wealthy clients withdrew substantial sums during the quarter.
On the plus side, Wal-Mart Stores (WMT, Fortune 500) and other retailers gained on hopes that lower fuel prices will mean more money is available for consumers to spend elsewhere.
Also reacting to lower oil prices was General Motors (GM, Fortune 500), which gained 8% and protected the Dow industrials from steeper losses. In addition to the oil slide, GM investors were reacting to comments Monday from CEO Rick Wagoner that the worst may be over for the automaker.
Market breadth was negative. On the New York Stock Exchange, losers beat winners 2 to 1 on volume of 1.12 billion shares. On the Nasdaq, decliners topped advancers 4 to 3 on volume of 2.1 billion shares.
Fuel prices: Oil prices slipped even as the dollar fluctuated and concerns about supply disruptions in Eastern Europe stayed front and center.
BP (BP) said Tuesday morning that it shut down a Georgian pipeline for safety reasons. Although Russia said it has halted its attacks on Georgia, unrest in the region remains after days of fighting.
Concerns that the fighting will disrupt crude supply in the region have been tempered by bets that global oil demand is beginning to lessen.
U.S. light crude oil for September delivery fell $1.44 to settle at $113.01 a barrel on the New York Mercantile Exchange Tuesday.
Retail gas prices dropped overnight, extending a downward trend for a 26th day, according to a survey of gas station credit-card activity. (Full story).
Economy: The U.S. deficit unexpectedly narrowed in June, as an increase in exports overshadowed a surge in oil import prices, the government said. The trade gap narrowed to $56.77 billion in June from a revised $59.2 billion in May.
The July federal budget deficit surged to $102.8 billion, topping forecasts and nearly triple the $36.4 billion deficit from July 2007.
Other markets: In the bond market, Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.90% from 3.99% late Monday.
In currency trading, the dollar fell versus the euro and the yen.
COMEX gold for December delivery fell $13.50 to settle at $810.80 an ounce.
In global trading, European and Asian markets mostly ended lower.
Japan's wholesale inflation rate accelerated to a 27-year high in July, squeezing corporate profits, increasing bankruptcies and threatening the economy's longest postwar expansion.
Producer prices, the costs companies pay for energy and raw materials, climbed 7.1 percent from a year earlier after a revised 5.7 percent increase in June, the Bank of Japan said in Tokyo today. The median estimate of 31 economists surveyed by Bloomberg News was for 5.7 percent.
More businesses failed because of rising fuel and raw- material costs in the first half of this year than for all of 2007, according to Teikoku Databank Ltd. Tokyo-based Galaxy Airlines Co. said last week that it will stop air cargo services, and Nippon Paper Group Inc. plans to increase prices for the second time this year.
“Even though oil prices have been coming down in recent weeks, companies will keep trying to raise prices because they've made up for only a fraction of the cost increases they've suffered,'' said Azusa Kato, an economist at BNP Paribas in Tokyo.
The yen traded at 110.15 per dollar as of 11:10 a.m. in Tokyo from 110.14 before the report was published. Japan's currency has fallen 2 percent this month. Government bonds dropped for the first time in five days, causing the yield on 10-year debt to rise 1 basis point to 1.46 percent.
Interest Rates
Faster inflation is unlikely to prompt the Bank of Japan to raise interest rates as the economy teeters on the verge of its first recession since 2001. Governor Masaaki Shirakawa and his colleagues will keep the benchmark overnight lending rate at 0.5 percent for the rest of the year at least, according to 31 of 33 economists surveyed by Bloomberg last month.
The central bank last month raised its inflation forecast and cut its growth estimate, saying higher costs are squeezing companies and households. The world's second-largest economy probably shrank at an annual 2.3 percent pace last quarter, the first contraction in a year, economists estimate a report will show tomorrow.
Nippon Paper, Japan's second-largest paper maker, said last month it will raise prices by 10 percent in September. Fuel and raw materials are “rising so rapidly that it's too difficult to recover profits with cost-cutting efforts alone,'' the company said on July 30.
Iranian Revolution
The increase in producer prices was the steepest since January 1981 cash advance loans. From a month earlier, prices climbed 2 percent, the fastest pace since April 1980, when oil surged in the wake of the 1979 Iranian Revolution.
Higher commodity costs are also feeding into retail inflation. Consumer prices excluding fresh food, fish and vegetables climbed 1.9 percent in June from a year earlier, the most in a decade.
Some 235 companies went bust in the six months ended June because of rising costs, exceeding the 229 bankruptcies recorded for the same reason in all of 2007, Teikoku Databank reported last month. Transport, food and metal companies led the failures.
Galaxy Airlines, an air cargo operator whose shareholders include SG Holdings Co., the holding company of Sagawa Express Co., last week said it will stop operations in October because of rising fuel and maintenance costs. The company was founded three years ago.
“Small and medium-size companies are really suffering under this cost environment,'' Stefan Worrall, vice president of Japan equity sales at Credit Suisse Group in Tokyo, said on Bloomberg Television.
Oil Eases
Producer-price gains will probably ease in coming months as oil falls and a global slowdown reduces demand for raw materials.
Crude oil has dropped 21 percent since reaching a record $147.27 a barrel on July 11. Retail gasoline prices climbed to a record 185.1 yen a liter ($6.39 a gallon) this month.
Wholesale inflation “will probably stay around 5 percent through the end of this year and then gradually head in the opposite direction next year,'' said Mari Iwashita, chief market economist at Daiwa Securities SMBC Co. in Tokyo.
Even so, producer costs will keep fueling consumer prices for a while, economists said. Ajinomoto Co., the country's biggest foodmaker, last week announced plans to raise prices, and McDonald's Holdings Co. Japan said a Big Mac may soon cost Japanese consumers 30 yen more.
“We expect core prices will rise 2.2 percent in July and 2.3 percent in September,'' said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “Even though crude oil prices are being adjusted now, the ongoing cost-push inflation won't weaken easily.''
Warner Music Group Corp., whose artists include Katy Perry and Madonna, beat Wall Street expectations Thursday after reporting narrowed losses in the third quarter as growth in Europe helped offset a slowdown in global music sales.
Online sales continued to rise as the company sought to shift its revenue mix away from the declining CD market and into higher-margin downloads and into deals with artists that capture new revenue streams.
Net losses narrowed to $9 million, or 6 cents per share, in the three months ending in June, from $17 million, or 12 cents a share, in the same period last year. That beat analyst expectations of a loss of 18 cents per share.
Warner Music (WMG) shares were up 5 cents to $8.49.
"Over the course of this upcoming year we plan to work towards optimizing, evolving and transforming our business," said Edgar Bronfman Jr., the chairman and chief executive who owns a 6.5% stake in the company.
Revenue rose 5.5% to $848 million from $804 million, but sales were down 1.1% when factoring out the benefit of a weak dollar.
Analysts polled by Thomson Financial, on average, expected a loss of 18 cents on sales of $769 million.
The company said its share of the U.S. market grew nearly a percentage point from the previous year to 21.5%, its sixth quarter of gains, helped by the release of music from Madonna, Disturbed and Frank Sinatra.
Digital revenue grew 39% to $166 million, accounting for 20% of its total revenue, but the company acknowledged rising online sales had yet to overcome the decline in CD sales.
Domestic revenue declined 6.5% payday loans. International revenue grew 17.2%, or 3.6% eliminating benefits from exchange rates.
Goldman Sachs (GS, Fortune 500) analyst Ingrid Chung said the results beat expectations but kept her "sell" recommendation on the shares, partly because overall U.S. music sales, including digital downloads, fell 4.8% in the quarter.
"We still expect general industry fundamentals will continue to be anemic," she said in a research note.
Looking ahead, Bronfman expressed hope for better digital revenue in a music service offered by Nokia Corp. (ADR) on its cell phones, which has garnered the participation of major record labels Warner, Sony BMG and Universal Music Group.
But he fired a shot across the bow at the video game industry, complaining that the benefits from hit games such as "Guitar Hero" and "Rock Band" had unfairly skewed toward game makers such as Activision Blizzard Inc. (ATVID) and away from artists and the music industry.
"There is what I would call a very paltry licensing fee per song," Bronfman said.
"I think the industry as a whole needs to take a very different look at this business and participate more fully and in a much more partnership way," he said. "And if that does not become the case, as far as Warner Music is concerned, we will not license to those games."
The number of Americans filing first- time claims for unemployment benefits unexpectedly rose last week to the highest level in six years, signaling the labor market continues to weaken.
Initial jobless claims increased by 7,000 to 455,000 in the week ended Aug. 2, the most since March 2002, from 448,000 the prior week. The number of continuing claims increased to a four- year high.
Companies are reducing staff as demand slows and raw- material costs surge. Rising unemployment adds to concerns that consumer spending will falter in coming months after the effects of the government's tax rebate checks wane.
“The labor market is slackening,'' said Michael Gregory, a senior economist at BMO Capital Markets in Toronto. “The underlying trend for jobs has got recession written all over it.''
Treasuries rose after the report, pushing yields lower. The benchmark 10-year note yielded 3.99 percent as of 8:42 a.m. in New York, down 7 basis points from yesterday.
Economists had forecast claims would fall to 425,000, according to the median of 40 projections in a Bloomberg News survey. Estimates ranged from 390,000 to 463,000.
Extended Benefits
Some workers filing for extended benefits under a government-spending bill that was signed by President George W. Bush in June were deemed eligible to enter the program as first- time claimants, according to a Labor Department spokesman. That may have contributed to the jump in applications over the last few weeks, he said.
The government hasn't been able to quantify the impact on claims and applications may remain elevated for a few more weeks, according to the spokesman.
The four-week moving average, a less volatile measure, climbed to 419,500 from 392,750, today's report showed.
The unemployment rate among people eligible for benefits, which tends to track the jobless rate, was unchanged at 2.5 percent. Fifteen states and territories reported an increase in new claims, while 38 reported a decrease. These data are reported with a one-week lag.
Decline in Payrolls
The government reported last week that payrolls declined by 51,000 workers in July, the seventh straight monthly drop pay day loan. The unemployment rate rose to 5.7 percent.
Initial jobless claims reflect weekly firings and tend to rise as job growth — measured by the monthly non-farm payrolls report — slows. Weekly claims have averaged 369,600 so far this year compared with an average 321,000 for all of 2007.
The recent increase in claims brings the figures closer to losses seen in previous economic downturns. During the last recession, in 2001, about 415,000 workers a week on average filed new applications for benefits.
“Labor markets have softened further and financial markets remain under considerable stress,'' Federal Reserve policy makers said earlier this week in announcing that the benchmark interest rate would remain at 2 percent. It was the second straight meeting at which the Federal Open Market Committee kept the rate unchanged.
Economic weakness is spreading. The Institute for Supply Management said Aug. 5 that its index of non-manufacturing businesses, which make up almost 90 percent of the economy, contracted for a second straight month.
Ameristar Casinos Inc. said Aug. 4 it has fired 244 people as a result of “weak economic conditions'' and plans to reduce the workforce by an additional 150 full-time positions through both attrition and changes in scheduling and staffing practices.
“We expect current difficult business conditions to continue at least through the second half of 2008, reflecting the impact of the general economic slowdown and higher fuel prices on the gaming industry,'' Chief Executive Officer Gordon Kanofsky said.
The San Francisco Chronicle said Aug. 2 it will offer buyouts to at least 125 employees by the end of the year. If not enough people accept, firings are likely, the newspaper said. Chief Executive Officer Frank Vega said the offer was made because of shrinking ad sales.
Australian Prime Minister Kevin Rudd said the nation's banks have a responsibility to lower borrowing costs if the Reserve Bank of Australia cuts its benchmark interest rate.
“Banks will be under huge pressure in the marketplace to act in response to official interest rates,'' Rudd said during an interview today with Radio 3AW. “Look at the overall profitability levels of these banks, they are huge. Therefore, they have a responsibility to pass on changes.''
Home buyers are paying more for mortgages after the nation's five biggest lenders increased mortgage rates by an average of 105 basis points since the start of this year amid rising credit costs. The RBA has boosted rates by 50 basis points in that time.
The effect of higher lending costs is beginning to seep into the broader economy. Lending to consumers and businesses in June rose at the slowest annual pace in almost six years, according to the central bank. Retail sales fell in June by the most in six years, the Bureau of Statistics said yesterday.
Rudd's comments were echoed by Treasurer Wayne Swan, who said in Coolum, north of Brisbane, that “customers will be absolutely filthy if the banks don't pass on, within a reasonable time, any official cash rate reductions.''
Inflation Target
Central bank Governor Glenn Stevens raised the benchmark interest rate to 7.25 percent in March, the fourth increase since August last year online payday loan. The country's benchmark rate is at its highest in 12 years and is 5.25 percentage points higher than the U.S. Federal Reserve's rate.
Stevens said last month that there is a “good chance'' the economy will slow enough to bring inflation back within his target range.
Investors have increased bets that the central bank will cut interest rates, according to a Credit Suisse Group index based on trading in interest-rate swaps.
Traders expect Stevens will lower the benchmark rate by 70 basis points, or 0.70 percentage points, in the next 12 months. At the start of July, they forecast 19 basis points of gains.
“Every economy in the world is facing challenges in difficult global economic conditions,'' Rudd, who won office in November, said today. “It is very important to keep downward pressure on inflation.''
Powered by WordPress -- XHTML 1.0