Microsoft reported disappointing earnings on Thursday and plans to cut up to 5 000 jobs as US jobless claims rose more than expected and Asia’s two largest economies buckled under the strain of the global financial crisis.
China reported economic growth slowed to 6,8% in the fourth quarter, dragging down the 2008 rate to a seven-year low of 9%, and Japan’s central bank predicted two years of deflation.
When the trading day reached Europe, top cellphone maker Nokia reported a greater-than-expected dive in fourth-quarter earnings and warned that market volumes would shrink 10% this year.
Wall Street futures were already down on the jobless data and a report that housing starts and permits fell to a record low in December.
Then Microsoft shocked the market by reporting results before the opening bell — hours ahead of time — and missing already lowered expectations as it said it would stop offering profit forecasts for the rest of the fiscal year.
Microsoft’s results contrasted with those of IBM and Apple, which both beat forecasts earlier this week.
The results rocked stocks, bonds and currencies as Microsoft stock fell 9%, dragging down the Nasdaq, which was off 3,3%. The dollar briefly extended losses against the yen.
”The [economic] data was very bullish for the bond market. Then … all of a sudden Microsoft is turning and laying off [up to] 5 000 people,” said Thomas di Galoma, head of US Treasury trading for Jefferies & Co in New York.
”Microsoft is a company people feel is in pretty good shape and they’re laying 5 000 off. Who’s next?”
On Capitol Hill in the second day of his confirmation hearings, US Treasury Secretary-designate Timothy Geithner said a strong dollar is in the United States’ interest and he said President Barack Obama believes China is manipulating its currency.
Asia under strain
Indicating a return of the deflation which ravaged the Japanese economy in the 1990s, the Bank of Japan cut its growth forecasts, predicting the world’s number two economy would contract for two full years until March 2010.
Earlier data showed Japanese exports plunged a record 35% in December from a year before.
The figures showed a collapse in demand across the board with record falls in shipments to the United States, Europe and Asia. The Bank of Japan said it was holding interest rates just above zero and said it would buy corporate bonds to ease a severe funding squeeze which threatens to deepen the recession.
China’s statistics bureau said the financial crisis was spreading and China would aim to stimulate domestic demand.
China’s challenge
”The deceleration of growth [in China] is beyond the market’s consensus, which presents a huge challenge to this year’s growth target of 8%,” said Jin Yanshi, chief economist at Sinolink Securities in Shanghai.
South Korea said its economy suffered its second-largest contraction on record in the fourth quarter, pushing Asia’s fourth-largest economy closer to its first recession since the regional financial crisis a decade ago.
In France, consumer spending, the driving force behind the country’s growth last year, fell by a larger-than-expected 0,9% on the month in December.
Separately, the Bank of France said it expected negative inflation in the euro zone and the United States for one or several months this year, but this would not amount to deflation.
”Once the shock of the fall in energy and food prices — which could lead to negative inflation rates during certain moments in mid-2009 — has been absorbed, the evolution of prices should go back into positive territory from next autumn,” the Bank said in a report. – Reuters