European leaders agreed early Friday to use the Continent’s bailout funds to recapitalize struggling banks directly, according to the European Council president, Herman Van Rompuy.
Financial markets, which had expected little from the meeting, welcomed the announcement, suggesting it had exceeded expectations — though analysts cautioned that earlier summit agreements had prompted rallies that proved short-lived.
The decision, by leaders of the 17-nation euro zone, would allow help to banks without adding directly to the sovereign debt of countries, which has been a problem for Spain and potentially for Italy. Both countries have seen the interest rates on their debt rise to levels that would be unsustainable in the long term, and the Italian and Spanish prime ministers, Mario Monti and Mariano Rajoy, came here to push their colleagues to help.
The bank recapitalization substantially reduces the risk of a broad credit crisis, but unfortunately does not help resolve the core issue, which remains the unworkable currency arrangement. So, we’re making baby steps in the right direction, but there’s much work to be done here. The endgame is still eliminating the solvency crisis at the sovereign level and that has to be done with some form of supranational entity or debt sharing arrangement. The good news out of these headlines is that it seems clear that full collapse of the Eurozone is rhetoric that is becoming increasingly scarce.
The Commerce Department said on Friday April’s consumer spending was revised down to show only a 0.1 percent rise instead of the previously reported 0.3 percent gain.
Weak consumer spending in May also reflected tepid sales at service stations as the pump price of gasoline fell from lofty levels early in the year.
Spending rose 0.1 percent after adjustment for inflation. Consumer spending accounts for more than two-thirds of U.S. economic activity. The small rise could cause economists to tweak their second-quarter forecasts for real consumer spending – currently in a range of 2 percent to 2.3 percent.
Spending grew at a 2.5 percent annual rate in the first quarter, with the overall economy expanding at a modest 1.9 percent rate.
Weak gasoline prices put downward pressure on inflation. A price index for personal spending fell 0.2 percent in May, the first decline in a year. The index was flat in April.
In the 12 months through May, the PCE index was up 1.5 percent, the smallest increase since January last year. It increased 1.9 percent in April.
Crude oil futures traded higher Friday as a plan to fix the euro zone emerged from the first day of a European Union summit in Brussels, boosting hopes that the divided leaders would solidify an agreement.
At 1102 GMT, the August Brent contract on London’s ICE futures exchange was up $2.79, or 3.1%, at $94.12 per barrel. The August contract on the New York Mercantile Exchange was trading up $2.74, or 3.5%, at $80.44 per barrel.
The BlackBerry maker reported a much wider-than-anticipated loss , pushed back the launch of the BlackBerry 10 until the first calendar quarter of 2013 and announced plans to lay off 5,000 employees, roughly 30% of its work force.
Shares of Research in Motion fell 15.12% in premarket trading Friday to $7.72.
The sneaker maker reported a profit of $549 million, or $1.17 a share, on revenue of $6.47 billion for the three months ended in May; analysts were expecting earnings of $1.37 a share on revenue of $6.51 billion.
The company attributed the year-over-year decline in earnings to lower gross margin, higher SG&A spending, a higher effective tax rate and costs related to restructuring operations in western Europe.
Shares of Nike fell 11.56% in premarket trading Friday to $85.69.
Meanwhile, Constellation Brands (STZ_) said it would buy the remaining 50% of Crown Imports that it doesn’t already own from Anheuser-Busch for $1.85 billion following Anheuser-Busch’s deal to buy Modelo.
Constellation and Modelo owned Crown as a joint venture.
Constellation Brands’ stock was climbing 4.46% in premarket trading Friday to $22.73.
Analysts, on average, anticipated earnings of 23 cents a share.
The company forecast an increase in earnings per share for the next fiscal year of about 7; it earned $1.53 a share in fiscal 2012. Previously, Finish Line projected earnings per share growth would be in the mid-single digits.