What's Important in the Financial World (3/22/2013)

Business confidence in Germany continues to sputter up and down as the economies of the countries around it disintegrate. Consumer spending within its borders and trade with countries outside the European Union have not offered enough momentum for Germans to believe that regional trouble can be overcome. The Ifo Business Climate Index fell for this month. The Institute reported:

After rising sharply last month, the Ifo Business Climate Index for German industry and trade edged downwards in March. Companies were slightly less positive about their future business outlook than in February, but assessed their current business situation almost as positively as last month. The German economy remains on track in a challenging environment thanks to strong domestic demand.

In manufacturing the business climate indicator fell. Manufacturers assessed both their current business situation and future business developments less optimistically than last month. Export expectations sank clearly, but remain positive.

After the sharp upturn last month, the business climate in wholesaling deteriorated considerably. Wholesalers expressed less optimism about both their current business situation and future business developments. In retailing, on the other hand, the business climate index rose slightly. Retailers were somewhat more satisfied than previously with their current business situation and less pessimistic about their business outlook.

In construction the business climate index rose to its highest level since German reunification. Survey participants expressed far greater satisfaction with their current business situation. Optimism regarding further business developments fell somewhat, but remains at a very high level.

Panic in Cyprus

Panic in Cyprus rose overnight as rescues by Russia and members of the European Union became unlikely. A plan to tax savings accounts, rejected by parliament, is again part of last-ditch discussions of how to secure an aid package from the European Union, International Monetary Fund (IMF) and European Central Bank (ECB). The only thing certain at this point is that the Cyprus government continues to drag its feet instead of independently addressing its own problems. According to MarketWatch:

Aside from the ECB, Russia also represented a potential source of finance for Cyprus, having lent the country €2.5 billion two years ago. However, Bloomberg reported Friday that Cyprus’s Finance Minister Michael Sarris, who had been in Russia for talks, was on his way back to Nicosia without an agreement to extend the loan or revise the terms.

The government of Cyprus is now trying to come up with an alternative plan, more palatable to parliament, before the ECB’s deadline.

On Thursday, reports emerged that Cyprus Popular Bank PCL — also known as Laiki Bank — will be split into a “good bank” and “bad bank” to avoid bankruptcy under a revised proposal.

Bank deposits totaling €100,000 or less, would also be protected, according to Cyprus central-bank Gov. Panicos Demetriades. Still, that implies that deposits of more than €100,000 would be subject to a deposit tax.

If the ECB, EU, and IMF reject the last and best effort by the Cyprus government, the nation could be out of the European Union in short order.

Nike and China

Nike Inc. (NYSE: NKE) joined several other U.S. companies in the discovery that the Chinese market is not the solution to global revenue growth, despite its size and the rapid development of consumer spending there. Local competition and threats from other large multinationals desperate to join in competition for market share shaved Nike’s China results last month. According to the company:

Revenues for NIKE, Inc. increased 9 percent to $6.2 billion, up 10 percent on a currency-neutral basis. Excluding the impact of changes in foreign currency, NIKE Brand revenues rose 10 percent, with growth in all geographies except Greater China and Japan and in all key categories except Sportswear and Action Sports. Revenues for Other Businesses increased 9 percent as growth at Converse and NIKE Golf more than offset lower revenues at Hurley.

Gross margin increased 30 basis points to 44.2 percent. Gross margin benefitted from the combination of pricing actions and easing material costs, which more than offset higher labor costs. This benefit was partially offset by higher discounts, particularly in Greater China as the Company continues work to manage marketplace inventory. Additionally gross margin was impacted by unfavorable changes in foreign exchange rates and a shift in the mix of the Company’s revenues to lower margin geographies.