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Wednesday, 4 September 2013

Wall Street falls, ends worst month since May 2012

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Wall Street Week Ahead: Jobs data could spur Fed action on stimulus

Traders work on the floor of the New York Stock Exchange August 28, 2013.

Credit: Reuters/Brendan McDermid

By Richard Leong

NEW YORK | Fri Aug 30, 2013 6:24pm EDT

NEW YORK (Reuters) - Wall Street is bracing for a wave of economic reports next week, including the August jobs report, which might prove decisive in determining whether the economy is strong enough for the Federal Reserve to dial back its bond purchases in mid-September.

Anxiety about the Fed possibly reducing its $85 billion monthly stimulus, also known as QE3, has hurt the stock market, which recorded its steepest monthly fall since May 2012.

But the stock market's greater anxiety, which has developed in recent weeks, is that the Fed will press ahead with a reduction in support, even as the economy remains fragile. The recent data has failed to provide evidence of the convincing growth the Fed says it wants to see. Until then, stocks will benefit from the cheap money resulting from the Fed's bond purchases.

"Next week's data should make or break the September expectations," said Mike O'Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.

A strong jobs report will likely reinforce the view the Fed will opt to decrease its bond purchases at its September 17-18 meeting, while a weak one would do the opposite, analysts said.

"From a real economy perspective, QE3 has done very little. From a financial markets perspective, it has had a major influence. If it is really not helping the real economy beyond pushing financial assets higher, there is no point in continuing the risk of increasing the balance sheet," said O'Rourke.

For the month, the Standard & Poor's 500 index fell 3.1 percent in August; the Dow Jones industrial average lost 4.4 percent and the Nasdaq slipped 1 percent. .N

Speculation on the timing of Fed action has triggered a bond market sell-off that sent mortgage rates to two-year highs. The surge in home borrowing costs this summer has shown signs of slowing the housing recovery. Analysts also are watching if the higher rates have discouraged employers from adding workers.

Economists polled by Reuters forecast domestic employers likely hired 180,000 workers in August, more than 162,000 in July, while the jobless rate likely held steady at 7.4 percent, which is a four-year low.

Deutsche Bank economists said that if the payrolls figure exceeds 190,000 and the unemployment rate falls to 7.3 percent, they expect the Fed will start cutting bond purchases. "August employment would have to meaningfully disappoint for the Fed to back away from the timetable presented by Chairman Bernanke in the June post-meeting press conference," they wrote.

Prior to the payrolls data on Friday, traders will face a heavy schedule of economic releases after the three-day holiday weekend. They include the latest readings on vehicle sales and national factory and service activities.

U.S. financial markets will close on Monday for the Labor Day holiday.

Investors are watching the tense situation between the West and Syria. Signs of a U.S.-led military strike against Syria after chemical weapons were used to kill civilians could hurt the appetite for stocks globally.

Traders pared expectations on such a move after the British parliament voted against a military strike. But France said it supported punishing the Syrian government for the attack on civilians. U.S. Secretary of State John Kerry said on Friday the chemical weapons attack in Damascus last week killed more than 1,400 people.

Despite the sharp moves in equities due to the Syrian unrest, "we still expect the market to stop short of a 10 percent decline," said Mike Dueker, head economist for North America at Russell Investments in Seattle.

Light volume in late summer likely exaggerated August's stock decline, analysts said. The uncertainty has also boosted measures of volatility. The CBOE Volatility Index .VIX rose above 17 on Friday, a two-month high.

Bonds, in comparison, posted small losses. They were poised to lose 0.54 percent in August, according to Barclays' Aggregate bond index that tracks U.S. investment-grade debt returns.

SHAKY SEPTEMBER

While Syria and economic data will be next week's main concerns, other developments, such as President Barack Obama's nominee to succeed Ben Bernanke as Fed chief and another possible showdown between Obama and congressional Republicans over the federal debt might keep investors on edge, analysts said.

"There is no doubt that September is teed up for a tsunami of data coming at us and headlines coming at us," said David Lyon, investment specialist at JP Morgan Private Bank in San Francisco, California, which manages $910 billion in assets.

"So the market will look at September and really start to find its footing based on some of the economic data that comes out as well as clarity around some of these policy decisions at the central bank level or the geopolitical level," he said

History might complicate that view.

September has traditionally been the worst month for stocks, with an average 0.6 percent decline in the S&P 500 index over the past 62 years, although it rose 2.4 percent last September.

This September marks a milestone - the five-year anniversary of the global credit meltdown during which Wall Street witnessed the downfall of Lehman Brothers, the sale of Merrill Lynch, the near-demise of insurance giant AIG.

In that turbulent September 2008, the market tumbled 9.1 percent.

(Additional reporting by Chuck Mikolajczak and Rodrigo Campos; Editing by Kenneth Barry)

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Wall Street Week Ahead: Jobs data could spur Fed action on stimulus

Traders work on the floor of the New York Stock Exchange August 28, 2013.

Credit: Reuters/Brendan McDermid

By Richard Leong

NEW YORK | Fri Aug 30, 2013 6:24pm EDT

Anxiety about the Fed possibly reducing its $85 billion monthly stimulus, also known as QE3, has hurt the stock market, which recorded its steepest monthly fall since May 2012.

"Next week's data should make or break the September expectations," said Mike O'Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.

A strong jobs report will likely reinforce the view the Fed will opt to decrease its bond purchases at its September 17-18 meeting, while a weak one would do the opposite, analysts said.

For the month, the Standard & Poor's 500 index fell 3.1 percent in August; the Dow Jones industrial average lost 4.4 percent and the Nasdaq slipped 1 percent. .N

U.S. financial markets will close on Monday for the Labor Day holiday.

Bonds, in comparison, posted small losses. They were poised to lose 0.54 percent in August, according to Barclays' Aggregate bond index that tracks U.S. investment-grade debt returns.

SHAKY SEPTEMBER

History might complicate that view.

September has traditionally been the worst month for stocks, with an average 0.6 percent decline in the S&P 500 index over the past 62 years, although it rose 2.4 percent last September.

In that turbulent September 2008, the market tumbled 9.1 percent.

(Additional reporting by Chuck Mikolajczak and Rodrigo Campos; Editing by Kenneth Barry)

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Thursday, 29 August 2013

Energy buoys Wall Street after selloff, Syria eyed

Traders work on the floor of the New York Stock Exchange August 27, 2013.

Credit: Reuters/Brendan McDermid

By Rodrigo Campos

NEW YORK | Wed Aug 28, 2013 10:42am EDT

NEW YORK (Reuters) - Energy shares buoyed Wall Street on Wednesday as oil prices jumped after the United States and its allies appeared ready to attack Syria, raising concerns over global oil supplies.

Selling pressure abated on equities following stocks' worst day since June a day earlier amid heightened tensions over a possible Western response to an alleged chemical weapons attack on Syrian civilians by President Bashar al-Assad's government.

The S&P 500 index fell 2 percent in the past two days and the CBOE Volatility Index .VIX rose 20 percent, reflecting investor uncertainty.

Tuesday's selloff "may have been an over reaction to what we know now on Syria," said John Manley, chief equity strategist at Wells Fargo Funds Management in New York. However, he said, the consequences of any conflict are unknown and the selling could have only started.

The United Nations Security Council was set for a showdown on Wednesday after Britain sought authorization for Western military action against Syria that seems certain to be vetoed by Russia and probably China.

The Dow Jones industrial average .DJI rose 28.8 points or 0.19 percent, to 14,804.93, the S&P 500 .SPX gained 3.56 points or 0.22 percent, to 1,634.04 and the Nasdaq Composite .IXIC added 14.088 points or 0.39 percent, to 3,592.612.

Brent crude hit a six-month high and U.S. crude hit its highest in more than two years on concerns foreign military action in Syria may further destabilize the Middle East.

The S&P energy index .SPNY rose 1.3 percent to lead the top ten S&P sectors. Chevron (CVX.N), up 2 percent at $121.25, and Exxon Mobil (XOM.N), up 1.3 percent at $87.93, were the top performers on the S&P 500.

An index of airline shares .XAL fell 0.7 percent after falling 3.9 percent on Tuesday.

Analysts said a possible decline in consumer confidence and spending, due to higher oil prices and the possibility of a larger conflict, was affecting U.S. equities.

Gold prices rose to 3-1/2 month highs above $1,430 an ounce as the Syria tensions raised its appeal as a safe-haven asset.

On Wall Street, U.S. government housing finance authorities are pressing JPMorgan Chase & Co (JPM.N) for at least $6 billion to settle lawsuits over bonds backed by subprime mortgages, according to a person familiar with the matter. JPMorgan shares fell 0.5 percent to $50.36.

Shares of mining equipment manufacturer Joy Global (JOY.N) fell 5.6 percent to $48.45 after it reported a lower profit for the third quarter and said orders fell.

Contracts to purchase previously owned U.S. homes fell for the second straight month in July, a sign that rising mortgage rates are taking some steam out of America's housing market recovery.

The PHLX housing sector index .HGX fell 0.6 percent.

(Editing by Bernadette Baum)

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Wednesday, 28 August 2013

Wall Street advances as durables data reduces Fed worry

Traders work on the floor of the New York Stock Exchange August 21, 2013. REUTERS/Brendan McDermid

1 of 2. Traders work on the floor of the New York Stock Exchange August 21, 2013.

Credit: Reuters/Brendan McDermid

By Chuck Mikolajczak

NEW YORK | Mon Aug 26, 2013 1:04pm EDT

NEW YORK (Reuters) - U.S. stocks advanced modestly on Monday after sharply weaker orders for long-lasting manufactured goods eased investors' worries that the Federal Reserve would soon begin to scale back its economic stimulus.

Durable goods orders dropped 7.3 percent in July, the biggest decline in nearly a year. In addition, a gauge of planned business spending on capital goods tumbled, casting a shadow over the economy early in the third quarter.

The reports and other data for July have suggested economic growth this quarter will probably not accelerate as much as economists had hoped.

Investors were heartened because the Fed has said any decision to slow its $85 billion a month in bond purchases, which has helped drive the S&P 500 index's rise of nearly 17 percent this year, depends on a recovering economy.

"Clearly the durable goods number, particularly if you dig down in there, was not encouraging," said Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC in Albany, New York.

"If there is anything that is driving the markets today, it is that the durable goods numbers were weaker than expected and that raises the question the Federal Reserve might not begin to taper."

The benchmark 10-year U.S. Treasury note yield hit its lowest in a week following the data. A recent spike in yields has raised concerns that mortgage rates and consumer credit will climb too high and harm the economy's recovery.

The Dow Jones industrial average .DJI rose 29.41 points or 0.2 percent, to 15,039.92, the S&P 500 .SPX gained 4.31 points or 0.26 percent, to 1,667.81 and the Nasdaq Composite .IXIC added 22.747 points or 0.62 percent, to 3,680.539.

Amgen Inc (AMGN.O) was the biggest boost to both the S&P 500 and Nasdaq 100 .NDX indexes after it struck a deal to buy cancer drug maker Onyx Pharmaceuticals Inc (ONXX.O) for about $10.4 billion, sweetening its original offer made in June.

Onyx shares rose 5.7 percent to $123.62 and Amgen jumped 9 percent to $115.12. The NYSEArca biotech index .BTK climbed 2.4 percent.

U.N. chemical weapons experts interviewed and took blood samples from individuals in a suburb of Syria's capital where rebels said the government carried out a poison gas attack last week. The inspectors' convoy came under fire.

Washington was all but certain that the government of President Bashar al-Assad had gassed its own people.

Three sources familiar with the deal said on Monday that Pratt & Whitney, a unit of United Technologies Corp (UTX.N), has reached agreement in principle with the Pentagon on a contract to build engines for F-35 Joint Strike Fighters in a deal valued at over $1 billion. United Tech shares edged up 0.4 percent to $103.23.

In another deal, the Pritzker Organization said it will acquire scrap metal broker TMS International Corp (TMS.N) for $17.50 a share, a premium of about 12 percent to TMS's Friday close of $15.57. shares gained 12.1 percent to $17.46.

(Reporting by Chuck Mikolajczak; Editing by Kenneth Barry)

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Monday, 26 August 2013

Insight: Trades from 1990s come back to haunt Wall Street

By Lauren Tara LaCapra and Dan Wilchins

Mon Aug 26, 2013 7:04am EDT

n">(Reuters) - In the 1990s, U.S. banks came up with a clever idea: using life insurance to bet that their employees would eventually die. Now those wagers are coming back to haunt Wall Street banks for reasons that have little to do with their employees' longevity.

For more than a decade, the lenders purchased life insurance policies, known as "bank-owned life insurance," on employees in bulk. These policies were unusual: banks chose how the premium would be invested; and were on the hook for investment losses or gains over time, unlike typical policies where the insurer invests the premium.

Banks loved the tax benefits of these products, but hated being exposed to market swings. JPMorgan's derivatives professionals found a solution: a product called a "stable-value wrap," which, for a fee, transferred much of the risk of losses to JPMorgan, often for the next 30 years or more, depending on the term of the policy.

That "wrap" amounted to a long-term derivatives contract, which is causing the pain now. Tough new international rules are forcing banks to use more capital for long-term trades, which means bank profits are being hit by derivatives tied to bank-owned life insurance and a host of other products.

From the 1990s through the beginning of the financial crisis in 2008, banks including JPMorgan, Morgan Stanley, Bank of America Corp and Citigroup Inc routinely traded swaps that lasted for 30 years or more.

Customers asked for them: If a utility built a power plant, for example, it probably used a long-term derivative as part of its financing package to protect itself from risks such as steep increases in interest rates. Similarly, when housing finance giants Fannie Mae and Freddie Mac needed to reduce their exposure to interest rates, they used long-term derivatives. So did pension funds or governments that needed to better match the cash flows of their assets with their expected liabilities.

These positions are hard to unwind. The companies, governments, or pensions that entered long-term trades with banks still need those derivatives to help reduce their risk. And a bank cannot usually transfer its exposure to another dealer, because its rivals have the same capital constraints under global rules.

"Times have changed: There are a lot of long-term derivatives on financial institutions' balance sheets that have become very costly today, and will stay that way," said Martin Zorn, who was an executive in the corporate banking and capital markets unit of Wachovia Bank in the 1990s and is now chief operating officer at risk-management firm Kamakura Corp.

The lingering pain from these trades underscores how long it will take banks to move past the excesses of the years leading up to the credit crunch. Many investors are eager for liabilities from the crisis to disappear. But that process could still take years as regulatory investigations continue, new rules come on line, and banks work through their bad assets, bank executives said.

To be sure, longer-term trades are likely only a small percentage of banks' fixed-income books.

At Morgan Stanley, for example, trades going back to the 1990's represent less than 1 percent of the bank's book of derivatives that trade off exchanges, a person familiar with the matter said. The bank is trying to shrink its assets for fixed-income, currency, and commodities by at least 51 percent by 2016, and has exceeded its targets so far despite these trades.

But long-term positions still consume disproportionate amount of Morgan Stanley's capital, rankling executives. At the bank's annual meeting in May, Morgan Stanley Chief Executive James Gorman called the positions "dead money," and noted that some trades stem back to the 1990's.

JPMorgan likely has the biggest holdings of long-dated swaps because it is the biggest swaps trader on Wall Street, responsible for about 30 percent of the market by some measures, traders at rival firms said.

A JPMorgan spokesman declined to comment.

CAPITAL RULES

Generally, banks offloaded the interest-rate risk from these positions and hedged other kinds of exposure, so the pain from these swaps comes not from market movements, but from regulatory changes. Under new international capital rules known as Basel III, longer-dated derivatives trades need to be supported by more capital than short-term positions.

The amount of capital the bank must hold depends on a swap's market value, the trading partner's creditworthiness and the possible losses the bank might suffer over the trade's lifetime - so the longer the trade, the more capital required.

Prior rules limited the amount of capital required for derivatives that do not trade on exchanges, but Basel III ends that limit, meaning that banks can be required to hold more capital than some trades are worth. Many of these derivative trades are custom-made, instead of being standardized contracts, so it is difficult to transfer them to a clearinghouse.

In addition, for more complicated over-the-counter derivatives trades, margin requirements will be 200 percent higher than they used to be under new regulations, said James Malick, a partner at The Boston Consulting Group who advises financial firms.

Banks are trying to find ways to reduce the exposure to long-term trades, and have even set up desks whose sole purpose is to reduce these positions, traders said.

Dealers' pullback from long-term swaps is evident, said Nancy Davis, a managing partner at the hedge fund Quadratic Capital, who previously held senior derivatives trading positions at JPMorgan and Goldman Sachs. The bulk of new activity happens in derivatives with durations of less than five years, according to the Depository Trust & Clearing Corporation, which clears such trades.

In the 1990s, insurers with high credit ratings would often trade long-dated swaps from their derivatives subsidiaries. Other players, such as asset managers and pension funds with big balance sheets, may eventually step in to provide liquidity where banks won't, Davis said.

"It's not the best use of a bank's capital at this point to be locking it up in a long-term swap - they'd rather spend their money elsewhere," Davis said.

(Reporting by Dan Wilchins and Lauren Tara LaCapra; Editing by Leslie Gevirtz)

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Stars of Coronation Street face allegations of buying fake designer handbags from crew member on set

By Elle Griffiths

PUBLISHED: 11:13 EST, 25 August 2013 | UPDATED: 11:15 EST, 25 August 2013

As cast- members of a successful soap, the female stars of Coronation Street earn a good living.

And the fruits of their labour are often seen hanging off their arms in the form of designer handbags.

But the Sun on Sunday newspaper has claimed that several of the Soap's female cast-members have been involved in buying fake designer bags from a crew member.

Is it real? Michelle Keegan carries what appears to be a Chanel hand bag whilst on a night out

It is alleged that top street stars have snapped up the imitations for as little as ?40 from a female worker who brings them to the studios in Manchester.

A source told the paper: 'Its like Only Fools and Horses. Seeing top names buying them is distasteful.'

But the source did not accuse anyone in particular of indulging in the practice.

Chic or cheap? Catherine Tyldesley is a fan of designer handbags

A spokesman for ITV told the paper: 'The bags are unbranded imitations, not counterfeits, and aren't sold on work premises or during work time.'

The allegations come as the soap is dealing with a seemingly never ending string of controversy, including the suspension of several high profile stars on allegations of sex offences and the sacking of Chris Fountain for his distasteful 'rape-raps.'

Arm candy: Michelle Keegan carries another fancy bag. The allegations have not been made in connection with any star in particular

Many of the cast of Coronation Street enjoy showing off their fashion credentials, including Michelle Keegan who is often seen with her classic Chanel quilted handbag.

She has also been seen with several expensive looking totes.

Kym Marsh has also been seen with the classic Chanel bag which is believed to be one of the most imitated and counterfeited in the world.

Chanel lover: Kym also is a fan of the classic bag

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