Business Blog Posts

The unemployment rate is finally edging lower and figures due on Friday are expected to show economic growth strengthened over the final three months of 2010. But the Fed may provide only a slightly more upbeat economic assessment at its next policy-setting meeting, which wraps up on Wednesday.

The central bank's word choices are always parsed and scrutinized. This week's statement will be particularly tricky because the Fed will need to acknowledge the improving economic data without sending a false signal that its $600 billion bond-buying program could end early.

But if Bernanke and company are too sparing in describing the recovery's progress, that could be interpreted as a lack of faith that this latest burst of economic vigor will last.

At its last meeting, in December, the central bank said the economic recovery was continuing but at too sluggish a pace to bring down unemployment, and the high jobless rate was weighing on consumer spending.

The jobless rate, however, dipped to 9.4 percent in December from 9.8 percent the previous month, still well above normal but down considerably from a cycle peak of 10.1 percent hit in October 2009.

As for consumer spending, it appears to have grown at a nearly 4 percent annual rate in the latest quarter.

"A key question is whether the Fed modifies its description of spending or looks past the data and maintains its downbeat view," said Barclays Capital economist Dean Maki.

"The latter would suggest that its views will be difficult to change," he said.

Maki said the central bank may find a middle ground by upgrading its description of spending growth, perhaps to "solid" from "moderate."

Likewise, the Fed could read the December dip in the unemployment rate as little more than monthly volatility or a promising sign.

Maki said officials may want to preserve some flexibility for now, perhaps by saying the rate of recovery was not robust enough to bring down unemployment "in a sustained way."

The Bank of Japan also holds a policy-setting meeting this week. Like the Fed, it is widely expected to keep interest rates unchanged near zero. Unlike the Fed, it is grappling with negative readings on key inflation gauges.

Economists polled by Reuters think Japan's consumer price index will show a 0.1 percent decline year-on-year. Excluding food and energy costs, core inflation is expected to be down 0.5 percent. The figures are due on Thursday.

UNEMPLOYMENT AND INFLATION?

As part of the government's deeply unpopular $700 billion bailout program, the funds were set up to remove illiquid securities from banks by matching private capital with taxpayer money and Treasury loans via funds run by private investment managers.

Although furor over the bailout helped Republicans win control of the House of Representatives in the recent election, the government has been recouping taxpayers' money.

The eight toxic asset funds, run by asset managers such as BlackRock Inc, Invesco Ltd and Marathon Asset Management, are all profitable.

Since the funds were established in 2009, they have used about $5.2 billion of Treasury's equity investment to buy toxic assets. As of the end of 2010, the funds have gained $1.1 billion to about $6.3 billion, according to the data.

Including some $300 million in equity distributions, the Treasury's investment increased by 27 percent or $1.4 billion, according to the data.

The Treasury Department had initially proposed buying up to $1 trillion in illiquid mortgage-related securities to help clean up banks' balance sheets. But the program was scaled down considerably as banks proved they could attract private capital in both the equity and debt markets without first selling off illiquid securities.

As of December 31, the funds had about $29.4 billion of purchasing power and had drawn down about 70 percent of the total amount, according to the data.

The Congressional Budget Office has estimated the ultimate cost of the bank bailout, or the Troubled Asset Relief Program, will be as low as $25 billion.

(Reporting by Rachelle Younglai; Editing by Kim Coghill)

If successful, the deal would be among the largest leveraged buyouts since the credit crisis.

Private equity firms have been sitting on mountains of cash to invest and have been waiting for credit markets and the economy to improve before striking large deals again.

U.S.-based Sara Lee, valued by analysts at about $12.5 billion, has been examining various options such as selling itself or splitting itself up into meat and beverage units.

Indications of interest in Sara Lee were due on Friday.

The private equity consortium of Apollo Global Management, Bain Capital and TPG Capital submitted a takeover offer for Sara Lee which values the company higher than its current $18.70 share price and up to $20, the source said.

It will likely face competition from Brazilian beef processor JBS, which along with a group of other companies, has arranged a financing package to bid for all or parts of Sara Lee, a source with direct knowledge of the situation told Reuters on Thursday.

Private equity giant Blackstone Group is involved in some capacity with JBS's pursuit of Sara Lee, a separate source familiar with the situation said on Sunday.

However, an expected rival offer has not as yet been made by JBS, the first source told Reuters.

Sara Lee is expected to have a board meeting on Thursday January 27 at which it will examine the bids, the source said.

The company had been expected to approve a plan to split the company at a board meeting by the end of January unless a compelling takeover bid emerges, a separate source familiar with the situation previously told Reuters.

Bloomberg earlier reported the price of the private equity consortium bid.

Analysts have said Sara Lee could fetch as much as $23 a share, or $14.7 billion, in a takeover. Shares of Sara Lee closed on Friday at $18.70 on the New York Stock Exchange.

(Reporting by Jessica Hall in Philadelphia and Megan Davies in New York; Editing by Dhara Ranasinghe)

This earnings season, if you're good, you're just OK. If you're just OK, you're bad. And if you're bad, you're quickly taken outside and put out of your misery. Only the truly great are lauded -- and even then not very much.

In an environment like that, and with a heavily extended market, disappointments are taken hard. The S&P 500 just ended its first down week in eight with underwhelming results from the likes of Goldman Sachs (GS.N) and Freeport McMoRan Copper & Gold (FCX.N) weighing on indexes.

Some big energy companies such as Chevron Corp (CVX.N) and ConocoPhillips (COP.N) are reporting results this week. Expectations have been running up in the sector, the third- largest in the S&P 500, providing plenty of room for disappointment.

"We have been climbing up a mountain, and we are on a ledge here, so there is definitely a bit of a pause as people are going to need some evidence of accelerated recovery -- not just baseline recovery," said Rick Meckler, president of investment firm LibertyView Capital Management, in New York.

Analysts have beefed up expectations as stocks rocketed late last year on signs of an improving economy. S&P 500 earnings estimates for the current quarter were revised up 1 percent over the last 60 days, according to data from StarMine.

Positive revisions were heavily concentrated in the technology, energy and materials sectors. Estimates in the materials sector were raised 5.7 percent; in energy, they rose 4.8 percent, and in technology, 2.3 percent, StarMine said.

Unsurprisingly, those three sectors, along with financials, took the brunt of selling last week. Materials shares .GSPM fell the most, losing 3.3 percent over the week.

On top of that, big-gaining "mo-mo" momentum stocks like F5 Networks (FFIV.O), Salesforce.com (CRM.N), Netflix Inc (NFLX.O) and Riverbed Technology (RVBD.O), are looking shaky after F5 Networks missed revenue estimates and forecast a weak second quarter. Its shares tumbled more than 20 percent.

Wall Street will tune in to President Barack Obama's State of the Union address on Tuesday night, when he is expected to make job creation the No. 1 issue.

The Federal Reserve's policy-making panel also will meet for the first time this year, convening on Tuesday and concluding on Wednesday afternoon, when the Federal Open Market Committee's statement will get Wall Street's attention. Some economists believe the FOMC may give a slight nod to signs of improvement in the U.S. economy, especially among consumers and factories.

The week's economic data includes consumer confidence, durable goods orders, a first look at January consumer sentiment from the Thomson Reuters/University of Michigan surveys, and the first look at fourth-quarter gross domestic product.

CALLING A PULLBACK

Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco, said declines in leading sectors are a clear sign of profit taking. He is calling what he terms "a healthy pullback" through the historically weak month of February.

"We're looking for a 5 percent to 7 percent pullback range, and I think we started it" on Wednesday, he said.

U.S. consumer confidence in the fourth quarter held steady from the third quarter but 45 percent of Americans see a weak economic environment this year, compared with 38 percent of Europeans and 19 percent of consumers in the Asia Pacific.

"The U.S. jobless rate remains at the heart of the issue for Americans," said James Russo, vice president of The Nielsen Company. "It has topped 9 percent for 20 months straight, which is the longest streak on record."

Consumer confidence was positive at the end of last year in only 14 out of 52 countries surveyed worldwide. The Nielsen Global Consumer Confidence Index's average score, however, was unchanged from the third quarter at 90, helped by sharp jumps in confidence in Norway, Turkey and Switzerland as well as the Philippines.

A reading below 100 signals pessimism about the outlook.

India came top, improving on its third quarter reading. Still, India's index reading of 129 was well below the country's record 137 index reading in the second half of 2006, the highest reading for any country since the Nielsen consumer confidence index was launched in 2005.

Confidence was lowest in Croatia followed by Portugal, which has imposed austerity measures as it struggles to slash high debt.

Consumer confidence in Greece slumped from the third quarter as the country continued to grapple with its debt burden while Ireland, which was forced to follow Greece and seek an international bailout late last year was also in the 10 least optimistic markets.

"Global consumers -- especially in the West, are bracing themselves for another year of flat to sluggish growth in 2011," said Venkatesh Bala, chief economist at The Cambridge Group, a unit of The Nielsen Company.

"Job creation and employment numbers have fallen below expectation and even though many countries are officially out of recession, many consumers are still living - and expect to continue living - a cautious recessionary lifestyle which is restricting domestic spending and demand."

Rising inflation threatened consumer confidence in previously bullish emerging markets, he said.

"Going forward, rising prices in several emerging markets such as China and India have potential to dent consumer confidence and spending, especially if their governments decide to expand policy actions to combat higher inflation," Bala said.

China's index reading dipped 4 points to the 100 level whereas Brazil was in the top 10 most confident markets and its score rose 5 points from the third quarter to 108.

The survey was taken in mid-November, covering 26,000 consumers in 52 countries. The survey is based on consumers' confidence in the job market, status of their personal finances and readiness to spend.

Nielsen Global Consumer Confidence Index in the fourth quarter, 2010 (Change from Q3 survey in brackets):