Business Blog Posts

The precious metal's 20 percent slide from a record high near $50 an ounce hit last Thursday rippled into other markets such as crude oil and the Australian dollar, encouraging investors to take profits after a recent rally.

The pull-back in commodities may take a toll on top global miner BHP Billiton (BHP.AX) and its rivals and weigh on the broader Australian share market .AXJO though record earnings from National Australia Bank (NAB.AX) may clip sharp drops.

Shares outside Japan .MIAPJ0000PUS fell for the third consecutive day, moving further away from a three-year high tested last week, following the drop in commodity prices and weaker U.S. stocks. Japanese markets are shut for a holiday.

Notwithstanding this week's softness in global equities, partially fueled by some soft U.S. economic data, markets have been broadly steady after posting big gains last quarter.

"This is more of a consolidation phase and we are likely to see low double digit returns this year after a recent nice run up," said Binay Chandgothia, portfolio manager at Principal Global Investors in Hong Kong. The firm manages more than $200 billion in assets worldwide.

Reflecting that caution in credit markets, spreads on the benchmark iTraxx investment grade index for Asia ex-Japan widened slightly to 106/108 basis points after narrowing sharply in recent weeks.

COMMODITIES RETREAT

The Reuters-Jefferies CRB index .CRB, a global benchmark for commodities, fell nearly two percent on Wednesday, hit by the sell-off in silver and declines in coffee, sugar and cocoa.

Until this week's retreat, commodities have been the best performing asset class in the first four months of this year, up more than 13 percent.

Copper extended losses on Thursday, with London futures dropping to seven-week lows as concerns grew that Asian economies would probably sacrifice some growth in exchange for keeping inflation under check, reducing demand.

India lifted interest rates by an aggressive half point this week while a Reuters poll of economists marked down 2011 growth forecasts for India and Australia.

HAWKISH ECB

In currency markets, the dollar index .DXY plumbed another three-year low, its sixth in the last seven sessions, before recovering slightly after soft private payrolls data provided the latest indication of a sputtering economic recovery.

The numbers raised worries that Friday's crucial non-farm payrolls report will disappoint and prompted the euro to consolidate its gains near a 17-month high against the dollar as markets braced for more hawkish comments from the ECB.

It raised euro zone rates by a quarter of a percentage point to 1.25 percent last month, ending almost two years of record-low interest rates and beginning what economists expect to be a run of increases.

"Positioning is light going into the ECB and talk of double-no-touch 1.4750/1.4950 in options market may contain the range. But I expect the ECB to keep the 'strong vigilance' wording," a trader at a U.S. investment bank said.

In contrast, top Federal Reserve officials said on Wednesday U.S. inflation remained well under control, reaffirming the view that the Fed will keep policy ultra loose. That sent U.S. Treasury yields to their lowest levels since mid-March, with the 10-year yield falling to 3.23 percent, down nearly 40 basis points down in less then a month.

(Additional reporting by Ian Chua in SYDNEY and Umesh Desai; Editing by Tomasz Janowski)

Kenny said a deal had already been reached in principle to lower the nearly 6 percent interest rate on the European Union and International Monetary Fund 85 billion euros bailout, and that the details would be hammered out once Portugal finalized details of its pending bailout package.

"At the recent (euro zone) meeting in Brussels ... it was agreed that countries within the bailout package could have a reduction of interest rates applied to them," Kenny told Reuters Insider television.

Kenny said that once details were finalized for a bailout for Portugal, which said late on Tuesday it had reached a three-year bailout deal with the EU and IMF, Dublin could negotiate "an interest rate reduction which would be significant in Ireland's case."

But he refused to consider higher corporate tax rates in Ireland and said his visit to New York was partly to reassure American firms that might consider putting jobs in Ireland that the country's 12.5 percent tax rate was set in stone.

"The corporate tax rate is not negotiable," he said. "We are not moving from our 12.5 percent corporate tax rate. Our country is open for business."

'BREACH OF TRUST'

Kenny said any such tax hike "would be a massive breach of trust, particularly with American foreign direct investment in this country."

After a euro zone summit in March, Kenny said he had reached a deal in principle to cut Ireland's interest rate by 1 percent, but that he was not prepared to raise corporate taxes in return for the deal.

Portugal's caretaker Prime Minister Jose Socrates announced late on Tuesday that Lisbon had reached a bailout deal with the EU and IMF after weeks of talks, becoming the third euro zone country to do so, after Greece and Ireland.

The interest rate on Portugal's bailout, which Socrates' office says will total 78 billion euros, is expected to be set at a meeting of euro zone finance ministers in mid-May.

Ireland's rescue package agreed to last November has failed to resolve Ireland's banking crisis and Kenny's government, elected in February, has said the current package must be changed to avoid the risk of default.

The Fine Gael leader said his coalition government is committed to selling $2 billion euro worth of state-owned assets and that any sale will be decided on the basis of which deals could add most jobs to the beleaguered Irish economy.

On Ireland's troubled banks, Kenny said if Anglo Irish Bank needs more help that bondholders should expect to contribute.

"If a requirement comes in for further capital injection into Anglo Irish Bank, the government will treat that accordingly and we would look at the question of senior bond holders in a very different light than we did when we didn't decide to burn senior bond holders with either Allied Irish Bank or Bank of Ireland," he said.

A solution to Irish banks' funding crisis and a cut in the cost of the deeply unpopular EU-IMF bailout would be a huge coup for Kenny. But to get such a deal he will come under intense pressure to concede on Ireland's low company tax rate, viewed as an unfair advantage in other European capitals.

Kenny's government has said it wants to cut the taxpayers' bill for bailing out the banks -- 46 billion euros and climbing -- by imposing losses on unsecured senior bonds in Irish banks not covered by a state guarantee, valued at 16 billion euros.

(Reporting by Mark Egan; Editing by Peter Cooney and Vicki Allen)

Recent winners in the energy and industrials sectors were hit most, and a key indicator of investor worry rose for a fourth day in what some say is the outset of extended weakness for stocks.

"I think there is a chance that we put the high in for the year," said Doug Kass, founder and president of Seabreeze Partners Management in Palm Beach, Florida.

"Investors should err on the side of conservatism and be increasing their cash positions," he added.

The S&P energy sector .GSPE, up almost 12 percent so far in 2011, dropped 1.6 percent on Wednesday, while materials .GSPM fell 1.7 percent and industrials .GSPI lost 1.4 percent. Dow component Caterpillar Inc (CAT.N) lost 2.2 percent to $110.77 on Wednesday but is still up 18.3 percent for the year.

Reports showed activity in the vast U.S. services sector slowed and hiring by private companies was weaker than expected in April. The new orders index in the purchasing managers survey hit its lowest since December 2009.

The releases "call into question the bullish notion of a smooth, self-sustaining recovery," Kass said.

The data also prompted caution before Friday's jobs report for April, one of the most closely watched U.S. economic indicators.

The Dow Jones industrial average .DJI lost 83.93 points, or 0.66 percent, to 12,723.58. The Standard & Poor's 500 Index .SPX fell 9.30 points, or 0.69 percent, to 1,347.32. The Nasdaq Composite Index .IXIC dropped 13.39 points, or 0.47 percent, to 2,828.23.

The CBOE volatility index .VIX rose 2.3 percent to 17.08 for a rise of more than 17 percent over the past four sessions,

shifting its near-term momentum to positive for the first time in more than a month.

"This is the problem area, a potential new uptrend in the VIX," said Larry McMillan, president of McMillan Analysis Corp in a report. "The longer it holds above 16, the more the danger (for the stock market) grows."

In deal news, chip equipment maker Applied Materials Inc (AMAT.O) offered to buy rival Varian Semiconductor Equipment Associates Inc (VSEA.O) for $63 per share to get its hands on new technology to meet stronger demand for smartphones and solar equipment.

Varian shares surged 51.3 percent to $61.36 while Applied Materials fell 1 percent to $15.09.

Chip gear maker Novellus Systems (NVLS.O) jumped 6.5 percent to $32.92.

ConAgra Foods Inc (CAG.N) raised its bid for Ralcorp Holdings Inc (RAH.N) to $86 a share in cash from $82.

Shares of ConAgra rose 3.1 percent to $25.51, while Ralcorp, which owns the Post cereal brand, jumped 4.9 percent to $87.39.

About 8.6 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, the largest volume since March 18 and above the average 7.74 billion shares traded daily so far in 2011. Volume was below last year's estimated daily average of 8.47 billion.

Decliners outnumbered advancers on the NYSE by a ratio of more than 2 to 1, while on the Nasdaq, more than eight stocks fell for every three that rose.

(Reporting by Rodrigo Campos; additional reporting by Leah Schnurr and Doris Frankel; Editing by Kenneth Barry)

John Williams, in his first speech as president of the San Francisco Fed, argued that the recent spike in commodity costs will likely be transitory.

"The economy today faces many pitfalls, but I don't believe that runaway inflation is one of them," Williams said, adding that he would not prejudge a possible need for additional bond purchases in the future.

In response to evidence of economic weakness last summer, the U.S. central bank in November announced it would buy some $600 billion in Treasury bonds in an effort to keep long-term borrowing costs low and support the recovery.

Eric Rosengren, the dovish president of the Boston Fed, who is a voter this year on the policy-setting Federal Open Market Committee, struck much the same note as Williams, saying a return to 1970s-style inflation was not likely.

He said tame wage growth and high unemployment are helping cushion some of the inflationary impact of higher food and energy costs, by keeping consumer inflation expectations under control.

A rise in inflation expectations can be self-fulfilling if it leads workers to demand higher wages.

JOB MARKET HEALING SLOWLY

But with high unemployment, workers have little power to demand higher wages because they can easily be replaced.

Another U.S. central bank official, Atlanta Fed President Dennis Lockhart, saw steady but modest job growth of about 200,000 jobs per month through the rest of the year after a slow spell.

"It may take three years before the size of the nation's work force reaches prerecessionary levels," he said in a speech in Atlanta.

The U.S. Labor Department will report figures for April nonfarm payrolls on Friday. Economists expect that 186,000 jobs were added in April, according to a Reuters poll.

Rosengren said increases in overall U.S. inflation due to supply shocks since the mid-1980s have generally been temporary, a pattern that should play out again.

"We should expect the impact on inflation to be transitory -- and that total inflation will converge back to core inflation, which remains well below 2 percent," he said.

The U.S. consumer price index jumped 2.7 percent in the year to March. But so-called core CPI, which excludes more volatile food and energy costs and is a gauge of underlying price trends, climbed just 1.2 percent. The Fed's informal target is 2 percent.

Not all Fed officials are equally sanguine about inflation. Richard Fisher, the Dallas Fed's hawkish president and also an FOMC voter this year, cited worries about rising prices.

"The headline (inflation) numbers have gotten a little stout," he told reporters after a speech. "We have to carefully monitor" how inflation expectations evolve.

Fisher said the U.S. economic recovery remained remarkably resilient despite shocks from unusually harsh winter weather and higher energy prices that have sapped consumer budgets.

He predicted growth would gather steam again after posting a rather disappointing 1.8 percent annualized rate of expansion in the first quarter.

"A host of more timely indicators suggest that economic growth will likely pick up in coming months," said Fisher.

Still, he stopped well short of calling for near-term interest rate hikes.

READY TO FIGHT INFLATION

If inflation does begin to act up, officials said the Fed has both the tools and the will to bring up rates quickly.

"I am committed to responding decisively, and as forcefully as necessary," the Boston Fed's Rosengren said, "to ensure that long-term inflation expectations remain stable and that food and energy prices are not passing through to other prices."

In response to the worst recession in generations, the Fed slashed official borrowing costs to effectively zero and implemented an array of unorthodox lending facilities to heal frozen credit markets. Many of those have been shuttered as market conditions improved, but the controversial buying of assets to keep down long-term rates has continued.

"Should it prove necessary to counter inflationary pressures, I will be among the first to advocate the unwinding of some of the stimulus we have provided," Fisher said.

Fisher cited a rebound in manufacturing and capital goods orders as not only a positive short-term indicator of economic momentum but also potentially a sign that the U.S. economy was finally moving away from an overreliance on consumer spending.

"They are harbingers of needed rebalancing," he said.

(Additional reporting by Ros Krasny in Boston, Ann Saphir in Los Angeles, and Joe Rauch in Atlanta; additional writing by Mark Felsenthal; Editing by Leslie Adler)

Rupert Murdoch's News Corp, which owns broadcaster Fox and publishes newspapers including the Wall Street Journal and the UK's News of the World, said operating net profit fell to 26 cents before adjusting for one-time charges from 29 cents.

Analysts had on average forecast profit of 27 cents, according to Thomson Reuters I/B/E/S.

It said the quarter compares with a year ago when it benefited from the record-breaking performance of Hollywood blockbuster 'Avatar'.

Revenue dropped 6 percent to $8.26 billion.

News Corp's filmed entertainment operating income fell by 50 percent to $248 million, compared with the quarter a year ago due to 3D movie Avatar.

Publishing operating profits also dropped significantly to $36 million due to a $125 million charge at its marketing service business and primarily due to advertising revenue declines at Australian and UK newspapers.

The story was better at its overall television business, which enjoyed a resurgence in advertising revenues and rising cable affiliate fees like other rivals at CBS Corp (CBS.N) and Time Warner Inc (TWX.N).

Operating income at its U.S. cable networks -- including FX, National Geographic and Fox Sports -- rose by 22 percent, while operating profit at its international networks -- including Star TV and Fox Deportes was up by 34 percent.

The Fox television business received a huge bump from its coverage of this year's football Super Bowl and broadcast retransmission fees, boosting its revenue by 23 percent.

News Corp's expected strong earnings have been overshadowed in recent months by speculation about the companies dealmaking and the controversy surrounding its phone hacking scandal at its UK weekly tabloid News of the World.

The New York-based company is in the process of trying to buy the 61 percent of BSkyB (BSY.L) it doesn't already own.

News Corp made a 700p a share offer last June and the board said it's looking for around 800p or around $14 billion.

Wall Street expects News Corp may have to raise its bid even higher than 800p, especially as the UK satellite company has posted much improved earnings results since News Corp first made its bid [nLDE7270PA].

News Corp is also in the process of assessing buyout offers for its struggling entertainment site Myspace, a one-time pioneer of social networking which has long fallen far behind Facebook. News Corp said Myspace continued to rack up increasing losses during the third quarter.

(Reporting by Yinka Adegoke, editing by Bernard Orr)

U.S. stocks fell on Tuesday as traders booked profits from a recent rally, with the S&P 500 .SPX down for the second day after hitting its highest level in nearly three years on Friday.

The focus will be on economic data later in the session, including the ISM non-manufacturing index for April due at 1400 GMT and forecast to tick-up to 57.4 from 57.3 on the back of growth in its business activity index, in a confirmation of modest economic recovery.

Data from the labor market, however, was likely to point to modest slowing, with the ADP Employment report at 1215 GMT expected to show private jobs grew by 198,000 in April compared with 201,000 a month earlier.

Earnings results will continue to dominate near-term direction, with the likes of IntercontinentalExchange (ICE.N), Kellog (K.N) and News Corp (NWSA.O) scheduled to report quarterly numbers.

News Corp's anticipated strong quarterly profit will likely to take a back seat to Rupert Murdoch's dealmaking appetite and a phone-hacking scandal at its British newspapers.

Some 74 percent of companies on the S&P 500 that have so far reported results have posted in-line or above-forecast figures, with the rest coming in below expectations, data from Thomson Reuters StarMine showed.

In company news, TV firms CBS Corp (CBS.N) and Comcast Corp (CMCSA.O) rose 1 percent and 4 percent respectively in after-hours trade after they reported earnings that beat most forecasts and set the stage for healthy price increases in the next round of ad sales.

General Electric (GE.N) has put its railcar leasing business up for sale, its second attempt in three years to offload a business that could be worth more than $3 billion, a source familiar with the situation said.

Chrysler (FIA.MI), Ford (F.N) and General Motors (GM.N) showed faster U.S. sales growth rates in April than Toyota and most other Japanese brands, in a sign that supply disruptions as a result of Japan's March 11 earthquake were hitting Japanese manufacturers hardest.

U.S. grocery operator Safeway (SWY.N) expanded its recall on edibles containing grape tomatoes in several states, due to possible salmonella contamination.

An unsolicited takeover bid by Nasdaq OMX Group (NDAQ.O) and IntercontinentalExchange for NYSE Euronext (NYX.N) would break up NYSE Euronext and most likely cut jobs at its Paris operations, its European chief said in an interview.

In Europe, the pan-European FTSEurofirst 300 .FTEU3 index of top shares dipped in early trade, with heavyweight mining shares pressured by falling commodity prices.

(This story was corrected in seventh paragraph to say 74 percent of companies, not 74 companies)

(Reporting by Harpreet Bhal; Editing by Dan Lalor)

The world's largest diversified commodities trader set a 480 to 580 pence per share price range for the London initial public offering (IPO). That values it at 36.5 billion pounds ($60 billion) at the mid-point, which is below the price some analysts say the company is worth, and was seen as an attempt to leave something on the table.

"It's smart for investment bankers to be conservative in their pricing, so as not to disappoint too many people," John McGloin at Collins Stewart said.

But institutional investors may take some convincing.

"The key thing Glencore needs to bear in mind is yes, they have an interesting model, but not everyone has bought into the idea of how the business is run," a portfolio manager at a UK investment company said.

"To be pricing Glencore over $55 billion is way out of line, I would not buy that."

Glencore, which is planning a dual London and Hong Kong listing, said Wednesday it was looking to raise gross proceeds -- before fees and other costs -- of around $10 billion. That is before a 10 percent "greenshoe" or over-allotment option which can be sold if there is demand.

The listing will boost Glencore's firepower for deals amid a boom in commodity prices, but will also push it into the public eye after 37 years as a discreet private company.

The IPO will turn publicity-shy executives including chief executive Ivan Glasenberg, a former coal trader, into paper billionaires. Glasenberg, Glencore's largest shareholder, will have his precise holding, along with other details, made public when the full prospectus is published later Wednesday.

"Glasenberg is more or less going to be worth around $10 billion," a source close to the matter said.

Some details have begun to trickle out. Glasenberg will be paid 925,000 pounds a year according to a draft prospectus, and will be entitled to a bonus of up to twice that amount. Simon Murray will be one of the best-paid FTSE non-executive chairmen with annual fees of 675,000 pounds.

Glencore's estimate of its future market capitalization puts the company just above the mid-point of a wide $45 to $73 billion value implied in its intention-to-float last month. The mid-point of analyst research was around $60 billion, though that excludes proceeds from the offering.

"We could have gone out with a much higher price range. (Glencore) knows a sensible price range is needed," another source close to the deal said.

Glencore said it had struck agreements with cornerstone investors, who will take up around 31 percent of the total offer, one of the largest cornerstone books to date. A separate term sheet reveals Abu Dhabi's IPIC Aabar will be the largest cornerstone investor, committing $850 million to the IPO.

Singapore has agreed to invest $400 million and BlackRock Inc $360 million, while other investors include Credit Suisse Private Bank and Och Ziff, have each agreed to buy $175 million worth of shares.

The source close to the deal said the cornerstones were oversubscribed, with not every early investor getting the full allocation they had requested.

STRONG DEBUT

People close to the matter have said Glencore is looking to target a strong market debut. A less ambitious valuation will also attract investors who have fretted over its motivations for going public at what some see as the top of the commodity cycle.

"We expect it to be a successful float. It's well-backed by some very high-profile cornerstone investors," John Meyer, analyst at Fairfax in London, said.

The company confirmed it is looking to raise around $7.9 billion from the sale of new shares in a primary offering, while its partners planned to raise about $2.1 billion in a secondary sale to pay off a tax bill linked to the IPO.

That would value Glencore at about 8 to 10 times estimated 2011 earnings, based on the average forecast of the three banks underwriting the IPO.

Founded in 1974 by trading sensation Marc Rich, Glencore has until now held on to a fiercely prized tradition of public discretion. As a result, investors will scour the prospectus, expected to be more than 1,000 pages long, for details ranging from its existing investors to risks and trading.

The prospectus is also expected to give the first indication of how much the commodities giant will pay its bankers in one of the biggest paydays for the sector this year.

Citigroup, Credit Suisse and Morgan Stanley are the joint global coordinators for the offer.

In its release Wednesday, Glencore said it had appointed an extra 14 banks to lower ranking roles, boosting the syndicate disclosed last month and taking the total to 23 institutions.

Conditional trading is set to begin on May 19, with unconditional dealings in London on May 24 and Hong Kong on May 25.

Glencore is expected to be fast-tracked into the FTSE 100

bluechip index at close of business on the first day of trading, given its size and share of the FTSE all-share index.

Glencore gave no specific earnings figures for the first three months of the year, but said it had continued to benefit from improved market conditions, with "substantial" improvements in its oil division. Glencore added the strong conditions would continue into the second quarter, with robust demand.

(Additional reporting by Kylie MacLellan, Sarah Young, Julie Crust and Chris Vellacott in London, Denny Thomas and Fiona Lau in Hong Kong; Editing by Alexander Smith)

($1=.6072 Pound)

This week's 14 percent plunge in silver prices and a lower-than-forecast manufacturing growth reading in China have made investors nervous about holding big bets ahead of the European Central Bank meeting on Thursday and the April U.S. payrolls report due on Friday.

Sentiment was also turning negative after the U.S. S&P 500 stocks index .SPX closed lower for a second day after hitting a 3-year high on Monday, hurt by fears corporate earnings would not live up to high expectations.

"Risky assets are having a respite, having advanced rather quickly in more recent weeks," said Andy Ji, a currency strategist and economist with Commonwealth Bank of Australia in Singapore.

"I continue to see fundamental support either waning or fully priced in many risky assets, including currencies that are more risk-sensitive."

The dollar gained 0.12 percent against a basket of currencies .DXY as there was some unwinding of stretched short positions maintained by hedge funds betting on a rise in Asian currencies.

Deutsche Bank's internal gauge of market positioning that tracks moves among hedge funds had shown that long positions in some of the Asian currencies had been close to a record high as of last Thursday, said Mirza Baig, the bank's senior currency strategist in Singapore.

"In general it feels really, mostly like a position reduction kind of a move," he said, referring to the dollar's broad rise against emerging Asian currencies." Positioning was definitely quite stretched."

Ji said the likelihood of further unwinding was making some Asian assets less attractive.

"While I still think the general USD weakness would linger and provide a lift to risky assets, the trade-off in chasing aggressively the strength in these assets has turned less attractive or is dependent primarily on the extent of USD weakness in the coming months," he said.

In Australia, the benchmark S&P/ASX 200 index .AXJO was down 48 points or 1.0 percent at 4,7337 as of 0347 GMT (11:47 p.m. ET on Tuesday), adding to a 0.8 percent fall on Tuesday. The Australian and New Zealand dollars also lost ground as a reluctance to take risk prompted investors to book profits on hefty gains made last month.

Stock markets in Hong Kong, Singapore, Korea and New Zealand also fell. The Hang Seng index .HSI was off nearly 1.3 percent. Japan's financial markets were closed for the Golden Week holiday.

MSCI's broadest index of Asia-Pacific shares excluding Japan .MIAPJ0000PUS, which also has a strong correlation to silver prices, fell more than 1.4 percent.

Silver suffered its biggest two-day loss since October 2008, dragging down gold and other commodities. After hitting an all-time high within a whisker of $50 an ounce last Thursday, spot prices were at $41.2 on Wednesday. Gold was also down about 0.6 percent.

Oil prices were dragged down after data showed U.S. crude stocks rose sharply last week, adding to concerns about demand and gains in the dollar that helped spark a technical sell-off.

ICE Brent crude for June fell 70 cents to $121.75 a barrel by 0205 GMT, near Monday's low of $121.67 and its third straight session of losses.

In currency markets, euro/sterling was at 0.89830, within striking distance of a 13-mth high of 0.90065 hit on Tuesday. The pair climbed one percent on Tuesday after disappointing UK PMI data signaled that a rate hike may be further away than expected.

In contrast, the European Central Bank is expected to signal its readiness to raise interest rates after its policy meeting on Thursday, and may prepare the market for a June hike.

(Additional reporting by Masayuki Kitano and Jongwoo Cheon; Editing by Richard Borsuk)