Business Blog Posts

It may all be a bit too much for the average U.S. household, particularly with an already sluggish labor market stuttering again.

A raft of economic reports this week will help sort out just how bad things have gotten, and offer some hints as to whether the slowdown is temporary or the start of a trend.

"At this point in the cycle, everyone believed we'd be on the mend, but it looks like that's not the case," said William Larkin, portfolio manager of Cabot Money Management in Salem, Massachusetts, citing high levels of applications for new jobless benefits.

As goes the world's largest economy, so goes the world, though the relationship is hardly one-sided. Uprisings in the Middle East and North Africa have helped to keep oil prices high, putting a damper on U.S. consumer spending.

In Europe, Greece's debt saga continues to rage on with no clear resolution in sight. Even as European paymaster Germany demanded on Friday that private investors contribute to a second bailout for Greece, rating agencies have warned that any type of restructuring would likely be considered a default.

The aftermath of Japan's earthquake and tsunami is also of crucial importance to the global outlook, since some economists believe it helps explain part of the recent softness.

U.S. Federal Reserve officials have remained cautiously optimistic, saying the economy will pick up in the second half of the year and will not need additional monetary support from an already highly stimulative central bank.

But their upbeat tone is perceptibly less self-assured. Fed Chairman Ben Bernanke last week characterized the job market as "far from normal" after employment data showed only 54,000 net new jobs were added to the economy in May, while the jobless rate rose to 9.1 percent, the highest since December.

UPHILL BATTLE

Kicking off a full calendar, U.S. retail sales on Tuesday are expected to show a 0.4 percent drop for May but a gain of 0.2 percent excluding autos, according to a Reuters poll of economists. Weakness in the auto sector may be due in part to supply chain disruptions following the Japanese disaster.

Also of keen interest will be two reports from regional Fed banks on manufacturing activity around their districts, since they offer an early glance into the economy's performance in June. Both are seen rising, but to unimpressive levels.

Any upsets could send already jittery financial markets into a tailspin. U.S. stocks, which fell sharply on Friday on concerns over global growth prospects, have posted six straight weeks of losses.

Japan this week will release data on machinery orders and revisions to industrial output for April. The Bank of Japan, which meets to set interest rates on Tuesday, will consider expanding a loan program aimed at supporting certain industries, according to sources.

Reports on U.S. industrial output and consumer sentiment will also be combed closely for signs that either business or consumer spending can steady a stumbling recovery.

Two other data releases from Washington will shed light on the nation's inflation picture.

High energy and food costs had until recently been rising rapidly, eating into consumer budgets. At the same time, wages have risen all too slowly, damaging household purchasing power while also preventing a more pervasive inflationary trend.

"As for the concerns of inflation hawks, the trend in wage growth provides absolutely no cause for alarm," said Heidi Shierholz, an economist at the Economic Policy Institute, a liberal think tank in Washington.

(Reporting by Pedro Nicolaci da Costa; Editing by Dan Grebler)

More than two years since the devastating 2008 banking crisis, regulators from Washington and London to Brussels and Singapore are tightening the screws on high finance, with large Wall Street firms already moving to comply with new laws.

Yet regulators' efforts are moving on different schedules and along sometimes diverging tracks, with much at stake for global giants such as JPMorgan Chase, Bank of America, HSBC Holdings and Goldman Sachs.

The lack of an international regulatory framework is a big issue. It allows banks to play nations off against each other by threatening to move their business elsewhere, while underscoring basic logistical challenges. How, for example, can national agencies police banks that are transnational?

Such questions are not new, but on few fronts are they more problematic at the moment than in policing the $600 trillion off-exchange swaps markets, and in forcing banks to hold more capital on their books to better handle future crises.

Both initiatives threaten existing business models and profits in the financial industry, which is working hard to protect itself behind a time-tested veil of talking points about unintended consequences and saving jobs.

In the United States, that means pushing back -- largely at the implementation level now that 2010's Dodd-Frank reforms are the law of the land -- against scores of new swaps rules.

In Europe, the swaps crackdown is also being contested, as is an effort that is being coordinated in Switzerland to raise the capital standards of the world's largest banks.

Against this backdrop, the U.S. Commodity Futures Trading Commission will meet on Tuesday to focus on swaps rules.

"LEGAL UNCERTAINTY"

"There is some legal uncertainty surrounding July 16 and derivatives contracts," including swaps, said Brian Gardner, policy analyst at financial group Keefe Bruyette & Woods.

New swaps rules mandated by Dodd-Frank are supposed to take effect on July 16, but many still have not been finalized and probably will not be completed in time. Will pre-Dodd-Frank rules end on July 16? What should swaps markets do?

Answers to these questions have already been provided by the U.S. Securities and Exchange Commission. "The CFTC is acutely aware of the issue and may signal on Tuesday how it intends to address the problem," Gardner said.

CFTC Chairman Gary Gensler will testify on swaps before a U.S. Senate panel on Wednesday, with European Union ambassadors meeting the same day to explore a political deal on swaps.

Concerns were spreading last week among policymakers of transatlantic divergence and delay on swaps oversight. Failing to rein in swaps could expose the world economy to a replay of 2008, when credit default swaps played a central role in crises at Bear Stearns, Lehman Brothers and AIG.

"At the end of the day, I don't know how much this stuff matters because there are so many ways to go out and take a lot of risk with derivatives," said Simon Johnson, business professor at the Massachusetts Institute of Technology and author of "13 Bankers," a recent book about the crisis.

The broad issue of international regulatory reform will be discussed on Thursday by a U.S. House of Representatives panel, with the heads of major regulatory agencies testifying, among them Federal Deposit Insurance Corp Chairman Sheila Bair.

Bair's agency is scheduled to meet on Tuesday to finalize new Dodd-Frank rules limiting bank holding companies from holding less capital than their federally insured bank units.

Plenty of discussion, but few decisions, are expected next week on another topic -- restricting commodity market speculation. A European Commission conference on this is set to begin on Tuesday in Brussels.

(By Kevin Drawbaugh, editing by Matthew Lewis)

After closing at its highest level in nearly three years on April 29, the S&P 500 has tumbled nearly 7 percent on the back of a barrage of soft economic data, sparking the debate over whether the economy is headed for a double-dip, or has merely hit a soft patch in its recovery.

The benchmark S&P 500 recorded its sixth straight weekly decline on Friday and volume has picked up, as it typically does, on down days. Another week of selling will mark the longest stretch of weekly losses for the index since 2001.

Red flags, including ugliness in the junk bond market, options activity and the ease with which support levels have been broken suggest more selling ahead.

"You have to be realistic. You've got to have some sort of correction to go into this marketplace just for the healthiness of the market," said Cliff Draughn, president and chief investment officer at Excelsia Investment Advisors in Savannah, Georgia.

As stocks have declined, both investment-grade and high-yield risk premiums in the bond market have slumped as investors sought safe-haven assets.

That's troublesome since the stock market often moves in sympathy with the junk bond market because rising borrowing costs crimp corporate profits.

The CDX HY16 North America index for high-yield bonds, which conversely falls as risk appetite decreases, closed below par for the first time this year on Wednesday. The CDX IG16 North American investment grade index, which investors use to hedge against bond losses, hit its highest level since November 30, according to Tradeweb.

In another signal of skittishness about the market's footing, Ally Financial, an auto and mortgage lender majority owned by the U.S. government, delayed a $6 billion IPO due to bad market conditions, two sources familiar with the situation told Reuters.

DATA BLITZ AND QUADRUPLE WITCH

Stocks have also been easily passing through technical support levels, with the S&P 500 most recently taking out the April 18th low of 1,294.70, leaving analysts to eye the 1,250 level as the next area of support.

And the daily volume put/call ratio for equity options on the Chicago Board Options Exchange (CBOE) hit an 18-month high on Wednesday, indicating that investors are significantly bearish on the stock market.

On top of all that, data expected for next week, including the Producer Price Index, the Consumer Price Index, May retail sales, manufacturing surveys for New York and Philadelphia as well as the index of leading indicators of economic activity are forecast to mostly show a struggling economy.

"It is a busy economic week, so we expect the market to both anticipate economic data and to react to the releases --

I don't necessarily see anything good coming out of the economic releases next week," said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.

Several of these indicators set off the first alarm bells about the economy's health when they came out a month ago.

By the end of the week, investors will also grapple with quadruple witching, when the options for stock-index futures, single-stock futures, equity options and stock-index options for June expire.

"This trade will lead to increased volume and the possibility of big moves in the market. Expiration also has the potential for increased volatility, especially intraday volatility next week," said TD Ameritrade chief derivatives strategist Joe Kinahan.

NOT ALL SIGNS POINT DOWN

But even with the heavy losses suffered recently, the CBOE Volatility index has remained relatively unchanged, indicating market participants have yet to push the panic button.

"During this entire correction, the VIX hasn't budged much," said Jason Goepfert, president of sentimenTrader.com, in a report. "That could be a sign of complacency among traders, but historically a stock market correction without a spike in the VIX has been a better 'buy' signal than 'sell' signal."

However, a turnaround in stocks could be stoked by any sign of progress in Washington on the debt ceiling and budget debates, an overhang on stocks that has frustrated market participants.

"The biggest thing on the horizon right now is the inability of the U.S. Congress to come to some sort of conclusion over a budget," Draughn said.

"Once that happens, that kinds of frees Bernanke's hands to where if he needs to do monetary intervention, he can. But he essentially is handcuffed at this point, due to the fact that the Treasury is happy to restrict the amount of bonds being issued for bumping up to the debt limit."

(Reporting by Chuck Mikolajczak; Additional reporting by Doris Frankel and IFR analyst Rachelle Horn; Editing by Jan Paschal)

Lagarde, France's finance minister, pressed on with a tour of capitals and told her Saudi Arabian counterpart that tackling sovereign debt troubles would be a priority of the IMF if she led the Washington-based rescue lender.

Fischer, first deputy managing director of the IMF from 1994 to 2001, was once described by former U.S. Treasury Secretary Robert Rubin as the "unsung hero" of the world financial crises of the 1990s.

He is also competing with Mexican central bank chief Agustin Carstens.

Fischer had said the IMF post was one of the best jobs in the international financial system but was noncommittal on a bid until Saturday.

"There arose an extraordinary and unplanned opportunity -- perhaps one that will never happen again -- to compete for the head of the IMF, which after much deliberation I decided I wish to follow through on," Fischer said in a statement.

Israeli Finance Minister Yuval Steinitz, Israel's representative at the IMF, said he would support and aid the candidacy of Fischer, whose resume also includes a spell as chief economist at the World Bank.

The top IMF job was vacated by Frenchman Dominique Strauss-Kahn, who resigned after his arrest on May 14 on charges of attempting to rape a New York hotel maid.

The deadline for applications to replace him closed at midnight on Friday.

Fischer, 67, would be a significant challenger to Lagarde and has been a candidate for the fund's top job in the past.

But the IMF would have to change its rules that no one should be appointed to the post over the age of 65 and that no one should hold the job, which carries a five-year term, beyond the age of 70.

Fischer, also an ex-vice chairman of Citigroup, was born in what is now Zambia but holds Israeli citizenship, which could pose a problem for Arab countries. He is also a U.S. citizen, which could prove an obstacle as the United States traditionally claims the top job at the World Bank, while a European has always run the IMF.

"Because of my unique experience ... I believe I can contribute to the IMF, the central entity of the global economy, and contribute to the global economy after the crisis," said Fischer, who said previously the head of the IMF did not need to be European.

Economist Nouriel Roubini said Fischer was qualified to run the IMF but would not be able to knock Lagarde off course.

"Stan Fischer would make an excellent IMF managing director. But, at this late stage, he does not have enough support to succeed," Roubini said in an email.

Mohamed El-Erian, co-chief investment officer at the world's largest bond fund company, PIMCO, said Fischer would be a popular choice at the fund, having served as its No. 2.

"He is extremely well liked by the staff of the IMF, well known and genuinely respected by the member countries of the institution," El-Erian told Reuters.

Fischer may not be so popular in Asia where he remains associated with some of the harsh IMF-backed, free-market policies to fight the region's financial crisis in the late 1990s.

LAGARDE SEEKS SAUDI SUPPORT

Lagarde was in Saudi Arabia on Saturday as part of a world tour to drum up support among emerging market economies.

"There are specific issues to deal with and clearly some of the sovereign debt crisis issues are one of the priorities at the moment," Lagarde told Reuters on the sidelines of a meeting with Saudi Arabian Finance Minister Ibrahim Alassaf in Jeddah.

"I will certainly look at one of the purposes of the fund, which is to restore stability."

Lagarde is backed by the European Union and a handful of smaller countries from Georgia to Mauritius. Paris is hopeful that Washington and Beijing will also stand behind her.

Fischer, though, is popular in the United States and was Federal Reserve Chairman Ben Bernanke's thesis adviser.

Brazil, Latin America's biggest economy, is leaning toward Lagarde but has not decided, officials said on Friday.

A Reuters poll of economists around the world in May found 32 of 56 saw Lagarde as the favorite, although Fischer won the most votes as "best suited" for the job.

Fischer, who just started his second year of a second five-year term as Israel's central bank chief, is credited with helping Israel's economy weather the global financial crisis by starting to lower Israeli interest rates sharply in 2008. He has since raised rates 10 times to contain inflation.

One potential pitfall for Lagarde is an investigation into her role in a 2008 arbitration payout to a French businessman.

A top French court on Friday put off until July 8 its decision on whether to open a formal inquiry into allegations by opposition left-wing deputies that she abused her authority in approving a 285 million euro payout to a businessman friend of President Nicolas Sarkozy.

(Additional reporting by Tova Cohen in Tel Aviv and Jennifer Ablan in New York; Editing by Andrew Heavens and Peter Cooney)