Business Blog Posts

The Institute for Supply Management said on Monday its index of national factory activity fell to 50.9, the lowest level since July 2009, from 55.3 in June.

Economists had expected a reading of 54.9. A reading below 50 indicates contraction in manufacturing.

The economy almost ground to a halt in the first half of the year, government data showed on Friday, with output rising at a tepid a 1.3 percent annual pace in the second quarter after advancing just 0.4 percent in the prior period.

The ISM report suggested the much anticipated bounce back in growth in the second quarter would probably be feeble.

"These are the types of numbers that are consistent with what we saw with the GDP numbers," said Keith Hembre, chief economist at Nuveen Asset Management in Minneapolis.

"Absent a governmental shock, we would dredge forward with this stagnant economic performance. We'll be mired in this 1 to 2 percent (growth) environment we have been in."

Congressional leaders were scrambling to line up Republican and Democratic votes for a White House House-backed deal to raise the U.S. borrowing limit and avert a debt default.

The deal, which raises the $14.3 trillion debt ceiling and cuts about $2.4 trillion from the deficit over the next decade, was hammered out on Sunday.

Stock indexes turned negative after the factory data while bond prices rose. The dollar fell against the yen and the Swiss franc, but rose against the euro.

Manufacturing, which accounts for about 12 percent of gross domestic product, has shouldered the weak recovery from the 2007-09 recession.

Activity last month was held back by weak new orders, whose index fell to 49.2 from -- the lowest in two years, from 51.6 in June. Prices paid index fell to 59 from 68, while the employment index fell to 53.5 from 59.9.

Nonfarm jobs likely rose 85,000 in July, according to a Reuters survey, after June's paltry 18,000 gain. The Labor Department will release its monthly jobs data on Friday.

A separate report from the Commerce Department showed construction spending advanced 0.2 percent to an annual rate of $772.32 billion, the Commerce Department said. May's construction spending was revised to a 0.3 percent increase rather than the previously reported 0.6 percent decline.

Economists had expected construction spending to be flat in June. Overall construction spending fell 4.7 percent from a year ago.

Private construction spending rose 0.8 percent to a seven-month high as an increase in nonresidential outlays offset a second straight month of declines in spending on residential projects.

Spending on public construction projects dropped 0.7 percent to $278.91 billion, the lowest level since March 2007. The decline reflected weak spending on federal projects, which dropped 2.2 percent. State and local government spending fell 0.6 percent to the lowest level since November 2006.

(Reporting by Lucia Mutikani; Editing by Neil Stempleman)

At 0939 GMT, futures for the S&P 500, the Dow Jones and the Nasdaq 100 were up 0.9 to 1 percent, after U.S. stocks had ended the worst week in a year on Friday on a stalemate in debt talks. Analysts said the oversold conditions had also primed the market for a bounce.

The lawmakers were expected to vote on Monday on the White House-backed agreement. The Democratic-led Senate may pass the deal, but it may face tougher opposition in the House of Representatives where both conservative Tea Party supporters and liberal lawmakers have criticized it.

The dollar received a lift against the yen and Swiss franc as the debt deal prompted traders to unwind safe haven plays. Gold, which generally gains in difficult economic and political situations and had hit record highs last month, fell more than 1 percent.

"This morning's bounce is a classic relief rally, but investors remain concerned about the U.S. because they went so close to the wire in a game of what looked increasingly like reckless political brinkmanship," said Darren Sinden, senior sales trader at Silverwind Securities in London.

"And if the U.S. were to be downgraded, then higher borrowing costs would be a further obstacle to a continued recovery."

Rating agencies have said the United States could face downgrades to its gold-plated AAA sovereign debt rating, if the world's biggest economy failed to agree on a viable long-term deficit reduction program.

"Even if the debt ceiling is raised, all of the heavy lifting will be in front of us," said Peter Kenny, managing director in institutional sales at Knight Capital Group in Jersey City, New Jersey.

"I think it's an almost foregone conclusion that there is going to be a downgrade at some point."

Some analysts said any relief rally could be short-lived, with other big risks present. A report on Friday showed U.S. economic growth in the first half was much slower than anticipated.

Investors will continue to focus on company earnings and macroeconomic indicators. Both July ISM data and June construction spending numbers are due at 1400 GMT, while widely-watched non-farm payrolls data for July will be released on Friday.

Allstate (ALL.N), the largest publicly traded U.S. home and auto insurer, will report second-quarter results, having already warned of one of the worst quarters in its history because of U.S. tornado losses.

Other companies announcing results on Monday included health insurer Humana (HUM.N) and Vornado (VNO.N), whose core business focuses on U.S. office and retail properties.

Resource-related stocks were expected to be in demand as key base metals prices jumped and crude oil prices climbed more than 1.4 percent.

In Europe, the FTSEurofirst 300 index .FTEU3 of top shares rose 0.6 percent, while In Asia, Japan's Nikkei average .N225 surged 1.3 percent.

(Editing by Jane Merriman)

There remained a widespread assumption, however, that credit ratings agencies could downgrade U.S. Treasuries from their vaunted triple-A status, a move that would impact the valuation of numerous other assets.

After a tense weekend spent in search of a compromise to allow the U.S. borrowing limit to be lifted, U.S. President Barack Obama said leaders from both parties reached a deal to cut the budget deficit by $1 trillion over 10 years, with additional savings of $1.4 trillion possible.

The plan must be passed by both houses of Congress and will still face some opposition. But it is expected to allow the debt ceiling to be raised, avoiding the prospect of Washington not being able to pay its bills and defaulting.

World stocks as measured by MSCI .MIWD00000PUS climbed 0.6 percent with emerging market shares .MSCIEF up 1.2 percent.

There were large gains in Japan, where the Nikkei .N225 rose 1.3 percent. In Europe, the FTSEurofirst 300 .FTEU3 rose 0.7 percent with banking shares enjoying a big boost.

But there remained a degree of skepticism about how long the rise in risk sentiment would last, given the likely U.S. downgrade, which some believed could come this week.

"It is a relief rally on the back of the parties coming together, but it could only last for a couple of days as the United States could now face a ratings downgrade," Manoj Ladwa, senior trader at ETX Capital, said.

"That would impact every part of the United States."

It would also raise issues for assets elsewhere. Some large pension funds, for example, will only hold triple-A debt, meaning they may have to sell Treasuries and buy elsewhere, crowding trades into German Bunds, for example.

The relative valuations of a number of assets, meanwhile, are based on their difference from supposedly risk-free Treasuries.

UNWINDING

The flip side of Monday's stock rally was the unwinding of investors positions taken to protect against U.S. default.

Gold fell more than 1 percent before recovering slightly. It was at $1,614 an ounce after hitting all-time nominal highs last week.

The dollar rose against the Swiss franc, which has seen intense interest from investors as the dual euro zone and U.S. debt crises have stirred markets this year.

Commodity currencies -- those tied to the prospect of large developing market growth -- climbed, with the Australian dollar nearing a 29-year peak against the greenback hit last week.

"In the short term, there will be relief in market sentiment today and maybe this week, as the U.S. will avoid a default, but the problems are not fully solved so I think we will see a muted reaction," said Richard Falkenhall, currency strategist at SEB in Stockholm.

"You have the risk of ratings agency downgrades, and no further fiscal stimulus in this deal," he said.

On bond markets, yields on U.S. Treasuries and core euro zone debt rose, reflecting some selling to release money parked in fixed income in the runup to the U.S. deal.

The premium investors demand to hold Italian and Spanish government bonds rather than benchmark German Bunds fell in line with the outperformance of riskier assets.

(Additional reporting by Naomi Tajitsu and Joanne Frearson; Editing by John Stonestreet)