Business Blog Posts

More than 100 people have been killed during six days of protests in Egypt aimed at toppling President Hosni Mubarak.

A wider conflagration in the region could threaten the flow of oil at a time when policymakers in emerging markets are already bedeviled by high food and fuel prices and some developed economies are gaining momentum.

"To the extent that the instability continues, investor reaction will most likely push oil and Treasury bond prices higher, and global equities lower." Mohamed El-Erian, co-chief investment officer at bond giant PIMCO, told Reuters.

"The situation in Egypt is very fluid."

For now, investors watched closely for any sign of growing instability in the Middle East. U.S. S&P 500 futures were up 0.2 percent after Wall Street closed down 1.8 percent on Friday, while U.S. Treasury futures were flat on the day.

The U.S. dollar, yen and Swiss franc, which all gained on Friday in reaction to the escalating Egyptian situation were largely stable, with protesters in Cairo camped out and calling for Mubarak to step down after 30 years of rule.

The prospect of more expensive energy bills in high growth emerging markets added to unease about rising inflation among investors, who had last week pulled money out of developing equity markets for the first time in more than a month.

Emerging Asian currencies, down broadly on Monday, will be tested this week ahead of Lunar New Year holidays, with focus on inflation data from Indonesia, South Korea and Thailand due on Tuesday.

Japan's Nikkei share average .N225 was down 1.2 percent, at one point hitting its lowest since early December 2010.

Japan's biggest gas and oil developer Inpex Corp (1605.T) gained 2.7 percent in heavy trade, becoming the second biggest gainer on the Nikkei.

The MSCI Asia Pacific ex-Japan stock index .MIAPJ0000PUS fell 1 percent, with selling scattered across the consumer discretionary, industrial and materials sectors.

Stocks in Indonesia and the Philippines were the hardest hit, with benchmark indexes falling 2.1 and 2.6 percent, respectively. These markets were among last year's biggest gainers in Asia and the latest bout of risk reduction has made investors more willing to take profits.

Egyptian markets and bankers were shuttered on Monday.

OIL HEADS TO $100

More than 100 people have been killed during six days of protests in Egypt aimed at toppling President Hosni Mubarak.

A wider conflagration in the region could threaten the flow of oil at a time when policymakers in emerging markets are already bedeviled by high food and fuel prices and some developed economies are gaining momentum.

"To the extent that the instability continues, investor reaction will most likely push oil and Treasury bond prices higher, and global equities lower." Mohamed El-Erian, co-chief investment officer at bond giant PIMCO, told Reuters.

"The situation in Egypt is very fluid."

For now, investors watched closely for any sign of growing instability in the Middle East. U.S. S&P 500 futures were up 0.2 percent after Wall Street closed down 1.8 percent on Friday, while U.S. Treasury futures were flat on the day.

The U.S. dollar, yen and Swiss franc, which all gained on Friday in reaction to the escalating Egyptian situation were largely stable, with protesters in Cairo camped out and calling for Mubarak to step down after 30 years of rule.

The prospect of more expensive energy bills in high growth emerging markets added to unease about rising inflation among investors, who had last week pulled money out of developing equity markets for the first time in more than a month.

Emerging Asian currencies, down broadly on Monday, will be tested this week ahead of Lunar New Year holidays, with focus on inflation data from Indonesia, South Korea and Thailand due on Tuesday.

Japan's Nikkei share average .N225 was down 1.2 percent, at one point hitting its lowest since early December 2010.

Japan's biggest gas and oil developer Inpex Corp (1605.T) gained 2.7 percent in heavy trade, becoming the second biggest gainer on the Nikkei.

The MSCI Asia Pacific ex-Japan stock index .MIAPJ0000PUS fell 1 percent, with selling scattered across the consumer discretionary, industrial and materials sectors.

Stocks in Indonesia and the Philippines were the hardest hit, with benchmark indexes falling 2.1 and 2.6 percent, respectively. These markets were among last year's biggest gainers in Asia and the latest bout of risk reduction has made investors more willing to take profits.

Egyptian markets and bankers were shuttered on Monday.

OIL HEADS TO $100

Cautious trading could also come if earnings don't outperform and erode optimism about profits.

The government's January jobs report on Friday will highlight the week's economic data, as investors look to see if the unemployment rate continues to fall as it did in December.

Market volatility skyrocketed on Friday as indexes tumbled, with the VIX index .VIX, the market's fear gauge, up 24 percent, its biggest daily percentage jump since May 20.

Worries that Egypt's unrest could spread to other countries in the Middle East, home to the world's top oil exporters, caused investors on Friday to pull out of stocks and into bonds and other safer assets. U.S. crude futures settled more than 4 percent higher on Friday.

"As long as people are worried about political unrest in the Middle East, it will be weighing on the market," said David Kelly, chief market strategist for JPMorgan Funds in New York. "This story isn't just going to end overnight."

But "it could well turn out to be a short-lived correction, and it would be dangerous to try and time this thing," Kelly said, noting that his longer-term outlook for stocks remains bullish.

Analysts had been forecasting a pullback in the market for weeks, given the recent sharp gains, and said the Egypt news could be an excuse for some investors to sell.

The Standard & Poor's 500 index .SPX is still up 18 percent since the start of September, roughly when the current rally began.

The Dow Jones industrial average .DJI snapped an eight-week streak of gains with Friday's close, and the S&P 500 and Nasdaq also ended with losses for the week.

The Nasdaq fell more than 2 percent on Friday while the S&P and Dow both were down more than 1 percent.

SCOUTING BLUE CHIPS

Monday could see a bounce-back after Friday's losses, followed by more consolidation, said Matt McCormick, portfolio manager at Cincinnati-based Bahl & Gaynor Inc, which has $3.2 billion in assets.

"My recommendation for clients is that if you have profits, especially in lower-quality names that have benefited from QE2 (quantitative easing), now is the time to take profits and look at blue chip names that haven't gained as much," he said.

Among key support levels traders are eyeing are 1,271 and 1,263 on the S&P 500, according to Craig Peskin, co-head of technical analysis research at MF Global in New York.

The deal -- the latest in a wave of consolidation sweeping the industry -- creates the second largest U.S. coal miner by market value, holding 110 mines and combined coal reserves of 5 billion tons. The deal is expected to be completed in mid-2011.

Massey shareholders will receive 1.025 Alpha share for each Massey share in addition to $10 a share in cash, for a value of about $69.33 a share, the companies said. That represents a 21 percent premium over Massey's closing share price of $57.23 on Friday.

Surging Asian demand for coal to fuel steel mills and power plants has made the sector one of the hottest for dealmaking over the past year. After the acquisition, Alpha will be the largest supplier of metallurgical coal, which is used in steel making, in the United States.

Alpha Chief Executive Kevin Crutchfield said in an interview the deal would create a global player in metallurgical coal -- a commodity the company believes should continue to generate profits for some time.

"In terms of the next decade, the world is going to remain structurally undersupplied in high-quality metallurgical coal. There's just not going to be any massive new supply coming on," Crutchfield said.

That, coupled with expectations of continued growth out of economies like India and China, should keep the market for the fuel strong, he said.

Massey, based in Richmond, Virginia, put itself on the block in November after posting a wider-than-expected third-quarter loss as a result of the explosion that killed 29 miners at its Upper Big Branch mine in West Virginia in April.

The company has been under scrutiny since the accident, which was the deadliest U.S. coal mining disaster in 40 years. The U.S. Justice Department and the state of West Virginia are investigating the blast and the company could face litigation from the families of the 29 miners.

In the months following the accident, Massey shares lost more than half their value, hitting a low of $25.87 in July. They have since bounced back above pre-explosion levels, helped by reports the company would likely be acquired.

COMFORTABLE WITH RISK

Crutchfield said that during the run-up to the deal, Alpha was able to gain access to Massey records and executives to study the risk involved in the purchase.

"At the end of the day, we were actually able to get comfortable with the exposed risk," he said, noting he believed Massey's estimate of up to $150 million in losses related to the blast was "appropriate."

Massey took a charge of $128.9 million last year in order to cover costs from the explosion, including workers' compensation and other compensation for the families of the miners and expected costs from litigation.

Massey has disputed claims by federal investigators that excessive coal dust fueled the deadly explosion and has said a natural gas leak caused the accident.

The deal -- the latest in a wave of consolidation sweeping the industry -- creates the second largest U.S. coal miner by market value, holding 110 mines and combined coal reserves of 5 billion tons. The deal is expected to be completed in mid-2011.

Massey shareholders will receive 1.025 Alpha share for each Massey share in addition to $10 a share in cash, for a value of about $69.33 a share, the companies said. That represents a 21 percent premium over Massey's closing share price of $57.23 on Friday.

Surging Asian demand for coal to fuel steel mills and power plants has made the sector one of the hottest for dealmaking over the past year. After the acquisition, Alpha will be the largest supplier of metallurgical coal, which is used in steel making, in the United States.

Alpha Chief Executive Kevin Crutchfield said in an interview the deal would create a global player in metallurgical coal -- a commodity the company believes should continue to generate profits for some time.

"In terms of the next decade, the world is going to remain structurally undersupplied in high-quality metallurgical coal. There's just not going to be any massive new supply coming on," Crutchfield said.

That, coupled with expectations of continued growth out of economies like India and China, should keep the market for the fuel strong, he said.

Massey, based in Richmond, Virginia, put itself on the block in November after posting a wider-than-expected third-quarter loss as a result of the explosion that killed 29 miners at its Upper Big Branch mine in West Virginia in April.

The company has been under scrutiny since the accident, which was the deadliest U.S. coal mining disaster in 40 years. The U.S. Justice Department and the state of West Virginia are investigating the blast and the company could face litigation from the families of the 29 miners.

In the months following the accident, Massey shares lost more than half their value, hitting a low of $25.87 in July. They have since bounced back above pre-explosion levels, helped by reports the company would likely be acquired.

COMFORTABLE WITH RISK

Crutchfield said that during the run-up to the deal, Alpha was able to gain access to Massey records and executives to study the risk involved in the purchase.

"At the end of the day, we were actually able to get comfortable with the exposed risk," he said, noting he believed Massey's estimate of up to $150 million in losses related to the blast was "appropriate."

Massey took a charge of $128.9 million last year in order to cover costs from the explosion, including workers' compensation and other compensation for the families of the miners and expected costs from litigation.

Massey has disputed claims by federal investigators that excessive coal dust fueled the deadly explosion and has said a natural gas leak caused the accident.