Business Blog Posts

Many investors are coming to the view that the U.S. employment situation has turned a corner, but the risks that sent stocks cascading between mid-February and mid-March are as real as ever.

In addition, the surprisingly robust recovery shown in recent economic data has some investors nervous that the Federal Reserve may end its easy money policies before schedule and increase interest rates in the second half of the year.

That could be spell trouble for risk assets such as stocks and commodities that have benefited from the added liquidity provided by the Fed's $600 billion Treasury bond buying. The program, known as quantitative easing, or QE2, is slated to end in June.

"The Fed is now going to much more seriously consider early withdrawal of QE2 because these numbers are getting stronger," said Kenneth Polcari, managing director at Icap Corporates, a floor broker at the NYSE.

One Fed official poured cold water on that idea on Friday, saying he saw no reason to reverse course even as the economy adds jobs. The comments helped cement optimism over the jobs data.

RECOVERING LOSSES

Polcari said the data would provide the fuel to send the S&P 500 to 1,350 this week.

The Dow Jones industrial average hit 12,419.71 -- its highest intraday level going back to June 2008 -- before closing up 56.99 points, or 0.46 percent, at 12,376.72 on Friday. The S&P rose 6.58 points, or 0.50 percent, to 1,332.41. The Nasdaq Composite gained 8.53 points, or 0.31 percent, to 2,789.60.

For the week, the Dow gained 1.3 percent, the S&P added 1.4 percent and the Nasdaq rose 1.7 percent.

The Dow has recovered most of its losses since February as U.S. employment recorded a second straight month of solid gains in March and the jobless rate fell to a two-year low.

The jobs report chimed with the view that the U.S. recovery is becoming self-sustaining.

"The numbers are looking pretty powerful," said Jim Awad, managing director at Zephyr Management New York.

"You have got strong and perhaps accelerating economic growth, you have good profit growth, you have fair valuations, you have momentum, and you have high merger and acquisitions activity."

But uncertainty arising from world trouble spots shows scant sign of abating and is likely to contain stock prices.

Two sources familiar with the matter said that Glencore, expected to list in both London and Hong Kong, was planning to issue a so-called Intention to Float document in London around mid-April, though this timeline could still change.

If the company makes a final decision to go ahead with the listing, it would likely be completed by around mid-May.

The Swiss-based firm has already received approval to list from the Hong Kong stock exchange, other sources told Reuters on Friday, clearing a hurdle it needed to overcome before the launch of the London leg of its Initial Public Offering (IPO).

The commodities giant has kept its plans under wraps since briefing analysts more than a month ago. Those analysts were expected to produce research notes with valuations for the company by April 1.

Glencore has consistently declined to comment on the timeline of any IPO.

In a sign trust in the company is already improving, the cost of buying protection against default of its debt has fallen steadily over the last few months, Markit data shows, as talk about the IPO intensifies.

"The IPO will allow the company to raise equity capital and help the business (cut debt), but what is just as important is that it will also improve disclosure," said one credit analyst, asking not to be named.

Glencore also refinanced a $9-billion loan last week to extend the maturity of two one-year loans put in place last year. The company was able to lock in lower rates due to favorable loan market conditions and banks' willingness to lend to commodities companies.

The loan refinancing is a positive move for potential investors in Glencore, as it extends the maturity of its debt while cutting borrowing costs on the loan, which is used to fund the company's trading book.

ALL ABOUT TIMING

The listing will require Glencore, founded by Marc Rich in 1974, to shed its once-fabled secrecy and become more transparent, opening up its huge and successful oil, coal and metals trading operations to scrutiny.

Rich, a former U.S. fugitive who was pardoned by U.S. President Bill Clinton in 2001 after years in Switzerland to flee charges of financial crimes, sold Glencore to management.

The group, valued by one analyst at about $60 billion, is now looking to ditch its long-standing partnership structure in favor of life as a public company, which will make it easier to reward partners and make acquisitions.

It will aim to launch the retail portion of a Hong Kong IPO in the third or fourth week of April, with a listing scheduled for early to mid May, sources have said.

The S&P hovered near 1,333, a significant level as it represents double the 12-year low hit in March 2009. It is close to the 1,344 representing the S&P's 2011 high, its highest since June 2008.

"There's a lot of congestion in terms of price action around these levels and I wouldn't expect the market to break to new highs in the next weeks," said Paul Zemsky, head of asset allocation at ING in New York.

Strong job growth and supportive comments on Fed policy from influential New York Fed Bank President William Dudley were supportive, but the market is looking to forthcoming earnings to kick the rally into a higher gear.

U.S. employment grew solidly for a second month in March and the jobless rate hit a two-year low of 8.8 percent.

"Once we get to earnings and get confirmation companies continue to show strength, I think we'll make new highs on the S&P. But a couple of weeks of consolidation seems like a good thing to happen," Zemsky said.

About 7.4 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, below last year's estimated daily average of 8.47 billion. Composite volume was the weakest for any week so far this year.

Dudley said quantitative easing that totaled $600 billion in bond purchases was expected to run until June, countering several days of hawkish rhetoric from other Federal Reserve officials.

The payrolls number was "a clear breakout in the trend of job growth to the upside," said Zemsky. "I think this is the game changer in terms of giving more confidence the recovery is going to be durable and survive the end of QE2."

NYSE Euronext (NYX.N) shares rallied after Nasdaq OMX Group Inc (NDAQ.O) and IntercontinentalExchange Inc (ICE.N) unveiled a bid to buy the rival exchanges operator, topping an earlier offer from Deutsche Boerse AG (DB1Gn.DE).

NYSE's stock surged 12.6 percent to $39.60 while ICE shares lost 3.1 percent to $119.75 and Nasdaq OMX rose 9.3 percent to $28.23.

The Dow Jones industrial average .DJI hit 12,419.71 -- its highest intraday level going back to June 2008 -- before closing up 56.99 points, or 0.46 percent, at 12,376.72. The Standard & Poor's 500 .SPX rose 6.58 points, or 0.50 percent, to 1,332.41. The Nasdaq Composite .IXIC gained 8.53 points, or 0.31 percent, to 2,789.60.

For the week, the Dow gained 1.3 percent, the S&P added 1.4 percent and the Nasdaq rose 1.7 percent.

April is the best month for the Dow industrials going back to 1950, with an average gain of 2 percent, according to the Stock Trader's Almanac.

In another snapshot of the economy, the U.S. manufacturing sector grew at a marginally slower pace in March, according to the Institute for Supply Management. The Commerce Department said construction spending fell more than expected in February, dropping to its lowest level since October 1999.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of more than 2 to 1, while on the Nasdaq, slightly more than five stocks rose for every four that fell.

(Reporting by Rodrigo Campos; Editing by Jan Paschal)

The report by the Senate Permanent Subcommittee on Investigations, which has been in the works for months, will include potentially embarrassing emails and internal communications from investment banks such as Goldman Sachs and Deutsche Bank AG, the Journal said.

It also will discuss a little-known dispute between Goldman and Morgan Stanley that developed in 2008 over one complex subprime-mortgage backed security called Hudson Mezzanine Funding, the newspaper said.

The subcommittee learned that Morgan Stanley lost money on the collateralized debt obligation that Goldman had a hand in arranging and marketing, the Journal said. The dispute between the rival investment banks got so heated that Morgan Stanley considered suing Goldman over its losses, it said.

The Senate's investigations subcommittee normally follows up its hearings with reports that outline the findings and recommend legislative reforms.

An aide to Senator Carl Levin, a Democrat who heads the subcommittee, declined to comment on the report.

Late last year, two people familiar with the subcommittee told Reuters that they expected the report to be finished in early 2011 and said it would contain more information than surfaced during last year's series of subcommittee hearings.

An all-day hearing last spring on the role Goldman played in creating and marketing several CDOs - complex securities constructed from a pool of subprime mortgaged-backed bonds -- drew particular attention.

A number of current and former Goldman executives testified at the hearing, including Goldman CEO Lloyd Blankfein.

(Editing by Vicki Allen)

"As we have said consistently, the IMF supports the Greek government's position of no debt restructuring and its determination to fully service its debt obligations. Any reports claiming otherwise are wrong," an IMF spokeswoman told Reuters.

Without citing any sources, Der Spiegel reported that the IMF had reversed its previous opposition to the idea of a Greek restructuring and now believed one was necessary soon.

It wrote that senior IMF officials were recommending this to European governments because Greece's debt mountain was now roughly one-and-a-half times its annual economic output.

Early in March, IMF European Director Antonio Borges told reporters he was "confident that Greek debt is sustainable," adding that the Greeks had made "quite a bit of progress on their banks" as well.

But since the IMF now believes current measures no longer suffice, it would like to see interest rates on Greek sovereign debt lowered, maturities extended or the amount of principal which Greece has to repay cut, Der Spiegel said.

European governments and the IMF are jointly contributing to and administering Greece's 110 billion euro ($155 billion) bailout, so a split between them on policy could be damaging to Greece's prospects for recovery.

Greek and European officials have long insisted that Greece can recover without restructuring its debt, and that even discussing a restructuring now would be counter-productive by damaging banks across Europe and causing panic in markets.

Greek Finance Minister George Papaconstantinou, speaking to Reuters at a conference in Italy on Saturday, responded to the Der Spiegel report by saying: "There is absolutely no chance of a restructuring of Greek debt."

He added, "People (who talk about a restructuring) fail to understand that the costs would much outweigh the benefits."

European Commission spokesman Jens Mester said: "All support measures are in place, and there is no reason now to start thinking of this possibility of restructuring Greece's debt."

Der Spiegel reported that the IMF was still not willing to call openly for a Greek restructuring out of fear this could increase market pressure on Portugal. Portuguese bond yields have soared in the last several weeks because investors think Lisbon may soon be forced to seek a bailout.

Many investors and analysts think an eventual Greek restructuring may be inevitable. Cutting its credit rating of Cyprus on Wednesday, Standard and Poor's cited an "increasing likelihood that the Greek government will restructure its debt."

Former European Central Bank chief economist Otmar Issing told Der Spiegel last month that Greece's sovereign debt would have to be restructured as soon as other euro zone countries were out of danger.

Before any restructuring, however, Greece may try another strategy. Papaconstantinou said on Wednesday that Athens might use some proceeds from state asset sales to buy back outstanding bonds from the market; since market prices of its debt have dropped sharply below face value, this could have the effect of a restructuring in lightening Greece's debt load without requiring Athens to conduct difficult talks with creditors.

(Reporting by Lesley Wroughton, Christiaan Hetzner, Renee Maltezou, Valentina Za and Charlie Dunmore; Writing by Andrew Torchia; Editing by Ron Askew)