Business Blog Posts

Traders juggling European debt worries and soft economic data are now staring at satellite images, tracking the path of Hurricane Irene, expected to hit New York over the weekend.

The unusually large storm traveled up the U.S. East Coast on Friday, threatening 55 million people, and was expected to cause billions of dollars in property damage.

Major U.S. exchanges are preparing to deal with power outages and flooding, and that could affect trading on Monday.

For now at least, the NYSE and Nasdaq expect to be open for trading as usual on Monday morning. The New York Stock Exchange and Nasdaq repeated on Saturday that, despite the arrival of Hurricane Irene in New York, both expect to conduct a normal trading session on Monday.

The Big Board said a final decision would be made over the weekend, particularly on its trading floor in the low-lying financial district of Manhattan, which could see a storm surge and flooding.

The U.S. Securities and Exchange Commission and exchange officials will discuss the storm's impact and plans for opening trading at the start of the week in a conference call on Sunday afternoon at 1 p.m., according to a source familiar with the plan.

One senior trader at a proprietary trading firm in New York said Friday that Hurricane Irene had destroyed any chance of a rally that had looked likely, given the extent of short positions that had been building in equity markets.

"If this hurricane is a disaster, my guess is we are going to be down 30-40 handles on Monday," he said.

Property insurers Allstate (ALL.N) and Travelers (TRV.N) hit two-year intraday lows on Friday, partly on worries over claims due to the hurricane.

"We intend to be open, but Mother Nature may have other plans," said Lou Pastina, executive vice president of NYSE operations.

After that, the focus may shift from the Federal Reserve's economic outlook to the August payrolls report on Friday.

Fed Chairman Ben Bernanke, in a much anticipated speech to central bankers in Jackson Hole, Wyoming, said most of the burden for ensuring a solid foundation for long-term growth lay at the feet of the White House and the U.S. Congress.

U.S. President Barack Obama is expected to detail plans to create jobs after he returns from vacation the week after next. Investors will have a few days to position themselves ahead of Obama's speech, with the key payrolls report for August due Friday.

"This was clearly a punt from Bernanke to Obama, who will announce a jobs initiative soon," said Lance Roberts, CEO of Streettalk Advisors, an investment management firm in Houston. "The market thinks we may now get stimulus from the government."

THE WHITE KNIGHT: TRICHET?

In a move opposite to Bernanke's baton-handing to Washington, some say stocks may find a white knight in the European Central Bank's head Jean-Claude Trichet.

Some hoped that his comments, during a panel at Jackson Hole on Saturday, would open the door for the ECB to buy more bonds from countries struggling with rising borrowing costs.

News earlier this month that the ECB was actively buying government bonds in the secondary market boosted equities by giving some relief to investors worried about the credit and fiscal health of the euro zone.

"I'm going to see if (Trichet) is standing by that policy or shying away from it," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.

"If he stands by it, that could be a positive for the equities markets because it's going to suggest that if anything, the ECB will try to step in to handle liquidity problems on the European banking system and they don't have to just rely on the European Union leaders."

Recent concern over the exposure of some European banks to the declining prices of euro-zone bonds pushed lenders' shares

sharply lower, with an index of European bank stocks .SX7P closing lower on Friday for a fifth straight week. The long slide has resulted in European bank shares losing more than one-fourth of their market value.

AN UGLY AUGUST

August is shaping up as the worst month for stocks since February 2009, partly on the belief that the economy was headed for a double-dip recession.

For the month so far, the Dow Jones industrial average .DJI is down 7.1 pct, while the Standard & Poor's 500 Index .SPX is down 8.9 percent. The Nasdaq Composite Index .IXIC is down 10 percent, still in correction mode. Those losses for August so far threaten to overshadow the bright spot at Friday's close, when all three indexes ended the day higher and scored their first weekly gains in more than a month.

The payrolls report on Friday is expected to show the U.S. economy created 80,000 jobs this month, according to economists polled by Reuters. In contrast, 117,000 jobs were added to U.S. non-farm payrolls in July.

The U.S. unemployment rate is seen steady at 9.1 percent.

Wall Street will have to deal with a torrent of data throughout the week, including personal income and consumption on Monday, S&P/Case-Shiller home prices on Tuesday, factory orders on Wednesday and the Institute for Supply Management's factory activity index on Thursday. <ECI/US>

A Reuters poll forecasts that ISM's August survey is expected to show factory activity shrank for the first time since the recession.

(Reporting by Rodrigo Campos; Additional reporting by Jonathan Spicer, Edward Krudy and Ryan Vlastelica; Editing by Jan Paschal)

The New York Stock Exchange, the Nasdaq Stock Market and the alternative BATS venue said they expected to open trading for the week as usual. But with the New York subway system closed down and commuter rail service into the city suspended, the question remains: who will staff Wall Street?

A final decision is expected later on Sunday after regulators, exchange officials and others meet to discuss the storm and market operations. The decision hinges on whether subways are running, the extent of flooding in downtown Manhattan, and power outages, sources familiar with the plan said on Sunday.

The NYSE and broader U.S. marketplace are mostly automated, quietly running out of powerful data centers in New Jersey and elsewhere. Electronic trading is expected to function normally on Monday.

"At this point, though like everybody else we don't have a hotline into the mayor's office, we're a lot more comfortable than we were yesterday when the strength of the storm was an unknown," said Mike Shea, a managing partner and trader with Direct Access Partners LLC in New York.

Shea's firm has a presence on the NYSE floor, and in Boston and Miami. He said that virtually all of his firm's traders could function from home.

Hurricane Irene battered New York with heavy winds and driving rain on Sunday, knocking out power and flooding some of Manhattan's deserted streets, including in the Wall Street district.

Irene was downgraded to a tropical storm on Sunday morning but was still sending waves crashing onto shorelines and flooding coastal areas.

There was about a foot of water in the streets of the South Street Seaport in downtown Manhattan, although there was less damage than many had feared.

The New York Mercantile Exchange (NYMEX), a few blocks from the NYSE, also plans at this time to open on Monday, parent CME Group Inc (CME.O) said on Sunday.

Any decision to halt U.S. equity trading, or even a portion of it such as the NYSE floor, would involve the U.S. Securities and Exchange Commission and major market operators NYSE Euronext (NYX.N) and Nasdaq OMX Group (NDAQ.O).

The NYSE trading floor now handles a fraction of the buy and sell orders that it did five years ago, when about 3,000 brokers, specialists and others worked there.

There are now about 1,000 on the floor, and Lou Pastina, executive vice president of NYSE operations, has estimated the Big Board would need half of them to safely open on Monday. Floor specialists are still important, particularly at the open and close of markets, when orders pile up.

(Writing by Chris Sanders; Reporting by Jonathan Spicer; Additional reporting by Ryan Vlastelica and David Sheppard)

"Developments this summer have indicated we are in a dangerous new phase," International Monetary Fund Managing Director Christine Lagarde said at a conference for top officials and leading economists from around the globe.

"The stakes are clear; we risk seeing the fragile recovery derailed. So we must act now," she said.

Two years after the end of the worst of the financial crisis, growth in the United States and Europe is sputtering as government debt burdens surge.

Borrowing costs for European banks are rising as lenders balk at providing any but the shortest maturity funds on fears over bank exposure to shaky euro zone sovereign debts. Sharp swings in global financial markets have intensified strains.

Complicating the picture is policymaker indecision on both sides of the Atlantic.

European leaders are fighting over who should pay the bill for taming a raging sovereign debt crisis.

In the United States, lawmakers and President Barack Obama fought a contentious budget battle earlier this summer that resulted in the loss of the nation's coveted "AAA" debt rating from Standard & Poor's.

Federal Reserve Chairman Ben Bernanke warned here on Friday that the fight had shaken confidence and sapped U.S. growth.

'MANDATORY SUBSTANTIAL RECAPITALIZATION'

Lagarde said the Group of 20 leading economies should use a meeting in November to address the global economy's woes in a convincing fashion, and she used her speech -- her first major policy address since taking the helm at the IMF in July -- to open a new front in dealing with strains at European banks.

She called for a "mandatory substantial recapitalization," through private channels if possible, but otherwise through some form of public, Europe-wide funding, such as the European Financial Stability Facility.

Lagarde also warned advanced economies away from tightening their belts so fast that it imperils recovery.

"Put simply, macroeconomic policies must support growth," the former French economy minister said. On Friday, she made the same point in a phone conversation with U.S. President Barack Obama, in which the White House said they agreed on the need for policies to spur job creation.

"Monetary policy also should remain highly accommodative, as the risk of recession outweighs the risk of inflation," Lagarde said, adding that central banks should stand ready to jump back into unconventional policy actions if needed.

In his speech on Friday, Bernanke stopped short of promising the Fed would resume the bond buying that has been the centerpiece of U.S. monetary policy for the last few years, but he said the central bank would discuss options for further easing, and the need for it, at its next meeting in September.

European Central Bank President Jean-Claude Trichet, who appeared alongside Lagarde, emphasized the need to safeguard price stability as a foundation for healthy growth.

"It is something we consider absolutely essential for confidence," he said.

Lagarde suggested a fractured political process in Europe was contributing to insecurity.

"Europe must recommit credibly to a common vision, and it needs to be built on solid foundations -- including, for example, fiscal rules that actually work," Lagarde said.

Trichet echoed that theme.

"We are ourselves challenged paradoxically not necessarily -- as a group, as an entity -- because our fundamentals are very bad. Our fundamentals are not very bad," he said. "The problem is that we are challenged in our governance."

EUROPEAN BANK STRESS

Lagarde said shoring up European banks was key to "cutting the chains of contagion" in the continent's spreading debt crisis.

European banks have been under pressure to raise more capital after stress tests last month showed a potential vulnerability to losses on European sovereign debt, particularly Greek bonds.

The cost of insuring against bank defaults in Europe -- as indicated by the iTraxx senior financial CDS index -- has soared high above levels seen in early 2009 when the financial crisis was reaching its apex.

Lagarde said individual European countries must also put in place deficit-cutting plans with a "credible finance path" -- including continued support from the ECB.

In the United States, the focus on long-term fiscal consolidation must not ignore the importance of fostering near-term growth, she said.

"After all, who will believe that commitments to cut spending can survive a lengthy stagnation with prolonged high unemployment and social dissatisfaction?" she asked.

Policymakers must also stop the slide in the U.S. housing market, which is dragging on consumer spending and slowing the recovery, Lagarde added. The nation could turn to intervention by government housing finance agencies and more aggressive programs to reduce homeowner debt, she said.

(Editing by Padraic Cassidy)

Traders juggling European debt worries and soft economic data are now staring at satellite images, tracking the path of Hurricane Irene, expected to hit New York over the weekend.

The unusually large storm traveled up the U.S. East Coast on Friday, threatening 55 million people, and was expected to cause billions of dollars in property damage.

Major U.S. exchanges are preparing to deal with power outages and flooding, and that could affect trading on Monday.

For now at least, the NYSE and Nasdaq expect to be open for trading as usual on Monday morning. The Big Board said a final decision will be made Saturday or Sunday, particularly on its trading floor in the low-lying financial district of Manhattan, which could see a storm surge and flooding.

One senior trader at a proprietary trading firm in New York said Friday that Hurricane Irene had destroyed any chance of a rally that had looked likely, given the extent of short positions that had been building in equity markets.

"If this hurricane is a disaster, my guess is we are going to be down 30-40 handles on Monday," he said.

Property insurers Allstate and Travelers hit two-year intraday lows on Friday, partly on worries over claims due to the hurricane.

"We intend to be open, but Mother Nature may have other plans," said Lou Pastina, executive vice president of NYSE operations.

After that, the focus may shift from the Federal Reserve's economic outlook to the August payrolls report next Friday.

Fed Chairman Ben Bernanke, in a much anticipated address to central bankers in Jackson Hole, Wyoming, said most of the burden for ensuring a solid foundation for long-term growth lay at the feet of the White House and Congress.

President Barack Obama is expected to detail plans to create jobs after he returns from vacation the week after next. Investors will have a few days to position themselves ahead of Obama's speech, with the key payrolls report for August due Friday.

"This was clearly a punt from Bernanke to Obama, who will announce a jobs initiative soon," said Lance Roberts, CEO of Streettalk Advisors, an investment management firm in Houston. "The market thinks we may now get stimulus from the government."

THE WHITE KNIGHT: TRICHET?

In a move opposite to Bernanke's baton-handing to Washington, some say stocks may find a white knight in the European Central Bank's head Jean-Claude Trichet.

Scheduled to speak on a panel at Jackson Hole, Wyoming, on Saturday, Trichet could open the door for the ECB to buy more bonds from countries struggling with rising borrowing costs.

News earlier this month that the ECB was actively buying government bonds in the secondary market boosted equities by giving some relief to investors worried about the credit and fiscal health of the euro zone.

"I'm going to see if (Trichet) is standing by that policy or shying away from it," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.

"If he stands by it, that could be a positive for the equities markets because it's going to suggest that if anything, the ECB will try to step in to handle liquidity problems on the European banking system and they don't have to just rely on the European Union leaders."

Recent concern over the exposure of some European banks to the declining prices of euro-zone bonds pushed lenders' shares

sharply lower, with an index of European bank stocks closing lower on Friday for a fifth straight week. The long slide has resulted in European bank shares losing more than one-fourth of their market value.

AN UGLY AUGUST

August is shaping up as the worst month for stocks since February 2009, partly on the belief that the economy was headed for a double-dip recession.

For the month so far, the Dow Jones industrial average is down 7.1 pct, while the Standard & Poor's 500 Index is down 8.9 percent. The Nasdaq Composite Index is down 10 percent, still in correction mode. Those losses for August so far threaten to overshadow the bright spot at Friday's close, when all three indexes ended the day higher and scored their first weekly gains in more than a month.

The payrolls report on Friday is expected to show the U.S. economy created 80,000 jobs this month, according to economists polled by Reuters. In contrast, a total of 117,000 jobs were added to U.S. non-farm payrolls in July.

The U.S. unemployment rate is seen steady at 9.1 percent.

Wall Street will have to deal with a torrent of data throughout the week, including personal income and consumption on Monday, S&P/Case-Shiller home prices on Tuesday, factory orders on Wednesday and the Institute for Supply Management's factory activity index on Thursday.

A Reuters poll forecasts that ISM's August survey is expected to show factory activity shrank for the first time since the recession.

(Wall St Week Ahead runs every Friday. Questions or comments on this column can be e-mailed to: rodrigo.campos(at)thomsonreuters.com)

(Reporting by Rodrigo Campos; Additional reporting by Jonathan Spicer, Edward Krudy and Ryan Vlastelica; Editing by Jan Paschal)