Week Ahead: Step Aside, Greece?

Reuters

Investors’ attention may shift away next week from the drama in Greece toward Italy, which has sizable debt woes of its own and has sought help from the International Monetary Fund to put in place austerity measures.

Italy, with a much larger economy than Greece, has emerged as possibly the next domino in the ongoing European debt crisis.

Plenty of earnings reports from U.S. companies are due next week as well. A handful of big retailers lead the pack, including Macy's (M) and Ralph Lauren Corp. (RL) on Wednesday, and Kohl's (KSS) and Nordstrom (JWN) on Thursday.

Retailers have struggled during the recession and its aftermath as consumers have closed their pocketbooks to all but the most necessary items. The upcoming holiday season will be a big test of consumers’ willingness to part with cash.

Also due next week are earnings from tech giant Cisco Systems (CSCO), car maker General Motors (GM), and media conglomerate Walt Disney Co. (DIS).

On the economic front, in what’s shaping up as a relatively slow week, a consumer sentiment index will likely shed the most light on the state of the economy. The Thomson-Reuters University of Michigan index of consumer sentiment for early November is due Friday and it’s not expected to move much from October.

For months consumer sentiment has been trending lower toward levels not seen since the worst of the financial crisis in 2008 and 2009. Political gridlock, stagnant incomes, plunging home values and rising food prices have all made for a sour mood.

Also due next week is data on the September trade balance and the October import and export price indexes, both due Thursday.

A report on consumer credit is due Monday and the trend has been that credit is on the rise. Many tapped out consumers have been turning to credit cards to cover their monthly living expenses.

Service sector growth slows, factory orders up

U.S. service sector activity growth eased in October to its slowest level in three months, but new orders for good from factories unexpectedly rose, suggesting economic growth remains patchy.

In other U.S. data reported on Thursday, new claims for unemployment benefits fell below 400,000 last week for the first time in five weeks, suggesting a modest improvement in the labor market, but chain store retailers reported disappointing October sales.

"Based on the ISM manufacturing and services data, the economy is still crawling at a pace that is so anemic," said Bernard Baumohl, chief global economist, at The Economic Outlook Group LLC, in Princeton, New Jersey.

"For most Americans, it makes no difference whether the economy is stuck at this pace or we are in recession. This is very lackluster growth that will not lead to a pick-up in hiring.

US SERVICE SECTOR GROWTH SLIPS

The U.S. Institute for Supply Management said its services index eased to 52.9 last month from 53.0 the month before. The reading fell shy of economists' forecasts for 53.5, according to a Reuters survey, and was the lowest level since July.

A reading above 50 indicates expansion in the sector. A gauge of new orders fell to 52.4 from 56.5, but the employment component improved to its highest level since June at 53.3 from 48.7.

New orders for U.S. factory goods unexpectedly rose in September and capital spending plans by businesses surged, according to a government report on Thursday that showed underlying strength in manufacturing.

The Commerce Department said orders for manufactured goods increased 0.3 percent after a revised 0.1 percent gain in August, previously reported as a 0.2 percent fall. Economists had expected orders to slip 0.1 percent.

Orders excluding transportation rose 1.3 percent in September after edging down 0.1 percent the prior month.

Orders for non-defense capital goods excluding aircraft -- seen as a measure of business confidence and spending plans - jumped 2.9 percent in September after advancing 0.9 percent the prior month. The increase in this category was the largest in six months.

New U.S. claims for unemployment benefits fell below 400,000 last week for the first time in five weeks, suggesting a modest improvement in the still-moribund labor market, but retailers reported disappointing October sales.

Initial claims for state unemployment benefits dropped by 9,000 in the week ending October 29 to a seasonally adjusted 397,000, the Labor Department said on Thursday.

"The labor market continues to stabilize in terms of the amount of people losing their jobs but ... the pace of adding new ones still remains underwhelming," said Peter Boockvar, an equity strategist at Miller Tabak and Co. in New York.

The level of weekly claims remains well above pre-recession levels and has dipped below 400,000 only on brief occasions this year, suggesting no fast turnaround is imminent for the jobs market.

The claims data will not impact Friday's report on payroll levels during October, which are expected to show employers added 95,000 new jobs during the month. That is not considered a fast enough pace over time to bring down the unemployment rate much, if at all.

The four-week moving average of claims, considered a better measure of labor market trends, fell 2,000 to 404,500.

In a separate report, the Labor Department said U.S. nonfarm productivity increased during the third quarter while growth in wages and benefits slowed sharply, showing that some inflation pressures were easing even as the economy picked up pace.

Productivity rose at a 3.1 percent annual rate, the biggest increase since the first quarter of 2010. Unit labor costs fell 2.4 percent, a much bigger decline than the 0.8 percent rate forecast by analysts.

He said that could help the U.S. Federal Reserve build a case to do more to help the economy.

Compensation per hour rose 0.6 percent during the period, down from growth of 2.7 percent during the previous quarter and 5.6 percent in the first three months of the year.

Productivity, which measures hourly output per worker, had fallen during the first two quarters of this year.

Economists had expected the government's report would show productivity increased at a 2.8 percent rate. The rebound in productivity was in a line with the return to stronger economic growth during the third quarter following a sharp slowdown early in the year.

US CHAIN STORES REPORT WEAK OCT SALES

Many top U.S. store chains reported disappointing October sales on Thursday.

Major retailers ranging from Macy's Inc and Saks Inc to those catering to more frugal shoppers like Target Corp and J.C. Penney Co Inc all reported lower-than-expected sales at stores open at least a year.

Overall, 23 major U.S.-based retailers that report monthly results were expected to post a composite same-store sales gain of 4.5 percent, according to Thomson Reuters data.

(Reporting by Jason Lange, Leah Schnurr)

Wall St. on edge over Greece but Bernanke soothes

By Edward Krudy

Stocks rebounded from two days of sharp losses on Wednesday after the Federal Reserve said it is prepared to do more for the economy if conditions warrant, helping to stanch the panicky reaction to Europe's debt crisis.

Trading volume was light, however, possibly signaling that worries about Greece hold greater sway than the Fed at this time. Investors sold heavily this week after Greece said it would hold a referendum on an EU bailout crucial to stabilizing the euro zone's financial system.

Federal Reserve Chairman Ben Bernanke said the central bank was closely monitoring developments in Europe and left open the possibility that the Fed could expand its holdings of mortgage debt if U.S. economic conditions worsened.

"Bernanke was clear that they were prepared to do more, that they have the tools to do more," said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York. "We remain in a very volatile situation."

The energy and financial sectors were among the strongest performers on Wednesday after having led the market lower in the previous two sessions.

Some 7.4 billion shares were traded on the NYSE, the Amex and Nasdaq, which was more than 10 percent below the 20-day moving average and well below Tuesday's high volume selloff when over 10 billion shares changed hands.

"There's no volume, which means there's no conviction in the move; the market remains 100 percent "macro" driven, and any news out of Europe could still shift markets," said Eric Lichtenstein, managing director at Knight Capital in Jersey City, New Jersey,

The Dow Jones industrial average rose 178.08 points, or 1.53 percent, at 11,836.04. The Standard & Poor's 500 Index gained 19.62 points, or 1.61 percent, at 1,237.90. The Nasdaq Composite Index added 33.02 points, or 1.27 percent, at 2,639.98.

Also helping Wednesday's market gains, data showed U.S. private employers added more jobs than expected last month, continuing a recent pattern of better-than-expected economic data.

Conditions in Europe remained a wildcard as sources told Reuters the EU and IMF will not release an 8 billion euro payment to Greece until after the country has held its referendum, which could happen in December.

Among advancing stocks, Citigroup Inc gained 2.3 percent to $29.83 and JPMorgan Chase & Co added 2.8 percent to $33.64. The KBW Bank index climbed 3.3 percent.

MasterCard Inc shares jumped 7 percent to $357.66 after the credit card processor reported its quarterly profit easily beat estimates on double-digit increases in volumes.

(Reporting by Edward Krudy; Additional reporting by Ryan Vlastelica; Editing by Kenneth Barry)

JPMorgan, UBS AG win dismissal in Madoff case

JPMorgan Chase & Co and UBS AG won dismissal of dozens of claims made against the banks by the trustee seeking money for victims of epic swindler Bernard Madoff's fraud.

U.S. District Court Judge Colleen McMahon in New York sided with another judge's opinion earlier this year in trustee Irving Picard's common law claims against HSBC Holdings PLC and several affiliates for lack of standing.

"I am persuaded as well," McMahon wrote in an opinion dated October 31 and released on Tuesday. She sent what remains of the cases back to U.S. Bankruptcy Court for further proceedings.

Banks have taken the offensive after U.S. District Judge Jed Rakoff in Manhattan, in a case against HSBC Holdings Plc and others in July said Picard exceeded his power in suing third parties on behalf of former customers of Bernard L. Madoff Investment Securities LLC.

The cases are Irving H. Picard v. JPMorgan Chase & Co and Picard v. UBS AG in U.S. District Court for the Southern District of New York, No. 11-913 and No. 11-4212.

(Reporting by Grant McCool; Editing by Tim Dobbyn)

Wall St down, MF Global falls victim to Europe

By Edward Krudy

Wall Street closed its best month in 20 years on a down note on Monday as the failure of trading firm MF Global Holdings Ltd and new worries about Europe's debt crisis hammered financial shares.

In a sign that Europe's woes were far from over, Italian and Spanish bond yields soared, prompting the European Central Bank to buy the debt, while shares of European banks came under heavy selling pressure.

MF Global Holdings Ltd, the futures broker that made big bets on European sovereign debt, filed for Chapter 11 bankruptcy protection, making it the biggest U.S. casualty of the euro zone crisis. Trading in MF Global shares was halted.

Financial shares fell sharply. Morgan Stanley, which has tended to do poorly when fears over Europe rise, dropped nearly 9 percent to $17.64. Monday's losses marked a reversal of last week's euphoria over European leaders' deal aimed at containing the debt crisis.

"We started the day with more questions about the European Union," said Mark Grant, Southwest Securities managing director in Fort Lauderdale, Florida.

"Serious questions were raised, and then MF Global came along. MF is involved in all kinds of markets, and the fallout from them going bankrupt is unknown."

As the selloff accelerated at the market's close, the CBOE volatility index jumped over 22 percent, its biggest daily gain since mid-August.

Contributing to the downward pressure, the U.S. dollar shot up to a three-month high against the yen as the government of Japan intervened to curb its currency's appreciation, which hurt the export-based economy.

The jump in the dollar caused shares in energy and natural resources companies to fall sharply. The S&P energy index fell 4.4 percent and was the worst hit sector.

Despite the declines, the benchmark S&P 500 index was up nearly 11 percent for the month and posted its best monthly percentage gain since December 1991.

Most of that run came as European leaders moved to beef up the region's bailout fund and recapitalize its banks. But despite October's gains the S&P 500 index is flat for the year so far.

Still, many analysts believe that with a worst case scenario in Europe seemingly off the cards -- at least for the time being -- stocks could gain further as investors turn their attention to stronger-than-expected economic data in the United States and China.

The Dow Jones industrial average dropped 276.10 points, or 2.26 percent, to 11,955.01. The Standard & Poor's 500 Index fell 31.79 points, or 2.47 percent, to 1,253.30. The Nasdaq Composite Index lost 52.74 points, or 1.93 percent, to 2,684.41.

Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville, said the market's strong advance over the past month was leading to some selling but said the market would likely rise further, provided the S&P 500 held the top end of its recent trading range at around 1,250.

"The market had a huge run in October, so the market was overbought coming into today," he said.

Banks stocks were among the worst performing, with the KBW bank index down 4 percent, although analysts said MF Global was unlikely to be big enough to spark a systemic failure in the banking sector.

JP Morgan Chase, which, according to an MF Global court filing, has about $1.2 billion worth of claims on the brokerage, fell 5.2 percent to $34.76.

The higher greenback pressured commodity prices, with copper off 2 percent and Brent crude 0.3 percent lower. Many commodities are priced in the greenback, making a spike in dollar prices more expensive for traders in other currencies and sapping demand.

The S&P materials sector dropped 4.2 percent. Shares of Freeport-McMoRan Copper & Gold Inc lost 5.9 percent to $40.26. Aluminum company Alcoa Inc dropped 7 percent to $10.76.

"After a solid month of gains, the (higher) dollar is giving traders a reason to shy from the risk trade and take some profits," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

Volume was moderate, with about 7.5 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq. Declining stocks outnumbered advancing ones on the NYSE and the Nasdaq by about four-to-one.

(Reporting by Edward Krudy; Editing by Kenneth Barry)

Germany, France back SNB chief to lead FSB: report

German Chancellor Angela Merkel and French President Nicolas Sarkozy are backing the candidacy of the head of Switzerland's central bank to lead the Financial Stability Board, a newspaper reported on Sunday.

The FSB, the G20's regulatory task force, is charged with making sure bank regulations are strong enough to prevent another financial crisis.

Heading the FSB would not require the incumbent to give up his central bank governorship. An announcement is expected at the November 3-4 G20 summit.

Hildebrand has been a vocal proponent of tougher bank regulation after the Swiss government had to bail out flagship bank UBS during the financial crisis. His credentials to chair the FSB have been boosted by Switzerland's enacting of bank regulation stiffer than the new Basel III global rules.

Hildebrand and Carney are good friends and studied together at Oxford.

The Swiss government is quietly backing Hildebrand's candidature for the FSB, though some right-wing politicians oppose it, the paper also said.

"Of course the federal council supports SNB Chairman Philipp Hildebrand's candidature for the top job at the FSB," Finance Minister Eveline-Widmer Schlumpf told the SonntagsZeitung.

But the government was doing this via diplomatic channels and not publicly, the paper also quoted her as saying.

Hildebrand has come into the crosshairs of the SVP before.

Party mastermind Christoph Blocher has called on Hildebrand to resign after the SNB posted its biggest annual loss ever last year due to currency interventions to weaken the Swiss franc.

(Reporting by Catherine Bosley; Editing by Helen Massy-Beresford)

WTO largely backs China over EU in shoe dumping case

By Tom Miles

A World Trade Organization panel largely backed China on Friday in a complaint about European Union import duties on Chinese footwear, dealing a partial victory also to European importers and retailers.

In a ruling, the panel told the European Union to bring its method on calculating anti-dumping duties into conformity with WTO rules and said the bloc had acted inconsistently with WTO law.

But it said there was no need for the EU to change the disputed tariffs because they had already expired. It also rejected the bulk of China's claims on behalf of individual Chinese shoe makers and some of its more specific complaints.

The case is the second brought by China against the EU at the WTO. In July, China won a similar victory against EU duties on what Europe said were unfairly cheap Chinese screws and bolts.

In that case, a panel condemned the way Europe assesses duties against countries it deems not to be market economies, such as China, Vietnam and Cuba.

The EU's controversial launch of duties on Chinese and Vietnamese-made leather shoes in 2006 marked deep divisions between Europe's manufacturing South and retail-heavy North. Spanish and Italian shoemakers said they could not compete against cheap Asian shoes while importers and retailers argued high-street shoppers would end up paying more for shoes.

On Friday, the European Footwear Alliance, which represents sporting goods giants such as Adidas , Puma Ecco and Hush Puppies, hailed what it called China's success and demanded EU compensation payments.

"The EU calculated and imposed the anti-dumping duties in a way which impermissibly discriminated against the vast majority of Chinese suppliers solely because they were Chinese, thus violating the cornerstone non-discrimination provision of the WTO Agreement," the alliance said in a statement.

"The report highlights ... the EU's general lack of transparency," it said. "EFA requests that the EU implement the WTO panel findings and reimburse importers those anti-dumping duties which the EU impermissibly collected over the past five years."

Both China and the EU claimed victory in the WTO's ruling on Friday.

China welcomed as a vindication the panel's rebuke of the way Europe effectively applies a single anti-dumping duty to a country rather than to individual firms if it doesn't consider that country to be a market economy -- unless the firms can prove that they are independent of the state.

"China considers the panel report to be a contribution toward consolidating the rules-based system that all WTO Members have pledged to foster," it said.

"In this spirit China looks forward to the full compliance of the Panel's recommendation by the European Union with regard to the IT (individual treatment) practice. ... China expects that the European Union will not repeat the violations of the Anti-Dumping Agreement found by the Panel."

An EU spokesman said the panel "rejected almost all of the procedural and substantive claims advanced by China."

"The panel considered the original and the review investigations conducted by the EU in the footwear case to be legal under WTO law, with the exception of few issues. And even with respect to these issues, the EU faces no implementation obligations, as the anti-dumping duties on Chinese footwear expired on 31 March 2011," EU trade spokesman John Clancy said in a statement.

Either side can appeal the ruling within 60 days.

(Reporting by Tom Miles and Juliane von Reppert-Bismarck in Brussels; editing by Stephanie Nebehay and Myra MacDonald)