UPDATE 1-Wall St Week Ahead: For stocks, there's no need to fear good news

Fri Jul 5, 2013 7:28pm EDT

By Ryan Vlastelica

NEW YORK, July 5 (Reuters) - Wall Street doesn't hate good news after all.

The June jobs figures were stronger than expected and caused a big selloff in the bond market. That further underscored expectations that the Federal Reserve will be chopping back its big bond-buying program sooner rather than later. This kind of occurrence in the past would have caused the stock market to freak out.

But the three major U.S. stock indexes climbed 1 percent on Friday, possibly pointing the way to more gains ahead.

The stock market has been in an odd spot for some time. Fear that the Federal Reserve would reduce its monthly bond-buying stimulus, designed to boost borrowing demand and help the U.S. economy, put investors in the position of rooting for just-OK data, the kind of figures that would keep the spigot open while still pointing to decent growth.

This report may have definitively changed that outlook. In June, a total of 195,000 jobs were created - much stronger than the forecast for 165,000. Government data also showed that the U.S. labor force has increased for three straight months now. The 10-year U.S. Treasury note's yield jumped to a two-year high above 2.70 percent from 1.60 percent in a matter of weeks.

In that time, equities have barely budged. Sure, the S&P 500 has drifted off its all-time closing high of 1,669.16 reached on May 21. It's still less than 3 percent from that mark despite the sharp rise in interest rates. Light volume in the stock market, however, means that the move up should be taken with a grain of salt. And it makes the next several days that much more important.

"Good news is good news, but there's so much uncertainty about how payrolls could impact markets," said David Kelly, who helps oversee $400 billion as chief global strategist for JPMorgan Funds in New York. "The market is schizophrenic about this."

Good news in the form of bullish economic data has recently been taken as a negative, causing market selloffs on the theory that it means the Federal Reserve will slow its stimulus. While comments from Fed officials helped relieve those concerns last week, June's strong payrolls data refocused investors' attention on the uncertainty.

The June nonfarm payrolls report raises the stakes for Federal Reserve Chairman Ben Bernanke, who will be speaking on Wednesday before the National Bureau of Economic Research. Investors will closely scrutinize his comments for any hint about whether the jobs report could mean a faster end to the Fed's bond-buying stimulus program.

Some strategists said the bond market's selloff was in part because of thin volume exacerbating wild swings. Because of that, "it is unlikely that (yields) will rise any more than they already have," said Alec Young, global equity strategist at S&P Capital IQ in New York. "That means that if we get good news, it will come without an accompanying rise in rates, which is great for stocks."

Major signals for the market will come from areas with an outsized sensitivity to macroeconomic growth and higher interest rates. Those areas have done relatively well since May 21, when the Dow and the S&P 500 ended at record highs. Small-cap stocks jumped in their best week since mid-May, with the S&P 600 small-cap index closing on Friday at 568.15, an all-time high.

Financial stocks were the strongest sector on Friday, with the S&P financial sector index up 1.8 percent. Regional banks such as SunTrust Banks were among the S&P 500's biggest percentage gainers because those companies benefit from rising rates because it boosts their ability to profit from lending at higher rates while borrowing at lower rates.

IN SEARCH OF CLARITY

On Wednesday, the Federal Reserve will release the minutes from its June 18-19 meeting. Those minutes are likely to attract heightened attention from Wall Street since they are coming out on the same day that Bernanke speaks to the National Bureau of Economic Research.

The consensus on when the Fed will start cutting back its stimulus sits firmly in September of this year, with 11 of 16 primary dealers believing that, according to a Reuters poll, compared with seven of 17 in the June 19 Reuters poll.

On May 22, Bernanke said the quantitative easing program would be slowed if economic growth met the Fed's targets. Investors interpreted that as an indication of an early exit, sparking a steep slide in stocks and a surge in U.S. Treasury yields that prompted Goldman Sachs to close its recommendation that investors buy rate-sensitive names.

"The market is so inundated with voices from Fed officials - some far more reassuring than what we heard from Bernanke - that there's a lot of confusion," said Kristina Hooper, head of portfolio strategies at Allianz Global Investors in New York.

"Hearing him next week will settle things, especially on the heels of the jobs report," she said. "This is such a data-driven environment that to get a sense of how the Fed is viewing things is critical."

Stocks have stabilized after the recent decline. On Friday, the S&P 500 closed above its 50-day moving average for the first time since June 19.

For the week, the Dow Jones industrial average rose 1.5 percent, the S&P 500 gained 1.6 percent and the Nasdaq jumped 2.2 percent. Friday's close marked the end of the first trading week in the third quarter, although it was cut short by the market's closure for the Independence Day holiday.

For the year so far, the Dow is up 15.5 percent, while the S&P 500 is up 14.4 percent and the Nasdaq is up 15.2 percent.

The Fed probably will be the major driver for equities next week, although geopolitical tensions will also be in focus. The unrest in Egypt has generated concerns about oil supply, pushing crude prices to 14-month highs.

Fundamentals will return to the forefront as companies begin to release second-quarter results next week. Expectations call for S&P 500 earnings growth to rise 1.6 percent in the second quarter from a year ago, while quarterly revenue is forecast to increase 2.9 percent from a year ago, according to Thomson Reuters data.

Dow component Alcoa Inc will post results after the market closes on Monday. JPMorgan Chase & Co and Wells Fargo are also set to report results later in the week.

Second-quarter revenue outlooks for S&P 500 companies - with three negative forecasts for every one that's positive - are among the most negative of the economic recovery, according to Thomson Reuters data.

"We think companies will exceed and beat that low bar. So while Bernanke can always change the conversation, we think the news flow next week should be decent," S&P's Young said.

(Wall St Week Ahead runs every Friday. Questions or comments on this column can be emailed to: ryan.vlastelica(at)thomsonreuters.com)

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UPDATE 1-Detroit sues bond insurer over blocked creditor talks

Fri Jul 5, 2013 8:00pm EDT

By Karen Pierog and Steve Neavling

July 5 (Reuters) - The city of Detroit filed a lawsuit against bond insurer Syncora Guarantee Inc claiming the company blocked an agreement the city hopes to conclude with major creditors involving revenue from the city's three casinos.

The suit filed on Friday by Detroit's state-appointed emergency manager, Kevyn Orr, focuses on the city's estimated $15 million a month casino tax revenue. The city maintains Syncora told U.S. Bank, which controls the casino funds that were used as collateral in a deal with creditors, not to give up to $11 million a month to Detroit.

The city said those funds were part of ongoing discussions with creditors UBS AG and Bank of America Merrill Lynch and sought to have the funds released.

"Syncora has asserted rights it does not have over collateral it does not need for the purpose of holding the City hostage for ransom," said the lawsuit, filed at the Circuit Court for Wayne County.

Fred Hnat, a managing director at Syncora, said the bond insurer would have "no comment at this time."

The Wall Street Journal cited sources familiar with the matter as saying the city believed Syncora was standing in the way of a deal in which the creditors would get more than 70 cents on the dollar on nearly $340 million in secured debt. In return, Detroit would receive $11 million a month in tax revenue from its three casinos, funds that were used as collateral to back the debt.

"Syncora was interfering with the city's ability to restructure," emergency manager Orr told Reuters.

In the lawsuit, the city said the $11 million would be sufficient to "fund the wages and salary of City fire fighters for two months, or of City police officers for one month."

Detroit has some $18.5 billion in long-term debt and Orr was appointed by Michigan Governor Rick Snyder to fix the city's financial crisis. Orr has sweeping powers and is trying to conclude deals with creditors to avoid bankruptcy.

In a news release, the city said at a hearing on Friday afternoon that Wayne County Circuit Court Judge Annette Berry "granted the city's request for a temporary restraining order" and asked U.S. Bank to release the funds to the city. Berry set a hearing for July 26 before Judge Jeanne Stempien where Syncora "must show cause why further preliminary injunction should be granted."

The Wayne County clerk could not be reached for comment.

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U.S. swaps regulator calls vote on cross-border rule

By Douwe Miedema

WASHINGTON, July 5 | Fri Jul 5, 2013 11:30pm EDT

WASHINGTON, July 5 (Reuters) - The top U.S. derivatives regulator will meet next week to vote on how its rules apply to foreign companies that want to do business with U.S. firms, a sign it may be nearing a compromise on a thorny issue that has invoked the wrath of foreign regulators.

The Commodity Futures Trading Commission announced a formal meeting for July 12 to decide how new rules it has written to regulate the $630 trillion swaps markets apply to companies abroad.

The issue has split the CFTC for many months as it started writing new rules to rein in the lucrative swaps market, dominated by banks such as Citigroup Inc, Bank of America Corp and JPMorgan.

Chairman Gary Gensler, a Democrat who is widely expected to leave when his term expires at the end of the year, has insisted foreign companies comply with the CFTC's rules if they want to do business with U.S. companies.

The rules are an effort to make the opaque derivatives market safer after the financial crisis, and prevent risk that affects U.S. companies from building up abroad. But banks have complained it would subject them to cumbersome and redundant regulation.

And European Union financial services czar Michel Barnier has said America should rely on similar rules that are being drawn up in other jurisdictions, after a 2009 global agreement to rewrite the rules for banking.

U.S. banks complained last year that foreign clients started defecting as it was unclear whether they needed to comply with the CFTC's rules. Banks fear they will lose more customers if the regulator can reach no compromise.

The last day the agency can resolve the issue is July 12, because a broad exemptive relief it granted foreign companies expires on that day.

One commissioner, Bart Chilton, said he welcomed what he said was "an appropriate compromise." Chilton is also a Democrat, and his vote for any proposal was not in doubt.

Mark Wetjen, the third Democrat and a key vote for any majority Gensler aims to clinch, has sounded less sure and asked for a delay in a speech last week.

"I am confident we can get to agreement on the guidance, but not sure we can accomplish that before July 12," Wetjen said on a conference call with journalists this week.

In its invitation for the meeting, the CFTC said that it would discuss both its final guidance on how its rules apply abroad, as well as a new order that would set deadlines in a phased approach for compliance.

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Greece to sell 1.25 bln eur of 6-month T-bills on July 9

ATHENS, July 5 | Fri Jul 5, 2013 6:21am EDT

ATHENS, July 5 (Reuters) - Greece will auction 1.25 billion euros ($1.61 billion) of six-month T-bills on July 9 to refinance a maturing issue, the country's debt agency PDMA said on Friday.

The settlement date will be July 12. Only primary dealers will be allowed to participate and no commission will be paid.

Monthly T-bill sales are Greece's sole remaining source of market funding. Greek banks buy the bulk of the issues and deposit them as collateral to draw liquidity from the central bank.

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UPDATE 1-German industry orders slump as domestic demand disappoints

Fri Jul 5, 2013 6:45am EDT

* Industry orders -1.3 pct vs f'cast +1.2 pct

* Domestic demand for capital goods -4.1 pct

* Economist says points to ongoing weak investment

By Sarah Marsh

BERLIN, July 5 (Reuters) - A slide in demand for capital goods at home drove an unexpected 1.3 percent drop in German industry orders in May, underscoring fragility in Europe's largest economy and disappointing hopes it might support regional growth.

The second monthly drop in seasonally and price-adjusted order intake compared with a consensus forecast in a Reuters poll of 37 economists for a 1.2 percent rise. It was a steeper fall than even the lowest forecast for a 0.7 percent slide.

"The decline is a bitter disappointment," said Andreas Scheuerle, economist at Dekabank. "The fall in domestic orders for capital goods is worrying, as this points to a continued weakness in investment."

Scheuerle said German companies had held back on investments since the euro zone's debt crisis escalated in 2011.

"We need at long last positive news on the debt crisis to reduce the uncertainty - the events in Portugal were counterproductive in this regard," he said, referring to a political crisis in Portugal that flared up this week, threatening Lisbon's adjustment under a bailout.

Recent data has painted a mixed picture of the German economy, which held up well in the first few years of the euro zone's debt crisis but shrank at the end of last year, only narrowly avoiding a recession in the first quarter of 2013.

Sentiment surveys have improved and exports, imports and output have all risen. But a Purchasing Managers' Index (PMI) published earlier this week showed the manufacturing sector shrank in June, while Germany's VDMA engineering association on Thursday slashed its forecast for 2013 production.

Industry orders fell by a revised 2.2 percent in April, according to the data from the Economy Ministry. They were originally reported to have fallen 2.3 percent. The fall is already seen feeding through to output in May, which is forecast to have dropped by 0.5 percent.

Domestic orders fell 2 percent, with demand at home for capital goods slumping 4.1 percent, raising concerns that the domestic economy will not be able to compensate for sluggish demand from the euro zone, where Germany's traditionally export-oriented economy ships some 40 percent of its goods.

Industry orders from abroad dropped 0.7 percent in May, driven by a 3.9 percent fall in orders from the euro zone.

The Economy Ministry said a lack of big-ticket items contributed to the weak industry orders data.

The German economy is still outperforming peers within the euro zone. Data on Friday showed France's trade deficit with the rest of the world widened sharply in May, while Spain's industrial output fell for the 21st month in a row.

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RPT-WRAPUP 1-Steady U.S. job gains to keep Fed's focus on tapering

Fri Jul 5, 2013 6:59am EDT

* Nonfarm payrolls expected to have risen 165,000 in June

* Unemployment rate forecast ticking down to 7.5 percent

* Average hourly earnings seen up, work week steady

* Report to show jobs, economy in a holding pattern

By Lucia Mutikani

WASHINGTON, July 5 (Reuters) - U.S. job growth probably slowed in June, but not enough to shift the Federal Reserve away from expectations that it will start scaling back its massive monetary stimulus later this year.

Employers are expected to have added 165,000 new jobs to their payrolls last month, according to a Reuters survey of economists, slightly below the 175,000 positions created in May.

The unemployment rate is expected to fall a tenth of a percentage point to 7.5 percent.

The Labor Department will release its closely watched employment report on Friday at 8:30 a.m. EDT (1230 GMT), two weeks after Fed Chairman Ben Bernanke offered an upbeat assessment of the economy's outlook and said the U.S. central bank expected to start trimming its bond purchases later this year.

"If we get this number, the Fed would still feel that the outlook is on track for them to make an announcement later this year on the tapering," said Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina.

Job growth has averaged 155,800 per month over the past three months, just about the amount economists say is needed to gradually push down the unemployment rate.

There is a risk, however, that June payrolls could beat expectations after reports on Wednesday showed a pickup in the pace of hiring by private businesses and the service industries.

The Fed is purchasing $85 billion in bonds each month in an effort to keep borrowing costs down and spur stronger growth.

Economists said even if June payrolls come in weaker than expected, it would probably not stop the Fed from curtailing purchases later this year.

"It will force them to reconsider the size and not necessarily the timing of any tapering," said Millan Mulraine, senior economist at TD Securities in New York. "My view is tapering is essentially baked into the cake."

Twenty-eight of 60 economists polled by Reuters in late June said they expect the Fed to begin dialing back its purchases in September, with most expecting the program to end by June 2014.

The majority also forecast the Fed initially would cut purchases by $20 billion a month.

A batch of economic data, including housing, manufacturing and auto sales, have general been consistent with the Fed's views of diminished downside risks to the economic outlook.

However, debt problems in Europe and slowing growth in China are hampering export growth.

The recent signals from Bernanke that a start date for reducing bond purchases is approaching triggered a global selloff in stock and bond markets, which have come to rely on the Fed as a steady source of demand for financial assets. Interest rates on everything from U.S. Treasury debt to home mortgage loans moved sharply higher, threatening to curtail credit for consumers and businesses.

DECLINING WORKFORCE PARTICIPATION

The central bank is closely watching the unemployment rate. It has said it expects the jobless rate to drop to around 7 percent by the middle of next year, when it anticipates ending the bond purchases.

Economists said there was a chance the labor force could shrink, leading to a bigger-than-forecast drop in the jobless rate, given that the number of people entering the labor force had gone up in each of the previous two months.

Those workforce entrants have lifted the participation rate - the share of working-age Americans who either have a job or are looking for one - up from a 34-year low touched in March.

Declining participation as older Americans retire and younger people give up the hunt for work in frustration has accounted for much of the drop in the unemployment rate from a peak of 10 percent in October 2009.

The private sector is expected to account for all the anticipated job gains in June, with payrolls there expected to have increased by 175,000, little changed from the prior month.

Government employment, in contrast, is forecast shrinking by 10,000 jobs. Economists, however, say the job losses were not due to the deep government spending cuts known as the sequester.

While the budget cuts that took hold on March 1 do not appear to be hitting government payrolls directly, some economists said they were weighing on private employers and helped explained a sharp slowdown in hiring in the health care and social assistance sector.

Consumer-related areas such as retail and wholesale trade are expected to show further gains in employment in June, reflecting strengthening demand that was highlighted by a surge in automobile sales in June.

"Consumers are pulling the economy forward," said Sung Won Sohn, an economics professor at California State University Channel Islands in Camarillo, California.

Manufacturing payrolls are expected to be flat after three straight months of declines. But there is a high risk of another contraction after a gauge of national factory employment released on Monday tumbled to the lowest in nearly four years in June.

Construction employment likely added to May's gains as the housing recovery pushes ahead, but it remains constrained by a still sluggish non-residential sector.

Other details of the report are expected to show average hourly earnings rose by 0.2 percent after being flat in May. Tepid wage growth is holding back the consumer-driven economy.

The length of the average workweek is expected to have held steady at 34.5 hours.

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MOVES-BofA Merrill, BNY Mellon, ANZ, Viewpoint Financial

July 4 | Thu Jul 4, 2013 6:23am EDT

July 4 (Reuters) - The following financial services industry appointments were announced on Thursday. To inform us of other job changes, email to moves@thomsonreuters.com.

The investment banking division of Bank of America hired Shusuke Yamada as chief Japan FX strategist on July 1, according to an internal memo seen by Reuters. A spokesman at the investment bank confirmed the move. Yamada, who joined from PIMCO Japan Ltd, reports to Eiichi Katayama, head of Japan Research and Adarsh Sinha, head of Asia Pacific G10 FX strategy.

The investment management division of Bank of New York Mellon Corp appointed Mark Speciale as the head institutional distribution for Asia-Pacific.

The bank appointed Glenn Maguire as chief economist responsible for economic research in South and South-East Asia and the Pacific. Maguire joins the ANZ from Société Générale.

The holding company for ViewPoint Bank, N.A, said on Wednesday Chief Financial Officer Pathie Mckee will resign, effective July 31.

The firm said on Wednesday Tom Joyce resigned from his role as executive chairman of the board of directors.

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Update-Moody's upgrades Merck KGaA to A3; stable outlook

Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.

NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here.

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UPDATE 1-Brazil's MPX scraps share sale as Batista quits as chairman

Thu Jul 4, 2013 6:53am EDT

* MPX shareholders approve $353.7 mln capital injection

* Founder Eike Batista agrees to step down as chairman

SAO PAULO/BRASILIA, July 4 (Reuters) - Embattled billionaire Eike Batista stepped down as chairman of MPX Energia SA on Thursday as dwindling market confidence forced the Brazilian power producer to scrap a planned share offering.

The Rio de Janeiro-based company halted the offering, which it sought to raise an estimated 1.2 billion reais ($528 million) from controlling and minority shareholders, because of a deterioration in market conditions, according to a securities filing. Grupo BTG Pactual SA, the company's financial advisor on the plan, recommended the decision, the filing said.

MPX will instead sell 800 million reais worth of shares at 6.45 reais each in a so-called private placement, the filing added. EON SE, which in recent months became a major shareholder of MPX, agreed to subscribe 367 million reais worth of stock in the private placement, while BTG Pactual committed to buy the remainder.

The private placement should be concluded within the next 40 days. A spokesman for E.ON, Germany's largest utility and major shareholder in MPX said of Batista's resignation as MPX chairman that it was "his personal decision,."

A replacement for Batista, who founded MPX in 2001, was not announced in the filing. Batista has seen his fortune shrink by more than $20 billion over the past 1-1/2 years after repeated delays and as output misses in his Grupo EBX conglomerate of mining, energy and logistics companies dented investor confidence.

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Portugal president to meet PM, parties over political crisis

LISBON, July 3 | Wed Jul 3, 2013 6:15am EDT

LISBON, July 3 (Reuters) - Portugal's president will meet representatives of the main political parties and Prime Minister Pedro Passos Coelho this week to discuss an impasse created by the resignation of a key government minister and leader of CDS-PP ruling coalition party.

President Anibal Cavaco Silva's office said in a statement he would meet the leader of the main opposition Socialists later on Wednesday, the premier on Thursday and other parties after that. The president has the power to call new elections, but can also play a mediating role to resolve political crises.

Two more Portuguese ministers from the junior ruling coalition party were ready to resign on Wednesday, local media said, deepening turmoil that could trigger a snap election and derail Lisbon's exit from an EU/IMF bailout.

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