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Jobless Claims Fall to 2006 Lows


“The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, pointing to a further strengthening of labor market conditions.

Initial claims for state unemployment benefits decreased by 14,000 to a seasonally adjusted 289,000 for the week ended Aug. 2, the Labor Department said on Thursday.

The prior week’s claims were revised to show 1,000 more applications received than previously reported.

Economists polled by Reuters had forecast claims rising to 305,000 for the week ended Aug. 2. Volatility related to the summer automobile plant shutdowns for retooling pushed claims to a 14-year low in July.

Most of that volatility has worked its way through the data. …”

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World Markets & U.S. Futures Fall Into a Murderhole

“Markets around the world are coughing up gains on fears of how Russia might respond to the latest round of Western sanctions, and on nasty data out of Europe.

The Wall Street Journal’s Patrick O’Connor reports that Russia may be considering restricting parts of its airspace to Western airlines, which could significantly drive up the cost of flying. O’Connor cites a Russian newspaper report, while Moscow has so far denied that that is an option.

But that they will respond is not in doubt. “The government of Russia has already proposed a series of retaliatory measures against the so-called sanctions of certain countries,” Russian President Vladimir Putin said recently according to O’Connor. “I think that in current conditions, with the goal of protecting the interests of domestic producers, we could certainly think about that,” he added.

Russia has also now amassed 20,000 troops on the Ukrainian border after declaring the eastern part of that country to be on the verge of a “humanitarian disaster.”


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Finding Alternative Exotic Investments

” “I am a musician, and the monkey is a businessman. He doesn’t tell me what to play, and I don’t tell him what to do with his money.”

David Bonderman, co-founder of private-equity firm TPG Capital, is doing his best French accent for the Beverly Hills crowd, parroting a blind organ grinder confronted by Peter Sellers’s Inspector Clouseau character in the 1975 film “The Return of the Pink Panther.” The audience, gathered in April for the Milken Institute Global Conference, erupts in laughter. So does Leon Black, founder of Apollo Global Management (APO) LLC, who is seated next to Bonderman.

Bonderman’s message is clear, Bloomberg Markets magazine will report in its September issue. Like the film’s monkey and organ grinder, alternative-asset managers and their investors depend on each other. ….”

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European Markets and U.S. Futures Celebrate the Bailout of Portugal’s Largest Bank

“(Reuters) – European stocks rose on Monday and bond yields fell on a banking sector rebound after Portugal prevented the collapse of one of its biggest lenders and shares in the continent’s largest bank jumped in the wake of its latest earnings report.

This dovetailed with easing fears of higher U.S. interest rates following Friday’s U.S. employment report, and eclipsed growing geopolitical concerns over the Middle East and the effect of Western trade sanctions on Russia.

Lisbon on Sunday announced a near 5 billion-euro rescue of the country’s largest listed bank, Banco Espirito Santo, preventing it from collapsing and potentially destabilizing the banking sector regionwide.

“The market’s initial reaction is that it’s pretty reassuring to see Portugal moving quickly to rescue BES. Overall it eases systemic fears that had resurfaced last week,” Saxo Bank sales trader Andrea Tueni said.

On Monday, HSBC reported a larger-than-expected drop in profits, but investors looked instead to the bank’s attractive dividend yield and scooped up the shares, lifting them to a three-month high….”

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209k Jobs Added in July, Unemployment Rate Rises to 6.2%


WASHINGTON—Hiring by U.S. employers slowed in July but remained robust with broad-based payroll gains, evidence of continued strength in the labor market and the broader economy.

Nonfarm employment rose by a seasonally adjusted 209,000 last month, the Labor Department said Friday.

The unemployment rate, obtained via a separate survey of households, ticked up to a seasonally adjusted 6.2% in July from 6.1% in June. The jobless rate has fallen 1.1 percentage points since July 2013, when it was 7.3%.

Economists surveyed by The Wall Street Journal had expected payrolls to rise by a more robust 230,000 and the jobless rate to remain at 6.1%.

Payrolls rose by 298,000 in June, revised up from an earlier estimate of 288,000, and May’s gain was revised up to 229,000 from an earlier estimate of 224,000. Payroll gains have averaged 245,000 over the past three months, compared with an average of 209,000 in the 12 months ended in June.

July’s gain extended a streak that has seen nonfarm employers add 200,000 or more jobs in six consecutive months for the first time since 1997.

The U.S. economy stumbled in the wintry first quarter as gross domestic product-—the broadest measure of output across the economy—contracted at a 2.1% seasonally adjusted annual rate. But growth rebounded in the second quarter, with GDP growing at a 4% pace as companies continued to hire workers and the jobless rate declined at a rapid pace.

The Federal Reserve on Wednesday acknowledged improvement in the labor market. But its policy statement warned that “a range of labor market indicators suggests that there remains significant underutilization of labor resources,” and that “a highly accommodative stance of monetary policy remains appropriate” given the state of the economy.

The Fed has kept short-term interest rates near zero since December 2008 to bolster the U.S. economy through a financial crisis, a deep recession and a lackluster recovery. The central bank now is winding down its bond-buying program and officials expect to begin raising rates sometime next year, though Chairwoman Janet Yellen in mid-July said that rate hikes “likely would occur sooner and be more rapid than currently envisioned” if the labor market “continues to improve more quickly than anticipated.”

In July, hiring was broad-based. Payrolls rose in the professional and business services, manufacturing, retail, construction and public sectors….”

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Argentina Faces Default Again

“Argentina faces default Wednesday for the second time in 13 years if it doesn’t meet a deadline to make payments to a small group of bondholders. WSJ’s Matthew Cowley explains Argentina’s dispute with these creditors and the long-standing battle that stems from the country’s default in 2001. (Photo: Getty Images)

Argentina teetered on the brink of its second default in 13 years after talks with bondholders collapsed late Wednesday.

The setback, after glimmers of hope in recent days that a last-minute agreement could be reached, immediately sent Argentine stocks plunging in after-hours trading.

Still, there remained the possibility that talks could resume and a deal could eventually be reached.

At a news conference after talks with a court-appointed mediator ended Wednesday, Argentine Economy Minister Axel Kicillof, who had led the country’s delegation to New York, said “we won’t sign an agreement that would compromise Argentina’s future.” A spokeswoman later said negotiations would continue, without giving a timetable.

“Default is not a mere ‘technical’ condition, but rather a real and painful event that will hurt real people,” said Daniel Pollack, the mediator, in a statement late Wednesday. He added, “The full consequences of default are not predictable, but they certainly are not positive.”

The development is the latest turn in a yearslong battle between Argentina and a small group of hedge funds that have demanded full payment for bonds the country defaulted on in 2001. Argentina has refused to pay, despite an order by a U.S. District Court judge requiring it to pay the hedge funds. The issue came to a head Wednesday as Argentina missed a deadline to make a payment it owed to other bondholders, because the court order had prevented such a move.

Mr. Pollack, who had been trying to broker a deal between the two sides, said the country would “imminently” be in default. Standard & Poor’s Ratings Services had earlier Wednesday declared Argentina in default on some of its bonds.


A default would pressure an economy already mired in recession, potentially leading to higher inflation and a weaker currency. The breakdown of negotiations also complicates President Cristina Kirchner‘s efforts to stabilize the economy ahead of elections next year…..”

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The Fed Tapers 10B, Rates Remain Unchanged

“The taper continues.

The Federal Reserve’s Federal Open Market Committee just announced its latest monetary policy decision, and there were no surprises.

The FOMC said it would take another $10 billion off its monthly asset purchases and keep interest rates between 0%-0.25%.

In its latest statement, the Fed said, “a range of labor market indicators suggests that there remains significant underutilization of labor resources.”

The latest FOMC announcement, which is not accompanied by a press conference from Fed Chair Janet Yellen, also comes on the heels of a better than expected GDP report this morning.

Here’s the full statement from the Fed:

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced and judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat.

The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment….”

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ADP Misses by a Small Margin, 218k Jobs Created vs Estimates of 230k

“Private businesses created 218,000 jobs in July, a number that while solid and in line with trend fell below expectations, according to ADP.

The number also fell well short of the 281,000 created in June—the initially reported total was not revised—and could cause economists to tinker with their projections for Friday’s nonfarm payrolls report. Consensus has the economy adding 225,000 total for the month.

Employment growth fell across the spectrum, with service industries again leading the way with 202,000 new positions, down from 238,000 in June. Goods-producing businesses rose 16,000, off from 43,000, while construction gained just 12,000, less than half the previous months’ gain.

However, Mark Zandi, the top economist at Moody’s Analytics, which formulates the report along with ADP, said the overall direction of the jobs market is decidedly positive…..”

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State of the Union: Household Wealth Off 36% Since 2003


“Does it feel like you’re poorer? There is a simple reason why – you are! According to a new study by the Russell Sage Foundationthe inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36% decline… Welcome to America’s Lost Decade.

Simply put, the NY Times notesit’s not merely an issue of the rich getting richer. The typical American household has been getting poorer, too.

The reasons for these declines are complex and controversial, but one point seems clear: When only a few people are winning and more than half the population is losing, surely something is amiss.


As Russell Sage Foundation concludes, through at least 2013, there are very few signs of significant recovery from the loss of wealth experienced by American families during the Great Recession. Declines in net worth from 2007 to 2009 were large, and the declines continued through 2013. These wealth losses, however, were not distributed equally…..”

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77% of S&P 500 Companies Beat Estimates

Starbucks Corp.Ford Motor Co. andAmerican Airlines Group Inc. posted profits that exceeded analysts’ estimates, benefiting in part from improved economies at home and abroad.

The automaker and the coffee-shop chain yesterday joined the 77 percent of Standard & Poor’s 500 Index companies that havebeaten second-quarter projections, with more than 280 yet to report. Facebook Inc. closed at a record yesterday, one day after the social network said mobile advertising fueled sales.

Ford turned its first profit in three years in Europe, which is recovering from a recession. Starbucks reported a 23 percent gain in fiscal third-quarter profit after selling more food in the U.S. Yesterday’s results helped keep the S&P 500 and Dow Jones Industrial Average near record highs, with the U.S. recovering from a first-quarter economic contraction and poised to exceed 200,000 jobs for a sixth month.

“It’s good to see improvement in the economy translating into better earnings and helping the stock market,” Kevin Caron, who helps oversee $170 billion as a portfolio manager at Stifel Financial, said in an interview.

While the S&P 500 companies are running head of the first quarter’s 74 percent trend for beating estimates, yesterday’s results weren’t uniform. Caterpillar Inc., the largest maker of mining machinery, forecast full-year profit and sales that trailed estimates and said there’s no sign of an upturn in the industry in 2014. Amazon.com Inc. reported its biggest quarterly loss since 2012 as Chief Executive Officer Jeff Bezos builds more distribution warehouses, adds grocery deliveries and develops new smartphones and tablets.

S&P 500 Record….”

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New Home Sales Post Biggest Drop in Almost a Year

“Sales of new U.S. single-family homes fell sharply in June and the prior month’s data was revised to show less robust growth, suggesting the housing market would struggle to regain momentum.

The Commerce Department said on Thursday that sales dropped 8.1 percent, the largest decline since July 2013, to a seasonally adjusted annual rate of 406,000 units.

May’s sales pace was revised to 442,000 units from the previously reported 504,000 units.

Economists polled by Reuters had forecast new home sales at a 479,000-unit pace last month. Compared to June of last year, sales were down 11.5 percent.

A run-up in mortgage rates, as well as a shortage of properties for sale, pressured home sales late last year….”

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The IMF Cuts Global Growth Forecasts

“The International Monetary Fund (IMF) just cut its forecast for global GDP growth in 2014 to 3.4% from 3.6%.

“Global growth could be weaker for longer, given the lack of robust momentum in advanced economies,” they said via Bloomberg. “Monetary policy should thus remain accomodative in all major advanced economies.”

Among the biggest revisions was U.S. 2014 GDP growth, which was cut to 1.7% from an earlier forecast of 2.8%.

The organization expects the Euro area to expand 1.1%, and Japan to gain 1.5%.

They do, however, expect global growth to accelerate to 4.0% in 2015….”

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SEC to Vote on Money Fund Withdrawls and ‘Breaking the Buck’

“Regulators are expected to vote Wednesday to end a longtime staple of the investment industry—the fixed $1 share price for money-market mutual funds—at least for some money funds used by big investors.

The idea is to minimize the risk of a mass withdrawal from the funds during a financial panic. The Securities and Exchange Commission may also vote to let money funds block withdrawals during periods of stress or impose new fees for withdrawals.

The “breaking of the buck” by a large money fund during the 2008 crisis stoked a run on some other funds and forced the government to intervene to restore confidence.

Joshua Roberts | Bloomberg | Getty Images

Under the new rules, the share prices of the funds involved will be required to “float,” just as with other mutual funds. Big institutional investors could lose principal if the value of the shares falls below $1. Individual investors likely won’t be affected.

The idea behind adopting floating prices for a portion of the $2.6 trillion money-market fund industry is to stress that while the funds are safer than stocks and many other investments, they still carry some risk. Regulators say greater awareness of the risk would reduce the potential for crippling runs on money funds because investors would have acclimated themselves to fluctuating prices….”

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Hedge Fund Managers Load the Equities Boat

“While some investors have been scared away by the stock market’s continuous climb to record highs in recent weeks, hedge funds apparently aren’t among them.

Hedge funds that deploy a “market neutral” strategy, meaning they typically hold equal amounts of long and short stock positions, were 18 percent net long as of July 2, according to Bank of America Merrill Lynch, CNBC reports. That compares with 10 percent net long two weeks earlier.

The funds are emphasizing growth and small-cap stocks in their long exposure.

Macro funds, which bet on macroeconomic trends through all kinds of asset classes, also have raised their long exposure to stocks in the S&P 500 and Nasdaq Composite indexes, according to the report….”

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June Retail Sales Fall Right in Line With Q2 Bust

“Following disappointing retail sales number for both April and May, or two thirds of Q2, there was hope that June would finally be the month retail sales would soar. Alas, that would not be the case, following the release of the latest retail sales data by the Department of Commerce which reported that in June retail sales rose just 0.2%, well below the 0.6% expected and matching the lowest end of the forecast expectations (from 0.2% to 1.1%).

Misses were also reported for retail sales ex-autos (0.4%, Exp. 0.5%) and ex-autos and gas (0.4%, Exp. 0.5%). Perhaps the only saving grace was the upward revision of May data from 0.3% to 0.5% for the headline number and from 0.0% to 0.3% for the ex-autos and gas. If anything, however, today’s retail sales increase which was the slowest in 5 months confirms that the trend we warned about in April, namely that the US consumer tapped out in March to fund that month’s mad spending spree, and the spending trend has been deteriorating ever since.

There was some good news in today’s report which was the retail sales control group, which rose 0.6% compared to estimates of 0.5%, and the May revision of 0.0% to 0.2% means that GDP beancounters will likely end up adding a few basis points to their Q2 GDP estimate even as consumers enter Q3 in the weakest shape they have been since the polar vortex.

Finally, the breakdown of retail sales by business was rather paradoxical….”

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Trading Revenues Hit a Pitfall, Will it Be Permanent?

UBS AG UBSN.VX +0.92% ‘s trading floor in Stamford, Conn., once teemed with traders occupying a space equal to two football fields. The Guinness World Records recognized it as the biggest such facility on the planet. And the Swiss bank used it to showcase its Wall Street credentials.

Stu Taylor, a former UBS managing director in trading who now runs trading-technology company Algomi Ltd., remembers when guests were brought around the gallery regularly. “It was very much a showpiece,” he said.


Today, there are virtually no traders shouting into their phones or staring at terminals. UBS’s cavernous floor is taken up mostly by back-office, legal and technology staffers, according to people familiar with the bank.

A spokeswoman for UBS said the trading floor was built for 1,400 traders, but wouldn’t disclose the number of employees at the facility.

A deep slump in trading activity in everything from stocks and bonds to currencies is changing the face of Wall Street. Businesses that once contributed disproportionately to the revenues of the world’s largest banks are now bleeding jobs and sparking fears of a permanent decline.

Today’s markets are “boring,” said Thomas Thees, a former head of North American credit trading at Morgan Stanley MS -0.85% and a former co-head of fixed income at Jefferies Group. “This is affecting the opportunity to make money, and ultimately the earnings these [trading] businesses can provide.”

Global revenue from trading in fixed income, currencies and commodities, or FICC, dropped to $112 billion last year, down 16% from a year earlier and 23% from 2010, according to Boston Consulting Group.

As big banks with large trading operations such as J.P. Morgan Chase & Co., Goldman Sachs Group Inc. GS +0.84% and Citigroup Inc. report second-quarter earnings results this week, investors and analysts will be trying to find out whether the slowdown is a temporary funk or a lasting shift.

The forces arrayed against banks’ trading businesses are powerful. Since the financial crisis, regulators have limited their ability to take risks with their own money, and have made the process costlier, prompting many to dial back or push in different directions. At the same time, global markets have fallen into an unusually placid pattern that has damped clients’ desire to make trades.

“It’s been absolutely dead,” said Jarrod Dean, a municipal-bond trader at Sierra Pacific Securities in Las Vegas. Municipal-bond trading volumes are down about 30% since last August, he said, while profits are down more than 70%. “We’ve just got to keep toughing it out,” he said.

The malaise has prompted an Exodus of traders from big firms to smaller ones that are less subject to government oversight.

Late last year, Sound Point Capital Management LP, a $5.2 billion, credit-focused asset manager based in New York, scooped up five credit traders and analysts from UBS.

The rowdy atmosphere once celebrated on Wall Street already was on the wane when the crisis hit, as electronic-trading platforms began ushering in a quieter era. But the downturn and the new rules that followed have emptied desks and left fewer people to make sales calls and trade securities.

Down the road from UBS in Stamford, the U.K.’s Royal Bank of Scotland Group PLC has faced similar struggles. In 2005, RBS accepted $100 million of tax breaks in exchange for spending $345 million on a gleaming new headquarters in Stamford, creating 1,150 new jobs and retaining 700 employees in the state.

Two months ago, the bank, now majority-owned by the British government after a crisis-era bailout, said it planned to cut 400 jobs, in part to refocus the bank’s attention on the U.K. market.

A spokeswoman for RBS confirmed the intention to reduce staff and said it met the requirements under its agreement with the state of Connecticut, but otherwise declined to comment.

Among those no longer at RBS is Alan Osborne, who formerly sold fixed-income products for the firm ….”

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