A raft of concerns about the state of
the global economy, corporate earnings and the banking system
sent European shares lower on Monday, shrugging off large gains
The dollar was slightly weaker against a basket of major
currencies (.DXY). Oil was up more than a $1.50 a barrel
at around $130 a barrel, but still off recent highs of around
European shares kicked off the week on a softer note,
reversing last week's upward trend as worries swirled about
"There is, hanging over the market, the idea that the real
cyclical companies haven't yet had major profit warnings
whereas we know that the economy is slowing down," said Arthur
van Slooten, strategist at Societe Generale, in Paris.
The FTSEurofirst 300 (.FTEU3) index of top European shares
was down 0.7 percent.
British lender HBOS (HBOS.L) dropped 4 percent after it
said shareholders subscribed for just 8.3 percent of shares in
its 4 billion pound ($8 billion) rights issue, leaving its
underwriters to try to sell almost 3.8 billion pounds of stock.
The tone in Europe contrasted sharply with that of Asia,
where MSCI's index of shares outside Japan (.MIAPJ0000PUS) was
up 3.3 percent on the day. Japan's bourse was closed for a
Investor focus was very much on the U.S. earnings season.
Higher-than-expected results from JPMorgan (JPM.N), Citigroup
(C.N) and IBM (IBM.N) have been offset somewhat by
lower-than-forecast results from technology sector bellwethers
such as Google Inc (GOOG.O) and Microsoft Corp (MSFT.O).
OIL FIRMS, DOLLAR DRIFTS
Oil was up $1.52 a barrel at $130.49 following the biggest
one-week slide on record as inconclusive talks between Iran and
world powers over Tehran's disputed nuclear program dimmed
prospects of ending the row.
Prices were also lifted by worries about Tropical Storm
Dolly, the first storm of the 2008 Atlantic hurricane season
that could disrupt oil production in the Gulf of Mexico.
The dollar steadied nearly two cents away from record lows
versus the euro with sentiment hinged on the strength of U.S.
bank earnings and the reception of a rescue plan for Fannie Mae
and Freddie Mac.
Treasury Secretary Henry Paulson said on Sunday he was
optimistic Congress would approve the government's request for
authority to shore up the two troubled mortgage giants.
"The question is will there be some disappointment in
respect to the rescue package or not. If not, that should be
dollar supportive," said Michael Klawitter, currency strategist
at Dresdner Kleinwort in Frankfurt.
The euro edged up 0.1 percent to $1.5865.
Euro zone government bond prices were flat to higher,
pausing after a sharp sell-off last week.
Two-year bond yields were flat at 4.540 percent while
10-year yields were 2.2 basis points lower at 4.564 percent.
"There's more second quarter earnings out today and we're
likely going to be watching equities again," said one trader.
(Additional reporting by Blaise Robinson)
Forty-five percent of economists believe the economy won't log any growth or will clock in at a feeble 1 percent pace in the final six months of this year, according to a survey being released Monday by the National Association for Business Economics, which is known by the acronym, NABE. And, 10 percent think economic activity could actually contract during the period.
"Forecasters are approaching the second half with a lot of caution," Ken Simonson, point person on the survey and chief economist for the Associated General Contractors of America, said in an interview. "Most forecasters are suggesting the outlook will be sluggish, but not desperate. I'm afraid we're stuck on the ground floor of growth."
Thirty-two percent, meanwhile, think the economy growth's during the second half could be between 1 and 2 percent, which would mark a plodding performance. The more bullish are clearly in the minority camp: 11 percent think growth will come in between 2 and 3 percent. Only 1 percent expect growth to surpass 3 percent.
The economy's growth slowed sharply in the final quarter of 2007 and remained stuck in a rut in the first quarter of this year. Tax rebates, which have energized shoppers, should help lift the country out of the doldrums somewhat in the second quarter. The government releases its estimate of the second-quarter's economic performance at the end of this month. However, as the bracing force of the rebates fade, some analysts fear the economy could hit another rough patch near the end of this year.
Earlier this year, many thought that the first half of this year would be difficult and the second half would be stronger, lifted by the government's $168 billion stimulus, including tax rebates for people and tax breaks for businesses. With the rebates kicking in earlier than some expected, the second half could turn sluggish.
Many have "abandoned the notion of seeing a rebound," Simonson said.
Federal Reserve Chairman Ben Bernanke, who briefed Congress on Tuesday and Wednesday, warned that over the rest of this year, the economy will grow "appreciably below its trend rate" mostly because of continued weakness in housing markets, high energy prices and tight credit conditions.
Normal activity would be along the lines of a 2.5 percent to 3 percent growth rate for the economy.
Not only is the country slogging through lethargic growth, but it is also confronted by rising prices that threaten to spread inflation.
In the NABE survey, 75 percent reported paying more for raw materials, such as fuel and steel. That's the highest percentage in record keeping going back to 1994. Those higher prices are squeezing profit margins and leading some firms — 35 percent — to boost their prices, the survey found. That's up from the 29 percent who said their companies raised prices in the previous survey in April.
Consumer prices in June rose at the second-fastest pace in a quarter century, the government reported Wednesday. Wholesale prices also went up sharply during the month.
Meanwhile, most forecasters expect a continued slowdown in housing over the next six months, although they think it will be "mild" versus "substantial."
Grappling with fallout from housing and credit troubles and stung by high costs for energy and other raw materials, employers have cut jobs in each of the first six months of this year. Over the next six months, 51 percent said they expected to hold payrolls steady. Twenty-nine percent expected to boost them and 20 percent thought jobs would be reduced through layoffs or attrition.
Caught between slow growth and rising prices, the Fed is likely to leave interest rates alone when they meet next on Aug. 5. Boosting rates to fend off inflation would deal a setback to the economy and further hurt the housing market. The Fed can't afford to lower rates more to shore up economic activity because that would make inflation worse.
Sixty-two percent said the Fed's nearly yearlong string of rate reductions and other steps to prop up financial markets, had no effect on their business.
The survey, based on the responses of 101 NABE members, was conducted between June 19 and July 10.
A dissident shareholder
will on Monday call on Yahoo Inc to compromise and accept a
mixed board of directors drawn from among company nominees and
a rival slate backed by Carl Icahn.
Eric Jackson, founder of the activist hedge fund Ironfire
Capital and leader of the grassroots shareholder group
Plan B, said on Sunday he would encourage his loose-knit group
to elect five Yahoo directors and four Icahn nominees.
"It's become clear over the last two weeks that many
shareholders are reluctant to support the entire list of Icahn
nominees," Jackson said in a statement to be issued on Monday.
The 'Plan B' group is made up of 150 Yahoo stockholders
representing 3.2 million Yahoo shares. Members of the Web-based
activist group of small shareholders vote individually rather
than as a group, Jackson said.
Separately, a source familiar with the thinking of Yahoo's
board of directors said they see no need to compromise with
Icahn and accept some of his rival slate as a way of defusing
the proxy battle by Icahn to displace Yahoo's entire board.
The moves come in the busy final days before an August 1
showdown for control of Yahoo. Several proxy advisory firms are
expected to weigh in with recommendations to investors on
whether to support the Yahoo or Icahn camps.
Meanwhile, Yahoo is expected by many Wall Street analysts
to report weak quarterly results on Tuesday in the face of
slackening demand by some key corporate advertisers.
Yahoo's position was bolstered on Friday when fund manager
Bill Miller, chief investment officer of Legg Mason, said he
would support Yahoo's existing board at the August 1 annual
shareholder meeting in Silicon Valley. Legg Mason recently held
about 60.7 million Yahoo shares, about 4.4 percent of those
That was a blow to billionaire investor Carl Icahn's
two-month campaign to replace the embattled Internet media
company's board of directors and then reopen negotiations on a
full or partial merger of Yahoo with Microsoft Corp .
Yahoo spokesmen were not immediately available to comment.
YAHOO CAMP GAINS CONFIDENCE
Yahoo officials, including Chief Executive Jerry Yang, and
three outside board members met with top proxy advisory firm
ISS Governance Services, with Yahoo stating its case for ISS to
support the company in the August 1 proxy vote.
Details of the Journal story, which did not name sources,
said Yang and his colleagues gave no indication to ISS that
they would settle for offering Icahn four board seats as a
compromise. ISS is a unit of RiskMetrics Group .
At the ISS meeting, the Yahoo officials reviewed both their
board and the Icahn lineup without saying whether they would
find Icahn's nominees "acceptable," the paper said.
Many institutional holders of Yahoo are likely to look to
the recommendation by ISS or other proxy advisors for how to
vote in the board of directors contest at the annual meeting.
Yahoo's stance reflects growing confidence that its slate
of directors is in a stronger position with investors other
than Capital Research, Yahoo's largest investor, one source
confirmed to Reuters. That source could not confirm details of
the meeting between ISS and Yahoo officials.
Gordon Crawford, lead portfolio manager at Capital
Research, had angrily criticized Yahoo management's failure to
come to terms with Microsoft on a $47.5 billion deal in May.
Capital Research owned 220 million, or 16.3 percent of Yahoo
shares as of March 31, according to U.S. regulatory filings.
HYBRID BOARD PLAN
Jackson called on Plan B members to vote for five current
Yahoo directors, including Yang, Hewlett-Packard printing
executive Vyomesh Joshi, Activistion CEO Robert Kotick, former
Microsoft manager Maggie Wilderotter and former Northwest
Airlines Chairman Gary Wilson.
He called on shareholders to support four Icahn nominees,
including Adam Dell, a venture capital investor and investor in
start-up HotJobs which was sold to Yahoo, two advertising
executives, Edward Meyer and John Chapple, along with Harvard
professor and outspoken executive pay critic Lucian Bebchuk.
"We are confident this new hybrid Yahoo board can
effectively conclude a deal with them (Microsoft)," Jackson
A year ago, Yang took over from former CEO Terry Semel, but
Jackson now believes Yang, too, should step aside: "Yahoo would
be better served with a different CEO, but I think he should
stay on the board," the activist investor said.
Jackson said his recommendation of the five existing Yahoo
directors should not be interpreted as satisfaction with the
current board, which he blames for allowing a host of corporate
governance missteps to occur over the past four years. Rather,
he argues the partial board is needed to ensure continuity even
as he advocates that it seeks a merger with Microsoft.
At Yahoo's 2007 shareholder meeting, Jackson and his Plan B
group called on other shareholders to withhold their vote for
certain Yahoo board members in a protest over executive pay.
Roughly one-third of shareholders voted against the three
members of Yahoo's compensation committee in protest over the
company's poor performance in recent years and failure to link
executive pay to performance. Details of the Plan B proposal
will be available at http://www.youchoose.net/yahoo.
(Editing by Ian Geoghegan)