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Wall St. edges up after wage growth data

Wall Street edged higher in late morning trading on Friday after an historically weak reading of U.S wage growth lent weight to the view that the U.S. Federal Reserve could delay a rate increase.

U.S. stocks had been slightly choppy just after the opening bell as investors took cues from weak earnings from oil producers Exxon Mobil and Chevron and depressed commodity prices.

Exxon Mobil (XOM.N) shares fell 4.1 percent to $79.63 while Chevron (CVX.N) was down 3.4 percent at $89.90 after quarterly profits slumped on falling oil prices.

Positive commentary from the Fed about the economy earlier in the week is seen by many investors as a signal that a rate rise could come as early as September. The prospect of the first hike in nearly a decade has led to a fall in U.S. equities’ share in global portfolios.

U.S. labor costs in the second quarter recorded their smallest increase in 33 years amid tepid gains in the private sector with the Employment Cost Index edging up 0.2 percent, compared with a 0.6 percent increase expected by economists.

“The magnitude of the miss was definitely a bit of a surprise, especially as people were really gearing up for a September hike. This definitely puts a lower probability on that,” said Stanley Sun, interest rate strategist at Nomura Securities International in New York.

Oil prices fell on global oversupply concerns, while copper was lower on lingering worries about demand in top consumer China.

A sharp selloff in Chinese shares over the past weeks has stoked concerns about a slowdown in growth in the world’s second-biggest economy.

At 11:11 a.m. ET (1511 GMT), the Dow Jones industrial average .DJI was up 2.67 points, or 0.02 percent, at 17,748.65, the SP 500 .SPX was up 2.8 points, or 0.13 percent, at 2,111.43 and the Nasdaq Composite .IXIC was up 17.79 points, or 0.35 percent, at 5,146.58.

Seven of the 10 major SP 500 sectors were higher with the utilities index’s .SPLRCU 1.61 percent rise leading the advancers. The energy index .SPNY fell 1.96 percent.

With more than half of the SP 500 companies having reported quarterly results, analysts expect overall earnings to edge up 1 percent and revenue to decline 3.3 percent, according to Thomson Reuters data.

While earnings are expected to grow, valuations remain a concern. The SP 500 is trading near 16.8 times forward 12-month earnings, above the 10-year median of 14.7 times, according to StarMine data.

Stocks are a tad expensive and will be a concern if earnings don’t continue to grow in the second half of the year, said Steve Freedman, senior investment strategist at UBS Wealth Management.

LinkedIn (LNKD.N) fell 8.2 percent to $208.87 after the operator of the biggest social networking site for professionals reported a bigger net loss.

Expedia (EXPE.O) rose 10.2 percent to $118.78 after the company posted a second-quarter profit above analysts’ expectations and announced a larger dividend.

YRC Worldwide (YRCW.O) soared 26.3 percent to $19.34 a day after the trucking company reported better-than-expected second-quarter profit.

Advancing issues outnumbered decliners on the NYSE by 2,094 to 811. On the Nasdaq, 1,735 issues rose and 855 fell.

The SP 500 index showed 37 new 52-week highs and six new lows, while the Nasdaq recorded 71 new highs and 51 new lows.

(Editing by Don Sebastian)

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U.S. job market set for more than just ‘some’ attention

LONDON Now that U.S. Federal Reserve chief Janet Yellen has made it clear she’s looking out for “some” improvement in the job market before voting for the first Fed interest rate rise in nearly a decade, so is everyone else.

The challenge is that the U.S. economy is generating very little inflation – not to mention disinflation coming from China and nearly no inflation in Europe – leaving many questioning whether the Fed even should be considering a rate rise.

The U.S. economy only grew by 1.5 percent in the first half of the year, slower than the average 2 percent pace over the previous three years and less than half the speed of past boom times in 2004-2005.

Yet the unemployment rate continues to fall, with first time claims for jobless benefits near a 40-year low. That, say some economists, is a cause for concern given rates are still at zero and would normally be much higher at this stage.

“The pace for growth remains extremely weak by past recovery standards, but with potential growth weaker as well it appears to be more than sufficient to keep the unemployment rate coming down,” notes Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.

If the potential growth rate is much lower, then spare capacity in the economy may be close to nil, which means that not only is the business cycle at a mature stage, interest rates may have to move up more quickly than most currently expect.

But there are different warning signs, too, not least the strong dollar, which has been keeping down the price of imported goods and has hurt U.S. businesses trying to sell their goods and services abroad by making them more expensive.

The latest gross domestic product data also showed a sizeable buildup of inventories in the first half of the year, which at some point will need to be drawn down, likely slowing production in the process, and with it, economic growth.

Next Friday’s jobs data is expected to show the U.S. economy created 225,000 new jobs in July, just a tad more than in June, what was deemed a fairly disappointing report, according to economists polled by Reuters. The unemployment rate is expected to hold steady at 5.3 percent.

Better figures, sustained in August, might just be enough to meet Yellen’s “some” improvement tag. For a Federal Open Market Committee that appears pre-disposed to get on with a much-awaited first rate rise, the bar does seem to be set fairly low.

“Keep an eye on the pay growth numbers too, for a possible edging up, after the slippage seen in June,” warned Victoria Clarke, economist at Investec. “This would certainly do no harm for Fed lift-off prospects for the September FOMC.”

Employment costs data for the second quarter implied there still has been no acceleration in pay, with a sudden slowing canceling out a stronger set of figures in January-March.

One thing is certain: once the Fed does begin hiking, the expected path of future rates and what that does to the dollar may have major repercussions for the world economy.

That becomes especially evident given that the big emerging market growth engines are running at half throttle at best, or in the case of Brazil, once Latin America’s darling, crashing into recession. Many of their currencies are in full retreat.


The Bank of England’s Monetary Policy Committee also meets on Thursday to set interest rates. Although few expect any rate rise until early next year, several are expecting a few of its nine members to break ranks and vote for a hike.

The BoE is due to release all at once its policy decision, minutes from that decision’s deliberations as well as the Inflation Report forecasts on which the decision is based, which may bring more clarity on how close a UK rate hike may be.

“We have framed the outlook for UK monetary policy in terms of a ‘tug of war’ between a tighter labor market pushing up on the medium-term outlook for inflation versus … lower commodity prices and stronger sterling pushing down on inflation,” wrote Andrew Benito, economist at Goldman Sachs.

In other words, that means “not yet.” A recent Reuters poll found most expect the first UK rate hike in the first quarter, likely February, while others like Benito don’t expect that to happen until the second quarter.

The latest round of purchasing managers surveys, from China to Europe and the Americas, also will be released early next week, with momentum in U.S. manufacturing under close watch.

And the Reserve Bank of Australia is due to meet, although only one economist out of 21 polled by Reuters expects an interest rate cut from 2.0 percent. Five, however, expect at least one more cut before year-end.

(Editing by Jeremy Gaunt)

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IMF is participating fully in Athens debt talks: European Commission

BRUSSELS The International Monetary Fund is participating fully in the ongoing talks for a new bailout program for Greece, a spokeswoman for the European Commission said on Friday, dismissing reports the IMF could be abandoning the rescue plan.

The talks on a new bailout program are ongoing “with the IMF present and fully participating in the talks in Athens,” Commission spokeswoman Mina Andreeva told journalists in Brussels.

She said the IMF position was unchanged and added that its approach and timetable were “fully compatible with the European agenda,” which implies a deal on a new bailout program and then talks on debt relief for Greece.

(Reporting by Francesco Guarascio; editing by Barbara Lewis)

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U.S. consumer sentiment slips in July

NEW YORK U.S. consumer sentiment fell in July, according to a survey released on Friday.

The University of Michigan’s final July reading on the overall index on consumer sentiment came in at 93.1, down from 96.1 in June. It was lower than the survey’s preliminary reading of 93.3.

The final reading was the lowest since May and was below the median forecast of 94.0 among economists polled by Reuters.

(Reporting by Sam Forgione; Editing by Meredith Mazzilli)

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Who needs the Fed? The rate hike cometh on its own

NEW YORK As traders, market pundits and economists jaw over whether the Federal Reserve this year will lift its benchmark lending rate for the first time in almost a decade, several corners of the U.S. bond market are not waiting around.

A wide range of short-term interest rates, which tend to be the most sensitive to Fed policy expectations, has been quietly grinding higher for weeks, or in some cases much longer. Several have even surpassed their levels of two years ago during the bond market’s “taper tantrum,” when prices dropped steeply and yields shot up as the Fed pondered whether to halt its massive asset-purchase program.

Banks, money market mutual funds and other investors do not want to be stuck with low-yielding debt when the U.S. central bank finally does begin raising interest rates, something it last did in June 2006. Generally positive comments about the economy by the Fed at the conclusion of its latest policy meeting on Wednesday signaled to many that a rate rise could come as early as September.

“The confidence is starting to rise about a rate hike,” said Gennadiy Goldberg, interest rate strategist at TD Securities in New York. “You want to be compensated for at least one hike.”

For example, overnight bank borrowing rates have been inching up for the better part of a year and are around 36 percent more costly than in May 2014, when they fell to a record low.

    Yields on investment-grade corporate bonds are holding near recent two-year highs, and the premium paid for holding them relative to Treasuries is the steepest since September 2013.

And even as yields on bond market benchmarks such as the 10-year Treasury note US10YT=RR and 30-year T-bond US30YT=RR have seen only intermittent upward pressure, those on shorter-dated Treasuries are decidedly higher.

The yield on two-year Treasury notes US2YT=RR, at 0.73 percent on Thursday, was just a tick from a four-year high and more than three times that of May 2013. Rates on T-bills with durations of less than a year are at their highest so far this year.

Yields, or rates, move inversely to the price of bonds.

    To be sure, yields on two-year Treasuries slid back to 0.66 percent on Friday after a key measure of U.S. employment costs came in far weaker than expected, suggesting the Fed may not get the wage gains it seeks before raising rates.

The Fed could still blink in the face of such factors as Greece’s unresolved debt woes and stock market turmoil in China, the world’s second largest. And a fresh bout of weakness in oil markets could make it difficult for inflation to move in the direction desired by the Fed.

To that end, some measures of Fed rate expectations suggest almost no probability the central bank will move before December. Prices of Fed fund futures reflect a zero percent chance of a rate increase in September, a 37 percent chance in October and a 64 percent chance in December, according to CME Group’s FedWatch.

The Fed has long emphasized that it expects to raise interest rates only gradually, unlike in the last decade, when policymakers raised borrowing costs slightly at every meeting.

In recent weeks and months, policymakers have stressed that the timing of the initial rate rise is less important than how the economy evolves afterward. Cleveland Fed President Loretta Mester even gave a speech this month entitled “Timing isn’t Everything.”



    Overnight borrowing costs between banks are a reliable proxy that traders expect short-term U.S. rates to head higher sooner than later.

Since the Fed has increasingly de-emphasized the timing of a first rate increase, and especially since Fed Chair Janet Yellen’s mid-July testimony to Congress, “the markets started to price in a more hawkish Fed,” said Com Crocker, managing director of global inflation markets at Mesirow Financial in New York.

“You saw it in rates, you saw it in the curve, you saw it in the dollar, in commodities, in stocks and in everything,” he said.

    The federal funds effective rate, which the Fed seeks to control, has averaged 0.14 percent for four days in a row, matching its highest since May 2013. That is 1.5 basis points above the midpoint of the zero-to-25-basis-point target range the Fed adopted in December 2008.

The bottom range of fed funds trading climbed to 0.10 percent on Thursday, a level last seen in 2011.

    Another key rate, the three-month London interbank offered rate, or Libor, a benchmark for $350 trillion worth of financial products worldwide, topped 30 basis points on Wednesday for the first time since January 2013. On Friday, Libor rose the most since 2011.

And a type of interest rate swap designed to anticipate the Fed policy rate around the time of its next meeting in September now reflects a rate around 2 basis points above the top of the Fed’s current target range.

    For some, though, the most telling signal in recent days is the rise of yields on Treasury bills.

    The interest rate on three-month T-bills US3MT=RR that mature on Sept. 17, when the Fed releases its next policy meeting statement, rose to almost 7 basis points on Thursday, the most in nearly 14 months.

    “T-bill rates are usually the last to move. They only move when they see the whites of the Fed’s eyes,” TD’s Goldberg said.

(Editing by Dan Burns, Leslie Adler and Steve Orlofsky)

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EU opens in-depth inquiry into Fedex’s planned takeover of TNT

BRUSSELS The European Commission said on Friday it had opened an in-depth investigation into Fedex’s (FDX.N) proposed 4.4 billion euro ($4.9 billion) takeover of Dutch rival TNT Express (TNTE.AS).

The Commission, which oversees EU mergers and competition issues, said it had concerns that the merged entity would face insufficient competitive constraints in small package deliveries from the only two remaining players, UPS (UPS.N) and DHL [DHL.UL], owned by Deutsche Post (DPWGn.DE).

“Many businesses, and in particular e-commerce, rely heavily on affordable and reliable small package delivery services and many consumers depend on these services to ensure rapid and safe delivery of goods they have bought,” Competition Commissioner Margrethe Vestager said in a statement.

Fedex and TNT Express said they were still on track to complete their proposed combination in the first half of 2016, despite the announcement of the European Commission’s in-depth review.

The two said they would work to address the Commission’s concerns. FedEx said it believed the deal would increase competition and create benefits for customers.

The Commission has 90 working days, until Dec. 8 , to investigate the proposed acquisition and to determine whether these initial concerns are founded.

($1 = 0.9016 euros)

(Reporting by Philip Blenkinsop and Thomas Escritt; Editing by David Holmes)

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Chevron profit tumbles 90 percent, misses estimates; shares drop

Second-quarter profit at oil producer Chevron Corp (CVX.N) tumbled 90 percent, missing analysts’ expectations, amid weakness in oil prices CLc1.

Chief Executive John Watson bluntly said the results were “weak” and that he was working to slash costs by renegotiating supply contracts. Earlier this week, he laid off 2 percent of the company’s staff.

“Multiple efforts to improve future earnings and cash flows are underway,” Watson said in a statement on Friday.

Chevron earned a net income of $571 million, or 30 cents a share, compared with $5.67 billion, or $2.98 per share, a year earlier.

Excluding one-time items, Chevron earned 97 cents a share. By that measure, analysts expected earnings of $1.16 per share, according to Thomson Reuters I/B/E/S.

Shares fell 2 percent to $91.25 in premarket trading Friday.

Chevron would have posted a loss had it not been for its downstream unit, which makes gasoline, lubricants and other refined products, where profit quadrupled to $2.96 billion.

Refining units tend to be far more profitable when oil prices are low, a key advantage for Chevron and other large energy companies as an internal hedge for times when core operations, such as oil production, is weighed down by weak prices.

Chevron’s upstream unit, responsible for the company’s oil and natural gas output, lost $2.22 billion, after earning more than $5 billion in the same quarter last year.

In all, production rose 2 percent to 2.6 million barrels of oil equivalent per day (boe/d), largely due to Chevron’s Permian shale operations in Texas and output from Bangladesh.

(Reporting by Ernest Scheyder; Editing by Bernadette Baum)

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Exxon profit halved by tumbling crude price; shares drop

Exxon Mobil Corp (XOM.N) reported lower-than-expected second-quarter results on Friday as tumbling crude prices halved profit at the world’s largest publicly traded oil company.

Profit at Exxon’s exploration and production business fared even more poorly with a profit of $2 billion, down sharply from $7.9 billion a year earlier.

The company’s shares fell 2 percent to $81.40 in premarket trading.

Crude prices in the quarter fell more than 40 percent from a year earlier, hit by growing global supplies and worries about slowing demand from China.

Exxon, based in Irving, Texas, said it earned $4.2 billion, or $1.00 per share, in the quarter, compared with $8.8 billion, or $2.05 per share.

Analysts, on average, had expected a profit of $1.11 per share, according to Thomson Reuters I/B/E/S.

Oil and gas output grew 3.6 percent to 4 million barrels oil equivalent per day (boed).

(Reporting by Anna Driver; Editing by Chizu Nomiyama and Bernadette Baum)

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Fiat Chrysler, Australia ex-CEO lock horns in court dispute over spending

SYDNEY Fiat Chrysler Automobiles (FCHA.MI) traded charges in court with its former Australia CEO, who denied breaching his legal duties and said he acted on instructions from above after a lawsuit by the carmaker accused him of excessive spending and illegally enriching himself through commercial deals.

Fiat’s civil lawsuit in Australian Federal Court accuses Clyde Anthony Campbell, its local CEO from 2010 to 2013, of breaching the law and his contract by giving cars to celebrities and inflating contracts to benefit his financial interests.

In a defense filed on Thursday, Campbell denied breaching his legal duties and said Chrysler Asia Pacific CEO John Kett and other senior company officials had approved his actions. He said he was told the company “would pull out of the market for right-hand drive vehicles if he didn’t increase sales to 20,000 per year within three years and they didn’t care how he did it”.

Fiat Chrysler announced last week that Kett was leaving the company to pursue other interests. It made no reference to the Campbell suit.

Kett could not immediately be reached for comment.

The lawsuit by Fiat Chrysler, claiming unspecified damages, said Campbell failed to act in the best interests of the company by using its money to buy Chrysler cars for cricketer Shane Warne, his former girlfriend Elizabeth Hurley and soccer star Harry Kewell. Representatives for Warne and Kewell did not immediately respond to requests for comment. The claim made no suggestion that Kewell, Warne or Hurley were aware of any wrongdoing.

The suit said Campbell committed to an “uncommercial and detrimental” contract with Kewell, by agreeing to give him A$1 million ($730,000) a year and two latest-model Jeeps to be a brand ambassador. The contract was expanded in 2013.

The car maker also accused Campbell of agreeing to a series of contracts which benefited companies in which he or his friends had financial interests, and of charging his employer for services that were not carried out and using the money to help pay for a boat and a plane.

In his defense, Campbell denied using company funds to buy a boat and a plane and denied breaching his legal duties as chief executive.

The matter next appears before court in Melbourne on Sept. 18.

(Reporting by Byron Kaye; Editing by Edmund Klamann)

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