Economy concerns, commodities drag Wall St lower

Dow up in '09
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By Edward Krudy
NEW YORK (Reuters) - U.S. stocks sold off broadly on Monday as regional manufacturing data sparked fresh concerns about the economy's health, while sliding commodity prices hit shares of natural resource companies.
Data showing manufacturing in New York state shrank in June at a much more severe rate than forecast gave investors pause. Even though there has been some signs that the economy may be stabilizing, investors are looking for more definitive signals that the recession is moderating.
With the market now having risen more than 40 percent since the 12-year lows of early March, analysts said conditions warranted some consolidation. Last Friday, the Dow closed out a four-week winning streak and turned positive for the year for the first time since early January.
Also dampening sentiment, Goldman Sachs cut its rating on Wal-Mart Stores Inc (WMT.N) to "neutral" from "buy," saying it did not see a lot of positive catalysts to drive shares higher in the near-term as expense pressures and tougher sales comparisons persist.
Wal-Mart, a Dow component, fell 2.8 percent to $48.43, and was among the top drags on the blue-chip Dow. The S&P's retail index .RLX fell 2 percent.
"The Empire State (manufacturing) index was not received very well," said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston. "The market has been looking for a report like this to suggest that everything is overdone and that we need a sell-off."
The Dow Jones industrial average .DJI dropped 185.92 points, or 2.11 percent, to 8,613.34. The Standard & Poor's 500 Index .SPX fell 22.84 points, or 2.41 percent, to 923.37. The Nasdaq Composite Index .IXIC lost 48.21 points, or 2.59 percent, to 1,810.59.
Technology shares, which were among the market's biggest gainers in a rally from the 12-year closing lows of early March, also fell heavily, with the PHLX semiconductor index .SOXX fell 2.4 percent. Shares of tech bellwethers, such as Qualcomm Inc (QCOM.O), down 3.7 percent at $44.36, led the Nasdaq lower.
The pullback in commodity prices coincided with a rebound in the U.S. dollar following Russian comments expressing confidence in the U.S. currency.
The stronger dollar helped spur a 3 percent drop in the price of oil, which fell below $70 per barrel after spiking above $73 last week. The decline hit energy companies' shares such as Exxon Mobil Corp (XOM.N), down 1.8 percent at $72.49. The S&P energy index .GSPE slid 3.1 percent.
Alcoa Inc (AA.N) fell 6.7 percent to $11.19, tracking a slide in global aluminum prices. Shares of Newmont Mining (NEM.N) dropped 2.2 percent to $41.79. Gold futures fell 1.2 percent to $929.50 dollars per ounce.
While the recent run-up in commodity prices helped stocks extend their recent rebound from March lows, there has also been concern that a continued surge in oil and other commodities would stoke inflation pressures and hamper an economic recovery. Higher energy costs are a drag on consumer spending and corporate profits.
(Editing by Jan Paschal)

Source: Reuters

U.S. financial regulation reforms outlined

By Kevin Drawbaugh
WASHINGTON (Reuters) - The Obama administration will target critical weaknesses in the troubled U.S. financial system, such as thin bank capital cushions and eroded lending standards, when it proposes an overhaul of financial regulation this week, two senior officials said on Monday.
In the fullest summary to date of the administration's reform proposal, Treasury Secretary Timothy Geithner and White House economic adviser Lawrence Summers said the plan will also urge stronger consumer and investor protections and new powers for the Federal Reserve.
The two officials outlined the plan in The Washington Post ahead of the release on Wednesday of a detailed package of proposals that has been under discussion for six months.
Months of debate in Congress over the plan lie ahead, with time on the side of the status quo, especially if the economy continues to improve and public outrage at the banks begins to fade. Administration officials have argued a rewrite of U.S. financial rules is needed to prevent future crises.
The outline offered few new details on elements of the plan that were already known and sidestepped unanswered questions about streamlining bank supervision, restraining executive pay and regulating over-the-counter (OTC) derivatives.
But it did clearly underline the administration's determination to give the Fed a central role, and to create a new way for the federal government to handle troubled firms whose failure could pose a risk to the economy.
President Barack Obama will make remarks on Wednesday on "his comprehensive plan for new rules of the road for the financial industry," a White House official said. Geithner will joint him at the event.
The Treasury secretary and Summers said that a key administration goal will be "raising capital and liquidity requirements for all institutions, with more stringent requirements for the largest and most interconnected firms."
In addition, they said, large and interconnected firms whose failure could threaten the stability of the system "will be subject to consolidated supervision by the Federal Reserve, and we will establish a council of regulators with broader coordinating responsibility across the financial system."
These dual proposals -- making the Fed a "systemic risk" regulator and creating a related inter-agency council in the same area -- come amid concerns by some lawmakers and other regulators about the Fed getting too much power.
NEW RULES FOR SECURITIZED PRODUCTS
The officials said the plan will propose new reporting requirements for issuers of asset-backed securities, as well as a rule saying that securitizers must "retain a financial interest" in the performance of the asset-backed securities they are involved in issuing.
Securitization, or the packaging and selling of loans as securities, has been blamed by critics for eroding lending standards in the mortgage business.
A Treasury spokesman said the administration would propose requiring lenders to retain 5 percent of the risk they securitize. A bill to do this was approved in May by the U.S. House of Representatives, but is languishing in the Senate.
Addressing another market implicated in the crisis, the officials said the Obama plan will urge oversight of OTC derivatives. It will call for unspecified "harmonizing" of futures and securities regulation, and stronger payment and settlement systems, they said. Continued...
Source: Reuters

Ford nimble without government oversight: chairman

By David Bailey and Soyoung Kim
DETROIT (Reuters) - Ford Motor Co has found advantages in going without the federal emergency aid that supports its domestic rivals, although the long-term implications of the government intervention are unclear, Ford Chairman Bill Ford said on Monday.
"We don't know what the implications are going to be, but one thing is for sure, I like our position," Ford told reporters on the sidelines of the National Summit in Detroit.
An uncontrolled General Motors Corp or Chrysler bankruptcy would have had "catastrophic" consequences for the auto sector and other industries, he said.
Chrysler filed for bankruptcy on April 30 and completed a buyout to a company led by Italy's Fiat SpA earlier in June. GM filed for bankruptcy on June 1 and hopes to complete a similar sale process by the end of August.
Both automakers had been supported by emergency U.S. government loans since the start of 2009, received additional support to enter bankruptcy and had, or will have, government support for their exit strategies.
"We can make quick decisions, we can make the long-term decisions and we can continue to work the plan we have in place with no distraction," Ford said. "The ability to do that with minimal distraction and to operate nimbly and efficiently and really focus on the customer ... does give us an advantage."
Ford said the Obama administration and its auto task force acted responsibly to address the automakers and the supply base, where a meltdown would have had a widespread impact on U.S. and foreign-based automakers alike, he said.
The longer-term implications of the intervention are uncertain and the process must remain clear, Ford said.
"I think it's important we do have transparency though with the government in terms of the decision-making process at General Motors and to a lesser extent at Chrysler so that we understand -- and I don't mean we at Ford but the American people understand -- how decisions are being made," Ford said.
"The government has indicated they really don't want to be in this forever and I think that's a healthy indication," Ford said, but added that he expected the government's ownership of GM to continue for "some time."
The No. 2 U.S.-based automaker Ford has posted losses of more than $30 billion over the last three years, but has said it has sufficient liquidity to fund its restructuring and has targeted a return to profitability in 2011.
The automaker also expects U.S. auto industry sales, which have fallen to the lowest levels since the early 1980s, to begin to recover in the second half of 2009.
Bill Ford said there were "some early signs" that U.S. auto industry sales were stabilizing, though at very low levels.
In an opening address at the National Summit, he said the dramatic global economic slowdown and the deep recession in the United States have increased the urgency for a national dialogue on the economy.
The shock waves have been felt harder in Detroit than anywhere else in the United States, but the summit is directed at national issues, rather than at Detroit or the auto industry, he said. Continued...
Source: Reuters

U.S. credit card defaults rise to record in May

By Juan Lagorio
NEW YORK (Reuters) - U.S. credit card defaults rose to record highs in May, with a steep deterioration of Bank of America Corp's (BAC.N) lending portfolio, in another sign that consumers remain under severe stress.
Delinquency rates -- an indicator of future credit losses -- fell across the industry, but analysts said the decline was due to a seasonal trend, as consumers used tax refunds to pay back debts, and they expect delinquencies to go up again in coming months.
Bank of America Corp -- the largest U.S. bank -- said its default rate, those loans the company does not expect to be paid back, soared to 12.50 percent in May from 10.47 percent in April.
In addition, American Express Co (AXP.N), which accounts for nearly a quarter of credit and charge card sales volume in the United States, said its default rate rose to 10.4 percent from 9.90, according to a regulatory filing based on the performance of credit card loans that were securitized.
Credit card losses usually follow the trend of unemployment, which rose in May to a 26-year high of 9.4 percent and is expected to peak near 10 percent by the end of 2009.
If credit card losses across the industry surpass 10 percent this year, as analysts and bank executives expect, loan losses could top $70 billion.
"Until lenders show stabilization then trend-bucking improvement over a several month period, we remain bearish on credit card lenders -- and the U.S. consumer," said John Williams, an analyst at Macquarie Research.
"We continue to believe that macro challenges and credit quality concerns will pressure U.S. card issuers over the next 12 months," he added. "We expect further challenges as unemployment ticks up."
However, some smaller credit card companies such as Capital One Financial Corp (COF.N) and Discover Financial Services (DFS.N) reported defaults rates grew less than expected.
Capital One said its credit card default rate rose to 9.41 percent from 8.56 percent, while Discover said its charge-off rate increased to 8.91 percent from 8.26 percent.
JPMorgan Chase & Co (JPM.N) -- the second-largest U.S. bank and the biggest issuer of Visa-branded credit cards -- said its default rate rose to 8.36 percent in May from 8.07 percent in April, but it still holds the best performance among the largest credit card companies.
Credit card lenders are trying to protect themselves by tightening credit limits, raising standards and closing accounts. They have also been slashing rewards, increasing interest rates and boosting fees to cushion against further losses.
Citigroup -- the largest issuer of MasterCard branded credit cards -- is also expected to report results later on Monday.
Bank of America's shares were down 3.5 percent at $13.24 on the New York Stock Exchange, while JPMorgan was down 2.4 percent at $34.29, American Express was up 0.8 percent at $25.35 and Capital One retreated 1.9 percent to $23.48
Discover shares were up 3.7 percent at $9.64.
(Reporting by Juan Lagorio, editing by Matthew Lewis)

Source: Reuters

IMF revises up U.S. forecast, uncertainty weighs

By Lesley Wroughton
WASHINGTON (Reuters) - The International Monetary Fund on Monday said a heavy dose of stimulus would ease the U.S. recession this year and lift growth marginally in 2010.
The IMF said the U.S. dollar was only modestly above the level implied by medium-term fundamentals and its value would depend on foreign appetite for U.S. assets.
In its annual consultation with the United States, the IMF said U.S. policy-makers were correct to keep stimulus flowing for now, but would need to develop a well-defined exit strategy and turn their attention to the threat of ballooning deficits once the worst of the crisis has passed.
"We see some good signs but there are still sizable challenges ahead that still require forceful and decisive attention," the IMF's First Deputy Managing Director John Lipsky told a news conference to discuss the report.
The IMF said a combination of financial strains and ongoing adjustments in the housing and labor markets would likely restrain growth, with a solid recovery projected to emerge only in mid-2010.
The Fund projected the U.S. economy would contract by 2.5 percent this year, with a modest expansion in 2010 of 0.75 percent. This compares to the IMF's April forecast for the United States, which projected the economy to shrink by 2.8 percent in 2009 and show zero growth next year.
It said Washington's fiscal boost would lift annual gross domestic product by 1 percent in 2009 and 0.25 percent in 2010.
It said core U.S. inflation would decline to "very low levels" and possibly bottom at around 0.5 percent in 2010 before it starts to rise.
Lipsky said the U.S. administration's policy response to the crisis had been "strong and comprehensive," and recent data showed the decline in economic activity had slowed and financial conditions have improved.
Still, the outlook for the U.S. economy was unusually uncertain, the IMF said, and if activity failed to pick up as expected next spring, additional fiscal stimulus measures should be considered while the U.S. Federal Reserve should maintain its current level of low interest rates.
The biggest risks to the outlook were a possible rise in house foreclosures, further home price declines and additional financial turmoil, the Fund added.
CHALLENGES TO FULL RECOVERY
The IMF said the U.S. administration faced three related challenges: first, to complete fiscal and monetary measures to support a sustained recovery; second, develop a strategy to unwind massive public interventions; and third, address the long-term legacies of the crisis through fiscal and financial reforms.
As the economy starts to pick up, the IMF said the U.S. should develop and communicate an exit strategy to withdraw monetary stimulus and ensure international coordination.
The IMF forecast that over 2009-2011 the federal deficit will average 9 percent of gross domestic product and that debt held by the public will nearly double to 75 percent of GDP. Continued...
Source: Reuters

U.S. homebuilder sentiment lower in June

By Patrick Rucker
WASHINGTON (Reuters) - U.S. homebuilder sentiment slipped in June, a private survey showed on Monday, as higher mortgage rates and an ongoing credit crunch damped expectations for the sector.
The National Association of Home Builders/Wells Fargo Housing Index slipped to 15 from 16 in May. Analysts had expected the index to climb by one point.
The deep slump in the U.S. housing market has shown some signs of abating. However, the NAHB said consumer anxiety over jobs and the economy's health has created an uncertain picture for the sector's recovery.
"Home builders are facing a few headwinds, including expiration of the tax credit at the end of November; a recent upturn in interest rates; and especially the continuing lack of credit for housing production loans," Joe Robson, the chairman of the trade association, said in a statement.
Earlier this year, Congress authorized an $8,000 tax credit for first-time home buyers and home builders have called for that credit to be expanded beyond this year.
While rates on 30-year mortgages touched record lows in April, they have climbed since then on hints the U.S. recession, now in its 18th month, may be drawing to a close.
Rates on 30-year mortgages rates, which touched a low of 4.78 percent in April, reached 5.59 percent last week, the highest level since November, according to mortgage finance company Freddie Mac.
On a bright note, the swollen stock of new homes has been shrinking. In April, the inventory of homes available for sale fell 4.2 percent to 297,000, or the lowest level since May 2001. New data will be available on Tuesday.
The overall housing market has been crippled since a five-year boom turned into a record number of defaults in 2006.
Many homeowners have rushed to refinance, and potential buyers have been nudged off the fence by the low mortgage rates of recent months but that spree is coming to an end.
An index of mortgage activity fell to a four-month low in early June as climbing rates turned consumers away, the Mortgage Bankers Association said.
(Editing by Kenneth Barry)

Source: Reuters

Oil falls over $2 on firmer dollar

By Edward McAllister
NEW YORK (Reuters) - Oil fell more than 3 percent to below $70 a barrel on Monday, extending its retreat from a near eight-month high as the dollar firmed and stock markets tumbled.
U.S. crude traded down $2.26 to $69.78 a barrel by 11:52 EDT, after optimistic signs of an economic recovery that could bolster flagging fuel demand sent crude over $73 a barrel last week.
Brent crude for July, which expires on Monday, fell $1.86 to $69.06 a barrel.
Gains in the dollar, which makes oil more expensive for holders of other currencies, helped pressure prices. U.S. stocks slid as the fall in commodity prices drove a sell-off in the shares of natural resource companies.
The slumping factory sector in New York state shrank at a more severe rate than in May, the New York federal Reserve said on Monday, another cautionary note for the markets.
"The petroleum markets are starting off the week on a softer note, as retreating equity markets and a firmer U.S. dollar remove some of the wider financial rationale for a long position in crude oil," Tim Evans, energy analyst at Citi Futures Perspective, said in a research note.
Oil has risen from around $51 at the end of April to hit near eight-month highs on Thursday on economic optimism, stirring concerns that speculation in the market has pushed oil up too high too fast.
French Economy Minister Christine Lagarde said G8 ministers want measures to curb volatility in oil markets, which put at risk growing signs that their economies are heading toward recovery.
OPEC Secretary General Abdullah al-Badri said that a too-quick rise in oil prices could harm a global economic recovery, though he said a price of $80 a barrel would not stem growth.
"Of course we do not want to see oil prices rising too rapidly and certainly not to harm growth in the global economy," al-Badri said in an email response to questions. "We need a stable oil price."
The head of the International Monetary Fund, Dominique Strauss-Kahn, also sounded a cautious tone on Monday, saying the worst of the global crisis was not yet over.
Traders were also keeping a close eye on post-election political turmoil in OPEC nation Iran.
"Certainly the events in Iran could postpone a correction if they take a turn for the worse," said Edward Meir from MF Global.
In Nigeria, the main militant group said on Monday it had sabotaged an oil pumping station in the Niger Delta operated by Chevron (CVX.N), the fifth attack claimed against the U.S. company in less than a month.
(Additional reporting by Alex Lawler in London, Chua Baizhen in Singapore; editing by Jim Marshall)

Source: Reuters

Goldman's Cohen sees inflation at bay

By Herbert Lash and Jonathan Stempel
NEW YORK (Reuters) - One of Wall Street's most influential strategists said on Monday the U.S. Federal Reserve is unlikely to ratchet back efforts to stimulate the economy soon, and that it was too early to worry about inflation choking off what would likely be a fitful recovery.
Abby Joseph Cohen, senior investment strategist at Goldman Sachs Group Inc (GS.N), said the U.S. central bank "would like to do as little as possible for as long as possible" to let the economy regain its footing, and allow businesses to rebuild inventories and invest more. Some analysts believe the Fed may even pursue new measures to further ease credit conditions.
Inflation fears are "spectacularly premature" in light of rising unemployment and excess supply, Cohen said at the Reuters Investment Outlook Summit in New York.
"We just don't see that inflation is going to rear its ugly head any time soon," she added. "That doesn't mean we won't see some rebound in some prices," including in some commodities.
Cohen predicted a "dramatic surge" in U.S. corporate profits in the third quarter and especially the fourth quarter from depressed year-earlier levels.
She expects a slow economic recovery, with annualized growth in gross domestic product of just 1 percent from July to December, in part because consumers are saving more and providing less of a "spunk" to activity.
Cohen is known for correctly forecasting the bullish run for U.S. stocks during the 1990s.
With the Fed having pushed benchmark interest rates to near zero, policymakers have tried other means to stimulate economic activity. The Fed is aggressively buying mortgage securities and other debt to add liquidity, while the Treasury Department has injected hundreds of billions of dollars to prop up banks and insurers.
"I don't see anything happening in the short run" to reduce the stimuli, Cohen said. "These were intended to be transitional. (Until policymakers) see that markets are moving normally, and the economy is behaving normally, they're going to be reluctant to reverse what they have done."
Cohen added, though: "We have to be very careful in terms of defining what 'normal' is."
PRAISE FOR OBAMA
While the U.S. budget deficit could reach $1.9 trillion in 2009, or 13.2 percent of gross domestic product, Cohen said the percentage could drop to a more manageable 6 percent in a couple of years, like levels in the Reagan administration.
Cohen praised early efforts by the Obama administration to stimulate the economy, including a focus on energy efficiency, and trying to bolster the U.S. middle class, which has "fallen behind over the last decade.
"They have been faced by a series of extraordinary problems, and in general I think they have gone about it in a very good way," she said.
Cohen also praised Ben Bernanke, whose term as Fed chairman ends next January. Continued...
Source: Reuters

IMF says worst not over

By Mike Peacock
LONDON (Reuters) - The head of the IMF questioned on Monday debate about when to roll back stimulus spending, saying the world economy had yet to weather the worst of a recession that claimed a record number of European jobs.
The 16-country euro zone lost a record 1.22 million jobs in the first quarter, official data showed. The number of employed fell 1.2 percent year-on-year, the deepest annual drop since measurements started in 1995. [nLF389614]
"Markedly weakening labor markets are a major threat to recovery prospects in the euro zone," said Howard Archer, economist at IHS Global Insight.
Data were little better in the United States.
The factory sector in New York state shrank at a more severe rate in June than the previous month, the New York Federal Reserve said in a report. [nN15768]
The New York Fed's "Empire State" general business conditions index fell to minus 9.41 in June from minus 4.55 in May. The survey of manufacturing plants in the state is one of the earliest monthly sign posts to U.S. factory conditions.
Further underlining the fragile state of the global economy, an influential economist said China would not see a rapid rebound and South Korea's finance minister said its economy was still sliding, although the pace had slowed.
But in southern Italy, Group of Eight finance ministers meeting at the weekend described their economies in the most positive terms since the collapse of U.S. bank Lehman Brothers nine months ago heightened the world's worst financial crisis since the Great Depression of the 1930s.
"Their (G8) stance is that we are beginning to see some green shoots but nevertheless we have to be cautious," International Monetary Fund chief Dominique Strauss-Kahn said during a visit to Kazakhstan. "The large part of the worst is not yet behind us."
PRESSURE BUILDING
Pressure has been building in the G8, particularly from fiscally conservative nations such as Germany and Canada, for plans to wind down stimulus as soon as it is no longer needed.
But ministers in Lecce differed over how quickly to start rolling back state spending plans and hiking interest rates.
Treasury Secretary Timothy Geithner indicated the United States was unlikely to tighten policy soon, saying: "It is too early to shift toward policy restraint."
Writing in the Washington Post on Monday, Geithner said a sweeping financial regulation reform plan to be released this week would target capital requirements, securitization and other problem areas blamed for the global financial crisis.
The largest and most interconnected firms could expect to face more stringent requirements. Continued...
Source: Reuters

NY state factory slump deepens in June

NEW YORK (Reuters) - The slumping New York state factory sector shrank at a more severe rate in June than during the previous month, the New York Federal Reserve said on Monday, confounding expectations of a slight improvement.
The New York Fed's "Empire State" general business conditions index fell to minus 9.41 in June from minus 4.55 in May.
Economists polled by Reuters had expected a June reading of minus 4.5, and the surprisingly weak result challenges analysts who believe the U.S. economy is poised for a rebound.
"We've got a little bit of cold water thrown on the manufacturing sector's recovery after seeing some persistent improvements. We're now back down a little bit," said Eric Lascelles, chief economics and rates strategist at TD Securities in Toronto, Canada.
On Wall Street, U.S. stock futures added to their losses after the unexpectedly weak number. U.S. government bonds, which generally benefit more from signs of economic weakness, maintained the day's earlier gains.
The index was launched in July 2001.
The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions.
The fall in the main index came as shipments dropped into negative territory, coming in at minus 4.84 in June from positive 1.29 in May.
New orders remained negative at minus 8.15 but not quite as bad as May's 9.01.
Inventories fell further, hitting 25.29 versus May's 21.59, continuing a liquidation of stockpiles that many economists say is necessary before the economy can recover.
Inflationary pressures also remained negative but much less so than in May, with the prices paid gauge coming in at minus 5.75 compared with May's minus 11.36.
Similarly, the prices received measure came in at minus 12.64 compared with minus 27.27.
The employment index came in at minus 21.84 versus minus 23.86. Though decidedly negative, this was the highest since October 2008.
Looking ahead, the six-month business conditions rose to its highest since July 2007.
(Additional Reporting by Mary Angela Rowe)

Source: Reuters

Qatar orders jets, U.S. axes F-22 display

By Tim Hepher and Maria Sheahan
PARIS (Reuters) - Qatar Airways ordered 24 planes from Airbus as the world's largest air show opened in Paris on Monday, the Gulf carrier flexing its financial muscles as many recession-hit rivals struggle to find funds.
Airbus and U.S. rival Boeing Co face their worst year in more than a decade as many airlines, hit by slowing demand and tight credit conditions, look to cancel or defer plane orders.
Qatar's $1.9 billion deal for A320 and A321 single-aisle airliners will double its medium-haul fleet but Chief Executive Akbar Al Baker stopped short of announcing a foray into the budget airline sector.
"We are not planning a low-cost carrier, but if our market share is eroded by regional low-cost carriers, we will join the fashion show and launch one," he said.
The airliner sector has burned hot for several years but the global recession has the cycle's downturn looking more like a freefall while recession also constrains defense spending, limiting options as Boeing and Airbus parent firm EADS look for revenues there.
The Lockheed Martin F-22 Raptor fighter jet was dropped from an expected flying display at the air show, a decision which the manufacturer said the U.S. Air Force had taken based on availability.
The world's most advanced jet fighter, the Pentagon proposed axing further production of the F-22 under a fiscal 2010 budget plan it sent to the Congress last month.
BOEING EYES MID-2010
This year's Paris Air Show is expected to fall far short of the clamor of orders at the biennial event two years ago when Airbus and Boeing took their order backlogs to record levels.
Airlines have roughly $800 billion of planes on order following the order boom.
Scott Carson, head of Boeing's commercial airplanes division, said Monday that growth might return to the industry in mid-2010.
But the scope and shape of the recovery remained the big question, he told a news conference. He added that he expected a more normal trend in credit in the second half of next year.
In the meantime, airlines face tight credit conditions, rising oil prices, new concerns about swine flu and a global recession which is prompting travelers to shelve vacation plans.
The emergence of swine flu in April triggered a worldwide health scare and Sunday Britain recorded its first death from it, three days after the World Health Organization declared an influenza pandemic.
The aviation industry also awaits answers after the crash of an Air France A330 Airbus with 228 people on board on June 1.
"It is safe to say that the aviation community is still (in) some shock," Airbus Chief Executive Tom Enders told a briefing ahead of the air show.

Source: Reuters

Obama financial reforms detailed in op-ed piece

WASHINGTON (Reuters) - Senior Obama administration officials on Monday said in a newspaper op-ed piece that a landmark financial regulation reform plan to be released this week will target capital requirements, securitization and other problem areas blamed for the global financial crisis.
In the most complete summary of the plan seen in some time, U.S. Treasury Secretary Timothy Geithner and National Economic Council Chairman Lawrence Summers said the plan would offer "a stronger framework for consumer and investor protection."
The piece was published in The Washington Post days ahead of the expected release on Wednesday of a package of administration proposals under discussion for six months now.
One proposal, said Geithner and Summers, will be "raising capital and liquidity requirements for all institutions, with more stringent requirements for the largest and most interconnected firms."
In addition, large and interconnected firms whose failure could threaten the stability of the system "will be subject to consolidated supervision by the Federal Reserve, and we will establish a council of regulators with broader coordinating responsibility across the financial system."
New reporting requirements will be urged for issuers of asset-backed securities, as well as a rule saying securitizers must "retain a financial interest" in the performance of the asset-backed securities they issue, they said.
Reduced reliance on credit-rating agencies will also be proposed, said the piece.
Addressing another market implicated in the crisis, the plan will urge "oversight of 'over the counter' derivatives," an unspecified "harmonizing" of futures and securities regulation, and stronger payment and settlement systems.
"All derivative contracts will be subject to regulation, all derivatives dealers subject to supervision, and regulators will be empowered to enforce rules against manipulation and abuse," according to the op-ed piece.
It said the proposals will call for "a resolution mechanism that allows for the orderly resolution of any financial holding company whose failure might threaten the stability of the financial system."
It also said the United States "will lead the effort to improve regulation and supervision around the world."

Source: Reuters

Lincoln to take bailout money, sell UK unit

By Juan Lagorio
NEW YORK (Reuters) - Lincoln Financial Group (LNC.N) said it would take federal bailout money and sell stock and debt to raise $2 billion to shore up its insurance unit and repay older debt.
The insurer also said on Monday that it would sell its UK subsidiary to Sun Life Financial Inc (SLF.TO) of Canada for 195 million pounds ($319 million).
U.S. life insurers have been weakened by the global financial crisis, hurt by investment losses as well as higher costs on investment-linked retirement products that guarantee returns.
In May the government declared six big insurers, including Lincoln, eligible for bailout funds under the Troubled Asset Relief Program. Lincoln said it would take $950 million by selling preferred stock to the Treasury. Hartford Financial Services Group Inc (HIG.N) is taking up to $3.4 billion, while the other four have declined to accept TARP funds.
Lincoln said it also plans to sell $600 million of common stock and up to $500 million of senior debt.
It may boost the stock offering to $690 million if there is sufficient demand. The sale could dilute the investment of current shareholders by 13 percent.
Lincoln's stock fell 6 percent to $16.70 in premarket trading.
The company said half of the new funds would go to fund Lincoln National Life Insurance Co. The remainder will go for general corporate purposes, including the repayment of short-term debt and investment in the company's core businesses.
Lincoln estimated proceeds of $280 million to $300 million, net of tax, from the sale of its UK unit. The deal is expected to close on or around September 30, it said.
Lincoln has been working for months to head off a cash drain, slashing its dividend 95 percent in February and more recently reaching a reinsurance deal with Goldman Sachs that improves its capital position by about $240 million.
The insurer has also paid down debt, reducing financial leverage.
Lincoln shares are down 11 percent this year, while the Dow Jones U.S. life insurance index .DJUSIL has fallen 9 percent.
(Reporting by Juan Lagorio, editing by Lisa Von Ahn and John Wallace)

Source: Reuters

Stock futures signal losses as oil retreats

Dow up in '09
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(Reuters) - U.S. stock index futures pointed to a lower open on Wall Street on Monday, with futures for the S&P 500 down 1.2 percent, Dow Jones futures down 1 percent, and Nasdaq 100 futures down 1.1 percent at 0905 GMT.
The dollar rose broadly, boosted by comments from Russia's finance minister on the U.S. currency and as investors continued to take profits on other currencies that had climbed sharply early last week.
Oil fell to $71 a barrel on Monday, extending its retreat from eight-month highs as the dollar rose, though traders kept a close watch on OPEC member Iran, where contested election results sparked a weekend of violent protests.
China's economy will not experience a rapid recovery because it will take time to find a new growth engine to replace sagging exports, an influential economist said in remarks published on Monday.
The G8 countries have taken the first step toward winding down the measures designed to rescue their economies amid tentative signs of recovery, reassuring investors who had begun to fret about inflation, but they will not move to withdraw stimulus plans yet.
The commercial aircraft chief of U.S. planemaker Boeing (BA.N) expects growth to return to the industry in the middle of next year, he told a news conference at the Paris Air Show on Monday.
European stocks were down 1.5 percent in morning trade on Monday, as a drop in commodity prices prompted investors to book some of the recent hefty gains on resource-related stocks such as BP (BP.L), Rio Tinto (RIO.L) and Total (TOTF.PA), while banking stocks also retreated, with UBS (UBSN.VX) down 2.1 percent. .EU
Japan's Nikkei stock average fell nearly 1 percent on Monday, dragged lower by chipmakers after disappointing guidance from a U.S. peer and as investors booked profits after the Nikkei hit an eight-month high last week.
On the macro front, investors will keep an eye on the New York Empire State Manufacturing index for June, due at 1230 GMT, as well as the June NAHB housing market index, due at 1700 GMT.
On Friday, the Dow Jones industrial average .DJI swung into positive territory for the year for the first time since early January, bolstered by defensive sectors such as pharmaceuticals, while a disappointing outlook from National Semiconductor (NSM.N) weighed on technology stocks.
The Dow gained 28.34 points, or 0.32 percent, to 8,799.26. The Standard & Poor's 500 Index .SPX gained 1.32 points, or 0.14 percent, to 946.21. The Nasdaq Composite Index .IXIC dropped 3.57 points, or 0.19 percent, to 1,858.80.
For the week, the Dow gained 0.4 percent, the S&P 500 added 0.7 percent and the Nasdaq rose 0.5 percent.
(Reporting by Blaise Robinson, editing by Will Waterman)

Source: Reuters

Qatar to order jets, U.S. axes F-22 display

By Tim Hepher and Maria Sheahan
PARIS (Reuters) - An order from Qatar Airways looked set to brighten a glum start to a rain-soaked Paris Air Show on Monday as the Gulf carrier displays its financial muscle in the face of competing airlines bludgeoned by recession.
Two industry sources said the Gulf carrier could order single-aisle Airbus (EAD.PA) planes from the A320 family worth roughly $2 billion, doubling its medium-haul fleetas it prepares to fend off low-cost competition.
Such a deal would stand out from what is expected to be a dearth of major orders at Le Bourget as the airline industry weathers an economic crisis.
And in a blow to the military prestige of the air show, manufacturers said the United States had pulled out the world's most advanced jet fighter, the F-22, from a flying display.
Lockheed Martin (LMT.N), which builds the "Raptor," said it was an Air Force decision based on availability. But European industry executives said there may have been concerns over whether the stealth plane would be exposed to radar trying to unlock its secrets.
Qatar Airways last year unveiled a deal to buy up to six Airbus A321 planes and said it was ready to set up a budget airline to fend off any attack by a rival airline in its home market.
The airline also said last summer it was in negotiations with Airbus to buy further A320-family aircraft. It already operates 19 aircraft from the Airbus A320 family of single-aisle planes, which includes the A321.
Airbus said it would make an announcement at 1030 GMT but declined further comment. The airline also declined comment.
A third industry source said there was speculation Qatar Airways, which has called for planes to be delivered faster as it shrugs off the global economic slowdown, could place a large order for both single-aisle and long-haul aircraft.
The faint buzz surrounding day one of the world's largest air show contrasted with a clamor of orders at the previous Le Bourget event two years ago when the peak of a three-year boom swept Airbus and Boeing (BA.N) to record levels of unfilled orders.
This year's Paris event, which alternates with the UK's Farnborough air show, sees the industry mourning the Atlantic jet disaster, economic crisis and new concerns about swine flu.
The heads of both Boeing and Airbus, fierce rivals in the $60 billion jetliner market, gave separate reassurances at the weekend over the safety of air travel after the crash of an Air France A330 Airbus with 228 people on board on June 1.
"It is safe to say that the aviation community is still (in) some shock," Airbus Chief Executive Tom Enders told a briefing ahead of the June 15-21 air show.
The air transport industry has been battered by a slump in the economy coupled with weakened credit. Together these have cast doubt on the ability of airlines to pay for the roughly $800 billion of planes on order following a previous order boom.
Scott Carson, head of Boeing's commercial airplanes division, said growth would return to the industry in mid-2010. Continued...
Source: Reuters

Test awaits Obama this week on financial reforms

By Kevin Drawbaugh
WASHINGTON (Reuters) - The Obama administration on Wednesday will unveil its long-awaited plan to tighten U.S. financial regulation, marking a test of its resolve to seize political opportunity and face down powerful interests.
Banks and financial firms are pushing hard in Washington to soften the plan, which has been under debate for six months in response to a severe credit crisis and a deep recession that is already going a long way toward reshaping capital markets.
Political realities on Capitol Hill, where the industry is deeply entrenched and lawmakers protect their turf, have already tempered some approaches for bringing the antiquated U.S. regulatory system into the 21st century.
Treasury Secretary Timothy Geithner is scheduled to testify in congressional hearings about the plan on Thursday.
In the short-run, the plan's substance will be less important than the appearance it creates, analysts said.
"In this environment ... regulation is not an industry issue. It's a political issue. The government needs to be seen as responsive and doing something," said Dushyant Shahrawat, senior research director at research firm TowerGroup.
Months of debate on the details lie ahead, with time on the side of the status quo, especially if the economy continues to improve and public outrage begins to fade. Republicans last week proposed more modest reform proposals.
In the long run, whatever changes get made, investors shouldn't expect the bulls and bears of the market to be tamed, although the financial system will likely be warier of risk, more transparent and more stable for a time, analysts said.
Financial leverage is already down sharply, while a massive dose of skepticism about asset values has been injected into banking, and financial executives are likely keen, for now, to avoid more embarrassing testimony before Congress.
"I'm not willing to say that that will continue on endlessly," Shahrawat said. "Firms have a bad habit of going back to old habits. But at least for the next three to five years, I don't think" risk will be as big an issue.
SEC, CFTC SURVIVE
One example of the administration's partial retreat from earlier reform intentions has to do with existing regulatory agencies -- such as the Securities and Exchange Commission and the Commodity Futures Trading Commission.
Reorganizing these bureaucracies was once seen as vital to closing gaps in oversight and blocking financial firms from shopping around for the least strict regulator. For instance, American International Group was under the jurisdiction of the Office of Thrift Supervision, a savings-and-loans overseer, when the giant insurer was bailed out by taxpayers.
But no top-to-bottom agency overhaul will be proposed, said sources familiar with administration discussions.
The White House and congressional leaders have decided that such a move is not politically feasible, given opposition in the industry and division among committees of Congress that don't want to lose their oversight of the SEC and CFTC. Continued...
Source: Reuters