Stock futures point to lower open on economic malaise

Business Update: Asia up amid M&A
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NEW YORK (Reuters) - Stock index futures pointed to a lower open on Monday as investors assessed the potential strength of an economic recovery ahead of a round of key data this week.
Energy shares could come under pressure as oil fell below $69 a barrel as the dollar strengthened.
Investors were cautious ahead of a Federal Reserve meeting this week, bracing for Fed guidance on growth and any hints on expanding the central bank's $300 billion program of Treasuries purchases. Housing and gross domestic product data are also expected this week.
The market also fretted about the Treasury's record $104 billion worth of bond auctions scheduled this week to finance massive spending aimed at reviving the world's biggest economy.
S&P 500 futures fell 7.60 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures slid 50 points, and Nasdaq 100 futures lost 9 points.
"The enthusiasm for a 'V-shaped' recovery has been tempered by the realization that there remains systemic risk in the economy," said Andre Bakhos, president of Princeton Financial Group in Princeton, New Jersey.
"The market this morning is continuing recent apprehension about such economic optimism."
Adding to the caution, the World Bank said Monday that prospects for the global economy remain "unusually uncertain" as it cut 2009 growth forecasts for most economies.
After a sharp three-month rally, indexes eased last week as traders increasingly questioned if stocks are due for a correction. Worries the economic recovery could be tepid have dented optimism that drove the S&P 500 up by as much as 40 percent from March's 12-year low.
On Friday, the S&P 500 and Nasdaq rose as positive broker comments on Microsoft boosted technology shares, but the major averages lost ground for the week for the first time in five weeks.
Shares of Apple Inc (AAPL.O) could be pressured after a weekend report that Chief Executive Steve Jobs had a liver transplant about two months ago but is expected to return to work later this month. Shares of Apple were down 1 percent at $138.11.
(Reporting by Leah Schnurr; editing by Jeffrey Benkoe)

Source: Reuters

Xstrata seeks $68 billion merger with Anglo

By Eric Onstad and Kate Holton
LONDON (Reuters) - Xstrata wants talks with mining rival Anglo American about a proposed merger of equals worth about $68 billion, seeking increased scale and cost synergies, Xstrata said on Sunday.
Anglo is likely to resist the attempt by Xstrata to forge a larger mining group better able to compete with bigger competitors BHP Billiton, Vale and Rio Tinto, a source close to the situation said.
Xstrata, which has a market value of $33 billion, said in a statement it recently sent a proposal to Anglo, worth $35 billion.
The approach by Xstrata, which has regarded Anglo an attractive partner for several years, comes after sector No. 1 BHP agreed on June 5 to combine its Australian iron ore operations with those of Rio in a joint venture.
BHP has a market value of $144 billion, Vale is worth $93 billion and Rio $74 billion.
"Xstrata is seeking to engage with the board of Anglo American regarding a merger of equals that would realize significant value for both companies' shareholders," Xstrata said in a statement.
"The combination would create a premier portfolio of operations diversified across multiple commodities and geographies, with enhanced scale and financial flexibility to fund future growth."
Anglo said in a statement the situation was at a very preliminary stage, but declined to give further details.
A source familiar with the situation said Anglo only received the approach a few days ago.
The source, who declined to be named, said Anglo's board would examine the value for shareholders in a combination with Xstrata compared to the value by remaining independent.
DILUTE PORTFOLIO?
One main issue was the fact that Anglo's assets are higher quality and have longer lives than those of Xstratra, he said.
"Why would you want to dilute that portfolio with lower value assets?" the source said.
Anglo shareholders also might not be keen to share cost savings with Xstrata from a program underway to slash $1 billion through procurement savings and another $1 billion through "asset optimization," he added.
Xstrata would probably be reluctant to make a hostile bid since it would run the risk of opposition from the South African government, a major Anglo shareholder, industry sources and analysts told Reuters last week. Continued...
Source: Reuters

Soros says worst of global crisis is "behind us"

WARSAW (Reuters) - The worst of the global economic crisis is over, multi-billionaire financier George Soros told Polish news channel TVN24 on Sunday urging the creation of international regulations to oversee global markets.
"Decidedly the worst (of the crisis) is already behind us," said Soros, a 78-year-old Hungarian-born American with Jewish roots.
He did not elaborate but went on to stress the uniqueness of the current economic turmoil.
"This is not like previous crises but marks the end of an era. The system to date had been based on the false assumption that markets can independently regain their equilibrium and that the system is self-correcting," he explained.
He also said the regulation in the economy should be aimed at controlling market bubbles.
"We need international regulations to retain international markets. This won't be easy...If we won't be able to do this... than globalization, as we now know it, will fall apart," he said.
To deal with the current crisis he said "the state must step in, give guarantees to financial institutions and increase government spending," adding that he supported anti-crisis measures undertaken by the U.S. administration.
Since that could create a risk of hyperinflation he said the state must diminish its role once the credit system is restored.
Soros also said Poland would have been less affected by the crisis if it had been in the euro zone.
"Poland, Hungary and other countries were not protected because they were outside the euro system, so when Lehmann Brothers collapsed, banks began withdrawing their assets from those countries," he said.
The center-right government of Prime Minister Donald Tusk made 2012 euro adoption one of its priorities but last week a senior ruling party official signaled that because of the economic slowdown the plan would need to be postponed.
(Reporting by Rob Strybel)

Source: Reuters

Recession takes bite out of brand loyalty: study

By Lisa Baertlein
LOS ANGELES (Reuters) - The U.S. recession is taking a bite out of national brand loyalty in products ranging from Advil pain reliever and Green Giant frozen vegetables to Jif peanut butter, according to a study released on Monday.
Just four out of 10 brands held on to at least half of their highly loyal customers from 2007 to 2008, according to the study from Catalina Marketing Corp's Pointer Media Network, which gathers purchasing data at 23,000 stores nationwide.
Retaining customers is a challenge for food sellers in any economy and keeping them in a weak economy can be even more difficult.
Forty-eight percent of highly loyal consumers stayed that way during the study period, while 19 percent reduced their loyalty and 33 percent completely defected to another brand in the same category in 2008, the research showed.
The study defined highly-loyal consumers as individuals who made 70 percent of more of their purchases with a single brand in a given product category.
The study authors said Coca-Cola Classic is one of the nation's most successful brands. Even so, 25 percent of Classic Coke buyers were less loyal during the study period.
That compares with Procter & Gamble Co's Crest toothpaste, which saw almost 59 percent of its highly loyal buyers become less committed.
This time around, retailers such as Kroger Co, Safeway Inc and Wal-Mart Stores Inc are aggressively expanding their own private labels. Those products often cost less than national brands and appeal to consumers looking to stretch every dollar.
The United States officially slid into recession in December 2007, but consumer spending was showing signs of weakening prior to the official start of the downturn.
When asked if the loyalty decline could intensify from 2008 to 2009, Catalina Marketing Vice President Todd Morris said: "It likely could."
WINNERS/LOSERS
The Pointer study was based on an analysis of the purchasing behavior of more than 32 million shoppers in 2007 and 2008 across 685 leading brands, Pointer said.
Catalina Marketing has a system that selects and prints coupons at checkout based on what a shopper buys. Full study results are available here: here
Other data from the study showed that Wyeth's Advil suffered a 7 percent drop in high loyals from 2007 to 2008. On the flip side, the number of people who were highly loyal to General Mills Inc's Cheerios brand rose 6 percent.
J.M. Smucker Co's Jif peanut butter lost 7 percent of its highly loyal customers from 2007 to 2008, while General Mills' Green Giant frozen boxed vegetables lost 9 percent.
(Reporting by Lisa Baertlein; editing by Andre Grenon)

Source: Reuters

Echo boomers a lifeline for embattled U.S. housing

By Lynn Adler
NEW YORK (Reuters) - The children of baby boomers will eventually resuscitate the pummeled U.S. housing market, Harvard University said on Monday, but in the meantime, limits on income and credit are sustaining the three-year bust.
The highest unemployment in almost 26 years, record foreclosures and rigid lending threaten to overcome emerging home sales progress despite unprecedented efforts by the Obama administration, Harvard's State of the Nation's Housing 2009 report said.
Echo boomers, the children of the post-World War Two baby boomer generation, offer a massive source of support for housing, the study said. The generation is entering the peak home buying and renting ages of 25 to 44 and numbers over five million people more than did their parents' record-sized group in the 1970s.
"Echo boomers are larger than the baby boomer population. Couple that with immigration and you have the seeds, the possibility of a housing recovery," Nicolas Retsinas, director of Harvard's Joint Center for Housing Studies, said in an interview.
The group will bolster demand for the next 10 years and beyond, supporting the sagging housing market even if immigration drops, the study said.
The challenges are myriad, however, said Retsinas, a widely followed housing industry expert and former senior official in the Department of Housing and Urban Development.
"We have to find a way to stabilize housing finance in this country," he said.
A healthy housing market is integral to a growing economy. In the current cycle, the housing crash has propelled the economy into its longest recession since the Great Depression. Jobs lost to the recession have derailed any housing recovery.
"Seedlings of the housing recovery have to come through this thicket of job losses and foreclosures," Retsinas said. "The housing market has not seen these challenges for over 60 years."
Mortgage rates have risen from all-time lows in the past two months despite massive government steps to keep them down.
Foreclosures escalate as federal efforts to keep borrowers in their houses cannot keep pace with loan failures caused by job losses or punishing home price erosion.
THIN SILVER LININGS
Home sales have started to pick up, thanks mostly to a first-time buyer tax credit this year of up to $8,000 and demand for foreclosure properties at bargain-basement prices.
"While we do see some signs of stabilization, you can barely see those silver linings," Retsinas said.
The lending pendulum swung vastly after the unsustainable five-year record home price surge early this decade. Lenders clamped down after lax conditions spawned record home sales and then fueled the torrent of foreclosures. Continued...
Source: Reuters

Employers cutting back 401(k) plans

NEW YORK (Reuters) - A quarter of U.S. employers have eliminated matching contributions to employee 401(k) retirement plans since September to save money amid the economy's downturn, according to research released on Monday.
A quarter of U.S. employers also have instituted limited enrollment rather than open the savings plans to all employees, according to the study conducted for Charles Schwab Corp. by CFO Research Services.
Although the study showed 23 percent of companies have eliminated 401(k) matching contributions, most see the move as temporary, said Steve Anderson, who heads Retirement Plan Services at Charles Schwab, a financial services provider.
"Most view that as a temporary step. They don't see that as a long-term approach," he said.
Workers with 401(k) plans have seen their savings hit hard in the recession. A 401(k) account allows workers to defer taxes on some income and typically put the money in a mix of stock and bond mutual funds and other investments.
Companies often match all or part of employee contributions.
Asked to identify the most important feature of their company's 401(k) plans, 87 percent of those polled said it was the company's match, the Schwab study said.
Second most important was providing employees access to 401(k) investment advice, the study said.
Of the 107 human resource and 112 senior finance executives polled, 63 percent said employee concerns over personal finances are creating a more difficult work environment.
The online survey was conducted in March and April among executives at companies with revenues ranging from $100 million to more than $10 billion in a cross-section of industries.
More than half of the respondents worked for companies with more than 1,000 employees eligible for participation in their 401(k) plans. A statistical margin of error was not immediately available.
(Reporting by Ellen Wulfhorst; Editing by Jackie Frank)

Source: Reuters