It was yet another week of at least 400,000 first time unemployment claims as this has now become the standard number throughout the last few months.
The European crisis now affecting the US units of European banks.
Here are the top financial stories of the day:
1) Beaten-down Wall Street slammed by recession fears-From Reuters
Rising fears of another recession hammered U.S. stocks on Thursday, sending major averages sharply lower in a return to the extreme fluctuations investors endured a week ago.
New worries about the health of European banks set the tone before the market's open, and a dismal report on regional U.S. manufacturing fueled a downward spiral in which the Dow dropped as much as 528 points, spurring a flight to safe-haven assets like gold.
The Nasdaq ended more than 5 percent lower, the S&P 500 more than 4 percent and the blue-chip Dow off more than 3 percent.
"Are we going to go into recession? Most market participants were looking for slow and steady growth, but the statistics and the financial situation here and in foreign economies have disturbed that view," said Richard Weiss, a Mountain View, California-based senior money manager at American Century Investments.
The Dow Jones industrial average fell 419.63 points, or 3.68 percent, to 10,990.58, while the Standard & Poor's 500 Index declined 53.24 points, or 4.46 percent, to 1,140.65, and the Nasdaq Composite Index dropped 131.05 points, or 5.22 percent, to 2,380.43.
The losses resumed a slide in stocks that began in late July and seemed to moderate in the last few days. In a more worrisome sign, volume was heavier than on recent positive days, with 11.4 billion shares changing hands, highest so far this week.
Volatility jumped, with the CBOE Volatility Index or VIX, a barometer of Wall Street anxiety, up 38 percent at 43.56. More investors were taking out protective positions against declines in the market.
The S&P 500 is now off 16.4 percent from its April 29 closing high, but the benchmark index still ended above its slump on August 9 at 1,101.54.
Sectors associated with growth were hit hard. Top drags on the Dow included shares of IBM, down 4.5 percent at $163.83, and United Technologies, down 5.5 percent at $68.12. On the Nasdaq, shares of Oracle fell 8.3 percent to $25.19.
Adding to fears of a another recession, a survey of U.S. Mid-Atlantic factory activity by the Philadelphia Federal Reserve Bank showed a drop in August to its lowest level since March 2009.
Hewlett-Packard Co slumped 6.1 percent after reporting quarterly results.
Bank shares also fueled the market's declines, with the KBW Banks Index down 5.6 percent.
A Wall Street Journal report said regulators are scrutinizing the financial health of U.S. units of Europe's biggest banks more closely.
Among Wall Street bank stocks, Citigroup Inc lost 6.3 percent to $27.98 and Morgan Stanley shed 4.8 percent to $16.20.
Shares of luxury retailer Tiffany & Co dropped 7.9 percent to $59.21.
Economists at Morgan Stanley lowered the outlook for global growth and said the United States and the euro zone are "dangerously close to recession."
2) Jobless Claims in U.S. Top Forecast-From Bloomberg
More Americans than forecast filed applications for unemployment benefits last week, signaling the labor market is struggling two years into the economic recovery.
Jobless claims climbed by 9,000 to 408,000 in the week ended Aug. 13, the highest in a month, Labor
Department figures showed today in Washington. Economists surveyed by Bloomberg News projected a rise in claims to 400,000, according to the median forecast. The number of people on unemployment benefit rolls rose, while those receiving extended payments fell.
Companies like Bank of New York Mellon Corp. (BK) are paring staff, one reason consumers are limiting their spending, which accounts for about 70 percent of the economy. Unemployment at 9.1 percent helps explain why Federal Reserve policy makers last week pledged to hold interest rates at a record low until at least mid-2013 to spur growth.
“People continue to get laid off,” David Semmens, a U.S. economist at Standard Chartered Bank in New York, said before the report. “The uncertainty in the economic outlook is continuing to give hiring managers sleepless nights and is keeping businesses from expanding. We have an incredibly long way to go” to get a healthy labor market, Semmens said.
Jobless benefits applications were projected to rise from the 395,000 initially reported for the prior week, according to the median forecast of 41 economists in a Bloomberg survey. Estimates ranged from 390,000 to 420,000.
Stock-index futures held earlier losses after the report. The contract on the Standard & Poor’s 500 Index maturing in September fell 2.2 percent to 1,163.40 at 8:39 a.m. in New York. The yield on the benchmark 10-year Treasury note fell to 2.1 percent from 2.17 percent late yesterday.
Four-Week Average
Today’s data showed the four-week moving average, a less- volatile measure than the weekly figures, dropped to 402,500 last week, the lowest since April 16, from 406,000.The number of people continuing to receive jobless benefits climbed by 7,000 in the week ended Aug. 6 to 3.7 million.
The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs.
Those who’ve used up their traditional benefits and are now collecting emergency and extended payments decreased by about 43,700 to 3.66 million in the week ended July 30.
The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 2.9 percent in the week ended Aug. 6, today’s report showed.
By State
Thirty-four states and territories reported an increase in claims, while 18 reported a decline. These data are reported with a one-week lag.Businesses reducing headcount include Bank of New York Mellon Corp. The world’s largest custody bank plans to eliminate 1,500 jobs, or 3 percent of the workforce, after expenses surged in the second quarter. It will implement an immediate hiring freeze across most departments and reduce its use of temporary workers, consultants and contractors.
“Expenses have been growing unsustainably faster” than revenue, Robert Kelly, BNY Mellon’s chief executive officer, said in a statement on Aug. 10. “We expect our natural turnover and immediate hiring freeze will reduce the impact on existing staff” from the reductions.
Initial jobless claims reflect weekly firings and tend to fall as job growth -- measured by the monthly non-farm payrolls report -- accelerates.
July Employment
Payrolls grew by 117,000 in July, bringing the average gain over the past three months to 111,000, according to Labor Department data. That was about half the 204,000 increase on average in the first four months of the year.The lack of a pickup in hiring and an economy that’s growing “considerably slower” than expected prompted Fed policy makers to pledge for the first time to keep the benchmark interest rate at a record low at least through mid-2013.
“Indicators suggest a deterioration in overall labor market conditions in recent months,” the Federal Open Market Committee said in a statement on Aug. 9 after its meeting. “The unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate” of maximum employment and price stability.
3) Fed Eyes European Banks-From The Wall Street Journal
Federal and state regulators, signaling their growing worry that Europe's debt crisis could spill into the U.S. banking system, are intensifying their scrutiny of the U.S. arms of Europe's biggest banks, according to people familiar with the matter.
The Federal Reserve Bank of New York, which oversees the U.S. operations of many large European banks, recently has been holding extensive meetings with the lenders to gauge their vulnerability to escalating financial pressures.
The Fed is demanding more information from the banks about whether they have reliable access to the funds needed to operate on a day-to-day basis in the U.S. and, in some cases, pushing the banks to overhaul their U.S. structures, the people familiar with the matter say.
Officials at the New York Fed "are very concerned" about European banks facing funding difficulties in the U.S., said a senior executive at a major European bank who has participated in the talks.
Regulators are seeking to avoid a repeat of the 2008 financial crisis, when the global financial system began to seize up. This time the worry is that the euro-zone debt crisis could eventually hinder the ability of European banks to fund loans and meet other financial obligations in the U.S. While signs of stress are bubbling up, the problems aren't yet approaching the severity of past crises.
Some of Europe's biggest banks—including France's Société Générale SA, Germany's Deutsche Bank AG and Italy's UniCredit SpA—have major operations in the U.S. and rely heavily on borrowed funds to finance those operations. There is no indication that regulators are focused in particular on those banks.
Foreign banks that lack extensive U.S. branch networks have a handful of ways to bankroll U.S. operations.
They can borrow dollars from money-market funds, central banks or other commercial banks. Or they can swap their home currencies, such as euros, for dollars in the foreign-exchange market. The problem is, most of those options can vanish in a crisis.
Until recently, that hasn't been a problem. Thanks partly to the Federal Reserve's so-called quantitative-easing program, huge amounts of dollars have been sloshing around the financial system, and much of it has landed at international banks, according to weekly Fed reports on bank balance sheets.
Fed officials recently have held meetings with U.S.-based executives from top European banks to discuss their funding positions, according to the people familiar with the matter. Officials also are in contact with regulators in the countries where the European banks are headquartered.
The New York Fed has also been coordinating with New York's superintendent of financial services, Benjamin M. Lawsky, to monitor the foreign banks' funding positions, said people familiar with the matter.
The state regulator supervises the New York outposts of many major European banks, and it has the power to force them to keep more money on hand in the U.S. Mr. Lawsky's office has been getting near-daily updates from examiners embedded in European banks' New York offices about their funding positions.
Regulators are trying to guard against the possibility European banks that encounter trouble could siphon funds out of their U.S. arms, these people said. Regulators recently have ramped up pressure on European banks to transform their U.S. businesses into self-financed organizations that are better insulated from problems with their parent companies, a senior bank executive said.
In one sign of how European banks may be having trouble getting dollar funding, an unidentified European bank on Wednesday borrowed $500 million in one-week debt from the European Central Bank, according to ECB data. The bank paid a higher cost than what other banks would pay to borrow dollars from fellow lenders. It was the first time for that type of borrowing since Feb 23.
Anxiety about European banks' U.S. funding comes amid broader concerns about whether Europe's struggling banks will be able to refinance maturing debt in coming years. Investors, wary of many European banks' holdings of debt issued by troubled euro-zone governments, are shunning large swaths of the sector.
While top European banks already have satisfied about 90% of their funding needs for 2011, they still need to raise a total of roughly €80 billion ($115 billion) by the end of the year, according to Morgan Stanley.
Part of what is unsettling regulators and bankers is the speed at which funding can reverse direction. This spring, foreign banks were able to build up ample cash cushions, thanks largely to quantitative easing—the Fed's $600 billion bond-buying program, which brought more money into the banking system in the U.S., including foreign banks' coffers.
In July 2010, non-U.S. banks had $418.7 billion on reserve and collecting interest at the Fed, according to Fed data. By July 13 of this year, the total had more than doubled, to about $900 billion. Some major European banks were among the main drivers of this trend, according to their U.S. regulatory filings.
On June 30, 2010, for example, Société Générale had $55 million in cash reserves in its main New York branch. A year later, that amount had soared to $24.6 billion. At Deutsche Bank, cash reserves at its U.S. arm rose to $66.8 billion from $178 million.
Spokesmen for Société Générale and Deutsche Bank declined to comment on the reasons for the funding buildup or whether there has been a pullback.
In recent weeks, though, the cash piles at foreign banks' U.S. arms have diminished. While individual banks haven't reported data after June 30, foreign banks' overall U.S. cash reserves fell to $758 billion as of Aug. 3, the latest data available. That is down 16% from three weeks earlier, though it's still up sharply from the beginning of the year.
The latest Fed data "could be telltale signs that foreign banks are in need [of dollars] again, or institutional investors are getting concerned about foreign bank credit," said George Goncalves, a rates strategist for Nomura Securities.
Quote of the Day from Dave Ramsey.com:
The obstacles of your past can become the gateways that lead to new beginnings. — Ralph Blum
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