Bloomberg

Gold may gain for the second time in three sessions amid signs of improving demand in India, the world’s biggest consumer.

Physical dealers in India cited a “notable pickup” in purchases during the past few sessions amid lower domestic prices, Barclays Plc said today in a report. Indians tend to buy more at this time of year because of jewelry demand for the wedding season and festivals. Holdings in exchange-traded products backed by the metal rose to a record 2,585.418 metric tons on Oct. 26, data tracked by Bloomberg show. As of Oct. 26, prices fell 3.5 percent this month.

First-Strike

“Indian demand is showing some strength,” Lance Roberts, the chief executive officer of Streettalk Advisors LLC in Houston, said in a telephone interview. “We are definitely seeing some value-based buying.”

Gold futures for December delivery rose 0.1 percent to $1,712.90 an ounce at 9:48 a.m. on the Comex in New York. Prices gained 9.3 percent this year through Oct. 26.

CME Group Inc., the owner of Comex, said the New York trading floor will be closed today as Hurricane Sandy headed toward the city.

Silver futures for December delivery dropped 0.3 percent to $31.945 an ounce on the Comex.

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Central banks from Europe to China to the U.S. have pledged to do more to boost economies. The yen reached a four-month low versus the dollar this week on speculation the Bank of Japan will further expand stimulus and the Federal Reserve said it plans to continue buying bonds. Gold rose 70 percent as the Fed bought $2.3 trillion of debt in two rounds of quantitative easing from December 2008 through June 2011.

“The whole economic situation is going to get worse rather than better,” said Thorsten Polleit, chief economist at Degussa Goldhandel GmbH, a precious metal trading and investment company in Frankfurt. “Paper currencies have already lost their function as a store of value and it’s getting worse. People are increasingly putting their savings into precious metals.”
Gold Prices

First-Strike

Gold rose 9.5 percent to $1,712.95 an ounce in London this year, advancing for a 12th consecutive year, the longest winning streak in at least nine decades. October’s average of $1,749 is set to be the third-highest month ever. The Standard & Poor’s GSCI gauge of 24 commodities lost 1.2 percent since the start of January and the MSCI All-Country World Index of equities climbed 9.5 percent. Treasuries returned 1.4 percent, a Bank of America Corp. index shows.

The BOJ, which holds a policy meeting Oct. 30, will consider raising its asset-purchase program by 10 trillion yen ($125 billion) to 90 trillion yen, the Nikkei newspaper reported yesterday. The Fed said Oct. 24 it will maintain $40 billion in monthly purchases of mortgage debt and probably hold interest rates near zero until mid-2015. The European Central Bank has said it is ready to buy bonds of indebted nations and China approved a $158 billion subways-to-roads construction plan.

Some investors buy bullion as a hedge against inflation and a weaker dollar, and the metal generally earns returns only through price gains, increasing its allure as interest rates decline. Inflation expectations measured by the break-even rate for five-year Treasury Inflation Protected Securities jumped 33 percent this year and reached a 16-month high in September.
Investors Buy

Gold ETP holdings gained 7.9 percent since the end of July and now account for almost a year of mine production, according to data compiled by Bloomberg and Barclays Plc. Speculators’ wagers on a rally were the highest since August 2011 in the week to Oct. 9, CFTC data show. They cut their net-long position by 7 percent to 184,404 futures and options by Oct. 16, data show.

Gold dropped below $1,700 this week as “fatigue set in” among fund managers after they boosted bets and as prices failed to reach $1,800, said Edel Tully, an analyst at UBS AG in London. Higher prices also curbed physical demand, said Walter de Wet, an analyst at Standard Bank Plc in Johannesburg.

The U.S. Mint sold 48,500 ounces of American Eagle gold coins so far this month, 29 percent fewer than throughout September, data on its website show. This year’s sales of 530,000 ounces are down 41 percent from the same period in 2011.
Indian Demand

Gold imports by India, last year’s biggest buyer, slid to as low as 170 tons in the third quarter from 205 tons a year earlier, according to Bachhraj Bamalwa, chairman of the All India Gems & Jewellery Trade Federation. Local prices fell 5.7 percent since setting a record Sept. 13. Gold’s drop this month may spur more physical demand in Asia, Standard Bank said in an Oct. 24 report. Indian consumers usually boost purchases before the wedding season and religious festivals later this year.

Central banks have been expanding bullion reserves to diversify from currencies. Nations may add almost 500 tons this year, the London-based World Gold Council said in August. Brazil raised its gold reserves last month for the first time since December 2008 and countries from South Korea to Russia increased holdings this year, International Monetary Fund data show.

In other commodities, 15 of 30 traders and analysts surveyed expect copper to gain next week and 10 were bearish. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, climbed 2.8 percent to $7,812.25 a ton this year.
Sugar Survey

Fourteen of 20 people surveyed said raw sugar will rise next week and three expected a decline. The commodity slid 17 percent to 19.33 cents a pound since the start of January on the ICE Futures U.S. exchange in New York.

Fifteen of 28 people surveyed anticipate higher corn prices next week and five were bearish, while 17 of 29 said soybeans will climb and five predicted a drop. Corn rallied 15 percent to $7.4225 a bushel in Chicago trading this year as soybeans rose 29 percent to $15.585 a bushel. Both crops reached records since August as the worst U.S. drought in a half century hurt crops.

The GSCI gauge of raw materials erased this year’s gain three days ago after entering a bull market in the third quarter. The last annual decline was in 2008 and the index (MXWD) made annual advances in 11 of the past 13 years.

The commodity supercycle has further to go because of increasing demand from China and emerging markets, Chris Watling, chief executive officer of Longview Economics Ltd., and Dambisa Moyo, a former Goldman Sachs Group Inc. economist, said at a conference in London on Oct. 24.

“The inflation story in commodities is warranted,” said Colin O’Shea, the head of commodities at Hermes Investment Management Ltd. in London, which manages about $2.3 billion of raw-material assets. “Inflation could really happen, and happen in a big way over the course of the next few years. Historically, the primary reason for investing in commodities is diversification.”

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Commodities declined, erasing this year’s advance, on speculation that demand for energy, industrial metals and some agricultural products will slump because of the sluggish global economy.

The Standard & Poor’s GSCI Spot Index (MXWD) of 24 raw materials fell 1.4 percent to settle at 639.3 at 4 p.m. New York time. Earlier, the gauge touched 635.1, the lowest since Aug. 3. The measure also erased 2012 gains in May and July. The last annual drop was in 2008.

The International Monetary Fund cut its 2012 global-growth forecast to 3.3 percent on Oct. 9 from a July prediction of 3.5 percent and said the euro area will contract 0.4 percent. The economy in China, the biggest user of everything from copper to cotton, has slowed for seven straight quarters.

First-Strike

“The commodity complex is very sensitive to the demand destruction that is happening because of the global slowdown,” said Stanley Crouch, who helps oversee $2 billion of assets as chief investment officer at New York-based Aegis Capital Corp. “We are due for a big sell-off in the risk assets, and so commodities will not do well as the macro concerns remain.”

Cotton futures fell the most in 10 weeks, and crude oil dropped to the lowest since mid-July. Gasoline declined for the ninth straight session, the longest slump since at least October 2005. Copper dropped to the lowest since Sept. 7.

European leaders have struggled to contain the region’s debt crisis that prompted Greece, Ireland and Portugal to get bailouts.
‘Collateral Damage’

“People are still worried about demand from Europe and the collateral damage from Europe itself,” said Dan Denbow, a portfolio manager of the $2.1 billion USAA Precious Metals & Minerals Fund in San Antonio. “If Europe continues to slide and if it slides further into recession, does that tip the Chinese soft landing into something worse and therefore hurts commodity demand even more?”

Spain’s economy contracted for a fifth quarter, adding pressure on Premier Mariano Rajoy to seek more European aid. Chinese factories are losing pricing power in the worst wholesale-cost deflation since 2009, signaling company earnings may deteriorate further.

“For a while, global growth is off the table,” said John Stephenson, who helps manage $2.7 billion at First Asset Investment Management Inc. in Toronto. “You’ve got Europe clearly in the middle of a crisis. Commodities go lower and investors should adopt the fetal position.”
Stocks, Bonds

The MSCI All-Country World Index of equities has gained 9.8 percent this year. Treasuries returned 1.5 percent, a Bank of America Corp. index shows, and the dollar declined 0.3 percent against a basket of major currencies.

Coffee, cotton and sugar have posted the biggest declines among GSCI components this year. Wheat in Chicago has gained the most, while corn and soybeans have reached record highs this year, as the most-severe U.S. Midwest drought in five decades scorched crops.

Hedge funds reduced net-long positions across 18 U.S. commodities futures and options by 4.4 percent to 1.18 million contracts in the week ended Oct. 16, the lowest since July 24, government data showed on Oct. 19.

“The problem we have ultimately is that it’s hard to find where the growth story comes from,” Jeffrey Sherman, who helps manage more than $45 billion of assets for DoubleLine Capital in Los Angeles, said in a telephone interview. “What you’re having is a retracement of risk markets.”

The GSCI index gained 6.8 percent in the first quarter, tumbled 13 percent in the second and jumped 11 percent in the third. The gauge posted an annual decline only twice since 1999.

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U.S. stocks are beating every major asset class for the first time in 17 years even as economic growth weakens and profits rise at the slowest rate since 2009.

The Standard & Poor’s 500 Index has rallied 14 percent in 2012, beating Treasuries, corporate bonds, commodities, the dollar and equities in Asia and Europe, data compiled by Bloomberg show. The last time that happened, in 1995, the S&P 500 was posting the biggest annual advance of the last five decades. With a price-earnings ratio close to today’s level, the index gained another 93 percent in the next 2 1/2 years.

For all the concern about unemployment and manufacturing growth, the best assets this year remain American companies after unprecedented steps by the Federal Reserve to support growth. Forecasts for a rebound in the U.S. economy and the central bank’s pledge to keep interest rates near zero for years convinced bulls the S&P 500 will extend gains. Bears say political gridlock will drag down prices after monetary stimulus wears off.

First-Strike

“We see good earnings growth and improving economic outlook, we see good equity valuations and easy monetary policy, we see skeptical investors and low positioning in equity assets,” said Max King, a multi-asset strategist at Investec Asset Management in London, which oversees $100 billion. “This is a major green light for equities and the fact that people don’t see it, is great.”

Treasury Returns

Treasuries have returned 3.3 percent in 2012, compared with 9.9 percent for U.S. investment-grade corporate bonds and 14 percent for high-yield debt, based on Barclays Plc index data. The S&P GSCI Index of 24 commodities advanced 1.7 percent, while the Dollar Index (DXY) that measures the U.S. currency against those of six trading partners weakened 0.7 percent.

The S&P 500 gained 0.3 percent last week to 1,433.19 following better-than-estimated data on U.S. housing starts and as earnings from Citigroup Inc., Honeywell International Inc. (HON) and Mattel Inc. topped forecasts. Including dividends, the index is up 16 percent this year, led by PulteGroup Inc., Sprint Nextel Co. and Gap Inc., which have risen more than 96 percent. The S&P 500 added 0.1 percent to 1,434.16 at 10:03 a.m. New York time.

The bull market will last another year as individuals regain confidence and return to equities after withdrawing money since 2007, according to Laszlo Birinyi, the president of Birinyi Associates Inc. in Westport, Connecticut. Investors have pulled about $100 billion from U.S. stock funds this year and added $250 billion to bond funds, according to data from the Investment Company Institute in Washington.

‘Better Shape’

“I don’t think you’ve seen the signs of a frothy, toppy market,” Birinyi, who traded equities at Salomon Brothers Inc. in the 1980s, said in an Oct. 17 phone interview. “People are realizing that the stock market is not all that bad. It’s been telling us that the economy and companies are in better shape than people think.”

Shares worldwide rallied this year as European Central Bank President Mario Draghi said July 26 the bank would step up its fight to save the euro and bring down record borrowing costs in Spain and Italy.

The Fed initiated a third phase of so-called quantitative easing on Sept. 13 to purchase $40 billion of mortgage-backed securities per month and said that it will keep interest rates near record lows at least through mid-2015.

The U.S. recovery is the weakest post-recession expansion since World War II, according to Bloomberg data, and the International Monetary Fund forecasts gross domestic product around the world will expand 3.3 percent this year, the slowest since the 2009 recession.

Leader Board

While the S&P 500 is outperforming broader indexes, nine national markets among 24 developed nations tracked by Bloomberg have gained more. Germany’s DAX Index (DAX) has jumped 25 percent as investors raised expectations policymakers will solve Europe’s debt crisis. The Athens Stock Exchange General Index soared 28 percent on optimism Greece will reach a deal with the IMF and European partners to remain in the euro zone. Silver, corn and platinum have risen at least 15 percent.

Bears say the support of central banks can only do so much. They also note that the so-called fiscal cliff, the more than $600 billion of tax increases and spending cuts that are set to kick in automatically next year unless Congress breaks a deadlock, is weighing on investors deciding which assets to buy.

‘Moving Up’

“I’d rather have things be moving up as a result of fundamentals than a very aggressive central bank,” Jason Brady, a managing director at Santa Fe, New Mexico-based Thornburg Investment Management Inc., which oversees about $83 billion, said in an Oct. 18 phone interview. “You’re looking at a bunch of companies in situations where there are a lot of headwinds and a real difficulty of getting growth.”

Intel Corp. (INTC) and International Business Machines Corp. (IBM) reported results last week that showed the global economic slowdown is prompting companies to curtail technology spending. The stocks have fallen every day since releasing quarterly earnings, with Intel down 2.5 percent in the first trading session and IBM losing 4.9 percent, the biggest loss since October 2009.

General Electric Co. (GE), the biggest maker of power-generation equipment, fell 3.4 percent on Oct. 19 when it reported revenue that missed analyst estimates and cut its 2012 sales target. It was the second quarter in a row of lower-than-projected sales, data compiled by Bloomberg show.

Jobless Rate

While the unemployment rate unexpectedly declined to 7.8 percent in September, payroll growth slowed, a Labor Department report showed on Oct. 5. Companies added 114,000 workers last month after a revised 142,000 gain in August, according to government data.

Reports on the world’s largest economy beat forecasts last month. U.S. manufacturing unexpectedly expanded in September after three months of contraction while service industries grew by the most in six months, data from the Institute for Supply Management showed this month.

“The negative case is always more compelling,” Birinyi said. “It’s always more rational because the negative case is about now. The stock market is about tomorrow.”

S&P 500 earnings may rise 4.7 percent this year to $101 per share, the highest on record, according to the average prediction among Wall Street equity strategists. While the growth rate is about a third of the pace in 2011 and the slowest since 2009, profits have already expanded an average 23 percent a quarter since the start of 2010. They’re projected to pick up in 2013, increasing 5.7 percent, the data show. For the 117 companies in the S&P 500 that have reported quarterly results so far, earnings are exceeding estimates by 4 percent on average, while sales are increasing 1.8 percent, according to data compiled by Bloomberg.

Record Predicted

Wall Street strategists tracked by Bloomberg predict the S&P 500 may surpass its all-time high next year. The benchmark may end 2013 at 1,585, according to the median forecast of five analysts polled by Bloomberg News, 1.3 percent higher than a record in October 2007.

The improvement in the U.S. economy and signs Europe’s debt crisis may be easing made Treasuries less attractive than equities this year. The yield on the benchmark 10-year bond fell to 1.38 percent on July 25, according to Bloomberg data, a record low. It finished last week at 1.76 percent, from 1.88 percent at the end of 2011.

Bond Returns

Barclays Plc’s 10-20 Year Treasury Total Return Index has climbed 3.3 percent this year. The Barclays Municipal Bond Index has advanced 6.1 percent, while a gauge of Treasury inflation- indexed notes known as TIPS added 6.3 percent.

Debt issued by companies, loans and hedge funds also trailed stocks. A Barclays index of investment-grade U.S. corporate debt has gained 9.9 percent in 2012 and a gauge of high-yield credit advanced almost 14 percent. The S&P Leveraged Loan 100 Total Return Index is up 9.7 percent this year, while the HFRI Hedge Fund-Weighted Composite Index added 4.8 percent .

The S&P GSCI commodity index is poised for its smallest annual advance since plunging in 2008. China expanded 7.4 percent last quarter, the lowest pace in more than three years, the government said Oct. 18. A slowdown in the world’s second- biggest economy and largest consumer of raw materials is putting pressure on the ruling Communist Party to add stimulus, fueling confidence the country will avoid a hard landing and boost world economic growth.

Emerging Markets

The MSCI Emerging Markets Index (MXEF), which tracks stocks in 21 developing nations including China, Brazil and Russia, has climbed 9.8 percent, and the Euro Stoxx 50 Index (SX5E) for the 17- nation euro area is up 9.7 percent.

The 34 percent rally for the S&P 500 in 1995 was the biggest gain in 37 years. The U.S. equity benchmark traded at an average 16.6 times reported earnings and rose more than 19 percent annually through 1999 as economic growth boosted profits and investors snapped up new-technology businesses. The index ended last week with a price-earnings multiple of 14.5, data compiled by Bloomberg show.

Equities remain cheap compared with other assets, according to Alan Higgins, who helps oversee $48 billion for Coutts & Co.

Profits for S&P 500 companies represent 6.9 percent of the index’s price, compared with a yield of 2.7 percent on investment-grade U.S. corporate bonds, according to Bloomberg and Barclays data. The spread of 4.2 percentage points compares with an all-time high of 4.6 points in 2011, the data show.

“Equities still stand out either as attractive or reasonably valued, so we are more likely to invest there,” Higgins, the London-based securities firm’s chief investment officer for the U.K., said in a phone interview on Oct. 18. He cut investments in credit last week. “They are more likely to take the lead based on current valuations.”

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U.S. stocks slid the most since June and Treasuries rose as General Electric Co. (GE), McDonald’s Corp. and Microsoft Corp. posted results that missed estimates and euro-area leaders failed to discuss aid for Spain at a summit. Metals and oil led a slump in Commodities.

The Standard & Poor’s 500 Index fell 1.3 percent at 1:11 p.m. in New York, poised for its worst drop on a closing basis since June 25, as GE, McDonald’s and Microsoft lost more than 2.5 percent. The Stoxx Europe 600 Index declined 0.8 percent, paring its advance this week to 1.7 percent. Ten-year Treasury yields fell six basis points to 1.77 percent after rising for four straight days. The euro weakened against the dollar for a second day while copper and oil dropped at least 1.9 percent.

First-Strike

Per-share profit trailed analyst estimates at half of the 18 companies in the S&P 500 that released results since the close of trading yesterday, undermining confidence in an earnings season that previously had seen about three-quarters of companies beat forecasts. Reports today showed sales of previously owned U.S. homes decreased in September, while foreign direct investment into China declined last month more than economists had predicted.

“The market’s off because of some of the earnings today,” Thomas Garcia, head of equity trading at Santa Fe, New Mexico- based Thornburg Investment Management Inc., said in an e-mail. His firm oversees about $80 billion.

The S&P 500 slipped for a second day after rallying 2.3 percent over the previous three sessions, its best gain in more than a month. Today’s retreat trimmed the benchmark gauge’s weekly advance to less than 1 percent.
Market Leaders

General Electric declined 2.9 percent after posting quarterly sales of $36.3 billion, missing the average analyst estimate for revenue of $36.9 billion as foreign-exchange moves hurt sales by $1.1 billion. Microsoft Corp. slid 2.8 percent after reporting fiscal first-quarter profit and sales late yesterday that missed estimates as sales of its Windows operating system declined. McDonald’s, the world’s largest restaurant chain by sales, dropped 4 percent after reporting third-quarter profit fell 3.5 percent as sales growth slowed at U.S. stores.

Per-share profits have exceeded analysts’ estimates at about 69 percent of the 116 companies in the S&P 500 that released results so far, according to data compiled by Bloomberg. Earnings have increased less than 0.1 percent for the group on a 1.8 percent gain in sales.

Forecasts for third-quarter profits have grown more optimistic as the earnings season progresses. Analysts now project a 0.3 percent drop in S&P 500 earnings for the period, according to a Bloomberg survey, compared with a decrease of 2 percent predicted on Sept. 28.
Home Sales

U.S. equities maintained losses today as a report showed purchases of existing houses, tabulated when a contract closes, decreased 1.7 percent to a 4.75 million annual rate, matching the median forecast of economists surveyed by Bloomberg. The figures from the National Association of Realtors also showed the median prices from a year earlier jumped by the most since 2005 as inventories dwindled.

Copper declined 2.8 percent to $3.6385 a pound and aluminum slipped 2.2 percent to $1,970 a ton. China is the biggest buyer of industrial metals. Gasoline slipped 1.5 percent and has lost almost 9 percent in seven sessions.

Copper traders who a week ago were the most bearish in four months are now the most bullish in a year after economic reports signaled accelerating growth from China to the U.S.

Copper Predictions

Seventeen analysts surveyed by Bloomberg said they expect prices to gain next week and four were bearish. A further three were neutral, making the proportion of bulls the highest since October 2011. They were the most negative since June 1 last week. Hedge funds’ bets on a rally are near the biggest in 14 months, U.S. Commodity Futures Trading Commission data show.

Natural gas advanced to a 10-month high in New York on speculation that above-normal demand from electricity generators will help reduce a supply surplus.

Gas rose as much as 1.7 percent after an Energy Department report yesterday showed inventories expanded by 51 billion cubic feet, less than the five-year average gain of 71 billion for the week. Supplies climbed 106 billion a year earlier. Power plants are burning record amounts of the fuel this year as seasonal prices near decade lows prompted a switch from coal.

European Markets

European banks dropped 2.2 percent as a group, contributing the most to the Stoxx 600’s retreat, following the EU summit. Aggreko Plc slumped 7.2 percent after increasing its provisions for bad debt, while Bunzl Plc lost 4.1 percent after saying its sales growth has slowed. Carrefour SA (CA) jumped 5.9 percent as Europe’s largest retailer agreed to sell its Colombian unit to Cencosud SA for 2 billion euros.

A EU summit failed to discuss further financial assistance for Spain, according to French President Francois Hollande. Germany and France agreed to enforce common banking regulation for the euro area’s 6,000 lenders by the end of next year.

Yields on benchmark 10-year German bunds dropped four basis points to 1.59 percent. Credit-default swaps on Germany fell 2.5 basis points to 33, the lowest since October 2010.

The MSCI Emerging Markets Index slid 0.7 percent, paring its biggest weekly rally in more than a month, as computer companies retreated and a Chinese central bank adviser said stimulus will be limited.

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U.S. stocks advanced, erasing an earlier loss in the Standard & Poor’s 500 Index (SPX), as a rise in jobless claims was offset by better-than-estimated data on leading indicators and Philadelphia manufacturing.

Travelers Cos. gained 3.8 percent as earnings more than doubled on lower claims costs tied to natural disasters. Supervalu Inc. (SVU) jumped 3.9 percent as the grocery store chain said it has received interest from several parties amid a strategic review. Philip Morris International Inc. (PM), the world’s largest publicly traded tobacco company, dropped 2.8 percent as earnings trailed analysts’ estimates.

First-Strike

The S&P 500 rose 0.2 percent to 1,463.19 at 12:28 p.m. in New York, after climbing 2.3 percent during the first three trading days of the week. The Dow Jones Industrial Average gained 22.91 points, or 0.2 percent, at 13,579.91 today. Trading in S&P 500 companies was 11 percent above the 30-day average at this time of day.

“The market is digesting some strong gains earlier in the week and the disappointing jobless claims number,” Jim Russell, the Cincinnati-based chief equity strategist at U.S. Bank Wealth Management, which oversees about $113 billion, said in a phone interview. “The data cadence is two steps forward, one step back right now with a positive bias. It does appear as if things are firming up at the margin for the U.S. economy and the Philly Fed report confirms that.”

U.S. stocks slumped early in the trading day as Labor Department figures showed more Americans than forecast filed applications for unemployment benefits last week, reflecting an unwinding of adjustments for seasonal swings at the start of a quarter.

Leading Indicators

Equities pared declines as the index of U.S. leading economic indicators rose in September by the most in seven months, boosted in part by a jump in permits for home construction that’s helping underpin the expansion.

Manufacturing in the Philadelphia region expanded in October for the first time in six months, a sign the industry may be starting to stabilize. The Federal Reserve Bank of Philadelphia’s general economic index rose to 5.7 in October from minus 1.9 in September. A reading of zero is the dividing line between expansion and contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

Economic issues including jobs are central to the race for the American presidency. Gallup’s daily tracking of registered voters conducted Oct. 10 through Oct. 16 showed President Barack Obama with 46 percent and Republican challenger Mitt Romney with 48 percent support. The margin of error is two percentage points.

Policy Issues

“Everything seems paused until we get clarity on the election since there are a lot of economic policy issues that need to be resolved before the end of the year,” Thomas Nyheim, a Wilmington, Delaware-based fund manager for Christiana Trust, which oversees about $13 billion, said in a telephone interview.

The S&P 500 has rallied 16 percent so far this year as economic data topped estimates, companies posted better-than- expected earnings and the Fed announced a third round of bond purchases.

As many as 28 companies listed on the S&P 500 release results today, according to data compiled by Bloomberg. Of the 95 companies in the benchmark index that have reported since Oct. 9, 70 posted earnings that exceeded analyst estimates, while 23 missed them, the data showed

Travelers Climbs

Travelers climbed 3.8 percent to $74.10 for the biggest gain in the Dow. Chief Executive Officer Jay Fishman, 59, has bought back shares, raised rates for coverage and changed policy terms to improve shareholder returns as near record-low interest rates pressure income from the investment portfolio. Property- casualty insurers have benefited from fewer natural disasters this year after record losses in 2011.

MGM Resorts International (MGM) jumped 2.1 percent to $11.15. MGM China Holdings Ltd., a venture between Pansy Ho and MGM Resorts, won a land grant to develop a second casino resort in Macau. The approval allows MGM China to build on the city’s increasingly popular Cotai strip, where the operator doesn’t have a presence.

Supervalu increased 3.9 percent to $2.12. The third-largest U.S. grocery store chain said it has received a “number of indications of interest” as it conducts a review of strategic options. The company is in “active dialogue” with several parties, Eden Prairie, Minnesota-based Supervalu said in a statement.

Lam Research Corp. (LRCX) rose 9.1 percent to $36.62 for the biggest gain in the S&P 500. The chip-equipment manufacturer reported first-quarter earnings that beat analyst estimates

Philip Morris

Philip Morris International dropped 2.8 percent to $89.29. The maker of Marlboro cigarettes posted third-quarter profit that trailed analysts’ estimates. European Union nations facing a debt crisis and high unemployment saw smokers cut back or switch to contraband cigarettes or roll-your-own varieties. Sales in the region slipped 15 percent in the third quarter.

Boston Scientific Corp. (BSX) fell 2.6 percent to $5.48. The heart-device maker lowered its forecast for full-year revenue to no more $7.24 billion from a previous range of $7.2 billion to $7.4 billion. Analysts on average estimated $7.26 billion in sales for the year.

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The blueprint regulators gave Barclays Plc (BARC) and other banks for correcting Libor-rate abuses may not be enough to salvage a benchmark so discredited it needs to be overhauled, some investors say.

The U.S. Commodity Futures Trading Commission ordered Barclays on June 27 to keep thorough records on how it comes up with its London interbank offered rate submissions and erect so- called Chinese Walls between traders and rate-setters. It also said lenders should expect random checks from regulators on whether their submissions reflect actual borrowing costs.

Investors say the proposals amount to little more than window dressing.

First-Strike

“As long as banks are allowed in the henhouse, then the system is ripe for abuse,” said Tim Price, who helps oversee more than $1.5 billion at PFP Group LLP, an asset-management firm based in London. A better system would be to take random samplings from all the transactions, he said. “If there is any message of the last few years, it’s that banks and bankers simply cannot be trusted.”

Barclays, the U.K.’s second-largest lender, was fined a record $451 million and its top executives agreed to forgo bonuses after investigators found traders and senior managers “systematically” tried to rig the Libor and Euribor, its equivalent in euros. With other lenders facing similar sanctions, the British Bankers Association, which oversees Libor, is under pressure to prove the rate serves a purpose.

‘Big Boy’

Libor is determined by banks’ daily estimates of how much it would cost them to borrow from one another for different time frames and in different currencies. Because banks’ submissions aren’t based on real trades, the potential exists for manipulation by traders. At least a dozen firms are being probed by regulators worldwide for colluding to rig the rate, the benchmark for $500 trillion of securities, including mortgages, student loans and swaps.

Barclays employees overseeing Libor and Euribor submissions routinely accommodated requests that benefited traders at their own and other banks, the CFTC said.

On Sept 13, 2006, a senior Barclays trader in New York e- mailed the person who submitted the rate, “Hi Guys, We got a big position in 3m libor for the next 3 days. Can we please keep the lib or fixing at 5.39 for the next few days. It would really help,” according to a CFTC document.

In another exchange, from April 7, 2006, a submitter responded to a request for low U.S. dollar Libor submissions from a swaps trader with “Done ... for you big boy,” the commission said.

Shares Fall

Barclays fell 16 percent in London trading yesterday, the most in more than three years, as U.K. lawmakers put pressure on Chief Executive Officer Robert Diamond. Prime Minister David Cameron said that the bank has questions to answer, while Ed Miliband, leader of the opposition Labour Party, has demanded a criminal investigation. Shares in Royal Bank of Scotland Group Plc (RBS), which is also being investigated for suspected Libor manipulation, dropped 11 percent.

As part of its settlement, the CFTC ordered Barclays to amend how it sets Libor. Submissions should be based on actual trades if possible. Where no trades have taken place, the rate- setter can consider factors including how much competitors paid to borrow and market conditions, the CFTC said.

Rate-setters should be prohibited from “improper communications” and not work within earshot of derivatives traders, according to the commission. Barclays must keep extensive records on all its Libor submissions, including details on who the rate-setter was and how the figure was derived. The bank must also undergo annual audits and be willing to provide data to regulators on demand.

‘Proper Baseballs’

The CFTC requirements will provide a blueprint for what might be required of other banks once the BBA completes its review, said Owen Watkins, a former regulator at the U.K.’s Financial Services Authority.

“You’ve got to have everybody playing the game by the same rules,” said Watkins, now a lawyer at Lewis Silkin LLP in London. “It’s like playing baseball with some guys throwing proper baseballs, while some guys throw golf balls.”

The Barclays settlement has “extremely serious implications, which need to be carefully considered,” the BBA said June 27 in an e-mailed statement. “The investigation findings will be fully included in the current review of Libor.”

‘Trust Me’

Joseph Eyre, a spokesman for the U.K.’s Financial Services Authority, which levied the fine against Barclays along with the CFTC and the U.S. Justice Department, said “the BBA’s review is continuing and we will consider any recommendations arising from that exercise.”

The proposals may not go far enough, said Rosa Abrantes- Metz, an economist with Global Economics Group, a New York-based consulting firm, and an associate professor at New York University’s Stern School of Business.

“You will have some unease going forward if they do not impose some drastic changes,” said Abrantes-Metz, the co-author of a 2008 paper on Libor manipulation. “We need to have Libor reflect true borrowing costs and I just don’t see any more efficient way to do so but to base it on actual borrowing costs.”

The market isn’t going to settle for “the trust-me approach,” said Ron D’Vari, CEO of New York-based advisory firm NewOak Capital LLC and a former BlackRock Inc. (BLK) managing director. “Changing wheels while driving is tough, but it has to be done.”

Steering Committee

Diamond has agreed to appear at a meeting of U.K. lawmakers to highlight “what we have done and are doing to put things right,” he said in a letter yesterday to Andrew Tyrie, chairman of Parliment’s cross-party Treasury Committee.

“I appreciate that the nature of the settlements disclosed yesterday raises many questions, and I welcome the opportunity to provide answers,” Diamond wrote.

The BBA, which has overseen Libor for 26 years, created a steering group of bankers and regulators in March to consider reforms in light of the probes. The BBA was aware that banks including Barclays were low-balling their Libor submissions during the financial crisis to avoid the perception they were struggling to borrow cash, according to CFTC documents.

In an April 2008 phone call, a senior Barclays manager told a BBA representative, “We’re clean, but we’re dirty-clean, rather than clean-clean,” according to the CFTC report. The BBA employee responded, “No one’s clean-clean.”

Incremental Changes

Barclays is on the BBA steering committee reviewing Libor. The bank’s chairman, Marcus Agius, is also chairman of the BBA. Other lenders on the steering committee include Credit Suisse Group AG (CSGN), HSBC Holdings Plc (HSBA), Lloyds Banking Group Plc (LLOY) and Royal Bank of Scotland, all of which are being investigated as part of Libor probes. Spokesmen for the banks declined to comment.

Three members of the steering committee interviewed by Bloomberg News this month said changes to Libor would be incremental because structural modifications in how the rate is calculated could invalidate trillions of dollars of contracts and result in litigation. They ruled out stripping the BBA’s oversight and scrapping the survey system in favor of a rate based entirely on actual trades.

“You wouldn’t ask for someone’s opinion on the closing price of a share when there is an actual price available,” said Daniel Sheard, chief investment officer of GAM U.K. Ltd., which manages about $60 billion in assets. “What better way to restore credibility than having a transaction-based index?”

‘Significant Resources’

The British government will emphasize to the BBA at the steering group’s next meeting that only drastic changes will suffice, according to a person with knowledge of the matter, who asked not to be identified because the talks are private. Chancellor of the Exchequer George Osborne, speaking to lawmakers in London yesterday, said the FSA is “committing significant resources” to investigate “systemic failures” over the manipulation of Libor.

PFP Group’s Price said he’s skeptical that the BBA review or increased oversight by regulators will improve Libor.

“Whenever you’ve got a regulator battling against well- paid bankers, we know who’s likely to win,” Price said. “I would feel better if some completely independent body was just compiling data from the banks and just spitting out a number.”

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European Union sanctions on Iran entered into full force yesterday after exemptions on some contracts and insurance ended, boosting crude prices and pressure on the Persian Gulf nation to halt its nuclear- enrichment program.

The reduction in Iranian exports may become the biggest supply disruption from a member of the Organization of Petroleum Exporting Countries since an armed rebellion all but halted pumping in Libya last year, according to the International Energy Agency. It also comes as a strike by Norwegian workers is curbing flows from North Sea fields.

“We expect Brent oil prices to be supported by Iranian oil sanctions and potential loss of supplies from the North Sea,” Gordon Kwan, the head of regional energy research at Mirae Asset Securities based in Hong Kong, said in a June 28 report. “The imminent EU insurance ban on tankers carrying Iranian crude could drive up demand for Brent and Dubai crude.”

First-Strike

Brent futures fell below $90 a barrel on June 21 for the first time in 18 months as concern that Europe’s debt crisis would spread sapped the outlook for fuel use worldwide. Now, the Iran embargo and Norwegian strike are stoking speculation about a rebound in prices, according to analysts such as Kwan and Ole Hansen at Saxo Bank A/S. Brent for August settlement surged 7 percent on June 29 to close at $97.80 a barrel on the ICE Futures Europe exchange.

Unsold Barrels

Iran, the second-biggest producer in OPEC after Saudi Arabia, was producing about 3.3 million barrels a day in May. Full implementation of sanctions will remove about 1 million barrels a day during the second half of the year as buyers disappear and Iranian storage tanks become full, the Paris-based IEA forecast in a June 13 report.

Mohammad Ali Khatibi, Iran’s governor to OPEC, warned yesterday that the EU would bear “the consequences of politicizing the market,” without specifying what he meant, the state-run Iranian Students News Agency reported.

Mahmoud Bahmani, Iran’s central bank governor, said his nation “isn’t sitting by idly” and has a “very suitable” $150 billion in foreign currency reserves to help weather the latest trade and financial curbs. “We have programs to fight the sanctions, and we will confront hostile policies,” Bahmani said yesterday, according to the state-run Mehr news agency.

Emergency Meeting

Iran urged OPEC to call an emergency meeting to address the group’s production in excess of its targeted 30 million barrels a day, Mehr reported June 30, citing Oil Minister Rostam Qasemi. Disregard of the limit by some OPEC members “will negatively impact oil prices in the international market,” Qasemi said. The 12-member organization, which decided on June 14 to retain its daily ceiling of 30 million barrels, pumped about 1.6 million barrels more than that in May, according to data compiled by Bloomberg.

The EU agreed in January to ban oil imports from Iran, offering a five-month phase-in period for existing contracts to let member states such as Greece find alternative supplies. An exemption on tanker insurance restrictions for the worldwide shipping industry also ran out today.

Foreign ministers from the 27-nation bloc decided on June 25 the exemptions shouldn’t be extended after talks between Iran and the world’s powers about the nuclear program failed to reach a breakthrough since they started in April. Iran denies that it is developing nuclear weapons.

‘Toughest Measures’

“These are the toughest measures the EU has adopted against Iran to date,” U.K. Foreign Secretary William Hague said yesterday in a statement. “It is in the power of the Iranian leadership to end Iran’s current isolation, but unless they change course, the pressure will only increase.”

The EU ban on insurance for ships carrying Iranian oil affects 95 percent of the world’s tankers because they’re covered by the 13 members of the London-based International Group of P&I Clubs, which is adhering to the EU rule.

In an effort to retain an important Asian customer, Iran offered to supply oil to South Korea using its own tankers, a government official in Seoul said June 29, asking not to be identified because the matter is confidential.

Complementing the European sanctions, a U.S. law enacted Dec. 31 cuts off international banks from the U.S. financial system if they settle oil trades with Iran. The U.S. rule gave importing nations, including China, India and Japan, until June 28 to demonstrate they had “significantly reduced” their purchases of Iranian oil in order to qualify for exemptions.

Crude Dependence

Oil and its derivatives account for nearly 80 percent of Iran’s exports and about half of government revenue, according to the U.S. Energy Information Administration, which estimates the country’s 2010 net oil export revenues at $73 billion.

Iran’s oil exports may “gradually” decline by 20 percent to 30 percent after sanctions start and amid field maintenance work, Deputy Oil Minister Ahmad Qalebani said on June 26.

Such acknowledgement hasn’t erased tensions over the sanctions. Iran warned it can strike any target in the Strait of Hormuz and the Gulf and will soon equip ships with missiles capable of firing more than 300 kilometers (186 miles), Mehr reported June 29, citing a commander of the Islamic Revolutionary Guards Corps. Tankers carrying about a fifth of globally traded oil exit the Gulf though the Hormuz chokepoint.

Iranian ‘Playground’

“The Strait of Hormuz and the Persian Gulf is Iran’s playground and no one else’s,” Mehr cited Admiral Ali Fadavi as saying. “Any issues related to the Strait of Hormuz will be a very big story that will have consequences on the price of oil.”

A survey of 42 analysts on June 28 showed that 16, or 38 percent of them, predicted crude futures will increase in the week starting today, citing the new sanctions. Among the remainder, 12 forecast little change in prices and 14 expected a decline.

“That is the wildcard, the Iranian situation,” Torbjoern Kjus, an oil analyst at Oslo-based bank DnB ASA, said by phone on June 29.

“Nobody can be totally certain how it’s really going to affect the market,” he said. “There’s probably been huge inventory builds in Iran, and this could pose a bearish effect for next year or the second half of this year if there is a resolution.”

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Federal Reserve policy makers signaled readiness to boost record stimulus unless they are convinced the economy is poised to rebound. Recent signs of strength may not be enough to satisfy them.

Many members of the policy-setting Federal Open Market Committee said further action would probably be needed “fairly soon” without evidence of “substantial and sustainable” improvement in the recovery, according to minutes of the July 31-Aug. 1 meeting released yesterday in Washington.

First-Strike

“The burden of proof is to see a sustained pickup in growth and I don’t think we’re going to get that,” said Eric Green, a former economist at the Federal Reserve Bank of New York who is now global head of rates and foreign exchange research at TD Securities Inc. in New York.

U.S. stocks reversed losses yesterday and gold rose to a 16-week high on expectations of further easing by the central bank. Attention now turns to Fed Chairman Ben S. Bernanke’s Aug. 31 speech in Jackson Hole, Wyoming, where he may clarify his thinking on the need for stimulus in view of recent reports showing gains in retail sales and housing.

Many participants at the Fed’s meeting said a new large- scale asset-purchase program “could provide additional support for the economic recovery,” according to the minutes. Policy makers said in a statement after the meeting that they will step up record stimulus if needed to spur growth and cut a jobless rate stuck above 8 percent since February 2009.
Yield Tumbles

The Standard & Poor’s 500 Index (SPX) erased losses, adding less than 0.1 percent to 1,413.49 at the close of trading in New York after falling as much as 0.5 percent before the release of the minutes. The yield on the 10-year Treasury note tumbled 11 basis points, or 0.11 percentage point, to 1.69 percent in the biggest decline since June 1. Gold futures for December delivery rose to $1,656.20 an ounce.

“They’re closer to doing QE3 than I would have guessed,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, referring to a third round of bond purchases known as quantitative easing. Fed officials next meet on Sept. 12-13.

Policy makers around the world are confronted with the choice of adding stimulus measures now as global growth slows, or holding fire should Europe’s crisis deepen. Federal Reserve Bank of Chicago President Charles Evans told reporters today in Beijing that “I certainly would applaud anybody who takes action in order to strengthen their economies” around the world, including China.
Global Uncertainty

“There’s an awful lot of uncertainty when I talk to business people about the global economy, European situation, the fiscal-cliff risk,” Evans said at the U.S. embassy in Beijing. Fiscal cliff is a term for higher taxes and spending cuts in the U.S. that will take effect at year-end unless Congress and the president approve a new deficit-reduction plan.

Some U.S. economic reports have exceeded expectations since the last FOMC meeting, with retail sales increasing 0.8 percent in July and companies hiring 163,000 workers in the same month, the most in five months. That’s helped push the S&P 500 to six straight weekly gains and to almost a four-year high.

Sales of existing homes climbed in July from an eight-month low, according to data yesterday from the National Association of Realtors, showing the cheapest mortgage rates on record are helping to boost the housing market.

Some economists said the reports give policy makers reason to hold off from additional stimulus.
‘Some Incentive’

“The Fed has some incentive to stay on the sidelines,” said Michael Dueker, a former St. Louis Fed economist who is now chief economist at Russell Investments, which oversees $152 billion in Seattle. “I wouldn’t be expecting a third round of quantitative easing until December or early 2013 given what we are seeing in the economy.”

While some data has improved, the unemployment rate in July climbed back to the same level as February. It rose to 8.3 percent and hasn’t fallen below 8 percent since February 2009.

Policy makers, who said in their Aug. 1 statement that economic conditions “warrant exceptionally low levels for the federal funds rate at least through late 2014,” discussed extending the duration for how long they will keep the main interest rate low, the minutes showed.
Policy Stance

“It was noted that such an extension might be particularly effective if done in conjunction with a statement indicating that a highly accommodative stance of monetary policy was likely to be maintained even as the recovery progressed,” according to the minutes. The Fed reduced the rate almost to zero in December 2008.

Bernanke is set to deliver a speech on monetary policy to the Kansas City Fed’s annual symposium of central bankers and economists at Jackson Hole. Global stocks and commodities soared after the Fed chief signaled a second round of bond buying on Aug. 27, 2010. The Fed decided in November 2010 to buy $600 billion of Treasuries through June 2011.

The 2010 speech drove up the S&P 500 26 percent through the end of June 2011, while the MSCI All-Country World Index jumped 23 percent during the same period.

The U.S. economy will probably expand at a 1.8 percent annual rate in the third quarter and 2.1 percent in the fourth, according to the median of 75 estimates in a Bloomberg survey. Gross domestic product slowed to a 1.5 percent pace in second quarter from 2 percent in the first three months of the year.

The improving data since the last FOMC meeting probably aren’t enough to indicate a substantial strengthening of the economic recovery, according to Jeremy Lawson, a senior U.S. economist at BNP Paribas SA in New York.

“You’d need to see a further improvement to dissuade the committee members that further accommodation isn’t necessary,” Lawson said. “Everything is consistent with a move to quantitative easing in the near term. The question is when and whether the chairman is ready to pull the trigger.”

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Jay Mueller, who manages $3 billion of bonds for Wells Capital Management in Milwaukee, resisted buying Treasuries for four months, anticipating the Federal Reserve would drop its pledge to keep interest rates at a record low through late 2014. Read more...

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