Thursday, March 21, 2013

Tomorrow’s Headlines

Market Snapshot*

Jobless Claims Rise On Week

DJIA

The number of Americans claiming unemployment benefits rose slightly last week but remained at a level indicating a strengthening labor market.

14421.49 | -90.23

Nasdaq

3222.6 | -31.58

S&P 500

1545.8 | -12.9

10-Year

1.936% | -8/32

30-Year

3.156% | 10/32

Euro

$1.2895 | -0.0046

Nymex Crude

$92.45 | -0.50 Source: SIX Telekurs, ICAP plc

*preliminary values subject to adjustments

Stocks

U.S. stocks slid as worries on Europe and technology-stock weakness dragged down benchmarks. Stocks spent the day largely in the red and hit intraday lows around midday as Cyprus's central bankers spoke to reporters. The troubled euro-zone member is trying to hammer out terms of a bailout with the European Central Bank, which could include bank restructuring. The news from Cyprus was "a little bit of a wake-up call," said Tim Leach, chief investment officer of the Private Client Reserve at U.S. Bank Wealth Management. U.S. Bank oversees $110 billion in assets. "I think that the average investor has been overly complacent about Europe."

Treasurys

Treasurys fell slightly after a report showed a contained number of U.S. workers filing for jobless benefits. Claims filed last week rose just 2,000 to 336,000. The total number is more encouraging than the 340,000 applications expected among economists surveyed by Dow Jones Newswires. Treasury prices held in negative territory. Benchmark 10-year notes were 2/32 in price to yield 1.941%, according to Tradeweb. The 30-year bond lost 2/32 to yield 3.176%. Bond yields rise when prices fall.

Initial jobless claims, an indication of layoffs, increased by 2,000 to a seasonally adjusted 336,000 in the week ended March 16, the Labor Department said Thursday. That was slightly below economists’ forecast of 340,000 new claims. Claims for the week ending March 9 were revised up slightly to 334,000 from an initially reported 332,000. A more closely watched measure of claims remained at a five-year low. The four-week moving average, which smoothes out week-to-week volatility in the data, fell by 7,500 to 339,750. Economists generally believe the labor market is strengthening when claims are below 400,000. The report is the latest sign that the labor market has picked up since the new year. Unemployment fell to 7.7% in February from 7.9% the prior month, with employers adding 236,000 jobs last month. Still, unemployment remains historically high, and Federal Reserve officials expect only slight improvement in the labor market for the rest of the year. Fed Reserve Chairman Ben Bernanke this week described the recent improvement in the labor market as modest. Fed officials signaled this week they don’t plan to end the central bank’s stimulus programs, including $85 billion a month in bond purchases, any time soon. The labor market is also facing headwinds, including the roughly $85 billion in federal spending cuts, under the so-called sequester, that began this month. Thursday’s data showed the number of continuing unemployment benefit claims—those drawn by workers for more than a week—increased by 5,000 to 3,053,000 in the week ended March 9. Continuing claims are reported with a one-week lag. The number of workers requesting unemployment insurance was equivalent to 2.4% of employed workers paying into the system in the week ended March 9.

Used Home Sales Rise Sales of previously owned properties grew last month to the highest level in more than three years and more people put their properties up for sale, signs the improving housing market will lift the economy this year. continued on page 2

Forex

The euro fell against the dollar Thursday, but recouped most of its losses in the afternoon after some movement towards a resolution of the Cypriot banking crisis. The euro initially declined after the European Central Bank effectively set a deadline for a Cyprus bailout deal. The common currency bounced against the dollar after the Cypriot government said it had submitted a capital-control bill to parliament.

Tomorrow’s Calendar 8:45 a.m.

Federal Reserve Governor Sarah Bloom Raskin speech on U.S. labor market conditions

10:00 a.m.

Feb Mass Layoffs

10:00 a.m.

Jan Metropolitan Area Employment & Unemployment

N/A

Annual Industrial Production & Capacity Utilization annual revision

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Thursday, March 21, 2013 4 p.m. ET

Senate tweaked an earlier version approved by the House, passing its modified measure Wednesday on a 73-26 vote.

Tomorrow’s Headlines continued Existing-home sales increased 0.8% in February from a month earlier to a seasonally adjusted annual rate of 4.98 million, the National Association of Realtors said Thursday. Sales were 10.2% above the same month a year earlier, the 20th straight month of year-over year gains. After contracting since last July, the number of homes on the market has started to increase as home sales grow and prices recover. The inventory of previously owned homes listed for sale at the end of February increased 9.6% from January to 1.94 million. That represented a 4.7 month supply at the current sales pace, up from 4.3 months a month earlier. Homes, meanwhile, are selling faster. It took a median 74 days for homes to be sold in February, compared with 97 days last year, the Realtors group said.

In back-to-back votes, the House also approved on a 221207 vote Mr. Ryan’s budget blueprint for the 2014 fiscal year that pledges to eliminate the annual federal deficit within a decade. Mr. Ryan, his party’s vice-presidential nominee in 2012, proposed winnowing the debt through $4.6 trillion in spending cuts, with 40% of these reductions coming from the repeal of much of the 2010 health-care law. “We can’t continue to spend money that we don’t have, it’s as simple as that,” House Speaker John Boehner (R., Ohio) said on the House floor Thursday morning, praising the budget’s call to overhaul the tax code as a way to spark job creation. “This budget does more than just balance, it helps improve the lives of the American people,” he said.

Cyprus Prepares To Shutter Major Bank

Lawrence Yun, the Realtors’ chief economist, predicted that the housing market’s recovery would cause consumers to feel better about their household wealth and feel more comfortable making purchases. Extra spending resulting from consumers’ “housing wealth” is likely to offset some of the negative impact to the economy from federal budget cuts, Mr. Yun said.

Cyprus is preparing to wind down Laiki Bank, the country’s second-largest lender, while ring-fencing its largest lender, Bank of Cyprus, people familiar with the plan said Thursday.

The monthly results matched analysts’ forecasts. Economists surveyed by Dow Jones Newswires had forecast sales would rise by 1.6% from the originally reported January figure to a pace of 5.0 million. The previous month’s figures were revised upward to a reading of 4.94 million.

A bill setting the framework for the resolution of banks was ready to go to parliament as soon as the government gives the green light, one of those people said.

The median price of homes sold in February was $173,600, up 11.6% from a year earlier. Compared with a month earlier, sales grew in the South and West but fell in the Northeast and the Midwest.

House Passes Budget Plan The U.S. House passed a bill Thursday extending funding for the government through September, averting a shutdown that loomed at month’s end. House lawmakers also approved a Republican budget blueprint from Budget Committee Chairman Paul Ryan (R., Wis.) for the next fiscal year, though the partisan plan stands no chance of advancing in the Democrat-controlled Senate. On a 318-109 vote, the House passed a bill, known as a continuing resolution, that would keep in place the mandate that $85 billion in across-the-board spending cuts take affect for domestic and defense programs over the next six months, but would soften the blow for some programs. The measure amounted to a rare bipartisan compromise between the two chambers, accommodating both House Republicans’ desire to bulk up the Pentagon’s budget for operations and maintenance, as well as Senate Democrats’ desire to shore up domestic programs such as nutrition aid for women and children and Head Start. The

The plan would involve splitting Laiki’s assets into good and bad units and merging the good assets with Bank of Cyprus, the people said.

A spokeswoman from Cyprus’ central bank earlier denied media reports that Laiki would be shut down as part of the plan and that its staff would be laid off but didn’t rule out restructuring of the bank’s assets. “I am obligated to deny this information (regarding a shutdown) in order to reassure the people of Laiki Bank that no such communication from the central bank towards Laiki Bank has been made,” Cyprus central bank spokeswoman, Aliki Stylianou told state television RIK, adding that there will not be job losses at the lender. “The restructuring of a bank does not mean that it will be shut down,” she said.

February Leading Indicator Index Up The index of leading economic indicators increased for the third consecutive month in February, according to data released Thursday. But the report said federal spending cuts that began on March 1 could change the U.S. economy’s momentum. The Conference Board said its leading index increased 0.5% in February on top of a revised 0.5% gain in January, first reported as 0.2%. The index hasn’t fallen since August 2012. The February gain matched the 0.5% increase expected by economists surveyed by Dow Jones Newswires. Ken Goldstein, economist at the board, said the rise in the index increases hope that the U.S. economy will pick up continued on page 3

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Thursday, March 21, 2013 4 p.m. ET

tors in the U.K., Spain and Portugal. However, ICE would need approvals from those entities before the transaction can be submitted to the European Commission for review.

Tomorrow’s Headlines continued some momentum in the second half of the year. However, “this latest report does not yet capture the recent effects of sequestration, which could dampen the pickup” in the economy, he added.

A spokeswoman for ICE confirmed the request, made March 18 and outlined in a filing with the Securities and Exchange Commission Thursday. The Atlanta-based exchange group outlined its idea to seek approval from the EU in January.

Philadelphia-Area Manufacturing Index Up

Quicken To Buy Ally Loan Portfolio

Business conditions for mid-Atlantic manufacturers moved back into expansion this month, according to a report released Thursday by the Federal Reserve Bank of Philadelphia. The Philadelphia Fed said its index of general business activity within its regional factory sector increased to 2.0 after it unexpectedly fell to -12.5 in February from -5.8 in January. Economists surveyed by Dow Jones Newswires expected the latest index to improve but only to -2.0. Readings under zero denote contraction, and above-zero readings denote expansion. The Philadelphia reading follows other data showing the U.S. factory sector is expanding in March. Earlier Thursday, data provider Markit said its flash reading for factory activity in the entire U.S. was little changed at 54.9 from 54.3. Last week, the New York Fed said its March measure of regional factory conditions slowed a bit but remained in expansionary territory.

Blackstone, GE May Bid On Dell Unit Blackstone Group LP (BX) and General Electric Co.’s (GE) lending arm have discussed jointly pursuing Dell Inc.’s (DELL) financial services business, people familiar with the matter said. Talks are fluid, as are the possible pairings, the people said. The scenario is among a few that Blackstone is working on in which the private-equity giant could team up with a partner to buy all or part of the computer maker, the people said.

Quicken Loans Inc., the online home lender, is buying a $34 billion mortgage-servicing portfolio from governmentowned Ally Financial Inc. for about $280 million. The deal will expand the size of Quicken’s servicing business by nearly 40% as it and a slew of other firms scoop up assets being shed by large banks are scaling back in the business, which involves collecting payments from and sending bills to mortgage borrowers. Among those banks is Ally, which said Thursday the deal with Quicken represents its final chunk of servicing rights that it had yet to sell. The company has been focusing its efforts on running its core U.S. auto-lending operations and raising money to repay a $17.2 billion bailout it received during the financial crisis that left the U.S. government with a 74% ownership stake in the former General Motors Co. (GM) financing arm.

March New Vehicle Sales Seen Higher J.D. Power & Associates and its forecasting arm LMC Automotive expect new light-vehicle retail sales to climb 5.6% in March from a year earlier, continuing the strong pace seen so far this year. The market-research providers estimated March new-vehicle retail sales at 1.16 million units, up from 1.09 million a year ago and 928,130 in February. The forecast is based on the first 14 selling days of the month. Adjusted for one fewer selling day this year, the unit sales increase is expected to be 10% from last year. The March forecast represents a seasonally adjusted annualized rate of 12.1 million units, flat with February but up from 11.4 million a year ago.

Any of those deals would be a rival to Dell’s agreement to sell the company to founder and Chief Executive Michael Dell and private-equity firm Silver Lake Partners for $24.4 billion. As part of a “go shop” process that ends Friday, the company is now seeking counterbids.

The average new-vehicle retail transaction price rose 3% to $28,504 and leases accounted for 23.1% of new-vehicle retail transactions, up from 20% a year ago.

ICE To Seek NYSE OK From EC

MetroPCS Communications Inc. (PCS) and Deutsche Telekom AG’s (DTEGY, DTE.XE) T-Mobile USA Inc. said they have received all regulatory approvals for their pending merger, leaving the deal in the hands of shareholders at next month’s vote.

IntercontinentalExchange Inc. (ICE) this week formally requested that its bid to buy NYSE Euronext (NYX) be reviewed by the European Commission, as opposed to seeking separate approvals from a range of regional authorities. Taking the deal straight to European Union authorities would let ICE sidestep separate reviews by national regula-

MetroPCS Deal Gets Final OK

The wireless carriers said the Committee on Foreign Investment in the U.S. determined there are no unresolved national-security concerns and it has concluded its review of the deal.

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Thursday, March 21, 2013 4 p.m. ET Copyright Dow Jones & Company, Inc.

Talking Points

Tomorrow's News Today is made available as a complimentary service to Dow Jones News Service paying subscribers. No further redistribution is permitted without written permission from Dow Jones. Tomorrow’s News Today is intended to provide factual information, but its accuracy cannot be guaranteed. Dow Jones is not a registered investment adviser, and under no circumstances shall any of the information provided be construed as a buy or sell recommendation or investment advice of any kind.

Cyprus Hopes Offshore Gas Gives Leverage

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Cyprus doesn’t have a lot going for it right now. But its potentially large offshore gas reserves have given it one bargaining chip. 60 trillion cubic feet could lie off the Cypriot coast in the so-called Aphrodite field according to its own estimates, enough to widen the eyes of the European and Russian leaders with whom Cyprus is negotiating. The problem, though, is establishing just how much is there — and what it could be worth. Cyprus’s gas industry is in its very early days. Explorer Noble Energy announced in late 2011 it had found an estimated 7 trillion cubic feet of gas in one well. That pales against the reserves held by major producers like Russia or the U.S. Still, it’s significant for a country like Cyprus. If the currently oil-dependent nation relied on gas, it would still only consume around 80 billion cubic feet per year, based Oxford Institute for Energy Studies data. That would leave Cyprus plenty of gas for export to European markets. If proven, the reserves found by Noble alone could meet German gas demand for three years. And Cyprus hopes more gas will be found: it has sold further exploration licenses to Eni, Total and Kogas. Still, hope isn’t much of a currency. With even Noble’s discovery yet to be firmed up, it’s too early to substantiate the 60 trillion cubic feet reserve estimate, according to energy consultants Wood Mackenzie. First Cypriot gas production may not come until late 2019, even on an optimistic timetable. With most of the gas over 1,500 meters below sea level, production could prove costly. Building a gas pipeline to either Turkey or Greece is likely to be either politically or logistically complex, so Cyprus would likely have to build facilities to liquefy the gas for transport — unlikely to be cheap. Nor has Cyprus yet finalized a fiscal or regulatory regime for gas production.

Investors Prefer To Manage Own Funds More investors are choosing to manage their own money through so-called direct providers, a trend that is costing traditional financial advisers a lot of potential business. Even when rolling over 401(k) savings into an individual retirement account, a time when many people typically have sought out a new adviser, these investors are electing to rely on discount trading platforms and mutual-fund supermarkets or by purchasing mutual funds directly from fund companies, according to Cerulli Associates. Assets with these direct providers grew to $3.7 trillion in 2011 from $3.4 trillion in 2010, according to a Cerulli report released Thursday. These trading and investment platforms, offered by companies such as Charles Schwab & Co. (SCHW), TD Ameritrade Inc. (AMTD) and ETrade Financial Corp. (ETFC), as well as fund companies such as the Vanguard Group and T. Rowe Price Group Inc. (TROW), all have beefed up their own advice services, typically through call centers. While registered investment advisers continue to grow faster than any other part of the advisory landscape and take market share from major brokerdealer firms, these direct channels are growing faster than other advisory channels, such as major broker-dealers and regional broker-dealer firms, Mr. Smith said. The conclusions are based on a survey of more than 8,000 U.S. households with more than $100,000 in income who are between the ages of 35 and 64, conducted on behalf of Cerulli by Phoenix Marketing International in May continued on page 5

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Thursday, March 21, 2013 4 p.m. ET

Talking Points continued 2012. Interviews with more than 40 executives across the industry validated the key trends, Cerulli said. Direct providers are capable of managing millions of client relationships efficiently, Cerrulli said. Also, they haven’t been as affected by the damage Wall Street’s image has suffered because of the debt crisis, bailouts and scandals of recent years. As they increase their advice and guidance services, they’ve acquired and retained clients who may otherwise have sought out advice from other types of advisers. “These additional services help direct providers acquire rollover dollars as they guide clients with larger balances,” said Roger Stamper, senior analyst at Cerulli.

Standard Chartered Chairman In Iran Retreat Standard Chartered PLC (STAN.LN, 2888.HK) Chairman John Peace on Thursday was forced to retract comments he made earlier this month that the bank hadn’t set out to break U.S. sanctions in dealings with Iranian clients, in an unusual admission that highlighted how seriously U.S. authorities are treating the matter.

At a March 5 news conference, Mr. Peace said there had been “no willful acts to avoid sanctions,” contradicting the bank’s agreements with authorities last year acknowledging that it had knowingly disguised transactions to avoid detection by U.S. supervisors. In a written statement Thursday, Mr. Peace said that his March 5 comment was “wrong” and that he regrets making it. The bank “unequivocally acknowledges and accepts responsibility . . . for past knowing and willful criminal conduct in violating U.S. economic sanctions laws and regulations,” he said. The apology and retraction marked the latest clash between the London-based bank and U.S. authorities, who have taken a hard line on transactions with Iran amid growing concerns about that nation’s nuclear program. U.S. authorities pounced when they saw Mr. Peace’s comment, which came in response to question by The Wall Street Journal during an earnings announcement. The agreements Standard Chartered made last year required it to admit wrongdoing over its Iranian dealings and pay fines in exchange for avoiding prosecution. The U.S. can prosecute the bank if it believes the terms were violated. The bank said it issued the statement Thursday after discussions with the U.S. Justice Department and the Manhattan, N.Y., district attorney’s office.

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