WSJ : A tough stretch for Wall Street traders is about to get even tougher.

A tough stretch for Wall Street traders is about to get even tougher.

Slammed by declining revenue, the trading businesses inside the biggest global investment banks are expected to suffer job losses that could run into the thousands by the end of the year, according to people at the firms and recruiters who specialize in financial-services positions.

The culprit: a persistent gap between revenue and employment. For the 10 largest global investment banks, trading revenue for fixed-income, currencies and commodities, or FICC, units in the first quarter plunged 15.7% from the same period a year earlier, according to data from research consultancy Coalition. The number of FICC traders, researchers and salespeople, meanwhile, fell just 4.8% over that period.

"There are too many people on these trading floors," said Richard Stein, senior partner at executive-search firm Caldwell Partners. CWL.T 0.00% "All the large U.S. banks will be looking in a draconian way to get rid of head count." Mr. Stein said he expects banks to lay off thousands of people in coming months because they are unable to plug the gap with revenue from other businesses.

Cycles come and go on Wall Street, and firms routinely hire people when business turns up and eliminate jobs when it heads south.

But bankers increasingly worry that the downturn in trading that started last year is part of a broader sea change. Tough new rules on risk and capital, along with a sharp slowdown in market volatility, have made trading less profitable for big banks in the past few years, and banks are coming to grips with the possibility that conditions will remain weak long into the future.

At Goldman Sachs Group Inc., GS +0.36% the FICC unit accounts for about 30% of its revenue. Goldman has historically been more dependent on fixed-income trading than any of the big U.S. banks. Analysts have cut their second-quarter earnings estimates for the firm by five cents a share, to $3.33, since May 28, the day President Gary Cohn said unusually slow markets had made for "difficult" conditions for Wall Street firms.

The New York firm already has selectively pruned staff in FICC this year, and will continue to if conditions don't improve through the rest of the year, according to people familiar with the firm's plans.

Head-count reductions don't always track perfectly with sliding revenue, said Eric Li, research manager at Coalition. Changes to head count often lag behind changes in revenue, he added, because banks often wait a few quarters to see if market conditions improve before reconfiguring their ranks. Also, banks could choose to cut pay rather than eliminate positions.

But there is little optimism that trading activity will pick up in the short term. Gary Goldstein, co-founder and chief executive of Whitney Partners, a New York executive-search firm, predicts a large burst of layoffs will happen in September.

"In this case, Wall Street has probably waited too long [to make cuts]," said Mr. Goldstein. "I think they're still too heavy in terms of their head count and cost structure."

In all, there were 18,702 FICC positions spread across the 10 largest global investment banks at the end of the first quarter, down from 19,653 in the same quarter last year, according to Coalition.

Some banks that have begun cutting jobs intend to do more. Deutsche Bank AG DBK.XE +0.56% eliminated about 17% of its FICC staff between 2011 and 2013 and is watching its expenses, including the number of people who go to client lunches, according to people familiar with the matter. The bank has shed jobs within the unit and will continue to do so over the next six months, though it is hiring selectively at the senior level, some of the people said.

Barclays BARC.LN -0.51% PLC this week laid off several hundred people in its investment bank, mostly in its FICC unit, under a plan announced last month to cull 7,000 staff over the next three years and retrench from certain businesses.

Royal Bank of Scotland Group RBS.LN -0.91% PLC plans to eliminate hundreds of jobs in its U.S. trading businesses over the next few months as it prepares to comply with new regulations, The Wall Street Journal reported last week. The cuts, which will be carried out over the next 18 months, could total as many as 400 and will be concentrated in the asset-backed securities business.

Traders are trying to find places to land even before they get laid off. Mr. Stein of Caldwell Partners says he has received between 17% and 19% more calls in the past month than in the same month a year earlier from managing directors inquiring about job opportunities. Managing directors inhabit the top rung of the Wall Street career ladder.

"It's very clear to most people that making money and profits is harder," said a credit trader who left a large U.S. bank earlier this year. "There's a high probability you're going to be pushed out. Most people don't come into a bank thinking they're going to be there 15 or 20 years, even if they do well."

>>> US After Hours

After Hours Summary: VRNT +6.7%, FIVE +3.3%, RLD +1.7%, PVH -6.0%, TRLA -1.7% following earnings/guidance

After Hours Gainers: Companies trading higher in after hours in reaction to earnings: VRNT +6.7%, FIVE +3.3%, RLD +1.7%, BV +1.2%, CAT +0.4%, KTWO +0.2%

Companies trading higher in after hours in reaction to news: HALO +12.6% (to resume resume PEGPH20 clinical program in pancreatic cancer; FDA removes clinical hold on Phase 2 trial), AXAS +6.7% (raised FY14 production guidance to 5500-5700 Boepd from 5200-5300 Boepd), S +4.2% (seeing reports that co is near agreement to acquire T-Mobile (TMUS); TMUS shares higher by ~2.5%), OLED (Board of directors approved $50 mln common stock repurchase program), ROK +1.3% (Board approved $1 bln common stock repurchase), SPR +0.7% (announced public secondary offering of ~8.17 mln shares of Class A common stock by selling stockholder; co to repurchase 4 mln shares), VRA +0.4% (entered into import and distribution agreement with Mitsubishi)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings: PVH -6.0%, TRLA -1.7%

Companies trading lower in after hours in reaction to news: NVAX -10.8% (announced proposed public offering of $100 mln of its common stock), TSL -4.0% (announced the offering of $150 mln convertible senior notes; commences concurrent offering of 8.8 mln ADSs), SPWR -1.7% (announced intention to offer $400 mln aggregate principal amount of senior convertible debentures due 2021), ILMN -0.9% (to offer $900 mln of convertible senior notes)

>>> Asian Update

Asian Market Update: Australia trade posts unexpected deficit; Sprint on track for T-Mobile deal; All eyes on ECB decision

***Economic Data*** - (AU) AUSTRALIA APR TRADE BALANCE (A$): -122M V +510ME (1st deficit in 6 months) - (CN) CHINA MAY HSBC SERVICES PMI: 50.7 V 51.4 PRIOR (4-month low); COMPOSITE PMI: 50.2 V 49.5 PRIOR - (KR) SOUTH KOREA Q1 FINAL GDP Q/Q: 0.9% V 0.9% PRIOR; Y/Y: 3.9% V 3.9% PRIOR - (KR) SOUTH KOREA MAY FOREIGN RESERVES: $360.9B V $355.9B PRIOR - (HK) HONG KONG MAY HSBC PMI: 49.1 V 49.7 PRIOR (3rd consecutive contraction, lowest since June 2013) - (PH) PHILIPPINES MAY CPI M/M: 0.5% V 0.1%E; Y/Y: 4.5% V 4.2%E; CORE CPI Y/Y: 3.1% V 2.9%E - (TW) TAIWAN MAY CPI Y/Y 1.6% V 1.7%E; WPI Y/Y: 1.2% V 0.6%E

Market Snapshot (as of 03:30 GMT): - Nikkei225 +0.1%, S&P/ASX -0.1%, Kospi -0.9%, Shanghai Composite flat, Hang Seng -0.2%, Jun S&P500 flat at 1,925, Aug gold -0.1% at $1,244, Jul crude oil -0.3% at $102.35/brl

***Highlights/Observations/Insights*** - Fed's Beige Book retaining upbeat tone, noting growth was modest to moderate in most regions, consumer spending expanded, lending increased, and labor market strengthened. Fed continues to see inflation under control though - "wage pressures subdued" and "price pressures contained." Yield on the 10-year rose for the 3rd straight day, topping 2.60% at the close for the first time in 3 weeks.

- Australia terms of trade hit a surprising deficit after 5 months of surplus. Exports to China fell 3.8% to A$9.15B, iron ore exports rose 6.3% but only after a sharp downward revision for last month, and crude oil exports fell 7%. Overall export value continued to fall, down another 1%, while imports rose 2% after coming in flat last month. AUD/USD fell about 15pips below $0.9260 but recovered after an upbeat report from Moody's on Australia's RMBS.

- Shares of T-Mobile were up modestly in extended session after renewed speculation of a takeover by Sprint. Reports emerged that Sprint is offering half-cash half-stock proposal at about $40/shr, the two companies are near accord and working toward a formal contract.

- China released its last PMIs for May, with HSBC Services posting a 4-month low but composite returning to expansion territory. HSBC chief economist said employment component remained at a relatively low level, reiterating conditions justify easier monetary and fiscal policies in the coming months.

- Fixed income markets are holding out for a critical ECB decision that could renew volatile conditions for the single currency. Consensus calls for ECB main refi rate to be cut by 15bps to 0.10% and Deposit Facility Rate to be cut by 10bps to -0.10% to help stimulate more bank lending in the eurozone, particularly given another soft flash CPI print earlier this week. EUR/USD is down some 10pips just below the $1.36 handle ahead of the decision.

***Speakers/Political/In the Papers*** - (CN) China big four banks report May new loans at about CNY270B v CNY267.9B in April; May overall new loans CNY700B v CNY774.4B in April - Chinese press - (CN) Average yield of internet financial products in China drops below 5%; Alibaba's 7-day financial product YuEBao annualized yield at 4.6570%, lowest level in nearly a year - (AU) Australia Newcastle weekly coal exports for week ended June 2nd +4% w/w - (JP) BoJ's Sato: Japan economy likely to resume moderate recovery trend from summer onward

***Fixed Income/Commodities/Currencies*** - JGB: (JP) Japan MoF sells ¥647B in 1.7% (1.7% prior) 30-yr notes; Avg yield: 1.714% v 1.708% prior; Bid to cover: 3.00x v 4.62x prior - (CN) PBoC to drain CNY40B in 28-day repos (31st consecutive drain); Injects net CNY73B this week v injected CNY20B prior (4th consecutive week of net injection) - (JP) Japan investors sold net ¥721.3B (1st net sold in 5 weeks, largest net bond sale since Mar 28th) in foreign bonds last week vs bought net ¥89.8B prior week; Foreign Investors bought net ¥81.7B in Japan stocks last week vs bought net ¥33.7B in prior week - (AU) Moody's: Australian prime residential mortgage-backed securities (RMBS) arrears remain stable in Q1 2014, and improve y/y

***Equities*** US markets: - HALO: To Resume PEGPH20 Clinical Program In Pancreatic Cancer; +13.6% afterhours - VRNT: Reports Q1 $0.72 v $0.56e, R$269.3M v $256Me; +7.2% afterhours - FIVE: Reports Q1 $0.07 v $0.06e, R$126M v $122Me; +3.1% afterhours - TMUS: Sprint offering half-cash half-stock to T-Mobile; Would acquire T-Mobile at approx $40/shr - financial press; +1.4% afterhours - AMZN: Sets date for new device announcement at June 18 - press; +0.4% afterhours - PVH: Reports Q1 $1.47 v $1.51e, R$1.96B v $1.99Be; -6.1% afterhours

Notable movers by sector: - Consumer Discretionary: Beijing Gehua CATV Network 600037.CN +7.6% (announces cooperation with China Mobile) - Financials: Evergrande Real Estate Group 3333.HK +3.9% (Alibaba to acquire stake in Evergrande's soccer team) - Materials: Inner Mongolia Baotou Steel Rare Earth 600111.CN +2.9%, China Minmetals Rare Earth 000831.CN +2.4% (speculation on China preparing to cancel rare earth quotas) - Energy: Oil Search Ltd OSH.AU +1.8% (raises FY14 production guidance) - Industrials: China Railway Group 390.HK +2.2% (awarded contract); Amada 6113.JP +1.4% (considers M&A) - Technology: Samsung SDI 006400.KR +4.8% (to develop batteries with Ford) - Healthcare: Lijun International Pharmaceutical Holding 2005.HK -2.3% (shareholder sells stake)

WSJ : Sprint, T-Mobile Move Closer to a $32 Billion Deal

Sprint, T-Mobile Move Closer to a $32 Billion Deal Sprint Would Buy T-Mobile for Around $40 a Share in Merger That Likely Would Face Regulator Scrutiny

Masayoshi Son, CEO of SoftBank, which owns Sprint. Sprint is closing in on a deal to acquire T-Mobile. Reuters Sprint Corp. S -1.05% and T-Mobile TMUS +0.23% US Inc. have agreed on the broad outlines of a merger valuing T-Mobile at around $32 billion, as recent regulatory developments convinced executives at both telecommunications companies that they have an opening to get a deal approved, according to people familiar with the matter.

The terms involve Sprint paying around $40 a share for T-Mobile in an acquisition that could happen early this summer, the people said. The companies are still working toward a formal contract, and the effort could fall through. But if completed, the merger would combine the country's third- and fourth-largest wireless operators, creating a bigger competitor to market leaders Verizon Communications Inc. VZ -0.28% and AT&T Inc. T -0.43% while leaving consumers with fewer choices for service.

Related Sprint Chairman Makes Case for T-Mobile Deal (5/28/14) Sprint Chairman Seeks U.S. Public Support on T-Mobile Deal (3/4/14) T-Mobile Pushes for Big Fee, Management in Sprint Talks (5/9/14) Sprint Rethinks Acquiring T-Mobile (2/1014) A deal between Sprint and T-Mobile would extend a wave of consolidation that is uniting some of the biggest companies in the telecom and media industries, and is expected to face strong opposition from regulators and a lengthy antitrust review.

A deal would need the approval of the Federal Communications Commission and the Justice Department. Sprint will be making a big bet that it can win. Under the terms discussed, Sprint would pay T-Mobile more than $1 billion in cash and other assets if deal is rejected, the people said.

The gamble is a risky one for Sprint, which is already heavily indebted and has posted losses for the past seven years. But executives believe recent developments at the FCC—including a contentious debate over so-called net neutrality and new spectrum-auction rules that aren't as friendly to smaller carriers like Sprint and T-Mobile—have created an opening to move quickly.

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Both companies feel doing a deal now is critical for their long-term survival, people familiar with the matter have said. AT&T and Verizon control most of the industry's valuable wireless customers and profits. And while T-Mobile has had a good competitive run in the past year, reversing subscriber losses and taking customers from rivals, executives at both companies have said the best way to create meaningful competition over the long term would be to join forces.

Sprint Chairman Masayoshi Son, who is also CEO of majority owner SoftBank Corp. 9984.TO -0.39% , has been driving the merger, pledging to be a fierce competitor. The sides began working toward a deal with a renewed sense of urgency last month after the FCC voted to approve rules for a key auction of airwaves currently held by broadcasters, expected to take place in 2015. The companies both felt revisions the agency made to the auction rules would help their case for a merger, according to several people familiar with the matter.

The FCC had originally considered barring AT&T and Verizon from bidding on a large swath of airwaves that would have been set aside for smaller carriers. But after a last-minute lobbying effort primarily by AT&T, the commission decided to reduce the amount that would be set aside. Sprint and T-Mobile believe that decision gives them an opening to argue the government needs to allow a merger because it isn't doing enough to help them compete, the people said.

The FCC has said it will reconsider the set-asides in the event a merger of any of the top four carriers is proposed.

The companies are also encouraged after one Democratic commissioner at the FCC, Jessica Rosenworcel, indicated in private meetings with people on Wall Street she would keep an open mind when considering a transaction. Two Republican commissioners are considered more likely to favor the deal, and FCC Chairman Tom Wheeler and Commissioner Mignon Clyburn, both Democrats, more likely to oppose.

The FCC declined to comment. A Justice Department spokesman also declined to comment.

The timing of the possible deal comes as regulators are also weighing cable giant Comcast Corp.'s $45 billion deal to buy Time Warner Cable, TWC +0.28% agreed to in February, and AT&T's $49 billion deal last month for satellite broadcaster DirecTV. The deals would reshape the communications business, and former regulators say the government will have to take their combined effects into account.

Antitrust authorities signed off on one wireless deal after another in the past decade before shooting down AT&T's $39 billion deal to buy T-Mobile in 2011. The Justice Department argued the U.S. market needed four national carriers to be competitive and lauded T-Mobile as a maverick that helped keep the larger carriers' prices in check.

WSJD is the Journal's home for tech news, analysis and product reviews.

PCs Cede Spotlight at Computex Time for Apple to 'Think Different' About Corporate IT? Review: A Speaker That Listens Review: The Phone Makes the Tablet Regulators have expressed satisfaction with the results of that decision and have made clear their discomfort with further deals. T-Mobile has mounted an aggressive battle to win customers by doing away with lucrative wireless-industry standbys like two-year contracts and international data charges, and added more than 2 million so-called postpaid customers in 2013 after shedding subscribers for years.

Sprint is likely to argue those gains are illusory and will eventually fade if Verizon and AT&T remain so much bigger than their rivals, people familiar with the matter have said. Sprint's argument would be that a deal takes the country from two real competitors to three, not to three from four, the people said.

A deal, however, would complete the hollowing out of the U.S. wireless industry's midsection. In particular, recent deals have removed big sellers of cheaper prepaid wireless service, a market where Sprint and T-Mobile are now the main competitors.

Sprint and T-Mobile are also considering forming a joint venture to bid together in upcoming auctions of wireless airwaves, the people familiar with the matter said.

Under the broad terms the deal would be roughly 50% cash and 50% stock, the people said. T-Mobile's largest shareholder, Germany's Deutsche Telekom AG, would retain a stake of 15% to 20% in the new company, the people said. Based on roughly $40 a share and T-Mobile's outstanding share count at the end of the first quarter, a deal would value the company at around $32 billion.

NYT : BNP Paribas Faces Capital Hit, but Not a Dire One

BNP Paribas Faces Capital Hit, but Not a Dire One

As the United States authorities prepare to punish BNP Paribas, the doubts about the French bank’s financial strength are growing.

Standard & Poor’s said on Wednesday that the regulatory actions, which are expected to include a multibillion-dollar fine, could lead it to downgrade BNP Paribas’s credit rating. Some bank analysts think it possible that the bank will have to cut its dividend, potentially depriving investors of a steady source of income. News reports say that BNP Paribas’s capital could fall below crucial “minimum” levels. The bank’s shares are down 15 percent from their recent high, and scared-sounding French politicians are rallying to its defense.

BNP Paribas’s own numbers, however, put the pessimism in perspective.


In the coming weeks, the bank is expected to plead guilty to charges that it arranged transactions with countries and companies that were the subject of United States sanctions. In the settlement, BNP Paribas is expected to pay penalties totaling roughly $8 billion and perhaps agree to some temporary restrictions on a business known as dollar clearing.

The big question is how much of a hit this will cause to BNP Paribas’s capital, the financial cornerstone of a bank.

At the end of March, BNP Paribas had 67.7 billion euros, or $92 billion, of common Tier 1 capital, a closely watched regulatory measure. That $92 billion was equivalent to 11 percent of its $839 billion of assets, a sum that was adjusted under regulatory guidelines to reflect the assets’ perceived riskiness.

A capital ratio of 11 percent is considered reasonably strong in Europe right now, but how much might it be reduced by penalties imposed by the United States authorities?

BNP Paribas has already set aside $1.1 billion to absorb the costs of the United States action. Subtracting that from the $8 billion in potential penalties leaves a $6.9 billion hit for the bank, which would take its capital to $85 billion from $92 billion. But BNP Paribas is expected to make about $2 billion in the second quarter, which would be an addition to capital, taking the $85 billion up to $87 billion. That amount of capital would be equivalent to 10.4 percent of assets, still a relatively robust ratio.

Even so, investors and analysts are unsettled.

A chief reason is that the European Central Bank is carrying out some reasonably stringent stress tests that will seek to determine whether banks have sufficient capital. These tests require that large banks have a capital ratio of 8 percent after factoring in theoretical losses sustained during a projected dire economic situation. It is not yet possible to know whether BNP Paribas will emerge from the tests with a capital ratio above 8 percent. But as the stress tests loom, investors are keen for large European banks to have capital ratios well in excess of that level.

To reflect such investor concerns, Jon Peace, a bank analyst at Nomura in London, performed an interesting exercise this week. He calculated how much capital certain large European banks would have in excess of a 9 percent ratio. (He chose that number in part because many large banks must have at least a 9 percent ratio by 2019, according to international banking regulations.)

Mr. Peace said that BNP Paribas would have $15.4 billion of excess capital under this approach. That is not an insignificant sum.

BNP Paribas may yet take significant steps to protect its capital that investors would not like. The bank could, for instance, decide to cut its dividend or pay out some of the dividend in an equivalent amount of stock, which doesn’t erode capital.

But one thing is clear: The United States penalties are not going to leave the French bank with a gaping wound that it will struggle to recover from.

FT : Berlin prepares to allow fracking

Berlin prepares to allow fracking

Germany is set to lift its ban on fracking as early as next year, after caving in to business demands that it should reduce its dependency on Russian energy and boost competitiveness with US manufacturers.
Applications to carry out the controversial process for extracting the country’s estimated 2.3tn cubic metres shale gas reserves will be subject to an environmental impact assessment under new legislation to be discussed by the cabinet before the summer recess.

Fracking has been the subject of a fierce debate in Germany’s ruling coalition, with some politicians keen to reduce reliance on Russian energy imports, while others fear the impact of fracking chemicals on a densely populated country.
German manufacturers have been strong advocates of the new technology, which they believe has provided cheap shale gas energy to their US competitors while Germany grapples with a costly switch to subsidised renewables.
Details of the new regulations emerged in a letter from Sigmar Gabriel, German economy minister, to the head of the Bundestag’s budget committee. In the letter, Mr Gabriel wrote that permission to carry out fracking would be subject to approval from regional water authorities and that “further requirements for the fracking permit process are still being considered”.
The technology, which involves pumping a mix of chemicals, sand and water into the ground to fracture gas-bearing rock, will be banned in areas where water quality is officially protected.
Chemicals used in fracking in the US are potentially harmful to the health of humans and wildlife, researchers have found. In Germany, opponents to fracking include the brewing industry, which fears that it could taint the water used to brew beer.
Under the terms of Germany’s coalition agreement, applications for fracking may only be authorised if it is “clarified beyond doubt” that there is no risk to water quality and that environmentally harmful chemicals may not be used.
Germany’s estimated reserves of shale gas are significantly smaller than those of Poland and France, which have the biggest recoverable reserves in Europe. However, German shale gas, which is concentrated in its northern states, still has the potential to provide a long-term domestic supply.
A spokesman for the BDI, the German employers’ organisation, declined to comment on the new fracking proposals, as the government has not yet published them officially.
However, he referred to a previous statement in which the BDI said that “the most important lesson from the tensions with Russia” is that Germany must rely on its own supply of raw materials. Russia is Germany’s biggest energy supplier, providing about a third of its oil and gas.
“Through fracking technology, Germany could obtain more than 35 per cent of its gas consumption from domestic sources,” the BDI statement said.
The EU’s energy commissioner Günther Oettinger has urged European governments to allow fracking “demonstration projects” to diversify the continent's sources of energy.

WSJ : ‘Danger Territory’: Bullish Sentiment Hits Extreme Levels

‘Danger Territory’: Bullish Sentiment Hits Extreme Levels

Will the last bear left standing please turn out the lights?

Bullish sentiment jumped to relatively rare territory this week, suggesting optimism has engulfed Wall Street as U.S. stocks continue to ratchet up to new highs.

The percentage of financial advisers who are bullish on the market jumped to 62.2% from 58.3% a week earlier, according to a weekly poll conduced by the Investors Intelligence firm. That marks the fifth straight week this indicator has been above the key 55% level, suggesting sentiment is getting a bit frothy.

This week’s reading puts the market in “danger territory,” says Investors Intelligence, which tracks stock-newsletter writers. The current level exceeds last year’s high-water mark of 61.6% at the end of December. Prior highs, the firm notes, came in August 1987 (60.8%), October 2007 (62%) and December 2004 (62.9%). All of those instances occurred after big rallies and prior to sizable corrections.

“Sentiment now signals danger although not necessarily an immediate market drop,” says John Gray of Investors Intelligence.

Bearish sentiment, meanwhile, dropped to 17.3% from 18.3% around remains around historically low levels.

The S&P 500 recently rose 3 points to 1927, continuing its gradual climb higher. The index is up more than 4% for the year, has risen in four straight months and seven of the past eight. The S&P 500 hasn’t had a 10% correction since the second half of 2011.

The rally has coincided with extremely low levels of risk aversion and market volatility, which have led some market watchers and Fed officials to wonder if the markets have become complacent. As WSJ reported, several Fed officials have started to wonder whether investors have become unafraid of the type of risk that could lead to bubbles and volatility.

“The extraordinary faith in central banks has put market sentiment amongst professionals…in rarefied air,” said Peter Boockvar, managing director at The Lindsey Group. “The stock market bull boat of professionals is back to being standing room only.”

High levels of bullishness, by themselves, don’t suggest the market is necessarily due for a fall. But when so many folks start thinking and acting one way, the market usually does the opposite. As we noted earlier this week, Goldman SachsGS +0.36% has said that its clients seem to have reached a consensus on stocks, bonds and the economy these days, with all sharing similar views.

“Rising optimism, low cash reserves and high valuations argue against chasing stocks in June,” says Bruce Bittles, chief investment strategist at R.W. Baird & Co.

>>> US Close Dow+0,09% S&P+0,19% Nasdaq+0,41%

Closing Market Summary: Stocks Post Modest Gains With ECB On Tap

The major averages finished the Wednesday session on a modestly higher note with the Nasdaq Composite (+0.4%) in the lead. Like the Nasdaq, the Russell 2000 (+0.4%) also outperformed the S&P 500 (+0.2%), while the Dow Jones Industrial Average (+0.1%) lagged throughout the session.

For the third day in a row, the stock market maintained a narrow range amid spotty sector leadership. Trading volume remained light with just 579 million shares changing hands at the NYSE versus a long-term average of 700 million.

In all likelihood, the quiet environment was a reflection of a wait-and-see approach that has been employed by investors ahead of tomorrow's policy decision from the European Central Bank and the U.S. Nonfarm Payrolls report, which will be released on Friday at 8:30 ET (consensus 220K).

Tomorrow's ECB announcement has the potential to stir things up a bit as investors are anticipating some sort of action from the central bank. While the general consensus is eyeing an easing announcement, it remains unclear what type of stimulus could be introduced by President Mario Draghi tomorrow. Expectations range from a deposit rate cut to an introduction of a QE-style purchasing program, but ECB watchers are well aware that Mr. Draghi's favorite policy tool has been the threat of easing, rather than actual easing for quite some time now. The ECB decision will cross the wires at 7:45 ET with the press conference set to follow at 8:30 ET.

However, before moving into tomorrow, we would like to take a quick look at today's session, which was anything but thrilling. Seven of ten sectors finished in the green with the three largest cyclical groups—consumer discretionary (+0.4%), financials (+0.3%), and technology (+0.3%)—in the lead.

The top performer of the bunch—consumer discretionary—rallied on the back of retailers with the SPDR S&P Retail ETF (XRT 84.44, +0.64) advancing 0.8%, which pulled it back into the green for the quarter. The retail ETF swung to a quarter-to-date gain of 0.2%, but remained lower by 4.2% year-to-date.

Elsewhere, the financial sector, which has been the top performer of the week, added 0.3% with M&A activity contributing to the relative strength. Specifically, Protective Life (PL 69.36, +10.64) surged 18.1% after agreeing to be acquired by Japan's Dai-ichi Life for $70/share, representing a 19.2% premium to yesterday's closing price.

Also of note, the tech space received significant support from its largest component. Shares of Apple (AAPL 644.82, +7.28) spiked 1.1% on the record date for the upcoming 7:1 stock split. Starting Monday, the largest tech company by market cap will begin trading on a split-adjusted basis.

In addition to boosting the tech sector, Apple contributed to the relative strength of the Nasdaq Composite. However, the Nasdaq also drew strength from biotechnology as the iShares Nasdaq Biotechnology ETF (IBB 243.47, +2.55) regained its 100-day moving average, climbing 1.0%. The health care sector, meanwhile, ended in line with the S&P 500.

On the downside, energy (-0.1%), industrials (-0.1%), and telecom services (-0.3%) posted slim losses.

Treasuries ended flat after erasing their overnight gains. The 10-yr yield settled at 2.60%.

Economic data was plentiful and mostly disappointing:
  • According to the ADP National Employment Report, employment in the nonfarm private business sector rose by 179K in May. That was below the increase of 200K expected by the consensus. Also of note, the April reading was revised down to 215,000 from 220,000. 
  • The trade deficit in April widened appreciably to $47.20 billion from an upwardly revised $44.20 billion (from -$40.40 billion) in March. The April number was worse than the consensus estimate of -$41.30 billion and was the biggest deficit since March 2012. This will be a negative component for Q2 GDP as the real trade deficit in April was 9.2% greater than the first quarter average. 
  • First quarter productivity was revised lower to -3.2% (consensus -2.5%) from -1.7%. That was the largest decrease in productivity since the first quarter of 2008. Hours worked increased 2.2% and output decreased 1.1%. Unit labor costs, in turn, were revised up to 5.7% (consensus 4.8%) from 4.2% due to the decline in productivity and the 2.3% increase in hourly compensation. 
  • The ISM Services report for May checked in at 56.3, which was above the consensus estimate of 55.5 and marked the highest reading for the survey since August 2013. The main takeaway was that the non-manufacturing sector continues to operate comfortably in a state of expansion as May 2014 marked the 52nd consecutive month with a reading above 50.0. 
  • The weekly MBA Mortgage Index fell 3.1% to follow last week's down tick of 1.2%. 
Tomorrow, Challenger Job Cuts for May will be reported at 7:30 ET, while weekly Initial Claims (consensus 310,000) will be released at 8:30 ET.
  • S&P 500 +4.3% YTD 
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RTR - Orange hires banks to study Bouygues Telecom purchase - sources


Orange hires banks to study Bouygues Telecom purchase - sources

* Talks at early stage, Orange has not decided on bid

* Third-place Bouygues Tel struggling amid mobile price war

* Telecoms sector awaits EU ruling on Germany deal

By Sophie Sassard and Leila Abboud

LONDON/PARIS, June 4 (Reuters) - French telecoms firm Orange has hired investment banks Lazard and Credit Suisse to assess a potential purchase of rival Bouygues Telecom, a deal that could top 6 billion euros ($8.2 billion), two people close to the situation said.

Market leader Orange has not yet made a firm decision to go ahead with a bid for No.3 operator Bouygues Telecom and discussions that began roughly six weeks ago could still end without a deal, said one of the people.

Orange was encouraged by preliminary talks with Europe's antitrust watchdog last month that a deal would be possible with acceptable conditions, said a third person briefed on the situation but not directly involved.

However, Orange plans to wait for the watchdog's ruling on Spanish telecoms firm Telefonica's acquisition of KPN's E-Plus in Germany, to have a clearer picture of what it might have to do to ease regulators' concerns about a reduction in competition. The ruling is expected by July 10.

Bouygues, which is being advised by Rothschild, has become a takeover target after it was beaten by cable operator Numericable in a bidding war for French No.2 carrier SFR in March.

Low-cost player Iliad - whose arrival to the mobile arena in January 2012 sparked the price war now driving the pressure to consolidate - could also be interested in Bouygues.

The French state, which owns 27 percent of Orange, is pushing for a return to three mobile players in the hope of calming what Industry Minister Arnaud Montebourg has called "destructive competition". He is worried operators will not invest enough in fast broadband networks key to the economy, and about job cuts in the sector.

Although backed by the French government, an Orange-Bouygues tie-up would face several obstacles. It would be scrutinised by European competition regulators because the new group would hold 49 percent of mobile and 48 percent of broadband subscribers.

To win them over, Orange would have to dispose of some customers, sell mobile frequencies and most of Bouygues' network to Iliad, but it does not see such remedies as deal-breakers, said one of the people with direct knowledge of the matter.

"There are remedies; this is not going to prevent the deal from happening", the person said.

If the deal goes ahead, Orange would be the first former state-owned telecom monopoly in Europe to consolidate its domestic market.

Orange has said previously it was "exploring opportunities" and favoured consolidation. A spokeswoman for Lazard declined to comment, as did a spokesman for Credit Suisse in Paris.

NETWORK SHARING

Orange also wants to get Bouygues out of a mobile network sharing deal it signed with SFR in February since that accord would reduce the cost savings it could reap from the acquisition, said a person close to the company.

Orange filed a complaint in April to France's Competition Authority about the network-sharing deal, which regulators are now examining. Orange wants to delay, modify or even annul the accord and clear the way for its dealmaking, added the person.

SFR says the network-sharing accord does not hurt competition, and that Bouygues cannot get out of it since no provision exists in the contract to allows its resolution if one of the parties is taken over.

A Bouygues Telecom spokesman on Tuesday said it continued to work with SFR on the implementation of the network sharing and no talks were underway to end it.

Because of its smaller size, Bouygues has been hardest hit by Iliad's "Free Mobile" service. Its mobile market share declined by three percentage points and its operating margin fell to 15 percent in the first quarter from 22 percent in the same period in 2011, according to Berenberg analysts.

The firm said in May it would cut an additional 300 million euros in annual costs by 2016, partly through job losses, as it seeks to ensure its stand-alone future.

Mobile prices in France fell 27 percent last year and 11 percent in 2012, according to the telecoms regulator.

"Bouygues Telecom needs help," the Berenberg analysts wrote last month. "The company is under pressure and needs to materially reduce its cost base and cut its labour costs."

The analysts put a 50 percent probability on Orange or Iliad buying Bouygues Telecom.

>>> Closing Commodities: Crude Oil Ends Modestly Lower, Gold Flat

Closing Commodities: Crude Oil Ends Modestly Lower, Gold Flat

- Aug gold touched a session high of $1249.40 per ounce in early morning action following a weak ADP National Employment Report that showed employment in the nonfarm private business sector rose by 179K. This was below the consensus that called for an increase of 200K.
- However, the yellow metal gave up the earlier gain as the dollar index recovered into positive territory. It brushed a session low of $1242.80 per ounce and settled at $1244.40 per ounce, or 20 cents below the unchanged line
- July silver brushed a session high of $18.88 per ounce in morning pit trade but pulled back slightly as the session progressed. It eventually settled at $18.80 per ounce, or 0.2% higher.
- July crude oil touched a session high of $103.72 per barrel in morning action but gave up the gain despite better-than-anticipated inventory data. The EIA reported that for the week ending May 30, crude oil inventories had a draw of 3.4 mln barrels when consensus called for a draw of 0.25-0.3 mln barrels. The energy component brushed a session low of $102.51 per barrel moments before settling with a 0.1% loss at $102.62 per barrel.
- July natural gas came off its session low of $4.58 per MMBtu and broke into positive territory in early afternoon floor trade. It settled 0.4% higher at $4.64 per MMBtu, or just below its session high of $4.65 per MMBtu.