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While you were sleeping: US hangs up on AT&T

Thursday 1st September 2011

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Wall Street was mixed as investors mostly welcomed data showing U.S. business activity and factory orders accelerated more than expected, underpinning optimism that the economy won’t perform worse than already reflected in share prices.

In late afternoon trading, the Dow Jones industrial average rose 0.32% and the Standard & Poor's 500 Index advanced 0.33%. The Nasdaq Composite Index fell 0.18%.

“The stock market is poised for a rebound if data begins to be more encouraging,” Marshall Front, who helps oversee US$600 million as chairman of Front Barnett Associates LLC in Chicago, told Bloomberg News. “Stocks have gotten to a point where they are discounting a degree of slowness in the economy that is not likely to evolve.

Not everyone agrees, especially if you’re trying to argue that the economy is tanking. The outlook is bleak, according to Roubini Global Economics LLC co-founder and chairman Nouriel Roubini.

“We’re going into a recession based on my numbers” while the Federal Reserve and other authorities no longer have the ability to provide emergency support, he told Bloomberg.

Separately, Fed Reserve Bank of Atlanta President Dennis Lockhart today said the Fed should be ready to consider more monetary easing.

“Given the weak data we’ve seen recently and considering the rising concern about chronic slow growth or worse, I don’t think any policy option can be ruled out at the moment,” Lockhart said today in the text of a speech in Lafayette, Louisiana. “However, it is important that monetary policy not be seen as a panacea.”

Meanwhile AT&T has other complications to worry about first, as the U.S. government sued to block its US$39 billion deal to buy T-Mobile USA because of anti-competition concerns, sending AT&T shares more than 4% lower and pushing those of T-Mobile parent Deutsche Telekom AG down by 7.6%.

AT&T will fight the decision in court, company lawyer Wayne Watts told Reuters, adding the Justice Department had given the company no indication that it was contemplating such a move.

"Clearly AT&T didn't expect this," Pacific Crest Securities analyst Steve Clement told Reuters. "It changes things for them with respect to the spectrum flexibility they'd have. They're going to have to be in the market to buy incremental spectrum."

In Europe, the Stoxx 600 Index closed the day with a 2.9% gain, the biggest advance in two weeks with investors catching up on yesterday’s news that the Fed appears to be leaning toward more stimulative measures.

Global investors cut their holdings of equities below 50% last month and piled into cash, reflecting what was lining up to be the worst August for world stocks since 1998, according to Reuters.

Reuters poll of 57 leading investment houses in the U.S., Europe ex-UK, Japan and Britain showed the average stock holding in a balanced or model portfolio falling to 49.2%.

Among the most radical moves in the past month was by Germany's Deka Bank, which dumped all its equity holdings.

"Due to the ongoing turbulences following the sovereign debt crisis and a negative outlook on the economy, we decided to reduce the equity portion to zero," Steffen Selbach, head of fund-based asset management, told Reuters.

The economic concern helped put U.S. Treasuries on track for the biggest monthly gain since December 2008 as the first-ever credit rating downgrade of the U.S. failed to lower their safe-haven appeal, according to Bloomberg.

“The world continues to want safety, given the numerous uncertainties at home and abroad, with the economy weakening and the Fed on hold even longer,” Justin Lederer, an interest-rate strategist at the primary dealer Cantor Fitzgerald LP in New York, told Bloomberg.



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