- Unemployment set to top 9%. Today's markets will be focused on the monthly U.S. nonfarm employment report, which often sets the tone for the coming month. Economists predict the workforce declined by 520,000 in May, the smallest decrease in seven months. But unemployment is expected to jump to 9.2%, the highest level in 26 years. While many think the worst may be over for the economy, it's unlikely firms will begin hiring aggressively until recovery goes from being a possibility to a well-rooted certainty. Earlier this week, Fed chief Bernanke warned "sizable" job losses may still occur. Peter Morici does a good job of summarizing expectations for and potential ramifications of this morning's report.
- Rio scraps Chinalco deal. Rio Tinto (RTP) scrapped a controversial $19.5B investment from Chinalco (ACH) and will instead raise $15.2B from a share sale and $5.8B from an iron ore venture with BHP Billiton (BHP). The new agreements will allow Rio to pay down some of its $38.9B in debt, and deal a blow to China's plans to secure access to raw materials crucial for its economic growth.
- FDIC gets tough on Citi. The FDIC is pushing for a management shake-up at Citigroup (C), and recently tried to lower the government's confidential ranking of Citi's health in a move that would give regulators greater control over the firm. Among FDIC concerns are the slow pace of change at Citigroup and the lack of senior executives with commercial banking experience. Officials have reportedly reached out to Jerry Grundhofer, former CEO of U.S. Bancorp (USB) and a recent addition to Citi's board, to see if he'd be interested in taking over CEO Vikram Pandit's position. Citigroup officials say the FDIC has overstepped its bounds, and several government regulators disagree with the FDIC's stance as well.
- Obama to create 'Pay Czar.' The White House plans to appoint a 'Special Master for Compensation' who will make sure companies receiving federal bailout funds abide by executive-pay guidelines. The administration is expected to name Kenneth Feinberg, who oversaw the government's compensation fund for 9/11 victims. Feinberg's appointment could be announced as soon as next week.
- Breezy times for Intel. Intel (INTC) agreed to buy Wind River Systems (WIND) for around $884M. The surprise move nets Intel a significant software business and makes it a direct competitor with Microsoft (MSFT) in certain areas. A Microsoft spokeswoman said the company is looking forward to continuing its long-term collaboration with Intel, but is also "working with Intel to evaluate what impact today's announcement has on our partnership."
- GM uses cash to fund Delphi buyout. General Motors, flush with $30B in bankruptcy financing from the government, is putting up over $2.5B to finance a private-equity firm's buyout of bankrupt auto-parts company Delphi Corp. Separately, GM is expected to announce today that it reached a preliminary deal to sell its Saturn division to mega auto dealer Roger Penske, who runs the Penske Automotive Group chain of dealers, for $100-200M. GM executives also said the company is considering a senior management shake-up but declined to provide details.
- AIG selling Transatlantic stake. AIG (AIG) may raise almost $1B by selling part of its stake in Transatlantic Holdings (TRH). According to a statement released yesterday, AIG offered 26M shares at $38 each. The sale will bring AIG's stake below 20% from 59%.
- Icahn wins Biogen board seat. Biogen Idec (BIIB) held its annual meeting this week and activist investor Carl Icahn claims he won two seats on the board. Biogen said Icahn won one seat, and the second is 'too close to call.' The showdown over the remaining board seat is the culmination of a months-long proxy fight. Icahn's victory, even if only partial, suggests shareholders are frustrated with Biogen's stagnant share price and the gap in its pipeline of new drugs.
- Countrywide CEO charged in subprime mess. The SEC charged Countrywide Financial's former CEO Angelo Mozilo with securities fraud and insider trading, winning Mozilo the distinction of most-prominent executive targeted to date in connection to the subprime crisis. Mozilo pocketed over $139 in profits in 2006-2007 while knowingly selling risky subprime loans and failing to disclose the deteriorating quality of the company's assets. Two other former Countrywide executives were also charged with fraud.
- Hartford to get TARP money, new CEO. Hartford Financial Services (HIG) CEO Ramani Ayer will step down from his post by the end of the year, following through on a departure originally planned for 2008. Ayer, who has been CEO for twelve years, was responsible for crafting the aggressive growth strategy that led to some of the insurer's current troubles. The company is expected to receive as much as $3.4B in TARP funds in the next few weeks.
- Jobs returning to Apple. Apple (AAPL) CEO Steve Jobs is on track to return to the company this month after a medical leave, possibly in a surprise appearance at Apple's annual software developers' conference next week. Some analysts thought Jobs' sudden departure six months ago and the limited disclosure of his illness would hurt the company, but the stock has risen 68% since Jobs announced his leave vs. a 24% increase in the Nasdaq. Even after Jobs returns, it's unclear whether he'll resume his full set of duties immediately.
- Jobless claims dip. Initial Jobless Claims came in at 621,000 vs. last week's 625,000 (revised) and consensus of 620,000. Continuing claims dipped by 15K to 6.74M.
- Productivity higher than expected. Q1 Nonfarm Productivity of 1.6% was better than the 1.2% economists expected, and sharply higher than initial estimates of 0.8%. Unit labor costs grew 3%, slightly above consensus (+2.9%), but lower than previous estimates of 3.3%. Manufacturing sector productivity fell 2.7%, its fourth consecutive decline.
Earnings: Thursday After Close
Overseas markets edged higher Friday and futures are also up. All eyes will be on the nonfarm payroll report at 8:30.
- Asia: Nikkei +1.02% to 9,768. Hang Seng +0.96% to 18,680. Shanghai -0.48% to 2,754. BSE +0.63% to 15,104.
- Europe at midday: London +1.2%. Paris +0.9%. Frankfurt +0.3%.
- Futures at 7:00: Dow +0.4% at 8764. S&P +0.45% to 945. Nasdaq +0.25%.
Crude -0.1% to $68.74. Gold -0.5% to $976.50. Treasurys flat.
Euro -0.1% vs. dollar. Yen -0.2%. Pound -0.6%.
Friday's Economic Calendar
- 8:30 Non-farm payrolls
2:15 PM Fed's Kohn moderates panel at financial markets conference
3:00 PM Consumer Credit
Seeking Alpha editor Eli Hoffmann contributed to this post.
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