Thursday, July 2, 2015

Markets waver ahead of the Greek referendum on Sunday

Dow dropped 27, advancers barely ahead of decliners & NAZ fell 3 (still above 5K).  The MLP index recovered 5+ to 397 after recent weakness & the REIT index was up 1+ to the 308s.  Junk bond funds inched higher & Treasuries gained with uncertainties over the Greek debt mess.  Oil slid lower & gold also pulled back.

AMJ (Alerian MLP Index tracking fund)

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CLQ15.NYM....Crude Oil Aug 15....56.94 Down ...0.02  (0.0%)

Live 24 hours gold chart [Kitco Inc.]

Drillers put rigs in US oil fields back to work for the first time since Dec on speculation that an unprecedented retreat from the country’s prolific shale formations is ending.  Rigs targeting oil in the US rose by 12 to 640, the first increase since Dec 5, according to Baker Hughes.  The count in almost every major oil basin gained, with Texas’s Eagle Ford shale formation adding 3.  America’s oil drillers have sidelined more than ½ of the country’s rigs since Oct as the world’s largest suppliers battle for market share.  The crude being pumped out of US shale formations has helped create a global glut that drove prices down 49% in H2-2014.  Despite the collapse in drilling, the US pumped 9.7M barrels a day in Apr, the most in monthly Energy Information Administration data since 1971.  Output slipped in both North Dakota, where the prolific Bakken shale formation lies, & Texas, home to both the Eagle Ford shale & Permian Basin.  Oil explorers began their retreat from US fields late last year as OPEC, which accounts for more than a 1/3 of the world’s oil, resisted calls to curb its own supply.  The 12-nation group accelerated its crude production last month to the highest level since Aug 2012.

Oil Explorers Boost U.S. Drilling for First Time in 30 Weeks

Intel, a Dow stock, pres RenĂ©e James will step down to seek a CEO role elsewhere, in a reshuffle that cements CEO Brian Krzanich’s control over the world’s largest chipmaker.  She sent a letter to employees which didn't specify where her next job will be.  She was one of 3 main internal candidates for the top job 3 years ago & was given the pres role after backing Krzanich in a joint pitch to the board.  “When Brian and I were appointed to our current roles, I knew then that being the leader of a company was something that I desired as part of my own leadership journey,” James said.  “Now is the right time for me to take that next step.”  James’s departure was announced with other leadership changes that show Krzanich is putting his stamp on the company & parting ways with deputies of his predecessor, Paul Otellini.  Janes will remain at the company until Jan & the company will pay her $4M in severance if she remains thru Jan.  This is the latest management change that includes the departure of executives who led failed or stalled attempts to expand the company beyond its dependence on the market for personal computer processors.  The stock went up 38¢.  If you would like to learn more about INTC, click on this link:

Intel President James Steps Down to Seek CEO Role Elsewhere

Intel (INTC)

The IMF warned that Greece would need an extension of its EU loans & a potentially a large debt writeoff if it grows more slowly than expected & economic reforms are not implemented.  The IMF warning in a preliminary draft of its latest debt sustainability report came as Greece readies for a Sun referendum on an intl bailout deal that Prime Minister Tsipras has urged voters to reject.  The institution said that even if Greek policies came back on track, loans made by Europe "will need to be extended significantly" & that the country would need further concessional financing.  The report was made based on assessments last week, before Greek banks have been closed & the country had defaulted on an IMF repayment.  "We cannot go to our board to complete this review unless we have a comprehensive program," said a senior IMF official, adding that debt relief from creditors would be essential.  The IMF said Greece would need an additional €36B ($40B) in European funding from total additional financing needs of €50B due to policy slippages & the latest Greek proposals.

IMF Warns Greece Could Require Writedown

While a lot is riding on the Greek referendum, more confusion will follow.  The Greeks aren't sure what they are voting on.  If there is a "yes" vote, that may lead to elections for a new leader.  So confusion reigns.  In the meantime, the AM data on jobs & earnings is largely viewed as unfavorable (except for those who think negative news is good for extending low interest rates).  This weekend will be a challenging time for US investors to enjoy.

Dow Jones Industrials

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Markets edge higher on mixed jobs report

Dow added 17, advancers over decliners 4-3 & NAZ lost 4 (hanging in above 5K).  The MLP index rebounded 5+ to the 396s & the REIT index rose 2+ to go over 310.  Junk bond funds edged higher & Treasuries rallied.  Oil went up in the 57s & gold continues to slide lower.

AMJ (Alerian MLP Index tracking fund)

CLQ15.NYM...Crude Oil Aug 15...57.21 Up ...0.25 (0.4%)

GCN15.CMX...Gold Jul 15.......1,162.90 Down ....6.10  (0.5%)

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The US labor market took one step forward & one back in Jun as job creation advanced while wages stagnated & the size of the labor force receded.  The addition of 223K jobs followed a 254K increase in the prior month that was less than previously estimated, according to the Labor Dept.  The jobless rate fell to a 7-year low of 5.3% as more people left the workforce.  The figures indicate corp managers are keeping headcounts in line with stronger consumer demand while overseas markets remain feeble.  At the same time, more moderate job gains may still be enough to reduce the unemployment rate, consistent with the Federal Reserve’s perceived timetable to raise borrowing costs by year-end.  The economy has just completed its 6th year of expansion since the recession ended in June 2009.  While the job market has rebounded, faster wage growth has been slow to follow suit.  Average hourly earnings at private employers held at $24.95 & have increased just 2% over the 12 months ended in Jun, following a 2.3% gain the prior month.  They’ve posted a 2% gain on average since the current expansion began.  The unemployment rate fell from 5.5% & is the lowest since Apr 2008.  The decrease reflected fewer Americans in the labor force.  The participation rate, which indicates the share of the working-age people in the labor force, decreased to 62.6%, the lowest since 1977, from 62.9%.  Labor force participation slumped among teens, with a more moderate decrease among men 20 years % older.

Labor Market Runs in Place; More Jobs, rticipation Lowest Since 1977

China’s Shanghai Composite Index fell below the 4K level for the first time since Apr, as margin traders continued to unwind positions amid doubts over the effectiveness of gov measures to support equities.  The stock index slumped 3.5% to 3912 & has tumbled 24% from its Jun 12 peak, wiping out at least $2.4T of value.  15 stocks dropped for each one that rose Thurs, with industrial, power & commodity shares leading losses.  The drop below 4K is a blow to investors who had speculated authorities would intervene to support shares, a strategy employed near closely watched levels in the past.  While securities regulator eased margin-trading rules & exchanges announced fee cuts overnight, the moves failed to revive confidence in a market that has wiped out the equivalent of France’s entire equity capitalization in 3 weeks.  Margin debt on the Shanghai Stock Exchange fell to 1.33T yuan ($214B) for an 8th day of losses, the longest stretch of declines since the city’s bourse began to compile the data in 2010.  A 5X surge in leveraged wagers had helped propel the Shanghai index to a more than 150% gain in the 12 months thru Jun 12.  Hours after the tumble in the Shanghai Composite, the securities regulator eased collateral requirements for leveraged investors & allowed brokerages to securitize margin loans to free up room for extending credit. The same day, the Shanghai Stock Exchange said China’s 2 bourses will cut equity-trading fees by 30% starting Aug 1.

Shanghai Composite Tumbles Below 4,000

New orders for US factory goods fell more than expected in May on weak demand for transportation & electrical equipment, a sign that manufacturing remained mired in a soft patch.  The Commerce Dept said new orders for manufactured goods dropped 1.0% after a revised 0.7% decline in Apr.  Factory orders have dropped in 9 of the last 10 months.  The forecast was for orders falling 0.5% in May after the previously reported 0.4% drop in Apr.  Excluding the transport component, orders nudged up 0.1% in May, reversing the 0.1% decline in the prior month.  Manufacturing, which accounts for about 12% of the US economy, is struggling with the lingering effects of a strong dollar & lower crude oil prices, which has squeezed profits of multinational corporations & oil-field firms.  There are signs, however, the sector is starting to stabilize.  A report yesterday showed the Institute for Supply Management's national factory activity index rose to a 5-month high in Jun & a sub-index of new orders increased for a 3rd straight month.  In addition, the rout in the energy sector looks close to running it course as crude oil prices recover after falling nearly 60% from last Jun.  Orders for transportation equipment tumbled 6.5% in May & orders for electrical equipment, appliances & components fell 2.8%.  Orders for non-defense capital goods excluding aircraft, seen as a measure of business confidence & spending plans, fell 0.4% instead of the 0.4% gain reported last month.  It was the 2nd straight month of decline in these core capital goods.

May Factory Orders Fall More then Expected

The jobs report on balance was disappointing.  Other economic data reminds us that the economic recovery is coming in good, not great.  That has been story of this 6 year recovery, a major disconnect compared with stock averages soaring to new record highs.  Of course, the rise from the  first day of trading in 2000 is only modest.  Dow is back in the red YTD.  The sharp decline in Chinese stocks during the last 3 weeks is worrisome,

Dow Jones Industrials