Increased bank reserves in China sinks stocks

Dow dropped 116 bringing it back to the important 10K level, decliners over advancers 3-1 & NAZ was off 12. The chart at the bottom shows Dow has remained close to 10K for over 1 week, not to mention down YTD. Banks are leaders & they continue weak. The Financial Index sank, it can't get away from its 6 month low.

S&P 500 FINANCIALS INDEX

Value 184.84

Change -2.72

% Change -1.4%

The Alerian MLP Index pulled back almost 2 to 279 as the 280 ceiling is proving tough to crack. The REIT index fell 1 waffling in a rut at the low end of a 3 month range. Junk bond funds were a little higher. Amid the uncertainty about foreign economies, Treasuries were strong. The yield on the 10-year Treasury bond dropped 5 basis points to 3.68%, little changed from its range in recent months.

Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks







Weak markets in China & Europe took their toll on oil & gold. Oil & gold have not been able to crack their ceilings, not encouraging for the short term.

CLH10.NYM

...Crude Oil Mar 10

...73.04

... 2.24 .......(3.0%)

GCG10.CMX

...Gold Feb 10

...1,084.90

... 9.30 .......(0.9%)

Gold Super Cycle Link! Click Here



For the second time in a month, China ordered banks to set aside more deposits as reserves to cool the fastest-growing economy. Loan growth has accelerated & property prices surged. The reserve requirement was increased 50 basis points effective Feb 25. The current level is 16% for big banks & 14% for smaller ones. This is all about controlling the boom so they don’t have a bust in the 2nd half. Stock markets did not take the news well. China is rated as the 3rd largest economy in the world & has showed significant recovery after its gov stimulus package has worked well (maybe too well).

•China Raises Reserve Requirement for Second Time in a Month to Cool Growth

China inflation rate - 1 year

Photo: Bloomberg

The 16 countries in the Euro Zone grew in Q4 but lagged well behind Q4 growth in the US & raised concerns that Europe could slip back into recession when gov stimulus efforts expire & they struggle with a gov debt crisis in some countries. Eurozone GDP barely grew, up only 0.1% in Q4 from Q3. Export powerhouse Germany turned in zero growth as consumption levels remained weak. Euro Zone growth fell short of 0.4% expectations & stoked worries the eurozone may dip back into recession. The € fell back to $1.35+, down a penny after the report was given & is down 10% since Nov. An increased concern is that upcoming austerity programs in places like Greece, Spain, Portugal and Ireland will continue to depress activity & further undermine the overall eurozone recovery.

•Economic Recovery in Europe Unexpectedly Wilts After Stagnation in Germany

•Euro Area Is Headed for a Breakup, Societe Generale's Albert Edwards Says

Eurozone growth (QoQ) - 1 year









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Yesterday's rally in the markets was not meant to last. Dow keeps bumping along just above 10K. Bulls will say that's reassuring it was able to hold, but more testing is ahead to see if sellers can take control. With fundamentals of recovery around the world in question, my bet is on the bears.

Dow Jones Industrials --- 2 weeks