Thursday, June 3, 2010

Markets zig, then they zag

Stocks began the day higher, then slipped into the red. Dow is down 2, but advancers are 2-1 ahead of decliners & NAZ is up 11. Bank stocks are also waffling around, the Financial Index is down a fraction, remaining near the psychologically important level of 200.


% Change

Despite dreary news about the oil spill & a possible increase in federal regulation over energy companies, MLPs were strong. Their index gained 3 to the 294s, highest level in over 2 weeks. The REIT index was flattish in the 199s. Junk bond funds inched up. The VIX, volatility index was down ½ to the 29s on easing investment fears. Treasuries sold off, taking the yield on the 10-year Treasury bond up to 3.38%.

Alerian MLP Index --- 2 weeks

Dow Jones REIT Index --- 2 weeks

VIX --- 1 month

Oil & gold were a soft, not meaningful. Oil remains in a sideways trading range (70-75) while gold wants to go higher to new record levels.

CLN10.NYM...Crude Oil Jul 10...72.73 ...Down 0.13

GCM10.CMX...Gold Jun 10...1,218.60...Down 2.00

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Initial jobless claims dropped 10K to 453K, layoffs continue to be a drag on the economy. The number receiving unemployment insurance & those getting extended payments both increased. The job market is viewed as fragile as a recovering economy is not able to bring a significant reduction in the unemployment rate. The weekly numbers have been stuck above 450K all year, but 425K or less is needed to make an impact on reducing the unemployment rate. In a separate report, ADP showed companies added 55K workers in May, the 4th month in a row & followed a revised 65K rise the prior month.

Jobless Claims in U.S. Decreased by 10,000 to 453,000

ADP Says U.S. Companies Added 55,000 Workers in May

Jobless claims - 1 year

Fitch Ratings downgraded BP (BP), reversing its view that the oil spill would have a limited financial impact on the company & was joined by Moody's as fears grow over clean-up & legal costs. Fitch said, "The downgrade of BP's ratings reflects Fitch's opinion that risks to both BP's business and financial profile continue to increase following the Deepwater Horizon accident." Estimates for the total cost to BP range from $5B -$37B. Fitch downgraded its rating on BP debt to AA from AA+ & attached a negative outlook, citing substantial additional risks including clean-up& legal costs. Moody's also cut the group's ratings one notch to Aa2 from Aa1, citing the clean-up & legal costs, & placed the group on review for further possible downgrades. "Moody's expects these costs to weigh significantly on BP's free cash flow generating capacity and to constrain its ability to focus on other key areas of the company's business in the near to intermediate term," it said. BP is up 46¢, largely on hopes of a friendly buyout. Meanwhile, BP keeps trying to plug its big leak.

BP's Ratings Cut by Moody's, Fitch as Gulf Oil-Spill Costs Set to Increase

BP Shears Riser Away From Well Under Plan to Divert Leaking Oil With Cap

BP --- 2 months

Very little is going on ahead of the jobs report tomorrow. Dow has been essentially flat over the last 2 weeks, staying near 10¼K. A favorable jobs report should give it a boost, but that may only be a 1 day event. The European financial mess & Gulf oil spills will be around for some time.

Dow Jones Industrials --- 2 weeks

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