Monday, June 27, 2011

Higher markets on encouraging signs about the Greek debt crisis

Oversold stocks started the week strong.  Dow rose 77, advancers ahead oi decliners 2-1 & NAZ was up 22.  Bank stocks led the way up but the Financial Index remains near 200 where it has been stuck for a month.

S&P 500 Financials Sector Index

Value 200.77 One-Year Chart for S&P 500 Financials Sector Index GICS Level 1 (S5FINL:IND)
Change    2.00     (1.0%)

The MLP index fell 1 to the 362s while the REIT index rose 1½ to 237.  Junk bond funds were higher following a good week & Treasury yields were little changed.  Oil continues weak on the increased supply coming to market in Jul & gold dipped below $1500 an ounce.

JPMorgan Chase Capital XVI (AMJ)

stock chart

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLQ11.NYM....Crude Oil Aug 11...90.64 ....Down 0.52 (0.6%)

GCM11.CMX...Gold Jun 11.......1,497.00 ...Down 3.50  (0.2%)

U.S. Federal Reserve Chairman Ben Bernanke

Photo:   Bloomberg

The Federal Reserve (FED) will remain the biggest buyer of Treasuries, even after the QE2 ends Thurs, as the central bank uses its $2.9T balance sheet to keep interest rates low.  When the $600B program winds down, the FED said it will continue to buy Treasuries with proceeds from the maturing debt it currently owns. That could mean purchases of as much as $300B of debt in the next 12 months without adding money to the financial system.  Ben Bernanke said last week that progress bringing down the 9.1% unemployment rate was “frustratingly slow.” 

Fed May Buy $300 Billion in Treasuries After QE2

George Papandreou, Greek Prime Minister, faces a 2nd survival test this week as the parliament votes on a 5-year austerity plan. Failure to pass the plan may lead to the euro area’s first sovereign default as Greece needs to cover €6.6B ($9.4B) of maturing bonds in Aug. Complicating matters, the week will be marked by a 48-hour general strike in Greece. The uncertain outcome is unnerving investors who last week pushed the € to a record low against the Swiss franc. The yield on Greece’s 10-year notes rose 3 basis points to 16.81%.  The thought of contagion is unnerving investors.

Papandreou Faces Showdown on Austerity

Citigroup Q2 profit estimate was reduced by 2 analysts who said the bank’s fixed-income & trading revenue was likely to tumble.  EPS of the 3rd largest US lender could be 97¢, 20% lower than a previous forecast of $1.22 according to one analyst while the other cut his estimate to 95¢. The average estimate of 22 analysts is 99¢.  Citi’s fixed-income revenue is projected to tumble 20% from Q1 & trading revenue could fall 15% (Q1 trading revenue was $4.9B).  I'm a big fan of Citi, but it has to get over big bumps in the road especially with the many problems facing banks.  The stock rose 35¢ in an up market.

 Citigroup’s EPS Profit Estimate Cut by Analysts on Weak Trading Revenue

Citigroup Inc. (C)

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Bulls are happy with rising markets, but this seems to be more of a nervous reaction.  Maybe bears are taking a long weekend holiday.  Greek debts are the center of attention & nothing has been resolved but the country does not look like it wants to along with austerity moves.  The administration is getting involved with discussions on raising the debt limit (by Aug 2) which will involve budget cuts, one more tough battle.  Jul is still shaping up as a difficult month.

Dow Industrials (INDU)

stock chart

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