Monday, June 27, 2011

Markets rally on European debt news

Stocks were higher all day. Dow gained 108, advancers ahead of decliners 2-1 & NAZ was up 35. Bank stocks led the way on easing concerns about their need to raise additional capital relating to the new Basel regulations.

S&P 500 Financials Sector Index

Value	201.02
Change	2.25 (1.1%)

The MLP & REIT indices each had a decent (but not spectacular) gain, up 1+. Junk bond funds were higher but Treasuries sold off, probably from profit taking after their recent run. The yield on the 10 year Treasury bond rose above 3.9%. Oil continued weak with all that supply coming to market & gold's chart shows it has fallen from 1525 to below 1500 in just the last 3 days.

Alerian MLP Index

Value	364.67
Change	1.13 (0.3%)

Treasury yields:

U.S. 3-month	0.010%
U.S. 2-year	0.390%
U.S. 10-year	2.925%

CLQ11.NYM

...Crude Oil Aug 11

...90.64

...

0.21

(0.2%)

Today's Market Update video below:

European Creditors Move Closer to Greek Debt Rollover Plan

Photo:   Bloomberg

The € rose against the dollar on word that French banks will accept a debt rollover to help Greece, easing fears that Greece could default. The plan is for the banks to reinvest their Greek debt holding into new 30-year bonds giving more funding & time for Greece to manage its debt. The French Finance Minister said a first draft of the deal was ready. The Greek parliament is expected to vote Wed on austerity measures which must pass in order for it to get its next installment of funding from last year's €110B bailout package. It is hoped that the measures will pass & Greece will avoid a default. Stay tuned, this is not a done deal.

European Banks Near 70% Greek Rollover Deal

Consumer spending failed to budge from Apr to May, as high gas prices & unemployment are squeezing household budgets. When adjusted for inflation, spending actually dropped 0.1% last month according to the Commerce Dept. For the first time in a year, Americans have stopped spending more. Apr consumer spending figures were revised to show a similar decline when adjusting for inflation. It marked the first 2-month decline in inflation-adjusted spending in 2 years. Incomes rose 0.3% for the 2nd straight month. But adjusted for inflation, after-tax incomes increased only 0.1% in May, after falling by the same amount in the previous month. The spike in gas prices has forced many consumers to cut back on discretionary purchases, such as furniture & vacations, which help boost growth.   However the slowdown in spending was partly the result of temporary factors. Among them, auto purchases fell sharply in May. And cheaper gas will likely allow consumers to spend more freely this summer & fall. The news was less than inspiring but with rays of hope.

Consumer Spending in U.S. Stagnated in May

Delta Air Lines said it expects to make money in Q2 even though its fuel bill will be $1B larger than last year. DAL also predicted that unit revenue will rise 10% in Q2 compared with the same period last year (unit revenue is revenue for each seat flown one mile, a key airline industry measure).   DAL said "higher revenues have largely offset the impact" of higher fuel prices. It now expects to pay $3.23 per gallon of jet fuel during Q2, 91¢ higher than the same period last year. It expects to pay $3.03 per gallon in Q3 based on current prices. In addition, the travel dropoff in Japan after its nuclear crisis will hurt Q2 results by $125M. The stock was up 23¢. These higher costs will pinch other company earnings.

Delta says 2Q will be profitable despite fuel AP

Delta Air Lines Inc. (New) (DAL)

Markets had a good day, but not great. Breadth was relatively modest all considered. The news out of Europe was encouraging, but the situation remains fluid. Bank stocks are still in the dumps, with the Financial Index down 12 YTD. Projections for Citi (C) & Goldman Sachs (GS) Q2 EPS were cut today, more cuts for banks are coming. These are meaningful because bank stocks are market leaders. Meanwhile the economic recovery is still trying to find its footing. Resolution of Greek debt probelms will be the key driver this week & that is a long way away.