Tuesday, July 5, 2011

Markets fluctuate after last week's gains

All good things come to an end. After the best week for the stocks in the last year, markets fell back. Dow dropped 31, decliners ahead of advancers 3-2 & NAZ was off 3. Banks saw serious selling on worries about Asian banks.

S&P 500 Financials Sector Index

Value	207.70
Change	-2.75 (-1.3%)

The MLP index was essentially even at 373 while the REIT index slipped a fraction in the 245s. Junk bond funds inched higher & Treasuries rose, snapping a 5-day rout, as a deteriorating credit outlook for China’s banks encouraged demand for the safety of US gov debt. Oil bounced back above $96 on the back of forecasts for more expensive crude in 2012. Gold rose sharply on the revised outlook for Chinese banks.

JPMorgan Chase Capital XVI (AMJ)

The latest daily market update below:

Treasury yields:

U.S. 3-month	0.005%
U.S. 2-year	0.446%
U.S. 10-year	3.138%

CLQ11.NYM

...Crude Oil Aug 11

...96.87

.....

1.93

(2.0%)

GCN11.CMX

...Gold Jul 11

.......1,509.70

...

27.40 (1.9%)

Orders to U.S. Factories Rose 0.8% in May on Capital Goods

Photo: Bloomberg

The Commerce Dept said factory orders rose 0.8% in May, following a downwardly revised drop of 0.9% in Apr. Much of the increase was driven by orders for aircraft which jumped 36.5%. Auto & auto parts orders rose 2%. Excluding transportation, factory orders increased 0.2% in May, the same as Apr & down from a 2.9% gain in Mar. The report also showed companies are investing in computers & other equipment. A measure of business investment rose 1.6%, after falling 0.4% in the previous month. Orders for nondurable goods fell 0.2%, partly because oil prices fell in May. The effects of the Mar earthquake in Japan receded in May & lower gas prices also helped these numbers.

Orders to U.S. Factories Rose 0.8% in May

China Banks’ Outlook May Be Souring on Loans, Moody’s Says

Photo: Bloomberg

Chinese bank loans to local govs are about 3.5T yuan ($540B) more than the national auditor’s estimate, & the industry’s credit outlook could decline, according to Moody’s Investors Service. “The Chinese audit agency could be understating banks’ exposure to local governments,” Yvonne Zhang, a Moody’s analyst said. The “apparent absence of a clear master plan to deal with this issue” is likely to exacerbate problems & lenders may be left to manage a portion of the souring loans on their own, it said. Chinese bank shares fell on concern that the banks will be unable to absorb losses on defaults should property prices drop. Moody’s estimates that local gov debt is about a third more than the audit office’s findings last week of 10.7T yuan & non-performing loans could reach as much as 12% of total credit. China's influence in the world economy is huge & problems with its banks conjure up thoughts of the recent mortgage crisis in the US.

China Banks’ Outlook May Be Souring on Loans

Greek banks are willing to roll over gov bonds as part of an EU rescue plan that will keep the country out of financial markets for 3 years. “The Greek banks are ready to participate,” Finance Minister Evangelos Venizelos said. “We must respect absolutely the voluntary character of this procedure. This is very sensitive and I give a very crystal clear answer on this topic.” EU leaders have called on investors to shoulder part of a new aid package for Greece after last year’s €110B ($159B) rescue failed to stop the spread of Europe's debt crisis. Participation by Greek banks & pensions funds is key to the success for investors to roll over as much as €30B of maturing bonds into longer-term securities. Making this plan work remains a delicate task.

Greek Banks Ready to Take Part in Rollover, Finance Chief Venizelos Says

While markets are lower, they are digesting gains from last week fairly well. But bank stocks are seeing a fair amount of selling which should continue with more questions raised about loans at Chinese banks. The factory orders report was fairly good. The big jobs report is coming on Fri & the only question is, how dreary will the unemployment rate be? Then Alcoa (AA), a Dow stock, kicks off earnings season next Mon evening.