Wednesday, July 6, 2011

Mixed markets while economic worries grow

Dow is up 7, decliners ahead of advancers 4-3 & NAZ was off 2. Bank stocks led the selling again on unsettled conditions in Europe & China. The chart for the Financial Index remains dismal.

S&P 500 Financials Sector Index

Value	206.51
Change	-2.18 (-1.01%)

The MLP index slipped a fraction while the REIT index was up pocket change in the 247s & junk bond funds are trying to inch their way higher. Treasuries are in demand after selling off last week. The yield on the 10 year Treasury bond dropped 5 basis points to under 3.09%. Oil fell from a 3-week high after China’s central bank raised interest rates & Moody’s downgraded Portugal’s credit rating, heightening concern that slower growth will crimp fuel consumption. Gold is up more than 25 in this week on increased uncertainties in Europe & Asia.

JPMorgan Chase Capital XVI (AMJ)

The latest Daily market update below:

Treasury yields:

U.S. 3-month	0.005%
U.S. 2-year	0.411%
U.S. 10-year	3.078%

CLQ11.NYM

...Crude Oil Aug 11

...96.31

.....

0.58

(0.6%)

GCN11.CMX

...Gold Jul 11

.......1,526.50

...

14.20

(0.9%)

Photo: Yahoo

The service sector, which employs nearly 90% of the work force, expanded for a 19th consecutive month in Jun, but growth slowed from May as the economy remains sluggish. The Institute for Supply Management said its index for service companies dipped 53.3 in Jun from 54.6 in May. A reading above 50 indicates expansion. The index reached a 5-year high of 59.7 in Feb, but since then growth has retreated. The index plunged to a low of 37.6 in Nov 2008 at the height of the financial crisis. High gas & food prices have left consumers with less money to spend on discretionary goods, such as vacations, appliances & furniture. That has hurt retailers, restaurants & hotels. The index fell to 52.8 in Apr, the lowest reading since Aug.
Gas prices have declined since early May which should make it easier for consumers to spend more on other goods. A separate ISM index, that tracks activity in the manufacturing sector, expanded in Jun at a faster pace than the previous month, as supply disruptions stemming from Japan's earthquake faded. This data suggest that the annual growth rated for GDP in Q2 could be drab, below 1.9% in Q1 & not high enough to reduce the unemployment rate.

U.S. ISM Services Index Fell to 53.3 in June

The Greek debt crisis is far from over. Greek banks are willing to roll over gov bonds as part of an EU aid plan, Finance Minister Evangelos Venizelos said. “The Greek banks are ready to participate,” Venizelos said yesterday. “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 are insisting private investors contribute to a new aid package for Greece after last year’s rescue package failed to stop the spread of Europe's debt crisis. Participation by Greek banks & pensions funds is key to the success of a plan for investors to roll over as much as €30B of maturing bonds into longer-term securities. The next rescue package for Greece is more likely to succeed if it includes a plan to retire outstanding debt through organized buybacks. A buyback fund of about €50B could reduce Greece’s outstanding debt as a proportion of GDP by as much as 20%. Creditors & EU officials are looking for a way to structure the plan in such a way as to avoid a default rating that could prompt the European Central Bank to refuse to accept Greek bonds as collateral. S&P said on Jul 4 that it would likely cut Greece to selective default if the rollover being discussed went ahead. But Greece must avoid having rating companies cut the country to “selective default,” Venizelos said yesterday shortly before Portugal's credit rating was cut to below investment grade by Moody’s on concern the country will follow Greece in seeking a 2nd intl bailout. Bailout II for Greece is merely bumbling along.

Greek Banks Ready for Debt Rollover as Investors Meet to Discuss Aid Plan

China is raising interest rates in an effort to cool inflation & growth in China is important for global growth. The Greek debt crisis lumbers on with financial leaders in Europe trying to make it work & avoid a classification of default (which it really is). Raising the debt ceiling in the US is only generating talk. The big jobs report comes on Fri & expectations are for a meager increase in jobs of 90K, far below the 220K average in the last 3 months. Then earnings season begins next week. So far the stock markets are taking these unsettled conditions fairly well. The Dow chart below must make the bulls happy.