Thursday, September 15, 2011

Rising markets after ECB bails out European banks

Dow rose 77 (but 85 below the earlier highs), advancers over decliners a meager 4-3 & NAZ was up 6.  Bank stocks were higher but also off earlier best levels.

S&P 500 Financials Sector Index

Value 170.96 One-Year Chart for S&P 500 Financials Sector Index GICS Level 1 (S5FINL:IND)
Change    1.64    (1.0%)

The MLP index & REIT index were each up 1+ in the rising stock market.  Junk bond funds inched up & Treasuries sold off on easing tension over European debts.  Oil increased, briefly topping $90 after the ECB announced it will lend euro-area banks dollars to help tame the region’s credit crisis.  Gold dropped to a 2-week low on signs that European banks will have enough cash through yearend.


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U.S. 2-year


U.S. 10-year


CLV11.NYM....Crude Oil Oct 11...89.89 .....Up 0.98  (1.1%)

GCU11.CMX...Gold Sep 11.....1,813.40 ...Down 38.40  (2.1%)

Click below for the latest market update:

U.S. Jobless Claims Rose to 428,000, Highest Level Since Jun

Photo:  Bloomberg

Claims for jobless benefits hit the highest level since Jun last week sustaining the view the Federal Reserve would take new action to boost growth.  The number filing new claims for unemployment aid rose unexpectedly to 428K from a revised 417K in the prior week according to the Labor Dept.  This was the 2nd straight weekly increase & took initial claims to the highest level since the week ended Jun 25.  Expectations for a modest dip.  The 4-week moving average climbed to 419K from 415K in the prior week.  The number continuing to receive jobless benefits decreased 12K to 3.73M.  Those who’ve used up traditional benefits & are now collecting emergency & extended payments rose about 10K to 3.61M in the latest week. The unemployment rate among those eligible for benefits held at 3%.  The news continues drab.

U.S. Jobless Claims Rose to Highest Since June

The ECB announced plans to provide banks with dollars in 3 medium-term loan operations through the end of this year.  The ECB decided to launch the 3-month loans in coordination with the US Federal Reserve, the Bank of England, the Bank of Japan & the Swiss National Bank after banking stocks sold off on concern they were having trouble getting short term loans.  Coming on top of mounting hopes that Greece will not be defaulting on its debts soon, the news has helped ease concerns over the impact of Europe's debt crisis on banking stocks.  Central banks around the world have joined the coordinated effort to prevent Europe's debt crisis from derailing the global economy's rebound from recession. 

ECB to Lend Dollars to Euro-Area Banks

Consumers paid more for goods & services last month, pushing up inflation & squeezing thier purchasing power.  The Consumer Price Index rose 0.4% in Aug after jumping 0.5% in Jul.  The core index rose 0.2%.  For the 12 months that ended in Aug, the core index surged 2%, the biggest year-over-year increase in nearly 3 years & is at the high end of the Federal Reserve's informal inflation target.  Food prices rose 0.5%, the biggest increase since Mar, due to higher prices for cereals & dairy products.  Energy prices increased 1.2%.  Among the factors driving up the core index were rental costs. They rose 0.4%, the most in nearly 3 years.  Clothing costs rose 1.1%, extending a string of increases that stem partly from steep rises in cotton prices earlier this year. Airline fares rose 1.1%, the most since Mar.  However there are signs that core consumer prices could level off soon.  Cotton prices have come down by nearly half from the spring, clothing costs are expected to follow.  New-car prices rose earlier this year because of supply shortages caused by Japan's earthquake but the impact of that disruption is beginning to fade.  New-car prices were unchanged in Aug for the 2nd straight month.  However food prices are still rising. This data could limit the Federal Reserve's ability to take further steps to try to revive the economy.

Inflation in August Is Above Forecasts

Manufacturing was mostly weak in Aug but auto production increased for the 2nd straight month, as supply chains improved after months of delays caused by the Japan crisis.  Factory output rose 0.5% in Aug, after increasing 0.6% in Jul according to the Federal Reserve.  But nearly all of the gain came from a 2.6% rise in autos & related products, evidence that supply chain disruptions are easing.  Still, the industry is producing less than it did before the Mar disaster.  Overall industrial production ticked up 0.2%, weaker than the 0.9%increase in Jul.  In addition to autos, furniture makers & mines also showed strength.  Factories that make textiles, chemicals & paper products produced less.

Factory output mostly weak in August outside autos AP

This is another indecisive day.  The positive gut reaction to ECB helping European banks is fading.  The US economic news was so-so to weak.  Of course, next week is the FOMC meeting & bulls are hoping Bernanke will come up with more magic tricks.  Meanwhile the politicos in DC want to fix the economic recovery but they are deeply divided.  The Dow chart looks somber.  For 2 months it's been stumbling trying to mount an advance but getting nowhere.  Markets pulling back in the last hour is not a good sign for the rest of the day.

Dow Industrials (INDU)

stock chart

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