Friday, November 18, 2011

Markets edge higher on improved leading economic indicators

Dow rose 48, advanvers ahead of decliners 3-2 but NAZ fell 1.  Bank stocks were a little higher, taking the Financial Index up 1 to 168, still its lowest level in over a months.

The MLP index was up a fraction in the 367s & the REIT index was flat in the 218s.  Junk bond funds were mixed as Treasuries traded a little lower.  Oil & gold also continued around break even.

AMZ   Alerian MLP Index

DJR   Dow Jones Equity REIT Index

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLZ11.NYM....Crude Oil Dec 11...98.74 ...Down 0.08  (0.1%)

GCX11.CMX...Gold Nov 11.....1,723.70 ....Up 3.90  (0.2%)

Get the latest daily market update below:

New homes

Photo:   Bloomberg

The Conference Board reported that its index of leading economic indicators rose 0.9% last month, significantly faster than the revised 0.1% rise in Sep & the 0.3% increase in Aug.  The economy, after growing at an anemic pace of just 0.9% in H1, grew at a 2.5% rate in Q3.  Some are looking for even stronger growth in Q4.  But even the most optimistic are not predicting growth will rebound to levels that would make a significant dent in the unemployment rate, which has been stuck around 9% for the past 2 years.  The Oct rebound in the leading index reflected positive contributions from building permits, the spread between short-term & long-term interest rates, a rising stock market & a slightly better employment reading.  The latest leading indicators report points to more growth this winter.

Deep spending cuts are set to kick in if a congressional panel can't agree next week how to shrink the budget deficit.  Congress may let emergency unemployment & a Social Security tax cut expire at year's end which could slow growth.  Some say the economy & markets can withstand the blows because Congress or the Federal Reserve could take other steps next year to blunt the automatic cuts & lift the economy.  In addition, investors expect so little from the panel that they're unlikely to overreact if no deal is reached.  The law triggers cuts in programs prized by both parties but the panel appears to be deadlocked.  A stalemate can make it harder for Congress to extend the Social Security tax cut & unemployment benefits.  On the other hand, if the supercommittee does forge a deal, it might include an extension of those benefits or it could at least clear the way for an extension later.  An expiration of those benefits could cut growth by about three-quarters of a percentage point.  With other cuts, federal budget policies could subtract 1.7% from growth in 2012.  Given the tepid economy, such a hit could be damaging.  The economic recovery remains fragile.

Automatic Spending Cuts a New Threat to U.S. Economy

Italian Banks May Need $8.2 Billion

Photo:   Bloomberg

The 5 biggest banks in Italy may need to raise a combined €6.1B ($8.2B) of additional capital as Italian gov bonds they own fall in value.  2-year Italian debt, which the banks valued at 97¢ on the € or better on Sep 30, trades at about 92.7¢, suggests these banks need more capital. The European Banking Authority instructed these banks to raise new capital by next Jun to meet its revised 9% core tier one ratio.  UniCredit, Italy’s biggest bank, posted a surprise €10.6B Q3 loss after taking an impairment charge of €8.7B, including goodwill writedowns.  The bank to sell as much as €7.5B of stock to plug the biggest capital shortfall among Italy’s lenders & suspended the div.  The European debt mess keeps getting worse.

Italian Banks May Need $8.2 Billion in Capital

This is another day when little will be decided in the markets.  For almost a month, Dow has been treading water, remaining near 12K.  Given the abundance of ugly news on European debts & possible cuts to federal spending, sideways should be considered "good."  In comparison to 3 years ago, this would have to get high markets.  But I am worried that a sputtering economic recovery along with huge debt problems on both sides of the Atlantic will be too much for even the bulls to handle.

Dow Jones Industrial Average

Get your favorite symbols' Trend Analysis TODAY!  

No comments: