Monday, November 28, 2011

Markets rise on improved holiday sales and European debt hopes

Dow finished up 291, advancers 5-1 ahead of decliners & NAZ was gained 85.  The Financial Index rose 4+ to the 162s.   

The MLP index went up 5 to the 365s & the REIT index was up 3+ to the 211s.  Junk bond funds were mixed to lower (down from the AM posting)  & Treasuries inched up (higher in the PM trading).  Oil gained, pushing for 100, & gold had a small gain with its sights on $1700.

AMZ  Alerian MLP Index

DJR  Dow Jones Equity REIT Index

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Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLF12.NYM...Crude Oil Jan 12....97.80 ...Up 1.03  (1.1%)

Live 24 hours gold chart [Kitco Inc.]

European Central Bank President Mario Draghi

Mario Draghi, president of the ECB
Photo:   Bloomberg

Banks & ratings companies are sounding their loudest warnings yet that the euro area risks unraveling unless its guardians intensify efforts to beat the 2-year-old sovereign debt crisis.  Italy will seek to raise as much as €8.8B ($11.7B) in bond sales as European finance ministers prepare to meet this week.  The ECB needs to step up its crisis response.  Moody's said today the “rapid escalation” of the crisis threatens all of the region’s sovereign ratings.  Everybody remembers when the German gov failed to draw bids for 35% of 10-year bunds sold last week & the yield on its 30-year securities had the biggest weekly gain in 14 months.  Moody’s said that credit risks will keep rising without steps to stabilize markets in the short-term & questioned whether policy makers can move quickly enough. The OECD said its 34-nation economy will expand 1.6% next year, down from 2.8% predicted in May.  The leaders need magic tricks to solve these financial problems.

Banks Step Up Warnings on Euro Breakup

Consumer Spending

Photo:   Bloomberg

US household debt declined 0.6% in Q3 as mortgage balances shrank, according to a survey by the Federal Reserve Bank of New York.  Consumer debt fell $60B from Q2 to $11.6T & mortgage balances declined by $114B, or 1.3%.  "Households continue to try and deleverage in the wake of a challenging economic environment and large declines in home values," Andrew Haughwout, VP in the Research & Statistics Group at the New York Fed, said.  "However, our findings also provide evidence that consumer credit demand continues to increase, a positive sign for consumer sentiment."  Consumer spending, which accounts for 70% of the economy, grew at a 2.3% annual rate in Q3, the fastest pace of 2011, according to the Commerce Dept.  The savings rate fell, suggesting some consumers used savings to keep spending.  In Oct, consumer spending rose less than forecast as Americans used the largest gain in incomes in 7 months to rebuild savings.  Borrowings on home equity lines of credit increased by $14B, or 2.3%.  Consumer indebtedness excluding mortgages & home-equity lines rose 1.3% to $2.62T.

Fed Says Household Debt Continues to Fall

The borrowing rates for Italy skyrocketed at a bond auction today for the 2nd straight business day.  Pressure mounts on the eurozone's 3rd-largest economy to come up with quick reforms to keep the euro zone from breaking up.  Italy paid 7.2% (2.7 percentage points higher than the last similar auction) to get investors to lend for 12 years.  Italy raised €567M ($750M).  While there were enough bids to cover the maximum sought of €750M ($1B), the high borrowing rates persuaded the Italian Treasury to stick closer to the lower end of its planned range.  A bigger test will come tomorow, when Italy plans to auction up to €8B ($10.6B) in debt of 3 varying maturities, including the benchmark 10-year issues.  Last Fri, Italy had to pay sharply higher rates in auctions, stoking renewed fears that the country is heading toward a potentially devastating debt spiral.   The bond yields also reflect grim economic data that suggest Italy will be in a recession no later than Q1 of 2012.  The OECD just forecasted Italian growth a 0.7% of GDP in 2011, followed by a contraction of 0.5% next year, a sharp cut in previous forecasts of 1.1% growth in 2011 & 1.6% growth in 2012.  Earlier today, the IMF denied reports that it's readying a rescue fund for Italy.  Can you spell Greece?

Italy's borrowing rates skyrocket for 2nd day AP

Markets had a good day, but a lot of that may have been reacting to oversold conditions.  Last week the Dow dropped on all 4 days for a total loss of 560.  Buyers returned today.  European problems remain in place (contrary to unconfirmed reports about an IMF bailout).  Every bailout rumor from Europe will take stocks higher.  Dow rose 75 into the close, maybe that was from a whiff of bailout talk for Italy.  Strong holiday retail sales are encouraging for the US economy, but there are plenty of headaches starting with upcoming federal budget cuts & possibly lower export sales to Europe & China (with a slowing growth rate).  That jobs report on Fri is looking even more important now.

Dow Jones Industrial Average

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