After starting the day lower, stocks rallied but Dow was unable to finish in the black. Dow dropped 6, decliners ahead of advancers 2-1 & NAZ was up 6 (helped by Apple's rise). Bank stocks were weak all day, taking the Financial Index down 2 to the 188s (still near its interim highs of 191 reached last week).
MLPs & REITs fell but junk bond funds were mixed. Risk averse money went into Treasuries, taking the yield on the 10 year Treasury near its record lows of 1¾%. Oil declined as European leaders sparred with Greece over a 2nd rescue program & US consumer spending stalled. While bouncing around in the last 2 days, gold ended little changed.
![Live 24 hours gold chart [Kitco Inc.]](http://www.kitco.com/images/live/gold.gif)
Photo: Yahoo
European leaders are struggling to reconcile austerity with growth at a summit that approved a permanent rescue fund for the euro zone & was trying to put finishing touches to a German-driven pact for stricter budget discipline. But disputes over the limits of austerity, & Greece's unfinished debt restructuring negotiations, hampered efforts to send a more optimistic message that Europe is getting on top of its debt crisis. Leaders agreed that a €500B euro European Stability Mechanism will enter into force in Jul, a year earlier than planned, to back heavily indebted states. Europe is already under pressure from the US, China, the IMF & some of its own members to increase the size of the financial firewall. The risk premium on southern European gov bonds rose while the € fell on concerns about a lack of tangible progress in the Greek debt talks & gloom about Europe's economic outlook. Highlighting those fears, Spain's economy contracted in Q4 for the first time in 2 years & looks set to slip into a long recession. France halved its 2012 growth forecast to a mere 0.5%, another potentially ominous sign for President Sarkozy's troubled bid for re-election in May.
Photo: Bloomberg
French Prime Minister Fillon said that the country is slashing its forecast for economic growth this year from 1% to 0.5%. The move enables the gov to "take into account the deteriorating economic environment" before revising the budget with a last-minute package of measures that are to go before the Cabinet next week. Last week the IMF said it forecasts the French economy to grow only 0.2% this year. The lower growth figure will have an approximately €5B impact, Fillon said, but he added that this "can be reabsorbed" because of past efforts and a prudent budget. France is the eurozone's 2nd-largest economy, after Germany, & its lagging finances could weigh on efforts to bail out weaker eurozone countries. The updated budget is expected to include higher consumption taxes & other measures to cut debts & boost growth. With presidential elections in Apr & May, the measures must be rushed through a parliament, about to close down ahead of the voting. One of the measures is to impose a 0.1% tax on financial transactions starting in Aug. Markets don't like added taxes.
Sarkozy to Levy Transaction Tax Opposed by Finance Industry, Central Bank
Morgan Stanley (MS) & Citi (C) are making some of the biggest cuts in compensation for investment bankers, averaging as much as 30%, as they grapple with lower revenue. MS, owner of the largest brokerage firm, will also cap cash awards & defer more payouts while Credit Suisse (CS) plans to give a portion of senior employees’ bonuses in bonds backed by derivatives. Citi may cut some bonuses in the securities & banking unit as much as 70 %. Curbing pay & changing formulas are done to limit expenses, with some giving more stock & less cash. Revenue shrank last year as mergers & trading slowed. Bank of America (BAC), a Dow stock, plans compensation cuts averaging 25%, with some cash bonuses capped at $150K & some base salaries frozen. Goldman Sachs (GS) cut discretionary compensation “significantly more” than the its 26% drop in revenue, CFO David Viniar said on Jan 18. Times are tough everywhere & these cuts will result in lower taxes paid by the top 1%.
Morgan Stanley, Citigroup Lead Pay Cuts
The markets behaved fairly well considering the negative news from Europe & a dismal report on consumer spending. Negotiations about refinancing the Greek debt are touchy. A bigger than expected 50% haircut for the bondholders could trigger a default rating by the credit agencies. This is new to everybody & nobody knows where it will lead. Unfortunately the bias is strongly on the negative side. One prominent stock has been immune from the selling of late, Apple (AAPL). It jumped 5 to 453, yet a another record after reporting a blowout qtr. Facebook's IPO sounds like it's around the corner, maybe this week. If so, the market's reception will give a strong indication about its market's appetite for risk. Treasuries have been surging in the last week, risk averse thoughts are alive & well.
MLPs & REITs fell but junk bond funds were mixed. Risk averse money went into Treasuries, taking the yield on the 10 year Treasury near its record lows of 1¾%. Oil declined as European leaders sparred with Greece over a 2nd rescue program & US consumer spending stalled. While bouncing around in the last 2 days, gold ended little changed.
JPMorgan Chase Capital XVI
Click below the latest daily market update update:
Treasury yields:
U.S. 3-month | 0.046% | |
U.S. 2-year | 0.211% | |
U.S. 10-year | 1.839% |
| CLH12.NYM | Crude Oil Mar 12 | 98.82 |  0.74 (0.7%) |
European leaders are struggling to reconcile austerity with growth at a summit that approved a permanent rescue fund for the euro zone & was trying to put finishing touches to a German-driven pact for stricter budget discipline. But disputes over the limits of austerity, & Greece's unfinished debt restructuring negotiations, hampered efforts to send a more optimistic message that Europe is getting on top of its debt crisis. Leaders agreed that a €500B euro European Stability Mechanism will enter into force in Jul, a year earlier than planned, to back heavily indebted states. Europe is already under pressure from the US, China, the IMF & some of its own members to increase the size of the financial firewall. The risk premium on southern European gov bonds rose while the € fell on concerns about a lack of tangible progress in the Greek debt talks & gloom about Europe's economic outlook. Highlighting those fears, Spain's economy contracted in Q4 for the first time in 2 years & looks set to slip into a long recession. France halved its 2012 growth forecast to a mere 0.5%, another potentially ominous sign for President Sarkozy's troubled bid for re-election in May.
French Prime Minister Fillon said that the country is slashing its forecast for economic growth this year from 1% to 0.5%. The move enables the gov to "take into account the deteriorating economic environment" before revising the budget with a last-minute package of measures that are to go before the Cabinet next week. Last week the IMF said it forecasts the French economy to grow only 0.2% this year. The lower growth figure will have an approximately €5B impact, Fillon said, but he added that this "can be reabsorbed" because of past efforts and a prudent budget. France is the eurozone's 2nd-largest economy, after Germany, & its lagging finances could weigh on efforts to bail out weaker eurozone countries. The updated budget is expected to include higher consumption taxes & other measures to cut debts & boost growth. With presidential elections in Apr & May, the measures must be rushed through a parliament, about to close down ahead of the voting. One of the measures is to impose a 0.1% tax on financial transactions starting in Aug. Markets don't like added taxes.
Sarkozy to Levy Transaction Tax Opposed by Finance Industry, Central Bank
Morgan Stanley (MS) & Citi (C) are making some of the biggest cuts in compensation for investment bankers, averaging as much as 30%, as they grapple with lower revenue. MS, owner of the largest brokerage firm, will also cap cash awards & defer more payouts while Credit Suisse (CS) plans to give a portion of senior employees’ bonuses in bonds backed by derivatives. Citi may cut some bonuses in the securities & banking unit as much as 70 %. Curbing pay & changing formulas are done to limit expenses, with some giving more stock & less cash. Revenue shrank last year as mergers & trading slowed. Bank of America (BAC), a Dow stock, plans compensation cuts averaging 25%, with some cash bonuses capped at $150K & some base salaries frozen. Goldman Sachs (GS) cut discretionary compensation “significantly more” than the its 26% drop in revenue, CFO David Viniar said on Jan 18. Times are tough everywhere & these cuts will result in lower taxes paid by the top 1%.
Morgan Stanley, Citigroup Lead Pay Cuts
The markets behaved fairly well considering the negative news from Europe & a dismal report on consumer spending. Negotiations about refinancing the Greek debt are touchy. A bigger than expected 50% haircut for the bondholders could trigger a default rating by the credit agencies. This is new to everybody & nobody knows where it will lead. Unfortunately the bias is strongly on the negative side. One prominent stock has been immune from the selling of late, Apple (AAPL). It jumped 5 to 453, yet a another record after reporting a blowout qtr. Facebook's IPO sounds like it's around the corner, maybe this week. If so, the market's reception will give a strong indication about its market's appetite for risk. Treasuries have been surging in the last week, risk averse thoughts are alive & well.
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