Tuesday, March 6, 2012

Markets fall on worries over refinancing Greek bonds

Dow began the day lower & remains near its lows at minus 148, decliners over advancers 10-1 & NAZ fell 39.  Banks stocks led the selling, with the Financial Index dropping 4 to 195.

The MLP index dropped a very big 5+ to the 401s & the REIT index fell 2+ to the 244s.  A chart for an MLP tracking fund shows recent selling in MLPs.  Junk bond funds were lower & Treasuries rose on a flight too safety by investors.  Oil dropped as the EU offered to restart negotiations with Iran over its nuclear program & as the European economy contracted in Q4.  This dreary news brought selling to gold.

JPMorgan Chase Capital XVI (AMJ)

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CLJ12.NYM....Crude Oil Apr 12...105.27 .....Down 1.45  (1.4%)

GCH12.CMX...Gold Mar 12......1,670.00 ...Down 33.00  (1.9%)

Get the latest daily market update below:

Euro-Region Economy Contracts as Investment, Exports Decline

Photo:   Bloomberg

Europe's economies contracted in Q4 as investment declined by the most since 2009.  Exports & consumer spending declined.  The GDP shrank 0.3% from Q3 according to the EU statistics office, confirming an estimate published last moth.  Exports fell 0.4% after a 1.4% gain in Q3, while household spending declined 0.4% & investment dropped 0.7%.  While Europe is facing its 2nd recession in less than 3 years, the economy shows “tentative signs of stabilization,” according to the ECB.  ECB efforts to pump cash into the economy have helped ease concern about a credit crunch & won govs time to agree on measures to contain the debt crisis.  The ECB lent 800 banks €529B ($698B) for 3 years last week in the biggest single refinancing operation in its history, taking total long-term lending above €1T.  Finance ministers also authorized bailout II to raise money for Greece’s bond exchange, the first step in releasing funds from a €130B  rescue package.  ECB policy makers said they expect the loans will be channeled to households & companies, helping to boost the real economy.  That assumes banks lend this money rather than sit tight.  Brazil, one of the 4 countries in BRIC, said its economy grew just 2.7% last year, the worst performance since 2003..

European Economy Shrank in Fourth Quarter

Private Investors Holding About 20% of Greek Debt

Photo:   Bloomberg

About 20% of private investors have agreed to the bond swap required for an intl bailout of Greece.  The creditors’ steering committee that said yesterday they would join in the exchange with a face value of €40B ($53B), compared with the €206B of Greek bonds in private hands.  European officials are pressing investors to swallow the writedowns to avert even greater losses.  The goal, which runs through Thurs, is to reduce 53.5% of privately held Greek debt, helping avert an uncontrolled default.  Only one steering-committee member, Landesbank Baden- Wuerttemberg, has still to back the offer.  Germany’s DSW investor protection group separately advised private-sector bondholders to reject the offer.  A completion of the bond exchange is crucial to Europe’s efforts to turn the page on the Greek sovereign debt saga.  The 2nd rescue package depends on the swap’s outcome.

Private Investors Holding About 20% of Greek Debt to Participate in Swap

Merck, a Dow stock, expects Q1 EPS to be 95-98¢, excluding items, below the average estimate of $1.01.  Including items, EPS should be 52-60¢.  With the € exchange rate at $1.31, currency is expected to have a 1-2% unfavorable impact on sales in Q1.  MRK reiterated its full-year forecast, calling for EPS of $3.75-$3.85, excluding restructuring & acquisition-related costs, & $2.04-$2.30 including those items.  Revenue should be near 2011 levels on a constant currency basis, but at current exchange rates, sales would be reduced 2-3%.  The stock was off 34¢.

Merck’s First-Quarter Profit Forecast Falls Below Analyst Estimates

Merck & Company, Inc. (MRK)

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A shorter term graph below highlights the sideways trading for the Dow as it tried to get over 13K.  Gloomy thoughts coming from Europe & about getting the Greek debt mess straightened out are too much for stocks to deal with.  Yesterday, China cut its growth forecast, not helpful to this market.  Until the Greek bond refinancing package is approved on Thurs, sellers should be in charge. 

Dow Industrials

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