Markets were mixed and concluded a very bad month

Late day buying brought averages back near breakeven.  Dow finished down 26, advancers & decliners were about even & NAZ was off 10.  The Financial Index rose 1+ to the 188s, still at depressed levels.

Buyers reduced losses for MLPS, giving the index a loss of only 3+ to the 365s & the REIT index rose 1+ to the 248s.  Junk bond funds were mixed, after having a rough month & gains in Treasuries were trimmed late in the day (see below).  Oil had a bad day & a terrible month.  Gold has also gotten little respect lately, even with heavy demand for safe haven investments.

JPMorgan Chase Capital XVI (AMJ)

Click below for latest market update:

Treasury yields:

U.S. 3-month	0.066%
U.S. 2-year	0.262%
U.S. 10-year	1.559%

CLN12.NYM

....Crude Oil Jul 12

...86.65

... 1.17

(1.3%)

Treasuries rallied, pushing 5, 7- & 10-year yields to record lows, amid concern the European debt crisis is widening & on data showing the US economic expansion slowed in Q1.  The yield on the 10-year note pared losses as a report indicated the IMF was discussing contingency plans for Spain’s banking crisis & a Greek poll showed support for the largest pro-bailout party.  30-year bond yields earlier fell to the lowest since Dec 2008 on speculation that tomorrow’s May employment data may trail estimates. The 10 year yield reached as low as a record 1.53%.  5- year note yields dropped as low as 0.63% & 7-year note yields tumbled to 0.98%. That's less that 1% annually for 7 years.  The € fell to an 11-year low versus the ¥, while 10-year yields on German, French, Canadian & Dutch bonds declined to records lows.  30-year bonds yields declined six basis points to 2.65%.  But the record low was 2.509% in Dec 2008.  10-year yields are down from 5.3% in Jun 2007, before the financial crisis intensified, & below the average of 4.96% during the past 20 years.  Trading volume yesterday rose to the highest since Apr 10, reaching $324B, up from $196B on the previous day & is above the 2012 average of $242B.  US debt pared a 2nd monthly advance earlier as a technical indicator signaled their recent decline was poised to end.  All this money is betting against a stock market rally.

Treasury Yields Fall to Records on Europe Debt Concern

The IMF is not preparing financial aid for Spain & the country denied any talks about a bailout even as its borrowing costs approach euro-era records.  “There’s been no request for financial assistance from Spain and the IMF is not making plans for financial assistance to Spain,” Gerry Rice, the IMF’s director of external relations, said.  Spain is trying to shore up lenders & help cash-strapped regions as its own 10-year bond yields approach the 7% level that prompted bailouts in Greece, Ireland & Portugal.  It is “senseless” to say Spain is talking to the IMF, the Spanish Economy Minister said after the Wall Street Journal reported that the IMF’s European department started contingency plans for a rescue loan to Spain should the country fail to find funds to bail out Bankia.  “The IMF’s spokesman today said no bailout is contemplated for Spain. I have nothing to add further than refer to his comment.”.  IMF Managing Director Lagarde will meet the Spanish Deputy Prime Minister to discuss “recent economic developments in Spain.” & an IMF team will start its annual assessment of the country’s economy next week.  An IMF spokesman said the body always has contingency plans. Part of the job is to be prepared for any eventuality & the IMF is always discussing scenarios with all member countries. This is the usual gobbledygook expected from financial agencies.

Spain Hasn’t Asked for IMF Aid, No Help Planned


Short sales of US homes rose to a 3-year high in Q1 as banks agreed to let more borrowers unload property at a loss, putting the transactions on pace to surpass deals for foreclosures.  Sales of homes in the pre-foreclosure process increased to 109K, up 25% from a year earlier & the most in 3 years.  Most of those transactions were short sales, in which the lender agrees to a price that’s less than the mortgage balance. The number of bank-owned homes sold during Q1 fell 15% from a year earlier to 123K.  Lenders are stepping up short sales to reduce losses, take advantage of gov incentives & avoid legal challenges to foreclosures as they struggle with non-performing mortgages.  Pre-foreclosure homes, those that had received a default or auction notice, sold for an average $175K in Q1, with an average discount of 21% compared with properties not facing seizure.  The average discount was 16% a year earlier.  The 5 largest U.S. mortgage servicers, including Bank of America (BAC) & JPMorgan (JPM), agreed to pay $25B to settle allegations they wrongfully repossessed homes. The deal, which requires banks to produce evidence before seizing property from a delinquent borrower, was expected to trigger a wave of foreclosures that hasn’t materialized yet.  This is part of cutting the huge inventory of homes that is a major depressing factor for the building industry.

Short Sales of U.S. Homes Reach Three-Year High as Foreclosure Deals Drop

Buyers came back to limit damage for the day, but May was not a pretty month for stocks.  Then sellers took over in the last hour.  Dow fell over 800 in May & enthusiasm by the bulls has been subdued.  The European debt mess keeps going from bad to worse.  I get tired of saying that, but it tells the story. The China slowdown is getting less attention, but it is having a negative effect on the global economy.  The US recovery is stumbling.  GDP data today was a reminder that while the economy is growing, it's not good enough to reduce the high unemployment.  Dow started the month well over 13K.  Now its trying to hold above 12K.  The jobs tomorrow report has the potential extend the slide for the Dow.

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Markets tumble on disappointing economic data

Dow sank 88, decliners over advancers almost 4-1 & NAZ fell 32 (even high flyer Apple was down).  The Financial Index fell 1+ to the 185s, lowest level since the start of 2012.

The MLP index fell another big 5+ to the 363s (a 6 month low) & the REIT index was off 1+ to the 245s.  Junk bond funds were mixed & Treasuries rose, pushing 10-year yields to record lows for a 2nd day, on concern the European debt crisis is widening & a slowdown in US economic expansion.  Oil was poised to cap the biggest monthly drop in more than 3 years on speculation that slowing US economic growth & Europe’s debt crisis will reduce fuel demand.  Gold is on track to have its worst run of monthly losses in more than 11 years as concern that Europe’s fiscal crisis drove investors to seek the dollar as a haven over the precious metal.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month	0.056%
U.S. 2-year	0.258%
U.S. 10-year	1.576%

CLN12.NYM

....Crude Oil Jul 12

...87.71

.... 0.11

(0.1%)

GCM12.CMX

...Gold Jun 12

....1,568.20

... 4.80

(0.3%)

Get the latest daily market update below:

Photo:   Bloomberg

The number applying for unemployment payments rose last week to a one-month high, signalling that progress in reducing joblessness may be stalling.  First-time claims rose 10K to 383K last week from a revised 373K in the prior week according to the Labor Dept & was above the estimate of 370K.  Estimates ranged from 364K- 377K.  The number of people on unemployment benefit rolls dropped.  The prior week’s applications were initially reported at 370K.  Last week’s claims were the highest since 392K in late Apr.  The 4-week moving average rose to 374K from 370K.   The number continuing to collect benefits dropped 36K to 3.24M but that does not include workers receiving extended benefits under federal programs.  The unemployment rate among those eligible for benefits held at 2.6%.  34 states & territories reported an increase in claims, while 19 reported a decrease.   Another weak jobless claims report is not encouraging before tomorrow's jobs report for May. 

Jobless Claims in U.S. Increased by 10,000 to 383,000


The US economy grew at an annual rate of 1.9% in Q1, slower than first estimated (2.2%) according to the Commerce Dept.  The downward revision was largely because consumers & govs spent less than first estimated, businesses restocked more slowly & the trade deficit grew sharply.  Analysts project the economy is growing at a slightly faster rate in Q2, 2-2½%, & some expect the economy will maintain that pace for all of 2012, an improvement from last year's 1.7% growth.  Still, growth of 2.5% is typically enough just to keep pace with population changes.  It takes almost twice as much growth to lower the unemployment rate by 1 percentage point over a year.  A rising trade deficit slows growth because the country is spending more on foreign-made products than it is taking in from sales of US made goods.  Less restocking means companies ordered fewer goods, which decreases factory production & weighs on growth.  Consumer spending grew at an annual rate of 2.7% in Q1.  While the fastest pace since the end of 2010, it was down from an initial estimate of 2.9%, largely because of fewer auto purchases.  Gov spending at all levels fell at a 3.9% annual rate, much more than the 3.0% decline first estimated.  It was the 6th straight qtr that gov spending has declined, reflecting budget constraints at the federal, state & local levels.  Growth is expected to pick up slightly this spring because of job growth & lower gas prices, allowing consumers to spend more freely.  The economic recovery continues to plod along.

Economy in U.S. Expanded Less Than Previously Estimated


Business activity in the US expanded in May at the slowest pace in more than 2 years as orders & production cooled.  The Institute for Supply Management said today its gauge decreased to 52.7, the lowest since Sep 2009, from 56.2 in Apr (readings greater than 50 signal growth).  Expectations were for a rise to 56.8.  While demand for automobiles continues to fuel factory output, the debt crisis in Europe & a slowdown in China may cause some businesses to cut back on spending & hiring.  It;s clear, the economy is not charging ahead on all cylinders.

Business Activity in U.S. Unexpectedly Grew at Slower Pace


A dreary day is closing a dreary month.  The chart below says it all.  Dow is up a measly 125 YTD, not what all those experts had in mind at the start of 2012.  Interesting that Apple (AAPL) & Facebook) (FB), both with large market caps & sexy, growth images, are sputtering.  The jobs report tomorrow is expected to show a gain of 150K jobs & there is a good chance that the data will disappoint.

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Markets decline on growing European debt woes

Stocks plunged at the start of trading & remained depressed all day.  Dow fell 161 (closing near the lows), decliners over advancers 6-1 & NAZ dropped 33 despite a rise in Apple shares.  Banks stocks led the selling, taking the Financial Index down 4+ to the 186s, just above the 185 lows 2 weeks ago.

The MLP index sank a very big 6+ to the 369s & the REIT index was off 6 to the 246s, unusually bad days for both.  Junk bond funds were a little lower while Treasuries roared ahead, see below.  Oil fell $3+ to the 87s, its lowest level this year.  However, money seeking a safe haven pushed gold up $17 to $1566, but remaining near its yearly lows.

JPMorgan Chase Capital XVI (AMJ)

Click below for the latest market update:

Treasury yields:

U.S. 3-month	0.066%
U.S. 2-year	0.266%
U.S. 10-year	1.627%

CLN12.NYM

....Crude Oil Jul 12

87.89

... 2.87

(3.2%)

Yields on Treasury 10-year bonds fell to a record low as investors sought refuge from the deteriorating credit conditions in Europe.  The benchmark yield reached 1.617%, less than its previous all-time low of 1.671% on Sep 23, as Spain struggled to recapitalize its banks & Italian bonds fell when the country sold less than its target at a debt auction.  The Federal Reserve announced Sep 21 that it would buy $400B of longer-term Treasuries, funding the purchases with sales of shorter-term notes, in an effort to bolster the spur jobs growth in the US.  30-year bond yields plunged 13 basis points, the most since Dec, to 2.72%.  5 & 7 -year note yields also reached set all-time lows.  Benchmark gov bond markets around the world are setting records on haven demand while yielding less than Treasuries, boosting the appeal of the US securities.  Yields on the 10-year note are 22 basis points higher than the average for top-rate sovereign debt of nations from Germany to Australia, above the average of 12 basis points in the past year.  German 2 year debt yields fell as low zero today, compared with 0.27% for US 2-year notes.  US 10-year yields are down from 5.3% in Jun 2007, before the financial crisis intensified, & below the average of 4.96% during the past 20 years.  Treasuries have returned 2.6% since the end of Mar, after returning 9.8% last year, including reinvested interest, the most since 2008.  Additional buying will reduce these yields further.  Money is flowing out of stocks into Treasuries & other safe haven assets.

Treasury Yields Tumble to Records as Europe Spurs Bids

Bank of America, a Dow stock, sees damage to the world’s economy from a euro breakup as a greater threat to the lender than any loss it may suffer on direct European holdings, said CEO Moynihan.  The continent’s debt crisis is already a drag on global business, & the firm has been preparing for upheaval if the € falls apart, Moynihan said.  “It’d be not a very pleasant day and hopefully it never happens,” Moynihan said. “It would have a pretty good knock-on effect in terms of slowing down the world for a while, until the world figured out what this meant and what would happen.”  BAC & its rivals are under pressure as new regulations pinch revenue & Europe’s debt crisis roils financial markets.  The turmoil intensified as Italy failed to meet its maximum target at a debt sale, Spain struggled to bolster its banks & a Greek poll showed gains for parties opposed to austerity that came with an intl bailout.  “We worry about it a lot, and the only thing you can do is continue to position your direct position as well as you can,” said Moynihan.  The firm reported $15.1B in loans, counterparty risk & investments in Greece, Ireland, Italy, Portugal & Spain in Q1, before hedges meant to minimize risk, down from $15.3B in Q4, & a small fraction of its $2.2T total assets.  Much of the European exposure is with large firms that operate around the world, Moynihan said.  In the US, Moynihan said consumer spending is being helped by lower gasoline prices & corps keep finding ways to adjust their models to bolster profit.  “Europe and everything colors the viewpoint of the people around the capital markets,” Moynihan said. “But if you look out in general America, consumer spending is consistently up month after month after month.”  Some of the bank’s business teams need to do a better job to increase commercial lending, Moynihan said.  His thoughts are troubling for eurozone business.  The stock fell 24¢.

BofA Sees Euro Breakup Drag on Global Ecnonomy as Threat

Bank of America Corporation (BAC)

Photo:   Bloomberg

Apple CEO Cook said that television is an area of “intense focus” for the company as it seeks to add products that can build on the success of Macs, iPhones & iPads.  “This is an area of intense focus for us,” Cook said in an interview yesterday.  “We’re going to keep pulling this string and see where it takes us.”  The company is working on a television that may be unveiled this year & released in 2013.  The company sells a set-top box called Apple TV that lets customers stream video from its products or the internet to TVs.  Still, that device has yet to gain wide acceptance.  During the conference, Cook said that AAPL has “great appreciation” for Facebook (FB).  “The relationship is very solid,” he said. “We have great respect for them. I think we can do more with them. Stay tuned on this one.”  Cook also said that AAPL remains on the lookout for acquisitions, though it’s not currently seeking a large-sized deal. He added that it’s possible that more manufacturing of his company’s products will happen in the US & the iPhone, its best-selling device, might one day be assembled in the US. The stock rose $7+ to the 579s, but is still off its recent record at $644.

Apple CEO Tim Cook Says TV Is ‘Intense Focus,’ Sees Closer Facebook Ties

Apple Inc. (AAPL)

Dow is up YTD, but barely with a 200 gain.  This was not the scenario the bulls had in mind when they were revising their forecasts at the end of last year.  The euro story is turning into a disaster, which affects most companies around the world.  China growth is slowing.  It may be doing well compared with the rest of the world, but a slowdown is felt globally.  Then there's the US.  The recovery is better than in other countries (like many in Europe), but it is not getting a grade of A.  Unemployment remains high & the housing depression limits the recovery.  The beginning of 2013, when tax breaks expire & higher taxes for Obamacare kick in, is not that far away.  Dow is down 800 in May & it looks like it will extend its slide in Jun, starting off with a sub-par jobs report on Fri.

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Lower markets on increased worries over Euro debts

Dow tumbled 134, decliners over advancers 7-1 & NAZ fell 34.  Bank stocks sank, taking the Financial Index down 3 to the 188s (close to its 185 low 2 weeks ago). 

The Alerian MLP Index pulled back 4 to the 371s & the REIT index lost almost 4 to 249.  Junk bond funds were weak but Treasuries soared, bringing the yield on the 10 year Treasury down to 1.65% (a new record low).  Brent oil fell to a 5-month low on speculation that US crude stockpiles climbed to the highest level since 1990 & as the euro weakened.  Oil in the US sank to its lowest level since Oct.  Gold is s near its yearly low as frightened money is only going into Treasuries.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month	0.076%
U.S. 2-year	0.274%
U.S. 10-year	1.644%

CLN12.NYM

...Crude Oil Jul 12

...88.51

... 2.25

(2.5%)

GCM12.CMX

...Gold Jun 12...

1,535.10

... 13.60

(0.9%)

Get the latest daily market update below:

Spain
Photo:   Bloomberg

The European Commission called for direct aid for troubled banks, & called for a Europe-wide deposit-guarantee system & common bond issuance as antidotes to the debt crisis threatening to overwhelm Spain.  The commission sided with Spain in proposing that the euro’s permanent bailout fund inject cash to banks instead of channeling the money via national govs. It also offered Spain extra time to squeeze its deficit.  The use of the rescue fund to recapitalize banks “might be envisaged” & would “sever the link between banks and the sovereigns,” the commission said today.  Its president, said “it is important to use all possibilities offered in terms of flexibility.”  Proposals for more liberal use of European bailout money are likely to face resistance in creditor countries such as Germany, Finland & the Netherlands, the scenes of growing taxpayer opposition to more aid.  Signs of stress increased as Italy missed its target in a bond auction, driving its 10-year yields as high as 6.01%, the highest since Jan 31.  Doubts over the health of Spain’s banks pushed up Spanish 10-year yields as high as 6.70%, the highest since Nov 28.  This situation looks pretty ugly.

EU Weighs Direct Aid to Banks, Euro Bonds as Crisis Antidote

• 

Photo:   Yahoo

Contracts to purchase previously owned homes unexpectedly fell in Apr to a 4-month low, undermininge recent optimism that the housing sector was touching bottom.  The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in Apr, fell 5.5% to 95.5, its lowest level since Dec & much worse than expectations for the index to rise 0.1% after a previously reported 4.1% gain.  The housing market has been one of the US economy's weakest links as it recovers from the recession, but some think the sector will add to economic growth in 2012 for the first time since 2005.  This report could temper some of that optimism.  Millions owe more on their homes than they are worth, making them more cautious about spending & holding back the economic recovery.  After a debt-fueled housing bubble, prices have fallen about a third since 2006 & the housing market continues to be saddled with an oversupply of unsold properties.  The recovery in housing continues to hobble along.

Pending Sales of U.S. Existing Homes Declined Last Month by Most in a Year


Economic confidence in the euro area declined more than forecasted in May to the lowest in 2½ years after inconclusive Greek elections raised the specter of a euro breakup & Spain struggled to shore up its banks.  An index of executive & consumer sentiment in the euro area fell to 90.6 from a revised 92.9 in Apr, the European Commission said, the lowest since Oct 2009 & below the 91.9 forecast.  The economic slump shows signs of deepening after Greece failed to form a gov following May 6 elections while Spain struggles to clean up its banks amid recession & unemployment of more than 20%.  Some believe that Greece could leave the euro area by next year.  Euro- zone manufacturing & services output contracted more than estimated in May & German business sentiment had the steepest decline since Aug.  The news out of Europe remains glum.

Euro-Area Confidence Drops More Than Forecast to 2 1/2-Year Low: Economy

Yesterday's rally did not have legs.  The Euro debt mess will not be resolved anytime soon.  It's just going to get worse.  Scotch tape approaches to solve fundamental problems ain't good enough.  And the US economy, while doing better, is not moving forward on all cylinders.  Dow is down 800 in May & there is no sign of relief in its slide.

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