Wednesday, May 30, 2012

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)

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CLN12.NYM...Crude Oil Jul 12...88.51 ...Down 2.25  (2.5%)

GCM12.CMX...Gold Jun 12...1,535.10 ...Down 13.60  (0.9%)

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EU Weighs Direct Aid for Banks, Common Bonds as Crisis Antidote

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

  • Realtor Bolin shows a home to Amy and Eddie Deon in Riverside, California May 24, 2012. REUTERS/Alex Gallardo

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.

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.

Dow Industrials

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