Friday, June 29, 2012

Markets soar on euro debt hopes

Dow was up 277 & closed at its highs, advancers over decliners a relatively muted 6-1 & NAZ jumped a massive 85 (helped by a 15 rise at Apple (AAPL)).  The Financial index rose 5 to the 197s, erasing most of the losses in May.

The MLP index rose a very big 7 to the 377s (a 6 week high) & the REIT index was up 6 to the 261s (within 3 of its yearly highs).  Junk bond funds were higher & Treasuries pulled back (money used to buy stocks).  Oil rallied but crude posted a deep Q2 loss.  Gold rose sharply but suffered the biggest quarterly drop in 8 years after a dire performance in May & Jun (see below).

AMJ (Alerian MLP Index tracking fund)


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Treasury yields:

U.S. 3-month

0.081%

U.S. 2-year

0.305%

U.S. 10-year

1.648%

CLQ12.NYMCrude Oil Aug 1284.83 Up 7.14 (9.2%)


Live 24 hours gold chart [Kitco Inc.]




Leaders Grant Bond Market Respite That ECB May Need to Buttress

Photo:   Bloomberg

Euro-area leaders granted immediate respite to the stressed bond markets of Spain & Italy, leaving investors looking to the ECB to provide lasting relief.  By addressing flaws in their bailout programs, moving toward a banking union & trying to break a negative loop between troubled sovereigns & banks, resulted in the biggest rally in Spanish bonds & € (up 2 pennies) this year.  But extending gains may depend on the willingness of ECB policy makers to next week reward political progress with greater crisis-fighting steps of their own. govs & also avoid their past mistake of declaring victory too soon.  The euro’s guardians also agreed to drop a requirement that taxpayers get preferred creditor status on emergency loans to Spanish banks.  Other steps included agreeing to use rescue funds to stabilize markets in certain conditions.  “There is pressure on the financial markets, that cannot be denied,” Chancellor Merkel said.  “There was an interest here to find solutions. My task was to see to it that the solutions respect the procedures and rules that we have.”  Establishing the bank monitor & allowing the bailout fund to recapitalize banks could take “several months or perhaps a year,” she said in Berlin.  Sounds good, but now they have to convert talk into action.  Not so easy.



Consumer spending stalled in May as stagnant wages & slackening employment held back the biggest part of the US economy.  Purchases were little changed after a 0.1% rise the prior month that was smaller than initially reported, according to the Commerce Dept   A lack of jobs may prompt Americans to keep focusing on replenishing depleted nest eggs, hurting sales at retailers.  Economists were cutting forecasts after the figures, indicating the economy slowed further in Q2.  Get ready for drab numbers on the US economy next month.

Consumer Spending in U.S. Stalls as Employment Weakens: Economy


  • William C. Dudley, president and chief executive officer of the Federal Reserve Bank of New York, answers questions during a lunch at the Council on Foreign Relations in New York, May 24, 2012. REUTERS/Andrew Burton
Bill Dudley
Photo:   Yahoo

Federal Reserve officials said they were keeping an eye out for any signs that slowing growth is raising deflation risks but differed on how worrisome sluggish job markets are for modest US economic recovery.  New York Federal Reserve Bank President William Dudley said he had modestly lowered his expectations for inflation in coming months.  He needs to see more information on the jobs market & the unfolding of the European sovereign debt crisis before having a clearer sense of the health of the US economy.  He said employment growth has "slowed considerably of late" as the economy has lost momentum.  "Although some of the current uncertainties will take time to resolve, I can imagine material data on a number of dimensions could become available in the coming weeks and months that could lead me to adjust my forecast further," Dudley told an audience in the Puerto Rico.  "I will be paying particularly close attention to whether domestic momentum and hiring picks up now that the pay-back for the mild winter is over, and whether financial conditions, which are heavily influenced at present by developments in Europe, ease or tighten further," he said.

Fed Officials Eye Darker U.S. Growth, Jobs Picture Reuters


Dow recovered much of its losses in May, but still ended down over 300 in Q2.  It rose almost 800 off its lows in early Jun.  But the rally this week is based on a lot of wishful thinking about the euro bailout.  Sobering data on the US economy has been largely ignored & report cards will be issued shortly.  The first is the jobs report for Jun, next Fri.  YTD Dow is up 750, not bad all considered.

Dow Jones Industrials:


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Markets surge on euro debt plans

Dow jumped 208, advancers ahead of decliners 8-1 & NAZ was up 62.  The Financial Index gained 3½  to the 195s, a 6 week high.

The MLP index soared 6 to the 376s & the REIT index was up 4 to the 259s (5 below its yearly highs).  Junk bond funds were higher while Treasuries pulled back.  Oil surged from the lowest level in 9 months after European leaders agreed to relax conditions on emergency loans for Spanish banks & on possible help for Italy.  Even though gold climbed, this is its worst qtr in 8 years.

AMJ (Alerian MLP Index tracking fund)

stock chart

Treasury yields:

U.S. 3-month

0.081%

U.S. 2-year

0.313%

U.S. 10-year

1.655%

CLQ12.NYM...Crude Oil Aug 12...81.56 ......Up 3.87 (5.0%)

GCN12.CMX...Gold Jul 12.......1,593.80 ...Up 44.10  (2.9%)



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Spain's Prime Minister Mariano Rajoy

Spain's Prime Minister Mariano Rajoy
Photo:   Bloomberg

Working thru the night in the face of pressure from the embattled euro zone countries Italy & Spain, European leaders agreed to use bailout funds to recapitalize struggling banks directly, according to the European Council president, Herman Van Rompuy.  The decision would allow help to banks without adding directly to the sovereign debt of countries, which has been a problem for Spain & potentially for Italy.  Both countries have seen the interest rates rise to levels that would be unsustainable in the long term.  If Spain & Italy could not go to the markets to roll over their debt, it was agreed that there would be an existential threat to the € in the short to medium term.  Spain is seeking €100B to recapitalize its banks, damaged by a property bubble.  Mr. Van Rompuy called the agreement a “breakthrough that banks can be recapitalized directly,” which represents a concession by northern European countries, including Germany.  Markets liked the news, but I'm not sure how this will work out.  The € shot up 2 pennies to almost $1.27 (top end of its recent trading range).

EU Leaders Ease Debt-Crisis Rules on Spain


U.S. Consumer Spending Was Unchanged

Photo:   Bloomberg

Consumer sentiment fell in Jun to the lowest level for 2012, dragged down by a sluggish job market & weak growth.  The Thomson Reuters/University of Michigan index of consumer sentiment fell to 73.2 from 79.3 in May.  Higher-income households said they planned to cut back on spending, accounting for much of the drop.  The report echoes the Conference Board's survey of consumer confidence, which fell in Jun for the 4th straight month.  Concerns about the job market are outweighing the benefits of lower gas prices.

Michigan’s Consumer Sentiment Gauge Unexpectedly Decreased to 73.2 in June


KB Home rose to a 3- month high after reporting a narrower quarterly loss as more houses were sold at higher prices.  The net loss per share for fiscal Q2 was 31¢ compared with a loss of 89¢ a year earlier, better than the loss of 35¢ predicted.  Record-low borrowing costs & a dwindling inventory of houses on the market are helping to strengthen new-home sales.  Revenue climbed 11% to $303M & home deliveries rose 2% to 1290 houses.  The average selling price jumped 9% to $233K.  Orders increased 3% from a year earlier to 2049 houses.  Backlog, an indication of future sales, climbed 22% from a year earlier to 2962 homes.  “Entering the second half of 2012, we have a strong backlog of homes with higher selling prices and better margins to help restore profitability,” CEO Mezger said.  Its transition to Nationstar is “progressing as planned” & will result in “improved mortgage origination execution” for homebuyers.  The stock rose 45¢.

KB Home (KBH)


stock chart


Bulls returned in force on news out of Europe.  A temporary fix is good enough.  MLPs were also bid up.  After leading the markets for 3 years, the index is back to where it was 6 weeks ago.  But it's still down 14 YTD.  Dow is up 180 (on today's strength) this week & 500 in Jun.  Any moves in the markets on the last day in a qtr are suspect, since money managers are buying & selling to even out positions.  Next Fri the Jun jobs report will be released, expectation are not high.

Dow Jones  Industrials


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Thursday, June 28, 2012

Late day buying pares market losses

Strong buying going into the close reduced losses.  Dow finished down 24, advancers over decliners 5-4 & NAZ was off 25.  Bank stocks led the recovery, reducing the loss for the Financial Index to a fraction in the 192s.  It had been down more than 3 at midday.

The MLP index rebounded 1+ to 370 & the REIT index rose 2 to 255.  Junk bond funds were petty much even but Treasuries rose, bringing lower yields.  Oil fell to an 8-month low as applications for unemployment benefits remain near the highest level of 2012, indicating that fewer commuters will need fuel to get to work.  Gold slumped 24, back to the mid $1500s & close to yearly lows.

AMJ (Alerian MLP Index tracking fund)


stock chart




Click below for the latest market update:


Treasury yields:

U.S. 3-month

0.081%

U.S. 2-year

0.301%

U.S. 10-year

1.572%


CLQ12.NYM...Crude Oil Aug 12...77.59 T...Down 2.62  (3.3%)

Live 24 hours gold chart [Kitco Inc.]




Chancellor Angela Merkel

Photo:   Bloomberg

The EU focused on immediate help for Spain & Itlay at the start of a 2-day summit intended to chart a path out of their financial crisis.  The financial ministers of 27 govs will discuss buying Spanish & Italian gov bonds to bring down borrowing costs that are near euro-era records.  Finland is also proposing that bailout funds buy collateralized gov debt in primary markets.  “I’ve come for very rapid solutions to support countries in difficulty on the markets,” French President Hollande said.  Without specifying Spain or Italy, he said they “have made considerable efforts to deal with their public accounts.”  Leaders will consider short-term measures to stem the sovereign debt turmoil as the EU plans to strengthen the bloc’s common currency & financial oversight ran into immediate opposition from Chancellor Merkel who has become increasingly isolated as other ministers push for quicker action to ease the crisis that emerged in Greece in late 2009.  Italy needs to be able to pool debt sales with the 16 other nations   “I don’t think that anything more can be done, because otherwise you kill the economy,” Prodi, Italy’s prime minister from 2006-2008, said. “European solidarity, which must come to euro bonds, is the only possible solution.”  Today Italy paid the most to sell 10-year debt (6.19%) since Dec.  Spanish 10- year yields rose to 6.94%.  Merkel, who has rejected calls to investigate joint debt or do more to cut Spanish & Italian borrowing costs, said her focus will be on measures to boost economic growth.   It looks like nobody is in charge, so it will be hard to accomplish anything (besides a lot of talk).

EU Chiefs Put Bond Buying on Table as Crisis Summit Opens


IMF May Consider Greek Loan Changes After Team Visit Next Week

Photo:   Bloomberg

The IMF is open to adjusting the terms of a Greek bailout & will send a team to Greece next week to meet with the new gov.  IMF officials will join officials from the European Commission & the ECB at the meetings.  The IMF also said a separate "negotiating team" from the fund will then visit Greece after the fact-finding visit.to discuss the policies Greece must follow to meet the terms of its bailout.  "If the new government has ideas on how those program objectives can be achieved, we're open to those discussions," an IMF official said.



Mortgage rates in the US were little changed, keeping borrowing costs at the record-low levels that have helped bolster the housing market.  The average rate for a 30-year fixed mortgage held at 3.66% last week, the lowest in Freddie Mac records dating to 1971.  The average 15-year rate dropped to 2.94%, also a record, from 2.95%.  Low borrowing costs are helping to strengthen housing demand as property prices stabilize.  Contracts to buy previously owned homes rose 5.9% last month, matching a 2-year high.  The S&P/Case Shiller index of values in 20 cities dropped 1.9% in Apr from a year earlier, the smallest decline since Nov 2010.  Purchases of new U.S. houses rose in May to a 2-year high according to the Commerce Dept.  Housing is producing favorable statistics, although a full recovery is still down the road.

Mortgage Rates for 30-Year Fixed Loans in U.S. Hold at Record-Low 3.66%


The € is a good proxy for what's going on in Europe & it's down to $1.24½, close to yearly lows.  JPMorgan (JPM), a Dow stock & used to be the best managed bank, has trouble estimating the loss from its Europe debt mess.  It began at $2B, rose to $9B & now maybe it's not that bad.  Swell!  Other banks may be reporting ugly trading stories when earnings are released in a couple of weeks.  But in the last hour of trading, Dow recovered most of its 200 decline.  Now it's up 200 for Jun, not an impressive recovery from the rough days of May.  Concerns about global banks, a surprise Supreme Court ruling upholding & pessimism about the ability of a European summit to ease the region's debt crisis dominated trading for most of the day.  Those stories are not going away soon. 

Dow Jones Industrials


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Bank stocks lead a broad decline

Dow dropped 145, decliners over advancers 3-1 & NAZ fell 40.  Banks stocks were hit with selling, taking the Financial Index down 3 to the 189s.  The MLP index fell 3 to the 365s after yesterday's big rise & the REIT index was down almost 2 to the 251s.  Junk bond funds slipped & Treasuries rose as stocks retreated.  Oil & gold fell with gold near its lows for 2012 in the mid $1500s.

AMJ (Alerian MLP Index tracking fund)


stock chart

Treasury yields:

U.S. 3-month

0.076%

U.S. 2-year

0.301%

U.S. 10-year

1.575%

CLQ12.NYM...Crude Oil Aug 12...79.59 ....Down 0.62 (0.8%)

GCM12.CMX...Gold Jun 12......1,571.60 ...Down 2.40  (0.1%)




Get the latest daily market update below:



Jobless Claims in U.S. Hovered Last Week Near This Year's High

Photo:   Bloomberg

The number of applications for unemployment benefits are hovering near the highest level of the year, showing little improvement in the US labor market.  Jobless claims decreased 6K to 386K last week according to the Labor Dept, in line with the forecast.  The prior week’s reading was revised up to 392K from 387K, matching an Apr figure as the steepest of 2012.  The 4-week moving average decreased slightly to 387K, which was the highest since Dec 3.  Concern about the fallout from the European debt mess & the so-called fiscal cliff that will face the US at the end of this year may prompt employers to keep payrolls lean. 

Jobless Claims in U.S. Hovered Last Week Near 2012 High


Consumer Confidence Climbs

Photo:   Bloomberg

US consumer spending & export growth were not as robust as previously believed in Q1, suggesting less momentum in the economy.  The Commerce Dept confirmed that the economy grew at a 1.9% annual pace in Q1, but the mix of growth was not encouraging.  Consumer spending, 70% of economic activity, increased at a 2.5% rate, rather than the previously reported 2.7% pace.  There are signs that consumer spending slowed in Q2, with retail sales falling in Apr & May.  Exports grew at a 4.2% rate instead of 7.2%.  The loss of momentum in both consumer spending & exports bodes ill for Q1 growth.  The Q2 growth rate is forecast around 2%, but with global demand cooling amid Europe's debt woes & an uncertain fiscal policy path at home forcing households to be cautious, even that estimate might be too optimistic.  Business inventories increased $54.4B, instead of $57.7B, adding only 0.1 percentage point to GDP growth compared with 0.21 percentage point in the previous estimate.  Excluding inventories, the economy grew at a revised 1.8% rate, rather than 1.7% & up from 1.1% in Q4. This data is drab.

U.S. Economy Grew 1.9% in First Quarter on Consumer Spending


The Supreme Court upheld Obamacare in a 5-4 vote.  But the eyes of traders are looking east towards Europe.  EU is having another big summit & there are growing worries that Spain & Italy could lose access to borrowing more funds without help from EU.  Little was expected from the summit & it looks like that low standard will not be met with disagreement among leading countries. Dow is up just 100 in Jun, a month the bulls were hoping would be a recovery month.

Dow Jones Industrials


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