Tuesday, June 12, 2012

Higher markets on stimulus speculation

Dow rose 77, advancers over decliners 3-2 & NAZ was up 16.  The Financial Index rose 1½ to the 187s.  The MLP index fell almost 2 to the 361s & the REIT index was up a fraction in the 247s.  Junk bond funds eased back & Treasuries were lower.  Oil sloshes around an 8 month low.  Gold gained for the 3rd straight session on speculation about speculation on additional stimulus measures to boost growth, increasing demand for bullion as a hedge against inflation.

JPMorgan Chase Capital XVI (AMJ)

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CLN12.NYM....Crude Oil Jul 12...83.10 ...Up 0.40  (0.5%)

GCM12.CMX...Gold Jun 12....1,603.10 ...Up 7.60  (0.5%)

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Spanish bonds dropped for a 2nd day after a European rescue of its banks was announced as Fitch said the gov will miss its budget-deficit targets, casting doubt on Prime Minister Rajoy's plan to stabilize the economy.  The yield on 10-year gov bond rose 17 basis points to 6.68% amid increasing concerns Rajoy may fall short of his objective set by the EU of cutting the deficit to 5.3% of GDP this year & 3% next year.  The spread over German bunds widened 9 basis points to 529 basis points.  Spanish bonds also fell on Fri, the day before Rajoy sought a €100B ($124B) rescue for the country’s banks.  Rajoy has built his strategy for avoiding a full-blown sovereign bailout around meeting deficit goals that some economists already said can’t be achieve.  Bailout 4 will do just so much good.

Spain Bonds Extend Drop on Doubts Rajoy Can Meet Budget Goal

Fed’s Evans Says He Would Support Various Stimulus Plans

Charles Evans
Photo:   Bloomberg

Charles Evans, President of  the Federal Reserve Banks of Chicago, will support a variety of measures to generate faster job growth, underscoring his preference for more stimulus.  “I’ve been in favor of pretty much any accommodative policy I’ve heard about,” Evans said on Bloomberg Television.  “Extending the Twist would be useful,” he said.  “More asset purchases would be useful. More mortgage-backed securities purchases would be good.”  The FOMC meeting is next week as slowing job growth at home & a deepening European crisis weigh on the outlook.  Evans (who doesn’t vote on the FOMC this year) has been one of the most vocal proponents of additional easing at the Fed.  “I would prefer that we worked harder to clarify our forward guidance,” Evans said.  The FOMC last met April 24-25, when it said it expected to keep its benchmark rate near zero thru at least late 2014 to reduce an “elevated” level of joblessness. “At the moment we’re looking at probably 2.5 percent growth over the next two years,” Evans said.  “I’d like the economy to be a lot stronger. As long as it’s only economic shocks I think we’d be able to weather that without too many difficulties.”  “I’m sure that we’ll get the unemployment rate below 7 percent -- the question is when,” said Evans.  “It’s currently going to take longer than anybody would like. If we had more aggressive monetary policy, it would happen sooner.”  That's one view on stimulus.

Fed’s Evans Says He Would Support Various Stimulus Plans

Prices of goods imported into the US fell in May by the most in almost 2 years, from lower costs for fuel & food.  The 1% decrease, the biggest since Jun 2010, follows an unchanged reading in Apr (revised from an originally reported 0.5% drop).  The drop matched the forecast.  Slowing economies overseas may reduce demand for raw materials, holding prices in check while energy costs retreat.  Compared with a year earlier, import prices decreased 0.3%, the first decline since the year ended Oct 2009.  The cost of imported petroleum fell 4.2% from the prior month, the most since May 2010 & was down 2% from a year earlier.  The price of imported food decreased 0.7%.  This data is helpful on the inflation front.

Markets are drifting with an upward bias as they hope for news about more stimulus.  Dow is back to where it was on May 17.  While that represents some improvement from recent lows, there is no conviction behind buying as traders are awaiting developments.  The Greek election is at the end of the week & nobody knows how it will turn out, although the best guess is that the winners could take Greece out of the eurozone.

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