Tuesday, June 26, 2012

Markets drift after weak consumer confidence data

Dow fell 18, decliners barely ahead of advancers & NAZ rose 4.  The Financial Index was up fractionally in the 189s.  The MLP index edged up a fraction in the 362s & the REIT index was even, just above 250.  Junk bond funds were mixed to higher & Treasuries slid lower.  Oil is trading sideways while gold pulled back 17 after yesterday's rally.

AMJ (Alerian MLP Index tracking fund)

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U.S. 2-year


U.S. 10-year


CLQ12.NYM....Crude Oil Aug 12...79.32 ....Up 0.11  (0.1%)

GCM12.CMX...Gold Jun 12.......1,576.00 ..Down 11.50 (0.7%)

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  • <p>               Ministro de Economía español Luis de Guindos habla con su colega austríaca Maria Fekter en la reunión de ministros de la UE, Luxemburgo, 22 de junio de 2012. De Guindos dijo el m,artes 26 de junio de 2012 que se impondrá "condiciones" al sector bancario, incluso a los que no soliciten dinero del fondo de rescate europeo, cuyo monto no reveló. (AP Foto/Virginia Mayo)
Economy Minister Luis de Guindos
Photo:   Yahoo

Spain's borrowing costs soared in a pair of short-term auctions as investors worried that the country would not be able to manage an expensive rescue of its ailing banking sector.  The Treasury auctioned €3.1B ($3.9B) in the 2 maturities, just above its target range & demand was strong.  But the cost was very high, an indication that investors are concerned that the Spanish gov will be stuck with huge expenses after a European bailout.  The interest rate on 3-month bills was 2.36%, nearly triple the 0.85% paid in the last such auction on May 22. The rate on the 6-month bills was 3.24%, nearly twice as much as the 1.7% paid in May.  Fears were raised that Spain will be stuck with huge liabilities.  Economy Minister de Guindos said no new austerity measures have been set as conditions for the loan which could anger other bailed-out countries that did have strings attached to their rescues.  However, Prime Minister Rajoy said that new "economic measures" were in the works even though the Spanish economy is back in recession, widely understood to include an increase in the sales tax, a tax on goods & services.  Nothing new resolved.

Spain pays sharply higher rates in debt auction AP

Santander Among 28 Spanish Banks Cut by Moody’s

Banco Santander in Madrid
Photo:   Bloomberg

Spain's largest lenders, were downgraded by Moody’s because of the country’s sovereign debt & souring real estate loans.  At least a dozen lenders were lowered to junk status.  Moody's downgraded 6 banks 4 levels & 10 banks 3 grades, with the rest getting 1&2 tier declines.  Moody’s issued a 3-step reduction in Spain’s credit grade 2 weeks ago, citing the debt, a weakening economy & limited access to capital markets.  The lenders are facing the “reduced creditworthiness” as well as the “expectation that exposures to commercial real estate will likely cause higher losses, which might increase the likelihood that these banks will require external support,” Moody's said.

In Jun confidence among US consumers declined to a 5-month low as Americans became less optimistic about the outlook for the labor market & incomes.  The Conference Board index dropped for a 4th straight month, to 62 from a revised 64.4 in the prior month & below a forecast of 63.  Falling gasoline prices are having limited effect at the same time hiring & income growth cools.  “If this trend continues, spending may be restrained in the short term,”  Lynn Franco, director of economic indicators at the Conference Board, said. “The improvement in the present situation index, coupled with a moderate softening in consumer expectations, suggests there will be little change in the pace of economic activity in the near term.”  The share of consumers who said jobs are currently plentiful rose to 7.8% from 7.5% & those who said jobs are hard to get climbed to 41.5% from 40.9%.  Buying plans were mixed. The share of households planning to buy autos was unchanged from a month earlier, while fewer said they intended to purchase major appliances.  More consumers indicated they planned to buy a house in the next 6 months as lower mortgage rates make properties more affordable.  Another indication that the economy is sputtering.

Consumer Confidence in U.S. Dropped to a Five-Month Low in June

This is another quiet summer trading day with very little going on.  European leaders are trying to get their act together in what is an impossible situation.  This week's meeting is not going to accomplish much, if anything.  Apple (AAPL), with the largest market cap in the world, is down 30 in Q2, one more indication of what is turning out to be a dismal qtr.  Dow failed to crack thru 13K as in the past.  I think its next major test will be down at 12K.

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