Monday, June 18, 2012

Markets meander after Greek election

Dow fell 37, decliners just ahead of advancers 2-1 & NAZ was up 4.  The Financial Index slid a fraction to the 192s. 

The MLP index fell 2 to 360 & the REIT index rose 2 to the 255s (9 below the yearly highs).  Junk bond funds edged higher & Treasuries were little changed.  Oil fell back & gold was also weaker on the confusion coming from Europe.

AMJ (Alerian MLP index tracking fund)

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CLN12.NYM....Crude Oil Jul 12...82.67 .....Down 1.36  (1.6%)

GCM12.CMX...Gold Jun 12.....1,616.00 ...Down 11.00  (0.7%)

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Greece may have survived the vote, but it could be set up to fail.  An election ended expectations of an imminent euro exit but left the threat hanging over the global economy & put European leaders under pressure to speed efforts to protect the rest of the region.  Spanish 10-year bond yields soared above 7% for the first time in the euro era.  Greece which is dependent on emergency loans from the EU & IMF, still has to meet the creditors’ conditions to keep the aid flowing.  The route to continued support involves axing €11.5B ($14.5B) from the budget & 150K civil service jobs.  To form a parliamentary majority, Greece’s 2 traditional political rivals, New Democracy, led by Antonis Samaras, & the Socialist Pasok party, led by Evangelos Venizelos, must form a coalition. Conditions are tense.  Greece, mired in a 5th year of recession, has been ordered to enact promised spending cuts in return for €240B in rescue packages since 2010.  This continues to be a mess with no end in sight.

Greek Election Leaves Pyrrhic Victory Risk as Bailout Talks Near

Spanish Economy Minister Luis de Guindos

Luis de Guindos, Spain's economy minister
Photo:   Bloomberg

Investors who oversee more than $3.2T expect Spain to become the 4rth euro member to need external funding as borrowing costs surge to levels too punitive for the nation to finance its needs.  Spanish debt has slumped, pushing the yield on the 10-year bond to a euro-era record of 7.14%.  The bonds are the worst performers among 26 developed markets since Jun 9, when Economy Minister Luis de Guindos said he would request as much as €100B ($127B) of emergency loans to shore up a Spanish banking system hobbled by bad assets.  Prime Minister Rajoy called on Europe's policy makers last week to do more to support Spanish bonds after the bank rescue failed to halt yields from climbing to levels at which Greece, Portugal & Ireland needed to seek help.  His gov is battling to reduce the the debt load as the recession deepens, leaving the jobless rate at more than 24%.  Spain’s 10-year bond rate has surged more than 2 percentage points from this year’s Mar 1 low. The yield climbed 26 basis points today.  The nation’s bonds also risk incurring higher trading costs at LCH Clearnet as their performance relative to Europe’s AAA rated benchmark deteriorates.  LCH, Europe’s biggest clearing house, increased the cost of trading Irish & Portuguese bonds by 15% when yield spreads for those securities climbed above 450 basis points. This is another disaster that G-20 will have to deal with this week.

Spanish Yields at 7% Show Investors Slamming Door: Euro Credit

Confidence among US builders ticked up in Jun to a 5-year high, an indication that the housing market is slowly improving.  The National Association of Home Builders/Wells Fargo builder sentiment index rose to 29, the highest reading since May 2007.  It increased from last month, which was revised down one point.  The index has risen in 7 of the past 9 months.  Still, any reading below 50 indicates negative sentiment about the housing market (last reached in Apr 2006, the peak of the housing boom).  Builders reported seeing the best sales level since Apr 2007, according to a separate measure in the survey.  Their outlook for sales in the next 6 months, however, hasn't changed from May.  The modest improvement among builders follows other signs that suggest the housing market could be slowly starting to recover.  In Apr, sales of both previously occupied homes & new homes rose near 2-year highs. Builders are breaking ground on more homes & requesting more permits to build single-family homes later this year.  And cheaper mortgages along with lower home prices in many markets have made home buying more attractive.  Still, the pace of home sales remains well below healthy levels.  Good news in housing is always welcome.

Homebuilder Confidence in U.S. Climbs to Five-Year High

Last night, Dow futures rallied on news about the Greek election.  But the rally was muted.  In pre-market trading, the futures were lower, pretty much where they are now.  It looks like Greece will remain in the euroe-zone, one level of comfort.  But that hardly solves problems.  Spain could care less about the elections where every day it's a matter of going from bad to worse.  G-20 meets this week, maybe they can figure out some way to be of help.  But I wouldn't bet on it.  Then there's the FOMC meeting where the bulls are hoping for Big Ben to come up with more magic.  I don't think so, at least this time.  Dow has had a nice bounce off its lows, but that rally is looking tired already.

Dos Jones Industrials

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