Thursday, June 7, 2012

Markets pared early gains

Dow rose 46 (but almost 100 off its AM highs), decliners slightly ahead of advancers & NAZ lost 13.  A strong opening did not last.  The Financial Index slipped a fraction to the 187s. 

The MLP index rested after 2 days of big gains in the 363s.  The index was flat & the REIT index fell 1+ to the 244s.  Junk bond funds inched higher as did Treasuries.  Oil fell after Ben Bernanke said the economy is at risk from Europe’s debt crisis & the prospect of fiscal tightening, tempering optimism over a cut in Chinese interest rates.  Gold pulled back in PM trading for a big loss of $42 (back below $1600). 

JPMorgan Chase Capital XVI (AMJ)

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CLN12.NYM...Crude Oil Jul 12...85.14 ...Up 0.12  (0.1%)

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  • <p>               A homeless person sleeps in the doorway of a bank in Madrid Thursday June 7, 2012. Spanish Prime Minister Mariano Rajoy pleaded with European leaders "to support those that are in difficulty" and push toward greater fiscal unity - a step that might allow its troubled banks to get direct financial help. The call comes although Spain insists it doesn't need outside aid. (AP Photo/Paul White)
Photo:    Yahoo

Spain's Prime Minister Rajoy appeared to have abandoned his insistence that the country's troubled banking sector will not need an external bailout, as for the first time he avoided ruling out such an option.  Germany, meanwhile, without mentioning Spain by name, also gave its clearest hint yet that it thinks Spain should tap the European rescue fund before its banks become too toxic to handle.  Rajoy said he would wait for the results of an IMF report next week & then 2 independent audits before announcing how much the banking sector might need for recapitalization.  But for the first time in public, he did not rule out the idea of the money coming from outside.   "At that point I will give my figure and the government will say what the system needs to recapitalize itself," Rajoy said.  German Chancellor Merkel said after meeting with British Prime Minister Cameron: "Considering the problems we are facing today, it is important to highlight once again that we have created the instruments necessary to support (countries) in the Eurozone, and that Germany is willing to apply these instruments whenever necessary."  She added, "this expresses our firm political will to stabilize the Eurozone, so that the Eurozone can contribute to stable economic growth worldwide."  Earlier, Spain raised €2.1B ($2.6B) from the bond markets, at a higher interest rate out of concern that the country's troubled banks were weighing heavily on gov finances.  The successful sale of medium & long-term debt came just days after Finance Minister Montoro warned that the high interest rates demanded by investors on Spanish debt in recent weeks indicated "the door to the markets is not open for Spain."  Spain's banks are saddled with billions in soured property investments.  At the end of May, the most stricken lender, Bankia, said it needed €19B in aid to shore up its finances against losses on its toxic home loans.  But Spain only has €5B left in a €19B fund that it established in 2009.  Estimates have put the cost of a complete bailout for the Spanish banking sector for €40B-€100B.  Fitch cut Spain's long-term credit rating to BBB & left it 2 notches from junk, citing the cost of recapitalizing the country’s banking industry & a lengthening recession.   This situation gets uglier from one day to the next.

Spain Downgraded to BBB as Fitch Predicts Slump Through 2013

Consumer Credit in U.S. Rose in April

Photo:   Bloomberg

Americans cut back sharply on credit card purchases in Apr.  The Federal Reserve says consumers increased borrowing by $6.5B in Apr, just half of the Mar gain.  The forecast was for an $11B increase in consumer credit   The Apr gain was driven by a $9.96B increase in a category that includes auto & student loans which offset a $3.4B decline in a measure of credit card debt, the first decline since Jan.  Total borrowing rose to $2.55T, slightly below the all-time high of $2.58T reached in Jul 2008, 8 months after the recession began.  The decline in credit card debt follows a report last week that showed hiring slowed sharply in Apr & May.  Slowing growth is disturbing to me & it may slow further in May.

Consumer Credit in U.S. Rose in April for an Eighth Month

Mortgage Rates in U.S. Fall to Record Lows With 30-Year at 3.67%

Photo:   Bloomberg

US mortgage rates dropped to record lows for a 6th straight week as concerns over slowing job growth pushed investors into the safety of Treasuries that guide interest costs.  The average rate for a 30-year mortgage dropped to 3.67% this week, from 3.75%, according to Freddie Mac.  It was the lowest in records dating to 1971.  The average 15-year rate declined to 2.94%, also a record, from 2.97%.   The 10-year Treasury yield, a benchmark for mortgages, slipped to less than 1.5% for the first time on Jun 1.  Home-loan applications gained 1.3% in the period ended Jun 1 from the prior week, according to the Mortgage Bankers Assoc.  The refinance index rose 2%, while the purchase gauge fell 1.8%.  Low rates are not having a significant effect on bringing a recovery in housing.

Mortgage Rates in U.S. Fall to Record for Sixth Week With 30-Year at 3.67%

The markets tried to make it 3 gainer days in a row, but there was too much selling in the PM.  Dow lost more than 60 in the last hour.  Currently the Spanish debt mess is at the heart of the Euro debt crisis & that keeps going from bad to worse.  The biggest gainers in the Dow were: United Tech (UTX), P&G (PG), Home Depot (HD), Boeing (BA), Merck (MRK), 3M (MMM) & duPont (DD), each up at least 1%.  This was a very odd mixture.  Dow is up 400 above its lows at the start of the week, but it could be preparing to test them again.

Dow Industrials

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