Monday, June 4, 2012

Markets slide on lower factory orders

Asian markets had a major sell-off, but US markets opened mixed & continue to stumble.  Dow fell 24, decliners over advancers 4-3 & NAZ slipped 1.  The Financial Index lost a fraction, going below 181 (34 below its Mar high).

The MLP index dropped another big 6 to the 351s (lowest since Oct) & the REIT index was off fractionally in the 241s (23 below its 2012 highs).  Junk bond funds were mixed & Treasuries lost a little ground on profit taking after its recent gains.  Oil fluctuated on weaker Chinese economy data & slight strengthening in the €.  Gold also was not sure where to go.

JPMorgan Chase Capital XVI (AMJ)

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CLN12.NYM....Crude Oil Jul 12...83.38 ...Up 0.15  (0.2%)

GCM12.CMX...Gold Jun 12.....1,620.80 ...Up 0.30  (0.0%)

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German Chancellor Angela Merkel

Photo:   Bloomberg

A spokesman for Chancellor Merkel said that Spain knows where to look for aid if it’s needed, giving no ground to Prime Minister Rajoy's pleas that Germany consider new ideas to resolve the debt crisis.  With markets bracing for further deterioration in Spain’s finance sector & a possible Greek departure from the euro area, Rajoy on Sat added his voice to calls for a “banking union” in Europe involving a centralized system to re-capitalize lenders.  But Merkel shut off another crisis-fighting avenue the same day as she toughened her opposition to euro-area debt sharing, saying that “under no circumstances” would she agree to euro bonds.  Options “that resemble euro bonds” are conceivable after a process of European integration lasting “many years,” Merkel’s chief spokesman said.  For now, “it’s up to national governments to decide whether they want to avail themselves of aid from the backstop and accept the conditions linked to it, and that of course also applies to Spain.”  As euro-area unemployment reached its highest level on record, manufacturing output contracted for a 10th straight month in May & the currency plunged close to a 2-year low (below $1.25), leaders continued to wrangle over the details of support for the currency bloc.  President Obama meanwhile laid the blame for sluggish US employment at the feet of euro-area leaders, saying they haven’t done enough to resolve the crisis, now in its 3rd year.  “With the term ’banking union’ there are not only a lot of different concepts,” a German Finance Ministry spokesman said.  “The term is used in many contexts with many different ways of understanding it.”  The debt mess is lumbering along.

Pressure Builds on Merkel as Spain Calls for Bank Aid

U.S. Manufacturing Fell in April

Photo:   Bloomberg

Companies placed fewer orders to US factories for the 2nd straight month & a key measure that tracks business investment plans fell, adding to evidence that the economy is weakening.  The Commerce Dept said that orders for factory goods fell 0.6% in Apr from Mar.  Demand for core capital goods, such as heavy machinery & computers, dropped 2.1%, following a 2.3% decline in Mar.  Core capital goods are a good proxy for business investment plans.  The declines suggest companies may be worried about a weaker job market, which could crimp consumer spending.  They may also fear the worsening European debt crisis & slower growth in China could slow demand for exports.  Even with the declines, factory orders are well above their recession lows.  Orders in Apr totaled $466B, up 39% from the recession low reached 3 years earlier.  Orders are still 3.1% below the peak reached in Dec 2007, the month the recession began.  Factory activity grew more slowly in May, according to the ISM's closely watched survey.  Still, the survey said new orders, an indication of future activity, rose to a 13-month high, suggesting growth could pick up in the coming month.  Factories were one of the few industries to create jobs in May, adding 12K jobs, helped by rising demand for exports & a boom in car sales.

Factory Orders in U.S. Unexpectedly Decline for Second Month

Growth Slowdown Seen for Third Year in U.S. Dodging a Recession

Photo:   Bloomberg

The US economy may deliver a repeat performance in 2012: for the 3rd straight year, if it suffers a swoon yet not slip into a recession.  Household balance sheets are in better shape, with indebtedness down about $100B in Q1.  Banks are more profitable as earnings have risen for 11 straight qtrs.  Even the housing market is reviving, with starts thru the first 4 months of this year, 24% higher than the comparable 2011 period.  Declining orders to US factories in Apr unexpectedly declined, pointing to a deceleration in manufacturing as the global economy cools.  Bookings dropped after a revised 2.1% slump in Mar, the first back-to-back decreases in more than 3 years.  Repeating the pattern of the last 2 years, Ben Bernanke is likely to respond to the job-market weakness by announcing further steps to stimulate growth.  The moves could come when the Federal Reserve meets Jun 19-20.  Bernanke may give a hint of plans when he testifies to Congress on Thurs.  

Growth Slowdown Seen in U.S. as Recession Dodged: Economy

After a dismal week wrapping up a dreary month, stocks began the week lower.  It's difficult to find encouraging news to bring out buyers.  Factory orders are another reminder that the US economy is plodding along at an unacceptable level.  Analysts are revising earnings (coming next month) downward after the slew of economic reports.  The slowdown in China is worrisome & the euro debt mess is looking very bad as the recession will add to the difficulties of finding a way out.  Facebook (FB) fell another fraction to $27, another reason buyers are staying away from the markets.  This could be another bad week for the markets.

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