Tuesday, June 5, 2012

Markets waver on sluggish growth in service industries

Stocks tried for gains out of the gate, but they did not hold.  Dow is off 2, advancers 2-1 over decliners (mostly small gains)  & NAZ is up 3.  The Financial Index rebounded 2+ to 182.

The MLP index recovered 4 to 356 (but is still off 55 from its recent records highs) & the REIT index was up 1+ to the 242s.  Junk bond funds were off a little & Treasuries pulled back on profit taking.  Oil hovers near an 8 month low & gold is inching higher, above $1600..

JPMorgan Chase Capital XVI (AMJ)

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CLN12.NYM....Crude Oil Jul 12...83.95 ...Down 0.03  (0.0%)

GCM12.CMX...Gold Jun 12.....1,616.70 ....Up 4.50  (0.3%)

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Spain's Budget Minister Cristobal Montoro

Photo:   Bloomberg

Spain's Finance Minister Montoro appealed for European leaders to set up a method for its troubled banks to get direct financial help & warned that the its high borrowing costs means that it faces increasing trouble accessing credit markets.  He said that "the door to markets is not open for Spain," making the comment just before finance ministers & central bank presidents of G-7 held an emergency conference call about Europe's economic turmoil.  Interest rate on Spain's benchmark 10-year bond rate was 6.31% &, although declining, was still very close to the levels that pushed Greece, Ireland & Portugal to ask for bailouts over the past 2 years.  Spain has been pushed closer to financial chaos in recent weeks with its borrowing costs soaring as investors become increasingly concerned that the gov public finances might be overwhelmed by the cost of rescuing banks that are sitting on massive amounts of soured property investments following the bursting of a real estate bubble that once fueled the economy.  Spain is struggling with an unemployment rate of 24.4% & more than 50% under 25 out of work. Its most stricken lender, Bankia, needs €19B ($23.6B) in aid, but Spain only has €5B left in a €19B fund that it established in 2009 to help banks.  The gov has promised to help Bankia but has not mapped out a plan.  The future for Spain looks glum.

  • <p>               In this May 29, 2012 photograph, Big Apple Inn grill cook Tyechia Davis prepares the sausage meat for a "smoke" sandwich in Jackson, Miss.  U.S. service companies, which employ roughly 90 percent of the work force, expanded at a slightly faster pace in May, marking the 29th straight month of expansion. (AP Photo/Rogelio V. Solis, File)
Photo:   Yahoo

US service companies, employing roughly 90% of the work force, expanded at a slightly faster pace in May, marking the 29th straight month of expansion.  The Institute for Supply Management said that its index of non-manufacturing activity edged up to 53.7 last month from an Apr reading of 53.5.  But the May reading was slightly below the long-run average for the index of 53.9.  It reached the highest point in 12 months in Feb when it was 57.3.  A reading above 50 indicates expansion.  The ISM manufacturing index, released last week, showed that manufacturing grew more slowly in May, hampered by weaker hiring & declining production.  But in a hopeful sign, new manufacturing orders hit a 13-month high.  The service sector includes low-paying positions in retail & restaurants along with higher-paying jobs in professions such as information technology, accounting & financial services.

Growth in U.S. Service Industries Was Little Changed in May

Euro-Area Manufacturing, Services Shrink as Debt Crisis Worsens

Photo:   Bloomberg

Euro-area services & manufacturing output contracted at the fastest pace in almost 3 years in May, adding to signs the economy is suffering under the worsening sovereign-debt crisis.  A composite index based on a survey of purchasing managers in both industries dropped to 46 from 46.7 in Apr.  While above an initial estimate of 45.9, the May reading is the lowest since Jun 2009.  The indicator has remained below 50, indicating contraction, for 4 months.  European companies are cutting back on hiring & spending as the intensifying fiscal crisis makes the economic outlook more uncertain.  While the euro zone narrowly avoided into a recession in Q1, unemployment has reached the highest on record & economic confidence is at the lowest since 2009.  Further weakness lies ahead.  The € extended its decline to just above $1.24 (near a 2-year low).  Finance ministers are trying to fix a debt crisis & stimulate the economies of weaker countries.

Euro-Area Manufacturing, Services Shrink as Crisis Worsens

Markets are trying to figure out where to go.  They are vastly oversold, shown in the chart below.  Oversold means a big pop to the upside should be expected, but buyers are not jumping in looking for bargains.  With all the meetings aimed at fixing ailing economies & a major debt crisis, some announcement should come soon.  However, that enthusiasm may not last.  Banks led the big gains in Q1 & are leading the way down in Q2.  While the debt problems relating to sluggish economic activity & the Euro debt mess are getting most of the attention, increased regulation is another major negative.  Dow has fallen over 2K in May & early Jun because buyers have gone on vacation.

Dow Industrials

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