Friday, July 20, 2012

Markets tumble on concerns over Spanish debts

Dow fell 120 (closing near the lows), decliners over advancers 2-1 & NAZ lost 40.  The Financial Index fell 3 to the 193s, pretty much the low for Jul.  The MLP index rose a fraction to go over 400, not seen since early Mar, but the REIT index fell 1+ to 265.  Junk bond funds were strong & Treasuries rose, bringing near record low yields (the yield on the 5 year Treasury reached a record low)   Oil fell on profit taking after its recent run & gold  has been treading waters (shown in the graph below).

AMJ (Alerian MLP Index tracking fund)

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CLQ12.NYM...Crude Oil Aug 12...91.49 ...Down 1.17  (1.3%)

Live 24 hours gold chart [Kitco Inc.]

AMD Plunges on Predicted Chip Sales Slump

Photo:   Bloomberg

Advanced Micro Devices, the 2nd-biggest maker of processors for PCs, fell to the lowest price in almost 3 years after predicting a revenue decline as a sluggish economy curbs PC sales.  Demand for AMD’s products is being hurt by slower growth in China, the 2nd-largest economy, & a worsening economic climate in Europe.  AMD also lost market share to Intel (INTC), a Dow stock, which reported growth from Q1, according to CEO Rory Read.  “Our performance in the quarter was disappointing and did not meet our commitments,” Read said.  “It is clear that the overall PC market experienced softness.”  Q3 sales will be down 1%, plus or minus 3%, from the prior period, AMD said.  At the low end, that prediction indicates revenue of $1.36B, compared with the average estimate of $1.41B.  Market share losses in notebooks & a lack of demand for AMD’s new server products, which would improve its profitability are causing the stock's rating to be lowered.  The stock sank 64¢ (13%).

AMD Plunges on Predicted Chip Slump: San Francisco Mover

Advanced Micro Devices (AMD)

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  • <p>               Demonstrators shows a banner reading "no bread, no peace, as a protest against austerity measures announced by the Spanish government in Madrid, Spain, on Thursday July 19, 2012.  Concerns over Spain's attempts to restore market confidence in its economy resurfaced Thursday after a bond auction went poorly and its borrowing costs edged higher,  even as the country's Parliament passed the latest round of harsh austerity measures designed to cut its bloated deficit.  (AP Photo/Andres Kudacki)
Photo:   Yahoo

Concerns about Spain's crippling financial problems flared again as news that the country had been given the final go-ahead for a bank bailout loan of up to €100B ($122.9 B) failed to take the sting out of a further round of bad economic news.  Investors have been nervous for months about Spain, worried that the country could not keep control of its deficit during a recession while supporting its stricken financial sector.  Spain is the 4th-biggest economy in the euro zone & many fear that if it asked for a bailout, the rest of the region could not afford to foot the bill.  The country & its banks were also locked in a vicious debt spiral, where the shaky banking system has been propped up by the indebted gov so that the banks could buy more gov debt.  The loan agreed to on Fri was designed to break that spiral.  But the bank agreement came as Spain cut its growth forecast & one of the country's heavily indebted regions asked for help.  The news sent the country's borrowing costs soaring & stock prices plummeting.  The IBEX stock index was down almost 6% while the interest rate on the country's 10-year bond rose to 7.2% (a rate that many consider too high a price for a country to pay in the long term).  Treasury Minister Cristobal Montoro forecast Spain's recession will drag on into 2013, although the economy will not be quite as weak as it now.  According to the latest figures, the country's GDP is expected to contract 0.5% in 2013, compared with the previous forecast for it to grow 0.2%.  Unemployment, which is now at 24.4%, will remain about the same next year.  Meanwhile, the economy will shrink 1.5% this year, a slight improvement from the 1.7% drop previously predicted.  This gloomy outlook casts dark shadows over all Europe.

Analysts & auto dealers said that sales during the first half of Jul slowed a bit from the robust pace in Jun, but were still expected to be better than Jul 2011.  In H1, sales of cars & trucks ran at an annual rate of 14.3M, the best pace in 5 years.  Car buyers bought everything from compacts to big pickups, making the auto industry a bright spot in the economy.  The only hiccup came in May, when sales slipped to a 13.8M annual rate as the stock market plunged.  Buyers returned in Jun to drive sales back up to a 14.1M rate.  Expectations are for a roller-coaster H2.  Sales have come a long way from the doldrums of 2009, when only 10.4 M vehicles were sold during the financial crisis.  The recent peak for sales was 2005, at 17M.  The auto industry has been a big driver of growth, whatever it has been, & a significant slowdown would be a major jolt to an already fragile economy.

Auto sales weaken a bit in early July AP

The stock markets were not really all that strong this week, even though the first 4 days showed gains.  Breadth has been weak.  Today the eyes of traders were back on Europe & what they saw as not pretty.  Meanwhile, the US economy has lost much of the upward momentum it had earlier in the year.  GDP numbers will be released shortly & they will not get good grades.  After today's loss, Dow is up a meager 45 this week & closed with a negative bias.  Next week may see more selling.

Dow Jones Industrials

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