Friday, August 31, 2012

Higher markets on hopes for stimulus by the Federal Reserve

Dow lost its early strength but still ended with a gain of 90, advancers over decliners 5-2 & NAZ was up 18.  The Financial Index rose 1 to 203, pulling back from earlier highs.  The MLP index was up 2+ to the 396s, a 4 month high, & the REIT index was up a fraction in the 266s.  Junk bond funds were higher & Treasuries rose, pushing 10-year yields to a 3-week low, as Ben Bernanke said he wouldn’t rule out a 3rd round of bond buying under quantitative easing to spur growth & lower unemployment.  Oil gained again, taking it closer to $100 & gold was strong after hints by the Federal Reserve about more stimulus spending.

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CLV12.NYMCrude Oil Oct 1296.69 Up 2.07 (2.2%)

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Consumer Sentiment in U.S. Reaches Highest Level in Three Months

Photo:   Bloomberg

Consumer confidence improved more than projected in Aug as merchant discounts & record-low interest rates help US households bolster finances.  The Thomson Reuters/University of Michigan final sentiment index climbed to 74.3, a 3-month high, from 72.3 in Jul.  However the gauge averaged 89 in the 5 years leading up to the recession.  Other reports indicated manufacturing is cooling.  Incentives by companies such as General Motors (GM) are boosting sales, just as Federal Reserve efforts to lower borrowing costs are allowing Americans to reduce debt, which may underpin consumer spending.  Nonetheless, Big Ben said additional action to spur growth remains an option because unemployment is a “grave concern.”  Concern with elevated joblessness is global. Euro-area unemployment rose to a record 11.3% in Jul, the same as in Jun after that month’s figure was revised higher.  In Japan, consumer prices slid at a faster pace in Jul & industrial production unexpectedly slumped, raising the danger that the world’s 3rd-largest economy has slipped back into a recession.  The consumer sentiment gauge was projected to rise to 73.6.  The index averaged 64.2 during the 18-month recession that ended in Jun 2009.  The Michigan survey’s index of current conditions rose to 88.7, a 4-year high, from 82.7 in the prior month.  The share of households with incomes of less than $75K that said it was a good time to buy durable goods was the highest in 5 years.  This optimism contrasts with the Conference Board’s index which decreased to 60.6 in Aug, the lowest level since Nov from a revised 65.4 in the prior month.  Go figgah!

  • <p>               In this Tuesday, July 24, 2012 photo, forklift driver Clyde Boyce takes inventory in the warehouse at a Michelin tire manufacturing plant in Greenville, S.C. Orders to U.S. companies rose in July, reflecting a surge in demand for autos and commercial aircraft. But in a troubling sign of manufacturing weakness, a key orders category that tracks business investment plans fell by the largest amount in eight months, according to the Commerce Department, Friday, Aug. 31, 2012. (AP Photo/Rainier Ehrhardt)
Photo:   Yahoo

Orders to US companies rose in Jul, reflecting a surge in demand for autos & commercial aircraft.  But a key orders category that tracks business investment plans fell by the largest amount in 8 months.  Factory orders rose 2.8% in Jul, the biggest overall advance in a year, reflecting sizable gains in demand for motor vehicles & airplanes, according to the Commerce Dept.  Core capital goods orders, viewed as a good proxy for investment spending, plunged 4%, the 4th setback in the past 5 months.  The worry is that businesses have begun to scale back their plans to expand & modernize in the face of spreading economic weakness in Europe & such major export markets as China, Brazil & India.  There are also worries that companies are already postponing plans to buy new equipment & hire new workers because of the uncertainty over how the federal budget deadlock will be resolved, a development that would represent another blow for an already weak recovery.  For Jul, orders for durable goods, items from battleships to bicycles, increased 4.1%, slightly lower than the gov preliminary estimate last week of a 4.2% gain.  Orders for non-durable goods, items such as food, clothing & paper, increased 1.5 % following a 2.3% decline in Jun.  The strength in durable goods was led by a 53.9% surge in the volatile category of commercial aircraft while demand for motor vehicles climbed a strong 20.6%.  Orders are an important leading indicator.

US factory orders rose 2.8 percent in July AP

The price for gas at the pump is up to $3.83, a dime below the yearly high.  Crude oil is heading back to $100. more prices rises are ahead for gas.  High gas prices always spell trouble for the economy.

National Unleaded Average
Regular Mid Premium Diesel E85 **E85
Current Avg. $3.829 $3.972 $4.112 $4.090 $3.427 $4.509
Yesterday Avg. $3.826 $3.965 $4.104 $4.081 $3.423 $4.505
Week Ago Avg. $3.730 $3.872 $4.014 $4.019 $3.373 $4.438
Month Ago Avg. $3.521 $3.662 $3.799 $3.780 $3.233 $4.254
Year Ago Avg. $3.617 $3.746 $3.874 $3.885 $3.222 $4.240

Source:    AAA

Stocks settled back in the PM, but still had a fairly good day.  Volume was drab, as expected.  It's difficult to make much from these swings.  The thinking is that Big Ben is all for more stimulus, but it's not clear what form it would take, & there is a feeling that others on the board are more cautious.  They raise concerns that its not clear what good the former moves did with unemployment still at unacceptable levels & an economy that has not truly recovered from the recession 3 years ago.  Dow ended gaining 82 in Aug & always stayed close to the 13K level.  Sep is the month which has delivered the worst stock market performance in the past, even though Oct has the memorable days.

Dow Jones Industrials

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