Thursday, August 2, 2012

Markets retreat after ECB disappoints

Dow was under water all day & closed down 92 (but 100 above the lows), decliners over advancers more than 3-2 & NAZ fell 10.  The Financial Index dropped 1+ to the 196s & has been pretty much trading sideways for much of the year.  The MLP index sank 5 to the 389s & the REIT index was off fractionally in the 265s.  Junk bond funds were lower but Treasuries rose after the ECB meeting.  Oil & gold also dropped on negative news out of Europe. 

AMJ (Alerian MLP Index tracking fund)

stock chart

Click below for the latest market update:

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLU12.NYM...Crude Oil Sep 12....87.41 ...Down 1.50  (1.7%)

Live 24 hours gold chart [Kitco Inc.]

  • <p>               President of European Central Bank Mario Draghi addresses the media during a news conference in Frankfurt, Germany, Thursday, Aug. 2, 2012, following a meeting of the ECB governing council concerning the further strategies in the European financial crisis. (AP Photo/Michael Probst)
Photo:   Yahoo

Super Mario has taken a hit as his efforts to fight the crisis have for the first time been foiled by that most formidable of adversaries: European politics.  When he declared last week that the ECB would do "whatever it takes" to save the €, markets believed him & rallied hard.  But Draghi disappointed at a press conference: instead of announcing new, concrete measures, he said the ECB was working on a plan of action.  The reason is there was one holdout, Germany.  The country's central bank, traditionally cautious about stimulating the economy for fear of creating inflation, refused to back his latest plan for new bond purchases to drive down borrowing rates.  Instead, the plan will go thru committees for approval.  Markets tanked.  The German central bank (Bundesbank) is highly influential within the ECB & has been uncomfortable with the ECB's emergency measures, both the cheap loans to banks & purchasing of gov bonds.  Now, it seems, the Bundesbank is shortening the leash & digging in its heels.  Its refusal to back an ECB plan for more bond purchases, sending it to review by committess, has undermined Draghi's authority & tarnished his image as a policy communicator.  But Draghi is still trying to push for creative, perhaps even unconventional, solutions to the debt crisis   The ECB's mandate is mainly to control inflation & only then promote growth while the Federal Reserve, by contrast, weighs the 2 missions equally.

Draghi Says ECB Works on Bond Plan Amid German Concerns

GM Profit Falls on Smaller European Loss Than Analysts Projected

Photo:   Bloomberg

General Motors net income in Q2 fell 41% to $1.5B, $1B less than last year.  A $361M loss in Europe, coupled with $19M of red ink in South America, pulled down strong performances in North America & Asia.  Last year, GM made $102M in Europe. The euro debt crisis, weak economies and a recession have sapped car buying.  Even North America showed weakness.  Pretax profit fell almost 13% to about $2B.  Intl operations, which include China, saw pretax earnings fall 3% to a $557M.  Overall revenue slipped 5% to $37.6B.  But overall profit was better than forecasted.  GM earned 90¢, compared with 75¢ estimate.  CFO Dan Ammann wouldn't predict when GM would make money again in Europe, saying it was largely dependent on the broader regional economy.  GM is restructuring in Europe & has an array of new vehicles coming out this year & next around the globe, reason for optimism.  "That makes us feel good about the general prospects for the business going forward," he said.  Still, GM predicted that Q3 North American pretax profit is likely to be below Q2.  European sales, which include mainly the Opel & Vauxhall brands, fell 7% to 454K vehicles as several countries went into recession & gov debt problems scared away buyers.  But Ammann said GM was able to keep its prices relatively steady as people paid more for new models, offsetting discounts on older models.  The euro debt mess & recession does have an impact on US companies.  The stock fell 52¢ & is below $20.

GM Quarterly Profit Falls 38% as Europe Woes Seen Lasting

General Motors (GM)

stock chart

  • <p>               Spain's Prime Minister Mariano Rajoy, right, and Italy's Prime Minister Mario Monti, left, leave after a press conference at the Moncloa Palace in Madrid, Spain, Thursday, Aug. 2, 2012. (AP Photo/Andres Kudacki)
Photo:   Yahoo

Prime Minister Mario Monti said Italy will not seek a sovereign bailout, though Spanish Premier Mariano Rajoy, whom he met with, dodged the question altogether as financial markets dropped sharply.  Both leaders said in Madrid that they welcomed Mario Draghi's commitment that "the euro currency was irreversible."  In Spain the benchmark IBEX stock index plummeted 5.2% while the 10-year bond yield rocketed up to 7.06%, an unsustainably high level over the longer term.  Monti said he did not consider Draghi's failure to produce a fully formed plan as "a step backwards."  He said he & Rajoy had signed a joint statement committing to "setting in motion a road map for greater fiscal and financial integration to complete a true economic and monetary union."  While Monti said Italy's finances were solid, Rajoy replied that he would continue trying to reduce Spain's public deficit by sticking to planned structural reforms.  Earlier Spain sold €3.1B ($3.8B) in medium && long-term bonds, but at a sharply higher cost, another sign the country is struggling to convince skeptical investors that it won't need a bailout.  The Treasury sold €1B in 10-year bonds at an average interest rate of 6.65%, up from 6.4% in the last such auction Jul 5.  The Treasury also auctioned €1B in 4-year bonds at a rate of 5.97%, up from 5.54%, & €1B in 2-year bonds at a yield of 4.77%.  By way of comparison, US 2 year debt yields a measly 0.22%.

Spain, Italy meet on eurozone crisis AP

Draghi over promised last week & markets don't like that.  The euro debt mess drones on with no end in sight & financial biggies are not united in fighting it.  The € is back below $1.22, very close to 8 year lows.  But the selling in the stock market was far short of what it could have been.  Dow is just below the important 13K level which has served as its center line for the last 6 months.  The US economy continues to report mediocre data & the looming tax hikes (less than 5 months away) are another major drag.  So far, bulls have not let the markets get away & take a major plunge (except for May).

Dow Jones Industrials

stock chart

Get your favorite symbols' Trend Analysis TODAY!  

No comments: