Tuesday, August 21, 2012

Markets rise on easing euro debt concerns

Dow added another 45, advancers over decliners better than 3-1 &  NAZ was up 9.  The S&P 500 rose to a new high since the fall of 2008, although Apple (AAPL), which accounts for 5% of the index, is responsible for some of that advance.  The Financial Index is up 2+ to the 2106s, a new high since early May.  The MLP index was flattish at 296 & the REIT index rose 1 to 265.  Junk bond funds were higher (along with stocks) & Treasuries pulled back.  The yield on the 10 year Treasury is up about 45 basis points in the last month.  Oil climbed to a 3-month high on speculation euro-area leaders will make progress in resolving the region’s debt crisis.  Gold rose to its highest level since early May.

AMJ (Alerian MLP Index tracking fund)

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CLU12.NYM...Crude Oil Sep 12...97.25 .....Up 1.28  (1.3%)

GCU12.CMX...Gold Sep 12.....1,639.00 ...Up 18.70  (1.2%)

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Luxembourg's Prime Minister Jean-Claude Juncker

Jean-Claude Juncker, Luxembourg's prime minister
Photo:   Bloomberg

The € rose to 6-week highs before regional leaders meet this week to discuss Greece's debt reduction program amid optimism the Euro debt crisis is being contained.  The € appreciated for a 2nd day after Germany indicated concessions for Greece were possible & as Spanish borrowing costs declined at a bill auction.  The dollar weakened against all but one of its 16 major counterparts before a report tomorrow forecast to show US home sales improved last month, reducing demand for safer assets.  The € rose a penny to nearly $1.25, the strongest since Jul 5. 

Euro Advances to Six-Week High on Greece Crisis Optimism

  • <p>               Pedestrians walk outside a pawn shop offering money for gold,  in Athens, on Monday, Aug. 20, 2012.  Greece's finance officials are seeking to finalize euro 11.5 billion in spending cuts necessary for it to continue receiving the international funding that is protecting it from bankruptcy. (AP Photo/Petros Giannakouris)
Photo:   Yahoo

But all is not well in Europe.  After their holidays spent soaking up the Aug sun, Europe's political leaders are bracing themselves for storm clouds this fall.  The latest economic figures show that Europe is edging closer to recession, dragged down by the crippling debt problems.  These debt troubles have tormented the eurozone for close to 3 years & so far have defied leaders' efforts to fix them.  The longer they take to resolve, the bigger they get.  Leaders from France, Germany & Greece meet later on this week in the latest round of shuttle diplomacy to attempt to put a lid on the eurozone's debt crisis.  But 6 eurozone countries, Greece, Spain, Italy, Cyprus, Portugal & Malta, are already in recession & others look feeble.  Europe's stumbling economy is hurting recovery in other parts of the world.  The EU recorded GDP last year of $15.5T, slightly more than the US output.  It is also a major source of sales for the world's leading companies.  Any further economic problems would be felt in order books back in the US & China.  40% of McDonald's (MCD), a Dow stock & Dividend Aristocrat, global revenue comes from Europe, more than in the US.  The company reported a 0.6% slump in meals served in Europe last month.  Ford (F) warned last week that auto industry sales in the region through Jul were the lowest in 17 years.  Euro debt problems are not going away anytime soon.

Europe's leaders face post-holiday blues AP

Best Buy Suspends Profit Forecast as Second-Quarter Net Falls

Photo:   Bloomberg

Best Buy reported a 90% drop in net income during Q2, dragged down by restructuring charges & weak sales. The company also withdrew its earnings guidance for the year.  The company also is halting stock buybacks for fiscal 2013 during the CEO transition (announced yesterday).  EPS was 4¢, sharply below 34¢ last year.  Revenue declined nearly 3% to $10.55B.  Adjusted EPS was 20¢.  Analysts expected EPS of 31¢ on revenue of $10.65B.  Revenue at stores open at least 14 months fell 3.2% for the entire business, including a 1.6% drop in its domestic business & an 8.2% decline in the intl division.  Analysts had expected a 2.6% decline for the total business.  US sales growth in tablets, mobile phones, appliances & e-readers helped offset declines in gaming, digital imaging, televisions & notebook computers.  The intl business was dragged down by lower revenue in China, Canada & increased competition in Europe.  BBY is hoping that Joly, new CEO, can turn around the company & bring stability that has been badly lacking.  BBY has seen annual declines in revenue at stores open at least a year for 2 of the last 3 years.  There is an offer to buy shares for about $25 from its former chairman, but that is iffy to say the least.  The stock fell 54¢ (3%).

Best Buy Suspends Profit Forecast as Net Income Falls

Best Buy (BBY)

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The risk appetite by investors is heading north.  Treasuries have been dumped in the last month & that money is being used to buy stocks.  But debt mess problems have not been solved & the euro economy is sagging.  Meanwhile the US economy, while doing better, is not grading a grade of A.  The bulls are praying that Big Ben will utter magical words on Fri so that Dow can record a new 2012 high.  It still needs another 100 & is not being helped by the advance in AAPL stock.

Dow Jones Industrials

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