Wednesday, March 27, 2013

Markets fall on Cyrpus uncertainty

Dow lost 61, decliners over advancers 2-1 & NAZ fell 11.  The Financial Index slumped 1+ to the 244s.  The MLP index was off fractionally to under 451 (yesterday's record) & the REIT index fell pocket change in the 284s.  Junk bond funds were mixed to lower & Treasuries rallied on growing concern over euro finances.  Oil maintained losses after a gov report showed that US crude supplies rose as output increased to near the highest level in 20 years.  Gold rallied on the Cyprus debt  mess.

AMJ (Alerian MLP Index tracking fund)

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CLK13.NYM...Crude Oil May 13...95.72 Down ...0.62  (0.64%)

GCJ13.CMX....Gold Apr 13......1,604.40 Up ....8.70 (0.6%)

President Barack Obama

Photo:   Bloomberg

The pres signed into law a catchall gov funding bill that ends the 2013 budget fight & locks in $85B in spending cuts he opposes.  With the signature, day-to-day operations of cabinet depts & federal agencies will continue without interruption thru Sep 30.  With the automatic budget cuts, the spending will amount to about $984B.  The previous funding authorization was due to expire today.  Spending reductions undercut Obama’s push to increase funding for research, education & infrastructure, which he has said are necessary to bolster economic security for middle- income Americans.  He continues to seek a deal with Reps that would include raising revenue thru taxes along with making budget cuts.  Households are showing concern that the budget cuts will hurt growth.  The Conference Board’s consumer confidence index slumped to 59.7 from a 3-month high of 68 in Feb.  Congress mandated $1.2T in across-the-board spending cuts spread over 9 years as part of a 2011 deal to increase the US debt limit.  The cuts are intended to shrink the federal budget deficit, which has exceeded $1T in each of the past 4 years.  This is another reflection of divided DC which is supposed to solve complicated financial problems.

Obama Inks 2013 Funding Bill Locking in Cuts He Opposes

A measure of Americans who signed contracts to buy homes fell only slightly in Feb to the 2nd highest level in nearly 3 years, suggesting sales of previously occupied homes will keep rising in the coming months.  The National Association of Realtors says it index for pending home sales fell to 104.8 in Feb, down from 105.2 in Jan (which was the highest reading since Apr 2010, when a homebuyer's tax credit was boosting sales).  There is generally a 1-2 month lag between a signed contract & a completed sale.  In Feb, completed sales of previously occupied homes rose to the fastest pace in more than 3 years.  The gains in both signed contracts & completed sales point to a housing recovery that is strengthening.

Pending Home Sales Dip Slightly AP

Cyprus Euro Controls Seen Lasting Years as Sarris Vows `Weeks'

Photo:   Bloomberg

Cyprus is on the verge of an unprecedented financial experiment, imposing controls on money transfers in an economy that doesn’t have its own currency.  Countries from Argentina to Iceland have used similar measures in the past to defend against devaluation.  But being part of the euro zone may make it harder for the country to enforce restrictions, as any money that leaves the banking system can be taken out of Cyprus without losing value.  That also may make it more difficult to meet the goal set yesterday to lift any controls in “a matter of weeks.”  When other economies tried to stem the outflow of money in the 1980s & 1990s, they ended up keeping the measures in effect for 6 months to 2 years.  Iceland, another island nation with an outsize banking system, still has capital controls 5 years after its banks collapsed in 2008.  Cyprus will announce what controls it plans to implement today, before its banks are scheduled to reopen tomorrow.  The country’s leaders are seeking to prevent the flight of money from lenders, which have been closed for almost 2 weeks.  Russian holdings in Cypriot banks are estimated by Moody’s to be $31B, or about 25% of total deposits.  “The draft of the controls is complete and we expect that by the afternoon we will be in a position to brief the public,” a spokeswoman for the Central Bank of Cyprus said.  More confusion is not going over well in the markets.

Cyprus Capital Controls First in EU Could Last Years

Markets are floundering again.  Stocks had a strong rally out of the gate Mon AM on news of a Cyprus bailout.  However, more information on the details is clouding that picture & ramifications throughout the eurozone.  Bulls may be taking off early this week (tomorrow is the last day for the week, month & qtr).  The euro debt mess is still a long way from being resolved.  In addition, the US economy is stumbling with federal budget cuts being a kick in the head the recovery does not need.  Stock movements today & tomorrow may not mean a lot as money mangers even positions.  Next week will be more telling.

Dow Jones Industrials

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