Wednesday, June 26, 2013

Markets rise on bets slower GDP growth will reduce stimulus planned cutbacks

Dow went up 81, advancers over decliners 3-1 & NAZ added 18.  The MLP index rose 7+ to 448 & the REIT index gained 3 to 274.  Junk bond funds were higher & Treasuries also rose.  Oil rebounded from an early decline, betting that the Federal Reserve will curb stimulus.  Gold dropped to a new 3 year low.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLQ13.NYM...Crude Oil Aug 13...95.43 Up .....0.11 (0.1%)

GCM13.CMX...Gold Jun 13......1,230.70 Down ...44.10  (3.5%)

<p> FILE - In this March 1, 2013 file photo, a crane removes a container from a ship at the Port of Baltimore's Seagirt Marine Terminal in Baltimore. The government issues its third and final estimate of economic growth in the January-March quarter, Wednesday, June 26, 2013. (AP Photo/Patrick Semansky, File)

Photo:  Yahoo

The US economy grew at an annual rate of 1.8% in Q1, significantly slower than first thought.  The steep revision occurred mostly because consumers spent less than previously estimated, a sign that higher taxes could be dampening growth.   The Commerce Dept revised its estimate of economic growth down from a 2.4% annual rate.  But the revised rate was still faster than the 0.4% rate in Q4 2012.  Economists had thought growth in Q1 would be 2% or less & also expected growth to strengthen in H2.  The downgrade for Q1 will likely change those estimates.  It might also affect the timing of the Federal Reserve's (FED) plan to scale back its bond-buying program.  Big Ben said last week that the FED would likely start to slow its bond purchases later this year and end them next year if the economy continues to strengthen.  The bond purchases have helped keep long-term interest rates low.

Economy in U.S. Grew Less Than Projected in First Quarte

European Central Bank President Mario Draghi

Photo:   Bloomberg

An exit from the ECB exceptional monetary policy measures remains distant, ECB President Mario Draghi reiterated, after the Federal Reserve laid out a plan to reel in stimulus.  He said there were still downside risks to growth in the euro zone economy & the ECB was ready to take fresh action if needed.  "On our policy stance, let me say that it's been accommodative in the past, it is accommodative in the present time and will stay accommodative for the foreseeable future," Draghi said.  "Our exit - as Benoit Coeure said a couple days ago - remains distant. At the same time we have an open mind about all other possible instruments that we may consider proper to adopt. ... we stand ready to act again when needed."  These comments stand in contrast to those made last week by Big Ben, who said the US economy was expanding strongly enough for the central bank to begin slowing the pace of its bond-buying stimulus later this year.  Yesterday, top central bankers sought to calm markets about the impact of the plan.  But Draghi said the ECB could only do so much. On the eve of an EU summit, he called on govs to push on with reforms & the planned European banking union.  "The ECB has done as much as it can to stabilize markets and support the economy," he said.  "Now governments and parliaments need to do all they can to raise growth potential."

Draghi Says ECB Ready to Act, Urges Investment Before Taxes

German stocks posted the biggest 2 day advance since Apr as a report showed the nation’s consumer sentiment will increase in Jul more than forecasted.  The DAX Index rose 1.5% to 7,926 after yesterday rallying 1.6%.  The gauge retreated 4.2% last week as investors prepared for a potential paring of stimulus this year by the US Federal Reserve.  The broader HDAX Index also increased 1.4% today.  Volume of shares on the DAX was 46% greater than average of the past 30 days.  A German consumer confidence gauge for Jul rose to 6.8 from 6.5 in Jun, according to GfK, the highest since Sep 2007.  Analysts had expected a reading of 6.5  EU finance ministers meet in Brussels today to resume their discussions over how to handle failing banks.

German Stocks Advance as Consumer Sentiment Increases

The bulls are having their way again.  The news is not special.  But lackluster data causes the bulls to hope the FED will keep throwing money at the markets to stimulate the slowest growth from a recession in decades.  Who knows?  But that thinking just reinforces the thought economic strength is not driving the market rise.  Cheap money is & that will not last forever.

Dow Jones Industrials

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