Wednesday, July 31, 2013

Mixed markets after Federal Resrve maintains stimulus

Dow slipped 21 in what turned out to be choppy trading after the meeting, advancers over decliners 4-3 & NAZ added 9. The MLP index was fractionally lower in the 451s & the REIT index fell 4+ to 280.  Junk bond funds were mixed & Treasuries rallied to about break even in the PM.  Oil rocketed ahead 2, back into the 96s, with buying in the PM while gold hardly budged.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLU13.NYM....Crude Oil Sep 13....105.03 Up ...1.95 (1.9%)

Live 24 hours gold chart [Kitco Inc.]

Fed Keeps $85 Billion Bond Buying Pace, Sees Disinflation Risk

Photo:   Bloomberg

The Federal Reserve (FED) said that the US economy is growing only modestly, a downgrade from its Jun assessment, & it expects growth will pick up in H2.  The more cautious message may be a signal that it's not ready to slow its bond purchases soon.  The FED says it will keep buying $85B a month in bonds to help lower long-term interest rates & plans to hold its key short-term rate at a record low near zero at least as long as the unemployment rate stays above 6.5% & the inflation outlook remains mild.  At the last meeting, the FED described economic growth as "moderate," & forecast that growth could be at least 2.3% for the year.  Big Ben said after that meeting that the FED could slow the bond purchases later this year if the economy & job market continued to strengthen.  But now the FED described the economy as expanding only at a "modest pace" as growth remained sluggish below 2% for 3 straight qtrs.  It's expected that growth will strengthen in H2 because businesses should spend more, stronger job growth can fuel more consumer spending & gov spending cuts will weigh less on overall growth.

German Unemployment Declined in July in Sign Economy Advancing

Photo:   Bloomberg

Germany's unemployment rate held near a 2-decade low, potentially buoying support for the gov before Sep elections (while the rate in the euro area stayed at a record high).  The number out of work decreased 7K to 2.93M in Jul & the adjusted jobless rate was unchanged at 6.8%, according to the Federal Labor Agency.  But the rate in the 17-nation euro area was 12.1% in Jun, unchanged from a revised figure for May, according to the EU statistics office.  Chancellor Merkel is seeking a 3rd term as German leader on Sep 22 on the strength of shielding Europe’s biggest economy from the worst effects of the region’s debt crisis.  Her Christian Democratic bloc has a support level of 40%, with the Social Democrats at 25%.  Germany’s Ifo business confidence rose for a 3rd month in Jul & consumer confidence is expected to climb to the highest level in almost 6 years in Aug.

German Jobless Rate Holds Near Two-Decade Low in July

Dell Buyout Group Said Unlikely to Pursue Deal at $13.75

Photo:   Bloomberg

Michael Dell & Silver Lake Management are unlikely to stick with a sweetened bid of $13.75 a share for Dell after the board committee refused to change the rules to make it easier for them to win shareholder support.  While the committee is willing to change the record date to let more recent shareholders vote on the proposal, the buyout group doesn’t anticipate that this alone will be enough for them to win approval for their transaction.  This comes from a leaker.  A different person said the committee believes extending the record date could get the deal done.  The buyers haven’t made a final decision on whether to accept the committee’s concession.  The special committee said today that it’s unwilling to change rules that now count absentees as “no” ballots, instead offering to change the record date if the buyout group keeps their bid at $13.75.  Otherwise, the committee said, it’s prepared to proceed with a vote on Aug 2 on the $13.65-a-share bid Michael Dell initially made with partner Silver Lake.  This confusing situation will drag on.  The stock was off 20¢ to $12.66.

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Following the FED announcement after the meeting, Dow shot up & than sank in the last hour of trading.  Nothing really new was announced.  But maybe traders realize that we are already one month into H2 (when the Federal Reserve has talked about reducing its bond purchases).  Dow had a range of 140 today & closed essentially at the lows.  These gyrations are a reminder that continuing low interest rates are the real driver of the stock market, not economic fundamentals.  Nevertheless, Dow rose 600 (4%) in Jul.

Dow Jones Industrials

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