Monday, August 5, 2013

Markets slide lower on worries over Fed's bond buying program

Dow dropped 46, decliners ahead of advancers 3-2 & NAZ crawled up 3. The MLP index was off 1 to the 447s & the REIT index fell a fraction to 277.  Junk bond funds dropped more than 1% & Treasuries were also weak.  Oil & gold followed the stock market lower.

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...106.59 Down ...0.35  (0.3%)

Live 24 hours gold chart [Kitco Inc.]

The sun rises to the east of the U.S. Federal Reserve building in Washington, July 31, 2013. REUTERS/Jonathan Ernst

Photo:   Yahoo

US financial conditions remained favorable during Q2 despite the spike in market interest rates, according to the latest Federal Reserve (FED) survey of bank senior loan officers.  Banks eased lending conditions for commercial & industrial loans, & demand for consumer lending strengthened across the board, including the housing sector.  A jump in mortgage rates, a reaction in part to warnings from FED officials that they may soon begin curtailing the pace of their bond-buying stimulus, has sparked concern that a nascent housing recovery might peter out.  10-year Treasury note yields are now hovering around 2.65%, up a full percentage point in just 3 months.  There were no signs in the FED report, however, that the higher yields were having a palpable adverse affect on bank loans.  "Domestic banks, on balance, reported having eased their lending standards and having experienced stronger demand in most loan categories over the past three months," the report said.  In addition, about half of respondents reported stronger demand for commercial real estate lending.  But some large banks reported weaker demand for commercial & industrial loans.

Fed Loan Survey Shows Easier Lending for Mortgages, Businesses

A Chinese lending spree of the magnitude that tipped Asian nations into crisis in the late 1990s & preceded Japan's lost decades is putting pressure on top leaders to map out a strategy to tackle the threat.  In a survey by Bloomberg News, half of the economists say non-performing local-gov & corp debt will probably have a “significant impact” on China's credit & economic growth.  The central gov will deal with bad loans at local govs in the next 18 months by expanding the municipal-bond market & letting localities refinance with direct bond sales, respondents said.  Avoiding a fate akin to Japan’s growth collapse of the 1990s hinges on Chinese officials’ ability to reduce debt & shift policy.  Local-gov debt may have surged by as much as 50% since the end of 2010.  Borrowings as of Jun 30 ranged from 15T yuan ($2.4T) to 16T yuan, according to estimates of 4 analysts.  That compares with the National Audit Office’s 10.7T yuan estimate for the end of 2010.  The agency said Jul 28 that the cabinet ordered a new nationwide review of gov debt.  China’s credit-to-GDP ratio rose to 187% in 2012 from 105% 2000, compared with Japan’s increase to 176% in 1990 from 127% in 1980, according to JPMorgan analysts, & this increases the probability of a financial crisis.

China’s Debt Surge Pressures Xi-Li to Avert Lost Decade

CBS Blackout Enters Third Day After Cable Negotiations Stall

Photo:   Bloomberg

Time Warner Cable's blackout of CBS networks entered its 3rd day.  TWC stopped broadcasting CBS to more than 3M in New York, Los Angeles & Dallas & other markets on Fri.  The 2 sides have sparred over the fees that CBS charges to retransmit shows over TWC systems, as well as other issues, such as how content can be streamed over the internet.  Negotiations remain stalled.  The blackout is the first of its kind for CBS & will become more noticeable for viewers on its first prime-time weeknight.  The showdown pits the most-watched broadcaster against the 2nd-largest cable company in the US.  CBS is demanding $2 in fees per subscriber per month, up from about $1.  The talks also involve whether TWC can deliver CBS content online both inside & outside the home (i.e. via tablet computers).  TWC CEO Glenn Britt said CBS has been “uncompromising” in its negotiations, while asking the company to return to talks.  CBS responded yesterday by saying that the cable provider cut off service to gain leverage at the bargaining table.  This dispute could drag on for weeks.  TWC lost 68¢ & CBS fell 67¢.

Time Warner Cable’s CBS Blackout Enters Third Day After Negotiations Stall

Time Warner Cable (TWC)

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Very little went on today on low volume.  Dow is up more than 1K since late Jun.  It deserves a rest, especially with only lukewarm economic news.  The pullback by yield sensitive stocks is more telling.  Junk bond funds & REITs are off more than 10% from recent highs.  Even munis have fallen & that selling was brought on by more than the Detroit default.  So far in Aug, after having a good pop on day one, Dow has been going sideways.  The bulls may need another dose of encouragement before taking stocks higher.

Dow Jones Industrials

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