Thursday, August 15, 2013

Markets tank as interest rates climb to a 2 year high

Dow tumbled 225 closing near the lows, decliners over advancers 5-1 & NAZ lost 63.  The MLP index was off pennies in the 439s & the REIT index dropped almost 5 to the 265s.  Junk bond funds continued to see selling & Treasuries had a very bad day with the yield on the 10 year Treasury rising 4 basis points to 2.75%.  Oil rose for a 5th day, capping the longest stretch of gains since Apr, as unrest in Egypt bolstered concern that MidEast supplies may be cut.  Gold shot up 30 when cash went into this safe haven investment.
AMJ (Alerian MLP Index tracking fund)

stock chart

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLU13.NYM...Crude Oil Sep 13....107.09 Up ...0.24 (0.2%)

Live 24 hours gold chart [Kitco Inc.]

Homebuilder Confidence in U.S. Jumps to Highest Level Since 2005

Photo:   Bloomberg

Confidence among US homebuilders is at its highest level in nearly 8 years, fueled by optimism that demand for new homes will drive sales growth into next year.  The brighter sales outlook is the latest sign pointing to a sustained pickup in construction in coming months & comes as applications for permits to build single-family houses are at a 5-year high.  The National Association of Home Builders/Wells Fargo builder sentiment index jumped to 59 this month from 56 in Jul, the 4th consecutive monthly gain.  A reading above 50 indicates more builders view sales conditions as good, rather than poor.  The last time the reading was above 59 was in Nov 2005, when it was 61, & sales of new homes peaked in Jul of that year.  Measures of current sales conditions & builders' outlook for single-family home sales over the next 6 months each increased to their highest levels in at least 7 years.  Builders' gauge of traffic by prospective buyers was unchanged.  Steady hiring, rising home prices & still-low mortgage rates are encouraging more people to buy homes.  New-home sales jumped 8.3% in Jun to an annual rate of 497K, the fastest pace in 5 years.  That's still below the 700K pace consistent with healthy markets, but represents an increase of 38% over the previous 12 months, the biggest annual gain in over 20 years.  The rise in demand, home prices & a thinning supply of previously occupied homes on the market have helped make builders more optimistic about their sales prospects, which has led them to step up construction.  Applications for permits to build single-family homes rose for the 3rd straight month in Jun to 624K, the highest in over 5 years.  That suggests home construction should rebound in the coming months.  Federal Reserve (FED) officials also read this report.

Homebuilder Confidence in U.S. Jumps to Highest Level Since 200

Manufacturing in Philadelphia Regions Expands for Third Month

Photo:   Bloomberg

Manufacturing in the Philadelphia region expanded in Aug for the 3rd straight month, the latest sign of an improving outlook for the industry after a slowdown earlier this year.  The Federal Reserve Bank of Philadelphia’s general economic index fell to 9.3 this month from a reading of 19.8 in Jul (the highest since Mar 2011).  Readings greater than zero signal growth in the area, which covers eastern Pennsylvania, southern New Jersey & Delaware.  Factories are reaping the benefits of sustained gains in construction, auto sales & consumer demand.  Stronger household balance sheets & improvements in overseas markets such as Europe might further boost manufacturing, which accounts for about 12% of the economy.  A similar report from the Federal Reserve Bank of New York showed manufacturing in that region expanded in Aug for a 3rd month. The Empire State index fell to 8.2 from 9.5 in Jul.  Another report for Federal Reserve officials to digest.

Manufacturing in Philadelphia Regions Expands for Third Month

Foreign selling of US long-term portfolio assets rose for a 2nd straight month in Jun as investors abroad sold equities & a record number of Treasury notes & bonds.  The net long-term portfolio investment outflow was $67B after a $27B decline in May, the Treasury Dept said.  Net selling of long-term Treasuries by private foreign investors increased to $40B from $29B the prior month.  Private foreign investors were net sellers of all categories of long-term portfolio assets -- gov debt, agency securities, corp bonds & stocks.  As US growth strengthens & the world economy improves, investors may be more willing to take on risks elsewhere before the FED starts reining in monetary stimulus, economists said.  Net selling of Treasuries, combining official & private transactions, was an all-time high of $41B, according to Bloomberg.  China stayed the biggest foreign owner of Treasuries as holdings fell $21B to $1.27T, the biggest drop in its Treasuries holdings selling since Dec 2011. Japan, the 2nd-largest holder, lowered its holdings by $20B to $1.08T.

U.S. Net Outflow of Long-Term Securities Increased in June

This is turning into an ugly month for stocks.  Dow fell a massive 546 since its peak on Aug 2.  The story remains the same.  It was vastly overbought & relying very much on a continuation of low interest rates by the FED.  But interest rate sensitive stock have already fallen & the rest of the market has followed along in the last 2 weeks.  The economic data is good enough to give the FED courage to slow its bond buying program soon.  Without help from the FED, the stock markets are in trouble.

Dow Jones Industrials

stock chart

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