Wednesday, October 2, 2013

Markets tumble on fears about government shutdown

Dow dropped 126, decliners over advancers almost 4-1 & NAZ retreated16.  The MLP index fell 2 to 449 & the REIT index was off 2 to 270.  Junk bond funds lost ground & Treasuries rose.  Oil fell to the lowest level in almost 3 months as the gov began its first partial shutdown in 17 years, threatening to slow the economy & curb fuel use.  Gold rose on fears about what the gov shutdown may do to economies.

AMJ (Alerian MLP Index tracking fund)

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CLX13.NYM...Crude Oil Nov 13...101.65 Down .....0.39  (0.4%)

GCV13.CMX...Gold Oct 13........1,306.60 Up ...20.60 (1.6%)

Companies in U.S. Added 166,000 Workers in September, ADP Says

Photo:   Bloomberg

In Sep companies added fewer workers than projected, indicating the job market is struggling to gain momentum.  The 166K increase in employment followed a revised 159K rise in Aug that was smaller than initially estimated, according to the ADP Research.  The forecast called for an advance of 180K.  Faster progress in hiring & wage growth is needed to sustain gains in consumer spending, the biggest part of the economy.  Manufacturers, builders & other goods-producing industries increased their headcount by 19K.  Employment in construction boosted 16K, while factories only added 1K jobs.  Payrolls at service providers rose by 147K (low paying jobs), restrained by a 4K decrease in financial services.

ADP Data Show Companies Add Fewer U.S. Workers Than Forecast

  • President of the European Central Bank (ECB) Mario Draghi, left, and Governor of the French National Bank Christian Noyer arrive for a news conference of the European Central Bank at the French National Bank in Paris, Wednesday, Oct. 2, 2013. The governing council of the European Central Bank met in Paris to set the benchmark interest rate for the eurozone; economists and investors look to the meeting to see where the bank thinks the European economy is headed. (AP Photo/Michel Spingler)
Photo:   Yahoo

ECB head Mario Draghi said the eurozone' economy is still fragile & the bank is willing to use "all available instruments" to keep market interest rates from rising & hurting a fledgling recovery.  He said the bank will "exclude no option," including making a 3rd round of cheap, long-term loans to banks.  The loans would boost the flow of credit in the economy, helping growth.  "We view this recovery as weak, as fragile, as uneven," Draghi said.  Yet the ECB took no action today. Draghi spoke after the bank left its benchmark interest rate unchanged at a record low 0.5%.  The Federal Reserve is considering scaling back its effort to keep bond market rates down which has led to concerns market rates might rise in Europe as well. Europe's economy has just begun a recovery & still needs the support of low borrowing costs.  The 17-member currency union grew a modest 0.3% in Q2, after 6 qtrs of recession.  "We are ready to use all available instruments, including another LTRO," Draghi said, using the acronym for longer-term refinancing operation.  Besides hinting that the ECB could offer another round of cheap loans, Draghi held the door open to another interest rate cut if it's needed.  He repeated the bank's stance that the ECB's key rates will stay at their current level or lower "for an extended period" until the economy improves.

Draghi Says ECB Will Act If Needed to Control Money Markets

U.S. Government Shutdown Threatens Housing Recovery: Mortgages

Photo:   Bloomberg

The US gov shutdown will immediately slow approval of thousands of mortgages.  If it lasts more than a week, it threatens housing & the broader economic recovery.  Congress forced the first partial gov closure in 17 years after failing to pass a budget, meaning borrowers in the process of obtaining home loans could be delayed as lenders are blocked from verifying Social Security numbers & accessing IRS tax transcripts.  The process may also lengthen the wait for borrowers seeking approval for mortgages backed by the Federal Housing Adminstration because its fulltime staff is now less than 1/10 of its normal size & the Dept of Agriculture, which backs mortgages in rural areas, won’t take on new business during the shutdown.  The shutdown comes as construction & new housing sales are climbing back from the worst financial crisis in decades.  Builders broke ground on residences at an annual pace of 891K in Aug, up from a low of 478K in 2009 while still only about 2/3 of the last 20 years’ average rate, according to the Commerce Dept.  Home prices, which have climbed 21% since hitting a post-recession low in 2012, are still 21% below their 2006 peak, according to the S&P/Case-Shiller index of property values.

U.S. Government Shutdown Persisting Threatens Housing Recovery: Mortgages

The shutdown is starting to get messy.  There have been more thoughts about what harm it will do to the economy.  Fear is rising.  The Reps & Dems are far apart with each side calling the other one nasty names.  Given the ugly environment in DC, it's difficult to see how & when the budget mess will be resolved.   Worse, the need to raise the debt ceiling is only 2 weeks away & that carries much bigger implications for the US economy.  A sense of reality is hitting traders, causing them to sell.  Oct is remembered for having some of the worst days in the stock market's history.  This has the makings of one ugly month.

Dow Jones Industrials

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