Monday, November 18, 2013

Markets waffle after the Dow tops 16,000

Dow rose 46, but advancers were barely ahead of delciners & NAS was off pocket change.  The MLP index added a fraction to 455 & the REIT index lost 1+ to the 271s.  Junk bond funds crawled higher & Treasuries gained.  Oil & gold lost ground.

AMJ (Alerian MLP Index tracking fund)

stock chart

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLZ13.NYM....Crude Oil Dec 13...93.76 Down ...0.08  (0.1%)

GCX13.CMX...Gold Nov 13.....1,282.90 Down ...4.40  (0.3%)

Spring City Square in Jinan, China

Photo:    Bloomberg

Intl investors were net buyers of US long-term portfolio assets in Sep as demand strengthened from China & Japan, the 2 largest foreign holders of Treasuries.  The net long-term portfolio investment inflow was $25.5B after a revised $9.8B outflow in Aug, according to the Treasury Dept.  China raised its holdings of US gov debt by 2% & Japan boosted its by 2.5%.  The data cover the month in which the Federal Reserve (FED) decided against cutting back its bond purchases at its Sep meeting.  Today’s report showed China's holdings swelled $25.7B to $1.29T & Japan increased its share by $29B to $1.18T.  The Treasury’s monthly report on the cross-border flow of portfolio assets captures foreign buying & selling of US securities as well as American investors’ transactions abroad.  It also tracks holdings of Treasuries by countries.  The total cross-border outflow in Sep, including short-term securities such as Treasury bills & stock swaps, was $106.8B, compared with a revised net outflow of $13.8B in Aug.  Foreign investors, both official and private, were net buyers of $27.8B of Treasury notes & bonds in Sep after net sales of $10.8 in the previous month.  Investors were net buyers of $12.5B of equities after net selling of $16.9B in Aug.  Investors were net buyers of $7.2B of corp debt in Sep after net buying of $2.4B.

Foreign Net Buying of U.S. Portfolio Assets Gains on Asia Demand

President Xi Jinping

Photo:   Bloomberg

China's planned economic reforms are poised to reshape the competitive landscape, allowing private firms to compete with state-owned banks, & easing the one-child policy to bolster markets.  The financial sector is set to change with plans that include a new registration system for IPOs & allowing qualified private investors to set up small-to-medium sized banks.  That has progressed in the past few months as Tencent Holdings, Asia's biggest internet company, is part of a group applying for a banking license in China.  President Xi Junping's reforms, which may be the most sweeping plan since the liberalization in 1978, are aimed at giving more influence to market forces & loosening gov controls.  The changes outlined in a 60-point document after a Communist Party meeting last week present opportunities & risks to companies in almost every sector of the economy, which is heading for its weakest annual expansion since 1999.  Policy makers will seek to “push forward reform for a registration system” on IPOs, according to the gov.  That may hasten the approval process for the more than 700 companies awaiting regulatory permission for their share sales.  The leaders also decided during the 4-day meeting to further increase the share of direct financing, such as stock & bond sales, in the economy.  More reforms are coming to this Communist country.

China Unleashes Reforms to Reshape Landscape for Firms From Alibaba to GM

Draghi’s Rate Cut Puts ECB Into Holding Pattern Until 2014

Photo:   Bloomberg

Mario Draghi won’t follow his unexpected interest-rate cut with new liquidity injections into the financial system next month, economists say.  While a majority in a Bloomberg survey say the ECB's most probable next move is a measure such as long-term loans, 77% of those see it happening in Q1 or Q2 next year.  Only 9% see Draghi taking action in Dec.  The ECB’s surprise policy move this month took the benchmark rate to a record low of 0.25% & that sparked speculation how far policy makers are prepared to go if inflation, already less than half of the ECB’s target, slows further, or the economic recovery weakens.  ECB officials are drawing up plans to keep money flowing to banks to head off a liquidity squeeze when the first round of emergency long-term loans comes due in early 2015.  The ECB already extended its policy to provide banks with as much liquidity as they need until mid-2015.  Draghi said on Nov 7 that officials are “ready to consider all available instruments” to ensure money-market conditions don’t hamper the transmission of the bank’s expansionary policy to companies & households.

Draghi’s Rate Cut Puts ECB in Holding Pattern Until 2014

Even though Dow crossed the magic level of 16K, there was not a lot of conviction & very little is going on in the markets.  The big gainers in the Dow are Boeing (BA) even though one its planes crashed in Russia, JPMorgan (JPM) & Goldman Sachs(GS).  Microsoft (MSFT) was the only major loser after a recent run on speculation that a new CEO will juice up the stock.  The averages continue to ignore the goings on in DCX, like the budget battle, which will hear up next month when the deadline nears.

 Dow Jones Industrials

stock chart 

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