Thursday, December 5, 2013

Markets slip lower on concerns over tapering

Dow dropped 58, decliners over advancers better than 2-1 & NAZ was off 4.  The MLP index fell 3 to the 443s & the REIT index was down fractionally in the 263s.  Junk bond funds were little changed while Treasuries continued weak.  Oil remained strong & gold was even.

AMJ (Alerian MLP Index tracking fund)

stock chart

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year

CLF14.NYM...Crude Oil Jan 14.............97.40 Up ...0.20 (0.2%)

ZGG14.CBT....Gold 100 oz. Feb 141,2...46.90 Down ...0.30  (0.0%)

Job Seekers

Photo:   Bloomberg

Applications for employment benefits unexpectedly fell last week to the lowest level in more than 2 months as the data becomes more difficult to adjust for seasonal variations during the year-end holiday period.  Jobless claims decreased 23K to 298K, according to the Labor Dept.  The forecast called for an increase to 320K from an initially reported 316K the prior week.  The reading was the lowest since the first week in Sep when the Labor Day holiday also played havoc with the figures.  The 4 week average fell to 322K from 333K.  The number of people continuing to receive jobless benefits decreased by 21K to 2.74M, the fewest since Dec 2007 (prior to the recession).  Continuing claims of job seekers rose by about 45K to 1.35M in the latest week.  The unemployment rate among those eligible for benefits decreased to 2.1% from a revised 2.2% the prior week.  48 states & territories reported an increase in claims, while 5 reported a decrease.

Jobless Claims in U.S. Unexpectedly Drop to Two-Month Low

ECB President Mario Draghi

Photo:   Bloomberg

The ECB left interest rates unchanged, pausing to assess the health of the euro zone recovery after taking action a month earlier in response to falling inflation, which is now abating.  The decision to hold the main refinancing rate at a record low 0.25% was widely expected after the ECB's surprise decision to cut borrowing costs last month.  Mario Draghi said officials cut their inflation forecast for next year, & signaled that the ECB will keep interest rates low for the foreseeable future.  “We may experience a prolonged period of low inflation,” Draghi said, echoing language he used last month after the ECB unexpectedly cut interest rates.  Draghi reiterated his commitment to keeping borrowing costs low “for an extended period of time” as policy makers debate whether they have done enough to prevent deflation & support the region’s recovery, or whether they need to embrace measures such as a negative deposit rate.  The ECB forecasts inflation at 1.1% in 2014, 0.2 percentage point lower than the previous prediction, & it sees inflation at 1.3% in 2015.  The ECB predicts the euro economy will contract 0.4% this year, unchanged from the previous forecast, before expanding 1.1% in 2014 & 1.5% in 2015.  In Sep, the ECB said the economy would grow 1% next year.  “We are monitoring developments closely and are ready to consider all available instruments” he said.  “Our monetary policy stance will remain accommodative for as long as necessary.”

ECB Cuts Inflation Forecast as Draghi Pledges Low Rates


Photo:   Bloomberg

The US economy expanded in Q3 at a faster pace than initially reported, led by the biggest increase in inventories since early 1998.  But consumer spending slowed.  GDP climbed at a 3.6% annualized rate, up from an initial estimate of 2.8% & the strongest since Q1- 2012, according to the Commerce Dept.  The forecast predicted a 3.1 % gain.  The buildup in stockpiles risks limiting factory production without stronger demand.  Faster growth in household purchases, which grew at the slowest pace in almost 4 years, & a rebound in business investment would help companies justify increasing orders and adding workers.

Economy in U.S. Grows at 3.6% Rate on Bigger Inventories

Stocks haven't been able to get out of drifting downward   Dow is down 250 this month.  Considering its enormous gain this year, this decline is not meaningful yet.  The yield on the 10 year Treasury is close to its high since the middle of 2011 & the decline in bond prices comes from bets on higher rates, maybe sooner.  Yield securities such as MLPs & REITs have been losing ground since the middle of this year.  That's a major disconnect with the Dow reaching new record levels.

Dow Jones Industrials

stock chart

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