Thursday, April 3, 2014

Markets ease back awaiting tomorrow's jobs report

Dow lost pocket change, decliners ahead of advancers 4-3 & NAZ dropped a very big 38, dragged down by pharmaceuticals.  The MLP index climbed 1+ to the 473s (good enough for a new record) & the REIT index slid a fraction in the 286s.  Junk bond funds continued strong & Treasuries went up.  Oil is back over 100 & gold fell for the 6th time in 7 sessions as signs of quickening US economic growth bolster forecasts for an increase in interest rates, crimping demand for the metal as a store of value.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLK14.NYM...Crude Oil May 14...100.01 Up ...0.39 (0.4%)

Live 24 hours gold chart [Kitco Inc.]

Russia's economy is on the brink of a technical recession after gauges of manufacturing & services showed that seasonally adjusted output probably shrank in Q1 for the first time since 2010.  The composite purchasing managers’ index dropped to 47.8 last month from 50.2 in Feb, HSBC Holdings said, citing data compiled by  Markit Economics.  A reading below 50 indicates contraction.  Business expectations in the services industry were close to a record low seen at the end of 2008, HSBC said.  “Unless geopolitical risks subside, the Russian economy will likely enter a technical recession in the second quarter,” HSBC said in the report.  “The Russian economy is still going in the wrong direction, in contrast to the global economy which continues to improve its growth momentum.”  The fallout from the crisis in Ukraine is moving to the forefront of policy debates in Russia as sanctions leveled against some individuals & companies stoke capital flight, extinguishing a rebound in the economy.  While growth unexpectedly accelerated in Q4 before tensions with Ukraine intensified, GDP expanded at a 1.3% pace in 2013, the slowest since a 2009 recession.  Policy makers are limited in their ability to respond to a faltering economic outlook.  The central bank will probably remain “hawkish in order to stabilize the currency and financial markets,” HSBC said.  Economic growth is “likely” to decelerate below 1%, falling short of the forecast for 1.5-1.8% expansion.  A recession would affect its trading partners around the globe.

Russia Seen on Verge of Recession as PMI Shows Contraction

China outlined a package of measures including railway spending & tax relief to support the economy & create jobs after a slowdown endangered Premier Li Keqiang's target of 7.5% growth this year.  The gov will sell 150B yuan ($24B) of bonds this year to help build railways mainly in the less-developed central & western regions, the State Council said.  Authorities will also create a development fund of 200-300B yuan a year to increase sources of rail financing.  The measures expand on the cabinet’s plans to speed up construction projects after slowdowns in manufacturing, retail sales & investment pointed to unexpectedly weak growth.  The economy probably grew 7.4% in Q1 according to a Mar projection, down from a previous estimate of 7.6%.  The State Council said the nation will extend a preferential tax policy to more small companies & increase financing to build low-income housing.  China plans to build more than 6.6K kilometers (4.1K miles) of new rail lines this year, 1K more than last year.  “We must roll out policies that spur businesses’ vitality, effectively increase demand and boost jobs,” the gov said.   Accelerating rail projects will “increase effective investments & lead the development of relevant industries.”

China Outlines Measures to Support Growth as Goal Recedes

Mario Draghi said the ECB is ready to move deeper into uncharted territory in the fight against deflation, with policy makers debating what form of quantitative easing they might need to use.  “There was a discussion about QE, it wasn’t neglected,” he said.  “There are obviously different preferences about which QE would be more effective. We will continue working on that in the coming weeks.”  QE (large-scale purchases of assets intended to bolster prices & economic growth) would be the ECB’s most ambitious measure yet as it grapples with inflation at just a quarter of the central bank’s goal.  At the same time, the Governing Council faces substantial hurdles to develop a policy suitable for the currency bloc.  The ECB kept the Benchmark rate unchanged today for a 5th month & the deposit rate was left at zero.  Italian & Spanish debt advanced as Draghi spoke while the € fell to $1.371.  Even though QE is already used by the Federal Resrve & Bank of England, it has proved a controversial policy topic in the euro area, where the ECB is banned by EU law from financing govs.

Draghi Says Officials Are Debating QE Implementation to Head Off Deflation

There's a lot going on overseas which is getting less than its fair amount of attention in the US.  China is struggling to rev up its growth engine, Russia is stumbling after its push into Crimea & the euro recovery, which is meager, still faces major challenges.  Meanwhile traders are waiting for the Mar jobs report tomorrow.  A good report raises the prospects for larger cutbacks in the bond buying program by the Federal Reserve while limited growth adds to concerns about the US economic recovery.  Dow & the S&P 500 remain a whisper away from setting news records.  However, after a strong recovery in Feb, NAZ has been under pressure (a negative for the overall stock market).

Dow Jones Industrials

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