Thursday, June 26, 2014

Markets fluctuate on forecast of higher interest rates in Q1-2015

Dow dropped 21, advancers 10% above decliners & NAZ lost pocket change.  The MLP index rose another fraction to a new record at 519 & the REIT index slipped 1 to 301.  Junk bond funds were mixed & Treasuries climbed higher.  Oil & gold pulled back.

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CLQ14.NYM....Crude Oil Aug 14....105.79 Down ...0.71  (0.7%)

Live 24 hours gold chart [Kitco Inc.]

James Bullard
Photo:    Bloomberg

Federal Reserve Bank of St. Louis President James Bullard predicted the central bank will raise interest rates starting in Q1-2015, sooner than most of his colleagues think, as unemployment falls & inflation quickens.  Asked about his forecast for the timing of the first interest-rate increase since 2006, he said: “I’ve left mine at the end of the first quarter of next year.”  “The Fed is closer to its goal than many people appreciate,” Bullard said today.  “We’re really pretty close to normal.”  The FOMC is debating how long to keep the benchmark interest rate near zero after completing a bond-purchase program that’s set to end late this year.  The committee repeated last week that it expects the rate to remain near zero for a “considerable time” after the purchases end.  Bullard predicted the jobless rate may fall below 6% & inflation rise near 2% by the end of this year.  If his forecasts bear out, “you’re basically going to be right at target on both dimensions possibly later this year,” Bullard said.  “That’s shocking, and I don’t think markets, and I’m not sure policy makers, have really digested that that’s where we are.”  In quarterly forecasts released Jun 18, Fed officials said they expected the benchmark rate will be 1.13% at the end of 2015 & 2.5% a year later, higher than they previously forecast.  The forecasts, represented as dots on a chart, don’t give the qtr in which the first increase is expected to occur.

Bullard Predicts Fed Rate Increase in First Quarter of 2015

China’s chief auditor discovered 94.4B yuan ($15.2B) of loans backed by falsified gold transactions, adding to signs of possible fraud in commodities financing deals.  25 bullion processors in China, the biggest producer & consumer of gold, made a combined profit of more than 900M yuan from the loans, according to the National Audit Office.  Public security authorities are also probing alleged fraud at Qingdao Port, where copper & aluminum stockpiles may have been pledged multiple times as collateral for loans.  Steps by the Chinese gov to rein in credit by raising borrowing costs in recent years created a surge in commodities financing deals that Goldman Sachs estimates to be worth as much as $160B.  As much as 1K metric tons of gold may have been used in lending & leasing deals in China, where commodities including metals & agricultural products are used to get credit amid lending restrictions, according to World Gold Council estimates.  Net imports totaled 52.3 tons last month, compared with 65.4 tons in Apr & 106 tons a year ago.  The global flow of bullion from west to east that’s helped to make China the world’s largest user will probably last for as long as 2 decades as rising incomes spur demand, according to the China Gold Association.  The London-based gold council said it was confident that any fraud in China did not affect its overall estimate for gold demand.  The Chinese economy may be growing rapidly, but these kinds of stories are scary.

China Finds $15 Billion of Loans Backed by Fake Gold Trades

Air Astana, Kazakhstan’s gov controlled carrier, said Boeing, a Dow stock, is close to announcing a new aircraft to succeed the 757 jetliner that ceased production almost a decade ago.  The airline’s talks with BA at the International Air Transport Association annual meeting in Doha this month suggest the model will be built, according to Air Astana President Peter Foster, who said he would be a buyer.  BA is gauging airlines’ appetite for a new medium-size jetliner for transcontinental travel within the US, executives said at the in Feb.  A plane seating 180 in 2 classes with the ability to fly as many as 9 hours also would meet requirements from Kazakhstan-based Air Astana on thin routes, Foster said.  The new aircraft would help fill the gap in the planemaker’s roster of new jets between the largest 737 Max, set to debut late this decade, & the smallest 787 Dreamliner.  “We continue to watch trends and speak to our customers to determine what the market will require in the years to come,” a BA spokesman, said.  “Today we’re very focused on our current development programs: the 777X, the 737 Max & the 787-10.”  While BA delivered the last single aisle 757 in 2005, the jet remains popular with carriers for a range that’s unmatched by any single-aisle jet currently manufactured.  The stock rose 96¢.  If you would like to learn more about BA,
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Boeing Advancing on Successor to 757 Jet, Air Astana Says

Boeing (BA)

There was not a lot going on in the markets today.  But the Iraq mess looks bad although the gov is buying used fighter jets from Russia.  Not sure what good that will do against ragtag fighters.  Meanwhile they US is delivering 2 F-16s in the fall (assuming the gov lasts).  It's hard to believe that the popular averages are essentially at record highs while the US economy is sputtering with disappointing consumer numbers & numerous intl conflicts that show no sign of going away soon.

Dow Jones Industrials

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