Thursday, June 12, 2014

Markets tumble on Iraq conflict and economic data

Dow sank 109 closing near the lows, decliners over advancers a relatively modest 3-2 & NAZ dropped 34.  The MLP index fell 1+ to 500 & the REIT index lost 1 to the 298s.  Junk bond funds edged higher & Treasuries rose.  Oil had a big day & is near its highest level since latte 2008.  Gold is rocketing ahead on increased fighting in Iraq.

AMJ (Alerian MLP Index tracking fund)

stock chart

CLN14.NYM....Crude Oil Jul 14....106.43 Up ...2.03 (1.9%)

Live 24 hours gold chart [Kitco Inc.]

Premier Li Keqiang
Photo:   Bloomberg

China's new yuan loans & money supply topped estimates in May as the gov supports economic growth while reining in shadow banking.  Local-currency loans were 870.8B yuan ($140B), the People’s Bank of China (PBOC) said, higher than almost all of the estimates.  M2, the broadest measure of money supply, rose 13.4%, compared with a projection for 13.1%.  China is in danger of missing a 2014 target for economic growth of about 7.5%, prompting Premier Li Keqiang to speed up gov spending & make limited cuts to lenders’ reserve requirements.  The World Bank warned last week that rapid credit growth & debt accumulation by local govs are risks to financial stability.  New yuan lending last month compared with the 750B yuan estimate &  667B yuan a year earlier.  Aggregate financing, China’s broadest measure of new credit was 1.4T, matching the estimate.  The figure, which includes bank lending, corp bond issuance & shadow-banking products like entrusted loans, compared with 1.55T yuan in Apr & 1.19T last year.  New yuan loans accounted for 62.2% of aggregate financing in May, up from 50% in Apr & 56.1% a year earlier, central bank data showed.

China’s New Loans Top Estimates in Boost for Economy

Photo:   Bloomberg

Pres Obama said he won’t rule out using airstrikes to help Iraq’s gov beat back Islamic militants who’ve seized major cities & threaten to ignite a sectarian civil war.  “I don’t rule out anything,” Obama said today when asked whether the U.S. was willing conduct drone strikes or take other action against the jihadists.  Iraq “clearly is an emergency situation” & the gov there needs more help.  Any move by Obama to intervene in Iraq would hit opposition in Congress.  While some lawmakers were pressing for the US to act, the Rep chairman of the House Armed Services Committee, Howard “Buck” McKeon, said he would oppose funding any military action.  His counterpart in the Senate, Dem Senator Carl Levin, said he was skeptical that airstrikes made sense.  3 years after the US & other members of an international coalition withdrew forces from Iraq, the army of the Shiite-led gov has collapsed when confronted by the radical Sunni forces that have swept through northern Iraq, threatening the stability of OPEC’s 2nd-biggest oil producer.  “I don’t rule out anything because we do have a stake in making sure that these jihadists are not getting a permanent foothold in either Iraq, or Syria, for that matter,”  Obama said.  Obama’s spokesman said afterward that the US is “not contemplating ground troops.”  A pentagon spokesman said that the US is moving ahead with military assistance programs started with Iraq since 2011, to include expediting the lease of Apache helicopters for delivery this year as well as delivery of 100 Boeing (BA) Scan Eagle surveillance drones.  The Pentagon this month notified Congress for approval to sell Iraq another $1B of military equipment.  Maliki last month asked the US to mount air attacks against militant training camps in western Iraq.

Obama Won’t Rule Out Airstrikes to Aid Iraq’s Army

Intel, a Dow stock, lost its fight against a record €1.06B ($1.4B) antitrust fine in a ruling that may embolden EU regulators in other monopoly investigations.  The EU’s General Court rejected “in its entirety” INTC’s attempt to overturn the penalty for giving rebates to computer makers that favored its chips & shunned the products of its main competitor, Advanced Micro Devices (AMD).  “None of the arguments raised by Intel supports the conclusion that the fine imposed is disproportionate,” the court said.  The size of the EU penalty “is at the lower end of the scale” for possible fines, it added.  The world’s biggest chipmaker’s defeat is a timely boost to the European Commission, which is embroiled in investigations over abuses of market power across the continent.  Today’s ruling “is significant because it confirms that the commission was fully justified in pursuing the anti-competitive conduct in question in a major worldwide market,” the EU authority said.  INTC stock was up pennies.  If you would like to learn more about INTC, 
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Intel Defeat Over $1.4 Billion Fine Boosts EU Regulator

Intel (INTC)

Dow was all ready to go over 17K as the bulls were thinking, "the sky's the limit."  But not so fast.  Increased fighting in Iraq got in the way.  It looks like gains made in the last decade are unraveling in only weeks.  The bad guys are setting up their own country in the northern part of Iraq which will be used as a base to launch terrorist acts around the world.  At a basic level, a key pipeline that takes oil from Iraq to Turkey goes thru this territory.  Then there is a possibility that the bad guys, who know what they are doing by taking advantage of western weakness, will grab even more of Iraq.  This situation is going from bad to UGLY.  Meanwhile there is another disaster of kids from central America coming into southern US & turning themselves in to authorities to receive US aid.  This year, that flood could easily top 100K.  Then there is the VA debacle which could cost over $35B.  Remember the talk yesterday about lower gov spending?  Suddenly Dow 17K looks very far away.

Dow Jones Industrials

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