Monday, July 7, 2014

Lower markets on increasing global concerns

Dow dropped 40 from its record, decliners ahead of advancers 2-1 & NAZ fell 9.  The MLP index slid 1 to 518 & the REIT index was up fractionally in the 302s.  Junk bond funds crawled higher & Treasuries pulled back.  Oil & gold drifted lower.

AMJ (Alerian MLP Index tracking fund)

CLQ14.NYM...Crude Oil Aug 14...103.93 Down ...0.13  (0.1%)

GCN14.CMX...Gold Jul 14.........1,315.80 Down ...4.60  (0.4%)

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Photo:   Bloomberg

China’s central bank is seeking to support economic growth with unconventional tools that looks more like fiscal policy.  The People’s Bank of China this year started a 100B yuan ($16B) quota for relending earmarked for agriculture & small businesses.  It offered another 300B yuan for low-income housing, China Business News said.  Governor Zhou Xiaochuan is trying to carry out Communist Party orders to protect this year’s 7.5% economic growth target without resorting to nationwide stimulus that stokes debt dangers.  Economic growth in the first 3 months slowed to 7.4% from a year earlier, the weakest in 6 qtrs. June lending & money-supply figures due from the PBOC by mid-Jul & data including Q2 GDP will indicate the impact of gov efforts to avert a deeper slowdown.  Premier Li Keqiang said today that while China’s economic performance improved in the Q2 from Q1, the nation can’t lower its guard against downward pressure & will increase the strength of targeted measures.  China won’t adopt strong stimulus & can achieve annual goals of economic & social development for 2014, Li said.  Since the beginning Q2, the State Council, which dictates PBOC policy, has directed agencies to accelerate spending without enlarging budgets.  Areas of focus include railway investment, social housing, relending for smaller enterprises, bonds for special projects issued by policy lenders, & lower reserve requirements for banks that support specific sectors.  The line between monetary & fiscal policy is already blurred in China, with the PBOC lacking autonomy to make systemwide changes.  A 4T yuan stimulus announced in 2008 amid the global financial crisis was channeled mostly through monetary policy.

PBOC Wades Into Fiscal Waters as China Boosts Stimulus

German industrial output
Photo:   Bloomberg

German industrial output dropped for a 3rd month in May amid signs Europe's largest economy is taking a breather.  Production, adjusted for seasonal swings, fell 1.8% from Apr, when it declined a revised 0.3%, the Economy Ministry said.  The forecast output was to remain unchanged.  Production rose 1.3% in May from the previous year when adjusted for working days.  While Germany's economic trend points “upward significantly,” growth probably slowed in Q2, the Bundesbank has said.  Factory orders fell more than expected in May, Ifo business confidence dropped to a 6-month low in Jun, & unemployment rose for a 2nd month.  Manufacturing fell 1.6%, with intermediate-goods production dropping 3% & consumer-goods output down 3.5%, today’s report showed.  Investment-goods production rose 0.3% & energy output was up 1%, while construction slumped 4.9%.  The economy ministry said the decline in output was primarily due to the timing of the May 1 holiday & should only be temporary.

German Industrial Output Falls in Sign of Slower Growth

Saudi Arabia is a target for both sides in Iraq's deepening conflict, one reason it has ramped up security levels to confront a threat that’s more immediate than the Arab Spring revolts 3 years ago.  The world’s biggest oil exporter convened its national security council for a rare meeting under King Abdullah, & has bolstered defenses at the border with Iraq, where militants last month seized several cities & declared an Islamic state.  The king vowed to protect the nation’s “resources and territory and prevent any act of terror.”  The threat is twofold.  Sunni militant groups, like the Islamic State that now controls parts of Iraq as well as Syria, have historically posed a challenge to the family’s rule.  Another danger comes from Shiite militias, which struck across the Saudi border in the past & are now being called to arms to help fight the insurgents.  Ties between OPEC’s 2 largest oil producers have been strained since the US invasion of Iraq in 2003.  The situation bears watching.

Saudis on Alert for Iraq Threat With Enemies on Both Sides

In a quiet AM, intl issues are getting attention.  The health of China's economy is a worry & gloomy news from Germany is not helping.  But security of oil coming from Saudi Arabia is another headache that few have thought about.  Dow remains inches from its record, so the bulls are not worried.

Dow Jones Industrials

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