Monday, July 21, 2014

Markets fall on growing global tensions

Dow sank 90, decliners over advancers better than 2-1 & NAZ declined 16.  The MLP lost 1+ to the 519s & the REIT index was off 1 to the 307s.  Junk bond funds edged higher & Treasuries rose, but the yield on the 10 year Treasury remains below 2½% .  Oil climbed higher on growing tensions in the MidEast & gold gained for the same reason.

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CLQ14.NYM...Crude Oil Aug 14...103.60 Up ...0.47 (0.5%)

GCN14.CMX...Gold Jul 14.........1,315.50 Up ...6.30 (0.5%)

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China will revive mortgage-backed debt sales this week after a 6-year hiatus, as the gov extends help to homebuyers in a flagging property market.  Postal Savings Bank of China, which has 39K branches in the country, plans to sell 6.8B yuan ($1.1B) of the notes backed by residential mortgages tomorrow, according to Chinabond.  The last such security in the nation was sold by China Construction Bank in 2007.  Premier Li Keqiang is seeking to avert a collapse of the real-estate market after data last week showed new home prices dropped in a record number of cities in the economy.  The central bank in May called on the nation’s biggest lenders to accelerate the granting of mortgages to first-home buyers, & cities including Nanning, Hohhot & Jinan eased property restrictions.  Selling mortgage-backed securities can help banks free up space on their balance sheets for more lending by transferring the risk of the loans to buyers of the products.  Authorities are allowing the revival of such offerings after housing prices fell in 55 of the 70 cities last month from May, the National Bureau of Statistics said on Fri (the most since Jan 2011 when the gov changed the way it compiles the statistics).  New mortgages in Shanghai, China’s financial center, declined 2.2 % in H1.  Pressure on Chinese developers was underscored by the collapse in Mar of Zhejiang Xingrun Real Estate, a builder south of Shanghai.  Developers have cut property prices since Mar to boost sales.  The slump comes as economic growth is set to cool to 7.4% this year, the slowest in more than 2 decades.

China's First Mortgage Debt Since Crisis Shows Li Concern

Ukraine, already facing recession, may see its economy shrinking by as much as 2 percentage points more should Russia halt trade as a conflict widens between the two, Premier Arseniy Yatsenyuk said.  The trade relationship between Ukraine & Russia is “getting worse,” Yatsenyuk added.  “We do not have any kind of real relationship. we have the war. It will severely hamper Ukrainian gross domestic product.”  Ukraines’s economy has been battered by deadly anti-gov street protests, Russia’s annexation of the Crimean peninsula & a pro-Russian insurgency in the nation’s eastern industrial heartland.  GDP may shrink 6.5% this year, the gov & the IMF predict, compared with the 5% contraction they forecast in May.  Russia limited trade ties with Ukraine a year ago for planning to sign a trade agreement with the EU in Nov.  Ukraine’s then-President Viktor Yanukovych snubbed the deal because of concern over halted trade, sparking a popular street protest that led to his ouster.  Yanukovych’s successor, Petro Poroshenko, signed the deal last month.  Russia “wages a war, they supply terrorists, they supply weapons, they cut off the gas supply, they want to stop our bilateral trade,” Yatsenyuk said.  “The ultimate goal of Russia is just not to have Ukraine on the map.”  “Our preliminary assessment is that we need additionally about $1 billion for the defensive operations until the end of the year,” Yatsenyuk said.  Russia cut off the natural-gas supply to Ukraine, which depended on Russia for almost half of its fuel needs, in Jun as both countries appealed to Stockholm court.

Russia Trade Halt to Deepen Ukrainian Recession, PM Says

German Chancellor Angela Merkels's budget got a double boost in Jun as federal tax revenue surged & low benchmark interest rates trimmed the cost of servicing debt, the Finance Ministry said.  Federal tax revenue jumped 10.9% in Jun compared with a year ago while spending declined by 0.4%.  State tax revenue grew by 19.6%, helped by property transaction levies & inheritance tax.  “Continuing the trend of recent months, the positive development in federal spending is due in particular to reduced interest payments,” the report said.  But the report didn’t provide an outlook for the economy in H2.  Low interest on debt service & rising tax receipts supply positive mid-year signals to the gov in its bid to balance the budget.  Merkel aims to run a near-balanced budget this year & forgo net new borrowing in the 2015 budget for the first time since 1969.  Opposition-party budget experts said Merkel’s budget targets depend on interest rates over which the gov has no control.  The ECB on Jul 3 kept its benchmark rate at 0.15% while average Jun bund yields were 1.25%, 13 basis points above the record low of 1.127% reached in 2012.

Russia Trade Halt to Deepen Ukrainian Recession, PM Says

It sure seems like the world is coming apart.  Ukraine & Gaza are just 2 of the trouble spots.  Let's not forget that northern Iraq has set up a state to sponsor terrorism around the world.  More earnings are coming, starting with Microsoft (MSFT), a Dow stock, tomorrow after the close.  Let's see what the new week brings.

Dow Jones Industrials

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