Monday, August 25, 2014

Markets advance on hopes for QE by the ECB

Dow climbed 75, advancers over decliners 3-2 & NAZ went up 18.  The MLP index jumped 3+ to 531 (a new record) while the REIT index dropped fractionally to 310.  Junk bond funds were mixed & Treasuries rose.  Speculators are the least bullish on US crude oil prices in 16 months as refinery maintenance weakens demand (see below) at a time when Libya & Iraq are swelling global supplies.  Gold also pulled back.

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French pres Hollande’s firing of malcontent minister Arnaud Montebourg risks unleashing the ruling Socialist Party’s chief critic of budget cuts, adding to an austerity backlash stirring across Europe.  Montebourg, industry minister for the past 2 years, will not be part of the new team Hollande names tomorrow after he publicly criticized the pres for “slavish” & “dogmatic” deficit reduction that he said stokes unemployment.  The dismissal of a top minister underlines the growing political crisis confronting Hollande as he seeks to balance EU pressure to reduce the deficit with domestic demands to revive a stalled economy.  It also exposes a wider rift in Europe as Italy uses its 6-month presidency of the EU to make a stand against a German-led drive to clamp down on spending.  With an approval rating of just 17% & faced with record-high French unemployment levels, Hollande’s room for maneuver is shrinking as he slips into H2 of his 5-year mandate.  Montebourg’s rebellion has a ready audience in his party after Hollande pledged €50B ($66B) in spending cuts over the coming 3 years, with the savings being used to fund a reduction in payroll taxes for business.  Last weekend, Montebourg said a 1/3 of the money should be used for household tax cuts to lift domestic demand.  Montebourg’s critique was also aimed at Germany, which has led the charge within the EU for fiscal responsibility along with structural reform as a prerequisite for economic recovery.  That response was slammed last week by Nobel laureate Joseph Stiglitz, who said that euro-area austerity policies have been a “dismal failure” as evidenced by stalling economic growth.  “The politics of austerity, of higher taxes, decided by governments, have lengthened the economic crisis,” Montebourg said.  “These errors have raised questions in many European countries,” and “not only are the policies not working, they are unjust.”  That contradicted the message from German Chancellor Merkel, who said that she wished Hollande “every kind of success with his reform agenda,” saying the measures he had proposed were “bold.”  Italian Prime Minister Renzi emboldened by the strongest showing of any national leader in European Parliament elections in May, is trying to cajole Europe away from austerity & toward more fiscal flexibility by easing the clamp on spending that was applied during the debt crisis.

Hollande Replaces Cabinet as EU Austerity Rebellion Stirs

Boeing, a Dow stock, won an order for $8.8B of jets from BOC Aviation as the aircraft lessor made its biggest purchase to help meet surging travel demand in Asia.  Most of the 82 planes are from the top-selling 737 family, split between 50 of the upgraded Max 8 & 30 of the current -800 version.  A unit of Bank of China, also will take 2 wide-body 777s.  “We want to be in the younger end of the market,” BOC Aviation Managing Director Robert Martin said.  “We want the most fuel-efficient planes.”  BOC Aviation’s order for the narrow-body 737s, the company’s biggest aircraft acquisition, will help meet growing demand for the latest planes including the Max, Martin said.  “If you look forward in the next seven years, we’re in a transition for the 737 aircraft,” he added.  “You have somewhere in the mid-20s of operators already committed to the program, but we can see potential for that to go up to easily 100 operators. So we want to make sure we’re part of growing that program.”  Counting all its orders, BOC Aviation projects receiving an average of 27 planes a year starting in 2015, while also disposing of 20-30 annually, Martin said.  BA stock rose 87¢.  If you would like to learn more about BA, click on this link:

Boeing Wins $8.8 Billion BOC Aviation Order on Asia Carriers’ Lease Demand

Boeing (BA)

The cheapest crude oil since Jan has refiners producing fuel at record rates, helping lower the cost of gasoline at pumps across the country.  The average price for regular gasoline at US pumps dropped 4.2¢ in the 2 weeks ended Aug 22 to $3.48 a gallon, according to Lundberg Survey, & prices are 8¢ lower than a year ago.  Retail prices dropped as West Texas Intermediate (WTI) crude futures fell below $94 a barrel.  US refiners are processing the most petroleum for this time of year in records dating back to 1989.  “It’s crude oil at work,” Trilby Lundberg, the president of Lundberg Survey, said.  “The down factors outweighed the up factors. One of the many factors include robust U.S. oil production.”  WTI crude (US benchmark priced in Cushing) fell $4 to $93.65 a barrel on the NYMerc in the last 2 weeks, it’s the lowest since Jan 14.  Refineries processed 16.4M barrels a day in the week ended Aug 15, the highest level for mid-Aug in Energy Information Administration records dating back to 1989.  Refinery inputs reached a record 16.6M barrels a day the week of Jul 11.  On the Gulf Coast, home to more than half of the nation’s refining capacity, rates rose to 8.7M barrels a day the week of Aug 15, the highest level on record while crude inventories nationwide fell 4.5M to 362.5M, the lowest level since Feb 21.  Plants are taking advantage of the US shale boom, which has raised oil production 64% in the past 5 years.  The increased output has pushed the price of WTI futures below European Brent every day since Aug 17, 2010.

Cheapest Crude Since January Cuts Gas Cost to $3.48 a Gallon at U.S. Pumps

The S&P 500 topped 2K for the first time as stocks rallied on deals speculation & prospects for increased European stimulus.  QE coming from the ECB sounds good, but euro finances are coming apart as countries have to make painful choices about budget cuts to restore economic growth.  Stock traders are feeling good with the S&P 500 so near 2K & the Dow so close to setting a new record.  It would be nice if there was more favorable economic data & a more peaceful intl climate to back up this rise

Dow Jones Industrials

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