Monday, October 27, 2014

Markets fluctuate as energy stocks sell off

Dow climbed 12, decliners over advancers 4-3 & NAZ rose 2.  The MLP index rebounded from AM selling to a loss of 3+ bringing it to the 509s & the REIT index rose 2 to the 314s (flirting with the yearly highs).  Junk bond funds slid lower & Treasuries solf off.  There was buying in the oil market in later hours, bringing it back over 80 & gold pulled back.

AMJ (Alerian MLP Index tracking fund)

CLK15.NYM....Crude Oil May 15....80.13 Down ...0.31  (0.4%)

Live 24 hours gold chart [Kitco Inc.]

Photo:   Bloomberg

The ECB said it settled €1.7B ($2.2B) of covered-bond purchases last week as it started its latest effort to revive the euro-area economy.  The institution began purchases last week, returning to the market for a 3rd time in 6 years as part of a renewed attempt to stave off deflation & pump life into a moribund recovery.  Investors have been closely watching the ECB’s first week of asset buying to gauge how quickly pres Mario Draghi plans to fulfill his pledge of expanding the institution’s balance sheet by as much as €1T.  Even though the ECB will add asset-backed securities to the purchase plan this year, stimulus may not be enough to revive the region’s economy.  With the economy stuttering & inflation forecast to have stayed below 1% for a 13th month in Oct, Draghi is under pressure to do more.  While central banks from the US-Japan used large-scale asset purchases to bolster their balance sheets & kick-start lending, the ECB has so far refrained from such a step.  German opposition to sovereign-bond purchases means officials have chosen covered bonds & ABS as the latest tools to help expand the balance sheet.  While policy makers say their plans will spark new issuance, some say the central bank will probably need to buy other assets to reach the target.  Of the region’s €2.6T covered-bond market, the ECB will only buy assets acceptable under its collateral framework for refinancing loans.  So far, officials from Bundesbank President Jens Weidmann to Belgian central bank governor Luc Coene have said they want to judge how well the measures are working before considering other options.  Governing Council member Ardo Hansson said policy makers should refrain from additional measures as current stimulus works its way thru to the economy.  The ECB is also counting on its targeted long-term loans to banks to revive credit to the real economy.  While a review of the balance sheets of the region’s major lenders revealed that 25 had capital shortfalls, only 8 still need to plug the hole after programs enacted in the course of this year.

ECB Says 1.7 Billion Euros of Covered Bonds Bought Last Week

Microsoft, a Dow stock, trying to win back customers for its Xbox One game console, will cut $50 from the unit’s price next month for the upcoming holiday shopping season.  It will offer the discount on any Xbox One console or bundle from Nov 2 - Jan 3,  The discount reduces the price of the cheapest model to $349 in the US, with the console costing about 13% less than the main competition.  The latest console was initially offered with the Kinect sensor in a package that made it more expensive.  But it narrowed that gap by unbundling the sensor to try to claw back market share.  MSFT sold 2.4M Xbox consoles in the 3 months ended in Sep, the company reported last week.  The stock lost 22¢.  If you would like to learn more about MSFT, click on this linnk:

Microsoft Eyes Holiday Sales With Price Cut for Xbox One

Microsoft (MSFT)

General Motors said recall & car-loan charges for this year rose 8% to $2.7B, as the company is hit almost daily with new lawsuits over the call-ins.  The automaker spent $680M to repair defective ignition switches in 2.6M cars & $325M to rework or replace ignition keys in 12.1M cars in the 9 months thru Sep 30.  GM announced recalls of 34M cars in the period, taking charges for about 32M of them, up from 29M recalls & associated costs of $2.5B as previously reported for the first half of 2014.  GM last week disclosed details of new suits filed against it in a federal court, where customers have demanded $10B for fallen car prices & other damages allegedly tied to recalls of defective vehicles.  The new complaints against GM came on top of more than 150 cases counted by the carmaker.  The suits are bundled together in 2 group actions in NY or running separately in other federal & state courts.  Most accuse GM of hiding known defects for years, putting customers at risk of death, injury or financial loss.  GM denies that recalls triggered price losses in its cars & it will fight all claims except for those by drivers who had accidents in cars with faulty switches.  Confirmed deaths tied to defective switches have risen to 30 & may spike as new claims are filed before a Dec deadline set by the automaker for victims to seek money, GM said last week.  Previously, GM had counted 13 fatalities.  The stock was up pennies.  If you would like to learn more about GM, click on this linnk:

GM Nine-Month Recall Charges Total $2.7 Billion on Ignition Repair Work

General Motors (GM)

Early losses in oil were pared although energy stocks had a bad day.  WTI remains near 80, a very depressed level.  Lower oil prices also negatively affect MLPs.  They do a lot of fracking or move that oil across the country.  Fracking is expensive & lower oil prices raise doubts about the future of this part of the energy industry.  Tomorrow should be a quiet day in the markets as they wait for Janet Yellen to report on Wed after the FOMC meeting.

Dow Jones Industrials

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