Monday, November 24, 2014

Higher markets on optimism about the economy

Dow climbed 23, advancers ahead of decliners 3-2 & NAZ added 26.  The MLP index sank 6+ to the 511s as MLPs continue to be volatile & the REIT index went up 1+ to 521.  Junk bond funds rose & Treasuries dropped.  Oil pulled back ahead of the big OPEC meeting this week & gold inched higher.

AMJ (Alerian MLP Index tracking fund)

CLF15.NYM....Crude Oil Jan 15...76.03 Down ....0.48  (0.6%)

GCX14.CMX...Gold Nov 14....1,200.30 Up ....2.80 (0.2%)

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ECB President Mario Draghi
Photo:   Bloomberg

German business confidence unexpectedly rose for the first time in 7 months after the country’s economy returned to growth & the ECB added stimulus to the euro area.  The Ifo institute’s business climate index based on a survey of 7K executives, advanced to 104.7 in Nov from 103.2 in Oct.  Economists predicted a decline to 103.  As the euro area’s largest economy, Germany is pivotal to any sustained recovery in the currency bloc.  Even so, the pace of growth remains sluggish & the Bundesbank has said the nation’s economy will lack momentum at least until the end of the year.  Ifo’s measure of current conditions climbed to 110 from 108.4 in Oct, & a gauge of expectations advanced to 99.7 from 98.3.  German GDP increased 0.1% in Q3 after a contraction in Q2.  While investor sentiment climbed for the first time in 11 months in Nov, manufacturing & services activity expanded at the slowest pace in 16 months.  Thousands of German companies are seeing business hit by EU sanctions imposed on Russia because of its involvement in the conflict in Ukraine.

German Business Confidence Unexpectedly Gains in November

Photo:    Bloomberg

A European Parliament bid for legislation splitting up Google may send a message that’s too loud to ignore as EU antitrust regulators review a possible settlement with the owner of the world’s largest search engine.  GOOG, already grappling with privacy & competition issues, risks another EU headache as some lawmakers seek to follow a successful attack on bankers’ bonuses with measures to break up the search giant.  While the parliament doesn’t have the authority to compel regulators to draft legislation or alter their antitrust probe, it can amend proposals by the European Commission.  Lawmakers used this procedure to shoehorn extra curbs on banker bonuses into legislation toughening capital requirements in the wake of the financial crisis.  The bonus measures prompted outrage from UK Chancellor of the Exchequer who only abandoned his legal fight against the rules last week after an adviser to the EU’s top court said the rules barring bonuses more than twice fixed pay were legal.  Attacking GOOG may be more difficult for the parliament than the bonus rules, because the assembly, in Brussels as well as France, has fewer powers in the competition field.  GOOG, which has more than 90% of the search market in many European countries, is being targeted by a group of parliamentarians who say the commission should consider legislation if it can’t wrap up a lengthy antitrust probe into the company.  The stock was not disturbed & went up 2.52.  If you would like to learn more about GOOG, click on this link:

Google Faces Breakup Call as EU Political Patience Wanes

Google (GOOG)

China's central bank said its surprise move to cut interest rates for the first time since 2012 is designed to help small firms & protect depositors instead of all-out monetary easing.  How the nation’s lenders respond will determine if it works out that way.  The bulk of bank debt in China is still concentrated on big borrowers, with outstanding credit to small firms less than 1/3 of total loans.  The People’s Bank of China’s (PBOC) rate cuts came after months of targeted measures failed to lower financing costs for smaller companies.  Since its last move in Jul 2012, the PBOC has sought to keep growth ticking over while reducing debt expansion & increasing scrutiny of the shadow banking industry.  The switch to broad-based stimulus risks a step back if lenders return to old habits of channeling loans to state-owned firms rather than more productive private enterprises.  Outstanding bank loans to small businesses were 14.6T yuan ($2.38T) at the end of Sep, or 29.6% of total outstanding corp bank loans, according to PBOC.  Private small businesses typically have limited access to raise money through bond or stock markets.  The reductions to the deposit & lending rates aren’t a shift in policy direction, the PBOC said.  The asymmetric cut of 40 basis points to the one-year lending rate to 5.6% & 25 basis points to the one-year saving rate to 2.75%, & an increased ceiling for deposit rates, is to protect households & consumers, it said.  “The ability of some enterprises, especially small businesses, to bear financing costs has weakened” amid the growth slowdown, the central bank said.

PBOC Seen Fueling Old China as Banks Hold Key to Policy: Economy

Not much is going on in the markets because the bears are hiding, so stocks are rising.  The OPEC meeting this week will drive the markets whatever is decided.  Currently nobody knows what will come.  In the meantime, semi-holiday trading in the US has a positive bias.

Dow Jones Industrials

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