Monday, November 24, 2014

Markets crawl higher on hopes for the economy

Dow added 7 (good enough for a new record), advancers over decliners almost 3-2 & NAZ rose 41, led by pharmaceutical stocks.  The MLP index plunged 7+ to 511 & the REIT index went up 1 to go over 320.  Junk bonds funds were mixed & Treasuries found buyers later in the day.  Oil is back in the 75s & gold was up chump change.

AMJ (Alerian MLP Index tracking fund)

CLF15.NYM....Crude Oil Jan 15....75.84 Down ...0.67  (0.9%)

Live 24 hours gold chart [Kitco Inc.]

Purchasing gov debt comes with legal obstacles & it is no panacea for the euro-area economy, ECB Governing Council member Jens Weidmann said.  “There is a prohibition of monetary financing in the treaties that puts up high legal hurdles, and for good reason,” Weidmann said.  The debate about quantitative easing “is distracting our attention from the true problems,” he added.  Weidmann’s comments come after ECB pres Mario Draghi last week explicitly cited gov bond-buying as a possible policy tool & said that officials will do what they must to raise inflation expectations as quickly as possible.  The ECB 24-member Governing Council gathers next week & will announce its monetary-policy decision on Dec 4.  “There seems to be a conception that there is one silver bullet out there which is buying sovereign debt and once we embark on this this will save Europe from the low growth rates, from all our problems,” Weidmann said.  While Draghi has said that policy makers are unanimous on unleashing further stimulus to save the euro area from the threat of deflation, recent comments from policy makers indicate that there’s disagreement about the right time to decide on more action.  Some officials have stepped up their language to signal opposition to purchasing gov debt anytime soon.  Policy makers should first assess the effects of current measures such as targeted longer-term loans & purchases of covered bonds & asset-backed securities before acting again, they’ve said.

Weidmann Sees High Legal Hurdles for ECB Government-Bond Buying

Russia stands to lose as much as $140B a year as a result of lower oil prices, & US & Euro sanctions, Finance Minister Anton Siluanov said, underlining the risks of a prolonged stalemate over Ukraine.  “We’ve seen a contraction of capital inflows into the country,” Siluanov said.  “We’re losing about $40 billion a year because of geopolitical sanctions, and we’re losing about about $90 billion to $100 billion on the basis of a 30 percent decline in oil prices.”  The drop in the cost of hydrocarbons is pushing the economy of the world’s biggest energy exporter toward a recession while penalties imposed over Russia’s role in the Ukrainian crisis discourage investors & curb domestic demand.  Pres Putin asked his economic team last month for a plan to survive a decade of sanctions.  The Russian economy, which is already growing at the slowest in 4 years, will sink into a recession next year if the price of oil drops to $60 per barrel & sanctions are stiffened, Siluanov said.  Crude prices began sliding in Jun, & Brent, the grade traders look at for pricing Russia's main export blend Urals, dropped below $80 this month.  The Russian central bank forecasts the economy may have zero growth next year after a 1.3% gain in 2013.  In 2007, when Brent averaged about $73 a barrel & GDP grew 8.5%.  Net capital outflow may reach $130B this year, the highest since the 2008 financial crisis.  “The price of oil fell 30 percent since the beginning of the year -- and with it the ruble,” Siluanov said.  “The ruble will follow oil prices.”  Russia’s currency has depreciated almost 27% this year against the dollar, the worst performance after Ukraine’s hryvnia among global currencies.  The global glut of oil, which together with gas accounts for about 50% of Russia’s state revenue, has contributed to a slide in crude prices to a 4-year low.  Russia needs Brent to average about $100 this year to balance its budget, Deutsche Bank estimated last month.

Russia Sees $140 Billion Loss From Oil Drop, Sanctions as Pressure Mounts

United Tech's, a Dow stock, surprise announcement that CEO Louis Chenevert has stepped down comes as the company struggles to boost growth in several key units.  Gregory Hayes, CFO for 6 years, assumes the top post as UTX prepares a major new engine program in its Pratt & Whitney division & faces challenges to expand its Otis elevator business in China.  While the company didn’t give a reason for the change, a spokesman said it was not related to financial performance.  Chenevert retired after he led the $16.5B acquisition of Goodrich & reshaped the business lines around aerospace & building services.  After joining Pratt in 1993, Chenevert was considered a leading driver of the unit’s development of a new geared turbofan engine, which has cost more than $1B to produce.  Pratt suffered a pair of high-profile setbacks this year involving its engines.  A fire broke out in a prototype of the geared turbofan powerplant on a commercial test plane in May.  A month later, an engine blowout in the F-35 Joint Strike Fighter grounded the aircraft.  Edward Kangas, lead independent director, was elected nonexecutive chairman of UTX.  The changes are “entirely unrelated to the financial performance of UTC,” a spokesman for UTX, said & added the board has had a succession plan in place “for several years.”  The stock fell 1.51.  If you would like to learn more about UTX, click on this link:

United Technologies Replaces CEO as Company Struggles to Accelerate Growth

United Technologies (UTX)

Markets are fairly quiet in this shortened week of trading.  The big news will come from OPEC on Thurs (where they will not be having turkey).  Ahead of the meeting, there is not much for traders to do.  One interesting note today is selling in MLPs.  Traditionally this industry has been low beta, with modest daily swings.  But since the plunge in mid Oct (see above) reflecting the dramatic drop in oil prices, volatility has risen.  Daily prices swings of 1-2% have become common because nobody knows badly how lower oil prices will pinch their results.  

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