Friday, February 6, 2015

Markets fall on Greek debt worries

Dow dropped 60, decliners over advancers 2-1 & NAZ was off 20.  The MLP index fell 1+ to the 455s & the REIT index sank 11 to 341 (a huge drop for this index).  Junk bond funds slid lower & Treasuries dropped, taking the yield on the 10 year Treasury back over 1.9% (up 25 basis points this week).  Oil rose another 3% to the 51s (up from the 45s one week ago) & gold was hit with selling.

AMJ (Alerian MLP Index tracking fund)

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CLH15.NYM....Crude Oil Mar 15....51.67 Up ...1.19 (2.4%)

Live 24 hours gold chart [Kitco Inc.]

S&P cut Greece's sovereign rating one notch further into junk territory, citing the country's growing cash constraints.  S&P cut Greece's rating to B-minus from B, while keeping the country on watch for a downgrade.  The downgrade comes as officials in Greece & other European capitals frantically search for ways to keep Greece from running out of money next month, after initial plans to finance the cash-strapped country fell flat with its creditors.  Diminishing tax revenues in the run-up to Jan elections have pushed Greece's finances to a precarious point.  Greek officials now fear that the gov, led by the anti-austerity Syriza party, could run out of cash as soon as early Mar.

S&P Cuts Greece Rating Further Into Junk

Consumer borrowing in the US climbed in Dec as Americans boosted their credit-card use by the most in 8 months.  The $14.8B increase in total credit, or an annualized 5.4%, followed a revised $13.5B advance in Nov, according to the Federal Reserve.  For all of 2014, borrowing increased 6.9% after 6% a year earlier.  An improving job market & cheaper gasoline gave consumers the impetus to spend during the holiday-shopping season, allowing Q4 household purchases to rise at the fastest clip in almost 9 years. The forecast called for a $15B advance.  The report doesn’t track mortgages, home-equity lines of credit, or other real estate-backed debt.  Revolving debt, including credit-card balances, increased $5.8B after a $945M decline the prior month.  Non-revolving credit, which includes car & education loans, rose $9B, the smallest gain in a year, after advancing $14.4B in the previous month.  Autos sold at a seasonally adjusted 16.8M, down from 17.1M in Nov.  Federal lending to consumers, which mostly entails school tuitions, increased $5.1B before seasonal adjustments, after rising $5.8B in Nov.  Student loans in Q4 increased to $1.32T from $1.31T in the prior 3 months.  Borrowing for the purchase of motor vehicles rose to $955B last qtr after $943B in Q3. 

Consumer Borrowing in U.S. Increases as Credit-Card Use Picks Up

Federal Reserve Bank of Atlanta pres Dennis Lockhart said he wants to see inflation move closer to the central bank’s 2% target before raising interest rates from near zero around mid-year or later.  “I’d like to see some evidence that what we believe to be transient factors driving recent weak inflation readings are, in fact, passing,” Lockhart said.  “I would like to see firming of inflation readings. This will give me confidence that the outlook on which important decisions will swing remains realistic and likely to play out.”   The FMOC said last week it would be “patient” with its plans to raise interest rates.  Lockhart said today’s jobs report was part of an improvement showing “that the economy is on a path to a satisfactory and desirable state of health.”  With the unemployment rate falling over the past several years, “we would seem to be approaching an acceptable steady-state level of employment.”  Even as the Fed approaches its goal of full employment, it is far from lifting inflation toward its target.  “There are worrisome aspects of the current inflation picture, and reading underlying trends is problematic at present,” Lockhart said.  The Fed’s preferred inflation gauge, based on personal consumption expenditures, rose 0.7% in Dec from a year earlier & has lingered below the central bank’s 2% goal for 32 months.  Market-based expectations for inflation in the 5 years starting 5 years from now tumbled last month to 1.75%, the lowest since 1999.  “As of today, I remain comfortable with the assumption that circumstances will come together around mid-year, or a little later, that will deliver sufficient confidence to begin normalization with the liftoff decision,” Lockhart said.  “I won’t be more definitive than that. I think all possibilities from June on should remain open. I don’t at this juncture have a prediction or preference. Timing will depend on what the data tell us.”

Lockhart Says Rate-Increase Confidence Requires Higher Inflation

With selling in the PM, the gain for Dow this week (& month) was trimmed to 650, not bad considering the damage done last month.  While no great surprise, today's selling began after the downgrade on Greek debt.  Even though it was expected, it's always a shock when announced.  Dow is back into the red YTD, not a good sign for the balance of the.  Earnings season is not over.  New reports will move the stock market along with news about fighting in Ukraine & MidEast.  Bulls tried to take command of the markets but lost their grip late today.

Dow Jones Industrials

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