Thursday, March 5, 2015

Markets advance on ECB stimulus

Dow gained 54, advancers over decliners 3-2 & NAZ aaded 21 (but below 5K).  The MLP index rose 2+ to 445 (more of its sideways trend) & the REIT index went up 3+ to the 336s.  Junk bond funds did little & Treasuries climbed higher.  Oil lost some of its recent gains & gold is hovering around 1200.

AMJ (Alerian MLP Index tracking fund)

CLJ15.NYMCrude Oil Apr 1551.13 Down 0.40 (0.8%)

GCH15.CMXGold Mar 151,201.30 Up 0.70 (0.1%)

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Mario Draghi primed investors for an initial bond-buying salvo as he signaled ECB officials are convinced they will succeed in choking off the threat of deflation.  6 years after the Federal Reserve began quantitative easing, the ECB’s Governing Council committed to its first asset purchases next week in a program amounting to €60B ($66B) a month.  He also unveiled forecasts showing higher economic growth with an inflation outlook that puts officials on track to reach a goal of just below 2%.  “Our monetary policy decisions have worked, and it is with a certain degree of satisfaction that the Governing Council has acknowledged this,” he said.  “We see objectives are gradually being obtained.”  Draghi’s push to lead the currency bloc into a new monetary-policy era by embarking on QE added to a range of prior stimulus measures that had so far failed to raise consumer prices in the region.  Since Jun, the central bank has cut interest rates twice, offered cheap long-term loans for banks & started buying asset-backed securities & covered bonds.  Now Draghi revealed a range of elements of his stimulus plan, including to what extent the ECB may buy gov bonds with negative yields.  “How negative can we go? Until the deposit rate,” he added.  Policy makers left that rate at minus 0.2% today, with the benchmark rate at 0.05%.  The institution predicts consumer prices will stagnate this year before increasing 1.5% next year & 1.8% in 2017, Draghi said.  Officials revised projections for economic growth, partly due to a drop in oil prices.  The ECB sees GDP expanding 1.5% this year, 1.9% in 2016 & 2.1% in 2017.  While reiterating that the “risks surrounding the economic outlook for the euro area remain on the downside,” Draghi also said they “have diminished following recent monetary policy decisions.”  Buying assets on a broad-based level was the “final set of measures,” the ECB pres said.  “In order to increase investment, boost job creation and raise productivity, both the decisive implementation of product and labor market reforms and actions to improve the business environment for firms need to gain momentum in several countries.”

ECB Is Ready to Buy Bonds

The number of Americans filing for unemployment benefits rose last week to the highest level in more than 9 months, a sign harsh winter weather may be stalling the job market’s progress.  Jobless claims increased 7K to 320K, the most since May, from 313K in the prior period, according to the Labor Dept.  The forecast expected claims of 295K.  Snowfall in parts of the country may have caused some workers to have been temporarily dismissed, leading to the increase in layoffs.  Details for the prior week already indicated inclement weather was one reason behind the jump.  The 4-week average of claims, a less-volatile measure than the weekly figure, climbed to 304K from 294K the week before.  The number continuing to receive jobless benefits increased 17K to 2.42M & the unemployment rate among people eligible for benefits held at 1.8 percent.

Jobless Claims in U.S. Rise to Highest Level in Nine Months

China set the lowest economic growth target in more than 15 years & flagged increasing headwinds as leaders tackle the side effects of a generation-long expansion that spurred corruption, fueled debt & hurt the environment.  The goal of about 7%, down from last year’s aspiration of about 7½%, was given in Premier Li Keqiang’s work report at the annual meeting of the legislature today.  Fiscal policy will remain proactive & monetary policy prudent, while the yuan exchange rate will be kept at a reasonable & balanced level, the gov said.  Headwinds that include a property slump, excess industrial capacity & disinflation prompted the 2nd interest-rate cut in 3 months.  Policymakers flagged a wider budget deficit this year of about 2.3% of GDP, adding fiscal firepower to the monetary stimulus.  Li’s work report opened the meeting of the National People’s Congress.  Along with pres Xi Jinping, Li is seeking to increase efficiencies & strengthen market forces after GDP growth in 2014 was the slowest in 24 years.  “The difficulties we are to encounter in the year ahead may be even more formidable than those of last year,” Li said.  “China’s economic growth model remains inefficient: our capacity for innovation is insufficient, overcapacity is a pronounced problem, and the foundation of agriculture is weak.”  Policymakers are trying to balance the need to cushion the economy’s slowdown with monetary & fiscal stimulus against longer-term goals.  They’re seeking to increase the role of private business, promote innovation & reshape the fiscal framework as they shift the economy from reliance on debt-fueled investment toward greater consumption and services.  Reflecting the deepening concern over the economy’s slowdown, the People’s Bank of China announced the 2nd interest-rate cut in 3 months on Sat.

China Cut Its Growth Outlook to the Lowest Level in Over 15 Years

Nothing like gov bond buying to excite stock buyers.  This time it is the ECB, but any type of bond buying is viewed as a plus for the stock market.  Dow is about even in the early part of this month & could be losing the enthusiasm for stocks shown last month as more discouraging words come out about how bad weather is pinching economic results.  Negative news from China will also weigh on all markets.

Dow Jones Industrials

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