Tuesday, May 26, 2015

Stock averages drop the most in 3 weeks on rate hike worries

Dow went down 190 (closing near the lows), decliners over advancers almost 4-1 & NAZ lost 56.  The MLP index sank 5+ to the 439s & the REIT index fell 2+ to the 319s.  Junk bond funds saw selling while Treasuries rallied (money flowing from stocks to bonds). Oil slumped back to 58 & gold is below 1200 again.

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CL.NYM....Crude Oil Jul 15....57.97 Down ...1.75  (2.9%)

Live 24 hours gold chart [Kitco Inc.]

Federal Reserve (FED) Vice Chair Stanley Fischer said policy makers will consider global growth as they begin to raise interest rates, & that they could increase borrowing costs more gradually should the world economy falter.  “If foreign growth is weaker than anticipated, the consequences for the U.S. economy could lead the FED to remove accommodation more slowly than otherwise,” Fischer said.  The FED will weigh how raising rates will affect other nations, he added.  While tightening will probably will cause spillovers, the FED is working to communicate policy changes clearly to smooth the transition, & emerging market economies are in better shape to endure the shift than in recent years, he said.  FED policy makers are preparing to raise rates working to engineer a smooth tightening & avoid the volatility spurred by the "taper tantrum" that roiled global markets in 2013.  “The actual raising of policy rates could trigger further bouts of volatility, but my best estimate is that the normalization of our policy should prove manageable” for developing nations, Fischer said.  “We have done everything we can, within the limits of forecast uncertainty, to prepare market participants for what lies ahead.”  The taper tantrum followed then-Chairman Ben S. Bernanke’s May 2013 testimony to lawmakers that the central bank could reduce bond purchases within “the next few meetings.”  Currencies & stocks plunged in emerging market, while gov bond yields soared across developing economies.  The FED didn’t end up tapering purchases for another 7 months.  When it did make the first reduction in bond buying, “there was little reaction from markets,” Fischer said.  The FED made the last cut to its bond buying in Oct.  Emerging markets have mostly weathered that wind-down “reasonably well so far,” Fischer said.

Fischer: Fed Could Slow Rate Rises If Global Growth Falters

There has been little convergence in talks between Greece & its creditors as time runs out to secure a deal before the country needs to make payments to the IMF in early Jun.  Talks to release bailout funds the country needs to pay the IMF almost €1.6B ($1.75B) next month have made little progress in recent days with the first transfers due Jun 5.  Greek officials plan to hold a conference call later with the European Commission & IMF, postponing until tomorrow an in-person meeting originally planned for today.  German Chancellor Merkel & French President Hollande last week set a target of reaching a deal by the end of May, a goal that Tsipras’s spokesman said yesterday can still be reached.  Key sticking points remain in areas such as budget targets, sales-tax rates, pension & labor market rules.  “Unfortunately, a lot of time has been lost,” ECB  Governing Council member Ardo Hansson said.  “An agreement where underlying principles aren’t undermined would be in everyone’s interest, but so far it has been progressing very arduously.” Greece’s standoff with lenders is likely to be a major topic on the sidelines of a G-7 gathering starting Wed in Dresden, Germany.  Greece has seen liquidity evaporate, pushing the economy back into recession.  Record deposit withdrawals & the state’s increasing difficulty in meeting debt payments have renewed doubts about the country’s ability to stay in the euro.

Greece Said to Find Little Convergence With Creditors

Charter Communications will buy Time Warner Cable  for $100 a share in cash & 0.5409 of its shares, in a merger that will create the 2nd largest cable & broadband operator in the US.  The cash & stock deal values TWC at over $195 a share, or more than $55B, & comes.  The takeover effort comes amid a bout of consolidation in the communications industry as operators look at mergers as a way of increasing scale & efficiency, while also serving new consumer habits such as the growing adoption of streaming video.  CHTR intends to become an industry powerhouse with a significant presence in the Northeast, Southeast & western US.  The combined company will serving 24M customers in 41 states & is expected to have an enterprise value north of $115B.  However, it is not expected to control over 30% of the US broadband market.  CHTR is offering an option for shareholders to take $115 a share in cash & 0.4562 shares of CHTR for investors who would like a higher cash payout.  The deal is subject to regulatory review & is expected to close by the end of 2015.  CHTR stock gained 4.45 to 179.78 & TWC jumped 12.42 to 183.60.  If you would like to learn more about CHTR, click on this link:

Charter Communications To Buy Time Warner Cable For $55 Billion, Creating Cable Powerhouseat Forbes

Charter Communications (CHTR)

Major acquisition news should be bullish for stocks, not today.  Traders are feeling that interest rate hikes are around the corner & they are worried.  Good macro economic news is a reminder that the first interest rate hike could be near.  The Greek debt mess, stuck in neutral, is adding to their discomfort.  However, Dow is hanging in above 18K & NAZ is above 5K, close to record highs recently reached.

Dow Jones Industrials

stock chart 


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