Tuesday, June 30, 2015

Markets advance cautiously on reduced Greek debt concerns

Dow rose 23, advancers over decliners better than 3-2 & NAZ went up 28 (taking it near 5K).  The MLP index continued falling, down 2+ to 397, & the REIT index inched up pocket change in the 303s.  Junk bond funds were higher & Treasuries were weak after yesterday's rally.  Oil rose & gold saw selling again.

AMJ (Alerian MLP Index tracking fund)

CLQ15.NYM....Crude Oil Aug 15....59.46 Up ...1.13 (1.9%)

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Just how quickly is everyone's paycheck growing?  It's one of the most important questions in the American job market right now, with only inconclusive answers derived from conflicting data.  This week, a regional Federal Reserve bank added a new indicator to the mix in hopes of offering policy makers a closer look at what's really happening in the job market.  The new index, which shows a median wage increase of 3.3% in the 12 months thru May, a substantially faster pace than even just a year ago, gives ammunition to central bank hawks who would like to raise interest rates in Sep.  There are currently 2 principal measures of wages: the Labor Dept average hourly earnings measure & the Employment Cost Index, a broader measure that includes benefits.  They give somewhat conflicting pictures on the state of wages, with hourly earnings up 2.3% thru May & quarterly ECI up a more robust 2.8% thru Q1, excluding gov workers.  The Atlanta Fed's newly introduced measure is based on Census Bureau questions to thousands of households, compared to other measures that survey businesses.  "We are seeing signs of wage pressure," says John Robertson, a senior policy adviser at the regional bank.  While some economists consider the Employment Cost Index the single best measure of earnings, an advantage of the Atlanta Fed's tracker is it will come out monthly & provide a much faster take on the job market.  The new measure has moved in tandem with changes in unemployment rate from 12 months earlier, Robertson says.  This suggests that further wage gains are coming because the jobless rate has dropped to 5.5%, from 6.3% in May 2014.  Wage gains have doubled from 1.6% in Jan 2010, but remain lower than the 4.1% level during the month the recession started in Dec 2007.  Robertson's takeaway: "The labor market is tightening, though not necessary tight. We are seeing some acceleration in wages—though not back yet to the levels when the market was tight, like 2006-2007."  While some economists believe that Fed Chair Janet Yellen may want to wait until later in the year, the Atlanta Fed data add to the argument that an increase could be warranted sooner.

This New Indicator Shows the U.S. Job Market Finally Heating Up

The US economy probably bounced back to an annual growth rate of around 2.5% in Q2, & the labor market is approaching full employment, Federal Reserve vice chairman Stanley Fischer said.  He said "tentative" signs of wage growth & continued job creation also gave him confidence that US labor markets will continue improving, & gradually push inflation towards the Fed's 2% target.  Fischer did not directly address the timing of an initial Fed rate hike that is expected as early as Sep, but noted that the central bank needed to stay ahead of the curve, since monetary policy only affects the economy with a time lag.  "We should not wait until we have reached our objectives to begin adjusting policy," Fischer said.  Since late last year the Fed has wrestled with whether a weaker global economy might throw the US off track & force a further delay in any rate hike.  The escalating crisis in Greece could add to that uncertainty if it drags the euro zone back into recession.  Fischer did not mention the Greek crisis specifically but added that the global situation remained a “significant headwind” for the US.  It has hurt the country's exports in particular, & the impact is likely to continue.  Still, Fischer's view of the economy remained one of steady improvement at a time when the Fed has said it would consider an interest rate hike at each upcoming meeting, & be responsive to incoming data.  "Our policy will be data dependent, and the (Federal Open Market Committee) at upcoming meetings will weigh possible adjustments" to the interest rate, Fischer said.

Economy nearing full employment, bounced back in Q2: Fed's Fischer

Cisco, a Dow stock, said it would buy OpenDNS for $635M, the latest move to boost its security business as cyber attacks increase in number & sophistication.  It has been buying a number of security companies, which has made its relatively tiny security business one of its fastest growing in the past 2 years.  OpenDNS uses predictive intelligence to block malware, botnets & phishing threats that antivirus & firewalls miss.  The global cyber security market is estimated to grow to $170B by 2020 from $106B in 2015.  This acquisition is its first after saying in May that veteran Chuck Robbins would replace John Chambers as CEO in Jul.  CSCO, which acquired dozens of companies under Chambers, is transitioning toward high-end switches & routers, & investing in new products such as data analytics software & cloud-based tools.  The company, whose security business is known for its firewalls, expanded into intrusion detection & prevention systems with the $2.7B acquisition of Sourcefire in 2013.  The stock slid back pennies.  If you would like to learn more about CSCO, click on this link:

Cisco to Buy OpenDNS for $635M

Cisco (CSCO)

Angela Merkel said no to another Greek bailout.  What's new?  Obama said no to a bailout for PR.  Times are tough for debtor nations.  It is difficult to evaluate today's market rise with fund managers adjusting their Q2 end books.  But Dow is down modestly in Q2 & YTD.  And rising interest rates are around the corner.

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Markets bounce back as international debt fears recede

Dow recovered 34, advancers over decliners 3-2 & NAZ gained 14.  The MLP index inched fractionally higher to go over 400 & the REIT index also rose a fraction in the 303s.  Junk bond funds climbed back & Treasuries lost some of yesterday's gains.  Oil has a small advance while gold slid lower, stuck in its sideways trading range around 1170.

AMJ (Alerian MLP Index tracking fund)

CLQ15.NYM...Crude Oil Aug 15...58.90 Up ...0.57 (1.0%)

GCN15.CMX...Gold Jul 15.......1,168.90 Down ...9.60  (0.8%)

3 Stocks You Should Own Right Now - Click Here!

Greece requested a new 2-year bailout program from the euro region as the country edged closer toward a financial precipice hours away.  Prime Minister Tsipras asked for the aid from the European Stability Mechanism.  The request is to cover all of the country’s financial needs for the next 2 years, along with a debt-restructuring plan, the Greek gov said.  The gov will continue negotiations seeking a “viable agreement” within the euro area.  The proposal didn’t include any of the economic-reform measures European negotiators had sought for months.  A spokesman for Angela Merkel pointed to her comments earlier today, before the Greek request was made, noting that the current bailout expires at midnight tonight & there were no “relevant indications” otherwise.  The move is the latest attempt by Greece to force the hand of intl creditors after talks broke down over the weekend.  Tsipras called a surprise referendum for Jul 5 on the latest package of austerity measures.  Euro leaders have said it’s ultimately a vote on whether to stay in the euro.  The Greek gov said it will miss a payment to the IMF today & the country is preparing to exit the protection of Europe’s bailout regime at midnight.

Tsipras Asks European Union for a New Bailout Program

Chinese stocks rallied, sparking the benchmark index’s biggest intraday swing since 1992, on speculation the gov will take steps to prevent bear-market losses from deepening.  The Shanghai Composite Index rose for the first in 4 days, jumping 5.5% to 4277, the most since Mar 2009.  The gauge swung 432 points from the highs & lows, propelling a volatility measure to a 7-year peak.  An industry group representing brokerages called on investors and fund managers to take responsibility to stabilize the market after a weekend interest-rate cut failed to stem a rout.  Speculation is growing that policy makers are preparing stock-boosting measures after the Shanghai Composite plunged more than 20% from a Jun 12 peak amid surging valuations & concern record high levels of borrowing to buy stocks were unsustainable.  The CSI 300 Index jumped 6.7% & Hong Kong’s Hang Seng Index added 1.1%, while the Hang Seng China Enterprises Index climbed 2.3%.  The ChiNext gauge of small companies rebounded 6.3%.  Margin debt on the Shanghai Stock Exchange fell for a 6th day to 1.36T yuan ($219B) on Mon, the longest stretch of declines since Jun 2014.  A 5X surge in leveraged wagers had helped propel the Shanghai index to a more than 150% gain in the 12 months thru Jun 12.  All 10 gauges in the CSI 300 rallied Tues, with a measure of technology stocks jumping 8.3%, halting a 3-day 22% slide.

Puerto Rico will seek to delay payments on the island’s $72B debt load for “a number of years” as part of a plan to bolster the commonwealth’s finances & revive its economy, Governor Padilla said.  Officials will develop a debt-restructuring plan by Aug 30.  Then, the legislature passed a $9.8B budget for the fiscal year beginning Jul 1.  About $1.5B will repay principal & interest.  “We won’t let the heavy burden of inherited debt send us to our knees,” Garcia Padilla said.  The governor’s plan to ask bondholders to share in the island’s sacrifice came as investors are also weighing the possibility of a Greek default & exit from the euro zone.  Garcia Padilla also proposed forming a fiscal board that would ensure the island adheres to its restructuring plan.  Puerto Rico, with $13B of general obligation bonds, faces a $630M payment on tomorrow.  “It’s not that the debt will not be paid, it’s a matter of when Puerto Rico can pay,” the House Speaker said.  The next budget includes a $300M fund to repay Government Development Bank (GDB) debt, although the bank will need additional legislative approval to access most of that money.  The GDB, which lends to the commonwealth & its municipalities, is burning thru its cash.  Puerto Rico securities have different repayment pledges, which means investors may be pitted against each other to get whatever money is available.  The constitution stipulates that the commonwealth must repay general obligations first before other expenses.  Other bonds, such as sales-tax debt, are backed by different revenue streams.  S&P joined Fitch Ratings Mon in downgrading Puerto Rico, saying that “a default, distressed exchange, or redemption of the commonwealth’s debt appears to be inevitable within the next 6 months absent unanticipated significantly favorable changes.”  S&P cut the commonwealth to CCC-, the same category as Greece.  The governor’s remarks signal a reversal from his earlier stance to protect Puerto Rico’s direct debt

Puerto Rico Seeks to Delay Payments on $72 Billion Debt Load

The world of intl debts is messy & getting worse by the day.  The Ukraine has another debt mess which has to be cleaned up.  Over the short term, Greece is the big story as has been the case for months (& years), & that's going nowhere fast.  The lenders have to make it up as they go along, not good for the stock market.  Today is the end of the month & qtr which means money managers are buying & selling to make their books look better, adding to stock market volatility.

Dow Jones Industrials