Wednesday, June 17, 2015

Higher markets as FOMC sees first interest rate hike this year

Dow rose 31, advancers over decliners 5-4 & NAZ went up 9.  The MLP index inched up a fraction to 421 & the REIT index added 2+ to the 314s.  Junk bond funds were weak & Treasuries advanced, bringing the yield on the 10 year Treasury down to 2.3%.  Oil slid below 60 & gold crawled higher.

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CLN15.NYM....Crude Oil Jul 15....59.79 Down ...0.18  (0.3%)

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Federal Reserve officials raised their assessment of the labor market & the economy, keeping the central bank on track to increase interest rates this year for the first time in almost a decade.  “Since the committee last met in April, the pace of job gains has picked up and labor-market gains have improved further,” Janet Yellen said.  The officials also issued new economic forecasts that implied 2 quarter-point rate rises this year but a shallower pace of increases in 2016.  They maintained the projection that the benchmark rate would rise to 0.625% in 2015, while dropping it to 1.625% next year, lower than their Mar forecast of 1.875%.  Yellen stressed that the date of the first interest-rate increase is less important than the trajectory of subsequent ones.  She said tightening would be “gradual,” & that the Fed wouldn’t follow a “mechanical” formula.  A rebound in job growth is giving Fed officials reason to look beyond a Q1 economic slowdown as they consider when to tighten policy.  At the same time, inflation remains below their target, & officials say the timing of a rate increase depends on how economic data unfold.  They expect inflation “to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate,” according to their statement.  “The committee continues to judge that the first increase in the federal funds rate will be appropriate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium-term,” Yellen said.  While the Fed has made “considerable progress” toward its goal of maximum employment, “the committee wants to see evidence of some further progress.”  Today’s meeting marked the first time since 2008 that policy makers entered an FOMC session without having clearly signaled beforehand that a rate move was unlikely.

Fed Says Rate Hike Still on Track for This Year

The ECB raised the level of emergency cash available to Greek banks by €1.1B ($1.2B), according to leakers.  The Governing Council increased the limit on Emergency Liquidity Assistance (ELA) to €84.1B from €83B at a meeting today.  There was no change to the discounts applied to the collateral pledged.  With Greece cut off from global markets, the country’s financial system depends on central-bank liquidity to replace deposits withdrawn amid the political uncertainty over the country’s place in the euro.  Even so, Prime Minister Tsipras has accused the ECB of “financial asphyxiation.”  “Liquidity will continue to be extended as long as Greek banks are solvent and have sufficient collateral,” ECB pres Mario Draghi said on on Mon.  “We will have to monitor the situation very closely to see whether the conditions for the assessment of the collateral are still in place and, more generally, on the health of the banking system.”  The ECB is trying to strike a balance between keeping Greek lenders afloat & safeguarding the country’s central bank, which provides the aid, as the gov veers toward a debt default.  Greek banks’ capital levels & collateral values rely heavily on state guarantees on their assets, meaning a looming default automatically casts a shadow over their creditworthiness.  The total level of available ELA has risen from less than €60B in Feb, when the ECB effectively locked Greek banks out of regular refinancing operations.  The Governing Council reviews the amount weekly & can restrict the funding. It also has the power to insist on higher discounts on the collateral banks post to receive the cash.

ECB Said to Raise Greece’s ELA Ceiling by 1.1 Billion Euros

Microsoft, a Dow stock, CEO Satya Nadella made his biggest overhaul since taking over, naming the team that will focus on critical areas such as cloud computing & parting ways with one-time CEO contender Stephen Elop.  Senior execs Kirill Tatarinov & Eric Rudder also will leave the company.  The revamped leadership team reflects a focus on 3 key areas: personal computing, cloud platforms & productivity & business processes.  Since becoming CEO early last year, Nadella has been remaking a company that had been known for internal battles.  This move is decisive step to execute a strategy focused on cloud & mobile software, including products that work with rival’s offerings.  “This change will enable us to deliver better products and services that our customers love at a more rapid pace,” Nadella said.  Exec VP Terry Myerson will lead a newly formed Windows & Devices Group, while Exec VP Scott Guthrie will continue to lead the Cloud & Enterprise group.  Qi Lu will remain in charge of the applications & services group, which includes Office apps & Bing search.  The company’s Nokia handset business, run by Elop, has been a problem area; MSFT cautioned in Apr that it might have to take a writedown in the operation.  Elop, exec VP of the devices group, had been the CEO of Nokia Oyj & engineered the $7.33B sale last year of the handset unit to MSFT.  The acquisition returned him to a company where he earlier had been a senior exec.  Profit last qtr exceeded estimates as the company boosted cloud software sales.  In the phone-hardware unit, the former Nokia business, the cost of goods sold exceeded revenue, weighing on results even before marketing & development expenditures were taken into account.  The overhaul will leave the senior leadership team with 12 execs, including Nadella.  The stock was up pocket change.  If you would like to learn more about MSFT, click on this link:

Nadella Conducts Biggest Microsoft Revamp Since Taking Over

Microsoft (MSFT)

Janet spoke & the markets listened.  Stocks are higher, but the advance was tepid with weak market breadth.  The announcement was consistent with previous press releases.  The rate hikes will probably come every other meeting with 25 basis points increases.  And they will begin in the 6 months remaining in 2015.  Now attention will switch back to the Greek debt mess which should drag on for another 2 weeks at a minimum.  Dow is up 115 YTD, called that flat       

Dow Jones Industrials

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