Tuesday, June 16, 2015

Markets crawl higher as the Greek drama plays out

Dow went up 40, advancers marginally ahead of decliners 3-2 & NAZ gained 2.  The MLP index lost 1  to just under 421 (following yesterday's rally) & the REIT index rose 1 to 311.  Junk bond funds continued weak & Treasuries did little.  Oil was up while gold slid back.

AMJ (Alerian MLP Index tracking fund)

CLN15.NYM...Crude Oil Jul 15...59.74 Up ...0.22 (0.4%)

GCN15.CMX...Gold Jul 15.....1,177.00 Down ...8.30  (0.7%)

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The Greek gov has declared to submit a new compromise proposal to its creditors, making it almost certain that meeting on Thurs of euro-area ministers won't resolve the standoff.  Officials in Brussels have been discussing the possibility of an emergency EU summit to break the deadlock.  Only a political decision could unlock the €7B remaining in Greece’s current bailout program & open the way to talks on the next such plan.  But there's little room for a political deal.  Greece & its creditors have failed to find common ground.  The Euro establishment has no reason to prop up the far-left Greek gov & encourage similar forces in other euro-area countries with a lot of debt, such as Spain.  As it is, yields on peripheral European bonds are climbing as investors wonder how the euro zone will hold up if Greece leaves.  The Syriza gov, for its part, feels going back on its election promises would make its Jan victory pointless.  It’s quite likely that a different Greek gov will have to deal with the fallout from the unsuccessful talks.

Waiting for a Miracle

The US home-building industry enjoyed its best 2 months in more than 7 years as it headed into its busiest season, even as it began work on fewer houses last month following an Apr surge.  While housing starts declined 11.1% to a 1.04M annualized rate, it followed Apr's revised 1.17M pace to cap the best back-to-back readings since the last 2 months of 2007, according to the Commerce Dept.  The estimate called for 1.09M.  Permits for future projects climbed to the highest level in almost 8 years, indicating activity will probably pick up.  The data show the residential real estate market was sustaining gains after sporadic advances earlier in the year that reflected bad weather & a slump in overall US growth.  Hiring momentum & bigger paychecks amid still-cheap borrowing costs are brightening Americans’ moods & could lift home purchases in H2.  The 11.1% drop in housing starts last month followed a 22.1% surge in Apr that was the biggest since 1990 as the industry recovered from the bitter winter weather.  Building permits increased 11.8% to a 1.28M annualized pace, the most since Aug 2007.  They were projected to fall to 1.1M.  Work on single-family properties declined 5.4 percent to a 680K rate in May from 719K the prior month.  Construction of multifamily projects dropped 20.2% to an annual rate of 356K.  Construction decreased in all 4 regions, led by a 26.5% slump in the Northeast.  Relatively cheap borrowing costs are still supporting homebuyers.  The average rate on a 30-year fixed mortgage was 4.04% in the latest week according to Freddie Mac.

U.S. Building Permits Soared to Their Highest Level in Nearly Eight Years

German investor confidence fell for a 3rd month as the risk of a Greek debt default stoked uncertainty in Europe’s largest economy.  The ZEW Center for European Economic Research said its index of investor & analyst expectations, which aims to predict economic developments 6 months in advance, slid to 31.5 in Jun from 41.9 in May.  That’s the lowest level since Nov. The forecast was for a decline to 37.3.  While the Bundesbank has raised its economic forecasts for Germany amid increasing consumer optimism, the euro area is blighted by Greece’s failure to reach a deal with creditors to unlock bailout funds.  Figures just published showed European car sales rose at the slowest pace in 6 months in May.  “External factors are reducing the scope for further improvement of Germany’s good economic situation,” the ZEW said.  “These include, in particular, the ongoing uncertainty over Greece’s future and the restrained dynamic of the global economy.”  A measure of the current situation in Germany slid to 62.9 in Jun from 65.7 & a gauge of expectations for the euro area dropped to 53.7 from 61.2.  As euro-area finance ministers prepare to meet this week, Greek Finance Minister Varoufakis has signaled his country won’t submit a new reform plan.  He said that any new proposals would need to be thrashed out at a lower level before they could be presented.  The Bundesbank boosted its German economic-growth outlook on Jun 5, forecasting an expansion of 1.7% in 2015 compared with the 1% it predicted in Dec.  This week, the central bank said the “extraordinarily positive” consumer climate remains the main driver of economic expansion while manufacturing “could soon shift into a higher gear.”

German Investor Confidence Drops as Greece Clouds Outlook

In better times, the housing data would have brought out buyers.  Now the Greek drama is central to all thinking.  Predictions are meaningless because nobody knows how this will play out.  However most thoughts range between gloomy & terrible.  The main strategy in Greece is to pray for a miracle.  They are in short supply.

Dow Jones Industrials

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