Wednesday, July 15, 2015

Markets fluctuate after Yellen's comments on rate hikes

Dow slid back 11, decliners over advancers  3-2 & NAZ added 4.  The MLP index rose 3+ to the 407s & the REIT index was fractionally higher to the 315s.  Junk bond funds inched higher & Treasuries advanced.  Oil is down to the 54s & gold pulled back.

AMJ (Alerian MLP Index tracking fund)

CL.NYM...........Crude Oil Jul 15...59.20 Down ...0.48  (0.80%)

GCN15.CMX...Gold Jul 15......1,148.90 Down ...4.40  (0.4%)

Janet Yellen said prospects are good for further improvement in the labor market & the economy, keeping the central bank on track for an interest-rate increase in 2015.  “If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target,” Yellen said before the House Financial Services Committee.  She added Fed officials expect growth “to strengthen over the remainder of this year and the unemployment rate to decline gradually.”  Yellen again emphasized that the timing of the first rate rise in almost a decade is less important than the subsequent path of increases, which she said would be gradual.  She said Fed forecasts for higher rates this year are projections & “not statements of intent to raise rates at any particular time.”  She repeated that the Fed will tighten policy when it sees more improvement in the labor market & is “reasonably confident” that inflation will head back toward 2% in the medium term.  She sounded a note of optimism, saying that “economic growth abroad could also pick up more quickly than observers generally anticipate, providing additional support for U.S. economic activity.”  Yellen added that “the U.S. economy also might snap back more quickly as the transitory influences holding down first-half growth fade and the boost to consumer spending from low oil prices shows through more definitively.”  Forecasts issued by the FOMC in Jun implied 2 qtr-point rate rises this year, followed by a shallower path of increases than officials predicted in Mar.

Yellen Says Rate Rise Likely in 2015

Tsipras braved a revolt in his own party as parliament began to debate a bailout of to €86B ($95B) that intl officials have already suggested won’t be enough.  With finances deteriorating rapidly & the banks on the verge of collapse, the EU proposed a 4-week bridging loan that countries including the UK have refused to back.  Adding to the worsening outlook, the European Commission & IMF said they had serious concerns about Greece’s debt load.  The increasingly desperate efforts to aid Greece underline the fragile nature of the deal struck in weekend negotiations to keep the country in the 19-nation euro region.  The first challenge falls to Athens, where parliament must back a package of austerity measures as a precondition to the country’s third bailout in five years.  “We had to negotiate a difficult agreement that includes both fiscal measures and reforms,” the finance Minister told lawmakers as they began debating the package.  Some measures “continue to be of a neoliberal bent that will affect many social groups, with a doubtful return in terms of growth,” he said.  With capital controls ravaging an economy that has already shrunk by 25% since 2009, the prospect of having to back steps including streamlined sales taxes & curbs to the pension system split Tsipras’s anti-austerity Syriza coalition.  The European Commission & IMF said they had serious concerns about Greece’s debt load.  A majority of members of Syriza’s central committee signed a declaration rejecting the agreement.  High-profile cabinet members said they’ll reject the bailout & the deputy foreign & finance ministers resigned in protest.  The defections mean Tsipras will have to rely on opposition lawmakers to carry the vote, due before midnight, & then reshuffle his ministerial team.

Tsipras Braves Parliament on Aid

China’s economic growth proved resilient in Q2 as policy makers stepped up support & a stock market boom, since soured, spurred services.  GDP rose 7% in Q2 from a year earlier, according to the National Bureau of Statistics, unchanged from Q1 & beating estimates for 6.8%.  Industrial output in Jun rose 6.8%, while fixed-asset investment increased 11.4% in H1.  Retail sales increased 10.6% in Jun, the NBS data showed, but economists had forecast 10.2%.  One example of rising consumer power: nationwide box office revenue surged to 20.3B yuan ($3.3B) in H1.  Back in 2008, when the global financial crisis hit the Chinese economy hard, the whole-year box office revenue was just 4B yuan.

China’s Growth Beats Economists’ Forecast

There's a lot for traders to slosh around & much is not pleasant.  They have been warned again that rate hikes are coming.  That makes traders nervous.  The Greek bailout remains in limbo.  China's recovery is less than clear.  Recent market optimism may cool going forward.  New earnings reports will also drive the markets.

Dow Jones Industrials

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