Monday, July 13, 2015

Markets soar on another Greek bailout

Dow jumped up 196, advancers over decliners 3-1 & NAZ rose 60.  The MLP index gained 3+ to the 403s & the REIT index went up 3+ to the 317s.  Junk bond funds were mixed to higher & Treasuries declined.  Oil lost more ground & gold continued drifting lower.

AMJ (Alerian MLP Index tracking fund)

CLQ15.NYM...Crude Oil Aug 15...52.17 Down ...0.57  (1.1%)

CN15.CMX.....Gold Jul 15........1,151.30 Down ...6.40  (0.6%)

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Prime Minister Tsipras will return to face a mutiny within his coalition after he surrendered to European demands for action to qualify for up to €86B ($95B) of aid Greece needs to stay in the euro.  He will confront lawmakers from his Syriza-led bloc who rebelled when he sought their endorsement 2 days ago for spending cuts, pensions savings & tax increases.  The Greek parliament has until Wed to pass into law key creditor demands including streamlining value-added taxes, broadening the tax base to increase revenue & curbing pension costs.  Attention is shifting to the parliamentary hurdles ahead before Greece can even begin negotiations with creditors to access a 3rd intl bailout in 5 years. The € fell & Spanish & Italian bonds declined as the scale of the remaining challenges sank in.  “There’s a vista of division within the party, part of Syriza officials and lawmakers do not accept the tactics followed by our prime minister,” Yanis Balafas, a Syriza lawmaker close to Tsipras, said.  “What matters now is that the worst case scenario of a default has been averted.”  The conditions that Tsipras swallowed comprised a laundry list of unfinished business from Greece’s 2 previous bailouts & a new demand for the gov to transfer €50B of state assets to a holding company that will seek to either sell or generate cash from them.  Tsipras hailed the fact the fund would be based in Greece, not Luxembourg as had been suggested.  He also latched onto the prospect of debt relief, albeit distant, after creditors rejected his pleas for a cut in the face value of Greek debt of about €310B.  Merkel said interest-payment grace periods & longer maturities will “be discussed once there is a successful evaluation of the new Greek program.”  While the summit agreement averted a worst-case outcome for Greece, it only established the basis for negotiations on an aid package, which would also include €25B to recapitalize its weakened financial system.

Tsipras Faces Mutiny After Capitulating to Demands

The global oil market should be more balanced next year as China & the developing world increase oil consumption while supply of shale oil from North America & other regions grows more slowly, OPEC said.  OPEC expects world oil demand to increase 1.34M barrels per day (bpd) in 2016, up from growth of 1.28M bpd this year.  World oil demand growth should outpace any increase in oil supply from non-OPEC sources & ultra-light oils such as condensate, increasing consumption of OPEC crude oil.  "This would imply an improvement towards a more balanced market," OPEC added in the report.  OPEC expects demand for its own crude oil to rise by 860K bpd in 2016 to 30.07M.  But cut its estimate of demand for its crude this year by 100K bpd to 29.2M bpd.  OPEC said supply of oil from non-OPEC producers was expected to grow by only 300K bpd in 2016, down sharply from growth of 860K bpd this year.  US oil output, which has seen rapid increases over the last 5 years from the development of huge shale resources by "fracking," is expected to log much more modest supply growth in 2016.  "Total U.S. liquids production is expected to grow by 330,000 bpd, just one third of the growth of 930,000 bpd expected this year."  World oil supply has grown much faster than demand this year, led by OPEC as its core members in the Middle East Gulf attempt to build market share, leading to higher inventories.  Saudi Arabia has pushed up its oil production to record highs.  OPEC estimated that its own group crude oil output rose 283K bpd to 31.3M bpd in Jun, led by Iraq, Saudi Arabia & Nigeria.  Saudi Arabia pumped 10.6M bpd last month, up 231M bpd from May.

OPEC Sees More Balanced Oil Market in 2016

China will make targeted adjustments to its economic policies in a more effective & precise manner, Premier Li Keqiang told economic experts & business executives at a meeting today, reiterating gov vows to support the economy.  Li also said China will pursue active fiscal policy & prudent monetary policy to support its economy, which he is confident can sustain a reasonable pace of growth.

China Premier Promises More Precise Policy Adjustments

Stock buyers are happy with the news about another Greek bailout, assuming nothing can go wrong.  But Greece has to approve the deal & that is far from a done deal.  It is difficult to tell if the Iran talks are moving forward or stuck in the mud.  Oil is heading back to depressed levels & may want to test recent lows in the mid 40s.  Earnings from big  banks will be reported this week, one more unknown which should give pause to investors.  But the bulls are happy to see Dow in the black YTD.

Dow Jones Industrials

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