Wednesday, August 12, 2015

Markets tried to turn positive, led by energy and tech stocks

Dow slid back only pennies after a substantial decline in the AM, decliners barely ahead of advancers & NAZ went up 7.  The MLP index recovered 9+ to the 364s (but still down about 200 from last year's record highs) & the REIT index was fractionally higher to go over 320.  Junk bond funds drifted lower & Treasuries finished higher.  Oil remained higher, in the 44s, & gold, seen as a safe investment in times of growing uncertainty, rose to an almost 1 month high.

AMJ (Alerian MLP Index tracking fund)

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CLV15.NYM....Crude Oil Oct 15....44.20 Up ...0.33 (0.8%)

Live 24 hours gold chart [Kitco Inc.]

Germany withheld approval of the draft bailout plan for Greece, saying a bridge loan remains an option if a full aid program isn’t agreed in time for a payment to the ECB due next week.  Euro-area govs need time to assess the preliminary accord between Greece, its intl creditors & the European Stability Mechanism before possible approval of a proposed €85B ($95B) in aid.  The ministry expects to have a position on the draft memorandum of understanding by the end of the week.  “Bridge financing is not off the table,” a German spokesman said.  “We’re still taking bridge financing into consideration if it’s not possible to pay out a first tranche in August to meet the outstanding obligations.”  Chancellor Merkel's gov sees open questions regarding the IMF participation in the bailout, debt sustainability & privatizations.  German gov officials signaled repeatedly this week they won’t be rushed into backing a 3rd Greek bailout, which requires parliamentary approval.  Last month, 60 lawmakers in Merkel’s 311-member caucus voted against even holding talks on further aid to Greece, underscoring the risks over Greece.  Foot-dragging in the biggest country contributor to Greece’s 2 previous bailout packages calls into question the timing of more aid rather than derailing it altogether.

Germany Says It Can’t Back Greek Bailout Plan Yet

The Federal Reserve (FED) is approaching the moment when it can start raising interest rates & the exact timing will be dictated by incoming economic data, said New York Fed pres William C. Dudley.  “Hopefully, we’re going to make progress in terms of our goals” for maximum sustainable employment and inflation of around 2%, Dudley told an audience.  “And so hopefully, in the near future, we’ll be able to actually begin to raise interest rates. When that is precisely, depends on the data.”  The policy-making FOMC next meets on Sep 16-17.  Dudley said he’s “not going to tell you when, because I don’t know the answer to that. But clearly we’ve made a lot of progress over the last couple of years, so we’re certainly getting nearer to that point in time.”  Odds of a Sep rate move have declined from 54% on Fri to 42% amid global financial market volatility spurred by the surprise decision of the People’s Bank of China to devalue the yuan.  Dudley said that any weakening in the currency that was in line with slowing Chinese growth was understandable, while withholding judgment on the nation’s policy shift.  If China’s economy has proved weaker than its authorities anticipated, “it’s probably not inappropriate for the currency to adjust in consequence to that weakness,” he added.

Dudley Says He’s Hopeful for Fed Rate Liftoff in ‘Near Future’

The US gov ran a much larger budget deficit in Jul than a year ago.  But much of the deterioration reflects a calendar quirk that shifted $B in Aug benefit payments to Jul.  The Treasury Dept says the Jul deficit totaled $149B, up from a deficit of $94B a year earlier.  Deterioration stems from the fact that Aug 1 fell on a Sat.  As a result, the gov paid out $42B in Aug benefits in late Jul.  Thru the first 10 months of this budget year, the deficit totals $465B, 1.1% higher than a year ago.  The Congressional Budget Office believes the deficit for the full year will drop to around $425B, the lowest deficit since 2007.

US budget deficit swells in July due to calendar quirk

This ranks as an odd day.  Dow shot up almost 300 from its AM lows to finish in the black.  Oil bounced off its lows yesterday & tech stocks had a good day (although many of the famous ones could be hurt the most by the Chinese devaluation).  Bets placed in the PM are hoping that confusion surrounding the Chinese devaluation & slowing productivity growth in the US may cause the Fed to delay its first interest rate increase.  Who knows what's really going on in the markets?  The Fed may or may not raise interest rates next month, the Greek debt mess is far from being over (needing approval in Germany & Greece) & the Chinese economy remains a mystery to many.  In the meantime, the US economy continues to climb every so slowing, not strong enough to make a significant difference in household income.  The Dow chart below still looks gloomy.

Dow Jones Industrials

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