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Tuesday, June 28, 2016
Higher markets after Brexit selloff
Dow rebounded 161, advancers over decliners 6-1 & NAZ jumped up 72. The MLP index recovered 5+ to the 307s & the REIT index added 4+ to the 351s (closing in on its records highs). Junk bond funds went up & Treasuries were modestly lower. Oil is back in the 47s & gold retreated but still above 1300.
German Chancellor Angela Merkel warned the UK to have no illusions
about life outside the EU, hardening her stance ahead of
Prime Minister David Cameron's first meeting with EU leaders
since triggering the earthquake that’s shaken the bloc. Merkel, in
her toughest response yet to last week’s British vote to quit the EU, said that the UK can’t expect favored treatment once it
leaves & that there will be no informal talks on a new relationship
before the British gov files its application for divorce. “There shouldn’t be the slightest misunderstanding about the
conditions laid out in the European treaties for a case like this,”
Merkel said.
“My only advice to our British friends is: Don’t delude yourself about
the necessary decisions that need to be taken.” She
won applause from German lawmakers as she laid out her approach to the 2-day summit of EU leaders that will be dominated by
Brexit & the political & economic fallout reverberating across
Europe. As she spoke, a taste of things to come was on show in the
European Parliament, where UK Independence Party leader
Nigel Farage clashed with European Commission President Jean-Claude
Juncker. “Why are you here?” Juncker demanded, as he turned to
look at the leading “Leave” campaigner. Farage hailed the result of last
week’s vote as “seismic,” saying the UK “will not be the last member
state to leave the European Union.” “I’ll be
explaining that Britain will be leaving the European Union but I want
that process to be as constructive as possible and I hope the outcome
can be as constructive as possible because, of course, while we’re
leaving the European Union, we mustn’t be turning our backs on Europe,”
Cameron said as he arrived for the summit.
The US economy expanded more than previously projected
in Q1 as improved performance in trade & business
investment more than made up for weaker consumer spending. GDP, rose at a
1.1% annualized rate, compared with a previously estimated gain
of 0.8%, according to the Commerce Dept. Corp profits at the start of the year were also revised
up, giving a brighter picture to GDP.
The
economy shows signs of accelerating so far in Q2 as the drivers
of growth have switched, with consumer spending rebounding while
business investment lags behind. While gains in employment & low
borrowing costs are helping propel household demand, uncertainty in the
wake of Britain's vote to leave the EU is a longer-term risk
to already-weak corp outlays & exports. The forecast called for a 1% rise in GDP
Consumer confidence rose in Jun to an 8-month high as Americans
became somewhat more optimistic about the economy, according to the Conference Board. Confidence index climbed to 98 from a revised 92.4 in May (forecast was 93.5) from 92.4. Consumer expectations gauge for the next 6 months rose to a 5-month high of 84.5 from 78.5. Measure of present conditions advanced to 118.3, the 2nd-strongest reading since Sep 2007, from 113.2 in May. Respondents
said they anticipated more job & income gains in the coming 6
months, which may help lift spending after a Q1 slowdown. The share
of Americans who said more jobs will be available in 6 months rose to
an 8-month high of 14.2% from 12.5%. The
cutoff date for the survey was Jun 16, a week before Britain's
decision to leave the EU.
Today's recovery is nothing to write home up. Bargain hunters were looking after so much selling in the last 2 days. But the euro mess remains & that will dominate the news for weeks, if not months. Nobody knows what will happen after Britain leaves the EU. That's a significant amount of uncertainty, something the stock market hates. Today's rally is giving weak investors an opportunity to bailout.
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