Dow fell 124, decliners over advancers 2-1 & NAZ was off 38. The Financial Index dropped 1+ to 195. MLPs had a good day as the index rose 1+ to the 384s & the REIT index was up a fraction to 265. Junk bond funds were mixed & Treasuries rose while stock markets declined. Oil & gold also had bad days.
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JPMorgan (JPM & a Dow stock), Goldman Sachs (GS) & BlackRock (BLK) closed European money market funds to new investments after the EECB lowered deposit rates to zero. JPM, the world’s biggest provider of money-market funds, won’t accept new cash in 5 €-denominated money- market & liquidity funds because the rate cut may result in losses for investors (i.e.negative rates of return). The story is similar with the other 2 fund managers. “The European market environment is in unchartered territory with such historically low -- or even negative -- yields for high-quality issuance,” GS said in a memo to fund shareholders, citing the ECB’s rate cut. “It is not currently feasible for our portfolio managers to deploy capital without substantially diluting the yield for the existing base of shareholders.” Money funds have been struggling to invest client assets at a profit as interest rates globally are near record lows & Europe’s sovereign debt crisis has reduced the supply of available debt. Managers have been forced to cut fees to keep customer returns above zero, & some have abandoned the business. All 3 said the restrictions are temporary & they will monitor market conditions. Investor redemptions from the funds are not being limited. These unintended consequences can bring distortions to stock & credit markets.
JPMorgan, Goldman Shut Europe Money Funds After ECB Cut
AMJ (Alerian MLP Index tracking fund)
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Treasury yield:
U.S. 3-month | 0.071% | |
U.S. 2-year | 0.270% | |
U.S. 10-year | 1.542% |
| CLQ12.NYM | ...Crude Oil Aug 12 | ...84.65 | ... 2.57 | (3.0%) |
JPMorgan (JPM & a Dow stock), Goldman Sachs (GS) & BlackRock (BLK) closed European money market funds to new investments after the EECB lowered deposit rates to zero. JPM, the world’s biggest provider of money-market funds, won’t accept new cash in 5 €-denominated money- market & liquidity funds because the rate cut may result in losses for investors (i.e.negative rates of return). The story is similar with the other 2 fund managers. “The European market environment is in unchartered territory with such historically low -- or even negative -- yields for high-quality issuance,” GS said in a memo to fund shareholders, citing the ECB’s rate cut. “It is not currently feasible for our portfolio managers to deploy capital without substantially diluting the yield for the existing base of shareholders.” Money funds have been struggling to invest client assets at a profit as interest rates globally are near record lows & Europe’s sovereign debt crisis has reduced the supply of available debt. Managers have been forced to cut fees to keep customer returns above zero, & some have abandoned the business. All 3 said the restrictions are temporary & they will monitor market conditions. Investor redemptions from the funds are not being limited. These unintended consequences can bring distortions to stock & credit markets.
JPMorgan, Goldman Shut Europe Money Funds After ECB Cut
Seagate Technology said fiscal Q4 sales & profit margin would miss the previous forecast, citing reduced hard-drive shipments & a “supplier quality issue” that affected some products. The world’s largest maker of computer disk drives, expects to report fiscal Q4 sales of $4.5B & gross margin, excluding certain items, of 33.6%, lower than its previous forecast for sales of at least $5B & gross margin of 34.5%. The average estimates were for $4.88B in sales & 34.7% gross margin. The company cited reduced shipments in response to competitors’ faster-than-expected recovery from supply-chain disruptions & “an isolated supplier quality issue” that affected about 1.5M of its enterprise storage products. STX said that the reduction in shipments was related to last year’s flooding in Thailand which affected suppliers to its factories, & rival Western Digital (WDC) suspended production for a time because of the floods. STX said the issue “is behind us now.” CEO Steve Luczo said that the company is “approaching the September quarter conservatively” & planning for “relatively flat” demand in the period. The stock absorbed the news fairly well, dropping only 13¢.
Seagate Falls as Fourth-Quarter Sales, Gross Margin Miss Earlier Forecasts
Photo: Bloomberg
Italian Prime Minister Monti replaced a looming sales-tax increase with a package of spending cuts, seeking to counter rising anger over the gov demand for revenue. The Cabinet approved €26B ($32B) of spending cuts over the next 3 years to delay for at least a year an increase in the value-added tax rate to 23 from 21. The plan comes as Monti tries to bring down surging bond yields by convincing investors he can reduce the euro-region’s 2nd-biggest debt without relying too heavily tax increases. The latest round of spending cuts comes a month after a property levy was imposed, stoking nationwide protests. The gov expects the economy to shrink 1.2% this year, while employers lobby Confindustria predicts a 2.4% contraction. Today the yield on Italy’s 10-year bond rose 8 basis points to 6.05%. This is the biggest country with sovereign debt issues.
Monti Cabinet Backs Spending-Cut Package to Replace Tax Increase
Job growth in Q2 was drab after stronger growth in Q1. The mild weather early in the year may have boosted hiring then. But that could have been a timing issue, Q2 hirings were pushed up to Q1. The GDP figure for Q2 should be bland & growth in H2 may not be much better with soggy overseas export markets & looming tax increases coming at the start of next year. The euro debt mess continues to lumber along. The zero interest rates on overnight deposits in Europe create problems for depositors. But Dow has been doing well in the last month. Maybe that won't last when earnings season kicks in next week.
Seagate Falls as Fourth-Quarter Sales, Gross Margin Miss Earlier Forecasts
Seagate (STX)
Italian Prime Minister Monti replaced a looming sales-tax increase with a package of spending cuts, seeking to counter rising anger over the gov demand for revenue. The Cabinet approved €26B ($32B) of spending cuts over the next 3 years to delay for at least a year an increase in the value-added tax rate to 23 from 21. The plan comes as Monti tries to bring down surging bond yields by convincing investors he can reduce the euro-region’s 2nd-biggest debt without relying too heavily tax increases. The latest round of spending cuts comes a month after a property levy was imposed, stoking nationwide protests. The gov expects the economy to shrink 1.2% this year, while employers lobby Confindustria predicts a 2.4% contraction. Today the yield on Italy’s 10-year bond rose 8 basis points to 6.05%. This is the biggest country with sovereign debt issues.
Monti Cabinet Backs Spending-Cut Package to Replace Tax Increase
Job growth in Q2 was drab after stronger growth in Q1. The mild weather early in the year may have boosted hiring then. But that could have been a timing issue, Q2 hirings were pushed up to Q1. The GDP figure for Q2 should be bland & growth in H2 may not be much better with soggy overseas export markets & looming tax increases coming at the start of next year. The euro debt mess continues to lumber along. The zero interest rates on overnight deposits in Europe create problems for depositors. But Dow has been doing well in the last month. Maybe that won't last when earnings season kicks in next week.
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