Markets creep up as German court clears way for ESM

Dow was up 22, advancers barely ahead of decliners & NAZ gained 3 as Apple (AAPL) was even ahead of its new product announcements.  The Financial Index rose 1 to the 211s, a new high since Apr 2.  The MLP & REIT indices were only fractionally changed, junk bond funds rose & Treasuries sold off in a rising stock market.  Oil hardly budged although rising tensions in the mideast can bring higher prices & gold went up on bets against the euro bailouts.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month	0.097%
U.S. 2-year	0.242%
U.S. 10-year	1.751%

CLV12.NYM

...Crude Oil Oct 12

...97.28

.... 0.11

(0.1%)

GCU12.CMX

...Gold Sep 12

.....1,741.50

... 9.70

(0.6%)

Get the latest daily market update below:

Germany’s top court rejected calls to block ratification of the European Stability Mechanism (ESM), triggering a modest sigh of relief from financial markets & clearing the way for implementation of an important tool in Europe’s effort to contain its 3-year-old debt crisis.  The court rejected 6 requests for an injunction to prevent Germany’s president from signing the treaty establishing the €500B ($644B) permanent rescue fund which eliminates the threat that Germany would be blocked from participating in the fund & potentially set off a financial panic.  It also clears the way for the ECB to employ the program of unlimited bond purchases it detailed last week.  The court, however, put limits on the fund.  The court said that liabilities can’t exceed the €190B in German financial guarantees granted when parliament approved the fund without further approval from the Bundestag.  Obviously, markets liked the news.

Germany Can Ratify ESM Fund With Conditions, Court Rules

Photo:   Bloomberg

Prime Minister Rajoy told Parliament it’s not clear if Spain needs help as the ECB crisis plan has cut borrowing costs.  There’s no “urgency” because the ECB’s move put the Treasury in a more “comfortable” position, Deputy Economy Minister Fernando Jimenez Latorre said.  “The important thing is that when whatever assistance that is needed is requested, that it should be well received in the markets,” Jimenez said.  Spanish 10-year bond yields have fallen about 80 basis points since ECB President Draghi said last week the bank could buy cash-strapped nations’ debt if they seek help from the region’s gov-run rescue mechanism first.  Rajoy, who denied the nation would need a rescue for its banks 2 weeks before asking for one, risks undermining the rally by postponing the decision.  Spain’s 10-year benchmark bond yield fell to 5.6% today from 5.69% yesterday.  That compares with 7.17% before Aug 2, when Draghi first said the bank would buy bonds to stem the crisis, & 6.41% on Sep 5, the day before he fleshed out the proposal.  Rajoy has been saying since early August that he needs time to assess the details of the plan.  The drama is far from over.

Spain Says No Urgency to Seek Bailout as ECB Eases Yields

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Photo:   Yahoo

Before celebrating, all is not well in the euro zone.  A fresh wave of anti-austerity strikes hit Greece as the leaders of the governing coalition struggled to finalize further spending cuts for the coming 2 years, without which the country will lose its vital rescue loans.  State hospital doctors, school teachers & local authority employees walked off the job to protest planned salary & funding cuts under a new €11.5B ($14.7B) austerity package.  The 3 unions held a peaceful march to the Finance Ministry in Athens carrying banners reading "No to the financial collapse of local authorities" & "We will not pay for the crisis, we did not create it."   Conservative Prime Minister Samaras is fighting an uphill struggle on 2 fronts.  As well as getting the support of his center-left coalition partners, he has to get the approval of debt inspectors from the EU, IMF & ECB (the "troika").  So far, Samaras hasn't managed to get his coalition partners to sign off on the proposed measures.  Samaras will hold a new meeting with the heads of the Socialist PASOK & Democratic Left parties this evening.  Earlier, Finance Minister Yannis Stournaras held further negotiations with the visiting debt inspectors, who have rejected already part of the gov proposals.  And the Greek drama drags on.

Greece faces more anti-austerity strikes, protests AP


If the bulls had a better control over  the markets, stocks could have shot up on the news out of Germany.  In addition, it is widely anticipated that Big Ben will have helpful comments tomorrow & extend low interest rates into 2015.  But markets are taking a wait & see attitude.  Tensions in the mideast are rising faster than anybody predicted.  It's hard to find a country there that doesn't have revolutionary problems.  Oil is pushing on $100 & gold is on the rise from unsettled conditions around the world.  Dow still needs another 55 to reach a new 2012 high.

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Markets slide on weak Chinese economic data

Dow lost 2, decliners just ahead of advancers & NAZ fell 16.  The Financial Index was down a fraction, but remained above 210.  The MLP index fell a fraction to the 396s & the REIT index was off 1+ (from its 2012 high) to the 269s.  Junk bond funds were a little lower as were Treasuries.  Oil & gold pulled back after strength in the last month.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month	0.101%
U.S. 2-year	0.246%
U.S. 10-year	1.659%

CLV12.NYM

....Crude Oil Oct 12

...95.73

... 0.69

(0.7%)

GCU12.CMX

...Gold Sep 12

...1,731.40

... 6.10

(0.4%)

Get the latest daily market update below:

Photo:   Bloomberg

China imports unexpectedly fell & industrial output rose the least in 3 years, signaling more stimulus may be needed after the gov last week said it approved subway & road projects across the nation.  Inbound shipments slid 2.6% in Aug from a year earlier as exports rose 2.7%, the customs bureau said.  Production increased 8.9%, the National Bureau of Statistics said yesterday & inflation accelerated for the first time in 5 months.  The data underscore risks that full-year growth will slide to the lowest in more than 2 decades, undermining support for the Communist Party before a once-in-a-decade leadership transition due later this year.  The rebound in inflation, excess capacity in some industries & banks’ bad debt risks from past monetary easing highlight the potential cost of ramping up stimulus efforts.  They have financial problems even though they are far different than those faced in Europe.

China Output Growth Slows as Leadership Handover Looms


Greece's prime minister started a new negotiations with representatives of the its bailout creditors, who are demanding a fresh set of controversial austerity cuts to release the next batch of rescue loans the country desperately needs to stay afloat.  Antonis Samaras' meeting with officials from the troika of the EU, IMF & ECB comes a day ahead of his talks in Frankfurt with ECB president Mario Draghi.  Troika officials are "evaluating" Greece's proposals for the €11.5B ($14.6B) austerity package for 2013-14, Finance Minister Yannis Stournaras said.  "It's a tough discussion, because the measures are tough," he told journalists.  Asked whether Greece's creditors are insisting on job cuts in the bloated, inefficient civil service, Stournaras only commented that: "We are trying to convince them that our arguments are correct."  In talks with Stournaras yesterday, troika officials rejected part of the Greek proposals.  That leaves Samaras battling on 2 fronts:  He has to satisfy Greece's creditors, or lose the vital bailout funds, & must also keep the peace with his center-left coalition partners, who publicly reject some of the cutbacks that will cause further widespread pain.  Without their support, the gov formed in Jun would collapse, leaving the way open for the radical left main opposition to seize power.  The opposition wants Greece to tear up its bailout commitments, even at risk of its leaving the euro. The situation remains fragile.

Greek PM meets austerity inspectors on new cuts AP

Photo:   Bloomberg

Hewlett-Packard, the largest PC company in the world & a Dow stock, is planning to cut 2K more jobs than it had previously announced, as CEO Meg Whitman tries to turn the company around.  It said it will cut 29K jobs by Oct 2014, up from the 27K cuts announced in May.  There was no  explanation for the revision.  As before, it expects some of the job cuts to come through an early retirement program.  HPQ also expects to record charges of $3.7B, mainly for the job cuts, up from the May estimate of $3.5B.  Last month, HPQ posted the largest loss in its 73-year history after being hit by the shift in technology spending from PCs & printers towards cellphones & tablets.  The stock rose 15¢ but remains near an 8 year low.

HP Says Expands Job Cuts From Reorganizing to 29,000

Hewlett-Packard (HPQ)

Stocks are wavering, trying to figure out what to do next.  The Chinese data was glum.  Its problems of slow growth are difficult to deal with.  Then there's Greece which looks like it may not get a passing grade for more bailout money.  But much of the attention in NY is on the FOMC meeting at midweek.  There is a lot of agreement that the Federal Reserve (FED) will be compelled to do something, but nobody (including FED officials) is clear on what can be done.  Markets may drift sideways while waiting to hear from the FED & Dow should remain above 13K.

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Lower markets on euro debt worries

Dow dropped 23, decliners over advancers 2-1 & NAZ fell 10.  The Financial Index slipped pocket change in the 203s.  The MLP index fell 1 to the 395s & the REIT index was off 2 to the 263s.  Junk bond funds were mixed & Treasuries erased a decline as the ECB said it hasn’t discussed any plan to target bond yields of euro-bloc members.  Oil fell from a 3  month high as European leaders worked to resolve the region’s debt crisis.  Gold continues to slosh along, but is keeping above $1600.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month	0.086%
U.S. 2-year	0.282%
U.S. 10-year	1.800%

CLU12.NYM

...Crude Oil Sep 12

...95.66

... 0.35

(0.4%)

GCQ12.CMX

...Gold Aug 12

....1,611.60

.... 4.70

(0.3%)

Get the latest daily market update below:

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Photo:   Yahoo

Finance officials in Greece are seeking €11.5B ($14.2B) in spending cuts necessary for the country to continue receiving the intl funding that is protecting it from bankruptcy.  Finance Minister Yannis Stournaras met with his deputy ministers & Labor Minister Yannis Vroutsis to hammer out the measures for 2013 & 2014, ahead of a series of top-level meetings between Prime Minister Antonis Samaras & top European officials later this week.  The Finance Ministry hopes to have the "general directions" of the cuts finalized in time for a visit to Athens Wed by Luxembourg Prime Minister Jean-Claude Juncker, who chairs the eurozone finance ministers' meetings.  Samaras then heads to Berlin & Paris on Fri & Sat for talks with German Chancellor Merkel & French President Hollande.  The proposed measures will also be scrutinized by Greece's debt inspectors from the IMF, European Commission & ECB, known as the troika, which is due to return to Athens in Sep.  At the head of a fragile 3-party coalition gov, formed after 2 elections in May & Jun, Samaras & his finance chief have a delicate balancing act to pull off in deciding on how to make the spending cuts.  This will be a very busy week in Greece & nobody knows how it will turn out.

Greece seeking to find ?11.5 bln spending cuts AP

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Photo:   Yahoo

Euro leaders are gearing up for a high-stakes week of financial diplomacy that could determine Greece's future, & the stability of the 17 countries that use the €.  The first round began today when Germany's foreign minister, Guido Westerwelle, hosted his Greek counterpart, Dimitris Avramopoulos, ahead of a meeting in Berlin on Fri between their leaders, Chancellor Merkel & new Prime Minister Samaras.  French President Hollande visits Berlin on Thurs for discussions with Merkel & then will meet Samaras in Paris on Sat. Jean-Claude Juncker, the Luxembourg prime minister who chairs the eurozone finance ministers' meetings, is due in Athens Wed.  In addition, the eurozone is awaiting a report next month on Greece's progress in implementing reforms & austerity measures demanded in exchange for 2 massive bailout packages, being compiled by  representatives of the EU, ECB & IMF.  These meetings are the highlight of the week & bear repeating.  A lot is riding on their outcomes.  The lenders want to hear that Greece is following thru on its reforms & that is unclear.

Germany: Greece must follow through with reforms AP


New home prices in China rose in the largest number of cities in 14 months in Jul after interest- rate cuts & incentives for first-time buyers, complicating the gov efforts to stimulate economic growth while curbing property speculation.  Prices climbed from a month earlier in 49 of the 70 cities tracked by the gov, the National Bureau of Statistics, the most since May last year & compared with 25 cities in Jun.  Prices fell in 9 cities & were unchanged in 12.  Buyers, buoyed by 2 interest-rate cuts since Jun, have returned to the market even as the gov pledges to maintain real estate curbs to make housing more affordable.  The risk of a rebound in the property market may deter the People’s Bank of China from reducing rates further or cutting banks’ reserve requirement ratios to boost funds in the financial system & support lending after new credit slumped in Jul.  China is an important country in the global economy & it's facing economic challenges.

China New-Home Prices Climb in More Cities After Rate Cuts


Once again, not a lot is going on in the markets.  But financial officials are back off holiday to work on the Greek debt mess which will dominate news in an otherwise quiet week.  Somewhat lost is the rising price of crude.  It's at 3 month highs & that means higher price for gas at the pump as summer season winds down & hurricane season kicks into high gear.  Gas at the pump is $3.72 (according to AAA), not too far from the high of $3.93 reached a few months ago.

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Markets fluctuate on worries over getting additional stimulus

Dow inched up 7, advancers & decliners were even & NAZ lost 4.  The Financial Index was off a fraction to just under 201.

The MLP Index fell 3+ to the 388s & the REIT index dropped 2+ to 263.  MLPs have slipping back (following a 7 week rally) over the last 3 weeks.  Junk bond funds inched higher but Treasuries were a little lower.  Oil fell for the first time in 4 days after a gov report showed fuel demand weakened last week & on concern that the Federal Reserve won’t implement additional stimulus measures.  Gold advanced for the 3rd time in 4 sessions on speculation that central banks will take steps to bolster their economies, increasing the appeal of the precious metal as a store of value.

AMJ (Alerian MLP Index tracking fund)

Click below for the latest market update:

Treasury yields:

U.S. 3-month	0.106%
U.S. 2-year	0.272%
U.S. 10-year	1.637%

CLU12.NYM

...Crude Oil Sep 12

...93.39

... 0.28

(0.3%)

Photo:   Bloomberg

The productivity of US workers rebounded in Q2 as employers sought to protect earnings by squeezing more out of existing staff.  The measure of worker output per hour increased at a 1.6% annual rate following a revised 0.5% drop in Q1 according to the Labor Dept.  Q2 productivity was projected to rise at a 1.4% annual rate.  Expenses per employee climbed at a 1.7% rate after surging a revised 5.6%.  The drop in productivity at the start of 2012, combined with a slowdown in profits, may be prompting companies to focus on enhancing efficiency to curb costs, making a pickup in employment more difficult.  A jobless rate holding above 8% for more than 3 years is among reasons the Federal Reserve said it is ready to take additional action if needed.

Productivity in U.S. Rebounds as Employers Try to Curb Costs

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Photo:   Yahoo

Macy's reported a 16% increase in net income for Q2, helped by cost-cutting & its strategy to tailor its merchandise to local markets.  The department chain, which also raised annual earnings guidance.  Macy's has been a standout among its peers throughout the economic recovery & is the first in a series of major retailers to report Q2 results, providing insight into how consumers are spending.  "Clearly, we are not operating in an ideal macroeconomic environment," CFO Karen Hoguet said.  "Issues like unemployment and housing prices continue to be on the minds of our customers. But we believe that Macy's and Bloomingdale's still have the opportunity to grow sales and earnings by listening closely to our customer and delivering exactly what they need, when and where they need it. That is the underlying principle behind our core strategies."  It also conceded business was hurt in Q2 by lower spending by intl tourists & temporary disruptions related to its major renovation of its flagship store in Manhattan.  Terry J. Lundgren, CEO, said Macy's is staying firmly focused on driving profitable sales growth while running the business with discipline.  EPS rose to 67¢ from 55¢ last year.  Revenue rose 3% to $6.1B.  Analysts expected EPS of 64¢ on revenue of $6.1B.  Revenue at stores open at least a year also rose 3%, helped by surging online sales.  However, sales were uneven with Jun sales below expectations followed by a Jul rebound.  The stock gained 1.03.

Macy's posts 16 percent hike in 2Q net income AP

Macy's (M)

Photo:   Bloomberg

Greece's credit rating may be cut again by S&P on concern the country will need more support from the EU.  The outlook on its CCC rating (8 levels below investment grade) was revised to negative from stable.  The change reflects the risk of a downgrade if Greece is unable to obtain its next disbursement of bailout loans from the EU & IMF rescue package.  Representatives from the troika of the European Commission, ECB & IMF return to Athens next month to review Greece’s economic program, which will determine whether the nation will receive additional funds from rescue packages, amounting to €240B ($297B), needed to remain in the 17-nation euro area.  Prime Minister Samaras has held meetings with the leaders of the 2 parties supporting his coalition gov to hash out a €11.5B package of budget cuts demanded by the creditors for the next 2 years.  Finance Minister Yannis Stournaras said yesterday the gov is still working on identifying almost a third of the cuts.  Greece’s economy has been squeezed by the fiscal tightening needed to qualify for rescue-loan disbursements, with GDP set to drop for a 5th straight year.  The country may need as much as €7B in loans this year, with GDP seen shrinking as much as 11% in 2012 & 2013, S&P said.  These are not encouraging words.

Greece’s Rating Outlook Lowered by S&P as Economy Weakens


Stocks are back to looking for direction with no significant news to inspire buyers or sellers.  Much of the reasoning behind recent stock buying has been on hopes for more stimulus in Europe & the US.  That is a tricky call & hardly a fundamental reason for higher stock prices.  The US economy continues to lumber along, getting a good but not great review.  Europe is dismal, as it has been for most of the last year or 2.  But bulls are in charge & have given the Dow a substantial gain since last Oct.

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