Markets drift lower after FOMC meeting

Dow gave up early gains to settle for a loss of 32 (near the lows), declines just ahead of advancers & NAZ lost 19.  The Financial Index dropped 1 to the 197s from selling into the close.  The MLP index was up almost 1 to the 395s while the REIT index hardly changed.  Junk bond funds inched higher & Treasuries sold off, bringing higher yields.  Oil rose to above 90 & gold pulled back, remaining above 1600.

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Teasury yields:

U.S. 3-month	0.091%
U.S. 2-year	0.231%
U.S. 10-year	1.527%

CLU12.NYM

Crude Oil Sep 12

88.57

0.51 (0.6%)

Photo:   Yahoo

The Federal Reserve (FED) said that the US economy is losing strength & repeated a pledge to take further steps to stimulate growth if the job market doesn't show sustained improvement.  But the FED took no new action after a 2-day meeting.  It acknowledged that economic activity had slowed over H1 & also said unemployment remains elevated & consumer spending is rising at a somewhat slower pace.  The statement was nearly identical to the one issued after the Jun meeting, expect for language noting slower growth.  The FED repeated that strains in the global market pose a significant risk to the US economy, the housing market is improving but remains depressed & inflation remains tame.  Policymakers also repeated their plan to hold short-term interest rates at record-low levels until at least late 2014.  The statement was approved on an 11-1 vote.

Fed Signals More Steps to Spur Economy Amid Slower Growth

Photo:   Bloomberg

IMF chief Christine Lagarde urged the ECB to take further steps to stabilize the eurozone's economy.  Lagarde said that the world economy is experiencing a decline in confidence, driven by doubts about the ability of European & US leaders to manage financial problems.  She also said European leaders should maintain a "crisis management mode" as they seek to address the debt crisis.  Lagarde noted recent comments by the ECB bank president, Mario Draghi, to do "whatever it takes" to save the €.  More can be done," Lagarde said, adding that low inflation allows for more aggressive steps to strengthen the €.  She has said the ECB could intervene in bond markets & push down high borrowing rates that are threatening heavily indebted govs such as Spain & Italy with financial collapse.  Aside from monetary policy, Lagarde said the eurozone needs structural reform to bolster investor confidence in the € & called for more centralized supervision of the eurozone banking system & a unitary fiscal policy.  The IMF will keep working with Greece, in talks over further austerity measures needed for Greece to remain in the intl loan program that is protecting it from bankruptcy.

IMF Chief Lagarde Praises Greece, Spain for Efforts

Enterprise Products Partners, a prominent MLP, net income rose 31% in Q2, boosted by an increase in the amount of crude oil & natural gas its pipelines transported.  Earnings per unit were 64¢, above the 51¢ last year.  A 4.5% increase in the number of units reduced the per-unit results.  Revenue fell 13% to $9.79B, as commodity prices dropped & lowered sales for petroleum products.  Analysts were expecting earnings of 58¢ on revenue of $11.75B.  Profit rose as EPD transported more crude, natural gas & other commodities thru its pipelines.  The company also made investments to offset the drop in price of natural gas & natural gas liquids.  Its pipelines transported an average of 4M barrels per day of natural gas liquids, crude oil, refined products & petrochemical in Q2, 3% higher than in 2011.  Natural gas pipeline volume increased 14% in Q2.  Results were also helped by a 14% decline in total costs & expenses, influenced largely by the drop in energy commodity prices.  The units gained 61¢, near the record highs reached last week.

Enterprise Products 2nd-qtr profit rises 31 pct AP

Enterprise Products Partners (EPD)

The outcome of the FOMC meeting should not have been a surprise to investors.  Just about everybody said that if a change was coming, it would have to wait until the Sep meeting.  However, comments by the FED that the economy was "weaker" contributed to late day selling.  The ECB meeting tomorrow has the potential to move markets.  Now that Draghi said that the ECB will do whatever is necessary to support the €, all eyes will be on him & expectations are running high.  Dow is trying to hold above 13K.  It represented an important ceiling in Feb.  Then it became a floor in Mar-Apr before selling in May.  It closed at 12,976.

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Markets tumble on weak jobs report

Dow dropped 155, decliners over advancers 3-1 & NAZ fell 42 (Apple (AAPL) was no help today).  The Financial Index was off 1½ to the 194s.  The MLP index slipped 1 to 382 & the REIT index was off a fraction in the 264s.  Junk bond funds were mixed & Treasuries rose.  Oil fell a 2nd day in after the US added fewer jobs than forecast last month.  Gold is back below $1600.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month	0.071%
U.S. 2-year	0.274%
U.S. 10-year	1.544%

CLQ12.NYM

...Crude Oil Aug 12

...84.68

..... 2.54

(2.9%)

GCN12.CMX

...Gold Jul 12

.......1,593.80

... 15.10

(0.9%)

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Photo:   Bloomberg

Employers hired fewer workers than forecast in Jun as payrolls rose only 80K after a 77K increase in May, according to the Labor Dept.  The forecast was for a 100K gain.  The unemployment rate held at 8.2%, matching the forecast.  Private employment, which excludes gov agencies, increased 84K, the weakest in 10 months.  The so-called underemployment rate, which includes part- time workers who’d prefer a full-time position & people who want work but have given up looking, increased to 14.9% from 14.8%.  This is grim data.

Payrolls in U.S. Rose 80,000 in June; Jobless Rate 8.2%

Photo:   Bloomberg

The IMF will reduce its estimate for global growth this year on weakness in investment, jobs & manufacturing in Europe, the US, Brazil, India & China, Managing Director Christine Lagarde said.  "The global growth outlook will be somewhat less than we anticipated just three months ago," Lagarde said.  "And even that lower projection will depend on the right policy actions being taken."  The new outlook will be announced in 10 days, after an Apr estimate of 3.5%.  Interest-rate cuts in China & Europe yesterday & the Bank of England's boost to an asset-purchase program underscored the fragility of the global recovery as austerity measures & debt burdens weigh on advanced nations.  Lagarde is pressing for fiscal union in Europe to aid growth & financial stability as nations such as Greece wrestle with balancing their books.  The "key emerging markets" of Brazil, China & India are showing signs of slowdown, Lagarde said.  Those 3 countries along with Russia will comprise more than 20% of the world economy this year, according to IMF data.  "Over the past few months, the outlook has regrettably become more worrisome," Lagarde said. "Many indicators of economic activity -- investment, employment, manufacturing -- have deteriorated. And not just in Europe or the United States."  The IMF has already lowered its US growth estimate to 2% from 2.1% in Apr.  EU leaders agreed last week to loosen bailout rules, lay the foundations for a banking union & break the link between sovereign & banking debt thru the direct recapitalization of lenders.  More uncertainty about where the global economy is headed.

Lagarde Says IMF to Cut Growth Outlook as Global Economy Weakens


The new Greek Prime Minister Samaras will outline shortly how his coalition gov intends to deal with the country's massive financial crisis, as an inspection of Greece's public finances continues.  He will address parliament at the start of a 3-day debate that will end in a vote of confidence in his 3-party coalition, that has 179 seats in the 300-member assembly.  The gov admitted yesterday that key elements of its painful economic adjustment program are off track, as meetings continue with inspectors from the EU, ECB & IMF.  Greece is suffering thru a 5th year of recession, with unemployment topping 22% (roughly double the eurozone average).  Senior ECB & IMF officials this week urged the new gov to make up for delays in structural reforms & appeared unwilling to discuss a potential renegotiation of bailout terms, a central pledge of the gov.  The left-wing main opposition Syriza party said it would press the gov on whether it had abandoned its election campaign pledge during the confidence debate in parliament.  Greece continues to be an unsettled mess.

New Greek PM to Outline Crisis Policy


Hardly anything went right today in the markets.  The jobs report was dismal, leaving little hope even for the optimists.  The global economy is not sending favorable signals. Greece hasn't gone away, it's just muddling along tryhing to manage an impossible situation.  The reduction in growth outlook for the US by the IMF is troubling.  There is a growing worry that behind those bank rate cuts (which sound good) are fears that the global economy situation is worse then is commonly assumed.  But with all these problems, Dow still has had a nice recovery from its lows a month ago.

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Mixed markets shrug off Euro worries

Stocks held up well in what had been a tough day overseas.  Dow slipped 29, advancers barely ahead of decliners & NAZ was up 1.  Bank stocks did well, taking the Financial Index up almost 2+ to 204.  Losses for MLPs were pared in the PM, but the index still fell a very big 4 to the 389s, & the REIT index rose almost 2 to 261 (4 below its 2012 high).  Junk bond funds were weak & Treasuries rose as the 10-year bond yield touched a 3-month low on safe-asset demand after elections in France & Greece raised concern govs will drop deficit-cutting plans used to combat the region’s debt crisis.  That thinking brought selling in oil & gold (although gold should have benefited).

JPMorgan Chase Capital XVI (AMJ)

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Treasury yields:

U.S. 3-month	0.076%
U.S. 2-year	0.254%
U.S. 10-year	1.875%

CLM12.NYM

Crude Oil Jun 12

97.94

0.55 (0.6%)

The head of the IMF urged indebted countries in Europe & elsewhere to reduce budget deficits only gradually to avoid further damaging their economies.  Christine Lagarde said that steep cuts tend to slow an economy, particularly if a nation is already suffering from weak growth.  The speech came one day after voters in France & Greece rejected govs associated with cuts in social spending & other austerity steps.  The appropriate path is country-specific, she said.  "Some countries under severe market pressure have no choice but to move faster," she said.  "On the whole, however, adjustment should be gradual and steady."  Many European countries have been trying to reduce debt loads as a percentage of their economies.  When they have taken steps to cut deficits, such as raising taxes or cutting spending, their economies have shrunk, making it harder to reduce deficits as a percentage of their economy.  Lagarde urged govs to avoid that trap.  Instead, they should focus on gradually reducing debt levels & not cutting further if the economy weakens.  "There is no avoiding this brake of fiscal adjustment," she said in a prepared version of her remarks.  "But if calibrated correctly, we can make sure it doesn't do too much harm to growth."  Sounds good, but countries still have to learn how to deal with out of control social spending.

IMF chief urges gradual approach to spending cuts AP

US consumer spending surged in Mar by the most in more than a decade on growing demand for educational financing & autos.  Credit rose $21.4B, the biggest gain since Nov 2001, to $2.54T, according to the Federal Reserve.  The advance was paced by a $16.2B jump in non-revolving debt, including student & car loans.  Americans may have been trying to get school financing before a possible increase in interest rates takes place on Jul 1.  Increasing consumer confidence also means that households are more willing to take on debt to boost spending.  The increase in consumer credit topped the $9.8B forecast & even exceeded the highest estimate $15B.  The surge in non-revolving debt followed a $11.6B gain in Feb.  The data doesn’t track debt secured by real estate, such as home equity lines of credit.  Lending by the federal gov, which is mainly for student loans, climbed by $6.9B.  The rate on the student loans is set to double on Jul 1 without action by Congress.  The increase would affect about 7.4M students, adding an average of $1K a year in payments on college loans.  As mentioned above, cutting gov spending is difficult when it involves stepping on "my" toes.

Consumer Credit in U.S. Rose in March by Most in Over 10 Years

Photo:   Bloomberg

The Treasury agreed to sell $5B of its stock holding in AIG, with the bailed-out insurer buying $2B of the total.  The Treasury will sell 164M shares at $30.50 each, compared with a closing price of $32.83 on Fri. This is its 3rd offering of AIG shares in the last year, which reduces the Treasury’s stake to 63% from 70%.  AIG has sold assets to help raise funds to buy back shares.  The Treasury raised $5.8B in the first offering in 2011.  At the same time, AIG sold 100M shares for $2.9B to demonstrate access to the capital markets & satisfy a condition of its bailout.  The Treasury divested its first 2 chunks of stock at $29 & needs to average $28.72 to break even on its investment.  The gov’s remaining investments total $39B after the share offering.  AIG stock fell 1.26 to 31.57.

U.S. Treasury Sells $5 Billion of Shares in AIG, Paring Its Stake to 63%

American International Group, Inc. (AIG)

The € weakened to a more than 3-month low ($1.306) after the Euro elections that stoked concern austerity efforts may be derailed.  The € has not strayed far from $1.32 all year, hard to figure with all the ups & downs over Euro debts.  US markets held up well, maybe the successful traders stayed away for a long holiday weekend.  The bulls like to see the Dow holding above $13K (just barely) under pressure.  However there was a little selling into the close.

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