Fed Induced Whipsaw
Fed induced whipsaw created undue stress on traders Thursday. Day traders and
short term investors found it almost impossible to get with the trading trend.
Early morning fall of major indices was followed by a sluggish, whipsaw trend
that appeared to enhance the profits for brokers. Many traders scratched the
trading session and pulled out of trading into the mid-day trading session.
The world's second-biggest economy - China - showed factory activity shrank for
the first time in seven months in May. The preliminary manufacturing survey
showed that its economic recovery has stalled and that a sharper cool down may
be imminent. The lack of vigor in China's economy implies its ability to meet
the government's 7.5% growth target this year is increasingly difficult. As the
Communist Party justifies its one-party rule with tacit promises of economic
prosperity, a stable employment market ranks high among China's policy
priorities. A week ago, Chinese Premier Li Keqiang said China has limited room
to rely on government spending or policy stimulus to spur its growth, dispelling
market speculation that Beijing may act to pump-prime its economy. Government
data released this week showed that profit growth in China's giant state firms
cooled during the first four months of 2013.
A surge in Japanese government bond yields forced the Bank of Japan to offer 2
trillion yen ($19 billion) in funds to calm investor nerves on Thursday. The
Japanese central bank announced the fund-supplying operation after 10-year JGB
yields soared to their highest level in more than a year, citing “the
unreasonable increase” in volatility. The Nikkei Stock Average JP:NIK ended the
day 7.3% lower at 14,483.98 for the Nikkei’s worst single-day loss since March
Ally Financial Inc. announced on Thursday, in a filing with the U.S. Bankruptcy
Court in Manhattan, a tentative settlement with its mortgage subsidiary
Residential Capital and the unit's creditors, to the tune of $2.1 billion. Ally
is 74%-owned by U.S. taxpayers. The deal requires court approval and paves the
way for ResCap to move forward on a plan that could ease its exit from Chapter
11 bankruptcy. Ally's payment will include $1.95 billion in cash and $150
million in insurance proceeds it expects to receive under the plan. Michael
Carpenter, chief executive of Ally, said in a statement, "Reaching this
comprehensive agreement enables Ally to turn the page on a tumultuous chapter in
its history." Ally's payment is significantly larger than its previous offer of
$750 million, which Mr. Carpenter described as a "hostage payment" to ResCap
creditors. Ally expects to record a charge of nearly $1.55 billion in Q2 related
to the plan as well as an increase in its litigation reserves. The agreement
allows Ally to receive full repayment of its secured claims in ResCap's
bankruptcy, which includes $1.13 billion owed to it under existing credit
facilities. ResCap creditor Berkshire Hathaway Inc. (BRKA, BRKB) on Wednesday
filed a motion asking the court to make the report public, arguing its findings
are necessary for creditors to determine if the settlement reached last week is
a fair deal.
U.S. Labor Department reported on Thursday, for week ended May 18, the number of
people who applied for new unemployment benefits fell by 23,000 to 340,000. Over
the past month, the average of new claims which is a more reliable gauge than
the volatile weekly number, edged lower by 500 to 339,500. For week ended May
11, continuing claims decreased by 112,000 to a seasonally adjusted 2.9 million.
Chris Williamson, chief economist at Markit, on Thursday said the U.S.
manufacturing economy continues to show signs of weakening. U.S. flash
manufacturing purchasing managers' index fell to a 51.9 reading in May from 52.1
in April striking the lowest reading since last October.
U.S. Commerce Department said Thursday new home sales in April reached a
seasonally adjusted annual rate of 454,000 to the second-highest post-recession
level. April's gain represents a 29% improvement from the same period of 2012.
Median home sale prices jumped 15% year-on-year to $271,600 to reach a record
level. Commerce estimates a 4 month supply of current homes for sale, at the end
of April, at about 155,000 new homes.
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May 23, 2013