Oil, stocks go their separate ways

NEW YORK - Investors have wrung their hands over the last several weeks over the effect of lower oil prices on the broader S&P 500, but the relationship between the two is actually starting to break down.

Crude prices had dropped more than 10 percent in the trading week ended Dec. 12. That was largely responsible for a 3.5 percent drop in the S&P 500, as investors fled stocks over concerns about energy-sector bonds, corporate earnings, and expectations for world economic demand.

That seemed to change Thursday. The S&P 500 surged while oil fell, a potential change in sentiment among investors looking to focus on sectors that may benefit from an accelerating U.S. economy.

"The proof is that oil turned down and the market said, 'Oh, that was yesterday's news, today we're moving ahead,'" said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

Bank of America Merrill Lynch credit strategist Hans Mikkelsen credited the decoupling partly to Fed Chair Janet Yellen's Wednesday news conference.

"She explained how declining oil prices are expected to be a net positive for the U.S. economy. Furthermore, she went out of her way to dismiss any downward pressure on inflation as transitory."

Investors may have already priced in the effect of cheaper oil on energy-sector earnings and are now starting to weigh the positives for other sectors.

In its 2015 global outlook, fund manager Pimco said the fall in energy costs, because it is largely supply-driven, should ultimately help growth in major economies, including the United States, Japan, and the euro zone.

Fourth-quarter energy-sector earnings are expected to decline 19.2 percent from a year ago; on October 1, growth of 6.6 percent was expected.

"You will see some pain in the short term because of fourth quarter earnings," said James Liu, global market strategist at JPMorgan Funds in Chicago. "So the broad S&P 500 will take a hit based on that, but over the next several quarters it is clearly going to be a good thing."

As recently as Tuesday, the 10-day correlation between the S&P 500 and Brent crude stood at 0.97, meaning each moved in almost perfect sync with the other. The correlation has been breaking down and last stood at 0.42, with Brent stumbling 3.1 percent, while the S&P 500 surged 2.4 percent, on Thursday.

According to data from S&P, energy has fallen to a market share representation of 8.31 percent, from 9.7 percent at the end of the third quarter, as names such as Denbury Resources, Nabors Industries and Halliburton have each tumbled more than 35 percent.

With investors hoping oil prices have at least stabilized as Brent hovers around the $60 mark, selling pressure could resume on equities if the downward march for oil begins again, weighing on the broader S&P index and tightening the correlation.

source: interaksyon.com

JPMorgan to pay record $13B to settle US probes: reports

WASHINGTON - Banking giant JPMorgan Chase reached a tentative agreement to pay a record $13-billion fine to the Justice Department to settle probes into its residential mortgage-backed securities, US media reported Saturday.

Citing sources familiar with the decision, The Wall Street Journal newspaper reported in its online edition that the deal was hashed out during a phone call Friday with US Attorney General Eric Holder, his deputy Tony West and JPMorgan's top lawyer Stephen Cutler.

If the amount is confirmed, it would be the largest ever paid by a US company in this type of settlement with the government. It's also significantly larger than JPMorgan's previous offer of $11 billion.

But the still tentative deal wouldn't resolve a criminal investigation into the bank's activities being conducted by a court in Sacramento, California, the Journal said. Both sides still disagree over an admission of wrongdoing that would end the probe.

That case could result in charges against individuals, and could increase the fine for JPMorgan Chase.

The New York Times and the Washington Post, which also reported on the tentative agreement, said that JPMorgan Chase CEO Jamie Dimon participated in the talks with Holder.

Once finalized, $4 billion would settle allegations by the Federal Housing Finance Agency, a mortgage regulator, that JPMorgan overstated the quality of the mortgages it sold on to the government-sponsored housing finance enterprises Fannie Mae and Freddie Mac.

Another $4 billion would be destined for consumer relief, and $5 billion would be paid in penalties, the Journal reported.

Although details are still being worked out, the agreement would also resolve a separate lawsuit filed by New York's Attorney General Eric Schneiderman.

US companies tend to avoid paying fines, and often try to make financial settlements without admitting fault.

JPMorgan, the largest US bank by assets, has been under investigation by several US regulatory agencies. It recently agreed to pay more than $1 billion in fines over the "London whale" trading debacle of 2012.

The bank just reported its first quarterly loss in nearly 10 years, a net loss of $380 million on revenues of $23.12 billion, due in large part to a $9.15-billion charge for legal expenses.

source: interaksyon.com

JPMorgan Chase on US default: 'You don't want to know'

WASHINGTON - Top US banker Jamie Dimon of JPMorgan Chase warned Saturday that the United States needs to avoid defaulting on its debt, saying the possible repercussions are unfathomable.

"You don't want to know," Dimon said when asked what would happen if the US is forced into default because Congress did not raise the country's borrowing limit.

"It would ripple through the world economy in a way that you couldn't possibly understand," he said at a discussion held by the Institute of International Finance, a leading forum for the world's banks.

He said it would shock the money market, where trillions of dollars in cash are invested in ostensibly top-quality securities like US debt based on expectations that the borrowers will not default.

"You don't know the ripple effect of that through money-market funds," stressed Dimon, head of the largest US bank by assets.

"The money markets are the most fickle markets in the world, they're like a rabbit."

Dimon was speaking as the White House and congressional Republicans remained deeply at odds over passing a budget and raising the US debt ceiling, a move needed to ensure the government can continue to pay its bills.

The US Treasury has repeatedly warned that as soon as October 17 it will be short of cash and forced to default on its obligations, though not saying whether it would skip debt payments or others, like social security payments to retired Americans.

With no compromise apparent, and the government partially shut down now for 12 days due to lack of a budget, Dimon warned that the deadline was looming.

"As you get closer to it, the panic will set in," he said.

On the other hand, he emphasized: "The US cannot default. I think every responsible person knows that."

source: interaksyon.com