Friday, November 28, 2014

Markets fluctuate as oil sinks to lowest levels in years

Dow rose 47, decliners barely ahead of advancers & NAZ went up 19.  The MLP index PLUNGED 24 to the 489 (its biggest drop in history) while the REIT index rose 3+ to the 327s (a new multi year high).  Junk bond funds fell & Treasuries gained as commodities declined.  Oil dropped like a rock after OPEC triggered the biggest one-day plunge yesterday in 3 years by failing to cut its output in response to a glut.  Gold also saw selling.

AMJ (Alerian MLP Index tracking fund)


CLG15.NYM...Crude Oil Feb 15...69.39 Down ....4.37  (5.9%)

GCF15.CMX...Gold Jan 15......1,181.60 Down ...15.50  (1.3%)









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Shale
Photo:    Bloomberg

OPEC’s decision to cede no ground to rival producers underscored the price war in the crude market & the challenge to US shale drillers.  The 12-nation OPEC kept its output target unchanged even after the steepest slump in oil prices since the global recession, prompting speculation it has abandoned its role as a swing producer.  Yesterday’s decision propelled futures to the lowest since 2010, a level that means some shale projects may lose money.  The fracking boom has driven US output to the highest in 3 decades, contributing to a global surplus that Venezuela yesterday estimated at 2M barrels a day, more than the production of 5 OPEC members.  Demand for the group’s crude will fall every year until 2017 as US supply expands, eroding its share of the global market to the lowest in more than a quarter century, according to the group’s own estimates.  “We will produce 30 million barrels a day for the next 6 months, and we will watch to see how the market behaves,” OPEC Secretary-General Abdalla El-Badri said.  “We are not sending any signals to anybody, we just try to have a fair price.”  OPEC pumped almost 31M barrels a day in Oct & has exceeded its current output ceiling in all but 4 of the 34 months since it was implemented.  OPEC’s own analysts estimate production was 30.25M last month.  Members will abide by the 30M barrel-a-day target, El-Badri said yesterday.

Oil Enters New Era as OPEC Faces Off Against Shale; Who Blinks as Price Slides Toward $70?


China has about the same number of licensed drivers as there are people in the US, even though 2 out of 3 adults aren’t qualified to operate a motor vehicle.  There are now more than 300M motorists in China, compared with the US population of 319M, according to Chinese public security ministry & US census data.  It took just 4 years to add 100M new drivers in China, & 35 of its cities now have more than 1M vehicles, with major urban centers like Beijing & Shenzhen having twice that number.  The rising number of motorists will boost vehicle demand while increasing the burden on cities already struggling to cope with pollution & congestion.  The public security ministry said separately this week that it is looking at making it easier to get a license by removing the need for mandatory driver’s education classes.  Automakers are expected to sell about 23M new vehicles this year, according to a forecast by the state-backed China Association of Automobile Manufacturers.  Cities including Beijing, Shanghai & Hangzhou have implemented caps on the number of new autos as part of measures to control tailpipe emissions.  Even as the number of drivers has risen, cases of major traffic accidents have fallen, the ministry said.  Deaths caused by speeding accidents dropped 36% in the past 2 years, while those due to drunk driving decreased 39%.

China Motorists Exceed 300 Million as Cities Struggle to Cope


This is a quiet day for the market except for oil related issues.  MLPs are taking the drop in oil prices hard & this may be just the beginning of selling.  Fracking  is important for getting marginal petroleum from the ground & this is a high cost business.  Low oil prices will impact most MLPs.  Of course, US crude production is still expected to rise next year.  But this is new territory & nobody how it will play out for MLPs.

Dow Jones Industrials










Wednesday, November 26, 2014

Markets crawl higher on economic optimism for the US economy

Dow inched up 12 (good enough to eke out another new record), advancers over decliners 3-2 & NAZ jumped 29.  The MLP index went up 4+ to the 514s & the REIT index rose 2+ to 324, a multi year high.  Junk bond funds were mixed & Treasuries advanced.  Oil dropped to the 73s, the lowest level in almost 4 years, & gold was flattish as shown in the chart below.

AMJ (Alerian MLP Index tracking fund)













CLF15.NYM....Crude Oil Jan 15....73.61 Down ...0.48  (0.7%)

Live 24 hours gold chart [Kitco Inc.]




Consumer confidence climbed to a more than 7-year high in Nov as Americans’ views of their financial well-being improved heading into the holiday shopping season.  The Thomson Reuters/University of Michigan final index of sentiment increased to 88.8, the highest since Jul 2007, from 86.9 in Oct.  But the projection called for the index to rise to 90.  Stronger job growth, cheaper fuel & stock prices near all-time highs are boosting household spirits as the busiest time of the year for retailers commences.  Bigger wage gains would give an extra lift to consumers & probably sustain spending, which accounts for almost 70% of the economy.  The index averaged 89 in the 5 years before Dec 2007, when the last recession began, & 64.2 in the 18-month contraction that followed.  The Michigan sentiment survey index of expectations 6 months from now gained to 79.9 from 79.6 last month.  The gauge of current conditions, which measures Americans’ views of their personal finances, increased to 102.7 in Nov from 98.3.  Other recent measures of consumer sentiment have given mixed signals.  The Conference Board’s confidence index released yesterday unexpectedly declined in Nov to the lowest level in 5 months as Americans became less upbeat about the economy & labor market.  Take your pick for guidance.

Consumer Sentiment in U.S. Rises to Highest in Seven Years


Contracts to purchase previously owned homes unexpectedly dropped in Oct as tighter credit & weak wage gains held back would-be buyers.  The pending home sales index declined 1.1% after a 0.6% increase in Sep that was larger than initially reported, the National Association of Realtors said.  The projection called for the index to rise 0.5%.  “Demand is holding steady but would be more robust if it weren’t for lagging wage growth and tight credit conditions that continue to hamper those individuals looking for relief from rising rents,” NAR chief economist Lawrence Yun said.  Purchase contracts rose 2.2% in the 12 months ending in Oct after a 3.4% annual increase in Sep that was larger than previously estimated, the NAR report showed.  The 2 months of year-over-year advances follow an 11-month streak of declines.  The pending sales index was 104.1 on a seasonally adjusted basis.  A reading of 100 corresponds to the average level of contract activity in 2001, or “historically healthy” home-buying traffic.  Pending sales fell in 3 of 4 regions, declining in the West, South & Midwest.  Re-sales unexpectedly rose last month to a 5.26M annual pace, the strongest since Sep 2013 & up 1.5% from a revised 5.18M pace in Sep, NAR data showed last week.  Building permits for future projects reached a 6-year high in Oct, signaling construction will add to US growth in early 2015, Commerce Dept figures showed last week.

Pending Sales of U.S. Homes Unexpectedly Fell 1.1% in October


Hewlett-Packard posted Q4 earnings in line with estimates while sales fell short, underscoring the challenges for both sides of the computer maker’s business as it prepares to split in 2.  The personal-systems group was the only division that grew in the period that ended Oct 31. The company also gave a fiscal Q1 profit forecast, with a top end that matched predictions.  While the PC division has benefited from improved corp demand & the success of low-cost laptops, growth is being held back as the enterprise units struggle with a transition to services based in the cloud, where it competes with services by companies.  Q4 EPS was $1.06, matching estimates.  EPS fell to 70¢ from 73¢ a year earlier.  Sales dropped 2.5% to $28.4B, short of the $28.8B projection.  In the current period, EPS before certain items should be 89-93¢.  Analysts anticipated 93¢.  For fiscal 2015, EPS will be $3.83-$4.03, compared with a projection of $3.95.  The forecast doesn’t include the costs of splitting the company, which the company is still trying to calculate, CEO Meg Whitman said.  A year ago, Whitman said that HPQ would face a tough year, with “macroeconomic headwinds almost across the board.”  She was right, though the company made headway in PCs, its other divisions have stagnated, all posting lower annual revenue for fiscal 2014.  Q4 sales in the PC unit climbed 4% from a year earlier, led by corp demand, while sales in the printing group fell 5%.  Strength in commercial PCs will slow down, Whitman said, echoing a forecast by market researcher IDC, which projects PC shipments in mature markets will decline in 2015.  Enterprise services revenue fell 7%, & enterprise group sales, made up of products like servers & storage, dropped 4%.  The software & financial-services groups each posted a revenue decline of 1%.  “While we are seeing clear pockets of growth, other areas still need more work,” Whitman said.  The company has been pressing forward with its plan to split, moving executives into roles to oversee the breakup.  Whitman, who will run the enterprise company after the split, & Dion Weisler, who will lead the new HP Inc., focused on PCs & printers, have spent the past year seeking to convince investors that each of the company’s businesses is capable of inventing its way back to technology leadership.  The stock rose 1.53.  If you would like to learn more about HPQ, click on this link:
club.ino.com/trend/analysis/stock/AAPL?a_aid=CDXXX&a_bid=6ae5b6f7

HP’s Earnings Match as Sales Fall Short Ahead of Split

Hewlett-Packard (HPQ)




Trading was low on this semi-holiday session.  The biggest excitement is oil sinking to new lows because all indications are that OPEC will not change production quotas.  There could be some cheating by countries trying to raise additional funds with oil at low prices.  The half day trading session on Fri should not produce much excitement, other than related to the announcement from OPEC tomorrow.  For the time being popular averages are at or essentially at record levels & even NAZ is only a few percent away from its record above 5K made years ago.  Dow has risen a stellar 1.7K from the lows in mid Oct with only inconsistent economic data to support the rise.

Dow Jones Industrials






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