Wednesday, April 16, 2014

Higher markets on industrial production data

Dow advanced 91, advancers over decliners 3-1 & NAZ gained 21.  The MLP index went up 1+ to the 478s & the REIT index was fractionally higher in the 288s.  Junk bond funds rose & Treasuries saw selling.  Oil keeps rising (to a 6 week high) & gold did little.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month

0.03%

U.S. 2-year

0.37%

U.S. 10-year

2.65%

CLK14.NYM...Crude Oil May 14...104.69Up ....0.94 (0.9%)

GCJ14.CMX....Gold Apr 14.........1,302.30 Up ...2.30 (0.2%)








In Mar industrial production rose more than forecast after a Feb gain that was twice as big as previously estimated, indicating factories recovered after a weather-depressed start to the year.  Output at factories, mines & utilities climbed 0.7% after a revised 1.2% increase the prior month, according to the Federal Reserve.  The forecast called for a 0.5% rise.  Manufacturing (75% of total production) grew 0.5% after surging 1.4%.  The figures follow recent data showing stronger retail sales & increasing employment that indicate the economy was gaining momentum as temperatures warmed.  A pickup in corp investment & further improvement in overseas markets would complement demand for motor vehicles & provide an additional boost for US producers.  Strength in manufacturing is helping make up for a struggling housing industry.  Utility output rose 1% after a 0.3% drop the previous month.  Mining production, which includes oil drilling, increased 1.5% last month.  Business-equipment production advanced 0.5% after a 2% surge in Feb.  Output of construction materials rose 0.2% after rising 1%.  Production of computers & electronic products also increased.  Consumer goods production rose 0.7%, led by appliances, furniture & carpeting.  Output of motor vehicles & parts decreased 0.8% after soaring 6.9%.  Excluding autos & parts, industrial production increased 0.8% last month after a 0.9% gain.

Industrial Production in U.S. Increases More Than Forecast


The pace of US home construction rebounded less than forecast in Mar, held back by declines in warmer parts of the country that indicate the recovery in residential building will be slow to develop.  Housing starts climbed 2.8% to a 946K annualized rate following a 920K pace in Feb (higher than previously reported), according to the Commerce Dept.  The estimate called for an increase to 970K.  Permits for future projects also declined.  While warm weather & the onset of the spring selling season boosted housing activity in the Northeast & Midwest, the industry’s recovery has been challenged by higher interest rates, slow wage growth & tight credit, which have put homeownership out of reach for some would-be buyers.  Bigger gains in employment are necessary to overcome declining affordability.  Building permits declined 2.4% to a 990K annualized pace, a sign that construction still has room to expand this month.   They were projected to be little changed at 1.01M.  Work on single-family properties climbed 6% to a 635K rate in Mar from 599K in the prior month.  Construction of multifamily projects such as condominiums & apartment buildings fell 3.1% to an annual rate of 311K.

Builders in U.S. Begin Work on Fewer Homes Than Forecast


Bank of America Chief Executive Officer Brian T. Moynihan

Photo:   Bloomberg

Bank of America swung to a surprise loss as the company booked $6B of costs tied to mortgage disputes.  Q1 EPS loss was 5¢, compared with a profit of 10¢ a year earlier.  But adjusted EPS was 35¢, beating the 27¢ estimate.  Its the 4th quarterly deficit since CEO Brian Moynihan took 4 years ago.  The 2008 purchase of Countrywide Financial left BAC responsible for thousands of bad home loans, contributing to more than $50B of expenses that included an accord covering bonds sold to Fannie Mae & Freddie Mac.  “The cost of resolving more of our mortgage issues hurt our earnings this quarter,” Moynihan said.  “But the earnings power of our business and customer strategy generated solid results and we continued to return excess capital to our shareholders.”  Companywide revenue dropped 2.7% to $22.6B.  The $6B in legal costs included $3.6B tied to the settlement disclosed last month & a $2.4B increase in reserves for “previously disclosed legacy mortgage-related matters,” the lender said.  Last month, the bank said it may have to pay penalties tied to probes from gov entities including the Justice Dept & state attorneys general & that it faces civil lawsuits from the DOJ regarding its sales of mortgage bonds.  Excluded from the additional $2.4B in legal costs is a settlement with bond insurer Financial Guaranty Insurance.  The $950M deal, disclosed today, used money which the firm has previously set aside.  The stock fell 57¢.  If you would like to learn more about BAC, click on this link for Trend Analysis:
http://club.ino.com/trend/?symb=AAPL&a_aid=CD3289&a_bid=6ae5b6f7

BofA Posts Loss on $6 Billion of Costs Tied to Mortgages

Bank of America (BAC)



Dow Jones Industrials









Tuesday, April 15, 2014

Markets erase early losses in volatile trading

Dow recovered in the PM & finished with a gain of 89, advancers ahead of decliners 3-2 & NAZ climbed 11.  The MLP index slid a fraction to 477 & the REIT index was up 3 to the 278s.  Junk bond funds were mixed to lower & there was buying in Treasuries.  Oil fell & gold had its biggest drop this year on concern that a pickup in US consumer prices will give the Federal Reserve leeway to further scale back stimulus.

AMJ Alerian MLP Index tracking fund)



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Treasury yields:

U.S. 3-month

0.03%

U.S. 2-year

0.37%

U.S. 10-year

2.63%

CLK14.NYM....Crude Oil May 14....103.77 Down ...0.28  (0.3%)

Live 24 hours gold chart [Kitco Inc.]




CPI
Photo:   Bloomberg

Consumer prices accelerated in Mar as Americans paid a bit more for food & rent, adding to signs that consumer demand is improving.  The consumer-price index climbed 0.2% after increasing 0.1% in Feb, according to the Labor Dept.  Over the past year, costs rose 1.5% following a 1.1% gain in Feb (the smallest in 4 months).  Rents may continue to climb as more households, who are just starting to recover from the collapse in home prices, forgo ownership & instead turn to leasing properties.  Sustained gains in sales would give companies pricing power, easing Federal Reserve concerns that inflation remains too far below its 2% goal.  The report showed the core gauge, which excludes volatile food & fuel costs, also rose 0.2%, the most in more than a year.  The forecast was for a 0.1% gain.  The core CPI climbed 1.7% from Mar 2013 following a 1.6% advance in the prior 12 month period.  Energy costs decreased 0.1% from a month earlier & food expenses climbed 0.4%, reflecting the biggest gain in pork prices since Aug 2012.  About 2/3 of the increase in core prices reflected rising rents.  Owners-equivalent rent, one of the categories designed to track leasing costs, climbed 0.3%.  Over the past 12 months, shelter costs, which also include hotel rates, increased 2.7%, the biggest gain in 6 years.

Accelerating Inflation Adds to Signs U.S. Improving


Johnson & Johnson, a Dow stock & Dividend Aristocrat, beat expectations & raised its 2014 forecast by focusing on new drugs & reducing its reliance on medical devices.  The drug division overtook medical devices as the company’s biggest unit after sales surged 11% to $7.5B.  The growth obscured a drop in demand for consumer goods & sales that were essentially unchanged in devices & surgical products after the harsh winter waylaid elective medical procedures.  While quarterly sales increased for medicines such as Stelara for psoriasis & Zytega for prostate cancer, the performance of the hepatitis C drug Olysio was responsible for most of the $1B bump in the 2014 revenue forecast, CFO Dominic Caruso said.  The company raised its 2014 EPS forecast to $5.80-$5.90 from $5.75-$5.85, excluding one-time items.  Annual revenue is expected to be $74.5-$75.3B.  EPS rose to $1.64 from $1.22 a year.  EPS excluding one-time items of $1.54 outpaced the $1.48 estimate.  Q1 revenue increased to $18.1B from $17.5B a year earlier, driven by Stelara, Zytiga, Invega Sustenna for schizophrenia, Prezista for HIV & Xarelto to prevent blood clots.  The company also posted increases for specialty surgery, cardiovascular & vision care.  Olysio, approved in Nov, received a boost when guidelines from medical societies that deal with hepatitis C infections in Jan recommended using JNJ’s drug.  The pharmaceutical division’s strong performance helped the company withstand a 3.2% drop in sales of consumer goods & OTC medicines to $3.6B.  Revenue from medical devices & diagnostic were unchanged at $7.1B, with US sales falling 1.6% on weak prices & demand.  The stock shot up 2.06.  If you would like to learn more about JNJ, click on this link for Trend Analysis:
http://club.ino.com/trend/?symb=JNJ&a_aid=CD3289&a_bid=6ae5b6f7 

Johnson & Johnson Increases Full-Year Forecast as Profit Up on Drug Demand

Johnson & Johnson (JNJ)




China’s broadest measure of new credit fell 19% from a year earlier & money supply grew at the slowest pace on record, underscoring risks of a deeper slowdown as the gov tries to curb financial dangers.  Aggregate financing was 2.07T yuan ($333B) in Mar, the People’s Bank of China (PBOC) said, down from 2.55T yuan a year ago.  M2, China’s broadest gauge of money supply, rose 12.1% from a year earlier, compared with the 13% estimate & 13.3% in Feb.  Policy makers are trying to rein in a credit binge & prevent defaults from spurring broader financial turmoil, while meeting a target for economic expansion of 7.5% this year.  The State Council earlier this month outlined what some analysts have dubbed a “mini-stimulus” package of railway spending & tax relief, with Q1 growth projected to be the slowest since 2009.  The report is due tomorrow.  China’s foreign-exchange reserves, the world’s largest, rose to $3.95T at the end of Mar from $3.82T at the end of Dec, according to the PBOC.   Aggregate financing compared with the 1.85T yuan projection.  New yuan loans were 1.05T yuan, compared with the 1T yuan estimate.  Yuan deposits rose 3.67T yuan in Mar from the previous month, slower than last year’s increase, the PBOC said.  The central bank has shown little intent to relax monetary policy.  A day after the cabinet announced the pro-growth measures, the PBOC said that it will maintain “moderate liquidity” & “realize reasonable growth in loans and social financing,” reiterating language from a previous statement.

China Credit Gauge Slumps 19% as Economy Seen at Risk of Deeper Slowdown


There were no shortage of mixed signals today.  The 2 big earnings reports were favorable, the Ukraine mess remains in limbo as troops are moved around & China continues to be searching for ways to resume its growth story which everybody has gotten used to.  These 3 stories should dominate trader thinking going forward with the Ukraine situation having the potential for the greatest problems in the stock market.  Dow is down 300 YTD.

Dow Jones Industrials








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Markets slide lower on rising euro tensions

Dow lost 18, decliners over advancers 3-2 & NAZ sank a very big 32.  The MLP index hardly budged in the 477s & the REIT index rose 1+ to the 286s.  Junk bond funds were mixed & Treasuries were flat.  Oil did little, but there was major selling in gold even though euro tensions are on the rise.

AMJ (Alerian MLP Index tracking fund)


Treasury yields:

U.S. 3-month

0.03%

U.S. 2-year

0.38%

U.S. 10-year

2.65%


CLK14.NYM...Crude Oil May 14...103.65 Down .....0.40  (0.4%)

GCK14.CMX...Gold May 14.......1,297.00 Down ...30.20  (2.3%)








Ukrainian Troops

Ukraine unleashed an offensive to dislodge militants from towns in its eastern Donetsk region as Russia’s prime minister said the country risks civil war.  Ukrainian units backed by armored personnel carriers blocked all approaches to the town of Slovyansk. 2 militants were wounded when an airport in Kramatorsk was stormed, forcing the protesters to retreat.  The gov started the operation after fighting between its forces & pro-Russian separatists turned deadly this week.  The US & the EU also deliberated deepening sanctions against Russia, which they blame for stoking the unrest, as Obama & Putin remain at odds over who was at fault.  “The aim of these actions is to protect people,” acting Ukrainian pres Turchynov said.  “Apart from Russian special forces and terrorists, there’s hundreds of thousands of innocent Ukrainian people deceived by Russian propaganda, and that is why we will take any needed anti-terrorist actions prudently and responsibly.”  The US & EU say Russia is behind the turmoil that has fueled this standoff, which NATO says has 40K troops massed on Ukraine’s border, denies involvement & says the gov in Kiev isn’t protecting Russian-speaking citizens.  In warnings similar to those that preceded its annexation of Crimea last month, it insists it has the right to protect them with force if needed.



Confidence among US homebuilders rose less than forecast in Apr as sales & prospective buyer traffic stagnated, showing the residential real estate market struggled to improve after a harsh winter.  The National Association of Home Builders/Wells Fargo builder sentiment gauge climbed to 47 this month from a revised 46 in Mar (weaker than initially reported).  Readings greater than 50 mean more respondents report good market conditions.  The forecast called for 49.  Tight credit for some home buyers & limited availability of lots are restraining builder sentiment months after snow storms & freezing temperatures held back construction.  At the same time, historically low mortgage rates & hiring gains helped drive an increase in the outlook for sales.  “Builder confidence has been in a holding pattern the past three months,” NAHB Chairman Kevin Kelly said.  “As the spring home-buying season gets into full swing and demand increases, builders are expecting sales prospect to improve.”  The gauge of prospective buyer traffic held at 32, while the index of current single-family home sales was unchanged at 51.  The measure of the 6-month sales outlook improved to a 3-month high of 57 in Apr from 53.

Confidence Among U.S. Homebuilders Increases Less Than Forecast


Coca-Cola, a Dow stock & Dividend Aristocrat, showed signs of a rebound in Q1, easing the concerns that arose when the company unsettled investors with surprisingly sluggish global sales in Q4.  Earnings met estimates, sales volume in North America halted its slide, & sales gains were strong in markets such as China.  After the Q4 report, CEO Muhtar Kent promised improvement & implemented a cost-cutting program that’s already showing some progress.  Global sales volume rose 2%, & an emphasis on new package sizes helped boost pricing by 2%.  EPS excluding some items was 44¢ in Q1, matching the estimate.  But net income fell 7.5% to $1.62B from $1.75B a year earlier.  Volume in North America was little changed, compared with a 1% decline in Q4.  Sales strengthened in emerging markets,including a 12% gain in China.  “The emerging markets all slowed down last year,” CFO Gary Fayard said.  “A lot of those emerging markets are starting to slowly recover.”  The results also came without a boost from Easter sales because the holiday didn’t fall in Q1 this year, Fayard said.  Evidence of Kent’s cost-cutting also started to materialize.  Selling, general & administrative expenses fell 4.6% to $3.99B.  “We’re looking under every rock,” Fayard said.  “It’s actually in every line item across the world.”  KO isn’t entirely in the clear, though.  Worldwide sales of carbonated beverages slipped 1% by volume, & while Q1 sales of $10.6B topped estimates, they still declined 4.2% from a year earlier.  The stock jumped 1.36.  If you would like to learn more about KO, click on this link:
club.ino.com/trend/analysis/stock/KO?a_aid=CD3289&a_bid=6ae5b6f7

Coca-Cola First-Quarter Results Soothe Soda Slowdown Fear

Coca-Cola (KO)




Even though earnings season is beginning, more attention is being paid to the goings on in eastern Europe which is descending into a chaotic mess.  There is only one global leader & that is Putin who is calling the shots.  The US & EU will only do some name calling & warn of serious consequences of matters worsen.  That's another way of saying, nothing is going to be done.  Early earnings returns are looking favorable, but conditions in eastern Europe will direct where markets go.  Currently that looks to be negative because Putin has become the world leader.

Dow Jones Industrials