Monday, July 27, 2015

Markets drop on China and commodity selloff

Dow tumbled 127, decliners over advancers almost 3-1 & NAZ dropped 48.  The MLP index rebounded 4+ to the 375s & the REIT index was up a fraction in the 315s.  Junk bond funds drifted lower & Treasuries rose with the global chaos in financial markets.  Oil is back in the 47s & gold crawled higher.

AMJ (Alerian MLP Index tracking fund)








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CLV15.NYM....Crude Oil Oct 15....47.98 Down ...0.63  (1.3%)

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No one is paying much attention to this week’s FOMC meeting because there's all but zero chance central bankers will be raising interest rates.  It’s the Sep meeting everyone is paying attention to because there’s a broad consensus that rates could start moving higher after that meeting.  But this week the members of the policy-setting FOMC will likely provide the strongest signal yet regarding their intentions for the Sep meeting.  Investors will all be searching for clues as FOMC members dissect recent economic data, notably the Greek debt crisis, the selloff in the Chinese stock market & tightening in the US labor market.  The Greek debt crisis has settled down since earlier this month, which could have made the Fed to hold off on a rate increase.  Countering that, the Chinese stock market collapsed today.  Global financial entities such as the IMF made a public plea earlier this summer for the Fed to wait until at least 2016 to raise rates so that the ripple effects of higher borrowing costs could be more easily absorbed around the world.  But offsetting those overseas concerns has been a steadily strengthening US jobs market, as evidenced by the declining unemployment rate and wages that are finally moving higher.  The Fed has said it wouldn’t raise rates until it met its dual mandate of full employment, which it defines as an unemployment range of 5.2%-5.6%, & price stability, which it defines as a 2% annual inflation rate.  The unemployment rate stands at 5.3%.  However inflation has remained stubbornly low, hovering for months at about half the Fed’s 2% target, because wages have been stagnant for months.  But the falling unemployment rate combined with the slow elimination of slack in labor markets has economists predicting that rising wages will push inflation higher, reaching that elusive 2% target at some point in 2016.  It's widely believed that the Fed will announce a rate hike in Sep.

July FOMC Meeting Setting the Table for Rate Hike


Teva Pharmaceutical has agreed to buy Allergan's generic drugs business for $40.5B in a deal that will turn TEVA into one of the top 10 pharmaceutical companies.  The acquisition should help TEVA, already the world's largest generic drugmaker, boost growth at a time its top drug, MS treatment Coxaprone, is facing competition.  The AGN generic business is generally seen as a better fit than its previous target Mylan because it will improve distribution channels & because AGN strong in biosimilar drugs.  TEVA & will pay $33.75B in cash & shares of TEVA valued at $6.75B, representing a 10% stake in TEVA.  At the same time, Teva dropped its $40B bid for Mylan (MYL).  The deal with AGN is expected to close in early 2016.  Teva CEO Erez Vigodman said the combined companies will have proforma revenue of $26B & earnings before interest, tax, depreciation & amortization of $9.5B in 2016.   "Our respective portfolios of generic medicines and applications are highly complementary, providing Teva with high quality growth and earnings visibility, and the scale and resources to expand upon our specialty capabilities," he said.  "This acquisition reinforces our strategy, accelerates growth and diversifies revenues both by product and geographically, supporting our new business model."  Teva believes the acquisition will be significantly accretive to adjusted EPS, including double-digit accretion in 2016 & more than 20% accretion in year 2 & 3 following the close.  It expects cost synergies & tax savings of $1.4B annually by the 3rd anniversary, from efficiencies in operations, manufacturing, & sales & marketing.  TEVA stock jumped up 10.15 & AGN soared 18+.
If you would like to learn more about TEVA, click on this link:
club.ino.com/trend/analysis/stock/TEVA?a_aid=CD3289&a_bid=6ae5b6f7

If you would like to learn more about AGN, click on this link:
club.ino.com/trend/analysis/stock/AGN?a_aid=CD3289&a_bid=6ae5b6f7

Teva to Buy Allergan's Generic Drug Business

Teva Pharmaceutical (TEVA)


Allergan (AGN)



Owners of recalled trucks & sport-utility vehicles made by Fiat Chrysler automobiles will be allowed to sell them back, & some Jeeps can be swapped for new rides as part of a deal with federal regulators.  The offers are part of a settlement between FCAU & the National Highway Traffic Safety Administration, which levied a record fine of up to $105M for recall lapses.  FCAU had recalled 500K vehicles, mostly Ram trucks, to repair faulty suspension parts that could lead to the loss of control.  According to FCAU, approximately 190K of those vehicles have yet to be repaired & are thus eligible for the buyback offer.  FCAU will be able to resell the vehicles it buys back once they are repaired.  FCAU also agreed to offer unrestricted $100 gift cards to owners of recalled Jeeps that regulators believe are prone to fires following a crash.  FCAU said dealers have 60K hitch assemblies in stock, while 290K more are within a day’s shipping from each store.  Alternatively, the Grand Cherokees are eligible for an additional trade-in offer.  FCAU has 1.56M recalled Jeeps that are not at risk of catching fire more than other vehicles from the same period.  FCAU fell 74¢.  If you would like to learn more about FCAU, click on this link:
club.ino.com/trend/analysis/stock/FCAU?a_aid=CD3289&a_bid=6ae5b6f7

Fiat Chrysler Will Buy Back Recalled SUVs, Trucks

Fiat Chrysler (FCAU)



Dow is down 400 YTD, near the lower end of its trading range this year.  The outlook is glum.  Even NAZ which acquired glamor this year by finally reaching new record highs is off 200 form its peak.  Earnings season is winding down & it has not been inspiring.  Now foreign matters are adding to uncertainty in the stock market.  Even the FMOC meeting this week may get less attention than usual with so many global issues to digest.  The stock market is on defense,

Dow Jones Industrials

stock chart 






 

 

Lower markets after Chinese stock markets tumble

Dow sank 91, decliners over advances more than 2-1 & NAZ lost 21.  The MLP index fell 2+ to the 269s & the REIT index was up a fraction in the 315s.  Junk bond funds sold off & Treasuries rose, taking the yield on the10 year Treasury down to 2.22%.  Oil is down to the 47s while gold is struggling to go back over 1100.

AMJ (Alerian MLP Index tracking fund)


CLV15.NYM....Crude Oil Oct 15...48.08 Down .....0.53  (1.1%)

GCN15.CMX...Gold Jul 15.......1,102.50 Up ...16.90 (1.6%)










Chinese shares tumbled more than 8% as an unprecedented gov rescue plan to prop up valuations abruptly ran out of steam, throwing the viability of China's efforts to stave off a deeper crash into doubt.  Major indices suffered their largest one-day drop since 2007, shattering 3 weeks of relative calm in the volatile stock markets since China unleashed a barrage of support measures to arrest a slump that had started in mid-Jun.  The CSI300 index of the largest listed companies in Shanghai & Shenzhen plunged 8.6%, to 3818, while the Shanghai Composite Index lost 8.5%, to 3725.  China's market gyrations have stoked fears among global investors about the broader health of the economy, hitting prices of growth-sensitive commodities such as copper, which fell to not far from a 6-year low.

Durable Goods Orders Rise More than Views


Orders for business equipment rose in Jun for just the 2nd time this year as US factories start to regain their footing after a weak spell.  Bookings for non-military capital goods excluding aircraft climbed 0.9% last month after decreasing 0.4% in May, according to the Commerce Dept.  Orders for all durable goods increased 3.4%, propelled by a rebound in the volatile aircraft category.  Business investment is projected to improve as the energy industry’s woes dissipate & companies look to expand, cushioning the hit from cooling foreign economies & a stronger dollar that will probably continue to damp sales of American-made goods.   The forecast projected total durable goods orders would rise 3.2%.  The data were boosted by a 66% jump in bookings for non-military aircraft.  Excluding transportation equipment, orders rose 0.8%, the biggest gain since Aug.  They were projected to increase 0.5%.  Orders for non-defense capital goods excluding aircraft are a proxy for future business investment in items like computers, engines & communications gear.  Shipments of those goods, used in calculating GDP, fell 0.1% last month & the prior reading was revised to show a 0.3% drop (larger than previously estimated).  The figures indicate that business investment and/or exports remained weak in Q2.  Even with recent setbacks, the past few months have shown signs of a letup from the global plunge in crude prices that had triggered cutbacks in investment since mid-2014.

U.S. Capital Equipment Orders Rise for Second Time This Year


Restaurant Brands International, owner of the Burger King & Tim Hortons restaurant chains, posted Q2 profit that topped estimates after new sandwiches & classic menu items lured customers.  EPS was 30¢, excluding some items, beating the 25¢ estimate.  QSR added items like the A1 ultimate bacon cheeseburger, the extra-long pulled pork sandwich & revived its classic chicken fries to boost revenue at Burger King.  Same-store sales rose 6.7%.  Analysts estimated 4.3%.  “We’re launching fewer and more impactful items,” CEO Daniel Schwartz said.  He cited the A1 cheeseburger & pulled pork sandwich as contributors to Burger King’s sales & franchisees’ profit, he said.  Tim Hortons, the Canadian doughnut chain, also reported higher-than-estimated same-store sales.  Revenue by that measure rose 5.5%, beating the 3.4% projection.  While companywide revenue slid 1.6% to $1.04B, hurt by currency exchange rates, that still topped the $1.02B  projection.  QSR, the world’s 3rd-largest fast-food company, is accelerating growth & adding restaurants in the US & abroad.  The company recently opened its first free-standing, drive-thru Tim Hortons in St. Louis & is expanding around Detroit, as well.  Burger King is opening more intl locations & is ramping up growth in India & France, CFO Josh Kobza said.  “It’s growth in a lot of our big emerging and developed markets,” he said.  The chain added 141 restaurants in the qtr, while Tim Hortons opened 52.  The company also boosted its quarterly div to 12¢ from 10¢.  The stock jumped 2.61. If you would like to learn more about QSR, click on this link:
club.ino.com/trend/analysis/stock/QSR?a_aid=CD3289&a_bid=6ae5b6f7

Burger King Owner Tops Estimates as Chicken Fries Help Sales

Restaurant Brands (QSR)



The setback in Chinese stocks was felt in the US markets.  NAZ is at a 4 week low, with selling continuing after disappointing earnings last week from big name tech companies.  While Dow is off its early AM lows, it's still on defense.  Q2 GDP numbers are coming later this week & they can not be expected to help the stock market.

Dow Jones Industrials

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