Thursday, August 28, 2014

Lower markets in cautious trading on weaker retailer earnings

Dow pulled back 42, decliners over advancers 6-5 & NAZ fell 11.  The MLP index was up pennies in the 535s (all time record territory) & the REIT index lost a fraction to 310.  Junk bond funds were mixed & Treasuries climbed higher, taking the yield on the 10 year Treasury to 2.33%.  Oil advanced & gold rose to the highest in in more than a week as escalating tension in Ukraine spurred haven demand.

AMJ (Alerian MLP Index tracking fund)

CLV14.NYM....Crude Oil Oct 14....94.50 Up ...0.62 (0.7%)

Live 24 hours gold chart [Kitco Inc.]

Contracts to purchase previously owned homes rose more than forecast in Jul, a sign of renewed momentum in residential real estate.  The pending home sales index gained 3.3% after a 1.3% decrease in Jun that was larger than initially reported, according to the National Association of Realtors.  The projection called for the index to advance 0.5%.  A pickup in hiring, rising property values & historically low interest rates are lifting home sales & prompting builders to break more ground.  Faster wage growth & easier access to credit would give a bigger boost to the market.  The recovery is showing signs of gaining momentum, with jobless claims near their lowest levels since 2007 & the economy expanding more rapidly than previously estimated.  For housing, purchase contracts fell 2.7% in the 12 months ending in Jul after a 4.7% annual decline in Jun that was bigger than previously estimated.  Jul marked the 10th month of year-over-year declines.  The pending sales index was 105.9 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.  “Steady job additions to the economy are helping family finances and giving them added confidence to enter the market,” NAR chief economist Lawrence Yun said.  Economists consider pending sales a leading indicator because they track new purchase contracts.  Contracts on new homes fell unexpectedly in Jul to a 412K annualized pace, their weakest level since Mar.

Pending Sales of U.S. Existing Homes Increase More Than Forecast

Ukrainian pres Poroshenko pledged to step up the country’s defenses against what he earlier called a “de facto” Russian incursion after separatists gained ground in intensified fighting.  “We are able to defend ourselves,” Poroshenko, who canceled a visit to Turkey to focus on the expanding conflict, said at an emergency meeting of the country’s security council today in the capital, Kiev.  “Yes, we need modern high-tech weapons, we need means to conduct reconnaissance. These talks have been completed, and I’m sure that the situation will improve significantly.”  Fighting in Ukraine’s easternmost regions is expanding both in terms of numbers & area.  The escalation prompted calls by the EU to threaten Putin with further sanctions, even as the bloc’s govs, along with the US, stop short of calling events an “invasion.”  Russia is masterminding the counteroffensive of rebels that has put gov troops on the back foot, with more than 1K troops operating inside Ukraine to man sophisticated weaponry & advise the separatists, according to NATO.  Ukraine said rebel forces have opened a 2nd front in southern Ukraine, forcing the gov to divert some of its firepower.  The front along the northern edge of the Sea of Azov could also be a prelude to establishing a land corridor with Crimea.  Violence surged a day after Putin & Poroshenko met in Minsk.  Putin hailed the talks as a step toward peace, though he said cease-fire terms weren’t discussed because Russia isn’t a party to the conflict. 

Ukraine Seeks to Counter Rebel Surge as Incursion Seen

Abercrombi & Fitch dropped after Q2 sales trailed estimates.  Revenue slid 5.8% to $891M, below the estimate of $909M.  CEO Mike Jeffries is struggling to compete with fast-fashion companies which have won over teens with their ability to react to trends quickly.  Slow mall traffic & an industrywide reliance on heavy discounting to entice customers also are hurting sales.  Same-store sales, a key measure of a retailer’s health, declined 7%, worse than the 4.1% drop estimated by Consensus Metrix.  Comparable-store sales at the company’s Hollister chain dropped 10%, almost twice the decline projected.  The stock declined 2.14.  If you would like to learn more about ANF, click on the attached link:  

Abercrombie Shares Tumble After Quarterly Sales Miss Estimates

Abercrombie & Fitch (ANF)

This was another do nothing day in late Aug.  Fighting in Ukraine is a solid negative, but that has been going on for weeks while the averages were rising.  Volume was low so the price changes don't mean much.  Obama is not disturbed about conflicts around the world.  He is busy making more fund raising speeches.  The stock market his following his lead on that score.  For what it's worth, the S&P 500 is just below 2K.

Dow Jones Industrials


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Lower markets on Ukraine tensions

Dow dropped 61, decliners over advancers 2-1 & NAZ lost 9.  The MLP index fell a fraction to 535 & the REIT index was off fractionally to 310.  Junk bond funds slid lower & Treasuries had modest gains.  Oil inched higher & gold finally had a good gain, trying to get back over 1300.

AMJ (Alerian MLP Index tracking fund)

CLV14.NYM...Crude Oil Oct 14...94.09 Up ...0.21 (0.2%)

GCU14.CMX...Gold Sep 14...1,292.80 Up ...10.90 (0.9%)

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Jobless Claims in U.S. Little Changed as Job Market Strengthens

Photo:   Bloomberg

The number of Americans filing for unemployment benefits was little changed last week & near the lowest level in 7 years as employers held on to staff in an improving economy.  Claims decreased 1K to 298, according to the Labor Dept.  The forecast called for an increase to 300K.  Claims have been hovering near the lowest levels since 2007 as the labor market continues to make progress.  Now, it’s up to hiring to cut slack enough to force employers to raise pay, which, in turn, could spur more household spending.  The 4 week average of claims, a less-volatile measure than the weekly figure, declined to 299K from 301K the week before.  The number continuing to receive jobless benefits climbed by 25K to 2.53M in the latest week.

Jobless Claims in U.S. Little Changed as Economy Strengthens

The US economy expanded more than previously forecast in Q2, propelled by the biggest gain in business investment in more than 2 years that bodes well for the rest of 2014.  GDP rose at a 4.2% annualized rate, up from an initial estimate of 4%, & follows a Q1 contraction, according to the Commerce Dept.  The forecast was for a 3.9% gain.  Corp profits climbed by the most in almost 4 years.  The revisions to GDP showed the pickup in growth last qtr came from bigger gains in corp spending on structures & equipment & a smaller trade deficit that was partly offset by more tepid inventory building.  Business investment increased at an 8.1% annualized rate, the most since 2012.  Today’s report also included revisions to Q1 personal income.  Wages & salaries rose by $131B, revised down from an initially reported $135B gain.  They climbed by $103B in Q2. 

Economy in U.S. Expands 4.2%, More Than Previously Forecast

German unemployment unexpectedly rose in Aug as a stagnating euro-area recovery & tension with Russia darkened the outlook for Europe's largest economy.  The number out of work climbed a seasonally adjusted 2K to 2.901M in Aug, according to the Federal Labor Agency.  Economists forecast a decline of 5K.  The adjusted jobless rate was unchanged at 6.7%, the lowest level in more than 2 decades.  Germany's economy shrank in Q2 & the strength of any rebound is critical for the euro area.  The region’s stalling recovery & weakest inflation since 2009 has prompted ECB Mario Draghi to signal that he could step in with quantitative easing.  The number out of work rose 3K in western Germany & fell 1K in the east.  While a 0.2% drop in GDP last qtr was largely weather-related, the outlook is now clouded by escalating intl sanctions against Russia because of its support for separatists in Ukraine.  The Ifo index of business sentiment in Germany declined for a 4rth month in Aug & the ZEW gauge of investor confidence slid to the lowest level since 2012.  The Bundesbank has warned that an anticipated rebound in H2 is now in doubt.  The labor agency said employment demand in Germany remains at a “good level,” & the figures contrast with those of the rest of the euro area.  Unemployment in the currency bloc probably held at 11.5% in Jul, near the record 12% set last year.

The averages may be lower, but volume is very light & there is little going on in the markets.  Ukraine is the biggest foreign story today, as fighting continues.  Many traders are away on an extended holiday.  Unless there is a major flareup overseas, today & tomorrow should be non events for stocks.

Dow Jones Industrials