Markets edge higher after favorable factory production report

Dow rose 28, advancers slightly ahead of decliners & NAZ fell 4 hurt by a disappointing earnings report from Google (GOOG).  GOOG sank 41.  Bank stocks keep lumbering along at modest levels as they report Q1 earnings.

S&P 500 FINANCIALS INDEX

Value	217.45
Change	0.32   (0.1%)

The Alerain MLP Index rose almost 2 to 380 & the REIT index was up 1½ to the 236s.  Junk bond funds inched higher again while Treasuries had stronger gains. The yield on the 10 year Treasury bond fell 6 basis points to 3.42%. Oil rebounded as US. consumer sentiment & industrial output increased, signaling higher fuel demand . Gold rose to a record as concern about faster inflation & a weakening dollar boosted demand for the metal as an alternative investment.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month		0.07%
U.S. 2-year		0.70%
U.S. 10-year		3.42%

CLK11.NYM

...Crude Oil May 11

...108.38

..... 0.27

(0.3%)

GCJ11.CMX

....Gold Apr 11

.........1,473.20

... 1.50

(0.1%)

Photo:   Bloomberg

U.S. factories produced more consumer goods, business equipment & raw materials in Mar, boosting manufacturing activity for the 9th straight month.  Output increased 0.8% after edging up 0.1% in Febr according to the Federal Reserve. Feb results were dragged down by a weather-related drop in utility production.  Overall industrial production has risen about 12% since its recession-low in Jun 2009 but is still about 7% below its pre-recession peak reached in Sep 2007.  Construction goods showed the sharpest increase of any major market group, rising 1.5%.  Consumer goods also rebounded strongly, increasing 0.9% after flat lining for 2 months. Strong gains were seen for longer-lasting items such as appliances, home electronics & automotive products. Output of products with shorter shelf lives, such as food, clothing & tobacco, decreased.  Production of business equipment rose a modest 0.4%, a fraction of its strong increases in the previous 3 months.  American industry operated at 77.4% of capacity in Mar, 0.5% above Feb but capacity use remains 3% below its average in data going back to 1972.

Photo:   Bloomberg

Americans are paying more for food & gas, a trend that could slow economic growth.  The Consumer Price Index (CPI) rose 0.5% in Mar according to the Labor Dept, matching the Feb increase & the largest since Jun 2009.  In the past 12 months, the index has increased 2.7%, the biggest rise since Dec 2009.  Excluding the volatile food and gas categories, the core index rose 0.1% & is up only 1.2% in the past year.  The steep rise in food & gas prices could limit their ability to purchase discretionary goods & services.  Rising inflation has caused reductions in estimates for economic growth in Q1 from 3% or higher to as low as 1½%.  Gasoline jumped 5.6% last month & is up nearly 28% in the past year.  Food prices rose 0.8% last month, the largest increase in almost 3 years. Prices for fruits & vegetables, dairy products, chicken & beef all increased. Coffee costs rose 3.5%.  Higher prices are pinching.

Consumer Prices in U.S. Rise on Food, Fuel; Other Costs Cool

Photo:   Bloomberg

Bank of America (BAC), a Dow stock, Q1 income fell 39% on higher costs related to its mortgage business & higher litigation expenses. The bank also settled a claim over faulty mortgage investments & set aside less money to cover soured loans.  BAC had EPS of 17¢, down from 28¢ last year & were sharply below the estimate of 28¢.  Revenue fell to $26.9B from $32B  last year.  BAC continued to fight losses, lawsuits & higher costs related to its mortgage businesses. The real estate services business reported a loss of $2.4B compared to loss of $2.1B in 2010.  Mortgage issues overshadowed better performance at its other divisions such ass Merrill Lynch which set records for revenue, asset management fees & brokerage income.   The stock fell 14¢ & has a dreary chart over the last year (as is the case for many big banks).

BofA Posts First Profit in Three Quarters on Lower Credit Costs

Bank of America Corporation (BAC)

Earnings season is not starting off well.  Big banks give some fo the earliest reports & they are not getting a warm reception.   MLPs are also lower this week, the index is off more than 1.  But with light volume, price changes are not meaningful.  Sovereign debt issues in Europe are being raised & higher priced gas (diverting money way from true consumption)  are largely being ignored by the markets.

Dow Industrials (INDU)

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