Tuesday, April 12, 2011

Markets retreat on greater worries about the Japanese disaster

Japan raised the severity of its nuclear crisis to the highest level & Dow stock Alcoa Q1 revenue growth was disappointing. Dow fell 122, decliners over advancers 4-1 & NAZ dropped 28. Bank stocks were also weak ahead of the first bank earnings coming out later this week.

S&P 500 FINANCIALS INDEX

Value	220.04
Change	-1.54 (-0.7%)

The Alerian MLP Index dropped a huge 7+ to the 372s. For a low beta group, this is substantial. Maybe MLPs need a rest after their 2½ year run. The REIT index was down a fraction to the 231s & junk bond funds pulled back a little. Treasuries were strong as stocks were weak. The yield on the 10 year Treasury bond fell 8 basis points to 3.49½%. Oil fell in the biggest 2-day drop in almost 5 months after Japan raised the severity rating of its nuclear crisis to the highest level & prices above $100 a barrel threatened the global economic recovery. Gold tumbled the most in 4 weeks after a drop in energy costs reduced demand for the precious metal as a hedge against inflation.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month		0.05%
U.S. 2-year		0.77%
U.S. 10-year		3.50%

CLK11.NYM

...Crude Oil May 11

...106.36

...

3.56

(3.2%)

Photo: Bloomberg

The US is set to have the largest budget deficit of major developed economies in 2011 & should narrow it now rather than face tough adjustments in the next 2 years according to the IMF. The US shortfall will reach 10.8% of GDP, ahead of Japan & the UK. It estimates that budget deficit will need to be cut by 5 percentage points of GDP in the next 2 fiscal years, the largest adjustment in “at least half a century,” to meet the president's pledge of halve it by the end of his 4 year term. “Market concerns about sustainability remain subdued in the US, but a further delay of action could be fiscally costly, with deficit increases exacerbated by rising yields,” the IMF wrote. It recommended “a down payment” in the form of deficit reduction this year that would make the gov goal “compatible with a less abrupt withdrawal of stimulus later.” This report came out as congress has to deal with increasing the debt ceiling above $14T & then work on the FY2012 budget. Budget cuts mean less spending, not good for the economic recovery.

U.S. Deficit to Rise to Largest Among Major Economies, IMF Says

Alcoa (AA), the first Dow company to report Q1 earnings, turned a Q1 profit on stronger sales with higher aluminum prices that were offset by a weaker dollar & higher costs for energy & raw materials. Business improved from a range of customers; including the aerospace, automotive, commercial transportation & packaging industries. It marked the 4th consecutive quarterly profit following 2 difficult years hurt by the recession. AA reaffirmed its guidance for 12% growth in global aluminum demand despite ongoing uncertainty in many countries, including China's efforts to slow growth & curb inflation. CEO Klaus Kleinfeld said the company improved profitability across all business segments & he is optimistic for 2011 & beyond. Q1 EPS was 27¢ compared with a loss of 20¢ a year earlier. Sales increased to $5.96B from $4.89B but fell short of expectations of $6.16B. Excluding special items AA earned 28¢, beating forecasts by a penny. The stock fell 1.12 on disappointing sales.

Alcoa Inc. turns 1Q profit on stronger salesAP

Alcoa Inc. (AA)

The opening shot for earnings season (from AA) was a letdown. Now the Japanese disaster is going from bad to worse. Meanwhile federal budget problems are getting more attention & the sharp divide between Reps & Dems is discouraging. But the sharp drop by MLPs did not get a lot of notice which can be the beginning of tougher times for this group. The yield on the MLP index is below 6%, one indication of an overbought market.