Markets slip lower while waiting FOMC decision tomorrow

Dow lost 64 (closing at the lows), decliners ahead of advancers 5-4 & NAZ was off 6 even though Apple (AAPL) shot up 15.  The Financial Index remained fractonally lower in the 197s.  The MLP index was off 1+ to the 393s & the REIT index fell a fraction in the 267s.  Junk bond funds were mixed near their yearly highs & Treasuries edged higher.  Oil tumbled below $90, giving up some its recent gains & gold pulled back modestly.

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CLU12.NYM

Crude Oil Sep 12

88.07

1.71 (1.9%)

Treasury yields:

U.S. 3-month	0.101%
U.S. 2-year	0.215%
U.S. 10-year	1.495%

China will step up policy fine-tuning in H2 to support economic growth, although there are signs of stabilization in the economy, the official Xinhua news agency quoted Premier Wen Jiabao as saying.  Wen affirmed the gov's resolve to maintain its long-standing controls on the property sector.  The gov will take steps to improve the domestic investment environment & diversify its export market.  China would also increase fiscal & monetary policy support to the economy in H2.  The comments were made with business leaders & academics, including former World Bank chief economist Justin Lin.  These comments are broadly in line with official pro-growth statements made in the wake of H1 GDP data which showed the economy in Q2 had expanded at its slowest pace in more than 3 years.  The Chinese economy needs a little extra juice.

China Reiterates Growth Chief Priority

Photo:   Bloomberg

Pfizer, a Dow stock, posted a 25% jump in Q2 net income due to aggressive cost cutting & lower restructuring & other charges, shaking off the expected plunge in revenue from generic competition to cholesterol fighter Lipitor, the world's top-selling drug.  EPS was 43¢, up from 33¢ last year.  Excluding $2.1B in charges before taxes, adjusted EPS was 62¢, 8¢ above the forecast.  Charges included $1.2B for asset writedowns & $474M in legal charges, mainly for litigation over its hormone replacement medicines.  Revenue totaled $15.06B, down 9% but above expectations of $14.93B.  Generic competition reduced sales by about $1.8B, mainly because of lower Lipitor sales (which had peak annual global sales of $13B).  Early sales losses were slowed by the unprecedented strategy to keep patients on its brand as long as possible.  In Q2, US Lipitor sales nosedived to $296M from $1.4B a year ago & global sales slumped 53%to $1.2B.  Still, "We kept three times more (market) share than has traditionally occurred" after a big drug's patent expired, CEO Ian Read said.  "We added hundreds of millions of dollars of profitability to the company, as well as enabling patients to stay on the brand."  Newer drugs, particularly pain reliever Lyrica and Prevnar 13 saw sales jump just over 10%.  Total pharmaceutical sales fell 10%, to $13.1B.  Sales of veterinary medicines edged up 3% to $1.09B & sales of consumer health care products, such as ChapStick & Centrum vitamins, increased 8% to $768M.  PFE expects action from the FDA soon on 2 experimental drugs that have run into trouble.  PFE will file in mid-Aug to sell as much as 20% of its animal-health unit in an IPO.  The stock rose 38¢ & has a good chart over the last year.

Pfizer Plans August IPO Filing as Profits Top Estimates

Pfizer (PFE)

Enbridge Energy Partners, a major MLP, Q2 earnings fell 28% on lower selling prices for natural gas liquids.  Results were below expectations for adjusted earnings & revenue.  Earnings were 33¢ per unit compared with 51¢ a year earlier.  Excluding items such as hedging gains, it would have earned 23¢ per unit.  The forecast was for earnings of 31¢ per unit.  Revenue plunged 35% to $1.55B from $2.37B last year ago & well below the $1.77B forecast.  The recent price drop in natural gas liquids was partly offset by higher pipeline revenue.  EEP also announced that it will increase the quarterly distribution to 54.35¢ per unit, a 2.1% increase that was in line with its goal of raising annual distributions by 2-5%.  EEP also has a companion corp, EEQ, which tracks the price of the units & pays a stock div based on the distribution.  The units rose 79¢.

Enbridge 2Q profit, sales fall on lower gas prices AP

Enbridge Energy Partners (EEP)

This was another listless day as markets wait for the results of the Federal Reserve meeting tomorrow.  The following day, ECB will make a much bigger announcement.  Everybody is guessing what actions it can take to ease the euro debt mess.  Another round of bond buying is expected.  But it has just so much money, not to mention, when it ends, market forces will probably drag bond prices down, forcing yields up.  Dow gained 128 in Jul & remains above 13K, important for those watching technical signs.

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Marekts flat, awaiting developments from FOMC meeting

Dow slipped 7, advancers & decliners were even but NAZ jumped 10 as Apple (AAPL) shot up 13.  The Financial Index was down a smidgen to the 197s.  The MLP & REIT indices were flattish while junk bond funds inched higher.  But Treasuries strengthened, bringing lower yields.  Oil fell for a 2nd day on speculation the Federal Reserve won’t ease monetary policy this week to boost economic growth.  Gold was little changed.

AMJ (Alerian MLP) Index tracking fund)

Treasury yields:

U.S. 3-month	0.096%
U.S. 2-year	0.219%
U.S. 10-year	1.476%

CLU12.NYM

....Crude Oil Sep 12

..89.45

... 0.33

(0.4%)

GCQ12.CMX

...Gold Aug 12

.....1,619.90

... 0.20

(0.0%)

Photo:   Bloomberg

Americans spent no more in Jun than they did in May, even though their income grew at the fastest pace in 3 months.  The lack of growth in spending follows a decline in the previous month, suggesting consumers are staying cautious as they economy weakens.  Income rose 0.5% according to, the Commerce Dept (the biggest gain since Mar) & was driven by a 0.5% increase in wages.  After-taxes & adjusting for inflation, income grew 0.3%.  The extra money went straight to savings.  The savings rate rose to 4.4%, the highest level in a year.  Slower growth in consumer spending this spring was the main reason the economy grew at an a 1.5% pace in Q2, below the 2% growth rate in Q1.  In Jun, consumers spent slightly more on services, although some of that may reflect lower gas prices.  There were hopes that falling gas prices would give consumers more money to spend elsewhere & boost growth in H2.  But gas prices have stopped falling & even started to rise in recent weeks while this summer's severe drought is expected to push food prices up toward the end of the year.

Consumer Spending in U.S. Was Unchanged in June

Photo:   Bloomberg

US consumer confidence rose in Jul after 4 months of declines, as a brighter outlook for short-term hiring offset longer-term worries about the economy.  The Conference Board says its Consumer Confidence Index increased to 65.9, from 62.7 in Jun.  That's the highest reading since Apr & better than the reading of 62 that was forecasted.  Still, the index remains well below 90, which indicates a healthy economy.  It hasn't been near that level in almost 5 years.  The index fell to an all-time low of 25.3 in Feb 2009, 4 months before the recession officially ended.  Consumer confidence is widely watched because consumer spending drives 70% of  economic activity.

U.S. Consumer Confidence Unexpectedly Gains for First Time in Five Months

Spain's regions were urged to extend budget cuts, as efforts to prevent bank defaults adds to the gov deficit.  Representatives of the 17 semi-autonomous regional govs are scheduled to convene in Madrid for a budget checkup.  Data just released showed the central gov exceeded its target for the 2012 budget shortfall with half the year still to go.  The biggest contributor to Spain’s economy, the Catalonia region centered on Barcelona, said it won’t take part in the meeting to protest the gov's rigid stance on deficits. The gov is struggling to avoid a broader bailout after gaining the right to borrow as much as €100B ($123B) from European rescue funds.  Its budget gap, the euro area’s 3rd largest, remained almost unchanged from 2010 at 8.9% of GDP last year.  The yield on Spain’s 10-year bond is at 6.62%, compared with a euro-era high of 7.75% on Jul 25.  It fell after ECB President Fraghi said last week he would do whatever is needed to protect the single currency.  The central gov’s shortfall surged to 4.04% of GDP in H1 from 3.41% in the 5 months thru May as it transferred funds to the rest of the public sector to prevent a liquidity squeeze.  That compares with a gov target for the year of 3.5%.  Spain’s overall 2012 deficit goal, which includes all levels of gov, is 6.3%. Spain needs a lot of help, not sure even the ECB will be able to solve its problems.

Spain to Urge More Regional Budget Cuts as Deficit Deepens


Markets are taking it easy, awaiting outcomes from the 2 big financial meetings.  Hardly anything is moving expect for AAPL which is flying again after leaking that the new iPhone (its #1 product) will be introduced on Sep 12.  Maybe there will also be a new iPad.  As usual, details are not spelled out.  Meanwhile, Dow is marking time above 13K, a good sign for the bulls.

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Markets drift lower on Euro concerns

Dow slid 2, decliners just ahead of advancers & NAZ fell 12.  The Financial Index was down a fraction in the 198s.  The MLP index rose 1+ to the 394s & the REIT index was up a fraction in the 267s.  Junk bond funds were mixed to lower & Treasuries rebounded as investors await details from European leaders on how they plan to support struggling countries in the region like Spain.  Gold inched higher, helped by uncertainty coming from Europe.

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Click below for the latest market update:

Treasury yields:

U.S. 3-month	0.096%
U.S. 2-year	0.227%
U.S. 10-year	1.504%

CLU12.NYM

...Crude Oil Sep 12

...89.75

... 0.38

(0.4%)

China plans to increase railway spending & the State Council called for private investment in utilities & health care as Premier Wen Jiabao tries to reverse an economic slowdown.  The Ministry of Railways, the nation’s largest corporate debt issuer, plans to spend 470B yuan ($74B) on railroads & bridges this year, the 2nd increase in Jul, for a combined gain of about 14% from the previous figure.  The new target exceeds last year’s 461B yuan in spending & follows Wen’s Jul 10 comments that promoting investment growth is the key now to stabilizing an expansion that decelerated to 7.6% in Q2, a 3-year low.  At the same time, officials are signaling the slowdown isn’t deep enough to warrant a return to the 700B-yuan level of railway-construction funds in 2010.  China’s State Council, or Cabinet, reiterated that downward pressure on the economy is intensifying.  The railways ministry will sell 22B yuan in 10-year bonds & 5B yuan in 15-year bonds. 

China Increases Railway Spending Plan for Second Time

• 

Photo:   Yahoo

Strong sales in the US & Canada powered Chrysler to a $436M Q2 profit, a big turnaround from a year earlier when Chrysler lost $370M mainly because it refinanced bailout loans.  Now majority owned by Italy's Fiat, the automaker also backed an earlier forecast that it would earn $1½B this year, unthinkable 3 years ago.  It's benefiting from a reliance on North America & limited exposure to overseas markets.  Other car companies are losing money in Europe & seeing sales slowdowns in China & South America.  More than 75% of Chrysler sales come from the US & Canada accounts for another 12%.  Q2 revenue rose 23% to $16.8B.  US sales rose 30% in Q2 while its share of the market went from 10.1% last year to 11.5%.  In Canada, sales rose 7% in H1 to just over 130K vehicles.

Chrysler Reports $436 Million Second-Quarter Profit


Loews net income plunged 78% in Q2 as the holding company took a large charge because it lowered the value of its natural gas & oil properties due to declining prices.  The company reported EPS of 14¢ compared with 61¢ last year.  Removing the impairment charge of $142M at its energy properties, earnings were $198M versus $250M last year.  Revenue slipped 4% to $3.39B from $3.54 B.  Earnings at Diamond Offshore (DO) fell because fewer rigs were used as more of them underwent special surveys. The division also dealt with higher contract drilling expenses.  The performance was somewhat offset by the sale of 5 rigs.  Boardwalk Pipeline (BWP), a major MLP, earnings rose mostly because of the 2011 acquisition of Boardwalk HP Storage.  The stock sold off $2.15 (5%).

Loews Plunges as Tisch Says ‘Very Concerned’ About Economy: New York Mover

Loews (L)

Overbought markets need time to reassess the move up.  There are 2 big financial meetings this week, first the FMOC then the ECB will decide what bold moves to take on Thurs.  The Federal Reserve is not expected to do much beyond a few words of encouragement for the euro guys.  In this "we make it up as we go along world," nobody knows what will be decided in Europe.  But Dow is hanging in above 13K which is becoming an important support level.

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