Tuesday, August 14, 2012

Markets erase early gains as bank shares fall

Dow inched up 2, decliners barely ahead of advancers & NAZ slid 5.  The Financial Index lost pennies, taking it below 201 (little changed in the last 2 months).  The MLP index was up 1+ to  the 391s & has been trading sideways for almost 2 months. The REIT index slipped pennies in the 262s.  Junk bond funds were mixed to higher & Treasuries fell on higher retail sales.  Oil advanced, snapping 2 days of losses on speculation that inventories declined for a 3rd week in the US.  Gold slipped 11, able to hang in just above 1600.

AMJ (Alerian MLP Index tracking fund)

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CLU12.NYM...Crude Oil Sep 12.....93.52 ...Up 0.79  (0.9%)

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The UK is pressing for the ECB to share power with national regulators as it takes over euro-area bank supervision.  The ECB should have a core set of central powers to oversee all banks in the 17-nation bloc while delegating some tasks to individual countries, under one option favored by the UK & EU economic officials.  The ECB supports a similar “light touch” approach that would leave day-to-day supervision for most banks in the hands of national authorities.  Another approach, backed by officials working on EU financial rules, would require the ECB to take major oversight decisions for all banks.  Officials opposed to this approach say it could compromise the central bank’s reputation & perceived independence.  Euro leaders in Jun decided to create a common bank supervisor & beef up the ECB’s oversight role, in order to pave the way for direct bank bailouts from the currency area’s firewall fund.  The currency zone’s debt crisis, now in its 3rd year, so far has forced Ireland, Greece, Portugal & Cyprus to seek broad-based aid, while the Spanish gov was granted up to €100B ($123B) to recapitalize its beleaguered banking system.  This banking union is intended to limit financial- market contagion by breaking the link between gov finances & bank balance sheets.  The European Commission, the EU’s regulatory arm, plans to offer a slate of proposals in Sep so bloc-wide bank supervision can start next year.  “We should expect from the commission a strong proposal, a strong proposal that would put the ECB in a position to carry out its duty with effectiveness, rigor, independence and without risk to its reputation,” ECB President Draghi told lawmakers in the European Parliament last month. 

Wal-Mart, a Dow stock & Dividend Aristocrat, said it has received conditional approval from Chinese regulators to purchase a majority stake in a Chinese e-commerce company.  With the deal, the big-box chain operator will increase its stake in Yihaodian's holding company to approximately 51%.  Yihaodian has been in business for less than 4 years & sells more than 180K products, ranging from groceries to electronics to clothing.  The deal improves WMT access to Chinese consumers who increasingly use smartphones & social media to shop.  WMT operates more than 10K retail stores under 69 different names in 28 countries. The stock rose 61¢.

Wal-Mart gets approval for e-commerce deal AP

Wal-Mart (WMT)

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Home Depot, a Dow stock, is feeling more optimistic about the recovery of the housing market after customers spent more on sprucing up their homes in Q2.  Strong cost controls & healthy sales of paint, bathroom accessories & kitchen installations helped lift net income 12% & it boosted full-year outlook, citing its performance so far this year.  CEO Frank Blake noted that some of the strongest growth came from the markets that were hit hardest in the downturn, such as California & Florida.  "These are encouraging signs of stabilization in the housing market," Blake said.  He also noted that the housing market is now a contributor to the GDP rather than a drag.  Another positive sign for HD, the Commerce Dept said that Americans boosted their spending at retail businesses in Jul by the largest amount in 5 months.  But the housing market is still a long way from returning to its heyday before the recession.  Sales rose just 2% from a year ago & came in short of expectations.  Even though the company lifted its EPS forecast, it didn't update its outlook that sales for the year.  Although customers still aren't spending as much on their homes as during the housing bubble, HD saw signs of improvements in key areas.  Overall, revenue at stores open at least a year rose 2.1%, which was slower than the 4.3% growth last year. The company noted that the warm winter pulled sales of many seasonal items, such as gardening products, into Q1.  In the US, where the majority of stores are located, the figure rose 2.6%.  Transactions of $900 or more, which make up about 20% of US sales, rose 3.4%, as appliance, kitchen & flooring sales increased.  Transactions of $50 or less, which also make up about 20% of sales, were down 0.7%.  The company attributed the decline to the sales of seasonal items into Q1.  In H2, HD expects expenses to rise as it spends on new call centers & other operational improvements.  Looking ahead, HD now expects fiscal 2012 EPS of $2.95, up from the $2.90 previously forecast.  Revenue is still expected to rise 4.6%, implying $73.6B.  Analysts expect EPS of $2.92 on revenue of $73.9B.   The stock gained $1.89.

Home Depot Profit Tops Estimates as Customer Spending Rises

Home Depot (HD)

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Stocks tried for another advance but selling came in midday & the averages ended up mixed.  This is slow summer trading which is not very meaningful.  For the moment bulls have to upper hand.  Treasuries had been red hot, taking the yield on the 10 year bond down to a record low at 1.4% a couple of weeks ago.  Now the yield is up 30 basis points, back to where it was at the end of May.  Risk averse thinking is out, although the € is only $1.23¼, up just a couple of pennies from its lows.  The stock markets should continue sluggish until activity returns after Labor Day.

Dow Jones Industrials

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