Monday, February 4, 2013

Lower markets on disappointing factory orders

Dow dropped 115, decliners ahead of advancers 3-1 & NAZ fell 21.  The Financial Index lost 2+ to the 234s.  The MLP index was off 1 to 430 & the REIT index slipped a fraction to 278.  Junk bond funds were higher & Treasuries also rose while stocks declined.  Oil dropped on political turmoil in Europe & as the prospect of renewed talks between Western govs & Iran reduced tension in the Middle East.  Gold had a modest gain. 

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

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CLH13.NYM...Crude Oil Mar 13...96.35 ...Down 1.42  (1.5%)

GCG13.CMX...Gold Feb 13...`1,666.40 ...Down 3.00  (0.2%)

Orders to U.S. Factories Rose Less Than Forecast in December

Photo:   Bloomberg

US factories orders increased less than forecast in Dec, reflecting a drop in non-durable goods that overshadowed gains in construction equipment & computers.  Bookings climbed 1.8% after a revised 0.3% drop in Nov that was initially reported as unchanged, according to the Commerce Dept.  The forecast called for a 2.3% gain.  Demand for durable goods increased 4.3%, little changed from 4.6% gain estimated, while non-durables dropped 0.3% on declines in petroleum & tobacco.  A Q4 pickup in demand is spurring companies, including automakers, & reviving a manufacturing industry that cooled in H2.  The acceleration extended into Jan, according to a gauge last week that showed factories expanded at the strongest pace in 9 months.  A measure of job prospects fell in Jan for the first time in 4 months as more Americans said jobs were harder to get.  The Conference Board’s Employment Trends Index decreased 0.1% to 109.38 from the prior month’s revised reading of 109.47.  The measure increased 2.7% from Jan 2012.  Factory orders excluding the volatile transportation category increased 0.2% in Dec after falling 0.2% in the previous month.  Demand minus military hardware advanced 0.3%. The jump in bookings for durable goods was paced by a 12.2% increase in construction equipment & a 6.4% gain for computers.  The drop in orders for non-durable goods may have been influenced by swings in prices.  Demand for petroleum & coal products fell 0.6% in Dec, while tobacco slumped 23.1%.

Orders to U.S. Factories Rose Less Than Forecast in December

Europe's political tremors risk spoiling the region’s market calm, with corruption allegations buffeting Spanish Premier Rajoy & Silvio Berlusconi narrowing the front-runner’s lead as elections loom.  Rajoy, facing opposition calls to resign amid contested reports about illegal payments, traveled to Berlin as euro-area leaders schedule a flurry of meetings this week ahead of a Feb 7-8 EU summit.  Last week’s nationalization of the Netherlands’ 4th-largest bank & a €2.2B ($3B) loss at Deutsche Bank underscore the fragile economic health in the region.  “The euro crisis is not over,” German Finance Minister Wolfgand Schaeible said on Fri. Still, “we’re in a much better position than we were a year ago,” the minister said.  A sluggish economy, uncertainty over the outcome of this month’s Italian election & Rajoy’s new troubles threaten to curtail the time won by politicians with the central-bank bond buying.  For now, European policy makers have room to maneuver as borrowing costs for indebted nations have fallen & investor confidence returns.  Euro problems have not evaporated!

Simon Property reported a 21.9% increase in a key earnings measure for Q4, easily beating estimates, as rents & sales rose at its malls & outlet centers.  The #1 US mall & outlet center owner, also raised the div for the 6th straight qtr.  The only REIT in the S&P 100 index, SPG owns or has an interest in 328 retail properties in North America & Asia.  Q4 funds from operations (FFO) per share increased to $2.29 from $1.91 a year earlier.  Expectations were for $2.17.  For the past 2 years, the company has repeatedly beaten forecasts.  The company raised the quarterly div to $1.15 from $1.10.  SPG forecast full-year 2013 FFO, excluding one-time items, at $8.40-$8.50.  The company's outlooks tend to be conservative, and Simon often raises them each quarter.  Analysts expect $8.41.  The stock was up a dime.

Simon Property FFO Rises as Shopper Spending Increases at Malls

Simon Property (SPG)

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Stocks had nothing short of a spectacular Jan, time for profit taking.  Markets are being priced for perfection which is far from the macro picture.  Unsettled conditions in Europe remain.  An absence of negative stories does not mean that serious problems have been solved.  The US economy saw a weak Q4 & the outlook for H1 is not good as higher taxes (i.e. Social Security taxes) will be felt.  Stock buyers may have gotten ahead of the economic situation on the ground.

Dow Jones Industrials

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