Friday, August 30, 2013

Lower markets on consumer confidence data

Dow lost 49, decliners ahead of advancers 3-2 & NAZ fell 26.  The MLP index was flat at 441 while the REIT index gained a fraction in 263.  Junk bond funds inched higher & Treasuries were about even. Oil fell for a 2nd day after UK lawmakers defeated a motion for attacks against Syria, reducing the prospect of an imminent strike & easing concern of disruption to Middle East exports.  Gold slid back below 1400.

AMJ (Alerian MLP Index tracking fund)

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CLV13.NYM...Crude Oil Oct 13...107.98 Down ....0.82  (0.8%)

GCU13.CMX...Gold Sep 13......1,395.30 Down ...17.60  (1.3%)

Women walk through a shopping mall in San Francisco, California January 5, 2012. REUTERS/Robert Galbraith

Photo:   Yahoo

US consumer sentiment retreated in Aug from last month's 6-year high, though Americans were slightly more upbeat in their outlook than earlier in the month.  The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment slipped to 82.1 in Aug from 85.1 in Jul, but was ahead of an initial mid-month reading of 80.0 & beat expectations for a final read of 80.5.  "Most of the late August gain was due to more favorable income expectations, with consumers expecting the largest income gains in nearly five years, although the median expected increase was just 0.9 percent, less than the expected rate of inflation," survey director Richard Curtin said.  However, households with incomes below $75K grew more pessimistic about the future, & all households expected higher interest rates over the next year & slightly slower growth.  That helped drive the gauge of consumer expectations down to 73.7 from 76.5 & the barometer of current economic conditions slipped to 95.2 from 98.6 in Jul.  Long-term interest rates have risen by more than a full percentage point over the last 3 months on the view that the Federal Reserve (FED) will start scaling back as soon as next month its hefty support for the economy.  That has pushed up mortgage rates.  Economists fear consumer sentiment could weaken if higher interest rates start to slow momentum in a housing revival that has been one of the brightest spots in the overall US recovery.  The one-year inflation expectation fell to 3% from 3.1% while the 5-10-year inflation outlook edged up to 2.9% from 2.8%.

Consumer Sentiment in U.S. Fell Less Than Forecast in August

FILE - In this Aug. 26, 2010, file photo, Kim Miller shops for clothes in St. Louis. On Friday, Aug. 30, 2013, the Commerce Department said that consumer spending rose just 0.1 percent in July from the previous month. That’s slower than June’s 0.6 percent increase. (AP Photo/Jeff Roberson, File)

Photo:   Yahoo

US consumers barely increased their spending in Jul as their income grew more slowly, held back in part by steep gov spending cuts that reduced federal workers' salaries.  The tepid gains suggest economic growth is off to a weak start in Q3.  The Commerce Dept said that consumer spending rose just 0.1% in Jul from the previous month, slower than the 0.6% increase in Jun.  Consumers cut their spending on long-lasting manufactured goods, such as cars & appliances, but spending on services was unchanged.  Income rose 0.1% in Jul following a 0.3% gain in Jun.  Overall wages & salaries tumbled $21.8B from Jun, a third of the decline came from forced furloughs of federal workers.  Several analysts said that economic growth is unlikely to match the 2.5% annual rate reported for Q2 which was more than double the growth rate in Q1 & above an initial estimate of a 1.7%.  The FED will consider the consumer spending & income data at its Sep meeting, when it decides whether to begin slowing its $85B a month in bond purchases.  The bond purchases have helped keep long-term borrowing rates low.  The most critical factor that the FED will weigh is the Aug employment report, which will be released next Fri.  Another concern is that rising interest rates could dampen consumer spending, particularly on homes & cars. Mortgage rates have already risen more than a full percentage point since May.  The small rise in spending was driven by a 0.8% gain in purchases of nondurable goods, such as clothing.  Purchases of durable goods such as autos fell 0.2% & purchases of services such as utilities & doctor's visits were unchanged in Jul.

Consumer Spending in U.S. Rises Below Forecast on Incomes

Vodafone in Talks With Verizon Over U.S. Wireless Stake Sale

Photo:   Bloomberg

Verizon, a Dow stock, is in talks to acquire UK partner Vodafone’s (VOD) 45% stake in Verizon Wireless in what would be the biggest deal in more than a decade.  The carriers are in advanced discussions about a sale of the holding for about $130B.  VZ is working with several banks to raise $10B from each, or enough to finance about $60B of the buyout & an announcement could come as early as Mon.  The acquisition would give VZ full ownership of the most profitable US mobile-phone company, ending a partnership of over a decade that has paid billions in divs to VOD.   At $130B, almost the entire market value for VZ, the deal would be the biggest since Vodafone’s acquisition of Mannesmann in 2000 & would give the UK carrier’s finances a boost in reviving its European businesses hurt by the region’s debt crisis.  As part of the transaction, VZ will probably sell back to VOD its 23% stake in Vodafone Italia, which could be worth about €4B ($5.3B).  VZ stock fell 34¢.

Verizon in Talks With Vodafone for Full Wireless Control

Verizon (VZ)

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Stocks are meandering on more light trading.  UK politicos are waffling about striking Syria & the US pres is taking their lead.  No one is sure what it do in a difficult situation, so it looks like nothing will be done.  The jobs report on Fri & then the FED meeting 2 weeks later will move the stock market.  Sep is statistically, the worst month for stocks.  Dow is down 700  in Aug in what should have been an uneventful month for what is supposed to be a recovering economy.

Dow Jones Industrials

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