Friday, September 13, 2013

Markets edge higher on retail sales

Dow rose 47, advancers & decliners were about equal & NAZ slid 5. The MLP index was off 1+ to the 237s & the REIT index went up a fraction in the 267s.  Junk bond funds were mixed & Treasuries inched higher.  Oil is headed for its biggest weekly drop since Jul as the US & Russia held talks on a plan for Syria to surrender chemical weapons to avert a strike that could stoke MidEast tensions.  Gold had a slight pullback.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLV13.NYM...Crude Oil Oct 13...107.31 Down ...0.08  (0.1%)

GCU13.CMX...Gold Sep 13......1,363.20 Down ....0.90  (0.1%)

People walk in front of a store advertising sales in New York, December 24, 2012. REUTERS/Keith Bedford

Photo:   Yahoo

US retail sales rose slightly in Aug despite strong demand for automobiles & other big-ticket items, the latest indication economic growth slowed in Q3.  The signs of soft domestic demand are unlikely to deter the Federal Reserve (FED) from initiating cuts to its bond-buying program as early as next week, however.  Retail sales increased 0.2% last month as Americans bought automobiles, furniture & electronics & appliances, the Commerce Dept said.  But auto sales strength appears to be drawing spending power away from other areas as purchases of clothing, building materials & sporting goods fell.  Retail sales, which account for about 30% of consumer spending, were still up for a 5th consecutive month.  They had gained 0.4% in Jul & economists had expected them to rise 0.4% last month.  Stripping out automobiles, gasoline & building materials, core sales were up 0.2% after rising 0.5% in Jul.  Core sales correspond most closely with the consumer spending component of GDP.  Though core sales slowed a bit from Jul, they matched the 0.2% average monthly gain in Q2.  Weak demand & the benign inflation backdrop are unlikely to stop the FED from reducing the $85B in Treasury & mortgage bonds it is buying each month to keep interest rates low.

Retail Sales in U.S. Increase Less Than Forecas

FILE - In this Tuesday, Aug. 27, 2013, file photo, workers load large containers of nectarines for sorting at Eastern ProPak Farmers Cooperative in Glassboro, N.J. The Commerce Department reports on wholesale prices for August on Friday, Sept 27, 2013. (AP Photo/Mel Evans, file)

Photo:   Yahoo

Higher energy costs pushed US wholesale prices up 0.3% last month & prices rose a modest 1.4% over the past year, the lowest one-year gain since Apr.  Excluding volatile food & energy costs wholesale prices were unchanged in Aug, according to the Labor Dept.  They were up 1.1% over the past year, smallest gain since Jun 2010, another sign that inflation remains under control.  Energy prices climbed in late Aug as tensions rose over Syria, accounting for 2/3 of the monthly increase in wholesale prices.  More expensive vegetables & chicken lifted food prices 0.6% in Aug from Jul.  The FED closely monitors wholesale & consumer prices, determined to keep inflation running at around 2%.  Consumer prices in Jul were up just 2% over the previous year & core consumer prices have increased 1.7% in the past 12 months.  A weak economy has contained inflation when companies can't raise prices because demand for their products isn't strong enough.

Producer Prices in U.S. Rose 0.3% in August on Energy, Food

Fed’s Taper Start Seen as Non-Event in Global Poll of Investors

Photo:   Bloomberg

An anticipated reduction in stimulus by the FED that has roiled the financial markets for months will be seen as no big deal if it goes ahead next week, according to a Bloomberg poll of investors.  57% of those surveyed don’t expect a sudden change in the markets because investors already anticipate tapering action by the central bank.  Only 8% see a rally on such news, while just under a 1/3 are looking for declines.  A little tapering seems to be priced in the markets.  The yield on the 10-year Treasury note rose to 2.89% from 2.04% on May 22, when Big Ben raised the possibility the central bank might cut back its stimulus this year.  A plurality of those polled (38%) expect the central bank to decide at the Sep 17-18 meeting to start lowering its monthly bond purchases.  Another 35% see such a step in either Oct or Dec.  Less than one in 4 say a decision on tapering will be delayed until next year.  Investors seem more attuned to the FED’s intentions when it comes to interest rates.  51% see the first rate increase coming in 2015, with one in 3 expecting it in H1 of the year.  3 in 10 forecast a rate rise next year. 

Fed’s Taper Start Seen as Non-Event in Poll of Investors

Stocks continue to just mark time.  Kerry said his talks in Europe with the Russians were "constructive" but no breakthrough was seen.  That means dead in the water.  Sadly, some are hoping this problem will be forgotten & blow away.  The big news next week looks to be the FOMC meeting.  After being well advertised, there should be an announcement that the bond buying program will be reduced.  Yield sensitive stocks have already felt that.  Dow remains up more than 500 this month, backed by very little news to support the advance.  Not bad for what has been the worst month for the markets.

Dow Jones Industrials

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