Monday, October 28, 2013

Markets little changed ahead of the Federal Reserve meeting

Dow slipped 24, decliners barely over advancers & NAZ was off 13.  The MLP index fell 3 to the 459s & the DJR index was off 4 to the 283s.  Junk bond funds rose while Treasuries were flattish.  Oil & gold also did very little.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLZ13.NYM....Crude Oil Dec 13...97.85 Up ...0.01 (0.0%)

GCV13.CMX...Gold Oct 13......1,349.80 Down ...2.60  (0.2%)

People's Bank of China Headquarters

Photo:   Bloomberg

Brokerage firms in China are betting the biggest jump in money-market rates since the record cash crunch in Jun is a sign of strength in the nation’s economy rather than finance-industry weakness.  The central bank has refrained from injecting funds into the banking system since Oct 17, driving the benchmark 7 day repurchase rate 138 basis points higher to 4.88%, the most in 4 months.  Yet the one-year swap contract, the fixed payment needed to lock in the repo rate for 12 months, rose just 11 basis points to 4.08%, reflecting expectations for a gradual rise in borrowing costs.  That’s well short of a 5.06% peak in Jun, when investors were concerned overstretched banks would default on payments.  This time round, the cash crunch is reflecting economic strength after GDP expanded 7.8% in Q3, ending a 2-qtr slowdown.  The odds of a credit crisis are decreasing on expectations a Communist Party summit in Nov will take steps to scale back local-gov debt & shadow banking.  The pressure for monetary & credit expansion is high because of the nation’s wide trade surplus & as capital inflows increase, the PBOC said in an Oct 16 statement.

Worst Cash Crunch Since June Shows Robust Economy: China Credit

U.S. Factory Production

Photo:   Bloomberg

US factory production rose less than forecast in Sep, indicating a pause in manufacturing leading into the budget battle that partially closed the federal gov.  Output at factories rose 0.1% after a revised 0.5% gain in Aug (smaller than initially estimated), according to the Federal Reserve.  The forecast called for a 0.3% gain.  Total industrial production, which also includes output by mines & utilities, advanced 0.6% as higher temps drove up electricity use.  The figures showed declines in production of such non-durable goods as chemicals & textiles, while output of autos & business equipment rose. An acceleration in manufacturing, which accounts for about 12% of the economy, depends on whether corp confidence improves in wake of the partial gov shutdown.

Factory Production in U.S. Increases Less Than Forecast

Burger King's Q3 net income surged as it sharply reduced its restaurant expenses mostly due to the refranchising of company-owned restaurants & the fast-food provider continued to grow overseas.  Its performance topped estimates & the div was raised.  Q3 EPS was 19¢, sharply ahead of 2¢ last year.  Excluding certain items, EPS was 23¢.  Expected EPS was 21¢.  Expenses dropped to $22.9M from $21M.  Selling, general & administrative expenses along with other operating expenses were also lowered.  Revenue declined 40% to $275M from $456M mostly due to the refranchising of 519 company-owned restaurants.  But it still beat the forecast of $265M.  Stripping out the impact of the refranchising & foreign currency fluctuations, revenue rose 8.1%.  Sales at restaurants open at least a year, including both company-owned & franchised locations, rose 0.9%.  The strongest performance was in the Asia Pacific region, which posted a 3.7% rise.  Latin America & the Caribbean & Europe, the Middle East & Africa also reported improved sales.  But there was softness in the US & Canada though, with same restaurant sales dipping 0.3% due to tightened consumer spending & ongoing competition.  The quarterly div was raised to 7¢ from 6¢.  The stock rose 74¢.

Burger King 3Q earnings climb, costs fall Associated Press

Burger King Worldwide (BKW)

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This is another quiet day in the markets before the FOMC meeting tomorrow.  No major changes are expected after the gov shutdown which slowed what has been a sluggish economic recovery.  The MLPs & REITs pulled back, although that could be expected after their recent runs.  Apple (AAPL) earnings are coming out tonight,  Traders will watch closely & that report may be more important in tomorrow's trading than the FOMC meeting..

Dow Jones Industrials

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