Wednesday, November 13, 2013

Lower markets as BOE hiints about raising interest rates

Dow dropped 61, decliners over advancers 5-4 & NAZ climbed 1.  The MLP index fell 1 to 446 & the REIT index was up pennies in the 268s.  Junk bond funds were mixed to lower & Treasuries rose.  Oil & gold gained ground.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month


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U.S. 10-year


CLZ13.NYM....Crude Oil Dec 13...93.75 Up ...0.71 (0.8%)

GCX13.CMX...Gold Nov 13.....1,275.40 Up ...4.30 (0.3%)

The Bund Financial Bull

Photo:   Bloomberg

China elevated the role of markets while maintaining the state’s dominance in the nation’s economic strategy, seeking to balance finding new sources of growth with sustaining the Communist Party’s grip on power.  The nation will make markets “decisive” in allocating resources, according to yesterday’s communique from the 3rd full meeting of the party’s 18th Central Committee in Beijing.  But it stopped short of unveiling detailed policy shifts.  The Shanghai Composite fell 0.8% & Hong Kong’s Hang Seng Index was down 1.3% as the statement disappointed investors looking for specifics on policy shifts to combat cooling growth.  China’s leaders are under pressure to revamp the nation’s finances as swelling local-gov debt highlights the risk of a buildup of bad loans & state businesses’ access to bank funding crowds out small firms.  The document didn’t explicitly discuss specific issues such as regional borrowing, interest rates or the one-child policy, while referring generally to giving farmers more property rights.  This is the #2 world economy & the goings on influence global markets.

China Vows Bigger Role for Markets as Party Closes Summit

BOE Governor Mark Carney

Photo:   Bloomberg

Bank of England Governor Mark Carney signaled that officials may consider raising interest rates sooner than they previously forecast as the UK economy recovers “robustly” & inflation slows.  The jobless rate is more likely than not to reach the 7% threshold, when the BOE might start thinking about increasing borrowing costs from a record-low 0.5%, in Q3- 2015, the central bank said in its quarterly Inflation Report.  It previously didn’t see that happening until Q2- 2016.  “You don’t have to be an optimist to see the glass as half full,” Carney said.  “The recovery has finally taken hold.”  Carney tried to temper the more optimistic outlook by saying 7% is a “staging post” & not an automatic rate-increase trigger, promising that policy will remain loose until the Monetary Policy Committee is certain the recovery is assured.  “When the threshold is reached, the MPC will set policy to balance the outlook for inflation against the need to provide continued support to the recovery,” he said.  This sent fears to the US about raising rates.

Carney Signals Rate Increase Possible in 2015 as U.K. Recovers

Macy's Profit

Photo:   Bloomberg

Macy's posted fiscal Q3 profit that beat the estimates as better local selections boosted sales, signaling stronger demand headed into the holidays.  EPS was 47¢, up from 36¢ a year earlier.  The estimate was 39¢.  Revenue gained 3.3% to $6.28B, topping the $6.19B projection.  CEO Terry Lundgren drove sales by better matching goods to local demand & intensifying marketing efforts.  Revenue was particularly strong in Oct, & the company is “entering the fourth quarter with confidence,” Lundgren said.  That marks a rebound from Q2, when sales unexpectedly fell.  Sales in Nov & Dec account for 20-40% of US retail annual revenue & 20% of profit.  Last year’s Q4 quarter accounted for 34% of Macy’s sales & 55% of its profit.  Q3 sales at stores open at least a year advanced 3.5%, topping the estimate of a 1.9% gain.  Sales trends improved in every region from the spring season, & both the Macy’s & Bloomingdale’s chains performed well.  The company repeated its forecast that EPS in the year thru Jan will be as much as $3.90 which compares with the analysts estimate of $3.78.  The stock shot up 4.22.

Macy’s Profit Tops Estimates as Localization Boosts Sales

Macy's (M)

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The thought that BOE could raise interest rates sent chills to the US markets.  The markets have had a stellar rise this year, but it's just about all due to low interest rates, which are not meant to last forever.  The earnings from Macy's should have brought out buyers for all stocks.  But it didn't, another depressing reminder that markets owe their success this year to Big Ben giving out free money.

Dow Jones Industrials

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