Monday, December 9, 2013

Mixed markets while investors weigh Fed tapering

Dow crawled up 12, decliners barely ahead of advancers & NAZ added 11. The MLP lost 1 to 443 & the REIT index was fractionally lower to the 266s. Junk bond funds were mixed & Treasuries finally found a few buyers. Oil was about even & gold rose a little.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month	0.06%
U.S. 2-year	0.29%
U.S. 10-year	2.84%

CLF14.NYM

...Crude Oil Jan 14

..............97.72

.....0.07 (0.1%)

ZGG14.CBT

....Gold 100 oz. Feb 14

...1,246.90

...17.90 (1.5%)

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German industrial production unexpectedly dropped for a 2nd month in Oct, signaling an uneven recovery in Europe's largest economy. Output decreased 1.2% from Sep, when it fell a revised 0.7%, the Economy Ministry in Berlin said (worse than the forecast for a gain of 0.7%). Production climbed 1% from a year earlier when adjusted for working days. Economic growth risks being curbed by weakness in the euro area, leaving it more reliant on domestic demand. Factory orders fell more than forecast in Oct & unemployment rose for a 4th month in Nov. At the same time, business confidence is at the highest level in more than 1½ years & exports unexpectedly rose in Oct. German manufacturing output slid 1.1% in Oct, with production of investment goods dropping 3%. Construction shrank 1.7% & energy output declined 1.9%. Production of consumer items fell 0.8%, led by a 4.5% slump in durable goods. The economy is showing some signs of improving in Q4. Bundesbank predicted last week that GDP will increase as much as 0.5% this year, up from its previous estimate of 0.3% & the institute’s gauge of business confidence climbed in Nov to the highest level since Apr 2012. Exports rose 0.2% in Oct from the prior month while imports increased 2.9%, according to the Federal Statistics Office.

German Industrial Production Unexpectedly Fell in October

Budget negotiators are nearing a deal to trim automatic spending cuts that might break a 3 year cycle of failed fiscal talks in DC. But reaching agreement is only the first step. Rounding up enough votes to pass in Congress will be the real challenge. The deal being crafted doesn’t slow the growth of the national debt & doesn’t rein in the corp tax breaks Dems targeted for elimination. The accord also wouldn’t fully replace the automatic spending cuts (sequestration). Aides say they are optimistic for a compromise by a Fri deadline to help ease $100-$200B in cuts for a year or 2. If an accord eludes negotiations, House Speaker John Boehner is poised to step in. Reps don’t want to risk another gov shutdown, or get blamed for it, so he’s prepared to go ahead with a stopgap spending plan that keeps funding at current levels, Pentagon cuts & all.

Budget Deal in U.S. Would Reduce Automatic Spending Cuts

McDonald's, a Dow stock & Dividend Aristocrat, reported weaker-than-expected global sales at established restaurants for Nov, hurt by a sharp drop in comparable-store sales in the US. Worldwide sales at restaurants open at least 13 months rose 0.5% last month, missing the estimate for a 0.6% rise. Same-restaurant sales fell 0.8% in the US, widely missing the 0.3% gain. High competition & relatively weak customer traffic hurt sales in the US, its 2nd biggest market after Europe. MCD had previously signaled that weakness would continue in Q4 amid stiff competition & halting global economic growth.

It is believed that adding new menu items such as lattes, smoothies, salads & wraps has slowed service & hurt business. It also has been less nimble than rivals in offering attention-grabbing promotions. Same-restaurant sales in Europe rose 1.9%, topping the 0.8% expected, helped by strong sales in the UK, France & Russia. Japan continued to be a drag as comparable sales in Asia Pacific, the Middle East & Africa region fell 2.3%. Analysts had estimated a 0.7% decline. Sales in Japan have been weak for the past 7 months. The stock fell 1.11.

McDonald’s November Global Same-Store Sales Trail Estimates as Rivals Gain

McDonald's (MCD)

Stocks don't know what to do next. The DC politicos are coming up with a Band-Aid fix to patch budget problems. Little will be resolved other than the gov should be able to muddle along without another shutdown. However next month, the debt ceiling has to be raised & that could be a bloody fight. But traders' eyes mainly see what's in front of them & that's the Fed meeting next week. Higher yields on the 10 year Treasury suggest that expectations are for some tapering of bond purchases.

Dow Jones Industrials