Friday, February 14, 2014

Markets edge higher after factory report

Dow rose 59, advancers over decliners almost 3-2 but NAZ lost 10. The MLP index rose 1+ to the 469s (new record territory) & the REIT index was up fractionally to 281 (not seen since early Nov).  Junk bond funds crawled higher & Treasuries slipped back.  Oil slipped a little ($92 showing below is not a good number) & gold is solidly above 1300 once again.

AMJ (Alelrian MLP Index tracking fund)

stock chart

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLF15.NYM....Crude Oil Jan 15...92.65 Down ....0.20  (0.2%)

GCG14.CMX...Gold Feb 14.....1,320.20 Up ...19.80 (1.5%)

US consumer confidence was stronger than projected in Feb as Americans grew more upbeat about the economy.  The Thomson Reuters/University of Michigan preliminary index of sentiment held at 81.2 this month.  The estimate called for a decline to 80.2.  A gauge of the economic outlook improved to the highest level in 6 months.  The reading indicates consumers may pick up the pace of spending after a winter-related slowdown in Jan.  The index averaged 89 in the 5 years before Dec 2007, when the last recession began, and 64.2 in the 18-month contraction that followed.  The Michigan sentiment survey’s index of expectations 6 months from now increased to 73 from 71.2 last month & the gauge of current conditions, which measures people view of their personal finances, fell to 94 in Feb from 96.8 a month earlier.  By comparison, the Conference Board’s measure of sentiment climbed in Jan to a 5 month high.  All this data was taken before the nasty weather in early Feb.

Michigan Consumer Sentiment Index Was Unchanged in February

US factory production unexpectedly declined in Jan by the most since May 2009, adding to evidence severe winter weather weighed on the economy.  The 0.8% decrease at manufacturers followed a revised 0.3% gain the prior month that was weaker than initially reported, according to the Federal Reserve (FED).  The forecast called for a 0.1% advance.  Total industrial production dropped 0.3% even as utility output climbed the most in almost a year.  Assembly lines slowed last month as colder weather tempered production, the FED said, showing a pause in the momentum of an industry that’s helped bolster the economy.  A pickup in capital spending & faster hiring that drives consumer purchases will be needed to spur production gains.  The decline in overall industrial production was the biggest since last Apr.  The drop in manufacturing, which makes up 75% of total production, was broad-based, with declines in the output of business equipment, consumer goods & construction materials.  The FED said in its release that severe weather “curtailed production in some regions of the country.”  Utility output surged 4.1%, the most since last Mar, after falling 1.4% in Dec.  The weather during both months was unusually frigid.  Mining output, which includes oil drilling, decreased 0.9%, the most in 3 months.  The production of motor vehicles & parts slumped 5% after a 0.1% gain a month earlier.  The FED said that “numerous” auto plants lost one or more production days due to weather.  Excluding autos & parts, manufacturing fell 0.5%.

Factory Production in U.S. Falls by Most Since 2009

Pedestrians Walk in La Defense Business District in Paris
Photo:   Bloomberg

The euro area economy expanded more than forecast in Q4, led by Germany & France, easing pressure on the ECB to take action next month to counter low inflation & spur growth.  GDP in the zone rose 0.3% after a 0.1% increase in Q3, beating the forecast of 0.2%.  For the full year, GDP shrank 0.4%. ECB Pres Mario Draghi last week put investors on a month’s notice for further economic stimulus, saying the central bank needed “to get more information” on the recovery before making any decision.  “We are willing and we are ready to act,” Draghi said.  Germany, Europe’s largest economy, fueled the expansion with 0.4% growth, while French GDP rose 0.3.  Both results exceeded forecasts.  Italy's economy grew 0.1% after stagnating in Q3.  The news from the euro area’s periphery was generally positive, with Spanish & Portuguese GDP up 0.3% & 0.5%, respectively.  In Cyprus, the economy shrank 1% from Q3.  Greece's contraction slowed to an annual 2.6% rate.

While stocks are generally higher, there is not a lot of conviction behind this advance.  Winter weather storms are biting hard.  Stores feel the pinch immediately because they tally results daily.  There maybe warnings coming next week.  Today's data also indicates that manufacturing has been hurt by these storms.  The euro growth shown today sounds good, put the numbers are tiny which makes for a fragile recovery.  Dow is still down 500 YTD.  But yields sensitive securities continue to do well in the new year.

Dow Jones Industrials

stock chart

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