Monday, March 31, 2014

Higher markets as S&P hopes for fifth straight quarterly gain

The Dow jumped 135, advancers over decliners better than 3-1 & NAZ rose 47 after recent weakness. The MLP index was flat in the 463s & the REIT inched up pennies in the 283s.  Junk bond funds rose & Treasuries were weak.  Oil & gold fluctuated with little movement.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLK14.NYM...Crude Oil May 14...101.51 Down ...0.16  (0.2%)

GCJ14.CMX....Gold Apr 14........1,289.20 Down ....4.60  (0.4%)

ECB President Mario Draghi
Photo:   Bloomberg

Mario Draghi can study an array of data this week to help him track his latest policy metric: economic slack.  Inflation figures show prices are rising at the slowest pace in more than four years.  Unemployment tomorrow should also help illustrate the spare capacity left in the euro area by its debt crisis & double-dip recession.  As the ECB pres meets policy makers to set interest rates on Thurs, manufacturing & services surveys might hint at how fast the output gap is closing.  Draghi mentioned slack for the first time after the last meeting to reassure investors that borrowing costs will stay low even as the economy revives.  The overnight cost of borrowing for banks in €s has been creeping upward as the economy improves.  The Eonia rate was at 0.195% on Fri, compared with as low as 0.07% in Nov after the ECB last cut official rates.  Inflation in the euro area slowed to 0.5% this month, according to an initial estimate by the EU statistics office.  While the figure is distorted by the timing of the Easter holiday, it’s still the slowest pace since Nov 2009, signaling that companies are struggling to raise prices amid feeble demand.  The ECB aims to return inflation to just under 2%.

Draghi Sifts Data on Slack as Inflation Cements Rate Vow

Aluminum Plant in Tokyo
Photo:   Bloomberg

Japan’s industrial production fell in Feb, undershooting all forecasts, as the first sales-tax increase since 1997 risks stalling recovery in the world’s 3rd-biggest economy.  Output fell 2.3% from the previous month, the steepest drop in 8 months, the trade ministry said.  The estimate was for a 0.3% gain.  A separate gauge of manufacturing fell in Mar for a 2nd straight month.  While the weakness partly reflected disruptions from heavy snowfall, the data showed manufacturers are bracing for a slump in demand following tomorrow’s sales-tax increase.  Inventories fell for a 7th straight month, lessening the likelihood of even sharper output cuts as the higher consumption levy pushes the economy into a one-quarter contraction in Q2.  Prime Minister Abe gave the go-ahead for the sales tax increase to help deal with the world’s biggest debt burden, even as he pushes reflationary policies to spur growth & end 15 years of deflation.  The ¥ was little changed, trading at 102.86.  The Finance Minister last week outlined plans to front-load spending in next fiscal year’s budget to help the economy weather the blow from the higher levy.  The Bank of Japan has also signaled that it’s ready to boost record easing if needed to drive inflation toward its 2% target.

Japan Industrial Output Unexpectedly Drops as Tax Hike Looms

Johnson & Johnson Logo
Photo:   Bloomberg

Johnson & Johnson, a Dividend Arustocrat, accepted a $4B offer from the Carlyle Group (CG) made in Jan to acquire the health-care products company’s diagnostics division.  The acceptance comes after consultation with relevant works councils & trade unions.  The unit, for sale since Nov, had sales of $1.9B last year (2.6% of JNJ revenue).  JNJ has said that it’s goals are to be the first or 2nd biggest in areas where it competes or to own businesses complementary to other JNJ units.  Today’s move is part of an industry trend to sell off secondary units & focus on primary businesses.  CG plans on operating the medical diagnostics business as a stand-alone company.  The unit makes blood tests to screen for diseases.  JNJ had received 2 other offers.  The deal should close near the middle of this year.  JNJ stock went up 1.12.  If you would lie to learn more about JNJ, click on this link for Trend Analysis:

J&J Accepts $4 Billion Offer From Carlyle for Ortho Unit

Johnson & Johnson (JNJ)

Markets are having another good day.  But with Q1 winding down today, it's difficult to tell how much is for real versus how much is due to fund manager's adjusting their books.  The S&P 500 is poised for another quarterly gain (up 24 or 1%) while Dow needs 120 to get into the black which is touchy with just a few hours of trading left.

Dow Jones Industrials

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