Friday, April 11, 2014

Lower markets led by selling in the tech sector

Dow sank 143 finishing near the lows, decliners over advancers better than 2-1 & NAZ was off another 54.  The MLP index shot up 5 to almost 476 (a new record) & the REIT index lost 1+ to the 284s.  Junk bond funds fell & Treasuries rose.  Oil climbed to a 5-week high as US consumer confidence rose in Apr & gasoline demand strengthened.  Gold eased back.

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Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLK14.NYMCrude Oil May 14103.79 Up 0.39 (0.4%)

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Motorcyclist Carrying Pork Carcass
Photo:   Bloomberg

China's consumer inflation remained below the gov target in Mar while factory-gate deflation deepened, giving Premier Li Keqiang more scope to roll out measures to support growth.  The CPI rose 2.4% from a year earlier, according to the National Bureau of Statistics, matching the estimate.  The PPI fell 2.3%, after a 2% drop in Feb, extending the decline to 25 months.  While inflation below the gov full-year target of 3.5%, giving room for more stimulus to support a slowing economy, Li has indicated he wants to limit such measures.  Next week the nation is set to report the weakest quarterly growth since 2009.  Food prices rose 4.1% from a year earlier, contributing 1.35 percentage points to the gain in consumer prices.  Non-food inflation was 1.5%, down from a 1.6% pace in Feb.  The drop in the PPI compared with an estimate for a 2.2% fall & extends the longest stretch of declines since a 31-month slide that started in 1997.  Today’s report adds to signs of slower demand both at home & from overseas, after customs administration data yesterday showed exports & imports unexpectedly fell in Mar from a year earlier.  GDP may rise 7.3% in Q1 from a year earlier, the slowest pace since 2009 & lower than Li’s 2014 expansion target of about 7.5%.

China’s Inflation Stays Below Target as Producer Prices Drop

Wells Fargo posted a 14% rise in Q1 earnings as fewer customers missed loan payments.  EPS rose to $1.05 from 92¢ a year earlier, the 12th consecutive record qtr.  While the results beat estimates, revenue fell 3% & profit was down 2% before changes in taxes & reserve levels.  “Revenue remained relatively stable despite the impact of fewer days in the quarter, reflecting contributions from our diversified sources of fee revenue,” CFO Tim Sloan said.  Results were helped by a $423M tax benefit, & the company released $500M of loan-loss reserves.  The efficiency ratio, which measures management’s ability to control costs, improved to 57.9% from 58.5% in Q4, the bank said.  The net interest margin, a gauge of profitability, fell to 3.20% from 3.27% in Q4.  Within the business segments, community banking profit rose 31% from the year earlier.  Wealth, brokerage & retirement advanced 41%& wholesale banking fell 15%.  Mortgage originations slumped 28% from Q4 to $36. Banks have struggled to raise revenue with interest rates near historic lows & demand cooling for home loans.  Nationwide, mortgage originations declined 57% in Q1 from a year earlier, according to the Mortgage Bankers Association.  WFC trimmed staff as originations dropped, announcing another 1K job cuts in Q1, on top of more than 6K announced last year.  About 2/3 of Q1 mortgages were for new-home purchases as opposed to refinancings, reversing last year’s first quarter.  Originations accounted for about 6% of WFC fee revenue compared with 25% a year earlier.  The business of servicing mortgages, where it also ranks #1, softens the drop in originations as people stay in homes longer.  Servicers earn fees from mortgage investors for handling bills, collections & foreclosures.  Mortgage banking income, which includes both origination & servicing, fell 46% to $1.5B, & applications continued to decline.  The 2014 capital plan passed the Fed’s annual review, which is designed to prevent banks from failing & bring down the financial system.  The company set plans to raise its quarterly div to 35¢ from 30¢ & buy back 350M additional shares.  The stock went up 36¢.  If you would like to learn more about WFC, click on this link for Trend Analysis:

Wells Fargo Posts 14% Profit Increase as Fewer Customers Default on Loans

Wells Fargo (WFC)

Treasuries rose, pushing 30-year bond yields to the lowest since Jul, on speculation the Federal Reserve isn’t preparing to accelerate interest-rate increases & as a report showed inflation remains subdued.  The benchmark 10-year note extended a weekly gain as stocks fell, damping demand for risker assets.  A 0.5% rise in producer prices in Mar exceeded forecasts while also signaling the central bank still has room to keep its benchmark-interest-rate target at almost zero without spurring above-target inflation.  The 30-year bond yield dropped five basis points to 3.48%.  The 10 year yield declined 3 basis points to 2.62%.  The yield has declined 11 basis points this week, the most in a month. Forecasts have been trimmed for the 30-year bond yield to the lowest level since Jun.  The yield could rise to 3.81% at the end of Q2, down from an estimate of 3.92% last month.

Treasuries Rise With 30-Year Yield at 9-Month Low on Fed View

Stocks had a good advance Wed, but it lacked legs & selling has resumed.  For the week, Dow dropped 400.  That's big!!  At the start of the week, I said the markets were nervous going into earnings season & those nerves were not calmed this week.  Citigroup (C) reports on Mon & analysts are looking for EPS of $1.14, down 9¢ from last year.  Industrial & service companies could deliver soggy results.  China has lost a lot of its growth image & Russia has become a significant unknown for everybody around the world.  The stock market is on defense as earnings season goes into high gear next week which is aggravated by selling in the tech sector.  

Dow Jones Industrials

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