Wednesday, April 23, 2014

Lower markets on rising tensions between Russia and the Ukraine

Dow fell 12, decliners just ahead of advancers & NAZ dropped 34.  The MLP index pulled back 2 to the 484s & the REIT index lost 1+ to 290.  Junk bond funds inched higher & Treasuries rose as stocks fell.  Oil fell to a 2-week low as US supplies reached the highest level in 83 years.  Gold saw limited buying.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLM14.NYM...Crude Oil Jun 14....101.48 Down ...0.27  (0.3%)

Live 24 hours gold chart [Kitco Inc.]

The IMF staff endorsed a $17B loan to Ukraine to help the gov pay its bills amid a projected economic contraction of 5% this year, according to gov officials.  The staff’s report was delivered to members of the IMF yesterday.  The staff proposed an Apr 30 board meeting to consider the loan package.  An IMF loan would clear the way for additional aid from the EU, US & other donors.  After weeks of talks with the gov in Kiev, IMF staff concluded that Ukraine needs financing from the fund that’s at the higher end of the $14-$18B range initially announced.  Tensions are rising between the 2 former Soviet republics, as the Ukrainian gov accuses Russian pres Putin of stirring unrest after annexing Crimea last month.  Russia failed to sell local-currency bonds due in 2023 at today’s auction.  Ukrainian bonds fell, lifting yields on the dollar-denominated notes due 2023 to 10.04%, the highest in a month.  The IMF report describes the economic outlook, financing needs & policy steps Ukraine agreed to take in exchange for the loan.  The staff’s forecast for a 5% contraction this year is more pessimistic than the gov outlook for a 3% drop in GDP.  “The conditions under which we enter into a program is for that country to deliver on its commitment and restore its financial situation so that it can finance itself, refinance itself, and operate without support from the IMF,” Managing Director Lagarde said 2 weeks ago.

Ukraine Receives IMF Staff Support for $17 Billion Loan

China Manufacturing Gauge Signals Weakness Persists in Economy

Photo:   Bloomberg

China’s economy has yet to respond to stimulus efforts, a manufacturing gauge indicated today.  The preliminary Purchasing Managers’ Index from HSBC Holdings & Markit Economics was 48.3 in Apr, matching the estimate.  The reading rose from the Mar final figure of 48 while remaining below the expansion-contraction dividing line of 50.  Sustained weakness in manufacturing would pressure Premier Li Keqiang to expand pro-growth measures beyond a required-reserves cut for rural banks yesterday & what some have dubbed a “mini stimulus” package of railway spending & tax relief.  The report followed data last week showing China’s expansion moderated to the slowest pace in 6 qtrs.  The State Council on Apr 2 outlined a package of spending on railways & housing & tax relief to support growth.  The gov said on Sun that China will start construction on major energy projects as part of efforts to stabilize expansion & adjust the nation’s energy structure.  The People’s Bank of China yesterday cut the reserve-requirement ratio for some rural banks by as much as 2 percentage points, effective Fri.  China is trying to balance supporting growth with curbing shadow banking, eliminating overcapacity & reducing pollution.  The economy is forecast to expand 7.4% this year, the slowest pace since 1990.  GDP growth was 7.7% in 2012 & 2013.

Procter & Gamble, a Dow stock & Dividend Aristocrat, CEO A.G. Lafley is making progress on trimming costs, but reviving sales growth has been harder.  The company posted fiscal Q3 profit that topped estimates, helped by a 5.1% drop in selling, general & administrative costs.  Yet sales slipped 0.2%, missing expectations because of declines in its beauty & grooming businesses as well as a strong dollar that reduced the value of its revenue abroad.  Lafley has sought to increase productivity by reducing expenses while at the same time creating new products that will boost revenue & win market share.  He’s also re-evaluating PG businesses & earlier this month agreed to sell most of its pet-food operations.  “We’re operating in a slow-growth, highly competitive environment, which places even greater importance on strong innovation and productivity improvement,” Lafley said.  EPS was 90¢, versus 88¢ a year earlier.  Excluding certain items, EPS was $1.04 & analysts estimated $1.02.  Sales fell 0.2% to $20.6B which compares with $20.7B estimate.  Net sales were down in the company’s beauty, grooming, health care & baby, feminine & family-care business units.  The company reiterated its forecast for EPS growth, excluding certain items, of much as 5% in fiscal 2014.  Sales growth for the year will be hurt by foreign-currency exchange by up to 3%.  The stock dropped 25¢.  If you would like to learn more about PG, click on this link for Trend Analysis:

Procter & Gamble (PG)

Apple (AAPL), with the largest market cap in the world, will report earnings after the close.  The estimate is for EPS of $10.09, a few pennies above last year, & revenue may advance 5%, hardly a robust forecast.  Currency translations is hurting global companies, but a slowdown in growth for iPhones is at the heart of mediocre results.  The stock is off $7 to $524 ahead of the report.  Dow continues to sputter, unable to attract enough interest to take it to record heights.

Dow Jones Industrials

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