Monday, April 7, 2014

Markets decline while waiting for earnings

Dow lost 94, decliners over advancers 2-1 & NAZ fell 19.  The MLP index slid 1 to the 473s & the REIT index rose 1+ to the 288s (close to a 9 month high).  Junk bond funds gained as did Treasuries.  Oil is holding above 100 & gold is struggling to get back over 1300.

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...100.47 Down ...0.67  (0.7%)

GCJ14.CMX....Gold Apr 14.........1,299.00 Down ...4.20  (0.3%)

Photo:   Bloomberg

Developing East Asian economies will grow slower than forecast this year as China's expansion moderates & political upheaval weighs on Thailand’s outlook, according to the World Bank.  China will expand 7.6% this year, down from 7.7% projected in Oct, while Thailand will grow 3%, 1.5 percentage points lower than seen 6 months ago, the World Bank said.  Developing East Asia is forecast to grow 7.1% in 2014, down from 7.2% seen in Oct.  Even so, the region’s expansion will be underpinned by a recovery in high-income economies & the market’s modest response to the Federal Re3serve's tapering of its QE program to date.  The report said “structural reforms” are key to reducing vulnerabilities & enhancing the sustainability of long-term growth in the region.  "China has already begun a series of reforms in finance, market access, labor mobility & fiscal policy to increase the efficiency of growth & boost domestic  demand,” the World Bank said.  “Over time, these measures will put the economy on a more stable, inclusive and sustainable footing.  Some initiatives that the gov has already announced, such as Tax reform & tax reform and lowering barriers to private investment, may also spur growth in the short term.”  On China, successful reforms could bring considerable benefits to trade partners supplying it with agricultural products, consumption goods & modern services.  “Conversely, spillovers from a disorderly rebalancing in China could hurt regional and global growth, especially in countries relying on natural resource exports,” the report said.

Asia Developing Economies to Grow at Slower Pace on China

Photo:   Bloomberg

While Mario Draghi & other ECB policy makers can use the IMF meetings in DC to reiterate their willingness to use QE, they may be unable to say much on its design.  That suspense risks can be setting investors up for disappointment.  Draghi expects intense scrutiny of the policy option he divulged on Thurs, with the pressure heightened by the revelation that the ECB has simulated an anti-deflation QE program deploying as much €1T in bond purchases.  Even so, Executive Board member Yves Mersch & Governing Council member Jens Weidmann signaled that there is plenty still to be discussed, & Governing Council member Ewald Nowotny indicated that purchases may focus on private securities rather than public debt.  The uncertainty brings excitement & confusion to the markets.  Draghi may face questions on the matter at a press conference on Sat as he attends the IMF spring meeting.   ECB comments last week that the Governing Council is “unanimous” on exploring tools including asset purchases prompted a surge in euro-area bonds, with Spain’s 5-year note yields falling below US equivalents for the first time since 2007.  The Spanish yield is at  1.73% presently, compared with 1.68% for the US note. 

Draghi’s $1.4 Trillion Question Lingers as ECB Mulls QE

Pharmaceutical are creating new medicines that are showing blockbuster potential against hard-to-treat forms of breast cancer.  In findings reported by Pfizer (a Dow stock) yesterday, its drug, called palbociclib, stopped tumor growth for 20.2 months in advanced forms of hormone-related breast cancer, twice the time seen with an older therapy alone.  The treatment, projected to add $3.1B in sales by 2020, is based on a strategy largely abandoned in the 1990s after it failed to show consistent response against a broad range of cancers.  Since then, a deeper understanding of cancer’s diverse genetic underpinnings has emerged, giving drugmakers new information on how the drugs, called CDK inhibitors, keep tumors from growing & spreading.  The breakthrough offers the first major new therapy in a decade for patients whose breast cancer fails to respond to other treatments, doctors say.  The findings, coming in the 2nd of 3 phases of testing normally needed for US approval, were reported at the American Association for Cancer Research meeting, along with results from an earlier-stage study.  The stock fell 52¢.  If you would like to learn more about PFE, click on this link for Trend Analysis:

Pfizer Breast Cancer Drug Helps Revive Discarded Strategy

Pfizer (PFE)

Stocks did not give a warm reception to the jobs report on Fri.  There was a lot of spin about how the economy recovered the jobs that were lost in the last recession.  But another way to  look at it is that there was no job growth in 6 years, a reminder of how slow the recovery has been despite all the federal money used  to stimulate job growth.  Earnings season will begin in a major way on Fri when JPMorgan (JPM), a Dow stock, reports.  Today's market decline shows there is nervousness about what these reports will say.

Dow Jones Industrials

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