Tuesday, April 15, 2014

Markets erase early losses in volatile trading

Dow recovered in the PM & finished with a gain of 89, advancers ahead of decliners 3-2 & NAZ climbed 11.  The MLP index slid a fraction to 477 & the REIT index was up 3 to the 278s.  Junk bond funds were mixed to lower & there was buying in Treasuries.  Oil fell & gold had its biggest drop this year on concern that a pickup in US consumer prices will give the Federal Reserve leeway to further scale back stimulus.

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Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLK14.NYM....Crude Oil May 14....103.77 Down ...0.28  (0.3%)

Live 24 hours gold chart [Kitco Inc.]

Photo:   Bloomberg

Consumer prices accelerated in Mar as Americans paid a bit more for food & rent, adding to signs that consumer demand is improving.  The consumer-price index climbed 0.2% after increasing 0.1% in Feb, according to the Labor Dept.  Over the past year, costs rose 1.5% following a 1.1% gain in Feb (the smallest in 4 months).  Rents may continue to climb as more households, who are just starting to recover from the collapse in home prices, forgo ownership & instead turn to leasing properties.  Sustained gains in sales would give companies pricing power, easing Federal Reserve concerns that inflation remains too far below its 2% goal.  The report showed the core gauge, which excludes volatile food & fuel costs, also rose 0.2%, the most in more than a year.  The forecast was for a 0.1% gain.  The core CPI climbed 1.7% from Mar 2013 following a 1.6% advance in the prior 12 month period.  Energy costs decreased 0.1% from a month earlier & food expenses climbed 0.4%, reflecting the biggest gain in pork prices since Aug 2012.  About 2/3 of the increase in core prices reflected rising rents.  Owners-equivalent rent, one of the categories designed to track leasing costs, climbed 0.3%.  Over the past 12 months, shelter costs, which also include hotel rates, increased 2.7%, the biggest gain in 6 years.

Accelerating Inflation Adds to Signs U.S. Improving

Johnson & Johnson, a Dow stock & Dividend Aristocrat, beat expectations & raised its 2014 forecast by focusing on new drugs & reducing its reliance on medical devices.  The drug division overtook medical devices as the company’s biggest unit after sales surged 11% to $7.5B.  The growth obscured a drop in demand for consumer goods & sales that were essentially unchanged in devices & surgical products after the harsh winter waylaid elective medical procedures.  While quarterly sales increased for medicines such as Stelara for psoriasis & Zytega for prostate cancer, the performance of the hepatitis C drug Olysio was responsible for most of the $1B bump in the 2014 revenue forecast, CFO Dominic Caruso said.  The company raised its 2014 EPS forecast to $5.80-$5.90 from $5.75-$5.85, excluding one-time items.  Annual revenue is expected to be $74.5-$75.3B.  EPS rose to $1.64 from $1.22 a year.  EPS excluding one-time items of $1.54 outpaced the $1.48 estimate.  Q1 revenue increased to $18.1B from $17.5B a year earlier, driven by Stelara, Zytiga, Invega Sustenna for schizophrenia, Prezista for HIV & Xarelto to prevent blood clots.  The company also posted increases for specialty surgery, cardiovascular & vision care.  Olysio, approved in Nov, received a boost when guidelines from medical societies that deal with hepatitis C infections in Jan recommended using JNJ’s drug.  The pharmaceutical division’s strong performance helped the company withstand a 3.2% drop in sales of consumer goods & OTC medicines to $3.6B.  Revenue from medical devices & diagnostic were unchanged at $7.1B, with US sales falling 1.6% on weak prices & demand.  The stock shot up 2.06.  If you would like to learn more about JNJ, click on this link for Trend Analysis:

Johnson & Johnson Increases Full-Year Forecast as Profit Up on Drug Demand

Johnson & Johnson (JNJ)

China’s broadest measure of new credit fell 19% from a year earlier & money supply grew at the slowest pace on record, underscoring risks of a deeper slowdown as the gov tries to curb financial dangers.  Aggregate financing was 2.07T yuan ($333B) in Mar, the People’s Bank of China (PBOC) said, down from 2.55T yuan a year ago.  M2, China’s broadest gauge of money supply, rose 12.1% from a year earlier, compared with the 13% estimate & 13.3% in Feb.  Policy makers are trying to rein in a credit binge & prevent defaults from spurring broader financial turmoil, while meeting a target for economic expansion of 7.5% this year.  The State Council earlier this month outlined what some analysts have dubbed a “mini-stimulus” package of railway spending & tax relief, with Q1 growth projected to be the slowest since 2009.  The report is due tomorrow.  China’s foreign-exchange reserves, the world’s largest, rose to $3.95T at the end of Mar from $3.82T at the end of Dec, according to the PBOC.   Aggregate financing compared with the 1.85T yuan projection.  New yuan loans were 1.05T yuan, compared with the 1T yuan estimate.  Yuan deposits rose 3.67T yuan in Mar from the previous month, slower than last year’s increase, the PBOC said.  The central bank has shown little intent to relax monetary policy.  A day after the cabinet announced the pro-growth measures, the PBOC said that it will maintain “moderate liquidity” & “realize reasonable growth in loans and social financing,” reiterating language from a previous statement.

China Credit Gauge Slumps 19% as Economy Seen at Risk of Deeper Slowdown

There were no shortage of mixed signals today.  The 2 big earnings reports were favorable, the Ukraine mess remains in limbo as troops are moved around & China continues to be searching for ways to resume its growth story which everybody has gotten used to.  These 3 stories should dominate trader thinking going forward with the Ukraine situation having the potential for the greatest problems in the stock market.  Dow is down 300 YTD.

Dow Jones Industrials

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