Thursday, April 10, 2014

Markets retreat ahead of earnings season

Dow fell 64, decliners over advancers 3-2 & NAZ plunged 63 with tech selling after 2 days of buying.  The MLP index jumped another 2+ to the 477s (a new record) & the REIT index was up fractionally in the 288s.  Junk bond funds continued strong & Treasuries rallied.  Oil was about even & gold is marching forward above the important 1300 support level. 

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLF15.NYM...Crude Oil Jan 15...95.55 Down .....0.25  (0.3%)

GCJ14.CMX...Gold Apr 14.....1,320.00 Up ...14.50 

Photo:   Bloomberg

The fewest number of Americans, since before the last recession, filed applications for unemployment benefits last week.  Jobless claims decreased 32K to 300K, the lowest since May 2007, according to the Labor Dept.  The figure was lower than the most optimistic forecast & the median estimate called for 320K claims.  Fewer dismissals will help pave the way for a pickup in hiring as demand recovers from harsh winter weather, providing a bigger boost to the economy.  Federal Reserve policy makers are monitoring progress in the labor market as they continue to scale back their bond-buying program based on an improving economic outlook.  The 4 week average fell to 316K, the lowest since the end of Sep, from 321K the week before.  At the same time, the Easter holiday can make adjusting the claims data for seasonal variations more difficult.  The number continuing to receive jobless benefits decreased 62K to 2.78M in the latest week, the lowest since Jan 2008.  The unemployment rate among people eligible for benefits fell to 2.1% from 2.2% in the prior week.

Jobless Claims in U.S. Drop to Lowest Level Since May 2007

Yangshan Deep Water Port
Photo:   Bloomberg

China’s exports & imports unexpectedly fell in Mar as Premier Li Keqiang said the nation will roll out more policies to support growth while avoiding stronger stimulus.  Overseas shipments declined 6.6% from a year earlier, the customs administration said today, attributing the drop partly to distortions from inflated data in early 2013.  Imports fell 11.3%, in part on falling commodity prices, leaving a trade surplus of $7.7B.  The report added to concern that expansion in the economy will deteriorate further.  The gov is taking steps including railway spending & tax relief to support growth while avoiding monetary measures such as cutting banks’ reserve requirements or the scale of stimulus used to counter the financial crisis in 2008.  Import figures were affected partly by commodity price declines.  Average iron ore import prices were 8% lower in Q1 compared with a year earlier, while the volume of inbound shipments rose 19.4%.  Average coal import prices fell 14.2% in Q1 & crude oil prices were down 4.7%.  Premier Li said in a speech today that China “won’t adopt short-term and strong stimulus policies in response to temporary fluctuations in the economy. Instead we will focus more on healthy growth in the medium to long term and will make efforts to achieve sustainable and healthy development.”   According to previously reported figures, China’s exports fell 18.1% in Feb from a year earlier, the biggest drop since the global financial crisis.

China Exports Unexpectedly Fell in March

Ally Financial (ALLY), the auto lender (GMAC Capital Trust) rescued by the gov during the 2008 financial crisis, dropped in its trading debut after pricing its IPO at $25, the low end of the expected range.  The stock is currently $24.66.  The Treasury, which had been the firm’s majority shareholder, raised $2.4B after selling the shares.  The IPO marks the end of a 3 year process for ALLY to pay back the remainder of its $17.2B bailout.  The company has refocused on its auto-lending roots after the mortgage business went bankrupt.  The Treasury pared its stake to 17% thru the IPO from about 37% & owned about 74% after the bailout.  Regulators will “continue to evaluate exit strategies for its remaining Ally investment and wind down” the Troubled Asset Relief Program, or TARP, “as soon as practicable,” according to the Treasury.  The offering & repayment to taxpayers will lift some of the added regulatory restrictions that came with gov aid & allow ALLY to take on more risk that could boost profitability.  Lending at the former subsidiary of General Motors (GM) could also face hurdles as carmakers deal with setbacks from product recalls.  The drab performance of this IPO sends a negative message about the health of the stock market.

Ally Financial Drops After IPO Prices at Low End of Range

After 2 good days in the stock market, selling has returned.  Techs are leading the way lower & overall market breadth is negative.  The Dow is down 100 in Apr.  The weak reception of the IPO for ALLY should be getting more attention.  Then there is China, a major player in the global economy which is fighting mediocre growth data.  Tomorrow JPMorgan, a Dow stock, reports & that will be follwed by more big name banks.  Traders are nervous.

Dow Jones Industrials

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