Wednesday, May 28, 2014

Lower markets awaiting final report for Q1 growth

Dow dropped 39, decliners over advancers 5-4 & NAZ fell 9.  The MLP index was off 1+ to the 489s & the REIT index lost 3+ to the 297s.  Junk bond funds rose & Treasuries gained with the yield on the 10 year bond near its lowest level in more than a year.  Oil fell for a 2nd day on speculation US supplies rose last week & gold saw more selling, taking the price down to 1261.

AMJ (Alerian MLP Index tracking fund)

CLN14.NYM...Crude Oil Jul 14...103.78 Down .....0.33  (0.3%)

GCK14.CMX...Gold May 14.....1,277.40 Up ...12.00 (1.0%)

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Jobseekers Queue Inside an Agentur fuer Arbeit Employment Office
Photo:   Bloomberg

German unemployment unexpectedly increased for the first time in 6 months amid signs of a slowdown in Europe’s largest economy that could weigh on the fragile euro-area recovery.  The number out of work rose a seasonally adjusted 24K to 2.905M in May, the Federal Labor Agency said.  The forecast was for a decline of 15K.  The adjusted jobless rate was unchanged at 6.7%, the lowest level in more than 2 decades.  German business confidence decreased this month on concern growth will slow as the 18-nation euro area, the country’s biggest export market, struggles to sustain its revival.  The Bundesbank has said the nation’s economic expansion in Q2 is unlikely to match the pace of Q1, which was boosted by unusually warm weather.  The number of unemployed in May rose by 16K in western Germany & 8K in the eastern part of the country.  The total number of jobless declined 25K the previous month.

German Unemployment Unexpectedly Rises as Growth to Slow

China's biggest banks are poised to report the highest proportion of bad debts since 2009 after late payments on loans surged to a 5-year high, indicating borrowers are struggling amid an economic slowdown.  The country’s 10 largest lenders reported overdue loans reached 588B yuan ($94B) at the end of 2013, a 21% increase from a year earlier to the highest level since at least 2009.  The rise in late payments portends more losses on soured loans for banks in coming months as China’s slowing economy crimps companies’ earnings, while a gov crackdown on non-bank funding makes it tougher for borrowers to get new credit or finance older debt.  Overdue loans, those late by at least a day, were 31% greater for the banks as of Dec 31 than nonperforming ones (debts they don’t expect to recoup in full).  That’s the biggest gap in at least 5 years, signaling lenders may be resisting acknowledging the deterioration to avoid setting aside funds to cover potential losses.  While nonperforming loans reported by China’s banking industry have increased for 10 straight qtrs to the most since Sep 2008, they accounted for only 1.04% of total loans as of the end of Mar, compared with the 4.83% average of the previous decade, according to the China Banking Regulatory Commission.  Investors’ concern that the bad-loan ratio may be wider than reported by the lenders is weighing on bank shares.

China Banks Bad-Debt Ratio Seen Rising to Most Since 2009

McDonald's, a Dow stock & Dividend Aristocrat, set a target of returning as much as $20B in cash to investors thru divis & share buybacks by 2016, dashing optimism that the company would spend even more to boost its stagnant shares.  The plan represents up to a 20% increase from the amount of cash returned in 2011-2013.  MCD also said it plans to sell 1500 company-owned stores to franchisees by 2016, primarily in Europe, the Middle East, Africa & its Asia-Pacific region.  The stock has languished as the company struggles to increase sales amid shaky consumer confidence & heightened competition from rivals.  CFO Pete Bensen said in Mar that the company could be “more aggressive” in borrowing to fund buybacks & divs.  The company last month posted Q1 profit that trailed estimates as sales at its established US locations fell.  The company had posted 5 straight months of declining sales at US stores open at least 13 months, before ending the streak with unchanged sales in Apr.  While CEO Don Thompson has tried attracting customers with free coffee, new burgers & chicken sandwiches, the competition also has been introducing new fare.  The stock dropped 1.09.  If you would like to learn more about MCD,
Click here for a FREE analysis of MCD and be sure to notice the intermediate time frame

McDonald’s Plans Up to $20 Billion in Buybacks, Dividends

McDonald's (MCD)

Stocks are nervous ahead of a report which could show negative growth (contraction) for GDP in Q1.  Markets have been largely ignoring problems, such as the unrest in Ukraine & continuing negative reports on the Chinese economy.  The US economy, while doing better, is still seeing a lot of bumps in the road, starting with a significant slowdown in housing.  In addition, a rise in stocks this year (which has been negligible) is due to strength in yield stocks.  Techs have been weak.  The Dow may be just a whisper from a record, but that is not reflective of what is going on in the world.

Dow Jones Industrials

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