Monday, May 5, 2014

Markets fall on slower growth in China and Europe

Dow dropped 51, decliners over advancers 3-2 & NAZ was off 3.  The MLP index rose 1 to the 487s & the REIT index was flattish in the 295s.  Junk bond funds edged higher & Treasuries were up a tad.  Oil did little, but gold is climbing again, back over 1300.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

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U.S. 2-year


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CLM14.NYM...Crude Oil Jun 14...99.68 Down ...0.08  (0.1%)

GCK14.CMX...Gold May 14...1,313.00 Up ...10.40 (0.8%)

The European Commission predicted low inflation will remain a threat to euro-area expansion for at least the next 2 years as it trimmed its economic-growth forecast & warned of the impact of tensions with Russia.  The 18-nation euro zone’s inflation rate will be 0.8% this year & 1.2% in 2015, both lower than forecast in Feb & well below the ECB target of just below 2%.  GDP is projected to rise 1.7% in 2015, compared with the previous forecast of 1.8%.  “Price pressures are expected to remain subdued as we expect energy prices to continue to decline and as demand is only gradually firming and unemployment is still high,” Commission Vice President Siim Kallas said.  “When we consider what are the main risks for the European economy at this stage, the one main risk is clearly the external tensions and uncertainty which surrounds us, especially related to the crisis in Ukraine.”  Less than a year after emerging from its longest recession, the euro area remains vulnerable as fragile public finances, volatility in emerging markets & a strong € keep a lid on the recovery.  While bond-market confidence has returned, the economy is still generating less output & providing work for fewer people than before the financial crisis started in 2008.  The ECB, which is considering taking unprecedented steps to avert the risk of deflation, including negative interest rates or implementing quantitative easing, could take action as early as this week.  Continued low inflation would slow economic recovery further since it makes the repayment of debt more difficult & can subdue consumer demand.  ECB pres Mario Draghi said last month that his “biggest fear” is a protracted stagnation in the area that leads to high unemployment becoming structural.  Today’s forecast showed joblessness gradually reducing over the next 2 years from a record high of 12%, to 11.8% this year & 11.4% in 2015.  The crisis in Ukraine could also be a threat to economic growth across Europe, particularly in those countries which border Russia or which are dependent on Russian energy.

EU Cuts Euro-Area Growth Outlook as Inflation Seen Slower

Bicycle Manufacturer In Suzhou
Photo:   Bloomberg

China’s manufacturing contracted for a 4th month in Apr that missed estimates.  A purchasing manager's index was at 48.1, according to HSBC Holdings & Markit Economics.  That compared with a 48.4 estimate & a preliminary reading of 48.3 & Mar figure of 48.  Numbers below 50 indicate contraction.  GDP is projected to increase 7.3% this year as the gov reins in credit, compared with an official target of about 7.5%.  The State Council has outlined a package of spending on railways & housing and tax relief to support growth & pledged extra efforts to aid exporters.  The central bank has also lowered the reserve-requirement ratio for some rural banks by as much as 2 percentage points.  The country last lowered the reserve ratio for large banks in May 2012, to 20%.  The ratio is “relatively high” & remains a major tool of the nation’s monetary policy, PBOC officials said.  Cities including Tianjin, Hangzhou & Changsha plan to stimulate the property market by loosening home-purchase limits or letting buyers get household registration by buying homes.  Some expensive property projects in Shanghai have cut prices already.

China Manufacturing Gauge Signals Risk of Deeper Slowdown

Pfizer, a Dow stock, profit beat estimates as the company cut costs to offset falling sales.  Q1 EPS, excluding one-time items, were 57¢, 2 pennies above the estimate.  Sales were $11.4B, below the $12.1B estimate, as foreign exchange rates reduced sales by 3%.  The company is in the middle of the drug industry’s most-dramatic transition.  It has split internally into 3 separate businesses, one of older products & 2 brand-name medicine units, while also pursuing the AstraZeneca (AZN) acquisition that would make it once again the biggest pharmaceutical maker in the world.  EPS fell to 36¢ from 38¢.  PFE said it would change its full-year earnings outlook, though wasn’t permitted to do so now because of rules surrounding its offer to buy the UK drugmaker.  “I look forward to the remainder of the year given the strength of our mid- and late-stage pipeline, the continued growth opportunities for our recently launched products as well as opportunities for upcoming product launches,” CEO Ian Read said.  For the first time it broke out separate financial results for the 3 units.  The Global Establish Products business, made up of off-patent & older drugs, including cholesterol pill Lipitor, had sales of $5.99B.  A unit of brand drugs, called the Global Innovative Products business, saw sales fall 7% while Cancer & vaccines sales, the 3rd unit, rose.  Results were helped by a 11% reduction in cost of sales, which fell to $2.05B.  Administrative expenses declined 6% to $3.04B & R&D spending decreased 5% to $1.62B.  The stock lost 67¢.  If you would like to learn more about PFE, click on this link for Trend Analysis:

Pfizer Exceeds First-Quarter Earnings Estimates While Revenue Falls Short

Pfizer (PFE)

Stocks are slipping & sliding lower as worries overseas are the center of attention today.  China has lost its high growth ways & the new leaders are looking for ways to increase growth.  So far this year, no luck.  The euro area recovery is less than impressive.  A recovery is better than extending the recession, but slow & uneven growth is not a lot better.  Then there is the US which should have a better year.  However after a sluggish start, there are doubts.  Dow barely reached a new high last week, but was unable to make that stick.

Dow Jones Industrials

This Undervalued Energy Stock is Set to Soar! Special Report

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