Thursday, May 8, 2014

Markets rise on ECB bets

Dow jumped 50, nearing its record high, advancers ahead of decliners almost 2-1 & NAZ went up 23 after recent selling in techs.  The MLP sank an enormous 8+ to the 485s following a very 2 month run & the REIT index was flattish at 299.  Junk bond funds were mixed to higher & Treasuries hardly budged.  Oil lost ground but held above 100 & gold saw more selling.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

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U.S. 2-year


U.S. 10-year


CLM14.NYM...Crude Oil Jun 14...100.20 Down ...0.57  (0.6%)

GCK14.CMX...Gold May 14...1,288.60 Down ...3.10 (0.2%)

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Draghi Ready to Cut Rates in June as Euro Threatens Growth
Photo:   Bloomberg

ECB President Draghi signaled that officials are ready to cut interest rates next month if needed & stepped up his expressions of concern about the € exchange rate.  “The Governing Council is comfortable with acting next time, but before we want to see the staff projections that will come out in the early June,” Draghi said.  “There wasn’t a decision today. It’s a preview of the discussion we will have next month.”  ECB officials are debating how much stimulus to give to a euro region economy haunted by the threat of deflation.  While Draghi gave no signal that radical moves such as quantitative easing are imminent, new economic forecasts next month may give them the scope to take interest rates into negative territory.  Draghi also said that the € is “a cause for serious concern” after its 6% climb over the past year took it close to $1.40.  The ECB left its benchmark rate at a record low of 0.25%  the deposit rate at zero today.  The marginal lending rate was held at 0.75%.

Draghi Ready to Cut Rates in June as Euro Hurts Outlook

Fewer Americans than forecast filed applications for unemployment benefits last week, a sign the labor market continues to gain traction.  Jobless claims fell 26K to 319K last week from a revised 345K in the prior period, according to the Labor Dept.  The forecast called for a decrease to 325K.  Fewer layoffs set the stage for bigger gains in employment & wages.  While payrolls rebounded in Apr after a weather-induced soft patch earlier in the year, many companies are proceeding with caution while they wait for a sustained pickup in consumer spending, which accounts for about 70% of the economy.  The 4-week average of claims, a less-volatile measure than the weekly figure, climbed to 325K from 320K the week before.  The claims data have see-sawed since early Apr as the gov had trouble adjusting the figures for the Easter holiday & spring recess at schools that occur at different times from year to year.  Most of that fluctuation is now probably over.  The number continuing to collect benefits dropped 76K to 2.69M in the latest week.  The unemployment rate among people eligible for benefits fell to 2% from 2.1% the prior week.

Jobless Claims in U.S. Dropped More Than Forecast Last Week

McDonald's. a Dow stock & Dividend Aristocrat, same-store sales rose 1.2% in Apr as the US posted its best month since since Oct & results in Asia topped estimates.  Analysts estimated a gain of 1.2% globally.  Sales at the US stores open at least 13 months were little changed & analysts estimated a 0.1% drop.  MCD has recently struggled to attract diners, especially in the US, where growing restaurant competition & shaky consumer confidence puts pressure on the industry.  The company advertised breakfast foods, free McCafe coffees & the new Bacon Clubhouse sandwiches last month, helping to fuel US sales.  The Apr results end 5 months of declines & may be an early signal of a domestic turnaround.  Last month MCD posted Q1 profit that fell short of estimates amid harsh winter weather & "challenging industry dynamics’’ in the US.  Same-store sales rose 0.3% in Europe & 2.9% in the Asia, Pacific, Africa & the Middle East division.  Analysts estimated gains of 1.9% & 1%, respectively.  Apr results were strong in China, compared with a year earlier, when an outbreak of Avian flu hurt sales.  In Europe, MCD has recently had success selling premium products such as a Southern Chicken Cajun sandwich & burgers topped with bacon & Emmental cheese in France.  Same-store sales gained in France & the UK & slid in Germany.  The chain gets about 40% of its revenue from restaurants in Europe.  The stock lost 14¢ on this  bland report. 
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McDonald’s April Store Sales Top Estimates as U.S.

McDonald's (MCD)

This is a sad state of affairs when the bulls are waiting to hear words from Janet Yellen or Mario Draghi about keeping interest rates low even longer.  Economic fundamentals, basically rising sales, are supposed to drive growth & that leads to higher stock prices.  This philosophy is more of worry about today's problems, tomorrow will take care of itself.  That is shown clearly by the rally in yield securities, even dull munis.  Yields on 10 & 20 year munis fallen fallen about 1 percentage point YTD.

Dow Jones Industrials

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