Friday, May 2, 2014

Markets retreat on Ukraine tensions

Dow fell 45, decliners over advancers 5-4 & NAZ was off 3.  The MLP index gained 2+ to 486 (another new record) & the REIT index was up pennies in the 295s.  Junk bond funds slid lower & Treasuries advanced as stocks fell.  Oil gained & gold went back over 1300, benefiting from growing tensions over eastern Ukraine.

AMJ (Alerian MLP Index tracking fund)


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CLM14.NYM....Crude Oil Jun 14....99.78 Up ...0.36 (0.4%)

Live 24 hours gold chart [Kitco Inc.]

Ukraine sent armored vehicles & artillery to retake Slovyansk, a separatist stronghold, as pres Obama & German Chancellor Merkel set a May 25 trigger for possible economic sanctions against Russia.  Forces were dispatched this AM drive out pro-Russian militants & free hostages, including intl monitors.  Rebels shot down 2 helicopters, killing 2 pilots, the Defense Ministry said.  Acting Ukrainian President Oleksandr Turchynov said “many” rebels were killed, wounded or captured.  Obama & Merkel told a news conference that Russia must pull back support for the separatists so Ukraine’s May 25 presidential election can go ahead unimpeded.  If the vote can’t be held “we will not have a choice but to move forward” with more sanctions, Obama said.  Merkel called the election “crucial” & said she’s ready to support economic sanctions if needed.  “We have a range of tools at our disposal” to hit various Russian industries with sanctions, Obama said.  “We are stepping up our planning.”  If Russia doesn’t change course in Ukraine, “it will face increasing costs,” both economic and diplomatic, he added.  Penalties imposed by the US & EU have so far targeted officials, individuals & companies tied to Russian pres Putin's inner circle.  The next step would be action against sectors of the Russian economy, including banking & energy.  Those penalties would have consequences mostly for European countries, which have more extensive economic ties with Russia than the US does.  Today’s operation marked the broadest attempt by Ukrainian authorities to retake ground from as many as 1000 armed gunmen who’ve seized buildings in more than 10 cities.  Some have demanded a referendum on joining Russia.

Ukraine Troops Move on Rebel Stronghold Defying Putin

Janet Yellen
Federal Reserve (FED) Chair Janet Yellen & her colleagues have lowered their sights on how fast the economy needs to expand to meet their goal of cutting unemployment.  No longer are they saying growth must accelerate from the 2-2½% pace it has generally averaged since the recession ended.  Instead, they are stressing the importance of preventing the expansion from faltering.  Yellen said on Apr 16 that a key question facing the central bank is what “may be pushing the recovery off track.”  That contrasts with her comments in Mar 2013, of the importance of seeing “a convincing pickup in growth.”  The central bank on Apr 30 pushed ahead with its plan to gradually wind down its asset-purchase program in spite of news earlier in the day that growth ground to a virtual halt in Q1.  Saying the economy is rebounding, the FOMC voted to reduce its bond purchases by another $10B a month, to $45B.  Most FOMC participants forecast GDP growth of 2.8-3% this year & 3-3.2% in 2015.  Investors are looking for officials to begin increasing rates in H2 of next year.  Behind the change in the FED response pattern: the continued decline in unemployment and the rise of payrolls during what Yellen once characterized as a “disappointingly slow recovery.”

Yellen Fed Resigns Itself to Diminished Growth Expectations

Sony posted a loss wider than forecast as CEO Kazuo Hirai's turnaround founders amid slumping consumer electronics sales.  Sony had a preliminary net loss of ¥130B ($1.3B) in the 12 months ended Mar, the 3rd downward revision after a Feb loss projection of ¥110B, itself a reduction from a revised Oct forecast for profit of ¥30B.  The wider loss is a setback to Hirai’s plan to revive the fortunes of the technology icon with new game consoles, smartphones & cost cuts.  While the PlayStation 4 has won sales, SNE is struggling to come up with other hits as demand for traditional products like televisions, cameras & personal computers decline.  Hirai issued the earlier forecast in Feb as the company announced the sale of its PC business, VAIO notebooks, to a Japanese buyout firm & a plan to split the TV making unit into a separate unit.  The company’s full-year operating income was ¥26B, about 1/3 of the ¥80B projected in Feb.  Sales for the past financial year were ¥7.77T, or about 0.9% more than its forecast.  SNE will book about ¥30B of extra expenses for the PC unit after sales were below target.  The company expects to write down excess components & compensate suppliers for unused materials in its PCs & record some restructuring charges ahead of schedule.  Sony & Japan Industrial Partners signed a definitive agreement for a sale of the PC unit with the transaction due to be completed Jul 1, the company said today.  SNE stock went up 47¢.  If you would like to learn more about SNE, click on this link for Trend Analysis:

Sony Reports Wider Loss Than Forecast as Hirai’s Recovery Efforts Founder

Sony Corp Ord (SNE)

stock chart

Stocks should have had a good day after favorable data on new jobs & a major reduction in the unemployment rate.  As I said in my last post, underlying numbers from the Labor Dept show problems remain in the slowest economic recovery in decades.  With all the questions asked at the press conference held by Obama & Merkel, the Ukraine mess is getting more attention.  On Apr 30, Dow eked out a new high of 15,580 but was not able to hold that in the new month, not a good sign going forward.

Dow Jones Industrials

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