Thursday, May 1, 2014

Markets waffle despite higher consumer spending

Dow slid 8, advancers barely ahead of decliners & NAZ jumped 20.  The MLP index went up 1+ to the 483s & the REIT index lost 1+ to the 292s.  Junk bond funds rose & Treasuries were also higher.  Oil fell to a 6-week low after US crude inventories extended a record high.  Gold sold off again.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLM14.NYM...Crude Oil Jun 14...99.37 Down .....0.37  (0.4%)

GCK14.CMX...Gold May 14....1,280.30 Down ...15.30  (1.2%)

Consumer spending surged in Mar by the most in almost 5 years as warmer weather brought shoppers back to auto-dealer lots & malls, a sign the US economy gained momentum heading into Q2.  Household purchases climbed 0.9%, the most since Aug 2009, after a 0.5% gain in Feb that was larger than previously estimated, according to the Commerce Dept.  The forecast called for a 0.6% gain.  Incomes increased by the most in 7 months.  Continued gains in employment may lift consumer confidence & give households the means to spend after usually harsh winter weather held them back.  Incomes climbed 0.5%, the most since Aug & exceeding the for a 0.4% gain.  After adjusting consumer spending for inflation, which generates the figures used to calculate GDP, purchases increased 0.7%, also the most since Aug 2009, after a 0.4% gain.  Spending on durable goods, including automobiles, surged 2.7% after adjusting for inflation, the biggest gain in 4 years, following a 1.3% increase in Feb.  Purchases of non-durable goods, which include gasoline, rose 0.9%.  Outlays on services increased 0.4% after adjusting for inflation following a 0.2% increase in Feb.  The biggest contributor was a jump in utility outlays.  Spending on health care also rose, though by less than in the prior 2 months.  Outlays on health services surged 9.9% at an annualized rate in Q! from Q4, the most since 1980, as Americans began to use the insurance under Obamacare. 

Consumer Spending in U.S. Jumps by Most in Five Years

Jobless Claims in U.S. Unexpectedly Climb to Nine-Week High
Photo:   Bloomberg

Applications for unemployment benefits unexpectedly climbed to a 9-week high, underscoring the difficulty adjusting the data for seasonal variations such as the Easter holiday & spring recess at schools.  Jobless claims rose 14K to 344K last week, the highest level since Feb, according to the Labor Dept.  The forecast called for 320K.  A more subdued pace of layoffs would give managers room to step up hiring depending on how much demand picks up after the economy stagnated in Q1.  Federal Reserve officials, who yesterday announced a further reduction in the pace of monetary stimulus, said the job market is improving.  The 4-week average of claims increased to 320K from 317K in the prior week.  The number continuing to receive jobless benefits rose 97K to 2.77M in the latest week.  The unemployment rate among those eligible for benefits increased to 2.1% from 2% in the prior week.

Jobless Claims in U.S. Unexpectedly Climb to Nine-Week High

Exxon, a Dow stock & Dividend Aristocrat, posted higher-than-expected profit as intl sanctions against Russian interests clouded the oil explorer’s efforts to tap some of the world’s biggest crude reserves.  Q1 EPS was $2.10 which compares with $2.12, a year earlier.  EPS exceeded all estimates & surpassed the average by 22¢.  Russia's oil & gas riches are key to CEO Rex Tillerson's plans for reviving output at the world’s biggest energy explorer by market value.  Global production has fallen in 10 of the past 11 qtrs & net income is in the midst of the longest slide since the financial crisis of 2008-2009.  XOM slashed spending on drilling & acquisitions outside the US by 41% to $5.2B & almost tripled asset sales to amass cash.  The balance-sheet measures helped offset a larger-than-expected 5.6% drop in oil & natural gas production exacerbated by lower crude prices.  Revenue declined 1.5% to $106.8B.  Global production fell to the equivalent of 4.15M barrels a day, the lowest Q1 average since the 1999 acquisition of Mobil.  XOM has staked out the largest non-US exploration claim in Russia, the world’s biggest source of crude last year, in a partnership with state-controlled OAO Rosneft.  It has exclusive exploration access to 11.4M acres at the end of last year, according to a recent filing.  XOM is allocating $39.8B to capital projects this year, including hundreds of millions for an exploratory well in Russia’s Kara Sea, above the Arctic circle, as part of a 29-year agreement signed with Rosneft in 2011.  The stock fell 77¢.  If you would like to learn more about XOM, click on this link:

Exxon’s First-Quarter Profit Declines Less Than Expected

Exxon Mobil (XOM)

News about rising consumer spending should have brought out buyers.  But it didn't.  Yesterday's GDP report for Q1 was weak & higher consumer spending implies the economy is correcting quickly.  Higher claims for unemployment benefits is really a non event, given the many adjustments that were made.  But yesterday, Dow just squeaked out a record high (finally) & there was no oomph behind it today.  This is not what the bulls want to see. 

Dow Jones Industrials

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