Monday, June 30, 2014

Markets attempt to crawl higher on mixed economic data

Dow lost 26, advancers over decliners almost 3-2 & NAZ added 10.  The MLP index jumped 2+ to the 523s, yet another record, & the REIT index fell 1 to the 302s.  Junk bond funds were mixed & Treasuries saw buying.  Oil slid back but gold gained.

AMJ (Alerian MLP Index tracking fund)

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Pending Sales of U.S. Existing Homes Rise by Most in Four Years
Photo:   Bloomberg

The number of contracts to purchase previously owned homes in the US jumped in May by the most in more than 4 years, a sign the residential-real estate market is rebounding after a slow start to the year.  The pending home sales index climbed 6.1% after a revised 0.5% increase in Apr, the National Association of Realtors (NAR) said.  The gain exceeded the most optimistic estimate in a Bloomberg survey of economists, whose median forecast for a 1.5% gain.  Housing demand is benefiting from cheaper borrowing costs, a stronger employment outlook & easier access to credit for some households.  At the same time, higher prices & limited income gains are keeping the improvement in the residential real estate from becoming more broad-based.  The gain in May was the biggest since first-time buyers rushed to sign contracts before the expiration of a tax credit 4 years ago.  But purchases fell 6.9% from the year prior (unadjusted) after a 9.3% decrease in the 12 months that ended in Apr.  The pending sales index was 103.9 on a seasonally-adjusted basis, the highest since Sep.  A reading of 100 corresponds to the average level of contract activity in 2001, or “historically healthy” home-buying traffic, according to the NAR.

Pending Sales of U.S. Existing Homes Rise Most in Four Years

The Institute for Supply Management-Chicago business barometer fell to 62.6 in Jun from 65.5 the prior month.  The forecast projected the index would fall to 63.  The estimate (due tomorrow) for the national factory index probably is that it increased to 55.9 in Jun from 55.4 the prior month.

Chicago ISM Manufacturing Index Fell to 62.6 in June From 65.5

The most-actively traded Chinese companies in the US are on pace to report the smallest profits in 2 years as growth in the economy decelerates to the slowest since 1990.  Analysts estimate that on average they will post EPS of $5.64 this year, which would be the lowest profits reported since 2012.  They’ve cut revenue forecasts 7.9% in the past 11 weeks.  Earnings & sales projections are falling as China's GDP will slow to 7.4% this year, the weakest pace in 24 years, after back-to-back annual increases of 7.7%.  While the gov has implemented tax breaks, accelerated spending & cut some banks’ reserve requirements, investors are concerned that officials aren’t doing enough to stem a decline in real estate prices and boost private consumption.

Slowing China Economy Dims Profit Outlook to 2012 Low

Time Warner is expanding its UK operations, taking advantage of gov subsidies & official strategies to promote the film, animation & video-game industries.  The studio plans to build 3 new stages, bringing its number in the UK to 13 by the end of the year & enabling the company to have 4 major features in production there at one time.  Hollywood is enjoying widening subsidies at home & abroad as countries vie to attract the industry’s high-paying jobs.  The UK gov is introducing new initiatives that include reducing the red tape for permits required for filming & a strategy to double the exports from the sector to £31B ($53B) by 2020.  “Warner Bros. has produced some of our most popular and successful films in the U.K., working with British talent,” Kevin Tsujihara, the studio’s CEO, said.  The expansion “will allow us to further tap into the world-class creativity and innovation  available here to continue this tradition.”  The UK is one of the countries that has benefited the most from incentives to entice filmmakers.  Under current rules, a qualifying movie can claim a rebate of 25% for budgets of £20M or less filmed in in the UK & 20% of budgets in excess of that.  The gov wants to increase the incentive to 25% for all spending in the UK on films & is awaiting EU approval.  Studios are expanding to meet demand.  Last month Pinewood Shepperton was granted permission to almost double the size of its facilities.  The country has in recent years expanded its incentives to include TV production & video games.  Many big-budget Hollywood movies are now made exclusively in the UK.  TWX stock went up 51¢ to a new record.  If you would like to learn more about TWX,
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Warner Bros. Expands U.K Ops on New Film Initiatives

Time Warner (TWX)

Very little went on today in the markets.  This was the last day of Q2 & volume was very sloooow.  With that, modest amounts of buying or selling can make for relatively large swings.  MLPs deserve special mention.  The Alerian MLP index went up 58 (12%) in Q2, its best quarterly performance since its start in 1996.  All yield securities have been popular as investors look for yields, but MLPs are in a world of their own.  These are bought primarily for their yields & the yield on the Alerian MLP index is at a record low, under 5¼%.  Meanwhile Dow rose 358 (2%).  Earnings season begins next week when Alcoa (AA) reports after the close on Tues.

Dow Jones Industrials

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Friday, June 27, 2014

Markets rise cautiously in slow summer trading

Dow added 6 from buying in the last hour, advancers over decliners 2-1 & NAZ added 18.  The MLP index jumped 2 to the 521, yet another new record, & the REIT index was up 1+ to the 302s.  The MLP index has risen almost 70 since mid Mar, one of its best runs in history.  Junk bond funds were mixed & Treasuries pulled back after recent gains.  Oil & gold were flattish.

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The EU gave Russia 3 days to stop a separatist rebellion in Ukraine or face deeper sanctions as the gov in Kiev prepared to extend a cease-fire originally due to expire tonight.  EU leaders demanded that the separatists, whom Ukraine & its allies say are backed by Putin’s gov, return border checkpoints, release hostages & start talks to implement a peace plan drawn up by Ukrainian pres Poroshenko by Mon.  Failure to do so will result in “further significant restrictive measures” against Russia.  “If no visible progress is made on these points, then we are prepared to take further decisions, including drastic measures,” German Chancellor said.  “We expect progress to come really in the hours ahead.”  The US reinforced EU demands.  The White House press secretary said the conditions “are very specific steps that the Russians can take by Monday” or face more economic costs.  Trying to bolster solidarity from richer nations to Ukraine’s west against what it calls Russian aggression, Poroshenko also signed a free-trade pact with the euro, which he said showed Ukraine’s “sovereign choice in favor of future membership of the EU.”  “What a great day, maybe the most important day for my country after independence day,” Poroshenko said after signing the agreement.  “The external aggression faced by Ukraine gives another strong reason for this crucial step.”  Accusing Putin’s gov of allowing weapons, manpower & other support to flow across its border into Ukraine, the US also is preparing sanctions against Russia on technology aimed at exploiting & producing oil & gas products, a major part of that country’s economy.

EU Tells Russia to Stop Ukraine Rebels or Face New Cost

The Federal Reserve is finally succeeding in its efforts to generate higher inflation.  Now it must do the same for wages to prevent US households from getting squeezed.  The price measure tracked by the central bank rose 1.8% in May from a year earlier, the biggest 12-month gain since Oct 2012, & just shy of its 2% goal.  After adjusting for inflation, consumer spending dropped for a 2nd consecutive month.  Americans are paying more to fill up their grocery carts & car fuel tanks, leaving less for discretionary items, including the latest fashions, restaurant meals & movie tickets.  While rising stock & and home prices are shoring up finances for higher-income households, fatter paychecks would allow spending by the majority of consumers to shift into a higher gear and stimulate economic growth.  The central bank’s preferred measure of inflation has been below its goal since Apr 2012, causing concern that disinflation will make it difficult for borrowers to pay off debts & for businesses to boost profits.  Fed Chair Yellen has said inflation persistently below target could pose risks to economic growth.  Last week she said that she would “worry about downside risk to consumer spending” should wages fail to accelerate even as the labor market improves.  Commerce Dept data yesterday showed those concerns weren’t misplaced. Consumer purchases, after accounting for the influence of prices, fell 0.1 % in May after a 0.2% decline a month earlier, signaling the rebound in growth in Q2 will be more muted than previously projected.

Yellen Spending Mix Lacks Ingredient of Higher Pay: Economy

Eli Lilly won European backing for a biosimilar version of Sanofi’s (SAN) Lantus insulin, paving the way for the first copy of the French drugmaker’s top-selling medicine.  Abasria insulin was recommended by the European Medicines Agency’s Committee for Medicinal Products for Human Use for the treatment of diabetes, the agency said.  The European Commission, the EU’s executive arm, usually follows the panel’s recommendation.  Lantus, which garnered Paris-based Sanofi €5.7B ($7.8B) in sales in 2013 & loses patent protection in Europe next May.  The US patent on Lantus expires in Feb, but biosimilar competition there may be delayed after Sanofi in Jan said it was suing LLY over its plans to introduce a version in the US.  Biosimilars are lower-cost versions of complex drugs made from living organisms, unlike generic drugs which are exact copies of simpler chemical compounds.  Abasria, also known as insulin glargine, has the same amino acid sequence as Lantus, Lilly said, and has been shown in trials that it has comparable quality, safety & efficacy to the Sanofi drug.  LLY has made an aggressive push to expand its diabetes products, with drugs in every class of therapy for what it calls a full suite of offerings for doctors, health insurers & govs.  The company said last month a separate once-daily insulin injection called Peglispro was better than Lantus in controlling patients’ blood sugar, a measure of how well a patients’ diabetes is under control.  LLY will file for US approval to sell that drug in the first quarter of next year.  LLY stock was up pennies.  If you would like to learn more about LLY,
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Lilly Wins EU Backing for Version of Sanofi’s Lantus

Eli Lilly (LLY)

DuPont, a Dow stock, revised its outlook for operating EPS for Q2 & full year 2014, due primarily to lower than expected quarterly performance of its Agriculture &, to a lesser extent, Performance Chemicals segments.  The company expects operating EPS in Q2 to be moderately below the $1.28 recorded last year.   As a result, its full-year outlook for operating EPS was lowered to $4.00-$4.10.  The revised outlook in Agriculture reflects lower than expected corn seed sales & higher than expected seed inventory write-downs.  Given favorable soybean economics, soybean sales volume in North America are higher than expected.  However, higher soybean volume will not fully offset the decline in corn volume, especially given the transition under way in the company's soybean lineup to newer, higher performing products.  The company believes this is a short-term negative trend, & there will be strong demand for its next generation soybean products.  The revised outlook also reflects lower than expected crop protection herbicide sales, largely due to weather.  "While 2014 is a transition year in agriculture, the revisions to the outlook we made today do not meet the expectations we set for our Agriculture segment or for the company," CEO Ellen Kullman said.  "We have a strong global market position and a rich pipeline and we will make the necessary changes so that we return to our five-year track record of delivering the reliable, attractive growth our shareholders expect from this segment."  Performance Chemicals Q2 results will be impacted by lower than expected selling prices in refrigerants for mobile & stationary applications.  The stock sank 2.26.  If you would like to learn more about DD,
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DuPont Lowers Operating Earnings Outlook for 2Q and 2014   PR Newswire

E.I. du Pont de Nemours (DD)

Fri in the summer brings slow trading & today was no exception.  Volume was light.  A little buying in the last hour put Dow into the black after being down all day.  Intl tensions remain high & forecasts for growth in the US economy are being trimmed.  Despite those dark clouds, Dow & the S&P 500 are near record highs.  This disconnect can not last.

Dow Jones Industrials

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