Wednesday, July 9, 2014

Higher markets after release of Fed minutes

Dow climbed 78 (closing just short of 17K). advancers ahead of decliners 4-3 & NAZ added 27.  The MLP index bounced 6 to 517 after recent selling & the REIT index was up a fractionally in the 303s.  Junk bond funds were mixed to lower & Treasuries rose, taking the yield on the 10 year Treasury to 2.55%.  Oil fell for a 9th day, the longest stretch of declines since 2009, after supplies rose at Cushing, Oklahoma.  Gold rose after minutes from the Federal Reserve's Jun meeting were released.

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Federal Open Market Committee
Photo:   Bloomberg

Some Federal Reserve (FED) policy makers were concerned investors may be growing too complacent about the economic outlook & the central bank should be on the lookout for excessive risk-taking, according to minutes of the Jun meeting.  “Signs of increased risk-taking were viewed by some participants as an indication that market participants were not factoring in sufficient uncertainty about the path of the economy and monetary policy,” the minutes showed.  FED officials expressed concern about low volatility in equity, currency & fixed-income markets.  At the same time, “it was noted that monetary policy needed to continue to promote the favorable financial conditions required to support the economic expansion,” according to the minutes.  They also agreed that their bond-purchase program would end with a final reduction of $15B in buying at the Oct meeting if the economy progresses as they expect.  At the Jun meeting, the FOMC continued cutting the monthly pace of asset purchases, reducing it by $10B for a 5th straight meeting, to $35B.  Officials agreed they must monitor markets for signs of froth & said that if necessary, supervisory measures should be used to “address excessive risk-taking and associated financial imbalances.”  The minutes offered no new clues on the timing of an interest-rate increase.  They also continued discussions of a strategy for the eventual exit from unprecedented monetary easing.  “It was observed that it would be useful for the committee to develop and communicate its plans to the public later this year, well before the first steps in normalizing policy become appropriate.”  Many participants agreed that it “would be best” for the FED to end reinvestment of maturing securities only when it raises rates for the first time since 2006, or even afterward.  Most preferred to end after.

Are Investors Complacent About Risk? Concern Raised in June Fed Meeting

Ukrainian pres Poroshenko dismissed Russia's claim that rebels are prepared for peace talks as his national security chief vowed to press on with an offensive to regain territory near the frontier.  Poroshenko told French President Hollande & German Chancellor Merkel in a joint phone call that Ukraine is ready for dialogue with pro-Russian separatists interl observers but “the other side” has shown no willingness.  Russian Foreign Minister Sergei Lavrov said earlier today the militias in eastern Ukraine are ready for talks, but “ultimatums and pre-conditions” must not stand in the way of peace efforts.  Ukrainian forces have continued to press their advance against the pro-Russian separatists after militants shifted thousands of fighters to the provincial capitals of Donetsk & Luhansk.  As EU states consider expanding its list of sanctioned Russians, pres Putin’s gov is calling for negotiations.  “We have to do everything to make sure both sides sit at the negotiating table and agree on a cease-fire,” Lavrov said.  “We will definitely advance,” Andriy Parubiy, head of Ukraine’s national security & defense council, said.  “Our ring around the terrorists becomes tighter and tighter every day.”  Ukrainian forces control 13 of 18 districts in the Donetsk region & 10 of 18 in Luhansk, with new “population points” being freed daily, Parubiy said.  Hollande & Merkel called on Putin to use his influence on the rebels to prevent the influx of arms.  Ukraine will agree to a cease-fire if the militias lay down their arms, something they’re unwilling to do, Deputy Foreign Minister Danylo Lubkivsky said yesterday.

Ukraine Pushes Offensive as Russia Says Rebels Seek Talks

The Container Store Q1 sales were $173.4M, an increase of 8.6% over last year.  "We thought our sluggish sales were all because of weather and calendar shifts that began last November and continued into the spring, but now we’ve come to realize it’s more than weather and calendar. Consistent with so many of our fellow retailers, we are experiencing a retail ‘funk’. Our comparable store sales declined 0.8%, in the first quarter." said CEO Kip Tindell.  "It is important to remember that historically first quarter at The Container Store is by far our lowest from both a sales and profitability standpoint. Simply put, it represents less than zero percent of our annual earnings. So we’re disappointed with the first quarter, but the first quarter has very little impact on our full year earnings results."  Tindell added, "We are confident that customer enthusiasm for our brand, and employee morale are at all time highs, yet we continue to experience slight traffic declines in this surprisingly tepid retail environment. While consumers are buying homes and automobiles and even high ticket furniture, most segments of retail are, like us, seeing more challenging sales than we had hoped early in 2014 – so we’re not alone in this. We believe we’ll have a slight improvement in the second and third quarters. But we are very much looking forward to the fourth quarter as we comp against the worst weather we had in our history last year and believe we will see marked improvement in our sales trends. Historically over 60% of our profitability has been derived in the fourth quarter, so from a profitability perspective fourth quarter is very important for us."  The stock was crushed, falling 2.27 (8%) to a new low since its IPO in Nov.  If you would like to learn more about TCS,
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The Container Store Group, Inc., Announces First Quarter 2014 Financial Results  Business Wire

Container Store (TCS)

The FED minutes had no great surprises.  It is widely expected that the monthly bond buying program will end in a few months & the FED still has no plans to start raising interest rates anytime soon, words the bulls are always waiting to hear.  Dow remains where it was after the big rise on Jul 1.  Earnings season will be kicking into high gear in the next few days with big bank earnings.  TCS is another reminder that consumer spending is spotty.

Dow Jones Industrials

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