Friday, July 11, 2014

Markets edge higher on earnings and Portugal debt worries

Dow rose 28, advancers ahead of decliners 4-3 & NAZ climbed 19.  The MLP index went up 1+ to the 515s & the REIT index slipped pennies to the 304s.  Junk bond funds were mixed to higher & Treasuries extended their recent winning streak, taking the yield on the Treasury to 2.52%.  Oil took a nasty tumble on a gloomy forecast for its future in the coming months (see below) & gold slipped a tad.

AMJ (Alerian MLP Index tracking fund)

CLQ14.NYM....Crude Oil Aug 14....100.54 Down ...2.39  (2.3%)

Live 24 hours gold chart [Kitco Inc.]

The US budget deficit so far this fiscal year was the smallest since 2008 as a stronger economy bolstered tax payments by consumers & businesses.  The $365.9B shortfall from Oct thru Jun compared with a $509.8B gap in the same period a year earlier, the Treasury said.  Last month, the gov posted a $70.5B surplus compared with a $116.5B excess a year earlier.  Rising employment & corp profits will probably keep lifting tax receipts this year as the US recovers from a Q1 slump.  That should help shrink this fiscal year’s deficit, which is projected to be the smallest as a share of the economy since 2007.  The deficit in fiscal 2014, which ends Sep 30, is projected to be 2.8% of GDP, according to CBO, compared with 4.1% in 2013.  Revenue over the first 9 months of the fiscal year rose 8.2% compared with a year earlier, while spending gained 1.1%.  As demand improves, employers are taking in more workers.  Higher receipts from the Federal Reserve (FED), resulting from stronger earnings on its securities holdings, also contributed to the narrower deficit, the CBO said.  The FED bond-purchase program has boosted its balance sheet to a record $4.4T.  The gov surplus in Jun was lower than a year ago, when record income prompted Fannie Mae to boost divs it payed to the Treasury.  “Absent that payment, this June’s surplus would have been slightly larger than that in June 2013,” according to the CBO.

Budget Gap Shrinks to Narrowest Since 2008 So Far in Fiscal Year

Gap shares fell after the retailer posted an unexpected drop in comparable-store sales for Jun.  Sales at stores open at least a year, including online orders, fell 2%.  Retail Metrics, a research firm tracking the industry, had estimated a gain of 0.8%.  “Despite softer June results at Gap and Banana Republic, we remain focused on delivering in the upcoming fall season,” CEO Glenn Murphy said.  Murphy has been working to buoy same-store sales after a 1% decline in Q1, the first quarterly drop since 2011.  GPS is investing in technology to improve its online & in-store services, as well as boosting employees’ pay to at least $10 an hour by 2015 to help enhance customers’ experiences.  Sales at the flagship chain & Banana Republic stores both fell 7% last month.  The lower-end Old Navy chain fared better, gaining 7%, beating the 1.1% rise projected.  Still, all 3 divisions performed worse than in the year-earlier period.  The latest results show GPS is still struggling to find its footing after a slow start to the year, when a harsh winter hurt the entire US retail industry.  Old Navy has been a bright spot, thanks to its low prices & popular “ath-leisure” apparel, which combines athletic and leisure wear.  US retailers have posted mixed same-store sales results for Jun, with 5 of the 9 that report results missing estimates, according to Retail Metrics.  GPS stock fell 32¢.  I you would like to learn more about GPS,
Click here for a FREE analysis of GPS and be sure to notice the intermediate time frame

Gap Falls After Unexpected Drop in June Same-Store Sales

Gap (GPS)

Libyan Oil Supply Increases
Photo:   Bloomberg

New US pipelines & a revival in Libyan supply are increasing the likelihood that oil prices will slump thru year-end after climbing in H1.  Analysts predict WTI oil (oil in the US) will average $100 a barrel in Q4, down 5.1% from Jun 30.  WTI rose 7.1% in H1 as Cushing supplies tumbled to a 5-year low, with new lines carrying oil to the Gulf Coast.  The US grade fell $4.21 to $102.29 during the 9 days ended Jul 9, the longest stretch of declines since 2009 & slipped 2% to under $101 today.  Brent (oil for the rest of the world) headed for a drop in H1 until the widening conflict in Iraq raised concern of a supply disruption.  Prices fell after an Islamic insurgents’ advance stopped short of southern Iraq, home to most of the country’s crude output.  The spread between the contracts narrowed to as little as $3.59 in Apr from $14.95 on Jan 13, before the opening of the southern leg of the TransCanada’s Keystone XL.  Stockpiles have slipped 50% since the pipeline began moving barrels from Cushing to Texas in Jan.  The spread closed at $5.83 today.  Cushing supplies began falling 2 years ago when the direction of the Seaway pipeline was reversed to move oil away from the hub. Enbridge (ENB) & Enterprise Products Partners (EEP) said Jul 3 that they completed a 512-mile (833-kilometer) loop that’s expected to boost Seaway’s capacity to 850K barrels a day from 400K.  The additional supply coming out of Cushing is about half that of the new lines going in.  Pony Express will open with throughput of 230K barrels a day & Flanagan South will be able to move 600K, the lines’ owners said.

Prepare for Oil to Keep Falling on Libya to U.S. Supply

This is Fri in the summer & once again volume is light, so that only limited buying or selling is moving the markets.  There have been a string of reminders that retail sales, a very important metric, keep coming in spotty with a bias on the negative side.  Early next week, there will be more earnings reports from big banks & they may not be impressive.  Dow fell 125 from its record high last Fri.

Dow Jones Industrials

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