Friday, July 11, 2014

Markets fluctuate after Wells Fargo earnings

Dow dropped 18, decliners just ahead of advancers & NAZ added 9.  The MLP index lost 1  to the 513s & the REIT index was down fractionally in the 304s.  Junk bond funds inched higher & Treasuries gained again.  Oil headed for the 3rd weekly decline as supply risks eased in Iraq & Libya while stockpiles rose at Cushing, OK.  Gold slid back after recent gains.

AMJ (Alerian MLP Index tracking fund)

CLQ14.NYM...Crude Oil Aug 14...101.89 Down ...1.04  (1.0%)

GCN14.CMX...Gold Jul 14.........1,336.20 Down ...2.50  (0.2%)

Federal Reserve Vice Chairman Stanley Fischer said a council of financial regulators established by the Dodd-Frank Act may need more authority to help guard against threats to the banking system.  Members of a committee of key regulators, including the Fed & Treasury Dept, would benefit from having financial stability added to their mandates, Fischer said in his first speech since joining the central bank.  The panel, known as the Financial Stability Oversight Council (FOSC), could also be given greater independence to address systemic risks, according to Fischer.  “It may well be that adding a financial stability mandate to the overall mandates of all financial regulatory bodies, and perhaps other changes that would give more authority to a reformed FSOC, would contribute to increasing financial and economic stability,” Fischer added.  He cited research by former Fed Vice Chairman Donald Kohn.  Fischer’s proposals for the council came in a lecture that reviewed progress toward ensuring stability since the crisis of 2007-2009.  As Fischer & Kohn make the case for strengthening FSOC, lawmakers are attempting to curtail the panel’s work, arguing is too inclined to designate companies for Fed oversight.

Fischer Says Financial Stability Panel Needs More Power

Wells Fargo profit increased 3.8% on lower credit costs even as the lender’s EPS failed to top the prior qtr for the first time since 2009.  EPS was $1.01, up from 98¢ a year earlier.  The estimate was for $1.01 excluding special items & EPS fell from $1.05 in Q1.  CEO John Stumpf has sought to counter a drop in mortgage revenue as higher interest rates crimp new home loans.  He’s expanded in businesses including credit-card & auto lending, investment banking & retail wealth management to help cover the shortfall.  “Our strong results in the second quarter reflected the benefit of our diversified business model,” Stumpf said.  “Our results also reflected strong credit quality driven by an improved economy, especially the housing market.”  The lender set aside $217M to cover bad loans, 67% less than a year earlier.  Revenue fell 1.5% to $21.1B from a year earlier, ahead of the $20.8B estimate.  Mortgage revenue declined 39% to $1.72B.  Net interest margin slipped more than estimated to 3.15% from 3.2% in Q1.  WFC accounted for about 28% of US home loans in Q1-2012, before a 1 percentage point increase in conventional mortgage rates slowed refinancings & drove that share to 16% 2 years later.  Lenders probably refinanced $109B of housing debt in Q2, less than 25% of the amount in Q4-2012, according to the Mortgage Bankers Assoc.  The stock fell 46¢.  If you would like to learn more about WFC,
Click here for a FREE analysis of WFC and be sure to notice the intermediate time frame

Wells Fargo Net Rises; EPS Fails to Extend 17-Quarter Streak

Wells Fargo (WFC)

Global oil demand will rise at the fastest pace in 5 years in 2015 as China leads gains in emerging economies, the Intl Energy Agency said.  World oil consumption will increase next year by 1.4M barrels a day & the rate of growth will be the fastest since 2010.  It’s also higher than a projected increase of 1.2M a day in supplies from outside the OPEC.  Demand growth will be led by China & other countries outside OPEC.  While oil has retreated in the past month prices will stay supported near historically high levels as risks in the MidEast “remain extraordinarily high.”  “The global economy is still expected to gain momentum in 2015 & the oil outlook for 2015, unveiled here in detail for the first time, also does not suggest any letup in market conditions.”   Global GDP will expand by 3.9% next year, up from 3.6% in 2014, according to the IMF.  World oil demand will climb 1.5% to a record 94M barrels a day in 2015, as growth in emerging economies compensates for a contraction in developed nations, the IEA said.  Many developing economies “are entering a stage of development where rising household incomes and expanding industrial activity typically fuel relatively fast oil consumption growth,” according to the report.  Chinese demand will increase by 440K barrels a day in 2015, or 4.2%, to 10.8M a day, as gov support keeps economic growth above 7%.  The need for OPEC’s crude will decline to an average of 29.8M barrels a day in 2015, or 100K a day less than this year, as the group produces more natural gas liquids.  The IEA forecasts the amount of crude needed from the organization, rather than the level it will provide. OPEC’s output of NGLs will increase by 300K barrels a day next year to 6.7M a day.

Oil Demand Seen by IEA Rising Fastest Since ’10 on China Growth

WFC earnings were not greeted with enthusiasm.  The story is similar to past reports & from other big banks.  Revenue is lower & gains come largely from reversal of bad debt revisions & accounting adjustments.  Old fashioned higher revenue brings higher earnings has not been the story for many banks during the feeble economic recovery.  As usual with summer Fri trading volume is light, hard to make much of price swings.

Dow Jones Industrials

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