Thursday, July 17, 2014

Markets sell off on MidEast and Ukraine tensions

Dow tumbled 161 (closing at the lows), decliners over advancers 4-1 & NAZ lost 62.  The MLP index fell 1 to the 519s & the REIT index was off 1+ to the 305s.  Junk bond funds declined & Treasuries rallied as stocks sold off.  Oil had a good gain as did gold on the negative news about the plane crash in Ukraine.

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Photo:   Bloomberg

A Malaysian Air jet was shot down over eastern Ukraine killing all 295 people on board, with the gov in Kiev blaming pro-Russian rebels.  The separatists denied the accusation.  The Boeing 777 flight from Amsterdam to Kuala Lumpur was hit by a missile & went down near the eastern town of Torez, about 18 miles from the Russian border, Ukraine’s Interior Ministry said.  The plane crashed in the main battleground of Ukraine’s civil war & is one of a number to have been downed in the region in the past month.  Russian pres Putin has repeatedly denied his nation is involved in the insurgency.  The US said this week that the rebels are getting weapons from Russia & tightened sanctions against it yesterday.  Putin expressed his condolences to the families of the crash victims, according to a statement from the Kremlin.  Pres Obama said that the US is trying to determine whether American citizens were on board.  The incident happens against the backdrop of Europe’s worst geopolitical crisis in decades.  After annexing Crimea earlier this year, the US has accused Russia of trying to foment unrest in Ukraine’s eastern regions, a claim that Putin rejects.  A key factor determining the political implications from today’s crash will be ascertaining how the jet was destroyed & who is responsible.  Earlier today, pro-Russian rebels said that they downed a Ukrainian plane near the site where the Malaysian Air jet crash.  Ukraine denied that any of its planes were lost.  The insurgents want to become part of Russia & have appealed to Putin to send military assistance.  Putin has refused, & last month asked lawmakers in Moscow to rescind the authorization they gave him Mar 1 to use force in Ukraine.

Ukraine Says Malaysian Airliner Shot Down Near Russian Border

James Bullard
Photo:   Bloomberg

The Federal Reserve (FED) may have to raise rates more quickly than planned as unemployment falls & inflation quickens, said James Bullard, pres of the St. Louis Fed.  “If macroeconomic conditions continue to improve at the current pace, the normalization process may need to begin sooner rather than later,” Bullard said.  Janet Yellen told lawmakers yesterday the central bank plans to press on with record easing to combat persistent weakness in the job market.  Speaking in semi-annual testimony, she repeated that the FED will probably keep interest rates low for a “considerable period” after ending monthly bond purchases, which she said may be announced at an Oct policy meeting.  The FED is nearing its goals for full employment & price stability faster than they had forecast, sharpening the debate over the timing for the first rate increase since 2006.  Bullard last week said a rapid drop in the unemployment may push inflation “well above” the FED target.  He predicted price gains as high 2.4% by the end of 2015.  “Normalization will take a long time, and current policy settings are far from normal, suggesting an earlier start,” Bullard said.  “Relatively low inflation and relatively weak labor markets have up to now suggested a later start. Stronger-than-expected data, rising inflation and rapidly improving labor markets may change this calculus in the months and quarters ahead.”  Bullard said the FED could raise rates without causing turmoil in financial markets.  “I have worried some about this issue,” he said in response to a question.  “If we withdraw and normalize in a way reacting to data, interest rates will rise but will rise in a way that makes sense,” he said.  “I do think we can do this in a way that will maintain relative stability in the bond market.”

Bullard Says Fed May Need to Move Forward Start of Exit

Philip Morris Q2 profit that beat estimates after European sales rebounded.  EPS was $1.17 compared with $1.30 a year earlier.  Excluding some items, EPS was $1.41, topping the estimate of $1.24.  CEO Andre Calantzopoulos is working to recover from a lingering slump in Asia, along with unfavorable currency shifts.  PM, which gets all of its revenue outside the US, said sales in Europe increased 8.5%, while overall cigarette shipment volume fell 2.7%.  The latest results were driven by shrinking volume declines, pricing & “robust” market share, he said.  “We achieved strong fundamental results in the second quarter,” Calantzopoulos said.  Revenue, excluding excise taxes, fell 1.5% to $7.8B, exceeding the $7.53B estimate.  PM still faces a number of challenges, including the rollout of its Marlboro Red 2.0 line & reduced-risk products, Calantzopoulos said.  The company also is contending with continuing difficulties in Asia & price discounts in Australia.  That will make it hard for H2 to compare favorably with its earnings growth in 2013, putting the company at the lower end of its forecast, he said.  In Jun, the company reduced its annual forecast to a range of $4.87-$4.97, down from $5.26 the previous year.  Analysts had estimated $5.16.  The stock fell 15¢.  If you would like to learn more about PM, click on this link:

Philip Morris’s Earnings Beat Estimates After Rebound in European Sales

Philip Morris International (PM)

The initial response to the Malaysian airline crash was muted, the markets were already lower.  But selling continued for the rest of the session.  A temporary cease-fire proposed by Israel was not accepted by Palestinians & fighting is on the rise.  For the time being earnings reports will be on a back burner with growing conflicts overseas.

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