Monday, September 29, 2014

Markets decline on slowdown in China's economy

Dow tumbled 95, decliners over advancers better than 3-1 & NAZ dropped 12.  The Alerian MLP index fell 1+ to the 524S & the REIT index lost 2+ to the 291s.  Junk bond funds saw selling & Treasuries rose.  Oil was lower near multi year lows & gold is still sloshing around its lows, but rose on bargain hunting

AMJ (Alerian MLP Index tracking fund)

CLF15.NYM....Crude Oil Jan 15...91.65 Down ...0.37  (0.4%)

GCQ15.CMX...Gold Aug 15....1,222.90 Up ...4.80 (0.4%)

Consumer Spending
Photo:   Bloomberg

Consumer spending in the US rebounded in Aug as further job gains encouraged households to loosen purse strings.  Purchases increased 0.5% last month after little change in Jul, according to the Commerce Dept.  The forecast called for a 0.4% gain.  Incomes increased 0.3%.  Employers are cutting back on dismissals & adding to headcounts, helping underpin sentiment & sustaining the purchases that make up almost 70% of the economy.  Bigger wage gains would help provide an additional push & propel sales.  The consumption data showed that after adjusting consumer spending for inflation, which generates the figures used to calculate GDP, purchases increased 0.5% last month, the most since Mar, after a 0.1% drop in Jul.  Spending on durable goods, including automobiles, increased 1.9% after adjusting for inflation, the most in 5 months, following a 0.1% gain.  Purchases of non-durable goods, which include gasoline & clothing, rose 0.3%.  Vehicle purchases remain a source of strength for the economy.  Sales of cars and light trucks rose to a 17.5M annualized rate in Aug, the highest since Jan 2006.  Household outlays on services increased 0.4% after adjusting for inflation.  In addition to health care, the category also includes utilities, tourism, legal help & personal care items such as haircuts.  Disposable income, or the money left over after taxes, rose 0.3% in Aug after adjusting for inflation.  It increased 0.1% in the prior month & was up 2.7% from Aug 2013.  The savings rate fell to 5.4% last month from 5.6% in Jul.  Wages & salaries increased 0.4%, the most in 3 months.

Consumer Spending in U.S. Climbed in August on Income Gain

Ukraine's army endured its deadliest day since signing a cease-fire with pro-Russian militants 3½ weeks ago, straining efforts to find a lasting settlement to the 6-month conflict in the nation’s east.  9 Ukrainian servicemen were killed in attacks during the last 24 hours, including an assault by a separatist tank on a gov armored personnel carrier near the airport of Donetsk, the combat zone’s largest city, a military spokesman said.  27 soldiers were wounded as troops repelled “two powerful storms” by rebel fighters, while gov forces killed 50 militants.  The latest violence challenges comments last week by pres Poroshenko that the worst of the war in his nation’s easternmost regions is over.  Ukraine is focusing on elections next month, securing gas supplies & preparing a bid for EU membership.  Russia has said it wants to normalize ties with the EU & US.  The latest death numbers are far below the daily loss of life witnessed at the peak of the war.  The conflict has killed more than 3.5K & driven at least 615K from their homes, the UN estimates.

Ukraine Army Sees Worst Day Since Truce as Battles Flare

Profits at industrial companies in China declined last month for the first time in 2 years as a slowdown in the economy deepens.  Total profits of industrial enterprises fell 0.6% from a year earlier in Aug, the National Bureau of Statistics (NBS) said.  That compares with a 13.5% increase in Jul & is the first drop since Aug 2012.  The decrease highlights another sign of stress in the industrial sector after output growth slowed to a 5-year low.  Policymakers have eschewed broad stimulus measures to revive growth, opting for targeted easing & expedited spending.  Industrial profits in the first 8 months of the year slowed to a 10% increase from 11.7% in the first 7 months.  The lower growth last month was exacerbated by a high base last year, when Aug saw a 24.2% profit jump.  Profits were dragged by the slowdown in industrial production, weak demand & falling factory prices, NBS said.  Profit growth in the 8 months slowed in industries including steel, chemicals & electronics.  China's economy remained stuck in “low gear” in Q3, with struggling retail & residential real-estate industries countering improvements in manufacturing & transportation, a private survey showed.  Growth in investment slowed further, borrowing costs rose & the share of firms applying for & getting bank loans remained at “rock bottom levels,” according to the China Beige Book.  Recent data for Aug showed the weakest industrial-output expansion since the global financial crisis & a 40% drop in the broadest measure of new credit.  Premier Li Keqiang reiterated this month that the gov will stick to targeted easing & can’t rely on monetary stimulus to spur growth.

China Industrial Profits Drop in August as Slowdown Deepens

The consumer spending data should should have brought out buyers.  But dreary news from overseas in Ukraine & China are keeping buyers away.  Thoughts about rising interest rates are also scary for the bulls.  Junk bond funds have pulled back & the yield sensitive REIT index is at a 5 month low.  When worries outweigh helpful economic data & yield sensitive stocks decline, the stock market is in trouble.

Dow Jones Industrials

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