Monday, September 15, 2014

Markets drift lower on weak manufacturing data

Dow rose 10, decliners over advancers almost 3-2 & NAZ dropped 34.  The MLP index sank 6 to the 519s & the was up fractionally to 299.  Junk bond funds slid lower & Treasuries climbed higher.  Oil continues to see selling & gold inched higher from recent lows. 

AMJ (Alerian MLP Index tracking fund)

CLV14.NYM....Crude Oil Oct 14...91.53 Down ...0.74  (0.8)

GCQ15.CMX...Gold Aug 15.....1,238.80 Up ...4.00 (0.3%)

US industrial production unexpectedly declined in Aug for the first time in 7 months as automobile making cooled.  Output at factories, mines & utilities fell 0.1% after a 0.2% gain the prior month that was smaller than previously reported, according to the Federal Reserve.  The forecast called for a 0.3% rise.  Automakers scaled back following the biggest surge in almost 5 years.  Faster wage gains are needed, alongside improving payrolls & consumer confidence, to trigger a more broad-based pickup in consumer spending that’ll bolster more manufacturers.  Manufacturing output, which makes up 75% of total production, dropped 0.4% last month, also the first decline since Jan, following a 0.7% gain in Jul that was smaller than previously estimated. The projection was for a 0.1 percent gain for manufacturing, which accounts for about 12% of the economy.  Today’s report also showed capacity utilization, which measures the amount of a plant that is in use, declined to 78.8% from 79.1% in the prior month.  Utility output increased 1%, after dropping 2.7% in Jul.  Mining production, which includes oil drilling, climbed 0.5.  The output of motor vehicles & parts decreased 7.6%, the biggest drop since May 2009, after a 9.3% surge in Jul (the largest gain since Sep 2009).  It probably also reflects difficulty in seasonally adjusting the data as fewer plants closed for new model-year retooling in Jul.  Excluding autos & parts, factory production increased 0.1% in Aug for a 2nd month.  Industry data show vehicle sales should keep powering production in coming months.  Sales of cars & light trucks rose to a 17.5M annualized rate in Aug, the highest since Jan 2006, from a 16.4 M pace a month earlier.

Industrial Output in U.S. Falls for First Time Since January

Chinese Premier Li Keqiang's options have narrowed: stimulate or miss his 2014 growth target.  The weakest industrial-output expansion since the global financial crisis, & moderating investment & retail sales growth, underscore the risks of a deepening economic slowdown led by a slumping property market.  The slowdown in Aug economic data that included a 2nd straight decline in imports & a 40% drop in the broadest measure of new credit will test Li’s resolve to avoid stronger monetary stimulus to meet his 7.5% goal.  An unprecedented lending spree from 2009-2013 led to a surge in debt on a scale that’s triggered banking crises in other economies, according to the IMF, underscoring the premier’s reluctance to open the spigot.  Growth in GDP may slip to 6.5-7% in Q3 if Sep numbers are also weak, down from 7.5% in Q2.  Industrial output rose 6.9% from a year earlier in Aug, down from 9% in Jul & the slowest pace outside the Lunar New Year holiday period of Jan-Feb since Dec 2008, based on previously reported data.

Li’s Options Narrow as China Growth Slowdown Deepens

Pro-Russian separatists fought with Ukrainian troops in several locations today including the Donetsk airport as Sec Kerry meets Russian Foreign Minister Lavrov.  The US is concerned about renewed clashes, the worst since a Sep 5 cease-fire, & has no details on the content of a Russian convoy that entered & left Ukraine over the weekend, a State Dept official said.  The US & other NATO countries began military exercises in the country today.  “My concern is that it is in Russia’s interests to establish new, protracted, frozen conflicts in the region,”  NATO Secretary General Anders Fogh Rasmussen said.  “Russia has used economic pressure and military action to produce instability, to manufacture conflicts and to diminish the independence of its neighbors.”  The NATO chief made his remarks as Kerry meets with Lavrov at a conference on Iraq today in Paris.  Rebels attacked gov troops close to 14 towns & villages in the Luhansk & Donetsk regions.  6 civilians were killed & 15 were injured by shelling in Donetsk yesterday, the city council said, & the airport was shelled on Sat in 2 rebel attacks that were repelled.  Militants of the self-proclaimed Donetsk People’s Republic were using guns & mortar to try to break through Ukrainian troop lines, the Ukrainian military said.  The US is participating in an annual training exercise in Ukraine with 14 other nations, according to the US European Command.  About 1300 military personnel from NATO members will take part in the exercise with Ukrainian forces near Yavoriv.  The exercise, dubbed Rapid Trident, in western Ukraine bordering Poland, is taking place about 750 miles from the fighting in Donetsk.

Ukraine Fighting Prompts U.S.-Russia Meeting in Paris

The US economy is not giving consistent signals of growth as the manufacturing data showed today.  Sluggish manufacturing is another reminder that consumer spending is not robust enough for strong growth number.  At the same time, there is a war with ISIS which looks blurring right now & the war in Ukraine is not winding down.  In spite of the negative news, Dow & S&P 500 are still near record highs.  However, high yielding sectors, i.e. MLPs & REITs, have pulled back in recent days.

Dow Jones Industrials

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