Monday, September 8, 2014

Markets retreat led by energy sector

Dow dropped 25, decliners ahead of advancers better than 3-2 but NAZ added 9.  The MLP index was up fractionally to the 536s & the REIT index slipped a fraction to the 314s.  Junk bond funds slid lower & Treasuries pulled back.  Oil & gold lost ground.

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CLV14.NYM....Crude Oil Oct 14....92.50 Down ...0.79  (0.9%)

Live 24 hours gold chart [Kitco Inc.]

Photo:   Bloomberg

Japan’s economy contracted the most in more than 5 years, highlighting the challenge for Prime Minister Abe in steering the nation through the aftermath of a sales-tax increase.  GDP shrank an annualized 7.1% in Q2, the most since Q1-2009, the Cabinet Office said.  The forecast was for a 7% drop.  The blow from the sales-tax hike in Apr extended into Q2, with retail sales & household spending falling in Jul.  The gov signaled last week that it is prepared to boost stimulus to help weather a further increase in the levy scheduled for Oct 2015.  Companies’ capital investment dropped 5.1% from Q1, more than double the initial estimate for a 2.5% decline.  Private consumption was revised to a 5.1% decline from an initial reading of a 5% fall.  For the qtr, private inventory added 1.4 percentage points to GDP from the prior qtr, more than the 1% initially estimated.  Japan’s surplus in its widest measure of trade narrowed to 30.6% from a year earlier in July, underlining headwinds to the economy.  The ¥416.7B surplus in the current account was smaller than a estimate of ¥444.2B.  The economic weakness followed a surge in growth in Q1 when consumers & companies rushed to make purchases before the tax rose to 8% from 5%.  The gov won’t raise the tax again without taking steps to support the economy, Economy Minister Amari said last week.  A back-up plan for stimulus will be prepared.

Japanese Economy Contracts More Than Initial Estimate on Tax

US consumer borrowing rose more than forecast in Jul as non-revolving loans including those for cars climbed by the most in 3 years.  The $26B increase in credit exceeded the highest forecast & followed an $18.8B advance in Jun that was more than previously estimated, according to the Federal Reserve.  Non-revolving loans, which include borrowing for cars & college tuition, climbed $20.6B, the biggest gain since Jul 2011.  Credit-card lending rose for a 5th straight month.  A stronger job market & rising home values are giving households the confidence to take on debt to buy big-ticket items such as motor vehicles.  Banks are also becoming more willing to lend, which could encourage more consumers to boost their spending, which makes up the biggest part of the economy.  The Jul increase exceeded the $17.4B forecast.  The report doesn’t track mortgages, home-equity lines of credit & other debt secured by real estate.  The gain in credit probably extended into Aug as demand for cars accelerated.  Federal gov lending to consumers, made up mostly of educational loans, increased $3.1B in July from the prior month before adjusting for seasonal variations.  Revolving credit, which includes credit-card balances, rose $5.4B after a $1.8B Jun increase.  Credit card use has increased 5 straight months, the longest such stretch since the period ended Apr 2008.  Some banks are showing a greater willingness to extend credit cards & finance car purchases amid growing demand & rising competition.  Better access to credit will help spur gains in the housing industry as well.

Consumer Credit in U.S. Surges on More Loans for Automobiles

Campbell Soup, facing sluggish consumer spending & shrinking demand for soup, provided a 2015 profit forecast that was less than had been estimated.  Excluding items some items, EPS will be $2.45-$2.50, the company said, less than the $2.58 analyst estimate.  CPB struggled to rekindle Americans’ appetite for soup, with sales of ready-to-serve varieties decreasing 8% in the last qtr.  Excluding some items, EPS at CPB amounted to 49¢, matching analysts’ estimates.  The company has been working to cut costs by closing plants & eliminating jobs.  While CPB is making progress, the turnaround “is taking longer than originally anticipated,” CEO Denise Morrison said.  “We plan to deliver modest growth in fiscal 2015, despite a consumer environment that is likely to remain challenging.”  The stock fell 1.15.  If you would like to learn more about CPB, click on this link:

Campbell Soup Forecast Disappoints on Flagging Turnaround

Campbell Soup (CPB)

The excuse for the market decline is being blamed on energy stocks.  Oil has seen selling off since mid Jun, bringing it near multi year lows.  However, NAZ climbed higher today on hopes that the coming IPO for Alibaba will increase demand for all tech stocks.  Speaking of tech, tomorrow is the big day for Apple (AAPL) when it will show off new products.  As usual, its fans expect a lot.  Meanwhile, Dow & the S&P 500 are hovering very close to record highs.  Longer term, since mid Jul Dow is flat as the US economy continues to give mixed signals.

Dow Jones Industrials

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