Tuesday, October 7, 2014

Markets retreat after IMF reduces global growth outlook

Dow lost 87. decliners over advancers almost 2-1 & NAZ fell 19.  The MLP index slid pocket change below 521 & the REIT index was off fractionally to 293.  Junk bond funds dropped & Treasuries rallied, taking the yield on the 10 year Treasury below 2.4%.  Oil saw selling, but gold inched higher (back above 1200).

AMJ (Alerian MLP Index tracking fund)

stock chart

CLX14.NYM...Crude Oil Nov 14...89.76 Down ...0.57  (0.6%)

GCV14.CMX...Gold Oct 14......1,205.30 Down ...1.40  (0.1%)

The IMF cut its outlook for global growth in 2015 & warned about the risks of rising geopolitical tensions & a financial-market correction as stocks reach “frothy” levels.  The world economy will grow 3.8% next year, compared with a Jul forecast for 4%, after a 3.3 % expansion this year.  US growth is helping lead a worldwide acceleration that’s weaker than the fund predicted 2½ months ago as the outlooks for the euro area, Brazil, Russia & Japan deteriorate.  “In advanced economies, the legacies of the precrisis boom and the subsequent crisis, including high private and public debt, still cast a shadow on the recovery,” the IMF said.  “Emerging markets are adjusting to rates of economic growth lower than those reached in the precrisis boom and the postcrisis recovery.”  The outlook buttressed the case made by IMF Managing Director Lagarde, who warned last week that officials need to act to prevent a prolonged period of sluggish growth, a trend she called the “New Mediocre.”  Raising growth in emerging & advanced economies “must remain a priority,” the IMF report stated.  According to the report, a sustained period of policy interest rates near zero in advanced economies has raised the risk that some financial markets may be overheating.  “Downside risks related to an equity price correction in 2014 have also risen, consistent with the notion that some valuations could be frothy.”  The US is a bright spot which is predicted to grow 2.2% this year, compared with a 1.7% projection in Jul.  Next year, the the US is seen expanding 3.1%, compared with a 3% pace forecast in Jul.  The expects the Federal Reserve to start raising interest rates in the middle of next year, in line with other estimates.   “The slack in the economy, well-anchored inflation expectations, and downside risks to the outlook imply that the current accommodative monetary policy remains appropriate.”

IMF Cuts Global Outlook as ‘Frothy’ Stocks Raise Correction Risk

German industrial production fell more than forecasted in Aug in the latest sign that the outlook for Europe’s largest economy is deteriorating.  Production, adjusted for seasonal swings, dropped 4% from Jul, when it expanded 1.6%, according to the Economy Ministry, the biggest decline since Jan 2009 & compares with an estimate of 1.5%.  Germany's economy is losing momentum as sluggish growth in the euro area, its largest export market, & political tension with Russia weigh on confidence.  The ECB has enacted unprecedented stimulus to sustain the regional recovery while calling on govs to press ahead with structural reforms.  Weak economic data released in the past weeks have raised the specter of recession after the German economy shrank in Q2.  Factory orders plunged 5.7% in Aug, also the most since 2009, data showed yesterday.  German manufacturing shrank in Sep, with new orders falling at the fastest pace since 2012, according to a survey of purchasing managers.  Business confidence as measured by the Ifo research institute fell to the lowest in almost 1½ years, while unemployment increased for a 2nd month.  Today’s report showed output of investment goods slumped 8.8% in Aug & intermediate goods dropped 1.9%.  Consumer-goods production fell 0.4% & construction slid 2%.  Only energy output rose, climbing 0.3%.

German Industrial Output Drops Most Since 2009 in August

McDonald's, a Dow stock & Dividend Aristocrat, Japan business predicted a ¥17B ($157M) net loss this year after its chicken supplier said it mislabeled expired meat.  Sales will probably drop 15% from a year earlier to ¥221B, McDonald’s Holdings Japan said today.  The company, in Jul, withdrew its forecast for ¥250B in annual revenue.  Japan’s biggest restaurant chain took chicken products that used meat from China off its menu in Jul after OSI Group, which provides the chain with meat, acknowledged that its Shanghai Husi Food unit had changed sell-by dates on chicken & beef.  The stock fell 62¢.  If you would like to learn more about MCD, click on this link:

McDonald’s Japan Predicts $157 Million Loss on Meat Scare

McDonald's (MCD)

Macro economics are getting more attention.  The data from Germany is just plain gloomy & that is being aggravated by reduced trade with Russia (following sanctions).  The IMF outlook is also dismal.  Those looking for a silver lining would say that drab data will cause the Federal Reserve to postpone raising interest rates.  Dow is more than 300 below its recent record & the S&P 500 is far below 2K, an important level that it broke thru 3 weeks ago.  The stock market does not look good here.

Dow Jones Industrials

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