Wednesday, November 19, 2014

Markets drift lower as Fed minutes show concern about inflation

Dow was off all of 2, decliners over advancers almost 2-1 & NAZ dropped 26.  The MLP index climbed 4+ to the 514s & the REIT index was off 2+ to the 316s.  Junk bond funds did little & Treasuries saw selling.  Oil slid below 65 & gold retreated.

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Fed Officials Saw Need to Watch for Inflation Expectations Drop
Photo:    Bloomberg

Many Federal Reserve (FED) policy makers last month said they should be on the lookout for signs of a decline in expectations for inflation, according to the minutes of their meeting.  “Many participants observed the committee should remain attentive to evidence of a possible downward shift in longer-term inflation expectations,” the minutes of the Oct 28-29 FOMC meeting said.  “Some of them noted that if such an outcome occurred, it would be even more worrisome if growth faltered.”  FED Chair Janet Yellen & her colleagues focused on improvements in the labor market when they announced an end to their stimulative bond purchases.  They also said that the risk of inflation remaining persistently below their goal had ebbed.  The minutes show the members “continued to expect inflation to move back to the committee’s 2 percent target over the medium term as resource slack diminished in an environment of well-anchored inflation expectations.”  Consumer prices as measured by the FED’s preferred gauge have slowed to a gain of 1.4% in Sep from a year earlier & have remained below the target for 29 consecutive months.  Since the FOMC meeting, one measure of inflation expectations has declined.  Michigan Report Consumers see inflation averaging 2.6% a year 5-10 years from now, down from 2.8% predicted last month & the lowest reading since Mar 2009, according to preliminary results of a Thomson Reuters/University of Michigan survey released last week.  Also, some measures of labor-market health continue to show weakness.  More than 7M are working part time because they can’t find full-time jobs.  Of those who don’t have jobs, 32% have been unemployed for 6 months or more.  Policy makers last month “pointed to a somewhat weaker economic outlook & increased downside risks in Europe, China and Japan,” in addition to a stronger dollar, the record of the gathering shows.  “It was observed that if foreign economic or financial conditions deteriorated further, U.S. economic growth over the medium term might be slower than currently expected,” the minutes show.  Still, many said the effects of weaker growth abroad are “likely to be quite limited,” with officials noting the share of external trade in the US economy is “relatively small,” effects of dollar fluctuations are “modest,” or that the slowdown in foreign demand “would likely prove to be less severe than initially feared.”  The minutes showed a wide-ranging debate over whether to retain the committee’s pledge to keep interest rates near zero for a “considerable time.”  The panel ultimately adopted the suggestion from some participants to add wording emphasizing the timing on rate increases would depend on incoming economic data.

Fed Officials Saw Need to Watch for Drop in Inflation Expectations 

Lowe's has improved its same-store sales growth, one of the most closely watched yardsticks of success in retail.  Sales at stores open longer than 13 months rose 5.1% in the qtr thru Oct.  The company also raised its annual profit & sales forecast. CEO Robert Niblock has taken advantage of years of rebounding home values by adding workers in the stores to help customers with projects.  EPS in the year thru Jan 30 will be about $2.68, LOW said.  Analysts estimated $2.63, matching its previous projection.  Same-store sales may rise 3.5-4%, up from an earlier forecast for a 3.5% gain.  EPS advanced to 59¢, above the 58¢ estimate.  Revenue rose 5.6% to $13.7B, topping the projection.  The 5.1% gain in same-store sales also surpassed the analyst estimate for an increase of 4.1%.  Big-ticket items such as appliances drove sales, helping purchases over $500 gain 9%.  The company will buy back $300M more in stock this year than originally planned, CFO Robert Hull said.  Real estate prices & sales of existing homes are considered key indicators for growth because rising values prompt consumers to spend more on their homes.  LOW said that an internal survey showed homeowners’ interest in investing in their properties is the highest since 2006.  “That to-do list has been on the refrigerator all along, they just weren’t willing to invest until they felt better about home values,” Niblock said.  “Now they have more confidence.”  The stock rose 3.73.  If you would like to learn more about LOW, click on this link:
Lowe’s Advances After Company Narrows Same-Store Sales Gap With Home Depot

Lowe's (LOW)

McDonald's, a Dow stock & Dividend Aristocrat, largest restaurant in Russia reopened after local officials shuttered the location for 3 months, an optimistic sign for a company trying to return to business as usual in the country.  The outlet resumed business today.  2 more Moscow restaurants that were forced to shut will reopen this month & in Jan after modernizing their interiors & equipment.  The resumption of operations at Pushkin Square follows a clash between MCD & Russian consumer-safety regulators, who stepped up inspections of restaurants & ordered some to be closed.  The troubles accompanied mounting geopolitical tensions over the conflict in Ukraine.  After the US & EU imposed sanctions on Russia, pres Putin struck back with an import ban on certain foods.  There have been about 250 safety probes into MCD restaurants in Russia this year & 6 outlets remain closed after court decisions.  The company will appeal their shutdown.  Russia’s consumer-safety agency has also taken the US fast-food chain to court for allegedly understating the caloric value of its burgers & milkshakes & having microbial contamination in other products.  The Pushkin square restaurant was the  first location for MCD in the country.  The stock rose 15¢.  If you would like to learn more about MCD, click on this link: 

McDonald’s Moscow Restaurant Reopens After 3-Month Shutdown

McDonald's (MCD)

There was no dramatic news in the minutes, but when popular averages are at record highs every little whisper about anything is considered to have a lot of meaning.  Obama will outline in a TV speech tomorrow night his plan to give 4-5M undocumented illegals a reprieve from deportation.  That will generate a lot of controversy.  Also in DC, the Keystone pipeline came up one vote short of getting approval in the Senate, another hot topic to add excitement in DC.  Even though Dow is essentially at a new record, it has risen a meager 72 since Nov 10.

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