Tuesday, November 25, 2014

Markets rise cautiously rise on economic data

Dow slid back 2 (not good enough for a new record), advancers slightly ahead of decliners & NAZ went up 3.  The MLP index pulled back 2 to the 509s & the REIT index was fractionally higher to the 321s (a new multi year high).  Junk bond funds were mixed & Treasuries rallied.  Oil fell to the lowest level in more than 4 years after nations supplying 1/3 of the world’s oil failed to pledge output cuts before this week’s OPEC meeting (see below) & gold crawled higher, nearing 1200.

AMJ (Alerian MLP Index trackign fund)

CLK15.NYM....Crude Oil May 15....74.72 Down ...1.45  (1.9%)

Live 24 hours gold chart [Kitco Inc.]

Nations supplying 1/3 of the world’s oil failed to pledge output cuts after meeting in Vienna today.  Russia can withstand prices even lower than they are now, the nation’s biggest producer said.  Officials from Venezuela, Saudi Arabia, Mexico & Russia said only that they would monitor prices.  Crude futures extended losses.  OPEC meets in 2 days, & it's unlcear if the group will lower output in response to the crash in prices.  Prices are below what 9 of group’s 12 members need to balance their national budgets.  The discussions didn’t result in any joint commitment to reduce supplies & all parties said they were worried about the oil price.  “There is an overproduction of oil,” the CEO of OAO Rosneft, Russia’s largest oil company, said after the meeting.  “Supply is exceeding demand, but not critically” & Russia wouldn’t need to cut production immediately even if oil fell below $60 a barrel, he added.  Russia, Saudi Arabia, Mexico & Venezuela between them produced 27.8M barrels a day of oil last year.  Total global output was 86.8M barrels daily.  OPEC, which meets to discuss output on Thurs, pumped 30.97M barrels a day last month.  Like the countries that make up OPEC, Russia depends on energy exports for revenue.  The ruble is the 2nd-worst performing currency in the world this year & the country’s central bank forecasts zero growth next year.  While Russia pumps about 10M barrels a day, more than 10% of global output, much of its oil is produced by private companies.  The extreme cold of Siberia’s winter makes it difficult to turn wells off & back on quickly.

Pre-OPEC Producer Meeting Fails to Deliver Oil Output Cut

German Domestic Demand
Photo:   Bloomberg

Germany relied on domestic consumers for economic growth last qtr as investment fell, putting the strength of the nation’s recovery at risk.  GDP in Europe’s largest economy gained 0.1% in Q3, the Federal Statistics Office said.  Private consumption climbed 0.7%, while capital investment sank 0.9%.  A near-stagnant euro-area economy & political tension with Russia is curbing German companies’ willingness to invest, potentially undermining growth prospects both at home & in the currency bloc as a whole.  The German gov has resisted calls to ramp up its own spending as it aims to balance its budget next year, & has put off a €10B ($12.4B) boost in investment until 2016.  Gov spending increased 0.6% last qtr.  Exports gained 1.9% & imports rose 1.7%.  Private consumption added 0.4 percentage point to GDP & gov consumption added 0.1%.  Net trade increased GDP by 0.2 percentage point.  But capital investment subtracted 0.2 percentage point & inventories subtracted 0.5 percentage point.  Germany’s economic expansion still marks a rebound from the prior qtr, when GDP fell 0.1%.  Surveys this month have shown a pickup in investor & business confidence.  Even so, manufacturing & services activity expanded at the slowest pace in 16 months in Nov, & the Bundesbank predicts that the economy will lack momentum until at least the end of the year.  Thousands of German companies are seeing business hit by EU sanctions imposed on Russia because of its involvement in the conflict in Ukraine.  The euro area is faring little better, posting an economic expansion of 0.2% last qtr.  ECB pres Mario Draghi said last week that he’ll add stimulus if needed to boost the region’s consumer prices & spur growth.  Inflation data this week should show price gains matching the slowest pace since 2009.

Germany Relies on Consumers for Growth as Investment Declines

Tiffany rose after higher-than-projected sales in the Americas helped make up for a slowdown in Asia last qtr.  Same-store sales increased 11% in the Americas in Q3, topping the 6.1% predicted.  The sales declined 3% in the Asia-Pacific region & 6% in Japan, where a new consumption tax hampered orders.  CEO Michael Kowalski is increasing marketing & pushing deeper into fashion jewelry with the Tiffany T collection, which debuted last qtr.  Those moves have resonated in the US, where the economy is outpacing much of the world.  The company is also raising prices, helping profit margins.  A one-time loss from repaying debt dragged down net income in the Q3.  EPS tumbled 60% to 29¢ from 73¢ a year earlier.  Excluding the loss, EPS amounted to 76¢, just below the 77¢ projection.  TIF maintained its EPS forecast of $4.20-$4.30 for the full year after scaling back its sales projection, calling for an increase in the mid- to high-single digits.  The company had previously said the growth would be in the high-single digits. 
Kowalski is scheduled to step down as CEO next year, though he’ll remain on the board as nonexecutive chairman & pres Frederic Cumenal will take over on Apr 1.  The fashion category is focused on jewelry without gemstones.  While the new T collection is offered in a range of materials, most are made of gold.  Prices run from a few hundred dollars to $20K.  Unlike traditional jewelery, which is frequently purchased by men for their wives or girlfriends, the T collection is designed for women to buy it for themselves.  “We’re delighted with the initial response to our new Tiffany T collection targeted to the style-conscious female self-purchase customer,” a spokesman said.  The stock went up 2.59.  If you would like to learn more about TIF, click on this link:

Tiffany Climbs After Jewelery Demand at Home Makes Up for Global Slowdown

Tiffany (TIF)

Stocks are meandering.  Not much happening aside from the drama over the OPEC meeting in 2 days.  Oil bulls are betting on production cuts.  But so far there has been no indication of that.  If they are right, there will be substantial profits on those bets.  The MLPs have had significant swings already this week & they are linked to moves in oil.  The trading week will be shortened with the NYSE closed on Thurs & open for ½ a day on Fri.

Dow Jones Industrials

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