Friday, November 21, 2014

Markets rise on interest rate cuts in China

Dow climbed 133, advancers over decliners 4-1 & NAZ advanced 23. The MLP index rose 3+ to the 522s & the REIT index added 2 to 319.  Junk bond funds gained & Treasuries also went higher, bringing lower yields.  Oil is back up to the 76s & gold rose, going over 1200.

AMJ (Alerian MLP Index tracking fund)

CLF15.NYM....Crude Oil Jan 15...76.32 Up .....0.47 (0.6%)

GCX14.CMX...Gold Nov 14....1,202.40 Up ...11.70 (1.0%)

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A Pedestrian Passes the People's Bank Of China Headquarters
Photo:   Bloomberg

China cut benchmark interest rates for the first time since Jul 2012 as leaders step up support for the economy, sending global shares & commodity prices higher.   The one-year lending rate was reduced by 0.4 percentage point to 5.6%, while the one-year deposit rate was lowered by 0.25 percentage point to 2.75%, effective tomorrow, the People’s Bank of China (PBOC) said.  The reduction puts China on the side of the ECB & Bank of Japan in deploying fresh stimulus & contrasts with the Federal Reserve, which has stopped its quantitative easing program.  Until today, the PBOC had focused on selective monetary easing & liquidity injections as China heads for its slowest full-year growth since 1990.  The cut in deposit rates was accompanied by a further step in the nation’s liberalization of interest rates.  The cap on what banks can pay customers on their deposits was raised to 120% of the benchmark from 110%.  That would leave savers with unchanged returns at banks that raise rates to the new ceiling from the former cap.  That may help banks retain deposits amid competition from shadow banks & wealth management products while protecting savers’ returns & squeezing bank profits.  The cut in the benchmark rates follows liquidity injections & targeted cuts to reserve requirements.  Although the PBOC scrapped controls on most borrowing costs in Jul 2013, banks still use benchmark rates as a guide for loans including mortgages.  The PBOC was said to have added money to the banking system today as a cash shortage stemming from new share sales drove the benchmark money-market rate up by the most since Jul.

China’s PBOC Cuts Interest Rates for First Time Since 2012

Gap cut its annual profit forecast as sales at its namesake brand continue to fall.  EPS in the year thru Jan will be $2.73-$2.78, the company said, down from an earlier guidance of $2.95-$3.  Analysts estimated $2.91.  CEO Glenn Murphy has been working to improve merchandise at Gap-brand stores, which have cut prices to clear out slow-selling styles.  Same-store sales at Gap slid 5% in the qtr Murphy said last month.  EPS for Q3 was 80¢, versus 72¢ a year earlier.  The average estimates was 79¢.  Net sales fell 0.1% to $3.97B.   “While we’re not proud of our third-quarter sales performance, driven by a particularly tough result at the Gap brand, we are pleased that the team demonstrated strong discipline on both expense and inventory,” GPS CFO Sabrina Simmons said.  Sales at stores open at least a year & online declined 2% in Q3, compared with a 1% gain in the same period a year earlier.  Comparable-store sales at the Banana Republic brand were little changed, versus a 1% decline a year earlier.  Sales on that basis at the discount Old Navy brand rose 1% after being little changed a year ago.  The stock sank 2.32.  If you would like to learn more about GPS, click on this link:

Gap Lowers Profit Forecast as Namesake Brand Sales Slump

Gap (GPS)

Iran will protect its share of global crude sales under all circumstances, Oil Minister Bijan Namdar Zanganeh said, as OPEC members prepare to meet next week to review production levels.  The nation can double oil exports in 2 months if sanctions against are removed, Zanganeh said.  OPEC will gather on Thurs to assess its collective output amid a supply glut & a 30% drop in prices this year.  Iran’s crude output has languished under intl economic sanctions that deter foreign energy investors & limit its exports to approximately 1M barrels a day.  OPEC producers are stepping up diplomatic visits before their meeting, discussing how to react to the plunge in  oil prices to a 4-year low.  Iran, which produced more than 4M barrels a day in 2008, lost market share to other producers amid sanctions imposed to curb its nuclear program.  It pumped 2.7M barrels a day in Oct.  The nation could boost output by 0.7M barrels a day within 2 months of the removal of sanctions, Zanganeh said in Jun.

Iran Vows to Defend Oil-Market Share as OPEC to Review Output

Stocks are in a major rally mode as China cut interest rates with the hopes that will give its lethargic economy a boost.  Oil is higher, following its major sell-off since Jun, on hopes for a production cut from OPEC.  Marker breadth is good & Dow has its eyes on 18K, approaching triple from its recession lows in 2009.

Dow Jones Industrials

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