Monday, December 1, 2014

Lower markets on disappointing Black Friday retail sales

Dow fell 33, decliners over advancers better than 2-1 & NAZ sank 44. The MLP index plunged again, down 18 to 469, & the REIT index was up 1+ to the 326s.  Junk bond funds drifted lower & Treasuries advanced.  Oil rebounded (f you can call it that) to the 67s & gold also found buyers.

AMJ (Alerian MLP Index tracking fund)

CLG15.NYM...Crude Oil Feb 15...66.72 Up ....0.46 (0.7%)

GCF15.CMX...Gold Jan 15......1,197.00 Up ...21.90 (1.9%)

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Black Friday Shopping
Photo:   Bloomberg

Even after doling out discounts on electronics & clothes, retailers struggled to entice shoppers to Black Friday sales events, putting pressure on the industry as it heads into the final weeks of the holiday season.  Spending tumbled an estimated 11% over the weekend from a year earlier, the National Retail Federation (NRF) said.  More than 6M shoppers who had been expected to hit stores never showed up.  Consumers were unmoved by retailers’ aggressive discounts & longer Thanksgiving hours, raising concern that signs of recovery in recent months won’t endure.  The NRF had predicted a 4.1% sales gain for Nov & Dec, the best performance since 2011.  Still, the trade group cast the latest numbers in a positive light, saying it showed shoppers were confident enough to skip the initial rush for discounts.  “The holiday season and the weekend are a marathon, not a sprint,” NRF CEO Officer Matthew Shay said.  “This is going to continue to be a very competitive season.”  Consumer spending fell to $50.9B over the past 4 days, down from $57.4B in 2013, according to the NRF.  It was the 2nd year in a row that sales declined during the post-Thanksgiving Black Friday weekend, which had long been famous for long lines & frenzied crowds.  Retailers rolled out their usual doorbuster specials in a bid to lure customers.  Even so, many shoppers stayed home.  The NRF had predicted that 140M customers would visit retailers last weekend, a small decline from last year’s 140.3M.  Instead, only 133.7M showed up.  An effort by some retailers to put items on sale ahead of Thanksgiving may have contributed to sluggish demand on Black Friday, Shay said.  Slower foot traffic means retailers will have to wring more money from consumers in Dec, including during today’s Cyber Monday e-commerce blitz.  Holiday shopping is key for retailers, with sales in Nov & Dec accounting for about 19% of annual revenue & more of that is shifting online.  The web may not be a savior for traditional retail, though.  While e-commerce orders are growing, they’re still dwarfed by brick-and-mortar sales.  The novelty of Cyber Monday also is dimming: The number of shoppers participating in the event today is projected to decline.  But so far, holiday shoppers have spent $22.7B online this season, up 15% from a year earlier, according to ComScore.  That includes more than $1.5B on Black Friday.

Black Friday Fizzles With Consumers as Sales Tumble 11%

Chinese Manufacturing
Photo:   Bloomberg

A Chinese manufacturing gauge fell as factory shutdowns aggravated a pullback in the economy, raising pressure on the central bank to ease policy further after it lowered interest rates for the first time in 2 years.  The Purchasing Managers' Index fell to an 8-month low of 50.3 in Nov, compared with the 50.5 estimate & 50.8 in Oct.  Readings above 50 indicate expansion.  The gov ordered factories in Beijing & surrounding regions to shut down during the Asia-Pacific Economic Cooperation forum to curb pollution.  China’s central bank cut interest rates last month as the economy heads for its slowest full-year expansion since 1990.  The final reading of another manufacturing PMI for Nov from HSBC Holdings & Markit Economics was 50.0, unchanged from a preliminary reading.  Beijing & 5 surrounding provinces & municipalities imposed production & construction restrictions in early Nov to reduce emissions for the APEC summit.  Most components of the official PMI declined from a month earlier, with small enterprises showing the biggest drop.

China Factory Gauge Drops as Shutdowns Add to Slowdown: Economy

The Institute for Supply Management’s factory index was little changed at 58.7 last month, the 2nd-strongest level since Apr 2011, compared with 59 in Oct the group reported.  It exceeded the forecast which called for a decline to 58.  Readings greater than 50 indicate growth.  Orders over the past 4 months have been the strongest in a decade as growing demand from American consumers makes up for any letdown among foreign customers.  Continued progress in the labor market & the plunge in gasoline prices may give Americans an even greater ability to spend in coming months, supporting manufacturing as the year draws to a close.  American producers keep powering ahead at the same time their global competitors slow.  Factories in Germany, France & Italy unexpectedly shrank last month, according to purchasing managers’ gauges.  The US ISM’s orders index climbed to 66 from 65.8 in Oct.  The 64.6 average over the past 4 months is the highest for a similar period since early 2004.  Even exports showed improvement, with the gauge advancing to 55 from 51.5 in Oct.  Factories are struggling to keep up with demand as the index of bookings waiting to be filled rose to 55, the highest since Apr, from 53.  Some of the increase in backlogs may be due to inclement weather last month that could have prevented companies from obtaining needed parts.  ISM’s supplier deliveries gauge increased to the highest level since Feb, indicating factories were experiencing more delays in getting materials.  The production gauge barely budged from a 10-year high, decreasing to 64.4 in Nov from 64.8 the month before & the measure of factory employment decreased to 54.9 from 55.5 in Oct.  Lower raw-material costs are another boon for manufacturing.  ISM’s prices paid index fell to 44.5, signaling expenses dropped for the first time since Jul 2013 & by the most since Jul 2012.  One potentially dark cloud in the report was that factories’ clients reported they had about enough goods on hand, suggesting bookings may not pick up much more.  The customer inventory index rose to 50, the break-even point between having too much & too little stock, the highest reading in 3 years.

Manufacturing in U.S. Expanded More Than Projected in November

The new month began on the wrong foot.  Retail sales for the start of this important season were just plain disappointing.  Lower gas prices didn't give customers encouragement to buy more.  After the dramatic decline in oil prices on Fri, they recovered a little today.  But oil remains in a bear market.  MLPs are taking this plunge hard with worries about the financial health of some.  Fracking is a high cost technology & low oil prices hurt.

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