Monday, December 8, 2014

Markets fluctuate as oil sinks to new multi year lows

Dow slid 6, decliners slightly ahead of advancers & NAZ gained 10.  High volatility for the MLP index continues when it plunged 12 to the 467s while the REIT index went up 3 to the 467s, a new multi year high.  Junk bond funds slid back & Treasuries rallied.  Oil sank to the 64s & gold rebounded on the turmoil in the oil markets.

AMJ (Alerian MLP Index tracking fund)

CLF15.NYM...Crude Oil Jan 15...64.67 Down ...1.17  (1.8%)

GCZ14.CMX...Gold Dec 14....1,197.00 Up ...6.90 (0.6%)

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China's trade surplus climbed to a record in Nov after an unexpected decline in imports on lower crude oil & other commodity prices.  Overseas shipments rose 4.7% from a year earlier, below the 8% estimate.  Imports fell 6.7%, compared with projections of a 3.8% increase, leaving a trade surplus of $54.5B, the customs administration said.  The slide in oil prices to 5-year lows offers China a double benefit as its leadership confronts the weakest expansion in a generation.  The decline could boost economic growth & help keep inflation slow enough to give scope for further easing after last month’s interest-rate cut.  The Chinese gov will hold its annual central economic work meeting from tomorrow, China National Radio reported.  The ruling Politburo last week said it will maintain a prudent monetary stance & keep growth within a reasonable range in 2015.  The People’s Bank of China last month lowered lending & saving rates for the first time in 2 years & increased the ceiling for deposit rates.  China imported $16.4B worth of crude oil in Nov, down from $18.4B a year earlier   China’s General Administration of Customs expects exports growth to face “certain” pressure at end-2014 to early 2015.  China’s exports to the US grew 2.6% from a year earlier, down from a 10.9% gain in Oct, while shipments to the EU rose 4.1%, the same as October.

China Trade Surplus Climbs to Record as Imports Drop on Oil

A U.S. Flag Flies in Front of McDonald's Signage
Photo:    Bloomberg

McDonald's, a Dow stock & Dividend Aristocrat, posted its worst monthly US sales decline in more than a decade & said a health scare in China would continue to take a toll on profit in Q4.  Sales at stores open at least 13 months in the US fell 4.6% last month, following a 1% drop in Oct.  Analysts had projected a 1.9% decline for last month, according to Consensus Metrix.  MCD, with more than 14K domestic restaurants, is struggling to compete with fast-casual chains.  In a bid to be more relevant to younger consumers, the company has been streamlining its menu & offering more customizable options.  MCD also said last month that it also would reorganize its US operations & marketing to be more effective.  “Today’s consumers increasingly demand more choice, convenience and value,” CEO Don Thompson said.  The US sales drop marked the 7th straight month of declines & was the steepest since at least 2003.  Global same-store sales fell 2.2%, worse than the 1.7% drop predicted.  Though sales aren’t shrinking as much globally, the company faces several challenges in its overseas markets, including a scandal in China & mounting geopolitical tensions in Russia.  Sales in Europe fell 2% in Nov, hurt by “very weak” results in Russia & a slump in France & Germany.  More than 200 restaurants in Russia are under gov investigation in what has been described as retaliation for sanctions imposed by the US & Europe over Moscow’s role in the Ukraine crisis.  In Asia, the Middle East & Africa, sales dropped 4%.  In Jul, the main meat supplier in Shanghai was accused of selling expired meat, leading to a plunge in sales.  The Japan unit, which sourced chicken nuggets from the same vendor, has forecast a full-year loss due to the case.  The supplier problem could reduce Q4 EPS by 7-10¢, MCD said.  A strengthening US dollar, which is hurting overseas sales, could cut EPS by an additional 7-9¢. The stock dropped 3.19. an unusually large decline.  If you would like to learn more about MCD, click on this link:

McDonald’s U.S. Sales Drop the Most in at Least a Decade

McDonald's (MCD)

Oil prices will stay at about $65 a barrel for at least half a year until OPEC changes its collective production or world economic growth revives, said the head of state-run Kuwait Petroleum (KPC).  Oil is trading in a bear market as the US pumps at the fastest rate in more than 3 decades & global demand expands more slowly.  OPEC decided last month to maintain its output target, prompting a drop in Brent crude to less than $70 for the first time since May 2010.  “I think oil prices will stay around the current level of $65 for six or seven months until OPEC changes its production policy, or recovery in world economic growth become more clear, or a geopolitical tension arises,” Nizar Al-Adsani, KPC’s CEO, said.  OPEC pumped 30.6M barrels a day in Nov, exceeding its target of 30M for a 6th consecutive month.  US oil production accelerated to 9.08M barrels a day thru Nov 28, the fastest rate in weekly records that started in 1983.  Kuwait is producing 2.9M barrels of crude a day, Al-Adsani said. 

Oil to Stay at About $65 for Six Months, Kuwait Petroleum Says

The drop in oil prices continues to be the big story in the stock market.  Cheaper gas should help economies, but it also disrupts many businesses, starting with energy securities.  MLPs have been hard hit along with major oil stocks.  Nobody knows how low oil prices will impact different business, but there are worries that it may not be as big a plus as originally thought for consumer spending.  Uncertainty is bad for the stock market & could bring more demand for gold.

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