Monday, April 27, 2015

Markets decline ahead of GDP growth announcement tomorrow

Dow dropped 42, decliners over advancers 2-1 & NAZ fell 31.  The MLP index fell 1+ to the 446s & the REIT index was off a fraction to the 331s.  Junk bond funds slid lower & Treasuries were weak.  Oil gave up some of its recent gains & gold shot up in the PM to go over 1200 again.

AMJ (Alerian MLP Index tracking fund)

CLM15.NYM....Crude Oil Jun 15....56.89 Down ...0.26  (0.5%)

Live 24 hours gold chart [Kitco Inc.]

For 6½ years, the Federal Reserve (FED) has held its key interest rate near zero, & for nearly that long the financial world has speculated about when the FED will start raising it.  Don't look for it soon.  That's the view of most economists, who say a still-subpar economy & still-low inflation will keep rates at record lows at least until Sep.  On Wed, the FED could clarify its plans after ending its latest policy meeting.  Analysts caution, though, against expecting any specific guidance for a rate hike.  Too many uncertainties still surround the US economy.  The policymakers may want to leave themselves maneuvering room until their view of the economy's health becomes clearer.  After its Mar meeting, the Fed opened the door to a rate increase this year by no longer saying it would be "patient" in starting to raise its benchmark rate.  Most economists had said that dropping "patient" from its statement would mean the FED could raise rates as soon as Jun, a step that would ripple thru the economy & could slow borrowing, squeezing stocks & bonds.  Yet at a news conference later, Chair Yellen stressed that while the FED had removed "patient" to describe its approach to raising rates, it still hadn't decided when to start raising them.  Yellen said any decision would depend mainly on what the latest economic data showed.  And the data since then has been disappointing.  A sharp drop in oil & gasoline prices had been expected to help boost consumer spending.  So far, it hasn't.  The economic impact has been mainly negative, layoffs by oil-industry states & cutbacks in investments by energy companies.  Growth estimates were downgraded for Q1.  Many now peg that growth at a sluggish annual rate below 1%, the weakest since the economy shrank in last year's Q1 amid a brutal winter.  This year, the biggest drag on the economy has been a sustained rise in the dollar's value.  The stronger dollar has hurt American manufacturers by making their goods costlier overseas.  It's also made cheaper foreign imports more competitive in the US, thereby squeezing sales of US companies & depressing profits.  In the midst of this week's FED meeting, the gov will issue its first estimate of growth for Q1 & the figure is expected to fall below the modest 2.2% annual rate for Q4-2014.  Economists foresee a rebound in Q2 & the rest of the year to a rate of around 3%.  If those forecasts prove accurate, the Fed could grow more confident about starting to raise rates for the first time since 2006.

With economy uncertain, no Fed rate hike is seen before fall

Applied Materials scrapped its $10B planned takeover of chip-making gear rival Tokyo Electron after the deal, a rare foreign bid for a Japanese firm, fell foul of US anti-trust regulators.  The all-share purchase would have combined the #1 & #3 makers of the equipment that makes semiconductor chips into a group with a stock market value of more than $38.5B.  Tokyo Electron said both companies gave up on the deal after more than 18 months of talks after it became clear that differences with the US Justice Dept could not be bridged.  The reasons for the regulator's decision were not immediately clear, but AMAT said the US authorities had deemed insufficient a proposal to address antitrust concerns.  "We must take with humility the result that we could not convince the regulators," Tokyo Electron CEO Tetsuro Higashi said.  "The termination of the merger is a very regrettable outcome, but it does no good to mourn."  Analysts had initially expected the takeover, aimed at spurring profit growth in both companies, to stand up to regulatory scrutiny.  To appease shareholders AMAT will buy up to $3B worth of shares over 3 years.  AMAT stock fell 1.83.  If you would like to learn more about AMAT, click on this link:

Applied Materials Drops After Scrapped Japan Deal

Applied Materials (AMAT)

Pres Obama, facing a bitter struggle within his own party on free trade, warned that China will step into the economic vacuum the US will create if it fails to complete & enact a proposed free-trade deal with Asia.  “If we don’t write the rules, China will write the rules out in that region,” Obama said.  “We will be shut out--American businesses and American agriculture. That will mean a loss of U.S. jobs.”  Obama also warned of rising anti-globalization sentiment in DC, reflected in Dem opposition to the trade agreement, Rep efforts to kill the Export-Import Bank, & congressional unwillingness to approve new rules for operation of the IMF.  “What we can’t do, though, is withdraw,” Obama said, adding: “There has been a confluence of anti-global engagement from both elements of the right and elements of the left that I think are a big mistake.”  Obama's team is working to finish the Trans-Pacific Partnership, a trade deal among 12 Pacific nations, while also fighting to win “fast track” negotiating authority from Congress to expedite approval of the deal later this year.  The trade agreement will be a topic of conversation between Obama & Japanese Prime Minister Abe, who is scheduled to visit the White House this week.

Obama presses case for Asia trade deal

Traders were nervous in the PM & sold stocks.  Maybe they read my AM column!  But there was no significant news driving the early rise in prices while there were no shortage of worries.  First the GDP data for Q1 is announced tomorrow before the open & the next day Janet Yellen will speak with new hints about raising interest rates.  In addition, stocks have had a good run.  Dow was up 500 in Apr & all popular averages are just a whisper away from setting new records.  A pause in the rise was overdue.

Dow Jones Industrials

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