Tuesday, May 5, 2015

Lower markets on widening trade deficit

Dow fell 19, decliners over advancers 2-1 & NAZ sank 41.  The MLP index rose 1+ to the 452s & the REIT index lost 3+ to 319.  Junk bond funds slid lower & Treasuries also declined.  Oil went thru $60, a new high for 2015, & gold inched up, getting closer to 1200,

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CLM15.NYM...Crude Oil Jun 15...60.35 Up ...1.42 (2.4%)

GCK15.CMX...Gold May 15....1,195.20 Up ...8.40 (0.7%)

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Service industries such as real-estate firms & restaurants unexpectedly grew at a faster pace in Apr as the biggest part of the US economy picked up after a weak start to the year.  The Institute for Supply Management’s non-manufacturing index rose to 57.8, the highest since Nov, from 56.5 in Mar.  It surpassed all estimates.  Readings above 50 signal expansion.  Strengthening consumer spending after a frigid winter on the back of gains in employment & still-low gasoline prices will propel services, which account for almost 90% of the economy.  The advance means the US can overcome a slowdown in manufacturing caused by the jump in the dollar & slump in oil prices that are hurting exports & business investment.  The forecast called for 56.2.  The non-manufacturing survey covers an array of industries including utilities, retailing, & health care, & also factors in construction & agriculture.  The services report showed the employment gauge rose to 56.7, the strongest since Oct, compared with 56.6 in Mar.  The new orders measure climbed to a 3-month high of 59.2 from 57.8 & the index of prices paid declined to 50.1 from 52.4.  The business activity index increased to 61.6 from the prior month’s 57.5.  The measure parallels the ISM’s factory production gauge.  In contrast, the group’s factory survey released last week showed more weakness.  The ISM manufacturing index held at an almost 2-year low of 51.5 in Apr.  Still, its more forward-looking indicator on bookings reached a 4-month high, while the measure of factory employment fell to 48.3, the weakest since Sep 2009.

Service Industries in U.S. Expand at Faster Pace

The US trade deficit widened in Mar to the highest level in more than 6 years, fueled by a record surge in imports as commercial activity resumed at West Coast ports following a resolution to labor disputes.  The gap increased 43.1%, the biggest jump in 18 years, to $51.4B, the largest since Oct 2008, according to the Commerce Dept.  The shortfall exceeded the highest estimate.  Purchases of foreign-produced foods, capital goods & consumer products all set records, while demand for petroleum dropped.  Container ships streamed into West Coast harbors in Mar after port operators & dockworkers negotiated a new contract, allowing the flow of imported & exported goods to resume.  At the same time, steady employment gains, a nascent pickup in wage growth & a stronger dollar may also help fuel domestic demand for foreign goods, which will keep the deficit wide.  Imports increased 7.7% to $239B, the most this year, from $222B in Feb.  Capital goods such as industrial machines & computers, automobiles & parts & consumer products, including cellular telephones, clothing & furniture, flooded in as the backlog at West Coast ports subsided.  Crude oil was less in demand as the US continued its trajectory toward energy independence.  The value of petroleum imports was the lowest since Sep 2004, making the fuel’s trade gap the smallest in almost 13 years.  Excluding petroleum, imports were a record.  While exports also rose, the increase was swamped by the surge in imports, a sign that global demand remains weak. Sales of American-made products to customers overseas climbed 0.9% to $187.8B from $186.2B in Feb.  After eliminating the effects of price fluctuations, which generates the numbers used to calculate GDP, the trade deficit widened to $67B, the largest in 8 years.  The bigger-than-projected jump in the deficit probably means the US economy contracted in Q1.

Trade Gap in U.S. Swells to Six-Year High

The European Commission said that the impasse over Greece’s fiscal crisis is strangling the economy, a forecast that will make it harder to meet bailout goals as talks to ease its liquidity squeeze drag on.  In its spring forecasts, the commission sees the Greek economy growing just 0.5% this year, down from 2.5% in Feb.  The projections come as Greek officials fan out to press their case to European policy makers on a deal on the country’s failing finances.  “The conditions to support growth are in place but uncertainty and tighter financing conditions are holding back the recovery and weighing on public finances,” the commission said.  Even though the economy grew for the first time since 2007 last year, positive momentum has been “hurt by uncertainty since the announcement of snap elections in December,” it said.  As negotiations aimed at easing Greece’s liquidity crisis continue, Greek officials are meeting with about everybody in Euorpe to extend the loans.  Greece is still relying on the ECB to keep its banks afloat after weeks of political brinkmanship.  Amid signs they are losing patience with Tsipras, some ECB officials have signaled it might to be time to tighten Greece’s access to emergency funds.  While the ECB is unlikely to take any steps without a green light from European govs, it highlights the need for Greece to show its willingness to compromise before a meeting of European finance ministers next week.  The prolonged cash squeeze is threatening the country’s fragile recovery, with the commission citing the lack of clarity on the gov stance on bailout commitments for lowering its forecasts.  At the same time, the weakening economic outlook may give Tsipras’s negotiating team leeway to argue that Greece can’t meet the budget targets demanded by its creditors.  A Greek gov spokesman said yesterday that any progress should be accompanied by easier liquidity terms as reforms are not possible in the current conditions.

EU Cuts Greek Growth Outlook

The markets continue meandering, looking for direction.  Economic data is inconclusive & the extending Greek debt has become a fuzzy concept.  Higher oil prices is good & bad.  The energy companies are able to breath a little easier after a brutal sell-off, but higher priced oil is a negative for just about all business.  Dow is hanging in above 18K while NAZ dropped below 5K (a level that has been very tough to break thru in a meaningful way).

Dow Jones Industrials

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