Tuesday, July 14, 2015

Markets crawl higher after weak retail sales and corp earnings

Dow went up 34, advancers over decliners 4-3 & NAZ rose 24.  The MLP index recovered 4+ to the 407s & the REIT index slid back pennies in the 314s.  Junk bond funds lost ground & Treasuries found buyers.  Oil & gold were flattish.

AMJ (Alerian MLP Index tracking fund)

CLQ15.NYM...Crude Oil Aug 15...51.67 Down ...0.53  (1.0%)

GCN15.CMX...Gold Jul 15.......1,155.70 Up ...0.50 (0.0%)

Under legislation passed in May, Congress will have 60 days for public debate & hearings by 8 Senate & House committees.  Reps expressed heavy skepticism or outright opposition to the intl nuclear agreement with Iran as pres Obama warned he would veto any legislation that would block the deal.  House Speaker John Boehner said the plan “will hand Iran billions in sanctions relief while giving it time and space to reach a break-out threshold to produce a nuclear bomb.”  House Foreign Relations Chairman Ed Royce said the deal will be a “tough sell” in Congress.  Senator Tom Cotton of Arkansas contended the agreement leaves Iran’s “entire nuclear program intact.”  “The American people are going to repudiate this deal and I believe Congress will kill the deal,” Cotton said.  The accord aims to curb the Iran's nuclear program in return for ending sanctions.  Full implementation will be contingent on Iran meeting its obligations to curb its nuclear program & address concerns about possible military dimensions of its work.  Senate Majority Leader Mitch McConnell said, “The Senate must now weigh why a nuclear agreement should result in reduced pressure on the world’s leading state sponsor of terror.”  Dems, without endorsing the deal, said it must be looked over carefully & praised Obama for reaching the agreement.

Skeptical Congress Will Now Have Its Say on Iran Deal

US retail sales unexpectedly fell in Jun as households cut back on purchases of automobiles & a range of other goods, which could raise concerns the economy was slowing again.  The Commerce Dept said retail sales slipped 0.3%, the weakest reading since Feb.  May's retail sales were revised down to show them rising 1.0% instead of the previously reported 1.2% jump.  The forecast called for retail sales rising 0.2% last month.  Retail sales excluding automobiles, gasoline, building materials & food services dipped 0.1% after an unrevised 0.7% increase in May.  Core retail sales correspond most closely with the consumer spending component of GDP.  Coming on the heels of the disappointing Jun employment report & sharp drop in small business confidence, the weak retail sales data suggests the economy might have lost some momentum at the end of Q2, having struggled at the start of the year.  The soft data could cast doubts on a possible Sep interest rate hike from the Federal Reserve.  The forecast for core retail sales was a rise of 0.4%.  Sales last month were broadly weak, with receipts at auto dealerships falling 1.1% after rising 1.8% in May.  Clothing stores sales dropped 1.5%, the largest decline since Sep 2014.  Receipts at building material & garden equipment stores fell 1.3% & sales at furniture stores declined 1.6%, the biggest drop since Jan last year.  There were also declines in sales at online stores, & at restaurants & bars.  Rising gasoline prices supported sales at service stations, where receipts rose 0.8%.  Sales at electronics & appliance stores rose 1.0%, the biggest rise since Sep.

Retail Sales Unexpectedly Decline in June

JPMorgan, a Dow stock, reported a stronger-than-expected rise in Q2 profit as legal & restructuring expenses declined.  Like other banks, it has been under pressure to cut costs because low interest rates have weighed on revenue for far longer than expected.  At the same time, regulators have demanded that banks hold more capital & hire additional staff to control risks & comply with regulations.  Non-interest expenses declined 6% to $14.5B, helped by efforts to streamline its business as well as lower legal & mortgage banking expenses helping EPS rise to $1.54 from $1.46 a year earlier.  Analysts expected $1.44.  "We've made good progress this quarter, including meeting regulatory requirements, reducing non-operating deposits, and adding to our capital," CEO Jamie Dimon said.  "We are also on target to deliver on our expense commitments."  The bank reiterated that it expected adjusted expenses of about $57B for the full year, but said it expected business simplification changes to have a negative impact of about 9% on markets revenue in Q3.  Revenue fell 3.5% to $23.8B, while revenue from fixed-income trading fell 21% to $2.93B.  Adjusted for the sale of a physical commodities business & other changes, revenue from the bank's fixed-income trading business would have fallen 10%.  Return on tangible common equity was unchanged from a year earlier at 14%. The company's longer-term target is 15%.  Total assets stood at $2.45T compared with $2.58T at the end of Mar.  Mortgage banking income fell 20% to $584M, hurt by a drop in net servicing revenue & a lower benefit from repurchases.  The provision for credit losses rose 35% to $935M, due to lower reserve releases.  The stock rose 47¢.  If you would like to learn more about JPM, click on this link:

JPM Kicks Off 2Q Bank Earnings with Beat

J P Morgan Chase (JPM)

Weak retail sales are another reminder than the recovery keeps stumbling.  A mediocre Q2 means full year GDP will be nothing to write home once again.  Maybe 2¼% or less.  Q2 earnings may fall short of spectacular.  JPM is the bellwether bank & the mish-mash of numbers do not suggest the overall business is going all that well.  More reports are coming.

Dow Jones Industrials

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