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Thursday, July 14, 2016
Markets climb higher on economic data
Dow advanced 153, advancers over decliners better than 2-1 & NAZ went up 33. The MLP index crawled up a fraction to 321 & the REIT index slid back 1+ to 370 (essentially at its record reached yesterday). Junk bond funds were a little higher & Treasuries were sold today. Oil rose & gold declined.
The number of applications for US unemployment benefits last week
held at the lowest level since mid-Apr, further evidence of a strong
labor market. Jobless claims were unchanged at 254K according to a Labor Dept.
The estimate called for filings to
increase to 265K. In Apr, applications dropped to a 4-decade low
of 248K.
Companies
having trouble finding qualified & skilled workers are hesitant to
dismiss employees as demand shows signs of picking up after a weak start
to the year. Weekly claims have been below 300K for 71 straight
weeks, the longest period since 1973 & consistent with robust
employment conditions. Claims
data in Jul typically can be volatile as automakers begin the process
of temporarily shutting down plants to retool for the new model year. Because of such seasonal events, economists tend to focus
on a rolling monthly average that smoothes out the weekly fluctuations.
The 4-week average of claims declined to 259K, the lowest since
Apr, from 264K in the prior week. The
number continuing to receive jobless benefits rose 32K
to 2.15 & the unemployment rate among
those eligible for benefits increased to 1.6%.
JPMorgan, a Dow stock, Q2 profit fell 1.4%, beating estimates as
fixed-income trading revenue & loan growth jumped. EPS was $1.55 versus $1.54 a year earlier. Excluding an
accounting adjustment & a legal benefit, EPS was $1.46%, 3¢ better than analyst the estimate.
Revenue
climbed 2.8% to $25.2B, beating the $24.5B
estimate &
average core loans increased 16% from a year earlier. The revenue
figure included $3.96B from fixed-income trading, a 35% increase, beating the $3.57B estimate. The firm cited
strength in rates, currencies, emerging markets, credit & securitized
products. Equity trading rose 1.5% to $1.6B. Earnings at the corp & investment bank
climbed 6.5% to $2.49B as revenue rose 5.1% from a
year earlier. Markets revenue, which includes bond % stock trading,
rose 23%. Investment
banking revenue fell 15% to $1.5B on lower
equity-underwriting fees (in line with the $1.49B estimate). Profit from consumer & community banking rose 4.9% to $2.66B on strength in
mortgages. Revenue was $11.5B, up 4% from a year earlier. Net
income in asset management increased 16% to
$521M on lower legal expenses. Revenue fell 7.4% to $2.94B on weaker markets & lower performance fees. Commercial
banking posted a 33% profit increase
to $696M on higher loan balances. The stock rose 1.74.
Wholesale prices in the US rose more than forecast in Jun, paced by the biggest jump in fuel costs in a year. The
producer-price index gained 0.5%, the most since May 2015, after
a 0.4% rise the prior month, according to the Labor Dept. The forecast was for a 0.3% advance. Costs rose 0.3% over
the past 12 months, the biggest year-to-year gain since Dec 2014. As
energy costs stabilize & the restraining influence of a strong $
dissipates, a slowly improving economy will probably lead to a more
sustained pickup in price pressures. Federal Reserve officials are
monitoring inflation’s progress toward their goal as they consider when
to lift interest rates again. Energy
expenses jumped 4.1%, the biggest gain since May 2015, with
gasoline increasing 9.9% & food prices rose 0.9 percent, the most
since Jan. Excluding food & energy, wholesale prices climbed 0.4% following a 0.3% advance the prior month. Those costs were up 1.3% from
Jun 2015. Excluding food & energy & also eliminating trade
services, producer costs rose 0.3% after falling 0.1% the
previous month. Some prefer this reading because it strips
out the most volatile components of PPI. One exception to the
otherwise strong readings was medical care costs which were little
changed in Jun before adjusting for seasonal variations following,
according to the report. These figures are used to calculate healthcare
expenses in the Commerce Dept consumer spending inflation index,
the Fed's preferred price measure. Those prices have climbed just 1.1% in the past 12
months, the smallest year-to-year gain since Dec.
The bulls remain in command of the stocks market, but keep in mind that it is vastly overbought. When Dow rise more than 1K in a couple of weeks, that spells correction time. A very big unknown is how the British exit from EIU will play out. The effects will be global. Additionally, this is the start of earnings season. Hang on for what may be a bumpy ride for stocks.
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