Monday, April 23, 2018

Markets slip lower ahead of big earnings week

Dow lost 14, decliners over advancers 4-3 & NAZ gave back 17.  The MLP index added 5 to 261 & the REIT index fell 2+ to the 321s.  Junk bond funds were mixed & Treasuries remained weak with the yield on the 10 year Treasury holding at 2.95% (more below).  Oil climbed higher in the 68s after declining earlier today (more below) & gold fell 12 to 1325.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Heavy equipment maker Caterpillar (CAT & a Dow stock) is expected to book a 62% increase in Q1 earnings on strong sales of excavators & other heavy equipment to China.  The company has been winning a greater share of China’s business from its competitors.  And China's demand for excavators is rising.  Analysts expect CAT, which reports tomorrow, will report Q1 EPS of $2.08 on sales of $11.98B, a big increase from last year's Q1 results when the company reported EPS of $1.28 on sales of $9.82B.  CAT is an economically sensitive stock, with equipment sales responsive to the overall health of the global economy.  The latest data, overall, shows that global economy is on solid footing & that should, in theory, be a positive for the company.  The stock went up 74¢.
If you would like to learn more about CAT, click on this link:

Caterpillar earnings may spotlight China

The EU says a sweeping new trade deal with Mexico is a signal to the rest of the world, including the Trump administration.  EU trade commissioner Cecilia Malstrom said that the preliminary deal, agreed on Sat to be finalized this year, is a "powerful signal to the whole world."  She said it shows that "with increasing protectionism in certain parts of the world, many of us do believe good trade agreements can be made ... to the benefit of consumers and companies."  The deal comes as Trump's America-first policies have thrown US-Mexico trade into uncertainty & stalled efforts for a US-EU trade deal.  The EU-Mexico deal removes tariffs on cheese, chocolate, pasta & other foods.  It also updates & expands a 2-decade-old agreement to include financial services & online commerce, among other sectors.

Sweeping EU trade deal with Mexico seen as signal to US

Oilfield services provider Halliburton (HAL) reported a 34% jump in Q1 revenue as rising oil prices prompted North American companies to boost oil & gas production.  Revenue from North America jumped nearly 58% to $3.52B while revenue from intl operations rose 9%.  Total revenue jumped to $5.74B from $4.28B.  HAL took a charge of $312M as it wrote down investments in Venezuela, which is struggling with political & economic challenges.  Adjusting for items, EPS was 41¢, in line with estimates.  Oilfield services companies were impacted by harsh weather conditions in Q1.  HAL warned of 10¢ per share hit to earnings in Feb due to delays in deliveries of sand used in fracking.  EPS was 5¢ in the 3 months ended Mar 31.  The company posted a net attributable loss of 4¢ per share in the same qtr a year earlier.  The stock gained 9¢.
If you would like to learn more about HAL, click on this link:

Halliburton revenue jumps 34%

The market is finally coming around to the idea that the Federal Reserve this year will be raising interest rates a total of 4 times.  Though some big forecasting firms for months have been predicting a more aggressive Fed, traders thus far had been anticipating 3 moves this year, the increase already approved in Mar, plus two more, likely in Jun & Sep.  However, the fed funds futures market today gave almost a 50% probability that the central bank would move one more time in Dec.  The CME's Fed Watch tool, which has been a reliable gauge of the FOMC's actions, assigned a 48.2% chance.  The move toward a more aggressive Fed came as the benchmark 10-year Treasury note yield hovered around 3%, which multiple bond experts have predicted would be a key level.  The probability had been just 33% a month ago & less than 40% as of late last week.  The CME computes the probability of a rate hike by taking the end-month futures contract, subtracting the level at the beginning of the month, & dividing that by 25 basis points, which is the assumed level of each rate hike.  FOMC members themselves, in their latest forecast in Mar, still indicated three increases in the funds rate this year.  However, with increasing signs of inflation picking up & as the market begins to price in more hikes, the committee could begin to set its sights higher.

Chances of a fourth rate hike this year just took a big jump higher

Crude erased losses as escalating conflict in the Mideast region that's home to almost ½ the world's oil canceled out an earlier rout in commodity markets.  Futures popped above $68 a barrel after sliding almost 2% earlier.  Iranian-backed Houthis in Yemen launched unsuccessful missile attacks against Saudi Arabia while kingdom-led forces killed a senior leader of the rebel group.  The flare-up countered a slump in everything from energy to metals after the US softened its position on sanctions against Russian aluminum giant United Co Rusal.  Oil has risen more than 5% this month amid geopolitical tensions in the Middle East.  At the same time, OPEC's cuts have continued to erode a worldwide excess.  It won’t be necessary to extend historic supply limits if oil prices keep rising, Iranian Oil Minister Bijan Namdar Zanganeh said, according to the ministry's Shana news service.  West Texas Intermediate crude for Jun delivery was down 8¢ to $68.30 a barrel & total volume traded was about 23% above the 100-day average.  Brent crude for Jun delivery added 8¢ to $74.14 a barrel.  The global benchmark crude traded at a $6.03 premium to Jun WTI.

This will be a big week for earnings & the traders are already nervous.  The reality of higher interest rates is spooking traders & investors.  Slow progress in trade negotiations is not helping matters.  But it was strange that gold dropped today, when it should have been in demand from nervous investors.  The Dow was close to break-even all day & continues to be stuck in the mud near 24K, where it was in early Dec.

Dow Jones Industrials

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