Markets struuggle after weak economic data

Dow fell 103 (well above AM lows), advancers over decliners 3-2 & NAZ added 6.  The MLP index rose 2+ to the 251s & the REIT index added 1+ to the 367s.  Junk bond funds retreated & Treasuries rose in price.  Oil went up into the 54s & gold was steady at 1315.

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Germany recorded zero growth in Q4 only narrowly avoiding a recession & adding to downbeat signs piling up about the 19-country eurozone economy.  The lackluster figure was lower than the 0.1% expected & followed a 0.2% fall in output during the preceding Q3.  Business spending on machinery & equipment as well as construction supported the economy in Q4 & prevented Germany from suffering 2 straight qtrs of negative growth, one definition of a recession.  Exports & imports increased at nearly the same rate, meaning no positive contribution to Q4 growth statistics.  Slowing global trade amid US-China trade tensions has been holding back Germany's export-focused economy.  Growth last year was also hit by troubles in the auto industry when automakers had difficulty getting new cars certified under new emissions tests & by low water on the Rhine River that interrupted commerce.  The slowdown led the European Commission last week to cut its growth forecast for Germany for this year to 1.1% from 1.8%.  A weak H2 followed stronger performance in H1, leaving growth for all of 2018 at 1.5%.  For Q4, the year-on-year growth rate slumped to 0.6%, tracing a steady decline from 1.2% year-on-year in Q3 & 2.0%  in the 2nd.  Germany's sluggishness has held back the economy across the countries that use the €.  On top of that, Italy entered a recession at the end of the year & European businesses face uncertainty about Britain's possible exit from the EU on Mar 29 without a negotiated agreement to smooth trade.  Prime Minister Theresa May has so far been unable to win parliamentary approval for an exit deal negotiated with the EU's exec commission on behalf of the remaining member countries.  The eurozone grew by just 0.2% in Q4, the same as in the previous 3-month period.

Germany barely avoids recession with zero growth

Economists slashed Q4 GDP forecasts & now see growth closer to 2% than 3%, after a surprise drop in Dec retail sales.  According to the CNBC/Moody's Analytics Rapid Update, economists in the survey see growth tracking at a median 2.4% pace, down 0.7 percentage points.  Dec's retail sales fell 1.2%, compared to an expected gain of 0.2%.  Economists said the report, delayed by the gov shutdown, was suspect since it was not consistent with other economic data, like strong Dec & Jan job gains.  Economists expect a 2% growth pace for Q1.

Economists slash growth for fourth quarter after big retail sales drop

The US & China remain deadlocked on key issues blocking the path toward a trade agreement, according to multiple reports, as representatives for the 2 countries meet in Beijing.  The Chinese gov's alleged forced technology transfers as well as its subsidization of domestic industries remain central sticking points as the world's 2 largest economies try to find common ground on a broad trade deal.  The latest proposals from the Chinese negotiating team do not address either matter, according to leakers & the US team has not pulled back from its insistence that Beijing limit its subsidies to state-owned firms.  It was reported that there was no indication of progress on US demands that China scale back its promotion of domestic robotics makers.  Chinese Pres Xi Jinping has called for a robot revolution" to spur productivity in the country.  China has denied pressuring foreign firms to hand over technology as a price of admission to its giant consumer market.  And Chinese economists have said that the subsidies are essential to the country's developing economy.  But American business groups continue to complain about the alleged technology transfers, as well as about the gov subsidies that they say hurt American competitiveness.  While refusing to offer concessions on structural issues, China did offer to boost purchases of US semiconductors to $200B over 6 years, a 5-fold increase over current exports, according reports.  That offer comes on top of recent pledges by Beijing to purchase US agricultural products.  A spokesperson for the Chinese Ministry of Commerce told reporters at a weekly briefing that he had no details about the status of the talks.  China released better-than-expected trade data today that showed a 9.1% bump in $-denominated exports compared with a year ago . Exports to the US fell about 2% .

US and China trade negotiators in Beijing reportedly deadlocked on forced technology transfers

Congress has unveiled legislation to dodge another gov shutdown &, for now, calm the dispute over Pres Trump's proposed border wall.  The measure would fund 9 federal depts thru Sep 30, allowing 800K workers who faced the prospect losing more pay to breathe a sigh of relief.  Congress aims to vote on the proposa to beat a midnight Fri deadline.  The Senate is expected to vote later today, followed by the House vote tonight.  Trump said he was "reviewing the funding bill with [his] team at the White House."  As the spending deal developed this week, Trump grumbled about what he called inadequate funding for border barriers.  But barring a sudden change, the pres is expected sign the legislation into law & prevent the second partial shutdown since Dec.  Yesterday, Trump said he would look for "land mines" in the bill after its release then decide whether to approve it.  After the Senate opened in the AM, Sen Chuck Grassley, offered a plea, "Let's all pray that the president will have wisdom to sign the bill so the government doesn't shut down."

Trump is ‘reviewing’ spending plan as Senate prepares to vote to avoid another shutdown

Coca-Cola (KO) shares, a Dow stock & Dividend Aristocrat, tumbled for their worst day in a decade, after the company gave a gloomy projection for its 2019 earnings.  The soft drink giant reported Q4 EPS that met expectations, but it forecast that 2019 EPS could rise or fall by 1% (less than the $2.08 earned in 2018).  The forecast called for EPS of $2.23 in 2019.  CEO James Quincey said that currency fluctuations, Fed rate hikes & changing tax rates are responsible for the weaker outlook.  "Clearly that is leading to an EPS growth that is not what we aspire to," he said.  The company has been battling currency headwinds, which it said hurt Q4 earnings by 10%.  Rising import & transportation costs last year forced it to raise prices on its soft drinks in North America.  Net sales dropped 6%  to $7.06B, but still topping expectations of $7.04B.  The company attributed the revenue decline to the impact of currency & refranchising its bottling operations, a project that is nearly done.  Sales of its sparkling soft drinks dropped 1% during Q4, despite its popular Coca-Cola Zero Sugar drinks once again are seeing double-digit growth.  Unit case volume for the qtr was unchanged from last year.  Quincey attributed the flat volume to focusing on "value over volume" in some markets.  Unit case volume in North American sales dropped 1% as the effects of the midsummer price increases finally hit the consumer.  "So it's a little softening," he added.  "But then it started to pick up, so we started the year well."  Additionally, economic conditions in certain emerging markets, like Central America, offset growth in India & Central & Eastern Europe.  For example, in another emerging market, Argentina, unit case volume declined by double digits as the country entered a recession in H2.  The soda giant reported fiscal Q4 EPS 20¢, up from a loss of 65¢ per share, a year earlier.  KO said that freight costs negatively impacted its earnings this qtr.  Deputy CFO John Murphy, who will take the reins from retiring CFO Kathy Waller in Mar, said the company does not expect to see the same year-over-year freight increases in the US as in 2018.  Excluding items, EPS during the qtr, was in line with the estimate.  For fiscal year 2019, KO is forecasting organic revenue growth of 4%.  "We are being prudent in our outlook for 2019 given the multiple reductions in global economic growth outlook for 2018 and our own experiences in some of the emerging and developing markets," Quincey said.  Murphy also said the company expects higher interest expenses, based on the timing of the Fed rate hikes, & more significant currency headwinds in H1-2019, rather than the back in H2.  As global soda consumption declines, the beverage giant has been expanding beyond its core soft-drink business.  Last year, it acquired British chain Costa Coffee for $5.1B, one of its 6 acquisitions in 2018.  Quincey tsaid that it closed the Costa deal Jan 3, several months ahead of schedule.  The stock sank 4,20 (8%).
If you would like to learn more about KO, click on this link:
club.ino.com/trend/analysis/stock/KO?a_aid=CD3289&a_bid=6ae5b6f7

Coca-Cola shares plunge — on track for worst day in a decade — after weak earnings outlook

While KO was a major drag on the Dow, there were also plenty olf macro economic issues.  Of immediate concern is the gov shutdown & that drama drags on, probably to the last minute tomorrow if not later.  China trade negotiations are stuck in the mud.  The retail sales number reported today are not encouraging.  Overall the stock market is taking the increase in uncertainty pretty well, at least so far.  The Dow remains essentially at its post record Oct highs as the bulls are looking to take it higher.  It has had an outstanding rise from its lows & needs a correction to flush out weak investors.  More clarity on 2019 business after dreary sales numbers reported today would also help beyond the likelihood the Fed will go easier on rate increases this year

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