Lower markets on sluggish retail sales

Dow dropped 47 (weakening in the last hour), decliners ahead of advancers 5-4 & NAZ was even helped by a big rise at Apple (see below).  The Financial Index fell 3 to the 196s.  The MLP index was about even in the 382s & the REIT index pulled back 1+ to the 264s from yesterday's yearly highs.  Junk bond funds were mixed & Treasuries rose.  Oil & gold fell, along with the stock market.

AMJ (Alerian MLP index tracking fund)

Click below for the latest market update:

Treasury yields:

U.S. 3-month	0.071%
U.S. 2-year	0.286%
U.S. 10-year	1.592%

CLQ12.NYM

...Crude Oil Aug 12

...87.35

..... 0.31

(0.4%)

GCN12.CMX

...Gold Jul 12

.......1,600.30

... 21.00

(1.3%)

Photo:   Bloomberg

China cut its benchmark interest rates for the 2nd time in a month & allowed banks to offer bigger discounts on their borrowing costs, stepping up efforts to reverse a slowdown in the world’s 2nd-biggest economy.  The one-year lending rate will fall 31 basis points & the one-year deposit rate will drop by 25 basis points effective tomorrow, announced by the People’s Bank of China.  The discount banks can offer on loans was widened to 30% from 20%.  China is moving more aggressively to promote growth as Europe's turmoil crimps exports & domestic property restrictions curb the housing market.  Today’s cuts coincided with decisions by the ECB & Bank of England (BOE) to increase monetary stimulus & preceded gove data next week that may show expansion decelerated for a 6th qtr.  China announced the move at the same time as the BOE raised its asset-purchase target by £50B ($78B) to £375B, restarting its expansion of stimulus.  Then the ECB cut its benchmark interest rate by a quarter percentage point to 0.75% & lowered its deposit rate to zero from 0.25%.  The idea is that these moves were coordinated.  However, with rates near zero, rate cuts may not have much effect.

China Cuts Benchmark Rates for Second Time in Month


Apple suppliers in Asia are preparing for mass production in Sep of a tablet computer with a smaller screen than the iPad (likely to be smaller than 8"). The current iPad's screen measures 9.7", unchanged since the first model was released 2 year ago.  Suppliers said that AAPL has told them to prepare for mass production of the smaller tablet.  The screen makers include LG Display of South Korea & Taiwan-based AU Optronics.  A smaller tablet could help AAPL company maintain its dominance in a market that keeps getting more crowded.  Competitors include Samsung Electronics & Amazon.com (AMZN).  In addition, Microsoft (MSFT), Dow stock, & Google (GOOG) recently unveiled tablets.  Last year, the iPad held a 62% share of the world-wide market, according to market-research firm IHS iSuppli, which expects overall tablet sales this year to surge 85% to 127M units.  As the market continues to expand, consumers' choices, in size, technical specifications & price, are growing more varied.  Last week, GOOG started taking orders for the Nexus 7, a tablet device with a 7" screen that will sell for $199.  That matches the price of AMZN Kindle Fire, which came out last year & also has a 7" screen.  AAPL rose $10.53.

Apple Said to Plan Smaller IPad to Vie With Google Nexus

Apple (AAPL)

Photo:   Bloomberg

US retailers' same-store sales in Jun nearly matched estimates, with luxury chains such as Saks (SKS) & discounters like TJX (TJX) topping expectations while stores targeting middle-income consumers trailing projections.  Same-store sales at the more than 20 companies tracked by Retail Metrics rose 0.3%, compared with the 1% average estimate, follow a 7.2% increase last year.  Consumers may have been spooked by the unemployment rate staying above 8%, sending many to discount chains such as TJX, which posted a 7% sales gain.  At the same time, luxury consumers have continued to spend with the stock market still up for the year.  TJX, which owns discount stores TJ Maxx & Marshalls, beat estimates for a 3.7% sales increase.  The company said EPS this year may be as much as $2.39, up from a previous forecast for a maximum of $2.37. Same-store sales at Limited Brands (LTD), the parent company of Victoria’s Secret, gained 7% beating the average estimate of 2.6% & sales at SKS rose 6%, topping the 4.2% estimate.  But sales at Target (TGT & a Dividend Aristocrat) rose 2.1%, falling short of the 2.8% forecasted gain, & Macy's (M), the 2nd-biggest department-store chain, posted a modest 1.2% increase, missing the 2.3% estimate.  Macy’s said in a statement that the “stagnant” economy & reduced spending from tourists hurt sales.

Retailers’ June U.S. Sales Little Changed While Luxury, Discounters Gain


Markets were nervous awaiting the big jobs number tomorrow.  Expectations are for about 90-95K new jobs to be added, far below the 200K+ numbers that were common in Q1.  The rate cuts in Europe & Asia (plus another one in Kenya) may not have much effect on stimulating economies.  Bulls are hoping for a pleasant surprise in the jobs number, but recent signals are not encouraging (i.e. jobless claims data).  But Dow is hanging in there, very near the highs since mid May.  Aloca (AA), a Dow stock, on Mon will be the first to report earnings.  Analysts are looking for a meager 6¢, down from 32¢ last year.

Dow Jones Industrials

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Markets fluctuate after last week's gains

All good things come to an end.  After the best week for the stocks in the last year, markets fell back.  Dow dropped 31, decliners ahead of advancers 3-2 & NAZ was off 3.  Banks saw serious selling on worries about Asian banks.

S&P 500 Financials Sector Index

Value	207.70
Change	-2.75    (-1.3%)

The MLP index was essentially even at 373 while the REIT index slipped a fraction in the 245s.  Junk bond funds inched higher & Treasuries rose, snapping a 5-day rout, as a deteriorating credit outlook for China’s banks encouraged demand for the safety of US gov debt.  Oil bounced back above $96 on the back of forecasts for more expensive crude in 2012.  Gold rose sharply on the revised outlook for Chinese banks.

JPMorgan Chase Capital XVI (AMJ)

The latest daily market update below:

Treasury yields:

U.S. 3-month	0.005%
U.S. 2-year	0.446%
U.S. 10-year	3.138%

CLQ11.NYM

...Crude Oil Aug 11

...96.87

..... 1.93

(2.0%)

GCN11.CMX

...Gold Jul 11

.......1,509.70

... 27.40  (1.9%)

Photo:   Bloomberg

The Commerce Dept said factory orders rose 0.8% in May, following a downwardly revised drop of 0.9% in Apr.  Much of the increase was driven by orders for aircraft which jumped 36.5%. Auto & auto parts orders rose 2%. Excluding transportation, factory orders increased 0.2% in May, the same as Apr & down from a 2.9% gain in Mar.  The report also showed companies are investing in computers & other equipment.  A measure of business investment rose 1.6%, after falling 0.4% in the previous month.  Orders for nondurable goods fell 0.2%, partly because oil prices fell in May.  The effects of the Mar earthquake in Japan receded in May & lower gas prices also helped these numbers.

Orders to U.S. Factories Rose 0.8% in May

Photo:   Bloomberg

Chinese bank loans to local govs are about 3.5T yuan ($540B) more than the national auditor’s estimate, & the industry’s credit outlook could decline, according to Moody’s Investors Service.  “The Chinese audit agency could be understating banks’ exposure to local governments,” Yvonne Zhang, a Moody’s analyst said. The “apparent absence of a clear master plan to deal with this issue” is likely to exacerbate problems & lenders may be left to manage a portion of the souring loans on their own, it said.  Chinese bank shares fell on concern that the banks will be unable to absorb losses on defaults should property prices drop.  Moody’s estimates that local gov debt is about a third more than the audit office’s findings last week of 10.7T yuan & non-performing loans could reach as much as 12% of total credit.  China's influence in the world economy is huge & problems with its banks conjure up thoughts of the recent mortgage crisis in the US.

China Banks’ Outlook May Be Souring on Loans


Greek banks are willing to roll over gov bonds as part of an EU rescue plan that will keep the country out of financial markets for 3 years. “The Greek banks are ready to participate,” Finance Minister Evangelos Venizelos said. “We must respect absolutely the voluntary character of this procedure. This is very sensitive and I give a very crystal clear answer on this topic.”  EU leaders have called on investors to shoulder part of a new aid package for Greece after last year’s €110B ($159B) rescue failed to stop the spread of Europe's debt crisis. Participation by Greek banks & pensions funds is key to the success for investors to roll over as much as €30B of maturing bonds into longer-term securities.  Making this plan work remains a delicate task.

Greek Banks Ready to Take Part in Rollover, Finance Chief Venizelos Says


While markets are lower, they are digesting gains from last week fairly well.  But bank stocks are seeing a fair amount of selling which should continue with more questions raised about loans at Chinese banks. The factory orders report was fairly good.  The big  jobs report is coming on Fri & the only question is, how dreary will the unemployment rate be?  Then Alcoa (AA), a Dow stock, kicks off earnings season next Mon evening.

Dow Industrials (INDU)

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