Morning advance pared with late day selling

Dow was up 53, advancers over decliners 2-1 & NAZ added 28 (helped by Apple).  The Financial Index settled back a little from AM gains with an advance of 1+ to the 218s.  The MLP index rose an enormous 4+ to the 404s (7 short of its record high earlier this year) & the REIT index was up a fraction to the 274s, another 2012 high.  Junk bond funds gained while Treasuries eased back & the 10 year Treasury yield skyrocketed 11 basis points to 1.87%.  Oil wants to go over 100 & gold had a small advance, digesting recent gains (shown below).

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Treasuriy yields:

U.S. 3-month	0.097%
U.S. 2-year	0.250%
U.S. 10-year	1.875%

CLV12.NYM

....Crude Oil Oct 12

....98.94

.... 0.63

(0.6%)

Photo:   Bloomberg

US retail sales increased in Aug by the most in 6 months, boosted by demand for automobiles along with higher gasoline prices that left consumers with less to spend on other goods.  The 0.9% gain followed a revised 0.6% advance in Jul that was smaller than initially reported, according to the Commerce Dept.  The forecast called for an increase of 0.8%.  Sales slowed at department stores, apparel retailers & electronics outlets.  Higher food & fuel costs along with smaller gains in payrolls & wages are squeezing household finances, posing a challenge for merchants.  Labor-market weakness prompted the Federal Reserve yesterday to take another step to spur the 3-year expansion.  Sales excluding automobiles & gasoline rose 0.1%, less than the 0.4% gain forecast.  7 of 13 major categories showed an increase last month.  Purchases increased 1.3% at automobile dealers, the most since Feb, after a 0.1% gain the prior month.  Retail purchases excluding autos climbed 0.8%, beating the projected gain of 0.7%.

Retail Sales in U.S. Rose 0.9% in August on Auto Demand

Photo:   Bloomberg

Apple rose to a record after the company said orders for the new iPhone from its online store won’t ship for 2 weeks, fueling speculation that the new model had sold out.  Based on the 2-week delivery estimate, the iPhone 5 would ship Sep 28.  When AAPLe unveiled the latest model iPhone earlier this week, the company said pre-orders in the US & 8 other countries would begin today & the product would be available on Sep 21.  As many as 58M units of the iPhone 5 may sell by the end of the year which could generate $36B in sales.  The stock shot up 7 to 690, yet another new record. 

Apple Stock Hits Record as IPhone 5 Seen Sold Out Online

Apple (AAPL)

Photo:   Bloomberg

Confidence among US consumers unexpectedly improved in Sep, providing an impetus for the household spending that makes up more than 70% of the economy.  The Thomson Reuters/University of Michigan preliminary index of consumer sentiment climbed to 79.2 from 74.3 in the prior month & above the projection of a fall to 74.  Rising share prices & home values are helping to shore up confidence in the face of higher gasoline costs.  But the Michigan survey’s index of current conditions, which reflects Americans’ perceptions of their financial situation & whether they consider it a good time to buy big-ticket items like cars, fell to 88.3 from 88.7 in the prior month.  The gauge of consumer expectations 6 months from now, which more closely projects the direction of consumer spending, increased to 73.4, the highest since May, from 65.1 in Aug.

Confidence of U.S. Consumers Unexpectedly Improves, Michigan Index Shows


Dow finished 70 below its high, but that was to be expected after its gains this week.  It still managed a weekly gain of 287, not bad.  The weekend will give everybody a chance to calm down & assess the stimulus move by the Federal Reserve.  There may be more news from the Mideast, which has the potential to be negative.  Already oil is close to its yearly highs.  Gas at the pump was $3.87 yesterday, just 6¢ below its yearly high & nearing its record set 4 years ago.

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Higher markets on hopes for stimulus by the Federal Reserve

Dow lost its early strength but still ended with a gain of 90, advancers over decliners 5-2 & NAZ was up 18.  The Financial Index rose 1 to 203, pulling back from earlier highs.  The MLP index was up 2+ to the 396s, a 4 month high, & the REIT index was up a fraction in the 266s.  Junk bond funds were higher & Treasuries rose, pushing 10-year yields to a 3-week low, as Ben Bernanke said he wouldn’t rule out a 3rd round of bond buying under quantitative easing to spur growth & lower unemployment.  Oil gained again, taking it closer to $100 & gold was strong after hints by the Federal Reserve about more stimulus spending.

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Click below for the latest market update:

Treasury yields:

U.S. 3-month	0.086%
U.S. 2-year	0.222%
U.S. 10-year	1.565%

CLV12.NYM

Crude Oil Oct 12

96.69

2.07 (2.2%)

Photo:   Bloomberg

Consumer confidence improved more than projected in Aug as merchant discounts & record-low interest rates help US households bolster finances.  The Thomson Reuters/University of Michigan final sentiment index climbed to 74.3, a 3-month high, from 72.3 in Jul.  However the gauge averaged 89 in the 5 years leading up to the recession.  Other reports indicated manufacturing is cooling.  Incentives by companies such as General Motors (GM) are boosting sales, just as Federal Reserve efforts to lower borrowing costs are allowing Americans to reduce debt, which may underpin consumer spending.  Nonetheless, Big Ben said additional action to spur growth remains an option because unemployment is a “grave concern.”  Concern with elevated joblessness is global. Euro-area unemployment rose to a record 11.3% in Jul, the same as in Jun after that month’s figure was revised higher.  In Japan, consumer prices slid at a faster pace in Jul & industrial production unexpectedly slumped, raising the danger that the world’s 3rd-largest economy has slipped back into a recession.  The consumer sentiment gauge was projected to rise to 73.6.  The index averaged 64.2 during the 18-month recession that ended in Jun 2009.  The Michigan survey’s index of current conditions rose to 88.7, a 4-year high, from 82.7 in the prior month.  The share of households with incomes of less than $75K that said it was a good time to buy durable goods was the highest in 5 years.  This optimism contrasts with the Conference Board’s index which decreased to 60.6 in Aug, the lowest level since Nov from a revised 65.4 in the prior month.  Go figgah!

Consumer Sentiment in U.S. Rose to Three-Month High

• 

Photo:   Yahoo

Orders to US companies rose in Jul, reflecting a surge in demand for autos & commercial aircraft.  But a key orders category that tracks business investment plans fell by the largest amount in 8 months.  Factory orders rose 2.8% in Jul, the biggest overall advance in a year, reflecting sizable gains in demand for motor vehicles & airplanes, according to the Commerce Dept.  Core capital goods orders, viewed as a good proxy for investment spending, plunged 4%, the 4th setback in the past 5 months.  The worry is that businesses have begun to scale back their plans to expand & modernize in the face of spreading economic weakness in Europe & such major export markets as China, Brazil & India.  There are also worries that companies are already postponing plans to buy new equipment & hire new workers because of the uncertainty over how the federal budget deadlock will be resolved, a development that would represent another blow for an already weak recovery.  For Jul, orders for durable goods, items from battleships to bicycles, increased 4.1%, slightly lower than the gov preliminary estimate last week of a 4.2% gain.  Orders for non-durable goods, items such as food, clothing & paper, increased 1.5 % following a 2.3% decline in Jun.  The strength in durable goods was led by a 53.9% surge in the volatile category of commercial aircraft while demand for motor vehicles climbed a strong 20.6%.  Orders are an important leading indicator.

US factory orders rose 2.8 percent in July AP


The price for gas at the pump is up to $3.83, a dime below the yearly high.  Crude oil is heading back to $100. more prices rises are ahead for gas.  High gas prices always spell trouble for the economy.

	Regular	Mid	Premium	Diesel	E85	**E85 MPG/BTU adjusted price
Current Avg.	$3.829	$3.972	$4.112	$4.090	$3.427	$4.509
Yesterday Avg.	$3.826	$3.965	$4.104	$4.081	$3.423	$4.505
Week Ago Avg.	$3.730	$3.872	$4.014	$4.019	$3.373	$4.438
Month Ago Avg.	$3.521	$3.662	$3.799	$3.780	$3.233	$4.254
Year Ago Avg.	$3.617	$3.746	$3.874	$3.885	$3.222	$4.240

Source:    AAA


Stocks settled back in the PM, but still had a fairly good day.  Volume was drab, as expected.  It's difficult to make much from these swings.  The thinking is that Big Ben is all for more stimulus, but it's not clear what form it would take, & there is a feeling that others on the board are more cautious.  They raise concerns that its not clear what good the former moves did with unemployment still at unacceptable levels & an economy that has not truly recovered from the recession 3 years ago.  Dow ended gaining 82 in Aug & always stayed close to the 13K level.  Sep is the month which has delivered the worst stock market performance in the past, even though Oct has the memorable days.

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Marekts flat, awaiting developments from FOMC meeting

Dow slipped 7, advancers & decliners were even but NAZ jumped 10 as Apple (AAPL) shot up 13.  The Financial Index was down a smidgen to the 197s.  The MLP & REIT indices were flattish while junk bond funds inched higher.  But Treasuries strengthened, bringing lower yields.  Oil fell for a 2nd day on speculation the Federal Reserve won’t ease monetary policy this week to boost economic growth.  Gold was little changed.

AMJ (Alerian MLP) Index tracking fund)

Treasury yields:

U.S. 3-month	0.096%
U.S. 2-year	0.219%
U.S. 10-year	1.476%

CLU12.NYM

....Crude Oil Sep 12

..89.45

... 0.33

(0.4%)

GCQ12.CMX

...Gold Aug 12

.....1,619.90

... 0.20

(0.0%)

Photo:   Bloomberg

Americans spent no more in Jun than they did in May, even though their income grew at the fastest pace in 3 months.  The lack of growth in spending follows a decline in the previous month, suggesting consumers are staying cautious as they economy weakens.  Income rose 0.5% according to, the Commerce Dept (the biggest gain since Mar) & was driven by a 0.5% increase in wages.  After-taxes & adjusting for inflation, income grew 0.3%.  The extra money went straight to savings.  The savings rate rose to 4.4%, the highest level in a year.  Slower growth in consumer spending this spring was the main reason the economy grew at an a 1.5% pace in Q2, below the 2% growth rate in Q1.  In Jun, consumers spent slightly more on services, although some of that may reflect lower gas prices.  There were hopes that falling gas prices would give consumers more money to spend elsewhere & boost growth in H2.  But gas prices have stopped falling & even started to rise in recent weeks while this summer's severe drought is expected to push food prices up toward the end of the year.

Consumer Spending in U.S. Was Unchanged in June

Photo:   Bloomberg

US consumer confidence rose in Jul after 4 months of declines, as a brighter outlook for short-term hiring offset longer-term worries about the economy.  The Conference Board says its Consumer Confidence Index increased to 65.9, from 62.7 in Jun.  That's the highest reading since Apr & better than the reading of 62 that was forecasted.  Still, the index remains well below 90, which indicates a healthy economy.  It hasn't been near that level in almost 5 years.  The index fell to an all-time low of 25.3 in Feb 2009, 4 months before the recession officially ended.  Consumer confidence is widely watched because consumer spending drives 70% of  economic activity.

U.S. Consumer Confidence Unexpectedly Gains for First Time in Five Months

Spain's regions were urged to extend budget cuts, as efforts to prevent bank defaults adds to the gov deficit.  Representatives of the 17 semi-autonomous regional govs are scheduled to convene in Madrid for a budget checkup.  Data just released showed the central gov exceeded its target for the 2012 budget shortfall with half the year still to go.  The biggest contributor to Spain’s economy, the Catalonia region centered on Barcelona, said it won’t take part in the meeting to protest the gov's rigid stance on deficits. The gov is struggling to avoid a broader bailout after gaining the right to borrow as much as €100B ($123B) from European rescue funds.  Its budget gap, the euro area’s 3rd largest, remained almost unchanged from 2010 at 8.9% of GDP last year.  The yield on Spain’s 10-year bond is at 6.62%, compared with a euro-era high of 7.75% on Jul 25.  It fell after ECB President Fraghi said last week he would do whatever is needed to protect the single currency.  The central gov’s shortfall surged to 4.04% of GDP in H1 from 3.41% in the 5 months thru May as it transferred funds to the rest of the public sector to prevent a liquidity squeeze.  That compares with a gov target for the year of 3.5%.  Spain’s overall 2012 deficit goal, which includes all levels of gov, is 6.3%. Spain needs a lot of help, not sure even the ECB will be able to solve its problems.

Spain to Urge More Regional Budget Cuts as Deficit Deepens


Markets are taking it easy, awaiting outcomes from the 2 big financial meetings.  Hardly anything is moving expect for AAPL which is flying again after leaking that the new iPhone (its #1 product) will be introduced on Sep 12.  Maybe there will also be a new iPad.  As usual, details are not spelled out.  Meanwhile, Dow is marking time above 13K, a good sign for the bulls.

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