Markets drift lower on Euro concerns

Dow slid 2, decliners just ahead of advancers & NAZ fell 12.  The Financial Index was down a fraction in the 198s.  The MLP index rose 1+ to the 394s & the REIT index was up a fraction in the 267s.  Junk bond funds were mixed to lower & Treasuries rebounded as investors await details from European leaders on how they plan to support struggling countries in the region like Spain.  Gold inched higher, helped by uncertainty coming from Europe.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month	0.096%
U.S. 2-year	0.227%
U.S. 10-year	1.504%

CLU12.NYM

...Crude Oil Sep 12

...89.75

... 0.38

(0.4%)

China plans to increase railway spending & the State Council called for private investment in utilities & health care as Premier Wen Jiabao tries to reverse an economic slowdown.  The Ministry of Railways, the nation’s largest corporate debt issuer, plans to spend 470B yuan ($74B) on railroads & bridges this year, the 2nd increase in Jul, for a combined gain of about 14% from the previous figure.  The new target exceeds last year’s 461B yuan in spending & follows Wen’s Jul 10 comments that promoting investment growth is the key now to stabilizing an expansion that decelerated to 7.6% in Q2, a 3-year low.  At the same time, officials are signaling the slowdown isn’t deep enough to warrant a return to the 700B-yuan level of railway-construction funds in 2010.  China’s State Council, or Cabinet, reiterated that downward pressure on the economy is intensifying.  The railways ministry will sell 22B yuan in 10-year bonds & 5B yuan in 15-year bonds. 

China Increases Railway Spending Plan for Second Time

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Photo:   Yahoo

Strong sales in the US & Canada powered Chrysler to a $436M Q2 profit, a big turnaround from a year earlier when Chrysler lost $370M mainly because it refinanced bailout loans.  Now majority owned by Italy's Fiat, the automaker also backed an earlier forecast that it would earn $1½B this year, unthinkable 3 years ago.  It's benefiting from a reliance on North America & limited exposure to overseas markets.  Other car companies are losing money in Europe & seeing sales slowdowns in China & South America.  More than 75% of Chrysler sales come from the US & Canada accounts for another 12%.  Q2 revenue rose 23% to $16.8B.  US sales rose 30% in Q2 while its share of the market went from 10.1% last year to 11.5%.  In Canada, sales rose 7% in H1 to just over 130K vehicles.

Chrysler Reports $436 Million Second-Quarter Profit


Loews net income plunged 78% in Q2 as the holding company took a large charge because it lowered the value of its natural gas & oil properties due to declining prices.  The company reported EPS of 14¢ compared with 61¢ last year.  Removing the impairment charge of $142M at its energy properties, earnings were $198M versus $250M last year.  Revenue slipped 4% to $3.39B from $3.54 B.  Earnings at Diamond Offshore (DO) fell because fewer rigs were used as more of them underwent special surveys. The division also dealt with higher contract drilling expenses.  The performance was somewhat offset by the sale of 5 rigs.  Boardwalk Pipeline (BWP), a major MLP, earnings rose mostly because of the 2011 acquisition of Boardwalk HP Storage.  The stock sold off $2.15 (5%).

Loews Plunges as Tisch Says ‘Very Concerned’ About Economy: New York Mover

Loews (L)

Overbought markets need time to reassess the move up.  There are 2 big financial meetings this week, first the FMOC then the ECB will decide what bold moves to take on Thurs.  The Federal Reserve is not expected to do much beyond a few words of encouragement for the euro guys.  In this "we make it up as we go along world," nobody knows what will be decided in Europe.  But Dow is hanging in above 13K which is becoming an important support level.

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Higher markets on better than expected April auto sales

Dow rose 93 to new highs not seen since 2008, advancers ahead of decliners 4-1 & NAZ gained 33.  Bank stocks led the charge with the Financial Index up 3+ to 211 (one month high).  The MLP index continues on its winning ways, up a fraction to 399, & the REIT index rose 3+ to almost 264, a new high since the middle or 2008.   Junk bond funds inched higher while Treasuries pulled back after recent gains.  Oil & gold are marking time.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month	0.097%
U.S. 2-year	0.262%
U.S. 10-year	1.937%

CLM12.NYM

...Crude Oil Jun 12

...104.75

... 0.12  (0.1%)

GCK12.CMX

...Gold May 12

......1,667.60

... 4.20  (0.3%)

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Construction spending barely rose in Mar as investment in public projects dropped to a 5-year low, according the Commerce Dept which could see the Q1 economic GDP estimate lowered.  Construction spending edged up 0.1% to an annual rate of $808B, after a revised 1.4% drop in Feb.  Expectations had been for construction spending to rise 0.5% after a previously reported 1.1% decline in Feb.  But overall construction spending was up 6% compared to Mar 2011.  Private construction spending increased 0.7% after falling 1.9% in Feb.  Spending on residential projects rose 0.7%, partly reflecting home improvements.  Investment in multifamily residential projects fell 3.1%, while outlays for single-family buildings increased 3.8%.  Residential construction grew at its fastest pace since Q2 2010.  Private nonresidential construction rebounded 0.7% in Mar, breaking 2 straight months of declines.  Spending on public sector construction fell 1.1% to $276B, the lowest level since Feb 2007 as outlays on state & local gov projects dropped 1.6% to the lowest level since Nov 2006.  More mixed data on this important sector for the economy.

Construction Spending Up, Investment in Public Projects Hits Five Year Low

Reuters

Photo:   Bloomberg

Pfizer, a Dow stock, reported higher-than-expected quarterly earnings as improved profit margins & strong sales of its Lyrica nerve-pain drug partly offset plunging demand for its Lipitor cholesterol fighter which is facing cheaper generic rivals.  Sales of Lipitor fell 42% to $1.4B.  EPS was 24¢ compared with 28¢ last year (when results suffered because of a litigation charge & costs of revamping research operations).  Excluding special charges to boost productivity & address legal matters, Pfizer earned 58¢, compared with 60¢ last year but better than 56¢ expected.  PFE is now eagerly awaiting US approvals of 2 potential blockbuster treatments: blood clot preventer Eliquis & tofacitinib to treat rheumatoid arthritis.  In the meantime, it's squeezing growth out of older medicines, including Lyrica, whose sales jumped 16% to almost $1B, fueled by growing demand in Japan.  Sales of painkiller Celebrex rose 7% to $634M, while sales of arthritis treatment Enbrel rose 3% to $899M.  Premarin, its line of female hormone replacement drugs, topped forecasts, with sales rising 11% to $261M.  But sales of its Prevnar vaccines against pneumonia & other infections fell 6% to $941M due to fewer children getting booster shots during the period & a lower US birth rate for eligible patients versus a year ago.  Total revenue fell 7% to $15.4B, just below expectations of $15.47B.  The stock fell 13¢.

Pfizer Profit Beats Estimates as Drugmaker Readies Animal Health Spin-Off

Pfizer, Inc. (PFE)

Photo:   Bloomberg

Chrysler, Ford & General Motors reported Apr sales that exceeded estimates.  Chrysler sales climbed 20% to 141K light vehicles.  Ford deliveries slipped 5.1% to 179K cars & light trucks, & GM sales fell 8.2% to 213K.  But they beat estimates of a 16% gain for Chrysler, 5.7% drop for Ford & 9% decline for GM.  Chrysler added 2.1 percentage points of market share in Q1 compared with a year earlier and has reported 11 consecutive months of year-over-year sales gains exceeding 20%.  CEO Marchionne is counting on the new Dodge Dart compact, which begins production this week, to boost deliveries later this year after a 5-month streak of 30% sales gains.  Toyota's (TM) US light vehicle sales rose 12%, better than the average estimate for a 10% gain.  GM also raised its forecast for full-year US light-vehicle sales to 14-14.5M, up from 14M.  The company cited “higher than expected” Q1 industry sales & expectations the US economy will keep growing.  Autos are leading the strong manufacturing performance in the US.

Chrysler Leads U.S. Automakers Beating Sales Estimates

General Motors Company (GM)

Ford Motor Company (F)

The bulls are back from their long holiday weekend & bidding up prices.  Bank stocks deserve special attention with prices near highs reached on at the end of Mar.  MLPs are also recovering after a sluggish period in Mar & much of Apr.  And REITs are at multi year highs.  Europe debts woes have vanished, although Spain looks iffy, & a slowdown in the US economy does not bother investors.  Dow is at a 4 year high, making the bulls very happy.

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Greek debt problems weigh on markets

Asian markets sold off 2-4%, but US markets began the day near break even.  Then selling returned.  Dow fell 42, decliners over advancers 3-1 & NAZ was off 12.  Bank stocks are also sliding lower from a small gain in early trading.

S&P 500 Financials Sector Index

Value	158.60
Change	-0.45    (-0.3%)

The Alerian MLP index dropped 4+ to the 335s but the REIT was up a fraction to 204.  Junk bond funds were marginally lower while Treasuries gained on a flight to safety.  Oil fell to the lowest level in almost 2 months on concern that Greece will default, leading to slower global economic growth & lower fuel consumption.  These same fears drove demand for safe haven gold.

ALERIAN MLP Index (^AMZ)

DJ REIT INDEXDJR (^DJR)

Treasury yields:

U.S. 3-month	0.010%
U.S. 2-year	0.243%
U.S. 10-year	1.866%

CLX11.NYM

...Crude Oil Nov 11

...77.73

..... 1.47

(1.9%)

GCV11.CMX

...Gold Oct 11

......1,654.50

... 34.10

(2.1%)

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Factory activity expanded at a faster pace than expected in Sep as production & hiring increased, a sign of resilience in manufacturing despite faltering economic growth.  The Institute for Supply Management said its index of national factory activity rose to 51.6 last month from 50.6 in Aug.  Sep marks the 26th straight month of expansion in a sector that has shouldered the broader economic recovery.  A measure of factory employment rose to 53.8 last month from 51.8 in Aug, while production climbed to 51.2 from 48.6.  Call this slightly good news.

ISM Manufacturing Index Rises, Defying Forecasts

Photo:   Bloomberg

The Greek gov passed a new budget backed by its creditors, including larger deficits than previously forecast, as the country moves closer to securing an €8B ($10.7B) payout needed to avoid default.  The Cabinet also passed €6.6B of austerity measures to cut the 2012 deficit to 6.8% of GDP, missing the 6.5% goal previously set with the EU, IMF, & ECB (known as the troika).  Greek bonds fell before European finance ministers gather to consider enhancement’s to the region’s rescue fund. Prime Minister Papandreou adopted the austerity measures under pressure from the troika as the country’s 3-year recession sapped revenue needed to close the fiscal gap.  The yield on Greece’s 10-year bond rose 6 basis points to 22.74% & the 2-year yield gained 10 basis points to 62.27!  Greece’s measures, which still require parliamentary approval, aim to secure disbursement of the €8B loan payout this month.  The extraordinary yields on Greek debt tell it all.

Greece Pledges $8.8 Billion in Austerity

Chrysler 300
Photo:   Bloomberg

General Motors US sales rose 20% in Sep because of strong demand for full-size pickups & SUVs.  Pickup & SUV sales are generally stronger in the fall.  GM & other companies were offering promotions on trucks.  GM truck sales climbed 34% from Sep 2010, a much stronger increase than cars (up 12%).  Sales across the industry are expected to have risen as more Japanese vehicles fill showrooms after months of earthquake-related shortages but the jump could be short-lived because potential car buyers remain worried about the economy.  Chrysler auto sales rose 27.2% on high demand for its new models.  Chrysler sold 127K, up from 100K last year.  Its top seller was the Dodge Ram which sold 24K pickups, up 45% from Sep 2010.

GM, Chrysler September U.S. Vehicle Sales Beat Estimates on Light Trucks

General Motors Company (GM)

Markets began the month stronger than was expected after heaving selling overseas.  But bears are returning.  Apple (AAPL) is expected to announce a new iPhone this week which will test its fans' resolve in a global economic market that is not doing well.  Kodak (EK) said it will not file for Chapter 11, the stock almost doubled to $1.50!.  Auto sales look good, but that may be more related to temporary factors.  The big event is the jobs report on Fri.  Expectations are for a meager 60K jobs to be added to the economy (200+K is needed to do much good) & the unemployment rate will remain dreary.  Then there's the Greek drama which drones on.  Plenty of worries out there for the stock market.  Oct could be another rough month.

Dow Industrials (INDU)

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