Mixed markets ease after weak jobs report

Dow slipped 11, advancers ahead of decliners 2-1 & NAZ lost only 1.  The Financial Index jumped another 2 to 210, a new high since the start of Apr.  The MLP index lost a fraction to the 395s & the REIT index rose a fraction to the 271s, a new yearly high (barely).  Junk bond funds were mixed to lower & Treasuries advanced for the first time in 4 days on Federal Reserve wagers.  Oil fell for the first time in 3 days after US payrolls increased less than expected in Aug.  Gold continued rising, betting on negative results after more stimulus.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month	0.101%
U.S. 2-year	0.246%
U.S. 10-year	1.601%

CLV12.NYM

...Crude Oil Oct 12

...94.98

..... 0.55

(0.6%)

GCU12.CMX

...Gold Sep 12

.....1,730.10

... 27.50

(1.6%)

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Photo:   Yahoo

US employers added just 96K jobs last month, a very weak figure.  The unemployment rate fell to 8.1% from 8.3% in Jul because more people gave up looking for jobs.  People who are out of work are counted as unemployed only if they're looking for a job.  The gov also said that 41K fewer jobs were created in Jul & Jun than first estimated.  The economy has added just 139K jobs a month since the start of the year, below 2011's average of 153K.  Cash-short govs were a key reason the job market was weaker in Jun & Jul than first estimated.  Federal, state & local govs cut 39K jobs in those months, above the earlier estimate of 18K.  In previous recoveries, govs have typically added jobs, not shed them.  This report was discouraging throughout.  Hourly pay fell, manufacturers cut the most jobs in 2 years & the number in the work force dropped to its lowest level in 31 years. 

Payrolls in U.S. Increased Less Than Forecast in August

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Photo:   Yahoo

Intel, a Dow stock, cut its Q3 revenue estimate & withdrew its full-year forecast, saying demand for its chips declined as customers reduced inventory & businesses bought fewer personal computers.  Chip makers in the PC industry have been hit by a shaky global economy & consumers shifting toward tablets & smartphones.  INTC lowered its full-year revenue forecast in Jul, saying consumer spending in Europe & the US had been weaker than what the company had previously expected.  The company said on today it expects Q3 revenue of $13.2B, plus or minus $0.3B, down from its previous forecast of $13.8-$14.8B.  Full-year capital spending is expected to be below the low-end of its previous forecast of $12.1-$12.9B.  The company withdrew all other quarterly & full-year expectations.  INTC expects gross margin of 62% for Q3, plus or minus one percentage point, down from its previous expectation of 63%, plus or minus a couple of percentage points.  The stock fell 75¢.

Intel Cuts Third-Quarter Sales Outlook on Weaker-Than-Estimated PC Demand

Intel (INTC)

Photo:   Bloomberg

Italian Prime Minister Monti said the ECB's bond-buying plan reduced the stigma of asking for aid, as he followed Spanish counterpart Mariano Rajoy in resisting tapping the bailout program.  “The drama in the word ‘help’ has been reduced,” Monti said.  “Now, there are ways in the European Union, which must be used under careful conditionality and in the interest of all, to confront” unreasonable increases in borrowing costs, he added.  Monti said he was trying to avoid seeking aid, & echoed Rajoy in saying it was premature to comment on the details of the plan.  Rajoy said in Madrid he needed time to study the proposal, resisting pressure to say whether he would seek a rescue more than a month after saying he may consider it.  ECB President Draghi handed the initiative back to govs as he said the central bank would only buy debt from nations that seek aid tied to strict conditions from Europe's gov-led rescue facilities.  Rajoy, who faces a regional election next month amid a slide in popular support, may be playing for time as he tries to soften the austerity demands tied to such support.  Spanish bonds rose today, pushing the benchmark 10-year yield below 6% for the first time since May 25.  The yield on Italian debt of a similar maturity fell as low as 5.03%.

Monti Says ECB Bond-Purchase Plan Reduces Stigma as Rajoy Stalls on Aid


Markets aren't sure what to do.  They want to go higher but in the face of a weak jobs reports & a negative outlook from INTC, buyers don't want to commit.  Wait & see will probably be the main theme today.  Next week brings the FOMC meeting & everybody is waiting for what comes out of that.  But bulls are happy that Dow remains above 13K, near its highs for the year.

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Higher markets on improved housing starts

Dow rose 72, advancers 2-1 ahead of decliners & NAZ added 26.  But the Financial Index slipped a tad in the 198s.  The MLP index was flat at 398 (10 week high) & the REIT index dropped 2 to the 268s.  Junk bond funds rose near their 2012 highs & Treasuries were also higher with yields near record lows.  Oil was even & gold pulled back, heading back to its mid 1500s floor.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month	0.092%
U.S. 2-year	0.230%
U.S. 10-year	1.486%

CLQ12.NYM

...Crude Oil Aug 12

...89.26

...... 0.04

(0.0%)

GCN12.CMX

...Gold Jul 12

........1,570.10

... 19.00

(1.2%)

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Photo:   Bloomberg

Construction of US. homes rose more than forecast in Jun to the fastest rate in almost 4 years, indicating a brighter outlook for the residential real estate market.  Housing starts rose 6.9% to a 760K annual pace after a revised 711K rate in May (faster than initially estimated by the Commerce Dept).  The forecast was for a 745K rate.  Building permits fell, reflecting a drop in applications for apartment construction.  Record-low mortgage rates & cheaper properties are attracting buyers, encouraging builders faced with lean inventories to boost construction.  At the same time, limited employment opportunities & competition from distressed properties are challenges for the industry.  The Jun pace was the fastest since Oct 2008 (just after the Lehman collapse).  Ben Bernanke said yesterday the industry was on the mend.  Growth in construction and “historically low mortgage rates” are among “modest signs” of a housing recovery, even as buyers show concern about personal finances & the broader economy and have difficulty meeting lending standards, Bernanke said.  Construction of single-family houses increased 4.7% to a 539K rate, the fastest since Apr 2010, from 515K a month earlier.  Work on apartment buildings & other multifamily units climbed 12.8% to an annual rate of 221K in Jun from 196K a month earlier.

Housing Starts in U.S. Rose in June to Highest Since 2008

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Greek ministers
Photo:   Yahoo

Greek coalition leaders agreed to meet next week to hammer out almost €12B worth of austerity cuts demanded by the country's lenders after a deal proved elusive at an initial round of talks today.  Greek officials have spent the past week scrambling to identify €11.7B in spending cuts for 2013 & 2014 required before European & IMF officials visit Athens next week.  But a final decision is expected only after much bargaining among the 3 party leaders in the new conservative-led gov, each of whom is keen to avoid appearing in favor of cuts that heap more misery on austerity-weary voters.  After a 3-hour meeting, party leaders emerged to give the public the message that the gov would not impose any new spending cuts this year beyond those already agreed.  "We had a very good discussion," Finance Minister Yannis Stournaras told reporters after the meeting. "We agreed on the basic direction."  The new gov has said it will seek an additional 2 years to hit fiscal targets included in the bailout, but plans to make the request only after regaining lost credibility by getting its reform programm back on track.  The gov must agree to almost €12B in cuts to allow the issue of the next payment, probably in Sep.  EU officials have already indicated they would find the money to see it through Aug.  The Greek drama plays on (as it did last year)

Greek Leaders Push Back Decision on Austerity Cuts

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Photo:   Yahoo

Intel, a Dow stock, reduced its growth forecast, reinforcing fears that a wavering global economy & a lack of consumer interest are dampening PC sales.  Shaky economies in Europe & the US along with growing consumer preference for tablets have been taking a toll on the PC industry.  The world's leading chipmaker cut its 2012 revenue growth forecast to 3-5%, down from a prior forecast of "high single-digit growth."  CFO Stacy Smith said consumer spending in Europe & the US is softer than previously thought.  "At the beginning of the year we would have expected, along with most economists, that economic growth would start picking up and that would lead to an increase in consumer sales. Those expectations are now more muted," Smith said.  Revenue rose to $13.5B from $13.0B in the year-ago period, but fell short of the $13.56B expected.  INTC forecast Q3 revenue of $14.3B, plus or minus $500B.  Analysts on average had expected $14.6B.  GAAP EPS was 54¢, compared to the forecast of 52¢.  China & other emerging markets have been a key source of growth in recently for PC manufacturers, helping make up for weakness in the Europe & US.  "Emerging markets, especially China and Brazil, are still growing nicely but are moderating due to GDP adjustments and currency fluctuations," CEO Paul Otellini said.  He said global enterprise IT spending was expanding as expected, more due to the buildout of data centers powering the internet than tech infrastructure upgrades by banks or other corporations.  INTC said non-GAAP gross margins in Q2 were 64% & maintained its full-year gross margin forecast of 64%.  Despite the dreary forecast, the stock rose 62¢.

Intel Cuts 2012 Forecast as U.S., Europe Fail to Rebound

Intel (INTC)

Housing starts data sounded good to the markets & earnings are coming in OK (that means good enough).  Meanwhile Big Ben is testifying before Congress & anything is possible after hearing his words, although shocks are not expected.  Dow has climbed back within 75 of its highs set 2 weeks ago.  The bulls would like to see it top that level of 12,950.

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Weak markets after mediocre tech earnings

Dow dropped 63, decliners over advancers 2-1 & NAZ fell 12.  The Financial Index was off 1 to 207.  The MLP index was essentially even, near 389, & the REIT index slipped a fraction to the 253s.  Junk bond funds did little & Treasuries had a modest rise, taking the yield on the 10 year Treasury below 2%.  Oil & gold were lower.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month	0.071%
U.S. 2-year	0.270%
U.S. 10-year	1.986%

CLK12.NYM

...Crude Oil May 12

...103.82

.... 0.38

(0.4%)

GCJ12.CMX

....Gold Apr 12

.........1,641.20

... 9.10

(0.6%)

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Surging bad loans in Spain are spurring doubts whether the gov can persuade investors that it can clean up the banks without further damaging public finances.  Non-performing loans as a proportion of total lending jumped to 8.16% in Feb, the highest level since 1994, from less than 1% in 2007, according to Bank of Spain.  The ratio rose from 7.91% in January as €3.8B of loans soured in Feb, a 110% increase from Jan 2011.  The total credit in the economy that the regulator lists as “doubtful” is now €143.8B.  Defaults are rising while credit is shrinking at a record pace with 24% unemployment corroding the quality of loans built up in the country’s credit boom & saps the appetite of banks to make new loans.  Doubts about the extent of Spain’s non- performing loans problem is driving up the gov borrowing costs on concerns that the expense of propping up ailing lenders may add to the debt burden.  Prime Minister Rajoy is battling to convince investors Spain’s finances are under control after his refusal last month to meet deficit targets set by the European Commission.  By seeking to cut the budget deficit to 3% of GDP from 8.5% over 2 years, he risks driving bad loans as the deepest austerity measures in 3 decades push the economy back into a recession.  They are already talking about how much money will be needed to bailout Spain.  This is another ticking time bomb for the financial markets.

Soaring Spanish Bad Loans Cast Doubt on Public Cost of Propping Up Banks

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Photo:   Yahoo

IBM, a Dow stock, reported flat revenue as net income grew 7% in Q1 (thanks to strong profit margins in its services business).  The earnings beat expectations.  However, investors were worried that revenue fell shy of estimates.  EPS was $2.61, up from $2.31 last year.  Excluding special items such as acquisition costs & pension-related expenses, EPS was $2.78, above the $2.66 per share predicted.  Revenue was flat at $24.7B.  Software & services revenue increased, but hardware & financing segments saw a decline.  The company has been focusing on its software & services offerings lately, which have higher profit margins.  Analysts were expecting revenue of $24.8B.  The revenue miss, though narrow, raised questions about IBM's ability to bring in enough new business to keep growing, even as it is able to squeeze out big profits from its software & services units.  It raised full-year guidance for adjusted earnings of at least $15 per share, up from its earlier outlook of at least $14.85 per share.  Analysts were looking for $14.93.  Its long-term goal is to reach at least $20 per share in adjusted earnings by the end of 2015.  The software revenue grew 5% to $5.6B & hardware revenue fell 7% to $3.7B.  Technology services revenue grew 2% to $10B & business services revenue slid less than 2% to $4.6B.  IBM announced it's selling the retail store solutions business to Toshiba for $850M.  The stock dropped almost $5.

IBM reports higher 1Q earnings, flat revenueAP

International Business Machines Corporation (IBM)

Chipmaker Intel, another Dow stock, posted good but not great earnings & said sales would accelerate in the H2 with a powerful new PC processor.  It added that costs associated with ramping up new production lines would hurt gross margins more than expected.  INTC is ramping up production of its newest PC processor, codenamed Ivy Bridge, which is expected to drive future sales later & power a new crop of super-thin laptops dubbed "ultrabooks."  But the costs of upgrading the factories where the chips are being made is temporarily hurting margins, CFO Smith said.  Non-GAAP gross margins in Q2 are being guided at 62%, plus or minus 2 percentage points, down from 64% in Q1.  The full-year gross margin forecast of 64% was left unchanged.  Shaky economies in Europe & the US, a growing consumer preference for tablets, & a recent shortage of hard drives due to flooding in Thailand last year have taken a toll on the industry.  But demand in China & other emerging economies has helped sustain growth, & INTC said business would pick up more as the industry recovers further from the hard-drive shortage & PC manufacturers replenish low component inventories.  "As we ramp Ivy Bridge and people gear up for these really capable ultrabook sales in the last half of the year, you'll start to see them refilling their pipelines with new products in the back half of this year," Smith said.  INTC is heavily promoting ultrabooks, which it hopes can stand up to the likes of tablets but some investors are concerned that expensive components will  make them too pricey for many consumers.  The stock lost 49¢.

Intel eyes sales pickup, investors cautiousat Reuters

Intel Corporation (INTC)

Markets are pausing after 2 big days.  But the earnings from 2 tech biggies are causing some traders to reassess the strength of the markets.  Spain is shaping up as the next bailout candidate & it has a much bigger economy than Greece.  Meanwhile, all is not well in the US.  Expiration of decade old tax cuts next year was mentioned by Tim Geithner.  Then there's gas at the pump, which is back over $3.91.  So far, investors are taking these problems in stride.

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