Markets tumble on growing Euro debt woes and weak earnings

Stocks started the day lower & have not been able to find any strength.  Dow lost 143, decliners over advancers 6-1 & NAZ lost 51 (ahead of Apple earnings tomorrow evening).  After a strong Apr, the MLP index fell 3 to the 391s & the REIT index fell 3½ to the 251s (its 12 month high).  Junk bond funds were mixed but Treasuries rose on growing uncertainties over euro debts.  Oil slumped with the lower stock markets & gold also fell.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month	0.071%
U.S. 2-year	0.258%
U.S. 10-year	1.916%

CLM12.NYM

...Crude Oil Jun 12

...102.18

.... 1.70

(1.6%)

GCJ12.CMX

....Gold Apr 12

........1,629.00

... 13.10

(0.8%)

Get the latest daily market update below:

Photo:   Bloomberg

The euro region debt rose last year to the highest since the start of the € as govs increased borrowing to plug budget deficits & bailouts of nations crippled by the fiscal crisis.  The debt of the 17 euro nations climbed to 87% of GDP in 2011 from 85% in the previous year according to EU figures, the highest since the € was introduced in 1999.  Greece topped the list with debt at 165% of GDP & Estonia had the least at 6%.  Euro nations are on the hook for the bulk of the €386B ($508B) in bailouts for Greece, Ireland & Portugal after those nations were forced to seek rescues when their borrowing costs become unsustainable.  Concern that Spain & Italy may follow has caused their bonds to decline for 6 weeks, pushing yields toward the 7% level that triggered the other aid programs.  The yield on Italy’s 10-year bond is up to 5.72% percent, pushing the difference with German securities to 406 basis points.  The Spanish 10-year yield rose to 5.98%.  Italy ended 2011 with the 2nd-highest debt at 120% of GDP & Spain’s rose to 68% from 61%.  Meanwhile, Germany posted one of the only declines, with its debt shrinking to 81% from 83%.  Only 5 euro-region nations (all smaller ones) had debt within the euro-region’s limit of 60% of GDP.  More disturbing news on the euro debt front.

Euro-Region Debt Rises to Highest in Currency’s History

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Photo:   Yahoo

ConocoPhillips Q1 profit dropped 3% due to a decline in production following the sale of oil fields & other assets.  EPS was $2.27 versus $2.09 last year & revenue was flat at $58.4B.  Excluding special items, EPS of $2.02 was below expectations of $2.08 & revenue of $60B.  COP has shed more than $20B in assets since 2010 as part of a plan to split into separate companies.  One company will keep the ConocoPhillips name & focus on exploration & production.  The other company, Phillips 66, will specialize in refineries pipelines.  With fewer producing assets, oil & natural gas production dropped 3.8% to 1.64M barrels of oil equivalent per day in Q1.  Oil platforms also were temporarily suspended off the coast of China because of an oil spill.  Crude oil was sold for higher prices, but natural gas prices declined.  Its refineries sold less gasoline, diesel & other petroleum products.  Total refining sales dropped by 11.2% & refining profit fell 6.2%.  Its midstream business, which includes pipelines, increased profits 27% & its chemicals business boosted profits 13%.  The stock fell 77¢, higher crude oil prices have not helped the stock this year.

Conoco Profit Falls on Lower Production, Refining Earnings

ConocoPhillips (COP)

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Photo:   Yahoo

Kellogg cut its 2012 forecast because of slower sales growth in Q1.  It now expects a full-year EPS of $3.18-$3.30 because of the weaker sales growth in Europe & for some US products.  That includes a charge of 6-11¢ from the $2.7B acquisition of Pringles.  Analysts were predicting EPS of $3.48.  In early Feb, 2012 net income was predicted to rise 2-4%, excluding changes in currency values operating profit, unchanged for the year.  The company now expects operating profit to decrease 2-4% in 2012.  For all of 2011, EPS was $3.38 & operating profit was $2B.  Internal revenue, excluding the effect of changing currency values as well as acquisitions & sales of company divisions, should grow 2-3% which compares with a prediction of 4-5% made in Feb.  In Q1 it said it had EPS of $1, unchanged from last year.  Analysts were predicting 99¢.  The company said revenue fell 1.3%, suggesting revenue of $3.4B versus a expectations of $3.6B.  "We are obviously disappointed with the performance of the company in the first quarter of 2012. We faced more significant challenges in both Europe and in some categories in the U.S. than we expected," CEO John Bryant said.  The stock dropped 2.55 (5%).

Kellogg Cuts Full-Year Profit Forecast

Kellogg Company (K)

Markets are a having another dreary day in what may be a dreary week.  Earnings season is winding down & they have not been able to inspire buyers to return to the markets.  It seems like Euro debt concerns are increasing every day.  Gas at the pump has pulled back to $3.86 reflecting lower prices for crude.  But gas prices remain high enough to pinch consumers.  The Dow is back down to 12.9K as 13K is proving to be a formidable ceiling which is holding back the stock market advance. 

Dow Industrials

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Higher markets on hopes about Greek vote

Dow rose 96, advancers over decliners 2-1 & NAZ is up 17.  Bank stocks, however, are soft.

S&P 500 Financials Sector Index

Value	177.08
Change	-0.80    (-0.5%)

The MLP & REIT indices were each down 1½.  Junk bond funds were little changed & Treasuries dropped, taking the yield on the10 year Treasury over 2%.  Oil gained & gold is up nicely.  Gold is on a run again, up over 100 in the last 2 weeks.  Safe haven qualities are attracting investors with all the turmoil coming from Europe.

ALERIAN MLP Index (^AMZ)

DJ REIT INDEXDJR (^DJR)

Treasury yields:

U.S. 3-month	0.000%
U.S. 2-year	0.234%
U.S. 10-year	2.052%

CLZ11.NYM

....Crude Oil Dec 11

...93.01

..... 0.50

(0.5%)

GCX11.CMX

...Gold Nov 11

.....1,750.10

... 21.40

(1.2%)

Get the latest market update below:

Photo:   Bloomberg

The European Central Bank (ECB) cut interest rates by a ¼ percentage point under new head Mario Draghi as it tries to boost a weakening economy that's reeling from a gov debt crisis that threatens to spread from Greece.  The debut move from Draghi, which comes earlier than expected.  European growth is expected to slow in Q4 & the rate cut is aimed at preventing an outright recession.  Uncertainty from the debt crisis is a factor as business & consumers are reluctant to spend & investors are worried of the potential for more financial turmoil if Greece defaults on its debts.  The current market turbulence is "likely to dampen the pace of economic growth in the second half of the year and beyond," said Draghi.  He also signaled that the ECB bond purchases, which have been keeping down borrowing rates for financially weak countries like Italy, are temporary & limited.  Markets had hoped that Draghi would indicate the bank was willing to be more aggressive with the bond purchases, but he said it was up to govs to fix their finances. "It is pointless to think sovereign bond rates could be brought down for an extended period of time by outside interventions."   Everybody is making it up as they go along but he sounds like he has a tough attitude.

ECB Cuts Rates as Risk of Greek Euro Exit Grows

Photo:  Bloomberg

Jobless claims fell by 9K to 397K last week week, the fewest in a month, according to the Labor Dept & better than the forecast of 400K.  The 4-week moving average fell to 404K from 406K.  The number of continuing to receive jobless benefits dropped 15K to 3.68M.  The continuing claims figure does not include Americans receiving extended benefits under federal programs.  Those who’ve used up their traditional benefits & are now collecting emergency & extended payments increased by 39K to 3.49M in the lastest week.  Slight improvement is little consolation for those looking for work..

Jobless Claims in U.S. Fell to a One-Month Low Last Week




Photo:   Yahoo

Kellogg Q3 net income fell 14%, worse than expected, hurt by higher costs related to updating its supply chain & incentive compensation costs.  The world's largest cereal maker also lowered earnings guidance below expectations.  EPS was 80¢, below 90¢ last year & expectations of 89¢.  Money spent to improve the supply chain hurt net income by 8 percentage points, while incentive compensation costs hurt results by 12 percentage points.  The supply chain improvements will take several years & "improve the infrastructure and drive reliability and capability" of Kellogg, said CEO John Bryant.  Revenue rose 5% to $3.3B, analysts expected $3.4B.  In North America revenue rose 4% to $2.2B & Intl revenue rose 7% to $1.1B, boosted by the weaker dollar.  Results in Latin America were strong & Europe continued to improve.  Kellogg continues to expect revenue will grow 4-5% in 2011, but it lowered its net income guidance because of continued investment in its supply chain.  It now expects EPS of $3.35-$3.41, below prior guidance of $3.42-$3.49.  Analysts expect $3.48.  In 2012 the company expects revenue to rise 4-5% with net income, excluding currency fluctuation, up 2-4%.  The stock sank $4.48 (9%).

Kellogg Profit Falls 14% on Increased Spending to Improve Quality Controls

Kellogg Company (K)

Markets remain in limbo awaiting new developments from Europe.  The rate hike by the ECB will probably do little.  The G-20 meeting meeting in France will likely accomplish little, that is the norm.  Earnings seem to be more of a mixed bag, not acknowledged by the the optimists.  Companies are struggling to balance off rising costs with prices hikes in a less than friendly economic environment.  The weekly jobs report was more of the same.  Tomorrow's will be the big one & expectations are low.

Dow Industrials (INDU)

Lower markets on disappointing data

Dow slumped 122, decliners over advancers 3-1 & NAZ fell 28.  Bank stocks were weak, taking the Financial Index lower. 

S&P 500 FINANCIALS INDEX

Value	218.80
Change	-1.72   (-0.8%)

The Alerian MLP Index fell a whopping 11 to the 366s, down a massive 23 this week.  I haven't seen any new news, but there could be worries about changing the tax preferred status of MLPs.  This sell-off is the worst in the 15 year history of the index.  The chart below belows shows the fund tracking the index & it looks ugly.  Meanwhile the REIT index is down only 1 to the 245s.  Low priced junk bond funds were down a few pennies.  But Treasuries rose, taking their yields back down to near the lowest levels in months.  The yield for the 3 month bill is only 0.03%, a significant sign of market nervousness.  Oil is down from its recent highs in the 113s & gold is sinking in response to the 15% sell-of for silver this week.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month		0.03%
U.S. 2-year		0.59%
U.S. 10-year		3.22%

CLM11.NYM

...Crude Oil Jun 11

...109.70

... 1.35

(1.2%)

GCK11.CMX

....Gold May 11

.....1,532.70

... 7.40  (0.5%)

Photo:   Bloomberg

ADP, the payroll processing company, said private sector payrolls grew 179K last month, after an upwardly revised 207K increase in Mar. Expectations were for a gain of 200K private sector jobs.  Monthly gains over the last 4 months have been holding steady around 200K which is "consistent with only modest declines in the unemployment rate." according to ADP.  Smaller businesses led the charge in Apr. Medium-size businesses, 50-499 workers, & small businesses each added 84K jobs but large businesses added just 11K.
A separate report showed employers announced fewer planned job cuts in Apr, even as gov sector layoffs mounted.  The number of jobs cut fell 12% to 36K in Apr from 41K in Mar, according to outplacement consulting firm Challenger, Gray & Christmas. Year over year, job cuts dropped 5% from 38K in Apr 2010.  The job cut number is the lowest so far this year, & the 3rd lowest over the last 16 months. "The slow pace of downsizing suggests employers remain optimistic about business conditions going forward, despite higher energy costs, government deficits and slipping confidence among consumers," said John Challenger, CEO of Challenger, Gray & Christmas.  Despite the slow pace of layoffs in the economy at large, the gov & non-profit sector was hit hard by job losses.  Gov positions dominated planned job cuts, accounting for 10K job cuts last month, bringing the 4-month total to 52K.  Challenger said. "Most of cuts tracked this year were concentrated in the state & local agencies."  The important jobs report on Fri is expected to say the unemployment rate held steady at 8.8% while employers added 185K jobs in Apr. For the full year, 2.3M new jobs are expected, just under 200K per month & an unemployment rate of 8.4% by year end. More of the same kind of news, good, but not good enough to have a major impact on high unemployment.

ADP Estimates U.S. Companies Added 179,000 Jobs in April




Photo:   Yahoo

Kellogg Q1 net income fell 12% as K dealt with higher ingredient costs & spent more on marketing &new products.  EPS was $1, down from $1.09 last year & below forecasts of $1.04.  Revenue climbed 5% to $3.49B on sales increases in North America & overseas, surpassing $3.39B estimated by analysts.  K said results don't fully reflect price increases that have been made & raised full-year revenue outlook to an increase of 4%, expecting to benefit from higher prices.  K still expects full-year earnings to climb in the low single-digits, implying EPS of $3.33-3.40 with no foreign exchange impact while analysts expect $3.48.  The stock fell 95¢ after having a good run in 2011.

Kellogg 1Q net income falls on higher costs AP

Kellogg Company (K)

CBS had a strong Q1 performance & doubled its dividend, a sign that it has recovered from the latest advertising downturn.  Q1 gains were credited to overhauling unprofitable businesses. CBS also has been trying to lessen its dependence on advertising by taking advantage of growing demand for CBS content streamed over the Internet.  "We are clearly benefiting from the strategic actions we have taken to enhance and de-risk our business model, including diversifying our revenue streams and managing our cost structure," CEO Les Moonves said. He said selling shows in more profitable ways "positions CBS for success, not just for the rest of this year, but for many years to come." EPS was 29¢, compared with a loss of 4¢ last year (last year's EPS totaled 5¢ after excluding special items).  Sales were $3.51B.  Results beat expectations of 19¢ on revenue of $3.46B.  The quarterly div was boosted to 10¢ & the stock jumped 1.16 to the 26s. 

CBS Shares Gain Most in 21 Months on Doubling of Dividend, Earnings Growth

CBS Corporation (CBS)

This week has been a pause period for the markets but now it's getting more serious.  In the high yield sector, the performance of the MLPs is unnerving.  This is a low beta group. To see the index drop over 20 in 3 days brings back memories of the sudden sell-off in Jul 2007 when the index plunged off its (then) record high.  Bigger picture, the jobs data was OK but not inspiring with growing worries about the big jobs report on Fri.  Shaky markets may continue drifting lower..

Dow Industrials (INDU)

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