Markets sell off on growing Euro wories

Dow fell 77 (closing near the lows), decliners over advancers 5-2 & NAZ gave up 24.  The Financial Index remained down 1 to the 188s.  The MLP index fell a fraction to 364 & the REIT index dropped 2+ to the 247s.  Junk bond funds fell back but Treasuries gained after the stock market sold off.  Oil lost ground, near 8 month lows, but gold managed a modest gain of $4.

JPMorgan Chase Capital XVI (AMJ)

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Treasury yields:

U.S. 3-month	0.086%
U.S. 2-year	0.290%
U.S. 10-year	1.599%

CLN12.NYM

...Crude Oil Jul 12

...82.49

... 0.83

(1.0%)

• 

Antonis Samaras
Photo:   Yahoo

The new French president warned Greeks that if they vote to move away from intl bailout commitments in the upcoming election, they could be pushed out of the eurozone.  A repeat election will be held on Jun 17 to form a new gov.  Voters deserted the 2 formerly main parties in favor of smaller, mostly anti-bailout groups on the right & left of the political spectrum.  "I respect the Greek people. They will decide what they want on the occasion of the election" Francois Hollande said.  "But I must warn them, because it is my duty, because I am a friend of Greece, that if the impression is given that the Greeks want to move away from the commitments that were taken and abandon all prospects of revival, then there will be countries in the Eurozone that will want to end the presence of Greece in the eurozone."  Antonis Samaras' conservative New Democracy party has been running neck-and-neck in recent opinion polls with the radical left Syriza, which came in a surprise 2nd on May 6.  Samaras has pledged to stick to Greece's pledges for further cutbacks & reforms, with some adjustments to improve the position of poorer Greeks & boost growth, while Syriza's leader, Alexis Tsipras, has vowed to cancel Greece's bailout commitments.  Hollande, who won the French elections also held on May 6, said that while he wants Greece to remain part of Europe's joint currency, Greeks "must know that this presupposes a relationship of trust."  As I said last year at this time, the Greek drama plays on.

French president warns Greeks over euro AP

• 

Photo:   yahoo

A steep drop in gasoline costs drove down a measure of wholesale prices in May by the most since Jul 2009.  But outside the food & energy categories, prices increased moderately.  The producer price index fell 1%, after dropping 0.2% in Apr according to the Labor Dept.  Gasoline prices dropped nearly 9%, the most in almost 3 years.  Food costs also fell.  Excluding food & energy, the "core" index increased 0.2%, the same as in Apr.  In the past 12 months, wholesale prices are up only 0.7%, the smallest gain since Oct 2009.  The core index has risen 2.7% in the same period, the same pace as last month & down from a 12-month change of 3.1% in Jan.  Food costs fell 0.6%, the biggest decline since Dec, a 2.2% drop in meat prices drove most of the decline. The cost of fresh fruits & melons fell 7.1%, the most in a year.  Core prices were pushed up by more expensive pharmaceuticals & a big rise in the cost of commercial furniture, which jumped 1.8%.  That was the biggest increase for commercial furniture since Feb 1981.  At least inflation remains tame.

Wholesale Prices in U.S. Fell 1% in May on Cheaper Energy


The Caterpillar, a Dow stock, board approved a 13% increase in the div for Q3, the biggest percentage increase since the financial crisis of 2008.  The div was increased 6¢ to 52¢ ($2.08 annualized).  It was the biggest increase since an increase of 16.7% in Aug 2008 (just prior to the Lehman collapse).  The company is the world's largest maker of construction & mining equipment.  The stock dropped $1.88 on the good news.

Caterpillar OKs 13 percent increase in dividendAP

Caterpillar, Inc. (CAT)

AM trading was quiet, but sellers returned after lunch.  Jamie Dimon, JPMorgan (JPM) CEO, said that the proposed ban on proprietary trading may have limited massive trading losses at JPMorgan when testifying before Congress.  JPM was up 53¢ (77¢ below the AM high), but the stock market sold off when it sounded like an endorsement of increased bank regulation.  Of course, Europe is the big unknown presently & it's getting more confusing by the day.  Dow has lost 700 in Q2 & could be heading lower on the Euro debt mess.

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Stocks trim early gains as € inches up

Dow started with good gains, up almost 100. But that did not last. Dow is up 39, advancers over decliner 3-2 & NAZ slipped 7. Banks are also pulling back bringing the Financial Index into the red.


S&P 500 FINANCIALS INDEX

Value 206.30

Change -0.16

% Change -0.1%

MLPs are recovering ground lost yesterday, but they have also slipped off early AM highs. The Alerian MLP Index is up 2 to the 295s, but down over 2 from its highs. The REIT index is down a tad in the 205s. Junk bond funds are flattish (but see their story below). The yield on the 10-year Treasury bond fell 3 basis points to 3.44%, still going nowhere & at a greatly reduced level from prior weeks. The VIX dropped 1+, bringing it below 30 (still very high).

Alerian MLP Index --- 1 week




Dow Jones REIT Index --- 2 weeks




Oil had a good gain, breaking its 2 week losing streak. However, it remains in its trading range of the low 70s. Gold is losing a little ground off recent highs.

Oil	...71.98	__1.90	__2.7%
Gold	...1,218.00	__-10.10	__-0.8%

Photo: Bloomberg

Wholesale prices fell in Apr from declines in energy & food, inching down 0.1% (the 2nd decline in the past 3 months). But core inflation, excluding energy & food, rose 0.2%, slightly faster than expected. Over the past year, core prices are up just 1%, not bad.

In a separate report, the Commerce Department said construction of new homes & apartments rose 5.8% last month, a larger increase than expected & pushed activity to an annual rate of 672K, the highest in 18 months. However, applications for building permits, a good indicator of future activity, fell a larger than expected 11.5%. The home buyer's tax credit (which expired Apr 30), helped construction.

•Wholesale Prices in U.S. Unexpectedly Fall on Decline in Fuel, Food Costs
•U.S. Housing Starts Rise More Than Estimated to Highest Level Since 2008


Wholesales prices (x/food & energy) - 1 year




Housing starts - 1 year





Almost 60% of high-yield borrowers (junk debt) this year offered weaker investor safeguards than on debt they issued previously. This includes no limits on the amount of debt companies can have & few restrictions on using assets as collateral for future borrowing, reducing what’s available to satisfy creditor claims in a bankruptcy. Marginal companies are having little trouble raising money thru the sale of junk bonds. We've been thru this before & it has gotten the economy into trouble, very disturbing.

•Junk Bonds' Weakest Creditor Protection Since '07 Doesn't Deter New Issues



Greece received its bailout money in the nick of time to meet the May 19 deadline. Greek bonds rose & helped the € but the € is still below $1.24. The Greek (Euro) drama is not over. Markets are just wandering after trying to make a move up. Dow has settled in under the 10.8K ceiling & will need a major outside event to push thru.

Dow Jones Industrials --- 2 weeks

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Tiger Woods Rally

Dow is up 41 to 10,727 essentially at a new 2010 high, advancers over decliners 3-1 & NAZ is up 12 to another 18 month high. Banks keep moving up taking the Financial Index to a new 2010 high.

S&P 500 FINANCIALS INDEX

Value 213.45

Change 2.02

% Change 1.0%

The Alerian MLP index rose a fraction to the 305s, trying to establish a new 2010 high. The REIT index is up 1+ to the 199s, clearly another high but still a very long way from its record highs of 360. Junk bond funds are a little soft, but generally near 2 years highs with corresponding low yields. The yield on the 10-year Treasury bond is pretty much even at 3.65%.


Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks





Commodities joined in the rally in the markets. But oil is not far away from the 80 level while gold is trying to build a firmer base at 1100.

CLJ10.NYM

...Crude Oil Apr 10

...82.59

... 0.89 .......(1.1%)

Gold

...1,126.20

__3.70

__0.3%

Wholesale prices dropped in Feb by the largest amount in 7 months as a big drop in energy prices offset higher food costs. The Labor Dept said wholesale inflation dropped 0.6% in Feb, much larger than the 0.2% decline expected. Excluding food & energy, prices edged up a slight 0.1%, in line with expectations. While overall wholesale prices have risen 4.4% over the past 12 months, core inflation, excluding food & energy, is up a much more subdued 1% in the past year. However, gasoline pump prices have resumed rising over the past few weeks & now stand at a national average of $2.79 according to the AAA (up from $2.62 a month ago & $1.91 a year ago). The CPI report is due tomorrow & is expected to show inflation for both overall retail prices & core prices rising by just 0.1%.

•Producer Prices in U.S. Fall More Than Forecast on Decline in Fuel Costs


Inflation exclud food & energy - 1 year

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Tiger Woods announcement that he will return to the Masters Tournament next month was more important than the Federal Reserve's interest rate announcement. Oh well. There's not much happening as the Federal Reserve's statement was greeted with a big yawn. Please keep in mind that high interest rates are expected to come this year & the number of months remaining is dwindling.


Dow Jones Industrials --- 2 weeks

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Happy holiday to all!!!

Stocks advance with hesitation

Dow gained 20, advancers ahead of decliners 5-4 & NAZ was up 4. On this quiet day, the Financial Index edged higher.

S&P 500 FINANCIALS INDEX

Value 192.85

Change 0.49

% Change 0.3%

MLPs needed a chance to catch their breaths. The index slipped 1 to the 290s, roughly where it's been for 2 days. The REIT index was up a fraction. Junk bond funds were little changed while the yield on the Treasury bond rose 1 basis point to 3.76%. At this level, higher interest rates are of greater concern.

Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks




10-Year Treasury Yield Index - YTD









Oil had another nice gain as 75 is providing more support while gold was about even.

CLH10.NYM

...Crude Oil Mar 10

...78.11

... 0.78 .......(1.0%)

Gold

__1,118.20

__-1.90

__-0.2%

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The index of leading economic indicators rose 0.3%in Jan, for a 10th straight month, but the pace of growth is slowing according to the Conference Board. That's much weaker than a 1.2% rise in Dec & a 1.1% rise in Nov. It was also was short of the 0.5% gain expected. Five of the 10 components in the index showed improvement in Jan: the interest rate spread, supplier deliveries to companies, average weekly hours worked in the manufacturing sector, stock prices & consumer expectations.

•U.S. Leading Indicators Gain a 10th Month in Sign Economy to Keep Growing



Wholesale prices shot up at double the expected pace in Jan, but this is viewed as a temporary blip & not the start of inflation problems. The Labor Dept reported wholesale prices rose 1.4% last month, reflecting higher costs for gasoline & other energy products, economists had expected a 0.7% increase. Core inflation, excluding energy & food prices, rose 0.3%, above the 0.1% increase predicted. Over the past 12 months, wholesale prices are up 4.6%, the largest 12-month increase since a 5.2% rise in the 12 months ending in Oct 2008. Price pressures are coming primarily from big increases in the cost of energy.

Producer Prices in U.S. Increase More Than Forecast

Photo: Bloomberg




Wal-Mart (WMT), Dow stock & Dividend Aristocrat, posted a 21% increase in fiscal Q4 profits, international growth offset a sluggish US economy, as they earned $1.22 a share, up from 97¢ last year. Revenue came in at $112.8B, up 4.6%. On an adjusted basis, WMT earned $1.17 a share, the average estimate was $1.12 on revenue of $113.8B (WMT was a little light). Sales in the U.S. fell 0.5% to $71B. On a comparable-store basis, sales excluding fuel fell 1.6 %, but international sales rose 19.5% to $29.6B. In the U.S., same-store sales were below expectations, largely due to deflation in grocery & electronics. WMT forecast fiscal 2011 earnings from continuing operations to be in the range of $3.90-$4 a share & for Q1, earnings from continuing operations are expected to be 81¢ to 85¢. The stock dropped 1 to 53. It was best performing Dow stock in 2008 followed by a flat performance last year.

•Wal-Mart Quarterly Sales Trail Forecast on Grocery, Electronics Price Cuts

Wal-Mart --- 2 years








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Stocks continue to meander. looking for direction. The dreary report by WMT for its US stores is a worrisome indicator for the rest of the economy.

Dow Jones Industrials --- 2 weeks

Markets sell off on weak economic data

Glowing earnings reports were not good enough to take markets higher. Dow declined 50 (but still above 10K), decliners over advancers 2-1 & NAZ slipped 12. Banks were weak on soggy earnings reports


S&P 500 FINANCIALS INDEX

Value 204.30

Change -1.39

% Change -0.7%

MLPs keep flying in contrast to the REITs. The Alerian MLP Index was up pennies heading for 265, another high since the big sell-off in early Sep 2008. Meanwhile REITs have been treading water, today down 3. Junk bond funds were higher taking them to new highs for the last 12+ months. Oil touched 80 but couldn't hold it, slipping back to the 78s. It's had a 10 point pop in the last week as speculators have been pushing it hard. But there is also growing demand from China, world's 3rd biggest economy, which needs more & more oil. Gold was flat at 1057, near its yearly high


Alerian MLP Index --- 2 weeks




Dow Jones --- 2 weeks





Applications for home building permits fell in Sep, by the steepest decline since Apr -- a very discouraging sign for the housing industry. This signals that construction could weaken further in the coming months. The industry wants the $8K tax credit for first-time buyers to be extended & expanded so the housing sector can emerge from the recession. But the administration has not decided whether to support any extension. The Commerce Dept said construction of homes & apartments rose 0.5% last month to an annual rate of 590K units, weaker than the 610K that was expected. In the good old days, that number exceeded 1M. The industry also faces other challenges, including record levels of home foreclosures & unemployment that is currently at a 26-year high of 9.8%.

Meanwhile, wholesale prices fell 0.6% last month on a drop in energy costs. Excluding food & energy, core inflation edged down 0.1%. In the 12 months ending in Sep, core wholesale prices rose a modest 1.8%.

US Economy: Housing Starts Are Lower Than Forecast


The Dow chart for the last 2 weeks shows it wants to go higher even though it's coming off greatly overbought conditions. Strong earnings reports from heavyweights should have carried the day. Apple (APPL) was up 9, BlackRock (BLK) gained 6 & Caterpillar rose almost 2. In a bull market, that would have brought out buyers in droves. But the economic data carried the day & that was largely gloomy. And all the earnings weren't so hot. Coca Cola (KO), another Dow stock & Dividend Aristocrat, was off on a so-so report & State Street (STT), a major bank & former Dividend Aristocrat, had a weak report. KO slid 72¢ & STT fell 4½. The Dow will have to decide if it wants 10K to be a floor or ceiling.

Dow Jones Industrials --- 2 weeks

Mixed signals bring mixed markets

Stocks are having a difficult time trying to figure out where to go. Dow is up 10, advancers over decliners 3-2 while NAZ is up 5. The Financial Index is staying at the low end of its trading range (above 160) for the last 3 weeks.

S&P 500 FINANCIALS INDEX

Value 162.46

Change -0.15

% Change- 0.1%

The Alerian MLP Index is down change, REIT index is up 1 & junk bond funds are slightly higher. The MLP index has lost the wind in its sails & is looking for direction.

Alerian MLP Index --- 2 weeks




Oil rebounded to 72 , buyers are returning to commodities.

CLN09.NYM

...Crude Oil Jul 09

...72.00

... 1.38 .......(1.95%)

Wholesale prices rose less than expected in May. A drop in food costs limited gains in overall prices. The Producer Price Index (PPI) increased 0.2% in May, below analysts' expectations of 0.6%. Wholesale prices fell 5% in the past 12 months, the largest drop in almost 60 years. Excluding volatile food & energy prices, core PPI dropped 0.1%, also below analysts' forecasts of a 0.1% rise. A 2.9% rise in energy prices, including a 13.9% jump in the cost of gas, drove the May increase. Food prices, fell 1.6%, reversing a similar rise in April. The Consumer Price Index for May will be released tomorrow.

US Producer Prices Rose Less Than Forecast in May

Construction of new homes & apartments jumped 17.2% in May to 532K units, better than the 500K units that were expected & followed April's record low of 454K units. Applications for building permits, an indicator of future activity, rose 4% in May to an annual rate of 518K units. The better-than-expected rebound in construction is another sign that the prolonged slump in housing is coming to an end, good news for the broader economy. Construction of new homes jumped in May by the largest amount in 3 months, an encouraging sign that the nation's deep housing recession is beginning to bottom out.

•Housing Starts, U.S. Building Permits Soar, Beating Economists' Estimates


There are a lot of cross currents at work, but a downside bias remains. Chrysler was able to resume building cars, Best Buy reported dreary results (down 2+) & the confused situation in Iran is not helping world markets. Markets are adrift after yesterday's sell-off.

Dow Jones Industrials --- 2 weeks