The reasons why oil prices stay cool. Earnings estimates about to get a boost?
July’s Optimism Index technically rose 0.7 points to a reading of 95.7. There was little change in the 10 Index components other than outlook for expansion and business conditions which accounted for the small gain in the Index. Even though these improved, they still remain historically low.
The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past 3 months compared to the prior 3 months fell 1 point to a net negative 3 percent, still one of the very best readings since 2007. Thirteen percent cited weak sales as their top business problem, one of the lowest readings since December, 2007, the peak of the expansion.
Is a recent uptick in housing inflation a fluke? Not really, say researchers at the Cleveland Fed. (…)
Germany’s ZEW index of economic expectations fell to 8.6 in August from 27.1 in July, its lowest level since December 2012. The survey of analysts and investors is the latest sign that geopolitical tensions are hurting sentiment in Germany, ahead of data Thursday that are expected to show a contraction in Europe’s largest economy.
If you missed this this chart from The Short Side Of Long, here it is again:
Henkel Warns Political Tension Spoils Trading Outlook Germany’s Henkel has warned that trading conditions are looking tough amid rising political tensions in Ukraine and the Middle East as the maker of Persil detergent and Schwarzkopf shampoo reported a 5.5% rise in second-quarter net profit.
Henkel’s sober outlook comes as other European consumer-goods groups have recently highlighted the challenge of more sluggish-than-expected growth in emerging markets. Depreciating local currencies have also helped crimped returns for European and U.S. companies in some major economies while the crises in Ukraine and Middle East have rubbed off on demand for household products in those regions.
IEA Lowers 2014 Oil Demand Growth Forecast World oil demand will rise less than previously thought in 2014, due to a lower outlook for the global economy and demand growth in the second quarter falling to its lowest level in more than two years, the IEA energy watchdog said.
World oil demand will rise less than previously thought in 2014, due to a lower outlook for the global economy and demand growth in the second quarter falling to its lowest level in more than two years, the West’s energy watchdog said Tuesday.
In its monthly oil-market report, the International Energy Agency—which advises industrialized nations on oil policies—trimmed its projection for growth in global demand this year to 1 million barrels a day, down 180,000 barrels a day, citing weaker-than-expected demand in the second quarter.
“Remarkably low oil deliveries in both Europe and North America helped slash this report’s estimate of global demand growth for the second quarter of 2014 to less than 700,000 barrels a day year-over-year — a low of more than two years,” it said.
This second quarter drop, weak refining activity in the industrialized nations of the Organization for Economic Cooperation and Development in June and an “apparent sudden stop in Chinese crude imports” to build their stock inventory countered the threat to the market and supplies posed by mounting geopolitical risks in the oil-producing world, the agency said.
Output from the Organization of the Petroleum Exporting Countries rose by 300,000 barrels a day in July to a five-month high of 30.44 million a day a day, as Saudi Arabia raised production and supplies recovered in Libya, the report said.
Production in the kingdom, the world’s largest exporter and OPEC’s de facto leader, rose by 230,000 barrels a day in July to 10.01 million barrels, the highest level since September, while Libya almost doubled its production to 430,000 barrels a day, the IEA said. That offset declines in Iraq, Iran and Nigeria.
The Atlantic market is currently well supplied so that incremental Libyan barrels are having a hard time finding buyers, the IEA said. “Many in the market seem more focused today on potential short-term downward price pressures from a further increase in Libyan production,” it said. (…)
Outlook for demand for crude from OPEC’s 12 members, or “call on OPEC,” in the second half of this year will reach 30.8 million barrels a day, higher than last month’s estimate.
The agency estimates that the call on OPEC will average 29.9 million barrels a day, down from 30 million barrels a day this year.
Demand, however, is expected to accelerate by 1.3 million barrels a day in 2015 as the global economic conditions improve, the Paris-based IEA said. That is 90,000 barrels a day lower than its previous forecast due to weaker economic growth in China and Russia and raised expectations for non-oil power sector use in Japan.
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This a.m.: First Call earnings revisions up are above 50%, highest since 2012.
Bank Profits Near Record Levels U.S. banks in the second quarter reported the industry’s second-highest profit in 23 years, despite stiff headwinds, thanks largely to improved credit quality.
U.S. banks posted $40.24 billion in net income during the second quarter, the industry’s second-highest profit total in at least 23 years, according to data from research firm SNL Financial. The latest profits are just below the record $40.36 billion recorded in the first quarter of 2013.
(…) overall loan growth increased at its fastest quarterly pace since the financial crisis, topping $8 trillion in total loans outstanding for the first time since SNL began tracking the data in 1991. Commercial lending rose at an annualized 12.6% rate in the second quarter. Growth in consumer lending, particularly student lending, auto loans and credit cards, also has picked up, to about 6% from 3% a year ago. (…)
So-called provision expenses fell to $6.59 billion in the second quarter from $7.61 billion in the first quarter and $8.53 billion in the second quarter of 2013.
Big banks are still releasing some of those reserves, an action that pumps up profits. The four largest U.S. banks—J.P. Morgan Chase, Citigroup, Bank of America Corp.BAC +0.13% and Wells Fargo—released a total of $2.25 billion of reserves in the second quarter, up about 20% from the first quarter.
One important measure of bank profitability is return on equity, or the amount of profit a bank generates as a percentage of shareholders’ equity. RBC Capital Markets analyst Gerard Cassidy notes that the 20 largest banks he covers reported a median return on equity of 9.3% in the second quarter, up from 8.4% in the first quarter. But a return on equity below 10% “is one of the biggest obstacles to higher stock valuations,” he said.
So far, the results haven’t impressed investors, who remain concerned about a range of headwinds facing the industry, from growing regulatory costs and stubbornly low interest rates to steep slowdowns in mortgage lending and securities-trading revenue. Such issues have weighed on other measures of bank health, such as the returns lenders generate on their equity. (…)
Regional banks reported the strongest growth in commercial and industrial lending during the second quarter. Cleveland-based KeyCorp, for example, posted a 13.4% increase in commercial, financial and agricultural loans from the year-earlier period, to $26.4 billion, helping to drive a 5.5% gain in loans overall.
Welcome to the World of ‘Pension Smoothing’ A government accounting maneuver to pay for road repairs, subways and buses will allow many U.S. businesses to delay billions of dollars in pension contributions for retirees.
President Barack Obama on Friday signed a $10.8 billion transportation bill that extends a “pension-smoothing” provision for another 10 months. In short: companies can delay making mandatory pension contributions, but because those payments are tax-deductible some businesses will pay slightly higher tax bills, which will help pay for the legislation.
Companies with 100 of the country’s largest pensions were expected to contribute $44 billion to their plans this year, but that could be slashed by 30% next year, estimated John Ehrhardt, an actuary at consulting firm Milliman. (…)
The bill essentially allows companies to base their pension liability calculations on the average interest rate over the past 25 years, instead of the past two. The 25-year average is larger, because interest rates were much higher before the financial crisis.
The accounting technique doesn’t actually reduce companies’ obligations to retirees. Instead, it artificially lowers the present-day value of future liabilities by boosting the interest rate companies use to make that calculation. (…)
The Third Iraq War (WSJ)
(…) Bombing is an act of war, and Mr. Obama has already sent 800 troops or military advisers to Iraq. Weare at war again in Iraq, for the third time in 25 years. And the main question now is whether the Commander in Chief will fight it vigorously enough to defeat the jihadists who have become the main threat to the region and America. (…)
The U.S. weekend bombing raids seemed to stop the ISIS advance against the Kurds, but the Pentagon and White House badly misjudged its strength. (…)
ISIS recaptured a northern Iraq town from the Kurds on Monday and it could be regrouping for a run at the oil city of Kirkuk or Erbil, the Kurdish capital. This is not one of those al Qaeda offshoots that Mr. Obama so casually dismissed in January as “a JV team” wearing “Lakers uniforms.” This is jihadist army.
The main U.S. strategic priority now should be rolling back and defeating ISIS so it can’t establish a terrorist caliphate. Such a state will become a mecca for jihadists who will train and then disperse to kill around the world. They will attempt to strike Americans in ways that grab world attention, including the U.S. homeland. A strategy merely to contain ISIS does not reduce this threat.
A strategy to roll back ISIS would also make it easier to solve Iraq’s political disputes. Sunni sheikhs in western Iraq won’t cooperate with even an accommodating new Shiite prime minister if they know Baghdad can’t protect them. Ditto for the Kurds. (…)