J.C. Penney Reports Strong Sales Growth J.C. Penney reported stronger-than-expected sales for the holiday period, news that sent its shares up 20%. The report was a positive first indicator for how retailers fared over the year-end shopping bonanza.
Declining Treasury yields are pushing mortgage rates back down toward record lows.
The average interest rate on 30-year fixed-rate mortgages fell to 3.76% as of noon Tuesday, according to preliminary data from mortgage information website HSH.com. The last time it came close to this level was in May 2013, according to HSH. A weekly average of 3.44% in December 2012 was the lowest weekly average since the housing-market downturn began. (…)
On Tuesday, the yield on the 10-year U.S. Treasury note fell below 2% for the first time since October, hitting the lowest level since May 2013. (…)
New orders to all manufacturers fell 0.7% (-1.0% y/y) during November following an unrevised 0.7% easing in October. The decline was the fourth consecutive drop and roughly matched expectations in the Action Economics Forecast Survey. Durable goods orders declined 0.9% and were unchanged y/y. Computers & electronic equipment orders fell 1.7% (-1.7% y/y) and transportation equipment bookings were off 1.3% (-6.6% y/y). Orders for nondurable goods (which equal shipments) declined 0.5% (-2.0% y/y) as the value of petroleum shipments fell 0.8% (-12.1% y/y) due to lower prices. Paper products shipments also declined 0.8% (+1.0% y/y) but chemical shipments improved 0.1% (-2.1% y/y). Also to the upside, apparel shipments rose 1.3% (14.1% y/y). Durable goods shipments fell 0.6% (+2.5% y/y) led by a 1.3% decline (-0.7% y/y) in transportation equipment shipments. To the upside were electrical equipment & appliance shipments by 1.4% (3.0% y/y).
Unfilled orders increased 0.4% (11.6% y/y) while backlogs excluding the transportation sector improved 0.3% (6.6% y/y).
Eurozone Consumer Prices Fall; Pressure on ECB Rises Consumer prices in the eurozone fell on an annual basis in December for the first time since October 2009, increasing pressure on the ECB to step up its stimulus program.
The European Union’s statistics agency on Wednesday said consumer prices last month were 0.2% below their December 2013 levels. That was the first year-over-year fall since October 2009, which marked the last in a sequence of five months during which prices were lower than a year earlier. (…)
However, the long decline in the rate of inflation has largely been driven by a sharp fall in energy prices. Over the 12 months to December, energy prices fell by 6.3%, while prices of other goods and services were still 0.6% higher than a year earlier. (…)
Nothing to panic about, really. Here’s the breakdown:
The number of unemployed people in Germany, fell by 27,000 in December after seasonal variations in the data, following November’s 16,000 drop. Analysts surveyed by The Wall Street Journal had forecast a smaller decline of 7,000 for the month. The seasonally-adjusted unemployment rate was 6.5% versus 6.6% in November.
Eurostat on Tuesday said the eurozone’s unemployment rate was unchanged at 11.5% in November for the sixth straight month, not far below its postcrisis peak of 12.0%. However, the number of people without jobs rose for the third straight month, by 34,000 to 18.394 million.
The rise in joblessness was largest in Italy and France, the eurozone’s third and second largest economies respectively. Indeed, Italy’s unemployment rate reached its highest level since records began in 1977.
Adjusted for seasonal factors, the headline Markit Eurozone Retail PMI – which tracks month-on-month changes in like-for-like retail sales – dipped to 47.6 in December, from November’s 48.9, signalling a solid and accelerated decrease in overall sales. Trade was also down sharply compared with the corresponding month of 2013, with the year-on-year rate of decline faster than in November.
By country, data showed further contractions in retail sales in both France and Italy during December. Moreover, rates of decline accelerated in both cases. Germany on the other hand saw retail sales rise for the third month running, although growth eased since November.
U.S. investors in European commercial real estate celebrated the sector’s best year since 2008, with sales volume, real-estate stocks and property values all up solidly for 2014. (…)
Rising Dollar Presses Asian Borrowers Asian companies that used cheap U.S. dollar loans to pile up heavy debts are facing a dual threat: the resurgent dollar and the likelihood of higher interest payments as the U.S. moves to raise rates.
(…) Already, there are signs of a pickup in souring loans. Thailand’s biggest four banks saw bad debts rise to 2.8% of outstanding loans during 2014 from 2.6% at the end of 2013. Indonesia’s central bank expects that nonperforming loans rose to 2.4% of the total at the end of 2014 from 1.8% the previous year. (…)
The current situation is reminiscent of the 1998 Asian financial crisis, when local currencies collapsed relative to the dollar, and banks came under pressure as companies that had borrowed in greenbacks found themselves unable to pay their debts. But analysts have played down the comparison, arguing that banks in the region are now better capitalized and governments have healthy reserves of foreign exchange, making sharp currency declines less likely. They also highlight that much of the lending into China has been short-term trade finance, rather than long-term loans.
The central bank weakened its reference rate 1 percent to 21,458 dong a dollar, effective today, it said on its website late yesterday. The currency, which is allowed to trade as much as 1 percent either side of the fixing, fell 0.3 percent to 21,460 a dollar as of 3:09 p.m. in Hanoi, data compiled by Bloomberg show. It was poised for its biggest drop since the dong was last devalued, also by 1 percent, on June 19. (…)
In the Philippines, gross international reserves slid in November to the lowest level since mid-2012, partly due to central bank foreign-exchange operations, Bangko Sentral ng Pilipinas said last month. (…)
Americans Are Buying Less-Efficient Cars as Gasoline Prices Dive Americans are continuing to favor bigger cars and trucks as gasoline prices dive, undermining the federal government’s environmental goals.
New passenger vehicles sold in the U.S. got an average 25.1 miles a gallon in December, down from 25.3 mpg in November and 25.8 mpg in August. That’s according to industry data compiled by the University of Michigan’s Transportation Research Institute.
The decline reflects Americans increasingly buying bigger cars, SUVs and light trucks instead of more fuel-efficient compact cars and hybrids. December’s dip likely understates the shift, since manufacturers have rolled out model-year 2015 vehicles that on average get higher mileage than older models.
Deep Debt Keeps Oil Firms Pumping American oil and gas companies have gone heavily into debt during the energy boom to almost $200 billion. And their need to service that debt helps explain why U.S. producers plan to continue pumping oil
Suncor had said it expected a 13-per-cent after-tax rate of return assuming West Texas intermediate oil prices of $95. (…)
Other analysts said it is more likely that the partners decide to cut back on immediate spending and push the startup date back. First oil is currently scheduled for the first quarter of 2017. Output is expected to hit 90 per cent of its planned production capacity of 180,000 barrels of bitumen a day within 12 months.
White House says Obama to veto Keystone President will not sign pipeline bill if it passes Congress
Why does falling oil, a boon to consumers, keep knocking down the Standard & Poor’s 500 Index? To Bank of America Corp., it’s because of the possibility companies will cancel plans for capital spending.
Earnings in the benchmark gauge for American equities may be as much as $6 a share lower than analysts forecast this year should oil stay below $50 a barrel, according to Savita Subramanian and Dan Suzuki, New York-based strategists at Bank of America. (…)
The tumble in crude prices has prompted energy-stock analysts to slash estimates for capital expenditure for the next year, cutting them as much as 9.1 percent since July, according to data compiled by Bloomberg. Oil-and-gas companies are expected to lower investment by 6 percent in 2015, the most in six years.
Industrial companies will also slash capital spending this year by 15 percent, the first decline since 2009, projections show. U.S. Steel Corp., the country’s second-biggest producer of the metal, said this week it will lay off more than 750 employees at two pipe plants as the oil-price slump cuts investments by energy companies. (…)
Bank of America’s opinion that oil’s slump will trim profits contrasts with Goldman Sachs Group Inc.’s view. The latter’s David Kostin reiterated in a Jan. 5 note that every drop of $10 a barrel lifts earnings by $2 a share.
While the price declines in energy stocks have left the group with the weakest influence on U.S. equities in nine years, overall profit growth for the S&P 500 will still be crimped this year.
Earnings at energy companies of the index will fall 22 percent in 2015, bringing down the increase for profit by the broader gauge to 6.4 percent, according to the average analyst estimate compiled by Bloomberg. When oil prices reached a high in June, earnings growth was projected to be 6 percent for energy shares and 11 percent for the S&P 500, the data show.
While forward earnings are dropping sharply for the S&P 500 Energy sector, forward earnings are holding up quite well in the other sectors. This analysis is based on aggregate dollar values rather than per share.
Over the past 12 weeks through the week of 12/25, the forward earnings of the S&P 500 Energy sector plunged 30%, by $38 billion to $90 billion. As a result, S&P 500 forward earnings peaked during the week of October 2 at a record high and edged down by 3.2% through the end of the year. Excluding Energy, forward earnings rose to yet another record high at the end of 2014.
For the fourth quarter, 87 companies in the S&P 500 have issued negative EPS guidance and 21 companies have issued positive EPS guidance. The number of companies issuing negative EPS is well above the 5-year average (74), while the number of companies issuing positive EPS guidance is well below the five-year average (36).
At the sector level, the Information Technology and Consumer Discretionary sectors are tied for the highest number of companies issuing negative EPS guidance for the quarter. This is not surprising, as these two sectors have historically had the highest number of companies providing quarterly EPS guidance on average.
What is surprising, however, is the unusually high number of companies in the Consumer Discretionary sector issuing negative EPS guidance for Q4. While the number of companies issuing negative EPS guidance in the Information Technology sector (24) is 11% above the five-year average (21.6) for the sector, the number of companies issuing negative EPS guidance in the Consumer Discretionary sector (24) is 73% above the five-year average for the sector (13.9).
If the final number of companies in this sector issuing negative EPS guidance is 24, it will be the highest number for this sector since FactSet began tracking guidance in 2006. The current record high is 22, which occurred in both Q1 2014 and Q2 2014. In addition, the number of companies in the Consumer Discretionary sector issuing positive EPS guidance is tied for a record low (with Q1 2006) at three.
At the industry level, 13 of the 24 companies that have issued negative EPS guidance are in retail industries: Specialty Retail (8), Multiline Retail (3), and Internet & Catalog Retail (2).
Seven of the 24 companies that issued negative EPS guidance in this sector specifically discussed lower oil and gas prices in relation to their guidance. All seven companies stated that they either had not seen a positive impact to date, or that the positive impact was being offset by other negative factors.