Rates on 30-year conventional mortgages averaged 4% for the week ended Thursday, according to mortgage giant Freddie Mac. Until a few weeks ago, mortgage rates had been below 4% since November.
At 3.9%, monthly payments on a 30-year, $400,000 mortgage would be about $1,890. If rates rose one point to 4.9%, payments would rise to $2,100 a month; at 5.9%, payments would be about $2,370 a month.
Virginia-based CarMax Inc. said its average transaction prices in the three months ending May 31 fell to $19,851, down from $20,173 in the same period a year ago. CarMax’s used-vehicle prices cooled in the latter part its fiscal year ending Feb. 28, and the first-quarter data signals the trend is continuing.
The softening in the used-vehicle market began earlier this year, and is closely watched by those who track the close correlation between used-vehicle prices and new-vehicle demand. If the spread between prices for new cars and used cars consistently widen, it raises the likelihood that buyers will be more interested in a pre-owned car.
In its May auto industry brief, the Manheim vehicle auction company said that although the used-vehicle retail market remains historically strong, wholesale pricing has been declining. Black Book, a pricing guide published daily by National Auto Research, reported earlier this week a $15,037 average price for a used vehicle from the 2009 through 2013 model years, down 1.2% in May compared with April and down 13.7% from a year earlier. It said the softening “picked up steam” near the end of the month.
The decline for used comes as new-vehicle pricing remains strong, and it suggests inventory of used cars is creeping up after several years of tight supply. Average transaction prices for the new-vehicle industry grew $643 year-over-year to $30,044 per vehicle sold in May, according to J.D. Power & Associates data, as buyers took advantage of longer-term loans and gravitated toward pricier trucks and sport-utility vehicles. (…)
At CarMax, annual average used-vehicle selling prices steadily gained since 2009—the last time the company saw a year-over-year pricing decline. New vehicle sales in the U.S. have soared during that stretch, from 10.4 million units in 2009 to a pace of at least 17 million in 2015, which is the strongest clip in well over a decade. (…)
In the latest quarter, the company reported that used vehicles sales rose 9.3%, while same-store used-car sales grew 4.9% on improved customer traffic and conversion. (…)
There are now about 61% fewer rigs working since a peak of 1,609 in October.
Saudi Arabia’s oil minister Ali Naimi is confident that oil prices will rise in the coming months given the increase in global demand and the low level of commercial stocks.
Naimi, cited by Saudi state news agency SPA late Thursday in St Petersburg, also said a cooperation alliance agreed with Russia earlier in the day would be for the benefit of the stability of the international oil market.
Naimi was part of a Saudi delegation in Russia, which included Saudi deputy crown prince and defense minister, Mohammad bin Salman al Saud, that signed a number of cooperation agreements between Riyadh and Moscow, including in the nuclear and military spheres.
Speaking about the oil market, Naimi was quoted by SPA as saying: “I am optimistic about the future of the market in the coming months in terms of the continuing improvement and increasing global demand for oil as well as the low level of commercial inventories.”
This, he said, “is expected to improve the level of prices.”
Naimi also welcomed the increased level of cooperation with Russia, saying Riyadh would work to push the collaboration both at the bilateral level and international level.
“This, in turn, will lead to creating a petroleum alliance between the two countries for the benefit of the international oil market as well as producing countries and stabilizing and improving the market,” he said.
Naimi and Prince Mohammad also met with Russia’s President Vladimir Putin, which “reaffirms the significance” of relations between the two countries, SPA reported. (…)
As part of the enhanced relations in the oil and gas sector, Riyadh and Moscow agreed to set up a working group to assess future joint projects.
“We have agreed to set up a working group that would consider concrete projects that will allow [us] to expand our cooperation,” Novak said after the signing ceremony Thursday, Platts reported earlier. (…)
Between them, Russia and Saudi Arabia are producing in excess of 21 million b/d of oil — more than one-fifth of the world’s total.
Russia’s output reached a post-Soviet record high of 10.71 million b/d in May, while Saudi Arabian production was estimated at 10.3 million b/d last month. (…)
So, when the Saudis asked Russia to cut production last year, Russia coldly told them to take a walk, which the Saudis immediately did toward higher oil output and lower prices. The big drop in the Russian ruble that ensued incited Russia to increase its oil exports in order to sustain foreign currency inflows.
Russian oil production, which averaged less than 10 million b/d in 2014, immediately jumped to 10.18 mmb/d in November and is now at a post-soviet high of 10.7 mmb/d.
Now we read that Ali Naimi said that
- a cooperation alliance agreed with Russia earlier in the day would be for the benefit of the stability of the international oil market
- this, in turn, will lead to creating a petroleum alliance between the two countries for the benefit of the international oil market as well as producing countries and stabilizing and improving the market
This is happening as the Saudis are realizing that U.S. shale production may not fall as expected as technology and cost cuts are rapidly lowering production costs.
No wonder Ali Naimi is now only talking the price up.
EARNINGS WATCH
Q2 earnings season will begin in 3 weeks. From Factset:
Analysts have lowered earnings estimates for the S&P 500 for Q2 2015 to date by a smaller margin relative to recent quarters. On a per-share basis, estimated earnings for the second quarter have fallen by 2.4% since March 31. This percentage decline is much smaller than the percentage decline at the same point in time in the previous quarter (-8.3%), and it is also smaller than the trailing 5-year and 10- year averages.
As a result of the downward revisions to earnings estimates, the estimated year-over-year earnings decline for Q2 2015 is -4.7% today (-4.5% last week), which is above the expected decline of -2.2% at the start of the quarter (March 31). If the Energy sector is excluded, the estimated earnings growth rate for the S&P 500 would jump to 2.0% from -4.7%.
The Industrials sector has witnessed the largest decrease in expected earnings growth (to -3.2% from 4.2%) since the start of the quarter. Overall, 17 of the 65 companies in this sector have seen EPS estimates cut by 10% or more to date, led by American Airlines Group (to $2.63 from $3.23), Parker- Hannifin (to $1.92 from $2.34), and Norfolk Southern (to $1.53 from $1.84).
The Consumer Discretionary sector has recorded the second largest drop in expected earnings growth (to 4.2% from 8.9%) since the start of the quarter.
The estimated sales decline for Q2 2015 of -4.4% is higher than the estimated year-over-year decline of -3.1% at the start of the quarter. If the Energy sector is excluded, the estimated revenue growth rate for the S&P 500 would jump to 1.7% from -4.4%.
Another pretty tame quarter coming up. Ex Health Care and Energy, the other 8 sectors are expected to average a mere 1.0% growth in EPS in Q2.
The good news is that guidance is not getting worse:
Companies have lowered the bar for earnings for Q2 2015 as well. Of the 106 companies that have issued negative EPS guidance, 77 have issued negative EPS guidance and 29 have issued positive EPS guidance. The percentage of companies issuing negative EPS guidance is 73%, which is above the 5-year average of 69%.
But below the 76% at the same time last year and the 84% recorded in Q1’15.
This is more at risk, however:
Analysts are also expecting profit margins to continue to expand in 2015. Using the bottom-up sales-pershare (SPS) and earnings-per-share (EPS) estimates for the S&P 500 as proxies for expected sales and earnings for the index over the next few quarters, profit margin estimates can be calculated by dividing the expected EPS by the expected SPS for each quarter. Using this methodology, the estimated net profit margins for Q2 2015 through Q4 2015 are 10.2%, 10.4%, and 10.6%. These numbers (starting in Q3 2015) are above the net profit margin for Q1 2015 (10.3%), and are also well above the average net profit margin of 9.4% recorded over the past five years.
Headwinds to profit margins are growing:
- Sales growth and inflation are slow and slower.
- Import price competition has intensified with the strong dollar.
- Exports are suffering from the strong dollar.
- Capacity utilization is declining.
- Labor costs are accelerating and rising faster than sales.
- Financing costs have stopped declining.
FORECAST(S) 
Lance Roberts knows forecasting (his emphasis):
(…) Importantly, notice that the previously OVERSOLD condition in the lower panel is now back to OVERBOUGHT. This suggests that the rally is likely near completion. This does not mean that the markets can NOT rally to new highs, they certainly could. However, the risk, for the moment is to the downside. However, as stated above, the BULLISH TREND remains intact which keeps portfolios allocated towards equities.
He later adds this:
As shown in the chart below, the momentum of the market has decidedly changed for the negative. Furthermore, these changes have only occurred near market peaks in the past. Some of these corrections were more minor; some were extremely negative. Given the current technical setup the latter is rising possibility.
Other than this confusion, there was this interesting chart in Lance’s post:
GLOBAL WEAKNESSES
While U.S. equities hang in there,
- EU government bonds have declined 10%.
- U.S. Treasuries are down 15%.
- Utility stocks have lost 15% YtD.
- REITs have corrected 10% since January.
- U.S. MLPs are in a bear market.
- Oil and oil related stocks are all down 30-50%.
- Indian and Chinese equities have lost 10%+ recently.
- EU equities, including German stocks, have corrected 10%.
- U.S. Transportation stocks are off 10% from their November 2014 peak.
- EM currencies are in a tailspin.
- Commodities are also in a bear mode.
- So are precious metals and related equities.
No volatility, right?
GERMANY VS GREECE
(…) In the end, there is no question that the Germans have executed a near flawless plan to humiliate and vilify Greece. The Greeks now stand as poster children for European profligacy. And they are being paraded through every town square in the EU, in shackles, as the bell tolls near the gallows for their leader. And to be sure, making an example of Greece is a probably the greatest achievement for the fiscal disciplinarians of Europe.
Maastricht never had any teeth. But this exercise is impressive. It shows that fiscal excess will be squashed in Europe. The Portuguese, Spanish and Italians are surely taking notice. And in the days that lead up to a Greek default on 30 June, and then more importantly on 20 July, these disciplinarians will surely display their power for all to see. Oddly enough, I actually think this has been the German plan all along. With no real way to ensure fiscal discipline through the treaty, they resorted to killing one of their own in order to keep the masses in line. It explains why Merkel took out Samaras when she knew a more hostile government would
surely emerge in Greece. This was masterful political manipulation. (David Zervos via Mauldin Economics)
CarMax Sales Raise Caution on Auto Pricing