After a rocking day yesterday, the equity markets are opening flat this morning. There has been a slew of economic data the past couple of days, the most significant of which was a miss in the ISM manufacturing index, which came in at 52.4 vs. the consensus of 54.5. The ISM prices paid were up, coming in at 61.5 v. an estimate of 58.0 and the prior month’s level of 55.0. Construction spending was also down 0.1% vs. an expected gain of 1.0%. Jobless claims were inline. Chain store sales were very robust, up 6.7% vs. expectations of 3.5% (I’ll discuss comps later). Personal income and spending were both soft in January vs. expectations.
Oil jumped $10 per barrel in February, thank you ECB, Iran, and DC. Gasoline prices are now approaching $5 per gallon in parts of the country, and $4 on average. I know you’ve all seen this shot before, but I took the photo below from my phone when I was getting petrol. There’s extra points if anyone can guess the location of this station-longitude and latitude not required, but will qualify for bonus points. Let me know if you need the time of day, direction I was facing, and time zone to help.
Weather was a big contributor to the stronger than expected retail sales as winter pulled a no-show across most of the country. The apparel companies benefited as GAP (GPS) posted a 4% comp versus an expected decline of 1.4%, Zumiez (ZUMZ) posted a 14.2% comp vs. a 5.3% estimate, Target (TGT) posted a 7.0% comps vs. a 5.0% estimate, Ascena (ASNA) posted an 8% comp for the quarter vs. a low single digit estimate, and Nordstrom (JWN) posted a 10.2% comps vs. a 5.6% estimate (mostly due to my neighbor Noreen). Overall, of the 23 retailers we follow, 20 beat comps in January. The big question, as always, with January comps, is the margin impact of discounting. If the ASNA report yesterday is a guide, margins were strong as the company handily beat estimates.
It’s no secret that cities in California are struggling with exploding personnel costs combined with shrinking tax revenues. Visalia filed bankruptcy in 2009, and is still struggling. Now it appears that Stockton, among many others, may also be forced into Chapter 9. A recent law passed by Governor Brown requires municipalities to negotiate with creditors, employees, pensions, and vendors before filing for bankruptcy, and Stockton has begun those discussions.
The budget situation in Stockton is so bad there that a retail merchant reported being robbed, and then the robber returned to his store with some of the merchandise seeking a refund (this isn’t a joke). When the merchant called the police to inform them the burglar, who had been videotaped earlier in the day, had returned to the store, the dispatcher told the merchant to call his insurance adjustor. The merchant said “it’s like the wild west out here.”
Shutterfly (SFLY), the online photo processing business, is soaring this morning after launching the first bid for Eastman Kodak’s online Kodak Gallery, which has 75 million users. The opening bid was roughly $24 million. The transaction, if successful, eliminates a competitor from the space and gives SFLY access to a new group of customers. SFLY is seeing significant competition from a number of fronts, and potential competition from social media sites such as Facebook.
From the land of obscure facts: February 2012 saw a record for global high-yield bond issuance for any month of February (did that make sense, because for some reason I had trouble figuring out how to phrase that?). Global high yield issuance hit $44 billion last month, exceeding the prior February record of $24.7 billion set in 2011.
China has been taking steps to make the yuan a more global currency, a move which should exacerbate the long yuan/short dollar trade. The Bank of China inked a deal yesterday with the CME Group to allow the settlement and clearing of commodity trades in yuan. The brain trust in DC has been chirping about the artificially low yuan. I don’t think they’re going to like the results if the yuan fully or partially replaces the US Dollar as the world’s reserve currency. If that were to happen, Uncle Ben’s printing press might not be so active and we might actually have to address our budgetary imbalances.
Bill Gross has jumped into the ETF pool, launching a new ETF tracking PIMCO’s Total Return fund. The ETF carries and expense ratio of 0.55%, 30 bps less than the mutual fund.
Have a great weekend.