MBA Mortgage Index up, Sears (SHLD) suppliers backing off and Yum! (YUM) cut profit outlook

Markets were heading higher on Wednesday after mortgage applications were up last week. The Mortgage Bankers Association released their report on mortgage applications for the week ending on October 3 and it showed a 3.8% increase. There was also a 5% increase on applications for refinancing. One of the key driving forces behind the increase was the mortgage rate decline. The average rate for a 30-year-fixed mortgage came in at 4.30%, which was down from the previous week’s 4.33%. This week’s rates are already dropping below the 4% mark. Erin Lantz, vice president of mortgages at Zillow, said, “Mortgage rates inched up briefly last week on the heels of Friday’s stronger than expected jobs report before falling sharply on Monday, hitting 11-week lows. This week, with limited U.S. economic data slated for release, we expect rate movement to remain muted.”

Shares of Sears Holdings Corporation (SHLD) were tanking over 12% after news was released that suppliers are beginning to back off. Three insurance firms, Euler Hermes Group, Coface and Atradius Credit Insurance have all reportedly begun to cut back on coverage or cancel policies. It was also reported that a medium-sized vendor has made the decision to cease shipments of products to the retailer. David Huey, regional director for Atradius, said that his firm has been decreasing its Sears supplier coverage, “as the problems have become more obvious. We’ve reduced as we’ve seen the risk increases.” He continued that there have been no cancelation of policies but “it could happen. We’re reviewing it regularly.”

Shares of Yum! Brands, Inc. (YUM) were wavering after news was released that the company cut their profit outlook for the year. The company, who is known for maintaining brands such as KFC, Pizza Hut and Taco Bell, is having a tough time bouncing back from the scandal in China where a supplier for the company was revealed to have been using expired meat. In the last quarter the company’s sales fell 14% at KFC locations in China and dropped 11% at Pizza Hut. China is a big portion of Yum!’s sales and accounts for 35% of their operating profit. In the U.S. the company said sales were up 2% at KFC and dropped 2% at Pizza Hut. Yum! is expecting shares to come in between 6% and 10% higher from a year ago, which is substantially less than the previously reported 20%.

That’s all for today,

Warren Gates, Normandy Research

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