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Monthly Archives: July 2014

Equities Post Steep Losses to End July

The U.S. equity markets closed deep in negative territory as stocks were under heavy pressure in the wake of a disappointing Eurozone inflation report and the potential negative impact that increased Russian sanctions may have on the earnings of some of Europe’s largest companies. The negative sentiment may have been exacerbated by some disappointing domestic earnings and economic data, as well as Argentina falling into a sovereign debt default.

Treasuries were mixed as domestic reports showed weekly initial jobless claims rose more than expected, 2Q employment costs grew by a larger amount than anticipated and Midwest manufacturing activity unexpectedly dropped. Gold and crude oil prices were lower, while the U.S. dollar was flat.

The Dow Jones Industrial Average declined 317 points (1.9%) to 16,564

The S&P 500 Index tumbled 39 points (2.0%) to 1,931

The Nasdaq Composite lost 93 points (2.1%) to 4,370

In moderately heavy volume, 922 million shares were traded on the NYSE, and 2.2 billion shares changed hands on the Nasdaq

WTI crude oil fell $2.10 to $98.17 per barrel, wholesale gasoline lost $0.02 to $2.80 per gallon

The Bloomberg gold spot price was $13.57 lower at $1,282.73 per ounce

Jobless claims higher than expected, while regional manufacturing growth surprisingly drops

Weekly initial jobless claims rose by 23,000 to 302,000 last week, above the 300,000 level that economists surveyed by Bloomberg had expected, as the prior week’s figure was downwardly revised by 5,000 to 279,000. However, the four-week moving average, considered a smoother look at the trend in claims, declined by 3,500 to 297,250, while continuing claims rose by 31,000 to 2,539,000, north of the forecast of economists, which called for a level of 2,492,000.

The Chicago Purchasing Managers Index showed growth in Midwest activity unexpectedly decelerated, falling to 52.6 for July—the lowest level since June 2013—versus expectations of a slight increase to 63.0, from the unrevised 62.6 in June, though a reading above 50 depicts growth. New orders, production, prices paid, and inventories all declined month-over-month, while employment increased compared to last month.

The 2Q Employment Cost Index grew by 0.7% quarter-over-quarter, above the 0.5% increase that economists had expected, after rising by an unrevised 0.3% in 1Q.

Treasuries were mixed, with the yield on the 2-year note declining 2 basis points to 0.53%, while the yields on the 10-year note and the 30-year bond increased 1 bp to 2.56% and 3.32%, respectively. Bond yields rallied yesterday in the wake of a stronger-than-expected read on 2Q U.S. GDP, while the Federal Reserve pared another $10 billion from its monthly asset purchase program to $25 billion, noting that economic growth rebounded in 2Q. The Fed also reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate.

Tomorrow, the U.S. economic calendar will offer the widely followed nonfarm payrolls report, expected to increase by 230,000 jobs in July, after posting a rise of 288,000 in June. Excluding government hiring, June private sector payrolls are expected to increase by 230,000, after expanding by 262,000 in June. The unemployment rate is forecasted to remain at 6.1%, and average hourly earnings are anticipated to rise 0.2% month-over-month, matching the increase seen in June.

The European equity markets finished lower, with Portuguese banking concerns flaring up, and as Argentina’s failed debt deal to avert a default unnerved sentiment. Meanwhile, the Eurozone consumer price inflation estimate came in below expectations, emphasizing the European Central Bank’s concerns that the economy is not healthy enough to drive price growth. The geopolitical landscape continued to hamper sentiment, with some European companies stating that the unrest between Russia and Ukraine is lessening prospects for growth as the fallout may creep into the earnings of some of Europe’s largest companies. Meanwhile, separate reports showed German retail sales rose more than expected in June and French consumer spending unexpectedly increased last month.

Stocks in Asia finished mixed, with some disappointing earnings reports in the region and concerns about the default by Argentina weighing on sentiment. Japanese equities declined, with shares of Nintendo Co. Ltd. (NTDOY $14) falling after the company posted a wider-than-expected loss. Elsewhere, Australian equities moved higher despite reports showing the nation’s building approvals unexpectedly fell in June and 2Q export prices dropped, while stocks in China added to their solid monthly gains, which were the strongest since December 2012, courtesy of growing economic optimism, per Bloomberg.

The international economic docket for tomorrow will offer Markit Manufacturing PMI reads from Japan, Italy, France, Germany, the UK and the Eurozone, while Japan will also offer vehicle sales figures and the HSBC Manufacturing PMI report will be released for China.

Economy Snaps Back: Grows 4% in Spring

The U.S. economy sprang back to life in second quarter and expanded at the fastest pace since last fall, fueled by a upturn in consumer spending on big-ticket items such as cars and trucks as well as a sharp rebound in business investment.

Gross domestic product — the value of all goods and services produced by the U.S. — grew at a 4% annual clip in the second quarter, the government said Wednesday. Newly revised figures also show the economy contracted by a somewhat smaller 2.1% in the first quarter instead of 2.9%. Economists predicted GDP would grow by a seasonally adjusted 3.2% in the April-to-June period.

The rebound in growth offers further proof that a plunge in first-quarter GDP was an outlier. The economy contracted sharply in the first three months of the year mainly because of an unusually harsh winter and a decline in health-care spending tied to the introduction of Obamacare. The second-quarter rebound “provides evidence that the economy is healthy and will continue to grow at an above-average rate in the second half of this year and into 2015.

Economists predict the U.S. will expand by 3%-plus in the third and fourth quarters. They base their optimism on a surge in hiring that’s added 1.39 million new jobs in the first half of 2014, marking the best six-month stretch since the Great Recession ended in mid-2009. More hiring usually leads to more consumer spending and spurs businesses to further increase hiring and investment.

Consumer spending, the main wellspring of economic activity, accelerated in the spring to show a solid 2.5% gain after a meager 1.2% advance in the first quarter. Health-care spending rose modestly, reversing a decline early in the year that contributed to the big drop in U.S. growth. Fatter stock dividends also helped to boost inflation-adjusted disposable income by 3.8% in the second quarter and underpin the increase in spending.

Consumers mostly shelled out for major items such as cars and trucks. Spending on goods designed to last three years or more shot up 14%, the largest gain since 2009.

Outlays on services such as financial advice and personal care rose a slim 0.7%, however. Part of the weakness stemmed from lower utility payments as the weather warmed — a good thing — but spending on services typically rises a lot faster when the economy is firing on all cylinders.

Also adding to growth was a pickup in construction spending, increased business investment, a bigger buildup in inventories and slightly higher government spending. Investment in residential housing rose 7.5% and business spending on equipment climbed 7%. Spending in both of those areas fell in the first three months of the year.

The increase in inventories climbed to $93.4 billion — up from just $35.2 billion in the first quarter — and accounted for 40% of the increase in GDP. What’s unclear is whether businesses restocked warehouse shelves in anticipation of rising sales or to catch up after a tough winter. Slower restocking in the third quarter could reduce U.S. growth, though most economists don’t expect a big dropoff.

The federal government, for its part, slightly reduced spending. Yet a 3.1% pickup at the state and local level boosted overall government outlays.

The only major drag on second-quarter growth was net exports. Imports rose a faster 11.7% compared to a 9.5% advance in exports.

Inflation as measured by the Federal Reserve’s preferred price index, meanwhile, surged in the second quarter to the highest annual rate in three years, potentially making the central’s bank effort at managing the U.S. recovery more difficult.

The PCE index rose at a 2.3% annual rate in the April-to-June period, compared to 1.4% in the first quarter. That’s the fastest pace since the second quarter of 2011. The core PCE that excludes food and energy, the Fed’s preferred inflation gauge, climbed at a 2% clip, up from 1.2%.

The Fed believes the pickup in inflation has been exaggerated by temporary factors that should ease soon, but if the central bank is wrong, it could be forced to raise interest rates sooner than it would like.

The Fed would like to see inflation in an annual range of 2% to 2.5% — anything much higher or lower is viewed by most top bank officials as harmful to the economy in the long run.

Top Fed officials met Wednesday to plot their next move. The central bank is winding down a massive stimulus program on the expectation that growth will continue to improve.

GDP is revised twice after its initial release. The second estimate will come out next month, and sometimes the revisions are quite large. The drop in first-quarter GDP, for instance, was initially reported as 0.1% before eventually being lowered to show a much larger decline.

Fed Minutes

Information received since the Federal Open Market Committee met in June indicates that growth in economic activity rebounded in the second quarter. Labor market conditions improved, with the unemployment rate declining further. However, a range of labor market indicators suggests that there remains significant underutilization of labor resources.

Household spending appears to be rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has moved somewhat closer to the Committee’s longer-run objective. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced and judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat.

The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in August, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $10 billion per month rather than $15 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $15 billion per month rather than $20 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Stanley Fischer; Richard W. Fisher; Narayana Kocherlakota; Loretta J. Mester; Jerome H. Powell; and Daniel K. Tarullo. Voting against was Charles I. Plosser who objected to the guidance indicating that it likely will be appropriate to maintain the current target range for the federal funds rate for “a considerable time after the asset purchase program ends,” because such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee’s goals.”

Market Insights 7/29/2014

U.S. equities finished a choppy session lower, as continuing geopolitical tensions were further stoked after the U.S and European Union imposed further sanctions on Russia, paring early gains that came amid upbeat earnings and economic data. Dow members Merck & Co and Pfizer bested the Street’s expectations, while U.S. Consumer Confidence jumped to the highest level since October 2007.

Meanwhile, traders may have been treading with some caution ahead of tomorrow’s monetary policy decision by the Fed, along with the first look at 2Q U.S. GDP.

Treasuries finished slightly higher amid the mix of news, and as a separate report showed domestic home prices came in below expectations, while gold was lower, crude oil prices were mixed, and the U.S. dollar gained ground.

The Dow Jones Industrial Average declined 70 points (0.1%) to 16,913,

The S&P 500 Index fell 9 points (0.5%) to 1,970, and

The Nasdaq Composite lost 2 points (0.1%) to 4,443.

In moderate volume, 623 million shares were traded on the NYSE, and 2.1 billion shares changed hands on the Nasdaq

WTI crude oil fell $0.70 to $100.97 per barrel, wholesale gasoline gained $0.02 to $2.85 per gallon

The Bloomberg gold spot price was $3.46 lower at $1,300.59 per ounce

Consumer confidence jumps, while home prices miss forecasts

The Consumer Confidence Index improved to 90.9 in July, from an unrevised 85.2 in June, and well above the improvement to 85.4 that economists surveyed by Bloomberg had projected. This was the highest level of consumer confidence since October 2007, as both components pertaining to expectations of business conditions and the current situation improved solidly month-over-month. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—improved to -14.8 from -16.1 last month.

The 20-city composite S&P/Case-Shiller Home Price Index showed a gain in home prices of 9.3% y/y in May, compared to the 9.9% increase that economists had expected. Moreover, m/m, home prices were lower by 0.3% on a seasonally adjusted basis for the month, below forecasts calling for a 0.3% gain.

Treasuries finished higher, as the yield on the 2-year note was nearly unchanged at 0.54%, while the yields on the 10-year note and the 30-year bond declined 3 basis points (bps) to 2.46% and 3.22%, respectively.

Tomorrow, the U.S. economic calendar will heat up with the release of the first read on 2Q GDP, expected to show growth rebounded by an annualized 3.0% quarter-over-quarter rate, from 1Q’s 2.9% contraction, as personal consumption is projected to have accelerated to a 1.9% gain, from the 1.0% increase in 1Q. In afternoon action, the Federal Open Market Committee (FOMC) will deliver the Fed’s monetary policy decision, with the target fed funds rate projected to remain unchanged near zero, while the pace of monthly asset purchases is expected to be pared again by $10 billion to $25 billion. There will be no press conference following the decision and the Fed will not be delivering updated economic projections. Any clues to the timing of the first interest rate hike in the statement will likely garner the most attention, given the backdrop of an improving economy and signs of increasing inflation.

Fueling our continued confidence in the market beyond the short-term is the pickup in the economy. Growth has picked up from the weather-hit first quarter, while job growth has accelerated. Plus, manufacturing and services activity has remained firmly in expansion territory, while despite the spike in automobile recalls, auto sales reached their highest annualized level since February of 2006. Meanwhile, the improvement in the labor market and subsequent increases in wages creates a concern that the Fed could fall behind in its return to “normal” monetary policy. Wage gains could fuel further gains in inflation that has already started to show signs of increasing and could cause the Fed to move more quickly than the market is expecting. While we don’t think rate hikes are imminent, the possibility the Fed needs to tighten sooner than expected is a risk in our view.

Rounding out the day, the ADP Employment Change report is slated for release, forecasted to show private sector payrolls gained 230,000 during July after posting a 281,000 increase in June, as well as MBA Mortgage Applications.

Europe pares gains as EU imposes further sanctions on Russia, Asia finishes higher

The European equity markets finished mostly higher, with traders digesting a plethora of earnings reports, while awaiting tomorrow’s Fed monetary policy decision and 2Q GDP report out of the U.S. However, the advance was pared in late-day action as the European Union agreed to place further sanctions on certain sectors of the Russian economy for its role in the Ukrainian unrest, exacerbating festering geopolitical concerns. Meanwhile, shares of Next PLC. (NXGPY $53) moved nicely higher after the U.K. retailer boosted its full-year profit and revenue guidance.

Elsewhere, Deutsche Bank AG (DB $36) and UBS AG (UBS $18) finished lower even after posting stronger-than-expected earnings, as both companies disclosed new regulatory probes. BP PLC. (BP $49) reported stronger-than-expected profits, but shares were lower as the oil giant warned that further sanctions against Russia could negatively impact its performance. Per Bloomberg, the U.K. oil company has the single-biggest foreign investment in Russia.

In economic news, U.K. mortgage approvals rose more than expected for last month. Further east, stocks in Asia finished higher on some positive earnings sentiment and growing optimism regarding economic growth in China, while Indian markets were closed for a holiday. On the economic front in the region, Japan’s overall household spending fell by a smaller amount than expected, while a separate report showed the nation’s retail sales declined more than projected.

Market Insights 7/28/2014

Markets Calm Before Important Economic Reports

The U.S. equity markets recovered from some early-session losses and closed the trading day nearly unchanged as the Street prepares for a deluge of economic data and corporate earnings reports set to be released this week.

Treasuries were lower following domestic reports that showed pending home sales unexpectedly fell and growth in business activity slipped, while expansion in regional manufacturing activity accelerated. Crude oil prices and gold were lower, while the U.S. dollar was nearly unchanged.

Additional releases from the economic calendar this week that will garner some attention include Friday’s July labor report, Wednesday’s advance read on 2Q GDP and the Federal Reserve’s two-day monetary policy meeting.

The Dow Jones Industrial Average increased 22 points (0.1%) to 16,983

The S&P 500 Index added 1 point to 1,979

The Nasdaq Composite lost 5 points (0.1%) to 4,445

In moderate volume, 570 million shares were traded on the NYSE, and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil fell $0.42 to $101.67 per barrel, wholesale gasoline lost $0.01 to $2.83 per gallon

The Bloomberg gold spot price was $1.90 lower at $1,305.32 per ounce

Pending home sales unexpectedly fall, business activity reports mixed

Pending home sales fell 1.1% month-over-month in June versus the projected 0.5% rise that economists surveyed by Bloomberg had forecasted, and following the downwardly revised 6.0% increase registered in May. Compared to last year, sales were down 4.5% last month following May’s unrevised 6.9% decrease. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which rose more than expected in June.

The preliminary Markit U.S. Composite PMI Index—a gauge of business activity in both the services and manufacturing sectors—dipped to 60.9 for July from the 61.0 level registered in June, with a reading above 50 denoting expansion. The slight decline came as growth in manufacturing output unexpectedly declined, while services sector expansion was higher than anticipated. The release is independent and differs from the ISM’s business activity reports, as it has less historic value and Markit weights its index components differently.

The Dallas Fed Manufacturing Index showed growth in activity for the region accelerated, rising to 12.7 in July from 11.4 in June and compared to the 12.8 figure that was forecasted. Readings above zero denote expansion in activity.

Treasuries were lower, with the yield on the 2-year note ticking 1 basis point higher to 0.50%, while the yields on the 10-year note and the 30-year bond rose 2 bps to 2.48% and 3.25%, respectively.

The economic calendar will offer more housing data tomorrow with the release of the S&P/Case-Shiller Home Price Index, expected to show a 9.9% y/y increase during May, and a 0.3% m/m rise on a seasonally-adjusted basis. As well, Consumer Confidence will be reported, forecasted to show a slight increase in July to a level of 85.5 from the 85.2 posted the month prior.

Europe mostly lower, Asia mixed

The European equity markets finished lower, ahead of a busy week for the global earnings front, while the geopolitical landscape continued to be in focus. Russia is potentially facing further sanctions for its involvement in the unrest in Ukraine, while the conflict in Gaza continues, despite a 24-hour humanitarian truce ahead of a Muslim holiday. In economic news, Italian business confidence unexpectedly dipped in July.

Stocks in Asia finished mixed as geopolitical concerns continued to linger, while Chinese stocks rallied on growing economic optimism. A report from China over the weekend showed growth in the nation’s industrial profits accelerated sharply m/m in June, adding to the recent string of stronger-than-expected economic data for the nation and fostering optimism that the mini-stimulus measures deployed earlier this year appear to be making an impact. Lastly, Japanese traders are awaiting a pick-up in the nation’s earnings season to look for indications of the impact of the recent sales tax increase on profits.

Tomorrow, the international economic docket will offer reports on the jobless rate and retail sales from Japan, the import price index from Germany and consumer credit and mortgage approvals from the UK.

Market Insights 7/25/2014

The U.S. equity markets ended the trading session deep in negative territory as stocks were influenced lower by continued geopolitical concerns and some disappointing domestic earnings reports. Treasuries were mostly higher despite the lone economic release showing a stronger-than-expected read on domestic durable goods orders.

In the equity news, Amazon.com posted a larger-than-expected loss and issued disappointing guidance and Dow member Visa lowered its revenue forecast, while Starbucks announced better-than-expected results that were overshadowed by a disappointing revision to its full-year profit guidance.

Gold and the U.S. dollar were higher, while crude oil prices were mixed.

The Dow Jones Industrial Average tumbled 123 points (0.7%) to 16,961

The S&P 500 Index decreased 10 points (0.5%) to 1,978

The Nasdaq Composite declined 23 points (0.5%) to 4,450

In moderately-light volume, 569 million shares were traded on the NYSE, and 1.7 billion shares changed hands on the Nasdaq

WTI crude oil declined $0.02 to $102.09 per barrel, wholesale gasoline was $0.03 higher at $2.84 per gallon

The Bloomberg gold spot price increased $14.20 to $1,307.86 per ounce

Markets were mixed on the week, as the DJIA decreased 0.8%, the S&P 500 Index was flat and the Nasdaq Composite Index gained 0.4%

Durable goods orders top forecasts

Durable goods orders rose 0.7% month-over-month in June, compared to the 0.5% increase expected by economists surveyed by Bloomberg, while May’s 1.0% drop was unrevised. Ex-transportation, orders increased 0.8% m/m in June, versus the forecast of a 0.5% gain, and May’s figure was unrevised at a dip of 0.1%. Finally, orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, gained 1.4% m/m last month, compared to the 0.5% increase projected, but the 0.7% gain in May was revised to a 1.2% drop.

Looking past the month-to-month volatility, we believe economic growth is improving, fueling our confidence is the improvement in the job market. While the National Federation of Independent Business (NFIB) showed a decline in confidence, an increasing number of businesses indicate that jobs are getting harder to fill.

Treasuries were mostly higher despite the data, with the yield on the 2-year note nearly unchanged at 0.49%, while the yield on the 10-year note declined 4 basis points (bps) to 2.47% and the 30-year bond rate decreased 6 bps to 3.24%.

Mixed week as geopolitics and data clash

The domestic equity markets finished mixed for the week with a plethora of mostly positive earnings and economic data being offset by elevated geopolitical tensions as Russia faces possible further sanctions for its role in the Ukrainian unrest, exacerbated by last week’s downed Malaysian airliner.

Israel’s continued ground attack in Gaza helped foster caution on the Street.

However, the S&P 500 posted multiple record highs again this week, with a relatively upbeat 2Q U.S. earnings season thus far helping lend support. 66% of the 228 companies in the S&P 500 that have reported topped revenue forecasts, while 79% bested analysts’ bottom-line expectations, according to data compiled by Bloomberg. Some of the standout winners this week included: Apple Inc., Facebook Inc. and Chipotle Mexican Grill Inc. .

Meanwhile, global economic sentiment improved, courtesy of a stronger-than-expected manufacturing report out of China and an unexpected rebound in Eurozone business activity off a six-month low. The U.S. economic calendar offered some encouraging signs, with a sizeable miss in new home sales being preceded by a larger-than-expected rise in the more robust existing home sales, while other reports showed jobless claims fell sharply to more than an eight-year low, growth in regional manufacturing activity accelerated, and core consumer price inflation was cooler than anticipated.

In focus next week; the Fed, job report, GDP and earnings

Next week will be full of information for traders to digest, as corporate earnings continue to come in and the U.S. economic calendar will have the headline releases of nonfarm payrolls, the two-day Federal Reserve’s Open Market Committee meeting, which will conclude with release of the statement following the meeting mid-day on Wednesday, the first reading (of three) on second quarter GDP and the ISM Manufacturing Index.

Other releases will include the preliminary Markit US Manufacturing PMI for July, the Dallas Fed Manufacturing Activity Index, pending home sales, the S&P/CaseShiller Home Price Index, Consumer Confidence, the ADP Employment Change, the Chicago Purchasing Manager Index, personal income and spending, the PCE deflator, construction spending, and domestic vehicle sales.

Europe mostly lower, Asia mixed

The European equity markets finished mostly to the downside, following a disappointing read on German business sentiment, while geopolitical concerns continued to fester and the International Monetary Fund lowered its global growth outlook yesterday. The German Ifo Business Climate Index—a survey of 7,000 executives—declined for a third-straight month to 108.0 in July, from 109.7 in June, and compared to the 109.4 reading that economists had anticipated., while German consumer confidence unexpectedly improved slightly for August. In other economic news in the region, U.K. 2Q GDP grew at a 0.8% quarter-over-quarter pace, matching expectations.

Stocks in Asia finished mixed following the divergent action in the U.S. yesterday, while traders focused on earnings and economic data in the region. Meanwhile, geopolitical concerns remained in focus with the conflict in Gaza persisting to keep sentiment in check. Japanese equities rose following a consumer price inflation report that showed prices rose inline with expectations for June, while stocks in China advanced amid continued economic optimism in the wake of yesterday’s stronger-than-expected manufacturing report and improved sentiment toward the nation’s property market. However, Indian equities declined, snapping an eight-day winning streak and pulling back from yesterday’s all-time high amid some disappointing earnings reports in the country.

The international economic docket next week will feature the eurozone’s consumer confidence, unemployment and CPI, Germany’s import price index, CPI data, retail sales and unemployment rate, the UK’s mortgage approvals and home prices, as well as Canada’s GDP. Releases further east will include Japan’s jobless rate, household spending, retail sales, and industrial production, Australia’s import and export price index, PPI and building approvals, while China reports industrial profits, the leading index, and the government’s measure of manufacturing PMI. With the exception of the Federal Reserve, there are no major central banks expected to meet next week.

Market Insights 7/24/2014

The U.S. equity markets finished the trading session hovering around the flatline as a mixed offering of economic and earnings data seemingly influenced a lack of solid direction for stock prices, though the S&P 500 was able to inch higher into record territory.

Treasuries were lower following domestic economic reports that showed jobless claims surprisingly dropped, domestic manufacturing activity unexpectedly declined and new home sales in June came in well below forecasts. Gold and crude oil prices were lower, while the U.S. dollar was flat.

In earnings news, Dow member Caterpillar posted divergent results and General Motors missed the Street’s expectations, while Ford and Facebook both topped quarterly expectations and Nokia raised its full-year outlook.

The Dow Jones Industrial Average (DJIA) decreased 3 points to 17,084

The S&P 500 Index advanced 1 point (0.1%) to 1,988

The Nasdaq Composite lost 2 points to 4,472

In moderate volume, 611 million shares were traded on the NYSE, and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil fell $1.05 to $102.07 per barrel, wholesale gasoline lost $0.03 to $2.81 per gallon

The Bloomberg gold spot price was $11.87 lower at $1,292.72 per ounce

Jobless claims unexpectedly drop, while housing and manufacturing reports disappoint

Weekly initial jobless claims fell by 19,000 to 284,000 last week, well below the 307,000 level that economists surveyed by Bloomberg had expected, as the prior week’s figure was upwardly revised by 1,000 to 303,000. Moreover, the four-week moving average, considered a smoother look at the trend in claims, fell by 7,250 to 302,000, while continuing claims decreased by 8,000 to 2,500,000, south of the forecast of economists, which called for a level of 2,510,000.

New home sales fell 8.1% month-over-month in June, to an annual rate of 406,000 units, from May’s sharp downwardly revised 442,000 unit pace, and compared to the 475,000 rate that economists had expected. Within the report, the median home price rose 5.3% y/y but fell 3.2% m/m to $273,500. The 197,000 units of new home inventory was 23.1% higher y/y and 3.1% above last month, representing a rate of 5.8 months of supply at the current sales pace, from 5.2 months in May and the 4.2 rate in June 2013. New home sales are considered a timely indicator of conditions in the housing market as they are based on contract signings instead of closings. Regionally, m/m sales were lower across the board, led by a 20.0% drop in the Northeast and a 9.5% decline in the South. Compared to the same period a year ago, sales were also solidly lower in all regions except the Midwest, which showed a 19.6% y/y gain.

Treasuries were lower following the data, with the yield on the 2-year note rising 2 basis points to 0.49%, the yield on the 10-year note increasing 4 bps to 2.51% and the 30-year bond rate advancing 3 bps to 3.30%.

Tomorrow, the U.S. economic calendar will get some attention with the release of durable goods orders, projected to increase 0.5% m/m in June, after declining 1.0% in May. Excluding transportation, orders are expected to increase 0.5%, after slipping 0.1% the previous month, and orders for nondefense capital goods excluding aircraft, considered a good proxy for business spending, are forecasted to rise 1.3% following the 0.4% increase in May.

Despite lingering geopolitical concerns, the European equity markets finished higher, as traders digested the plethora of mixed data out of the U.S., while a stronger-than-expected Chinese manufacturing report was complemented by a favorable read on Eurozone business activity. The preliminary Markit Eurozone Composite PMI Index—a gauge of output from both the services and manufacturing sectors—rose to 54.0 this month, rebounding from the 52.8 level in June, which was a six-month low and where economists had expected the index to remain. A reading above 50 denotes expansion. The report showed growth in both services and manufacturing output in Germany accelerated, while business activity in France remained at a level depicting contraction.

Stocks in Asia finished mixed following some diverging economic reports in the region. Japanese equities declined after a report showed the nation’s trade deficit came in wider than expected for June, courtesy of an unexpected drop in exports, while imports rose slightly more than projected. Plus, a separate report showed growth in the nation’s manufacturing output slowed in July.

Stocks in China advanced on the heels of the preliminary HSBC China Manufacturing PMI Index, which rose to an 18-month high of 52.0 in July, from 50.7 in June, and compared to the 51.0 reading that economists had estimated. A reading above 50 denotes expansion and the report may be boosting optimism regarding the country meeting its 7.5% growth target for this year. Lastly, South Korea revealed its 2Q GDP report, which showed growth slowed more than expected.

Tomorrow’s international economic docket will yield the CPI from Japan, consumer confidence and the Ifo Business Climate survey from Germany, hourly wages from Italy and 2Q GDP from the UK.

Market Insights 7/23/2014

U.S. equities finished mixed, with the S&P 500 notching a record high close, while the Nasdaq got a boost from technology stocks after Apple posted better-than-expected earnings and Dow member Microsoft’s revenues met investor expectations.

However, analyst concerns following Boeing’s stronger-than-expected bottomline results and sharp upwardly revised profit guidance pressured the Dow, with blue chips finishing in the red.

Geopolitics remained in the forefront amid reports of two downed Ukrainian fighter jets by pro-Russian separatists. In other earnings news, PepsiCo bested the Street’s forecasts and upped its full-year earnings guidance, while Intuitive Surgical topped forecasts.

Treasuries finished nearly unchanged, with the only report on today’s U.S. economic docket showing mortgage applications rose. Gold was lower and the U.S. dollar was flat, while crude oil prices were mixed.

The Dow Jones Industrial Average declined 27 points (0.2%) to 17,087

The S&P 500 Index advanced 3 points (0.2%) to 1,987

The Nasdaq Composite gained 18 points (0.4%) to 4,474

In moderately-light volume, 578 million shares were traded on the NYSE, and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil rose $0.73 to $103.12 per barrel, wholesale gasoline lost $0.02 to $2.86 per gallon

The Bloomberg gold spot price was $1.30 lower at $1,305.11 per ounce

Mortgage applications rise

The MBA Mortgage Application Index rose 2.4% last week, after the index fell 3.6% in the previous week. The increase came as a 4.1% gain for the Refinance Index was accompanied by a 0.3% rise for the Purchase Index. Moreover, the average 30-year mortgage rate remained at 4.33%.

Treasuries finished modestly higher, as the yields on the 2-year and 10-year notes, along with the 30-year bond, were all unchanged at 0.47%, 2.47% and 3.26%, respectively.

Tomorrow, the domestic economic calendar will pick back up, with reports slated for release to include: weekly initial jobless claims, forecasted to rise to a level of 307, 000 from the 302,000 posted the week prior.

The Markit U.S. Manufacturing PMI Index, expected to inch higher to a level of 57.5 for July from the 57.3 registered in May, with a reading above 50 denoting expansion in activity; new home sales, with economists expecting a 5.8% month-over-month decline for June to a pace of 475,000 units, coming off the surprising 18.6% jump to 504,000 units the month prior.

The Kansas City Manufacturing Activity Index for July will round out the day, forecasted to remain at June’s level of 6, with a reading above zero denoting expansion.

European mixed amid data and geopolitical concerns, Asia finishes higher

The European equity markets finished mixed on flared-up geopolitical concerns, an afternoon Eurozone consumer confidence report and earnings releases in the region, while traders digested the flood of profit reports in the U.S. Meanwhile, with Russia facing the possibility of further sanctions as the investigation into last week’s downed Malaysian airliner continues, reports that two Ukrainian fighter jets have been shot down by pro-Russian separatists in Eastern Ukraine exacerbated geopolitical sentiment. U.S. Secretary of State John Kerry is in the Middle East pressing for a ceasefire between Israel and militants in Gaza.

In economic news, French business sentiment came in above expectations for July, while a separate read on manufacturing confidence missed forecasts. The Bank of England released the minutes from its monetary policy meeting earlier this month, showing a unanimous decision to keep its benchmark interest rate unchanged at a record low of 0.50%. Finally, in afternoon action, a report showed Eurozone consumer confidence unexpectedly deteriorated in July.

Stocks in Asia finished mostly to the upside following the gains in the U.S. yesterday that came amid a plethora of earnings reports and a stronger-than-expected read on existing home sales. Markets in China advanced, underpinned by expectations that the government is easing property restrictions to help boost the housing market. Elsewhere, stocks in Australia hit a six-year high, despite dampened expectations of further monetary policy easing as the nation’s 2Q consumer price inflation rose more than anticipated, sending the Australian dollar higher.

Market Insights 7/22/2014

U.S. equities closed higher, rebounding from yesterday’s losses, courtesy of a better-than-expected read on existing home sales, and as events on the geopolitical front were relatively calm today.

Meanwhile, investors had a slew of earnings releases to digest, highlighted by upbeat results from Chipotle Mexican Grill, Dow member United Technologies and Comcast, while Dow component McDonald’s fell short of analyst expectations and Coca-Cola’s revenues unexpectedly declined.

Treasuries finished slightly higher, as the favorable housing report was met with a separate report showing domestic consumer price inflation rose inline with expectations, but core prices were smaller than anticipated. Gold and crude oil prices were lower, while the U.S. dollar was modestly higher.

The Dow Jones Industrial Average rose 62 points (0.7%) to 17,114

The S&P 500 Index advanced 10 points (0.5%) to 1,984

The Nasdaq Composite gained 31 points (0.7%) to 4,456

In moderately-light volume, 577 million shares were traded on the NYSE, and 1.7 billion shares changed hands on the Nasdaq

WTI crude oil declined $0.47 to $102.39 per barrel, wholesale gasoline lost $0.01 to $2.88 per gallon

The Bloomberg gold spot price was $6.15 lower at $1,306.34 per ounce

Existing home sales rise again, while headline consumer price inflation matches expectations

Existing-home sales rose more than expected in June, by 2.6% month-over-month to a 5.04 million annual rate, while May’s figure was revised slightly higher to a 4.91 million unit pace from the initially reported 4.89 million pace. The median existing-home price rose 4.3% from a year ago to $223,300. Single-family home sales gained 2.5%, while multi-family sales increased 3.4% m/m. Sales of existing homes reflect closings from contracts entered one-to-two months earlier.

The housing market appears to have improved recently, with homebuilder sentiment as measured by the NAHB rising to 53 in June from 49, moving above the 50 mark that shows more homebuilders consider the housing market good than poor for the first time since January. As Lawrence Yun, chief economist at the National Association of Realtors (NAR) that releases the existing home report said, “Inventories are at their highest level in over a year and price gains have slowed to much more welcoming levels in many parts of the country. This bodes well for rising home sales in the upcoming months as consumers are provided with more choices.” Yun went on to say that supply shortages persist in some markets, which puts upward pressure on prices.

The Consumer Price Index showed prices at the consumer level were up 0.3% month-over-month in June, matching the increase that economists had forecasted, while May’s 0.4% increase was unrevised. However, the core rate, which strips out food and energy, rose 0.1% m/m in June, compared to the 0.2% gain that was projected, and May’s 0.3% rise was unadjusted. On a y/y basis, consumer prices were 2.1% higher, inline with forecasts, and the core CPI was up 1.9%, compared to expectations of a 2.0% increase. May’s y/y figures showed unrevised gains of 2.1% and 2.0% for the headline and core rates, respectively.

Treasuries finished mixed, as the yield on the 2-year note dipped 2 basis points to 0.47%, the yield on the 10-year note was flat at 2.47%, while the 30-year bond rated ticked 1 bp lower to 3.25%.

Tomorrow’s economic calendar will take a bit of a breather, with only MBA Mortgage Applications slated for release.

The European equity markets finished higher, with geopolitical tensions remaining in focus, while traders digested a plethora of earnings reports and upbeat housing data out of the U.S. Geopolitical concerns were relatively subdued as there was progress on the investigation into the downed Malaysia Airlines commercial jet last week, while EU foreign ministers met to discuss further sanctions on Russia.

The EU noted that they will consider potential measures against Russia in the sectors of defense, energy, financial services and high-tech goods, per Dow Jones Newswires. Israel’s continued ground campaign in Gaza is garnering attention with U.S. Secretary of State John Kerry arriving in the Middle East to discuss ways to stop the deadly conflict. In economic news in the region, U.K. public sector net borrowing came in above expectations for June, while Switzerland’s trade surplus narrowed more than expected last month as a rebound in exports was more than offset by a solid gain in imports.

Stocks in Asia finished higher, with Japanese markets returning to action following yesterday’s holiday, while geopolitical concerns were relatively subdued to help foster the advance.

Meanwhile, economic news was light, as optimism increased in China regarding further government stimulus measures, which accompanied a report showing the nation’s leading indicators rose solidly m/m in June.

Market Insights 7/21/2014

U.S. equities finished the first day of the trading week on a down note amid continued pressure from the turmoil in Ukraine and the Middle East, as light earnings news and an empty economic calendar were unable to provide any direction.

Treasuries finished mostly higher amid the uneasiness, and ahead of a large amount of economic reports due out later this week. Gold and crude oil prices were higher, while the U.S. dollar was flat.

The Dow Jones Industrial Average fell 48 points (0.3%) to 17,052

The S&P 500 Index declined 5 points (0.2%) to 1,974

The Nasdaq Composite lost 7 points (0.2%) to 4,423

In moderately-light volume, 541 million shares were traded on the NYSE, and 1.5 billion shares changed hands on the Nasdaq

WTI crude oil rose $0.91 to $102.86 per barrel, wholesale gasoline gained $0.02 to $2.89 per gallon

The Bloomberg gold spot price was $1.74 higher at $1,312.63 per ounce

Earnings and economic reports lie ahead

Earnings season will likely be the predominant factor this week, although traders will also keep an eye on geopolitical issues and the economic calendar. Things begin to get going tomorrow with the release of the Consumer Price Index, forecasted to have increased 0.3% month-over-month for June following the 0.4% m/m rise in May, while excluding the volatile food and energy components, the core rate is expected to move 0.2% higher during June after posting a 0.3% gain the month prior.

Housing data will also come in the form of the existing home sales report, expected to have gained 0.2% m/m last month to a 4.99 million unit pace, from the 4.89 million unit rate registered in May.

Other U.S. economic releases this week include: durable goods orders, the preliminary manufacturing Markit US PMI Index for July, jobless claims, MBA mortgage applications, new home sales, and the Kansas City Fed Manufacturing Activity Index.

Second quarter earnings season should be better than expectations, as has been the trend over the past few quarters. Helping was the elevated negative preannouncement ratio coming into the reporting period. Market reaction will likely focus on forward-looking statements, as well as the top-line revenue growth, to determine whether demand is picking up. One thing we have noticed is that the market seems to be less forgiving of missed expectations or lower guidance, raising the bar for companies and risks for stockholders in the near term.

The pickup in the economy is fueling our continued confidence in the market beyond the short term. However, there have been some concerns that the Federal Reserve could fall behind in its return to “normal” monetary policy if improvement in the labor market generates larger-than-expected wage gains. Wage gains could fuel further gains in inflation that has already started to show signs of increasing and could cause the Fed to move more quickly than the market is expecting.

While we don’t think rate hikes are imminent, the possibility the Fed needs to tighten sooner than expected is a growing risk in our view.

Europe stocks lower, Asia mixed

The European equity markets moved to the downside, with Russia possibly facing more sanctions as the investigation of the Malaysia Airlines tragedy continues to try to find the responsible party for the downed commercial airliner.

Israel’s ground campaign in Gaza continued to further hamstring sentiment, with the possibility of an expansion of military operations growing. In economic news in the region, Italian industrial sales and orders fell in May, while German producer prices came in flat last month.

Stocks in Asia finished mixed, with geopolitics continuing to garner attention, while volume was lighter than usual as the Japanese markets were closed for a holiday. Meanwhile, stocks in China declined amid concerns about the impact on the financial markets of another wave of initial public offerings that are set to begin trading later this week, while the economic calendar in the region was empty.

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