Intraday Market Update
US Equities extended yesterday's losses after a poor July durable goods report in the pre-market this morning, and the selling gained momentum after US new home sales fell to their lowest level on record. But the selling was short lived as buyers stepped in when the S&P 500 tagged 1,040. The DJIA broke below the psychological 10,0000 level again shortly after the opening bell but it has bounced nearly +100 points after the initial onslaught of selling. All of the indexes are nearly breakeven in early afternoon trading. Yields on US Treasuries poked down to their lowest levels since January 2009 which was during the heart of the financial crises. Gold has tacked on another $7 per ounce and is approaching all time highs, while crude oil is positive as traders shrug off a bearish inventory report. Overseas, the Asia-Pacific region suffered significant losses led by the Shanghai Composite and Nikkei Index losing -2.03% and -1.66%, respectively. European markets didn't fare much better as most were lower by about -1% (+/-).
The US durable goods report this morning is adding to the concerns of a slowing economic recovery. It has been one of the few positives but is now showing signs of weakness as manufacturing is not as strong as hoped for. New factory orders rose +0.3% m/m in July which was significantly lower than estimates calling for +3.0% rise. June's figure was upwardly revised by from -1% to -0.1%. The overall increase was predominantly driven by a +75.9% increase in orders for commercial airplanes. Removing transportation orders actually declined -3.8% compared to estimates for a +0.5% increase. June was upwardly revised from -0.6% to an increase of +0.2%.
Meanwhile, the decline in home sales that everyone expected following the end of the second round of housing stimulus is turning out to be much larger than expected. Yesterday's existing home sales report was a shock and today's new home sales report also missed expectations by a mile. New home sales fell -12.4% in July to an all time record low of 276,000 annual units with declines across all regions. Similar to the existing home sales report supply rose sharply to 9.1 months from June's supply of 8.0 months. But unlike yesterday's report the median prices for today's report showed a decline of -6% to $204,000 which is -4.8% y/y. This is lowest median price since 2003.
In other housing related news, home purchase applications rose +0.6% while refinance applications increased +5.7% thanks to the lowest mortgage rates in the 20-year history of the Mortgage Bankers Association survey. The average 30-year rate fell to 4.55% which is making it worthwhile for existing homeowners to refinance mortgages that they just refinanced within the past few years. Refinance applications made up a whopping 82% of the total applications which underscores the inactivity in the real estate market.
BHP Billiton (BHP) doubled its fiscal year second half profit when compared to last year, however, the $6.59 billion in net income missed estimates calling for $7.2 billion in net income. On the conference call, BHP said that "Despite our short-term caution, we remain positive on the longer-term prospects for the global economy, driven by continued urbanization and industrialization of emerging economies," adding that "it will not be without volatility." Meanwhile, the company's $130 per share hostile bid for Potash worth $38.6 billion continues to make headlines. China Business News reported that China's Sinochem Group is also evaluating a bid.
In other equities news, the grim housing data doesn't seem to be affecting Toll Brothers (TOL), at least on the surface. The homebuilder reported its first quarterly profit in nearly three years, but the profit was mostly due to tax benefits and lower write downs on the value of their land holdings. Removing these factors TOL broke even. The company's backlog is smaller than last quarter and its guidance range for home deliveries was narrowed compared to their report in May. Nonetheless, shares of TOL have had a volatile session but are trading near their highs at +4.9%. Retailer American Eagle Outfitters (AEO) is up over +7% after an in line earnings report. Brown Shoe Company (BWS) is down over -16% despite posting better than expected earnings results and offering solid guidance.
Core Sector List:
Overall reading: 8 sectors advancing, 12 sectors declining
Strongest Sectors: Home Construction, Gold Miners, Biotechnology
Weakest Sectors: Coal, Banks, Oil Services, Utilities
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