Intraday Market Update
US equities have essentially erased yesterday's entire loss as traders shift their focus back to expectations of a second round of quantitative easing by the Federal Reserve. Attention is now focused on the release of the Beige Book at 2:PM which is a report on economic conditions that will be used at the FOMC meeting during the first week in November. Earnings report from Dow members Boeing (BA) and United Technologies were better than estimates, while Morgan Stanley and Wells Fargo results were mixed. Not surprisingly, many pundits are calling China's surprise rate hike yesterday, which sparked the selling in equities, simply a geopolitical move to appease G20 officials ahead of this weekend's meeting, and for now that analysis is correct. Traders need only turn to the inverse relationship of the US Dollar to equities and commodities. The US Dollar has nearly erased yesterday's gains while equities have nearly erased yesterday's losses. In early afternoon trading all of the indexes are posting solid advances in the +1.25% area. Commodities have recovered but not as strong as equities. Crude oil has regained +2.25% of yesterday's -4.5% decline. Gold, silver, copper, and natural gas are all higher. Overseas, the Asia-Pacific region was mostly lower with Japan shedding -1.65% in reaction to China's rate hike. European markets posted modest gains.
The economic calendar is light with lone data coming from mortgage applications, and they were down sharply. Purchase applications fell -6.7% for the week which follows a -8.5% drop in the prior week. Refinance applications also fell -11.2% but that follows the a +21% surge in the prior week. The declines in purchase applications is not the medicine a recovering housing market needs after several recent data points began to stabilize and show signs of life. The average 30-year fixed rate mortgage reversed +13 bps higher to 4.34%.
In earnings, Morgan Stanley (MS) reported a net loss in their Q3 report as revenue fell -20% y/y and earnings were diluted by special one time charges, however, on an operating basis the firm beat estimates. The company's CEO James Gorman said he was not satisfied with the firm's overall performance, which saw its sales and trading business "clearly muted," but it delivered strength in investment banking, while performance improved (with positive flows) in both its wealth management and asset management segments. Wells Fargo (WFC) and US Bank (USB) both beat earnings estimates and said that credit demand is improving. But like many other banks, Wells Fargo's earnings were enhanced due to releasing funds that were previously set aside to offset credit losses.
Elsewhere, Boeing is nearly +3% higher on a solid earnings report, citing a strong recovery in the commercial airplane market. Dow component United Technologies (UTX) has recovered to positive territory after being down nearly -3%, while competitor Textron (TXT) hasn't fared so well, losing -2.5%. Both companies beat on the bottom line and increase full year guidance slightly, but missed revenue estimates. US Airways (LCC) and Delta (DAL) are up +6% and +11% respectively after reporting strong results.
Finally, shares of Eli Lilly (LLY) are down -4%, while shares of Amylin (AMLN) are have plunged -44% and Alkermes (ALKS) have tanked -25% after the three partners announced that the US Food and Drug Administration declined to approve a version of the diabetes drug Byetta for the second time. The FDA said more data is needed regarding potential heart risks. The news is helping shares of Danish firm Novo Nordisk (NVO), which sells a competing diabetes drug called Victoza, regain most of its -10% loss over the past few days.
Core Sector List:
Overall reading: 17 sectors advancing, 3 sectors declining
Strongest Sectors: Real Estate, Miners, Transportation
Weakest Sectors: Home Construction, Biotechs, Banks
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