Intraday Market Update
US equities are selling off after trending higher this morning. The NASDAQ led the early declines thanks to strong earnings from Intel after the bell yesterday. Futures spiked higher on the news but steadily sold off throughout the overnight session. The S&P 500 and DJIA opened in negative territory as traders digested the second straight month of disappointing retail sales. But stocks sold off after the release of the minutes from the Federal Reserve's monetary policy meeting last month. Overseas, the Asia-Pacific region was nicely higher being led by Japan and Australia tacking on +2.71% and 1.88% gains, respectively. The European markets were mixed with no major moves either way.

Advanced retail sales for June fell -0.5% compared to estimates that called for a decrease of -0.3%. May's -1.2% drop was revised higher to a -1.1% decline. Ex-autos and gas sales rose +0.1% compared to estimates of a flat reading, however, May's figure was revised lower to a -1.0% decline from an initial -0.8% drop. The larger than expected decline in the headline rate of retail sales was impacted by a -2.3% drop in vehicle and auto parts sales. The decrease in sales excluding autos was slowed by a -2.0% decline in gas station sales, -1.1% decline in furniture sales, and a -1.0% decline in building material and garden equipment sales. These declines underscore the weak employment and housing markets and the affects of the expiration of government stimulus. The positives in the report were electronic and appliance store sales which increased +1.3%, while department store sales were higher by +0.6%. Online and mail order sales posted an increase of +1.0%.

In other economic news, the June import/export price report posted wide declines outside of energy. Import prices excluding petroleum fell -0.5% while total import prices including petroleum plunged -1.3%. Prices for finished goods also fell with capital goods falling -0.3% and consumer goods shedding -0.4%. On the export side prices also declined by -0.2%. Finished capital goods fell -0.4% while consumer goods plunged -0.6%. Prices for finished goods are eroding and this report has signs of deflation written all over it. The Producer Price Index is tomorrow followed by the Consumer Price Index on Friday. Forecasts for both of these reports are calling for modest increases to prices but this report indicates otherwise which may stoke the deflation debate further.

Business inventories rose +0.1% (m/m) in May which was slightly lower than expectations calling for an increase of +0.2%. Sales dropped -0.9% (m/m) while the amount of time to deplete inventories at the current sales pace (as measured by the inventory to sales ratio) rose back up to 1.24 months in May from 1.23 months in April.

The MBA Mortgage Application Index declined -2.9% last week following a rise of +6.7% in the prior week. The Refinance Index fell -2.9% while the Purchase Index dropped -3.1%. The average 30-year mortgage rose fell +2 bps to 4.69%.

In equities, Intel is well off of its highs but still up +2.50%. A BP executive said they may skip the pressure testing of its latest capping device if it is determined that there could be damage to the wellbore. They will meet government officials soon to determine whether or not to move forward on the well testing. Shares of BP are off about -2% but the stock has rallied +37% over the past couple of weeks. YUM beat earnings and also raised its full year guidance but executives on the conference call warned that the firm's sales would be soft for remainder of 2010. YUM is down -1.3% but well off of its lows. Expeditors International (EXPD) is up more than +5% after offering strong guidance with volume increases in their air and ocean freight businesses. Goldman Sachs cut the US homebuilder sector to neutral from attractive after they noted that the housing recovery seems delayed. The home construction sector is down -2.75%.


Core Sector List:
Overall reading: 5 sectors advancing, 11 sectors declining
Strongest Sectors: Transportation, Internet, Software
Weakest Sectors: Home Construction, Retail, Oil

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