Intraday Market Update
Equities sold off early this morning but are hanging tough after terrible US economic data that confirms US growth is slowing and prices are eroding, which is also stoking the deflation argument. Today's reports were not good folks. At first glance earnings from JP Morgan looked good, however, when checking under the hood certain parts of their business is dismal. The S&P 500 erased the gains from Tuesday's gap higher but has bounced off of its lows. The Russell 2000 is off by -1.50% while the other majors are lower by more than -0.50%. The US dollar is getting hit from the bad economic data and appears to be decoupling from a risk aversion theme to economic growth concerns. Overseas markets were sharply lower highlighted by China's -1.87% decline after several soft economic reports were released.

In the US the Producer Price Index fell -0.5% (m/m) in June after decreasing -0.3% in May. Estimates called for prices to fall by -0.1%. The decline was due to a -0.5% fall in energy prices and a -2.2% decline in food prices, which was the biggest decline since April 2002. The year-over-year seasonally adjusted rate decelerated to 2.7% from 5.1% percent in May. The core rate (excluding food and energy) slipped to 1.0% from 1.3% the prior month.

Meanwhile, the Empire State Manufacturing Index fell off of a cliff signaling a halt in manufacturing growth in the New York region. Estimates called for a reading of 18.0 but the number came in at 5.0 which is a -14.57 drop compared to the prior month. Growth in new orders slowed to 10.13 from 17.53 which suggests the momentum in manufacturing growth is waning, significantly. Growth in shipments slipped to 6.31 from 19.67 in June while employment declined to 7.94 from 12.35. There was also a build in inventories up to 6.35 from -1.23. Moreover, the Philadelphia Fed Survey of general business conditions came in at 5.1 in July compared to June's reading of 8.0. Of significance, new orders fell to -4.3 which marks the end of one full year of growth.

After a string of strong gains Industrial Production also slowed in June to 0.1% m/m. This was above estimates of a -0.1% decline after advancing +1.3% in May. However, there was a disappointing -0.4% decline in manufacturing which is the worst month since June 2009 and even when excluding the auto sector output fell -0.3%. If it wasn't for a +2.7% output gain in the utilities sector this report would have been much worse and in negative territory.

At first glance today's weekly jobless claims report was strong but it is filled with noise. Initial claims fell by -29,000 to their lowest level since August 2008. The prior week was revised +4,000 higher as usual. While the initial claims were positive continuing claims surged +247,000 because of summer retooling centered in the auto industry that allows laid off workers to file claims after summer shutdowns. Summer retooling was delayed this year.

JP Morgan was the first of the major US financial institutions to report Q2 results. The firm beat handily beat bottom line estimates by a wide margin but its revenue fell short. This report seems fluffy to me as the company allocated $1.5 billion from loan loss reserves into earnings which boosted their results. In addition, the firm's investment banking revenue declined -25% which was a major revenue driver last quarter. Executives said that they expect card delinquency and charge-off metrics to continue to improve, although the key metrics remain at unacceptably high levels. After being lower by more than -2% JPM has pared some its losses.

Novartis beat estimates in its Q2 earnings report and increased its 2010 revenue guidance. NVS is slightly higher. Marriott also beat estimates and increased its 2010 guidance. The company said room rates in North America rose for the first time in nearly two years and also projected that pricing would continue improve further this year. MAR is off by -1.75%. Industrial supplier WW Grainger beat earnings estimates and said sales growth in June would continue in July. GWW is up over +3.50%. Trucking name Landstar was in line with estimates in its Q2 earnings report. The company said industry volumes are positive and that June & July data suggests the strength will be sustained in Q3. Traders aren't impressed as the company is off by more than -3%.


Core Sector List:
Overall reading: 4 sectors advancing, 12 sectors declining
Strongest Sectors: Pharmaceuticals, Retail, Biotechnology
Weakest Sectors: Oil Services, Banks, Transportation

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