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.
Europe lower, Asia mixed
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.