EmailWe won't call it the selloff that was heard around the world, but the decline in the US market yesterday certainly got plenty of people's attention. The S&P 500, which had registered modest losses for much of the session, saw selling activity accelerate in the wake of the FOMC Minutes and ended the day down 1.2%.
That was the biggest decline for the S&P 500 this year.
Many pundits are pointing to the Minutes as the cause of the selloff, but that looks more like a convenient excuse from our vantage point for two reasons:
1. Selling activity didn't accelerate until 45 minutes or so after the release of the Minutes when the S&P 500 was unable to hold support at the 1522 level; and
2. There was a popular belief that the Minutes were hawkish-sounding as a number of participants again felt the Fed could end up pulling back on its asset purchases sooner rather than later. That is a negative viewpoint as far as the Treasury market is concerned, but Treasuries barely budged as that note crossed the wires and actually finished the day with modest gains.
The resilience of the Treasury market was the tell for us that the Minutes were more of a convenient excuse to sell into an overbought market than they were a pure reason for the selling.
In any event, foreign markets followed in the wake of the US market and went on the defensive in early trading. Weak manufacturing and services PMI data out of the eurozone, along with tightening concerns (yes, tightening) in China, have contributed to the selling pressure.
China's Shanghai Composite fell 3.0% while most major bourses in Europe are down between 1.0% and 2.0%.
The S&P futures are currently trading about five points below fair value, creating an expectation for a lower start for the cash market.
Dow component Wal-Mart (WMT) is garnering added attention this morning after the retailer topped the Capital IQ consensus earnings estimate for its fourth quarter by ten cents. However, Wal-Mart's guidance of $1.11-1.16 for the first quarter is a bit shy of the current consensus estimate of $1.18. The company expects Q1 comparable store sales to be flat in the US.
Shares of WMT are trading about 0.5% higher in premarket action, as the first quarter guidance is being seen as better than feared following the concerns last week that emanated from internal emails discussing the weak start for February sales.
On the economic front, initial claims for the week ending February 16 increased by 20,000 to 362,000 (Briefing.com consensus 358,000). The quick return to the 350,000 - 400,000 range where claims have been bounded for most of the last year suggests last week's drop to 342,000 was more of an aberration than a trend.
Continuing claims for the week ending February 9 rose sligtly to 3.148 mln from 3.137 mln.
The CPI report for January was close to expectations. Total CPI was unchanged while core CPI was up 0.3%. The Briefing.com consensus estimate called for increases of 0.1% and 0.2%, respectively. A 1.7% decline in the energy index held down overall CPI while increases in the indexes for shelter (+0.2%) and apparel (+0.8%) led the rise in core CPI.
Like the PPI report, though, this CPI report won't raise any alarm bells for the Fed. Total CPI is up 1.6% over the last 12 months (down from a peak of 2.2% seen last October) and core CPI is up 1.9%, which is steady with the readings from the prior two months.
The Existing Home Sales, Philadelphia Fed Index, and Leading Indicators reports will all be published at 10:00 a.m. ET. The Existing Home Sales report (Briefing.com consensus 4.94 mln) should be the focal point for the market.
