EmailThe U.S. equity market endured a broad-based retreat Thursday after comments from St. Louis Fed President Bullard called into question the likelihood of further policy stimulus from the Federal Reserve. Like previous gains, yesterday’s losses were logged on relatively light volume.
Foreign markets took their cue from the U.S. and retreated in overnight action. Hong Kong (-1.3%), Japan (-1.2%), South Korea (-1.2%), and China (-1.0%) paced the losses in Asia with financial and natural resource stocks among the leading laggards. Major bourses in Europe are underwater, although losses there are currently more modest in scope. A measure of support was provided by Chicago Fed President Evans who said this morning that there is “a lot of reason” for further Fed easing. Neither Mr. Evans nor Mr. Bullard is an FOMC voter this year.
Separately, German Chancellor Merkel met with Greek Prime Minister Samaras today. Headlines following the meeting are pretty innocuous. Merkel reportedly said she is convinced Greece is doing all that is possible to solve its problems but that she will wait for the troika report on Greece before making any decisions.
In the meantime, a bit of risk aversion continues to be seen. The dollar is showing some strength against other major currencies while the 10-year Treasury note is up 8 ticks, bringing its yield down to 1.65% or nearly 20 bps lower than just a few days ago.
The Durable Orders report for July did not provide much good economic news, unless you are Boeing (BA), Ford (F), or Geneneral Motors (GM). According to the Commerce Department, durable orders increased 4.2% in July, yet that was owed primarily to a 12.8% jump in motor vehicle orders and a 53.9% increase in nondefense aircraft and parts orders. Excluding transportation, new orders declined 0.4% after a downwardly revised 2.2% decline in June.
The other number the market will focus on is orders for nondefense capital goods excluding aircraft. That is a proxy for business investment and it declined 3.4% in July after a 2.7% decline in June. Shipments were flat, though, as a 1.4% drop in unfilled orders helped offset the decline in new orders.
The futures market weakened in the wake of the Durable Orders report. That is out of character for this Fed-obsessed market which thinks in a perverse manner that bad economic news is good news (more Fed easing) and good economic news is bad news (no more Fed easing). Sometimes it is hard to know just what goes through the market's head.
We're hard-pressed to say this market -- up 10% since June 1-- is focused on the fundamental reality that economic growth and earnings growth are slowing. It isn't. More Fed easing might lubricate the market's wheels for a bit, but it will not jumpstart a new earnings growth cycle.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
