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China Deliberately Introduces Volatility in Foreign Exchange Market


End of Day Roundup 02/26: Today's financial recap and tomorrow's financial outlook.

Chinese stocks and the yuan stabilized today after six straight days of turmoil. However, news reports surfaced in the late morning that after its monetary policy meeting on Feb. 18, the People's Bank of China took steps to increase volatility in its foreign exchange market and drive out speculators who were using the onshore and offshore currency to funnel capital into the country. The policies included setting lower official fixings and also directed state-owned Chinese banks to buy dollars. Ultimately, the volatility is an early step towards increasing the daily trading band of the yuan.

The S&P 500 (INDEXSP:.INX) poked above yesterday's close in early trading, but ultimately closed near the lows of the day. The small-cap Russell 2000 (INDEXRUSSELL:RUT) outperformed on a relative basis, gaining 0.48%. Four of the S&P's 10 basic sectors gained on the day, led by materials and consumer discretionary stocks. Energy and utilities stocks performed the worst, despite a 3.5-basis-point rally in the 10-year Treasury.

January new-home sales rose to an annual rate of 468,000 from a revised-up 427,000 in the month prior. The expectation was for a slight decline to 400,000. Housing stocks rallied sharply during the day. The S&P Homebuilder Index (INDEXSP:SPSIHO) rose 2.66% in today's session and the Dow Jones Home Construction Index (INDEXDJX:DJUSHB) gained a similar amount. In the MBA weekly mortgage-applications data, purchases fell to the lowest level since 1995.

Shares of Target (NYSE:TGT) rose 7.04% after the retailer delivered an in-line fourth-quarter earnings report and disappointing guidance. The stock benefited from very low expectations heading into the quarter as the company lowered guidance on January 20 amidst its data-breach controversy. Target's move helped the retail sector outperform by a large margin.

Tomorrow's Financial Outlook

Tomorrow morning, January US durable and capital goods orders will be released. Economists expect durable goods orders will rise 1.5% from the prior month and capital goods will decline by 0.3%. Up to this point, the majority of January economic data has been below expectations due to extreme weather and it is likely to be the same for tomorrow's orders data. Jobless claims are expected to decline very slightly to 335,000 from 336,000 last week.

February German employment data is scheduled to be reported early tomorrow morning in addition to its preliminary consumer price index. Other reports to note are Swiss fourth-quarter GDP and February eurozone consumer confidence. ECB President Mario Draghi is also set to speak at 3:30 p.m. ET in Frankfurt.

Forty-five major US companies are scheduled to release earnings tomorrow, making it the busiest day of the week in that regard. Notable reports include Gap (NYSE:GPS), (NYSE:CRM), Kohl's (NYSE:KSS), Ocwen Financial (NYSE:OCN), Walter Investment Management (NYSE:WAC), Sears Holdings (NASDAQ:SHLD), Nationstar Mortgage (NYSE:NSM), Best Buy (NYSE:BBY), Hilton Worldwide Holdings (NYSE:HLT), and Ross Stores (NASDAQ:ROST).

Twitter: @Minyanville

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