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Durable Goods Orders Show Second Straight Month of Weakness

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Today's financial recap and tomorrow's financial outlook.

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Asian and European markets were tame overnight, closing slightly lower. The Reserve Bank of India noted that liquidity conditions had tightened and said that it stood ready to inject more liquidity if the necessary. Earlier this month, the RBI began intervening in the Indian FX market by selling dollars to domestic oil companies and offering credit lines. The rupee reached an all-time high of 68.82 vs. the dollar at the end of August, but has recently dropped to 62.44.

August durable and capital goods orders were released early this morning, missing estimates. Durable goods orders rose by 0.1% in August vs. -0.2% estimates. In July, orders had fallen by 8.1% due to a slowdown in large aircraft orders from Boeing (NYSE:BA). Durable goods orders ex-transports, which is the more closely watched figure, saw a 0.1% decline vs. +1.0% estimates. This number is very troubling because the August auto sales figure released earlier this month showed very strong gains. The most statistically significant figure, capital goods orders, rose 1.5% in the month, up from a decline of 3.3% in July.

US equities traded in negative territory for most of the day, closing down for the fifth consecutive day. Financial sector stocks were the top performers after lagging the prior two days. Health-care and interest-rate sensitive utilities were the worst performers despite a rally in US Treasuries. Some of the negative performance was attributed to the announcement that the US government would be unable to pay its bills after Oct 17. In response to this, US government bond markets began to gear up for the potential of a US technical default.

A news report from Bloomberg states that sales forecasts at Wal-Mart (NYSE:WMT) for the back-to-school and holiday season are well below expectations. A spokesperson for the company noted that Wal-Mart is reducing inventory for the third and fourth quarters. Note that yesterday ICSC lowered its growth rate for September same-store sales to 3% from 4% on weak back-to-school and apparel sales.

Tomorrow's Financial Outlook

The third and final estimate of Q2 GDP will be released tomorrow morning. Economists estimate that the quarterly annualized rate will increase to 2.6% from the second estimate of 2.5%. The gain will be due to a rise in personal consumption. Jobless claims will also be released in the morning. Over the last two weeks, software upgrades by the Labor Department have caused jobless claims to be abnormally low, and it is very possible tomorrow's claims report could be abnormally high.

The last piece of economic news on the calendar is pending home sales. Sales are estimated to have fallen 1% in August after falling 1.3% in July. The rate from a year ago is estimated to have fallen to 6.3% from 8.6% in July.

The UK will release the final estimate of its Q2 GDP before the US market open.

Nike (NYSE:NKE) is scheduled to report earnings after the market close. Nike typically is a good leading indicator of global sales demand, particularly retail apparel.

Twitter: @Minyanville

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No positions in stocks mentioned.

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