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Havoc in Japan Leads to US Weakness

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

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It was a wild night in Japan. The Japanese Nikkei and Topix stock indices both fell more than 7%, the largest one-day drop since the tsunami and earthquake in March 2011. Equally, Japanese government bonds had a very volatile night with the 10-Year Note touching a 1% yield before an emergency 2-trillion-yen injection of funds from the Bank of Japan stopped the bleeding. The USDJPY pair was equally volatile, jumping between 103.57 and a low of 100.83. Overnight manufacturing data from China fell into contractionary territory (a reading of below 50) for the first time in seven months, which suggests that Chinese economic data continues to deteriorate.

The US session continued to show volatility with the S&P 500 opening down 19 points in panicked selling. However, large sellers did not show up and the down open was easily overcome; at one point the SPX peeked into positive territory. Dividend stocks performed particularly poorly. At the open a few utility stocks were halted down 50% or more after opening sell imbalances, which is particularly spooky behavior given the market's continued run to all-time highs. In other market news, gold rose 1.6% to 1,389,60 by the close of equity trading.

US economic data was better today. New home sales for April grew to an annual rate of 454,000, better than the 425,000 estimate. The prior month was also revised up to 444,000 from 417,000. Initial jobless claims dropped week-to-week to 340,000 from 363,000. The consensus estimate was for 345,000 new claims. The 4-week moving average of claims before today stood at 340,000 and was little changed after this week's report. Lastly, the Kansas City regional manufacturing survey rose to a reading of 2 from last month's -5.

Tomorrow's Financial Outlook

Tomorrow April durable goods orders will be released. The manufacturing surveys we received in April were not particularly rosy, so the 0.5% growth ex-transports seem on the optimistic side. The headline durable goods orders are expected to grow 1.5% once large airplane orders are included. US markets will be closed on Monday for Memorial Day so tomorrow promises to be a light day.

The global calendar is light for economic data with only German economic expectations and UK loans for home purchases on the schedule. The German ZEW economic sentiment survey last week was unchanged at 36.4 from 36.3 the month earlier.

The two notable earnings reports on the calendar tomorrow are Foot Locker (FL) and Abercrombie & Fitch (ANF).

Twitter: @Minyanville

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No positions in stocks mentioned.

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