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Oil Weakens to New Low; US Stocks Hover at Unchanged


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

US markets traded around unchanged for much of the day with an early rally getting snuffed out towards the end of the session. The S&P 500 (SPX) opened higher and gained as much six points before settling down about a quarter. Utilities, a strong sector of late, was the best performer during today's session followed by consumer staples. Energy stocks were the one sore spot in the major equity indices today.

The main catalyst that dragged down risk assets late in the day was the 2.53% drop in crude oil. The drop was associated with a considerable jump in October oil production from Alaskan sources, which caused near-term prices to decline. Earlier in the day Saudi Arabia announced that it was lowering the price of a barrel of oil that it sells to US customers and raised prices for Asian customers.  Overnight the Malaysian state oil company dropped its crude prices by 10%.

The ISM manufacturing index for October showed a large jump and is now near one of its highest readings in the past twenty years. The index jumped to 59 from 56.6 in the month prior, better than the 56.1 expected. This is in spite of a substantial drop in the prices paid component to 53.5 from 59.5 in the month prior, which likely reflects the large drop in oil prices for the month. However, the leading new orders component showed a substantial increase and the production gauge was at its highest level since May 2004.

Overall today's market action had a lot less volatility than what we were used to seeing during the month of October. Treasury yields were originally higher overnight and staged a substantial reversal intraday following the stronger ISM report, but ended up settling only slightly weaker for the day.

Tomorrow's Financial Outlook

Tomorrow in the US is the mid-term Congressional elections. At the very least, market participants are expecting Republicans to gain a net four seats in the Senate and continue to hold a majority in the House. Anything less will be considered a negative disappointment for risk assets. On the economic data front, the US will release its September trade balance data, which will contribute to the third quarter GDP report. Net exports are expected to remain little changed from the month prior at -$40.2 billion. Also scheduled for release is September factory orders.

Overnight the major event will be the Reserve Bank of Australia's rate decision. Market participants expect because of the poor spate of Australian and Chinese economic data that the central bank will have the proper cover to drop its interest rates to boost both the economy and lower the exchange rate of its currency. Also scheduled to be reported is Australia's trade balance retail sales from October.

Earnings season is still rocking and there are 62 companies reporting tomorrow. Notables include Archer-Daniels Midland (ADM), International Paper (IP), AK Steel (AKS), Intercontinental Exchange (ICE), Burger King Worldwide (BKW), Discovery Communications (DISCA), FireEye (FEYE), EOG Resources (EOG), Twenty-First Century Fox (FOX), Office Depot (ODP), and Liberty Media (LMCA).

Twitter: @Minyanville

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No positions in stocks mentioned.

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