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Broad Selling of Risk Assets Continues


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

Volatile trading continued to start off the new week. S&P 500 (SPX) futures opened up down about 14 points overnight, but when the European session opened they were able to muster a bounce and trade positive. However, because the S&P 500 could not reclaim its breakdown point from Friday, the selloff at the end of the day was vicious once the overnight low of 1884 was taken out. US bond markets and Japanese equity markets were closed today.

The final decline in the SPX was 1.65% and the selling continued after hours. Energy stocks, which looked primed for a bounce at today's open, fell by 3.09% and continued to remain oversold. All 10 basic sectors of the S&P 500 closed negative today with utilities giving up their positive performance at the very end. Trading volume continued to remain elevated. The tally at the end of the day on the NYSE showed the second most active session of the year behind last Friday.

A report that an Emirates flight into Boston was being quarantined due to five people showing flu-like symptoms was a catalyst that spooked markets near the end of the day. The people had reportedly not been to Africa.

The US dollar fell by 0.62% in today's session. Over the weekend, Fed Vice Chairman Stanley Fischer said that due to the strength in the currency and weak growth elsewhere, it may prompt the central bank to delay the tightening process. Although US bond markets were closed, interest rate futures were open for trading today. The 10-year Treasury future rose by 18/32nd's or the equivalent of the 10-year yield dropping by 6.7bps to about 2.21%.

Crude prices continued to tumble across the world. Brent crude fell by $2.10 to $88.11 a barrel. Saudi Arabia announced over the weekend that it was preparing for lower crude prices and Iraq said that it would begin selling oil at its largest discount since 2009. The price per barrel is now at a four year low. Many investors in energy expected a cut in production by OPEC to combat lower prices.

Tomorrow's Financial Outlook

The main event tomorrow for equity markets will be the earnings reports from the banks JPMorgan (JPM), Wells Fargo (WFC), Citigroup (C), and Intel (INTC). If either of those are worse than expected, the response will be further selling in equities. Due to high levels of credit issuance and increased FX volatility in the past quarter, profits are expected to increase at the banks. A cautionary preliminary earnings report from Microchip Tech (MCHP) that suggested the tech industry was experiencing a contraction has also sewn concern in the semiconductor sector.

The NFIB small business optimism index will be released for September with a small decline expected.

Overnight, China may release monetary supply and new credit figures for September. Also scheduled for release is the German ZEW survey of professional investors sentiment on the current and future economic prospects. Lastly, UK consumer and producer price inflation will be released in the early morning.

Twitter: @Minyanville

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