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Markets Melt Up to Start the Second Half of the Year, Puerto Rico Credit Rating Slashed


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

Overnight, the official June Chinese manufacturing PMI rose to a level close to that of the private survey released last week. Most domestic Chinese markets were slightly higher overnight, although Hong Kong markets were closed. Additionally, the Japanese Tankan survey of large corporations' outlook for the second quarter jumped, but the increase was largely in line with expectations. The Nikkei (INDEXNIKKEI:NI225) posted the largest risk-adjusted gain overnight, and the yen was lower versus the US dollar and euro.

US stocks melted up on the first day of the second half of the year, with buyers continuing to push the market relentlessly higher. Small- and mid-cap stocks led for much of the day thanks to hefty new allocations, but ended only marginally ahead of their large-cap brethren. The health care, tech, and consumer discretionary sectors led the S&P 500 (INDEXSP:.INX) today, with utilities the lone decliner. Treasury yields were higher across the board. 3D printing stocks such as 3D Systems (NYSE:DDD), Stratasys (NASDAQ:SSYS) and ExOne (NASDAQ:XONE) were all up in excess of 10% in today's session.

Puerto Rico's credit rating was downgraded three levels by Moody's today. The country's credit is now assigned a B2 rating with a negative outlook. Additionally, the region's public power and water utilities credit ratings were also cut. Last week the governor signed a bill into law that allows certain public utilities to restructure their debt in a process that resembles filing for bankruptcy.

At 55.3, the national ISM manufacturing index was little changed in June versus May's 55.4 reading. The index was expected to hit 55.9%. The new orders component showed sizable growth, up to 58.9 from 56.9 in the month prior, which augurs well for increased economic activity in the months ahead. Auto sales for June rose to 16.92 million, the highest on a seasonally-adjusted annual basis since 2006. Sales were expected to decline to 16.38m. Porsche in particular had its best June sales month ever, up 11% from the month prior. US same-store sales rose 3.1% year-on-year in the week ending June 28, and rose 1.7% for the month of June.

Tomorrow's Financial Outlook

Tomorrow morning before the market open, the ADP private payrolls report for June will be released. Economists are expecting a net payroll gain of 205,000, after gains of 179,000 in the month prior. More importantly, Fed Chair Janet Yellen will give the opening remarks at an IMF conference in Washington at 11:00 a.m. EDT. Her press conference at the last FOMC meeting was very well-orchestrated, putting the markets at ease, which is exactly the opposite of how her first press conference would be characterized. Expect the composed Yellen tomorrow.

Australia's trade balance for May will be reported overnight and should have a major effect on Asian currencies. Recent trade reports from Thailand, South Korea, and Indonesia have shown larger overall growth than has been expected. The other report due out is the UK construction PMI.

The only two earnings reports for the week are scheduled for tomorrow, Constellation Brands (NYSE:STZ) and Greenbrier (NYSE:GBX).

Twitter: @Minyanville

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