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Continued Improvement in Manufacturing Boosts Transportation Stocks to New Highs


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

The US dollar continued to rally against the Japanese yen and dragged US interest rates higher. The 10-year yield rose 7.5bps, it's worst performance in months, and the curve steepened. More than $13 billion of new corporate credit issuance priced today, exacerbating the declines. Other highly-rated sovereign bonds were also weak, which contributed to the movement in the US.

Geopolitical tensions between Russia, Ukraine, and the West remained high today. Sharp words were exchanged between various EU political leaders and Russian President Vladimir Putin in the past 24 hours. However, news reports later in the day revealed that a new round of financials sanctions on Russia from the EU would not include restrictions on its natural gas exporters (Europe obtains more than 30% of its gas from Russia) or its SWIFT banking system.

Although the S&P 500 (SPX) only finished the day down a single point, many of the underlying sectors were hit hard. Utilities stocks were the second worst performers, falling 1.02%, thanks to the significant weakness in US interest rates. Energy was the worst off as brent and WTi crude oil fell by more than 2% as the market began to reduce the risk of a potential cutoff of Russian supplies.

The August reading of the ISM manufacturing index rose to 59.0 from 57.1 in the month prior, also ahead of the 57.0 expected. New orders, production, and inventories all rose. The single month reading was the highest in more than three years and reflected a continue improvement in the breadth of manufacturing activity. Transport stocks were among the best performers for today's session.

News was revealed today that Home Depot (HD) was subject to a large cyberhack that may have compromised its credit card system. The stock was immediately hit for a 4% loss and a number of security providers such as FireEye (FEYE) were bid up.

Tomorrow's Financial Outlook

Tomorrow will mainly be another day of waiting for Thursday's big event, the ECB rate decision. The Fed will release its Beige Book in the afternoon and July factory orders will  be reported in the morning. Auto sales, which finally began to show an inkling of deceleration back in July, will be reported some time around the close.

Unlike in the US, there will be a plethora of important economic data reported overnight. These include preliminary 2Q eurozone GDP, Australian 2Q GDP, two Chinese services PMI's, similar reports from the UK and Japan, and a speech from Reserve Bank of Australia Governor Stevens. Of the listed, the eurozone GDP report will most likely carry the most weight as it will help determine how dovish the ECB's statement will be on Thursday.

Toll Brothers (TOL), H&R Block (HRB), and PVH Corp (PVH) are scheduled to report earnings tomorrow.

Twitter: @Minyanville

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No positions in stocks mentioned.

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