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US Stocks Plunge at the Open, Then Claw Back to Unchanged


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

Chinese markets were up strongly overnight for three major reasons.  Firstly, the Chinese central bank did not conduct repos to drain funds from the financial system, as had been expected. (China has seen an increase in money market rates recently, probably the result of a seasonal shortage of cash.) Secondly, three new equity issues began trading in Shanghai, the first IPOs in the country this year. Each issue had been forcibly priced below fair value by regulators and as a result were oversubscribed by as much as 218 times. All of these stocks traded up to their price limit within 30 minutes of opening and pulled another 40 stocks -- mainly tech names -- to their upper limits. Finally, a number of rural banks announced they were removing restrictions for real estate purchases, which comes in conjunction with a reserve-rate-ratio cut two weeks ago. The Shanghai Composite (SHCOMP) gained 0.66% for the session.

The S&P 500 (INDEXSP:.INX) started the day by falling 18 points in a matter of minutes as bids disappeared from the market. The selloff loosely coincided with a reported lockdown at the US Capitol due a bomb scare, and a headline from St. Louis Fed President Jim Bullard that suggested he saw the Fed hiking rates in the first quarter of 2015. The market is currently priced for that hike to come early in the second half of the year. The S&P clawed its way back for the rest of the session to finish down by only 0.12%.

Financial stocks were the worst performer today, sympathetic to the poor performance from Barclays (NYSE:BCS). Yesterday, the New York Attorney General announced a suit against the bank for misrepresenting its dark pool. News reports today indicated that a number of Barclays' clients had disconnected from its dark pool in response to the suit. Barclays stock was down 6.5% in London trading and by a similar amount for its US ADR.

GoPro (NASDAQ:GPRO) debuted on the Nasdaq and had a big first day. It priced its IPO at $24 per share, but the stock immediately rallied after opening, rising 30.46% to finish at $31.31.

Personal spending grew by 0.2% in the month of May, below the 0.4% that had been expected. After adjusting for price growth in the month, unit sales fell by 0.1%. Core consumption prices rose 1.5% from a year ago, as expected. As a result, a number of economists lowered their growth forecast significantly for the second quarter. For example, Barclays lowered its forecast to 2.9% from 4%. Additionally, because of better-than-expected growth in consumer prices earlier this month, market participants had been looking for better than expected growth in prices and consumption. Incomes grew by 0.4% in the month and 3.8% from a year ago. Weekly jobless claims were near their average year-to-date at 312,000.

Tomorrow's Financial Outlook

The only economic report scheduled for tomorrow is the final estimate of consumer confidence from the University of Michigan/Reuters survey. The index is expected to move up to 82 from the initial estimate of 81.2, mirroring similar strength seen in the Conference Board measure. Starting at 6:00 a.m. EDT, the US Marshals Service will auction 29,656 bitcoins it seized last year from the online marketplace Silk Road, a vendor of illegal drugs and services.

A number of reports are due out overnight that should affect risk assets. Later this evening, Japan will release May consumer prices, retail sales, household spending, and its unemployment rate. Additionally, China will report industrial profits for the same month. Closer to the US equity open, Germany will report preliminary consumer prices for June, which are becoming increasingly important as low inflation plagues Europe.

There are no major earnings reports scheduled.

Twitter: @Minyanville

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