Hong Kong Riots, Brazil Poll Results Spook Stocks... For a Short Time
Today's financial recap and tomorrow's financial outlook.
The Hong Kong Hang Seng index (HSI) fell 1.92% overnight, by far the worst equity performer. The US dollar (USD) / Hong Kong dollar (HKD) FX cross rose by 0.10%, or the equivalent of a nearly eight standard deviation move. Brazil's IBOVESPA (IBOV) fell 3.9% following a new election poll that showed incumbent President Rousseff's lead in the first vote grew to 13%. From an economic perspective, Rousseff's policies are viewed as ineffective, and thus her re-election would ensure the same low levels of growth that have persisted while she has been in office. Lastly, the Russian ruble / US dollar FX cross fell another 0.73% today, reaching the low end of the range that the Russian central bank has said it will intervene in its currency market.
The above events caused US equities to open sharply down. S&P 500 (SPX) futures fell as much as 1.1% before the market opened, but a surge of buying pushed the cash index to a close of only -0.25%. Utility stocks led the benchmark index thanks to a four basis point decline in the 10-year yield. Energy stocks also showed relative strength as crude oil and natural gas prices both experienced technical breakouts.
Credit markets remained weak, however. High yield spreads in the US widened by more than 10bps, reaching their worst levels since last June.
Personal spending rose 0.5% for the month of August and the prior month's negative figure was revised up to unchanged. Incomes rose 0.3% and kept the year-over-year rate of change stable at +4.3%. On the prices side, the consumption expenditures price gauge rose 0.1% (versus 0.0% expected) and the year-over-year measure only fell to 1.5% from 1.6% in the month prior.
Tomorrow's Financial Outlook
It's a busy week in terms of economic reports and tomorrow is no different. An important indicator on a macro level, the September Chicago regional manufacturing report, will be reported in the morning alongside July Case Shiller home prices and the Conference Board's consumer confidence index. The manufacturing gauge is expected to fall to 62.0 for the month from 64.3 last month.
Overnight a flashpoint will continue to be the escalation of protests in Hong Kong. If China is forced to intervene and continue backing its control over the upcoming elections, it will most likely warrant a response from democratic nations around the world, and not one that will be received favorably by anybody. Three reports due out overnight will have an impact on their respective countries foreign exchange rates, and most likely risk assets. Japan will release its employment data for August, and the broader eurozone will release August unemployment and September CPI. European inflation will be a big determinant on the ECB's rate decision on Thursday. Today's German report for the same month was better than expected, showing no change over the prior month versus an expected decline of 0.1%.
The only earnings report scheduled for tomorrow is from Walgreens (WAG).
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