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European Markets Pause, Weigh on US Stocks


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

European markets took a breather today following less-than-dovish comments from German Bundesbank President Jens Weidmann. He said that because central banks continue to cross into unchartered territory, policy makers and banks need to be increasingly vigilant against over-reactions that could lead to bubbles in financial and real estate markets. Italian and Spanish sovereign bonds and equities were noticeably weaker today, which was a drag on stocks in the US, where markets have largely been following Europe's lead for the past three days.

Tensions continued to escalate in Iraq as rebels took control of the city of Mosul. Iraq's second largest city, and additional provinces. The Iraqi Parliament declared a state of emergency in the morning, according to state-run TV. Middle Eastern stocks, particularly those in Dubai, have fallen 8% in three days. Thus far these tensions have not spread outside of the region; crude oil production is untouched and the ECB's recent actions continue to be the main macro story.

Stocks in the US followed the same trends that began developing yesterday. Utilities continued to underperform in the S&P 500 (INDEXSP:.INX), and are down 0.37% as a sector today. Industrial stocks were also weak. Small-cap stocks underperformed while the tech sector was today's market leader.

In the April JOLTS report, job openings rose to the highest level in almost seven years. Although, the level only rose to 4,708 million from 4,706 million in the month prior, which does not corroborate the strength seen in the April nonfarm payrolls report.

On the political front, the White House announced that it strongly supports the recent bill proposed by Senator Elizabeth Warren that would cap interest rates for student loans at 3.86%. On Monday, the president signed an executive order expanding an existing program aimed at reducing the burden of student loan debt by limiting what some borrowers pay to 10% of their income

The Treasury sold $28 billion of 3-year notes at a high yield of 0.93%. The auction had stronger than normal total demand with a bid-to-cover ratio of 3.41 versus a 3.3 norm. However, demand from non primary dealer sources was lackluster. The 10-year Treasury yield was three basis points higher to 2.635% today.

Tomorrow's Financial Outlook

There are no major economic data points scheduled to be released tomorrow in the US. The Treasury will release its budget statement for May, which is expected to show a net deficit of $142.5 billion. The deficit in April was $138.7 billion. The Treasury is scheduled to auction $21 billion in 10-year notes at 1:00 p.m. EDT.

The only economic reports scheduled for the rest of the world are from the UK. May jobless claims and the 3-month ILO unemployment rate will be released.

The only two earnings reports scheduled for tomorrow are from H&R Block (NYSE:HRB) and Restoration Hardware (NYSE:RH).

Twitter: @Minyanville

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No positions in stocks mentioned.

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