New Russia Law Disturbs US Stocks; Nasdaq Falls More Than 2%
Today's financial recap and tomorrow's financial outlook.
Overnight, the Reserve Bank of New Zealand (RBNZ) announced that the Kiwi's exchange rate had reached an unjustified and unsustainable level, and that it would begin directly intervening in foreign exchange markets to begin lowering its value. This prompted speculation that the Reserve Bank of Australia (RBA) would follow a similar path to devalue its currency. This sparked a strong rally of 0.48% in the US dollar overnight. Also, iron ore prices and its producers were hit hard following a report from China that $10 billion of fraudulent trades were found that had allowed collateralized commodity invoices to funnel money into the country.
The selling started from the beginning of the session and continued with fury until the 12 o'clock hour. By that time the S&P 500 was down 1.5%. Early on rumors circulated that a large fund was liquidating its portfolio, consisting of 200 different stocks, after suffering catastrophic losses in a GoPro (GPRO) short position. Coupled with news from Russia that its government was pondering a new law that would allow it to seize all foreign assets without compensation, most market participants were very unsettled. The law would also allow citizens to be compensated for property that was seized in foreign countries. The SPX closed down 1.62% with tech the hardest hit. Volume in declining stocks on the NYSE accounted for 90% of the day's trading, a signal of extreme weakness in the market.
Apple (AAPL) fell more than 3% today following news in the past 24 hours that its iOS update had caused some phones to stop working and some of its new iPhone models were bending under pressure. A report late in the day from the company that less than a dozen customers had claimed about their new phone was not enough to arrest the decline in the stock.
Some market participants cited the hawkish comments by Dallas Fed President Richard Fisher that were made overnight regarding overvaluations in high yield bond markets. He also stated that he thinks the Fed should begin hiking rates in the first quarter of next year, earlier than the middle-of-the-year time frame that many on the FOMC expect. However, this is an unlikely culprit for today's selling as his comments are not any different from one's he's made in the past few years. Additionally, the front end of the US Treasury curve rallied substantially today, with the 3-year yield declining by more than 4bps.
Durable goods orders for August fell by 18.2% from the prior month, slightly worse than the -18.0% expected. The large drop comes after a 22.5% increase in the prior month due to large aircraft orders by Boeing (BA) at the Farnborough airshow. Capital goods orders, non-defense excluding aircraft, rose by 0.6% for August, ahead of the 0.4% expected.
Tomorrow's Financial Outlook
Investors are on edge after today's session. With quarter end approaching next Wednesday, a relief rally will most likely be shallow until that overhang passes. Tomorrow morning is the final estimate of second quarter GDP. Economists expect growth to be revised up to an annualized rate of 4.6% from the latest government report of 4.2%. The quarterly services survey, released earlier this month, showed that spending at hospitals was less dour than earlier believed.
Overnight, Japan will release its consumer price index for August. If prices miss to the downside it will likely cause a negative reaction in the USDJPY FX cross because Japanese officials have become increasingly concerned about the recent devaluation of the Yen. If that were occur then US Treasuries will most likely rally. Also scheduled for tomorrow is the German GfK poll of consumer confidence, which will likely come in below expectations if any of the recent polls are any guide.
Finish Line (FINL) is the only company scheduled to report earnings tomorrow.
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