Early this morning, it was revealed that Russian army troops crossed the border into southeastern Ukraine and were in danger of cutting the supply lines for Ukraine's army fighting separatists in the east. News reports continued to be hectic throughout the day, but Ukraine made a plea to France and Germany, who have taken the role of mediators in the conflict.
US equities started the day off weak in sympathy to the Ukraine geopolitical risk and Treasury yields fell. The S&P 500 (SPX) declined by as much as 0.50%, but was able to claw its way back to finish down just 0.17%. Underlying stock breadth was weak for much of the day as the selling was not restrained to a few issues. Small cap stocks underperformed. The biotech sector showed relative strength early on in the session, but ended up closing down in tandem with the broader indices.
The first revision of second quarter GDP showed growth increasing to a 4.2% annualized rate from the initial estimate of 4.0%. Economists had expected a minor revision lower to 3.9%. The slight increase was due to a larger increase in fixed investment. Jobless claims were 298K for the last week, remaining near the 300K level where they have been for the past four months. Pending home sales rose 3.3% in July from the prior month, ahead of the 0.5% expected, and echoing the other positive homebuilding data that we've seen this month.
Tomorrow's Financial Outlook
To wrap up the pre-Labor Day holiday week we have a few economic reports scheduled for tomorrow morning. The personal spending and income will be the first in the morning with spending decelerating in July to a 0.2% growth rate. The inflation data, which has shown acceleration earlier in this year, is expected to remain at about one and one-half percent from a year ago. The main event will be the Chicago regional manufacturing index in the early afternoon, which expected to bounce back to 56.5 after the devastating drop to 52.6 last month. To round out the day, the final estimate of August Michigan/Reuters consumer confidence index is due out.
Overnight, July Japanese inflation and employment data will be released and will likely play a large role in the behavior of risk assets tomorrow morning. The major catalyst is the preliminary August Eurozone CPI, which will be the deciding factor in whether or not the ECB initiates new easing measures at its meeting next week. Today's August German CPI showed inline growth of 0.8% year-on-year.
There are no earnings reports scheduled for tomorrow.
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