The economies, both foreign and domestic, were in focus on Tuesday. Britain announced plans to cut spending and increase taxes to get its fiscal house in order by 2015. The total will save an estimated $59 billion per year. As good as the news might be for the budget, it isn’t the best news in the world for keeping demand running high. There were also further Spanish banking fears, as we get closer to hearing about their test results from the ECB. Fitch downgraded French bank BNP Paribas’s FR:BNP (-1.9%) credit rating. Another French bank, Credit Agricole FR:ACA (-4.7%) pushed out expectations for making a profit to 2012 from earlier forecasts for 2011. Over in China, Monday’s hope that China’s plan to allow the Yuan to rise was little more than lip service and continued to weigh on the Euro. In short, the Euro slipped back to the 1.2222 support, again, resulting in more unwinding of the “risk trade”. The news wasn’t really much on its own, and the market was higher in early trading, but the fear over a slowdown in the foreign economy only added fuel to the fire for the bears yesterday.
Stocks managed to post a modest gain before the housing data, but it was clearly the Existing Home Sales report that initiated the slide. May Existing Home Sales fell 2.2% after rising 8.0% in April. Expectations were for an increase of 6.0% because existing home sales are based on contract. The stimulus plan was still expected to spur sales through the June deadline, but the interest seems to have died off early. The annual rate of sales fell to a stunning 5.66 million units from 5.79 million. Expectations were for a pop, temporary though it may have been, to 6.12 million units. So instead of an increase of 6.0%, we saw a monthly decline of 2.2%. Even if June finishes strong, expectation are for a very weak summer post-stimulus. There was a small silver lining, and that was that the number of home on the market for sale, which had increased lately due to the inflated buy interest, slipped 3.4% to 3.89 million units. That’s not too bad considering all the negative talk about the “shadow inventory”. It was still one month’s worth of data and not strong enough to overcome the fact that we should have seen much better numbers for May closings. We did see a nice little pop in April prices. The FHFA April Home Price Index rose 0.8%, a healthy gain. However, looking ahead, the New Home Sales figure is based on contract signings. Buyers had to enter into a contract by the end of April. As one can imagine, expectations are to see this number fall off a cliff, and with it the Homebuilding stocks.
The Richmond Fed reported a dip in its June mid-Atlantic factory survey to 23 from 26 in May. A larger decline to 20 had been anticipated. The average workweek expanded nicely, although wages slipped. Shipments were steady at 31 versus 32. The negative in the report was that New Orders dipped to 25 from 36. This is still a nice positive number, but the direction of orders proved to be somewhat of a concern. Inventories were down a touch, nearly flat now. That means companies are meeting demand through production. They continue to keep inventories extremely low. The manufacturing sector has been one of the most positive sectors in this economy. Slumping a little isn’t all that unexpected entering the summer month of June, but the market was looking for more positive news onto which to grab.
The housing data weighed on Dow component Home Depot HD (-2.6%), indicating a likelihood of a continued slowdown in the housing market. Earnings season is right around the corner, and there were a few disappointing early results from companies not on a calendar year. Carnival Cruise Lines CCL (-4.5%) fell after saying its fiscal second quarter fell shy due to higher fuel costs. The company maintained its projections for the year, but that was actually below the consensus, so not great news. Walgreen WAG (-6.5%) dropped after earning dove 11% on higher overhead costs. Energy stocks were a catalyst late in the day after a New Orleans District Judge ruled in favor of Hornbeck Offshore (-2.1%), which had challenged the White House’s moratorium on deepwater drilling. However, the administration was quick to announce plans to appeal the decision and fight the ruling vigorously, which raised fears that the White House is looking to continue and potentially expand the moratorium. As previously mentioned, the Euro turned modestly lower, but low enough for investors to move away from the “risk trade”, sapping the leadership of any strength or support.
Technically, the bears were looking at a poor close following a minor reversal off of that 50% retracement of the entire April to May decline in the S & P. After hitting 1130, the S & P slipped back to its 200-day moving average at 1110. The index spent about half the day holding on to this trading support, but when it finally gave way, the pendulum swung in favor of the bears short-term. It doesn’t help that the FOMC is schedule to release its statement. One way to look at is that it might be viewed as a no-win situation. If they suggest the economy is continuing to improve, it would have to raise the specter that they intend to move rates higher in the foreseeable future. If they stay away from the positive comments on the economy, then it may fuel the current fear that there is a risk of a double dip recession. Throw in New Home Sales and today isn’t shaping up to run to the rescue of the bulls.
The economies, both foreign and domestic, were in focus on Tuesday. Britain announced plans to cut spending and increase taxes to get its fiscal house in order by 2015. The total will save an estimated $59 billion per year. As good as the news might be for the budget, it isn’t the best news in the world for keeping demand running high. There were also further Spanish banking fears, as we get closer to hearing about their test results from the ECB. Fitch downgraded French bank BNP Paribas’s FR:BNP (-1.9%) credit rating. Another French bank, Credit Agricole FR:ACA (-4.7%) pushed out expectations for making a profit to 2012 from earlier forecasts for 2011. Over in China, Monday’s hope that China’s plan to allow the Yuan to rise was little more than lip service and continued to weigh on the Euro. In short, the Euro slipped back to the 1.2222 support, again, resulting in more unwinding of the “risk trade”. The news wasn’t really much on its own, and the market was higher in early trading, but the fear over a slowdown in the foreign economy only added fuel to the fire for the bears yesterday.
Stocks managed to post a modest gain before the housing data, but it was clearly the Existing Home Sales report that initiated the slide. May Existing Home Sales fell 2.2% after rising 8.0% in April. Expectations were for an increase of 6.0% because existing home sales are based on contract. The stimulus plan was still expected to spur sales through the June deadline, but the interest seems to have died off early. The annual rate of sales fell to a stunning 5.66 million units from 5.79 million. Expectations were for a pop, temporary though it may have been, to 6.12 million units. So instead of an increase of 6.0%, we saw a monthly decline of 2.2%. Even if June finishes strong, expectation are for a very weak summer post-stimulus. There was a small silver lining, and that was that the number of home on the market for sale, which had increased lately due to the inflated buy interest, slipped 3.4% to 3.89 million units. That’s not too bad considering all the negative talk about the “shadow inventory”. It was still one month’s worth of data and not strong enough to overcome the fact that we should have seen much better numbers for May closings. We did see a nice little pop in April prices. The FHFA April Home Price Index rose 0.8%, a healthy gain. However, looking ahead, the New Home Sales figure is based on contract signings. Buyers had to enter into a contract by the end of April. As one can imagine, expectations are to see this number fall off a cliff, and with it the Homebuilding stocks.
The Richmond Fed reported a dip in its June mid-Atlantic factory survey to 23 from 26 in May. A larger decline to 20 had been anticipated. The average workweek expanded nicely, although wages slipped. Shipments were steady at 31 versus 32. The negative in the report was that New Orders dipped to 25 from 36. This is still a nice positive number, but the direction of orders proved to be somewhat of a concern. Inventories were down a touch, nearly flat now. That means companies are meeting demand through production. They continue to keep inventories extremely low. The manufacturing sector has been one of the most positive sectors in this economy. Slumping a little isn’t all that unexpected entering the summer month of June, but the market was looking for more positive news onto which to grab.
The housing data weighed on Dow component Home Depot HD (-2.6%), indicating a likelihood of a continued slowdown in the housing market. Earnings season is right around the corner, and there were a few disappointing early results from companies not on a calendar year. Carnival Cruise Lines CCL (-4.5%) fell after saying its fiscal second quarter fell shy due to higher fuel costs. The company maintained its projections for the year, but that was actually below the consensus, so not great news. Walgreen WAG (-6.5%) dropped after earning dove 11% on higher overhead costs. Energy stocks were a catalyst late in the day after a New Orleans District Judge ruled in favor of Hornbeck Offshore (-2.1%), which had challenged the White House’s moratorium on deepwater drilling. However, the administration was quick to announce plans to appeal the decision and fight the ruling vigorously, which raised fears that the White House is looking to continue and potentially expand the moratorium. As previously mentioned, the Euro turned modestly lower, but low enough for investors to move away from the “risk trade”, sapping the leadership of any strength or support.
Technically, the bears were looking at a poor close following a minor reversal off of that 50% retracement of the entire April to May decline in the S & P. After hitting 1130, the S & P slipped back to its 200-day moving average at 1110. The index spent about half the day holding on to this trading support, but when it finally gave way, the pendulum swung in favor of the bears short-term. It doesn’t help that the FOMC is schedule to release its statement. One way to look at is that it might be viewed as a no-win situation. If they suggest the economy is continuing to improve, it would have to raise the specter that they intend to move rates higher in the foreseeable future. If they stay away from the positive comments on the economy, then it may fuel the current fear that there is a risk of a double dip recession. Throw in New Home Sales and today isn’t shaping up to run to the rescue of the bulls.