U.S. stocks have come off the worst levels of the day and are threatening a move into positive territory. The markets have been choppy today and are showing some resiliency in the face of some softer-than-expected Chinese economic data that prompted rate cuts by the country's central bank. Also, the markets are bouncing back despite a sharp drop in New York manufacturing output and a tumble in homebuilder sentiment, with both hitting lows not seen since the early stages of the pandemic. Treasuries are rising to apply some downside pressure on yields and the inversions of the curve remain. The U.S. dollar is rallying, but crude oil prices are falling, along with gold, following the China and U.S. economic data. Equity news is very light today but is set to heat up starting tomorrow as heavyweights from the retail sector begin to put the finishing touches on Q2 earnings season. Gilead Sciences is rising after announcing upbeat results from its breast cancer treatment. Asia finished mixed, and Europe has overcome early weakness and is modestly higher.
At 10:45 a.m. ET, the Dow Jones Industrial Average is ticking 0.1% higher, while the S&P 500 Index and the Nasdaq Composite are decreasing 0.2%. WTI crude oil is dropping $3.61 to $88.48 per barrel, and Brent crude oil is falling $3.83 at $94.32 per barrel. The gold spot price is trading $24.50 higher to $1,791.00 per ounce, and the Dollar Index is rising 0.7% to 106.29.
Equity news is light to kick off the week that will see key companies from the retail sector put the finishing touches on Q2 earnings season. Of the 455 S&P 500 companies that have reported thus far, roughly 63% have topped revenue forecasts and approximately 75% have bested profit projections, per data compiled by Bloomberg. Compared to last year, revenue growth is tracking to be up 14.8% and earnings are 8.8% higher.
Schwab's Chief Investment Strategist, Liz Ann Sonders discusses the market environment in her latest article, Both Sides Now: Fed's Dueling Mandates, how July's hot jobs report will likely keep the Fed in a hawkish position, but key to watch moving forward is a continued softening in leading labor and inflation indicators.
Gilead Sciences Inc. (GILD $66) is trading higher after the biotech company announced positive results from a study of its breast cancer treatment.
New York manufacturing activity tumbles, homebuilder sentiment falls much more than expected
The Empire Manufacturing Index, a measure of activity in the New York region, showed the index unexpectedly dropped into a level depicting contraction (a reading below zero) this month. The index fell to -31.0 from the 11.1 reading that was posted in July and compared to the Bloomberg consensus estimate of a decline to 5.0. New orders tumbled solidly into negative territory and inventory growth slowed, while employment fell but remained in expansion territory and prices paid dropped but continued to expand.
The National Association of Home Builders (NAHB) Housing Market Index (HMI) showed homebuilder sentiment in August fell to a level suggesting poor conditions (a reading below 50). The index dropped to 49 from July's unrevised 55 level, and below estimates of a dip to 54. This was the first time homebuilder sentiment was below 50 since May 2020, during the early stages of the pandemic, after falling for eight-straight months. The NAHB said, "Ongoing growth in construction costs and high mortgage rates continue to weaken market sentiment for single-family home builders." The NAHB added that, "And in a troubling sign that consumers are now sitting on the sidelines due to higher housing costs, the August buyer traffic number in our builder survey was 32, the lowest level since April 2014 with the exception of the spring of 2020 when the pandemic first hit."
Treasuries have been choppy as of late with the markets digesting some cooler-than-expected July inflation and grappling with the economic and monetary policy implications.
Schwab's Chief Fixed Income Strategist Kathy Jones discusses in our latest Schwab Market Perspective: Mixed Signals, how the Fed has embarked on one of the most rapid tightening cycles in over 40 years, and with inflation continuing to outpace wage growth, more rate hikes are likely on the horizon.
Treasuries are higher, with the yields on the 2-year and 10-year Treasury notes down 7 bps to 3.18% and 2.78%, respectively, while the 30-year bond rate is declining 5 bps to 3.07%.
Europe turns modestly higher as global markets show resiliency in face of China data
European equities have turned modestly higher in late-day trading to kick off the week, with the markets trying to battle back from early pressure. Sentiment was dampened early on from economic data over the weekend out of China which continued to show signs that the world's second largest economy is slowing, exacerbated by COVID-induced lockdowns. Along with the global markets grappling with the economic implications of the China data, they are also assessing the monetary policy implications of China's announcement to cut some key lending rates as most other key global central banks are tightening policy to try to tame persisting inflation pressures. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his article, Shortages Have Led to Gluts, how inventory gluts have been bad news for the stocks of companies experiencing them, but could also be indicating an inflation peak, which tends to be an ingredient for market bottoms. You can follow Jeff on Twitter: @JeffreyKleintop. In economic news in the region, German wholesale price inflation declined in July. The euro and British pound are lower versus the U.S. dollar, and bond yields in the Eurozone and the U.K. are also moving lower. Energy issues are leading to the downside as oil prices are falling sharply. Markets in Italy were closed for a holiday.
The U.K. FTSE 100 Index and Germany's DAX Index are little changed, France's CAC-40 Index is ticking 0.1% higher, Spain's IBEX 35 Index is rising 0.2%, and Switzerland's Swiss Market Index is advancing 0.4%.
Asia mixed to begin the week China data and rate cuts in focus
Stocks in Asia finished mixed in the first session of the week, with the markets digesting action from China's central bank to cut its key 1-year lending rate and a 7-day rate. The moves came as the country reported some softer-than-expected July economic data that showed lending activity slowed solidly, while industrial production and retail sales both rose at slower rates than projected. The rate cut also diverges from key central banks in North America, Europe and the U.K.—led by the Fed—which are aggressively tightening monetary policy to fight persisting inflation pressures. China's economy has slowed noticeably in the face off COVID-induced lockdowns and Schwab's Jeffrey Kleintop notes in his article, China's Yo-Yo Economy, that although an economic rebound in China is underway according to government and private sector data, its economy and stock market may remain volatile. In other economic news, Japan's Q2 GDP growth came in smaller than expected, while India's June industrial production was stronger than forecasted, and the country's consumer price inflation slowed by a slightly larger amount than anticipated for July. Also, India's export growth slowed sharply for July. Volume was lighter than usual as markets in India and South Korea were closed for holidays.
Japan's Nikkei 225 Index rose 1.1%, with the yen strengthening versus the U.S. dollar, continuing to rebound somewhat from multi-decade lows that has ensued as the Bank of Japan also lags other key global central banks in monetary policy. China's Shanghai Composite Index was little changed, and Australia's S&P/ASX 200 Index traded 0.5% higher. The Hong Kong Hang Seng Index fell 0.7% amid volatility surrounding potential delisting of some companies in the U.S.
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