- China better have right intentions regarding its pledge for a stronger yuan. “The probability of a disastrous trade war will skyrocket if Congress believes they have been the victim of a classic bait and switch,” Tim Duy writes.
- “Adjustment in China and America will be slow, but that’s not unexpected or entirely a bad thing,” Ryan Avent notes at The Economist’s Free Exchange blog. “And the best news of all is that America and China have managed to arrive at this point without a major diplomatic fall-out.”
- Obama administration’s housing market stabilization efforts are yielding mixed results. Calculated Risk has the details.
- Digital music is a tough business to profit from, but MediaMemo blogger Peter Kafka says it still makes perfect sense for Google (GOOG) to jump in. A music store would enhance Android as well as give GOOG an “owned and operated destination” for music traffic. “My suggestion: Start simple. Copy iTunes’ pay-per-song model.”
- The fact that the “normally bank-friendly” Fed is pressing big banks to move faster in curbing risky pay practices is a step in the right direction, Yves Smith writes at naked capitalism. “Given [the Fed's] track record, I would not be terribly optimistic, but then again, I am surprised it has gone even this far. It would be great if it surprised me again.”
- May existing home sales dropped 2.2% to a 5.66M annual rate, well below the 5% rise to a 6.06M rate that economists were expecting. “We see more evidence that the next leg down in housing has begun,” Barry Ritholtz writes at The Big Picture.
- Investor sentiment can be a funny thing. “You couldn’t find a bull two weeks and eight percent ago but voila, as soon as the 200-day was captured and S&P 1115 traded underfoot, the equity enthusiasm was palpable, as evidenced by the recent collapse in volatility,” Todd Harrison says at Minyanville. “That’s the fatal flaw of technical analysis, right? Financial assets are ‘better’ higher and ‘worse’ lower, which is why I use them as a risk context rather than a catalyst.”
- Business Insider blogger Henry Blodget goes a bit sensationalistic in a recent post entitled “The Odds Are Increasing That Microsoft’s Business Will Collapse.” But in reality, Microsoft (MSFT) faces a “simple and less flashy situation,” BoomTown blogger Kara Swisher says.
- Looking for the important aspects to today’s existing home sales report? “The key is the inventory and months-of-supply, and if these two measures increase later this year as I expect, then there will be additional downward pressure on house prices,” Calculated Risk says.
- The IPO market never really made a comeback from the tech bubble a decade ago, and it’s telling that Facebook, Twitter and LinkedIn — some of the most successful tech companies right now — keep pushing off filing an IPO as long as possible, Eric Schoenfeld writes at TechCrunch.
Afternoon selloff send stocks tumbling, as the S&P 500 falls through key support levels and a judge in Louisiana overturns the Obama administration’s deepwater-drilling ban. While today’s selloff will raise questions about whether the correction is back on or not, it also highlights that it may have been too early to say it was off.
DJIA falls 149 (1.4%) to 10294, S&P 500 loses 18 (1.6%) to 1095, Nasdaq Comp drops 27 (1.2%) to 2262. Dow Transports crater, losing 3.9% to 4263. NYSE volume’s low.
Existing home sales surprisingly fell in May. UK unveils its new austerity budget. Oil and energy companies under pressure all day, and judge’s ruling doesn’t change that. But the real story for stocks is technical after support levels were breached, and now stocks are starting to look down again rather than up.
Now, you’re sure to hear that today’s selloff was sparked by the weak home-sales report, or the drilling moratorium ruling, or even just the always handy and vague “jitters” excuse. Don’t buy any of them. This selloff started yesterday, when the market failed to hold 1126 on the S&P 500; it was a big technical marker. The selloff accelerated today as the S&P fell through 1110 and drifted toward 1105-1103. The 200-day moving average was living around 1100, so it’s a bad sign to close below there.
Here’s a take on it from our colleague Tomi Kilgore:
The S&P 500′s close below what should have been strong support at the 1100 to 1105 makes last week’s breakout look like a head fake. There should have been significant buying interest at that level on the way down, given that it was such stubborn resistance from May 27 through June 4. The fact that it gave way so easily questions the bulls’ resolve. There should be some support at the 1085 to 1090 area. If that level breaks, bears will push for the May 25 low of 1040 again. The S&P 500 lost 18 points at 1095.
Keep in mind, too, that while the numbers can and do dominate trading, especially in thinly traded markets, it’s not just the raw, cold numbers themselves. The bulls are trying to do something here with the numbers, but the economy, and the questions swirling around its strength, where it’s going and what that ultimately means for corporate profits, is preventing them from doing so.
Here’s a hint for bankers who continue to whine about being disliked: Stop with the condescension.
We got another dose of it today from Goldman Sachs, in comments from the company’s head European flack. It’s the same refrain we’ve heard countless times now since the onset of the financial crisis, and it goes something like this: We understand the public is upset, so we need to do a better job of explaining what we do and how we do it.
Baloney. That’s just a back-handed way of saying people outside the industry aren’t really bright enough to understand how we make money, and if they did, they’d really appreciate us for our benevolence and unflinching ethical behavior.
Forgive the bad play on words. Sometimes I can’t help myself.
The more I read and think about this China yuan thing, the more convinced I become that the PBOC’s decision had little if anything to do with events in the outside world. Sure, if the Chinese leadership can make their trading partners think that they’re actually listening, and responding to, the fulminations of the Chuck Schumers of the world, then great. If they can trip up the speculators, and hold off the hot money, then great. But there are things going on in China that are more important than what Chuck Schumer thinks.
The People’s Bank set the yuan a little higher today, but in trading it fell a little lower. It was all within the prescribed band of 0.5% on either side of the yuan, and it’s a warning shot to speculators that “flexible” does not mean a one-way bet that they can easily play. Still, while the People’s Bank may have an ax to grind with speculators, that wasn’t their main target.
Our colleagues over at the China Real Time Report blog have done a superb job of following the develops within China’s labor force. The problems are disparate; workers striking for higher wages, a spate of suicides at one specific factory, a series of apparently mentally insane people killing schoolchildren. But they all point to the same general area: rising inequality among the populace.
On that last, “recent rhetoric in China’s state-run media suggests the government is publicly signing onto the view that rising social imbalances along with insufficient treatment for the mentally ill contributed to a recent spate of attacks on schoolchildren,” Brian Spegele wrote. Before, the government treated the killings as random acts that could be stopped with better security. Then, there are the labor shortages.
The hot money’s been active in the home builders over the past year, but with the housing market starting to look weaker, with fears that a renewed drop is at hand, a volatile sector might get even more volatile. We look at that and give you an update on the yuan on today’s Markets Hub.
Asian stocks were mostly lower overnight and European markets currently experiencing a fairly vigorous selloff following the wispy optimism we saw yesterday related to China’s yuan talk. Bulls have regained control recently, but reversal in US markets Monday is a bruise.
Focus turns back toward economic data, with May existing home sales and Richmond Fed’s June manufacturing index both due at 10:00 a.m. Existing home sales should still show benefit of home-buyer tax credit, so upside to the expected 5% gain (following 7.6% rise in April) shouldn’t surprise. Also, two-day FOMC meeting gets underway.
Oil and gold both retreating, along with the euro, which is back below $1.23. S&P futures down 3.90, DJ futures down 28. Ten-year higher, yield at 3.23%.
J.P. Morgan reported some strong earnings today. But what this bloggers eye were some of the sub-numbers in the earnings report. The bank booked $1.8 billion in investment banking fees. But don’t be fooled – that wasn’t from big M&A advising. But $429 million was in advisory fees. Instead, that $1.3 billion + remaining fees […]
Bernie Madoff tells CNNMoney he’s having trouble sleeping. Click here to read more about that from CNN. He doesn’t know how lucky he’s got it, living behind bars in America. In China this week, a 39-year old businesswoman received the death sentence for running a $70 million Ponzi scheme – pocket change next to the […]
