Closing Market Summary: Stocks Slip a Tad on TuesdayThe stock market looked like it might reclaim yesterday's downtick late on Tuesday afternoon, but a sell-off in the final minutes pulled the major U.S. indices off their best marks of the day, leaving the S&P 500 with a loss of 0.3%. The Nasdaq (-0.3%) and the Dow (-0.2%) settled roughly in line with the benchmark index.
A risk-off tone was present even before Tuesday's opening bell as investors eyed several upcoming macro events, including the UK general election, the European Central Bank meeting, and former FBI director James Comey's testimony before the Senate Intelligence Committee. All three events will take place on Thursday.
With these concerns lingering in the background, equities opened the session modestly lower while 'safe-haven' assets like the Japanese yen (109.50, +0.9%), gold ($1,297.30/ozt, +1.1%), and U.S. Treasuries showed strength. The benchmark 10-yr yield, which moves inversely to the price of the 10-yr Treasury note, slipped four basis points to 2.14%.
However, despite investors' caution, the equity market kept its loss to a minimum throughout most of Tuesday's session. The technology sector (-0.2%) played a huge role in keeping the broader market afloat for most of the day, thanks in large part to influential names like Apple (AAPL 154.45, +0.52), Microsoft (MSFT 72.52, +0.24), Alphabet (GOOGL 996.68, -7.20), and Facebook (FB 152.81, -0.82). Unfortunately, however, the aforementioned companies faded into the closing bell.
Without the tech sector propping up the broader market, the bears took control in the final stretch, dragging the major averages from their flat lines to fresh session lows. The consumer discretionary sector (-0.8%) led the retreat amid broad weakness. Like the previously mentioned tech companies, the consumer discretionary group's most influential component, Amazon (AMZN 1003.00, -8.34), rolled over on its early gain, settling with a loss of 0.8%.
Retailers also made things difficult for the consumer discretionary space, evidenced by the 2.2% decline in the SPDR S&P Retail ETF (XRT 40.39, -0.90). Another largely disappointing batch of earnings reports weighed on the retail industry from the jump, and things only got worse after Macy's (M 21.90, -1.96) warned that its gross margins for the fiscal year could be below its prior forecast.
Like consumer discretionary, the industrial sector (-0.6%) also underperformed amid broad weakness. The financial sector (-0.4%) was on track for a notable loss in early action, but eventually pulled itself together to finish just a step below the broader market. Most of the remaining laggards, including health care (-0.3%), consumer staples (-0.3%), utilities (-0.2%) and real estate (-0.4%), also finished roughly in line with the broader market.
On a positive note, the energy sector (+1.2%) registered a solid gain amid a positive performance from crude oil. The commodity held a modest loss throughout much of the morning session as concerns surrounding tensions in the Middle East continued to weigh. However, those concerns waned later in the day as investors turned their attention to tonight's inventory report from the American Petroleum Institute (API), which will be released at 16:30 ET. WTI crude finished higher by 1.5% at $48.13/bbl.
Investors received only one economic report--April JOLTS--on Tuesday:
- The April Job Openings and Labor Turnover Survey showed that job openings increased to 6.044 million from a revised 5.785 million (from 5.743 million) in March.
Tomorrow, investors will receive the weekly MBA Mortgage Applications Index and April Consumer Credit (consensus $15.0 billion). The two reports will cross the wires at 7:00 ET and 15:00 ET, respectively.
- Nasdaq Composite +16.6% YTD
- S&P 500 +8.5% YTD
- Dow Jones Industrial Average +7.0% YTD
- Russell 2000 +2.8% YTD
Aramco: King Kong ping pong
When Saudi Arabia unveiled plans to float Aramco, an old gag appeared to apply, as follows. Question: where does an 800-pound gorilla sit? Answer: anywhere he likes. New York and London were vying to lure an oil company valued at $2tn to their stock markets. With obstacles looming, Aramco now resembles a 400-pound orang-utan less sure of securing a comfortable foreign perch.
Law firm White & Case has told Aramco a New York listing could in certain circumstances embroil it in lawsuits brought by the families of victims of the 9/11 attacks. The Investment Association, which represents UK fund managers, has warned against any relaxation in listing rules. These have been mooted as the price of bringing Aramco to London.
The IA may be worried a full listing could allow the oil group to join the prestigious FTSE 100 index and receive automatic investment from passive funds. A free float of at least 25 per cent for UK-registered vehicles is stipulated by two gatekeepers: FTSE Russell, the indices subsidiary of the London Stock Exchange, and the UK’s Financial Conduct Authority.
Their rule books contain waivers that could permit Aramco to achieve its target free float of just 5 per cent, still worth $100bn at the upper end of estimates. The IA believes scale is irrelevant to good corporate governance. It argues minority investors need to hold at least a quarter of a company’s shares to guarantee this.
London tightened listings rules a few years ago following corporate governance debacles at foreign-controlled groups, such as Eurasian Natural Resources Corp, a chaotic Kazakh miner. The lesson FTSE Russell and the LSE should remember was that bending rules to suit high rollers can tarnish the reputation of the whole market.
The impact of Aramco on the FTSE 100 should not be overstated. Lex has valued the company at about $900bn after discounting heavy costs. Index weightings reflect free float levels, moreover. Aramco would thus be worth only 1.9 per cent of the FTSE 100 at its current level, the same as National Grid, a power distributor.
The real gorilla in the room is passive fund management that has left index compilers as the new kingmakers. Beneath a gloss of impartiality, some of their decisions may prove every bit as arbitrary as those of old-style active managers.
Asia Mid-Session Market Update: China Services PMI soothes soft manufacturing data; World Bank maintains global outlook; Oil rallies on Saudi Arabia-Qatar row
***Friday US Session Highlights***
- (US) MAY UNEMPLOYMENT RATE: 4.3% V 4.4%E (lowest since May 2001)
- (US) MAY CHANGE IN NONFARM PAYROLLS: +138K V +182KE; (birth/death adjustment +230)
- (US) MAY AVERAGE HOURLY EARNINGS M/M: 0.2% V 0.2%E; Y/Y: 2.5% V 2.6%E; AVERAGE WEEKLY HOURS: 34.4 V 34.4E
- (US) White House econ adviser Cohn: not worried about slowing job growth; we must create a better US jobs market
- (US) Atlanta Fed cuts Q2 GDP to 3.4% from 4.0% on 6/1
***Weekend corporate activity***
- HLF: Cuts Q2 guidance $0.75-0.95 v $1.00e (prior $0.88-1.08); Volume -8% to -4% y/y (prior -5% to -1%); Cuts FY17 $4.10-4.50 v $4.50e (prior $4.25-4.65); Volume -1% to +2% y/y (prior 2-5%)
- P: Verizon may be interested in making a $100M investment in Pandora if it fails to reach sale to SiriusXM this week - NY Post
***Politics***
- (RU) Russia President Putin denies knowledge of any attempts to set up back-channel discussions with Trump administration officials - US press
- (US) White House not planning to give Congress a detailed tax reform draft until the August recess - Politico
- (JP) Survey from Japan national broadcaster TBS saw PM Abe's cabinet approval rating fall 8.9 to 54.4%; lowest in over a year - press
- (MX) MXN rallies from 18.82 to 18.72 on projections of a narrow win for ruling party in Mexico's key governor race - press
- (UK) Survation/Mail poll on Parliamentary elections: Support for UK Conservatives at 40% (-6 ppt); Labour at 39% (+5 ppt)
***Key economic data:***
- (CN) CHINA MAY CAIXIN PMI SERVICES: 52.8 V 51.5 PRIOR (4 month high); COMPOSITE: 51.5 V 51.2 PRIOR
- (HK) HONG KONG MAY COMPOSITE PMI: 50.5 V 51.1 PRIOR (2nd straight expansion)
- (AU) AUSTRALIA Q1 COMPANY OPERATING PROFIT Q/Q: 6.0% (4th straight quarter of increase) V 5.0%E; INVENTORIES Q/Q: 1.2% V 0.5%E
- (AU) AUSTRALIA MAY ANZ JOB ADVERTISEMENTS M/M: 0.4% V 1.5% PRIOR (3rd straight increase)
- (AU) AUSTRALIA MAY MELBOURNE INSTITUTE INFLATION M/M: 0.0% (3-month low) V 0.5% PRIOR; Y/Y: 2.8% V 2.6% PRIOR
- (AU) AUSTRALIA MAY AIG PERF OF SERVICES INDEX: 51.5 V 53.0 PRIOR (3rd consecutive expansion. 3-month low
- (SG) SINGAPORE MAY PMI COMPOSITE: 51.4 V 52.6 PRIOR
***Asia Session Notable Observations***
- Asian indices slide despite the gains on Wall St as investors digest mixed US employment data on Friday. Outlook for June hike remains above 90%, though the case for 3 hikes total in 2017 stands more damaged by slow wage growth.
- GBP down slightly in the wake of another terror attack in London that left 7 people dead; UK polls ahead of June 8th elections also continue to tighten.
- China May Caixin Services PMI hits a 4-month high and Composite rises slightly. Among Services components, expansion in new orders was the most marked in the year-to-date, employment continued to increase but at slower pace, and input price inflation picked up from 6-month lows.
- China Shenhua (China's largest coal miner) speculated to merge with GD Power Development; Both halted on A-shares.
- World Bank maintained 2017 global GDP growth forecast at 2.7% and 2018 at 2.9%; WB also cut US by 0.1pt, Affirmed China at 6.5%, and raised EU and Japan by 0.2pts and 0.6pts respectively, citing recovery in industrial and a pick-up in global trade.
- Oil rises nearly 1.5% on Saudi-Qatar spat. Saudi Arabia, Bahrain, and Egypt reportedly cut diplomatic relations after leaked tape where Qatari Emir Tamim bin Hamad al-Thani criticized Gulf rhetoric against Iran. Qatar also alleged to have provided assistance to terrorist organizations.
***Speakers and Press***
China
- (CN) China Securities Regulatory Commission (CSRC) rejected IPO application from 9 out of 64 companies in May - Chinese press
- (CN) China Securities Regulatory Commission (CSRC) announced new rules to curb disorderly stock sales
- (CN) China Securities Regulatory Commission (CSRC) announced new rules to curb disorderly stock sales
- (CN) China to accelerate approvals for green car subsidies, approving ~300 more green energy vehicle models to receive subsidies - Chinese press
- (CN) China plans to continue its restructuring of SOEs in the coal power and steel sectors – Chinese Press
Japan
- (JP) BoJ approx doubles ETF holdings in 1 year to ¥15.9T v ¥8.83T y/y - Nikkei
Australia / New Zealand
- (AU) Australia's Queensland has commissioned an energy security taskforce to ensure state’s power system is secure during peak demand over 2017-18 and 2018-19 summers
***Asian Equity Indices/Futures (00:30ET)***
- Nikkei flat, Hang Seng -0.3%, Shanghai -0.5%, ASX200 -0.7%, Kospi +0.1%
- Equity Futures: S&P500 -0.1%; Nasdaq -0.1%, Dax closed, FTSE100 -0.2%
***FX ranges/Commodities/Fixed Income (00:30ET)***
- EUR 1.1265-1.1285; JPY 110.30-110.65; AUD 0.7420-0.7460; NZD 0.7115-0.7145; GBP 1.2855-1.2875
- June Gold +0.3% at 1,284/oz; July Crude Oil +1.3% at $48.26/brl; July Copper -0.5% at $2.56/lb
- SPDR Gold Trust ETF daily holdings rise 3.5 tonnes to at 851 tonnes; first rise since May 22nd
- iShares Silver Trust ETF daily holdings fall to 10,601 tonnes from 10,605 tonnes prior; 3rd straight decline
- (SA) Saudi Arabia, Bahrain, and Egypt said to have cut diplomatic relations with Qatar after leaked tape where Qatari Emir Tamim bin Hamad al-Thani criticized Gulf rhetoric against Iran; July WTI crude oil rises 1.5% above $48.35/brl
- (US) Weekly Baker Hughes US Rig Count: 916 v 908 w/w (+0.9%) (20th straight weekly rise)
- (CN) PBOC SETS YUAN MID POINT AT 6.7935 V 6.8070 PRIOR; 4th straight firmer Yuan fix; Strongest Yuan fix since Nov 10th
- (CN) PBOC to inject combined CNY70B v CNY50B prior
- (AU) Australia Finance Ministry (AOFM) sells A$400M in 3.25% 2029 bonds; avg yield 2.5171%; bid-to-cover 4.16x
- (KR) South Korea sells 3-yr Govt bonds; avg yield 1.65%
***Asia equities / Notables / movers***
Australia
- Fortescue (FMG) +0.3%; CEO: China steel demand remains strong
- Tatts (TTS) -0.7%; ACCC not satisfied Tabcorp/Tatts merger is in best interest of public - AFR
- Sirtex (SRX) -2.3%; Presents Phase 3 data from SIRVENIB study
Hong Kong
- China Gas Holdings (384) +2.4%; Guides FY17
- Guangzhou R&F Properties (2777) +0.5%; May sales
- China Vanke (2202) -0.7%; May sales
- IPE Group Limited (929) -1.5%; Guides Jan-Apr
Japan
- Eisai (4523) +1.9%; Further Study of Combination of Eisai's Lenvatinib and Merck's Pembrolizumab in Previously Treated Patients with Metastatic Endometrial Cancer Supported by Interim Analysis of Ongoing Phase1b/2 Trial
- ANA (9202) +0.3%; ANA and JAL to cut international route fuel surcharges by 50% in Aug - Japanese Press
- Toshiba (6502) -0.6%; Foxconn Chairman: We have backing from Apple and Amazon in bid for Toshiba's memory chip unit - Nikkei