Cannon Trading Blog

– Global markets vacillated between earnings and geopolitical conflict this week. There was a steady drumbeat of negative news out of Israel and eastern Ukraine, with bloody headlines countering much of the decent news from quarterly earnings reports. Quarterly reports out of the US and Europe were pretty strong, with only a few earnings disasters weighing on broader indices, though the earnings stinkers were in marquee names such as McDonalds and Amazon. June US housing data was mixed, inflation continues to be very subdued and weekly jobless claims took an unexpectedly big dip, possibly due to seasonality. In Europe, the first reading of UK GDP for Q2 indicated that annualized economic growth was back above 3.0% for the first time since the beginning of the crisis, though this was offset by worse than expected retail sales data. In China, July flash PMI numbers were very good, helping the Shanghai and Hong Kong equity markets handily outperform US and European indices. For the week, the DJIA lost 0.8%, the Nasdaq slipped 0.4%, and the S&P500 was about unchanged.

– June data offered contrasting views of the US housing sector. The June existing home numbers pushed out to eight-month highs and the May figures were revised slightly higher. According to the NAR, inventories are at their highest level in over a year and price gains have slowed to much more welcoming levels in many parts of the country. Meanwhile June new homes sales tumbled to 406K from May’s eight-year high of 504K. Quarterly numbers from two home builders also saw some weaker trends: Pulte Homes saw closings and its backlog decline on a y/y basis (although new home orders were up 5% y/y), while M/I Homes saw a y/y contraction in new contracts signed. D.R. Horton, the largest home builder in the US, saw a 15% y/y gain in its backlog and a 25% gain in net orders.

– Inflation is still not showing up to the party, according to the June CPI data out this week. The increase in the headline CPI index was mild enough to keep the y/y growth rate unchanged at 2.1%, while the y/y growth rate of the core fell to 1.9%. Food prices decelerated faster than expected, turning in a flat performance in June after four months of growth. Energy prices were up less than expected.

– Fighting raged all week in eastern Ukraine, with pro-Russia forces shooting down more military aircraft and Russia supplying more heavy weapons. More EU sanctions on Russia appeared imminent, with action expected by the end of July. Sanctions could include a ban on investment in Russian banks, an arms ban (but not retroactive, allowing France to deliver contracted Mistral warships) and some form of energy sector sanctions. On Friday, EU President Van Rompuy was urging member states to restrict sale of technology to the Russian oil sector while excluding the gas sector from sanctions, which sent oil and gas futures in divergent directions. On Friday, the Russian central bank raised its key rate by half a point to 8%, citing heightened geopolitical risks to the ruble.

– A federal appeals court overturned a lower court ruling that allowed subsidy payments under the Obama care reforms. The ruling voids the regulations that allow subsidies for insurance that is purchased through federal exchanges. Most commentators agreed that with several similar cases outstanding and more rulings to come, this decision was not terminal for the ACA.

Continue reading “Market News Recap and Economic Reports 7.29.2014”