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Daily State of the Markets To listen to an Audio Version of the report, click on the Play button below: |
Good morning. It is widely accepted that it has been China and not the U.S. that has led the modest global rebound to date. While the rest of the globe has wrestled with negative GDP growth for nearly 18 months, China’s economy has continued to move forward, albeit at a slower rate. In fact, China’s GDP grew at a rate of close to 8% annually last quarter, which is a far cry from the negative numbers seen here and in Europe. And it is partly because of the continued growth in GDP that the Shanghai stock market has soared to gains of more than +80% year-to-date.
However, the fun stopped rather abruptly during Wednesday’s session as the Shanghai index was hit with its worst decline of the year, dropping more than -5%. At issue was a report that two of the country’s largest banks were planning to curtail loan growth in the second half of the year. China Construction Bank in fact confirmed that new loans would decline versus the first six months.
In light of the fact that Chinese bank lending in June had more than doubled May’s total and that year-to-date lending sits at record levels, the news that a couple of banks might want to take things a little slower for a spell isn’t exactly surprising. However, regardless of the country, whenever someone threatens to take the punchbowl away from the party, stocks tend to suffer.
So, with China leading the world’s stock markets up and out of the abyss this year, it also wasn’t exactly surprising to see the bears sit up and take notice yesterday here in the U.S. After all, stocks have been on a tear lately and have become more than a little overbought in the process. And it is at times like these where something negative tends to come out of the woodwork to scare away the buyers.
Speaking of scaring away buyers, the results of the Treasury’s 5-year note auction yesterday caused a bit of a stir. With the bid-to-cover coming in well below the average of the last 10 auctions, the worry was that funding costs might become a problem for the hundreds of billions of dollars the U.S. Government is planning to borrow. Then toss in a weaker-than expected report on orders for durable goods and, well, you’ve got a recipe for some selling.
So, while it wouldn’t have been surprising to see the U.S. get crunched and follow the Chinese market lower, the bears once again went home disappointed yesterday. Sure, the screens were red by the time the closing bell rang. But come on; a drop of 26 Dow points isn’t exactly scary stuff after the recent big run.
Turning to this morning, China’s central bank pledged to stick to a moderately easy monetary policy, which allayed fears and put the bulls back in business both in the far east and here at home. On the economic front, Weekly Jobless Claims came in a bit higher than expected at 584K vs. 575K while continuing claims for unemployment insurance were a bit better than expectations at 6.197M vs. 6.3M.
Running through the rest of the pre-game indicators, the major overseas markets are higher across the board. Crude futures are moving up with the latest quote showing oil trading higher by $0.91 to $64.26. On the interest rate front, we’ve got the yield on the 10-yr trading higher at 3.70%, while the yield on the 3-month T-Bill is trading at 0.17%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a higher open – although the jobless claims number has put a bit of a damper on the early morning fun. The Dow futures are currently ahead by about 80 points; the S&P’s are up by about 11 points, while the NASDAQ looks to be about 16 points above fair value at the moment.
Have a great day and until next time, “may the bulls be with you!”
David D. Moenning
Founder TopStockPortfolios.com
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