U.S. markets showed continued weakness as trade battles with China and Canada clearly in focus as deadlines loom.
Canada resumed NAFTA talks, while the midnight deadline for comment on the next round of $200 billion tariffs on China is tonight, ahead of which China preemptively threatened reciprocal retaliation.
Tech was the weakest link while the blue-chips showed strength for the 2nd-straight session.
Volatility got stretched after spiking past major resistance but calmed into the close to keep Wall Street from panicking.
The Nasdaq sank 0.9% following the intraday backtest to 7,885.
The index held the 7,900 level with risk to 7,800 and the 50-day moving average if 7,875 fails.
The Russell 2000 stumbled 0.8% after trading to a low of 1,713 for the 2nd-straight session.
Upper support at 1,720-1,700 failed to hold with a close below the latter being a bearish development
The S&P 500 was down 0.4% after testing a low to 2,867. Upper support at 2,880-2,875 failed to hold with risk to 2,850 if 2,865 fails.
The Dow added 0.1% while peaking at 26,073 and trading in a 107-point range.
Lower resistance at 26,000-26,200 held for the 5th-straight session.
Utilities rose 0.5% to led sector strength. Real Estate, Industrials, Consumer Staples, and Materials advanced 0.3% and rounded out the winners.
Energy tanked 1.8% to easily pace sector laggards. Consumer Services and
Technology were down 0.8% and 0.7%, respectively.
Global Economy – European markets were down with losses mostly limited on a rebound in emerging market currencies. South Africa’s rand rose and the Turkish lira climbed to a 3-session high against the dollar.
The UK’s FTSE 100 dropped 0.8% and Germany’s DAX 30 stumbled 0.7%.
The Stoxx 600 Europe was off 0.6% and the Belgium20 was lower by 0.5%. France’s CAC 40 dipped 0.3% while .
German July factory orders unexpectedly declined 0.9%, weaker than expectations for a rise of 1.8%.
Asian markets were lower across the board after Bank of Japan boosted buying of 5 and 10-year bonds in a bid to offset a cut in frequency of operations this month.
This ties in with the bank’s intention not to make major changes after the last policy tweak while soothing speculation that it wants to taper at a faster pace.
Australia’s S&P/ASX 200 sank 1.1% and Hong Kong’s Hang Seng fell 1%.
China’s Shanghai gave back 0.5% and Japan’s Nikkei slid 0.4%. South Korea’s Kospi slipped 0.2%
BoJ Board member Kataok criticized the forward guidance and suggested the bank should have specified inflation rates, the output gap or inflation expectations.
Challenger Job-Cut Report announced layoffs rose 11,400 to 38,500 in August after dropping 10,100 to 27,100 in July.
Announced job cuts were up 13.7% year-over-year. Industrial goods led the rise on the month while Financial firms came in second. Total hirings rose 7,500 to 17,300.
The ADP Employment Report revealed private employment rose 163,000 in August, below forecasts of 182,000 jobs.
The Goods Producing sector added 24,000 jobs, while Manufacturing rose 19,000 and Construction was up 5,000. Jobs in the Services sector increased 139,000 while Trade added 21,000 workers.
Education jobs were up 31,000 and Leisure gained 25,000.
Initial Jobless Claims fell 10,000 to 203,000 in the week ending September 1st, versus expectations of 213,000 and no change.
This represented the lowest level since December 1969. The 4-week moving average dropped to 209,500 from 212,250. Continuing claims slid 3,000 to 1,707,000 in the August 25th week.
Q2 Productivity growth remained at 2.9%, as it was in the Advance report but below expectations for a rise of 0.2% to 3.1%.
However, unit labor costs were revised down to -1% versus -0.9% (and 3.4% in Q1 and 2.3% in Q4). Output growth was bumped up to 5% from 4.8%.
Employee hours edged up to 2% from 1.9%. Compensation per hour was revised lower to 1.9% versus 2%, with real compensation now at a 0.2% growth rate from 0.3%.
The price deflator was unchanged at 3.5%.
PMI Services Index fell 1.2 points to 54.8 in the final print, below forecasts of 55.2 and the preliminary reading.
July Factory Orders were down 0.8%, worse then forecasts for a drop of 0.7% for the month.
August ISM Non-Manufacturing Index checked in at 58.5, above forecasts of 56.8. The general business activity index climbed to 60.7 from 56.5.
The employment component edged up to 56.7 from 56.1. New orders rose to 60.4 from 57.
New export orders increased to 60.5 from 58. Imports dipped to 52 from 52.5. Prices paid fell to 62.8 from 63.4.
Market Sentiment – New York Fed John Williams said it’s a pretty good time for the U.S. economy, as current inflation and employment conditions are about as good as it gets for the Fed in relation to its dual mandate.
He added wage growth remains a puzzle and a big issue for the Fed, evidence that the Fed can be patient in an economy that still has room to run.
Atlanta Fed Raphael Bostic said the economy was very close to the Fed’s mandates and almost perfectly in balance, justifying a neutral policy setting.
The lack of clarity on trade stalled some business investment and he believes the natural rate of unemployment is around 4.2%-4.3%.
The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 3-session slide after trading to a high of $120.40.
Fresh resistance at $120.50-$120.75 and the 50-day moving average held with a close above the latter signaling a possible short-term bottom.
Shaky support is at $120-$119.75 and the 200-day moving average. A move below $119.50 would be a continued bearish signal.
Market Analysis – The Russell 3000 Index ($RUA) was down for the 4th time in 5 sessions after trading to an intraday low of 1,705. Near-term support at 1,710-1,700 was split but held into the closing bell.
A move below the latter would signal additional weakness with risk towards 1,680-1,675 and the 50-day moving average.
Lowered resistance is at 1,720-1,730. The recent and late August all-time high tapped 1,733.
RSI has been in a nasty downtrend with support at 55-50. A close below the latter could lead to a retest near the 40 level and late June lows.
Resistance is at 60 with continued closes back above this level being a slightly bullish development.
The Energy Select Sector Spider (XLE) fell for a 5th-straight session following the continued pullback to $72.61. Fresh and upper support at $72.75-$72.50 held into the closing bell.
Continued closes below $72.25-$72 and the 200-day moving average would be a bearish development.
The mid-August intraday low tapped $71.70 and the $72 level represents major support from mid-April to mid-May.
Lowered resistance is at $73.50-$74. The 50-day moving average is showing signs of rolling over.
RSI is on track to test August support at 30 with a move below this level likely being a signal for lower lows. Resistance at 45-50.
All the best,
Roger Scott.