An interview with state-run television by Polish Foreign Minister Radoslaw Sikorski caused a sizable market disruption in the afternoon. He stated that the recent buildup of large-scale Russian armed forces on the Ukrainian border suggests that it is either intimidating Ukrainian forces into halting their advance or is poised to invade. Whether that is invasion or dubbed as a peacekeeping mission or military action, it will be a clear escalation of the crisis as it would violate Ukraine’s sovereignty. Poland has been a the leading critic of Russia’s foreign policy with Ukraine.
The market – or should we say programmed traders reading said headlines – response was to bust through the S&P 500 (SPX) 1926 level of support, triggering a wave of stop losses. The benchmark index finished the day down 0.89% after churning in a range below resistance. Utilities stocks continued to underperform despite little change in interest rates today. Energy stocks were also very weak thanks to another rally in the US dollar, which momentarily pushed crude oil to $97/barrel. High yield bonds, which have been a notable source of weakness lately, managed to show some signs of strength today, but new debt issuance remained sparse.
US same-store sales posted strong gains in the last week of July, thanks to a sales-tax holiday in 12 states. As a result, Johnson/Redbook upgraded its preliminary sales forecast for August to 4.5%. The ISM non-manufacturing index rose to 58.7 in July (versus 56.5 expected) from 56.0 in the previous month. It was the fastest pace of expansion since 2005. The new orders component reading of 61.2 was the third highest ever. Factory orders rose 1.1% in June, better than the 0.6% that was expected.
After the close, 21st Century Fox (FOX) announced that it was withdrawing its bid for Time Warner (TWX), citing the company’s refusal to engage in a deal. Fox instead authorized a $6 billion buyback of its shares. Time Warner stock fell more than 12% in post-market trading as the premium for a bidding war was removed from the stock.
The only economic report scheduled for tomorrow is the June US trade balance. Its results will contribute to any revisions to second quarter GDP should it substantially miss the expected net deficit of $45 billion. The Fed’s Beige Book summary of anecdotal information on current economic conditions in its 12 districts will be released in the afternoon.
A main catalyst for risk assets overnight now becomes any further escalation from Russia, which appears to be telling the Ukrainian government that it will not tolerate humanitarian violations of ethnic-Russians. As far as economic reports go, New Zealand will report its employment situation for the second quarter. Its currency has been increasingly volatile and key for commodities. Also scheduled for tomorrow morning is German factory orders, UK industrial production, and Swiss consumer price index.
Sixty four major US companies are scheduled to report earnings tomorrow. Notable reports include Molson Coors (TAP), MBIA (MBI), Time Warner (TWX), Chesapeake Energy (CHK), NuSkin (NUS), Nationstar Mortgage (NSM), Keurig Green Mountain (GMCR), AOL (AOL), Dish Network (DISH).