Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Wednesday, Aug. 16.
State of Play
Stocks dropped yesterday likely due to concerns about China’s slowing economy. A much stronger than expected retail sales report re-raised the issue of additional rate hikes being needed to cool off the economy stateside, though bond markets didn’t bear this out. Target (TGT 0.00%↑) just reported mixed earnings and lowered sales guidance. As of 0645 markets are still looking for direction:
Stock index futures are unchanged. No major US index is moving more than 0.2% from the break-even point;
Bonds are actually seeing some bids, with the yield on the 2-year down 5 basis points to 4.90%. The 10-year yield is down 5bps to 4.18% (yields move inversely to prices);
Commodities aren’t doing anything. Copper is unchanged. WTI crude oil is flat trading around $81/barrel.
Known Events
Target (TGT 0.00%↑) earnings were mixed but the company importantly lowered guidance for sales and profits for the rest of the year. No reason was given other than “continued near-term challenges.” The stock is moving higher in the pre-market however. Perhaps investors were expecting worse results.
JD.com (JD 0.00%↑) just beat on top- and bottom-line estimates. TJX (TJX 0.00%↑), Zim Shipping Services (ZIM 0.00%↑), and Brinker International (EAT 0.00%↑) also report before the open at 0930.
After the close we’ll hear from Cisco Systems (CSCO 0.00%↑) and Synopsys (SNPS 0.00%↑), among others.
Building permits and housing starts are out at 0830. This is the leading indicator of the state of US housing, though typically not one that is watched very closely by markets. For point of reference, economists expect 1.46 million building permits, a small increase over the 1.41 million recorded last month, and 1.45 million housing starts, an even smaller increase over the 1.43 million seen a month ago.
As you can see building permits, the more forward-looking of the two (you need a permit before you can break ground on a house) is still looking pretty robust despite much higher mortgage rates:
FOMC meeting minutes are out at 1400. A lot will be made of this and there may even be a market reaction but it will likely be short lived. Very little new information ever emerges in these minutes. The Fed is data dependent so the data is going to be a better indicator of what the Fed might do than what they said (or didn’t say) at last month’s meeting.
Later tonight Japan reports trade figures for July. Seeing how Japan is one of the biggest exporters of consumer goods this may be worth watching. Economists expect a year-over-year decline of 0.8% after an increase of 1.5% YoY last month.
The Bottom Line©️
Another day of declines for stocks yesterday. Again the damage wasn’t horrible (major US indexes down ~1% each) but it hasn’t really looked like much of a bull market in several weeks now. That could just be summer doldrums. The fact that bond markets recovered yesterday tells us there isn’t really much fear of the Fed. Fed fund futures didn’t move either, in fact traders are pricing in a greater chance of another pause than they were a week ago. Maybe today’s meeting minutes will change that, but worth keeping in mind everything said above about this being a trailing indicator, etc. etc.
The Target earnings would normally be a negative sign, but lack of a clear catalyst means this may just be company-specific. Especially in light of what we saw yesterday from census retail sales. And anyway the stock is rallying, up more than 10% at the time of this writing.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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Target Lowers Guidance, Housing Starts, Fed Meeting Minutes