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18Aug2015 Pre-Market Commentary: U.S. Futures Down, China's Markets Off Significantly Again, WTI Oil Dances At 6-1/2 Year Low Support And Volatility Expected In Today's Session

Written by Gary

U.S. housing data this morning was dismal and the already depressed U.S. stock futures index actually rose a small amount. I guess bad news is good news for the markets. Chinese shares dove deep into the red today as Shanghai closed down -6.1%; Shenzhen closed down -6.6% raising concerns of whether recent government rescue efforts are even effective or will succeed.

Oil has slipped further with data showing speculators have taken huge bets on further declines while weak global demand and high production fuel concerns about oversupply.

Markets are expected to open fractionally lower and may deepen its decent as the mid morning approaches with some volatility to boot.


Here is the current market situation from CNN Money

European markets are lower today with shares in London off the most. The FTSE 100 is down 0.54% while France's CAC 40 is off 0.44% and Germany's DAX is lower by 0.24%.

What Is Moving the Markets

Here are the headlines moving the markets.

Building Permits Plunge After NYC Property Tax Break Expires, Housing Starts Stable

After 3 months of exploding building permits - driven almost exclusively by the Northeast region (due to expiration of property tax breaks in NYC) - reality bit in July as permits plunged 16.3% to the lowest since March. This was the biggest miss on record for permits. Housing Starts rose less than expected but thanks to a dramatic upward revision are stable at around 1.2 million units SAAR (driven by a rise in single-family units trumping multi-family units).

The 3 month surge into the NYC property tax break expiration has ended...

Multi-family Starts faded as Single-family picked back up...

Looks like we are going to need some more tax break expirations to keep the housing recovery dream alive.

Turkey's Central Bank Leaves Rates Unchanged

Turkey's central bank Tuesday held interest rates steady for the sixth consecutive month, sending the lira to a record low against the dollar.

U.S. Stocks On Track to Open Lower

U.S. stocks were on track to open slightly lower Tuesday, as a resurgence of steep losses in Chinese stocks weighed on markets across the globe.

Walmart Cuts Profit Forecast as Earnings Fall Short of Estimates

The retail giant's lackluster earnings profit and outlook were in spite of quarterly revenue that was $500 million higher than forecast.

Home Depot Separates Itself From Retail Crowd in 2Q

The slow but steady housing recovery continues to lift Home Depot, pushing sales and profits above Wall Street expectations during the second quarter.

Singapore Dollar Whipped by China Headwinds

Singapore's currency will face pressure both from a rising U.S. dollar and a more turbulent Chinese yuan.

Gartman Stopped Out Of Treasury Short

One week ago, we warned that after once again bottom-ticking the 10Y like a true professional, Dennis Gartman was about to be stopped out of his Treasury short which he had "put" on on August 6:

It is time to be shot of the long end of the US bond market and we wish this morning to sell the September T-note future at or near to 126 3/4. We can imagine the front month future trading to 118-119 over the course of the next several months while at the same time we shall be willing to risk only 1 1/2 points to the upside. The top has been formed over the course of the last several months and we are willing to be short even ahead of tomorrow's Employment Situation Report."

We assessed this very simply: "time to buy."

Then, on August 12 we reported that Gartman was about to be stopped out:

We were convinced that a top has been formed over the course of the last several months and we were willing to be short but the Chinese devaluation has wrought havoc upon us, catching us and everyone else out. As we write, the September t-note future is trading 128 ¼ and that is ¼ point above our "close only" stop.

Sure enough, this happened this morning:

THE TEN YEAR US T-NOTE FUTURE: We Were Short… Now We Are Not!: The trend since mid-June is upward and today's collapse in the Chinese stoc ...

Abercrombie to create six new roles in management revamp: WSJ

(Reuters) - Struggling teen apparel retailer Abercrombie & Fitch Co is creating six new positions as it restructures the management of its Abercrombie brand, the Wall Street Journal reported.

U.S. oil prices near six-year lows as China weighs

LONDON (Reuters) - U.S. oil prices fell towards six-year lows on Tuesday after stock markets tumbled in China, the world's largest energy consumer, adding to worries about global fuel demand at a time of heavy oversupply.

Wal-Mart earnings miss estimates; company cuts outlook

(Reuters) - Wal-Mart Stores Inc reported weaker-than-expected quarterly earnings and lowered its full-year forecast on Tuesday, citing investments in staffing and weaker margins in its U.S. pharmacy business.

Indonesia Impaled: Currency Crashes To 1998 Asian Crisis Low As Exports Crater

On Monday we laid out the rather dire road ahead for the world's emerging economies in the face of China's entry into the global currency wars. The path ahead is riddled with exported deflation and decreased trade competitiveness for a whole host of emerging economies [and] all of this is set against a backdrop of declining global growth and trade, a trend which many had assumed was merely cyclical, but which in fact may prove to be structural and endemic."

Well don't look now, but trade just collapsed for Indonesia as exports and imports plunged 19.2% and 28.4% (more than double to consensus estimate), respectively in July.

Imports of raw materials dove 24%. Manufacturing and palm oil exports fell 7.1% and 2.4%, respectively, nearly tripling June's declines. Oil and gas exports fell nearly 8%.

Meanwhile, Bank of Indonesia kept its policy rate on hold at 7.5% and indeed the bank looks to be stuck in a dilemma similar to what we described earlier this month when we noted that "EM central bankers are grappling with slumping exports and FX-pass through inflation or, more simply, bankers are caught between a 'can't cut to boost the economy' rock and a 'can't hike to tame inflation' hard place. The rupiah, like the Malaysian ringgit, is trading near multi-decade lows and hit its weakest level since August 1998 earlier in the session. Depressed commodity prices and slumping demand from China aren't helping. ...

German lawmakers debate Greek bailout, Merkel faces rebellion

BERLIN (Reuters) - German lawmakers broke off their holidays on Tuesday to debate Greece's third bailout plan before approving it, though Chancellor Angela Merkel faces a rebellion in a vote shaping up as her last chance to keep Athens in the euro zone.

Stock futures fall as China slumps, Wal-Mart results disappoint

(Reuters) - U.S. stock index futures followed world bourses lower on Tuesday after Chinese shares slumped 6 percent and disappointing results from Wal-Mart .

Walmart Stock Slides After EPS Miss, Profits Tumble, Full Year Guidance Slashed

It may not rely on such tech bubble (ver 1.0 and 2.0) buzzwords as eyeballs, clicks, "story", "sharing", "hyperxxxx, "non-GAAP" and so on, in fact with 2.2 million worldwide employees Wal-Mart is as old-school as it gets, which is why the fact that what was once the world's most valuable retailer (until Amazon dethroned it a month ago) just reported not only a miss, on tumbling operating earnings, but slashed its guidance by 7%, should be very troubling to anyone who still looks as such trivial things as "fundamentals" and how these reflect the even more trivial "economy."

This is what happened:


Despite reporting revenue of $120.2 billion, or virtually unchanged from a year ago, and above the $119.7 billion expected, WMT reported EPS of $1.08, below the exp. $1.12. WMT promptly blamed exchange rates as the culprit for the $0.04 miss. Needless to say, when the dollar is weak no company ever says "EPS beat by $X.XX because of a favorable exchange rate."

The first problem emerged when looking at operating income, which dropped by -10.0% consolidated, and tumbled by a whopping -14.2% in the firm's international stores.

What was even more problematic is that while Wal-Mart reported a 4.8% increase in Net Sales in the US, rising to $74 billion, domestic Operating Income also tumbled by 8.2% to $4.8 suggesting there is a significant margin compression going on. Expect mass layoffs next as the company realizes that boosting minimum wages always has a profit trade off.

Then there was the most important factor: free cash flow. "Free cash flow was $5.1 billion for the six months ended July 31, 2015, compared to $6.8 billion in the prior year. The decrease in free cash flow was due to lower income from continuing operations and the timing of payments."

But the worst news for WMT shareholders, and the reason why the stock is down 3% pre-market is becaus ...

Europe struggles after Chinese stocks slide

LONDON (Reuters) - A 6 percent fall in Chinese shares on Tuesday hit Asian stocks and left European equities struggling for gains while emerging market currencies and oil prices touched multi-year lows.

PBOC Injection Shows China Worries About Outflows

China's central bank injected the largest amount of cash into the financial system on a single day in almost 19 months, signaling Beijing's growing concerns about capital outflows following the recent weakening of its currency.

China Shares Tumble 6.2%

Fresh anxieties about China's commitment to steadying the stock market sparked heavy losses in Shanghai Tuesday, despite signals of a housing recovery and the central bank's latest steps to keep cash from fleeing.

Recovery in U.S. housing market drives Home Depot sales beat

(Reuters) - Home Depot Inc , the world's No.1 home improvement retailer, reported a better-than-expected rise in quarterly same-store sales, helped by increased home remodeling activity in the United States and a recovery in the housing market.

Liquidity During Flash Events

by Liberty Street Economics

-- this post authored by Ernst Schaumburg and Ron Yang

Second in a five part series. "Flash events," extremely large price moves and reversals over just a few minutes, have occurred in some of the world's most liquid markets in recent years. What's made these events remarkable is that they seem to have been unrelated to any discernable fundamental economic news that may have taken place during the events. In this post, we consider a few of the important similarities and differences among three major flash events in the U.S. equities, euro - dollar foreign exchange (FX), and U.S. Treasury markets that occurred between May 2010 and March 2015. All three flash events involved high trading volumes and long-term impacts on depth, but the U.S. Treasury event stands out in terms of both price volatility and price continuity.

Frontrunning: August 18



China stocks slump 6 percent on fears of further yuan depreciation (Reuters)

U.S. Lacks Ammo for Next Economic Crisis (Hilsenrath)

Emerging Markets Extend Slide as Commodities Fall; Pound Jumps (BBG)

China yuan to move both ways, more 'adjustments' unlikely: central bank economist (Reuters)

Playing Chinese markets is as simple as 'follow the leader' (Reuters)

PBOC Injection Shows China Worries About Outflows (WSJ)

Russia Fails to Soothe Oil Concerns as Citi Joins Ruble Bears (BBG)

A Condom Maker Could Be a Big Winner From the Plunge in the Ringgit (BBG)

World's Biggest Currency Trade Is Stuck in a Fed-Induced Rut (

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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