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28Jul2017 Market Close: Wall Street Reacts Negatively To Poor Earnings Reports From 'high-fliers', Internal Cracks Are Showing In The Market - Low Volume Highs, Crude Prices Keep Edging Upwards And The US Dollar Is Slipping

Written by Gary

US stock markets closed lower (SPY -0.1%) except for the DOW that kept on setting new historic highs up to the last few minutes of the session. ...

Todays S&P 500 Chart

... Nasdaq and the SP 500 slipped on investor profit-taking investor reactions to earnings reports from Amazon, Exxon, Starbucks and a drop in shares of tobacco companies.

The Market in Perspective

Here are the headlines moving the markets.

Amazon everywhere: E-commerce titan is topic companies can't avoid

NEW YORK (Reuters) - What looms over businesses as far flung as car repair, lab equipment and swimming pool gear? In a word, Amazon.

Exclusive: Wells Fargo planned to eventually tell public about auto insurance problems - executive

NEW YORK (Reuters) - Wells Fargo & Co began examining the way its auto lending unit enrolled borrowers into insurance policies a year ago, but did not plan to disclose problems it uncovered until it was ready to issue reimbursements to affected customers, its head of consumer lending told Reuters on Friday.

Exclusive: Congress asks U.S. agencies for Kaspersky Lab cyber documents

LAS VEGAS (Reuters) - A U.S. congressional panel this week asked 22 government agencies to share documents on Moscow-based cyber firm Kaspersky Lab, saying its products could be used to carry out "nefarious activities against the United States," according to letters seen by Reuters.

S&P 500 knocked lower after earnings wave

(Reuters) - The S&P 500 slipped on Friday on negative reactions to earnings reports from high-profile names such as Amazon, Exxon and Starbucks and a drop in shares of tobacco companies.

Tesla climbs as Musk prepares to hand over first Model 3 cars

SAN FRANCISCO (Reuters) - Shares of Tesla Inc rose nearly 1 percent on Friday ahead of a handover to customers of its first Model 3 sedans, the electric cars that Chief Executive Officer Elon Musk is betting will propel his company into the mass market.

U.S. economy speeds up in second quarter, wages continue to lag

WASHINGTON (Reuters) - The U.S. economy accelerated in the second quarter as consumers ramped up spending and businesses invested more on equipment, but persistent sluggish wage gains cast a dark shadow over the growth outlook.

Google, Facebook show power of ad duopoly as rivals stumble

SAN FRANCISCO (Reuters) - Quarterly results from Alphabet Inc and Facebook Inc provided fresh evidence this week that the digital advertising market is effectively a duopoly, a dynamic with deep implications for two of Silicon Valley's titans.

Exxon Mobil profit disappoints Wall Street, Chevron shines

HOUSTON (Reuters) - Exxon Mobil Corp posted a rare earnings miss on Friday, the only international oil producer to do so last quarter, as production slipped in its African and Canadian operations.

Senator Warren calls on Fed to remove Wells Fargo board members

WASHINGTON (Reuters) - U.S. Senator Elizabeth Warren called on Federal Reserve Chair Janet Yellen to remove members of Wells Fargo & Co's board after revelations the company improperly charged customers for auto insurance.

A Minneapolis Mayoral Candidate Wants To Strip The Police Of Their Guns

Authored by Carey Wedler via TheAntiMedia.org,

Amid several high profile police brutality cases in Minneapolis, a mayoral candidate in the twin cities is advocating stripping the majority of police officers of guns in their routine patrols.

Local Fox affiliate KMSP reports that Raymond Dehn, currently a state representative, does not want to completely disarm the police, but rather, limit their free access to guns at all times.

"I'm not saying they don't have access to that, just like they have access to more lethal weapons in their cars, I would believe they would still have access to their guns in their cars," said Dehn. He still advocates the use of night sticks and pepper spray.

Dehn's position follows the recent acquittal of former St. Anthony, Minneapolis officer Jeronimo Yanez, who shot and killed Philando Castile last year and was paid $48,000 to leave the force. Just this month, an Australian woman was shot and

Goodyear Having A Bad Year: GT Stock Deflates Following Abysmal Outlook For New Car Volumes

For those among our reader base holding out hope that recent weakness in new car volumes was nothing more than a temporary blip in an otherwise healthy auto market, you may want to promptly ignore the awful earnings reported by Goodyear Tire and Rubber this morning, a key supplier to the auto OEMs and a critical leading indicator for overall industry volumes.

As Goodyear CEO Richard Kramer pointed out this morning, the company's 2Q earnings "played out much differently than we had expected" driven by weak OEM volumes, primarily in the U.S. and China, on the back of those inflated inventory levels that we've been harping on for so long (see "GM Reports Record "Channel Stuffing": Dealer Auto Inventory Highest Since June 2007"). Here is the CEO on this morning's call:

But the second quarter played out much differently than we had expected. We saw incremental weakness in the OE market, especially in North America and China. During the second quarter, auto manufacturing inventories remained well above normal levels in the US and China due to softer demand than underlying production.

We also saw incremental challenges in replacement, which I'll address in a moment. As a result, we reduced our full year US consumer OE industry outlook from about flat at the time of our first quarter call to down 4% to 5%. We continue to closely watch OE industry trends, particularly in China.

And third, the OE industry has weakened throughout the year, which added incremental pressure in the replacement market, particularly in the US. As I mentioned earlier, the industry is feeling the impact from a lower SAR ...

Foreigners Scramble To Buy US Debt Every Time Rates Rise

One of the persistent questions in 2017, has been how - with equities at all time highs - are Treasurys and other corporate bonds so strongly bid, and why is the 10Y still trading at a level that is more suggestive of a deflationary slump than an economic rebound.

The answer it turns out, is to be found offshore, and was especially visible the day before the Fed's unexpectedly dovish Wednesday statement, when yields and spreads blew out.

As Bank of America's credit strategist Hans Mikkelsen wrote in a Thursday note, when he observed the sharp move higher in yields and subsequent collapse at 2pm on Wednesday, "note the big rebound in net dealer-to-affiliate volumes following the recent notable increase in interest rates (Figure 3) - especially in the back end (Figure 4)." What the charts below show is the relative interest by offshore traders to buy (negative number) or sell (positive) US debt. What is most notable is that on the day yields and spreads spiked, so do foreign buying. In fact, in the total debt bucket, foreigners bought the most debt in the past year.

Some additional info on the charts above: Figure 3 shows the overall daily dealer-to-affiliate volumes while Figure 4 show a subset of this data. In particular Figure 4 shows net dealer-to-affiliate volumes for longer maturity (12+ years) bonds.

A note also also on Thursday by UBS confirms as much. According to UBS' Matthew Mish, "the critical marginal source of demand for US corporate debt has been non-US investors, primarily out of Japan, Asia as well as Europe. As we outlined previously they have accounted for nearly 40% o ...

368 Trillion Reasons Why the Fed Won't Let Rates Normalize

Many commentators are baffled as to why the Fed has suddenly reversed course. Throughout 2017 the Fed has talked repeatedly about raising rates several times as well as shrinking its balance sheet.

Then in the span of a single month, the Fed just about dropped all of this. Fed Chair Janet Yellen, speaking to Congress, confessed that the Fed is just about done with rate hikes and that any balance sheet reduction will NOT be used to drain liquidity from the system.

What happened to cause this change?

The bond market went into revolt with yields on the 10-Year Treasury breaking out of a major downtrend.

Why does this matter?

Globally the world has tacked on some $68 TRILLION in debt since 2007. All of this has been issued based on the assumption that interest rates would remain LOW.

Put simply, if 2007 marked a large debt bubble, today's bubble is significantly larger with global Debt to GDP now at 327%. In this context, any rise in bond yields (meaning bond prices are falling) represents a systemic threat.

On top of this, there are over $368 TRILLION in derivatives that trade based on interest rates. Over $100 trillion of these are on US bank balance sheets.

Source: Bank of International Settlements.

Which is why the Fed has completely given up on hiking rates and is going to let inflation continue to percolate in asset classes.

This is going to send Gold and other inflation hedges THRO ...

The Great Transatlantic Bond Divergence Unwind

For more than two decades after the fall of the Berlin Wall, U.S. and German bonds were like soldiers marching in step. That changed a few years ago, but signs are for this important trade to reassert itself.

Where There's Smoke There's Fire for Tobacco Stocks

Curbs on nicotine could be disastrous for tobacco stocks such as Altria, and the dip after the news doesn't make the stocks cheap enough to represent a buying opportunity.

More of the Same Ain't So Bad for Economy

GDP growth brings the average for the first half to 1.9% which, while far from exciting, is par for the course and leaves the economy far from recession.

'Game of Thrones' science: Let's take a closer look at that greyscale

The good doctor examines the greatest debridement ever depicted on TV.

Comcast is trying to win over millennials with new streaming service

Xfinity Instant TV joins Sling TV and DirecTV Now in the race for younger viewers.

Market Extra: Wall Street isn't ready for a 1,100-point tumble in the Dow industrials

The U.S. stock market is on such a parabolic march higher that Wall Street investors may have forgotten what a typical daily downturn feels like anymore.

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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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