Day Traders Diary

8/18/16

The stock market has endured a sleepy first half of trade as the S&P 500 (UNCH) traverses a narrow six-point trading range. Today's action has been dominated by softening in the dollar, which has acted as a tailwind for dollar-denominated commodities. In addition, cautious comments from influential fund manager Paul Singer may have contributed to the range-bound action.

The major averages began the day on a choppy note as mixed economic readings from overseas resulted in split performances from global markets. Japan's Nikkei (-1.6%) underperformed after Japan's trade balance report for July disappointed. The report featured a 14.0% year-over-year decline in exports and a 24.7% year-over-year decline in imports. Conversely, a stronger-than-expected reading of July retail sales out of the U.K. contributed to an advance in European bourses and a bid in the pound.

The U.S. Dollar Index (94.32, -0.40, -0.43%) trades near a session low as investors continue to dial back rate hike expectations after yesterday's dovish interpretation of the FOMC minutes from the July meeting. The minutes indicated that Federal Reserve officials were split on whether or not an interest rate hike would be appropriate in coming months. The committee agreed that economic data and labor markets showed improvements, but the potential sustainability of hiring and consistently weak inflation readings worried some members. 

New York Fed President and FOMC voter William Dudley was unable to spur forward rate hike expectations when he echoed somewhat hawkish remarks from earlier in the week. The Fed President stated that two strong months of employment data helped offset prior concerns regarding the labor market. Investors will hear from San Francisco Fed President Williams (non-FOMC voter) and Dallas Fed President Kaplan (non-FOMC voter) at 16:00 ET and 20:00 ET, respectively.

The benchmark index trades in the lower end of today's trading range, finding resistance near the 2186 price level and support near the 2180 area. Six sectors currently trade in the red with consumer discretionary (-0.2%), financials (-0.2%), and telecom services (-1.4%) acting as noticeable laggards. Conversely, utilities (+0.8%) and energy (+1.2%) top the leaderboard. 

The commodity-sensitive energy space (+1.2%) bolsters the broader market, enjoying a 2.8% ($48.10/bbl; +$1.31) gain in crude oil futures. The pipeline sub-group outperforms in the sector as Kinder Morgan (KMI 22.40, +0.65) rallies 3.0%. The name was upgraded to "Overweight" from "Equal-Weight" at Morgan Stanley. Dow components Exxon Mobil (XOM 88.45, +0.34) and Chevron (CVX 102.92, +0.70) sport more modest gains, rising 0.4% and 0.7%, respectively. 

In the consumer staples space (+0.1%), Wal-Mart (WMT 73.99, +1.06) trades higher by 1.5% after beating bottom-line estimates for the quarter. The Dow component also topped comparable store sales estimates and raised its full-year guidance.

The industrial sector (-0.1%) trades behind the broader market as heavily-weighted Caterpillar (CAT 83.12, -1.28) weighs on the sector. The name has declined by 1.5% after disappointing investors with its July world total machine retail sales. The company announced that sales fell 19.0% over that period, which follows a 12.0% decline in June.

The influential technology sector (-0.1%) trades beneath its flat line as Cisco Systems (CSCO 30.26, -0.46) underperforms. The stock has declined by 1.5% as investors weigh a bottom-line earnings beat against disappointing first-quarter revenue guidance. The tech giant also announced that it would eliminate up to 5,500 positions, totaling approximately 7.0% of its global workforce.

Treasuries trade on a higher note with the short-end of the curve enjoying a decent bid. The yield on the 2-yr note has slipped two basis points to 0.71%. The yield on the benchmark 10-yr note has ticked lower to 1.54% (-1 bps).

Today's economic data included weekly initial claims, the Philadelphia Fed Survey for August, and Leading Indicators for July: 

• Initial claims for the week ending August 13 slipped to 262,000 (Briefing.com consensus 265,000) from last week's unrevised level of 266,000.
  • The key takeaway from the report is that it will feed expectations for another month of strong nonfarm payrolls gains.
  • Continuing claims for the week ending August 6 jumped 15,000 to 2.175 million.
• The Philadelphia Fed Index for August produced a positive surprise, checking in at 2.0 (Briefing.com consensus +0.6) after a negative 2.9 reading in July.
  • The key takeaway from this report, though, is that it wasn't as positive as it appears at first blush considering higher prices, versus new order activity, drove the strength.
• The Conference Board's Leading Economic Index for July increased 0.4%, as expected by the Briefing.com consensus estimate, on top of an unrevised 0.3% increase in June.
  • The key takeaway from this report is that the increase was a broad-based affair. Only one index component -- average consumer expectations for business conditions -- made a negative contribution (-0.05 percentage points).

For further detail on these economic releases, be sure to visit Briefing.com's Economic Calendar page.