Yesterday, the S&P closed down 1% (12% for 2Q) and seven of the last eight days. Overnight China reported that its June Purchasing Managers Index dropped to 52.1 vs. 53.9 last month; overnight the Chinese market closed down 1% and is now down 27.5% year-to-date. The Chinese equity market has now declined for seven straight days.
On the MACRO front, the disappointing ADP Employment report is helping to confirm our thesis that the consumer is being DUPE(d). DUPE(d) is my view of the consumer for 2H10 where trends are starting to roll over with the growing potential for a double dip, unemployment staying high, prices paid by the consumer going up and equity and real estate prices going down. The June ADP numbers increased 13,000 vs. consensus 65,000 and upwardly revised prior 57,000; the June number is the smallest gain since February.
The MBA weekly Purchase Application Index released yesterday fell 3.3%, bringing June-to-date to 86.1 (versus April at 123.2 and May at 101.0). With just a few days left in the month, June is tracking to be down 30% versus April. According to the Hedgeye Financials team “We track Purchase Applications as a leading indicator of home sales activity, and continued lack of improvement in this metric is troubling, as 2010 YTD continues to be in line with a 1997 level of demand. This abysmal level comes despite the lowest mortgage rates since the inception of the MBA survey.”
Treasuries were mixed with the long end outperforming. The dollar index closed at $86.01, trading flat on the day and the Hedgeye Risk Management models have the following levels for the USD – Buy Trade (85.30) and Sell Trade (86.59). The VIX moved higher by 1% on the day and surged 100% in 2Q10. The Hedgeye Risk Management models have the following levels for the VIX – Buy Trade (36.66) and Sell Trade (39.90).
The Euro moved higher by 0.4%, and is rallying in early trading today. The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade ($1.22) and Sell Trade ($1.24).
All nine sectors declined yesterday with the worst performing sectors being Technology (XLK -1.5%), Consumer Discretionary (XLY -1.2%) and Financials (XLF -1.2%)
Despite big issues surrounding the RECOVERY trade the Industrials (XLI) was one of the best performing sectors. One of the highlights was Ford up 2.0%; Ford announced actions to reduce debt by $4B. The S&P Airlines Index traded flat on the day.
In the second quarter, copper declined 17% creating a bearish formation for global growth. The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.85) and Sell Trade (2.98).
The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,228) and Sell Trade (1,258).
Crude oil fell for a fourth day - the longest losing streak in seven weeks - as concern the economic recovery in the U.S. and China will continue to slow. The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (75.03) and Sell Trade (77.31).
As we look at today’s set up for the S&P 500, the range is 61 points or 1.2% (1,018) downside and 4.7% (1,079) upside. Equity futures are trading below fair value. Today's MACRO highlights include US Initial Jobless Claims, ISM manufacturing at and Pending Home sales.