Freaky Friday's Global Stock Decline

The stock decline could get freaky Friday, with the S&P 500, Dow Jones Industrials and the NASDAQ each lower by a half point in the early going. My concern about the close is due to the extraordinarily poor economic data from China today, which has most markets lower. The only support is on central bank hopes and prayers, but that seems to be enough for traders to play with for now. The SPDR S&P 500 (NYSE: SPY) is off 0.4% in the early going.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Freaky Friday

Overseas Drivers
Again it’s Chinese economic data driving Asia and global shares. Five separate data points served to shock Asian shares today, as exports, imports, retail sales, industrial output and bank lending all disappointed in China. Chinese exports rose just 1.0% in July, year-to-year, comparing against June’s 11.3% pace. Economists were looking for 8% growth in Chinese exports, so there was no anomaly here, just plain softness. Weakness was pinpointed to Europe of course, and so those who have countered my argument that Europe would impact the Chinese must now explain themselves (I welcome that). China exports 20% of its total shipments overseas to Europe, just like we do. And, oh by the way, our data is deteriorating as well.

The export decline is having repercussions across the Chinese economy. Chinese imports increased 4.7%, against expectations for 7% and against June’s pace of 6.3%. New yuan lending of 540.1 billion compared against 919.8 billion in June, and was short of all forecasts by far. Industrial output slowed to a 9.2% pace, short of expectations. Retail sales increased by 13.1%, but that was also short of expectations. So, China is definitely slowing, and will burden our growth as a result. The iShares FTSE China 25 (NYSE: FXI) is looking at a deeply red day as a result; it’s down 0.5% so far.

International Markets

EUROPE	ASIA
EURO STOXX 50: -0.9%	S&P/ASX 200: -0.7%
FTSE 100: -0.3%	Hang Seng: -0.7%
DAX: -0.8%	Shanghai Shenzhen CSI 300: -0.5%
Athens ASE: +1.4%	NIKKEI 225: -1.0%

Greece said it would auction 3.125 billion euros of 3-month T-bills on August 14 in order to repay debt maturing this month. The bond being repaid is held by the European Central Bank (ECB). Greece expects to raise up to 5.0 billion euros by allowing extra non-competitive bids. One has to wonder if it will be the ECB again doing the buying. The Global X FTSE Greece ETF (NYSE: GREK) has recovered from this year’s lows but remains deeply depressed from its trading high in 2012.

U.S. Economic Drivers
The latest import and export price data found the wire Friday. Deflation can be discovered there, but after some panning. Export prices rose 0.5%, but it was all because of a 6.4% increase in agricultural pricing. Excluding agriculture, export prices fell 0.3% month-to-month and down 1.9% year-to-year. Economists had forecast a 0.1% decline in export prices according to Bloomberg’s survey. Import price deflation was easier to see, with prices dropping 0.6%, and when excluding fuel, declining 0.4%. The forecast for import prices was for a 0.2% increase, versus the revised 2.4% decrease in June. The data just confirms that demand drop-off is influencing pricing. It’s not a good thing, but a symptom of a greater problem.

At 2:00 PM, catch the latest monthly treasury budget data for July. The consensus view is for a deficit of $103 billion for the month. While July regularly produces a deficit, in June, the deficit ran at a smaller $59.7 billion. However, nine months into the government’s fiscal year, the deficit is down 6.8%. You might note more budget deficit discussion from President Obama and Mitt Romney today as a result. Commentary from Vice Presidential prospect Paul Ryan could prove insightful in that regard, given his championing of entitlement reform. Entitlement reform was one of Mitt Romney’s key areas of focus four years ago, but he’s backed off the topic a bit this time around.

Commodity Markets
Corn rose to a record in Chicago trading as speculation mounted ahead of a Department of Agriculture report on drought damage. The worst drought since 1956 could cut corn supply 16% short of the government’s July estimate, according to a Bloomberg survey. Corn is up 64% since June on such speculation, but I’m seeing it lower at this hour. We might have a sell the news scenario playing out at this point on the highly speculative market. The PowerShares DB Agriculture Fund (NYSE: DBA) is fractionally lower this morning.

WTI Crude Oil near-term contract futures are 1.1% lower at this hour, due to the day’s economic data. Concern of a demand drop-off will drive oil prices today, at least for starters. The iPath S&P GSCI Crude Oil TR Index (NYSE: OIL) is off 1.6% for starters. Gold futures and the SPDR Gold Shares (NYSE: GLD) are about unchanged so far today.

Corporate Drivers
J.C. Penney (NYSE: JCP) is trading up 9.6% as a steep sales decline led the company’s CEO to admit some mistakes in strategy implementation. The hope today is that there’ll be some adjustment to restore those sales and earnings. This sounds a lot like the advice I offered JCP one quarter ago.

Yahoo (Nasdaq: YHOO) shares are off 5.4% this morning, after the new CEO’s initiative to review the company’s business strategy via a regulatory filing.

Research in Motion (Nasdaq: RIMM) shares are 5.8% higher this morning on the rumor of IBM (IBM) interest in the company’s enterprise services business.

Manchester United (Nasdaq: MANU) raised just $233 million dollars in its initial public offering, as the famous soccer club cut its IPO price to $14, from the expected price range of $16 to $20. The shares are about unchanged today at roughly the same.

Monster Beverage (Nasdaq: MNST) is down 7.2% this morning after it said a state attorney general is investing the company’s advertising and ingredients of its flagship energy drink.

The corporate earnings wire has news from J.C. Penney (NYSE: JCP), Harman (NYSE: HAR), Celldex Therapeutics (Nasdaq: CLDX), Chesapeake Granite Wash Trust (Nasdaq: CHKR), China XD Plastics (Nasdaq: CXDC), China Yuchai International (NYSE: CYD), Heska Corp. (Nasdaq: HSKA), Highpower Int’l (NYSE: HPJ), HiSoft Technology (Nasdaq: HSFT), Hooper Holmes (NYSE: HH), Horizon Pharma (Nasdaq: HZNP), Houston American Energy (Nasdaq: HUSA), Merrimack Pharmaceuticals (Nasdaq: MACK), Recovery Energy (Nasdaq: RECV), Rentech (NYSE: RTK), Simcere Pharmaceutical (NYSE: SCR), Syntroleum (Nasdaq: SYNM), Unico American (Nasdaq: UNAM), Uranium Resources (Nasdaq: URRE), Warwick Valley Telephone (Nasdaq: WWVY), Xinyuan Real Estate (NYSE: XIN) and a few more.

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