U.S. stocks followed overseas bourses lower on Tuesday, but closed above the intraday low thanks to a late-session rally.   European stock indices all declined, but the most selling occurred within emerging markets; that’s what pared the risk trade.  

A slide in Indian and Thai stocks led most Asian markets lower as India’s central bank raised their benchmark interest rate more than expected – and consider that China, the other main engine of growth for the region, is tightening policy too. 

Also affecting investor sentiment were remaining concerns over the EU debt situation, potential retaliation after taking out bin Laden and rising MENA tensions (not the uprisings but the latest rhetoric between Israel and Iran and Egypt’s new leadership establishing ties with Hamas).

Telecom, utilities, financials and consumer staples closed the session higher.  Energy, basic material and consumer discretionary shares were the biggest losers. 

Commodity prices pulled back yesterday as the U.S. dollar gained ground (just a little ground but any upside is meaningful following two-straight weeks of decline).  The Dollar Index rose to 73.23 due to the paring of risk that occurred yesterday.   To illustrate the risk-off trade, yields across the Treasury curve fell, with the 12-month T-bill yield falling to a record low of 0.173%.   

The CRB Index was pushed lower by precious metals, energy, hogs and corn.  The price of crude has engaged in a two-day pullback reminiscent of the one that occurred in mid April when it slid from $112/bbl to $106.  This one is milder though, $114 to $111.  Wholesale gasoline dipped to $3.33/gallon from $3.47on Friday, and is down a bit more this morning.  Unfortunately, we may not see any relief at the pump as the rate of increase at the retail level has lagged the heretofore jump in wholesale prices – which is why instead of falling this morning, the national average retail price continues to rise ($3.98 this morning). 

Market Activity for May 3, 2011

Sector Activity for May 3, 2011

Factory Orders

The Commerce Department reported that all factory orders (both nondurable and durable) rose 3.0% in March -- besting the +2.0% expected.  Excluding transportation, orders rose 2.6%. 

The main reason to watch this report is because it provides the revision to the durable goods orders report – the durable report precedes the factory orders release by roughly a week.  And durable goods orders were revised up in this report, rising 2.9% in March after originally being reported at +2.5%).  Excluding transportation, durable orders rose 1.8% after initially estimated at +1.3%.

The very important business spending proxy (non-defense capital goods orders ex-aircraft) was also better-than-originally expected, up 4.1% instead of the 3.7% expected last week.

However, this component has slowed of late, which the GDP reports have shown as these shipments have cooled from a 25% annual rate a couple of quarters back to the latest 11% rate via the Q1 report.  So while business spending orders rose 4.1% in March, for the last three reporting months they are down 1.8% at an annual rate (the first three-month annualized decline since May 2009).  That means the shipments data, which flows into the GDP report, will challenge the business spending component of GDP during the current quarter if these orders fail to print a good number for April. 

Vehicle Sales

U.S. total vehicle sales rose 17.7% to 1.154 million in April from the year-ago period.  On a seasonally-adjusted annual rate (SAAR) basis, U.S. vehicles sales hit 13.14 million. 

While the April SAAR figure is 27% below the 1995-2007 average, 13 million in vehicle sales is a high number considering we’ve got 9% unemployment, 44 million Americans on EBT cards (today’s food stamps) and 19 million homeowners are either 90 days late on their mortgage, in foreclosure, are underwater on their mortgage, or have less than 5% equity. 

Further, even as low interest rates and easier credit conditions are sparking sales, it’s just funny how so many people rush to buy cars when the prices on many vehicles make very little sense, in my opinion. 

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Have a great day!

Brent Vondera, Senior Analyst