Market Summary

{+++}Dow -16 S&P -1.7 NASDAQ -7.4
– More steep losses on the Shanghai Composite sparked softness in European trading and hit US equities before the bell this morning (note that the Shangahai Composite is now almost 20% off its early August highs). The leading US indices opened a bit below yesterday’s opening levels, although they have retested yesterday’s highs within the first hour of trading. Some commentators singled out Warren Buffet’s op-ed piece in the New York Times for adding to the overall risk aversion in global markets, as the Sage of Omaha wrote that “‚Ķunchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar’s destiny lies with Congress.” Yale Economist Robert Shiller was also out with his own predictions, telling CNBC that house prices would likely increase a sluggish 4% over next 5 years, but he is unable to rule out the possibility of another housing bubble. Crude, gas, copper and aluminum were down significantly heading into the New York session, although the front-month NYMEX contract is rebounding with strength following the unexpectedly large draw downs in stocks seen in weekly DoE inventory data. Bond prices opened up on a flight to safety bid but as stock prices have recovered Treasuries have given back some gains.

– Chinese metals traded limit down overnight, driving follow-on weakness in US mining and metal names. Steel, aluminum and copper names are all under pressure in early trading. Goldman Sachs Cuts AA to Neutral from Buy, insisting that increased supply will slow gains in aluminum market prices. AA is down 4% on the news.

– In earnings, HP was largely in line with the Street in its Q3 results and forward-looking guidance. HP’s CEO said that business is stabilizing and expressed his confidence that the company will be an early beneficiary of an economic turnaround. Nevertheless, he also said HP is not ready to say business conditions have turned the corner. John Deere outperformed on top- and bottom-lines in Q3, although the company also offered plenty of cautious guidance on its business for the final quarter of its FY, noting that Q4 equipment sales would still be -34% y/y, thanks to significant production cutbacks that are being made to match retail demand. BJ’s was a bit ahead of the Street and raised its full-year outlook by a hair. Executives said they saw positive membership trends in Q2, with renewals still tracking slightly ahead of plans. Shares of HPQ are down 2% and DE are down 4%. Shares of BJ spiked up nearly 4% after the open, before settling down to a modest +1%.

– Currency trading in the New York session initially looked ready to extend the risk aversion led by the yen as its advanced against the USD and European and commodity pairs. Early on USD/JPY moved below the 94 handle to make one-month lows while EUR/JPY approached the 132.10. However, a degree of calm returned with the US equity open, along with some retracement of the late Asian and European price action, with earnings from Deere driving away the initial sting. EUR/USD managed to cover from its earlier losses and hit fresh session highs of 1.4180 prior to the DOE crude inventory report. Note that the IFO’s Nerb commented that most German companies could handle a euro exchange rate at 1.40, but any level above 1.50 could be a “big problem.”

– The Swiss Franc was also on the radar of dealing desks. The U.S. government reached an final settlement of its tax tussle with UBS this morning and there was vague chatter of a central bank selling the EUR/CHF, along with speculation the Swiss government might start selling off its CHF 6B stake in UBS as the lockup period of its investment expired a while back. Dealers said the 1.5130 area in the EUR/CHF cross could be a critical sentiment level as it reflected both 30-week and 200-day moving averages.

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