Stocks Explode on Bad News

 

Europe news is awful.

 

Even U.S. economic news is bad.

Durable "Miss" Sends Stocks Red, But Wall St Will Have None of It!

Wall St is already starting to shrug off this latest bad news report and rally stocks. 

from Zero Hedge:

June durable goods just came at a very disappointing -2.1% on expectations of an increase to 0.3%, from 1.9% in May... Bloomberg's Joseph Brusuelas: "decline in transportation bookings, incl. 28.9% drop in non-defense aircraft orders." And that's not all: "Non-defense ex-aircraft, proxy for capex, points to slower growth in coming qtr." This means that as expected not only is Q2 GDP trending now much lower, possibly below 1%, but the weakness is starting to spill over into Q2 data. As AP reports, "Manufacturing has been the stellar performer in the two-year-old recovery. But activity slowed in the spring, reflecting in part supply disruptions following the March earthquake and tsunami in Japan. Manufacturing was also hurt by the hit the overall economy took from higher energy prices which dampened consumer demand."

Universal Disapointment

Durable goods ex-transportation and factory orders data both disappointed the market this morning. Stocks, after a brief spike on the durable goods including transportation, have since sunk to near the lows of the day.

Durable Disappointment

Kudos to Tyler Durden at Zero Hedge:

At this point there is no need to even highlight the stagflationary crunch the US economy has entered, although the just released Durable Goods number seals the deal: -3.6% on expectations of -2.5%, an 8% revised swing M/M! Ex transportation -1.5% with consensus of +0.5% (down from 1.3%). Q2 GDP now trending sub 2%. Absent the BOJ flooding the market with trillions of fresh Yen, QE3 is now inevitable.
From the report:

New orders for manufactured durable goods in April decreased $7.1 billion or 3.6 percent to $189.9 billion, the U.S. Census Bureau announced today. This decrease, down two of the last three months, followed a 4.4 percent March increase. Excluding transportation, new orders decreased 1.5 percent. Excluding defense, new orders decreased 3.6 percent. Transportation equipment, also down two of the last three months, had the largest  decrease, $4.9 billion or 9.5 percent to $46.7 billion.

This even with the now default increase in inventories (which will be liquidated eventually: thank you FIFO/LIFO).

Inventories of manufactured durable goods in April, up sixteen consecutive months, increased $3.2 billion or 0.9 percent to $350.5 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 1.7 percent March increase. Transportation equipment, also up sixteen consecutive months, had the largest increase, $1.0 billion or 1.0 percent to $106.1 billion. This was also at the highest level since the series was first published on a NAICS basis in 1992 and followed a 2.4 percent March increase.

From SMRA:

April new durable goods orders were reported down 3.6%, following a revision higher to up 4.4% in March (previously +4.1%). This was near our forecast for down 3.5%. Expectations in a Bloomberg survey centered at a 2.5% decrease. The range was from down 5.7% to up 2.0%. While the decrease is fairly substantial, it needs to be taken in context with supply chain disruptions that had an impact on new orders for a variety of manufactured goods, but particularly for the manufacture of motor vehicles. Also, new orders typically seesaw between up and down months, and this appears to be the case for April.

Transportation orders fell 9.5% in April. Orders for motor vehicles and parts were down 4.5%, and civilian aircraft orders dropped 30.0%. Boeing had a scant two new orders in the month. However, as we noted in our Chart of the Day on May 6, it is not unusual for the number of orders for aircraft to be low in the months in advance of an airshow, and then jump in the week of the show and for a few weeks afterward. The last major airshow was at Farnborough in July 2010, so there may be some pent-up demand to which to look forward.

And so forth. There is no way to spin the data. In other news, the Japanese earthquake may after all end up not being beneficial to global GDP.

Durable Drubbing!

But at least earnings were good this morning.

WASHINGTON (MarketWatch) — Orders for U.S. durable goods in February posted the biggest drop in four months, largely because of lower sales of heavy machinery and defense-related products, government data showed Thursday.
The Commerce Department said new orders for U.S.-made products designed to last three years or more fell 0.9%. Monthly orders minus the volatile transportation sector dropped 0.6%.
Economists surveyed by MarketWatch had expected orders to rise by 1.5% overall and by an even stronger 2.5% minus transportation.
Orders have now declined in four of the past five months, suggesting some hesitancy on the part of businesses to continue to expand until they see further strengthening of the U.S. economy.
“February’s U.S. durable goods orders report is unequivocally bad,” said Paul Ashworth, chief U.S. economist of Capital Economics.
The biggest decline for February occurred in orders for machinery, which fell 4.2% to $26.6 billion. Also, orders for major defense items sank 24.8% to $8.3 billion.
Another category of orders closely watched by economists, known as core capital goods, dropped 1.3% on the heels of a 6.0% decline in January. That category excludes defense and transportation and gives a better indication of longer-term trends in the private sector.
After the report was issued, Morgan Stanley and Bank of America Merrill Lynch were among several firms that cut their economic forecasts for first-quarter U.S. growth. They now expect the economy will grow between 2.2% and 2.5%, below the current MarketWatch consensus of 3.1%.
The disappointing data will focus even more attention on next month’s durables report. What’s been a prolonged surge in the manufacturing sector would seem to indicate that the recent decline in orders is a temporary lull — but another poor report could renew worries over whether the fragile U.S. recovery is weakening.
“For now, we will put a heavy discount factor on the durables data, but we will be watching the March report with keen interest,” economist John Ryding of Conrad DeQuadros wrote in a report.
The durable-good reports also appeared to be discounted by investors. U.S. stock markets opened higher in Thursday trading, with the Dow Jones Industrial Average (DOW:DJIA)  extending Wednesday’s gains.

More durables data

The biggest bright spot in February: orders minus defense rose 0.4%, marking the second increase in a row after three straight declines. Government purchases of defense products are uneven and can sometimes distort the data.
Shipments of durable goods, meanwhile, rose 0.3% last month, following a 0.2% increase in January.
Shipments of core capital equipment goods, which the government uses to help calculate gross domestic product, rose 0.8% in February.
Inventories of durable goods climbed 0.9% last month, the 14th consecutive increase.
Orders for January, meanwhile, were revised up to a 3.6% increase. The government originally reported that total orders rose 3.2% on the month.

Unemployment Improves, Capital Goods Doesn't

from Zero Hedge:

"...while the employment picture was better than expected, the capital goods data was a total disaster: January US Capital Goods orders non-defense ex. aircraft plunged by -6.9% M/M on expectation of just a -1.0% drop (Prev. 1.4% Rev. 4.3%). And just excluding Transportation, durable goods collapsed by 3.6% on expectations of a 0.5% increase. Time for those downward GDP revisions."

Strike 2: Durable Goods Disappoints

Fox Business:

New orders for U.S. manufactured goods fell unexpectedly by 2.5% in December, a government report showed on Thursday.

When volatile transportation orders were stripped out, durable goods orders rose 0.5%, the Commerce Department said, though this was a smaller rise than expected.

Mixed News on Choppy Trading Sends Stocks Rocketing Higher

Significant drop in unemployment claims appears to be the main driver, but previous weeks' figures continue to be revised higher. All the other news is really awful. Home sales plunged and so did durable good orders. But consumer sentiment rose, perhaps due to the results of elections. Wall Street is thrilled on thin pre-holiday trading.

Turbulent Day for Stocks

Durable goods was up 3.3%, but only in the transportation sector. Everything else was down 0.8%.

Existing home sales were up 6.6%, a good showing.

But stocks are down for worries over QE2, Fed over-reach, P&G and Whirlpool earnings,

More Housing Bad News Sends Dow Below 10,000

Wall Street's economic jitters hit new levels on Wednesday as new data revealing anemic growth in durable goods orders and a record low for July new home sales combined to send the Dow below the psychologically-important 10000 threshold.

re:Housing at Marketwatch:

WASHINGTON (MarketWatch) -- Sales of new homes in the United States fell to all-time record low in July, as demand from consumers has dried up after tax breaks for homebuyers expired in April, the Commerce Department estimated Wednesday.

Sales dropped 12.4% to a seasonally adjusted annual rate of 276,000 in July, from a downwardly revised 315,000 in June.
The report was weaker than expected, with economists surveyed by MarketWatch expecting a slight increase to 339,000 annualized.
"The report shows the housing industry is still nursing a bad hangover," said Mitchell Hochberg, principal at Madden Real Estate Ventures in New York, in an e-mail.
"With shadow inventory, rising foreclosures, little job growth and more stringent access to credit, weak sales will persist and the industry's headache will linger," he said.
U.S. stocks retained losses after the report was released, with the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (DJIA 10,006, -34.70, -0.35%) down 56 points in morning trade.

re: Durable Goods at Fox Business:

New orders for long-lasting U.S. manufactured goods rose far less than expected in July and, excluding transportation equipment, posted their largest decline in 1-1/2 years, according to a government report on Wednesday that pointed to a slowdown in manufacturing.

The Commerce Department said durable goods orders rose 0.3% after a revised 0.1% fall in June. Excluding transportation, orders dropped 3.8% -- the biggest fall since January 2009 -- after rising 0.2% in June.

Analysts polled by Reuters had forecast orders increasing 2.8% last month from June's previously reported 1.2% fall. Orders excluding transportation had been forecast to increase 0.5% from a previously reported 0.9% fall.

Durable Goods Turns Bad

Demand for U.S. manufactured durable goods slid in June for a second consecutive month in another sign the manufacturing sector expansion is slowing.

Durable-goods orders fell by 1% to a seasonally adjusted $190.5 billion, the Commerce Department said Wednesday. Economists surveyed by Dow Jones Newswires expected a 1.1% gain.

The decline was mixed, with some categories of goods in the report rising and others falling.

Al Erian: This Stock Rally Is a Sugar High

PIMCO CEO Mohamad Al Erian said this morning that this stock market rally is on a sugar high, ginned up by artificial monetary stimulus. He predicts that stocks will eventually come of the high. This is interesting, because despite a very positive headline for durable goods orders this morning, stocks didn't rally. Have we priced in too much good news?

Durable Goods Worse Than Expected

It is interesting to me how Bloomberg portrays this "worse-than-expected" report as "good news":

July 29 (Bloomberg) -- Orders for U.S. durable goods fell more than forecast in June, depressed by declines in demand for volatile categories including automobiles, aircraft and defense equipment that overshadowed gains elsewhere.

The 2.5 percent drop in bookings for goods meant to last several years was the first decrease in three months and followed a 1.3 percent increase the prior month, the Commerce Department said today in Washington. Excluding transportation equipment, orders unexpectedly climbed 1.1 percent, the most in four months.

The figures used to calculate economic growth showed companies were planning to boost investment in coming months, adding to evidence the worst recession in five decades was starting to ease. Caterpillar Inc. is among companies seeing steadier demand as government stimulus plans here and abroad start to kick in, signaling an economic recovery is in sight.

``Manufacturing is still weak, but the weakness is abating,'' said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. ``We should see orders turning up in coming months, specially now with auto production ramping higher. That would set the stage for an upturn in business investment and an economic recovery.''

Economists expected a 0.6 percent drop in orders, according to the median of 73 forecasts in a Bloomberg News survey, after a previously reported 1.8 percent gain in May. Estimates ranged from a decline of 2 percent to a gain of 2 percent.

Excluding transportation equipment, orders were forecast to be unchanged, according to the Bloomberg survey. Commerce revised the May figures in this category to show a 0.8 percent gain, down from the 1.1 percent increase previously reported.

Volatility in Transportation

Orders for transportation equipment were down 13 percent, with commercial aircraft dropping 39 percent. Plane bookings had jumped 60 percent in May.

Automobile demand dropped 1 percent after an 8.7 percent decrease in May, today's report showed. Factories at General Motors Co. and Chrysler Group LLC were closed for at least part of the month, worsening the slump in bookings for autos and parts.

Orders excluding defense equipment decreased 0.7 percent as bookings for military gear slumped 28 percent.

Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, climbed 1.4 percent after a 4.3 percent increase the prior month. Shipments of those items, used in calculating gross domestic product, rose 0.1 percent, the first gain since December.

Drop in Stockpiles

Ongoing inventory drawdown in manufacturing is setting the stage for future growth. Stockpiles fell at an $87 billion annual rate in the first quarter, the biggest drop on record, according to figures from Commerce. Companies cut inventories by 0.9 percent in June, today's report showed.

The economy will grow at an average 1.5 percent rate in the last six months of the year, according to economists surveyed by Bloomberg in the first week of July. That follows a projected 1.5 percent decline in the second quarter and a 5.5 percent rate of contraction in the first three months of 2009.

``The pace of decline appears to have slowed significantly, and final demand and production have shown tentative signs of stabilization,'' Federal Reserve Chairman Ben S. Bernanke told Congress last week.

Caterpillar, the biggest maker of earthmoving equipment, posted second-quarter profit that exceeded analysts' highest estimate and raised its full-year forecast, saying stimulus programs are starting to support global demand.

``We are seeing signs of stabilization that we hope will set the foundation for an eventual recovery,'' Chief Executive Officer Jim Owens said in a statement July 21. ``Fiscal policy and monetary stimulus have been introduced around the world, and we are seeing signs, particularly in China, that they are beginning to work.''

It's a Rally!

Stocks rallied, breaking a losing streak that brought us to the dynamic support level of the lower Bollinger Bands. Improved durable goods orders are given much of the credit.

from Reuters:
An unexpected jump in U.S. durable goods orders last month backed hopes that the economy was healing, but news from the hard-hit housing market remained mixed.

New orders for long-lasting U.S. manufactured goods rose by a much stronger-than-expected 1.8 percent in May, Commerce Department data on Wednesday showed.

Analysts polled by Reuters had forecast durable goods orders would decline 0.6 percent last month.

May's increase, the third gain in 4 months, followed a revised 1.8 percent gain in April.

U.S. stocks opened higher after the much durable goods data, while U.S. government bond prices fell, although trading was also somewhat overshadowed by a Federal Reserve policy statement due later.

"The economy is bottoming here, and we're looking for the Fed to maybe change its statement slightly and maybe start to suggest a more neutral balance of risk. A nod, basically, to an exit strategy," said Kim Rupert at Action Economics LLC in San Francisco.

The Fed is due to deliver its policy decision about 2:15 p.m. EDT. It is expected to leave interest rates unchanged in a range between zero and 0.25 percent, and many economists think it will lean against rate hike speculation by emphasizing they will stay low for an extended period.

Durable Goods: Good or Bad, Depending on Who Spins It!

I've noticed that the media spins the durable goods numbers this morning in different ways. Interesting! From what I've read, it was about as expected, but hovering near record lows! The spin-meisters are suggesting that this is good news because it was "as expected", but the fact that durable goods remains at terrible levels suggests that things are still very bad! I've learned to be a skeptic of all news reporting!

Bloomberg usually has a relatively even-handed approach to the numbers:

Durable-goods orders hovered near a 13-year low and the number of Americans collecting unemployment insurance reached a 17th straight record, offering no sign of an imminent rebound from the worst U.S. recession in half a century.

Orders rose 1.9 percent in April after a 2.1 percent drop in March that was more than twice as large as previously estimated, the Commerce Department said in Washington. Meanwhile, the Labor Department said 6.79 million people are collecting jobless benefits, and another report showed new-home sales were lower than forecast in April.

Stocks Surge on Durable Goods, New Home Sales

Stocks surge as waves of U.S. economic data — featuring durable-goods orders shock and new-home-sales pickup — inspire recovery hopes. Durable goods tends to be very erratic, but the number was so good that it can't be ignored. However, many traders are extremely skeptical that they data is accurate. The January figure was revised sharly downward, and others have suggested that the durable goods pick-up may be due to tax refunds being spent.

U.S. sales of newly constructed housing jump nearly 5%, bouncing back from January's record low. New home sales should be good this time of year. Spring is when home sales tend to pick up anyway, but it all may be due to seasonal factors. The government data refers to "seasonal adjustments". To me, that says that the numbers are doctored.

Stocks Begin to Fall Further, Faster on Housing, Durable Goods Data

Data showing surprising deterioration in the housing sector and in durable goods orders has pummeled stocks today, reversing most of yesterday's rally in a grinding fashion that is somewhat difficult to trade.

Bloomberg said this:

Prospects for an economic recovery this year dimmed after reports today showed new-home sales collapsed, durable-goods orders slumped and a record number of Americans collected unemployment benefits.

“There really isn’t any hiding place in this economy,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

Here is the full story.

Renewed Economic Vigor Causes Money Flows Out of Treasuries

As commodity prices have rise today, treasuries have sold off. The increased vigor of the U.S. economy, as demonstrated in today's data releases of consumer confidence and durable goods, have caused traders to sell treasuries in favor of other assets, including both equities and commodities.

Fresh High for Gold, Commodities Follow Suit

While it seems a bit cliche by now, gold has reached another new high overnight. Perhaps the broader story is that with monetary easing appearing to continue for some time, commodity prices are reinflating rapidly (see the second chart, a daily one of corn). Perhaps this is at least in part due to the better prospects for the U.S. economy, based upon improved data releases today of consumer confidence and durable goods orders, and the higher demand pressures that those improved conditions will create. Even crude oil has rebounded more than $5.00 per barrel from its most recent low prices.