U.S. equities began the holiday-shortened week solidly lower, as risk appetites were severely limited following this weekend's claim that North Korea detonated a hydrogen bomb and reports that it may be preparing another ICBM launch. Treasury yields fell sharply on the uneasiness and the US dollar lost ground, while gold rose and crude oil prices were mixed.
The Dow Jones Industrial Average (DJIA) tumbled 234 points (1.1%) to 21,753, the S&P 500 Index lost 19 points (0.8%) to 2,457, and the NASDAQ Composite declined 60 points (0.9%) to 6,376 In moderately heavy volume, 909 million shares were traded on the NYSE and 1.9 billion shares changed hands on the NASDAQ. WTI crude oil rose $1.37 to $48.66 per barrel and wholesale gasoline lost $0.05 to $1.70 per gallon. Elsewhere, the Bloomberg gold spot price was $8.10 higher at $1,341.97 per ounce, and the dollar index, a comparison of the U.S. dollar to six major world currencies, declined 0.5% to 92.21.
Dow member United Technologies Corp. (NYSE:UTX $111) announced an agreement to acquire Rockwell Collins Inc. (NYSE:COL $131) for $140.00 per share in cash and UTX stock, for a total equity value of about $23.0 billion. Under the terms of the deal, each COL shareowner will receive $93.33 per share in cash and $46.67 in shares of UTX. United Technologies said the deal is expected to be accretive to its earnings after the first full year following closing. UTX finished lower and COL ticked higher as the stock had jumped recently on speculation of the deal.
Insmed Inc (NASDAQ:INSM $27) surged nearly 120% after the company announced positive results from a late-stage trial of its treatment for certain lung diseases and that it intends to seek accelerated approval and request a priority review.
Factory orders mixed to kick off the week
Factory orders fell 3.3% month-over-month (m/m) in July, matching the Bloomberg expectation, while June's figure was positively revised to a 3.2% increase. However, stripping out the volatile transportation component, orders rose 0.5% and June's 0.2% decline was upwardly revised to a 0.1% gain. July durable goods orders, preliminarily reported two weeks ago, were unrevised at a 6.8% drop versus forecasts of an adjustment to a 2.9% decrease. Nondefense aircraft and parts fell sharply after June's surge, while electrical equipment, along with computers and electronic products, rose solidly.
Today's report kicked off the holiday shortened week that will bring a flood of key reports for the markets to digest, including the July trade balance, August ISM non-Manufacturing and Markit Services PMI Indexes, the Fed's Beige Book, and final Q2 productivity and labor costs. Also, the international calendar will bring a plethora of trade reports, and monetary policy decision from the European Central Bank (ECB).
Today's report kicked off the shortened week's economic calendar that will culminate with tomorrow's releases of MBA mortgage applications, the trade balance and the Fed's Beige Book, a summary of business activity across the nation used as a tool to prepare for this month's two-day monetary policy meeting ending on the 20th. However, the headlining data could be the August ISM non-Manufacturing and final Markit's Services PMI Indexes, on the heels of today's upbeat services sector reports in China and eurozone. ISM's report is projected to improve to 55.5 from 53.9 in July and Markit's release is forecasted to be unrevised at the preliminary level of 56.9, and up from July's 54.7 figure. Readings above 50 for both reports denote expansion.
Treasuries rallied, as the yield on the 2-Year note decreased 6 basis points to 1.29%, the yield on the 10-Year note fell 10 bps to 2.07%, and the 30-Year bond rate was 9 bps lower at 2.69%. Risk aversion flared back up in the wake of claims that North Korea detonated a hydrogen bomb over the weekend, weighing on Treasury yields and the U.S. dollar. This continues to accompany lingering global monetary policy, trade and U.S. political uncertainties.
Europe declines, Asia mixed amid festering geopolitical concerns
European equity markets finished mostly lower, with the euro and British pound gaining ground on the U.S. dollar, while the global markets remained skittish as tensions with North Korea continued to fester. Bond yields in the region lost ground, even as China posted favorable services sector data and a report from Markit showed eurozone manufacturing and services sectors continued to expand for August. This comes ahead of this week's monetary policy decision by the ECB. However, a separate report showed eurozone retail sales declined in July.
Bucking the trend, Swiss markets ticked higher as today's subdued consumer price inflation data followed yesterday's disappointing Q2 GDP report to appear to ease concerns about the Swiss National Bank normalizing monetary policy. Also, German markets moved higher with automakers getting a boost from positive comments about diesel technology from Chancellor Merkel and yesterday's solid gain in August car registrations, while the aforementioned Markit report showed the nation's business activity grew more than expected.
Stocks in Asia finished mixed as sentiment remained cautious after this weekend's claim that North Korea detonated a hydrogen bomb, while the markets digested a report that showed growth in China's key services sector activity accelerated. Japanese equities fell, with the yen extending gains, while those traded in South Korea gave up early gains and dipped, with media reports suggesting North Korea is preparing another intercontinental ballistic missile (ICBM) test.
Markets in Australia ticked higher, with the Reserve Bank of Australia holding its monetary policy stance steady as expected. Stocks in mainland China and Hong Kong were little changed after the Caixin PMI Services Index increased to 52.7 for August, from 51.5 in July, with a reading above 50 denoting expansion. Finally, Indian equities advanced modestly.
For tomorrow, the international economic calendar will offer GDP from Australia, manufacturing orders from Germany, and retail sales from Italy.