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Markets (And Ukraine) At A Standstill By WSS Research Team

By Jennifer Coombs, Research Analyst

It was another record day for the S&P 500 and the NASDAQ, though only during the early hours of the session. So far today, the Dow Jones Industrial Average has been the only index maintaining consistent positive returns. The markets all opened in the green after a Ukrainian cease-fire was announced, but sunk after the Ukrainian president retracted the earlier statement. In addition, a Kremlin representative said no such agreement between Russia and Ukraine was in place, so the fighting continues in eastern Ukraine. This scenario, coupled with President Obama's authorization of an additional 350 troops to Iraq, is doing the market no favors today. The Fed's Beige Book will be released later this afternoon and should give a read into how the various Fed districts have fared since July. However, in the meantime, there is plenty of economic action on today's calendar.

Firstly, the Census Bureau released the July factory orders for durable and nondurable goods. Boeing's (NYSE:BA) aircraft orders from the Farnborough Airshow majorly skewed the numbers to the upside causing factory orders to rise 10.5% in July after rising a revised 1.5% (from 1.1%) in June. When the transportation equipment component (including aircraft and vehicles) is excluded from the reading, factory orders actually declined, by 0.8% for the month. However, we note that there are some important positive signs in the report, including a 1.2% increase in shipments and 1.4% increase in shipments of nondefense capital goods excluding aircraft. Unfilled orders show an unusually outsized, nice gain of 5.4% while inventories, up only 0.1%, will need to be refilled soon. Although aircraft orders were the reason behind the inflated number, they should not be regarded as insignificant: in the long term, aircraft orders boost factory shipments and employment. Although the trends aside from aircraft were soft for July, the overall trend in factory orders is positive. If you combine this report with the strong ISM numbers from yesterday, the manufacturing sector should show significant improvement in the third quarter.

Less of a big mover this week was the Mortgage Bankers' Association's (MBA) weekly purchase applications' reading. Purchase applications remain weak, down 2% last week for a year-on-year contraction of 12%. Refinancing applications rose 1.0% in the week, but are not as big an indicator of homebuyer health. Rates moved lower with the average 30-year fixed-rate mortgage for conforming loans decreasing to 4.25% for the week, the lowest level since June 2013.

Lastly, the ICSC-Goldman report noted that same-store sales were unchanged last week compared to the prior week, although the year-on-year rate rose to a very strong 4.8%. The reported cited particular strength for dollar stores (like General Dollar and Family Dollar) and wholesale clubs (like Costco, Sam's Club and B.J.'s). Redbook's retail reading was also strong, noting that its same-store sales index rose to a year-on-year 4.9% in the August 30-week compared to a 4.0% increase in the prior week. Redbook's August-to-July comparison shows a 0.7% gain which points to strength for the government's ex-auto, ex-gas reading for retail sales. Redbook also indicated specific strength in back-to-school shopping, especially apparel.