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“More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly.” – Woody Allen

Morning stock market summary

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After rallying to kick off the week with a late day surge into the close, today looks like a turnaround Tuesday (of the negative kind) as futures point to a sharply lower open.  Several factors have contributed to the downbeat tone including some very weak economic data out of China (Retail Sales, Industrial Production, and Unemployment).  One notable aspect that was missing from the Chinese employment data was the youth unemployment rate. In June, the rate of joblessness for those aged 16 to 24 was 21.3%, but with the latest data release, the Chinese authorities said they would temporarily stop releasing the data so that it could be refined.  Don’t worry though, one official assured reported that the situation was ‘generally stable’. Out of sight, out of mind. Right?

Here in the US, it’s a busy day for data.  Retail Sales and Import Prices came in significantly better than expected while the Empire Manufacturing report was significantly weaker.  Essentially, it’s more of the same as Manufacturing survey remain generally weak even as the consumer holds strong.

It may be August and a lot of people are out on vacation, but they’re missing out on various financial assets as they converge towards their own individual crossroads.  Starting with the S&P 500, yesterday the benchmark for the US equity market appeared to have successfully tested and held its 50-day moving average (DMA).  While bulls had hoped for a one and done test, it’s not going to be that easy as futures indicate another test of that level today. The S&P 500 isn’t the only major US equity index testing its 50-DMA either.  The Russell 2000 also successfully tested its 200-DMA yesterday but will also see another test of that level today.  Lastly, the Nasdaq was already below its 50-DMA yesterday, and if it weren’t for a late day rally towards the close, would have finished the day there as well.  With this morning’s negative open, yesterday’s move is going to end up looking more like a failed rally attempt.

The Dollar Index has rallied over 3% over the last month, but the move came to a grinding halt yesterday at the 200-DMA.  This morning, it is modestly lower again, although we would note that it experienced a similar pause in the rally a couple of weeks ago before it moved up through its 50-DMA.

Saving perhaps the most important for last, the 10-year US Treasury yield is probably at the biggest  crossroads of the three assets classes discussed here.  This morning, the yield is at 4.256% which is above the closing high from last fall and less than ten bps below the intraday high.  If the yield breaks above both levels, it’s going to be hard in the short-term for equities to stay above their respective 50-DMAs.

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