Durables Drop Drags Dow Down Drain

US stocks have taken a turn for the worse this morning due to a dismal durable goods orders report that not only missed expectations by a wide margin for September, but saw August orders revised sharply downward, a sign of a struggling industrial/manufacturing sector.

Durable goods weakness continues a steady stream of data disappointments this month that point to a slowing USD economy. Because a weak US economy could slow the pace of FOMC interest rate hikes, it comes as no surprise that USD is trading lower on this news.

US stocks plus crude oil are also sliding on the news, confirming that the old “bad/dovish news is good news for stocks” trade remains dead in North America (and apparently China too based on trading there so far this week) with traders recognizing that a weakening economy dampens the prospects for corporate earnings and resource demand. Falling oil has put CAD and NOK back on their heels today.

Today’s earnings slate has been mixed with Big Pharma doing well, but the higher USD impacting DuPont and Coach. Ford posted a record quarter for North America, a positive sign for consumer spending trends, but this was offset by a big miss and talk of layoffs at engine maker Cummins. Later today, Apple and Twitter report which could spark another round of earnings driven trading tomorrow.

The two-day FOMC meeting kicks off today with the big decision due tomorrow afternoon. Even though it appears a deal has been reached to raise the debt limit out to 2017 and past next year’s Presidential Election, the risk, although smaller, still remains of a potential government shutdown in December. Between this and the soft US data (although volatility and instability in China have subsided) the Fed remains likely to remain on hold this week. The big question is whether the Fed will signal whether an increase remains possible for December (hawkish hold) or if liftoff could be pushed off to 2016 (dovish hold) , as this could have a big impact on market confidence for the next six weeks.

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