19 Aug 2013 AMC

19 Aug 2013 AMC

Market Summary 

Asian Markets Close: Nikkei +0.8%, Hang Seng -0.2%, Shanghai +0.8%
Markets across Asia were mostly lower with only Japan's Nikkei (+0.8%) and China's Shanghai Composite (+0.8%) seeing gains. Heavy selling engulfed emerging markets such as Indonesia's Jakarta Composite (-5.6%) and Thailand's SET (-3.3%) as economic data weighed. Indonesian stocks closed at a seven-month low as a wider than anticipated current account deficit caused the country's central bank to say it expects 2013 growth to be at the lower end of its 5.8-6.2% range. Meanwhile, Thailand's SET tumbled after the country's Q2 GDP fell well short of expectations (2.8% actual v. 3.3% expected). India's Sensex (-1.6%) saw heavy selling for a second session as the rupee tumbled to a record low 63.13 against the dollar. On the upside, Japan's Nikkei rallied despite a record deficit for the month of July (JPY0.94 trln actual v. JPY0.73 trln expected) as the yen weakened against the dollar, and China's Shanghai Composite gained as new home prices rose in 62 out of 70 cities. Data from the rest of the region was limited to Australia's new motor vehicle sales falling 3.5% MoM and Hong Kong's unemployment rate holding at 3.3%. Looking at the currencies...USDCNY ticked up to 6.1229; USDINR surged to 63.13; USDJPY is stronger at 97.95; AUDUSD is weaker near .9145. In Japan, the Nikkei closed +0.8% as shares rallied on the back of the weak yen. Exporters were firm as Sony rallied 0.6% and Toyota tacked on 0.5%. 

In Hong Kong, the Hang Seng finished -0.2% as shares slipped for a third day. In China, the Shanghai Composite settled +0.8% as financials posted solid gains. Mid-sized China Minsheng Bank gained 4.0% while the larger Industrial Bank added 3.4%. 

In India, the Sensex closed -1.6% as the sagging rupee weighed. Telecom provider Bharti Airtel sank 4.5% on concerns its debt burden may grow due to the weakening rupee. Elsewhere, ICICI Bank led the financials lower with a 5.1% decline. 

In Australia, the ASX finished unchanged amid a choppy trade. Miners eked out small gains as BHP Billiton and Rio Tinto added 0.5% and 0.1% respectively. 

In Taiwan, the Taiex settled -0.3%...In South Korea, the Kospi closed -0.1%. 

In other regional markets...Indonesia -5.6%...Thailand -3.3%...Singapore -0.8%...Philippines -0.8%...Malaysia -0.6%...Vietnam +0.6%

Market Internals

Market Internals -Technical-
The S&P 500 closed down 10 (-0.59%) at 1646, the Dow closed down 71 (-0.47%) at 15011, and the Nasdaq closed down 14 (-0.38%) at 3589. Action came on below average volume (NYSE 640 mln vs. avg. of 744; NASDAQ 1387 mln vs. avg. of 1610), with decliners outpacing advancers (NYSE 591/2536, NASDAQ 757/1775) and new lows outpacing new highs (NYSE 17/479, NASDAQ 47/53). 

Relative Strength: 
Corn-CORN +3.97%, Grains-JJG +3.34%, Volatility-VXX +2.81%, Natural Gas-UNG +2.07%, Cocoa-NIB +1.11%, Vietnam-VNM +0.49%, Swiss Franc-FXF +0.22%, Israel-EIS +0.18%, British Pound-FXB +0.16%, Japanese Yen-FXY +0.04%.

Relative Weakness: 
Indonesia-IDX -6.86%, Greece-GREK -5.21%, Thailand-THD -4.97%, India-INP -4.79%, Turkey-TUR -3.53%, U.S. Home Construction-ITB -3.14%, Silver Miners-SIL -2.84%, Wind Energy-FAN -2.69%, Coal-KOL -2.68%, Metals and Mining-XME -2.65%.

Leaders and Laggards

S&P 500 loses another 0.6% to start the week

Sector Performance (% change of the day): Health Care (+0.24%), Tech (-0.16%), Consumer Staples (-0.40%), Consumer Discretionary (-0.40%), Industrials (-0.44%), , Utilities (-0.79%), Telecom (-0.80%), Materials (-0.84%), Financials (-1.33%), Energy (-1.54%).

Technical Updates

Briefing's Commentaries 

End of Day Summary
Today marked the beginning of a new week for the stock market, yet the story played out much the same way it did last week. Long-term rates continued to rise, the stock market continued to sink, and trading volume remained light. 

The major averages were mixed and little changed for much of the session, but they broke down in late trading as the technology sector gave up its leadership post and other sectors bowed to selling interest. There wasn't a specific news catalyst for the late-day breakdown, which led some to conclude it was a function of technical factors at work. Whatever one's view is, it was especially clear today that, outside of some specific stocks, buyers didn't want much to do with the market. 

The stocks that benefited were familiar names like Boeing (BA 104.72, +1.25), Johnson & Johnson (JNJ 90.45, +1.08), Google (GOOG 868.65, +8.74), and Apple (AAPL 507.74, +5.41). Intel (INTC 22.28, +0.37) also found itself on the relative strength list following a Piper Jaffray upgrade to Neutral from Underweight and a positive mention in Barron's. 

There wasn't a lot of corporate news to chew on today nor were there any economic releases in the US to digest. That helped explain why volume was light with just 640 mln shares trading at the NYSE. 

Some distress in emerging markets, namely Indonesia where the Jakarta Composite declined 5.6%, proved to be a deterrent for participants along with the understanding that the minutes for the July 30-31 FOMC meeting will be released on Wednesday while the Kansas City Fed's Jackson Hole Symposium will get underway on Thursday. 

Some anxiousness about what might be heard in the minutes and at the symposium kept pressure on the benchmark 10-yr note whose high yield today stopped just short of 2.90% before settling at 2.88%. The latter is up 30 basis points from the start of last week. The move is seen by some as the market discounting the prospect of a tapering announcement at the September 17-18 FOMC meeting, yet some rumblings are starting to be heard that it might also reflect concern that the Fed has lost control of things. 

Undoubtedly, the path long-term interest rates take will be key in determining whether the stock market is going to continue to trade lower or whether it is going to show the buy-the-dip moxie it has been known for since the March 2009 lows. 

The rate-sensitive financial sector (-1.3%) was a notable laggard all day and a major drag on the broader market along with the energy sector (-1.5%). The latter got clipped by yet another day of losses for ExxonMobil (XOM 86.92, -0.99), which declined for the 18th time in the last 20 sessions. The financial sector was hurt by a report that JPMorgan Chase (JPM 51.83, -1.46) is being investigated for its hiring practices in China and a Wall Street Journal article suggesting the sector could fall out of favor in the wake of a tapering decision. 

Other rate-sensitive areas like the high dividend-yielding utilities (-0.8%) and telecom services (-0.8%) sectors also underperformed the market. The home building stocks were among the weakest performers today with losses ranging between 3-5%. The iShares US Home Construction ETF (ITB 20.68, -0.67) fell 3.1%. 

On the flip side, volatility was a notable area of strength. The CBOE Volatility Index (VIX 15.18, +0.81) surged 5.6% and is now up 28% over the last two weeks. Over the same period the S&P 500 has declined 3.6%. 

There are no economic releases out of the US on Tuesday, so the market will be fixated early on the performance of foreign markets, the direction of interest rates, and the earnings results and guidance from Home Depot (HD 75.21, -0.17), Best Buy (BBY 30.73, +0.36), J.C. Penney (JCP 13.22, -0.18) and TJX Cos. (TJX 50.75, +0.27).

Commodities

Closing Commodities: Natural Gas Rallies 2.7%, Gold Falls 0.4%

·         Sep crude oil fell for the first time in seven sessions, dipping as low as $106.56 per barrel. The energy component briefly climbed into positive territory to a session high of $107.80 per barrel but reversed back into the red. It settled 0.4% lower at $107.07 per barrel.

·         Natural gas, on the other hand, rose to a session high of $3.50 per MMBtu. Despite slightly pulling-back, it booked a 2.7% gain as it closed at $3.46 per MMBtu.

·         Dec gold fell for the first time in four sessions as it retreated from a session high of $1375.00 per ounce set in early morning pit trade. It dipped to a session low of $1362.00 per ounce and settled with a 0.4% loss at $1365.80 per ounce. 

·         Sep silver spent all of today's pit trade in the red, falling as low as $22.95 per ounce. It eventually settled 0.6 % lower at $23.17 per ounce.

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Dec corn rose 23 cents to $4.86/bushel 

·         Sep wheat rose 9 cents to $6.41/bushel 

·         Nov soybeans rose 45 cents to $13.04/bushel 

·         Sep ethanol rose 2 cents to $2.25/gallon 

·         Nov sugar (#16 (U.S.)) rose 0.12 of a penny to 20.45 cents/lbs

Treasuries

Yields tick to highs
2-yr +1.2 bps @ 0.367%
3-yr +3.5 bps @ 0.758%
5-yr +5.5 bps @ 1.624%
7-yr +6.8 bps @ 2.286%
10-yr +7.0 bps @ 2.897%
30-yr +5.6 bps @ 3.906%


Yields Creep Higher: 10-yr: -14/32..2.880%..USD/JPY: 97.63..EUR/USD: 1.3340
Treasuries ended off their worst levels, but finished with modest losses as sellers remained in control. A lack of data and a cautious approach ahead of Thursday's Jackson Hole Symposium continued to put upward pressure on rates as yields ticked higher for the fifth time in six days and ended at their highest levels since July 2011. Today's selling ran yields in the belly of the curve higher by as much as 5.5 bps with the 10-yr yield testing the 2.900% threshold before ending at 2.884%. The recent selloff has run the benchmark yield higher by almost 30 bps. Elsewhere, both the 5- and 30-yr yields added another 4.5 bps to settle at 1.611% and 3.902%, respectively. A steeper yield curve persisted with the 2-10-spread widening to 252 bps. Elsewhere, precious metals were weak as gold fell $5 at $1366 and silver slid $0.15 to near $23.15. Data remains absent on Tuesday. SF's Williams will be in Gotenburg, Switzerland discussing "Challenges for Monetary Policy: Views from the Trenches" (6:50)

Next Day In View 

On other news.... 

Currencies 

Dollar Hovers Little Changed: 10-yr: -17/32..2.892%..USD/JPY: 97.64..EUR/USD: 1.3341
The Dollar Index has been mired in a sleepy trade as action has held in a tight 10 cent range throughout the U.S. session. Action has deviated little from the flat line, seeing little deviation from the 81.25 level. 

·         EURUSD is +10 pips at 1.3340 as trade lingers just shy of the June and August highs. The single currency saw an early bid following the hawkish rhetoric out of Germany's Bundesbank which suggested the ECB could hike rates if inflation pressures emerged, but other than that action has been lackluster with trade restricted to a 10 pip range. Eurozone data is limited to German PPI. 

·         GBPUSD is +25 pips at 1.5660 as trade holds just off the June highs. Today's advance marks the third in four days, over which the pair has managed to tack on roughly 200 pips. The 1.5525/1.5550 area should provide some support with help from the 200-day moving average. 

·         USDCHF is -35 pips at .9230 as trade looks to test the key .9200 support level. Traders continue to keep an eye on the area as support in the region dates back to February.

·         USDJPY is +10 pips at 97.65 with selling over the course of the U.S. session wiping away the majority of the early gains that developed following the record trade deficit for the month of July. Sellers continue to flex their muscles in defense of the 50- and 100-day moving averages as well as resistance in the area. 

·         AUDUSD is -50 pips at .9120 as trade looks to test .9100 support. The hard currency saw its early gains wiped away as trade slipped back below the 50-day moving average. A breakdown of near-term support sets up a test of .9000, and a potential move back towards the August lows which mark the worst in three years. The latest Reserve Bank of Australia minutes are due out this evening. 

USDCAD is -5 pips at 1.0340 amid a quiet trade. Action has held in a tight 30 pip range for the session, and is just off the highs. Canada's wholesale sales will cross the wires tomorrow






Jason's Commentaries


Came as a total surprise to see a DFDM so quickly, that would probably set the bearish tone to the week. Ahead of the FOMC Minutes the market decided to go down another 70 points on the Dow, that doesn't paint much good image on the market now. Not many people are looking to price into the FOMC minutes. Market started with a slight bullish bias which faded by 11am ET and started selling all the way down into the closing bell. Of the sectors, Energy and the Financials were the heaviest laggard. With names like Exxon, Chervon lagging the energy sector and BfA, JP Morgan, Citigroup and Goldman Sachs lagging the entire financial sector. While the volume were pretty ok for the past 2 weeks with 640.2m shares traded on the NYSE. And from the internals, it's pretty clear that it's a bear day. On the technical perspective, the Dow is heading towards the 14,900 support level while the S&P500 broke its 1650 support level last night which forced me to close off my put spread last night, with a profit though. Agricultural futures rose across the board while Crude Oil started falling like mad. Crude oil is already below $106 by 2pm ET. Ahead of the FOMC minutes, I highly doubt there will be another big drop.

Market Call: FLAT to downside

Date: 20 Aug 2013