12 Sep 2013 AMC

12 Sep 2013 AMC

Market Summary 

European markets are now closed; stock markets across Europe performed as follows:

·         UK's FTSE: 0.0%

·         Germany's DAX: 0.0%

·         France's CAC: -0.3%

·         Spain's IBEX: + 0.6%

·         Portugal's PSI: + 0.5%

·         Italy's MIB Index: -0.2%

·         Irish Ovrl Index: -0.5%

·         Greece ATHEX Composite: + 0.8%

Before Market Opens

S&P futures vs fair value: +0.50. Nasdaq futures vs fair value: +2.70.
The S&P 500 futures are flat.

Asian markets ended mostly higher, but Japan's Nikkei underperformed with a loss of 0.3% as dollar/yen slid below 99.50. The yen strengthened into the start of the session after it was reported that Prime Minister Shinzo Abe has decided to raise the sales tax in April 2014 and announce related stimulus measures in the amount of JPY5 trillion. However, these reports were followed by comments from Chief Cabinet Secretary Yoshihide Suga who said the Prime Minister has yet to make up his mind. The Reserve Bank of New Zealand and the Bank of Korea opined overnight, holding their respective key interest rates at 2.50%, as expected. In economic data, Japan's core machinery orders were unchanged month-over-month (2.4% forecast, -2.7% previous) while the year-over-year reading increased 6.5% (7.6% expected, 4.9% prior). Separately, the weekly foreign bonds buying report indicated net sales of foreign debt in the amount of JPY66.50 billion (-JPY530.90 billion prior). In Australia, the employment change came in at -10,800 (+10,000 expected, -11,400 previous) and the unemployment rate ticked up to 5.8% from 5.7%, as expected. Also of note, MI Inflation Expectations increased 1.5% (2.3% previous). 

·         In Japan, the Nikkei shed 0.3% as exporters lagged. Isuzu Motors and Mitsubishi Motors fell 2.4% and 8.1%, respectively. On the upside, Nippon Light Metal Holdings jumped 4.3%. 

·         Hong Kong's Hang Seng added 0.1% as financials and property names outperformed. Bank of China, Bank of Communications, and Sino Land gained between 1.1% and 1.4%. Energy names lagged with China Shenhue Energy and CNOOC down 3.7% and 1.0%, respectively. 

·         In China, the Shanghai Composite gained 0.6% as homebuilders and materials producers outperformed. Shenzhen Heungkong Holding and Luyin Investment Group both surged the limit, 10%. 

Major European indices are little changed as the quiet session continues. In news of note, Ardo Hansson of the European Central Bank said that while the ECB believes current policies are appropriate, the central bank has talked about another long-term refinancing operation. Reviewing economic data, Eurozone industrial production fell 1.5% month-over-month (0.1% expected, 0.6% previous) while the year-over-year reading slid 2.1% (-0.1% forecast, -0.4% last). Germany's WPI fell 0.6% month-over-month (0.2% consensus, -0.3% prior). French CPI ticked up 0.4% month-over-month (0.5% forecast, -0.3% previous). Italy's industrial production decreased 1.1% month-over-month (0.3% expected, 0.2% prior) and the year-over-year reading fell 4.3% (-2.5% expected, -2.1% prior). In addition, CPI rose 0.4% month-over-month (0.3% forecast, 0.3% prior) while the year-over-year reading climbed 1.2% (1.1% consensus, 1.1% previous). Spain's CPI ticked up 0.3% month-over-month and 1.5% on an annualized basis, as expected. Lastly, Greek unemployment increased to a fresh record of 27.9% from 27.6%. 

·         Great Britain's FTSE is higher by 0.1% as consumer names outperform. William Hill and WM Morrison Supermarkets are both up near 2.5%. Industrials are among the laggards with Aggreko and Melrose Industries down 2.5% apiece. 

·         Germany's DAX holds a gain of 0.1% as utilities lead. E.ON and K+S are both up near 2.0%. On the downside, drug makers Bayer and Merck are lower by 1.0% and 0.9%, respectively. 

·         In France, the CAC is lower by 0.2%. Utilities are mixed as Electricite de France leads to the downside with a loss of 2.9% while GDF Suez outperforms with a gain of 0.8%. Technology name STMicroelectronics is the top index performer, up 5.3%.

Market Internals

Market Internals -Technical-
The S&P 500 closed down 6 (-0.34%) at 1683, the Nasdaq closed down 9 (-0.24%) at 3716, and the Dow closed down 26 (-0.17%) at 15301. Action came on near average volume (NYSE 642 mln vs. avg. of 666; NASDAQ 1607 mln vs. avg. of 1523), with decliners outpacing advancers (NYSE 995/2073, NASDAQ 879/1606) and new highs outpacing new lows (NYSE 136/65, NASDAQ 127/12). 

Relative Strength: 
Natural Gas-UNG +2.25%, Gasoline-UGA +1.66%, Volatility-VXX +1.59%, Heating Oil-UHN +1.32%, Oil-USO +1.00%, New Zealand-ENZL +0.55%, Japanese Yen-FXY +0.41%, Brazilian Real-BZF +0.23%, Spain-EWP +0.18%, Netherlands-EWN +0.13%.

Relative Weakness: 
Junior Gold Miners-GDXJ -7.10%, Silver-SLV -5.52%, Metals and Mining-XME -2.55%, Mexico-EWW -2.47%, Platinum-PPLT -2.35%, Indonesia-IDX -2.33%, Copper-JJC -2.29%, Peru-EPU -2.20%, Chile-ECH -2.04%, Thailand-THD -1.78%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: S&P 500 Snaps Winning Streak
The S&P 500 registered its first September decline, shedding 0.3% as nine of ten sectors ended in the red. After posting gains in each of the past seven sessions, several of this month's top performers fell victim to some profit-taking. 

Financials, industrials, and materials led to the downside with losses ranging between 0.5% and 1.0%. The financial sector was pressured by the underperformance of most large banks as investors attempted to gauge the impact of a slowdown in the mortgage industry after US Bank (USB 36.87, +0.19) announced that its mortgage revenue fell roughly 20% in the third quarter. JPMorgan Chase (JPM 52.24, -1.02) was the weakest performer among the majors while the broader sector lost 0.7%. 

Elsewhere, the industrial sector slid 0.5% as transportation companies displayed broad weakness. The Dow Jones Transportation Average fell 1.1% as 18 of 20 components ended lower. 

Crude oil's continued strength may have also acted as a drag on transports with the energy component advancing 1.0% to $108.67 per barrel. 

Although oil settled higher, the rest of the commodity complex did not fare nearly as well. Copper (-1.5%, $3.21/lb), gold (-3.0%, $1323.40/oz t), and silver (-5.5%, $21.91/oz t) futures were pressured throughout the day. Similarly, miners and steelmakers lagged as the Market Vectors Gold Miners ETF (GDX 25.29, -1.50) fell 5.6% and the Market Vectors Steel ETF (SLX 45.30, -0.54) lost 1.2%. The materials sector rounded out the bottom of today's leaderboard with its loss of 1.0%. 

While most cyclical sectors trailed behind the broader market, discretionary shares (-0.2%) and technology (-0.1%) outperformed. 

The discretionary space finished ahead of the S&P with help from media companies after Dow component Walt Disney (DIS 65.49, +1.55) said it plans to increase the size of its buyback. However, apparel manufacturers lagged after Lululemon (LULU 65.29, -3.73), Vera Bradley (VRA 18.85, -0.60), and Men's Wearhouse (MW 34.08, -4.69) issued profit warnings. 

Countercyclical sectors ended mixed as the telecom services space added 1.0% while consumer staples, health care, and utilities lost between 0.2% and 0.3%. 

Early afternoon headlines from Washington reminded participants that the U.S. budget situation remains far from solved. 

House Speaker John Boehner said that spending reforms must be implemented in order to increase the debt ceiling. The Speaker also commented on Syria, saying that he has doubts about the plan to put Syria's chemical weapons under international control. 

The remarks were followed by comments from Senate Majority Leader Harry Reid who said the current direction of House Republicans puts the government on track for a shutdown, and that giving in to the Tea Party is equivalent with rooting for a shutdown. 

Treasuries surrendered their gains into the close, and the benchmark 10-yr yield ended little changed at 2.90%. 

Volume was a bit below average as 642 million shares traded hands on the floor of the NYSE. 

In today's economic data, weekly initial claims fell below the 300,000 level for the first time since March 2006. However, the Department of Labor said the sharp drop was due to computer problems. The initial claims level declined to 292,000 for the week ending September 7 from an unrevised 323,000 for the week ending August 31. The Briefing.com consensus expected the initial claims level to increase to 327,000. 

The DoL announced that two states upgraded their computer systems, which resulted in an unexpected drop in claims. It is unknown how long the computer errors will remain in the system and it could affect the data for the next few weeks. It should be reiterated that the DoL does not believe the drop in claims this week signals a change in labor market conditions. Conditions remain better than where they were a few months ago but nowhere near as strong as a sub-300,000 reading would suggest. 

Separately, export prices, excluding agriculture, ticked down 0.1% in August after an unchanged prior reading. Excluding oil, import prices declined 0.2%, which follows last month's decline of 0.4%. 

The August Treasury Budget showed a deficit of $147.9 billion, down from a deficit of $190.5 billion in August 2012. Since the data are not seasonally adjusted, the data cannot be compared with the July level. The Briefing.com consensus expected the budget to show a deficit of $146.0 billion. 

Tomorrow, August retail sales, retail sales ex-auto, PPI, and core PPI will all be reported at 8:30 ET. In addition, the preliminary reading of the September University of Michigan Consumer Sentiment Survey and July business inventories will be released at 9:55 ET and 10:00 ET, respectively.

Commodities

Closing Commodities: Silver Down Over 5% As Metals Underperform Commodities, Energy Rises
Commodities remained mixed today. Metals traded lower and were the worst performing commodities today, while energy traded in positive territory.

Crude oil remained in positive territory all day. Syria remained a focus, while, separately, the International Energy Agency released a bullish report today, for the month of September, helping give crude oil price support. Oct crude oil ended today's pit trading session 1.0% higher at $108.65/barrel.

Natural gas futures spiked higher, to new session highs, following today's weekly inventory data figures. Prices actually began to spike minutes before the data came out. Oct nat gas closed today 2.0% higher at $3.64/MMBtu.

Metals were the worst performing commodities today. Both precious metals extended lower and hit new session lows after floor trading closed. Dec gold ended the day down 2.4% at $1330.70/oz, while Dec silver closed 4.3% lower at $22.17/oz. Dec copper lost five cents to $3.21/lb. Corn and wheat prices dropped sharply to new session lows today, while soybeans spiked to a new session high following the USDA's WASDE report, which came out at 12:00 noon EST.

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Dec corn fell 7 cents to $4.66/bushel 

·         Dec wheat rose 6 cents to $6.53/bushel 

·         Nov soybeans rose 40 cents to $13.98/bushel 

·         Oct ethanol fell 3 cents to $1.85/gallon 

·         Nov sugar (#16 (U.S.)) settled unchanged at 21.10 cents/lbs

COMEX Metals Closing Prices

·         Dec gold fell $32.90 to $1330.70/ounce 

·         Dec silver fell $1.00 to $22.17/ounce 

·         Dec copper fell 5 cents to $3.21/lbs

NYMEX Energy Closing Prices

·         Oct crude oil rose $1.10 to $108.65/barrel

·         Oct natural gas rose 7 cents to $3.64/MMBtu

·         Oct heating oil rose 5 cents to $3.12/gallon 

·         Oct RBOB gasoline rose 5 cents to $2.76/gallon

Natural gas inventory data follow-up
Working gas in storage was 3,253 Bcf as of Friday, September 6, 2013, according to EIA estimates. This represents a net increase of 65 Bcf from the previous week. Stocks were 172 Bcf less than last year at this time and 46 Bcf above the 5-year average of 3,207 Bcf. In the East Region, stocks were 114 Bcf below the 5-year average following net injections of 49 Bcf. Stocks in the Producing Region were 106 Bcf above the 5-year average of 993 Bcf after a net injection of 14 Bcf. Stocks in the West Region were 54 Bcf above the 5-year average after a net addition of 2 Bcf. At 3,253 Bcf, total working gas is within the 5-year historical range.

Treasuries

 Treasuries sliding into the close

2-yr unch @ 99 27/32
3-yr unch @ 99 31/32
5-yr +01/32 @ 99 00/32
7-yr +01/32 @ 98 21/32
10-yr +03/32 @ 96 16/32
30-yr +07/32 @ 96 04/32

Treasuries Give Up Gains: 10-yr: +01/32..2.913%..USD/JPY: 99.42..EUR/USD: 1.3299
Treasuries held solid gains for the bulk of the session, but ended little changed as sellers took control in afternoon trade. The complex slipped to its worst levels of the morning in response to the strong headline initial claims data, which posted its first sub-300K print since May 2007, but buying quickly emerged as a labor department official hinted the data was faulty. Those comments ran maturities to session highs, where they would chop around until this afternoon's $13 bln 30-yr reopening. The reopening drew 3.820% and a 2.40x bid/cover as solid takedowns from both indirects (37.7%) and directs (20.6%) left dealers with just 41.7% of the supply. The initial reaction ran Treasuries to minor session highs, but selling quickly developed and persisted throughout the remainder of the session. Yields across the curve slipped at most 1.5 bps with several finishing little changed. The benchmark 10-yr yield tested the 2.850% area before regaining 2.900% support just ahead of the cash close. The 2.900% level will remain in focus as it has held up as support over the past week. A slightly flatter yield curve took hold as the 2-10-yr spread narrowed to 246.5 bps. Meanwhile, precious metals saw another day of heavy selling as gold tumbled $40 to $1324 and silver slumped $1.25 to near $21.95. Friday's data is the most anticipated of the week as retail sales, retail sales ex-auto, PPI, core PPI (8:30), Michigan Sentiment (9:55), and business inventories (10) scheduled to cross the wires.

Next Day In View 

Economic Commentary

Economic Summary: Jobless Claims fall below 300K, but due to state reporting issue; 30 Year Treasury auction today at 13:00; Retail Sales, PPI due out tomorrow at 8:30
Economic Data Summary:

·         Weekly Initial Claims 292K vs Briefing.com consensus of 327K; Last Week was 323K

·         Weekly Continuing Claims 2.871 M vs Briefing.com consensus of 2.975 M ; Last Week was 2.951 M

o     The DOL announced that two states upgraded their computer systems, which resulted in an unexpected drop in claims. It is unknown how long the computer errors will remain in the system and it could affect the data for the next few weeks. It should be reiterated that the DOL does not believe the drop in claims this week signals a change in labor market conditions. Conditions remain better than where they were a few months ago but nowhere near as strong as a sub-300,000 reading would suggest. 

·         August Export Prices Ex-Ag -0.1% vs Briefing.com consensus of ; July was 0.0%

·         August Import Prices Ex-oil -0.2% vs Briefing.com consensus of ; July was -0.4%

Upcoming Economic Data:

·         August Treasury Budget due out Thursday at 14:00 (Briefing.com consensus of -$146.0 bln; prior was -$190.5 bln.

·         August Retail Sales due out Friday at 8:30 (Briefing.com consensus of 0.4%; July was 0.2%)

·         August Retail Sales Ex Auto due out Friday at 8:30 (Briefing.com consensus of 0.3%; July was 0.5%)

·         August PPI due out Friday at 8:30 (Briefing.com consensus of 0.2%; July was 0.0%)

·         August Core PPI due out Friday at 8:30 (Briefing.com consensus of 0.1%; July was 0.1%)

·         September Michigan Sentiment due out Friday at 9:55 (Briefing.com consensus of 82.0; August was 82.1)

·         July Business Inventories due out Friday at 10:00 (Briefing.com consensus of 0.3%; June was 0.0%)

Upcoming Fed/Treasury Events:

·         The Treasury will auction off $65 bln in new debt this week. Results for each remaining auction will be announced at 13:00

o    Thursday: $13 bln in 30 year bonds

Other International Events of Interest

·         Japan's core machinery orders were unchanged month-over-month (2.4% forecast, -2.7% previous) while the year-over-year reading increased 6.5% (7.6% expected, 4.9% prior). Separately, the weekly foreign bonds buying report indicated net sales of foreign debt in the amount of JPY66.50 billion (-JPY530.90 billion prior). 

·         In Australia, the employment change came in at -10,800 (+10,000 expected, -11,400 previous) and the unemployment rate ticked up to 5.8% from 5.7%, as expected. Also of note, MI Inflation Expectations increased 1.5% (2.3% previous). 

On other news.... 

Honeywell awarded ~$550 mln Air Force contract modification (83.78 -0.25)
Co was awarded a $550,355,001 modification to indefinite delivery/indefinite-quantity contract to provide for system and maintenance engineering, network support integration, on-site and off-site depot level maintenance, and software maintenance of the Air Force Satellite Control Network. Work will be performed in El Paso County, Colo, and is expected to be completed by Sept. 30, 2016.




Currencies 

Dollar Holds Steady: 10-yr: +07/32..2.890%..USD/JPY: 99.32..EUR/USD: 1.3300
The Dollar Index trades little changed near 81.50, recovering its early losses. The Index jumped to session highs near 81.65 following this morning's claims data, but sellers regained control as a labor department official suggested the report had faulty data. Action flushed to the 81.35 level before finding a bid on continued uncertainty over a potential conflict with Syria. Click here to see a daily Dollar Index chart.

·         EURUSD is -10 pips at 1.3300 amid a rather uneventful day in the region. The 1.3325 area saw sellers stepped in to defend resistance for a second session, but other than that trade has been rather orderly. A lower close will mark the first loss in five days. Eurogroup and European finance minister meetings get underway tomorrow. 

·         GBPUSD is -15 pips at 1.5805 as trade remains on track to post just its second loss in 10 days. Comments from Bank of England Governor Mark Carney over the bank's expectations to continue its forward guidance were initially viewed as hawkish, but eventually sellers took control as he indicated the central bank would not hesitate to implement further easing if data were to turn south. Near-term support rests in the 1.5650 region. 

·         USDCHF is flat at .9305 as trade holds in the middle of the day's range. An early bid failed just shy of the .9350 area as sellers emerged in defense of the 50- and 200-day moving averages, but bears have been unable to break support in the .9275/.9300 area. Swiss data is limited to PPI. 

·         USDJPY is -60 pips at 99.35 as sellers are in control for a second day. The pair sank to a low of 99.00, but was unable to break below the 100-day moving average. Key support and the 50-day moving average also lurk in the vicinity. 

·         AUDUSD is -60 pips at .9260 as a weak Australian jobs report has weighed throughout the session. The .9200 level represents key support with a breakdown setting up a test of the 50-day moving average (.9110). 

·         USDCAD is +10 pips at 1.0325 as trade holds just off session highs. The small bid has the pair on pace to end its four-day losing streak with bulls hoping to retake the 100-day moving average (1.0335).

Jason's Commentaries


Last night went a little unexpected.. Unemployment claims dropped to the lowest since a few years, but market went through an unexpected volatility. Market started with a bullish bias which quickly reversed and lost its gains. By 11am ET, it reversed and started regained some of its losses. However, by the closing bell, the market decided to wipe out the gains and closed in bearish territory. The biggest laggard on the Dow last night is JP Morgan, with a drop of 1.92%. However, the telco displayed strength together with Disney. Materials were the biggest laggard on the S&P500 with a drop of 1.04%. Tech was able to maintain flat. Volumes were slightly below average at 642.2m shares traded. On 20 Sep, there will be a change in Dow components, where Goldman Sachs, Visa and Nike will take over Alcoa, Bank of America and HP. 

On the technical updates, it seems that the market started to take off some profits from the massive rally and i believe that the market is likely to take another day of retracement before breaking up higher. Since we've got retail sales, Consumer Sentiment and PPI reports coming out today. We are likely to end flat on Friday the 13 Sep =D

Market Call: FLAT

Date: 13 Sep 2013