3 Sep 2013 AMC

3 Sep 2013 AMC

Market Summary 

Before Market Opens

the S&P 500 futures are higher by 0.9%.

Markets across Asia were mostly higher, posting solid gains for a second straight session. Japan's Nikkei (+3.0%) rallied thanks to a weaker yen and reports suggesting the BoJ will raise its economic assessment at the next policy meeting. Meanwhile, the Shanghai Composite climbed 1.2% despite a downtick in China's Non-Manufacturing PMI (53.9 actual versus 54.1 expected) as Primer Li Keqiang remained confident the country would meet its growth goals. Lagging was India's Sensex (-3.5%), which saw significant weakness in large part due to the soft rupee. The Reserve Bank of Australia opined this morning, opting to keep its key rate unchanged at 2.50%. Comments from RBA Governor Stevens indicate the economy is growing "a bit below trend" and that inflation is "consistent with the medium-term target." Data out overnight was disappointing as Japan's average cash earnings fell short of estimates (0.4% year-over-year actual versus 0.8% expected) as Australia's retail sales ticked up just 0.1% (0.4% expected) while its current account deficit widened to AUD9.4 billion (AUD8.3 billion expected, AUD8.7 billion previous). 

·         In Japan, the Nikkei closed higher by 3.0% as gains were broad-based. Exporters were bid in response to the weak yen as Toyota Motor gained 3.3% and Toyota Electron added 4.0%. Elsewhere, financials outperformed as Mitsubishi UFJ Financial and Nomura Holdings both climbed close to 5.0%. Even the embattled Tokyo Electric Power Co tacked on 3.3% after the Japanese government offered JPY47 billion to help contain radiation leaks at the Fukushima plant. 

·         Hong Kong's Hang Seng added 1.0% to gain for a fourth session. Mainland financials were strong as China Construction Bank rose 2.1% and China Merchants Bank rallied 4.6%. 

·         In China, the Shanghai Composite settled higher by 1.2% as trade closed at a two and a half-month high. Agricultural names were strong amid talk of land reform. Several names in the space closed limit up, 10%, including Anhui Huilong Agricultural Means of Production and Luoniushan. 

Major European indices are little changed after posting Monday gains. Equity markets fell to their lows following reports indicating two ballistic missiles were launched in the Mediterranean. Separate reports suggest the launch was only a test. Economic data released over the past two days was plentiful (*indicates data released on Monday). Eurozone Manufacturing PMI* ticked up to 51.4 from 51.3 (51.3 expected). Separately, PPI increased 0.3% month-over-month (0.1% expected, 0.0% prior). Germany's Manufacturing PMI* slipped to 51.8 from 52.0 (52.0 consensus). French Manufacturing PMI* remained unchanged at 49.7, as expected. Great Britain's Manufacturing PMI* rose to 57.2 from 54.8 (55.0 consensus) and BRC Retail Sales Monitor* rose 1.8% year-over-year (1.7% expected, 2.2% prior). In addition, Construction PMI rose to 59.1 from 57.0 (58.3 expected). Italian Manufacturing PMI* increased to 51.3 from 50.4 (51.0 forecast). Swiss GDP rose 0.5% quarter-over-quarter (0.3% expected, 0.6% prior) while the year-over-year reading increased 2.5% (1.7% consensus, 1.1% last). In addition, the SVME PMI* slipped to 54.6 from 57.4 (55.9 expected). Spain reported no change in the number of unemployed (-5,200 consensus, -64,900 previous) while Business Confidence rose to -12 from -14, as expected. Also, government budget deficit narrowed to EUR5.10 billion from a deficit of EUR6.7 billion (EUR2.50 billion surplus expected). 

·         Great Britain's FTSE is lower by 0.2% as Vodafone leads to the downside with a loss of 3.8% after agreeing to sell its 45% stake in Verizon Wireless to Verizon for $130 billion in cash and stock. On the upside, Tullow Oil trades higher by 2.2%. 

·         In France, the CAC trades down 0.2% as financials lag. BNP Paribas, Societe Generale, and Unibail-Rodamco are all down between 0.4% and 1.5%. Telecom provider Orange is the top index component, holding a gain of 2.2%. 

·         Germany's DAX is off 0.3%. Airline Deutsche Lufthansa leads to the downside with a loss of 3.7% while bank shares outperform. Commerzbank and Deutsche Bank are both up near 0.3%.

Market Internals

Market Internals
The Nasdaq closed up 23 (+0.63%) at 3613, the S&P 500 closed up 7 (+0.42%) at 1640, and the Dow closed up 24 (+0.16%) at 14834. Action came on mixed volume (NYSE 700 mln vs. avg. of 787; NASDAQ 1565 mln vs. avg. of 1540), with advancers outpacing decliners (NYSE 1678/1401, NASDAQ 1644/888) andmixed new lows/highs  (NYSE 49/62, NASDAQ 82/29). 

Relative Strength: 
Silver-SLV +3.50%, Greece-GREK +3.49%, China 25 Index-FXI +3.13%, Australia-EWA +2.94%, Copper Miners-COPX +2.81%, New Zealand-ENZL +2.72%, Nordic 30-GXF +2.60%, Rare Earths-REMX +2.58%, Copper-JJC +2.44%, Steel-SLX +2.35%. 

Relative Weakness: 
India-INP -5.16%, Volatility-VXX -3.70%, Indian Rupee-ICN -3.24%, Indonesia-IDX -2.98%, 20+ Year Treasuries-TLT -1.41%, Japanese Yen-FXY -1.36%, Cotton-BAL -1.27%, Corn-CORN -1.26%, Utilities-XLU -1.15%, Malaysia-EWM -0.90%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks Climb as Syria Remains in Headlines
The S&P 500 added 0.4% after intraday weakness pressured the benchmark index below its 100-day moving average. Equities displayed broad strength at the open after global indices rallied yesterday while U.S. markets were closed for Labor Day. The early gains did not hold past the initial two hours as late-morning comments from House Speaker John Boehner and Majority Leader Eric Cantor served as a reminder that the option of military action in Syria remains on the table. Both Speaker Boehner and Mr. Cantor said they support the president's "call to action" with U.S. Congress scheduled to debate the issue next week. 

Crude oil climbed off its overnight lows as the remarks from the two Congressional leaders provided an additional boost. The energy component rose 0.8% to $108.55 per barrel while the energy sector added 0.6%. 

Elsewhere in the commodity complex, metals outperformed. Gold futures advanced 1.2% and silver futures spiked 3.4% to $1412.30 and $24.31 per troy ounce, respectively. In addition, copper jumped 2.4% to $3.312 per pound. As a result, the materials sector finished among the leaders with a gain of 0.6%. 

Outside of the two commodity-linked sectors, financials (+0.8%) and discretionary (+0.8%) shares settled in the lead. 

The Dow trailed behind the remaining averages as Microsoft (MSFT 31.88, -1.52) and Verizon (VZ 46.01, -1.37) pressured the price-weighted index. Microsoft fell 4.6% after the company agreed to acquire Nokia's (NOK 5.12, +1.22) Devices & Services business and its patents and mapping services for $5.44 billion. Meanwhile, Verizon lost 2.9% after announcing plans to purchase Vodafone's (VOD 32.01, -0.34) 45% stake in Verizon Wireless for $130 billion in cash and stock. The underperformance of Verizon weighed on the telecom services space (-1.8%) which settled behind the remaining nine sectors. 

Treasuries slid to their lows in reaction to today's better-than-expected economic data, but ended off their worst levels as a safety bid trickled in during afternoon trade. Investors returned to the complex following the hawkish comments on the situation in the Middle East. After climbing above 2.91% early in the session, the benchmark 10-yr ended up 10 basis points at 2.85%. 

Today's participation marked an improvement over most August sessions as nearly 800 million shares changed hands on the floor of the New York Stock Exchange. 

The ISM Index for August improved to 55.7 from 55.4 in July. That was better than expected as the Briefing.com consensus estimate called for a modest decline to 53.4. This is encouraging news insomuch as it relates to the outlook for the manufacturing sector, yet some detail below the headline print indicates manufacturers are no more than cautiously optimistic. 

The good news is that the new orders index fueled the improvement in August, rising to 63.2 from 58.3. Notwithstanding that pickup, the employment index decelerated to 53.3 from 54.4. In other words, new business prospects are in the pipeline, yet manufacturers aren't ramping up hiring to fill the new orders. 

Construction spending increased 0.6% in July after being flat in June. The July number was pretty much in-line with expectations. The data for June, however, improved from the prior report, which showed a 0.6% decline. 

Private construction spending was up 0.9% after declining 0.2% in June. That was paced by a pickup in nonresidential spending, which jumped 1.3% after declining 0.9% in June. Private commercial (+1.7%), manufacturing (+2.9%) and lodging (+6.1%) spending increased in July. 

Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET and the July trade balance will cross the wires at 8:30 ET. In addition, the Federal Reserve will release its September Beige Book at 14:00 ET.

Commodities

Closing Commodities: Silver Rises 4%, While Gold Rises 1.2%

·         The commodities space was higher today despite a stronger dollar index. Strength came on continued tension in the Middle East with reports of an Israeli missle test in Syrian airspace. In addition, U.S. Speaker of the House John Boehner and Majority Leader Eric Cantor both said they support the president's "call to action" in Syria.

·         Oct crude oil rose for the first time in three sessions after coming off its session low of $107.01 per barrel and breaking into positive territory in morning pit action. It trended higher for the remainder of the session and settled at $108.57 per barrel, booking a gain of 0.7%.

·         Oct natural gas traded higher in a tight range between $3.64 and $3.68 per MMBtu. It eventually settled with a 2.5% gain at $3.67 per MMBtu.

·         Dec gold rose after three consecutive sessions of losses. It trended higher after lifting off its session low of $1391.40 per ounce set in early morning floor action and settled with a 1.2% gain at $1412.00 per ounce.

·         Dec silver outperformed the metals sector as it rose as high as $24.52 per ounce. It consolidated near the $24.45 per ounce level in afternoon pit trade and settled with a solid 4.0% gain at $24.43 per ounce.

COMEX Metals Closing Prices

·         Dec gold rose $16.10 to $1412.00/ounce 

o    Gold rose for the first time in four sessions on reports of an Israeli missle test in Syrian airspace. In addition, U.S. Speaker of the House John Boehner and Majority Leader Eric Cantor both said they support the president's "call to action" in Syria. The yellow metal trended higher after lifting off its session low of $1391.40 set in early morning floor action and settled with a 1.2% gain. 

·         Dec silver rose $0.93 to $24.43/ounce 

o    Silver also traded higher, rising as high as $24.52. It consolidated near the $24.45 level in afternoon pit trade and settled with a solid 4.0% gain. 

·         Dec copper rose 7 cents to $3.30/lbs

CBOT Agriculture and Ethanol Closing Prices

·         Dec corn fell 8 cents to $4.75/bushel

·         Dec wheat fell 7 cents to $6.47/bushel

·         Nov soybeans rose 30 cents to $13.86/bushel 

·         Oct ethanol fell 4 cents to $1.94/gallon

NYMEX Energy Closing Prices

·         Oct crude oil rose $0.79 to $108.57/barrel 

o    Crude oil rose for the first time in three sessions despite a stronger dollar index. Action came on continued tension in the Middle East with reports of an Israeli missle test in Syrian airspace. In addition, U.S. Speaker of the House John Boehner and Majority Leader Eric Cantor both said they support the president's "call to action" in Syria. The energy component came off its session low of $107.01 and broke into positive territory in morning pit action. It trended higher and settled with a 0.7% gain. 

·         Oct natural gas rose 9 cents to $3.67/MMBtu 

o    Natural gas traded higher in a tight range between $3.64 and $3.68. It eventually settled with a 2.5% gain. 

·         Oct heating oil rose 1 cent to $3.15/gallon 

·         Oct RBOB gasoline fell 2 cents to $2.87/gallon

Treasuries

Treasuries Slide for Fourth Straight Day: 10-yr: -19/32..2.857%..USD/JPY: 99.52..EUR/USD: 1.3170
Treasuries ended lower for a fourth session as yesterday's flight into risk assets spilled into today's session. Mostly upbeat economic data coupled with the perception a U.S. conflict in Syria could be avoided caused money to exit the complex in overseas trade. That weakness carried into today's session with maturities slipping to their worst levels following this morning's better than anticipated ISM Index (55.7 actual v. 53.6 expected) and construction spending (0.6% actual v. 0.5% expected) data. However, the post-data selling would mark session lows as headlines out just before the noon hour seemed to indicate several members of the House, including Speaker Boehner, stood behind the President's call for action in Syria. The news produced a modest bid in Treasuries, sending yields off session highs. The long bond ended the session off roughly one and a half points, running its yield up 10 bps from Friday's close to 3.776%. A similar situation played out in the 10-yr as a 20/32 loss ran its yield up 10 bps to almost 2.850%. The key yield hit a high of 2.911% earlier in the session. Elsewhere, the 5-yr yield hit a two-year high of 1.740% before slipping to 1.672% by the cash close. Today's selling swung the yield curve steeper, with the 2-10-yr spread widening to 243 bps. Elsewhere, a strong bid lifted precious metals as gold climbed $17 to $1413 and silver jumped $0.85 to near $24.35. Wednesday's data includes the weekly MBA Mortgage Index (7), the trade balance (8:30), auto/truck sales, and the Fed's Beige Book (14). Fed speak begins for the week with SF's Williams in Portland, OR speaking on the economy and monetary policy (11:30). Minny's Kocherlakota will be at a town hall forum in La Crosse, WI (20).

Next Day In View 

Economic Commentary

Economic Data Summary:

·         August ISM Index 55.7 vs Briefing.com consensus of 53.6; July was 55.4. 

o    This is encouraging news insomuch as it relates to the outlook for the manufacturing sector, yet some detail below the headline print indicates manufacturers are no more than cautiously optimistic.

·         July Construction Spending +0.6% vs Briefing.com consensus of +0.5%; June was -0.6%. 

o    Private construction spending was up 0.9% after declining 0.2% in June. That was paced by a pickup in nonresidential spending, which jumped 1.3% after declining 0.9% in June. Private commercial (+1.7%), manufacturing (+2.9%) and lodging (+6.1%) spending increased in July. Private residential spending, meanwhile, rose 0.6% following a 0.4% increase in June. Public construction spending decreased 0.3% on the heels of a 0.3% increase in June.

Fed/Treasury Events Summary:

·         RBA left rates unchaged at 2.5%

Upcoming Economic Data:

·         July Trade Balace Wednesday at 8:30 (Briefing.com consensus -$38.2 bln; June was -$34.2 bln)

·         July ADP Employment Change Thursday at 8:15 (Briefing.com consensus 180K; July was 200K)

·         Weekly Initial Claims Thursday at 8:30 (Briefing.com consensus 333K; was 331K)

·         August ISM Services Thursday at 10:00 (Briefing.com consensus 54.5; July was 56.0)

·         August Nonfarm Payrolls Friday at 8:30  (Briefing.com consensus 177K; July was 162K)

Upcoming Fed/Treasury Events:

·         Fed's Williams will speak tomorrow at 12:30

·         Fed's Biege Book will be released tomorrow at 14:00

·         Fed's Kocherlakota will speak tomorrow at 20:00

·         BOJ will update Monetary Policy tomorrow at 21:00

·         The BoE and ECB will update Monetary Policy on Thursday Morning

On other news.... 

Microsoft: Acquiring Nokia's Phone business, continues to face an uphill battle in mobile - FBR Capital (31.65 -1.75)
FBR Capital notes that while acquiring Nokia's devices business makes sense in terms of a unified hardware/software platform under Microsoft's hood and could help kick-start some better mobile efforts, they are cautious on the ultimate success of this deal as the mobile partnership and strategy between the two cos has translated into minimal success thus far. They believe Microsoft paid a full valuation, and they remain skeptical on the co as a viable player in the mobile/tablet market. They also believe the timing of this acquisition is questionable and raises some eyebrows among investors given a number of recent changes at the co; Market Perform.

Floor Talk: August Review
August marked the worst month of the year for the major averages. The Dow, Nasdaq, S&P 500, and Russell 2000 all lost between 1.0% and 4.4%. The tech-heavy Nasdaq held up best (-1.0%) while the Dow led to the downside (-4.4%). Despite posting notable losses, the key indices continue to sport year-to-date gains of no less than 13.0%.

Selling interest hit all ten sectors as every group finished the month in the red for just the first time in 2013. The financial sector (-5.1%) endured the worst month while materials (-0.1%) withstood the bulk of the selling.

The month-long weakness took place in the face of several factors that helped cool the rally effort: tapering concerns, rising long-term rates, increased tensions in the Middle East, uneven economic data, uncertainty about the upcoming budget and debt ceiling debates, uncertainty about who the next Fed chairman will be, and technical resistance. Although buying interest wasn't entirely non-existent, investors displayed less willingness to step in at, or near, record levels to push the markets higher.

Rally Leaders Pace the Slide

When the major averages began the latest leg of their current rally in mid-November, a handful of groups set the tone for the broader market. Namely, small caps (Russell 2000), transports (Dow Jones Transportation Average), home builders (ITB), and blue chips (Dow Jones) all registered solid gains, pacing an advance that culminated in record highs for the Dow, S&P 500, and Russell 2000.

In August, the aforementioned groups saw some of their momentum fade. The Dow and Russell 2000 underperformed the remaining indices while the Dow Jones Transportation Average fell 3.3% and the iShares Dow Jones US Home Construction ETF (ITB) tumbled 7.7%.

Overall, though, the August decline weighed the heaviest on countercyclical sectors. The health care, consumer staples, telecom services, and utilities sectors all lost between 3.5% and 5.0%. Cyclical sectors were a bit more mixed as energy (-1.0%), technology (-1.0%), and materials (-0.1%) outperformed the broader market.

Taper Talk Persists 

The narrative throughout the month included attempts to handicap the likelihood that the Federal Reserve may lower the pace of its asset purchases as early as mid-September. Unfortunately, the somewhat mixed economic data received during August did not significantly skew the expectations one way or another.

Notably, second quarter GDP growth was revised to 2.5% from 1.7%, but the upward revision did not suggest that the underlying currents of weak growth are ending. Almost the entire revision came from a stronger-than-originally reported trade deficit. Briefing.com believes the increase in GDP pulled potential growth from the third quarter into the second and was not the result of a strengthening economic situation. We expect the improvement in the trade balance to reverse in the third quarter.

Treasuries Continue Slipping

When Federal Reserve Chairman Ben Bernanke first suggested the Fed may begin looking at modifying the pace of its asset purchases, 10-yr Treasury yields began climbing from their May lows of 1.61%. That climb continued through August as yields rose for the fourth month in a row.

Continued taper talk, as well as festering uncertainty about an impending leadership change at the Fed, pressured the bond market throughout the month. Treasuries were on the receiving end of some safe-haven flows during the final week, however, as concerns regarding the situation in Syria contributed to a safety bid. The benchmark 10-yr yield ended the month at 2.75% after climbing as high as 2.92%.

Ships Surrounding Syria Send Shockwaves

On August 26, U.S. Secretary of State John Kerry discussed the recent use of chemical weapons in Syria and said the Assad regime must be held accountable for its violation of an international ban on the use of chemical weapons. Mr. Kerry's comments were followed by similar remarks from President Obama who said the use of such weapons cannot go unanswered. The statements were perceived as setting the stage for military action in Syria.

In response to this new source of uncertainty, and fears a strike in Syria could trigger a broader regional conflict, equity markets retreated while Treasuries and the dollar advanced.

Elevated Volatility Meets Subdued Volume

Volatility was on the rise throughout August as the CBOE Volatility Index (VIX) advanced from 11.83% to 17.01%, a level not seen since July 3. The VIX climbed steadily as general weakness in equities coupled with an uncertain geopolitical outlook sent investors in search of downside protection.

Although the weakness in August was notable, below-average volume observed throughout the month may have exacerbated the magnitude of some of the moves. Going into August, the 20-day average NYSE volume was just under 677 million shares. As a result of 16 low-volume sessions, 20-day volume at the end of August had slumped to 638 million.

Technically Speaking

In addition to a fair share of concerns, the major averages had to contend with several technical levels throughout the month. On August 2, the S&P 500 marked its all-time nominal high at 1,709.67 before slipping to its 20-day moving average (1,690/1,691) three sessions later. The index held that level for about a week until further weakness sent the S&P to its 50-day average (1,657/1,658). Unable to rebound off that key level, the benchmark index slid below its 100-day average (1,637/1,638) for just the second time this year, where it settled for the month.

Uncertainty on the Horizon

Throughout August it appeared as if the market was keeping one eye on September knowing the number of potential risk events that may come into play. Those events are highlighted and discussed in Briefing.com's The Big Picture column from August 29. During September, investors will contend with:

·         The August jobs report that could factor into the Fed's tapering decision. 

·         The September 17/18 FOMC meeting where a tapering decision could be announced. 

·         The German election on September 22. 

·         The need to reach a budget agreement by October 1 and the debate on raising the debt ceiling, which will be reached in mid-October. 

·         The potential nomination of a new Chairman of the Federal Reserve.

Currencies 

Dollar Rallies for Fifth Day: 10-yr: -18/32..2.853%..USD/JPY: 99.35..EUR/USD: 1.3172
The Dollar Index has slipped off session highs near 82.50, but remains firm as trade checks up near 82.30. Today's advance marks the fifth consecutive advance, and has trade looking to close at a one-month high. Click here to see a daily Dollar Index chart.

·         EURUSD is -20 pips at 1.3175 with today's leaving the pair on track to close below its 50-day moving average for the first time since the middle of July. Early selling provided a test of the 100- and 200-day moving averages near 1.3140, but that region was able to hold. Eurozone data includes retail sales and Italian/ Spanish Services PMI. 

·         GBPUSD is +20 pips at 1.5565 as trade ticks higher for a second session following the strongest Construction PMI reading since 1994. Current action is testing resistance in the area with a breakout leading to a test of the August highs in the 1.5650/1.5700 region. Meanwhile, the 200-day moving average aids support near 1.5500. Britain's Services PMI will be released tomorrow. 

·         USDCHF is +20 pips at .9360 as trade looks to close at a one-month high. Today's bid has allowed the pair to retake both its 50- and 200-day moving averages while setting up a test of the resistance helped by 100-day near .9400. 

·         USDJPY is flat at 99.35 as action has given up all of its earlier gains. Despite the reversal the pair still holds above both its 50- and 100-day moving averages, which bulls will now look to as support. 

·         AUDUSD is +60 pips at .9055 as trade advances for a second day. Bulls now look to retake the 50-day moving average, which aids resistance in the .9100 area. The three-year lows near .8900 remain key in terms of support. Australia's GDP is set to cross the wires tonight. 

·         USDCAD is -15 pips at 1.0530 as action continues to stall just short of the July highs. Support in the 1.0475 area remains key ahead of tomorrow's Bank of Canada rate decision where analysts are expecting no change from the current 1.00%. If that level were to give way a test of the 50-day (1.0410) looks likely. Canada's trade balance is also due out.

Jason's Commentaries


While the US is on holiday, the rest of the world has been rallying as Europe's PMI's reports expansion across many European countries, which dragged up the US's futures by more than 1% during the holiday. Right after the holiday, the gains in the futures did not fade and managed to hold up till the opening bell. The market started with a huge gain in the market, but the gain was quickly wiped out. By 1115am ET, market started in a massive drop which caused Dow to slip into the red. With the huge movement in the market last night, there are 2 notable names that are moving the market. Microsoft(lost 4.55%) is acquiring Nokia's Devices & Services business and its patents and mapping services for $5.44 billion and Verizon lost 2.9% after announcing plans to purchase Vodafone's (VOD 32.01, -2.89%) 45% stake in Verizon Wireless for $130 billion in cash and stock. These 2 components caused Dow to be the worst performer of the 3 indices. However, Nasdaq 100 was the best performer as majority of the Tech and Healthcare component is able to shrug off the drag by Microsoft. Volumes were good last night as 787m shares traded on the NYSE. However, internals were all mixed. 

On the technical updates,  the DJI closed below 14,900 level and under its 10MA, forming a dragonfly doji. While on the S&P500, the SPX is closed below its 100MA and it seems that the 100MA is forming a very strong resistance for the SPX. With the macroeconomics events coming up, I reckon it's going to be a make or break thing. If the employment reports is coming out good, we're likely to break above the resistance, however, if the employment reports is bad, we're going see a major sell down. The rest of the week is likely to be flat unless the ADP report comes in flat. Any major difference between ADP report and consensus will likely to send the market jumping down before the NFP comes out. 

Market Call: FLAT to upside

Date: 4 Sep 2013