4 Sep 2013 AMC

4 Sep 2013 AMC

Market Summary 

Before Market Opens

S&P futures vs fair value: -1.70. Nasdaq futures vs fair value: +0.50.
The S&P 500 futures are lower by 0.2%.

Markets across Asia were mostly lower as selling was generally concentrated on the emerging markets. Indonesia's Jakarta Composite (-2.2%) and the Philippines' PSEi (-1.9%) led to the downside. Meanwhile, the more notable indices were mostly higher with India's Sensex (+1.8%) leading the way as the rupee strengthened 1% against the greenback. Japan's Nikkei (+0.5%) saw a modest advance as Prime Minister Abe noted the next Tankan Survey, due out September 30, would be a key indicator as to the magnitude of the sales tax increase. Data from the region was light with Australia's GDP printing an in-line 0.6% quarter-over-quarter. 

·         Japan's Nikkei added 0.5% as shares gained for the fourth time in five days. Heavyweight Canon tacked on 3.8% after announcing it would buy back JPY50 billion worth of shares. 

·         Hong Kong's Hang Seng slipped 0.3% as trade slipped back below the 200-day moving average. Gold miners posted sound gains as Zhaojin Mining and Zijin Mining added 5.5% and 1.0%, respectively. On the downside, China Construction Bank shed 1.4% after Bank of America sold $1.5 billion in shares. 

·         In China, the Shanghai Composite rose 0.2% as trade ended at a two and a half-month high. Port stocks continued to see gains with Shanghai International Port surging the limit, 10%. 

European indices have spent the bulk of the session in negative territory with Italy's MIB (-1.9%) leading to the downside. Today's news flow was relatively light, but reports indicate the Troika has objected to the Greek government's plans to overhaul state companies due to plans not being decisive enough. Separately, Klaus Regling of the European Stability Mechanism said it is too early to tell whether Greece will require a third bailout. Investors received a fair share of economic data as Eurozone GDP held steady at 0.3%, as expected. Services PMI slipped to 50.7 from 51.0 (51.0 forecast) and retail sales ticked up 0.1% month-over-month (0.4% forecast, -0.7% prior).Elsewhere, Germany's Services PMI rose to 52.8 from 52.4 (52.4 consensus). Great Britain's Services PMI increased to 60.5 from 60.2 (59.0 expected). French Services PMI improved to 48.9 from 47.7 (47.7 forecast) while PPI rose 0.7% month-over-month (0.2% expected, -0.2% prior). Italy's Services PMI ticked up to 48.8 from 48.7 (49.4 consensus). Spain's Services PMI climbed to 50.4 from 48.5 (50.0 expected). 

·         Great Britain's FTSE is lower by 0.5% as airlines lead to the downside. EasyJet and TUI Travel trade with respective losses of 5.6% and 4.4%. Several miners are among the advancers with Eurasian Natural Resources, Fresnillo, and Rio Tinto up between 0.2% and 1.5%. 

·         In Germany, the DAX sports a loss of 0.9% with Deutsche Lufthansa as the weakest component, down 5.1%. Chemical producers outperform with K+S and Lanxess up 1.6% and 1.3%, respectively. 

·         France's CAC trades down 1.0% as 36 of 40 components hover in the red. Technology names Gemalto and STMicroelectronics hold respective losses of 2.3% and 3.1%. Industrials Bouygues and Vinci have shown relative strength. The two trade higher by 1.6% and 0.3%, respectively. 

·         Italy's MIB hovers near its lows with a loss of 1.9% as financials lag. Banco Popolare and Banca Monte dei Paschi are both down near 3.5%.

European markets are now closed; stock markets across Europe performed as follows: ·         UK's FTSE: + 0.1% ·         Germany's DAX: + 0.2% ·         France's CAC: + 0.2% ·         Spain's IBEX: + 0.5% ·         Portugal's PSI: + 0.2% ·         Italy's MIB Index: -1.4% ·         Irish Ovrl Index: -1.6% ·         Greece ATHEX Composite: + 0.1%

Market Internals

Market Internals -Technical-
The Nasdaq closed up 36 (+1.01%) at 3649, the S&P 500 closed up 13 (+0.81%) at 1653, and the Dow closed up 97 (+0.65%) at 14931. Action came on slightly above average volume (NYSE 727 mln vs. avg. of 696; NASDAQ 1741 mln vs. avg. of 1536), with advancers outpacing decliners (NYSE 2186/876, NASDAQ 1647/865) and new highs outpacing new lows (NYSE 70/34, NASDAQ 82/23). 

Relative Strength: 
India-INP +6.15%, Cocoa-NIB +3.68%, Indian Rupee-ICN +2.88%, Biotechnology-XBI +2.55%, South Korea-EWY +2.35%, Clean Energy-PBW +2.14%, Shipping-SEA +2.11%, Semiconductors-SMH +2.00%, Emerging Markets-EEM +1.76%, Asia-AAXJ +1.74%. 

Relative Weakness: 
Silver-SLV -2.99%, Platinum-PPLT -2.57%, Copper-JJC -1.99%, Commodities-GSG -1.55%, Grains-JJG -1.54%, Poland-EPOL -1.44%, Italy-EWI -0.83%, Egypt-EGPT -0.11%, Japanese Yen-FXY -0.09%, Chinese Yuan-CYB -0.04%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Nasdaq Leads Stocks Higher
The S&P 500 settled higher by 0.8%, regaining its 100-day moving average (1640/1641) shortly after the open. The Dow and S&P started the session by chopping around their respective flat lines before the two indices began tracking the Nasdaq, which outperformed with a gain of 1.0%. 

This morning, reports from Fox News indicated Senator John McCain was set to oppose the current Syria proposal after saying he would do so if the plan was not forceful enough. However, an afternoon vote containing two McCain amendments passed through the Senate Foreign Relations Committee by a 10-7 vote. The full Senate is expected to have a say on the measure next week. 

Stocks slipped from their highs in reaction to the results of the afternoon vote, but still managed to hold the vast majority of their gains. Meanwhile, Treasuries did not reflect much of a safety bid as the complex remained pinned to its lows. The benchmark 10-yr yield ended higher by 5 basis points at 2.894%. More notable was the move in the 2-yr yield, which added four basis points to end at 0.462%, the highest since June 2011. 

Nine of ten sectors posted gains with health care (+1.1%) ending in the lead. The sector received significant support from biotechnology as the iShares Nasdaq Biotechnology ETF (IBB 201.38, +3.53) climbed 1.8%. 

The outperformance of biotech and technology helped the Nasdaq settle ahead of the other indices. The largest tech component, Apple (AAPL 498.69, +10.11) advanced 2.1% following reports suggesting the company will unveil a new TV set-top box at its September 10 press event. 

Today's Nasdaq strength was not an unusual development. The tech-heavy index has outpaced the other indices throughout the third quarter. The index is higher by 7.2% since the end of June while the Dow is essentially unchanged (+0.1%) over that time. 

Outside of health care and technology, industrials (+1.0%), materials (+0.9%), telecom services (+1.3%), and discretionary shares (+1.0%) settled ahead of the broader market. The financial sector (+0.8%) was the early leader, but surrendered its spot as the afternoon progressed. 

The utilities space (-0.1%) was the lone decliner while consumer staples (+0.5%) and energy (+0.5%) underperformed. On a related note, crude oil slid 1.1% to $107.35 per barrel. 

Participation in today's session was in-line with longer-term averages as just under 730 million shares changed hands on the floor of the New York Stock Exchange. 

The Federal Reserve's September Beige Book did not send any shockwaves through the market as the central bank struck a familiar tone. The Fed said, "The economy has continued to expand at a modest to moderate pace" while residential real estate activity, "Increased moderately in most Districts." Lending activity was described as "mixed" with little change observed in lending standards. 

With regards to employment and inflation, the Fed said hiring "held steady or increased modestly" while upward price pressures "remained subdued." 

Today's economic data was limited to the July trade deficit, which widened to $39.1 billion from an upwardly revised $34.5 billion in June (from -$34.2 billion). The Briefing.com consensus expected the deficit to come in at $38.2 billion. 

The widening in the deficit resulted from imports increasing $3.5 billion versus June and exports decreasing $1.1 billion. The drop in exports was paced by a $1.6 billion decline in exports of capital goods, excluding automotive, and a $1.36 billion decline in exports of consumer goods, the bulk of which stemmed from a pullback in exports of jewelry, gem diamonds, and artwork, antiques and stamps. 

Conversely, imports increased on the back of a near $2.0 billion jump in imports of industrial supplies and materials, a $0.8 billion increase in imports of automotive vehicles, and a $0.7 billion increase in consumer goods, most of which stemmed from imports of artwork, antiques and stamps. The widening in the trade deficit is going to factor negatively in GDP models for the third quarter. 

Tomorrow, August Challenger Job Cuts will be reported at 7:30 ET, August ADP Employment Change will cross the wires at 8:15 ET, and weekly initial claims will be released at 8:30 ET. Also at 8:30 ET, revised second quarter productivity and unit labor costs will be reported. The busy day of data will be topped off with the 10:00 ET release of July factory orders and the August ISM Services report.

Commodities

Closing Commodities: Crude Oil Ends The Day 1.3% Lower, As Syria Remains In Focus

·         Crude oil and precious metals traded lower today despite a weaker dollar index. Investors reacted to opposition to an attack on Syria.

·         Reports indicated that Russian President Vladimir Putin said the U.S. had no right to strike Syria without UN approval. In addition, Fox News reported that Senator John McCain is opposing the current Syria proposal.

·         Dec gold fell back below $1400.00 per ounce, dipping to a session low of $1384.60 per ounce. It settled at $1390.10 per ounce, booking a 1.6% loss.

·         Dec silver retreated from its session high of $23.80 per ounce and settled 1.4% lower at $23.43 per ounce.

·         Oct crude oil pulled back from its session high of $108.14 per barrel set at pit trade open and dipped as low as $106.84 per barrel. It eventually settled at $107.19 per barrel, or 1.3% lower.

·         Natural gas, on the other hand, extended yesterday's gains despite spending most of its session in negative territory. It came off its session low of $3.64 per MMBtu and broke into the black as it headed towards the close, settling with a 0.3% gain at $3.68 per MMBtu.

COMEX Metals Closing Prices

·         Dec gold fell $21.90 to $1390.10/ounce 

o    Gold fell back below $1400.00 on reports of opposition to an attack on Syria. Reports indicated that Russian President Vladimir Putin said the U.S. had no right to strike Syria without UN approval. In addition, Fox News reported that Senator John McCain is opposing the current Syria proposal. The yellow metal dipped to a session low of $1384.60 and settled just above that level, booking a 1.6% loss. 

·         Dec silver fell $1.00 to $23.43/ounce 

o    Silver also spent its entire floor session trading deep in negative territory. It pulled back from its session high of $23.80 and eventually settled 4.1% lower. 

·         Dec copper fell 6 cents to $3.24/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Dec corn fell 6 cents to $4.69/bushel 

·         Dec wheat fell 1 cent to $6.46/bushel 

·         Nov soybeans fell 34 cents to $13.52/bushel 

·         Oct ethanol fell 6 cents to $1.88/gallon 

·         Nov sugar (#16 (U.S.)) rose 0.10 of a penny to 21.12 cents/lbs

NYMEX Energy Closing Prices

·         Oct crude oil fell $1.38 to $107.19/barrel 

o    Crude oil fell today as investors reacted to objections to an attack on Syria. Reports indicated that Russian President Vladimir Putin said the U.S. had no right to strike Syria without UN approval. In addition, Fox News reported that Senator John McCain is opposing the current Syria proposal. The energy component pulled back from its session high of $108.14 set at pit trade open and dipped as low as $106.84. It eventually settled with a 1.3% loss. 

·         Oct natural gas rose 1 cent to $3.68/MMBtu 

o    Natural gas extended yesterday's gains despite spending most of the session in negative territory. It brushed a session low of $3.64 but broke into the black as it headed towards the close and booked a 0.3% gain. 

·         Oct heating oil fell 1 cent to $3.14/gallon 

·         Oct RBOB gasoline fell 1 cent to $2.86/gallon

Treasuries

Most Yields Close at Two-Year Highs: 10-yr: -11/32..2.894%..USD/JPY: 99.62..EUR/USD: 1.3211
Treasuries were pressured yet again as sellers took control early in the U.S. session and never let up. A wider than anticipated trade deficit ($39.1 bln actual v. 38.2 bln expected), coupled with a potential delay to the vote on taking military action in Syria, and the generally upbeat Fed Beige Book was all the ammo sellers needed to remain in control. All yields closed at their highest levels in at least two years, with the exception of the 30-yr. The 2-yr yield tacked on 4 bps to end at 0.462%, its highest since June 2011. Meanwhile, the 5-yr and 10-yr yields closed at two-year highs of 1.741% and 2.897%, respectively. Interestingly, the 30-yr added just 2 bps, settling at 3.799%, and managing to its own two-year high. Little change took place along the yield curve as the 2-10-yr spread widened slightly to 243.5 bps. Meanwhile, precious metals were hit hard as gold shed $20 to $1392 and silver sank $0.95 to near $23.45. Data is heavy on Thursday as Challenger Job Cuts (7:30), ADP Employment Change (8:30), initial and continuing claims, productivity-rev., unit labor costs (8:30), factory orders, and ISM Services (10) are released. Minny's Kocherlakota will speak at the University of Wisconsin - La Crosse (8).

Next Day In View 

Economic Data Summary:

·         Weekly MBA Mortgage Applications 1.3% vs Briefing.com consensus of ; was revised to -2.5% from

·         July July Trade Balance -$39.1 bln vs Briefing.com consensus of -$38.2 bln; June was revised to -$34.5 bln from -$34.2 bln

o     Even though the trade deficit increased more than the consensus expected, it cannot be classified as a typical surprise. The trade deficit had fallen to its lowest point since October 2009 in June and normal volatility implied the deficit would increase back to its three-month moving average of $39.1 bln. In fact, the three month-moving average has barely changed since March. The goods deficit increased to $58.6 bln in July from $54.1 bln in June. That is still below the $63.1 bln deficit recorded in May. The services surplus was virtually unchanged, declining from $19.5 bln in June to $19.4 bln. 

Upcoming Economic Data:

·         August Challenger Jobs Report due out Thursday at 7:30 (Briefing.com consensus of ; July was 2.3%)

·         August ADP Employment Report due out Thursday at 8:15 (Briefing.com consensus of 180K; July was 200K)

·         Weekly Initial Clams due out Thursday at 8:30 (Briefing.com consensus of 333K; Last Week was 331K)

·         Weekly Continuing Claims due out Thursday at 8:30 (Briefing.com consensus of 2.977 M ; Last Week was 2.898 M )

·         Q2 Productivity-Rev due out Thursday at 8:30 (Briefing.com consensus of 1.5%; First Quarter was 0.9%)

·         Q2 Unit Labor Costs due out Thursday at 8:30 (Briefing.com consensus of 1.0%; First Quarter was 1.4%)

·         July Factory Orders due out Thursday at 10:00 (Briefing.com consensus of -3.7%; June was 1.5%)

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

Upcoming Fed/Treasury Events:

·         San Francisco Fed President John Williams (not a voting FOMC member, recently hawkish) to speak today at 12:30

·         Minneapolis Fed President Narayana Kocherlakota (not a voting FOMC member, recently dovish) to speak today at 20:00 and tomorrow at 9:00

·         Fed Beige Book due out today at 14:00

Other International Events of Interest

·         China's HSBC Services PMI rose to 52.8 from 51.3. 

·         India's HSBC Services PMI ticked down to 47.6 from 47.9. 

·         Eurozone GDP held steady at 0.3%, as expected. In addition, Services PMI slipped to 50.7 from 51.0 (51.0 forecast) and retail sales ticked up 0.1% month-over-month (0.4% forecast, -0.7% prior). 

·         BoJ Rate Decision tomorrow at 1:00 am (time approx)

·         BoE Decision tomorrow at 7:00

·         ECB Decision tomorrow at 7:45 followed my Mario Draghi press conference at 8:30

Economic Commentary

Fed Beige Book SUmmary
Reports from the twelve Federal Reserve Districts suggest that national economic activity continued to expand at a modest to moderate pace during the reporting period of early July through late August. Eight Districts characterized growth as moderate; of the remaining four, Boston, Atlanta, and San Francisco reported modest growth, and Chicago indicated activity had improved. Consumer spending rose in most Districts, reflecting, in part, strong demand for automobiles and housing-related goods. Activity in the travel and tourism sector expanded in most areas. Demand for nonfinancial services, including professional and transportation services, increased slightly on net. Manufacturing activity expanded modestly. Residential real estate activity increased moderately in most Districts, and demand for nonresidential real estate gained overall. Lending activity was mixed. Lending standards were largely unchanged, while credit quality improved. Demand for agricultural products was strong during the reporting period, but growing conditions and production in some areas were somewhat weak as a consequence of extreme weather. Demand for natural resource products was stable or up slightly, and extraction increased in anticipation of further demand growth. For most occupations and industries, hiring held steady or increased modestly relative to the prior reporting period. Upward price pressures remained subdued, and prices increased slightly during the reporting period. Wage pressures continued to be modest overall.
On other news.... 

Retail August Same Store Sales Preview— hopes still linger on upside from late B2S shopping
A handful of retailers report August sales tomorrow (Thursday September 5) before the open retailers. ZUMZ reports today after the close (earnings tomorrow) and GPS tomorrow after the close. WAG and RAD will report prelim qtrly sales with their monthly results.

The August retail period was four weeks that ended on Saturday Aug 31 with Back to School shopping as primary catalyst. Most retailers recently reported Q2 results with updated guidance. Heavy promotional activity and weak traffic was commonly mentioned in commentary and/or earnings conference calls. Hopes still linger for 2H pick-up in August sales as consumers took advantage of sales (also consistent with late shopping trends). ICSC/Goldman data suggests August sales increased 4.5-5% (unchanged from its initial estimate) and Redbook +3.9% growth. Looking ahead, Redbook issued prelim estimates for Sept comps to increase 4.3% (will be five-week month ending Oct 5 and includes large part of Labor Day sales).

GUIDANCE/PRELIM QTRLY SALES: Most of the retailers recently reported earnings and are not likely to issue guidance with monthly results.  A few that do not report comps may still update quarterly expectations (BBBY, PIR, ULTA).

In contrast to June's run-up into monthly comps, retailers had been under significant pressure ahead of last month's sales—with initial decline spurred by American Eagle (AEO) guidance/ disconcerting commentary exacerbated by yesterday's Polo Ralph Lauren (RL) earnings/comps/guidance. Heading into July's comps results, the SPDR Retail (XRT) was down 2.9% on the week, Retail HOLDRS Trust (RTH) -1.6% vs S&P500 index (SPX) down ~1%. The retail sector rebounded after July results and outperformed the broader market. The SPDR Retail (XRT) was +0.9%, Retail HOLDRS Trust (RTH) +0.7%, the Consumer Dis Spdr (XLY) +0.7% vs S&P500 index (SPX) +0.4%.

Some cos that beat July Same-Store Sales estimates include: 

·         Drugstore names Walgreen's (WAG) and Rite Aid (RAD) reported better-than-expected monthly sales for the third consecutive month. WAG reported July comps +6.3% vs +5.3% consensus and RAD reported July comps of +1.3% vs -0.4% consensus. 

·         L Brands (LTD) reported July comps of 3% vs 1.5% consensus, raised Q2 EPS guidance and reported prelim Q2 sales above consensus. The stock opened up 5% and closed at same level. 

·         Discount retailers Stein Mart (SMRT), Fred's (FRED) and PriceSmart (PSMT) all topped estimates for the third consecutive month. SMRT reported July comps of 3.7% vs 2.7% consensus but reported prelim Q2 sales slightly below consensus. The stock gapped up 3.3% at the open and closed 1.3% higher. FRED reported July comps of 2.2% vs 1.4% consensus, reaffirmed EPS guidance and reported upside Q2 sales. The stock was modestly higher the following day. PSMT reported yesterday before the open July comps 8.9% vs. 8.3% consensus (stock closed ~2% lower).   

Missed July Same-Store Sales estimates: 

·         Cato (CATO) reported July comps of -5% vs -3% consensus and prelim Q2 sales below consensus. Co still sees Q2 EPS at high end of original guidance. The stock was up ~1.2% the next day. 

·         Zumiez Inc (ZUMZ) reported July comps of 0.8% vs 1.7% consensus (no guidance or commentary). The stock opened flat but ended more than 5% higher. 

·         Costco (COST) reported July comps of 4% vs 4.8% consensus and is under pressure -- closed down ~1.6%. 

·         Gap Inc (GPS) reported July comps of 1% vs 1.6% consensus but issued upside Q2 EPS guidance and reported prelim sales above consensus. 

·         Buckle (BKE) reported comps of 2.1% vs 2.6% consensus with prelim Q2 sales above consensus (as usual co did not issue EPS guidance/commentary). The stock ended in positive territory. 

Currencies 

Dollar Ends Five-Day Winning Streak: 10-yr: -12/32..2.893%..USD/JPY: 99.75..EUR/USD: 1.3211
The Dollar Index has seen light buying over the course of the afternoon lift action off session lows and up to 82.15. The greenback has seen little reaction to the latest Fed Beige Book, which suggested the economy continues to expand at a ‘modest to moderate pace.' Today's losses have the Index on track for what looks like its first loss in six sessions. 

·         EURUSD is +45 pips at 1.3210 as trade holds just off session highs. Today's advance has run the single currency back above its 50-day moving average, and has action testing resistance in the area. This pair will be under careful scrutiny tomorrow with the European Central Bank expected to keep its benchmark rate steady at 0.50%. Eurozone data is limited to German factory orders. Click here to see a daily EURUSD chart.

·         GBPUSD is +70 pips at 1.5630 as trade tests the August highs. Today's bid comes after Britain's Services PMI climbed to 60.5, its best since January 2007, and has action higher for a third straight session. Tomorrow, the Bank of England is expected to hold both its key rate and asset purchase program steady at 0.50% and GBP375 bln, respectively.

·         USDCHF is -10 pips at .9355 amid a choppy trade. Today's light selling has the pair probing its 50- and 200-day moving averages, but action still remains near a one-month high.

·         USDJPY is +15 pips at 99.70 ahead of tonight's Bank of Japan rate decision. The pair has gained in five of the past six days with the recent advance running action through trendline resistance that was helped by both the 50- and 100-day moving averages. The July highs reside near 101.00. 

·         AUDUSD is +115 pips at .9170 as shorts run for cover following the in-line Australian GDP (0.6% QoQ). The .9200 area will be in focus over the coming days as a breakout sets up a potential move into the 100-day moving average (.9455). Australia's trade balance will cross the wires tonight. 

·         USDCAD is -45 pips at 1.0490 following today's Bank of Canada decision to hold steady at 1.00%. In its accompanying Statement, the BOC noted "As long as there is significant slack in the Canadian economy, the inflation outlook remains muted, and imbalances in the household sector continue to evolve constructively, the considerable monetary policy stimulus currently in place will remain appropriate. Over time, as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected, consistent with achieving the 2 per cent inflation target." Near-term support in the 1.0475 area has held, but should that level give way look for a test of the 50-day moving average near 1.0410.

Jason's Commentaries


It came as another surprise that the market was up more than 90 points on the Dow. With good economic data coming from the European side and good auto sales in the US drove the market up higher. Market started with a bullish bias and continued all the way till after lunch where there are some profit taking. At 230pm ET, market attempts to chuck up more gains however the last minute profit taking caused the market to close below the triple digit gain. Volumes went back normal last night at over 700m shares traded. It was clearly a bullish day, with the bulls overruning the bears. VIX went down 4.39%. Healthcare and Discretionary were the main leaders with more than 1.05% gain each. On the technical perspective, all 3 indices crossed over their immediate moving average and it seems to me it's getting more bullish. However, the employment report today and tomorrow has a very high chance of turning the tide. There are a slew of data coming within these 2 days. Prepare for any unexpected turn of events. Congress has yet to approve the strike on Syria, and we've got the ISM reports and employment report coming out within the next 2 days.

Market Call: FLAT to upside

Date: 5 Sep 2013