6 Sep 2013 AMC

6 Sep 2013 AMC

Market Summary 

Before Market Open 

The S&P 500 futures hover near their highs with a gain of 0.6%. Futures jumped to their best levels of pre-market action after participants viewed the disappointing August nonfarm payrolls report as not strong enough to support lowering the pace of asset purchases in the immediate-term.

Asian markets ended mixed with China's Shanghai Composite adding 0.8% while Japan's Nikkei fell 1.5% as USDJPY slipped about 50 pips into the 99.65 area. In addition, equities were pressured by confirmation of additional leaks of radioactive water at Fukushima and South Korea expanding its ban on Japanese seafood products due to contamination concerns. Separate reports suggesting Madrid is likely to overtake Tokyo in the 2020 Olympic bid may have also contributed to the weakness. Economic data was limited as Japan's Leading Index ticked up to 107.8 from 107.2 (107.9 expected) and Australia's AIG Construction Index ticked down to 43.7 from 44.1. 

·         In Japan, the Nikkei closed lower by 1.5% as Tokyo Electric Power Co fell 2.4%. Consumer names were also weak with Fast Retailing down 3.7%. On the upside, technology names Dainippon Screen Manufacturing and Nippon Electric Glass both posted gains near 1.5% apiece. 

·         Hong Kong's Hang Seng added 0.1% as financials and energy names outperformed. China Coal Energy gained 2.7% and HSBC advanced 1.1%. Retailer Li & Fung led to the downside with a loss of 2.3%. 

·         In China, the Shanghai Composite gained 0.8% as financials outperformed. China Life Insurance added 0.5% and Bank of Communications surged 3.0%. 

Major European indices were little changed before the U.S. nonfarm payrolls report sent the indices to their highs. Portugal has returned to the headlines with its benchmark 10-yr yield s climbing to 7.04% as the upcoming troika review is expected to show the need for additional bailout funds for the struggling sovereign. In other news, Moody's has raised its outlook on the German banking sector to ‘Stable' from ‘Negative.' Economic data was plentiful. Germany reported a trade surplus of EUR14.5 billion (EUR16.1 billion expected, EUR15.8 billion prior). France reported a trade deficit of EUR5.1 billion (-EUR4.6 billion forecast, -EUR4.5 billion prior) and a government budget deficit of EUR80.8 billion (-EUR63.0 billion expected, -EUR59.3 billion prior). Lastly, consumer confidence climbed to 84 from 82 (83 consensus). Great Britain's Halifax House Price Index ticked up 0.4% month-over-month (0.7% expected, 0.9% prior), industrial production was unchanged month-over-month (0.1% forecast, 1.3% previous), and manufacturing production increased 0.2% month-over-month (0.3% consensus, 2.0% prior). In addition, the country reported a trade deficit of GBP9.85 billion (-GBP8.15 billion expected, -GBP8.17 billion prior). Spanish industrial production fell 1.4% year-over-year (-1.5% consensus, -2.2% prior). 

·         Germany's DAX is higher by 0.4% as utilities lead. E.ON and RWE sports respective gains of 5.9% and 7.3% after indications the government could raise limits on subsidies for renewable energy. 

·         Great Britain's FTSE trades up 0.5%. Tullow Oil leads the way with a gain of 3.2% while miners trade mostly lower. Anglo American and Randgold Resources are lower by 0.3% and 0.9%, respectively. 

·         France's CAC holds a gain of 0.5% with financials showing strength. BNP Paribas and Societe Generale are both up near 1.5%.

Market Internals

Market Internals -Technical-
The Nasdaq closed up 1 (+0.03%) at 3660, the S&P 500 closed flat at 1655, and the Dow closed down 15 (-0.10%) at 14923. Action came on mixed volume (NYSE 672 mln vs. avg. of 690; NASDAQ 1666 mln vs. avg. of 1536), with mixed advancers/decliners (NYSE 1753/1290, NASDAQ 1201/1303) and new highs outpacing new lows (NYSE 106/40, NASDAQ 102/19). 

Relative Strength: 
Chile-ECH +3.18%, Indonesia-IDX +3.12%, Thailand-THD +3.02%, Junior Gold Miners-GDXJ +2.93%, Lithium-LIT +2.93%, Silver-SLV +2.64%, South Africa-EZA +2.60%, Middle East and Africa-GAF +2.26%, Real Estate-IYR +1.83%, Realty Majors-ICF +1.80%. 

Relative Weakness: 
Natural Gas-UNG -1.28%, U.S. Dollar-UUP -0.58%, Clean Energy-PBW -0.52%, Retail-XRT -0.51%, Banks-KBE -0.49%, Chinese Yuan-CYB -0.08%, Egypt-EGPT -0.05%

Leaders and Laggards

Technical Updates

Commentaries 

Closing Market Summary: Stocks End Upbeat Week on Cautious Note
The S&P 500 eked out the slimmest of gains (+0.09 point) to register its fourth consecutive advance, maintaining its September advance at 1.4%. 

Prior to the opening bell, it was reported that August nonfarm payrolls increased by 169,000, which was below the 177,000 expected by the Briefing.com consensus. Private payrolls came in at 152,000 while the consensus expected a reading closer to 180,000. More notably, July nonfarm payrolls were revised down nearly 36% to 104,000 from 162,000 while private payrolls saw a 21% revision to 127,000 from 161,000. The unemployment rate ticked down to 7.3% from 7.4%, but once again, that was the result of a drop in the labor force participation rate to 63.2%. This represents the lowest rate since August 1978. The one bright spot could be found in aggregate income, which increased 0.6%. 

A recent stretch of better-than-expected data played into the expectation that the Fed may lower the pace of its asset purchases at the upcoming September 17/18 FOMC meeting. However, today's jobs report painted a more uncertain picture, which sparked a market reaction consistent with lowered expectations of tapering in the near term. 

Immediately following the report, crude oil, equity futures, Treasuries, and gold futures jumped to their highs while the Dollar Index (82.15, -0.48) tumbled to its lows. Most notably, the 10-yr note saw its yield slide from 2.96% to 2.87%. However, Treasuries surrendered a portion of their gains intraday with the benchmark 10-yr yield closing at 2.94%. 

The opening hour saw the S&P lose its 50-day average (1657/1658) after headlines from the conclusion of the G-20 summit indicated Russian President Vladimir Putin said his country will assist Syria in the event of an external attack. However, Russia and Syria have been allied for years, thus Mr. Putin's comments were not necessarily a "new" development. The ensuing selloff ended as the S&P bounced at its 100-day moving average (1642/1643) and regained its 50-day average in late-morning action. 

Stocks slipped from their highs and the S&P once again lost its 50-day average during the final hour after reports from Al-Arabiya indicated another chemical attack has taken place in Damascus. However, the veracity of the reports could not be confirmed as Al-Arabiya attributed the report to an ‘unidentified activist.' 

With the continued uncertainty surrounding the situation in the Middle East, crude oil climbed throughout the day. The energy component ended higher by 2.0% at $110.54 per barrel, registering its highest close since May 2011. 

Elsewhere, gold futures climbed 1.0% to $1.386.70 per troy ounce. This contributed to the strength of miners as the Market Vectors Gold Miners ETF (GDX 28.01, +0.48) advanced 1.7%. 

Consumer staples (+0.1%) and utilities (+0.6%) outperformed as the retreat in yields provided the two groups with a measure of support. 

Today's participation was somewhat limited as 672 million shares changed hands on the floor of the New York Stock Exchange. 

Monday's economic data will be limited to the July consumer credit report, which is scheduled to be released at 15:00 ET. 

Commodities

Closing Commodities: Crude Oil Ends 2% Higher As Syria Remains In Focus

·         Commodities ended mostly higher today, excluding natural gas and ethanol

·         Crude oil futures continues to slowly move higher today, rising as high as $110.70 a couple of minutes ahead of the end of floor trading. Syria continued to be a focus, which provided price support to crude oil prices. By the end of today's session, crude oil ended 2% higher at $110.54/barrel

·         Natural gas futures displayed the opposite trend today, hitting its low for the day at $3.52/MMBtu during the afternoon session. Oct natural gas fell 1.4% to $3.53/MMBtu

·         After surging higher this morning, both gold and silver continued to hold gains for the rest of the day, trading just under session highs. Dec gold rose 1% to $1,386.70/oz, while Dec silver rose 2.8% to $23.90/oz.

NYMEX Energy Closing Prices

·         Oct crude oil rose $2.14 to $110.54/barrel

·         Oct natural gas fell 5 cents to $3.53/MMBtu

·         Oct heating oil rose 2 cents at $3.16/gallon

·         Oct RBOB gasoline rose 1 cent to $2.85/gallon

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Dec corn rose 7 cents to $4.68/bushel

·         Dec wheat rose 9 cents to $6.48/bushel

·         Nov soybeans rose 3 cents to $13.71/bushel

·         Oct ethanol settled unchanged at $1.88/gallon

·         Nov sugar (#16 (U.S.)) rose 0.05 of a penny to 21.07 cents/lbs

COMEX Metals Closing Prices

·         Dec gold rose $14.20 to $1386.70/ounce 

o    Gold advanced today as the dollar index fell following weaker-than-anticipated August nonfarm payrolls. Moreover, July payrolls were revised down nearly 36% to 104,000 from 162,000. The yellow metal popped into positive territory from its session low of $1358.80 and touched a session high of $1393.60. It chopped around slightly below that level for the remainder of pit trade and settled with a 1.0% gain. 

·         Dec silver rose $0.65 to $23.90/ounce 

o    Silver also rallied on the jobs report. It advanced to a session high of $23.99 in morning floor action, and like gold, consolidated just below that level. It eventually settled with a solid 2.8% gain. 

·         Dec copper rose 1 cent to $3.26/lbs

Treasuries

Treasuries Benefit from Jobs Report Disappointment
It was a good day for the Treasury market, but perhaps not as good as the final numbers might suggest. The 10-yr note gained a half point, lowering its yield to 2.94%.

While the drop in yield will be attributed in most quarters to the relatively disappointing August employment report (nonfarm payrolls up 169,000, downward revisions to June and July; and a dip in unemployment rate that was due to dip in labor force participation rate), it would be remiss not to add that the bulk of today's gains came in front of the release of the August jobs data. To that end, the 10-yr note was up 10 ticks just before the 8:30 a.m. ET release of the employment data. It was up more than a point soon thereafter as the employment report failed to live up to bullish growth expectations which, in turn, created a sense that a tapering announcement at the September 17-18 FOMC meeting may not be a foregone conclusion.

Notably, though, the 10-yr gave back the bulk of its post-employment report gains and faded into the close. The fade coincided with the stock market extending its gains in what turned out to be a loopy day on account of various headlines surrounding the situation in Syria.

Stocks and bonds both rallied together initially after the employment report, but stocks took an abrupt turn south on a headline indicating Russia would support Syria in the event of an external strike. The Dow Jones Industrial Average, which was up about 50 points, was soon down as many as 148 points. Treasuries, however, barely budged on the headline and ultimately served as a good tell that the headline wasn't as disturbing as first thought since Russia is already supporting Syria.

As that understanding set in, stocks rebounded almost as sharply as they sold off. However, stocks also faded late in their session in what may have been a trade of caution in front of the weekend and next week's vote in Congress on the resolution authorizing a strike against Syria. President Obama said at the G-20 Summit today that he will be addressing the American people about Syria from the White House on Tuesday.

So, while the uncertainty surrounding Syria created some intra-day volatility, the Treasury market mostly keyed off the employment report and some technical factors as support came in when the 10-yr yield hit 3.00% in the overnight trade.

There was buying across the yield curve, but it was concentrated in the belly of the curve. Yields dropped between seven and 10 basis points in maturities ranging from the 2-yr note to the 10-yr note. The 30-yr bond dipped just two basis points to 3.86%.

Notwithstanding today's improvement, the yield on the 10-yr note ended the week 17 basis points higher than where it began the week.

The Week Ahead  

·         Monday's data is limited to consumer credit (15). Fed speak starts and ends for the week with SF's Williams on his home turf discussing "A View From the Fed" (11).
 

·         Tuesday's data is light with just the JOLTS -- Job Openings being released (10). Treasury will auction $31 bln 3-yr notes.
 

·         Wednesday will see the weekly MBA Mortgage Index (7) and wholesale inventories (10). Treasury will reopen $21 bln 10-yr notes. 

·         Data remains slow on Thursday with initial and continuing claims, import/export prices (8:30), and the Treasury budget (14). Treasury will hold a $13 bln 30-yr reopening.
 

·         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.

On other news.... 








Currencies 

Weekly Analysis
Week 36



Technical Updates



 


 
Briefing's Commentaries

Week in Review: Stocks and Yields Climb 

On Monday, bond and equity markets were closed for Labor Day. Tuesday's session saw the S&P 500 add 0.4% after intraday weakness knocked the index off its high, and below its 100-day moving average. Equities displayed broad strength at the open after global indices rallied on Monday. 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 likely. Both Speaker Boehner and Mr. Cantor said they support the president's "call to action" with U.S. Congress scheduled to debate the issue during the week of September 9. Crude oil climbed with the remarks from the two Congressional leaders providing an additional boost. The energy component rose 0.8% to $108.55 per barrel while the energy sector added 0.6%. Commodities were strong all-around as 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%. 

The market resumed its climb on Wednesday. The S&P 500 settled higher by 0.8% and regained 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%. Morning reports revealing Senator John McCain's tepid support for the first draft of the Syria strike proposal fueled speculation that the whole plan could be in danger of unraveling. That was enough to spark a risk rally with some short-covering activity peppered in after sellers had pressed on anticipating the plan to make its way swiftly through the Senate Foreign Relations Committee. In the end, an afternoon vote containing two McCain amendments passed through the Committee by a 10-7 vote. 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. 

On Thursday, the S&P 500 added 0.1% to register its third consecutive advance. Although stocks finished in positive territory, their gains were capped by the benchmark 10-yr yield hitting its highest levels since July 2011.Treasuries began displaying weakness overnight as the Asian session got underway. The selling paused briefly during U.S. pre-market action before a slate of better-than-expected economic reports for initial claims, second quarter productivity, factory orders, and ISM Services lent support to the belief that the Federal Reserve would begin slowing the pace of its asset purchases at the upcoming September 17/18 policy meeting. The benchmark 10-yr yield rose eight basis points to 2.98%. The continued rise in interest rates has pressured on the most rate-sensitive sectors. Consumer staples (-0.1%), telecom services (-0.8%), and utilities (-0.4%) finished at the bottom of the Thursday leader board, which widened their third quarter losses. Since the start of July, the three sectors are down 0.5%, 6.2%, and 3.2%, respectively. Meanwhile, the last countercyclical group, health care, maintained its quarter-to-date gain of 5.1% thanks to the continued strength of biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 201.55, -0.37) is higher by 16.1% this quarter. In turn, the relative strength of biotech companies has helped the Nasdaq outperformed the other indices during the third quarter.



Next Week In View




Economic Summary

Economic Summary: NFP's miss expectations as Labor Force Participation Rate hits 35 year low; Charlie Evans says Fed will likely reduce asset purchases later this year
Economic Data Summary:

·         August Nonfarm Payrolls 169K vs Briefing.com consensus of 177K; July was revised to 104K from 162K

·         August Nonfarm Private Payrolls 152K vs Briefing.com consensus of 180K; July was revised to 127K from 161K

o    Notable Job Gainers:

§  Manufacturing +14K

§  Transportation and warehousing +44K

§  Education and health services +43K

§  Government +17K

o    Notable Job Losses:

§  Financial activities -5K

§  Nondurable goods -8K

§   Government payrolls reversed directions and added 17,000 new jobs in August after shedding 23,000 jobs in July. Many of these gains, however, may be due to seasonal adjustment biases as the fall school session began earlier in the month than normal. Private payrolls increased by 152,000 jobs in August after adding 127,000 (from 161,000) in July. The consensus expected 180,000 new private payrolls. With the exception of the information sector (-18,000), financial activities sector (-5,000) and construction sector (unchanged), all labor sectors added jobs in August. The largest gains came from retail (44,000) and education and health services (43,000). Fortunately, some of the underlying trends do point toward solid economic gains for the third quarter. 

·         August Unemployment Rate 7.3% vs Briefing.com consensus of 7.4%; July was 7.4%

o    The drop in the unemployment rate, however, was not due to strengthening trends in the labor sector. Instead, the entire dip in the unemployment rate was due to the labor force declining by 312,000 people in August. The number of people employed fell by 115,000. If the labor force participation rate remained at July levels, the unemployment rate would have increased to nearly 7.6%.

·         August Hourly Earnings 0.2% vs Briefing.com consensus of 0.2%; July was revised to 0.0% from -0.1%

·         August Average Workweek 34.5 vs Briefing.com consensus of 34.5; July was 34.4

Fed/Treasury Events Summary:

·         Chicago Fed President Charlie Evans (voting FOMC member, typically dovish) gave a speech on monetary policy.

o    Mr Evans said "I do expect, however, that the outlook will materialize in such a way that we'd likely reduce the LSAP rate starting later this year and subsequently wind down these purchases over a couple of stages. For me, to start the wind-down, it will be best to have confidence that the incoming data show that economic growth gained traction during the third quarter of this year and that the transitory factors that we think have held down inflation really do turn out to be transitory

o    Mr Evans also  believes the economy still needs support from easy Fed policy, and that the Fed could begin reducing asset purchases later this year. He sees the first rate hike likely in mid to late 2015. 

o    Briefing Note: On August 6th,  Evans said he would not rule out cuts to bond buys to begin next month (September).

Upcoming Economic Data:

·         July Consumer Credit due out Monday at 15:00 (Briefing.com consensus of ; June was $13.8 bln)

Upcoming Fed/Treasury Events:

·         Kansas City Fed President Esther George (voting FOMC member, dissenter, hawkish) to speak today at 13:30

·         San Fran Fed President John Williams (not a voting FOMC member, recently hawkish) to speak Monday at 11:00

Other International Events of Interest

·         Germany reported a trade surplus of EUR14.5 billion (EUR16.1 billion expected, EUR15.8 billion prior). 

Other news
The stock market started today's session on a higher note, but reversed course in abrupt fashion. The catalyst for the reversal appeared to be headlines indicating Russian President Putin has said Russia will assist Syria if an external attack occurs. Such headlines raise the specter of a broader conflict unfolding in the wake of a US-led strike against Syria. That thought quickly engendered a renewed sense of uncertainty that has not sat well with the stock market. The Dow Jones Industrial Average, which was up 52 points at its high, is now down 105 points. 

President Obama is currently conducting a press conference at the G-20 Summit in Russia and is again pressing his belief that the US does not need to, and presumably won't, wait for UN approval to strike Syria because of the political paralysis of the UN Security Council.

The striking thing about the reversal in the stock market is that it hasn't translated into larger gains for the Treasury market. The 10-yr note has added only about two ticks (now +28/32 at 2.89%) from the time the Russian headlines hit. Perhaps, then, there are some other factors at work behind the selling in the stock market. It is hard to say, but the inverse correlation between the stock and bond market doesn't measure up (yet) to assert that the selling in stocks is all about the Syrian situation.

To that end, the August employment report wasn't all it was hoped to be as it simply stirred the pot of uncertainty regarding the timing of a tapering announcement; and the early move in the S&P 500 was rejected at the 1662 level, which was a whisker shy of the 50-day simple moving average at 1663/1664.

The Syrian situation certainly has the potential to be a disruptive force, but we would have expected more out of the Treasury market if it was the only force at work at the moment.

Jason's Commentaries

Nonfarm Payrolls came in worst than expected on Friday, with 169k jobs added into the economy but the unemployment rate dropped to 7.3%. Market immediately took a sharp drop at the opening bell but quickly reversed by 10am after Russian President Putin commented that Russian will assist Syria if attack occurs at the G20 meeting. That quickly took the market back up above the green and held above the green till the final hour. During the final hour, some profit taking occurred. which caused Dow to slip into the red. But however, it was definitely a very flat and volatile day.  Volumes were standing at 666.5m shares traded on the NYSE, but it was slightly more bullish than bearish except that VIX went higher. The main laggard Discretionary and materials, posting a small loss of 0.12% while utilities led the market higher with 0.71% gain.

While looking at the technical perspective, it seems that the 15000 level on the Dow is a tough one to break. And the Dow is currently held back by its 20MA. However, the S&P500 is slightly away from its nearest resistance of 1670 but is facing resistance by it's 50MA. While on the weekly perspective, it's a bullish harami across all 3 indices.Perhaps we're likely to go through a sideways market for a while. There are a few variables to look out for in the coming week.
1) Syria war decision
2) The next Fed Chairman

Other than that, we do not have much economic news coming this week. The market will be looking at other areas for more leadership.

Market Call: FLAT

Date: 9 Sep 2013