23 Oct 2013 AMC- Market turned down as energy sector lagged and Chinese bank rate spiked 3%

23 Oct 2013 AMC- Market turned down as energy sector lagged and Chinese bank rate spiked 3%

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: -0.3%

·         Germany's DAX: -0.3%

·         France's CAC: -0.8%

·         Spain's IBEX: -1.8%

·         Portugal's PSI: -1.6%

·         Italy's MIB Index: -2.4%

·         Irish Ovrl Index: -0.5%

·         Greece ATHEX Composite: -3.8%

Before Market Opens

S&P futures vs fair value: -6.10. Nasdaq futures vs fair value: -15.00.
The S&P 500 futures trade lower by 0.4%.

Asian markets ended broadly lower with Japan's Nikkei (-2.0%) leading to the downside. However, the weakness originated in China amid indications the PBoC may tighten monetary policy due to inflation concerns. On a related note, the Shanghai Interbank Offered Rate (SHIBOR) rose notably with the overnight rate adding almost 73 basis points to 3.78%. Meanwhile, the one-month rate climbed 11 basis points to 4.81%. Regional economic data was limited to news from Australia where the CPI rose 1.2% quarter-over-quarter (0.8% forecast, 0.4% prior) while the year-over-year reading increased 2.2% (1.8% expected, 2.4% previous). In addition, trimmed mean CPI rose 0.7% quarter-over-quarter (0.6% forecast, 0.6% prior) and weighted mean CPI increased 0.6% quarter-over-quarter (0.6% expected, 0.6% previous). Separately, the CB Leading Index came in at -0.2% (0.3% prior). 

·         In Japan, the Nikkei closed lower by 2.0% as industrials weighed. Fujikara and Mitsui Engineering & Shipbuilding lost 4.2% and 4.7%, respectively. Drug maker Astellas outperformed with a gain of 2.1%. 

·         Hong Kong's Hang Seng lost 1.4% with energy and utilities lagging. CNOOC fell 3.0% and China Resources Power fell 2.7%. 

·         In China, the Shanghai Composite fell 1.3%. Industrials underperformed with Hubei Hongcheng General Machinery falling the limit, 10.0%. 

Major European indices trade lower with Spain's IBEX (-1.7%) as the weakest performer even after the Bank of Spain said the country's economy expanded 0.1% during the third quarter. Elsewhere, the Bank of England released the minutes from its latest policy meeting, revealing a unanimous vote to maintain interest rates and the asset purchase program at their current 0.5% and GBP375 billion, respectively. Economic data was limited. Great Britain's BBA Mortgage Approvals rose 43,000 (39,400 expected, 38,800 prior). Italy's non-EU trade surplus narrowed to EUR320 million from EUR570 million. French Business Survey ticked up to 98 from 97, as expected. Spain's trade deficit widened to EUR1.80 billion from EUR800 million (deficit of EUR2.50 billion expected). 

·         Great Britain's FTSE is lower by 0.3% as financials and miners weigh. Anglo American and Antofagasta are both down near 3.0% and Royal Bank of Scotland trades with a loss of 2.3%. 

·         In Germany, the DAX holds a loss of 0.3%. Commerzbank and Deutsche Bank lead to the downside with respective losses of 2.8% and 1.7%. Drug maker Merck outperforms with a gain of 1.1%. 

·         France's CAC trades down 0.8%. STMicroelectronics is the weakest index component, down 6.8% after reporting disappointing earnings. On the upside, Veolia Environnement outperforms with a gain of 0.8%. 

·         In Spain, the IBEX is lower by 1.7% as 31 of 35 names trade in the red. Financials lag with Bankinter and Banco Bilbao Vizcaya Argentaria down 4.1% and 3.2%, respectively.

In domestic economic data, the August Housing Price Index from the FHFA increased 0.3%, which follows an uptick of 0.8% observed during the prior month.

Market Internals

Market Internals -Technical-
The Nasdaq closed down 23 (-0.57%) at 3907, the S&P 500 closed down 8 (-0.47%) at 1746, and the Dow closed down 54 (-0.35%) at 15413. Action came on near average volume (NYSE 708 mln vs. avg. of 709; NASDAQ 1825 mln vs. avg. of 1626), with decliners outpacing advancers (NYSE 1379/1676, NASDAQ 997/1538) and new highs outpacing new lows (NYSE 151/10, NASDAQ 161/22).

Relative Strength: 
U.S. Home Construction-ITB +0.96%, Corn-CORN +0.81%, Japanese Yen-FXY +0.76%, Biotechnology-XBI +0.72%, Transportation-IYT +0.7%, Grains-JJG +0.68%, Switzerland-EWL +0.34%, Swiss Franc-FXF +0.32%, Peru-EPU +0.32%, Chinese Yuan-CYB +0.04%.

Relative Weakness: 
Greece-GREK -4.37%, China 25 Index-FXI -3.33%, Silver Miners-SIL -3.24%, Gold Miners-GDX -3.23%, Semiconductors-SMH -3.08%, Heating Oil-UHN -2.81%, Gasoline-UGA -2.73%, India-INP -2.6%, South Africa-EZA -2.4%, BRICs-EEB -2.33%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Momentum Names Lead Stocks Lower
The major averages posted losses across the board as the Nasdaq (-0.7%) led to the downside. 

Stocks slumped at the open as cautious-sounding headlines from China combined with continued weakness among momentum names conspired to keep equities in the red throughout the session. 

Reports out of the Middle Kingdom suggested the largest Chinese banks saw their debt write-offs triple during the first half of the year. Separate headlines indicated the People's Bank of China may tighten monetary policy due to excessive inflation. The liquidity crunch has made its presence known through the overnight Shanghai Interbank Offered Rate (SHIBOR), which jumped 73 basis points to 3.78%. 

In addition to the news from China, stocks had to endure continued weakness among momentum names. Shortly after yesterday's close, activist investor Carl Icahn said he halved his stake in Netflix (NFLX 330.24, +7.72) after booking a 457% gain over the course of 14 months. Netflix outperformed today, but other momentum darlings like LinkedIn (LNKD 240.76, -4.19), Tesla (TSLA 164.50, -7.04), and Yelp (YELP 66.04, -3.37) posted losses as some participants may have taken a cue from Mr. Icahn, cashing in on some of this year's top performers. 

Chipmakers were also victimized by heavy selling as the PHLX Semiconductor Index tumbled 3.4% after Altera (ALTR 32.30, -5.02) reported disappointing earnings and Broadcom (BRCM 26.36, -0.78) issued cautious guidance. 

Even though select tech names displayed significant losses, the broader sector ended in-line with the S&P. Meanwhile, most other cyclical groups underperformed and the industrial sector (unch) was the only cyclical group that ended ahead of the broader market. 

Industrials outperformed, building on the relative strength of Boeing (BA 129.02, +6.54), Norfolk Southern (NSC 86.06, +5.46), and Northrop Grumman (NOC 105.56, +4.10) after the three reported better-than-expected earnings. However, the sector could not turn positive due to the underperformance of Caterpillar (CAT 83.76, -5.41), which lost 6.1% after missing on earnings, revenue, and issuing cautious guidance. 

Although equity indices spent the entire session in negative territory, only the energy sector (-1.4%) posted a loss exceeding 1.0% as crude oil slid 1.4% to $96.95 per barrel. 

Countercyclical sectors outperformed with consumer staples ending in the lead with a modest gain of 0.1%. 

Treasuries registered modest gains as the 10-yr yield slipped 2.5 basis points to 2.49%. 

Trading volume was a bit below average as less than 710 million shares changed hands on the floor of the New York Stock Exchange. 

On the economic front, the weekly MBA Mortgage Index slipped 0.6% to follow last week's uptick of 0.3%. 

Separately, the August Housing Price Index from the FHFA increased 0.3%, which followed an increase of 0.8% observed during the prior month. 

Lastly, export prices, excluding agriculture, ticked up 0.3% in September after an unchanged prior reading. Excluding oil, import prices rose 0.1%, which followed last month's decline of 0.2%. 

Tomorrow, weekly initial claims and the August trade deficit will all be reported at 8:30 ET.

Commodities

NYMEX Energy Closing Prices

  Dec crude oil fell $1.43 to $96.87/barrel 

·         Crude oil extended losses for a third consecutive session as weaker-than-anticipated inventory data pressured prices. The EIA reported that crude oil inventories had a build of 5.25 mln when a smaller build of 2.95 mln was expected. The energy component dipped to a session low of $96.16 and settled with a 1.5% loss. 

  Nov natural gas rose 4 cents to $3.62/MMBtu 

·         Natural gas, in contrast, traded higher, advancing to a session high of $3.64 in early afternoon pit action. It eventually settled with a 1.1% gain. 

  Dec heating oil fell 8 cents to $2.92/gallon 

  Dec RBOB gasoline fell 7 cents to $2.54/gallon

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Dec corn rose 5 cents to $4.43/bushel 

·         Dec wheat settled unchanged at $7.01/bushel 

·         Nov soybeans rose 7 cents to $13.08/bushel 

·         Dec ethanol fell 1 cent to $1.67/gallon 

·         Jan sugar (#16 (U.S.)) fell 0.22 of a penny to 22.08 cents/lbs

COMEX Metals Closing Prices

  Dec gold fell $8.20 to $1334.30/ounce 

·         Gold chopped around in negative territory, dipping to a session low of $1329.60. Unable to gain much momentum, it settled with a 0.6% loss. 

  Dec silver fell $0.18 to $22.61/ounce 

·         Silver also traded lower today. It brushed a session low of $22.54 and eventually settled with a 0.8% loss. 

  Dec copper fell 7 cents to $3.27/lbs

DoE Inventory Data
Dept of Energy reports that for the week ending Oct 18: 

·         Crude oil inventories had a build of 5.25 mln (consensus called for a build of 2.95 mln)

·         Gasoline inventories had a draw of 1.8 mln (consensus called for a draw of 0.4 mln)

·         Distillate inventories had a build of 1.54 mln (consensus called for a draw of 1.8 mln)

Summary of Weekly Petroleum Data for the Week Ending Oct 18, 2013
Production: U.S. crude oil refinery inputs averaged about 14.9 mln barrels per day (bpd) during the week ending October 18, 2013, 2 thousand bpd higher than the previous week's average. Refineries operated at 85.9% of their operable capacity last week. Gasoline production fell from the previous week, averaging 9.1 mln bpd. Distillate fuel production increased last week to just over 4.8 mln bpd.

Imports: U.S. crude oil imports averaged about 7.7 mln bpd last week, down by 348 thousand bpd from the previous week. Over the last four weeks, crude oil imports averaged 8.0 mln bpd, 4.3% below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 438 thousand bpd. Distillate fuel imports averaged 117 thousand bpd last week.

Inventory: U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 5.2 mln barrels from the previous week. At 379.8 mln barrels, U.S. crude oil inventories are above the upper range for this time of year. Total motor gasoline inventories decreased by 1.8 mln barrels last week, but are near the top of the average range. Finished gasoline inventories and gasoline blending component inventories both decreased. Distillate fuel inventories increased by 1.5 mln barrels last week but remain near the lower limit of the average range for this time of year.

Demand: Total products supplied over the last four-week period averaged 18.7 mln bpd, down by 1.5% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 8.8 mln bpd, up by 2.3% from the same period last year. Distillate fuel product supplied averaged 3.7 mln bpd over the last four weeks, down by 3.9% from the same period last year.

Treasuries

Treasuries Tick Higher Amid Sleepy Trade: 10-yr: +06/32..2.491%..USD/JPY: 97.32..EUR/USD: 1.3778

·         Treasuries booked modest gains amid a rather sleepy trade as the complex benefited from weakness in global equity markets. 

·         Buying had the biggest impact on longer dated yields as both the 10y and 30y shed almost -3bps to end at 2.485% and 3.582%, respectively. Traders will be paying close attention to the 2.450% area in the 10y as support there dates back to the summer. Click here to see an intraday yields chart.

·         Action in the 5y was also noteworthy, which despite some late day selling saw a -1bp move dropped its yield to a three-month closing low of 1.273%. 

·         A flatter curve took hold as the 2-10-yr spread tightened to 218bps. 

·         Precious metals never gained any traction with gold -$10 @ $1333 and silver -$0.20 @ $22.60. 

·         Data: Initial and continuing claims, trade balance (8:30), JOLTS - Job Openings, and new home sales (10).

Next Day In View 

Economic Commentary

Economic Summary: September Export/Import prices rise versus declines in August; Trade Data due out tomorrow at 8:30
Economic Data Summary:

·         Weekly MBA Mortgage Index -0.6%; Last Week was 0.3%

·         September Export Prices Ex-Ag 0.3% (August was -0.1%)

·         September Import Prices Ex-Oil 0.1% (August was -0.2%)

·         August FHFA Housing Price Index 0.3% (July was 1.0%)

Upcoming Economic Data:

·         Weekly Initial Claims due out Thursday at 8:30 (Briefing.com consensus of 341K; Last Week was 358K)

·         Weekly Continuing Claims due out Thursday at 8:30 (Briefing.com consensus of 2.86 M ; Last Week was 2.859 M )

·         August Trade Balance due out Thursday at 8:30 (Briefing.com consensus of -$38.6 bln; July was -$39.1 bln)

·         August JOLTS -- Jobs Openings due out Thursday at 10:00 (July was 3.689 M )

Other International Events of Interest

·         Australia's CPI rose 1.2% quarter-over-quarter (0.8% forecast, 0.4% prior) while the year-over-year reading increased 2.2% (1.8% expected, 2.4% previous). In addition, trimmed mean CPI rose 0.7% quarter-over-quarter (0.6% forecast, 0.6% prior) and weighted mean CPI increased 0.6% quarter-over-quarter (0.6% expected, 0.6% previous). Separately, the CB Leading Index came in at -0.2% (0.3% prior). 

On other news.... 

Currencies 

Dollar Hovers Little Changed: 10-yr: +11/32..2.474%..USD/JPY: 97.26..EUR/USD: 1.3783
The Dollar Index hovers little changed after giving up its early gains. An overnight bid threatened the 79.40 level, but steady selling over the course of the morning pressured action back down to the flat line. Action has spent most of U.S. trade near the breakeven mark as action holds near 79.25. Click here to see a daily Dollar Index chart. 

·         EURUSD is +5 pips at 1.3785 as action holds just off the highs. The single currency slipped off its best levels following comments from ECB head Mario Draghi suggesting weak banks will be allowed to fail. Reactionary selling pushed the pair down to 1.3765 before buyers stepped in and provided a test of the highs. Tomorrow, eurozone data is heavy as Flash Manufacturing and Services PMI from around the region will be released. 

·         GBPUSD is -55 pips at 1.6175 as trade probes minor support in the area. Early weakness provided a test of yesterday's lows, but the 1.6100 level was able to hold as the unanimous MPC votes to keep both the asset purchase program and benchmark interest rate unchanged at the most recent meeting have some thinking the Bank of England could alter its forward guidance. Britain's CBI Industrial Expectations are due out tomorrow. Bank of England Governor Mark Carney will speak in London. 

·         USDCHF is -30 pips at .8915 as today's selling has pressured the pair to its lowest level since November 2011. Today's weakness has the pair off more than 200 pips over the past week as every attempt at a rally is met with more selling. These levels should be watched closely in the coming days. 

·         USDJPY is -80 pips at 97.30 as action remains on track to close at a two-week low. Today's selling has the pair probing its 200 dma while shifting focus to the lower bound of the 97.00/99.00 range that has been in place over the past month. 

·         AUDUSD is -95 pips at .9610 as action presses session lows. The hard currency kissed its 200 dma (.9745) in overnight trade, but was quickly offered due to liquidity concerns in China. Overnight reports suggested Chinese banks have written of 3x the amount of bad loans in the first half of 2013, causing overnight Chinese borrowing rates to surge. The .9500 level should provide some near-term support. China's Flash Manufacturing PMI will cross the wires tonight. 

·         USDCAD is +100 pips at 1.0390 as trade looks like to post its biggest one-day advance in four months. Today's bid has been fueled by the Bank of Canada's decision to remove language from its Statement warning of future rate hikes while also keeping its benchmark rate unchanged at 1.00%, as expected. A run through minor 1.0400 resistance sets up a likely test of the 1.0500 region.

Jason's Commentaries


The energy lagged the entire market last night as oil prices drops below $100 since Tuesday. Heavy industrial provider Caterpillar released disappointing earnings which created a drag on the Dow... However, Boeing, Lockheed Martin, Northrup Grumman, General Dynamics all provided outstanding earnings but failed to create some upwards pressure for the market. Financials were another main laggard as they are facing settlement charges from the Government which amount to $6b for JP Morgan, $1 for Bank of America. To make things worse, China has their interbank rate rising by 3% and the Bank of China having their debt write off triple. I wonder is it because the housing bubble bursting but China is doing its best to contain it? 

Internals were showing some flat sign but the market is generally bearish. VIX rose a little and there's not much bearish sign that we can observe in the market last night. On the Technical note, S&P500 found a support at its previous trendline and Dow found a support at the 15400 level. With the bullish momentum still in the market, I reckon the market will likely go up or flat today. We'll be having the new home sales and the trade balance coming out today. If results are bad, we might expect to see some gyration today. 

Market Call: FLAT to upside

Date:24 Oct 2013