25 Oct 2013 AMC - Microsoft led Market higher with upbeat earnings...

25 Oct 2013 AMC - Microsoft led Market higher with upbeat earnings...

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: + 0.1%

·         Germany's DAX: + 0.1%

·         France's CAC: -0.1%

·         Spain's IBEX: -1.0%

·         Portugal's PSI: -1.3%

·         Italy's MIB Index: -1.5%

·         Irish Ovrl Index: -0.5%

·         Greece ATHEX Composite: + 1.4%

Before Market Opens 

S&P futures vs fair value: +1.70. Nasdaq futures vs fair value: +26.70.
The S&P 500 futures are little changed against fair value.

Asian markets ended broadly lower while Australia's ASX outperformed, posting a modest gain of 0.3%. Indices in China (Shanghai Composite -1.5%) and Japan (Nikkei -2.8%) paced the decline as investors displayed concern over the ongoing liquidity crunch in the Middle Kingdom. As such, the Shanghai Interbank Offered Rate (SHIBOR) continued rising with the two-week and one-month rates registering most notable increases. The two-week rate rose 98 basis points to 5.86% and the one-month rate jumped 102 basis points to 6.42%. In regional economic data, Japan's national CPI rose 1.1% year-over-year (0.9% expected, 0.9% prior) while national core CPI increased an in-line 0.7% (0.8% previous). In addition, Tokyo CPI rose 0.6% year-over-year (0.5% forecast, 0.5% prior) while the Tokyo core CPI ticked up 0.3%, as expected (0.2% last). Also of note, the Corporate Services Price Index (CSPI) rose 0.7% year-over-year (0.8% expected, 0.7% prior). South Korea's GDP rose 1.1% quarter-over-quarter (1.0% expected, 1.1% prior) while the year-over-year reading indicated growth of 3.3% (3.2% forecast, 2.3% previous). Singaporean industrial production jumped 9.3% year-over-year (5.2% expected, 4.0% prior). 

·         In Japan, the Nikkei closed lower by 2.8% as only five components ended in positive territory. Telecom names SoftBank and KDDI led to the downside with respective losses of 4.8% and 5.3%. Tokyo Electric Power Co lost 2.3% as the company readies its Fukushima Daiichi plant for typhoon Francisco, which is expected to pass over the weekend. 

·         Hong Kong's Hang Seng lost 0.6% with property names lagging. China Resources Land and Sino Land fell 2.1% and 4.0%, respectively. China Merchants Holdings International was the only name able to register a gain larger than 1.0%. The shipper advanced 1.5%. 

·         In China, the Shanghai Composite lost 1.5% as growth-sensitive listings weighed. Great Wall Motor tumbled 10.0% and Beijing Dynamic Power lost 8.7%. On the upside, China Sports Industry Group gained 5.5% and Shanghai Xinhua Media jumped 6.2%. 

Major European indices trade mixed as core indices hover near their flat lines while peripheral markets lag. Among headlines of note, European Central Bank Executive Member Jorg Asmussen said he does not have any specific concerns with respect to exchange rates as the euro has held within its historical range. The single currency trades at a two-year high against the dollar. Looking at economic data, Eurozone M3 money supply rose 2.1% year-over-year (2.4% expected, 2.3% prior). Separately, private loans fell 1.9% year-over-year, as expected (-2.0% previous). Germany's Ifo Business Climate slipped to 107.4 from 107.7 (108.0 forecast) as Business Expectations fell to 103.6 from 104.2 (104.5 forecast) and the Current Assessment ticked down to 111.3 from 111.4 (111.6 expected). Great Britain's Q3 GDP grew 0.8% quarter-over-quarter while the year-over-year reading reflected growth of 1.5%, as expected. Separately, the Index of Services rose 0.6% (0.5% forecast, 0.5% last). Italian retail sales were unchanged month-over-month (-0.2% forecast, -0.2% prior) while the year-over-year reading indicated an uptick of 0.2% (-0.8% last). Spain's PPI ticked up 0.1% year-over-year (-0.2% forecast, -0.1% prior). 

·         In France, the CAC is little changed as producers of basic materials trade in mixed fashion. Cie de St-Gobain is higher by 4.3% and Solvay sports a loss of 1.6%. Financials are among the laggards with BNP Paribas and Credit Agricole down 1.0% and 2.6%, respectively. 

·         Great Britain's FTSE trades higher by 0.1% as financials contribute to the relative strength. Barclays, Royal Bank of Scotland, and Standard Chartered hold gains between 1.1% and 2.4%. British Sky Broadcasting is the weakest performer, down 2.4%. 

·         Germany's DAX holds an advance of 0.1% as chemical producers BASF and Lanxess outperform with respective gains of 1.5% and 0.7%. On the downside, Deutsche Lufthansa is lower by 2.6%. 

·         In Italy, the MIB is lower by 1.1% as Telecom Italia leads to the downside with a loss of 7.3% amid speculation the company may cut its dividend. 

·         Spain's IBEX trades down 0.7% as banks lag. Banco Bilbao Vizcaya Argentaria and Banco Santander trade lower by 1.9% and 1.3%, respectively.

Market Internals

Market Internals -Technical-
The S&P 500 closed up 8 (+0.44%) at 1760, the Dow closed up 61 (+0.39%) at 15570, and the Nasdaq closed up 14 (+0.37%) at 3943. Action came on mixed volume (NYSE 687 mln vs. avg. of 710; NASDAQ 2121 mln vs. avg. of 1642), with mixed advancers/decliners (NYSE 1786/1293, NASDAQ 1200/1346) and new highs outpacing new lows (NYSE 251/13, NASDAQ 239/19). 

Relative Strength: 
Indonesia-IDX +2.84%, Greece-GREK +1.72%, Mexico-EWW +1.56%, Malaysia-EWM +1.3%, Silver Miners-SIL +1.17%, Sugar-SGG +1.11%, Egypt-EGPT +1.07%, Utilities-XLU +1.06%, Real Estate-IYR +0.98%, Oil-USO +0.94%.

Relative Weakness: 
Japan-EWJ -1.46%, Rare Earths-REMX -1.3%, Italy-EWI -1.27%, Wind Energy-FAN -1.23%, Social Media-SOCL -0.99%, Lithium-LIT -0.94%, Spain-EWP -0.86%, Smart Grid Infrastructure-GRID -0.74%, Pacific Index-VPL -0.59%, Sweden-EWD -0.34%.
 

Leaders and Laggards

Technical Updates

Commentaries 

16:15 ET Dow +61.07 at 15570.28, Nasdaq +14.4 at 3943.37, S&P +7.70 at 1759.77 : [BRIEFING.COM] Unless you owned a few hot stocks likeAmazon.com (AMZN 363.67, +31.46), Microsoft (MSFT 35.73, +2.01), andDeckers Outdoor (DECK 69.97, +11.87), which cheered investors with their latest earnings reports, today was a trading day that could soon be forgotten.

Outside of an updraft at the open and a subsequent dip following a relatively disappointing University of Michigan Consumer Sentiment report for October at 9:55 a.m. ET, the major indices held to narrow trading ranges until the last 20 minutes of trading when they broke out to the upside.  The S&P 500 finished at another new record high. 

The upshot for investors is that the indices always held to positive territory. Try as they might, sellers could never break the market, which saw some profit-taking pushback yet never broke.

The resilience to selling efforts has been a hallmark of this market for some time, but especially since Congress agreed to kick the budget and debt limit cans down the road. In the process, Congress kickstarted a prevailing belief that their inaction will also lead to inaction by the Federal Reserve when it comes to tapering its asset purchases in 2013.

Fortified by that monetary sense of things, the thought that money managers underperforming their benchmarks will be chasing returns, and the fear of missing out on another leg higher, participants have been emboldened to buy on dips. The end result is that it was another winning week for the S&P 500, which is up 4.7% month-to-date.

While there were pockets of weakness during the session, the late push enabled every sector to end the day higher. The utilities (+1.1%) and telecom services (+1.0%) were the biggest gainers, but still didn't have much pull in driving the broader market higher given their low weighting in the S&P 500. Modest gains in the consumer discretionary (+0.7%), industrials (+0.5%), financials (+0.4%), energy (+0.4%) and technology (+0.4%) sectors were enough to do that.

Large-cap stocks pretty much led the way in today's session, which was accented by relatively light volume and the receipt of relatively weak economic data that supported the notion the Fed will stay its current course for longer.

·         Durable orders were up a better than expected 3.7% (Briefing.com consensus 3.5%) but orders, excluding transportation, were down 0.1% (Briefing.com consensus +0.3%). Nondefense capital goods orders, excluding aircraft -- a proxy for business investment -- dropped 1.1% while shipments of those goods, which factor into GDP computations, declined 0.2%.

·         The final October reading for the University of Michigan Consumer Sentiment Index slipped to 73.2 (Briefing.com consensus 74.5) from 75.2 and was down nearly 10 points from the final reading for September.

·         Wholesale inventories were up 0.5% in August (Briefing.com consensus +0.3%) after a 0.2% increase in July

Today's economic news, combined with a burgeoning sense the stock market is ripe for a consolidation period after gaining 6.3% in the last 13 sessions, lent support to the Treasury market and particularly the back end of the curve.  The 10-yr note jumped five ticks and saw its yield dip to 2.51% after hitting 3.00% in early September.

Next week promises to be another busy week of earnings and economic reporting with roughly 116 S&P 500 companies due to report their results and a full slate of data that includes the Industrial Production, Retail Sales, PPI, Consumer Confidence, CPI, Weekly Initial Claims, and ISM Index reports among others.

·         DJIA +18.8% YTD

·         S&P 500 +23.4% YTD

·         Nasdaq +30.6% YTD

·         Russell 2000 +31.6% YTD

Commodities

Closing Commodities: Gold Futures Erase Gains, Crude Oil Closes Below $98
Crude oil and natural gas futures held today's gains with both closing just below session highs. Crude oil rose as high as $98.05/barrel and ended the day 0.8% higher at $97.85/barrel. 

Natural gas rose rather steadily all session and finished the day 2.2% higher at $3.71/MMBtu. 

 Gold and silver hit today's lows in early morning action. Both metals slowly climbed off those lows during the day. Gold erased all of its losses and closed $2.10 higher to $1352.40/oz, while Dec silver ended $0.18 lower at $22.64/lb.

COMEX Metals Closing Prices

·         Dec gold rose $2.10 to $1352.40/ounce

·         Dec silver fell $0.18 to $22.64/ounce

·         Dec copper remain unchanged at $3.27/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Dec corn fell 1 cents to $4.40/bushel

·         Dec wheat fell 6 cents to $6.91/bushel

·         Nov soybeans fell 10 cents to $13.00/bushel

·         Dec ethanol settled $0.03 higher at $1.70/gallon

·         Jan sugar (#16 (U.S.)) rose 0.06 of a penny to 22.18 cents/lbs

 NYMEX Energy Closing Prices

·         Dec crude oil rose $0.73 to $97.85/barrel

·         Nov natural gas rose 8 cent to $3.71/MMBtu

·         Dec heating oil rose 1 cent to $2.91/gallon

·         Dec RBOB gasoline fell 1 cent to $2.56/gallon

 

Treasuries

Tepid Jobs Report Sparks Weekly Advance: 10-yr: +04/32..2.508%..USD/JPY: 97.36..EUR/USD: 1.3812

·         Treasuries saw solid gains this week as Tuesday's disappointing nonfarm payroll report (148K actual v. 183K expected) sparked a stampede into the complex.

·         Other data was mixed as wholesale inventories (0.5% actual v. 0.3% expected) and construction spending (0.6% actual v. 0.4% expected) outpaced estimates while durable orders ex-transportation (-0.1% actual v. 0.3% expected) and Michigan Sentiment - Final (73.2 actual v. 74.5 expected) missed.

·         This week's bid dropped most yields to their lowest levels in three months. Click here to see an intraweek yields chart.

·         Buying the biggest impact on the belly of the curve as the 7y and 10y both fell -9bps to 1.879% and 2.503%, respectively. 

·         Traders continue to watch the 10y as action holds just above the key 2.450% support level. 

·         The 5y ended the week -5bps @ 1.278%, and has closed below the important 1.300% level in three of the past four sessions. This has some traders shifting their focus towards the 200 dma (1.114%). 

·         The wings of the curve lagged this week as a -2bp decline dropped the 2y to 0.315% and a -6bp move pushed the 30y down to 3.593%. 

·         A flatter curve developed over the course of the week as the 2-10-yr spread tightened to 219bps.

·         Monday's Data: Industrial production, capacity utilization (9:15), and pending home sales (10). 

·         Monday's Auction: $32 bln 2y notes 

On other news.... 

Freddie Mac confirms settlements totaling $3.2 bln with JPMorgan Chase (2.07 +0.22)
Co confirmed it has entered into an agreement with JPMorgan Chase concerning Freddie Mac's claims related to representations and warranties on single-family loans sold to Freddie Mac. Separately, Freddie Mac, Fannie Mae and FHFA also entered into an agreement with JPMorgan Chase to settle litigation concerning investments by Freddie Mac and Fannie Mae in residential non-agency mortgage-related securities. In total, Freddie Mac will be paid approximately $3.2 billion under the two agreements. Details of the agreements are as follows:

·         On October 25, 2013, Freddie Mac, Fannie Mae and FHFA entered into an agreement with JPMorgan Chase & Co. and certain affiliated entities (collectively, "JPMorgan") and other persons to settle litigation previously initiated by FHFA against JPMorgan relating to investments by Freddie Mac and Fannie Mae in certain residential non-agency mortgage-related securities largely originated, issued or underwritten by JPMorgan. Under the settlement, JPMorgan will make a total payment of $4 billion, of which approximately $2.74 billion is expected to be paid to Freddie Mac. 

·         On October 25, 2013, Freddie Mac entered into an agreement with JPMorgan Chase Bank, National Association ("Chase") under which Freddie Mac will, subject to specified limitations and exclusions, release Chase from certain existing and future loan repurchase obligations relating to approximately 1.8 million loans purchased by Freddie Mac between 2000 and 2008, as well as certain other obligations. In exchange, Chase agreed to pay Freddie Mac a total of $480 million (less credits up to $60 million for repurchases already made and for reconciling adjustments). The agreement was approved by FHFA, as Freddie Mac's Conservator.

JPMorgan Chase: FHFA announces $5.1 bln in settlements with JPMorgan(52.77 +0.29)
Click here to view the FHFA press release.

The Federal Housing Finance Agency (FHFA), as conservator of Fannie Mae and Freddie Mac, today announced it has reached a settlement with J.P. Morgan Chase & Co. and related companies for $ 4 billion to address claims of alleged violations of federal and state securities laws in connection with private-label, residential mortgage-backed securities (PLS) purchased by Fannie Mae and Freddie Mac. Under the terms of the agreement, J.P. Morgan Chase & Co. will pay approximately $2.74 billion to Freddie Mac and $1.26 billion to Fannie Mae to resolve certain claims related to securities sold to the companies between 2005 and 2007 by J.P. Morgan Chase & Co., Bear Stearns & Co., Inc. and Washington Mutual. 

In separate settlements, J.P. Morgan Chase & Co. resolved representation and warranty claims with Fannie Mae and Freddie Mac related to single-family mortgage purchases by the two companies. Under the terms of the agreements, J.P. Morgan Chase Bank N.A. will pay a total of approximately $1.1 billion -- $670 million to Fannie Mae and $480 million to Freddie Mac.

Currencies 

Dollar Drifts Amid Quiet Trade: 10-yr: +02/32..2.512%..USD/JPY: 97.38..EUR/USD: 1.3801
The Dollar Index holds little changed near 79.20 as a quiet trade nears the final hour of action for the week. Some overnight selling dropped the greenback below the 79.00 level for the first time since the beginning of February, but that level was able to hold as buyers emerged at key support. Click here to see a daily Dollar Index chart.

·         EURUSD is +5 pips at 1.3800 as trade looks for its fifth advance in the past seven sessions. Today's action has been rather pedestrian as trade has spent most of the U.S. session confined to a 30 pip range. Any positive close will mark the best in 23 months. 

·         GBPUSD is -35 pips at 1.6165 despite today's GDP report (0.8% QoQ) posting the best reading in three years. The data provoked an early bid that caused sterling to test resistance in the 1.6250 area, but that level held strong as it has each day this week. If minor support in the 1.6100/1.6150 area gives way look for a test of the 1.5950 area. Britain's CBI Realized Sales are due out Monday. 

·         USDCHF is +10 pips at .8935 as trade ticks higher for a second day. Some overnight selling probed the .8900 mark, but yesterday's 23-month low was able to hold. A minor victory for the bulls would be the retaking of .9000 over the next couple of days. 

·         USDJPY is +5 pips at 97.35 as trade has seen little reaction to a 7.5 magnitude quake rocking Japan and setting off warnings of a potential tsunami. Overnight weakness caused the pair to probe the lower bound of the 97.00/99.00 range that has been in place over the past month, but action was able to hold that level and is back to hugging the 200 dma (97.35). 

·         AUDUSD is -35 pips at .9580 as sellers are in control for the second time in three days. Today's selling comes as a result of liquidity concerns in China that caused 1m SHIBOR to spike 102bps to 6.422%. The .9500 area is home to near-term support. 

·         USDCAD is +35 pips at 1.0455 as trade rallies for a third day. The three-day advance has action nearing a test of 1.0475/1.0500 resistance, and has the pair printing at its best level in one and a half months.

Weekly Analysis
Week 38



Technical Updates





 
Briefing's Commentaries

Weekly Wrap First things first we suppose.  The S&P 500 closed the week at another all-time high, but there were enough plaudits to go around for the major indices.  The Nasdaq, for example, closed at a 13-yr high while the Russell 2000 set a new all-time high during the week.  The Dow Jones Industrial Average is still fighting to reclaim record ground, but it is putting up a good fight with a 5.4% gain over the last 13 sessions.

Fittingly, the S&P 500 sprinted into Friday's close, breaking out of a narrow trading range to close at its high for the session.

Its bullish disposition and that of the other major indices of late has been predicated on the market's belief that the brouhaha in Washington over the budget and the debt limit will ensure that the Federal Reserve is going to defer a decision to taper its asset purchase program until 2014 at the earliest.

That sense of things has been underpinned by three factors:

·         The understanding that the fiscal fight was a headwind for the economy

·         The recognition that the Fed held off on a tapering decision at its September meeting in part because of fiscal headwinds; and

·         Incoming data that continue to point to below-potential growth for the US economy

The focal point on the economic side of things this week was the September employment report.  It showed that just 148,000 nonfarm payroll jobs were created versus 193,000 in August and that nonfarm private payrolls rose just 126,00 versus 161,000 in August.  Moreover, aggregate earnings rose a modest 0.2% -- enough to keep consumption trending higher but not strong enough to achieve escape velocity in convincing fashion.

Despite the relatively weak employment report, the stock market rallied the day of its release, sensing it would keep the Fed on hold with its current policy.  The Durable Orders report for September and the final University of Michigan Consumer Sentiment report for October on Friday also underpinned that expectation.

·          Total durable orders rose 3.7%, but that was owed entirely to a 12.3% increase in transportation orders.  Excluding transportation, orders declined 0.1%.  Nondefense capital goods orders, excluding aircraft -- a proxy for business investment -- dropped by 1.1% while shipments of those goods, which factor into the GDP computation, declined 0.2%.

·         The final sentiment reading fell to 73.2 from 75.2 and was nearly 10 points lower than the final reading for September

Suffice it to say, the economic news could be better.  The same could be said for the earnings results, but they have been viewed as good enough against lowered expectations.  

Roughly half of the S&P 500 has reported its results.   According to FactSet, the blended earnings growth rate (actuals reported and estimates for companies that have not yet reported) is 2.2%.  Excluding JPMorgan Chase(JPM), which had a big legal expense, the growth rate jumps to 4.7%.  The blended revenue growth rate, meanwhile, is 2.0%.

In many respects this earnings reporting season has unfolded as a case of haves and have nots.  Some companies, like Google (GOOG), Amazon.com(AMZN), Microsoft (MSFT), and Boeing (BA), have delivered the goods and have seen their stock prices rise handsomely.  Other companies, like IBM(IBM), Stanley Black & Decker (SWK), Coach (COH), and Caterpillar(CAT), have not and have seen their stock prices hit hard as a result.

Still, the Fed put has been a staying factor that has enabled the market to look past disappointments and to magnify good news.

It is that so-called put, combined with a fear of missing out on another leg higher and the idea that underperforming money managers need to chase the market, that kept sellers at bay this week and emboldened participants to buy on the dip.

Those points notwithstanding, with the S&P 500 up 6.3% over the last 13 sessions, it should not come as a surprise to anyone if it relents to profit-taking activity in the near term.

Next Week In View



Economic Commentaries

Economic Summary: Durable Orders tops expectations; Michigan Sentiment misses the mark; Pending Home Sales Monday at 10:00; Fed decision Wednesday at 14:00
Economic Data Summary:

·         September Durable Orders 3.7% vs Briefing.com consensus of 3.5%; August was 0.1%

·         September Durable Orders Ex-Transportation -0.1% vs Briefing.com consensus of 0.3%; August was -0.1%

o    Excluding transportation, durable goods orders declined for a third consecutive month. Orders fell 0.1% after declining a downwardly revised 0.4% (from -0.1%) in August. The consensus expected these orders to increase 0.3%. Large declines were registered in machinery (-1.8%), fabricated metals (-0.9%), motor vehicles (-0.3%), and electrical components (-0.3%). Business investment demand was extremely weak. Orders of nondefense capital goods excluding aircraft were down 1.1% after increasing a downwardly revised 0.4% (from 1.5%) in August.

·         October Michigan Sentiment -- Final 73.2 vs Briefing.com consensus of 74.5; September was 75.2

·         August Wholesale Inventories -0.5% vs Briefing.com consensus of 0.3%; July was 0.1%

Upcoming Economic Data:

·         September Industrial Production due out Monday at 9:15 (Briefing.com consensus of 0.3%; August was 0.4%)

·         September Capacity Utalization due out Monday at 9:15 (Briefing.com consensus of 78.0%; August was 77.8%)

·         September Pending Home Sales due out Monday at 10:00 (August was -1.6%)

Upcoming Fed/Treasury Events:

·         The Treasury is expected to auction off $96 bln in new debt next week. The results of each auction will be announced at 13:00

o    Monday: $32 bln in 2 year notes

o    Tuesday: $35 bln in 5 year notes

o    Wednesday: $29 bln in 7 year notes

·         The Federal Reserve will begin a two day meeting on Tuesday. The policy announcement will be made at 14:00 (no press conference or econ projections).

Other International Events of Intertest

·         Japan's national CPI rose 1.1% year-over-year (0.9% expected, 0.9% prior) while national core CPI increased an in-line 0.7% (0.8% previous). In addition, Tokyo CPI rose 0.6% year-over-year (0.5% forecast, 0.5% prior) while the Tokyo core CPI ticked up 0.3%, as expected (0.2% last). Also of note, the Corporate Services Price Index (CSPI) rose 0.7% year-over-year (0.8% expected, 0.7% prior). 

·         Germany's Ifo Business Climate slipped to 107.4 from 107.7 (108.0 forecast) as Business Expectations fell to 103.6 from 104.2 (104.5 forecast) and the Current Assessment ticked down to 111.3 from 111.4 (111.6 expected). 

Jason's Commentaries

The market once broke into higher highs once again by upbeat earnings. On Friday, Microsoft led the Nasdaq into a new high once again and S&P500 closed at the high. The market started on Friday with a bullish bias which quickly turned into violent gyrating market until the last half an hour where market shot up. Volumes were slightly lower than average, internals were convergence to the upside slightly.  Utilities surprisingly led the S&P500 by a 1.06% gain while Consumer Discretionary led by Amazon to gain a 0.75% gain.

While the market awaits the FOMC statement on Wednesday, 2pm ET, I reckon it will be a very quiet Monday and Tuesday. It has been rumored that that the tapering of the QE. If the tapering is announced, we might see some short term correction. Non farm payrolls will be announced on the 8 Nov.

Market Call: 28 Oct 2013

Date: FLAT