8 Oct 2013 AMC- Earnings season starts!!

8 Oct 2013 AMC- Earnings season starts!!

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: -1.1%

·         Germany's DAX: -0.4%

·         France's CAC: -0.8%

·         Spain's IBEX: -0.7%

·         Portugal's PSI: -0.6%

·         Italy's MIB Index: -0.3%

·         Irish Ovrl Index: -1.1%

·         Greece ATHEX Composite: + 1.5%

Before Market Opens

S&P futures vs fair value: -1.00. Nasdaq futures vs fair value: +2.50.
Equity futures point to little change at the open as trade looks to get back on track after yesterday's slide. Traders will continue to watch the 1680 area as support at the level is helped by the 50-day moving average.

It was a sea of green across Asia as all of the major bourses, aside from Australia's ASX (-0.2%), ended in positive territory. China's Shanghai Composite (+1.1%) saw solid gains as traders returned to work following the Golden Week holiday, but it was emerging markets like Indonesia's Jakarta Composite (+1.3%) and Thailand's SET (+1.4%) that led the way. Japan's Nikkei (+0.3%) lagged after its current account surplus widened to JPY0.35 trln (JPY0.33 trln previous), but fell well short of the JPY0.65 trln that was expected. 

·         In Japan, the Nikkei closed +0.3% as trade advanced for the first time in five days. The weaker yen provided a lift to exporters as Honda Motor added 0.7%. Elsewhere, real estate stocks firmed, with Sumitomo Realty & Development climbing 2.0%. 

·         In Hong Kong, the Hang Seng finished +0.9% as shares saw a boost from the mainland returning to work. Retailer Esprit ended at its best level in six-weeks after Tiger Management announced it has upped its stake in the co to 5.09% (5.0%) previous.

·         In China, the Shanghai Composite settled +1.1% as action regained the 200-day moving. Environmental stocks were among the leaders as heavy smog rolled into Beijing over the weekend, prompting speculation the government would look to take action on the matter. Filtration product maker Xiamen Savings Environmental climbed 4.7%.

Markets across Europe are mostly lower as Britain's FTSE (-0.7%) paces the decline. Slight outperformance can be found in Italy's MIB (+0.1%) despite a notable increase in peripheral yields. Both the Italian and Spanish 10-yr yields are up a handful of basis points to 4.185% and 4.275%, respectively.

·         In Britain, the FTSE is -0.7% as financials and miners lag. Lloyds Banking Group and BHP Billiton lead their respective sectors to the downside with losses of 2.1% and 1.8%. 

·         In France, the CAC is -0.1% as the financials trade mixed. Credit Agricole (+2.8%) is among today's leaders while Societe Generale (-1.0%) underperforms.   

·         In Germany, the DAX holds little changed as shares have recovered their early losses. Utilities lead for a second session in a row as RWE and E.ON sport gains of 1.4% and 1.0%, respectively.    

Market Internals

Market Internals -Technical-
The Nasdaq closed down 76 (-2.00%) at 3695, the S&P 500 closed down 21 (-1.23%) at 1655, and the Dow closed down 160 (-1.07%) at 14777. Action came on above average volume (NYSE 733 mln vs. avg. of 696; NASDAQ 2025 mln vs. avg. of 1588), with decliners outpacing advancers (NYSE 588/2446, NASDAQ 504/2037) and mixed new highs/lows  (NYSE 42/60, NASDAQ 50/40). 

Relative Strength: 
Volatility-VXX +4.63%, Natural Gas-UNG +2.36%, Heating Oil-UHN +0.99%, Coffee-JO +0.82%, Brazilian Real-BZF +0.81%, Cocoa-NIB +0.75%, Eastern Europe-ESR +0.53%, Russia-RSX +0.3%, Australian Dollar-FXA +0.03%.

Relative Weakness: 
Biotechnology-XBI -5.59%, Greece-GREK -4.72%, Social Media-SOCL -4.38%, Biotechnology-IBB -4.37%, Junior Gold Miners-GDXJ -3.89%, Silver Miners-SIL -3.51%, Turkey-TUR -2.68%, India-INP -2.22%, Mexico-EWW -2.13%, South Africa-EZA -1.97%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Summary
It was day eight of the partial government shutdown and it was day two this week in which the major indices fell victim to broad-based selling interest. Once again, the budget/debt ceiling impasse in Washington was largely to blame. 

The Nasdaq Composite was the biggest loser today, sliding 2.0% on the back of pronounced weakness in many of the market's favorite momentum stocks. The cracks in leading names like LinkedIn (LNKD 222.59, -14.62), Priceline.com (PCLN 997.60, -44.08), Tesla (TSLA 174.70, -8.37) and Facebook (FB 47.14, -3.38) provided an added cue for buyers to stick mostly to the sidelines. 

There were efforts during the day to forge a rebound effort, but they were all short-lived as another day of back-and-forth remarks between Republicans and Democrats that amounted to more of the same entrenched views on reaching a budget agreement and raising the debt limit provided little incentive to commit new money. 

Briefly, House Speaker Boehner said he would like the president to sit down and negotiate with the GOP before passing a continuing resolution and raising the debt limit while President Obama said he is open to negotiating after Congress passes a continuing resolution and raises the debt limit. 

The major indices finished at their lows for the day as a final wave of selling interest in the last ten minutes completed today's damage. The utilities sector (+0.6%) was the only sector in the S&P 500 to finish in positive territory. It was only fitting perhaps that the low beta sector outperformed as high beta stocks got hit hard. 

Even so, there wasn't a full-on safety trade today. Longer-dated Treasuries and gold prices ended with modest losses while the US Dollar Index was little changed to the upside. 

In terms of the Treasury market, the real point of interest was at the front end of the curve. The 4-week bill surged nearly 14 basis points to 0.29% as traders remained leary of the paper with the October 17 debt limit deadline on the near horizon. The 4-week yield is at its highest level since October 2008. 

Wal-Mart (WMT 72.89, +1.02), Procter & Gamble (PG 76.35, +0.70), and Coca-Cola (KO 37.28, +0.23) were the only Dow components to finish higher. That helped the Dow Jones Industrial Average show some relative strength versus its counterparts, most of which fell between 1.2% and 2.0%. 

The continued weakness in the stock market and the continued impasse in Washington continued to benefit the CBOE Volatility Index (20.48, +1.07), which tacked on another 5.5% after gaining 16% on Monday. 

Volume picked up on today's sell-off. 733 mln shares traded at the NYSE versus just 595 mln on Monday.

Commodities

Closing Commodities: Natural Gas Extends Gains, Rises 2.2%

·         Nov crude oil traded higher today despite the dollar index recovering into positive territory. It advanced to a session high of $104.08 per barrel in morning floor action and spent the remainder of the session chopping around slightly below that level. It settled at $103.52 per barrel, booking a gain of 0.5%

·         Nov natural gas rose for a third consecutive session, climbing as high as $3.73 per MMBtu in afternoon pit trade. It settled 2.2% higher at $3.71 per MMBtu

·         Dec gold climbed to a session high of $1330.80 per ounce after lifting from its session low of $1315.40 per ounce set moments after pit trade opened. The yellow metal pulled-back as the dollar index gained momentum, and settled the session unchanged at $1324.90 per ounce

·         Dec silver slipped to a session low of $22.11 per ounce in early morning pit trade but erased the early loss and spent the remainder of the session trading slightly above the break-even line. It settled at $22.45 per ounce, booking a gain of 0.3%

COMEX Metals Closing Prices

  Dec gold settled unchanged at $1324.90/ounce 

·         Gold came off its session low of $1315.40 set moments after floor trade opened and climbed to a session high of $1330.80. The yellow metal pulled back, however, as the dollar index recovered into positive territory, and settled the session unchanged. 

  Dec silver rose $0.07 to $22.45/ounce 

·         Silver slipped to a session low of $22.11 in early morning pit trade but erased the early loss and spent the remainder of the session trading slightly above the break-even level. It eventually settled with a 0.3% gain. 

  Dec copper fell 1 cent to $3.29/lbs

NYMEX Energy Closing Prices

  Nov crude oil rose $0.49 to $103.52/barrel 

·         Crude oil traded higher today despite the dollar index recovering into positive territory. It brushed a session high of $104.08 in morning floor action and chopped around slightly below that level for the remainder of the session. It eventually settled with a 0.5% gain. 

  Nov natural gas rose 8 cents to $3.71/MMBtu 

·         Natural gas rose for a third consecutive session, climbing as high as $3.73 in afternoon pit trade. It settled slightly below that level, booking a 2.2% gain. 

  Nov heating oil rose 2 cents to $3.03/gallon 

  Nov RBOB gasoline settled unchanged at $2.63/gallon

Treasuries

4-week Yield Surges to Highest Since October 2008: 10-yr: -03/32..2.639%..USD/JPY: 96.97..EUR/USD: 1.3573
Treasuries ended flat to lower as the government shutdown reached an eighth day. Action was choppy throughout the session with most of the action taking place within a handful of ticks from respective breakeven lines. Traders centered their attention on the very front of the curve as the 4-week bill yield surged nearly 14 bps to above 0.290%. The yield saw a steady rise throughout the session, and hit its highs shortly after this morning's $30 bln 4-week bill auction. The auction drew 0.350% its highest in five years, as traders remained wary of the paper with the October 17 default date on the horizon. Elsewhere, the 3-yr yield advanced 4 bps on the session to 0.686% as traders preferred longer dated paper. The 10- and 30-yr outperformed, settling little changed at 2.636% and 3.695%, respectively. Today's weakness caused bear flattening along the yield curve as the 2-10-yr spread tightened to 224.5 bps. Precious metals slipped late in the session causing gold and silver to post modest losses at $1320 and $22.35, respectively. Wednesday's data includes the weekly MBA Mortgage Index (7) and FOMC minutes (14). The government shutdown will delay the wholesale inventories release. Treasury will reopen $21 bln 10-yr notes. Chicago's Evans will be in Washington D.C. to participate in an IMF panel, discussing "Unconventional Monetary Policies and their Cross-Country Spillovers.

Next Day In View 

Economic Summary: No US data today due to Government shutdown; FOMC Minutes will be released tomorrow at 14:00
Economic Data Summary:

·         August Trade Balance delayed due to Government shutdown

·         August JOLTS Jobs openings delayed due to Government shutdown

Upcoming Economic Data:

·         Weekly MBA Mortgage Applications due out Wednesday at 7:00 (Last Week was -0.4%)

·         August Wholesale Inventories due out Wednesday at 10:00 (Briefing.com consensus of 0.3%; July was 0.1%) -- will be delayed due to Government shutdown

Upcoming Fed/Treasury Events:

·         The Treasury will auction off $64 bln in new debt this week.  The results of each auction will be announced at 13:00

o    Tuesday: $30 bln in 3 year notes

o    Wednesday $21 bln in 10 year notes

o    Thursday: $13 bln in 30 year bonds

·         Cleveland Fed President Sandra Pianalto (will retire in 2014, dovish) to speak tomorrow at 12:25

·         Philadelphia Fed President Charles Plosser (voting FOMC member in 2014, hawkish) to speak tomorrow at 12:30

·         Chicago Fed President Charlie Evans (voting FOMC member, typically dovish) to speak Wednesday at 10:00

·         FOMC Minutes will be released tomorrow at 14:00

Economic Commentary

On other news.... 

Alcoa beats by $0.05, beats on revs; reaffirms 2013 forecast for 7% aluminum demand growth (7.94 -0.03)
Reports Q3 (Sep) earnings of $0.11 per share, excluding non-recurring items, $0.05 better than the Capital IQ Consensus Estimate of $0.06; revenues fell 1.2% year/year to $5.76 bln vs the $5.66 bln consensus. Results were led by continued strength in Engineered Products and Solutions and Global Rolled Products, despite traditional third quarter weakness. Global Primary Products overcame falling metal prices and lower premiums to deliver significant performance improvement through productivity gains. 

Alcoa reaffirms its 7% global aluminum demand growth forecast for 2013 and sees essentially balanced alumina and aluminum markets. Alcoa continues to project global growth this year across the aerospace (9-10%), automotive (1-4%), packaging (1-2%), commercial building and construction (4-5%), and industrial gas turbine (3-5%) end markets. In the heavy truck and trailer market, Alcoa is raising its 2013 growth expectation, (5-9%, previously 3-8%), on improvements in the European market and a stronger Chinese market.

During Q3, settlement discussions with the DOJ and the SEC regarding Alba continued, although no settlements were reached.




Currencies 









Jason's Commentaries


What a sell off last night... Dow Jones fell 2 sessions in a row with more than 130 points loss. VIX spiked to 20.34, all major support levels broken with slightly higher volumes.. The political situation is still a mess and the media is scaring the shit out of everyone... Volumes were standing at 732m shares traded on the NYSE. All sectors were red except Utilities and Consumer Staples. What a divergence here. It seems that the market is starting to take a defensive stance now.

While we're entering the earnings season with Alcoa announcing its earnings after market close, hitting slight above expectation. While YUM Brands did not do as well as global sales decreased. Moreover, we'll be expecting the Fed to save the market today as the FOMC meeting minutes will be coming out at 2am ET today. I reckon there might be some major short covering in the market today as the market opens in case the Fed comes up with any unexpected stunt that will shock the market.

The question is... would this government shutdown cause a crash in the market? It's very possible if the US government post its first ever technical default on its debt. It would have shaken the global market. However, at current deficit level, US has to default sooner or later. Debt is rolling on more debt. Only during Clinton's time that US actually had a budget surplus for 4 straight years. I reckon the big US debt holders like China is getting scared that what would really happen if US defaults. Treasuries as the risk-free asset? I highly doubt so. If only the US dollar is not the reserve currency, it would have gone bankrupt long time ago. In order words the US is capitalizing on its reserve currency advantage and turning the whole world's economy in their favor.

Market Call: ABSTAIN

Date: 9 Oct 2013