8 Nov 2013 AMC -Market rallied as employment report much better than expected, 204k vs 121k estimate

8 Nov 2013 AMC - Market rallied as employment report much better than expected, 204k vs 121k estimate

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: + 0.2%

·         Germany's DAX: 0.0%

·         France's CAC: -0.5%

·         Spain's IBEX: + 0.1%

·         Portugal's PSI: -1.2%

·         Italy's MIB Index: + 0.5%

·         Irish Ovrl Index: + 0.2%

·         Greece ATHEX Composite: -0.2%

Before Market Opens 

S&P futures vs fair value: -1.30. Nasdaq futures vs fair value: +4.70.
The S&P 500 futures trade lower by 0.2% after sliding into the red in reaction to a better-than-expected headline nonfarm payrolls number.

It was a sea of red across Asia as all of the major bourses saw losses. China's Shanghai Composite (-1.1%) slid despite the latest trade data from the Middle Kingdom showing a surplus of $31.1 billion ($23.5 billion expected, $15.2 billion previous) as exports jumped 5.6% year-over-year (1.5% expected). The selloff comes following yesterday's weakness on Wall Street and as traders remain jittery ahead of this weekend's Third Plenum of Communist Party policy makers, which will likely produce an economic blueprint for the next decade. Hong Kong's Hang Seng gave up 0.6%. The latest minutes from the Reserve Bank of Australia showed the central bank downgraded its 2014 growth forecast to 2%-3% from 2.5%-3.5%; however, the ASX (-0.4%) only saw modest losses. Elsewhere, Japan's Nikkei (-1.0%) managed to recover some of yesterday's losses that developed in the futures market as trade was down as much as 3.0%. Data from the rest of the region was limited to Malaysia's trade balance, which posted a wider than anticipated surplus of MYR8.7 billion (MYR5.0 billion expected, MYR7.1 billion previous). 

·         In Japan, the Nikkei lost 1.0% as trade slid to a one-month low. Heavyweights like Fast Retailing and Softbank weight, posting losses of 3.6% and 2.7%, respectively. 

·         Hong Kong's Hang Seng slid 0.6% as trade avoided its lowest close in two months. Energy names were pressured as Sinopec lost 1.3% and Cnooc slipped 1.0%. Meanwhile, real estate names provided support as Sun Hung Kai Properties and Henderson Land Development tacked on 0.5% and 0.2%, respectively. 

·         In China, the Shanghai Composite settled lower by 1.1% with trade ending at its worst level in more than two months. Property stocks were weak after Shanghai announced it would require a 70% down payment (60% previous) from second-home buyers. China Vanke and Poly Real Estate both surrendered 1.1%. 

Major European indices hover near their lows as yesterday's weakness, which developed after the ECB rate cut, continues. Among news of note, Standard & Poor's lowered the credit rating of France to ‘AA' from ‘AA+.' The rating agency cited subpar economic growth, high unemployment, and government spending limitations as the reasons for the downgrade. In regional economic data, Germany's trade surplus expanded to EUR18.80 billion from EUR15.80 billion (EUR15.50 billion forecast). Great Britain's trade deficit narrowed to GBP9.82 billion from GBP9.56 billion (GBP9.20 billion prior). France reported a government budget deficit of EUR80.80 billion (-EUR90.80 billion expected, -EUR93.60 billion prior) while the trade deficit widened to EUR5.80 billion from EUR5.10 billion (-EUR4.80 billion last). Separately, industrial production slipped 0.5% month-over-month (0.1% expected, 0.7% previous). 

·         Great Britain's FTSE is lower by 0.5% as miners lag. Antofagasta, Randgold Resources, and Vedanta Resources are all down between 2.2% and 2.6%. On the upside, International Consolidated Airlines Group and Rolls Royce Holdings outperform with respective gains of 5.3% and 3.2% after both issued upbeat guidance. 

·         Germany's DAX holds a loss of 0.7% with HeidelbergCement leading to the downside (-1.8%). Meanwhile, Adidas sits among top performers with a gain of 2.2%. 

·         In France, the CAC trades down 1.2% as 35 of 40 components hover in the red. Banks lag with Credit Agricole and Societe Generale down 1.5% and 3.2%, respectively. ArcelorMittal leads with an advance of 2.5% after boosting its guidance.

Market Internals

 

Market Internals -Technical-
The Nasdaq closed up 62 (+1.60%) at 3919, the S&P 500 closed up 23 (+1.34%) at 1771, and the Dow closed up 168 (+1.08%) at 15762. Action came on above average volume (NYSE 822 mln vs. avg. of 736; NASDAQ 1925 mln vs. avg. of 1757), with advancers outpacing decliners (NYSE 1784/1325, NASDAQ 1927/643) and new highs outpacing new lows (NYSE 115/61, NASDAQ 131/38).

Relative Strength: 
Biotechnology-XBI +4.11%, Regional Banks-KRE +3.92%, Banks-KBE +3.24%, Biotechnology-IBB +3.22%, Broker-Dealers-IAI +3.00%, Greece-GREK +1.51%, Spain-EWP +1.13%, Israel-EIS +1.01%, Italy-EWI +1.00%, Total World-VT +0.88%.

Relative Weakness: 
Volatility-VXX -4.29%, 20+ Year Treasuries-TLT -2.41%, Chile-ECH -1.94%, U.S. Home Construction-ITB -1.54%, Columbia Index-GXG -1.53%, Peru-EPU -1.52%, Gold-GLD -1.49%, Smart Grid Infrastructure-GRID -1.48%, Eastern Europe-ESR -1.31%, Middle East and Africa-GAF -1.27%.

Leaders and Laggards

Technical Updates

Commentaries 

Closing Market Summary: Stocks End Mixed Week on Upbeat Note
Equities climbed throughout the session despite showing early signs of a potential continuation to yesterday's weakness. The S&P 500 advanced 1.3% while the Nasdaq and Russell 2000 outperformed with respective gains of 1.6% and 1.9%.

Before today's opening bell, it was announced that nonfarm payrolls increased by 204,000 in October (Briefing.com consensus 100,000). The immediate reaction was consistent with increased expectations of tapering sooner rather than later as bonds and futures fell to lows. However, equity futures returned into positive territory by the opening bell while Treasuries settled on their lows with the 10-yr yield up 15 basis points at 2.75%. The dollar also strengthened, sending the Dollar Index higher by 0.5% to 81.24.

Stocks rallied with the financial sector (+2.3%) paving the way after the group struggled to keep pace with the S&P earlier in the week. All major banks posted solid gains, and JPMorgan Chase (JPM 53.96, +2.31) surged 4.5%.

Other cyclical sectors also displayed strength, but only financials added more than 2.0%. Meanwhile, the materials space was the second-best performer (+1.8%) as steelmakers provided support. The Market Vectors Steel ETF (SLX 49.37, +0.81) gained 1.7%. Miners posted modest gains as the Market Vectors Gold Miners ETF (GDX 24.28, +0.14) added 0.6% despite weakness in gold. The yellow metal fell 1.8% to $1284.60 per troy ounce.

Elsewhere, the technology sector (+1.1%) was the only cyclical group unable finish ahead of the broader market as top components traded in mixed fashion. Apple (AAPL 520.56, +8.07) and Cisco Systems (CSCO 23.51, +0.40) gained 1.6% and 1.7%, respectively, while IBM (IBM 179.99, -0.01) and Intel (INTC 24.09, +0.03) ended little changed.

Yesterday, the Nasdaq was pressured by biotechnology and momentum names, but both groups displayed relative strength today. The iShares Nasdaq Biotechnology ETF (IBB 204.18, +6.36) climbed 3.2% while Priceline.com (PCLN 1073.20, +50.31) paced the gains among momentum names after beating on earnings.

Also of note, Twitter (TWTR 41.65, -3.25) endured a forgettable second-day of trading after Hudson Square initiated coverage of the stock with a ‘Sell' rating. The social media stock tumbled 7.2%.

Trading volume was well above average as 823 million shares changed hands on the floor of the New York Stock Exchange.

Taking another look through today's data, with the exception of government, every sector reported positive payroll gains in October. That included a 44,400 increase in retail employees. It has been reported that retailers started hiring earlier than normal for the holiday season.

Private payrolls added 212,000 new jobs in October, up from 150,000 in September. That was the biggest monthly gain since February when 319,000 jobs were added. The consensus expected only 110,000 new private jobs.

The average workweek remained at 34.4 hours and hourly wages increased by 0.1%. Combined with the solid increase in private payrolls, aggregate wages increased 0.3%. That is enough to keep consumption growth moving ahead.

The unemployment rate increased to 7.3% in October from 7.2% in September, as expected.

Separately, the November University of Michigan Consumer Sentiment Index dropped to 72.0 in the preliminary reading from 73.2 in October. The Briefing.com consensus expected the index to increase to 75.0. With the government shutdown over and the economy returning to its normal, albeit weak, trends, it was expected that consumer sentiment would return to September (77.5) or August (82.1) levels.

There is no economic data scheduled to be reported on Monday. 

·         Nasdaq +29.8% YTD 

·         Russell 2000 +29.5% YTD 

·         S&P 500 +24.2% YTD 

·         DJIA +20.3% YTD 

Commodities

Closing Commodities: Crude Ends The Week Down Three Cents

·         A rally in the dollar index on this morning's strong U.S. jobs data weighed on precious metals. It was reported that nonfarm payrolls increased by 204,000 in October, which was much higher than the 100,000 expected by the Briefing.com consensus

·         Dec gold slid below the $1300.00 per ounce level as the dollar index gained strength. The yellow metal fell from its session high of $1310.20 per ounce and touched a session low of $1280.50 per ounce in morning pit trade. Unable to gain momentum, it settled 1.8% lower at $1284.60 per ounce, booking a 2.2% loss for the week

·         Dec silver also traded lower after slipping from its session high of $21.78 per ounce set moments after pit trade opened. It fell as low as $21.25 per ounce and eventually settled at $21.32 per ounce, or 1.6% lower. Today's decline brought losses for the week to 2.45

·         Dec crude oil chopped around in positive territory for most of today's pit trade despite the stronger dollar index. Numerous reports indicated that the U.S. is close to reaching a nuclear deal with Iran. The energy component touched a session high of $94.92 per barrel and closed with a 0.4% gain at $94.58 per barrel, ending the week just three cents below last Friday's closing price

·         Dec natural gas extended gains for a fourth consecutive session as it advanced to a session high of $3.59 per MMBtu in late morning floor action. It eventually settled 1.1% higher at $3.56 per MMBtu, booking a 1.4% gain for the week.

NYMEX Energy Closing Prices

  Dec crude oil rose $0.34 to $94.58/barrel 

·         Crude oil chopped around in positive territory for most of today's pit trade despite a stronger dollar index. The energy component touched a session high of $94.92 and closed with a 0.4% gain, ending the week just three cents below last Friday's closing price. 

  Dec natural gas rose 4 cents to $3.56/MMBtu 

·         Natural gas extended gains for a fourth consecutive session as it advanced to a session high of $3.59 in late morning floor action. It eventually settled 1.1% higher, booking a 1.4% gain for the week. 

  Dec heating oil rose 3 cents to $2.87/gallon 

  Dec RBOB gasoline rose 5 cents to $2.55/gallon

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Dec corn rose 5 cents to $4.26/bushel 

·         Dec wheat fell 5 cents to $6.48/bushel 

·         Jan soybeans rose 28 cents to $12.95/bushel 

·         Dec ethanol rose 4 cents to $1.68/gallon 

·         Jan sugar (#16 (U.S.)) fell 0.07 of a penny to 21.08 cents/lbs

 COMEX Metals Closing Prices

  Dec gold fell $24.10 to $1284.60/ounce 

·         Gold slid below the $1300.00 level as the dollar index rallied on this morning's strong U.S. jobs data. It was reported that nonfarm payrolls increased by 204,000 in October, which was much higher than the 100,000 expected by the Briefing.com consensus. The yellow metal fell from its session high of $1310.20 and touched a session low of $1280.50 in morning pit trade. Unable to gain momentum, it settled 1.8% lower, booking a 2.2% loss for the week. 

  Dec silver fell $0.34 to $21.32/ounce 

·         Silver also traded lower after slipping from its session high of $21.78 set moments after floor trade opened. It fell as low as $21.25 and eventually settled with a 1.6% loss. Today's decline brought losses for the week to 2.4%. 

  Dec copper settled unchanged at $3.25/lbs

Treasuries

On other news.... 



Employment Levels Solidly Improve in the Face of Fiscal Headwinds
Total nonfarm payrolls increased by 204,000 in October, up from an upwardly revised 163,000 (from 148,000) in September. The Briefing.com consensus expected nonfarm payrolls to increase by 100,000. Payrolls in August were revised up by 45,000 to 238,000. The spike in payroll growth was definitely shocking. It was expected that the government shutdown would have reduced private payroll growth, which was what happened in the ADP numbers that were released last week. That would have put downward pressure on overall job growth and kept the payroll gains below normal trends. That obviously did not happen. Yet, looking back at the initial claims data over the previous month, it can be argued that the gain in payrolls should not have been too much of a surprise. Glitches aside, the initial claims level has averaged around 330,000 over the last few months. Those levels support payroll growth in the 200,000 neighborhood. Furthermore, layoffs in the private sector that were a direct result of the government shutdown were estimated to be only around 30,000. That is not enough to greatly alter payroll trends and the growth trajectory. Given these factors, it is entirely plausible that the weaknesses in the labor market that was assumed from the government shutdown was overblown and payroll gains are near where they should be (i.e. 200,000). 

Looking through the data, with the exception of government, every sector reported positive gains in October. That included a 44,400 increase in retail employees. It has been reported that retailers started hiring earlier than normal for the holiday season. Private payrolls added 212,000 new jobs in October, up from 150,000 in September. That was the biggest monthly gain since February when 319,000 jobs were added. The consensus expected only 110,000 new private jobs. The average workweek remained at 34.4 hours and hourly wages increased by 0.1%. Combined with the solid increase in private payrolls, aggregate wages increased 0.3%. That is enough to keep consumption growth moving ahead. 

The unemployment rate increased to 7.3% in October from 7.2% in September. The consensus expected the unemployment rate to increase to 7.3%. The increase in the unemployment rate should have been much higher. The BLS commented that many government workers who were furloughed incorrectly counted themselves as employed but on leave. Technically, these workers should have reported themselves as unemployed. Furthermore, 735,000 workers left the labor force, which pushed the labor force participation rate down to 62.8% from 63.2%. That was the biggest monthly decline in the labor force since declining by 767,000 in December 2009 and the lowest participation rate since March 1978. If the labor force participation rate remained at September levels, the unemployment rate would have been 7.8%. There was no specific reason why the labor force participation rate declined to such an extent in October.






Currencies 

Jobs Report Propels Greenback to Two-Month High: 10-yr: -1 07/32..2.752%..USD/JPY: 99.08..EUR/USD: 1.3357
The Dollar Index holds moderate gains near 81.30. An early bid developed following today's strong nonfarm payroll report, and the greenback has never looked back as trade remains on track to post its best close in nearly two months. Click here to see a daily Dollar Index chart.

·         EURUSD is -60 pips at 1.3360 as sellers are in control for a second session. The single currency was able to withstand S&P's overnight downgrade of France to ‘AA' from ‘AA-‘ as trade only slipped into the red after the strong U.S. jobs report. Making headlines this afternoon was the S&P downgrade of the European Financial Stability Fund to ‘AA' from ‘AA+' as the move corresponded to the earlier decision on France. Support at current levels is aided by the 100 dma. French banks are closed Monday for Armistice Day. 

·         GBPUSD is -100 pips at 1.5995 as trade probes the 50 dma. Today's weakness has sterling on track for its first loss in five days, and has action nearing a test of important 1.5900/1.5950 support. 

·         USDCHF is +65 pips at .9220 as trade zooms higher for the eighth time in the past ten days. Today's advance has run action above staunch resistance in the .9200 area, and has trade probing the 100 dma. Bulls will breathe a lot easier if they are able to retake the 200 dma (.9317). 

·         USDJPY is +100 pips at 99.10 as trade may finally be ready to break out of the 97.00/99.00 range that has been in place since late-September. Traders will be watching these levels closely as the 50, 100, and 200 dma all hold just below. A breakout would be significant as all those moving averages would become additional support at the level. Japan's current account balance is due out Sunday evening. 

·         AUDUSD is -80 pips at .9375 as trade flushes to its lowest level since the beginning of October. Today's selling has dropped the hard currency back below its 50 dma (.9414), setting up a rendezvous with support in the .9300 region that is aided by the 100 dma (.9263). Australian home loans will be released Sunday evening. Chinese data is heavy as CPI, PPI, industrial production, fixed asset investment, and retail sales will be released over the weekend.
USDCAD is +30 pips at 1.0490 as trade readies for its best close in more than two months. The pair is bid despite today's solid Canadian jobs report (13.2K actual v. 12.7K expected) that saw the unemployment rate hold steady at 6.9% (7.0% expected). The 1.0600 area is setting up as an extremely important level as the pair has not really traded above there since summer 2010. Canadian banks are closed Monday for Remembrance Day.

Weekly Analysis
Week 38



Technical Updates







 Briefing's Commentaries

Week in Review: Stocks Test Record Highs 

The major averages kicked off the week with modest gains as the S&P 500 added 0.4%. The Russell 2000 (+1.1%) outperformed, but its relative strength came after the small cap index struggled to keep pace with the prior week's advance in the broader market. Outside of the notable outperformance among small caps, the session unfolded in an uneventful fashion. Overseas markets did little to upset the state of affairs as Japan's Nikkei was closed for Culture Day while China's Shanghai Composite ended flat despite its Non-Manufacturing PMI rising to a 14-month high of 56.3 from 55.4. All ten sectors ended in the green, but only energy (+1.3%) and telecom services (+0.8%) posted gains in excess of 0.4%. Energy was responsible for pacing much of the advance as the sector rallied throughout the session. Meanwhile, crude oil ended little changed at $94.59 per barrel.

On Tuesday, the major averages ended on a mixed note as the S&P 500 shed 0.3% while the Nasdaq added 0.1%. Equities spent the entire session climbing off their early lows after weakness in Europe set the stage for a lower open. European indices hovered near their worst levels of the day at the outset of the U.S. session after the European Commission lowered its 2014 GDP forecast for the region to 1.1% from 1.2%. Similar to equities, core EU bonds also sold off as Germany's 10-yr yield added four basis points to 1.74% while the French 10-yr yield rose six basis points to 2.21%. Although stocks began the U.S. session in negative territory, the buy-the-dip trade was at work once again, fueling a day-long rebound. The tech-heavy Nasdaq was able to eke out a modest gain thanks to the outperformance of biotechnology as the iShares Nasdaq Biotechnology ETF rose 0.7%.

Wednesday saw the major averages register broad gains at the open, but only the Dow Jones Industrial Average (+0.8%) and S&P 500 (+0.4%) were able to end in positive territory while the Nasdaq (-0.2%) and Russell 2000 (-0.4%) posted modest losses. The Dow finished at a fresh record high of 15,746.63 as 27 of 30 components registered gains. Of those 27, twelve added at least 1.0%. Microsoft (MSFT 37.78, +0.28) was the top index performer, climbing 4.2% amid reports Ford (F 16.85, +0.30) Chief Executive Officer Alan Mullaly remains on the list of candidates hoping to replace outgoing CEO Steve Ballmer.

The major averages ended Thursday on their lows after opening gains turned into broad-based losses. The S&P 500 fell 1.3% while the Nasdaq underperformed with a decline of 1.9%. Prior to the open, the European Central Bank cut its key interest rate by 25 basis points to 0.25% after recent data suggested the price level is moving away from the ECB's inflation target. The rate cut fueled a surge in the dollar while also sparking a risk bid. However, the equity gains were capped after a better-than-expected headline Q3 GDP reading (2.8% versus 2.5% Briefing.com consensus) fostered renewed speculation about a potential tapering announcement coming sooner rather than later. The immediate reaction in Treasuries also reflected a ‘taper on' trade as bonds sold off, sending the 10-yr yield from its low to a session high. However, Treasuries returned to their best levels of the day as weakness among equities redirected some flows into safe-haven assets. The 10-yr yield ended lower by four basis points at 2.61%.



Next Week In View



Economic Commentaries

Economic Summary: NFP's blow past expectations; Bernanke to speak later today at 15:30
Economic Data Summary:

·         October Nonfarm Payrolls 204K vs Briefing.com consensus of 100K; September was revised to 163K from 148K

·         October Nonfarm Private Payrolls 212K vs Briefing.com consensus of 110K; September was revised to 150K from 126K

o    Notable Job Gainers;

§  Manufacturing +19K

§  Retail trade +44K

§  Professional and business services +44K

o    Notable Job Losses

§  Government -8K

§  It was expected that the government shutdown would have reduced private payroll growth, which was what happened in the ADP numbers that were released last week. That would have put downward pressure on overall job growth and kept the payroll gains below normal trends. That obviously did not happen. Yet, looking back at the initial claims data over the previous month, it can be argued that the gain in payrolls should not have been too much of a surprise. Glitches aside, the initial claims level has averaged around 330,000 over the last few months. Those levels support payroll growth in the 200,000 neighborhood. Furthermore, layoffs in the private sector that were a direct result of the government shutdown were estimated to be only around 30,000.

·         October Unemployment Rate 7.3% vs Briefing.com consensus of 7.3%; September was 7.2%

·         October Hourly Earnings 0.1% vs Briefing.com consensus of 0.2%; September was 0.1%

·         October Average Workweek 34.4 vs Briefing.com consensus of 34.4; September was revised to 34.4 from 34.5

·         October Personal Income 0.5% vs Briefing.com consensus of 0.2%; September was revised to 0.5% from 0.4%

·         October Personal Spending 0.2% vs Briefing.com consensus of 0.2%; September was 0.3%

·         October PCE Prices - CORE 0.1% vs Briefing.com consensus of 0.1%; September was revised to 0.1% from 0.2%

·         November Michigan Sentiment - Prelim 72.0 vs Briefing.com consensus of 75.3; October-Final was 73.2

o     With the government shutdown over and the economy returning to its normal, albeit weak, trends, it was expected that consumer sentiment would return to September (77.5) or August (82.1) levels.

Upcoming Economic Data:

·         Weekly MBA Mortgage Index due out Wednesday at 7:00 (Last Week was -7.0%)

·         October Export Prices Ex-Ag due out Wednesday at 8:30 (September was 0.3%)

·         October Import Prices Ex-Oil due out Wednesday at 8:30 (September was 0.1%)

·         October Treasury Budget due out Wednesday at 14:00 (September was -$120.0 bln)

Upcoming Fed/Treasury Events:

·         Atlanta Fed President Dennis Lockhart to speak Friday at 12:00

·         Fed Chairman Ben Bernanke to speak Friday at 15:30

·         San Francisco Fed President John Williams (not a voting FOMC member, typically moderate) to speak at 16:00

Other International Events of Interest

·         Germany's trade surplus expanded to EUR18.80 billion from EUR15.80 billion (EUR15.50 billion forecast). 

Jason's Commentaries

The entire market was expecting the job report to suck due to the Government shutdown, however, the Non-farm payrolls came out much much better than expected which drove the market bananas. On Forex Factory's estimates, 121k jobs were expected but 204k jobs were created last month. Unemployment rate(U3) is standing at 7.3% while the U6 standards rose from 13.6% to 13.9%. The market started with the bullish momentum all the way to the market close. Financials, Consumer discretionary and materials were the biggest leaders in the market last night. JP Morgan, Bank of America and Citigroup gained 4.47%, 3.77% and 3.29% respectively, making the Financial sector the strongest gainer. Total volumes were standing at 804.7m shares traded on the NYSE,internals were obviously pointing to the bullish side and VIX sunk 7.26% to 12.90 points.

On the technical side, we're having the Dow Jones and the S&P500 stuck near their all time high. I reckon it's gonna take much of a catalyst to push the market even higher. Since next week is gonna be the FOMC minutes once again, we might have something to move the market. While looking at this week, we're having Ben Bernanke testifying on Wednesday and Janet Yellen to testify on Thursday.

Market Call: FLAT

Date: 11 Nov 2013