24 Jan 2014 AMC - Market suffered biggest loss in 6 months as focus turns to China

24 Jan 2014 AMC - Market suffered biggest loss in 6 months as focus turns to China

Market Summary 

 European Markets Closing Prices

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

·         UK's FTSE: -1.6%

·         Germany's DAX: -2.5%

·         France's CAC: -2.8%

·         Spain's IBEX: -3.6%

·         Portugal's PSI: -1.0%

·         Italy's MIB Index: -2.3%

·         Irish Ovrl Index: -2.1%

·         Greece ATHEX Composite: -3.2%

Before Market Opens 

S&P futures vs fair value: -9.00. Nasdaq futures vs fair value: -11.00.
The S&P 500 futures trade nine points below fair value.

The major Asian bourses ended mostly lower as selling persisted for a second session. Bank of Japan Governor Haruhiko Kuroda said the economy remains on track for 1.5% growth. This has caused quite the stir among traders as it adds credence to yesterday's comments from an official who said the Bank of Japan does not see a current need for additional easing. Elsewhere, liquidity concerns remain in China ahead of the New Year as overnight SHIBOR edged up almost two basis points to 3.719% and two-week SHIBOR surged nearly 83 basis points to 6.765%.

Economic data was limited to Singapore's industrial production (+6.2% year-over-year versus -0.4% expected) and the Philippine trade balance, which swung to a $940 million deficit (-$740 million expected). 

·         Japan's Nikkei tumbled 1.9% as a result of the stronger yen. Robotics maker Fanuc, who relies heavily on China, lost 3.0%. 

·         Hong Kong's Hang Seng fell 1.3% as trade slipped below the 200-day moving average. Internet gaming company Tencent Holdings saw heavy selling, ending down 4.0%. 

·         China's Shanghai Composite advanced 0.6% with shares gaining for the third time in four days. Property stocks were out in front as China Vanke climbed 4.0% and Poly Real Estate added 3.0%. 

Major European indices trade near their lowest levels of the session with Spain's IBEX (-2.0%) leading the retreat. Economic data was limited as Great Britain's BBA Mortgage Approvals came in at 46,500 (47,200 expected, 45,400 prior); Italy's Retail Sales were unchanged month-over-month (0.4% forecast, -0.1% last) while the year-over-year reading ticked up 0.1% (-1.6% prior); and Spain's PPI rose 0.6% year-over-year (-0.4% consensus, 4.0% last).

Among news of note, Bank of England Governor Mark Carney said there are no plans for an imminent rate hike even with the unemployment rate within 0.1% of the BoE's tightening target. This comes after an article in The Financial Times indicated the central bank plans to scrap its forward guidance. 

·         Great Britain's FTSE trades lower by 0.8% as financials lag. Aberdeen Asset Management, Aggreko, and Prudential are all down between 2.9% and 3.4%. On the upside, miners are showing strength with Fresnillo and Randgold Resources up 3.4% and 2.7%, respectively. 

·         In Germany, the DAX holds a loss of 1.0% as 28 of its 30 components trade lower. Adidas is the weakest member, trading lower by 4.2% after Deutsche Bank cut its earnings estimates for the apparel maker. Fresenius Medical Care is the top performer, up 0.2%. 

·         In France, the CAC trades down 1.3% with 38 components on the defensive. Software company Gemalto leads the decline with a loss of 3.9%. On the upside, industrials Legrand and Vinci hold respective gains of 1.7% and 1.0%. 

·         Spain's IBEX sports a loss of 2.0% as all 35 components trade in the red. Banco Bilbao Vizcaya Argentaria and International Consolidated Airlines Group weigh, trading lower by 3.8% and 4.2%, respectively.

Market Internals

Market Internals -Technical-
The Nasdaq closed down 91 (-2.15%) at 4128, the S&P 500 closed down 38 (-2.09%) at 1790, and the Dow closed down 318 (-1.96%) at 15879. Action came on above average volume (NYSE 902 mln vs. avg. of 682; NASDAQ 2345 mln vs. avg. of 1778), with decliners outpacing advancers (NYSE 431/2728, NASDAQ 383/2256) and mixed new lows/highs (NYSE 30/73, NASDAQ 44/34). 

Relative Strength: 
Volatility-VXX +8.76%, Natural Gas-UNG +7.89%, Heating Oil-UHN +1.76%, Japanese Yen-FXY +0.89%, Sugar-SGG +0.67%, 20+ Year Treasuries-TLT +0.65%, Swiss Franc-FXF +0.34%, Canadian Dollar-FXC +0.23%.

Relative Weakness: 
Greece-GREK -5.4%, Turkey-TUR -4.57%, South Africa-EZA -4.54%, Spain-EWP -4.35%, Indonesia-IDX -4.19%, Clean Energy-PBW -4.14%, Transportation-IYT -4.06%, Steel-SLX -3.69%, Metals and Mining-XME -3.67%.

Leaders and Laggards

Technical Updates

Commentaries 

Closing Market Summary: Stocks Notch January Lows Following Broad Retreat
Equities endured a rough end to the abbreviated week with the S&P 500 seeing its largest weekly loss since June 2012. The benchmark index fell 2.1%, extending its January decline to 3.1%.

The market spent the entire session in a steady slide amid continued concerns regarding China. Furthermore, participants kept a close eye on the foreign exchange market where emerging market currencies weakened while the Japanese yen saw its second consecutive day of gains. Dollar/yen fell below the 102.50 level after trading near 104.50 on Wednesday. The yen strength came about after Bank of Japan officials said the Japanese economy remains on track and there is no need for additional easing at this time. In turn, this posed a headwind to yen-based carry trades, which played a significant part in last year's market rally.

Like yesterday, the weakness began overnight; however, unlike yesterday, the aggressive selling did not start until the European session kicked off. Regional indices saw broad losses with peripheral markets leading the slide. Spain's IBEX plunged 3.6% while Italy's MIB fell 2.3%.

The overseas weakness set the tone for a lower start in U.S. equities with cyclical sectors leading the decline. Consumer discretionary (-1.9%) and technology (-2.1%) finished just ahead of the broader market thanks to the relative strength of Starbucks (SBUX 74.98, +1.59) and Microsoft (MSFT 36.80, +0.75) after both beat their bottom-line estimates.

Staying on the earnings theme, most of the reports received between yesterday's close and today's open were ahead of expectations but that mattered little to the broader market. However, Kansas City Southern's (KSU 99.49, -17.79) seven-cent miss mattered quite a bit as the stock plunged 15.2% while also weighing on the Dow Jones Transportation Average, which tumbled 4.1%. This marked the largest one-day loss for the bellwether complex since September 2011 as the broad liquidation resulted in 17 of 20 components posting losses in excess of 2.0%. Due to the sharp losses, the industrial sector (-3.1%) ended at the bottom of the leaderboard.

Elsewhere, financials (-2.3%) and materials (-2.7%) lagged while energy (-2.1%) ended in-line.

Meanwhile, defensive sectors—sans health care—outperformed with losses between 0.9% and 1.1%. Procter & Gamble (PG 79.18, +0.94) contributed to the relative strength of the consumer staples sector after reporting a one-cent beat. For its part, the health care sector lost 2.3%.

Treasuries booked gains with the 10-yr yield ending lower by five basis points at 2.73%.

The aggressive selling fueled strong demand for volatility protection as indicated by a 30.0% surge in the CBOE Volatility Index (VIX 17.89, +4.12), which ended at its highest level since October 15.

For the second day in a row, the selloff was accompanied by above-average volume as 902 million shares changed hands at the NYSE.

Monday's data will be limited to the December New Home Sales report, which will be released at 10:00 ET. 

·         Nasdaq Composite -1.2% YTD 

·         Russell 2000 -1.7% YTD 

·         S&P 500 -3.1% YTD 

·         Dow Jones Industrial Average -4.2% YTD 

Commodities

Closing Commodities: Natural Gas Futures Soar 10%, Rising Above $5/MMBtu

·         Natural gas futures rose above $5/MMBtu today, soaring over 10%.

·         This was the first time the front-month contract rose above $5/MMBtu since Nov 2011 and the first time the continuous nat gas futures contract rose above $5/MMBtu since June 2010.

·         Feb natural gas ended the day 9.8% higher as $5.03/MMBtu. Crude oil futures sold off overnight, falling below $97/barrel level. Mar crude ended $0.55 lower at $96.70/barrel.

·         Metals ended the day mixed with Feb gold rising $1.90 to $1264.50/oz and Mar silver losing $0.25 to $19.76/oz.

COMEX Metals Closing Prices

·         Feb gold rose $1.90 to $1264.50/oz

·         Mar silver fell $0.25 to $19.76/oz

·         Mar copper fell 2 cents to $3.27/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Mar corn settled unchanged at $4.29/bushel

·         Mar wheat fell 4 cents to $5.66/bushel

·         Mar soybeans rose 11 cents to $12.86/bushel

·         Feb ethanol fell 3 cents to $1.78/gallon

·         Mar sugar (#16 (U.S.)) rose 0.11 of a penny to 20.34 cents/lbs

 

 NYMEX Energy Closing Prices; Natural gas futures soar 10% over $5/MMBtu

·         Mar crude oil fell $0.55 to $96.70/barrel

·         Feb natural gas rose 45 cents to $5.03/MMBtu

·         Mar heating oil rose 3 cents to $3.02/gallon

·         Mar RBOB settled unchanged at $2.67/gallon

Treasuries

Treasuries Close at Best Levels of 2014: 10-yr: +14/32..2.733%..USD/JPY: 102.29..EUR/USD: 1.3679
The Week in Review

·         Treasuries saw solid gains this week with maturities finishing at their best levels of 2014. Click here to see an intraweek yields chart.

·         The week got off to a quiet start, but Thursday's disappointing Chinese HSBC Flash Manufacturing PMI and concerns over the health of the Chinese shadow banking system sparked a strong bid over the latter part of the week. 

·         Data was light, and slightly disappointing, with existing home sales (4.87M actual v. 4.90M expected) and leading indicators (0.1% actual v. 0.2% expected) both falling short of estimates.

·         Buying was paced by the long end with the 30y tumbling -11bps over the course of the week. The 30y ended Friday's session @ 3.651%, more than 30 bps off its late-2013 high, posting its lowest close since Halloween. 

·         The 10y shed -8bps on the week, ending @ 2.735%. Participants will be watching the 2.700%/2.750% area over the coming days as support at the level is all that stands in the way of a test of the 200 dma (2.526%). 

·         The 5y lagged during the first half of the week as sellers concentrated their efforts on maturities in the belly of the curve, but a steady bid on Thursday and Friday caused it to finish in-line relative to its peers. The yield slipped -6bps to settle @ 1.564%, and finished Friday's session with itslowest close since December 18, the day the Fed announced its taper. 

·         A volatile week up front ended with the 2y -2bps @ 0.356%. Early action saw the yield climb above the 0.410% level, but the safety bid won out in the end. Many traders continue to monitor the front of the curve for any signs of skittishness ahead of the February 7 debt ceiling deadline. 

·         This week's buying flattened the yield curve as the 2-10-yr spread tightened to 238bps. 

The Week Ahead 

·         Monday's data is limited to new home sales (10). 

·         Tuesday will see durable orders (8:30), Case-Shiller 20-city Index (9), and consumer confidence (10). Treasury will auction $32 bln 2y notes. 

·         Wednesday's will see just the weekly MBA Mortgage Index (7). The final FOMC rate decision under Chairman Ben Bernanke will take place (14). Treasury will hold a $35 bln 5y note auction. 

·         Data picks up on Thursday with initial and continuing claims, GDP-Adv. (8:30), and pending home sales (10). Treasury will hold a $29 bln 7y note auction. 

·         Friday's data is the most anticipated of the week as personal income and spending, PCE Prices - Core, Employment Cost Index (8:30), Chicago PMI (9:45), and Michigan Sentiment - Final (9:55) are due out.

On other news.... 








Currencies 

Dollar Hovers Flat: 10-yr: +11/32..2.737%..USD/JPY: 102.39..EUR/USD: 1.3675

·         The Dollar Index hovers little changed near 80.45 as a mostly uneventful session nears the final hour of trading. 

·         Some early morning selling dropped action to session lows near 80.15, but buyers quickly emerged and ran the Index back to the unchanged line. 

·         Action has spent the majority of U.S. trade in a tight 10 cent rage. Click here to see a daily Dollar Index chart.

·         EURUSD is -15 pips @ 1.3680 amid a mostly uneventful trade. The single currency spiked to almost 1.3750 in early trade, but was quickly batted back down to resistance in the 1.3675 area. Eurozone data out Monday is limited to German Ifo Business Climate. The Bundesbank's monthly report will be released. 

·         GBPUSD is -135 pips @ 1.6500 as today's weakness has the pair looking at its first loss in six sessions. Early action saw sterling climb to its best levels since the summer of 2010, but sellers managed to gain control amid the fallout from yesterday's dovish comments by Bank of England Governor Mark Carney. The head of the BoE backed off the central bank's forward guidance, which suggested a rate hike was possible once the country's unemployment rate dipped to 7.0% (currently 7.1%). Support in the 1.6350 area is helped by the % 0 dma. 

·         USDCHF is -25 pips @ .8945 during what has been a lackluster trade. Action has spent the entire U.S. session locked in a tight range between .8930/.8965 after early selling tested .8900 support. 

·         USDJPY is -90 pips @ 102.35 as heavy selling persists for a second session. Today's weakness comes following commentary from Bank of Japan Governor Kuroda indicating the Japanese economy is on track for 1.5% growth. The recent words have ignited fears the BoJ will look to taper its asset purchase program after just yesterday another government official made cautious remarks. The 102.00 level provides near-term resistance with more meaningful help resting at parity. The latest Bank of Japan minutes will accompany the trade balance. 

·         AUDUSD is -55 pips @ .8705 as trade readies for its worst close in three and a half years. Worries of a slowdown in China continue to weigh on the hard currency, but also having an impact were comments from an Australian central banker who indicated fair value is around .8000. Australian banks are closed on Monday for Australia Day. 

·         USDCAD is -25 pips @ 1.1075 as trade slips off its best levels since the summer of 2009. This morning's Canadian CPI data was in-line at -0.2%, making for a muted reaction.

Weekly Analysis
Week 1



Technical Updates











Briefing's Commentaries

Week in Review: From Highs to Lows in Less Than a Week 

On Monday, bond and equity markets were closed for Martin Luther King Jr. Day.

Tuesday saw the major averages begin the abbreviated week on a mixed note as the Nasdaq added 0.7% while the Dow Jones Industrial Average shed 0.3%. For its part, the S&P 500 rose 0.3% as eight of ten sectors finished in the green. Stocks began the day with solid gains but the early strength faded quickly when the S&P 500 was unable to extend above the 1850 level during the opening minutes. That rejection emboldened sellers, who promptly drove the indices to their lows. Adding insult to injury was the fact that mostly better-than-expected earnings reported ahead of the opening bell failed to entice buyers.

The market endured an uninspiring Wednesday session, which unfolded in similar fashion to Tuesday's affair. Once again, the major averages ended mixed with the Dow Jones Industrial Average (-0.3%) coming out on the losing end while the Nasdaq (+0.4%) and S&P 500 (+0.1%) eked out modest gains. The price-weighted Dow spent the entire session in the red as 19 of its 30 components registered losses. Most notably, the second-largest index member, IBM (IBM 179.64, -3.09), plunged 3.3% after beating its Capital IQ earnings estimate by 13 cents on below-consensus revenue. Despite the bottom-line beat, the report was scrutinized due to the company accounting for a lower tax rate than in previous quarters.

On Thursday, the S&P 500 snapped its modest two-day win streak with its second-largest decline of the month. The index lost 0.9% as nine of ten sectors registered losses. Although stocks sold off throughout the day, the weakness actually started during the overnight futures session when three China-related developments began fueling the risk-off sentiment: 

·         The HSBC flash PMI reading for January was below expectations at 49.6. The sub-50 reading is indicative of manufacturing activity contracting; and the January reading marked a six-month low for the series. 

·         A Financial Times report indicated Chinese authorities are working to prevent a default of a $500 million high-yield investment trust, failure of which could trigger an unnerving fallout in China's shadow banking system. 

·         An SEC administrative law judge issued a ruling that censures the accounting arms of the "Big Four" in China for six months due to their unwillingness to turn over requested documents involving US-listed Chinese companies under investigation for accounting fraud. 

The three developments did enough damage to sentiment that a slate of mostly better-than-expected earnings could not halt the day-long slide. The discretionary sector (-0.7%) finished just ahead of the broader market after last year's top S&P 500 component, Netflix (NFLX 386.08, -2.64), surged 16.5% in reaction to its bottom-line beat and above-consensus guidance.



Next Week In View



Economic Commentaries

Economic Summary: No notable data today; New Home sales due out Monday at 10:00; FOMC decision Wednesday at 14:00

Upcoming Economic Data:

·         December New Home Sales due out Monday at 10:00 (November was 464K)

Upcoming Fed/Treasury Events:

·         FOMC Decision due out Wednesday at 14:00 (no press conference or econ projections).

Other International Events of Interest

·         Bank of Japan Governor Kuroda suggested the Japanese economy remains on track for 1.5% growth 

·         Liquidity concerns remain in China ahead of the New Year as O/N SHIBOR edged up +1.9bps to 3.719% and 2W SHIBOR surged 82.5bps to 6.765%

Jason's Commentaries

The market continued tanking after China's disappointing PMI report as Asia led the slide once again. As China's shadow banking system is getting worrisome, ICBC might default on its high yield investment product of $500m and HSBC got issued a sell rating as they might be overstating their assets as much as $92b. Bad news don't just keep coming out. Ahead of the FOMC Statement on Wednesday, the market might take a pause to cover their shorts.

The market started the day with a bearish intent and it just kept sliding down, with all the indices losing approx 2%. There is only a handful of stocks that remained afloat. Stocks like Microsoft, P&G and Merck. The Industrials, Healthcare and the Financials were the most heaviest hit with more than 2.2% losses. Volumes were exceptionally high at 909.2m shares traded on the NYSE, with DVOL outpacing UVOL by 11:1. VIX spiked to a multi-month high on 18 points. Seems that the market is getting worried.  These 2 coming week will be highly critical as the FOMC Statements and the Employment report might crash the market.

On the Technical side, we're having the S&P500 and Dow Jones breaking down from their head and shoulders pattern. Dow broke its 16000 support level and S&P500 broke its 1800 level. However, it seems that the market is unaffected by the drag caused by Asia Market right now and Futures is up 0.18% on the S&P500 futures. We're likely to have some covering today to price in for Wednesday's FOMC Statements. Looking ahead, the major report better have something to offer to reverse the crash or break the market.

Market Call: FLAT to upside

Date: 27 Jan 2014