3 Jan 2014 AMC - A bearish start to first week in 2014

3 Jan 2014 AMC - A bearish start to first week in 2014

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: + 0.4%

·         France's CAC: + 0.5%

·         Spain's IBEX: + 0.4%

·         Portugal's PSI: + 2.2%

·         Italy's MIB Index: + 1.0%

·         Irish Ovrl Index: + 0.9%

·         Greece ATHEX Composite: + 0.1%

Before Market Opens 

S&P futures vs fair value: +3.00. Nasdaq futures vs fair value: +1.70.
The S&P 500 futures continue to hover near their pre-market highs.

Markets across Asia ended lower as trade piggybacked the action on Wall Street. A disappointing Chinese Non-Manufacturing PMI number (54.6 actual versus 56.0 previous) led to underperformance both in Hong Kong and in Shanghai.

In other news of note, Indian Prime Minister Manmohan Singh announced he would relinquish his leadership role if his Congress Party wins this summer's election. Separately, Reserve Bank of India Governor Raghuram Rajan suggested interest rates will remain elevated as long as inflation crimps growth. 

·         Japan's Nikkei was closed. 

·         Hong Kong's Hang Seng fell 2.2%, posting its biggest drop in six months. Coal-related names remained under pressure due to the elevated pollution levels in major cities. China Shenhua Energy lost another 4.4% after analysts warned on the space. 

·         China's Shanghai Composite lost 1.2%, pushing lower for a second session with shares ending just off four-month lows. Financials lagged with Bank of China giving up 1.9%.

Major European indices hover near their best levels of the session with Italy's MIB (+1.1%) paving the way. Investors received several economic data points this morning. Eurozone private loans declined 2.3% year-over-year (-2.1% expected, -2.2% prior) while M3 money supply grew 1.5% year-over-year, as expected (1.4% prior). Great Britain's BoE Consumer Credit expanded to GBP630 million from GBP450 million (GBP700 million expected) while mortgage approvals increased by 71,000 (69,000 expected, 68,000 previous). Separately, Construction PMI fell to 62.1 from 62.6 (62.0 forecast) while Nationwide HPI increased 1.4% month-over-month (0.7% expected, 0.7% prior). Elsewhere, Italy's CPI ticked up 0.2% month-over-month (0.3% expected, -0.3% prior) while the year-over-year reading rose 0.7% (0.8% consensus, 0.7% previous). Also of note, Spain's number of unemployed fell by 107,600 (+20,000 expected, -2,500 last).

Among news of note, according to the draft of the German annual economic report, the government does not plan to increase taxes at this time. 

·         Great Britain's FTSE is higher by 0.3% with consumer names in the lead. Next trades up 9.2% after issuing an upbeat profit forecast. Peer Marks & Spencer Group is higher by 4.4%. On the downside, miners Antofagasta and Glencore Xstrata trade lower by 0.4% and 1.1%, respectively. 

·         In Germany, the DAX holds an advance of 0.4%. ThyssenKrupp and K+S lead with both names displaying gains close to 2.0% apiece. Software company SAP underperforms with a loss of 0.5%. 

·         France's CAC trades higher by 0.6% as defensive names lead. Electricite de France and Veolia Environnement hold respective gains of 1.6% and 1.5%. 

·         In Italy, the MIB trades up 1.1%. Telecom Italia leads with a gain of 6.3% amid reports the company's largest owner plans to sell its Brazilian subdivision.

Market Internals

Market Internals -Technical-
The Dow closed up 29 (+0.17%) at 16470, the S&P 500 closed down 1 (-0.03%) at 1831, and the Nasdaq closed down 11 (-0.27%) at 4132. Action came on below average volume (NYSE 533 mln vs. avg. of 687; NASDAQ 1571 mln vs. avg. of 1714), with advancers outpacing decliners (NYSE 1985/1114, NASDAQ 1596/981) and new highs outpacing new lows (NYSE 95/15, NASDAQ 114/6).

Relative Strength: 
Coffee-JO +4.77%, Cocoa-NIB +2.80%, India-INP +1.98%, New Zealand-ENZL +1.91%, Wind Energy-FAN +1.24%, Clean Energy-PBW +1.22%, Agriculture-DBA +1.12%, Switzerland-EWL +0.99%, Australia-EWA +0.99%, Emerging Markets Small Cap-EWX +0.97%.

Relative Weakness: 
Heating Oil-UHN -1.89%, Coal-KOL -1.72%, Base Metals-DBB -1.66%, Gasoline-UGA -1.57%, Cotton-BAL -1.41%, Hong Kong-EWH -1.37%, China 25 Index-FXI -1.24%, Greece-GREK -1.01%, BRICs-EEB -0.80%, Turkey-TUR -0.74%.

Leaders and Laggards

Technical Updates

Commentaries 

Closing Market Summary: Stocks End Down Week on Mixed Note
The major averages wrapped up the week on a mixed note as the Dow Jones Industrial Average added 0.2% while the Nasdaq shed 0.3%. For its part, the S&P 500 ended flat.

Today's mixed finish was an appropriate reflection of a session that featured some mixed signals. On that note, seven of ten sectors ended in the red but market breadth remained positive throughout the trading day. In all likelihood, light volume played a part as some participants were kept away by the winter storm that has encompassed the Northeast. At the end of the day, only 533 million shares changed hands on the NYSE floor.

Stocks began the session on an upbeat note, but the Nasdaq was quick to slip from its early high. The index was pressured by its largest component, Apple (AAPL 540.98, -12.15), which lost 2.2%. Biotechnology also weighed on the Nasdaq as the iShares Nasdaq Biotechnology ETF (IBB 226.03, -1.06) shed 0.5%. The health care sector; however, outperformed with a gain of 0.2%.

The S&P 500 followed in the footsteps of the Nasdaq in the early afternoon, but the indices diverged once again during the final hour when the S&P 500 made an unsuccessful run at its opening high.

Seven sectors posted losses while financials (+0.6%), health care (+0.2%), and industrials (+0.3%) spent the entire session in the green.

Notably, the financial sector was underpinned by large banks as Bank of America (BAC 16.41, +0.31), Citigroup (C 53.40, +1.13), and JPMorgan Chase (JPM 58.66, +0.45) all gained between 0.8% and 2.2%.

Elsewhere, gains in the industrial sector were paced by airlines. Delta Air Lines (DAL 29.23, +1.53) and United Continental (UAL 39.95, +2.22) soared 5.5% and 5.9%, respectively, while the broader Dow Jones Transportation Average added 0.5%.

Switching gears, the commodity market saw a replay of Thursday as oil fell while gold rallied. Crude oil slid 1.6% to $93.96/bbl while gold futures advanced 1.1% to $1238.40/ozt.

Treasuries ended little changed with the 10-yr yield at 2.99%.

On Monday, November Factory Orders and the December ISM Services Index will both be reported at 10:00 ET. 

·         Russell 2000 -0.6% YTD 

·         DJIA -0.6% YTD 

·         S&P 500 -0.9% YTD 

·         Nasdaq -1.1% YTD 

Commodities

Closing Commodities: Crude Oil Falls for Fourth Consecutive Session; Settles Below $94
Feb crude oil fell below the $94 level, extending losses for a fourth consecutive session, as inventory data and a slightly stronger dollar index weighed on prices. Although crude oil inventories fell by 7 mln barrels when a smaller draw of 2.9 mln was expected, distillate inventories showed a build of 5 mln, which was much higher than the anticipated build of 0.8-1.2 mln. The energy component retreated from its session high of $95.40 per barrel and eventually settled 1.6% lower at $93.96 per barrel. 

Feb natural gas slipped to a session low of $4.21 per MMBtu following inventory data that showed a draw of 97 bcf vs expectations for a draw of 115-126 bcf. It gained momentum and rose into positive territory by late morning pit trade. It touched a session high of $4.39 per MMBtu but reversed back into negative territory in the last half hour of pit trade and settled with a 0.5% loss at $4.30 per MMBtu.

Feb gold extended yesterday's gains despite the slightly stronger dollar index. The yellow metal trended higher after lifting from its session low of $1226.00 per ounce set just after floor trade opened. It brushed a session high of $1239.60 per ounce and settled at $1238.40 per ounce, or 1.1% higher. 

Mar silver opened today's session in the red, with prices falling to a session low of $20.00 per ounce. However, it found buying support and broke into positive territory not long after equity markets opened. Silver eventually settled 0.3% higher at $20.20 per ounce.

COMEX Metals Closing Prices

  Feb gold rose $13.00 to $1238.40/oz 

·         Gold extended yesterday's gains despite a slightly stronger dollar index. The yellow metal steadily rose higher after lifting from its session low of $1226.00 set moments after floor trade opened. It touched a session high of $1239.60 and settled with a 1.1% gain. 

  Mar silver rose $0.07 to $20.20/oz .

·         Silver opened today's session in the red, with prices falling to a session low of $20.00. However, it gained buying support and broke into positive territory not long after equity markets opened. Silver eventually settled 0.3% higher. 

  Mar copper fell 3 cents to $3.35/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Mar corn rose 3 cents to $4.24/bushel 

·         Mar wheat rose 10 cents to $6.07/bushel 

·         Mar soybeans rose 1 cent to $12.72/bushel 

·         Feb ethanol rose 4 cents to $1.86/gallon 

·         Mar sugar (#16 (U.S.)) rose 0.05 of a penny to 20.10 cents/lbs

NYMEX Energy Closing Prices

  Feb crude oil fell $1.53 to $93.96/barrel 

·         Crude oil fell for a fourth consecutive session as inventory data and a slightly stronger dollar index weighed on prices. Although crude oil inventories fell by 7 mln barrels when a smaller draw of 2.9 mln was expected, distillate inventories showed a build of 5 mln, which was much higher than the anticipated build of 0.8-1.2 mln. The energy component pulled back from its session high of $95.40 and eventually settled with a 1.6% loss. 

  Feb natural gas fell 2 cents to $4.30/MMBtu 

·         Natural gas fell to a session low of $4.21 following inventory data that showed a draw of 97 bcf vs expectations for a draw of 115-126 bcf. However, it gained momentum and rose into positive territory by late morning pit trade. Natural gas touched a session high of $4.39 but reversed back into the red in the last half hour of pit trade and settled with a 0.5% loss. 

  Feb heating oil fell 5 cents to $2.94/gallon 

  Feb RBOB fell 5 cents to $2.65/gallon

Treasuries

Treasuries Endure Flat Week: 10-yr: -01/32..2.996%..USD/JPY: 104.74..EUR/USD: 1.3587
The Week in Review

·         Treasuries were little changed for the week as participation was light due to the holidays. Click here to see an intraweek yields chart.

·         Mixed economic data saw consumer confidence (78.1 actual v. 77.1 expected) and ISM Index (57.0 actual v. 56.9 expected) beat while pending home sales (0.2% actual v. 1.5% expected) and Chicago PMI (59.1 actual v. 60.0 expected) missed.

·         A flat week for the 30y saw the yield on the long bond settled @ 3.930%. 

·         The 10y shed -1bp, closing @ 2.995%. Mid-week selling ran the benchmark yield as high as 3.040%, its highest since July 2011. 

·         A flat week in 5s made for a tight 5bp range. The 5y closed @ 1.727% after once again failing to crack 1.750% resistance. 

·         This week's biggest move along the curve came in the 2y, which added +3bps to 0.412%. Current levels match those last seen back in September, shortly after the debt ceiling was resolved.  

·         Curve flattening caused the 2-10-yr spread to tighten to 258.5bps. 

The Week Ahead 

·         Monday will see factory orders and ISM Services (10). 

·         Tuesday's data is limited to the trade balance (8:30). Treasury will auction $30 bln 3y notes. Boston's Rosengren will be in Hartford, CT to take part in the Connecticut Business & Industry Association "Economic Summit & Outlook 2014" (8:30). SF's Williams travels to Phoenix, AZ to discuss monetary policy and the economy (14:10). 

·         Data picks up on Wednesday with the weekly MBA Mortgage Index (7), ADP Employment Change (8:15), the latest FOMC minutes (14), and consumer credit (15). Treasury will reopen $21 bln 10y notes. 

·         Thursday's data includes Challenger Job Cuts (7:30), and initial and continuing claims (8:30). Treasury will hold a $13 bln 30y bond reopening. KC's George will be in Madison, WI to discuss "Banking and the U.S. Economy" (13:30) and Minny's Kocherlakota will take place in "Public Town Hall Forum with President Kocherlakota" at the Minneapolis Fed (20). 

·         Friday's data is the most anticipated of the week as nonfarm payrolls, nonfarm private payrolls, the unemployment rate, hourly earnings, average workweek (8:30), and wholesale inventories (10) are due out. STL's Bullard will be in Indianapolis, IN to take part in a discussion on the U.S. economy and monetary policy (13:05).

On other news.... 








Currencies 

Dollar Gains for Third Straight Day: 10-yr: +04/32..2.976%..USD/JPY: 104.44..EUR/USD: 1.302
The Dollar Index sits on session highs near 80.80 as trade readies to put in a third straight day of gains. Currently levels will be watched closely as the 80.80 level has acted as a ceiling since the beginning of December. Click here to see a daily Dollar Index chart.

·         EURUSD is -65 pips @ 1.3605 as today's selling has dropped the pair below its 50 dma (1.3615). The single currency has been under pressure throughout the session despite the surprise drop in Spanish unemployment, which also provoked a flight into peripheral debt. Support in the 1.3600 area will be watched closely over the coming days with 1.3650 now being looked at as minor resistance. Services PMI data from across the Eurozone is due out on Monday. Italian banks are closed Monday for Epiphany Day. 

·         GBPUSD is -15 pips @ 1.6430 as sellers remain in control for a second day. Sterling saw an early test of the 1.6400 support, but managed to rally off the level as a quiet holiday trade meant convictions were low. British data due out Monday is limited to Services PMI. 

·         USDCHF is +55 pips @ .9040 with trade on track to post its best close since the beginning of December. Today's bid has run the pair back above its 50 dma (.9021), and has action testing .9050 resistance. 

·         USDJPY is -35 pips @ 104.45 as action presses lower for a third straight day. Early selling made for a test of 104.00, but that level was able to hold as buyers emerged at support. Volume has been light over the past couple of days as Japanese banks remain on holiday. 

·         AUDUSD is +70 pips @ .8980 as trade finally managed to breakout of its .8850/.8950 holding pattern that has been in place since the middle of December. Hard currency bulls would love to get another crack at the .9150 area, which has provided a ceiling since late-November. Bears will surely look to defend the level as it is guarded by the 50 dma (.9156). 

·         USDCAD is -60 pips @ 1.0605 as trade probes session lows. Today's selling has the pair looking at its worst close in two weeks, and has action nearing a test of the lower bound of the 1.05801/1.0700 range that has held up since Thanksgiving. Canada's Raw Materials Price Index will cross the wires Monday.

Weekly Analysis
Week 1



Technical Updates











Briefing's Commentaries



Week in Review: Shaky Start to 2014 

Monday's session did not generate much excitement as the S&P 500 ended flat after spending the entire trading day inside of a four-point range. Interestingly, while the S&P 500 was challenged by its flat line throughout the session, the Dow Jones Industrial Average held just above its unchanged level for the duration of the day. The price-weighted Dow saw 19 of its 30 components finish in the green, but shares of Disney (DIS 76.11, -0.16) stood out with a 2.5% gain. The noteworthy strength ensued after Guggenheim upgraded the stock to ‘Buy' from ‘Neutral.'

On Tuesday, the major averages wrapped up a memorable year with a forgettable final session. The S&P 500 added 0.4%, extending its 2013 price return to 29.6%. Given its banner year, it was appropriate for the index to end 2013 at a fresh all-time high of 1848.35. The Dow Jones Industrial Average soared 26.5% in 2013 and ended at a record high of its own. Although the Dow (+0.4%) and S&P 500 (+0.4%) saw comparable gains on Tuesday, the Nasdaq (+0.5%) fared a bit better. That was the theme throughout the year as the tech-heavy index rallied 38.3%.

Bond and equity markets were closed on Wednesday for New Year's Day.

On Thursday, the S&P 500 exhibited a bit of a hangover in its first session of 2014. The benchmark index fell 0.9% as all ten sectors registered losses. Stocks were pressured from the opening bell as cautious action in Europe weighed on the early sentiment. In all likelihood, the slide caught a number of participants off guard given the understanding that the first few days of a new year are known to have a favorable bias with inflows into IRA accounts, bonus money being put to work, and new money coming off the sidelines. That did not happen today as sellers maintained control throughout the trading day. Energy (-1.3%), industrials (-1.3%), and technology (-1.1%)—slipped behind the broader market at the open and their underperformance weighed for the remainder of the session.


Next Week In View



Economic Commentaries

Economic Summary: No US data today; Hawkish Plosser reiterates that he is concerned about high inflation; wants to return the balance sheet to predominantly all treasuries; Bernanke to speak today at 14:30
Fed/Treasury Events Summary:

·         Philadelphia Fed President Charles Plosser (voting FOMC member, hawkish) spoke today.  He made the following comments:

o    He said Fed needs to return the balance sheet to predominantly all treasuries; notes balance sheet growing at a rapid clip.

o    He said more concerned about too high inflation than too low given Fed's balance sheet

Upcoming Economic Data:

·         November Factory Orders due out Monday at 10:00 (Briefing.com consensus of ; October was -0.9%)

·         December ISM Services due out Monday at 10:00 (Briefing.com consensus of ; November was 53.9)

Upcoming Fed/Treasury Events:

·         Richmond Fed President Jeffrey Lacker (not a voting FOMC member, hawkish) to speak today at 13:30

·         Fed Chairman Ben Bernanke (term ends Jan 31) to speak today at 14:30

Other International Events of Interest

·         A disappointing Chinese Non-Manufacturing PMI number (54.6 actual v. 56.0 previous) led to underperformance both in Hong Kong and on the mainland. 

Jason's Commentaries

Quite a bearish start to 2014, the first trading week ended up in the red. However, the market is not back in action yet. Volumes traded were standing at 544m shares traded on the NYSE, market was actually flat to the downside. As the FOMC minutes is coming out on Wednesday and employment report coming out on Friday, I reckon the market will be ready to price in or stand out of the market for the first 2 trading session, which means the market will be likely volatile or fully directional. Since the Fed is ready to taper already, we might start to see some downward action in the market. Last Thursday, we had the slight expansion in the ISM manufacturing report, however the reports coming out this week will be of high importance and is likely to cause a lot of volatility in the market.  Nasdaq was the main laggard on Friday's session as Apple continue dropping after downgrades issued. The gain in HP is insufficient to cushion the drop in Nasdaq. However, the Financial sector lead the market last Friday as Bank of America and Citigroup rallied. In the near term, I'll foresee some sort of consolidation with a long term upside potential. Meanwhile, happy new years guys!

Market Call: FLAT to downside

Date:6 Jan 2014