6 Jan 2014 AMC- Janet Yellen nominated as the next Chairwoman as market continues 3 consecutive losses

6 Jan 2014 AMC- Janet Yellen nominated as the next Chairwoman as market continues 3 consecutive losses

Market Summary 

Before Market Opens

S&P futures vs fair value: +3.30. Nasdaq futures vs fair value: -2.30.
The S&P 500 futures continue to hover near their pre-market highs.

Markets across Asia ended mostly lower as sellers have had their way so far in 2014. A disappointing HSBC Services PMI (50.9 from 52.5) was the latest evidence of a slowdown in China with a warning from Moody's also being a focal point of sellers. The rating agency warned local government debt "will be a burden on and carry risks to central government finances." 

·         Japan's Nikkei lost 2.4% after being met with heavy selling during its first trading day of the New Year. Blue chips paced the decline with Fast Retailing tumbling 5.8% and Softbank giving up 3.5%. 

·         Hong Kong's Hang Seng lost 0.6%, pressing lower for a second day as trade nears a test of the 200-day moving average. Financials led the way lower as China Merchants Bank gave up 3.4% while Bank of Communications and Industrial & Commercial Bank of China lost 2.3% and 2.0%, respectively. 

·         China's Shanghai Composite fell 1.8%, ending at its lowest level since the beginning of August. Coal stocks weighed as pollution across much of the country remains at hazardous levels. Yanzhou Coal Mining and China Shenhua Energy both lost at least 3.5%. 

Core European indices trade little changed while markets in Italy (+0.8%) and Spain (+0.9%) outperform. Investors received several regional PMI readings this morning. Eurozone Services PMI held steady at 51.0, as expected. Separately, Sentix Investor Confidence rose to 11.9 from 8.0 (9.5 forecast). Elsewhere, Germany's Services PMI ticked down to 53.5 from 54.0 (54.0 expected), Great Britain's Services PMI fell to 58.8 from 60.0 (60.0 forecast), and French Services PMI increased to 47.8 from 47.4 (47.4 consensus). Also of note, Italy's Services PMI improved to 47.9 from 47.2 (48.7 expected) and Spain's Services PMI jumped to 54.2 from 51.5 (51.5 forecast).

Among news of note, according to reports out over the weekend, Bank of England Governor Mark Carney plans to introduce changes to the BoE's forward guidance, reducing the unemployment target to 6.5% from 7.0%. 

·         In France, the CAC trades flat. Consumer names lag while financials outperform. Danone and Pernod Ricard trade lower by 0.5% and 1.5%, respectively. On the upside, BNP Paribas and Credit Agricole are both up near 1.0% apiece. 

·         Great Britain's FTSE is higher by 0.2%. RSA Insurance Group leads with a gain of 7.2% after the company said its Irish unit will not need any more capital injections. Miners lag with Anglo American, Randgold Resources, and Rio Tinto down between 1.5% and 1.8%. 

·         Germany's DAX holds an advance of 0.2% as 19 of 30 components display gains. Commerzbank and Deutsche Bank are higher by 2.3% and 0.7%, respectively. Exporters lag with BMW lower by 0.6% and Volkswagens down 0.9%. 

·         Spain's IBEX outperforms its regional peers with a gain of 0.9%. Banks are showing strength with Bankinter, Bankia, and Banco Santander up between 1.2% and 3.0%.

Market Internals

Market Internals -Technical-
The Nasdaq closed down 18 (-0.44%) at 4114, the Dow closed down 45 (-0.27%) at 16425, and the S&P 500 closed down 5 (-0.25%) at 1827. Action came on mixed volume (NYSE 656 mln vs. avg. of 686; NASDAQ 2139 mln vs. avg. of 1721), with decliners outpacing advancers (NYSE 1447/1675, NASDAQ 959/1650) and new highs outpacing new lows (NYSE 134/14, NASDAQ 126/15).

Relative Strength: 
Coffee-JO +4.51%, Turkey-TUR +2.94%, Wind Energy-FAN +2.54%, Spain-EWP +1.42%, Corn-CORN +1.24%, Social Media-SOCL +1.13%, Italy-EWI +0.91%, Smart Grid Infrastructure-GRID +0.89%, Thailand-THD +0.77%, Japanese Yen-FXY +0.60%. 

Relative Weakness: 
Homebuilders-XHB -1.87%, China 25 Index-FXI -1.77%, U.S. Home Construction-ITB -1.59%, Steel-SLX -1.56%, Russia-RSX -1.40%, Eastern Europe-ESR -1.36%, Cocoa-NIB -1.33%, Coal-KOL -1.32%, Indonesia-IDX -1.18%, Taiwan-EWT -1.14%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: S&P 500 Logs Third Consecutive Loss
Despite staging an afternoon rally, the S&P 500 was unable to log its first gain of 2014. The benchmark index registered its third consecutive loss, shedding 0.3% as six of ten sectors finished in the red.

Equities began the day on a modestly higher note, but the early gains evaporated during the opening hour as the broader market followed the Nasdaq Composite into the red. The tech-heavy index was hit with widespread selling pressure that weighed on many top components and biotechnology. Both Apple (AAPL 543.93, +2.95) and eBay (EBAY 51.78, -1.48) received downgrades, but Apple was able to stage an intraday reversal after dipping below its 50-day moving average. For its part, eBay settled lower by 2.8%.

Furthermore, biotechnology also pressured the Nasdaq after Goldman Sachs downgraded Celgene (CELG 162.62, -7.19) to ‘Sell.' The stock tumbled 4.2% while the broader iShares Nasdaq Biotechnology ETF (IBB 223.82, -2.21) lost 1.0%.

Even though the tech-heavy Nasdaq paced the early weakness, the technology sector ended in-line with the broader market. Other cyclical groups were mixed with respect to the broader market as energy (+0.1%) and financials (+0.1%) outperformed while consumer discretionary (-0.6%), industrials (-0.6%) and materials (-0.6%) lagged.

Notably, the financial sector spent the entire session in the green as Bank of America (BAC 16.66, +0.25) posted its third consecutive gain. The stock jumped 1.5% to extend its 2014 price return to 7.0%.

On the downside, the industrial sector finished near its lows as transports weighed. The Dow Jones Transportation Average lost 1.3% as 19 of its 20 components ended lower. Delta Air Lines (DAL 29.29, +0.06) was the lone advancer, adding 0.2%.

Similar to cyclical groups, countercyclical sectors ended in mixed fashion. Telecom services (+0.5%) and utilities (+0.1%) outperformed while consumer staples (-0.4%) and health care (-0.4%) lagged.

Once again, participation was on the light side as only 656 million shares changed hands on the floor of the New York Stock Exchange.

Treasuries rallied throughout the trading day, sending the 10-yr yield lower by four basis points to 2.96%.

Today's economic data was limited to a pair of reports: 

·         The ISM Non-manufacturing Index for December fell to 53.0 from 53.9 while the Briefing.com consensus expected the index to increase to 54.6. Business activities and production levels decelerated slightly as the respective index fell to 55.2 from November's 55.5. 

·         November factory orders rose 1.8% after falling an upwardly revised -0.5% (from -0.9%). The Briefing.com consensus expected orders to increase 1.7%. As the advance report already hinted at, nearly the entire gain in factory orders resulted from strong demand for durable goods orders. Durable goods orders rose 3.4%, which was down slightly from the 3.5% gain reported in the advance report. Excluding transportation, durable goods orders rose a solid 1.2%. 

Tomorrow's economic data will be limited to the November trade balance, which will be reported at 8:30 ET. 

·         DJIA -0.9% YTD 

·         S&P 500 -1.2% YTD 

·         Russell 2000 -1.4% YTD 

·         Nasdaq -1.5% YTD

Commodities

Closing Commodities: Crude Oil Ends Near LoD

·         Commodities ended the day mixed with WTI crude oil ending below $94 and gold below $1240/oz

·         Crude oil remained in the red all session and trading just above the LoD, finishing down -1.9% at $93.67/barrel

·         Feb natural gas futures slid lower in early morning trade and closed unchanged at $4.30/MMBtu

·         Gold lost $0.20 in today's session, closing at $1238.20/oz, while silver fell $0.09 to $20.11/oz. Mar copper gained one cent to $3.36/lb

COMEX Metals Closing Prices

·         Feb gold fell $0.20 to $1238.20/oz

·         Mar silver fell $0.09 to $20.11/oz

·         Mar copper rose 1 cent to $3.36/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Mar corn rose 4 cents to $4.28/bushel

·         Mar wheat fell 1 cent to $6.06/bushel

·         Mar soybeans rose 6 cents to $12.78/bushel

·         Feb ethanol rose 7 cents to $1.93/gallon

·         Mar sugar (#16 (U.S.)) closed unchanged at 20.10 cents/lbs

NYMEX Energy Closing Prices

·         Feb crude oil fell $0.50 to $93.46/barrel

·         Feb natural gas remained unchanged at $4.30/MMBtu

·         Feb heating oil remained unchanged at $2.94/gallon

·         Feb RBOB remained unchanged at $2.65/gallon

Treasuries

Treasuries Book Modest Gains: 10-yr: +07/32..2.963%..USD/JPY: 104.20..EUR/USD: 1.3633

·         Treasuries booked modest gains as trade rallied for the second time in three 2014 trading days. 

·         Overnight action favored the upside with trade climbing to its best levels following this morning's mixed ISM Services (53.0 actual v. 54.6 expected, 53.9 previous) and factory orders (1.8% actual v. 1.7% expected) data. 

·         Post-data buying lifted the complex to its best levels of the session before some afternoon selling pared the gains. 

·         Most yields slipped between 3 and 3.5bps to close at their lowest levels in over a week. Click here to see an intraday yields chart.

·         The 30y shed -3.2bps to end the day @ 3.898%. 

·         The 10y led the way lower, -3.4bps @ 2.961%. Action over the past week has been unable to successfully claim the 3.000% level, and sellers appear to be exhausting. 

·         Action in the 5y finally broke out of the 1.700/1.750% range that was in place around the turn of the calendar. The yield closed -3bps @ 1.697% with a breakdown of support in the area paving the way for a move into the 1.550% region. 

·         Traders continue to monitor the 2y, which ended little changed near 0.400%. The front end will be watched closely over the next month as the debate to raise the debt ceiling once again moves into focus. 

·         A flatter curve took hold as the 2-10-yr spread narrowed to 257bps. 

·         Data: Trade balance (8:30). 

·         Auction: $30 bln 3y notes. 

·         Fed Speak: 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).

Next Day In View 

Economic Commentary

Economic Summary: ISM Services missed expectations while factory orders came in a tick ahead of estimates; Trade Balance, Fed speakers tomorrow
Economic Data Summary:

·         November Factory Orders +1.8% Briefing.com consensus of 1.7%; October was revised to -0.5% from -0.9%

o    Durable goods orders rose 3.4%, which was down slightly from the 3.5% gain reported in the advance report. Excluding transportation, durable goods orders rose a solid 1.2%. Nondurable goods orders increased 0.3% in November after falling by 0.3% in October. Demand for business capital goods was strong. Orders of nondefense capital goods increased 4.1%. 

·         December ISM Services 53.0 vs Briefing.com consensus of 54.6; November was 53.9

o    New order levels contracted, falling from a healthy 56.4 in November to 49.4 in December. A contraction in new orders normally results in a large pullback in production. However, some of that was mitigated by companies dipping into their backlogs in order to keep production levels stable. Unfortunately, backlog levels may not be strong enough to offset a greater contraction in new orders next month. 

Upcoming Economic Data:

·         November Trade Balance due out Tuesday at 8:30 (Briefing.com consensus of ~$40.4 bln; October was -$40.6 bln)

Upcoming Fed/Treasury Events:

·         Boston Fed President Eric Rosengren (non voter, dovish) to speak tomorrow at 8:30

·         San Francisco Fed President John Williams (non voter, moderate) to speak tomorrow at 14:10

·         The Treasury is set to auction off $64 bln in new debt this week.  The results for 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

Other International Events of Interest

·         A disappointing Chinese HSBC Services PMI (50.9 actual v. 52.5 expected) was the latest evidence of a slowdown in the Middle Kingdom with a warning from Moody's also being a focal point of sellers. The rating agency warned local government debt "will be a burden on and carry risks to central government finances." 

On other news.... 

Currencies 

Dollar Fails Near 80.80 Resistance: 10-yr: +08/32..2.962%..USD/JPY: 104.20..EUR/USD: 1.3638
The Dollar Index holds on session lows near 80.60 and is on track to halt its current three-day winning streak. The Index pressed 80.80 resistance early in the session, but has seen steady selling since this morning's mixed data. Click here to see a daily Dollar Index chart.

·         EURUSD is +60 pips @ 1.3645 as trade presses its best levels of the session. Early selling had the single currency probing support in the 1.3600 area that is helped by the 50 dma, but trade has seen a reversal following chatter from unconfirmed sources suggesting the European Central Bank is considering cutting its deposit rate 10bps at this week's meeting, but that it is unlikely to happen. Near-term resistance rests in the 1.3650/1.3675 area. Eurozone data includes CPI Flash Estimate, German retail sales, and German unemployment change.

·         GBPUSD is -5 pips @ 1.6410 as trade has erased the losses that developed following the Services PMI miss. Post-data selling dropped sterling briefly below the 1.6350 level, but trade has managed to regain 1.6400 support. 

·         USDCHF is -20 pips @ .9030 as trade pulls back onto the 50 dma. Resistance in the .9050 area is helped by the 100 dma and will be under close watch over the coming days. Swiss foreign currency reserves will be released tomorrow. 

·         USDJPY is -55 pips @ 104.25 as the pullback that began at the start of 2014 continues. Early weakness tested 104.00 support for a second session, but bulls were able to successfully defend the level. Today's action is notable as it is the first of 2014 that has seen Japanese banks open for business. 

·         AUDUSD is +25 pips @ .8970 as buyers remain in control for a third day. Today's bid in the hard currency comes despite the disappointing Chinese HSBC Services PMI, and has trade looking at its best close since the middle of December. Australia's trade balance is due out tonight. 

·         USDCAD is +15 pips @ 1.0645 as trade remains trapped in the 1.0580/1.0700 range that has held up since the beginning of December. The pair jumped to session highs near 1.0680 following the Raw Material Price Index miss (-4.1% MoM actual v. -1.1% MoM expected), but has since given back those gains. Canada's trade balance and Ivey PMI will cross the wires tomorrow.

Jason's Commentaries


It all came in pretty much expect last night, despite the volatility that we faced. The market started with a bearish bias which reversed and regained a little loss by 1pm ET last night. Volumes were at 664m shares traded on the NYSE. Volumes are not fully back into the market yet, I reckon it's due to the FOMC minutes and the employment report coming out this week. ISM non-manufacturing showed some drop below expectation.  The main laggard last night was Microsoft, which is listed across all 3 indices, dropped 2.11% which caused quite a bit of drag in the market last night. Furthermore, Intel provided the drag as well. As Celgene is being downgraded, it caused a drag on the biotech as well, which caused Nasdaq to lag even more. Internals were slightly divergence throughout the day, only at the last hour, internals started to converge. On the technical side, we're done with the 3rd candle already, it seems that we're likely to continue the 4th bearish candle. Looking at the weak participation, it's going to be a volatile night once again.

Market Call: FLAT to downside

Date: 7 Jan 2014