9 Jan 2014 AMC- Market sidelined ahead of Dec employment report

9 Jan 2014 AMC- Market sidelined ahead of Dec employment report

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: -0.5%

·         Germany's DAX: -0.8%

·         France's CAC: -0.8%

·         Spain's IBEX: -0.2%

·         Portugal's PSI: + 0.3%

·         Italy's MIB Index: + 0.3%

·         Irish Ovrl Index: + 1.1%

·         Greece ATHEX Composite: + 0.8%

Before Market Opens

S&P futures vs fair value: +4.30. Nasdaq futures vs fair value: +9.20.
The S&P 500 futures hover four points above fair value.

Major Asian indices ended lower across the board with Japan's Nikkei (-1.5%) pacing the slide. Economic data out of China was in focus as CPI ticked up 0.3% month-over-month (0.4% forecast, -0.1% prior) while the year-over-year reading reflected an increase of 2.5% (2.7% expected, 3.0% last). Also of note, PPI fell 1.4% year-over-year (-1.3% forecast, -1.4% previous). Elsewhere, Australia's building approvals fell 1.5% month-over-month (-1.0% consensus, -1.6% previous) while retail sales increased 0.7% (0.3% forecast, 0.5% prior). New Zealand's building consents rose 11.1% month-over-month (-0.6% previous) and the ANZ Commodity Price Index increased 1.0% month-over-month (-0.3% last). Lastly, The Bank of Korea held its key interest rate steady at 2.50%, as expected. 

·         Japan's Nikkei settled lower by 1.5% after spending the entire session in the red as heavyweight names lagged. Fast Retailing, FANUC, and Furukawa lost between 2.8% and 3.8%. Sony was a notable outperformer, gaining 3.8%. 

·         Hong Kong's Hang Seng lost 0.9% as consumer names lagged. Belle International and Want Want China Holdings fell 4.2% and 2.0%, respectively. On the upside, utility provider China Resources Power Holdings gained 3.6%. 

·         China's Shanghai Composite slid 0.8% despite holding a modest gain through the first half of the session. Industrial & Commercial Bank of China fell 1.1%.

Core European indices trade little changed while markets in Italy (+1.3%) and Spain (+0.9%) outperform. Investors received several economic data points. The European Central Bank held its key interest rate steady at 0.25%, as expected. Eurozone Consumer Confidence improved to -14.0 from -15.4, as expected. Separately, Business and Consumer Survey rose to 100.0 from 98.4 (99.1 expected). Elsewhere, the Bank of England held its key interest rate and purchasing program steady at their respective 0.50% and GBP375 billion, as expected. Separately, the trade deficit narrowed to GBP9.44 billion from GBP9.65 billion (GBP9.45 billion consensus). Germany's industrial production rose 1.9% month-over-month (1.5% expected, -1.2% prior) and French trade deficit widened to EUR5.70 billion from EUR4.80 billion (EUR4.60 billion forecast).

Among news of note, the deputy leader of Spain's People's Party, Maria Dolores de Cospedal, said the country may beat its 0.7% 2014 GDP forecast. 

·         In France, the CAC is lower by 0.1% as consumer names lag. Danone, L'Oreal, and LVMH Moet Hennessy Louis Vuitton are down between 0.9% and 1.7%. Medical equipment supplier Essilor International is the top performing name, up 2.4%. 

·         Great Britain's FTSE is higher by 0.2%. Tullow Oil is among the leaders, trading higher by 3.1%. Morrison Supermarkets is lower by 7.6% after saying sales during the holiday period were down 1.9% excluding fuel. Peer J Sainsbury trades down 2.4%. 

·         Germany's DAX holds a modest gain of 0.2% as financials lead. Deutsche Boerse and Commerzbank are both up near 2.4%. Chemical manufacturers BASF and Lanxess lag with respective losses of 0.7% and 1.0%.

Market Internals

Market Internals -Technical-
The S&P 500 closed up 1 (+0.03%) at 1838, the Dow closed down 18 (-0.11%) at 16445, and the Nasdaq closed down 9 (-0.23%) at 4156. Action came on mixed volume (NYSE 683 mln vs. avg. of 685; NASDAQ 1733 mln vs. avg. of 2098), with mixed advancers/decliners (NYSE 1626/1461, NASDAQ 1257/1342) and new highs outpacing new lows (NYSE 212/23, NASDAQ 210/19).

Relative Strength: 
Biotechnology-XBI +7.52%, Biotechnology-IBB +1.25%, Transportation-IYT +1.10%, U.S. Health Care-IHF +1.08%, Italy-EWI +0.96%, Vietnam-VNM +0.90%, New Zealand-ENZL +0.82%, Pharmaceuticals-PPH +0.78%, Austria-EWO +0.69%, Sweden-EWD +0.66%.

Relative Weakness: 
Natural Gas-UNG -3.90%, Silver Miners-SIL -2.38%, Sugar-SGG -2.14%, Junior Gold Miners-GDXJ -1.96%, Coffee-JO -1.92%, China 25 Index-FXI -1.84%, BRICs-EEB -1.62%, Middle East and Africa-GAF -1.45%, Poland-EPOL -1.22%, Columbia Index-GXG -1.07%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks End Little Changed
The major averages ended today's choppy session on a mixed note. The S&P 500 added less than a point while the Dow Jones Industrial Average (-0.1%) and Nasdaq (-0.2%) posted modest losses.

Equities displayed early strength, but sellers were quick to knock the indices off their opening highs. The Nasdaq outperformed out of the gate, but ultimately led the broader market into the red. Despite the late-morning weakness, the S&P 500 was able to find support at Wednesday's low where dip buyers stepped up and helped the index return to its flat line.

Individual sectors ended with an even split as five groups posted gains while the other five ended lower.

The early weakness took place as consumer discretionary (-0.1%) and technology (-0.6%) sectors slumped. The discretionary space was able to recover nearly all of its losses by the close but retailers were less fortunate. The SPDR S&P Retail ETF (XRT 85.81, -0.68) lost 0.8% after Bed Bath & Beyond (BBBY 69.75, -9.93) and Family Dollar (FDO 64.97, -1.37) reported disappointing earnings. One retailer, Macy's (M 55.80, +3.96), stood out with a 7.6% gain after boosting its guidance and announcing plans to close five stores and lay off 2,500 employees.

Elsewhere, the technology sector was pressured by several top components as Apple (AAPL 536.52, -6.94), Cisco Systems (CSCO 22.09, -0.20), and Google (GOOG 1130.24, -10.99) lost between 0.9% and 1.3%.

Other cyclical sectors were mixed as energy (-0.4%) and materials (-0.4%) lagged while financials (+0.3%) and industrials (+0.4%) outperformed. Notably, the industrial sector was underpinned by airlines after United Continental (UAL 43.80, +2.78) reported a 4.1% increase in December traffic. The stock spiked 6.8% while the broader Dow Jones Transportation Average advanced 1.0%.

Over on the countercyclical side, consumer staples (+0.4%), health care (+0.7%), and utilities (+0.6%) outperformed while telecom services (-1.9%) endured another rough session. The rate-sensitive sector widened its January loss to 3.8%.

Speaking of rates, they ended on their lows. The benchmark 10-yr yield fell three basis points to 2.97%.

Participation was on the light side as only 683 million shares changed hands on the floor of the New York Stock Exchange.

Today's economic data was limited to just two reports. 

·         The weekly initial claims level fell to 330,000 from an upwardly revised 345,000 (from 339,000) while the Briefing.com consensus expected the claims level to fall to 338,000. The Labor Department stressed that the post-holiday period tends to be volatile as businesses dismiss their temporary work staff. Once the volatility is gone, we expect the initial claims level to stabilize at roughly its current level of 330,000. Normal volatility, however, could last another week or two. No states were estimated and the drop in claims was not attributed to the winter storm activity that began at the end of last week. Any effects of the storm will likely occur over the next week or two. 

·         The December Challenger Job Cuts report pointed to a 6.0% decline in planned job cuts. 

Tomorrow's data will also focus on jobs with December nonfarm payrolls set to be reported at 8:30 ET. Separately, the November Wholesale Inventories report will be released at 10:00 ET.

·         Russell 2000 -0.4% YTD

·         Nasdaq -0.5% YTD

·         S&P 500 -0.6% YTD

·         DJIA -0.8% YTD

Commodities

NYMEX Energy Closing Prices

·         Feb crude oil fell $0.64 to $91.68/barrel 

o    Crude oil extended yesterday's losses despite opening up today's session in positive territory. The energy component pulled back from its session high of $92.84 and fell into the red by mid-morning pit action. It trended lower to a session low of $91.24 and settled with a 0.7% loss. 

·         Feb natural gas fell 21 cents to $4.01/MMBtu 

o    Natural gas spent all of today's pit trade in the red. It popped to a session high of $4.19 following inventory data that showed a draw of 157 bcf when a draw of 155 bcf was anticipated but quickly lost momentum. It trended lower for the remainder of the session and settled just above its session low of $4.00, booking a 5.0% loss. 

·         Feb heating oil fell 3 cents to $2.92/gallon 

·         Feb RBOB fell 2 cents to $2.64/gallon

COMEX Metals Closing Prices

  Feb gold rose $3.80 to $1229.30/oz 

·         Gold rose for the first time in four sessions after oscillating between positive and negative territory. It touched a session high of $1230.90 in early morning pit trade and dipped as low as $1222.80 later in the session. It eventually settled with a 0.3% gain. 

  Mar silver rose $0.15 to $19.68/oz 

·         Silver dipped to a session low of $19.38 in late morning floor action but regained momentum and climbed back into positive territory. It settled just below its session high of $19.71, booking a gain of 0.8%. 

  Mar copper fell 4 cents to $3.30/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Mar corn fell 4 cents to $4.12/bushel 

·         Mar wheat fell 4 cents to $5.84/bushel 

·         Mar soybeans rose 5 cents to $12.74/bushel 

·         Feb ethanol rose 1 cent to $1.92/gallon 

·         Mar sugar (#16 (U.S.)) fell 0.14 of a penny to 19.99 cents/lbs

Treasuries

Strong 30y Reopening Propels Treasuries: 10-yr: +07/32..2.965%..USD/JPY: 104.76..EUR/USD: 1.3604

·         Treasuries closed on their highs, propelled by this afternoon's strong $13 bln 30y reopening. 

·         The reopening drew 3.899% (when issued 3.908%) and a solid 2.57x bid/cover as both indirect (44.4%) and direct (17.5%) bidders saw larger than usual takedowns, leaving primary dealers with just 38.1% of the supply. The at-auction yield was the highest since July 2011. 

·         Economic outpaced expectations as both initial (330K actual v. 338K expected) and continuing (2865K actual v. 2875K expected) claims beat. 

·         Buying of longer dated durations had the biggest impact as both the 10y and 30y shed -3bps to finish @ 2.963% and 3.873%, respectively. Click here to see an intraday yields chart.

·         The 30y ended the day at its lowest level since just before Christmas. 

·         Today's action in the 10y saw a brief test of the 3.000% level, but Treasury bears were unable to run the benchmark yield above yesterday's highs. 

·         The 5y continued its recent underperformance, off just -1.5bps @ 1.745%. 

·         A small bid up front dropped the 2y to 0.433%. 

·         Curve flattening took hold as the 2-10-yr spread tightened to 253bps. 

·         Precious metals saw fractional gains as gold added +$2 to $1228 and silver tacked on $0.02 to near $19.56. 

·         Data: Nonfarm payrolls, nonfarm private payrolls, the unemployment rate, hourly earnings, average workweek (8:30), and wholesale inventories (10) are due out. 

·         Fed Speak: STL's Bullard will be in Indianapolis, IN to take part in a discussion on the U.S. economy and monetary policy (13:05).

Next Day In View 

Economic Commentary

Economic Summary: Jobless Claims miss expectations; NFP's tomorrow at 8:30; FOMC voting member Kocherlakota to speak tonight at 20:00; BoE & ECB leave rates unchanged
Economic Data Summary:

·         December Challenger Job Cuts -5.9% vs Briefing.com consensus of ; November was -20.6%

·         Weekly Initial Claims 330K vs Briefing.com consensus of 338K; Last Week was revised to 345K from 339K

·         Weekly Continuing Claims 2.865 M vs Briefing.com consensus of 2.875 M ; Last Week was revised to 2.815 M from 2.833 M

o    The Briefing.com consensus expected the initial claims level to fall to 338,000. The Labor Department stressed that the post-holiday period tends to be volatile as businesses dismiss their temporary work staff. Once the volatility is gone, we expect the initial claims level to stabilize at roughly its current level of 330,000. Normal volatility, however, could last another week or two. No states were estimated and the drop in claims was not attributed to the winter storm activity that began at the end of last week. 

Upcoming Economic Data:

·         December Nonfarm Payrolls due out Friday at 8:30 (Briefing.com consensus of 197K; November was 203K)

·         December Nonfarm Private Payrolls due out Friday at 8:30 (Briefing.com consensus of 198K; November was 196K)

·         December Unemployment Rate due out Friday at 8:30 (Briefing.com consensus of 7.0%; November was 7.6%)

·         December Hourly Earnings due out Friday at 8:30 (Briefing.com consensus of 0.2%; November was 0.2%)

·         December Average Workweek due out Friday at 8:30 (Briefing.com consensus of 34.5; November was 34.5)

·         November Wholesale Inventories due out Friday at 10:00 (Briefing.com consensus of 0.2%; November was 1.4%)

Upcoming Fed/Treasury Events:

·         Minneapolis Fed President Kocherlakota (voting FOMC member, typically dovish) to speak tonight at 20:00

Other International Events of Interest

·         The major European bourses trade mostly higher after both the Bank of England and European Central Bank kept policy on hold.  The BOE held its Official Bank Rate and asset purchase program unchanged at 0.50% and GBP375 bln, respectively, while the ECB left its Minimum Bid Rate at 0.25%.

On other news.... 

December Same Store Sales Review— guidance overshadows the few bright spots
Retailers reported December Same Store Sales before the open today (WAG / RAD had already reported, GPS / PSMT report today after the close). Results can be accessed on our Same Store Sales calendar.

December sales are just a sidenote to the slew of guidance updates. Promotional activity, competition and weather were repeatedly mentioned as catalysts for the disappointing results. Only SMRT and COST reported better than expected comps this morning without cutting guidance BUT both have company policy to not update guidance. In addition to the majority of the retailers with monthly comps issuing downside outlook, several names that do not report monthly comps also reported disappointing earnings/quarterly expectations (AEO / BBBY / DEST / FDO / PIR / SIG... JCP / HGG earlier this week).

Notable recent disappointing updates: 

·         Family Dollar (FDO -6.9%) missed by $0.01, revs in-line; guided Q2 EPS below consensus; lowered FY14 sales/EPS guidance below consensus; COO Bloom left. 

·         Bed Bath & Beyond (BBBY -12.5%) missed by $0.03, revs in-line; lowered Q4 EPS/revs/comps guidance below consensus. 

·         Pier 1 Imports (PIR -12.6%) reported Dec comps +1.3% (well below co's expectations) and lowered Q4 EPS guidance.  

·         Signet Jewelers (SIG -6.1%) reported Nov/Dec comps of +5% but lowered Q4 EPS guidance below consensus.

·         JC Penney (JCP) dropped to multimonth lows this week following its holiday update -- co reaffirmed comps and gross margin improvement QoQ and YoY (did not give an actual comp # like last month). 

·         Electronics retailer HHGregg (HGG -18% this week) is under pressure since it issued dismal top and bottom line guidance. 

·         Urban Outfitters (URBN -0.5%) is only modestly lower today following its holiday update. Co reported Nov/Dec comps +3%. 

·         American Eagle (AEO +2%) is up despite lowering Q4 EPS guidance; holiday comps -7%.

The retail sector is sharply lower following December results/guidance/earnings reports. The SPDRdest Retail (XRT) is 1.2% lower, Consumer Dis Spdr (XLY) -0.5% vs S&P500 index (SPX) -0.2%. Few retail names are higher on the day: CACH +7.9% (initiated with a Buy at Craig Hallum), M +7.7% (guidance and restructuring news), JCP +4.8% (modestly rebounding from guidance drop earlier this week), ARO +4.2% (speculation related to conference cancellation), SMRT +3.2% (upside comps, no guidance), FRED +2.2% (upside comps but downside guidance, main driver is strategic alternatives announcement), COST +2% (upside comps no guidance), BBW +2%, AEO +1.9% (recouping early losses-- lowered Q4 EPS guidance), DECK +1.9%, DDS +1.2% and JWN +0.7% (both up with M), TGT +0.6%, HBI +0.4%, KORS +0.4%, ROST +0.3%, PVH +0.3%, BONT +0.3%, WMT +0.2%... Trading lower: APP -16.4% (disappointing comps), PIR-12.9% (comps/guidance), BBBY -12.2% (earnings/guidance), FDO -7.2% (earnings/guidance), ZUMZ -6.1% (missed comps, downside guidance), SHLD -4.9%, LB -4.7% (slightly beat comps but cut guidance), BIG -3.5% (down with FDO), TCS -3.2%, KIRK -3.2%, FRAN -3.2%, PSUN -3.3%, WTSL -2.9%, CTRN-2.7%, CATO -2.3% (missed comps and lowered guidance), TUES -2.5%, WSM -2.2% (down with PIR and BBBY), CHS -2.1%, NWY -2%, BKE -1.8% (downside comps), BEBE -1.8%, ZQK -1.7%, GES -1.7% (continued weakness), CBK -1.6%, ANN -1.6%, RAD -1.6%, BBY -1.5%, ALCS -1.4%, SKX -1.5%, DLTR-1.4% (down with FDO), SHOS -1.3%, CONN -1.2%, GPS -1% (ahead of comps after the close), COH -1%, LULU -0.9%,

Some cos that beat December Same-Store Sales estimates include: 

·         Rite Aid (RAD) and Walgreen's (WAG) had already reported Dec comps—both topped estimates. RAD reported Dec comps of 2.9% vs 1.7% consensus (exceeding expectations for the eighth consecutive month). The stock jumped more than 8% higher following Dec sales results. WAG Dec comps were 6.1% vs 4.2% consensus and ended the trading day modestly higher. 

·         Discount retailers Stein Mart (SMRT) and Fred's (FRED) reported upside Dec comps. SMRT Dec comps were 4.5% vs 3.2% consensus. Co was ‘delighted with December comps increase which was achieved despite adverse weather' (as usual co did not issue EPS guidance). SMRT is up 3% today. FRED reported Dec comps of 1.4% vs 1% consensus but guided Q4 EPS below consensus. The stock is soaring though because the co announced it has engaged financial advisors to explore strategic opportunities. 

·         Costco (COST) reported comps of 3% vs 1.8% consensus and the stock is up more than 2% (as usual did not issue EPS guidance). 

·         L Brands (LB) reported comps of 2% vs 1.7% consensus but lowered Q4 EPS guidance - primarily the result of lower than forecasted merchandise margins due to incremental promotional activity. The stock opened -3.6% lower and is now down more than 4%. 

Missed December Same-Store Sales estimates: 

·         Zumiez Inc (ZUMZ) reported Dec comps of -2.4% vs 2.3% consensus and cut guidance. The lower Q4 expectations was based primarily on lower than planned sales and to a lesser extent lower than planned merchandise margins. The stock opened 8.7% lower and is still down 6%. 

·         Cato (CATO) reported comps of -4% vs 0.5% consensus and lowered Q4 EPS guidance. December same-store sales results were negatively impacted by bad weather in a number of markets early in the month. The stock opened -0.6% lower and has continued to fall -- now down 2.4%. 

·         Buckle (BKE) reported comps of -2.8% vs 1.1% consensus (as usual co did not issue guidance/commentary). The stock opened -0.4% lower and is now 2% lower on the day.

·         American Apparel (APP) reported Dec comps of -6% (no est). The stock dropped 10% at the open and is now down 18%

Going forward: The January retail period is the final four weeks of the fiscal year and is the lowest sale volume month of the quarter. Redbook has preliminary January target of +3.4%. Retailers will report monthly sales Thursday Feb 6. 






Currencies 

Dollar Hovers Little Changed: 10-yr: +04/32..2.976%..USD/JPY: 104.75..EUR/USD: 1.3587
The Dollar Index hovers little changed near 81.00 amid a mostly uneventful session. The Index experienced some volatility from Mario Draghi's press conference, but action has held near the flat line for the majority of the session. Click here to see a daily Dollar Index chart.

·         EURUSD is +10 pips @ 1.3585 after the European Central Bank held its key rate unchanged at 0.25%, as expected. The single currency spiked to session highs near 1.3635 as Mario Draghi's press conference got underway, and quickly tumbled to the lows (1.3550) as the central banker attempted to talk down the euro. However, the selloff was quickly bought with trade plateauing near 1.3595, where it has drifted for most of the session. Current levels will be tracked closely as key support rests in the area. Eurozone data is limited to French industrial production. A German Constitutional Court ruling over the validity of the European Central Bank's Outright Monetary Transactions is expected tomorrow.

·         GBPUSD is +10 pips @ 1.6460 after the Bank of England kept both its Official Bank Rate and asset purchase program unchanged at 0.50% and GBP375 bln, respectively. The decision was expected, and trade hovered in a tight range following the announcement. Britain's BRC Retail Sales Monitor is due out tonight with manufacturing production set to be released tomorrow morning. 

·         USDCHF is -25 pips @ .9090 as today's selling has wiped away all of yesterday's gains. An early bid tested resistance in the .9100/.9125 area, but action has slipped back onto the 100 dma after the bulls were unable to reclaim yesterday's highs. Swiss data is limited to CPI. 

·         USDJPY is -10 pips @ 104.75 amid a lackluster session. Data and news have been absent in 2014, making for an uneventful trade at the start of the New Year. The 104.00 area provides the first layer of meaningful support. 

·         AUDUSD is -15 pips @ .8885 as trade slides for a third session. The .8850 area is being watched closely as a breakdown will produce the lowest print in three and a half years. Australia's HIA New Home Sales are tentatively scheduled for this evening. China's trade balance and new loans are tentatively scheduled to cross the wires tonight. 

·         USDCAD is +55 pips @ 1.0875 as trade presses to its best levels since October 2009 following Canada's disappointing building permits (-6.7% MoM actual v. -2.3% MoM expected) and New Home Price Index (0.0% MoM actual v. 0.2% MoM expected) data. The 1.1000 area will see a fight from the bears as key resistance rests near the round number. Canada's employment data and unemployment rate will be released tomorrow.

Jason's Commentaries


The market to go through a very volatile session last night. The market started with a bullish bias which quickly turned into losses by the first hour. After finding bottom at 11pm, the market covered their shorts which sold back down again by 130pm ET. Volumes were at 692m shares traded on the NYSE, internals were showing mixed sentiment. While waiting for the employment report coming out on Friday, the market ended the day with a flat but volatile session. 

Jobs added to economy were only 74k compared to a widely expected jobs added of 190k. However, unemployment rate dropped by 0.3% to 6.7% from 7%. This will definitely confuse the market as jobs added is far lower than expected by the unemployment rate went down. It's gonna be another flat and volatile session again. 

Market Call: FLAT to downside

Date: 10 Jan 2014