3 Feb 2014 AMC- Market sunk by more than 2% as ISM reported below expected report. 2 consecutive DFDM

3 Feb 2014 AMC- Market sunk by more than 2% as ISM reported below expected report. 2 consecutive DFDM

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: -0.7%

·         Germany's DAX: -1.3%

·         France's CAC: -1.4%

·         Spain's IBEX: -2.0%

·         Portugal's PSI: -1.4%

·         Italy's MIB Index: -2.6%

·         Irish Ovrl Index: + 0.2%

·         Greece ATHEX Composite: + 2.7%

Before Market Opens

S&P futures vs fair value: -0.80. Nasdaq futures vs fair value: -0.50.
The S&P 500 futures trade less than one point below fair value.

Markets across Asia ended lower as Friday's selling on Wall Street set the tone. Much of the region remained shuttered in celebration of the Lunar New Year. Thailand's national election was disrupted by protesters with an outcome still in the balance. Similar to data reported by HSBC, China's official PMI figures came in at multi-month lows. Manufacturing PMI came in at a six-month low of 50.5 (51.0 prior) while the non-manufacturing reading of 53.4 (54.6 last) marked an 11-month low.

Elsewhere, Australia's building approvals posted a larger-than-expected 2.9% month-over-month decline (-0.3% expected) while ANZ Job Advertisements slipped -0.3% month-over-month. Indonesia's trade surplus climbed to $1.52 billion from $780 million ($550 mln expected) and its inflation rate eased to 8.2% year-over-year (8.4% previous). 

·         Japan's Nikkei (-2.0%) is now in a correction with trade off ~10% from its December 30 close. Exporters were weak as a result of the stronger yen with Toyota Motor shedding 2.1% and Sony giving up 2.2%. TDK tumbled 8.6% despite posting better than expected results. 

·         Hong Kong's Hang Seng was closed. 

·         China's Shanghai Composite was closed. 

Major European indices trade little changed after slipping at the start of the session. Participants received several regional PMI readings that were mostly above expectations. Eurozone Manufacturing PMI rose to 54.0 from 53.9 (53.9 expected), Germany's Manufacturing PMI increased to 56.5 from 56.3 (56.3 consensus), and French Manufacturing PMI increased to 49.3 from 48.8 (48.8 expected). Elsewhere, Spain's Manufacturing PMI increased to 52.2 from 50.8 (51.5 forecast), Great Britain's Manufacturing PMI fell to 56.7 from 57.2 (57.0 forecast), and Italy's Manufacturing PMI ticked down to 53.1 from 53.3 (53.5 consensus).

In news, Greece was back in focus over the weekend after Kathimerini revealed that government documents show the country has fallen behind on a long list of reforms demanded by the troika. Separately, Germany's Der Spiegel has learned Finance Minister Wolfgang Schaeuble is preparing a third aid package for Greece. The amount is expected between EUR10-20 billion. 

·         Great Britain's FTSE is higher by 0.3% as consumer names display strength. Diageo and Reckitt Benckiser hold respective gains of 1.5% and 3.0%. On the downside, Aberdeen Asset Management, Barclays, Lloyds Banking Group and down between 1.0% and 2.6%. 

·         In France, the CAC is unchanged. Consumer names and utilities outperform with Danone and Veolia Environnement both up near 1.5%. Financials weigh as AXA, BNP Paribas, and Credit Agricole display losses between 1.0% and 2.6%. 

·         Germany's DAX is lower by 0.1%. Allianz and Deutsche Bank hold respective losses of 1.1% and 0.8% while defensive names outperform. Fresenius Medical Care is higher by 1.1% and Merck trades up 1.9%.

Market Internals

Market Internals -Technical-
The Nasdaq closed down 107 (-2.61%) at 3997, the S&P 500 closed down 41 (-2.28%) at 1742, and the Dow closed down 326 (-2.08%) at 15373. Action came on above average volume (NYSE 901 mln vs. avg. of 692; NASDAQ 2442 mln vs. avg. of 1823), with decliners outpacing advancers (NYSE 478/2674, NASDAQ 377/2301) and new lows outpacing new highs (NYSE 38/131, NASDAQ 47/75). 

Relative Strength: 
Coffee-JO +8.45%, Volatility-VXX +7.09%, Agriculture-DBA +1.26%, 20+ Year Treasuries-TLT +1.22%, Japanese Yen-FXY +1.17%, Sugar-SGG +1.07%, Swiss Franc-FXF +0.61%, Canadian Dollar-FXC +0.39%, Australian Dollar-FXA +0.02%.

Relative Weakness: 
Biotechnology-XBI -4.57%, Clean Energy-PBW -4.57%, South Africa-EZA -3.81%, Mexico-EWW -3.72%, India-INP -3.70%, Indonesia-IDX -3.70%, Regional Banks-KRE -3.69%, Broker-Dealers-IAI -3.56%, Banks-KBE -3.54%, Turkey-TUR -3.46%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks Slump Amid Continued Yen Strength
The stock market began February on a sharply lower note after enduring a rough month of January. Small caps paced the Monday retreat as the Russell 2000 tumbled 3.1% while the S&P 500 fell 2.3%. For its part, the Dow Jones Industrial Average lost 2.1%, ending below its 200-day moving average (15470).

Despite the sharply lower finish, today's session actually started in the green. However, sellers emerged during the opening minutes and intensified their efforts after the January ISM Manufacturing Index registered a large decline (to 51.3 from 56.6).

Although the ISM report itself did not cause the aggressive selloff, it added to global growth concerns that have been percolating under the surface after China's Manufacturing PMI (50.5) fell to a six-month low while the Non-Manufacturing reading (53.4) registered an 11-month low.

Furthermore, the selloff was accompanied by another wave of yen strength. Dollar/yen traded right above the 102.00 level at the start of the session, but retreated along with equities. The pair finished the trading day right under 101.00 while yen futures added 1.4%, extending their 2014 gain to 4.3%.

The daylong pressure that was exerted on equities translated into strength for the bond market. The 10-yr note ended on its high with its yield down seven basis points at 2.59%. Gold futures also garnered interest, climbing 1.6% to $1259.50 per troy ounce.

Also of note, the retreat invited strong demand for volatility protection, sending the CBOE Volatility Index (VIX 21.12, +2.71) to its highest level since late June. Over the past two weeks, the near-term volatility gauge has added more than 72.0%.

All ten sectors finished in the red with the lowest-weighted group—telecom services (-3.7%)—ending at the bottom of the leaderboard. The remaining nine sectors fared a bit better, posting losses between 0.8% and 2.7%.

The discretionary sector (-2.7%) was the weakest performer among cyclical groups as retailers continued their recent weakness. The SPDR S&P Retail ETF (XRT 77.47, -2.38) lost 3.0%, sliding to levels not seen since late August. Today's loss widened the retail ETF's 2014 decline to 12.1%.

Automakers also pressured the discretionary space after Ford (F 14.55, -0.41) reported a 7.0% decline in January sales while General Motors (GM 35.25, -0.83) announced an 11.9% decrease in sales. The two names settled lower by 2.7% and 2.3%, respectively.

Elsewhere, other influential sectors like financials (-2.5%) and industrials (-2.7%) lagged while health care (-2.0%) and technology (-2.2%) ended just ahead of the S&P 500.

The utilities sector (-0.8%) was the only group that avoided losing 1.0% or more. The rate-sensitive sector is the only group that remains in positive territory for the year with a gain of 2.1%.

The selloff was accompanied by heavy volume as more than 900 million shares changed hands on the floor of the New York Stock Exchange.

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

·         The ISM Manufacturing Index for January dropped to 51.3 from 56.5 while the Briefing.com consensus expected the reading to fall to 56.0. That tied the largest one-month decline since October 2008. The sharp decline in the national index did not correlate with the regional surveys from Federal Reserve banks. They showed modest improvements in manufacturing activity throughout the country. According to the ISM report, some of the weakness may have been due to the extreme winter weather conditions that occurred in January. If this is true, then the ISM Index should bounce back rather significantly in February. 

·         Total construction spending increased 0.1% in December after increasing a downwardly revised 0.8% (from 1.0%) in November. The Briefing.com consensus expected construction spending to increase 0.1%. The residential construction spending data does not line up with the contraction reported in the advance estimate for fourth quarter GDP growth. The downturn in fourth quarter residential investment spending could have only occurred if spending fell in December or if there were large revisions to the November and/or October data. According to the Census data, that did not happen. 

Tomorrow, December factory orders will be announced at 10:00 ET. 

·         Nasdaq Composite -4.3% YTD 

·         S&P 500 -5.8% YTD 

·         Russell 2000 -5.8% YTD 

·         Dow Jones Industrial Average -7.3% YTD

Commodities

Closing Commodities: Natural Gas Ends Lower For A Third Consecutive Session

·         Precious metals rallied in morning pit trade as the dollar index fell following weak ISM Manufacturing data. The ISM Manufacturing Index dropped to 51.3 in January from 56.5 in December, the largest one-month decline since October 2008. The Briefing.com consensus expected the index to fall to 56.0. 

·         Apr gold rose as high as $1266.10 per ounce and settled with a 1.6% gain at $1259.50 per ounce. Mar silver popped to a session high of $19.62 per ounce on the economic data. However, the momentum faded and prices pulled back as the session progressed.

·         Silver eventually settled at $19.41 per ounce, or 1.6% higher. 

·         Mar crude oil extended Friday's losses as it retreated from a session high of $97.77 per barrel set in morning action. The energy component dipped to a session low of $96.26 per barrel and settled at $96.43 per barrel, booking a loss of 1.1%. 

·         Mar natural gas fell for a third consecutive session but trimmed earlier losses as it lifted from a session low of $4.80 per MMBtu set at pit trade open. It advanced to a session high of $4.96 per MMBtu and settled 0.8% lower at $4.90 per MMBtu.

COMEX Metals Closing Prices

  Apr gold rose $19.70 to $1259.50/oz 

·         Gold rallied in morning pit trade as the dollar index fell following weak ISM Manufacturing data. The ISM Manufacturing Index dropped to 51.3 in January from 56.5 in December, the largest one-month decline since October 2008. The Brieifng.com consensus expected the index to fall to 56.0. The precious metal rose as high as $1266.10 and settled with a 1.6% gain. 

  Mar silver rose $0.28 to $19.41/oz 

·         Silver also gained steam on the economic data this morning and popped to a session high of $19.62. However, the momentum faded and prices pulled back as the session progressed. Silver eventually settled with a 1.5% gain. 

  Mar copper fell 2 cents to $3.18/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Mar corn rose 2 cents to $4.36/bushel 

·         Mar wheat rose 9 cents to $5.64/bushel 

·         Mar soybeans rose 8 cents to $12.92/bushel 

·         Mar ethanol rose 2 cents to $1.84/gallon 

·         Mar sugar (#16 (U.S.)) settled unchanged at 20.51 cents/lbs

NYMEX Energy Closing Prices

  Mar crude oil fell $1.10 to $96.43/barrel 

·         Crude oil extended Friday's losses as it retreated from a session high of $97.77 set in morning pit trade. The energy component dipped to a session low of $96.26 and settled slightly above that level, booking a loss of 1.1%. 

  Mar natural gas fell 4 cents to $4.90/MMBtu 

·         Natural gas fell for a third consecutive session but trimmed earlier losses as prices lifted from a session low of $4.80 set at pit trade open. It advanced to a session high of $4.96 and settled 0.8% lower. 

  Mar heating oil rose 1 cent to $3.01/gallon 

  Mar RBOB fell 2 cents to $2.61/gallon

Treasuries

10y Breaks Below 2.60%: 10-yr: +16/32..2.590%..USD/JPY: 101.00..EUR/USD: 1.3528

·         Treasuries closed on their highs as the flight into safety continued. Click here to see an intraday yields chart.

·         The complex hovered little changed ahead of this morning's data, but saw an aggressive bid as the ISM Index (51.3 actual v. 56.0 expected, 57.0 previous) fell well short of estimates.

·         Today's scramble for safety dropped yields to multi-month lows, leaving Treasury bears battered and bruised. 

·         Janet Yellen officially took over as Fed Chairman, and Secretary Lew warned the Treasury will exhaust its ‘extraordinary measures' by the end of the month if the debt ceiling is not raised. 

·         Up front, yields showed no signs of worry, instead slid lower as a result of the safety bid. The 6M bill slipped 1bp to 0.048%. 

·         Buying of 2s dropped the corresponding yield to 0.310%, a near two-month low. 

·         The 5y shed -7.3bps to finish @ 1.437%. Today's bid dropped the yield below its 100 dma (1.484%), causing action to settle on key support. 

·         The benchmark 10y tumbled -8.7bps, ending at a three-month low. Traders will be watching the 200 dma (2.555%) closely as key support rests in the area. 

·         A one point gain at the long end pushed the 30y down -8.2bps to 3.540%. The 30y closed at its lowest level since July, and finished below its 200 dma for the first time since May. 

·         Aggressive flattening developed along the yield curve with the 2-10-yr spread tightening to 227bps.

·         Precious metals are firm with gold +$16 @ $1256 and silver +$0.20 @ $19.32. 

·         Data: Factory orders (10). 

·         Fed Speak: Richmond's Lacker will give his "Economic Outlook, February 2014" (8:30) and Chicago's Evans discusses current economic conditions and monetary policy (12:30).

Next Day In View 

Economic Commentary

Economic summary: January ISM falls below estimates
Economic Data Summary:

·         January ISM Index 51.3 vs Briefing.com consensus of 56.0; was revised to 56.5 from 57.0

o    That tied the largest one-month decline since October 2008. The sharp decline in the national index did not correlate with the regional surveys from Federal Reserve banks. They showed modest improvements in manufacturing activity throughout the country. According to the ISM report, some of the weakness may have been due to the extreme winter weather conditions that occurred in January. If this is true, then the ISM Index should bounce back rather significantly in February. New orders fell to 51.2 in January from 64.4 in December. That was the largest one-month fall since December 1980.

·         December Construction Spending +0.1% vs Briefing.com consensus of +0.1%; November to +0.8% from +1.0%.

o    The residential construction spending data does not line up with the contraction reported in the advance estimate for fourth quarter GDP growth.

·         Auto Sales will be out at 14:00; reports from individual companies have thus far been disappointing.

Fed/Treasury Events Summary:

·         Janet Yellen officially took over as Chairman of the Federal Reserve

Upcoming Economic Data:

·         December Factory Orders Tuesday at 10:00 (Briefing.com consensus -1.7%; November was +1.8%)

·         January ADP Employment Wednesday at 8:15 (Briefing.com consensus 178K vs. December 238K)

·         January ISM Services Wednesday at 10:00 (Briefing.com consensus of 53.8; was 53.0)

·         January Jobs data will be released on Friday morning, February 7; consensus +175K jobs

Upcoming Fed/Treasury Events:

·         The RBA will give an update on policy 7:00 PM ET

·         Eurozone manufacturing PMI's will be out overnight

·         Fed's Evans (13:30) and Lacker (8:30) are scheduled to speak tomorrow.

On other news.... 

Currencies 

Dollar Hovers Near 81.20 Resistance:

·         The Dollar Index has spent the entire session in the red with today's selling wiping away all of Friday's gains. Click here to see a daily Dollar Index chart.

·         Action continues to struggle near the key 81.20 resistance level, which has provided a lid since the middle of September. 

·         EURUSD is +30 pips @ 1.3515 as trade looks likely to post its first advance in seven sessions. The single currency has been aided by generally in-line Manufacturing PMIs from across the region, and has trade checks up at key 1.3500 support. Eurozone data is limited to the Spanish unemployment rate. 

·         GBPUSD is -135 pips @ 1.6300 as sellers remain in control for the sixth time in seven days. Sterling has been pressured below its 50 dma (1.6413) following today's weak Manufacturing PMI report, and is now contending with the important 1.6300 support level. Britain's Construction PMI is due out tomorrow. 

·         USDCHF is -40 pips @ .9020 as action struggles near key resistance. Today's selling has erased all of Friday's gains while dropping trade back below the 100 dma (.9036). The bulls must retake the 200 dma (.9215) in order to feel more confident a turnaround can be sustained. 

·         USDJPY is -85 pips @ 101.10 as trade slides to a two and a half-month low. Current action is probing the 100 dma with a retest of parity and the 200 dma looking more and more likely. 

·         AUDUSD is +10 pips @ .8760 as trade has reversed its early gains. The hard currency climbed as high as .8835 in early action, but steady selling over the course of the day has trade virtually unchanged ahead of tonight's Reserve Bank of Australia rate decision. Expectations remain for the central bank to hold steady at 2.50%. Chinese banks remain closed for the Lunar New Year. 

·         USDCAD is -30 pips @ 1.1095 as selling persists for a third session. Early weakness made for a test of minor support in the 1.1050 area, but the pair has trimmed its losses as the dollar has seen broad-based buying.

Jason's Commentaries


2 consecutive DFDM at the start of the year isn't making me bullish at all. S&P500 lost a total of 100 points since the start of the year. As mentioned previously, as the market broke their support levels, we're going into a freefall. Currently S&P500 is sitting at the 1750 support level. Nasdaq went slightly below 4000. Volumes were standing at 921.5m shares traded on the NYSE. TRIN hit a high of 3.27 last night. The rest of the internals were all pointing all to the bearish side. Industrials, discretionary and Financials were the main laggard of the session. Industrial lost 2.78%, Discretionary lost 2.63% and Financials lost 2.52% respectively. It was a sea of red across the market last night as Russells led the fall. As of 2.20am ET, futures were pointing up at 0.42% and we're likely to see some covering action today after such a massive fall.     

Market Call:UP

Date: 4 Feb 2014