5 Feb 2014 AMC- Market went through a volatile session as ADP Employment numbers went below expectation and poor January Same Store Sales

5 Feb 2014 AMC- Market went through a volatile session as ADP Employment numbers went below expectation and poor January Same Store Sales

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: + 0.1%

·         Germany's DAX: -0.1%

·         France's CAC: 0.0%

·         Spain's IBEX: + 0.2%

·         Portugal's PSI: + 0.2%

·         Italy's MIB Index: + 0.3%

·         Irish Ovrl Index: + 0.5%

·         Greece ATHEX Composite: + 2.3%

Before Market Opens

S&P futures vs fair value: -8.90. Nasdaq futures vs fair value: -12.50.
The S&P 500 futures have trimmed their losses and now trade nine points below fair value.

Markets across Asia finished mixed amid a mostly uneventful session. Regional data was limited to a handful of reports including Japan's average cash earnings, which rose 0.8% year-over-year (0.7% expected, 0.6% prior). Elsewhere, Australia's AIG Services Index improved to 49.3 from 46.1 and New Zealand's employment increased 1.1% quarter-over-quarter (0.6% forecast, 1.2% prior) while the unemployment rate ticked down to 6.0% from 6.2%, as expected. Separately, Labor Cost Index increased 0.6% quarter-over-quarter, as expected (0.4% prior). Also of note, Indonesia's GDP increased 5.72% (5.30% expected, 5.62% prior).

A report in Nikkei News questioned the legitimacy of Chinese labor data, suggesting the country's decision to stop announcing jobless figures likely means unemployment is on the rise. 

·         Japan's Nikkei gained 1.2%, climbing off four-month lows. Despite the higher close, the index endured a shaky session, nearly surrendering its opening gain during the first half of action. Panasonic and Toyota surged 19% and 6%, respectively, after posting strong quarterly reports. 

·         Hong Kong's Hang Seng lost 0.6%, slumping to a seven-month low. Macau casino stocks were hit hard after gaming revenues fell well short of estimates. Sands China led the group lower, tumbling 7.5%. 

·         China's Shanghai Composite remained closed in celebration of the Lunar New Year. 

Major European indices trade little changed after the release of several regional PMI readings. Eurozone Services PMI slipped to 51.6 from 51.9 (51.9 consensus). Separately, retail sales fell 1.6% month-over-month (-0.5% consensus, 0.9% previous) while the year-over-year reading decreased 1.0% (+1.5% forecast, 1.3% prior). Germany's Services PMI decreased to 53.1 from 53.6 (53.6 forecast). Great Britain's Services PMI slipped to 58.3 from 58.8 (59.0 expected). French Services PMI rose to 48.9 from 48.6 (48.6 forecast). Italian Services PMI increased to 49.4 from 47.9 (48.6 expected). Spain's Services PMI improved to 54.9 from 54.2 (54.8 forecast).

According to Reuters, Greece is likely to avoid a fiscal gap this year, but is still expected to need EUR10-20 billion in bailout funds for next year's needs. 

·         Germany's DAX is lower by 0.3% with ThyssenKrupp pacing the retreat. The steelmaker holds a loss of 2.2%. Exporters trade in mixed fashion with BMW down 0.8% and Volkswagen up 0.9%. 

·         In France, the CAC holds a loss of 0.1% as industrials weigh. Airbus Group and Alstom are both down near 1.5%. Financials are showing relative strength with BNP Paribas, Credit Agricole, and Societe Generale up between 0.2% and 1.1%. 

·         Great Britain's FTSE outperforms with a modest gain of 0.2%. Associated British Foods leads, trading higher by 5.3%, following upbeat commentary at Morgan Stanley. On the downside, broker Hargreaves Lansdown trades down 7.6% following disappointing results.

Market Internals

Market Internals -Technical-
The Nasdaq closed down 20 (-0.50%) at 4012, the S&P 500 closed down 4 (-0.20%) at 1752, and the Dow closed down 5 (-0.03%) at 15440. Action came on slightly above average volume (NYSE 740 mln vs. avg. of 697; NASDAQ 1988 mln vs. avg. of 1812), with decliners outpacing advancers (NYSE 1281/1797, NASDAQ 811/1815) and new lows outpacing new highs (NYSE 23/80, NASDAQ 27/77). 

Relative Strength: 
Coffee-JO +4.82%, Volatility-VXX +3.94%, Greece-GREK +2.34%, Lithium-LIT +1.74%, Silver-SLV +1.71%, Poland-EPOL +1.38%, Russia-RSX +1.28%, Gasoline-UGA +1.25%, Sweden-EWD +0.98%, Israel-EIS +0.91%.

Relative Weakness: 
Natural Gas-UNG -3.21%, Biotechnology-XBI -1.95%, Biotechnology-IBB -1.68%, Gold Miners-GDX -1.61%, Hong Kong-EWH -1.57%, Coal-KOL -1.36%, China 25 Index-FXI -1.26%, Japan-EPP -0.91%, Australia-EWA -0.77%, Thailand-THD -0.76%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks Slump as Cautious Sentiment Persists
Equities ended the Wednesday session on a mixed note. The Nasdaq and S&P 500 finished with respective losses of 0.5% and 0.2% while the Dow Jones Industrial Average ended flat. Despite its outperformance, the Dow was unable to settle above its 200-day moving average (15479) for the second day in a row.

Today's affair began on a lower note as stocks succumbed to the pressure exerted by the Japanese yen, which strengthened again overnight. Yen strength has been a considerable headwind for equities since the start of the year as many professionals who borrow in yen to fund their equity positions have found themselves in a bit of a pickle. In 2013, when the yen weakened steadily while equities rallied, the carry trade yielded strong results. This year, however, with the yen climbing and equities sliding, the losses have been compounding.

The dollar/yen pair marked its session low right below the 100.80 level this morning, but rallied sharply off that low. The pair then notched a high of 101.65 after today's better-than-expected ISM Services report before giving up a portion of its gain. Dollar/yen wasn't able to overtake the morning high and finished the New York Session right below the 101.40 level. Meanwhile, yen futures added 0.2%, extending their 2014 gain to 3.8%.

Overall, the lack of defined sector leadership and the presence of some mixed signals made for a sloppy session.

Out of the four top-weighted sectors, consumer discretionary (+0.2%), financials (-0.1%), and technology (+0.01%) outperformed while health care (-0.6%) lagged.

The discretionary sector drew strength from modest gains among retailers. The SPDR S&P Retail ETF (XRT 78.12, +0.25) added 0.3%, but remains down 11.3% so far in 2014. Elsewhere, technology displayed relative strength with some help from large-cap components like Apple (AAPL 512.59, +3.80) and Google (GOOG 1143.20, +5.04).

On the downside, health care (and Nasdaq Composite) struggled to keep pace with the S&P 500 as biotechnology lagged. The iShares Nasdaq Biotechnology ETF (IBB 236.95, -4.06) lost 1.7%, but remains higher by 4.4% this year.

Also of note, the industrial sector finished in-line with the S&P 500, but transports struggled. The Dow Jones Transportation Average lost 0.8% after CH Robinson (CHRW 53.16, -5.48) reported disappointing earnings.

The mixed performance pushed some participants in the direction of volatility protection as the CBOE Volatility Index (VIX 19.58, +0.47) rose 2.5%. Interestingly, the bond market did not reflect a safety bid as Treasuries ended on their lows with the 10-yr yield up four basis points at 2.67%.

Trading volume was a bit above average as 740 million shares changed hands at the NYSE.

Today's economic data included three reports: 

·         The weekly MBA Mortgage Index ticked up 0.4% to follow last week's 0.2% decline. 

·         According to today's ADP National Employment Report, employment in the nonfarm private business sector increased 175K in January. This was slightly below the increase of 178K expected by the Briefing.com consensus. The December reading was revised down to 227,000 from 238,000. 

·         The ISM Non-manufacturing Index for January increased to 54.0 from 53.0. The Briefing.com consensus expected the index to increase to 53.8. Weather conditions, which were blamed for the poor manufacturing report, seemed to have no impact on services sector. Business Activities accelerated in January. The index increased to 56.3 from 54.3.

Tomorrow, Challenger Job Cuts for January will be announced at 7:30 ET while weekly initial claims, December trade deficit, and fourth quarter productivity data will be released at 8:30 ET. 

·         Nasdaq Composite -4.0% YTD 

·         S&P 500 -5.2% YTD 

·         Russell 2000 -5.8% YTD 

·         Dow Jones Industrial Average -6.9% YTD

Commodities

Closing Commodities: Natural Gas Futures Tank, Momentarily Fall Below $5/MMBtu

·         Apr gold rallied sharply to a session high of $1274.50 per ounce at pit trade open on today's January ADP Employment Change reading of 175K. TheBriefing.com consensus expected an increase of 178K. However, the precious metal gave up the earlier gains and fell to a session low of $1251.80 per ounce when data showed that the ISM Non-manufacturing Index increased to 54.0 in January from 53.0 in December (Briefing.com consensus was 53.8). Gold eventually settled with a 0.4% gain at $1257.00 per ounce. 

·         Mar silver also popped to a session high of $20.33 per ounce in early morning pit trade but pulled back as the session progressed. It traded in a consolidative pattern near the $19.80 per ounce level and settled at $19.81 per ounce, or 2.0% higher.

·         Mar crude oil pulled back from its session high of $98.14 per barrel set at floor trade open and dipped to a session low of $96.80 per barrel following inventory data that showed a build of 0.44 mln barrels when a build of 2.3-2.6 mln barrels was anticipated. Distillate inventories fell by 2.36 mln while consensus called for a draw of 1.5-1.6 mln. The energy component traded slightly above the unchanged line in afternoon action and settled 0.1% higher at $97.38 per barrel. 

·         Mar natural gas rose as high as $5.74 per MMBtu in overnight trade, a new four-year high, but reversed course when floor trade opened. It fell into negative territory and brushed a session low of $4.99 per MMBtu moments before settling with a 6.1% loss at $5.04 per MMBtu.

COMEX Metals Closing Prices

  Apr gold rose $5.40 to $1257.00/oz 

·         Gold rallied sharply to a session high of $1274.50 at pit trade open on today's January ADP Employment Change reading of 175K. The Briefing.com consensus expected an increase of 178K. However, the precious metal gave up the earlier gains and fell to a session low of $1251.80 when data showed that the ISM Non-manufacturing Index increased to 54.0 in January from 53.0 in December (Briefing.com consensus was 53.8). Gold eventually settled with a 0.4% gain. 

  Mar silver rose $0.38 to $19.81/oz 

·         Silver also popped to a session high of $20.33 in early morning floor trade but pulled back as the session progressed. It traded in a consolidative pattern near the $19.80 level in afternoon action and settled with a 2.0% gain. 

  Mar copper settled unchanged at $3.19/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Mar corn rose 1 cent to $4.43/bushel 

·         Mar wheat rose 3 cents to $5.88/bushel 

·         Mar soybeans rose 3 cents to $13.16/bushel 

·         Mar ethanol rose 1 cent to $1.89/gallon 

·         Mar sugar (#16 (U.S.)) rose 0.49 of a penny to 21.05 cents/lbs

NYMEX Energy Closing Prices

  Mar crude oil rose $0.14 to $97.38/barrel 

·         Crude oil pulled back from its session high of $98.14 set at pit trade open and dipped to a session low of $96.80 following inventory data that showed a build of 0.44 mln barrels when a build of 2.3-2.6 mln barrels was anticipated. Distillate inventories had a draw of 2.36 mln while consensus called for a draw of 1.5-1.6 mln. The energy component traded slightly above the unchanged line in afternoon action and settled 0.1% higher. 

  Mar natural gas fell 33 cents to $5.04/MMBtu 

·         Natural gas rose as high as $5.74 in overnight trade, a new four-year high, but reversed course when floor trade opened. It fell into negative territory and brushed a session low of $4.99 moments before settling with a 6.1% loss. 

  Mar heating oil rose 2 cents to $3.00/gallon 

  Mar RBOB rose 4 cents to $2.64/gallon

Treasuries

30y Reclaims 200 DMA: 10-yr: -11/32..2.676%..USD/JPY: 101.37..EUR/USD: 1.3530

·         Treasuries closed on their lows. 

·         Maturities held small gains ahead of this morning's data, but quickly dropped into the red in response to the in-line ADP Employment Change (175K actual v. 178K expected). 

·         The complex would see another leg lower after ISM Services (54.0 actual v. 53.8 expected) fractionally outpaced estimates before slipping lower throughout the remainder of the session. 

·         A one point drop at the long end ran the 30y up +6bps to 3.653%. The two-day slide has tacked on 12bps while running the 30y back above its 200 dma (3.620%). Click here to see a daily 30y chart. 

·         The 10y tacked on +4.3bps to finish the day @ 2.667%. Support in the 2.500%/2.550% area will be watched closely into Friday's nonfarm payroll report.

·         The belly outperformed as modest selling caused a +2.8bp advance in the 5y. The yield ended the day @ 1.489%, and managed to reclaim its 100 dma (1.479%). 

·         A steeper curve took hold as the 2-10-yr spread widened to 243.5bps.

·         Precious metals saw solid gains with gold +$7 @ $1259 and silver +$0.47 @ $19.89. 

·         Data: Initial and continuing claims, trade balance, productivity-prel., and unit labor costs (8:30).

·         Fed Speak: Boston's Rosengren travels to Sarasota, FL to discuss the economy (17:30).

Next Day In View 

Economic Commentary

Economic Summary: ISM Services tops expectations; ADP roughly in line with expectations ahead of NFP report Friday
Economic Data Summary:

·         Weekly MBA Mortgage Applications 0.4% (Last Week was -0.2%)

·         January ADP Employment Change 175K vs Briefing.com consensus of 178K; December was revised to 227K from 238K

o    Goods-producing 16,000 

o    Service-providing 160,000 

·         January ISM Services 54.0 vs Briefing.com consensus of 53.8; December was 53.0

o    Weather conditions, which were blamed for the poor manufacturing report, seemed to have no impact on services sector. Business Activities accelerated in January. The index increased to 56.3 from 54.3. Most of the growth, however, came from contracting backlogs.

Upcoming Economic Data:

·         Weekly Iniital Cliams due out Thursday at 8:30 (Briefing.com consensus of 335K; Last Week was 348K)

·         Weekly Continuing Claims due out Thursday at 8:30 (Briefing.com consensus of 2.993 M ; Last Week was 2.991 M )

·         December Trade Balance due out Thursday at 8:30 (Briefing.com consensus of -$36.0 bln; November was -$34.3 bln)

·         Fourth Quarter Productivity - Prel due out Thursday at 8:30 (Briefing.com consensus of 2.4%; Third Quarter was 3.0%)

·         Fourth Quarter Unit Labor Costs due out Thursday at 8:30 (Briefing.com consensus of -0.5%; Third Quarter was -1.4%)

·         January Challenger Job Cuts due out Thursday at 8:30 (December was -5.9%)

Upcoming Fed/Treasury Events

·         Philadelphia Fed President Charles Plosser (voting member, hawkish) to speak today at 12:30

·         Atlatna Fed President Dennis Lockhart (not a voting FOMC member, moderate) to speak today at 13:40'

Other International Events of Interest

·         Eurozone retail sales fell 1.6% month-over-month (-0.5% consensus, 0.9% previous) while the year-over-year reading decreased 1.0% (+1.5% forecast, 1.3% prior). Separately, Services PMI slipped to 51.6 from 51.9 (51.9 consensus). 

On other news.... 

Retail January Same Store Sales Preview—low bar
A handful of retailers report January sales tomorrow (Thursday Feb 6) before the open (GPS  tomorrow after the close). WAG/RAD already reported January results.

The January retail period was four weeks ending February 1. The month is typically a low-volume (minimal-impact) close-out to the fiscal year. Many retailers have already issued post-holiday update and the bar has been set—low. Negative factors that weighed on December sales (promotional activity, competition and weather) did not improve as reflected in recent guidance/updates. ICSC lowered its January comps estimate to ~3% (from 3-3.5%) and Redbook Jan-to-date estimate came in at 3.0% (vs 3.4% target). Going forward: February is the first four weeks of the retail fiscal year. Results for the period ending March 1 will be reported March 6. Redbook has preliminary February target of +3%. Many retailers will report Q4 results in the latter part of this month through the beginning of March.

GUIDANCE: Most retailers updated guidance during January. Now that the fiscal period has officially ended, retailers will report Q4 sales with monthly results. A few names that do not report monthly sales have yet to provide recent guidance/sales (WSM, ULTA, BIG, ANN, DSW, RH, KIRK, CTRN). 

·         Recent disappointing updates: Heavyweight big box retailer Wal-Mart (WMT) lowered its Q4 expectations citing SNAP/winter storms. JC Penney (JCP -12% this week) is notable lower on the week following its Q4 update—Nov/Dec comps +3.1% and Q4 +2% (below expectations). Destination XL Group (DXLG) and Destination Maternity  (DEST)  have been under pressure since updating guidance/earnings last week. DXLG issued downside guidance and announced CFO resignation; DEST reported Q1 results with downside Q2 guidance and in-line FY14 guidance. Estee Lauder (EL -6.1%) and Elizabeth Arden (RDEN -5.6%) seeing notable moves lower today following earnings. Polo Ralph Lauren (RL) is down nearly 3% today despite topping Q3 estimates and  guiding Q4 revs above consensus (lowered margin guidance). 

·         On the upside: Michael Kors (KORS) surged 18% higher this week on blow-out qtr—beat ests by $0.25, beat on revs and guided FY14 EPS/ revs above consensus.  Rite Aid (RAD) and Walgreen's (WAG) already reported Jan comps—both topped estimates. RAD reported Jan comps +1.8% vs. +0.6% consensus (exceeding expectations for the ninth consecutive month). The stock was up ~6% the following trading day but has since relinquished those gains. WAG Jan comps were +2.9% vs +2.2% consensus. 

December sales were just a sidenote to the slew of disappointing guidance updates. Only SMRT and COST reported better than expected comps without cutting guidance BUT both have company policy to not update guidance.  The retail sector was sharply lower following December results/guidance/earnings reports. The SPDR Retail (XRT) was 0.8% lower the following day, Consumer Dis Spdr (XLY) flat vs S&P500 index (SPX) slightly higher on the day.

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), Fred's (FRED) and PriceSmart (PSMT) 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 was up 1.5% on the day. FRED reported Dec comps of 1.4% vs 1% consensus but guided Q4 EPS below consensus. The stock was up though because the co announced it has engaged financial advisors to explore strategic opportunities. PSMT reported comps with earnings -- Dec comps were 6.7% vs 5.3% but the co missed Q1 EPS estimate by $0.04, revs in-line. The stock was down 8% the following trading day. 

·         Costco (COST) reported comps of 3% vs 1.8% consensus and the stock was up nearly 4% the following trading day (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 closed down 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 ended more than 7% lower. 

·         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 closed 1.3% lower. 

·         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 closed 1.4% lower on the day.

·         Gap (GPS) reported Dec same store sales 0.0% vs +0.3% Retail Metrics consensus but  said comfortable delivering FY14 EPS at the high end of prior guidance. 

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

Currencies 









Jason's Commentaries


ADP employment numbers did not hold up to expectation. However, I believe there's a good chance that the employment numbers in Jan is likely to be good. Despite missing expectation, the market held up as ISM Non-manufacturing register a expansion of 54 points. Same store sales in Jan obvious suck. The market started with a bearish intent, dropping sharp till 1130am ET then covering started and rallied to the closing bell. However, there are some dragging factors in the market and putting most traders and investors on the sideline. Volumes were standing at 754.4m shares traded on the NYSE. Seems that the high volume days are over soon and market is likely to cover their shorts ahead of the employment numbers. Divergence across the internals just reinforced the hypothesis. 

 The main laggard in the market last night is Healthcare, lagging by 0.56% as Pfizer and Gilead laggard more than 2%. The tech is showing some drag as well as Microsoft, AT&T, HP, and Intel dropped more than 1% last night as well. On the technical standpoint, the market is likely to hold up the support level ahead of the employment report. However, the employment numbers will be the key factor whether the market goes into a freefall or reverse the huge drop in 2014.  

Market Call: FLAT to upside

Date: 6 Jan 2014