13 March 2014 AMC- Market sunk as China and Ukraine woes weigh

13 March 2014 AMC- Market sunk as China and Ukraine woes weigh

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: -1.0%

·         Germany's DAX: -1.9%

·         France's CAC: -1.3%

·         Spain's IBEX: -1.2%

·         Portugal's PSI: -2.2%

·         Italy's MIB Index: -0.9%

·         Irish Ovrl Index: -0.6%

·         Greece ATHEX Composite: -1.0%

Before Market Opens

S&P futures vs fair value: +3.70. Nasdaq futures vs fair value: +10.70.
The S&P 500 futures trade four points above fair value.

Major Asian markets finished the Thursday session on a mixed note. China's Premier Li Keqiang spoke at the National People's Congress, saying the country's government will not let systemic risks come to the forefront as a result of debt defaults. This comes amid recent worries about an impending wave of defaults.

Data from the Middle Kingdom was disappointing as industrial production (8.6% year-over-year versus 9.5% expected), fixed asset investment (17.9% year-over-year versus 19.4% expected), and retail sales (11.8% year-over-year versus 13.5% expected) all fell short of estimates. Elsewhere, Japan's core machinery orders surged 13.4% month-over-month (7.3% expected, -15.7% previous), but the reading is being discounted due to the steep decline that took place in January. Australia's employment change (47.3K versus 18.0K expected, 18.0K previous) posted its strongest reading since 1991. The unemployment rate held steady at 6.0%, its highest since 2003.

Also of note, New Zealand became the first developed nation to hike rates since the onset of the financial crisis. The Reserve Bank of New Zealand hiked its Official Cash Rate 25 basis points to 2.75%, as expected. Meanwhile, the Bank of Korea kept its benchmark rate unchanged at 2.50%, as expected.

·         Japan's Nikkei slipped 0.1% to a one and a half-week low. Shipping stocks were hit on the soft Chinese data as Mitsui & Co. and Nippon Yusen lost 3.0% and 2.6%, respectively.

·         Hong Kong's Hang Seng slid 0.7% to a one-month low. Real estate shares were on the defensive as China Overseas Land & Investment tumbled 4.1% and China Resources Land fell 3.3%. 

·         China's Shanghai Composite climbed 1.1%, rising off near two-month lows as trade regained the 2000 level. Trade was boosted by reports of a pilot program for preferred shares. Industrial & Commercial Bank of China added 1.2%. 

Major European indices trade little changed while Italy's MIB (+0.8%) outperforms. Economic data was scarce. French CPI rose 0.5% month-over-month (0.4% expected, -0.6% last), Spain's Retail Sales increased 0.5% year-over-year (-0.8% consensus, -1.0% previous), and Italy's CPI ticked down 0.1% month-over-month while the year-over-year reading increased 0.5%. Both figures met expectations. 

·         Great Britain's FTSE is lower by 0.3% amid notable weakness among food retailers. J Sainsbury, Tesco, and WM Morrison Supermarkets hold losses between 4.5% and 9.8% after WM Morrison forecast a decline in profits. The weakness sent the stock to its lowest levels in almost six years. 

·         In France, the CAC is flat. Software company Gemalto leads with a gain of 2.8% after receiving a new contract in China. Consumer names Accor, Carrefour, and L'Oreal underperform with losses between 0.6% and 1.1%. 

·         Germany's DAX trades higher by 0.2%. Lufthansa trades up 5.9% after issuing upbeat guidance. On the downside, K+S holds a loss of 5.5% after issuing a profit warning and proposing a dividend cut. 

·         In Italy, the MIB holds an advance of 0.8% with banks in the lead. Banca Popolare di Milano Scarl, BMPS, and Mediobanca display gains between 2.4% and 6.0%.

Asia

·         Markets finished mixed across Asia.

·         Chinese Premier Li Keqiang suggested defaults are ‘unavoidable.' 

·         Data from the Middle Kingdom was disappointing as industrial production (8.6% YoY actual v. 9.5% YoY expected) and fixed asset investment (17.9% YTDoY actual v. 19.5% YTDoY expected) both fell short of estimates. 

·         Japan's core machinery orders surged 13.4% MoM (7.3% MoM expected, -15.7% MoM previous), but the reading is being discounted due to the steep decline in January.

·         Australia's employment change (47.3K actual v. 154.3K expected, 18.0K previous) posted its strongest reading since 1991. However, some suggest the blowout number is a result of volatility in the data. The unemployment rate held steady at 6.0%, its highest since 2003. 

·         New Zealand became the first developed nation to hike rates since the onset of the financial crisis. The Reserve Bank of New Zealand hiked its Official Cash Rate 25bps to 2.75%, as expected. 

·         The Bank of Korea kept its benchmark rate unchanged at 2.50%, as expected. 

·         Japan's Nikkei (-0.1%) slipped to a one and a half-week low. 

·         Hong Kong's Hang Seng (-0.7%) sank to a one-month low. 

·         China's Shanghai Composite (+1.1%) climbed off near two-month lows as trade regained the 2000 level. 

·         India's Sensex (-0.4%) saw an early test of all-time highs, but was unable to hold onto its gains. 

·         Australia's ASX (+0.5%) recouped yesterday's losses.

Market Internals

Market Internals -Technical-
The Nasdaq closed down 63 (-1.46%) at 4260, the Dow closed down 231 (-1.41%) at 16109, and the S&P 500 closed down 22 (-1.17%) at 1846. Action came on mixed volume (NYSE 678 mln vs. avg. of 705; NASDAQ 2241 mln vs. avg. of 2004), with decliners outpacing advancers (NYSE 1025/2111, NASDAQ 613/2024) and new highs outpacing new lows (NYSE 72/41, NASDAQ 84/35).

Relative Strength: 
Volatility-VXX +4.04%, Junior Gold Miners-GDXJ +3.65%, Cocoa-NIB +1.78%, Silver Miners-SIL +1.64%, 20+ Year Treasuries-TLT +1.35%, Japanese Yen-FXY +1.08%, Columbia Index-GXG +0.83%, New Zealand-ENZL +0.77%, Canadian Dollar-FXC +0.57%.

Relative Weakness: 
Russia-RSX -4.45%, Eastern Europe-ESR -3.95%, Social Media-SOCL -3.75%, Poland-EPOL -3.34%, Greece-GREK -3.14%, Germany-EWG -2.88%, Natural Gas-UNG -2.64%, Biotechnology-IBB -2.56%, U.S. Home Construction-ITB -2.47%, Cloud Computing-SKYY -2.44%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: S&P 500 Surrenders Year-to-Date Gain
The major averages finished the Thursday session near their lows after renewed concerns surrounding the situation in Ukraine, combined with more warnings signs from China, contributed to participants reducing their risk exposure. The jitters related to China are tied up in economic and financial risk, whereas, the concerns over Ukraine are tied up in geopolitical risk that has the potential to become a global economic problem.

The tech-heavy Nasdaq (-1.5%) led the retreat while the S&P 500 lost 1.2% with eight sectors ending in the red. As a result, the benchmark index settled below its 2013 closing high of 1848.36.

Equity indices began the session with modest gains, but the early strength was short-lived as the S&P 500 notched its high within the first ten minutes of action, spending the remainder of the trading day in a steady slide. Although stocks opened higher, the dollar/yen pair flashed an early warning signal when it began dropping at the start of the New York Session. The currency pair hovered near 102.80, but slumped all the way to 101.60 by the time the closing bell rang.

The yen often draws safe-haven interest in times of geopolitical distress and today's move basically snowballed given carry-trade dynamics that work against yen-based borrowers when the currency strengthens. In turn, the sharp move weighed on risk assets, including US stocks.

Continued worries about the strength of the Chinese economy fed into the risk-off posture after industrial production (8.6% year-over-year versus 9.5% expected), fixed asset investment (17.9% year-over-year versus 19.4% expected), and retail sales (11.8% year-over-year versus 13.5% expected) all fell short of estimates. Copper futures have been pressured recently, and continued retreating today. The red metal fell 1.3% to $2.923/lb.

Elsewhere, the dispute between Russia and Ukraine jumped back into focus after Ukraine's acting President Oleksandr Turchynov was quoted by Reuters as saying he believes Russian forces concentrated on Ukraine's eastern border are ‘ready to invade.' The comments were followed by a statement from U.S. Secretary of State John Kerry, who said if the Sunday referendum goes ahead as planned there will be a ‘serious series of steps' taking place on Monday from the United States and Europe.

Notably, Treasuries, which began climbing just after the start of the New York session, accelerated their advance following the remarks from President Turchynov. The 10-yr note added 24 ticks, sending the benchmark yield lower by nine basis points to 2.65%.

Similarly, volatility protection was in high demand as indicated by an 12.1% increase in the CBOE Volatility Index (VIX 16.22, +1.75).

Nine sectors posted losses with cyclical groups bearing the brunt of the weakness. The tech sector (-1.6%) registered the largest decline while industrials (-1.5%) and consumer discretionary (-1.4%) followed not far behind. The underperformance of technology weighed on the Nasdaq, which also suffered from the relative weakness of biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 254.80, -6.70) tumbled 2.6%. Biotech also weighed on the health care sector (-1.4%), which was the only laggard among countercyclical groups.

The remaining defensive sectors—consumer staples (-0.6%), telecom services (-0.4%), and utilities (+0.9%)—outperformed with utilities overtaking the health care sector for the top spot on this year's leaderboard. The rate-sensitive sector extended its year-to-date gain to 6.2% versus 5.6% for health care.

Despite the daylong selling pressure, participation was below average with 678 million shares changing hands at the NYSE floor.

Reviewing today's data: 

·         Retail sales increased 0.3% in February after declining a downwardly revised 0.6% (from -0.4%) in January. The Briefing.com consensus expected retail sales to increase 0.2%.The report was pretty solid, but did not represent an upward shock that would come as a result of pent up winter-delayed demand. Sales increased in-line with the 0.2% increase in aggregate earnings that were reported in the February employment report. We would have expected a bigger upward swing if pent up demand was unleashed. 

·         The initial claims level fell to 315,000 for the week ending March 8 from an upwardly revised 324,000 (from 323,000) for the week ending March 1. The Briefing.com consensus expected the initial claims level to increase to 329,000. The DOL reported that there were no special factors that drove the initial claims level to its lowest point since November 2013. 

·         Total business inventories increased 0.4% in January after increasing an unrevised 0.5% in December while the Briefing.com consensus expected an increase of 0.3%. Total inventories consist of manufacturers, merchant wholesalers, and retailers. Both manufacturer (0.2%) and wholesaler (0.6%) inventories were announced prior to the release. The only unknown was retailer inventories, which increased 0.4% in January after increasing 0.7% in December. The important takeaway from the report was that the inventory gain may not have been planned. Total business sales fell 0.9% in January after declining 0.1% in December. That sharp drop in spending caused an overstock situation as more goods than expected were left on shelves. 

·         The Treasury Budget for February showed a deficit of $193.50 billion, which followed the prior month's deficit of $203.50 billion. The Briefing.com consensus expected the deficit to hit $195.00 billion. 

Tomorrow, February PPI will be released at 8:30 ET while the preliminary reading of the Michigan Sentiment Survey for March will cross the wires at 9:55 ET. 

·         Nasdaq Composite +2.0% YTD 

·         Russell 2000 +1.5% YTD 

·         S&P 500 -0.1% YTD 

·         Dow Jones Industrial Average -2.8% YTD

Commodities

Closing Commodities: Crude Oil Gains 0.3%, Nat Gas Slides 2.2% Lower

·         Apr gold and May silver fell to their respective session lows of $1364.90 per ounce and $21.10 per ounce in early morning pit trade on better-than-anticipated retail sales and initial claims data.

·         Retail sales increased 0.3% in Feb after declining a downwardly revised 0.6% (from -0.4%) in Jan. TheBriefing.com consensus expected retail sales to increase 0.2%. The initial claims level fell to 315,000 for the week ending March 8 from an upwardly revised 324,000 (from 323,000) for the week ending March 1. TheBriefing.com consensus expected the initial claims level to increase to 329,000.

·         Gold then gained support from a weaker dollar index and rose above the unchanged line by afternoon action. It brushed a session high of $1375.40 per ounce and settled with a 0.1% gain at $1372.10 per ounce.

·         Silver touched a session high of $21.34 per ounce in afternoon floor trade but lost momentum ahead of the close and settled with a 0.9% loss at $21.17 per ounce.

·         Apr crude oil see-sawed between positive and negative territory today. It dipped to a session low of $97.67 per barrel moments after floor trade opened and later touched a session high of $98.44 per barrel. The energy component eventually settled 0.3% higher at $98.26 per barrel.

·         Apr natural gas spent its entire floor session in the red, with prices falling as low as $4.36 per MMBtu. The weakness came on inventory data that showed a draw of 195 bcf when a draw of 191-196 bcf was anticipated. Unable to find buying support, natural gas settled 2.2% lower at $4.39 per MMBtu.

COMEX Metals Closing Prices

  Apr gold rose $1.50 to $1372.10/oz 

·         Gold fell to a session low of $1364.90 in early morning pit trade on better-than-anticipated retail sales and initial claims data. However, the precious metal gained support from a weaker dollar index and rose above the unchanged line by afternoon action. It brushed a session high of $1375.40 and settled with a 0.1% gain. 

  May silver fell $0.19 to $21.17/oz 

·         Silver also fell to a session low of $21.10 moments after floor trade opened. It touched a session high of $21.34 in afternoon action but lost momentum as it headed into the close. Silver eventually settled with a 0.9% loss. 

  May copper fell 4 cents to $2.92/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         May corn fell 5 cents to $4.84/bushel 

·         May wheat fell 11 cents to $6.72/bushel 

·         May soybeans rose 5 cents to $13.93/bushel 

·         Apr ethanol rose 9 cents to $2.46/gallon 

·         May sugar (#16 (U.S.)) fell 0.03 of a penny to 22.05 cents/lbs

NYMEX Energy Closing Prices

  Apr crude oil rose $0.27 to $98.26/barrel 

·         Crude oil see-sawed between positive and negative territory today. It dipped to a session low of $97.67 moments after floor trade opened and later touched a session high of $98.44. The energy component eventually settled 0.3% higher. 

  Apr natural gas fell 10 cents to $4.39/MMBtu 

·         Natural gas spent its entire floor session in the red with prices falling as low as $4.36. The weakness came on inventory data that showed a draw of 195 bcf vs expectaions for a draw of 191-196 bcf. Unable to find buying support, natural gas settled with a 2.2% loss. 

  Apr heating oil fell 1 cent to $2.92/gallon 

  Apr RBOB fell 3 cents to $2.93/gallon

Treasuries

Treasuries Surge as Standoff in Ukraine Escalates: 10-yr: +23/32..2.652%..USD/JPY: 101.63..EUR/USD: 1.3858

·         Treasuries closed on their highs as an escalation in Ukraine ignited a safety bid. Click here to see an intraday yields chart.

·         The Treasury complex hovered little changed into the U.S. cash open and drifted to session lows amid this morning's mostly better than expected data. 

·         Initial claims (315K actual v. 329K expected), continuing claims (2855K actual v. 2925K expected) and retail sales (0.3% actual v. 0.2% expected) all topped estimates, putting in the session lows.

·         Steady buying would develop into the larger than expected build in business inventories (0.4% actual v. 0.3% expected) with fresh buying emerging in response to headlines pointing to an escalation in Ukraine as Russia reportedly fired on a plane that was in Crimea airspace. 

·         An aggressive bid persisted into this afternoon's $13 bln 30y reopening. 

·         The $13 bln 30y reopening was average, drawing 3.630% (3.615% when issued) and a 2.35x bid/cover. Slightly weaker than average indirect (38.7%) and direct (12.5%) bids left primary dealers with 48.8% of the supply. The offering was difficult to gauge as this morning's flight to safety caused a large drop in yield into the auction.

·         A final leg higher into the cash close ran maturities to their highs. 

·         Buying was paced at the long end as the 30y bond rallied nearly one and a half points.

·         Longer dated yields were off between -6/-7.5bps. 

·         Up front, the 2y lost -4bps, sliding to 0.334%. Today's drop in yield as the 0.300% level moving into focus. 

·         The 5y shed -6.2bps, finishing the day @ 1.523%. Today's trade pushed the yield lower for a fourth straight session, and forced action back into the 1.450%/1.550% range that had been in place throughout February and early March. 

·         The 10y fell -7.3bps to 2.653%. The benchmark yield tumbled back below its 200 dma (2.674%), and posted its lowest close since the first trading day of March. The 2.600% area will be watched closely in the days ahead. 

·         At the long end, the 30y lost -6.6bps, ending @ 3.601%. Many traders will be paying close attention to the 3.550% level as a breakdown sets up a potential move into the 3.150% region. 

·         Aggressive flattening along the yield curve caused the 2-10-yr spread to tighten to 232bps.

·         Precious metals finished mixed with gold +$4 @ $1374 and silver -$0.10 @ $21.25. 

·         Data: PPI (8:30) and Michigan Sentiment (9:55). 

·         Fed Speak: Fed Vice Chair Stanley Fischer gives opening remarks to a dinner event at Stanford University (19:45). 

Next Day In View 

Economic Commentary

Economic Summary: Retail Sales top expectations; jobless claims miss expectations
Economic Data Summary:

·         Weekly Initial Claims 315K vs Briefing.com consensus of 329K; Last Week was revised to 324K from 323K

·         Weekly Continuing Claims 2.855 M vs Briefing.com consensus of 2.925 M ; Last Week was revised to 2.903 M from 2.907 M

o     The DOL reported that there were no special factors that drove the initial claims level to its lowest point since November 2013. It is likely that the drop in claims was the result of normal volatility. This level is unlikely to be sustained and claims are expected to return to the 330,000 -- 340,000 range.

·         February Retail Sales 0.3% vs Briefing.com consensus of 0.2%; January was revised to -0.6% from -0.4%

·         February Retail Sales Ex-Auto 0.3% vs Briefing.com consensus of 0.2%; January was 0.0%

o     The report was pretty solid, but it shows nothing that represents an upward shock that would come as a result of pent up winter-delayed demand. Sales increased in-line with the 0.2% increase in aggregate earnings that were reported in the February employment report. We would have expected a bigger upward swing if pent up demand was unleashed. Motor vehicle sales increased a modest 0.3% in February after falling 2.2% in December. That was in-line with the relatively flat reports from the motor vehicle manufacturers.

·         February Export Prices Ex-Ag 0.6% vs Briefing.com consensus of ; January was 0.2%

·         February Import Prices Ex-Oil -0.2% vs Briefing.com consensus of ; January was 0.3%

·         January Business Inventories +0.4% vs Briefing.com consensus of 0.3%; December was 0.5%

Fed/Treasury Events Summary:

·         Fed Vice Chair Stanley Fischer Nomination Hearing is scheduled for today

Upcoming Economic Data:

·         Februiary Treasury Budget due out Thursday at 14:00 (Briefing.com consensus of -$195 bln; was -$203.5 bln)

Other International Events of Interest

·         Data from the Middle Kingdom was disappointing as industrial production (8.6% YoY actual v. 9.5% YoY expected) and fixed asset investment (17.9% YTDoY actual v. 19.5% YTDoY expected) both fell short of estimates.

·         Japan's core machinery orders surged 13.4% MoM (7.3% MoM expected, -15.7% MoM previous), but the reading is being discounted due to the steep decline in January.

·         Australia's employment change (47.3K actual v. 154.3K expected, 18.0K previous) posted its strongest reading since 1991. However, some suggest the blowout number is a result of volatility in the data. The unemployment rate held steady at 6.0%, its highest since 2003. 

On other news.... 

Currencies 

Dollar Reverses into the Green: 10-yr: +20/32..2.657%..USD/JPY: 101.60..EUR/USD: 1.3850

·         An afternoon bid has lifted the Dollar Index into positive territory as action holds on session highs near 79.70. Click here to see a daily Dollar Index chart.

·         Overnight selling dropped the Index onto the 79.30 level, but the dollar began to see some buying develop amid an escalation in Ukraine. 

·         The late-day bid has the Index on track to avoid its worst close in four and a half months. 

·         EURUSD is -50 pips @ 1.3850 as trade presses session lows. The single currency began sliding amid the increased tensions in Ukraine, and saw an acceleration in selling as ECB head Mario Dragi did his best to talk down the euro by noting inflation is too low. Minor support at current levels will be watched closely. 

·         GBPUSD is flat @ 1.6620 as trade has seen a sharp reversal from today's highs. Early buying provided a test of recent highs near 1.6750, but aggressive selling now has action nearing 1.6600 support. Britain's trade balance is due out tomorrow. 

·         USDCHF is +20 pips @ .8760 as buyers begin to show some signs of life. The pair tumbled to .8700, its lowest since October 2011, amid this morning's selling, but has found some buying momentum as traders flock into the greenback for safety. Bulls will not begin to breathe easy until resistance in the .8850/.8900 area is retaken. Swiss data is limited to PPI. 

·         USDJPY is -100 pips @ 101.75 as trade flushes to a one and a half-week low. Today's selling comes amid an unwind in the carry trade, and has the pair lower for the third straight session after five days of gains. The 2014 lows in the 101.00/101.50 area will be monitored closely. The latest Bank of Japan minutes will cross the wires tonight. 

·         AUDUSD is +35 pips @ .9025 as trade holds onto some of its overnight gains. The hard currency probed the .9100 level in early trade as buyers piled in following the strong Aussie jobs data, but has given up the majority of its gains as traders shed risk. The inability of the Aussie to hold breakouts on two separate occasions this week has to be a bit disconcerting to the bulls.

·         USDCAD is -60 pips @ 1.1060 as trade holds just off the lows. Current action has trade testing the 1.1050 pivot with a breakdown setting up a potential test of the key 1.0950 level.

Jason's Commentaries

The correction came earlier than expected. The market broke down from consolidation and went all the way south last night right into the closing with very minor short covering last night. All major indices lost more than 1%. It was a sea of red last night in the market. The worst laggard is the industrials and healthcare, both lagging by 1.42% and 1.32% respectively. Utilities, surprising was the only gainer in the S&P500 and gaiing 1.04%. It could be a possible switch to defensive play in the market. The market possible took catalyst from Ukraine and China's news. Ukraine is having Crimea voting on Sunday, China released disappointing data. China's data is definitely worrying. With China's possible default, with Premier Li Ke Qiang saying 'default is unavoidable' is really making people worry about the status of the Chinese Banks. China is also considering reducing its capital requirement for the banks so as to free up more cash. With such worrisome data, the market is definitely taking a step back. On the technicals wise, S&P500 hit a strong support level at 1840, Dow hit the 16100 level after losing 231 points. I reckon the market is likely to stay flat on Friday after such a bear day in the market. Volumes were thin last night as well, barely touching 700m shares traded on the NYSE. It seems to me that the market is still not taking profit much yet. 

Market Call: UP

Date: 14 March 2014