21 Feb 2014 AMC - Market stayed flat ahead of Crimea's vote to join Russia and ahead of FOMC Statements

21 Feb 2014 AMC - Market stayed flat ahead of Crimea's vote to join Russia and ahead of FOMC Statements

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: -0.4%

·         Germany's DAX: + 0.4%

·         France's CAC: -0.8%

·         Spain's IBEX: -1.4%

·         Portugal's PSI: -0.5%

·         Italy's MIB Index: -1.2%

·         Irish Ovrl Index: -1.6%

·         Greece ATHEX Composite: -2.0%

Before Market Opens 

S&P futures vs fair value: +0.70. Nasdaq futures vs fair value: +5.00.
The S&P 500 futures trade less than a point above fair value after climbing off their lows.

The major Asian bourses ended mostly lower. The latest Bank of Japan minutes showed the central bank believes growth and inflation remain on track with its targets and that the planned consumption tax due in April will not impede the progress that has been made. India's Wholesale Price Index eased to 4.68% year-over-year from 5.05%. 

·         Japan's Nikkei tumbled 3.3% to a one-month low as the strong yen weighed. Exporters were hit hard as Sharp fell 3.8% and Sony gave up 4.2%. 

·         Hong Kong's Hang Seng lost 1.0%, falling for the fifth time in six sessions. The index closed at its lowest level since early February. Tencent Holdings sank 4.1% after mobile payments were halted by the PBoC due to security concerns. 

·         China's Shanghai Composite slipped 0.7%, ending near its lowest levels since late-July as trade managed to hold the 2000 level. Shares of Citic Bank tumbled 8.3% following the suspension of virtual card payments. 

Major European indices trade lower across the board with Spain's IBEX (-1.9%) displaying the largest decline. Participants received several data points. Eurozone employment ticked up 0.1% quarter-over-quarter (0.0% expected, 0.0% prior) while the year-over-year reading decreased 0.5% (-0.8% last). Germany's CPI increased 0.5% month-over-month while the annualized reading pointed to 1.2% rise. Both figures met expectations. Great Britain's trade deficit widened to GBP9.79 billion from GBP7.66 billion (expected deficit of GBP8.60 billion). Separately, CB Leading Index rose 0.7% month-over-month (-0.1% last). Spain's trade deficit widened to EUR2.80 billion from EUR1.83 billion (EUR2.00 billion expected). Swiss PPI slipped 0.4% month-over-month (-0.1% expected, 0.0% last) while the year-over-year reading fell 0.8% (-0.5% consensus, -0.3% prior).

Among news of note, according to Germany's Bild, the European Union and United States plan to implement visa bans targeting Russian individuals with close ties to Vladimir Putin in the event the Crimean referendum on joining the Russian Federation proceeds as planned. 

·         Great Britain's FTSE trades lower by 0.6% as financials weigh. Aberdeen Asset Management and Royal Bank of Scotland are both down near 2.2%. Consumer names outperform with J Sainsbury and IMI up 2.4% and 1.8%, respectively. 

·         Germany's DAX holds a loss of 0.6% with exporters on the defensive. BMW is lower by 1.9% and Daimler trades down 1.5%. Countercyclical names display strength with Bayer and Fresenius SE up 1.1% and 2.0%, respectively. 

·         In France, the CAC trades down 1.2%. Industrials Bouygues and Lafarge lead the retreat with losses close to 3.2% apiece. Steelmaker ArcelorMittal and beverage producer Pernod Ricard outperform with respective gains of 1.0% and 0.3%. 

·         Italy's MIB is lower by 1.8%. Financials Mediobanca and UnipoSai hold respective losses of 3.3 and 4.3%. 

·         Spain's IBEX holds a loss of 1.9%. Banco de Sabadell, Banco Popular, Bankia, and Bankinter are down between 3.8% and 4.4%.

Asia

·         The major Asian bourses ended mostly lower

·         The latest Bank of Japan minutes showed the central bank believes growth and inflation remain on track with its targets and that the planned consumption tax due in April will not impede the progress that has been made

·         India's Wholesale Price Index eased to 4.68% YoY (5.05% YoY previous)

·         Japan's Nikkei (-3.3%) tumbled to a one-month low as the strong yen weighed

·         Hong Kong's Hang Seng (-1.0%) fell for the fifth time in six sessions and closed at its lowest level since early February

·         China's Shanghai Composite (-0.7%) slipped to near its lowest levels since late-July as trade managed to hold the 2000 level

·         India's Sensex (+0.2%) held near record highs as the tame Wholesale Price Index sparked rate cut hopes 

·         Australia's ASX (-1.5%) slumped to a one-month low with action ending on the 50 and 100 dma

·         Indonesia's Jakarta Composite (+3.2%) was a notable outperformer after Jakarta Governor Joko Widodo was nominated as a presidential candidate in April's election 

Market Internals

 

Market Internals -Technical-
The Nasdaq closed down 15 (-0.35%) at 4245, the S&P 500 closed down 5 (-0.28%) at 1841, and the Dow closed down 43 (-0.27%) at 16066. Action came on mixed volume (NYSE 628 mln vs. avg. of 706; NASDAQ 2003 mln vs. avg. of 2073), with advancers outpacing decliners (NYSE 1776/1301, NASDAQ 1412/1214) and new highs outpacing new lows (NYSE 55/41, NASDAQ 81/27).

Relative Strength: 
Indonesia-IDX +5.92%, Russia-RSX +3.61%, Eastern Europe-ESR +3.03%, Volatility-VXX +2.82%, Silver Miners-SIL +2.11%, South Africa-EZA +1.49%, Thailand-THD +1.46%, Oil and Gas Exploration-XOP +1.26%, Silver-SLV +1.26%, Gasoline-UGA +0.88%.

Relative Weakness: 
Coffee-JO -3.24%, Sugar-SGG -3%, Japan-EWJ -1.16%, Social Media-SOCL -1.08%, Semiconductors-SMH -0.82%, Financial Services-IYG -0.81%, Pacific Index-VPL -0.81%, Australia-EWA -0.8%, Switzerland-EWL -0.64%, Japan-EPP -0.54%.

Leaders and Laggards

Technical Updates

Commentaries 

Closing Market Summary: Stocks End Down Week on Cautious Note Ahead of Crimean Referendum
The major averages ended the week on a lower note as participants continued reducing their risk exposure ahead of the weekend, which will feature a Sunday referendum in Crimea on potential annexation to Russia.

The stock market opened with modest losses, but made a quick recovery with help from most sectors; however, the S&P 500 (-0.3%) was unable to make a sustained move above the 1852 level, which marked the session high for the benchmark index.

After making an early jump to highs, the S&P 500 spent the next hour in a steady retreat towards its session lows as the three top weighted sectors—financials (-0.6%), technology (-0.7%), and health care (-0.5%)—refused to take part in the rally. The three groups remained among the laggards throughout the day, keeping the broader market from maintaining its gain after the major averages jumped back into the green in the late morning.

The return into positive territory occurred after comments from the press conference held by Russia's Foreign Minister Sergei Lavrov made the rounds. Specifically, Mr. Lavrov said Russia has no intentions of invading Eastern Ukraine. That remark gained the most traction, but Mr. Lavrov continued, saying U.S. and Russia remain at odds regarding Ukraine and that Russia does not need any international structure to mediate in Russia-Ukraine relations.

After the Russian Foreign Minister delivered his statement, U.S. Secretary of State John Kerry conducted a press conference of his own. Secretary Kerry said that despite prolonged discussions with his Russian counterpart, not much has changed and that the Sunday referendum remains on schedule.

Although stocks made their way back into the green after Mr. Lavrov's press conference, they spent the afternoon in a slow retreat as the largest sectors weighed. Interestingly, small caps outperformed with the Russell 2000 holding a modest gain throughout the session. The index ended higher by 0.4% while large caps were not as fortunate.

The technology sector (-0.7%) ended at the bottom of the leaderboard. The space was pressured by its largest members. Apple (AAPL 524.69, -5.96), Google (GOOG 1172.80, -16.26), and Qualcomm (QCOM 74.74, -0.89) lost between 1.1% and 1.3%.

Elsewhere, the financial sector (-0.6%) trimmed its month-to-date gain to 0.4%. Even though the sector maintained its gain for the month, it surrendered its year-to-date advance (-0.5%). Top sector components registered losses across the board with Bank of America (BAC 16.80, -0.36) leading the weakness with a 2.1% decline.

Even though stocks finished on their lows, Treasuries did not move much during afternoon action. The benchmark 10-yr yield ended little changed at 2.65% versus 2.72% registered last Friday.

While Treasuries did not signal additional safe-haven flows today, the foreign exchange market did. The Japanese yen continued its recent strength, sending the dollar/yen pair to the 101.30 area after starting the week around 103.30.

Volatility protection was in demand throughout the session, pushing the CBOE Volatility Index (VIX 17.77, +1.55) to levels last seen on February 6.

Similar to yesterday, trading volume was on the light side with only 628 million shares changing hands at the NYSE.

Looking back at today's data: 

·         Producer prices declined 0.1% in February after increasing 0.2% in January while the Briefing.com consensus expected producer prices to increase 0.2%. The drop in producer prices was the result of a sharp drop in producer services costs. Final demand for goods rose 0.4% for a third consecutive month whereas final demand for services declined 0.3% in February. Excluding food and energy, overall core prices declined 0.2% in February after increasing 0.2% in January. The consensus expected these prices to increase 0.1%. 

·         The University of Michigan Consumer Sentiment Index slipped to 79.9 in the March preliminary reading from 81.6 in February. The Briefing.com consensus expected the index to increase to 82.0. The Current Conditions Index increased to 96.1 from 95.4 in February. The Expectations Index fell to 69.4 in March from 72.7. 

On Monday, the Empire Manufacturing Survey for March will be announced at 8:30 ET while the January Net Long-Term TIC Flows report will cross the wires at 9:00 ET. The Industrial Production and Capacity Utilization report for February will be released at 9:15 ET while the day's data will be topped off with the 10:00 ET release of the NAHB Housing Market Index for March. 

·         Russell 2000 +1.9% YTD 

·         Nasdaq Composite +1.7% YTD 

·         S&P 500 -0.4% YTD 

·         Dow Jones Industrial Average -3.1% YTD 

Commodities

Closing Commodities: Crude Oil Rises, But Ends Below $99/Barrel

·         Energy, metals and ag commodities ended the day mostly higher today

·         Apr crude oil rallied above $99/barrel in today's session, but finished up $0.65 at $98.91/barrel

·         Apr natural gas rose 3 cents to $4.42/MMBtu

·         Apr gold and May silver sold off a little midday, but held some gains

·         Gold ended $7.10 at $1379.20/oz, May silver gained $0.24 to $21.41/oz

·         May copper rose 3 cents to $2.95/lb

COMEX Metals Closing Prices

·         Apr gold rose $7.10 to $1379.20/oz

·         May silver rose $0.24 to $21.41/oz

·         May copper rose 3 cents to $2.95/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         May corn rose 1 cent to $4.85/bushel 

·         May wheat rose 14 cents to $6.86/bushel 

·         May soybeans fell 3 cents to $13.90/bushel 

·         Apr ethanol rose 1 cent to $2.47/gallon 

·         May sugar (#16 (U.S.)) rose 0.03 of a penny to 22.08 cents/lbs

 NYMEX Energy Closing Prices

·         Apr crude oil rose $0.65 to $98.91/barrel 

·         Apr natural gas rose 3 cents to $4.42/MMBtu 

·         Apr heating oil rose 2 cents to $2.94/gallon 

·         Apr RBOB rose  3 cents to $2.96/gallon

Treasuries

Treasuries See Strong Weekly Advance: 10-yr: -02/32..2.649%..USD/JPY: 101.34..EUR/USD: 1.3906
The Week in Review

·         Treasuries posted strong weekly gains as an escalation in Ukraine and continued worries over the health of the Chinese economy sparked a safety bid. Click here to see an intraweek yields chart.

·         Attention will turn to Crimea on Sunday as the region will hold a referendum to discuss whether its future will be as part of Ukraine or Russia. 

·         Many participants remain concerned about the Chinese economy as last week's "first" corporate bond default was followed by weak data out of the Middle Kingdom.

·         This week's data out of the U.S. was mixed as retail sales (0.3% actual v. 0.2% expected) exceeded estimates while Michigan Sentiment (79.9 actual v. 82.0 expected) missed and business inventories (0.4% actual v. 0.3% expected) posted a larger than anticipated build.

·         Auctions saw a mixed response.

·         Tuesday's $30 bln 3y note auction drew 0.802% (0.800% when issued) and a 3.25x bid/cover (3.31x 12-auction average). Indirect (29.9%) and direct (15.4%) bids were just below their 12-auction averages, leaving primary dealers with 44.7% of the supply.  

·         Wednesday's strong $21 bln 10y note reopening drew 2.729% (2.743% when issued) and a solid 2.92x bid/cover (12-auction average 2.68x). The reopening was supported by a strong direct takedown (27.5%), which helped offset the average indirect bid (43.4%). Primary dealers were left with just 29.1% of the supply. 

·         Thursday's $13 bln 30y bond reopening was somewhat disappointing, but hard to handicap as it came amid a safety bid that developed on Ukraine worries. The auction drew 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. 

·         This weeks buying had the biggest impact on yields of longer durations as the 7y, 10y, and 3y all saw declines of -12bps. 

·         Buying at the long end dropped the 30y to 3.587% as action posted its lowest close since the beginning of February. Traders will continue to monitor the 3.550% area into next week as a breakdown sets up a potential move towards 3.150%.

·         The 10y ended the week @ 2.645%, an almost two-week low. The conclusion of Friday's session saw the benchmark yield post its second consecutive close below the 200 dma, something that hadn't happened since the Fed began its taper talk back in early May.

·         The 5y shed -9bps over the course of the week, finishing @ 1.528%. The yield slipped back into the 1.450%/1.550% range that had been in place throughout February after last Friday's breakout proved to be false. 

·         Up front, the 2y slipped -3bps to 0.338%. Many will be watching the 0.300% area as support there dates back to the end of June. 

·         Aggressive buying flattened the yield curve with the 2-10-yr spread narrowing to 230.5bps.  

The Week Ahead 

·         Monday's data includes Empire Manufacturing (8:30), Net Long-Term TIC Flows (9), industrial production, capacity utilization (9:15), and the NAHB Housing Market Index (10). 

·         Tuesday will see housing starts, building permits, and CPI (8:30). 

·         Data continues to flow on Wednesday with the weekly MBA Mortgage Index (7) and current account balance (8:30). The FOMC concludes a two-day meeting with participants expecting another trim to its asset purchase program (14).  

·         Data concludes for the week on Thursday as initial and continuing claims (8:30), existing home sales, Philly Fed, and leading inventories (10) cross the wires. 

·         There is no data on Friday. STL's Bullard will take place in a discussion on "Debt and Incomplete Financial Markets: A Case for Nominal GDP" (11:45).

On other news.... 

News

·         Alibaba.com (ALBCF.PK) and Tencent (TCEHY) mobile payments have been halted by China central bank amid security concerns 

·         Bank of America (BAC) in court over $2.1 bln in fraud penalties, according to reports

·         Cisco Systems (CSCO) is being investigated by SEC and DoJ over Russia unit, according to reports 

·         Idenix Pharma (IDIX) files patent infringement lawsuits against Gilead Sciences (GILD) in Europe; granted European patent covering 2'-methyl-2'-fluoro nucleosides for treating hepatitis C virus

·         JPMorgan Chase's (JPM) Lee has left firm as US equity stagiest, according to reports

·         Trian Partners calls on PepsiCo (PEP) to provide analytical defense of its 'Power of One' strategy

·         Sales of new video games fell 11% in February, according to reports

Currencies

Dollar Readies for Lowest Close Since October: 10-yr: -02/32..2.648%..USD/JPY: 101.35..EUR/USD: 1.3902

·         The Dollar Index trades lower for the third time in four days with action on track to close at a four and a half-month low. Click here to see a daily Dollar Index chart.

·         The Index was hammered down to the 79.35 level following this morning's cooler than expected PPI data, but has spent the remainder of the session in an upward climb towards the 79.60 flat line. 

·         EURUSD is +35 pips @ 1.3905 as trade contends with its best close since October 2011. Traders are bracing for the Sunday evening open as markets will have to price in the results of the Crimea referendum and whether or not the region will be a part of Russia or Ukraine.Eurozone data is limited to CPI. 

·         GBPUSD is +10 pips @ 1.6635 as trade ticks higher for a third day amid a sloppy trade. Today's action spent the majority of the session testing 1.6600 support that has been in place for the past month as there was little response to the larger than anticipated trade deficit. 

·         USDCHF is -20 pips @ .8720 as action presses to a fresh 29-month low. This morning's cooler than anticipated PPI data failed to ignite a bid, allowing sellers to take control as the euro strengthened. 

·         USDJPY is -50 pips @ 101.35 as trade pushes lower for a fourth day. The current skid has action on track to close at its lowest level since the beginning of February with a breakdown of 101.00 putting the 200 dma (100.32) and parity in play. Notable were today's Bank of Japan minutes, which indicated growth and inflation remain on track to meet the central bank's targets. 

·         AUDUSD is -10 pips @ .9025 amid a mostly uneventful session. Trade has spent the entire session locked between .9000/.9050 as bulls and bears do battle at the key level. Australia's new motor vehicle sales are set to be released Sunday evening.

·         USDCAD is +30 pips @ 1.1100 as buyers attempt to recoup yesterday's losses. A lack of data and news out of Canada has kept traders focus elsewhere. Canada's foreign securities purchases are due out Monday.

Weekly Analysis
Week 1



Technical Updates

Briefing's Commentaries


Week in Review: Stocks Slump as Focus Turns Back to Ukraine 

The major averages began the new trading week on a slightly lower note with small caps leading the weakness. The Russell 2000 shed 0.3% while the S&P 500 slipped less than a point with six sectors ending in the red. Equity indices started the day in negative territory with only the Nasdaq (-0.04%) making a very brief appearance in the green. After sliding through the first hour of action, the major averages reversed and spent the remainder of the session climbing off their lows with help from the three top-weighted sectors. Health care and financials gained 0.4% and 0.04%, respectively, while technology (-0.1%) ended just below its flat line. Also contributing to the rebound was the energy sector, which added 0.2% even as crude oil fell 1.4% to $101.07/bbl. The S&P 500 tried to regain its flat line, but came up just short as the weakness among consumer discretionary (-0.4%), industrials (-0.5%), and materials (-0.1%) sectors kept a lid on the attempted rally.

Stocks finished the Tuesday session near their lows with the Russell 2000 (-1.0%) leading the slide. The S&P 500 lost 0.5% with nine sectors ending in the red. The key indices started the day with modest gains and spent the first two hours of action in the neighborhood of their flat lines. Although the early trade lacked clear sector leadership, that was overlooked due to the opening strength among heavily-weighted sectors like health care (-0.3%), technology (-0.2%), and consumer staples (unch). The relative strength of the three groups kept the market afloat in the early going considering they account for nearly 42.0% of the entire S&P 500. However, another influential sector—financials (-0.7%)—was a bit more reluctant and never pulled away from its flat line. Fittingly, the group was among the first to show weakness when the broader market slipped into the red while the other sectors followed suit.

On Wednesday, the market finished the session on a mixed note. The Nasdaq (+0.4%) and Russell 2000 (+0.3%) posted modest gains while the Dow Jones Industrial Average (-0.1%) finished in the red. For its part, the S&P 500 (+0.03%) settled just above its flat line. Stocks began the day in the red, but spent the first two hours of action in a steady climb off their lows. The cautious start took place amid broad-based weakness across major European markets where Germany's DAX, Great Britain's FTSE, and France's CAC all posted losses close to 1.0% apiece. In addition to the weakness in Europe, losses among major Asian indices also weighed on the early sentiment. On that note, markets in Japan, South Korea, and Hong Kong fell 2.6%, 1.7%, and 1.7%, respectively, while China's Shanghai Composite (-0.2%) outperformed.

The stock market ended the Thursday session near the 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.

Next Week In View





Economic Commentaries

Economic Summary: PPI turns negative; First look at March Michigan sentiment misses expectations
Economic Data Summary:

·         February PPI -0.1% vs Briefing.com consensus of 0.2%; January was 0.2%

·         February Core PPI -0.2% vs Briefing.com consensus of 0.1%; January was 0.2%

o    Final demand for goods rose 0.4% for a third consecutive month whereas final demand for services declined 0.3% in February. Excluding food and energy, overall core prices declined 0.2% in February after increasing 0.2% in January. The consensus expected these prices to increase 0.1%. In the services sector, trade prices fell 1.0% in February after increasing 0.1% in January. Margins received by wholesalers and retailers fell in February. Transportation prices fell for a second consecutive month, -0.2% in February vs. -1.1% in January. Focusing on the goods sector, a 0.9% increase in pharmaceutical preparations caused a significant amount of the 0.4% gain. Energy costs increased 0.5% in February after rising 0.3% in January. The increase was the result of a 4.6% gain in residential natural gas costs. Gasoline prices were down 1.1% in February, which was the second consecutive monthly decline. Food prices rose 0.6% in February, up from a 0.1% gain in January. 

·         March Michigan Sentiment 79.9 vs Briefing.com consensus of 82.0; Feb-Final was 81.6

o     Typically, sentiment levels move in tandem with the equity market, gasoline prices, unemployment, and media reports. There wasn't much movement in these areas when the first portion of the survey was given in March, which is why the sentiment indicator was expected to remain close to its February level. Given the large decline in equity prices yesterday, sentiment levels could dip much lower when the final numbers are released at the end of the month.

Upcoming Economic Data:

·         March Empire Manufacturing due out Monday at 8:30 (February was 4.5)

·         January Net Long Term TIC Flows due out Monday at 9:00 (December was -$45.9 bln)

·         February Industrial Production due out Monday at 9:15 (January was -0.3%)

·         February capacity Utilization due out Monday at 9:15 (January was 78.5%)

·         March NAHB Housing Market Index due out Monday at 10:00 (February was 46)

Upcoming Fed/Treasury Events:

·         Fed Vice Chair Stanley Fischer to speak tonight at 21:45

Other International Events of Interest

·         Britain's FTSE (-0.7%) outperforms its peers despite the larger than anticipated trade deficit (GBP9.8 bln actual v. GBP8.7 bln expected, GBP7.7 bln previous).

·         The latest Bank of Japan minutes showed the central bank believes growth and inflation remain on track with its targets and that the planned consumption tax due in April will not impede the progress that has been made

Jason's Commentaries

Friday was a very fat day. With Russells being the only gainer in the indices, we managed to hold the bottom for a while. Volumes were very low at 605m shares traded on the NYSE. I reckon the market is waiting for Crimea's vote to join Russia. As Russia vow to retaliate against EU for sanctioning them, the international tension is likely to intensify. Russia is one of the main producer of natural gas in the world. The instability in Russia is causing natural gas to spike 2.73% by 8am ET. With Crimea voting to go Russia, all futures were up more than 0.3% before market opens. Ahead of the FOMC statements, I believe that the market will be cautious and the big movements will likely come after Wednesday.

Market Call: FLAT to upside

Date: 17 March 2014