25 March 2014 AMC- Market held up by IBM as rallied 3.6%

25 March 2014 AMC- Market held up by IBM as rallied 3.6%

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: + 1.3%

·         Germany's DAX: + 1.6%

·         France's CAC: + 1.6%

·         Spain's IBEX: + 0.8%

·         Portugal's PSI: + 0.8%

·         Italy's MIB Index: + 1.0%

·         Irish Ovrl Index: + 1.6%

·         Greece ATHEX Composite: Closed

Before Market Opens

S&P futures vs fair value: +7.30. Nasdaq futures vs fair value: +17.70.
The S&P 500 futures trade seven points above fair value.

The major Asian markets finished mostly lower. Hong Kong's trade deficit exploded to HKD53.70 billion from HKD20.00 billion while the Philippines' trade deficit widened to $1.38 billion from $695 million. 

·         Japan's Nikkei lost 0.4%, slipping on low volume as sellers flexed their muscles into the end of the business year. Heavyweight Softbank weighed, shedding 3.2%. 

·         Hong Kong's Hang Seng pulled back 0.5% after two days of solid gains. Casino-related names were weak as Sands China and Galaxy Entertainment gave up 1.5% and 1.8%, respectively. 

·         China's Shanghai Composite eked out a gain of 0.1%. Financials led some late-day weakness with China Citic Bank sliding 2.5% to lead the sector's decline. 

Major European indices trade higher across the board with Germany's DAX +1.6% in the lead. Participants received several data points. Germany's Ifo Business Climate Index slipped to 110.7 from 111.3 (consensus 111.0) as Business Expectations declined to 106.4 from 108.3 (expected 107.6) while Current Assessment improved to 115.2 from 114.4 (forecast 114.6). Great Britain's CPI increased 1.7% year-over-year (expected 1.7%, prior 1.9%) while the month-over-month reading rose 0.5% (consensus 0.5%, last -0.6%). Separately, input PPI slipped 0.4% month-over-month (forecast 0.3%, previous -0.9%) while the CBI Distributive Trades Survey fell to 13 from 37 (expected 28). French Business Survey held at 100, as expected. Spain's PPI fell 2.9% year-over-year (consensus -1.9%, prior -1.9%). Italy's non-EU trade balance swung from a deficit of EUR900 million to a surplus of EUR1.42 billion.

Among news of note, Bundesbank President Jens Weidmann said that a discussion about the costs and benefits of a bond-buying program is needed, indicating the ECB Governing Council member may be open to a quantitative easing program. 

·         Great Britain's FTSE is higher by 1.2% with consumer names trading mixed. EasyJet, Kingfisher, and Travis Perkins hold gains between 2.9% and 6.7% while British Sky Broadcasting, J Sainsbury, and WM Morrison Supermarkets display losses between 0.5% and 1.3%. 

·         In France, the CAC trades up 1.5% as consumer stocks outperform. Danone, Sanofi, and L'Oreal are all up close to 1.7% apiece. On the downside, hotel operator Accor is the lone decliner, down 0.3%. 

·         Germany's DAX sports an advance of 1.6% with health care in the lead. Bayer, Henkel, Fresenius Medical Care, and Merck hold gains between 1.6% and 3.7%. Steelmaker ThyssenKrupp lags, trading lower by 0.5%.

U.S. Equities

·         Equity futures suggest a firm open

·         Yesterday's selling dropped the Nasdaq to its lowest level in one and a half months

o    S&P Futures +8 @ 1858

o    Dow Futures +75 @ 16,277

o    Nasdaq Futures +16 @ 3627

Asia

·         Markets finished lower across most of Asia

·         Hong Kong's trade deficit exploded to HKD53.7 bln (HKD20.0 bln previous)

·         The Philippines' trade deficit widened to $1.38 bln ($695 mln previous)

·         Japan's Nikkei (-0.4%) slipped on low volume as sellers flexed their muscles into the end of the business year

·         Hong Kong's Hang Seng (-0.5%) pulled back after two days of solid gains

·         China's Shanghai Composite (+0.1%) eked out a gain

·         India's Sensex (UNCH) remained at all-time highs

·         Australia's ASX (-0.2%) withstood another test of the 50 and 100 dma

Market Internals

Market Internals -Technical-
The Dow closed up 91 (+0.56%) at 16368, the S&P 500 closed up 8 (+0.44%) at 1866, and the Nasdaq closed up 8 (+0.19%) at 4234. Action came on mixed volume (NYSE 631 mln vs. avg. of 730; NASDAQ 2127 mln vs. avg. of 2014), with advancers outpacing decliners (NYSE 1819/1274, NASDAQ 1328/1312) and new highs outpacing new lows (NYSE 85/15, NASDAQ 41/19).

Relative Strength: 
Middle East and Africa-GAF +3.47%, Cotton-BAL +3.47%, Russia-RSX +3%, Natural Gas-UNG +2.63%, Eastern Europe-ESR +2.53%, Copper Miners-COPX +2.52%, Turkey-TUR +2.28%, Junior Gold Miners-GDXJ +2.15%, South Africa-EZA +2.09%, Copper-JJC +1.85%.

Relative Weakness: 
Livestock-COW -1.73%, Vietnam-VNM -1.5%, Volatility-VXX -1.26%, Retail-XRT -1.03%, Social Media-SOCL -0.89%, Broker-Dealers-IAI -0.77%, Egypt-EGPT -0.25%, Swiss Franc-FXF -0.16%, Japanese Yen-FXY -0.08%, Chinese Yuan-CYB -0.08%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stock Market Benefits from Blue Chip Boost
The major indices strung together some modest gains on Tuesday on the back of some strong showings from blue-chip issues and a volatile rebound effort by the beaten-down biotechnology stocks.

The move followed on the heels of a strong outing by major European bourses, which shot up largely in response to some remarks from Bundesbank head, Jens Weidmann, who suggested it was not out of the realm of possibility for the ECB to implement a QE-type program to fight deflation. It would be remiss not to add that ECB President Draghi spoke later in the day and said the ECB is not currently seeing any evidence of deflation.

Mr. Draghi's viewpoint helped the euro recover a good portion of overnight losses, but his view did not lead to a major trend reversal in the US stock market.

There were indeed bouts of trading volatility in today's session. The iShares Nasdaq Biotechnology ETF (IBB 239.44, +0.21) was the standard bearer in that respect as it saw a 4.0% range between its intraday high and intraday low. The ETF, which had dropped as much as 11% over the preceding four sessions, gained just 0.1% on Tuesday. The roller-coaster action in that closely-watched and widely-chased sector kept a lid on things for the Nasdaq Composite, which trailed the blue-chip laden Dow Jones Industrial Average and S&P 500.

Strikingly, it was Big Blue itself -- IBM (IBM 195.04, +6.79) -- that carried the day for the broader market. It surged 3.6% on a few announcements detailing new business activity, yet we suspect it was also accorded a low-beta premium in an environment of late that has featured some material hiccups for high-beta momentum stocks. IBM led all Dow components; however, the blue chip bias was also evident in fellow components like Johnson & Johnson (JNJ 97.38, +2.18), Caterpillar (CAT 98.59, +1.74), Merck (MRK 55.19, +1.41), 3M (MMM 134.06, +1.64), and United Technologies(UTX 115.20, +1.45).

Today's gains were broad-based in nature. Nine out of ten S&P 500 sectors closed the day with a gain. The lone loser was the consumer discretionary sector (-0.6%), which was held back by a relatively weak showing from the apparel and media stocks. Some disappointing second quarter and full-year earnings guidance from Carnival Corp. (CCL 38.02, -1.98) also weighed on the sector.

Notwithstanding the broad-based gains, the financial sector (+0.01%) was a notable underperformer in Tuesday's trading as JPMorgan Chase (JPM 60.93, -0.14), Goldman Sachs (GS 163.25, -2.47), Bank of America (BAC 17.21, -0.16), and Morgan Stanley (MS 31.59, -0.85) all traded lower. Leadership from the industrial (+0.9%), energy (+0.8%), and health care (0.8%) sectors, though, provided an influential offset.

There was a round of economic data today that revolved largely around the housing sector: 

·         The January Housing Price Index from the FHFA increased 0.5%, which followed a revised uptick of 0.7% observed during the prior month. 

·         The Case-Shiller 20-city Home Price Index for January rose 13.2% while a 13.3% increase had been expected by the Briefing.com consensus. This followed the previous month's increase of 13.4%. 

·         New home sales declined 3.3% in February to 440,000 from a downwardly revised 455,000 (from 468,000) in January. The Briefing.com consensus expected sales to fall to 445,000. Commentators will likely point out that the drop in sales was the result of extreme winter conditions, but sales actually increased 36.7% in the frigid Midwest and fell 15.9% in the West. In actuality, sales are running a little ahead of the 12-month average with the drop in February resulting from normal volatility. 

·         The Conference Board's Consumer Confidence Index strengthened in March. The index increased to 82.3 from an upwardly revised 78.3 (from 78.1) in February. The Briefing.com consensus pegged the index at 78.2. The reading put confidence levels at the highest point since January 2008. Typically, confidence levels trend with unemployment, gasoline prices, and the equity market. The increase in volatility in the equity market over the past few weeks did nothing to harm confidence. Instead, consumers relied on more favorable employment conditions.

The stock market seemed to divorce itself from the data on Tuesday, following instead the path of activity in the biotech sector and leading blue chip issues.  Similarly, the Treasury market rocked back and forth between negative and positive territory before ending modestly lower at the cash settlement.

On a related note, the $32 bln 2-yr note auction went okay, drawing a high yield of 0.469% (0.471% when issued) and a 3.20 bid-to-cover ratio.  The latter was below the 12-auction average, but there was strong demand from indirect bidders who accounted for 40.9% of the allotment versus a 12-auction average of 25.7%.

A $35 bln 5-yr note auction will be held on Wednesday.  In addition, the economic calendar will feature the latest reading for the mortgage applications index and February data for durable goods orders (Briefing.com consensus +1.0%).

·         Dow Jones Industrial Average -1.24% YTD

·         Nasdaq Composite +1.4% YTD

·         S&P 500 +0.9% YTD

·         Russell 2000 +1.3% YTD

·         S&P 400 Midcap Index +2.2% YTD

Commodities

COMEX Metals Closing Prices

  Apr gold fell $0.20 to $1311.20/oz 

·         Gold rose to a session high of $1316.60 after touching a session low of $1306.20 in early morning pit trade. However, the yellow metal pulled back towards the unchanged line and settled 20 cents lower. 

  May silver fell $0.09 to $19.98/oz

·         Silver see-sawed between positive and negative territory today, touching a session high of $20.17 after trading as low as $19.92 in early morning action. It eventually settled with a 0.4% loss.

  May copper rose 6 cents to $3.01/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         May corn fell 4 cents to $4.87/bushel ·         May wheat fell 4 cents to $7.09/bushel ·         May soybeans rose 1 cent to $14.27/bushel  ·         Apr ethanol rose 1 cent to $2.98/gallon ·         May sugar (#16 (U.S.)) rose 0.01 of a penny to 21.89 cents/lbs

NYMEX Energy Closing Prices

  May crude oil fell $0.39 to $99.18/barrel 

·         Crude oil rose to a session high of $100.25 after trading as low as $98.80 in morning action. However, the energy component retreated back into negative territory and settled with a 0.4% loss. 

  Apr natural gas rose 13 cents to $4.41/MMBtu 

·         Natural gas, on the other hand, trended higher after lifting from its session low of $4.36. It settled just below its session high of $4.42, booking a gain of 3.0%. 

  May heating oil rose 1 cent to $2.92/gallon 

  May RBOB fell 1 cent to $2.88/gallon

Treasuries

Treasuries Pare Early Losses, Settle Little Changed: 10-yr: -04/32..2.745%..USD/JPY: 102.29..EUR/USD: 1.3826

·         Treasuries finished little changed, paring their early losses. Click here to see an intraday yields chart.

·         The complex hovered flat into the onset of U.S. trade before some modest selling dropped action onto the lows ahead of the mixed consumer confidence (82.3 actual v. 78.2 expected) and new home sales (440K actual v. 445K expected) data. 

·         Maturities would mark their lows as the data crossed the wires, and saw steady buying into the average $32 bln 2y note auction. 

·         The auction drew 0.469% (0.471% when issued) and a 3.20x bid/cover. A strong indirect bid (40.9%) provided support as directs (21.5%) saw an average takedown. Primary dealers ended with 37.6% of the supply. 

·         The complex saw little reaction to the in-line auction with maturities trading in a tight range near their respective flat lines for the remainder of the session. 

·         After days of lagging, the 5y outperformed, slipping -1.3bps to 1.721%. The early weakness ran the 5y up to nearly 1.750%, but trade slipped back below the important 1.725% level by the cash close as buyers were not ready to throw in the towel. That area will remain under close watch in the days ahead. 

·         The 10y ended +0.2bps @ 2.735%. Action closed on the 50 dma for a second straight session, but most participants remain more concerned with the 2.700% pivot area as the 200 dma lurks in the vicinity. A flush through that level puts the important 2.600% area in the cross hairs. 

·         At the long end, the 30y edged up +0.7bps to 3.579%. The 3.550% level continues to be of the utmost importance as a breakdown sets up for a potential slide into the 3.150% region. 

·         A steeper yield curve developed as the 2-10-yr spread widened to 230.5bps. 

·         Precious metals ended mixed with gold +$1 @ $1312 and silver -$0.08 @ $19.98. 

·         Data: MBA Mortgage Index (7) and durable orders (8:30). 

·         Auction: $35 bln 5y notes. 

·         Fed Speak: STL's Bullard travels to Hong Kong to participate in a panel on "Central Banks - Will Policy Making Ever be Conventional Again?" (11:45).

Next Day In View 

Economic Commentary

Economic Summary: Consumer Confidence easily tops expectations; New Home sales misses estimates; Plosser says the Fed should focus on econ data, not specific dates
Economic Data Summary:

·         January Case Schiller 20 City Index 13.2% vs Briefing.com consensus of 13.3%; December was 13.4%

·         January FHFA Housing Price Index 0.5% (December was revised to 0.7% from 0.8%)

·         March Consumer Confidence 82.3   vs Briefing.com consensus of 78.2; February was revised to 78.3 from 78.1

o    Confidence is at its highest level since January 2008. Typically, confidence levels trend with unemployment, gasoline prices, and the equity market. The increase in volatility in the equity market over the past few weeks did nothing to harm confidence. Instead, consumers relied on more favorable employment conditions. 

·         February New Home Sales 440K  vs Briefing.com consensus of 445K; January was revised to 455K 468K

o    Commentators will likely point out that the drop in sales was a result of extreme winter conditions. Yet, sales actually increased 36.7% in the frigid Midwest and fell 15.9% in the West. In actuality, sales are running a little ahead of the 12-month average. 

Fed/Treasury Events Summary:

·         Philadelphia Fed President Charles Plosser (voting FOMC member, hawkish) on CNBC said '6 month' comment by Yellen was not unreasonable and was in line with private surveys; however he said that Fed should focus on econ data not specific dates and time frames; was asked when QE will end; said if the Fed maintains present course, QE will end sometime around November; notes Fed still data dependent; said Fed may have to raise rates at a faster pace if market response gets ahead of the Fed; said prefers gradual rate increases.

Upcoming Economic Data:

·         Weekly MBA Mortgage Applications due out Wednesday at 7:00 (Briefing.com consensus of ; Last Week was -1.2%)

·         February Durable Orders due out Wednesday at 8:30 (Briefing.com consensus of 1.0%; January was -1.0%)

·         February Durable Goods Ex-Transporation due out Wednesday at 8:30 (Briefing.com consensus of 0.3%; January was -1.1%)

Upcoming Fed/Treasury Events:

·         Atlanta Fed President Dennis Lockhart (not a voting FOMC member, typically moderate) to speak today at 16:00

·         Philadelphia Fed President Charles Plosser (voting FOMC member, typically hawkish) to speak today at 19:00

·         The Treasury is scheduled to auction off new debt this week. The results of each auction will be announced at 13:00

o    Tuesday; $32 bln in 2 year notes

o    Wednesday: $35 bln n 5 year nots

o    Thursday: $29 bln in 7 year notes

Other International Events of Interest

·         Germany's Ifo Business Climate Index slipped to 110.7 from 111.3 (consensus 111.0) as Business Expectations declined to 106.4 from 108.3 (expected 107.6) while Current Assessment improved to 115.2 from 114.4 (forecast 114.6). 

·         Great Britain's CPI increased 1.7% year-over-year (expected 1.7%, prior 1.9%) while the month-over-month reading rose 0.5% (consensus 0.5%, last -0.6%). Separately, input PPI slipped 0.4% month-over-month (forecast 0.3%, previous -0.9%) while the CBI Distributive Trades Survey fell to 13 from 37 (expected 28). 

On other news.... 

Currencies 

Dollar Hovers Flat: 10-yr: -01/32..2.732%..USD/JPY: 102.22..EUR/USD: 1.3825

·         The Dollar Index trades little changed near 79.95. Click here to see a daily Dollar Index chart.

·         The Index saw steady buying over the course of the morning lift action up to the 80.25 level before taking a nosedive to 79.85 after some hawkish commentary from ECB head Marion Draghi. 

·         EURUSD is -10 pips @ 1.3825 as trade has erased most of its early losses. This morning's disappointing German Ifo Business Climate, coupled with dovish commentary from both Bundesbank President Weidmann and ECB member Makuch, dropped the single currency into 1.3750 support. However, an aggressive bid developed after ECB President Mario Draghi suggested there was no evidence of deflation in region. Action is now testing resistance in the 1.3850 area. Eurozone data out tomorrow is limited to GfK German Consumer Climate. 

·         GBPUSD is +30 pips @ 1.6525 as trade ticks higher for a second session after five days of losses. Sterling has seen a steady bid throughout the U.S. session as traders move back into risk assets. Bulls must be mindful of the 50 dma (1.6560) and resistance in the 1.6600 area. 

·         USDCHF is +20 pips @ .8825 as afternoon weakness has action fighting to hold the lows. The pair marked session highs near .8880 as Mario Draghi was beginning to speak in Paris, but quickly came under pressure as the euro began to strengthen and sellers defended resistance. A breakdown of .8800 puts the March lows (.8725) in jeopardy. 

·         USDJPY is +5 pips @ 102.25 amid another uneventful session. Trade has spent the past week contending with the key 102.50 level that is helped by both the 50 and 100 dma, but sellers have so far managed to hold their own. A move back below 102.00 puts the lower end of the range back in play. 

·         AUDUSD is +45 pips @ .9170 as trade looks for its best close in three and a half months. Today's bid has run the hard currency through its 200 dma (.9135) with the ability to hold the breakout setting up a run into the .900/.9350 area. The latest Reserve Bank of Australia Financial Stability Review will be released tonight. RBA Governor Glenn Stevens will speak in Hong Kong. 

·         USDCAD is -30 pips @ 1.1160 as sellers remain in control for a third day. The current skid has the pair nearing a test of support in the 1.1500 area.

Jason's Commentaries


It's isn't as bullish as it seems... When I saw Dow and S&P500 up more than 0.4%, it's definitely something amiss. IBM, HQ, Cisco, Johnson and Johnson, Merck were the main guys that pushed all the indices up. But if you were to look at the broader spectrum, it's definitely not as bullish. Financials were performing terribly with BoA, Goldman Sachs and Morgan Stanley in the red. While looking at the market internals, it's apparent that the market were more to the flat side. There have been divergent signs happening. In the volatile period, the market is likely to seek some direction. 

China has been continuing to weaken as PMI contracted once again, bank run happened to 2 banks in China, where China is looking to roll out some deposit insurance. China might be heading for an implosion. Anything in all, if Asia goes down, I highly doubt the westerners will be any better off. 

Market Call: FLAT

Date: 26 March 2014