26 March 2014 AMC- Market dragged down by Financials, Industrials and Tech; Citi down 5% after Fed rejects capital plan

26 March 2014 AMC- Market dragged down by Financials, Industrials and Tech; Citi down 5% after Fed rejects capital plan

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: 0.0%

·         Germany's DAX: + 1.2%

·         France's CAC: + 0.9%

·         Spain's IBEX: + 1.5%

·         Portugal's PSI: + 0.9%

·         Italy's MIB Index: + 1.4%

·         Irish Ovrl Index: + 1.1%

·         Greece ATHEX Composite: + 0.2%

Before Market Opens

S&P futures vs fair value: +8.10. Nasdaq futures vs fair value: +21.50.
The S&P 500 futures trade eight points above fair value.

It was a sea of green across Asia as all of the major bourses, aside from China's Shanghai Composite (-0.2%), saw gains. The latest Reserve Bank of Australia Financial Stability Review warned that low rates cannot last forever, and coincided with a speech from RBA Governor Stevens that warned of the dangers of a continued increase in home prices.

Elsewhere, Japan Prime Minister Shinzo Abe's economic advisor reiterated that the government is ready to announce additional policy easing measures in mid-May if the consumption tax hike, scheduled for April, begins to weigh on the economy.

In regional data, South Korea's final GDP improved to 3.7% year-over-year (expected 3.9%, prior 3.4%) and Singapore's industrial production jumped 12.8% year-over-year (consensus 12.9%). 

·         Japan's Nikkei ticked up 0.4% amid a quiet trade. Exporters outperformed as Toyota added 1.1% and Sony tacked on 1.9%. 

·         Hong Kong's Hang Seng rose 0.7%, but surrendered the bulk of its early gains. Financials led as Bank of Communications and Bank of China climbed 3.3% and 2.5%, respectively. 

·         China's Shanghai Composite slipped 0.2%, holding near three-week highs. Property developers were among the laggards with China Vanke and Gree Real Estate both losing close to 1.5%. 

Major European indices hold gains across the board with Spain's IBEX (+1.7%) setting the pace. Among news of note, Bank of England Monetary Policy Committee Member Martin Weale said that the British economy is getting better with visible improvement in wages. Mr. Weale also said that interest rates will not remain at current record-low levels forever.

Economic data was limited. Germany's GfK Consumer Climate held steady at 8.5, as expected. Italian Retail Sales were unchanged month-over-month (consensus 0.4%, prior -0.3%) while the year-over-year reading fell 0.9% (expected -1.6%, previous -2.6%). Separately, Consumer Confidence improved to 101.7 from 97.7 (consensus 98.4). Elsewhere, Swiss Consumption Indicator increased to 1.57 from 1.49. 

·         Great Britain's FTSE is higher by 0.5% with financials trading in mixed fashion. Standard Life and Hargreaves Lansdown hold respective gains of 5.3% and 3.6% while Lloyds Banking Group holds a loss of 4.4% after the British government sold a 7.9% stake in the bank. 

·         In France, the CAC trades up 1.1%. Industrials outperform with Alstom, Lafarge, and Schneider Electric up between 1.8% and 2.0%. On the downside, GDF Suez is the lone decliner, trading lower by 0.7%. 

·         Germany's DAX holds an advance of 1.5% with all 30 components trading higher. Producers of basic materials lead with BASF, K+S, and ThyssenKrupp showing gains between 1.7% and 3.0%. 

·         Spain's IBEX leads the region with a gain of 1.7%. Bankia and CaixaBank trade higher by 3.2% and 4.1%, respectively.

U.S. Equities

·         Equity futures suggest solid gains at the open

·         Yesterday's bid ran the S&P 500 to within 0.6% of its record-high close

·         Durable orders (2.2% actual v. 1.0% expected)

·         Durable orders -ex transportation (0.2% actual v. 0.3% expected)

o    S&P Futures +7 @ 1866

o    Dow Futures +70 @ 16,368

o    Nasdaq Futures +18 @ 3642

Asia

·         It was a sea of green across Asia as all of the major bourses, aside from China's Shanghai Composite (-0.2%), saw gains

·         The latest Reserve Bank of Australia Financial Stability Review warned that low rates cannot last forever, and coincided with a speech from RBA Governor Stevens that warned of the dangers of a continued increase in home prices

·         South Korea's Final GDP improved to 3.7% YoY (3.4% YoY previous, 3.9% YoY expected)

·         Singapore's industrial production jumped 12.8% YoY (12.9% YoY expected) 

·         Thailand's trade deficit swung to a $1.77 bln surplus (-$2.5 bln previous)

·         Japan's Nikkei (+0.4%) ticked higher amid a quiet trade

·         Hong Kong's Hang Seng (+0.7%) surrendered the bulk of its early gains 

·         China's Shanghai Composite (-0.2%) held near three-week highs

·         India's Sensex (+0.2%) closed at all-time highs

·         Australia's ASX (+0.8%) climbed to its best level in almost two weeks

Market Internals

Market Internals -Technical-
The Nasdaq closed down 31 (-1.43%) at 4174, the S&P 500 closed down 13 (-0.7%) at 1853, and the Dow closed down 99 (-0.6%) at 16269. Action came on slightly above average volume (NYSE 738 mln vs. avg. of 731; NASDAQ 2292 mln vs. avg. of 2042), with decliners outpacing advancers (NYSE 1057/2081, NASDAQ 558/2118) and new highs outpacing new lows (NYSE 92/29, NASDAQ 55/35). 

Relative Strength: 
Turkey-TUR +4.18%, Sugar-SGG +3.17%, Volatility-VXX +1.83%, Livestock-COW +1.57%, Eastern Europe-ESR +1.54%, South Korea-EWY +1.33%, Chile-ECH +0.93%, Oil-USO +0.89%, 20+ Year Treasuries-TLT +0.78%, Columbia Index-GXG +0.78%.

Relative Weakness: 
Junior Gold Miners-GDXJ -5.64%, Clean Energy-PBW -4.92%, Gold Miners-GDX -4.04%, Cotton-BAL -3.62%, Silver Miners-SIL -3.24%, Vietnam-VNM -2.85%, Greece-GREK -2.6%, Sweden-EWD -1.45%, Israel-EIS -1.28%, Middle East and Africa-GAF -1.06%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Momentum Names Lead Stocks Lower
The major averages finished the Wednesday session on a cautious note with the S&P 500 falling 0.7%. The Dow Jones Industrial Average (-0.6%) outperformed while small caps bore the brunt of the pressure. The Russell 2000 declined 1.9% while the Nasdaq Composite fell 1.4%.

Equity indices began the day on an upbeat note, but the financial sector (-0.9%) served up an early warning by not taking part in the opening rally. One industry group that briefly participated in the early advance was the biotech space. The iShares Nasdaq Biotechnology ETF (IBB 235.09, -4.35) was up as much as 1.1% during the first hour of action, but faded from the early high, taking the market lower. Interestingly, the broader health care sector (+0.1%) finished the day ahead of the remaining nine groups.

Outside of the relative weakness in biotechnology, the lack of upward momentum in the likes of Amazon.com (AMZN 343.41, -11.30), Facebook (FB 60.38, -4.51), Priceline.com (PCLN 1188.77, -34.93), and Tesla (TSLA 212.96, -7.48) kept the tech-heavy Nasdaq behind the other indices. Facebook was the weakest performer out of the bunch, falling 6.9% after announcing the acquisition of Oculus VR for roughly $2 billion in cash and stock.

Staying on the technology theme, the maker of the "Candy Crush" game, King Digital Entertainment (KING 19.00, -3.50), had a forgettable market debut, falling 15.6% in its first session. Although the stock itself holds no sway over the broader market, the disappointing debut likely contributed to the defensive sentiment.

Elsewhere, another influential sector—industrials (-0.9%)—ended among the laggards as transports displayed broad weakness. The Dow Jones Transportation Average lost 1.6% after being unable to take out its 2014 closing high of 7592.36. All 20 index components posted losses with shipper Kirby (KEX 98.78, -3.71) leading the slide with a 3.6% loss.

Equities notwithstanding, the foreign exchange market also reflected a defensive posture as the Japanese yen strengthened, sending the dollar/yen pair below the 102.00 level.

Similarly, Treasuries rallied throughout the session while receiving a boost from a strong $35 billion 5-year note auction. The benchmark 10-yr yield fell five basis points to 2.69%.

With stocks ending on their lows, participants displayed demand for volatility protection, sending the CBOE Volatility Index (VIX 15.20, +1.18) higher by 8.4%.

Trading volume was a bit above average with nearly 738 million shares changing hands at the NYSE.

Today's economic data was limited to just two reports: 

·         Durable goods orders increased 2.2% in February after falling a downwardly revised 1.3% (from -1.0%) in January. The Briefing.com consensus expected durable goods orders to increase 1.0%. The upward headline surprise does not represent a strengthening in demand from the manufacturing sector. A 6.9% increase in transportation goods provided most of the increase in February demand. Much of that was already known, as Boeing (BA 123.53, -0.49) reported 74 aircraft orders in February, up from 38 in January. Altogether, defense and nondefense aircraft orders increased 15.2%. Excluding transportation, durable goods orders increased a minor 0.2% in January. That was down from a downwardly revised 0.9% (from 1.1%) increase in January. The consensus expected these orders to increase 0.3%. 

·         The weekly MBA Mortgage Applications Index fell 3.5% to follow last week's uptick of 0.2%. 

Tomorrow, weekly initial claims (Briefing.com consensus 330K) and the third estimate of Q4 GDP (consensus 2.6%) will be released at 8:30 ET while the Pending Home Sales report for February (expected -0.2%) will cross the wires at 10:00 ET. 

·         S&P 500 +0.2% YTD 

·         Nasdaq Composite -0.1% YTD 

·         Russell 2000 -0.6% YTD 

·         Dow Jones Industrial Average -1.9% YTD

Commodities

Closing Commodities: Gold Declines, But Manages To Stay Above $1300
Commodities ended mostly lower today. 

·         Metals all posted losses, excluding iron ore futures, which rose six cents to $111.61/ton 

·         Copper futures pulled back from a 2-week high as concerns in China remain. May copper closed 4 cents lower at $2.97/lb today 

·         Gold and silver sold off today. Apr gold managed to not break below $1300/oz and closed $7.80 lower at $1303.40/oz. May silver fell 21 cents to $19.77/oz. 

·         Crude oil climbed higher today to post another session of gains. In the last 12 minutes of pit trading, crude found more buyers, which pushed it back above $100/barrel and floor trading came to a close. May crude ended 67 cents higher at $100.24/barrel. 

·         Meanwhile, May natural gas lost 2 cents to finish at $4.39/MMBtu

COMEX Metals Closing Prices

·         Apr gold fell $7.80 to $1303.40/oz

·         May silver fell $0.21 to $19.77/oz

·         May copper fell 4 cents to $2.97/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         May corn fell 2 cents to $4.85/bushel

·         May wheat fell 12 cents to $6.97/bushel

·         May soybeans rose 13 cents to $14.40/bushel

·         Apr ethanol fell 3 cents to $2.95/gallon

·         May sugar (#16 (U.S.)) rose 0.19 of a penny to 22.08 cents/lbs

NYMEX Energy Closing Prices; crude oil rallied in the last 12 min of trade and pushed crude back above $100/barrel by the close

·         May crude oil rose $0.67 to $100.24/barrel

·         Apr natural gas fell 2 cents to $4.39/MMBtu (Nat gas was moved to May contract)

·         May heating oil settled unchanged at $2.91/gallon 

·         May RBOB rose 1 cent to $2.90/gallon

Treasuries

Strong 5y Auction Lifts Treasuries: 10-yr: +11/32..2.704%..USD/JPY: 102.04..EUR/USD: 1.3794

·         Treasuries closed on their highs, buoyed by today's strong $35 bln 5y note auction. Click here to see an intraday 5y chart.

·         The complex drifted little changed into this morning's durable orders (2.2% actual v. 1.0% expected) data, and caught a bid despite the headline beat as aircraft orders were responsible the bulk of the gains.

·         A steady bid continued into the lunchtime hour with action forming a floor into this afternoon's $35 bln 5y note auction. 

·         The auction drew 1.715% and a solid 2.99x bid/cover. Indirect (50.9%) and direct (23.1%) bidders saw takedowns well above their 12-auction averages, leaving primary dealers with just 26% of the supply and their lowest takedown on record. 

·         Post-data buying dropped yields to session lows, where they would hold for the remainder of the afternoon.

·         The 5y shed -4.4bps to finish the day @ 1.677%, a one-week low. The yield has spent much of the past week hovering near key trendline resistance off the September highs that lurks in the 1.725% area. 

·         The 10y settled -3.4bps @ 2.701%. Today's bid dropped the benchmark yield below its 50 dma with action settling on the 200 dma. The 2.600% level will be under close watch in the days ahead. 

·         At the long end, the 30y slipped -2.8bps to 3.551%, its lowest in almost two months. This area remains critical as a breakdown sets up the potential for a move into 3.150%. 

·         A flatter curve took hold as the 2-10-yr spread narrowed to 226bps. 

·         Precious metals ended on their lows with gold -$11 @ $1300 and silver -$0.28 @ $19.70. 

·         Data: Initial and continuing claims, GDP - Third Estimate (8:30), and pending home sales (10). 

·         Auction: $29 bln 7y notes.

·         Fed Speak: STL's Bullard remains in Hong Kong to discuss "What are the Prospects for U.S. Monetary Policy" (20:20). Chicago's Evans will be in Hong Kong, discussing the economy and monetary policy (21:30).

Next Day In View 

Economic Commentary

Economic Summary: Durable Goods orders top expectations; Q4-GDP Third Estimate due out tomorrow at 8:30
Economic Data Summary:

·         Weekly MBA Mortgage Applications -3.5% vs Briefing.com consensus of ; Last Week was -1.2%

·         February Durable Orders 2.2% vs Briefing.com consensus of 1.0%; January was -1.0%

·         February Durable Goods Ex-Transpiration 0.2% vs Briefing.com consensus of 0.3%; January was -1.1%

o    The upward headline surprise does not represent a strengthening in demand from the manufacturing sector. A 6.9% increase in transportation goods provided most of the increase in February demand. Much of that was already known, as Boeing (BA) reported 74 aircraft orders in February, up from 38 in January. Altogether, defense and nondefense aircraft orders increased 15.2%. Excluding transportation, durable goods orders increased a minor 0.2% in February. 

Upcoming Economic Data:

·         Weekly Initial Claims due out Weekly at 8:30 (Briefing.com consensus of 330K; Last Week was 320K)

·         Weekly Continuing Claims due out Weekly at 8:30 (Briefing.com consensus of 2.9 M ; Last Week was 2.889 M )

·         Fourth Quarter GDP- Third Estimate due out Fourth Quarter at 8:30 (Briefing.com consensus of 2.6%; Third Quarter was 2.4%)

·         Fourth Quarter GDP Deflator- Third Estimate due out Fourth Quarter at 8:30 (Briefing.com consensus of 1.6%; Third Quarter was 1.6%)

·         February Pending Home Sales due out February at 10:00 (Briefing.com consensus of -0.2%; January was 0.1%)

Upcoming Fed/Treasury Events:

·         Cleveland Sandra Pianalto (voting FOMC member, typically dovish) to speak tomorrow at 8:30

·         Saint Louis Fed President James Bullard (not a voting FOMC member, dovish) to speak tomorrow at 20;20

·         Chicago Fed President Charlie Evans (not a voting FOMC member, dovish) to speak tomorrow at 21:30

Other International Events of Interest

·         The latest Reserve Bank of Australia Financial Stability Review warned that low rates cannot last forever, and coincided with a speech from RBA Governor Stevens that warned of the dangers of a continued increase in home prices

On other news.... 

Fed announces second round of CCAR results

·         The Federal Reserve on Wednesday announced it has approved the capital plans of 25 bank holding companies participating in the Comprehensive Capital Analysis and Review (CCAR). The Federal Reserve objected to the plans of the other five participating firms--four based on qualitative concerns and one because it did not meet a minimum post-stress capital requirement.

·         Strong capital levels help ensure that banking organizations have the ability to lend to households and businesses and to continue to meet their financial obligations, even in times of economic difficulty. Now in its fourth year, the Federal Reserve in CCAR evaluates the capital planning processes and capital adequacy of the largest bank holding companies, including the firms' proposed capital actions such as dividend payments and share buybacks and issuances.When considering an institution's capital plan, the Federal Reserve considers both qualitative and quantitative factors. These include a firm's capital ratios under severe economic and financial market stress and the strength of the firm's capital planning process. After the Federal Reserve objects to a capital plan, the institution may only make capital distributions with prior written approval from the Federal Reserve.

·         "The Federal Reserve's annual capital plan assessment provides a structured and comparative way to promote and assess the capacity of large bank holding companies to understand and manage their capital positions," Federal Reserve Gov. Daniel Tarullo said. "With each year we have seen broad improvement in the industry's ability to assess its capital needs under stress and continuing improvements to the risk-measurement and -management practices that support good capital planning. However, both the firms and supervisors have more work to do as we continue to raise expectations for the quality of risk management in the nation's largest banks."The Federal Reserve can object to a capital plan based on qualitative or quantitative concerns, or both. The Federal Reserve can require a new capital plan from an institution outside of the annual review at any time if there is a material change in the condition of an individual institution or in the economy or financial markets that could potentially lead to a change in a firm's capital position.

·         The Federal Reserve did not object to the capital plans for Ally Financial Inc.; American Express Company; Bank of America Corporation; The Bank of New York Mellon Corporation; BB&T Corporation; BBVA Compass Bancshares, Inc.; BMO Financial Corp.; Capital One Financial Corporation; Comerica Incorporated; Discover Financial Services; Fifth Third Bancorp; The Goldman Sachs Group, Inc.; Huntington Bancshares Incorporated; JP Morgan Chase & Co.; Keycorp; M&T Bank Corporation; Morgan Stanley; Northern Trust Corporation; The PNC Financial Services Group, Inc.; Regions Financial Corporation; State Street Corporation; SunTrust Banks, Inc.; U.S. Bancorp; UnionBanCal Corporation; and Wells Fargo & Company. 

·         Bank of America Corporation and The Goldman Sachs Group, Inc., met minimum capital requirements after submitting adjusted capital actions.

·         Based on qualitative concerns, the Federal Reserve objected to the capital plans of Citigroup Inc.; HSBC North America Holdings Inc.; RBS Citizens Financial Group, Inc.; and Santander Holdings USA, Inc. 

o    The Federal Reserve objected to the capital plan of Zions Bancorporation because the firm did not meet the minimum, post-stress tier-1 common ratio of 5 percent.U.S. firms have substantially increased their capital since the first set of government stress tests in 2009. 

·         The aggregate tier 1 common equity ratio, which compares high-quality capital to risk-weighted assets, of the 30 bank holding companies in the 2014 CCAR has more than doubled from 5.5 percent in the first quarter of 2009 to 11.6 percent in the fourth quarter of 2013, reflecting an increase in tier 1 common equity of more than $511 billion to $971 billion during the same period.That trend is expected to continue. 

o    All but two of the 30 participants in this year's CCAR are expected to build capital from the second quarter of 2014 through the first quarter of 2015. In the aggregate, the firms are expected to distribute 40 percent less than their projected net income during the same period. The 30 institutions in CCAR this year have a combined $13.5 trillion in assets, or approximately 80 percent of all U.S. bank holding company assets.

Currencies 

Dollar Hovers Little Changed: 10-yr: +11/32..2.700%..USD/JPY: 101.95..EUR/USD: 1.3788

·         The Dollar Index trades little changed as action hovers near the 80.00 level. Click here to see a daily Dollar Index chart.

·         The Index has been bid throughout the session, aside from a quick dip into the red in recent trade. 

·         EURUSD is -40 pips @ 1.3785 as sellers remain in control for a second session. Today's weakness has the single currency looking at another test of 1.3750 support, which has held up since the middle of February. Eurozone data due out tomorrow includes M3 money supply and private loans. 

·         GBPUSD is +35 pips @ 1.6565 as steady buying persists for a third session. An early afternoon bid lifted the pair to 1.6600 resistance, but sellers emerged at the level and have managed to push action back down to the 50 dma (1.6565). British data out tomorrow is limited to retail sales. 

·         USDCHF is +20 pips @ .8845 as action continues to press resistance in the area. The pair has struggled at the .8875 area for much of the past week, but buyers remain steadfast in their efforts to retake the level. The .8950 region remains key as both the 50 and 100 dma aid resistance in the area.

·         USDJPY is -25 pips @ 102.00 as action presses to a one-week low. The 102.50 area has been problematic for bulls as of late as action has tested the level in each of the last six sessions. Attention now turns to the lower end of the range near 101.50. 

·         AUDUSD is +70 pips @ .9225 as trade holds at four-month highs. Today's advance in the hard currency was sparked by the latest Reserve Bank of Australia Financial Stability Report and comments by RBA Governor Glenn Stevens, both of which suggested rates cannot stay low forever and warned on the level of home prices. The .9300 area provides the next level of resistance. 

·         USDCAD is -55 pips @ 1.1110 as sellers remain in charge for a fourth day. The skid has dropped action onto support in the 1.1100 area, which is aided by the 50 dma.

Jason's Commentaries


It has been increasingly difficult to read the market. Right now, the market has been in a very volatile state, having a one up day, one down day thing again. The market started last night with a lot of divergence once again. And right after the huge spike at the opening bell, the market started to sell against the market makers and push the market all the way down. By lunch time, the market decided to break down even further. The main laggard of the day is the Tech then Financials then industrials. However, if you look at the bigger picture. IT"S ALL RED. While looking at the internals, volumes are at 751.3m shares traded. Suggesting that there are a lot of commitment right now and the internals were favoring the bears. Moreover, looking at the internals, we have the Russells and Nasdaq breaking down from it's trendline.  It's time to go short time bear! S&P500 and Dow remained lagged as well. Nonethless, I'm turning bear for this short term. Especially China is producing so much unfavourable news that could drag down Asia. Stay safe, stay bear people!

Market Call: DOWN

Date: 27 March 2014