3 Mar 2014 AMC - Market sunk worst since 4 Feb due to Russia-Ukraine conflict

3 Mar 2014 AMC - Market sunk worst since 4 Feb due to Russia-Ukraine conflict

Market Summary 

European Markets Closing Prices

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

• UK's FTSE: -1.5%
• Germany's DAX: -3.4%
• France's CAC: -2.7%
• Spain's IBEX: -2.3%
• Portugal's PSI: -2.6%
• Italy's MIB Index: -3.3%
• Irish Ovrl Index: -2.3%
• Greece ATHEX Composite: Closed

Before Market Opens

U.S. Equities

• Futures point to a heavy open as Russia's aggression in Ukraine has sparked selling around the world
• The weakness comes after Friday's gains catapulted the S&P 500 to a record-high close and the Nasdaq to its best level in almost 15 years
• Personal income (0.3% actual v. 0.3% expected)
• Personal spending (0.4% actual v. 0.1% expected)
• PCE Prices - Core (0.1% actual v. 0.1% expected)

• S&P Futures -17 @ 1840
• Dow Futures -126 @ 16,181
• Nasdaq Futures -35 @ 3660

Asia

• The major Asian bourses ended mostly lower as Russia's aggression in Ukraine caused some turbulence 
• Chinese data was heavy as HSBC Final Manufacturing PMI ticked up to 48.5 (48.5 expected, 48.3 previous) while Non-Manufacturing PMI climbed to 55.0 (53.4 previous) Manufacturing PMI was in-line at 50.2 (50.5 previous)
• Japan's capital spending (4.0% QoY actual v. 5.1% QoY expected) fell short of expectations
• India's HSBC Manufacturing PMI improved to 52.5 (51.4 previous)
• Australia's HIA New Home Sales climbed 0.5% MoM and ANZ Job Advertisements advanced 5.1% MoM. Not all the data was impressive as company operating profits missed (1.7% QoQ actual v. 2.3% QoQ expected) 
• Japan's Nikkei (-1.3%) fell to its lowest level in one and a half weeks
• Hong Kong's Hang Seng (-1.5%) finished on its 200 dma
• China's Shanghai Composite (+0.9%) gained for a fourth straight day
• India's Sensex (-0.8%) lost for the first time in six sessions

S&P futures vs fair value: -17.70. Nasdaq futures vs fair value: -34.30.
The S&P 500 futures trade 18 points below fair value.

The major Asian bourses ended mostly lower as Russia's aggression in Ukraine caused some turbulence. Chinese data was heavy as HSBC Final Manufacturing PMI ticked up to 48.5 (48.5 expected, 48.3 previous) while Non-Manufacturing PMI climbed to 55.0 (53.4 previous). Manufacturing PMI was in-line at 50.2 (50.5 previous). Elsewhere, Japan's capital spending (4.0% year-over-year versus 5.1% year-over-year expected) fell short of expectations while India's HSBC Manufacturing PMI improved to 52.5 from 51.4. Also of note, Australia's HIA New Home Sales climbed 0.5% month-over-month and ANZ Job Advertisements advanced 5.1% month-over-month. Not all the data was impressive as company operating profits missed (1.7% quarter-over-quarter versus 2.3% expected). 

• Japan's Nikkei lost 1.3%, falling to its lowest level in one and a half weeks. Exporters were weak as Toyota Motor shed 1.1 % and Suzuki Motor gave up 1.5%. 
• Hong Kong's Hang Seng slid 1.5%, finishing on its 200-day moving average. Property developers lagged as China Overseas Land & Investment and China Resources Land surrendered 3.8% and 3.3%, respectively. 
• China's Shanghai Composite rose 0.9%, gaining for a fourth straight day. Energy shares led the advance as Sinopec surged 7.5% and PetroChina climbed 1.2%. 

European indices trade lower across the board with Germany's DAX (-2.8%) seeing the largest decline as the region reacts to the latest developments in the Ukraine. Participants received a handful of economic data points. Eurozone Manufacturing PMI ticked up to 53.2 from 53.0 (53.0 expected). Germany's Manufacturing PMI rose to 54.8 from 54.7 (54.7 consensus). Great Britain's Manufacturing PMI improved to 56.9 from 56.7 (56.5 expected) and BoE Consumer Credit increased GBP0.66 billion (GBP0.70 billion consensus, GBP0.58 billion prior). French Manufacturing PMI rose to 49.7 from 48.5 (48.5 expected). Italy's Manufacturing PMI slipped to 52.3 from 53.1 (52.8 consensus).

Among news of note, European Central Bank President Mario Draghi commented on price trends in the region, saying the Eurozone is not in deflation and that consumers have not been postponing plans for expenditures. 

• Great Britain's FTSE is lower by 1.5% with financials on the defensive. Aberdeen Asset Management and Royal Bank of Scotland hold respective losses of 4.0% and 2.7%. On the upside, miners Fresnillo (+0.8%) and Randgold Resources (+3.6%) outperform. 
• In France, the CAC holds a loss of 2.2% as all 40 components register losses. Financials underperform with Societe Generale trading lower by 6.1%. Defensive names have held up relatively well. L'Oreal and Orange display losses close to 0.7% apiece. 
• Germany's DAX trades down 2.8% with 29 of 30 components in the red. Commerzbank leads the decline with a loss of 4.3%. On the upside, utility network operator RWE is higher by 0.5%.

Market Internals

Market Internals -Technical-
The Dow closed down 154 (-0.94%) at 16168, the S&P 500 closed down 14 (-0.74%) at 1846, and the Nasdaq closed down 31 (-0.72%) at 4277. Action came on mixed volume (NYSE 671 mln vs. avg. of 709; NASDAQ 1942 mln vs. avg. of 1901), with decliners outpacing advancers (NYSE 1065/2028, NASDAQ 973/1642) and new highs outpacing new lows (NYSE 84/20, NASDAQ 68/20).

Relative Strength:
Coffee-JO +10.12%, Volatility-VXX +5.49%, Agriculture-DBA +2.52%, Lithium-LIT +2.3%, Oil-USO +2.12%, Thailand-THD +0.92%, New Zealand-ENZL +0.51%, Japanese Yen-FXY +0.4%, Australian Dollar-FXA +0.08%.

Relative Weakness:
Eastern Europe-ESR 7%, Russia-RSX 6.87%, Poland-EPOL 6.49%, Egypt-EGPT 5.2%, Austria-EWO 3.58%, Wind Energy-FAN -2.63%, Natural Gas-UNG -2.47%, Social Media-SOCL -2.42%, Copper Miners-COPX -2.1%, Smart Grid Infrastructure-GRID -2.05%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks Slump as Geopolitical Concerns Weigh
The stock market began the new trading week on a defensive note after tensions between Russia and Ukraine escalated over the weekend. The Dow Jones Industrial Average (-0.9%) paced the decline while the S&P 500 lost 0.8% with all ten sectors ending in the red.

Over the weekend, Russian troops increased their presence around several key strategic points located in the Crimean peninsula in Southern Ukraine. The troop deployment was authorized by the Russian parliament while Ukrainian authorities described the actions as an ‘invasion.'

Another concerning headline crossed in the late morning when Ukraine's Defense Minister said that troops in the Crimea have been given an ultimatum to surrender by 22:00 ET or ‘face a storm.' The news knocked the market to fresh lows, but was followed by comments from Russia's Ministry of Defense, claiming no such ultimatum had been presented.

With plenty of uncertainty abound, equities sold off broadly while traditional safe-haven assets received a bid. Treasuries settled on their highs with the benchmark 10-yr yield down five basis points at 2.60% while the Dollar Index (80.08, +0.39) gained 0.5%.

Elsewhere, commodities saw interest with crude oil climbing 2.4% to $105.00/bbl while gold futures settled higher by 2.2% at $1350.40/ozt. In turn, the strength in gold gave a boost to miners, sending the Market Vectors Gold Miners ETF (GDX 26.30, +0.42) higher by 1.6%.

The outperformance of miners helped the materials sector (-0.2%) finish ahead of the broader market. Outside of materials, consumer staples (-0.5%), energy (-0.6%), health care (-0.7%), and telecom services (-0.5%) were able to outperform the S&P 500.

On the downside, the technology sector (-0.9%) spent the entire session behind the remaining nine groups. Strikingly, the largest sector component, Apple (AAPL 527.76, +1.52), eked out a modest gain of 0.3% while other large components like Google (GOOG 1202.69, -12.69), Oracle (ORCL 38.51, -0.60), Microsoft (MSFT 37.78, -0.53), and SAP (SAP 77.74, -2.55) lost between 1.1% and 3.2%.

With stocks under considerable pressure, participants showed significant interest in volatility protection as indicated by the CBOE Volatility Index (VIX 16.29, +2.29), which ended at levels last seen in early February.

Economic data included three reports: 

• Construction spending increased 0.1% in January after increasing an upwardly revised 1.4% (from 0.1%) in December. The Briefing.com consensus expected construction spending to decline 0.1%. It is difficult to reconcile the increase in January construction spending and the theory that the recent downturn in economic activity was weather related. If weather was negatively impacting the economy, then construction -- which largely takes place outside -- should have felt the brunt of the negative effects. The fact that construction spending held up relatively well in January, especially considering the huge upward revision to December data, tells us that the weather theory is overblown. 
• In a role reversal, the ISM Manufacturing Index improved in February to 53.2 from 51.3 in January while the Briefing.com consensus expected an increase to 51.3. In January, the Federal Reserve regional manufacturing surveys showed stronger manufacturing conditions. Yet, the national ISM Index recorded its biggest one-month fall since October 2008. In February, those same regional manufacturing surveys deteriorated. In a hint of irony, the national index showed sizable growth this month. As the trends clearly show, the national and regional indicators do not serve as a good guide on manufacturing levels. 
• Personal income increased 0.3% in January after being unchanged in December. That was exactly what the consensus expected. Personal spending levels increased 0.4% in January after increasing a downwardly revised 0.1% (from 0.4%) in December. The Briefing.com consensus expected personal spending to increase 0.1%. 

There is no economic data on tomorrow's schedule. 

• Nasdaq Composite +2.4% YTD 
• Russell 2000 +1.3% YTD 
• S&P 500 -0.2% YTD 
• Dow Jones Industrial Average -2.5% YTD

Commodities

Closing Commodities: Commodities Hit A Six-Month High

• Further gains in the S&P GSCI today put commodities at a level not seen in six months
• Precious metals and crude oil traded higher despite a stronger dollar index as investors reacted to escalating tension between Ukraine and Russia.
• Over the weekend, Russian forces took control of strategic points around the Crimean peninsula, citing the need to protect the ethnic Russian population in the region as well as the country's borders.
• The act was seen as an "invasion" by Ukrainian officials who have called on Russia to pull back its forces.
• Apr gold rose above the $1350 per ounce level, advancing to a session high of $1354.90 per ounce. It eventually settled with a 2.2% gain at $1350.40 per ounce.
• May silver rose to a session high of $21.67 per ounce in mid-morning action. It pulled back slightly heading into the close and settled at $21.49 per ounce, or 1.3% higher.
• Apr crude oil rose as high as $105.22 per barrel in late morning action, its highest level since September 2013. The energy component eventually settled with a 2.4% gain at $105.00 per barrel.
• Apr natural gas, on the other hand, pulled back from its session high of $4.71 per MMBtu set in early morning pit trade and slipped into negative territory .Unable to find buying support, it settled at its session low of $4.48, or 3.0% lower.

COMEX Metals Closing Prices

  Apr gold rose $29.00 to $1350.40/oz 

• Gold rose above $1350 despite a stronger dollar index as investors reacted to escalating political tension in Ukraine. Over the weekend, Russian forces took control of strategic points around the Crimean peninsula, citing the need to protect the ethnic Russian population in the region as well as the country's borders. The act was seen as an ‘invasion' by Ukrainian officials who have called on Russia to pull back its forces. The precious metal advanced to a session high of $1354.90 and eventually settled with a 2.2% gain. 

  May silver rose $0.27 to $21.49/oz 

• Silver also traded higher, rising as high as  $21.67. It pulled back slightly in afternoon floor action and settled with a 1.3% gain. 

  May copper fell 2 cents to $3.17/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

• May corn rose 9 cents to $4.72/bushel 
• May wheat rose 33 cents to $6.34/bushel
• May soybeans fell 5 cents to $14.10/bushel 
• Apr ethanol rose 3 cents to $2.26/gallon 
• May sugar (#16 (U.S.)) fell 0.08 of a penny to 22.05 cents/lbs

NYMEX Energy Closing Prices

  Apr crude oil rose $2.42 to $105.00/barrel 

• Crude oil rose above $105.00 today on escalating tension between Ukraine and Russia. Over the weekend, Russian forces took control of strategic points around the Crimean peninsula, citing the need to protect the ethnic Russian population in the region as well as the country's borders. The act was seen as an ‘invasion' by Ukrainian officials who have called on Russia to pull back its forces. The energy component rose as high as $105.22 in late morning action, its highest level since September 2013. It eventually settled with a 2.4% gain. 

  Apr natural gas fell 14 cents to $4.48/MMBtu 

• Natural gas, on the other hand, pulled back from its session high of $4.71 set in early morning action and slipped into negative territory. Unable to find buying support, it settled at its session low, or 3.0% lower. 

  Apr heating oil rose 7 cents to $3.08/gallon 

  Apr RBOB rose 4 cents to to $3.02/gallon

Treasuries

Yields Near Multi-Month Lows: 10-yr: +13/32..2.601%..USD/JPY: 101.38..EUR/USD: 1.3730

• Treasuries closed near their best levels of the session as Russia's aggression in Ukraine sparked a safety bid. Click here to see an intraday yields chart.
• Today's advance had the biggest impact on the belly of the curve, pushing yields down as much as -5bps, and to near multi-month lows. 
• The complex pressed its best levels into the cash open, and slipped in response to the in-line personal income  (0.3%) and larger than expected personal spending (0.4% actual v. 0.1% expected) data. 
• Selling would continue into the ISM Index (53.2 actual v. 51.6 expected) and construction spending (0.1% actual v. -0.1% expected) beats with the better than expected numbers marking session lows as uncertainty in Ukraine provided an underlying bid. 
• The 5y shed -5bps to finish @ 1.461%. Today's bid pushed the yield back below the 100 dma (1.488%) and down to the lower end of the 1.450%/1.550% range that has been in place since the beginning of February. The 200 dma aids support near 1.425%.
• The 10y fell -5b.1bps to 2.607% as action nears its lowest level since late-October. The benchmark yield closed below its 200 dma for the first time since the beginning of May, when the Fed first hinted at a tapering of its QE program. 
• At the long end, the 30y lagged, slipping -3.5bps to 3.557%. The 3.500%/3.550% area will be watched closely in the days ahead as a breakdown puts levels last seen in July in play. 
• A flatter yield curve persisted as the 2-10-yr spread narrowed to 230.5bps.
• Precious metals booked solid gains with gold +$30 @ $1352 and silver +$0.22 @ $21.46.
• Data: None.
• The Senate Banking Committee will hold hearings on the nominations of Stanley Fischer, Jerome Powell, and Lael Brainard to the Fed's Board of Governors (10). 
• Fed Speak: Richmond's Lacker will give an "Update From the Fed" (16:15).

Next Day In View 

Economic Commentary

Economic Summary: Spending & ISM top expectations; Construction spending ticks higher, but December was revised sharply higher; ADP Wednesday at 10:00
Economic Data Summary:

• January Personal Income 0.3% vs Briefing.com consensus of 0.3%; December was 0.0%
• January Personal Spending 0.4% vs Briefing.com consensus of 0.1%; December was revised to 0.1% from 0.4%
• . The Affordable Care Act, however, was a big offset for income growth. The additional people who signed up for Medicaid boosted transfer payments by $19.3 bln in January. At the same time, Social Security payments increased by $7.7 bln. Personal spending levels increased 0.4% in January after increasing a downwardly revised 0.1% (from 0.4%) in December. The Briefing.com consensus expected personal spending to increase 0.1%. The extreme winter weather conditions had the double effect of reducing goods demand and boosting services demand. In terms of GDP growth, the winter conditions actually caused a net positive as services spending more than offset all of the lost goods spending.
• January PCE Prices - Core 0.1% vs Briefing.com consensus of 0.1%; December was 0.01%
• February ISM Index 53.2  vs Briefing.com consensus of 51.6; January was 51.3
•  Yet, the national ISM Index recorded its biggest one-month fall since October 2008. In February, those same regional manufacturing surveys deteriorated. In a hint of irony, the national index showed sizable growth this month. As the trends clearly show, the national and regional indicators do not represent a good guide on manufacturing levels. Levels for both new orders (54.5 from 51.2) and unfilled orders (52.0 from 48.0) strengthened in February. 
• January Construction Spending +0.1% vs Briefing.com consensus of -0.1%; December was revised to 1.5% from +0.1%
• The Briefing.com consensus expected construction spending to decline 0.1%. It is difficult to reconcile the increase in January construction spending and the theory that the recent downturn in economic activity is weather related. If weather was negatively impacting the economy, then construction -- which largely takes place outside -- should have felt the brunt of the negative effects. The fact that construction spending held up relatively well in January, especially considering the huge upward revision to December data, tells us that the weather theory is overblown. 

Upcoming Economic Data:

• Weekly MBA Mortgage Applications due out Wednesday at 7:00 (Briefing.com consensus of ; Last Week was -8.5%)
• February ADP Employment Change due out Wednesday at 8:15 (Briefing.com consensus of 150K; January was 175K)
• February ISM Serviecs due out Wednesday at 8:15 (Briefing.com consensus of 53.5; January was 54.0)

Upcoming Fed/Treasury Events:

• Richmond Fed President Jeff Lacker (not a voting FOMC member, hawkish) to speak tomorrow at 16:15
• Fed Beige Book to be released Wednesday at 14:00

Other International Events of Interest

• U.S. markets are lower amid the escalation of tensions in the Ukraine. Over the weekend, Russian forces took control of strategic points around the Crimean peninsula, citing the need to protect the ethnic Russian population in the region as well as the country's borders. Ukrainian officials have called this act an ‘invasion' and have called on Russia to pull back its forces. 
• Chinese data was heavy as HSBC Final Manufacturing PMI ticked up to 48.5 (48.5 expected, 48.3 previous) while Non-Manufacturing PMI climbed to 55.0 (53.4 previous) Manufacturing PMI was in-line at 50.2 (50.5 previous)

On other news.... 

News

• Apple (AAPL) announces leading auto OEMs are rolling out CarPlay, for use iPhone in the car 
• 21st Century Fox (FOXA) film '12 Years a Slave' wins Oscar for Best Picture
• Actavis (ACT) confirms generic Colcrys patent challenge
• Citigroup (C) and Goldman Sachs (GS) being investigated over corporate bond trading, according to reports
• Comcast (CMCSA) considering cable subscriber spin-off, according to reports;to acquire Video Ad Company FreeWheel for $320 mln, according to reports
• FedEx (FDX) Freight will increase shipping rates by an average of 3.9%, effective March 31, 2014
• Mead Johnson Nutrition (MJN) increases quarterly dividend 10% to $0.375 from $0.34 per share
• Pfizer (PFE) wants to sell Lipitor over the counter, according to reports
• Tyco (TYC) agrees to sell its security business in South Korea to The Carlyle Group (CG) for $1.93 bln; lowers Q2 guidance reflecting acquisition
• Macau Gaming Inspection and Coordination Bureau reports February gross gaming revenue +40% YoY

Currencies 

Dollar Retakes 80.00: 10-yr: +12/32..2.607%..USD/JPY: 101.41..EUR/USD: 1.3735

• The Dollar Index presses session highs near 80.05 as trade looks to retake resistance in the area. Click here to see a daily Dollar Index chart.
• Today's advance has the Index working its way off its lowest close since the end of October, and has bulls turning their focus towards the 80.50 area that is aided by both the 50 and 100 dma. 
• EURUSD is -60 pips @ 1.3740 as Russia's aggression in Ukraine has caused some selling of the single currency. Also aiding today's decline were disappointing Manufacturing PMI data out of Italy and Spain. Eurozone data is limited to Spanish unemployment change. 
• GBPUSD is -80 pips @ 1.6655 as trade readies for its lowest close in a week. Today's weakness comes amid a risk-off sentiment, and on the heels of the in-line Manufactuirng PMI and net lending to individuals miss. Britain's Services PMI is due out tomorrow. 
• USDCHF is +25 pips @ .8830 as trade has won back nearly half of Friday's decline. Today's bid has the pair climbing off its lowest close since November 2011, and sets up a potential test of .8860 resistance. 
• USDJPY is -35 pips @ 101.40 as sellers remain in control for a third session. Traders continue to monitor the 2014 lows near 100.75 as a breakdown almost surely puts parity and the 200 dma (100.20) in play. Japan's average cash earnings will be released tomorrow. 
• AUDUSD is +5 pips @ .8925 as traders cover short bets ahead of tonight's Reserve Bank of Australia rate decision where expectations are for no change to the current Cash Rate of 2.50%. Recent action has checked up in the .8900 area, which is defended by the 50 dma, as the continued slowdown in China has been offset by some hotter than expected inflation figures. Australian data out tonight includes building approvals and the current account balance. 
• USDCAD is +25 pips @ 1.1085 as trade ticks higher for the first time in three days. Today's action has seen little reaction to the hotter than expected Raw Materials Price Index (2.6% MoM actual v. 2.3% MoM expected), which saw its biggest jump since August.

Jason's Commentaries

The night started with a real bear as Russia deployed additional 6000 troops to Crimea which escalate the conflict to a near war situation. Various countries have been pilling pressure on Putin to withdraw Russian troops. Rumours of ultimatum that the Black Sea Fleet demanding for the surrender of 2 Ukranian Warship. The market was terribly hammered throughout the session. The bears overran the bulls and the bulls took opportunity to take profit as well. Tech and Consumer Discretionary were the heaviest hit throughout the session. I believe this drop is driven by news and it's irrational. If Russia withdraw its troops, the market would bound to rally. Moreover, Russia will NOT attack Ukraine. This is probably in Putin's act to show his dominance in Russians' eye and re-establishing the dominance of the Russians.

By 3am ET, the Russians withdrew from Crimea and the futures rose more than 1% before market open. We will end up higher.

Market Call: UP

Date: 4 Feb 2014