4 April 2014 AMC - Market sold off as employment reports came in as expected

4 April 2014 AMC - Market sold off as employment reports came in as expected

Market Summary 

European Markets Closing Prices

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

·       UK's FTSE: + 0.7%

·       Germany's DAX: + 0.7%

·       France's CAC: + 0.8%

·       Spain's IBEX: + 0.9%

·       Portugal's PSI: -0.6%

·       Italy's MIB Index: + 0.8%

·       Irish Ovrl Index: + 1.2%

·       Greece ATHEX Composite: -0.6%

Before Market Opens 

S&P futures vs fair value: +9.70. Nasdaq futures vs fair value: +22.20.
The S&P 500 futures trade almost ten points above fair value.

Markets across Asia ended mostly lower. Trade across the region was on the quiet side as many pared back risk ahead of the U.S. nonfarm payroll report. Malaysia's trade surplus widened to MYR10.4 billion from MYR6.4 billion while the Philippines' inflation rate slowed to 3.9% year-over-year from 4.1%. 

·       Japan's Nikkei shed 0.1%, easing off three-week highs. Heavyweight Softbank weighed, falling 2.7%. 

·       Hong Kong's Hang Seng slipped 0.2% for a second straight session. Internet gaming giant Tencent Holdings was the worst performer as shares slumped 3.9%. 

·       China's Shanghai Composite added 0.7%, regaining its 50-day moving average. Rare earth names led as China Minmetals Rare Earth and Inner Mongolia Baotou Steel Rare-Earth Group rallied 10% and 3.8%, respectively. 

Major European indices trade higher across the board. The first half of the session has been very quiet with no market-moving news. As such, the focus remained on yesterday's comments from European Central Bank President Mario Draghi, who hinted at a potential implementation of a quantitative easing program. According to UBS, the potential QE would target bank lending rather than sovereign bond purchases.

Economic data was scarce. Eurozone Retail PMI improved to 49.2 from 48.5. Germany's Factory Orders rose 0.6% month-over-month (expected 0.1%, prior 0.1%). Great Britain's Halifax House Price Index fell 1.1% month-over-month (consensus 0.7%, previous 2.4%) while the year-over-year reading jumped 8.7% year-over-year (7.9% last). 

·       In France, the CAC is higher by 0.4%. Growth-sensitive names outperform with Alstom, ArcelorMittal, and Lafarge up between 1.1% and 2.5%. On the downside, Orange trades lower by 0.2%. 

·       Germany's DAX trades up 0.5% with financials providing support. Allianz, Commerzbank, and Muenchener Re hold gains between 0.5% and 1.7%. On the downside, health care names Fresenius and Merck display losses between 0.1% and 0.5%. 

·       Great Britain's FTSE is higher by 0.5% as miners outperform. Anglo American, Glencore Xstrata, and Rio Tinto are up between 1.4% and 1.9%.

U.S. Equities

·       Equity futures suggest solid gains at the open following the in-line nonfarm payroll report

·       Nonfarm Payrolls (192K actual v. 195K expected)

·       Nonfarm Private Payrolls (192K actual v. 205K expected)

·       Unemployment Rate (6.7% actual v. 6.6% expected)

·       Hourly Earnings (0.0% actual v. 0.2% expected)

·       Average Workweek (34.5 actual v. 34.4 expected)

o   S&P Futures +8 @ 1891

o   Dow Futures +59 @ 16,560

o   Nasdaq Futures  +19 @ 3650

Asia

·       Markets across Asia ended mostly lower

·       Trade across the region was on the quiet side as many pared back risk ahead of the U.S. nonfarm payroll report

·       Malaysia's trade surplus widened to MYR10.4 bln (MYR6.4 bln previous)

·       The Philippines' inflation rate slowed to 3.9% YoY (4.1% YoY previous)

·       Japan's Nikkei (-0.1%) eased off three-week highs

·       Hong Kong's Hang Seng (-0.2%) slipped for a second straight session

·       China's Shanghai Composite (+0.7%) regained its 50 dma

·       India's Sensex (-0.7%) pulled back for a second session

·       Australia's ASX (+0.2%) closed on its highs

Market Internals

Market Internals -Technical-
The Nasdaq closed down 110 (-2.6%) at 4128, the S&P 500 closed down 24 (-1.25%) at 1865, and the Dow closed down 160 (-0.96%) at 16413. Action came on above average volume (NYSE 764 mln vs. avg. of 731; NASDAQ 2421 mln vs. avg. of 2060), with decliners outpacing advancers (NYSE 1097/2029, NASDAQ 457/2224) and new highs outpacing new lows (NYSE 178/11, NASDAQ 81/56). 

Relative Strength: 
Coffee-JO +7.44%, Volatility-VXX +2.07%, Cotton-BAL +1.95%, Cocoa-NIB +1.77%, Brazilian Real-BZF +1.75%, Junior Gold Miners-GDXJ +1.71%, Mexico-EWW +1.13%, Indian Rupee-ICN +1.01%, Vietnam-VNM +0.94%.

Relative Weakness: 
Biotechnology-XBI -4.11%, Biotechnology-IBB -4.01%, Social Media-SOCL -3.69%, Internet Composite-FDN -3.48%, Broker-Dealers-IAI -3.44%, Greece-GREK -1.57%, South Africa-EZA -1.55%, Poland-EPOL -1.43%, Israel-EIS -1.42%, Total World-VT -1.28%.

Leaders and Laggards

 

Technical Updates

Commentaries 

Closing Market Summary: Nasdaq Posts Weekly Loss While Dow and S&P 500 Outperform
The stock market finished the week on a lower note after equity indices spent the entire session in a steady decline from their opening highs. The Nasdaq led the retreat, falling 2.6%, while the Dow Jones Industrial Average (-1.0%) and S&P 500 (-1.3%) registered smaller losses.

Even though the major averages endured a daylong retreat, only the Nasdaq ended down for the week (-0.7%) while the Dow and S&P 500 posted respective weekly gains of 0.6% and 0.4%.

Prior to the open, the Nonfarm Payrolls report pointed to the addition of 192,000 jobs in March, while the Briefing.com consensus expected an increase of 195,000. After the report crossed the wires, equity futures spiked, but so did gold (+1.5% to 1303.40/ozt) and Treasuries (10-yr yield -7 bps to 2.73%), which was inconsistent with the risk-on disposition observed in equity futures. Furthermore, the dollar/yen pair spiked initially (yen weakness), but gave it all back, and then some, in short order.

The dollar/yen pair hovered near 103.90 and spiked above 104.10 in reaction to the data, before spending the remainder of the session in a retreat that mirrored the price action in the S&P 500. The Japanese yen finished the session near its high with the dollar/yen pair sliding to 103.25 by the New York close.

With cautious action in most other markets, the upbeat sentiment in the stock market dissipated quickly. The Nasdaq led the retreat as heavy selling pressure weighed on biotechnology and other momentum names.

The iShares Nasdaq Biotechnology ETF (IBB 225.30, -9.41) lost 4.0% after being unable to retake its 100-day moving average at the open (238.35). The ETF surrendered its entire 2014 gain, while the broader health care sector (-1.5%) ended behind the broader market.

Most other heavily-weighted groups did not fare much better. Consumer discretionary (-1.7%) and technology (-2.2%) lagged throughout the session, while financials (-1.2%) outperformed.

Notably, the discretionary sector was pressured by continued weakness in names like Amazon.com (AMZN 323.00, -10.62), Netflix (NFLX 337.31, -17.38), and Priceline.com (PCLN 1178.08, -59.37). Homebuilders, meanwhile, fared relatively well with the iShares Dow Jones US Home Construction ETF (ITB 24.59, -0.12) shedding 0.5%.

Elsewhere, the largest S&P 500 sector, technology, proved to be a significant drag on the major averages amid weakness in large names. Apple (AAPL 531.82, -6.97), Google (GOOG 543.14, -26.60), Microsoft (MSFT 39.87, -1.14), and Visa (V 207.70, -7.31) lost between 1.3% and 4.7% with Google seeing the largest decline of the bunch. Smaller momentum names registered even larger losses with FireEye (FEYE 50.36, -4.50), Splunk (SPLK 62.68, -3.68), and Yelp (YELP 65.76, -4.85) down between 5.6% and 8.2%. The three names extended their weekly losses to 20.7%, 12.0%, and 14.1%, respectively.

On the upside, utilities (+0.6%) posted a solid gain with lower yields giving a boost to the rate-sensitive sector.

The selloff invited above average participation as 764 million shares changed hands at the NYSE floor.

Looking closer at today's jobs report: 

·       Overall, the employment data was fairly solid, but nothing to really get excited about. The initial claims data over the past several weeks supported payroll growth in the neighborhood of 200,000. That was exactly what happened in March. 

·       Total nonfarm private payrolls also increased by 192,000 jobs in March, up from 188,000 in February. The consensus expected these payrolls to increase by 205,000. 

·       Winter weather, which was blamed for prior weaknesses, again did not show up in the payroll numbers. Construction employment increased by 19,000 in March, which was only a marginal improvement over the 18,000 added in February. Had winter weather conditions really impacted the economy, construction payrolls would have spiked in March as employment recovered from winter delays. 

·       The one area that winter weather did impact was the number of hours worked. The average workweek fell to 34.3 in February as weather conditions prevented employees from working their normal hours. As temperatures and conditions returned to normal, the average workweek jumped to 34.5. 

·       Average hourly earnings were essentially flat in March after increasing 0.4% in February. 

·       The unemployment rate remained at 6.7% in March while the consensus expected the rate to tick down to 6.6%. 

Monday's data will be limited to the February Consumer Credit report, which will be released at 15:00 ET. 

·       S&P 500 +0.9% YTD 

·       Russell 2000 -0.8% YTD 

·       Dow Jones Industrial Average -1.0% YTD 

·       Nasdaq Composite -1.2% YTD 

Commodities

Closing Commodities: Natural Gas Loses 1.1% On The Week, Gold Rises 0.7%

·       Precious metals rose today after U.S. payroll data showed March Nonfarm Payrolls adding 192K jobs vs Briefing.com consensus of 195K.

·       June gold initially slipped to a session low of $1286.80 per ounce but quickly recovered above the $1300 per ounce level. It rose as high as $1307.50 per ounce and settled with a 1.5% gain at $1303.40 per ounce. Today's advance brought gains for the week to 0.7%.

·       May silver advanced to a session high of $20.23 per ounce in early morning pit trade. It eventually settled 0.9% higher at $19.97 per ounce, booking a 1.0% gain for the week.

·       May crude oil also traded in positive territory, rising to a session high of $101.63 per barrel in morning action. It brushed a session low of $100.97 per barrel moments before settling with a 0.8% gain at $101.14 per barrel. Today's advance cut losses for the week to 0.5%.

·       May natural gas briefly rose to a session high of $4.48 per MMBtu in morning action before slipping back into the red. Unable to find buying support, it settled 0.9% lower at $4.43 per MMBtu, booking a 1.1% weekly loss.

COMEX Metals Closing Prices

  June gold rose $18.80 to $1303.40/oz 

·       Gold climbed back above $1300 today after U.S. payroll data showed March Nonfarm Payrolls adding 192K jobs vs Briefing.com consensus of 195K. The yellow metal initially fell to a session low of $1286.80 but quickly bounced back. It rose as high as $1307.50 and settled with a 1.5% gain. Today's advance brought gains for the week to 0.7%. 

  May silver rose $0.18 to $19.97/oz 

·       Silver also traded in positive territory, advancing to a session high of $20.23 in early morning pit trade. It eventually settled 0.9% higher, booking a 1.0% gain for the week. 

  May copper fell 1 cent to $3.03/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·       May corn rose 1 cent to $5.01/bushel 

·       May wheat fell 5 cents to $6.70/bushel 

·       May soybeans fell 2 cents to $14.72/bushel 

·       May ethanol rose 9 cents to $2.40/gallon 

·       May sugar (#16 (U.S.)) rose 1.17 of a penny to 24.75 cents/lbs

NYMEX Energy Closing Prices

·       May crude oil rose $0.85 to $101.14/barrel 

·       May natural gas fell 4 cents to $4.43/MMBtu 

·       May heating oil settled unchanged at $2.91/gallon 

·       May RBOB rose 2 cents to $2.93/gallon

Treasuries

Yields Test and Hold Key Resistance: 10-yr: +19/32..2.731%..USD/JPY: 103.27..EUR/USD: 1.3707
The Week in Review: Yields Test and Hold Key Resistance

·       Treasuries saw a mixed week as buying took hold up front while sellers had their way at the long end. Click here to see an intraweek yields chart.

·       Friday's in-line nonfarm payroll report (192K actual v. 195K expected) catapulted shorter maturities into the green for the week while helped pare the losses at the long end.

·       Nonfarm private payrolls (192K actual v. 205K expected) fell short of estimates and the unemployment rate ticked up to 6.7% (6.6%).

·       The rest of the week's data was mostly disappointing as Chicago PMI (55.9 actual v. 60.1 expected), ISM Index (53.7 actual v. 54.0 expected), ADP Employment Change (191K actual v. 215K expected), trade balance (-$42.3 bln actual v. -$39.3 bln expected), and ISM Services (53.1 actual v. 53.5 expected) all missed.

·       Only factory orders (1.6% actual v. 1.1% expected) saw a notable beat.

·       Up front, the 2y shed -6bps to finish the week @ 0.407%. All of the week's decline came post-nonfarm payrolls as traders began to price in the possibility maybe the Fed won't be hiking rates anytime in the near future. Friday's closed marked the lowest in two and a half weeks.

·       The 5y lost -7bps to close @ 1.704%. Selling early in the week ran the yield through key trendline resistance in the 1.725% area and all the way up to 2.800%. However, aggressive buying following the jobs report pushed action back below the trendline to its lowest close in six sessions. That level will remain in focus in the days ahead. 

·       The 10y endured a flat week, settling @ 2.726%. Selling mid-week caused the benchmark yield to probe the upper end of the 2.600%/2.800% range that has been in place since late-January, but Friday's aggressive bid pushed action back down to last Friday's closing level. Both the 50 and 200 dma provide near-term support near 2.725%. 

·       At the long end, the 30y climbed +4bps to 3.585%. The yield on the long bond tested trendline resistance off the January highs near 3.650%, but was unable breakout as buyers emerged near the 50 dma. Focus now turns to the key 3.150% region with a breakdown setting up a potential move into 3.150%. 

·       A steeper curve took hold as the 5-30-yr spread widened to 188bps. 

The Week Ahead 

·       Monday's data is limited to consumer credit (15). STL's Bullard will discuss monetary policy and the economy (11:45). 

·       Tuesday will see just JOLTS - Job Openings (10). Treasury will auction $30 bln 3y notes. Minny's Kocherlakota will speak on "Monetary Policy and the State of the Economy" (13:30). Philly's Plosser discusses "Enhancing Prudential Standards in Financial Regulations" (14:45). The Federal Reserve Board of Governors debate the supplementary leverage ratio (16). 

·       Data remains slow on Wednesday with the weekly MBA Mortgage Index (7), wholesale inventories (10), and the latest FOMC minutes (14). Treasury will hold a $21 bln 10y note reopening. Chicago's Evans talks monetary policy and the economy (15:30) before Fed Governor Tarullo speaks at the 23rd Annual Hyman P. Minsky Conference (19). 

·       Thursday's data includes initial and continuing claims, import/export prices (8:30), and the Treasury budget (14). Treasury will reopen $13 bln 30y bonds. Chicago's Evans discuss "Central Banking After the Great Recession" (11:50). 

·       Data concludes for the week on Friday with PPI (8:30) and Michigan Sentiment (9:55) due out.

On other news.... 




Currencies 

Dollar Probes 80.50 Resistance: 10-yr: +18/32..2.731%..USD/JPY: 103.25..EUR/USD: 1.3697

·       The Dollar Index hovers little changed near 80.45 as an uneventful session nears the final hour of trading. Click here to see a daily Dollar Index chart.

·       Today's action has seen the Index stuck in a 20 cent range (80.35-80.55) as trade continues to test resistance in the 80.50 area following the in-line nonfarm payroll report. 

·       EURUSD is -20 pips @ 1.3695 as trade slips for a third session. The single currency saw some volatility early in U.S. trade on reports the European Central Bank had modeled up to EUR1 trln in bond purchases, but those rumors were quickly rebuffed by ECB VP Constancio.Support in the 1.3700/1.3750 area remains under close watch and is helped by the 100 dma.

·       GBPUSD is -15 pips @ 1.6580 as sellers remain in control for a fourth day. Sterling has been offered throughout the day, aside from a quick move above the flat line following the U.S. nonfarm payrolls, as the Halifax Home Price Index was the latest number out of the UK to miss estimates. The 50 dma is providing support at current levels while a breakdown puts the 1.6500 level in play. 

·       USDCHF is +10 pips @ .8920 as trade fights for its best close in one and a half months. Early buying ran the pair above the 100 dma (.8942), but steady selling over the remainder of the session has wiped away most of the gains. Action will now look to hold support in the .8880 area. Swiss data scheduled for Monday includes CPI and foreign currency reserves. 

·       USDJPY is -65 pips @ 103.25 as trade pulls back following six days of gains. The 103.00 area will be of particular interest as support there is helped by the 100 dma. 

·       AUDUSD is +50 pips @ .9280 as trade looks for its best close in three and a half months. Resistance in the .9300 area has served as a headwind over the past two weeks as trade has tested it several times, but has failed to breakout. Australia's ANZ Job Advertisements data is due out Sunday evening. Chinese banks are closed in observation of Tomb Sweeping Day. 

·       USDCAD is -50 pips @ 1.0985 as trade presses one and a half-month lows. Weighing on the pair was this morning's stronger than expected Canadian employment change (42.9K actual v. 21.5K expected) and the downtick in the unemployment rate to 6.9% (7.0%). Post-data selling dropped action onto the 1.0950 level, but trade has rebounded after Ivey PMI (55.2 actual v. 58.3 expected, 57.2 previous) saw a sizable drop. Support in the 1.0950 area remains key. The Bank of Canada's Business Outlook Survey will cross the wires on Monday.

Weekly Analysis
Week 14



Technical Updates

Briefing's Commentaries

Week in Review: Biotech Remains Volatile 

On Monday, the stock market closed out a volatile month of March on an upbeat note with small caps leading the advance. The Russell 2000 gained 1.8% for the day while the S&P 500 settled higher by 0.8% with nine sectors ending in the green. The benchmark index was able to eke out a 0.7% gain for the month while the Nasdaq Composite and Russell 2000 could only trim their losses. The Nasdaq ended the month with a decline of 2.5% while the Russell 2000 lost 1.0% in March. Equity indices made the bulk of their advance during the opening hour before spending the remainder of the session inside narrow ranges. The upbeat start took place after a weekend phone call between President Obama and Vladimir Putin, discussing the situation in Ukraine, was viewed as a step that increased the chances for a diplomatic solution to the standoff between Russia and Ukraine. The early buying interest was also bolstered by comments from Fed Chair Janet Yellen, who spoke at a conference in Chicago, saying the Fed remains short of its employment and inflation goals and that the economy requires ‘considerable support for some time.'

On Tuesday, the stock market kicked off April on an upbeat note with the Nasdaq Composite (+1.6%) leading the charge. The S&P 500 (+0.7%) settled at a fresh record high of 1885.52 with eight sectors registering gains while the Dow Jones Industrial Average (+0.5%) lagged. In the absence of notable pre-market data or earnings, the major averages began the day with a steady climb that was assisted by upbeat action in Europe, where markets in France, Germany, and Great Britain posted solid gains between 0.5% and 0.8%. For the second day in a row, the Nasdaq began the day in the lead, maintaining its outperformance throughout the session. The early strength of biotechnology (IBB +2.2%) propelled the initial advance while the index was kept near its session high into the afternoon by the daylong outperformance of the technology sector (+1.3%).

The stock market meandered inside a narrow range on Wednesday after posting solid gains to start the week. The S&P 500 added 0.3% and notched a fresh record closing high at 1890.90 while the Nasdaq (+0.2%) struggled to stay in the green throughout the session. Equity indices began the day near their flat lines and maintained narrow ranges into the afternoon before breaking out to fresh highs during the final 30 minutes of action. That thrust placed the Dow Jones Industrial Average above its 2013 closing high of 16576.66 for the first time this year, but the index returned below that level by the close. Meanwhile, the Nasdaq and S&P 500 extended their respective 2014 gains to 2.4% and 2.3%, but the Nasdaq had a tough time keeping pace with the benchmark index today as large cap tech names and biotechnology lagged.

Equities ended the Thursday session on a lower note with small caps leading the weakness. The Russell 2000 (-1.0%) and Nasdaq (-0.9%) posted comparable losses while the Dow Jones Industrial Average (unch) and S&P 500 (-0.1%) finished little changed after climbing off their lows during the last hour of action. Of the major averages, the Nasdaq faced the most aggressive selling due to the daylong weakness in biotechnology and an afternoon slump in the technology sector (-0.6%). Biotechnology spent the entire session in a steady retreat that pressured the iShares Nasdaq Biotechnology ETF back below its 100-day moving average (238.12). The biotech ETF lost 2.9% while the broader health care sector shed 0.3%.

Next Week In View





Economic Commentaries

Economic Summary: NFP's roughly in line with expectations; Unemployment remains steady at 6.7%
Economic Data Summary:

·       March Nonfarm Payrolls 192K vs Briefing.com consensus of 195K; February was 175K

·       March Nonfarm Private Payrolls 195K vs Briefing.com consensus of 205K; February was 162K

o   Notable Job Gainers:

§  Construction +19K

§  Education and health services +34K

§  Retail trade +21K

o   Notable Job Losses

§  Manufacturing -1K

·       March Unemployment Rate 6.7% vs Briefing.com consensus of 6.6%; February was 6.7%

·       March Horuly Earnings 0.0% vs Briefing.com consensus of 0.2%; February was 0.4%

·       March Average Workweek 34.5 vs Briefing.com consensus of 34.4%; February was 34.2

o   Overall, the employment data was fairly solid, but nothing to really get excited about. The initial claims data over the past several weeks supported payroll growth in the neighborhood of 200,000. That was exactly what happened in March. Total nonfarm private payrolls also increased by 192,000 jobs in March, up from 188,000 in February. The consensus expected these payrolls to increase by 205,000. Winter weather, which was blamed for prior weaknesses, again did not show up in the payroll numbers. Construction employment increased by 19,000 in March, which was only marginally above the 18,000 added in February. If winter weather conditions really impacted the economy, construction payrolls should have spiked in March as employment recovered from winter delays. The one area that winter weather did impact was the number of hours worked. The average workweek fell to 34.3 in February as weather conditions prevented employees from working their normal hours. As temperatures and conditions returned to normal, the average workweek jumped to 34.5.

Upcoming Economic Data:

·       February Consumer Credit due out Monday at 15:00 (Briefing.com consensus of ; January was $13.7 bln)

Upcoming Fed/Treasury Events:

·       Saint Louis Fed President James Bullard (not a voting FOMC member. typically dovish) to speak tomorrow at 11;45

Other International Events of Interest

·       Germany's Factory Orders rose 0.6% month-over-month (expected 0.1%, prior 0.1%). 

Jason's Commentaries

What a great excuse to take profit off the high again. As mentioned before, the market is going through a very volatile period in the market and we're very likely to see such swings in the market again. The Nasdaq was the worst performer in amongst the indices on Friday. Non-farm payrolls came in in-line of 191k jobs added to the economy. The volumes came in 769m shares traded on the NYSE. The market internals were showing divergence at the start of the day, however that bearishness started to converge after launch. The cyclical sectors were able to hold up and did not sustain as much losses. Tech, healthcare and consumer discretionary suffered more than 1.6% losses on Friday. As the market approaches their resistance, such volatility is expected. I'm expecting Nasdaq and Russells to hold their support today. However, Dow jones and the S&p500 might be dragging the rest of the market down. Today will be a very volatile session.

Market Call: FLAT to upside

Date: 7 April 2014