7 April 2014 AMC - Market completes the second consecutive DFDM

7 April 2014 AMC - Market completes the second consecutive DFDM  

Market Summary 

 European Markets Closing Prices

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

·       UK's FTSE: -1.1%

·       Germany's DAX: -1.9%

·       France's CAC: -1.1%

·       Spain's IBEX: -0.7%

·       Portugal's PSI: -0.7%

·       Italy's MIB Index: -0.8%

·       Irish Ovrl Index: -1.1%

·       Greece ATHEX Composite: -0.5%

Before Market Opens

S&P futures vs fair value: -3.70. Nasdaq futures vs fair value: -21.30.
The S&P 500 futures trade four points below fair value.

Asian markets ended mostly lower, piggybacking Friday's weakness on Wall Street. Australia's ANZ Job Advertisements edged up 1.4% month-over-month, while the AIG Construction Index ticked up to 46.2 from 44.2. Elsewhere, Taiwan's inflation rate climbed 1.6% year-over-year. 

·       Japan's Nikkei lost 1.7%, falling for the first time in three days. Heavyweight Softbank was a laggard, off 4.3%. 

·       Hong Kong's Hang Seng shed 0.6%, slipping back below its 200-day moving average. Casino stocks were pressured as a wave of profit-taking emerged. Galaxy Entertainment and Sands China fell 4.3% and 3.7%, respectively. 

·       China's Shanghai Composite was closed for Tomb Sweeping Day. 

In Europe, the major indices trade lower across the board with Germany's DAX (-1.4%) leading the retreat. Also of note, Russia's MICEX holds a loss of 3.0% amid reports indicating pro-Russian protesters have stormed government buildings in three cities in Eastern Ukraine.

Economic data was scarce. Eurozone Sentix Investor Confidence improved to 14.1 from 13.9 (consensus 14.2). Germany's Industrial Production ticked up 0.4% month-over-month (expected 0.3%, prior 0.7%). Spain's Industrial Production jumped 2.8% year-over-year (consensus 1.7%, prior 1.3%). Swiss CPI rose 0.4% month-over-month (consensus 0.2%, prior 0.1%) while the year-over-year reading was unchanged (expected -0.1%, previous -0.1%). 

·       In France, the CAC is lower by 0.6% with financials on the defensive. AXA, BNP Paribas, and Credit Agricole hold losses between 1.4% and 1.8%. Utilities and telecom names outperform with Veolia Environnement and Vivendi both up near 1.4%. 

·       Great Britain's FTSE holds a loss of 0.7%. Financials Hargreaves Lansdown and Lloyds Banking trade lower by 2.7% and 2.4% while utility network provider Centrica outperforms, up 1.0%. 

·       Germany's DAX trades down 1.4%. Bayer and Henkel display respective losses of 2.1% and 2.6% while Fresenius (-0.2%) outperforms.

Market Internals

Market Internals -Technical-
The Nasdaq closed down 48 (-1.16%) at 4080, the S&P 500 closed down 20 (-1.08%) at 1845, and the Dow closed down 167 (-1.02%) at 16246. Action came on above average volume (NYSE 819 mln vs. avg. of 729; NASDAQ 2375 mln vs. avg. of 2062), with decliners outpacing advancers (NYSE 871/2261, NASDAQ 637/2013) and new highs outpacing new lows (NYSE 27/21, NASDAQ 24/83).

Relative Strength: 
Coffee-JO +4.98%, Vietnam-VNM +2.97%, Volatility-VXX +2.29%, Latin America 40-ILF +2.23%, Middle East and Africa-GAF +1.8%, Turkey-TUR +1.29%, Brazilian Real-BZF +0.97%, Natural Gas-UNG +0.93%, Agriculture-DBA +0.74%, Biotechnology-IBB +0.67%.

Relative Weakness: 
Clean Energy-PBW -4.02%, Sugar-SGG -3.4%, Egypt-EGPT -3.4%, Homebuilders-XHB -2.73%, U.S. Home Construction-ITB -2.64%, Social Media-SOCL -2.51%, Russia-RSX -2.19%, Greece-GREK -1.86%, Eastern Europe-ESR -1.26%, Austria-EWO -1.14%.

Leaders and Laggards

Sector Summary: S&P Financial Index 294.83, -1.3%- Financials Continue Pullback Ahead of Earnings
The S&P 500 Financial Index continues its recent pullback as investors are cautious ahead of Q1 earnings. JPM and WFC will kick off the season for the banks on Friday. A weak housing environment, flattening of the yield curve, slow down in trading activity, high litigation costs, and potential uptick in historically low credit costs all have investors on their heels. Perhaps the biggest metric and wild card this season will be loan growth where opinions are mixed. The Financial Index is now down 2.0% in April and is just up +0.1% year to date following the recent pullback. 

News of Note

·       Goldman Sachs (GS): WSJ Heard on the Street Column profiles cautious view on GS ahead of earnings Apr 17 before the open 

·       Citigroup (C) upgraded to Neutral from Underweight at HSBC Securities; IRSA Inversiones (IRS) initiated with a Overweight at Morgan Stanley; tgt $16 

·       Q1 Bank earnings preview; expect a weak mortgage origination environment - FBR Capital Markets. In 1Q14, they estimate regional banks were up 8% while asset-sensitive names, even including a weak ZION performance, were up 9%. They believe investors are factoring in significantly higher interest rates to justify regional bank valuations, and they are cautious on banks that have exposure to fixed-income trading, mortgage, or are not earning their cost of capital either from lack of earning assets or litigation costs. Further, they expect a weak mortgage origination environment given weak purchases and falling refinancings from an already low base coming off 4Q13.

Upcoming Earnings of Note:

·       Friday April 11: WFC, JPM

·       Monday, April 14: C, MTB

·       Tuesday, April 15: SCHW, CMA, NTRS, IBKR

·       Wednesday, April 16: BAC, CS, PNC, PJC, USB, AXP

·       Thursday, April 17: BBT, BLK, BX, FITB, GS, KEY, MS

·       Friday, April 18: Markets closed in observance of Good Friday.

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks Slide Amid Continued Volatility in Momentum Names
The stock market began the new trading week on the defensive, with the major averages posting losses across the board. The Russell 2000 (-1.5%) and Nasdaq (-1.2%) led the retreat, while the Dow Jones Industrial Average (-1.0%) and S&P 500 (-1.1%) fared a bit better.

The major averages started the session in the red with little help from other global indices as markets in Asia and Europe posted losses. Contributing to the cautious sentiment was an apparent escalation of tensions in Eastern Ukraine, where pro-Russian protesters, demanding referendums on independence, took control of government buildings in four cities. Most notably, protesters in Donetsk called on Russian President Vladimir Putin to send in Russian peacekeepers.

Similar to Friday, equity indices spent the session in a steady retreat as momentum names remained volatile. Biotechnology displayed early strength, but the industry group notched a session high during the opening hour before spending the remainder of the day in a battle with its flat line. TheiShares Nasdaq Biotechnology ETF (IBB 226.82, +1.52) tacked on 0.7%, while SPDR S&P Biotechnology ETF (XBI 133.22, -0.24) shed 0.2%. For its part, the health care sector (-1.1%) ended in-line with the S&P 500, while consumer staples (+0.3%), telecom services (unch), and utilities (-0.2%) outperformed.

Elsewhere, the six cyclical sectors registered losses between 0.8% and 1.9%. Even though the tech-heavy Nasdaq Composite lagged, the technology sector (-0.8%) outperformed thanks to gains in some top components. Cisco Systems (CSCO 22.85, +0.14), IBM (IBM 194.52, +2.75), andIntel (INTC 26.48, +0.32) posted gains between 0.6% and 1.4%, while momentum names remained volatile. Facebook (FB 56.95, +0.20) gained 0.4%, while LinkedIn (LNKD 159.65, -6.18) and Tesla (TSLA 207.52, -4.70) lost 3.7% and 2.2%, respectively.

Other momentum names like Amazon.com (AMZN 317.76, -5.24) and Priceline.com (PCLN 1169.73, -8.35) played a part in the underperformance of the consumer discretionary sector (-1.9%), which widened its year-to-date loss to 5.2%. Retailers ended broadly lower with the SPDR S&P Retail ETF (XRT 83.01, -1.89) falling 2.2%, while homebuilders did not have a much better showing. The iShares Dow Jones US Home Construction ETF (ITB 23.94, -0.65) lost 2.6%.

With stocks ending near their lows, participants displayed demand for volatility protection, sending the CBOE Volatility Index (VIX 15.57, +1.61) to mid-March levels.

Treasuries posted modest gains with the benchmark 10-yr yield slipping three basis points to 2.70%.

For the second session in a row, participation was above average with nearly 820 million shares changing hands at the NYSE.

Today's economic data was limited to the Consumer Credit report for February, which indicated an increase of $16.50 billion after increasing an upwardly revised $13.80 billion (from $13.70 billion) in January. That was the largest monthly expansion since October 2013. The Briefing.com consensus expected consumer credit to increase by $14.30 billion. Typically, consumer credit is a volatile measure that often goes through substantial revisions before the final data are released. The revisions to January, however, were much milder than normal.

Tomorrow's economic data will be limited to the Job Openings and Labor Turnover Survey, which will be released at 10:00 ET. 

·       S&P 500 -0.2% YTD 

·       Dow Jones Industrial Average -2.0% YTD 

·       Russell 2000 -2.2% YTD 

·       Nasdaq Composite -2.3% YTD

Commodities

NYMEX Energy Closing Prices

  May crude oil fell $0.70 to $100.44/barrel 

·       Crude oil fell for the first time in three sessions on reports that Libya's conflicting parties reached a deal to open 2 ports which essentially double its capacity. The energy component touched a session high of $101.32 in morning action but quickly reversed back into the red. It brushed a session low of $99.92 and settled with a 0.7% loss. 

  May natural gas rose 4 cents to $4.47/MMBtu 

·       Natural gas, on the other hand, traded higher today. It rose as high as $4.53 and eventually settled with a 0.9% gain. 

  May heating oil fell 2 cents to $2.89/gallon 

  May RBOB fell 1 cent to $2.92/gallon

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·       May corn fell 2 cents to $4.99/bushel 

·       May wheat rose 6 cents to $6.76/bushel 

·       May soybeans fell 9 cents to $14.63/bushel 

·       May ethanol fell 4 cents to $2.36/gallon 

·       May sugar (#16 (U.S.)) fell 0.61 of a penny to 24.14 cents/lbs

Treasuries

Treasuries See Third Day of Gains: 10-yr: +06/32..2.696%..USD/JPY: 103.17..EUR/USD: 1.3741

·       Treasuries gained for a third straight session, buoyed by weakness in equities. Click here to see an intraday yields chart.

·       A modest bid was paced by the belly as the 5y shed -3.3bps to 1.617%. Today's close marked the lowest since March 18, the day before the Fed's latest taper, and has action ~15bps off Friday's high print. 

·       The 10y fell -3.1bps to 2.695%. The benchmark yield pressed below both the 50 and 200 dma, and is setting up for another test of the important 2.600% level. 

·       At the long end, the 30y lost -2.7bps, closing at 3.558%. Many participants remain focused on the 3.550% level as a breakdown puts 3.150% in the crosshairs. 

·       A steeper curve developed as the 5-30-yr spread widened slightly to 188.5bps. 

·       Precious metals saw losses as gold fell -$6 to $1297 and silver slipped -$0.04 to $19.90. 

·       Data: JOLTS - Job Openings (10). 

·       Auction: $30 bln 3y notes. 

·       Fed Speak: 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).

Next Day In View 

Economic Commentary

Economic Summary: No data until Consumer Credit at 15:00; Two voting FOMC members (one hawk, one dove) to speak tomorrow
Upcoming Economic Data:

·       February Consumer Credit due out Monday at 15:00 (Briefing.com consensus of $14.3 bln; January was $13.7 bln)

Upcoming Fed/Treasury Events:

·       Minneapolis Fed President Kocherlakota (voting FOMC member, dovish) to speak tomorrow at 13:30

·       Philadelphia Fed President Plosser (voting FOMC member, hawkish) to speak tomorrow at 14:45

Other International Events of Interest

·       Germany's Industrial Production ticked up 0.4% month-over-month (expected 0.3%, prior 0.7%). 

On other news.... 

Fed gives banks an extra two years to conform to Volker Rule limits on CLOs
The Federal Reserve Board announced today that it intends to exercise its authority to give banking entities two additional one-year extensions to conform their ownership interests in and sponsorship of certain collateralized loan obligations (CLOs) covered by section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as the Volcker rule. 

CLOs are securitization vehicles backed predominantly by commercial loans. Section 619 generally prohibits insured depository institutions and any company affiliated with an insured depository institution from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge fund or private equity fund. These prohibitions are subject to a number of statutory exemptions, restrictions, and definitions.

Section 619 of the Dodd-Frank Act directed the Board to adopt rules for the conformance period and the Board previously extended the conformance period for all activities and investments by one year to July 21, 2015. To ensure effective compliance, the Board intends to grant banking entities two additional one-year extensions, which together would extend until July 21, 2017, to conform their ownership interests in and sponsorship of CLOs to the statute. 

Only CLOs in place as of December 31, 2013, that do not qualify for the exclusion in the final rule for loan securitizations would be eligible for the extension. The Board intends to act on these extensions in August of this year and the next year. A banking entity would not have to include ownership interests in CLOs to determine its investment limits under the final rule, and a banking entity would not be required to deduct CLO investments from tier 1 capital under the final rule until the end of the relevant conformance period.




Currencies 

Yen Strengthens Ahead of BOJ Rate Decision: 10-yr: +09/32..2.687%..USD/JPY: 103.05..EUR/USD: 1.3742

·       The Dollar Index presses session lows near 80.20 as sellers remain in control for a second session. 

·       Today's weakness has dropped the Index back below its 100 dma and has action checking in at minor support helped by the 50 dma.

·       EURUSD is +35 pips @ 1.3740 as action climbs off 1.3700 support. That level will remain in focus in the days ahead as support and the 100 dma are helped by trendline support off the July lows. 

·       GBPUSD is +30 pips @ 1.6605 as buyers regain control for the first time in five sessions. Early selling provided a test of 1.6650, but that level was able to hold as buyers stepped up to defend the 50 dma. The recent highs near 1.6650 are all that guard a retest of the February/March highs near 1.6750. British data includes manufacturing production and NEISR GDP Estimate. 

·       USDCHF is -45 pips @ .8875 as trade pulls back after three days of buying. The pair has struggled at resistance in the .8925 area over the past couple of sessions as the bears protect resistance aided by the 100 dma. Switzerland's retail sales will be released tomorrow. 

·       USDJPY is -25 pips @ 103.05 as action presses session lows. Today's losses have the pair moving into 102.75 support that is helped by the 100 dma ahead of tonight's Bank of Japan rate decision. Markets are expecting no change to the current asset purchase program as expectations are the BOJ will let the consumption tax hike take hold before making any alterations. Japan's current account balance is scheduled to cross the wires this evening. Click here to see a daily USDJPY chart.

·       AUDUSD is -30 pips @ .9260 as trade slides off three and a half-month highs. A breakdown of minor support in the .9215 area puts the more important .9135 level in the crosshairs. Australian data due out tonight is limited to NAB Business Confidence. 

·       USDCAD is -15 pips @ 1.0965 as action presses session lows. The weakness comes after today's Bank of Canada Business Outlook Survey indicated firms are the most optimistic about hiring in more than two years. Support in the 1.0950 area will be watched closely in the days ahead. Canada's building permits will be released tomorrow.

Jason's Commentaries

What an unexpected DFDM again. Right at the top of the market, and 2 days ahead of the FOMC minutes. After the in line expectation of the employment numbers, the market seemed to start to take off profits ahead of the earnings seasons as well. The earnings season has to outperform even more to justify the long overcooked market. Else I afraid the market might enter into a terrible bear market in May. Volumes were unusually high at 835m shares traded on the NYSE. Bear totally dominated the session last night. Indices broke most support last night, Nasdaq and Russells below their 100MA, Dow and S&P500 approaching their 100 and 50 MA. Seems quite bear to me. However, ahead of the FOMC, i believe the market will be covering today. 

Market Call: FLAT and volatile

Date: 8 April 2014