2 May 2014 AMC - Market came down despite outstanding job reports, however job reports offer more questions than answers

2 May 2014 AMC - Market came down despite outstanding job reports, however job reports offer more questions than answers

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: + 0.2%

·         Germany's DAX: -0.5%

·         France's CAC: -0.7%

·         Spain's IBEX: + 0.2%

·         Portugal's PSI: + 1.0%

·         Italy's MIB Index: 0.0%

·         Irish Ovrl Index: + 0.5%

·         Greece ASE General Index: + 0.7%

Before Market Opens 

S&P futures vs fair value: -0.70. Nasdaq futures vs fair value: +5.70.
The S&P 500 futures trade right below fair value.

Asian markets ended the final session of the week in mixed fashion, while China's Shanghai Composite remained closed for Labor Day. Also of note, China's Index Academy reported the 23rd consecutive month of rising home prices across major cities, but the increase in April was very slight at 0.1%.

In economic data, Japan's Household Spending surged 7.2% year-over-year in March ahead of the sales tax hike that went into effect on April 1 (consensus 1.0%, prior -2.5%). Separately, the Unemployment Rate held steady at 3.6%, as expected. Hong Kong's Retail Sales fell 1.3% year-over-year (expected 7.2%, prior -2.3%). Australia's PPI rose 0.9% quarter-over-quarter (consensus 0.5%, prior 0.2%) and HIA New Home Sales increased 0.2% month-over-month (prior 4.6%). New Zealand's ANZ Commodity Price Index fell 4.0% month-over-month (-0.1% prior). Indonesia's Inflation rose 7.25% year-over-year, as expected, while Core Inflation increased 4.66% (consensus 4.67%, prior 4.61%). Separately, the trade surplus narrowed to $670 million from $790 million (expected surplus of $500 million). 

·         Japan's Nikkei slipped 0.2% despite spending the session in a climb off its early low. Utilities lagged, with Chubu Electric Power and Kansai Electric Power down 2.1% and 2.5%, respectively. 

·         Hong Kong's Hang Seng rallied 0.6% with help from heavyweight names. Tencent Holdings and Hutchinson Whampoa gained 2.5% and 2.0%, respectively. On the downside, China Mobile lost 0.8%. 

·         China's Shanghai Composite was closed. 

Major European indices trade mixed after the release of regional manufacturing surveys. Eurozone Manufacturing PMI ticked up to 53.4 from 53.3 (consensus 53.3), while the Unemployment Rate held steady at 11.8% (expected 11.9%). Germany's Manufacturing PMI slipped to 54.1 from 54.2 (expected 54.2). Great Britain's Construction PMI fell to 60.8 from 62.5 (forecast 62.0). French Manufacturing PMI increased to 51.2 from 50.9 (expected 50.9). Italy's Manufacturing PMI jumped to 54.0 from 52.4 (expected 52.8). Spain's Manufacturing PMI ticked down to 52.7 from 52.8 (consensus 53.4). Swiss SVME PMI improved to 55.8 from 54.4 (expected 55.5).

Among news of note, Ukraine's military stormed the town of Slavyansk in an attempt to recapture the city that has been described as a stronghold for pro-Russian separatists. 

·         In France, the CAC is lower by 0.5% as Carrefour weighs. The stock trades down 4.4% after receiving a downgrade. On the upside, telecom provider Orange is higher by 2.8%.

·         Germany's DAX holds a loss of 0.1%. Drug maker Merck is among the laggards, down 1.0%. On the upside, Deutsche Telekom leads with a gain of 3.3%. 

·         Great Britain's FTSE trades up 0.2% with support from Royal Bank of Scotland, which trades higher by 9.9% after reporting upbeat results. Consumer names lag with Associated British Foods and Pearson lower by 2.4% and 1.3%, respectively.

Market Internals

Market Internals -Technical-
The Dow closed down 46 (-0.28%) at 16513, the S&P 500 closed down 3 (-0.13%) at 1881, and the Nasdaq closed down 4 (-0.09%) at 4124. Action came on below average volume (NYSE 684 mln vs. avg. of 731; NASDAQ 1716 mln vs. avg. of 2008), with advancers outpacing decliners (NYSE 1772/1330, NASDAQ 1343/1281) and mixed new highs/lows (NYSE 130/18, NASDAQ 43/61).

Relative Strength: 
Silver Miners-SIL +2.87%, Junior Gold Miners-GDXJ +2.78%, Middle East and Africa-GAF +1.99%, Latin America 40-ILF +1.98%, Homebuilders-XHB +1.47%, U.S. Home Construction-ITB +1.44%, Copper-JJC +1.27%, New Zealand-ENZL +1.02%, BRICs-EEB +0.98%, Turkey-TUR +0.86%. 

Relative Weakness: 
Utilities-XLU -2.05%, Eastern Europe-ESR -1.92%, Sugar-SGG -1.88%, Biotechnology-XBI -1.85%, Greece-GREK -1.59%, Corn-CORN -1.53%, Biotechnology-IBB -1.48%, Russia-RSX -1.33%, Germany-EWG -0.82%, Poland-EPOL -0.76%.

Leaders and Laggards

 

Technical Updates

Commentaries 

Closing Market Summary: Stocks End Upbeat Week on Cautious Note
The stock market finished an upbeat week on a cautious note as the major averages settled near their flat lines. The S&P 500 (-0.1%) shed less than three points, while the Russell 2000 (+0.1%) outperformed slightly. Interestingly, the bulk of today's trading activity took place before 11:00 ET, while the key indices spent the afternoon within a striking distance of their unchanged levels.

One hour ahead of the opening bell, the April Nonfarm Payrolls report pointed to the addition of 288,000 jobs (Briefing.com consensus 210,000), but the release was a bit mystifying as a sharp drop in the labor force pressured the unemployment rate to 6.3% from 6.7%.

On one hand, the surprise jump in payrolls suggests a release of pent-up demand following weather-related delays; however, there was nothing in the job creation data that pointed toward a weather-delayed shock. Sectors that were most affected by the weather, such as construction and mining, saw solid growth but nothing different than what was reported during the worst of the weather problems in February. On the other hand, the unemployment rate plunged from 6.7% to 6.3%, which resulted entirely from an 806,000 drop in the civilian labor force. Had the labor force stayed constant, the unemployment rate would have increased to 6.8%.

The enigmatic report was met with an initial spike in index futures and the Dollar Index, while gold and Treasuries slumped; however, those moves were short-lived as futures returned to unchanged by the opening bell, while the dollar, gold, and Treasuries also reversed their post-data moves. As a result, Treasuries settled near their highs, with the benchmark 10-yr yield down three basis points at 2.59%. Also of note, the 30-yr bond posted its third consecutive gain, pressuring its yield to 3.37%, a level that was last seen in June of last year.

With regard to gold futures, the yellow metal rose 1.1% to $1297.60/ozt. This put in a floor under miners (GDX +2.2%), which in turn gave support to the materials (+0.5%) sector.

The materials space ended in the lead and was followed closely by the energy sector (+0.3%), which was able to overcome a disappointing quarterly report from Chevron (CVX 124.72, -0.22). Crude oil, meanwhile, added 0.4% to $99.80/bbl.

Outside of the two commodity-linked sectors, the discretionary space (+0.3%) was the only other advancer. Homebuilders took part in the move higher as the iShares Dow Jones US Home Construction ETF (ITB 23.95, +0.34) gained 1.4%.

On the flip side, seven sectors registered losses, with utilities (-2.0%) leading the retreat, which was a bit peculiar considering the rate-sensitive sector tends to benefit from lower Treasury yields. To be fair, the selling may have been a function of some profit taking inside of a sector that remains well ahead of the other groups so far in 2014. Today's loss narrowed the sector's year-to-date gain to 11.7%, while the second-best performer of the year—energy—ended the session with a 5.3% advance so far this year.

Trading volume was below average as less than 685 million shares changed hands at the NYSE. This was likely a result of unwillingness among some participants to step in ahead of the weekend as the next couple days could change the state of affairs in Ukraine. Earlier today, Ukraine's military stormed the town of Slavyansk in an attempt to recapture a city that has been described as a stronghold for pro-Russian separatists. In response to the developments, Russia has called an emergency meeting of the United Nations Security Council.

Reviewing today's remaining data: 

·         Factory orders increased 1.1% in March after increasing a downwardly revised 1.5% (from 1.6%) in February. The Briefing.com consensus expected factory orders to increase 1.6%. Durable goods orders were revised up, increasing 2.9% from an originally reported 2.6%. Orders increased 2.3% in February. Excluding transportation, durable goods orders increased 2.4%, up from an originally reported 2.0%. 

On Monday, the ISM Services report for April will be released at 10:00 ET (Briefing.com consensus 54.0). 

·         S&P 500 +1.8% YTD 

·         Dow Jones Industrial Average -0.4% YTD 

·         Nasdaq Composite -1.3% YTD 

·         Russell 2000 -2.9% YTD 

Commodities

Closing Commodities: Precious Metals Close Higher

·         Gold, silver and copper futures rallied today following a pullback in the dollar index 

·         Gold pushed above the $1300/oz level, while silver rose above the $19.50/zo area.

·         Gold pulled back a little and ended the day with a modest gain. Silver lost 2.1% at $19.56/oz

·         Crude oil remain consolidates in the afternoon session and closed $0.33 higher at $99.81/barrel.

·         Nat gas continued to slide lower and finished 4 cents lower $4.67/MMBtu.

COMEX Metals Closing Prices

·         June gold rose $7.00 to $1303.00

·         July silver rose $0.40 to $19.56

·         July Copper rose 4 cents to $3.07

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         July corn fell 8 cents to $4.99/bushel

·         July wheat rose 7 cents to $7.16/bushel

·         July soybeans rose 10 cents to $14.71/bushel

·         May ethanol fell 3 cents to $2.14/gallon

·         July sugar (#16 (U.S.)) rose 0.07 of a penny to 24.60 cents/lbs

NYMEX Energy Closing Prices

·         June crude oil rose $0.33 to $99.81/barrel

·         June natural gas fell 4 cents to $4.67/MMBtu

·         June heating oil rose 1 cent to $2.92/gallon

·         June RBOB rose 1 cent to $2.95/gallon

Treasuries

Longer Dated Yields Press to Multi-Month Lows: 10-yr: +08/32..2.588%..USD/JPY: 102.23..EUR/USD: 1.3869
The Week in Review

·         Treasuries posted solid gains this week despite the Fed trimming its monthly asset purchases by another $10 bln to $45 bln. Click here to see an intraweek yields chart.

·         This week's FOMC Statement suggested "growth in economic activity picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions." 

·         Friday's better than expected headline nonfarm payroll number (288K actual v. 210K expected) produced initial selling, but longer dated reversed those losses and ended at multi-month highs.

·         The unemployment rate fell to 6.3% (6.6%) after the labor force saw its biggest decline on record. 

·         Investors received a rude awakening on Wednesday after Q1 GDP-Adv. came in at a minuscule +0.1% (+1.0% expected). 

·         Also providing support was continued uneasiness in eastern Ukraine where pro-Russian separatists are said to occupy government buildings.

·         Economic data was generally better than expected as Chicago PMI (63.0 actual v. 56.5 expected), ISM Index (54.9 actual v. 54.5 expected), pending home sales (3.4% actual v. 1.0% expected), personal income (0.5% actual v. 0.4% expected), personal spending (0.9% actual v. 0.6% expected), and nonfarm private payrolls (273K actual v. 205K expected) all topped estimates.

·         Data misses were limited to Case-Shiller 20-city Index (12.9% actual v. 13.0% expected), construction spending (0.2% actual v. 0.4% expected), and consumer confidence (82.3 actual v. 83.6 expected)

·         The 2y saw a flat week as action held near 0.430%. 

·         The 5y shed -6bps to close the week @ 1.674%. The yield saw a volatile session on Friday as trade fluctuated in a 12bp range. Post-NFP selling produced a retest of last week's high near 1.780% before buyers took control into the close. 

·         The 10y fell -8bps to 2.591%. The benchmark yield pressed to a six-month low of 2.574% before seeing an uptick into Friday's cash close. The 2.600% support level will be watched closely into next week as trade broke below support in the area that had been in place since the beginning of February.  

·         At the long end, the 30y lost -8bps to settle @ 3.367%. Friday's action pushed the 30y to its lowest level since mid-June with action now more than -60bps off the December 31 high. 

·         Curve flattening caused the 5-30-yr spread to tighten to 169.5bps, a level last seen in the fall of 2009. 

The Week Ahead 

·         Monday's data is limited to ISM Services (10). 

·         Tuesday will see just the trade balance (8:30). Treasury will auction $29 bln 3y notes. Fed Governor Stein will speak at NYU (TBD). 

·         Data picks up a bit on Wednesday as the weekly MBA Mortgage Index (7), productivity-prel., unit labor costs (8:30), and consumer credit (15) are due out. Treasury will hold a $24 bln 10y note offering. Fed Chair Janet Yellen will testify before the Joint Economic Committee (10). Dallas' Fisher will speak in front of the Louisiana Bankers Association (12 noon) and Minny's Kocherlakota makes keynote remarks at the Council on Asian Pacific Minnesotans 2014 Asian Heritage Dinner (TBD). 

·         Thursday's data is light, limited to initial and continuing claims (8:30). Treasury will auction $16 bln 30y bonds. Philly's Plosser will discuss monetary policy (8). Chicago's Evans gives opening remarks at the Conference on Bank Structure and Competition (9:25) before Fed Governor Tarullo speaks (9:30). STL's Bullard will make introductory remarks at the "The Balance Sheets of Younger Americans: Is the American Dream at Risk?" research symposium (14).

·         Data concludes for the week on Friday with wholesale inventories (10).

On other news.... 



Employment Report Provides More Questions than Answers
Nonfarm payrolls added 288,000 jobs in April, up from an upwardly revised 203,000 (from 192,000) in February. The Briefing.com consensus expected nonfarm payrolls to increase by 210,000 jobs. The unemployment rate dropped to 6.3% in April from 6.7% in March. The consensus expected the unemployment rate to fall to 6.6%. While the data overwhelmingly surprised on the positive side, the employment report actually shows a confusing labor market. On one hand, the surprise jump in payrolls suggests a release of pent-up demand following weather-related delays. However, there was nothing in the job creation data that pointed toward a weather-delayed shock. Sectors that were most effected by the weather, such as construction and mining, saw solid growth but nothing different than what was reported during the worst of the weather problems in February. Instead of weather, the gains in employment were likely the result of a solid rebound in labor conditions across all sectors. The recent decline in the initial claims correctly foreshadowed a large improvement in labor demand. On the other hand, the entire decline in the unemployment rate was a result of an 806,000 drop in the civilian labor force. The number of workers actually employed declined by 73,000. The labor force participation rate dropped to 62.8% from 63.2%. If the labor force did not decline, the unemployment rate would have increased to 6.8%. It seems that the workers affected by the expiration of the emergency unemployment benefits left the labor force. The drop was anticipated, but was largely expected to occur back in January. Those workers kept up their job search for a few months after their benefits ran out before finally ending it. Given such a divergent report, it is far from certain that a 288,000 payroll gain will be a normal occurrence. Normal sectorial ebbs and flows could push payroll growth back to its previous 200,000 trend. The average workweek remained at 34.5 in April and the average hourly earnings were also flat after increasing an upwardly revised 0.1% in March. Altogether, the gains in employment drove aggregate earnings up 0.2%. That is enough to keep consumption growth positive, but not enough to keep spending at first quarter levels without a slight drop in the personal savings rate. The establishment survey used for the payroll data showcased a solid improvement in the labor market. Yet, the household survey used to calculate the unemployment rate left a lot of questions.



Currencies

Dollar Tests Key Support: 10-yr: +10/32..2.580%..USD/JPY: 102.20..EUR/USD: 1.3879

·         The Dollar Index trades on session lows as action probes the 79.50 level. Click here to see a daily Dollar Index chart.

·         The Index jumped to session highs near 79.85 following the strong headline nonfarm payroll beat, but gave up those gains as the number was digested. 

·         The 79.40/79.50 area sets up as key support with a breakdown putting the October lows near 79.20 in play.

·         EURUSD is +10 pips @ 1.3875 as trade presses session highs. The single currency saw a test of 1.3800 support following the jobs report, but buyers emerged in defense of the level and the 50 dma. Any close above 1.3935 would be the best since November 2011. EU economic forecasts are due out Monday. 

·         GBPUSD is -15 pips @ 1.6875 as trade continues to claw back its early losses. Sterling has been offered throughout the session after Britain's Construction PMI missed expectations. The early weakness tested support in the 1.6800 area, but action is now just off yesterday's 56-month closing high. British banks are closed Monday for May Day.

·         USDCHF is -20 pips @ .8775 as sellers remain in control for the eighth time in nine sessions. A breakdown of the .8750 level puts the March lows in jeopardy. 

·         USDJPY is -15 pips @ 102.15 as action probes session lows. Buying excitement reached a pinnacle in the moments following the jobs report as a rush of buying catapulted action to nearly on-month highs above 103.00; however, trade has since given up those gains and then some. Today's developments have to be a bit disconcerting to the bulls as a breakout above the 102.50 pivot failed. Japanese banks are closed Monday in observance of Children's Day.

·         AUDUSD is flat @ .9265 as trade holds support in the area. Selling this morning produced a test o the 50 dma near .9200, quickly recovered those losses. Australian data includes building approvals and ANZ Job Advertisements. China's Non-Manufacturing PMI will be released tonight while HSBC Final Manufacturing PMI will cross the wires Sunday evening.

·         USDCAD is +15 pips @ 1.0975 amid a rather uneventful day for the pair. Trade looks likely to post its fourth consecutive close near the 100 dma.

Weekly Analysis
Week 1



Technical Updates

Briefing's Commentaries


Week in Review: Large Caps Outperform

The stock market began the new week on a mixed note despite showing early strength. Weakness among small-cap names resulted in the underperformance of the Russell 2000 (-0.6%) and the Nasdaq Composite (-0.03%), while the S&P 500 settled higher by 0.3%. Equity indices climbed out of the gate, emboldened by M&A activity in the heavily-weighted health care sector (+0.6%). The third-largest group served as an early leader with help from Pfizer, which jumped 4.2% after confirming its interest in AstraZeneca. Also of note, Forest Laboratories agreed to acquire Furiex Pharmaceuticals for $1.1 billion. Even though the health care sector rallied at the open, the broader market was unable to build on the strength as weakness in momentum names—including biotechnology—outweighed the early optimism. The iShares Nasdaq Biotechnology ETF spent the entire session between its 20- and 200-day moving averages before settling just above the 200-day average.

On Tuesday, equity indices rallied, with the S&P 500 (+0.5%) posting its second consecutive gain as eight sectors ended in the green. Momentum names, meanwhile, rebounded from Monday's relative weakness, which allowed the Nasdaq Composite (+0.7%) to finish ahead of the benchmark index. Stock indices began the session on an upbeat note, slowly building on their early gains throughout the afternoon. The energy sector (+0.4%) powered the opening advance thanks to better than expected earnings from BP and Valero Energy. BP surged 2.6%, while Valero displayed early strength, but spent the session in a steady retreat from its opening high, which mirrored the price action of the entire sector.

The major averages spent some time on either side of their respective flat lines on Wednesday, but when the dust settled, they ended with modest gains. The Dow Jones Industrial Average, S&P 500, and Nasdaq all added 0.3%, with the Dow registering its first green close for the year. The session featured another heavy dose of earnings and a full slate of economic data. Prior to the open, index futures jumped in reaction to a better-than-expected ADP Employment report, but promptly surrendered those gains when it was reported that GDP increased a puny 0.1% in the first quarter (Briefing.com consensus 1.0%). The disappointing report ensured a lower start for the major averages, but they only took one more step down before forging a rebound on the back of the industrial sector (+0.5%), which drew strength from transports. The Dow Jones Transportation Average jumped 0.7%, bolstered by above-consensus earnings reported by C.H. Robinson.

The stock market ended on a cautious note after enduring a sloppy session that lacked concerted sector leadership. The S&P 500 settled right below its flat line, while the Russell 2000 lost 0.5% after displaying intraday volatility. Equities began the first session of May near their flat lines amid the lack of leadership from overseas as most global markets were closed for Labor Day. Despite the quiet open, small caps were active from the get-go as the Russell 2000 retreated as much as 1.1% during the first hour of action. The index halted its slide at the 200-day moving average (1113.73), which has been acting as an area of support since mid-April. Meanwhile, the S&P 500 spent the bulk of the afternoon within four points of its flat line as individual sectors traded in mixed fashion. Most notably, consumer discretionary (+0.4%) and utilities (+0.3%) outperformed throughout the session, with the utilities sector extending its 2014 advance to 14.0%.

Next Week In View





Economic Commentaries

Economic Summary: NonFarm Payrolls blow past estimates; Unemployment rate falls largely due to drop in labor force participation rate
Economic Data Summary:

·         April Nonfarm Payrolls 288K vs Briefing.com consensus of 210K; March was 192K

·         April Nonfarm Private Payrolls 273K vs Briefing.com consensus of 205K; March was 192K

·         April Unemployment Rate 6.3% vs Briefing.com consensus of 6.6%; March was 6.7%

·         April Hourly Earnings 0.0% vs Briefing.com consensus of 0.2%; March was 0.0%

·         April Average Workweek 34.5 vs Briefing.com consensus of 34.5; March was 34.5

o     On one hand, the surprise jump in payrolls suggests a release of pent-up demand following weather-related delays. However, there was nothing in the job creation data that pointed toward a weather-delayed shock. Sectors that were most effected by the weather, such as construction and mining, saw solid growth but nothing different than what was reported during the worst of the weather problems in February. Instead of weather, the gains in employment were likely the result of a solid rebound in labor conditions across all sectors. The recent decline in the initial claims correctly foreshadowed a large improvement in labor demand. On the other hand, the entire decline in the unemployment rate was a result of an 806,000 drop in the civilian labor force. The number of workers actually employed declined by 73,000. The labor force participation rate dropped to 62.8% from 63.2%.

·         March Factory Orders +1.1% vs Briefing.com consensus of 1.6%; February was 1.6%

o     Orders increased 2.3% in February. Excluding transportation, durable goods orders increased 2.4%, up from an originally reported 2.0%. A 2.8% decrease in petroleum and coal product orders led to a 0.6% decline in nondurable goods orders.

Upcoming Economic Data:

·         April ISM Services due out Monday at 10:00 (Briefing.com consensus of ; March was 53.1)

Other International Events of Interest

·         China's Shanghai Composite remained closed for Labor Day while Hong Kong's Hang Seng (+0.6%) returned to a work with a modest gain as casino stocks led the way

·         Japan's Nikkei (-0.2%) slipped despite the 7.2% YoY surge in household spending (1.7% YoY expected), which was attributed to demand being pulled forward ahead of the consumption tax increase.

Jason's Commentaries

Despite having good employment numbers, the market is confused... This is not a good reaction that I'm expecting from the market. The job numbers gave the market a headstart in the first 30mins of the session. However, after 30 mins, all gains were lost. Dow slipped into the red while S&P500 barely held at the neutral line. Nasdaq was the main indices that held the market up. Volumes closed at 694m shares traded on the NYSE, with internals totally divergent from the indices movements. Treasuries once again went much high last Friday. The main lagging sectors were Utilities and Healthcare, with Utilities down 2.05% and Healthcare down 0.86%. On the technical perspective, we're looking at hitting the resistance levels. Most of the levels held strong. With weak reaction from the market for the employment data, I reckon the market might not have sufficient strength to break into the highs. Adding to the woes, We're in May... that sums it all.  

Market Call: FLAT to downside

Date: 5 May 2014