1 Jul 2014 AMC - Market rallied ahead of Jobs report and Yellen's speech on low volumes

1 Jul 2014 AMC - Market rallied ahead of Jobs report and Yellen's speech on low volumes

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: -0.2%

·         Germany's DAX: + 0.7%

·         France's CAC: + 0.9%

·         Spain's IBEX: + 0.8%

·         Portugal's PSI: + 1.5%

·         Italy's MIB Index: + 1.3%

·         Irish Ovrl Index: + 1.1%

·         Greece ASE General Index: + 1.2%

Before Market Opens 

S&P futures vs fair value: +5.80. Nasdaq futures vs fair value: +13.00.
The S&P 500 futures trade almost six points above fair value.

The major Asian markets ended mostly higher, while Hong Kong's Hang Seng was closed for Special Administrative Region Establishment Day. 

·         Economic data was plentiful: 

o    China's Manufacturing PMI rose to 51.0 from 50.8, as expected, while HSBC Manufacturing PMI slipped to 50.7 from 50.8 (expected 50.8) 

o    Japan's Tankan Large Manufacturers Index fell to 12 from 17 (expected 15), while Large Non-Manufacturers Index jumped to 19 from 13 (forecast 21). Also of note, Average Cash Earnings rose 0.8% year-over-year, as expected (previous 0.7%), and Manufacturing PMI rose to 51.5 from 51.1 

o    The Reserve Bank of Australia made no policy changes, keeping its key interest rate at 2.5%. Separately, AIG Manufacturing Index slipped to 48.9 from 49.2 

o    South Korea's trade surplus narrowed to $5.29 billion from $5.30 billion (expected surplus of $6.40 billion) and HSBC Manufacturing PMI fell to 48.4 from 49.5. Separately, CPI slipped 0.1% month-over-month (expected 0.1%, previous 0.2%), while the year-over-year reading increased 1.7% (consensus 1.9%, prior 1.7%) 

o    India's HSBC Markit Manufacturing PMI ticked up to 51.5 from 51.4, as expected 

o    Indonesia's Inflation slowed to 6.70% year-over-year from 7.32% (expected 6.76%) and Core Inflation ticked down to 4.81% from 4.82% (expected 4.85%). Separately, HSBC PMI rose to 52.70 from 52.40 and trade balance swung from a deficit of $1.97 billion to a surplus of $70 million (expected surplus of $410 million) 

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·         Japan's Nikkei added 1.1%, settling near its best level of the session. Industrials provided support with Daikin Industries and Mitsubishi Electric climbing 4.5% and 4.1%, respectively.

·         Hong Kong's Hang Seng was closed 

·         China's Shanghai Composite eked out a slim gain of 0.1% after spending the bulk of the session in the red. Dr Peng Telecom & Media surged 9.1%. 

Major European indices trade higher across the board with Italy's MIB (+0.9%) in the lead. Italy's Finance Minister Pier Carlo Padoan said the country may need to revise its growth forecast for the year after data received during the second quarter. 

·         Participants received several data points: 

o    Eurozone Manufacturing PMI slipped to 51.8 from 51.9 (expected 51.9), while the Unemployment Rate held steady at 11.6% (expected 11.7%) 

o    Germany's Claimant Count rose 9,000 (expected -10,000, previous 25,000), while the Unemployment rate held steady at 6.7%, as expected. Separately, Manufacturing PMI slipped to 52.0 from 52.4 (expected 52.4) 

o    Great Britain's Manufacturing PMI rose to 57.5 from 57.0 (consensus 56.8) 

o    French Manufacturing PMI improved to 48.2 from 47.8 (expected 47.8) 

o    Italy's Manufacturing PMI fell to 52.6 from 53.2 (expected 53.2). Separately, Monthly Unemployment Rate ticked up to 12.6% from 12.5% (consensus 12.6%) 

o    Spain's Manufacturing PMI rose to 54.6 from 52.9 (consensus 52.9) 

o    Swiss SVME PMI rose to 54.0 from 52.5 (forecast 52.8) 

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·         Germany's DAX trades higher by 0.2% with drug maker Bayer in the lead. The stock trades higher by 1.5%. Adidas is the weakest performer, down 0.9%. 

·         In France, the CAC holds an advance of 0.6%. Financials display strength with BNP Paribas, Credit Agricole, and Societe Generale up between 2.3% and 4.0%. Alstom lags, down 2.5%. 

·         Great Britain's FTSE trades up 0.6% amid strength in mining shares. Anglo American, BHP Billiton, and Rio Tinto are up between 2.1% and 2.7%. Consumer names lag with Burberry Group and Tesco down 0.8% and 1.3%, respectively. 

·         Italy's MIB is higher by 0.9%. Banca Popolare and BMPS lead with respective gains of 3.2% and 4.8%.

U.S. Equities

·         Equity futures point to a firm open on the first trading day of the the third quarter

·         The S&P 500 and Nasdaq both booked a sixth straight quarterly advance while the DJIA saw its fifth advance in the last six

·         Action is likely to be fast and furious at the open as participants put new ideas to work at the start of the quarter, but is likely to taper off into the close as traders turn their attention to this afternoon's 4pm ET USA v. Belgium World Cup match

·         The soccer gods gave the market a bit of a reprieve as kickoff does not take place until shortly after the close

o    S&P Futures +6 @ 1958

o    Dow Futures +52 @ 16,792

o    Nasdaq Futures +14 @ 3854

Asia

·         Markets were mixed across Asia

·         Japan's Nikkei (+1.1%) managed to shrug off the uninspiring Tankan Manufacturing (12 actual v. 16 expected, 17 previous) and Tankan Non-Manufacturing (19 actual v. 19 expected, 24 previous) data and close near a five-month high

·         China's Shanghai Composite (+0.1%) was little changed after the in-line Chinese Manufacturing PMI (51.0 actual v. 51.0 expected, 50.8 previous) and HSBC Final Manufacturing PMI (50.7 actual v. 50.8 expected, 50.8 previous) readings

·         Hong Kong's Hang Seng (-0.1%) also finished little changed

·         India's Sensex (+0.4%) finished just shy of all-time highs 

·         Australia's ASX (-0.4%) slipped after the Reserve Bank of Australia held its Cash Rate steady at 2.50%, as expected

Market Internals

Market Internals -Technical-
The Nasdaq closed up 50 (+1.14%) at 4459, the Dow closed up 129 (+0.77%) at 16956, and the S&P 500 closed up 13 (+0.67%) at 1973. Action came on slightly below average volume (NYSE 671 mln vs. avg. of 680; NASDAQ 1789 mln vs. avg. of 1745), with advancers outpacing decliners (NYSE 2102/1048, NASDAQ 1964/731) and new highs outpacing new lows (NYSE 362/6, NASDAQ 203/17).

Relative Strength: 
Greece-GREK +2.4%, Biotechnology-IBB +2.37%, Taiwan-EWT +1.84%, Biotechnology-XBI +1.75%, Japan-EWJ +1.74%, Rare Earths-REMX +1.67%, Semiconductors-SMH +1.62%, Lithium-LIT +1.54%, Italy-EWI +1.38%, Columbia Index-GXG +1.14%.

Relative Weakness: 
Egypt-EGPT -3.02%, Volatility-VXX -2.65%, Coffee-JO -2.53%, Junior Gold Miners-GDXJ -2.25%, Turkey-TUR -2%, Sugar-SGG -1.1%, Utilities-XLU -0.99%, Eastern Europe-ESR -0.72%, Japanese Yen-FXY -0.26%, Swiss Franc-FXF -0.09%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries

Closing Market Summary: Stocks Begin Q3 With Broad Rally
The stock market kicked off July on a strong note with small caps pacing the rally. The Nasdaq Composite and Russell 2000 jumped 1.1% and 1.0%, respectively, while the S&P 500 advanced 0.7% with nine sectors ending in the green.

Equities displayed early strength after economic data reported overnight and in the early morning indicated expanding manufacturing activity in China, Japan, the eurozone, and the U.S. Although some of the PMI readings missed estimates, they were all above 50, a level that represents the border between expansion and contraction. The data fostered the bullish tone, which was amplified by the arrival of new money at the start of the quarter.

In large part, today's advance was powered by four of the most influential sectors. Consumer discretionary (+1.1%), health care (+1.3%), financials (+0.6%), and technology (+1.1%) jumped to the top of the leaderboard at the open and held their ground throughout the session.

The health care sector was the top performer thanks in part to the relative strength of biotechnology. Regeneron (REGN 303.39, +20.92) surged 7.4%, while the broader iShares Nasdaq Biotechnology ETF (IBB 263.12, +6.09) advanced 2.4%. Furthermore, the outperformance of biotech boosted the Nasdaq Composite (+1.1%), which also drew strength from the technology sector.

Top-weighted tech components like Apple (AAPL 93.52, +0.59), Google (GOOGL 591.49, +6.82), and Qualcomm (QCOM 79.73, +0.53) rallied across the board, while chipmakers fared even better. The PHLX Semiconductor Index rose 1.4% with all 30 components posting gains.

Elsewhere, the discretionary sector stayed near the lead amid broad strength. Shares of Netflix (NFLX 473.10, +32.50) soared 7.4% in reaction to a Goldman Sachs upgrade, while home builders and retailers also charged ahead. The iShares Dow Jones US Home Construction ETF (ITB 25.09, +0.29) added 1.2% and SPDR S&P Retail ETF (XRT 87.47, +0.67) settled higher by 0.8%.

On the downside, the utilities sector (-1.0%) was the lone decliner amid some profit taking after the sector added 4.2% in June. Even though the rate-sensitive sector started the third quarter on a lower note, its year-to-date gain (15.3%) after today's slide was still large enough to keep the sector at the top of the 2014 leaderboard.

Treasuries spent the duration of the session in a steady retreat with the 10-yr note shedding nine ticks. As a result, the benchmark yield rose three basis points to 2.56%.

Participation remained on the light side with less than 675 million shares changing hands at the NYSE.

Economic data was limited to May Construction Spending and June ISM: 

·         Construction spending increased 0.1% in May following an upwardly revised 0.8% (from 0.2%) gain in April. The Briefing.com consensus expected construction spending to increase 0.4% 

o    Private construction spending fell 0.3% in May, giving back nearly all of the 0.3% increase from April 

o    Total public construction spending increased 1.0% in May after increasing 2.1% 

·         The ISM Manufacturing Index fell slightly to 55.3 in June from 55.4, while the Briefing.com consensus expected the Index to increase to 55.8 

o    Considering that nearly all of the regional Federal Reserve manufacturing surveys showed an acceleration in manufacturing activity in June, the deceleration registered in the national ISM Index was disappointing and confusing 

o    New orders managed to increase to 58.9 from 56.9 

o    Order backlogs contracted, falling to 48.0 from 52.5 

o    Production Index fell to 60.0 from 61.0 

Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET, while Challenger Job Cuts for June will be announced at 7:30 ET. ADP Employment Change (Briefing.com consensus 200K) for June will be announced at 8:15 ET, while May Factory Orders (consensus -0.4%) will cross the wires at 10:00 ET. 

·         S&P 500 +6.8% YTD 

·         Nasdaq Composite +6.8% YTD 

·         Dow Jones Industrial Average +2.3% YTD 

·         Russell 2000 +3.7% YTD

Commodities

Closing Commodities: Crude Oil Sells Off, Erasing Gains

·         Grains extended losses today, largely driven by yesterday's USDA reports (annual acreage report and quarterly grain stocks report)

·         Sept corn fell 2 cents to $4.15/bu, Sept wheat fell 4 cents to $5.72/bu

·         Crude oil sold off in afternoon trading, erasing all of its gains and closing one cent lower at $105.36/barre

·         Aug natural gas lost one cent and finished at $4.46/MMbtu

·         Gold and silver held gains. Aug gold rose $3.30 to $1325.60/oz, while July silver rose $0.08 to $21.11/oz

·         July copper ended flat at $3.20/lb

COMEX Metals Closing Prices

·         Aug gold rose $3.30 to $1325.60/oz

·         July silver rose $0.08 to $21.11/oz

·         July copper remained unchanged to $3.20/lb

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices- grains end notably lower following USDA grain stock and acreage reports

·         July corn fell 2cents to $4.15/bushel 

·         July wheat fell 4 cents to $5.72/bushel 

·         July soybeans fell 1 cent to $13.27/bushel 

·         July ethanol fell 3 cents to $1.95/gallon 

·         Sep sugar (#16 (U.S.)) rose 0.02 of a penny to 26.15 cents/lbs

 NYMEX Energy Closing Prices

·         Aug crude oil fell $0.01 to $105.36/barrel

·         Aug natural gas fell 1 cent to $4.46/MMBtu

·         Aug heating oil was unchanged at $2.98/gallo

·         Aug RBOB fell 1 cent to $3.04/gallon

Treasuries

Treasuries See Soft Start to Third Quarter: 10-yr: -10/32..2.568%..USD/JPY: 101.52..EUR/USD: 1.3678

·         Treasuries finished near their lows as sellers took control at the start of the third quarter. Click here to see an intraday yields chart.

·         Most of the damage was done early on as longer dated yields tacked on +4bps ahead of the cash open and continued higher over the remainder of the session despite ISM Index (55.3 actual v. 55.8 expected) and construction spending (0.1% actual v. 0.4% expected) both falling short of estimates.

·         Selling at the long end ran the 30y higher by +5.7bps to 3.395%. The yield posted its highest close in a week, and is now contending with resistance in the 3.400% area that is helped by the 50 dma. 

·         The 10y added +4.7bps to 2.563%. The benchmark yield tested trendline resistance off the January highs, but was unable to reclaim the level. 

·         In the belly, the 5y climbed +3.1bps to 1.656%. The yield saw an early bounce off support in the 1.620% area that is helped by the 100 dma before retaking the 50 dma. 

·         A steeper curve prevailed with the 2-10-yr spread widening to 210bps.

·         Precious metals saw modest gains with gold +$7 @ $1329 and silver +$0.08 @ $21.14. 

·         Data: MBA Mortgage Index (7), Challenger Job Cuts (7:30), ADP Employment Change (8:15), and factory orders (10).

·         Fed Speak: Fed Chair Janet Yellen speaks at the IMF (11).

On other news.... 

Currencies 

Dollar Continues to Test Key 79.80 Level: 10-yr: -11/32..2.567%..USD/JPY: 101.52..EUR/USD: 1.3682

·         The Dollar Index hovers little changed as trade continues to press the key 79.80 area. Click here to see a daily Dollar Index chart.

·         EURUSD is -10 pips @ 1.3680 as trade eases off six-week highs. Resistance in the 1.3700 area is guarded by both the 50 and 200 dma, and is likely to remain in place into Thursday's European Central Bank rate decision. Eurozone data out tomorrow is limited to Spanish unemployment change. 

·         GBPUSD is +45 pips @ 1.7155 as a fourth straight day of gains has sterling on track to close at its best level since October 2008. Today's bid has been propelled by the strongest Manufacturing Production number since December with underlying strength persisting on the belief the Bank of England will be the first major Western central bank to raise rates and emerge from the crisis. Britain's Nationwide Home Price Index and Construction PMI will be released tomorrow. 

·         USDCHF is +5 pips @ .8870 as trade checks up following a test of .8850 support. The relatively quiet session comes after Switzerland's SVME PMI topped estimates as trade continues to be dictated by the euro thanks to the Swiss National Bank's EURCHF1.2000 floor. 

·         USDJPY is +25 pips @ 101.55 as action bounces off its lowest close in five months. Today's bid has been fuelled by a flight into risk assets at the start of the quarter, and comes following the rather uninspiring Tankan Manufacturing and Tankan Non-Manufacturing reports. 

·         AUDUSD is +65 pips @ .9495 as trade readies for its best close in almost nine months. The hard currency found an early bid after the in-line Chinese Manufacturing PMI and HSBC Final Manufacturing numbers, and has continued higher throughout the session after the Reserve Bank of Australia held its Cash Rate unchanged at 2.50%, as expected. The .9700 area is setting up as a key level. Australia's trade balance is due out tonight. 

·         USDCAD is -35 pips @ 1.0630 as trade flushes to its lowest levels of 2014. Today's weakness has the pair lower for the eighth time in ten sessions, and has trade moving towards the lower bound of the 1.0600/1.0700 support band.

Next Week In View




Economic Commentaries

Economic Summary: ISM misses expectations slightly; Construction spending also below estimates; Janet Yellen tomorrow at 11:00
Economic Data Summary:

·         June ISM Index 55.3 vs Briefing.com consensus of 55.8; May was 55.4

o    Considering that nearly all of the regional Federal Reserve manufacturing surveys showed an acceleration in manufacturing activity in June, the deceleration registered in the national ISM Index was disappointing and confusing.

·         May Construction Spending 0.1% vs Briefing.com consensus of 0.4%; April was revised to 0.8% from 0.2%

o    Private construction spending fell 0.3% in May, giving back nearly all of the 0.3% increase from April. Private residential construction spending was down 1.5% in May. That was unusual considering the solid rebound in May housing starts. The problem stemmed from the fact that nearly the entire increase in the number of homes under construction that month came from the relatively cheaper multi-family construction sector. That weighed down total spending on new residential construction (-1.2%). Spending on home improvement projects in May fell 1.9%.

Upcoming Economic Data:

·         Weekly MBA Mortgage Applications due out Wednesday at 7:00 (Briefing.com consensus of ; Last Week was -1.0%)

·         June Challenger Job Cuts due out Wednesday at 7:30 (May was 45.5%)

·         June ADP Employment Change due out Wednesday at 8:15 (Briefing.com consensus of 200K; May was 179K)

·         May Factory Orders due out Wednesday at 10:00 (Briefing.com consensus of -0.4%; April was 0.7%)

Upcoming Fed/Treasury Events:

·         Fed Chair Janet Yellen to speak tomorrow at 11:00

Other International Events of Interest

·         China's Shanghai Composite (+0.1%) was little changed after the in-line Chinese Manufacturing PMI (51.0 actual v. 51.0 expected, 50.8 previous) and HSBC Final Manufacturing PMI (50.7 actual v. 50.8 expected, 50.8 previous) readings. Hong Kong's Hang Seng (-0.1%) also finished little changed.

Jason's Commentaries

Another typical pricing in by the market on low volumes. The market is very overbought right now, with buybacks and M&A pushing new highs, the market is definitely very greed, very complacent right now. The main question is... when will this rally ends.

The market started the day with a bullish bias, and held its high all the way while Nasdaq broke a new high once again. However, internals are showing some divergence. The main factors pushing the S&P500 up higher was due to IBM, Mastercard, Amazon and Google. Each gaining over more than 1% last night. The broader market was up except for utilities, losing 0.99%. I believe Yellen's speech will likely to be a non-event today, unlikely to trigger any major movement in the market. However, the main action will come in after the jobs report. Stay safe people =D








Market Call: ABSTAIN

Date: 2 July 2014