10 Jul 2014 AMC - Market dragged down by Portuguese bank's debt default
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: -1.5%
- France's CAC: -1.3%
- Spain's IBEX: -2.0%
- Portugal's PSI: -4.2%
- Italy's MIB Index: -1.9%
- Irish Ovrl Index: -0.6%
- Greece ASE General Index: -1.8%
Before Market Opens
S&P futures vs fair value: -19.30. Nasdaq futures vs fair value: -45.50.
The S&P 500 futures trade 19 points below fair value.
Asian markets ended the Thursday session on a mixed note. The Bank of Korea held its key rate unchanged at 2.50%; Bank Indonesia held its key interest rate unchanged at 7.5%; and Malaysia's central bank hiked its benchmark rate 25 basis points to 3.25%. All three were expected.
U.S. Equities
Asia
The S&P 500 futures trade 19 points below fair value.
Asian markets ended the Thursday session on a mixed note. The Bank of Korea held its key rate unchanged at 2.50%; Bank Indonesia held its key interest rate unchanged at 7.5%; and Malaysia's central bank hiked its benchmark rate 25 basis points to 3.25%. All three were expected.
- In economic data:
- China's trade surplus narrowed to $31.60 billion from $35.92 billion (expected surplus of $34.99 billion) as imports rose 5.5% year-over-year (expected 5.8%, previous -1.6%) and exports increased 7.2% (consensus 10.6%, prior 7.0%)
- Japan's Household Confidence rose to 41.1 from 39.3 (expected 40.7), while Tertiary Industry Activity Index increased 0.9% month-over-month (consensus 1.9%, previous -5.7%). Also of note, Core Machinery Orders plunged 19.5% month-over-month (expected 0.7%, previous -9.1%)
- Australia's MI Inflation Expectations ticked down to 3.8% from 4.0%. Separately, the employment count rose 15,900 (expected 12,000, previous -5,100), but the unemployment rate ticked up to 6.0% from 5.9% (expected 5.9%)
- Japan's Nikkei lost 0.6%, closing at its lowest level of the month. The strengthening yen continued to pressure exporters as Toyota Motor fell 1.0% and Komatsu lost 1.9%
- Hong Kong's Hang Seng added 0.3%, climbing off two-week lows. Utilities outperformed as China Resources Power and Datang International Power surged 3.2% and 4.8%, respectively
- China's Shanghai Composite ended flat on the 50-day moving average after surrendering its early gains. Energy companies were bid following reports Beijing was looking to upgrade the country's power grid. Huadian Power jumped 4.0%.
- Participants received several data points:
- French CPI was unchanged month-over-month (expected 0.2%, previous 0.0%), while Industrial Production fell 1.7% month-over-month (consensus 0.2%, prior 0.3%)
- Italy's Industrial Production fell 1.2% month-over-month (expected 0.2%, prior 0.5%), while the year-over-year reading fell 1.8% (consensus 1.1%, previous 1.4%)
- Great Britain's trade deficit widened to GBP9.20 billion from GBP8.81 billion (expected deficit of GBP8.75 billion). Also of note, the Bank of England kept its key interest rate and purchasing program unchanged at their respective 0.5% and GBP375 billion
- Great Britain's FTSE trades lower by 0.9% with financials leading the retreat. Barclays, Hargreaves Lansdown, and Royal Bank of Scotland hold losses between 2.1% and 4.6%. On the upside, consumer names J Sainsbury, Burberry Group, and Next outperform with gains between 1.5% and 2.6%.
- In France, the CAC holds a loss of 1.7% with BNP Paribas, Credit Agricole, and Societe Generale fueling the weakness. The three banks are down between 2.7% and 3.0%. On the upside, defense contractor Safran trades up 0.7%.
- Germany's DAX trades down 1.7%. Commerzbank and Deutsche Bank are both down near 3.2%, while Fresenius SE represents the lone advancer. The health care stock is higher by 0.3%.
- Portugal's PSI underperforms with a loss of 4.1% as all 20 components trade in negative territory. Banco Espirito Santo is down 17.4% and its shares are currently halted with an announcement pending.
U.S. Equities
- Futures point to a heavy open amid a slew of U.S. corporate downside preannouncements and worries over the health of Portuguese banks
- Early selling is likely to see the major averages threaten their lowest closes of July
- The VIX (11.65) could threaten resistance in the 12.50 area
- Initial Claims (304K actual v. 311K expected)
- Continuing Claims (2584K actual v. 2567K expected)
- S&P Futures -20 @ 1947
- Dow Futures -167 @ 16,748
- Nasdaq Futures -42 @ 3844
- Markets finished mixed across Asia
- Japan's core machinery orders cratered -19.5% MoM (0.9% MoM expected) and tertiary industry activity (0.9% MoM actual v. 1.9% MoM expected) also fell short of expectations
- China's posted a narrower than anticipated trade surplus ($31.6 bln actual v. $37.3 bln expected, $35.9 bln previous) as exports climbed 7.2% YoY and imports jumped 5.5% YoY
- Australia's unemployment rate ticked up to 6.0% (5.9% expected, 5.9% previous) despite following the better than expected employment change (15.9K actual v. 12.3K expected) as all of the jobs added were part-time
- The Bank of Korea held its key rate unchanged at 2.50% while Malaysia's central bank hiked its benchmark rate 25bps to 3.25%. Both were expected
- Japan's Nikkei (-0.6%) closed at its lowest level of July
- Hong Kong's Hang Seng (+0.3%) climbed off two-week lows
- China's Shanghai Composite (UNCH) closed on the 50 dma after surrendering its early gains
- India's Sensex (-0.3%) fell for a third session as traders digested today's budget release. While lacking specific details the budget provided a framework for the future
- Australia's ASX (+0.2%) ticked higher amid a quiet trade
- Indonesia's Jakarta Composite (+1.5%) was the top performer in the region as Jakarta governor Joko Widodo declared victory in the country's presidential election
Market Internals
Market Internals -Technical-
The Nasdaq closed down 23 (-0.52%) at 4396, the Dow closed down 71 (-0.42%) at 16915, and the S&P 500 closed down 8 (-0.41%) at 1965. Action came on slightly below average volume (NYSE 640 mln vs. avg. of 668; NASDAQ 1577 mln vs. avg. of 1703), with decliners outpacing advancers (NYSE 962/2179, NASDAQ 676/2014) and mixed new highs/lows (NYSE 89/33, NASDAQ 21/55).
Relative Strength:
Volatility-VXX +3.36%, Silver-SLV +1.23%, Heating Oil-UHN +1.03%, Utilities-XLU +0.68%, Taiwan-EWT +0.62%, Gasoline-UGA +0.61%, Japanese Yen-FXY +0.27%, Thailand-THD +0.19%, Canadian Dollar-FXC +0.12%, Columbia Index-GXG +0.05%.
Relative Weakness:
Coffee-JO -5.55%, Junior Gold Miners-GDXJ -3.04%, Livestock-COW -2.23%, Netherlands-EWN -2.14%, Wind Energy-FAN -2.09%, Agriculture-DBA -2.05%, Indonesia-IDX -1.94%, Spain-EWP -1.92%, Italy-EWI -1.87%, Russia-RSX -1.76%.
Leaders and Laggards
Technical Updates
Briefing's Commentaries
Closing Market Summary: Stocks Retreat Amid Concerns About Earnings and Europe
The stock market stumbled on Thursday, but a daylong rebound off the opening lows helped the major averages erase the bulk of their losses. The Russell 2000 was the weakest performer, falling 1.1%, while the S&P 500 settled lower by 0.4% after being down as much as 1.0% at the open.
The early stumble was not brought upon by any specific headline, but rather a series of developments that caused investors to reduce their exposure to equities. In Asia, China reported below-consensus exports (7.2% versus expected 10.6%) and imports (5.5% versus expected 5.8%), while Japan's Core Machinery Orders tumbled 19.5% against the expectations of an uptick of 0.7%.
As the night continued, news from Europe caused an exodus from regional equities (mainly financials) amid worries about Portugal's banking system after the parent company of Banco Espirito Santo missed a bond payment. Portugal's PSI 20 fell 4.2%, while Germany's DAX and Spain's IBEX lost 1.5% and 2.0%, respectively.
Domestically, participants received a sliver of good news on the economic front as weekly initial claims decreased to 304,000 (Briefing.com consensus 311,000); however, headlines out of the corporate world were not nearly as upbeat.
With the second-quarter earnings season set to heat up next week, two consumer discretionary components primed the market for disappointing results. Shares of Potbelly (PBPB 10.97, -3.68) plunged 25.1% to a new record low after the company said it expects its revenue to come in below estimates, while also guiding for a 1.6% decline in comparable store sales.
Yesterday, the CEO of The Container Store (TCS 24.58, -0.22) provided some cautious comments about the retail environment as a whole, and today his remarks were echoed by Lumber Liquidators (LL 55.25, -15.17). The home improvement retailer said that customer traffic during the quarter was well below expectations, which will result in disappointing results. The stock sank 21.5%, while peers Home Depot (HD 79.40, -1.33) and Lowe's (LOW 47.20, -0.66) both lost near 1.5%.
The relative weakness of the discretionary sector (-0.9%) was not enough to scare dip-buyers away. After putting in a session low during the first 15 minutes of the action, the S&P 500 spent the trading day in a steady rally that allowed the index to reclaim more than half of its losses. A rebound in the heavily-weighted health care (unch) and technology (-0.3%) sectors contributed to the partial recovery, but energy (-1.0%) and financials (-0.6%) were reluctant participants in the bounce, which prevented the S&P 500 from turning positive.
Treasuries, meanwhile, rallied throughout the night, registered their highs shortly before the start of the session, and spent the remainder of the day in a retreat. The 10-yr note trimmed its gain to four ticks, while the benchmark yield slipped two basis points to 2.54%.
Participation was below average with 640 million shares changing hands at the NYSE floor.
Economic data was limited to weekly initial claims and the Wholesale Inventories report for May:
The stock market stumbled on Thursday, but a daylong rebound off the opening lows helped the major averages erase the bulk of their losses. The Russell 2000 was the weakest performer, falling 1.1%, while the S&P 500 settled lower by 0.4% after being down as much as 1.0% at the open.
The early stumble was not brought upon by any specific headline, but rather a series of developments that caused investors to reduce their exposure to equities. In Asia, China reported below-consensus exports (7.2% versus expected 10.6%) and imports (5.5% versus expected 5.8%), while Japan's Core Machinery Orders tumbled 19.5% against the expectations of an uptick of 0.7%.
As the night continued, news from Europe caused an exodus from regional equities (mainly financials) amid worries about Portugal's banking system after the parent company of Banco Espirito Santo missed a bond payment. Portugal's PSI 20 fell 4.2%, while Germany's DAX and Spain's IBEX lost 1.5% and 2.0%, respectively.
Domestically, participants received a sliver of good news on the economic front as weekly initial claims decreased to 304,000 (Briefing.com consensus 311,000); however, headlines out of the corporate world were not nearly as upbeat.
With the second-quarter earnings season set to heat up next week, two consumer discretionary components primed the market for disappointing results. Shares of Potbelly (PBPB 10.97, -3.68) plunged 25.1% to a new record low after the company said it expects its revenue to come in below estimates, while also guiding for a 1.6% decline in comparable store sales.
Yesterday, the CEO of The Container Store (TCS 24.58, -0.22) provided some cautious comments about the retail environment as a whole, and today his remarks were echoed by Lumber Liquidators (LL 55.25, -15.17). The home improvement retailer said that customer traffic during the quarter was well below expectations, which will result in disappointing results. The stock sank 21.5%, while peers Home Depot (HD 79.40, -1.33) and Lowe's (LOW 47.20, -0.66) both lost near 1.5%.
The relative weakness of the discretionary sector (-0.9%) was not enough to scare dip-buyers away. After putting in a session low during the first 15 minutes of the action, the S&P 500 spent the trading day in a steady rally that allowed the index to reclaim more than half of its losses. A rebound in the heavily-weighted health care (unch) and technology (-0.3%) sectors contributed to the partial recovery, but energy (-1.0%) and financials (-0.6%) were reluctant participants in the bounce, which prevented the S&P 500 from turning positive.
Treasuries, meanwhile, rallied throughout the night, registered their highs shortly before the start of the session, and spent the remainder of the day in a retreat. The 10-yr note trimmed its gain to four ticks, while the benchmark yield slipped two basis points to 2.54%.
Participation was below average with 640 million shares changing hands at the NYSE floor.
Economic data was limited to weekly initial claims and the Wholesale Inventories report for May:
- The initial claims level fell to 304,000 from an unrevised 315,000, while the Briefing.com consensus expected the claims level to fall to 311,000
- Over the past several weeks, claims have stabilized between 310,000 and 320,000. While claims came in below this level, it was likely due to normal volatility stemming from the Independence Day holiday and not a change in trend
- The continuing claims level increased to 2.584 million from a downwardly revised 2.574 million (from 2.579 million), while the consensus expected continuing claims to slip to 2.567 million
- Wholesale inventories increased 0.5% in May following a downwardly revised 1.0% (from 1.1%) in April. The Briefing.com consensus expected wholesale inventories to increase 0.5%
- The increase in inventories came predominantly from a 1.9% increase in automotive inventories and a 2.1% increase in metals
- S&P 500 +6.3% YTD
- Nasdaq Composite +5.3% YTD
- Dow Jones Industrial Average +2.0% YTD
- Russell 2000 -0.1% YTD
Commodities
Closing Commodities: Nat Gas Slides 1.2% On Inventory Data
- Precious metals traded higher today, gaining support on concerns over Portugal's banking system after the parent company of Banco Espirito Santo missed a bond payment.
- Aug gold touched a session high of $1346.80 per ounce in early morning action and settled with a 1.1% gain at $1339.50 per ounce.
- Sep silver advanced as high as $21.61 per ounce and eventually closed at $21.51 per ounce, or 2.1% higher.
- Aug crude oil chopped around slightly below the unchanged line in morning action but lifted into positive territory later in the session despite strength in the dollar index. The energy component touched a session high of $103.04 per barrel after trading as low as $101.86 per barrel. It settled with a 0.7% gain at $102.92 per barrel.
- Aug natural gas fell into the red from its session high of $4.19 per MMBtu following inventory data that showed a build of 93 bcf when a build of 90-92 bcf was anticipated. It eventually settled with a 1.2% loss at $4.12 per MMBtu, just above its session low of $4.11 per MMBtu.
- Aug crude oil rose $0.68 to $102.92/barrel
- Crude oil chopped around slightly below the unchanged line in morning action but lifted into positive territory later in the session despite strength in the dollar index. The energy component rose as high as $103.04 after brushing a session low of $101.86 moments after floor trade opened. It settled with a 0.7% gain.
- Aug natural gas fell 5 cents to $4.12/MMBtu
- Natural gas fell into negative territory from its session high of $4.19 following inventory data that showed a build of 93 bcf when a build of 90-92 bcf was anticipated. It eventually settled just above its session low of $4.11, booking a loss of 1.2%.
- Aug heating oil rose 2 cents to $2.89/gallon
- Aug RBOB rose 2 cents to $2.96/gallon
CBOT Agriculture and Ethanol/ICE Sugar Closing Prices
- Sep corn fell 5 cents to $3.86/bushel
- Sep wheat fell 3 cents to $5.48/bushel
- Aug soybeans fell 14 cents to $12.32/bushel
- Sep ethanol fell 2 cents to $2.03/gallon
- Sep sugar (#16 (U.S.)) rose 0.21 of a penny to 25.01 cents/lbs
- Gold extended yesterday's gains as it gained support on concerns over Portugal's banking system after the parent company of Banco Espirito Santo missed a bond payment. The precious metal touched a session high of $1346.80 in early morning action and settled with a 1.1% gain.
- Silver also traded in positive territory, advancing as high as $21.61. It eventually closed with a 2.1% gain.
Treasuries
Treasuries Surrender Early Gains: 10-yr: +04/32..2.536%..USD/JPY: 101.29..EUR/USD: 1.3603
- Treasuries saw a mixed closed after surrendering their early gains.
- The complex hovered little changed for much of the overnight session before worries over the health of the Portuguese banking system sparked a small flight to safety.
- Yields pressed session lows(-6bps in the belly) ahead of the equity open before seeing a steady climb into this afternoon's slightly better than average $13 bln 30y bond reopening.
- The reopening drew 3.369% (WI 3.362%) and a 2.40x bid/cover. Indirect bidders (53.3%) helped offset the tepid demand from direct bids (11.1%), leaving primary dealers with just 35.6% of the supply.
- The long end lagged throughout the session before the 30y finished the day +0.4bps @ 3.364%. The yield tested support in the 3.340% area early on in the session, but saw a bounce off the level.
- The 10y closed -1.5bps @ 2.532%. The benchmark yield probed support in the 2.500% region, but was unable to break below the level.
- The 5y led, ending -2.6bps @ 1.648%. The yield was unable to break below 1.620% support as sellers emerged in defense of the 50 and 100 dma, but action still managed to post its lowest close of July.
- A steeper curve took hold as the 2-10-yr spread widened to 207.5bps.
- Precious metals saw solid gains with gold +$13 @ $1337 and silver higher by $0.39 @ $21.45.
- Data: Treasury budget (14).
- Fed Speak: Philly's Plosser (11:15), Chicago's Evans, and ATL's Lockhart (15) take part in the Sixth Annual Rocky Mountain Economic Summit.
On other news....
Currencies
Dollar Holds 80.00: 10-yr: +04/32..2.535%..USD/JPY: 101.32..EUR/USD: 1.3594
- The Dollar Index trades near session highs as action flirts with the 80.15 mark. Click here to see a daily Dollar Index chart.
- The Index hugged the 80.00 flat line early on in the overnight session before steady buying took hold for the remainder of the day.
- EURUSD is -40 pips @ 1.3600 as trade looks to put in its first loss in four days. The single currency has come under pressure during today's session as concerns over the health of the Portuguese banking system and the French industrial production miss weigh. A breakdown of minor support near 1.3600 sets up the test of the key 1.3500 level.
- GBPUSD is -25 pips @ 1.7130 as trade slips off its best levels since October 2008. Sterling saw early selling pressure after the UK announced a wider than expected trade deficit, and pressed to session lows at 1.7100 after the Bank of England kept both its key rate and asset purchase program unchanged. Support in the 1.7100 area has held throughout the month of July.
- USDCHF is +20 pips @ .8930 as trade has recovered all of yesterday's losses. Today's strength has run the pair back above the 50 dma, setting up another test of .8950 resistance that is defended by the 200 dma.
- USDJPY is -30 pips @ 101.35 as action looks likely to avoid its lowest close since February. Overnight weakness took hold in response to the plunge in Japan's core machinery orders, dropping trade onto the 102.25 level. However, trade ticked off the level as risk assets grinded higher throughout U.S. trade.
- AUDUSD is -20 pips @ .9385 amid a volatile session. The hard currency surged to session highs near .9460 after the employment change beat before reversing into the red. The .9350 support level remains under close watch. Australia's home loans are due out tonight.
- USDCAD is flat @ 1.0655 as trade continues to press support in the area. Some light buying developed after Canada's New Home Price Index (0.1% MoM actual v. 0.3% MoM expected) missed estimates, but trade has since given up those gains. Canada's employment change and unemployment rate are due out tomorrow.
Next Week In View
Economic Commentaries
Economic Data Summary:
- Initial Claims 304K vs Briefing.com consensus of 311K; was 315K last week
- Over the past several weeks, the initial claims level has stabilized between 310,000 and 320,000. While claims came in below this level, it is likely due to normal volatility stemming from the Independence Day holiday and not a change in trend.
- Continuing Claims 2584K vs Briefing.com consensus of 2.567 mln; was revised to 2.574 mln from 2.579 mln
- May Wholesale Inventories +0.5% vs Briefing.com consensus of +0.5%; was revised to +1.0% from +1.1%
- The increase in inventories came predominantly from a 1.9% increase in automotive inventories and a 2.1% increase in metals. Despite a 2.0% increase in petroleum inventories, nondurable wholesale inventories fell 0.3% in May.
- Fed's George to speak in Shawnee, OK today at 13:15
- 30 Year $13 bln Treasury Auction due out today at 13:00
- June Treasury Budget due out Thursday at 14:00 (Briefing.com consensus of $70.0 bln; was $116.5 bln)
- Fed's Fischer to speak today at 16:30
Jason's Commentaries
It seems that the market is taking a good chance to rinse everyone out of the market last night. Definitely overdone it. The market overreacted to the debt default by a Portuguese bank. Futures were down by 1% before market open. However, by market close, the market is already gaining back half of their initial losses. The dow bounce right at 16800 support level on the intra day level. The internals were all supporting a bounce. the market bounce straight up after the huge losses at the beginning of the session and rallied all the way back to the close. The biggest losers are the Energy and the consumer discretionary. Right off from the huge losses day, i believe the market will likely to head up today.
Market Call: FLAT to upside
Date: 24 Feb 2014
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