17 Jul 2014 AMC - Market went down as European turmoils worsen with MH17 crash

17 Jul 2014 AMC - Market went down as European turmoils worsen with MH17 crash

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: -1.1%
• France's CAC: -1.2%
• Spain's IBEX: -1.2%
• Portugal's PSI: -0.8%
• Italy's MIB Index: -2.2%
• Irish Ovrl Index: -0.5%
• Greece ASE General Index: + 0.0%

Before Market Opens 

U.S. Equities

• Futures suggest a heavy open
• Early weakness is being pinned on fresh Russia sanctions, but Asia did not respond to the news (China's weakness came on corporate default fears)
• Earnings continue to flow with eBay (EBAY), Morgan Stanley (MS), and Sandisk (SNDK) among the notables  
• Both the DJIA and S&P 500 ended yesterday's session just off record highs while the Nasdaq settled at its best level in almost 14 years  
• Initial Claims (302K actual v. 311K expected)
• Continuing Claims (2507K actual v. 2563K expected)
• Housing Starts (893K actual v. 1020K expected)
• Building Permits (963K actual v. 1037K expected)

• S&P Futures -8 @ 1967
• Dow Futures -32 @ 17,025
• Nasdaq Futures -13 @ 3909

Asia

• Markets ended mixed across Asia
• Australia's CB Leading Index edged up 0.2% MoM while NAB Quarterly Business Confidence slipped to 6 (7 previous)
• Singapore's trade surplus expanded to SGD5890.0 (SGD3013.6 previous)
• Japan's Nikkei (-0.1%) held near five and a half-month highs.
• Hong Kong's Hang Seng (UNCH) remained near its best levels of 2014
• China's Shanghai Composite (-0.6%) fell for a second day as worries of another corporate default surfaced. 
• India's Sensex (UNCH) ended little changed amid a quiet trade. 
• Australia's ASX (+0.1%) finished just shy of six-year highs. 
• Indonesia's Jakarta Composite (-0.8%) continued its whippy trade as the presidential election results remain in limbo.

Earnings/Guidance

• Baker Hughes (BHI) beats by $0.02, beats on revs; projects strong earnings growth
• Baxter (BAX) beats by $0.04, beats on revs; guides Q3 EPS; guides FY14 EPS in-line
• Danaher (DHR) beats by $0.01, reports revs in-line 
• eBay (EBAY) beats by $0.01, reports revs in-line; guides Q3 EPS below consensus, revs below consensus; reaffirms FY14 adjusted EPS guidance, lowers top end of FY14 rev guidance
• Fifth Third (FITB) beats by $0.04
• KeyCorp (KEY) beats by $0.01, beats on revs
• Mattel (MAT) misses on the top & bottom lines
• Morgan Stanley (MS) beats by $0.05, beats on revs
• Philip Morris International (PM) beats by $0.17, beats on revs; issues FY14 guidance
• PPG Industries (PPG) beats by $0.05, misses on revs
• SanDisk (SNDK) beats by $0.02, beats on revs
• Sherwin-Williams (SHW) misses by $0.03, reports revs in-line; guides Q3 EPS above consensus; raises FY14 EPS guidance
• UnitedHealth (UNH) beats by $0.17, beats on revs; raises FY14 EPS and revs guidance
• W.W. Grainger (GWW) reports EPS in-line, misses on revs; lowers Fy14 guidance
• YUM! Brands (YUM) beats by $0.01, reports revs in-line; reaffirms FY guidance of at least 20% EPS growth

S&P futures vs fair value: -8.70. Nasdaq futures vs fair value: -15.50.
The S&P 500 futures trade nine points below fair value.

Asian markets ended the day on a mixed note. In China, Huatong Road & Bridge Group said it may miss a bond payment that comes due on Wednesday, which would lead to a default for the construction company.

• In economic news: 
  • Australia's CB Leading Index edged up 0.2% month-over-month, while NAB Quarterly Business Confidence slipped to 6 from 7 

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• Japan's Nikkei shed 0.1%, holding near a five and a half-month high. The stronger yen weighed on exporters as Honda Motor shed 0.6% and Toshiba sank 2.3%. 
• Hong Kong's Hang Seng ended flat, remaining near its best levels of 2014. Casino stocks continued their recent underperformance with Sands China sliding 1.2% following its earnings miss. 
• China's Shanghai Composite lost 0.6%, falling for a second day. Financials were soft on worries of another corporate default. Bank of Communications lost 0.8%. 

Major European indices trade lower across the board following the latest round of U.S. sanctions against Russia that target energy companies Rosneft and Novatek, banks Gazprombank and VEB, and several defense contractors.

• Economic data was limited: 
  • Eurozone CPI ticked up 0.1% month-over-month, while the year-over-year reading increased 0.5%. Both figures met expectations. Core CPI rose 0.1% month-over-month (expected -0.1%, previous -0.1%), while the year-over-year reading climbed 0.8%, as expected 
  • Spain's Industrial New Orders were unchanged year-over-year (expected 7.2%, previous 6.9%) 

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• Great Britain's FTSE is lower by 0.6% amid weakness in financials. Hargreaves Lansdown holds a loss of 4.0%, while Barclays and RSA Insurance Group trade lower by 2.2% and 1.6%, respectively. 
• Germany's DAX holds a loss of 0.7% as 25 of its 30 components trade lower. Utilities lag with E.ON down 2.5% and RWE lower by 1.5%. SAP outperforms with a gain of 2.6% after beating earnings expectations. 
• In France, the CAC is lower by 0.8%. Total is the weakest component, down 1.8%, while Alstom and Bouygues outperform with respective gains of 0.6% and 1.4%.

Market Internals

Market Internals -Technical-
The Nasdaq closed down 63 (-1.41%) at 4363, the S&P 500 closed down 23 (-1.18%) at 1958, and the Dow closed down 161 (-0.94%) at 16977. Action came on slightly above average volume (NYSE 690 mln vs. avg. of 661; NASDAQ 1927 mln vs. avg. of 1697), with decliners outpacing advancers (NYSE 596/2549, NASDAQ 526/2177) and new highs outpacing new lows (NYSE 92/33, NASDAQ 34/76).

Relative Strength:
Volatility-VXX +9.75%, Junior Gold Miners-GDXJ +7.33%, Silver Miners-SIL +2.88%, Oil-USO +1.39%, Platinum-PPLT +1.34%, Japanese Yen-FXY +0.5%, Swiss Franc-FXF +0.13%.

Relative Weakness:
Russia-RSX -7.21%, Eastern Europe-ESR -6.03%, Biotechnology-XBI -3.62%, Natural Gas-UNG -3.49%, Italy-EWI -3.12%, Turkey-TUR -3.09%, Greece-GREK -2.66%, U.S. Home Construction-ITB -2.54%, Copper Miners-COPX -2.47%, Semiconductors-SMH -2.46%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries

Closing Market Summary: Stocks Slide Amid Geopolitical Concerns
The stock market finished the Thursday session on a lower note with the Russell 2000 (-1.5%) posting its third consecutive loss that took the small-cap index below its 200-day moving average (1140.82). For its part, the S&P 500 fell 1.2%, which represented the first move in excess of 1.0% over the past 63 trading days.

The benchmark index spent the entire session in the red with the early weakness attributed to concerns about the impact of the latest set of U.S. sanctions against Russia. The sanctions targeting two banks (Gazprombank and VEB), two energy companies (Rosneft and Novatek), and several defense contractors were announced shortly after yesterday's closing bell and they pressured markets in Europe as well.

Despite the lower start, the S&P 500 was on the brink of turning positive at the end of the opening hour, but slid to fresh lows after it was reported that a Malaysian Airlines jet, with nearly 300 passengers and personnel on board, crashed in Ukraine near the border with Russia.

After the initial reports crossed the wires, subsequent headlines indicated that the plane did not crash due to mechanical reasons, but instead, was shot down. One pro-Russian rebel group in the east denied having any involvement, while Ukraine's President Petro Poroshenko said that the country's army has not taken any action "against airborne targets" either.

With no clarity regarding who was responsible for bringing down the jet, airlines in France and Germany said they will avoid Ukrainian airspace, while the Federal Aviation Administration prohibited U.S. carriers from flying in the area as well.

Equities attempted an afternoon rebound, but fell to new lows during the last hour of action in reaction to reports indicating Israel has launched a ground offensive in Gaza.

The pair of worrisome reports ensured a lower finish for equities, while safe-haven assets like gold, Treasuries, and the yen rallied. Gold futures rose 1.5% to $1319.70/ozt, while Treasuries ended on their highs with the 10-yr yield down seven basis points at 2.46%. For its part, the dollar/yen pair fell to 101.25, less than 60 pips away from the lowest level of the year for the risk-sensitive pair.

All ten sectors ended in the red with influential cyclical groups like energy (-1.6%), industrials (-1.6%), and technology (-1.3%) finishing at the bottom of the leaderboard. The energy sector diverged from crude oil, which rallied 2.1% to $103.29/bbl, while the industrial sector saw weakness among airline stocks. Delta Air Lines (DAL 36.57, -1.30) and United Continental (UAL 43.35, -1.55) both lost near 3.5%, while the Dow Jones Transportation Average lost 1.4%.

Elsewhere, the tech sector was pressured by chipmakers as evidenced by a 2.5% decline in the PHLX Semiconductor Index. The high-beta group ended broadly lower after SanDisk's (SNDK 93.21, -14.62) cautious guidance overshadowed its above-consensus results.

Staying on the earnings theme, eBay (EBAY 51.03, +0.33) and SAP (SAP 80.68, +1.04) added 0.7% and 1.3%, respectively after beating bottom-line estimates.

While most sectors posted losses larger than 1.0%, materials (-0.5%) outperformed thanks to a boost from mining shares that sent the Market Vectors Gold Miners ETF (GDX 26.99, +0.71) higher by 2.7%.

Another big move took place in the CBOE Volatility Index (VIX 14.71, +3.71), which surged more than 33.0% off a depressed base to levels not seen since late April as participants rushed for volatility protection.

Despite the news-filled day, participation remained below average with 690 million shares changing hands at the NYSE.

Economic data included weekly initial claims, June Housing Starts and Building Permits, and the Philadelphia Fed Survey for July:

• The initial claims level dropped to 302,000 from an upwardly revised 305,000 (from 304,000), while the Briefing.com consensus expected an increase to 311,000 
  • After stabilizing in the 310,000 -- 320,000 range, the initial claims level has moved another leg down over the last couple of weeks. If these trends hold, we would expect to see monthly payroll growth close to 300,000 
  • The continuing claims level fell to 2.507 million from an upwardly revised 2.586 million (from 2.584 million), while the consensus expected the level to fall to 2.563 million 
• Housing starts fell 9.3% in June from a downwardly revised 985,000 (from 1.001 million) in May to 893,000. The Briefing.com consensus expected an increase to 1.020 million. 
  • The drop in starts brought new residential construction levels to their lowest point since 863,000 homes were started in September 2013 
  • Concerning was the new downward trend in single-family construction. This sector tends to produce stable trends yet starts have now fallen precipitously in both May (-2.6%) and June (-9.0%). Construction levels for new single-family homes are at their lowest point since 569,000 homes were started in November 2012 
• The Philadelphia Fed's Business Outlook Survey strengthened in July, increasing to 23.9 from 17.8, while the Briefing.com consensus expected a decline to 23.9. That was the best reading since March 2011 with nearly all sub- indices showing significant improvement in July 

Tomorrow, the Michigan Consumer Sentiment Index for July (Briefing.com consensus 84.0) will be released at 9:55 ET, while the Leading Indicators report for June (consensus 0.5%) will cross the wires at 10:00 ET.

• S&P 500 +5.9% YTD 
• Nasdaq Composite +4.5% YTD 
• Dow Jones Industrial Average +2.4% YTD 
• Russell 2000 -2.6% YTD

Commodities

Closing Commodities: Natural Gas Drops 3.9% On Inventory Data; Gold Rises 1.3%

• Precious metals gained strength today on new US Treasury Department sanctions imposed on entities in Russia's financial, energy and defense sectors and headlines that a Malaysian Airlines passenger jet was shot down over Ukraine near the Russian border.
• Aug gold advanced to a session high of $1325.90 per ounce and settled with a 1.3% gain at $1316.90 per ounce.
• Sep silver rose as high as $21.30 per ounce in late morning action after touching a session low of $20.81 per ounce earlier in the session. It eventually settled at $21.44 per ounce, or 1.8% higher
• Aug crude oil also extended yesterday's gains on the geopolitical concerns surrounding Russia and Ukraine as well as news of the plane crash.
• The energy component rose as high as $103.32 per barrel after touching a session low of $101.86 per barrel in morning action and settled with a 1.9% gain at $103.15 per barrel. 
• Aug natural gas, on the other hand, retreated from its session high of $4.07 per MMBtu set in early morning floor trade and slid deeper into negative territory on bearish inventory data.
• The EIA reported that for the week ending July 11, natural gas inventories grew by 107 bcf when a smaller build of 98-100 bcf was anticipated. Natural gas traded as low as $3.93 per MMBtu and settled with a 3.9% loss at $3.96 per MMBtu.

NYMEX Energy Closing Prices

• Aug crude oil rose $1.97 to $103.15/barrel 
• Crude oil extended yesterday's gains as the US Treasury Department imposed new sanctions on entities in Russia's financial, energy and defense sectors. Strength also came on headlines that a Malaysian Airlines passenger jet was shot down over Ukraine near the Russian border. The energy component rose as high as $103.32 after touching a session low of $101.86 in morning action and settled with a 1.9% gain. 
• Aug natural gas fell 16 cents to $3.96/MMBtu 
• Natural gas, on the other hand, traded in the red today. It retreated from a session high of $4.07 set in early morning floor trade and slid deeper into negative territory on bearish inventory data. The EIA reported that for the week ending July 11, natural gas inventories showed a build of 107 bcf when a smaller build of 98-100 bcf was anticipated. Natural gas traded as low as $3.93 and settled with a 3.9% loss. 
• Aug heating oil settled unchanged at $2.86/gallon 
• Aug RBOB settled unchanged at $2.88/gallon

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

• Sep corn rose 1 cent to $3.79/bushel 
• Sep wheat rose 13 cents to $5.51/bushel 
• Aug soybeans fell 13 cents to $11.74/bushel 
• Sep ethanol rose 1 cent to $2.01/gallon 
• Sep sugar (#16 (U.S.)) settled unchanged at 24.50 cents/lbs

COMEX Metals Closing Prices

Aug gold rose $17.00 to $1316.90/oz 

• Gold advanced to a session high of $1325.90 as it gained strength new U.S. sanctions against Russia and reports of a Malaysian Airlines passenger jet crashing in Ukraine near the Russian border. Ukrainian officials stated that the plane was shot down after it was likely mistaken for a military transport jet. The yellow metal settled with a 1.3% gain. 

Sep silver rose $0.37 to $21.44/oz 

• Silver also rose as high as $21.30 in late morning action after touching a session low of $20.81 earlier in the session. It eventually settled with a 1.8% gain. 

Sep copper rose 1 cent to $3.22/lbs

Treasuries
30y Settles at 3.290%, Narrowly Avoids 13-Month Closing Low: 10-yr: +16/32..2.463%..USD/JPY: 101.24..EUR/USD: 1.3528

• Treasuries closed on their highs, supported by weak housing data and reports a Malaysian Airlines flight was shot down in the skies of eastern Ukraine. Click here to see an intraday yields chart.
• Maturities held firm into the cash open and climbed to fresh highs following the disappointing housing starts (893K actual v. 1020K expected) and building permits (963K actual v. 1037K expected) data. 
• A bit of good news came from this morning's data as initial (302K actual v. 311K expected) and continuing (2507K actual v. 2563K expected) claims outpaced estimates and the Philly Fed (23.9 actual v. 12.5 expected) posted a big beat.
• However, a steady bid took hold for the remainder of the session as a Malaysian Airlines jet was shot down in the skies over eastern Ukraine.
• Buying at the long end dropped the 30y -5.8bps to 3.290%. The yield on the long bond narrowly avoided its lowest close in 13 months.
• The 10y tumbled -6.3bps @ 2.475%. The benchmark yield crashed through the 2.500% level, and posted its lowest close since late-May. Support near 2.450% will be key in the days ahead. 
• In the belly, the 5y shed -4.9bps to 1.650%. The yield probed the 50 and 100 dma near 1.640% before seeing a bounce off the level. Participants will be monitoring support in the 1.620% region.
• A flatter curve persisted as the 2-10-yr spread narrowed to 201bps and the 5-30-yr spread tightened to 164bps. 
• Precious metals firmed as gold climbed $19 to $1318 and silver rallied $0.42 to $21.19. 
• Data: Michigan Sentiment (9:55) and leading indicators (10).

On other news.... 

Notable earnings

• Google (GOOG) is set to report Q2 earnings today after the close with a conference call to follow at 4:30pm ET. GOOG has reported shortly after the bell (4:03pm and 4:02pm) the past two quarters. Current Capital IQ consensus stands at EPS of $6.23 (vs. $4.87 last year) on rev of $15.6 bln (+11%). GOG willook to bounce back acfter missing Q1 estimates. GOOG has repeatedly said that it does not manage q/q and that it has longer term aspirations when it puts a plan in place. This can lead to some volatility in quarterly earnings. 
• IBM (IBM) is expected to report Q2 non-GAAP EPS of $4.31 (vs $3.91 last year) on revs of $24.1 bln (-3.3% y/y). Co has guided for FY14 EPS of at least $18; consensus stands at $17.87. Co expects to achieve at least $20 of operating EPS in 2015 ($19.79 FY2015 Capital IQ Consensus). Mgmt also noted that they still expect to grow free cash flow by about $1 bln and to meet the $16 bln goal for the year, even with a tax headwind this year (bulk was taken in Q1). The co has posted rev declines the past eight quarters running, and has missed sales expectations five quarters in a row. 
• Honeywell (HON) is expected to report Q2 EPS of $1.36 vs. $1.32-1.36 guidance and $1.28 last year on sales of $10.18 bln (+5%) vs. $10.0-10.2 bln guidance. Co has guided for FY14 EPS of $5.40-5.55 on rev of $40.3-40.7 bln. HON hasn't missed on the bottom line since 3Q11. 
• Schlumberger (SLB) is expected to report Q3 EPS of $1.35 (vs. $1.29 last year) on rev of $11.95 bln (+7%). SLB surged to new all-time highs in late June as the co provided Bullish long term financial targets, including EPS of $9-10 by 2017; BHI, HAL, WFT.
• Seagate (STX) is expected to report Q4 EPS of $1.09 on revs of $3.33 bln (-2.9% y/y). Co guided for Q4 revs of at least $3.3 bln on last quarter's earnings call. The co is expected to guide for 1Q15 revs on its earnings call, with Capital IQ estimates calling for $3.52 bln. Last quarter, the co reported non-GAAP margin 28.5%. The stock has rallied ~26% in the 2+ month timeframe since May 7, when the co approached its multi-week low that also corresponded with its 200 sma (49.20) and the $50 psych level. Of note, on Seagate's Q3 conference call, they expressed the possibility that its recent acquisition of Xyratex could be accretive to its FY15 EPS. 
• SkyWorks (SWKS) is expected to report Q2 EPS of $0.80 (vs. $0.54 last year) on rev of $570 mln (+31%). cO raised guidance to $0.80 and $570 mln from $0.73 and $535 mln on June 23. The AAPL supplier said is capitalizing on the growing opportunity within the Internet of Things as well as increasing analog complexity associated with higher data rate connectivity standards, both of which are enabling us to substantially outpace the growth of the broader semiconductor market. The stock has struggled at the $48 level.
• General Electric (GE) is expected to report Q2 EPS of $0.39 (vs. $0.36 last year) on rev of $36.4bln (+3.6%). Earlier in the week there were reports the co may sell its home appliance unit. Last month GE sold GE its Capital's consumer finance business in Sweden, Denmark and Norway for ~ EUR700 mln. Co is also acquiring Alstom's Power and Grid business.

Currencies 

Dollar Holds at One-Month Highs: 10-yr: +14/32..2.472%..USD/JPY: 101.29..EUR/USD: 1.3523

• The Dollar Index hovers little changed near amid a rather subdued session. Click here to see a daily Dollar Index chart.
• Today's tight 10 cent range is a bit unusual considering the headlines a commercial jet has been shot down in eastern Ukraine. 
• EURUSD is flat @ 1.3525 as trade steadies following two days of selling. The single currency saw little reaction to this morning's in-line CPI report, and continues to test key support in the 1.3500/1.3525 area. 
• GBPUSD is -30 pips @ 1.7110 as trade has pared some of its early losses. Sterling probed 1.7100 support, but has once again been able to hold the level. A breakdown puts the more important 1.7000 area in play. 
• USDCHF is -5 pips @ .8980 as action stalls at one-month highs. The quiet session comes amid a lack of volatility in the euro. 
• USDJPY is -40 pips @ 101.25 as trade contends with its lowest close since February. The recent ‘death cross' continues to garner attention, and a breakdown of the 101.25 area will be key. The latest Bank of Japan minutes will cross the wires this evening. 
• AUDUSD is +20 pips @ .9380 as action holds just off the highs. The hard currency was able to withstand an early test of .9350 support as buyers emerged at the 50 dma.
• USDCAD is -5 pips @ 1.0740 as a sleepy session nears the close. Canada's foreign securities purchases ($21.43 bln actual v. $14.23 bln expected) crossed the wires this morning, but drew little interest. Data out tomorrow includes CPI and wholesale sales.

Next Week In View




Economic Commentaries

Economic Summary: Housing starts miss expectations; Philadelphia Fed easily tops estimates
Economic Data Summary:

• Weekly Initial Claims 302K vs Briefing.com consensus of 311K; Last Week was revised to 305K from 304K
• Weekly Continuing Claims 2.507 M vs Briefing.com consensus of 2.563 M ; Last Week was revised to 2.586 M from 2.584 M
• After stabilizing in the 310,000 -- 320,000 range, the initial claims level has moved another leg down over the last couple of weeks. If these trends hold, we would expect to see monthly payroll growth close to 300,000. 
• June Housing Starts 893K vs Briefing.com consensus of 1.020 M ; May was 1.001 M
• June Building Permits 963K vs Briefing.com consensus of 1.037 M ; May was 991K
• The bigger concern is the new trend in single-family construction. This sector tends to produce stable trends yet starts have now fallen precipitously in both May (-2.6%) and June (-9.0%). Construction levels for new single-family homes are at their lowest point since 569,000 homes were started in November 2012. These large drops seemingly go against the recent improvement in homebuilder sentiment. The July NAHB sentiment reading surpassed the expansion/contraction threshold and increased to 53. 
• July Philadelphia Fed 23.9 vs Briefing.com consensus of 12.5; June was 17.8
• That was the best reading since March 2011. Nearly all sub- indices showed significant improvement in July.

Upcoming Economic Data:

• July Michigan Sentiment due out Friday at 9:55 (Briefing.com consensus of 84.0; June was 82.5)
• June Leading Indicators due out Friday at 10:00 (Briefing.com consensus of 0.5%; May was 0.5%)

Upcoming Fed/Treasury Events:

• Saint Louis Fed President James Bullard (not a voting FOMC member) to speak at 13:35

Other International Events of Interest

• Eurozone CPI ticked up 0.1% month-over-month, while the year-over-year reading increased 0.5%. Both figures met expectations. Core CPI rose 0.1% month-over-month (expected -0.1%, previous -0.1%), while the year-over-year reading climbed 0.8%, as expected 

Jason's Commentaries


This is a very sad day. A plane crash that cost the world of its smartest brains who dedicated their lives to HIV research, a crash that crash a national airline.

The day started with a bearish tone as US and Euro tightened their sanctions against Russia which quickly reversed until 10am ET. After 10am ET, the market decided to head all the way down till closing as MH17's news decided to leak out at the earlier part of the day. The plane crash might spell disasters to Russia's president, Putin, which might face a global scrutiny against Russia's support for the pro-Russian militants. The fear that oil companies and other companies that have exposure in Russia will likely to suffer. Market took a correction on that. All the internals were all pointing towards the bear side.

On the technicals, the Nasdaq and S&P500 are showing on the double top. If the market were to break that support, we're likely to head for a correction, triggered by the international events, especially when Israel are launching attacks on the Gaza strip on Hamas, and the Russia-Ukraine situation. The energy and industrials were the heaviest hit amongst the sectors last night. However, I suppose it was a overreaction in the market. Unless more news comes out, i believe the market is likely to cover their shorts today to avoid the weekend in case any unexpected news comes out.







Market Call: FLAT to upside

Date: 18 July 2014