1 Aug 2014 AMC - Market ended lower as employment report disappoints

1 Aug 2014 AMC - Market ended lower as employment report disappoints

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: -0.8%

·         Germany's DAX: -2.1%

·         France's CAC: -1.0%

·         Spain's IBEX: -1.8%

·         Portugal's PSI: -3.0%

·         Italy's MIB Index: -1.0%

·         Irish Ovrl Index: -0.5%

·         Greece ASE General Index: -0.5%

Before Market Opens 

S&P futures vs fair value: -2.80. Nasdaq futures vs fair value: -3.50.
The S&P 500 futures trade three points below fair value.

It was a sea of red across Asia as all of the major bourses ended in the red following yesterday's carnage on Wall Street. 

·         In economic data: 

o    China's Manufacturing PMI rose to 51.7 from 51.0 (expected 51.4), while HSBC Manufacturing PMI ticked down to 51.7 from 52.0 (expected 52.0) 

o    Japan's Manufacturing PMI slipped to 50.5 from 50.8 (expected 50.8) 

o    South Korea's CPI ticked up 0.1% month-over-month (expected 0.2%, previous -0.1%), while the year-over-year reading increased 1.6%, as expected. Separately, HSBC Manufacturing PMI improved to 49.3 from 48.4 and the trade surplus narrowed to $2.52 billion from $5.50 billion (expected surplus of $2.74 billion) 

o    Australia's PPI ticked down 0.1% quarter-over-quarter (expected 0.7%, previous 0.9%), while AIG Manufacturing Index rose to 50.7 from 48.9 

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·         Japan's Nikkei fell 0.6% from six-month highs despite Bank of Japan Governor Haruhiko Kuroda defending the central bank's upbeat economic outlook amid a slowdown in the data. Electronics maker Sony outperformed, up 4.7%, following its better than expected earnings report. 

·         Hong Kong's Hang Seng lost 0.9%, sliding off three and a half-year highs. Property names were hit as traders booked profits following the recent rally with Cheung Kong off 4.7% to lead to the downside. 

·         China's Shanghai Composite fell 0.7% as brokerage shares weighed. Citic Securities fell 2.5% and Haitong Securities lost 2.3%. 

Major European indices trade lower across the board with Germany's DAX (-1.5%) pacing the slide. Spanish and Italian bonds are on the defensive with Spain's 10-yr yield higher by five basis points at 2.56%, while Italy's benchmark yield is higher by eight basis points at 2.66% 

·         Participants received several data points: 

o    Eurozone Manufacturing PMI ticked down to 51.8 from 51.9 (expected 51.9) 

o    Germany's Manufacturing PMI fell to 52.4 from 52.9 (expected 52.9) 

o    Great Britain's Manufacturing PMI slipped to 55.4 from 57.2 (consensus 57.2) 

o    French Manufacturing PMI inched up to 47.8 from 47.6 (expected 47.6) 

o    Italy's Manufacturing PMI fell to 51.9 from 52.6 (consensus 52.6) 

o    Spain's Manufacturing PMI fell to 53.9 from 54.6 (expected 54.7) 

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·         In France, the CAC holds a loss of 0.7%. Construction company Vinci is the weakest performer, down 8.2%, after warning about its upcoming results. Steelmaker ArcelorMittal trades down 6.8% after missing earnings estimates. 

·         Great Britain's FTSE is lower by 0.9%. United Utilities Group lags with a loss of 3.4% after being downgraded at Credit Suisse. Smith & Nephew outperforms with a gain of 2.2% after reporting in-line results. 

·         Germany's DAX trades down 1.5%. Heavyweights Adidas, Bayer, and Merck underperform with losses between 2.2% and 2.7%.

U.S. Equities

·         Equity futures have erased their early losses and now suggest a flat open

·         The VIX (16.95) ended yesterday's session at the highest level since mid-April

·         Nonfarm Payrolls (209K actual v. 220K expected)

·         Nonfarm Private Payrolls (198K actual v. 225K expected)

·         Unemployment Rate (6.2% actual v. 6.1% expected)

·         Hourly Earnings (0.0% actual v. 0.2% expected)

·         Average Workweek (34.5 actual v. 34.5 expected)

·         Personal Income (0.4% actual v. 0.4% expected)

·         Personal Spending (0.4% actual v. 0.4% expected)

·         PCE Prices - Core (0.1% actual v. 0.2% expected)

o    S&P Futures -1 @ 1924

o    Dow Futures -17 @ 16,477

o    Nasdaq Futures unch @ 3885

Asia

·         It was a sea of red across Asia as all of the major bourses ended in the red following yesterday's carnage on Wall Street

·         Mixed Manufacturing PMI (51.7 actual v. 51.4 expected, 51.0 previous) and HSBC Final Manufacturing PMI (51.7 actual v. 52.0 expected, 52.0 previous) were not enough to keep China's Shanghai Composite (-0.7%) above the breakeven line

·         Hong Kong was also pressured as the Hang Seng (-0.9%) slid off three and a half-year highs

·         Japan's Nikkei (-0.6%) fell from six month-highs despite Bank of Japan Governor Haruhiko Kuroda defending the central bank's upbeat economic outlook amid a slowdown in the data

·         Australia's ASX (-1.4%) tumbled off its best level in more than six years

Market Internals

Market Internals -Technical-
The Dow closed down 70 points (-0.4%) at 16493, Nasdaq closed down 17 (-0.4%) at 4353, and the S&P 500 closed down 6 (-0.3%) at 1925. Action came on above average volume (NYSE 774 mln vs. avg. of 657; NASDAQ 1897 mln vs. avg. of 1678), with decliners outpacing advancers (NYSE 1168/1979, NASDAQ 969/1740) and new lows outpacing new highs(NYSE 20/109, NASDAQ 22/138). 

Relative Strength: 
Volatility-VXX +4.7%, Thailand-THD +1.6%, Poland-EPOL +1.6%, Jr. Gold Miners-GDXJ +1.3%, Gold Miners-GDX +1.1%, Brazilian Real-BZF +1.1%, Indonesia-IDX +1.0%, Social Media-SOCL +0.8%, Gold-GLD +0.8%, 20+ Yr. Treasury-TLT +0.8%, Cons. Staples-XLP +0.8%, Cotton-BAL +0.7% 

Relative Weakness: 
Regional Bank-RKH -3.0%, Oil&Gas Expl.&Prod-XOP -2.0%, Coffee-JO -2.0%, Gasoline-UGA -1.8%, Germany-EWG -1.7%, Corn-CORN -1.6%, Regional Banking-KRE -1.5%, Bank-KBE -1.5%, Nordic-GXF -1.4%, Clean Energy-PBW -1.4%, Wind Energy-FAN -1.4%, Spain-EWP -1.1%

Leaders and Laggards

Technical Updates

Commentaries 

Closing Market Summary: Market Begins August on Cautious Note
The stock market finished a down week on a cautious note with small caps leading the retreat. The Russell 2000 lost 0.5%, widening its weekly decline to 2.6%, while the S&P 500 shed 0.3%. The benchmark index ended the week lower by 2.7%.

This morning, the market was provided a basis to rebound with the July employment report, which was just right for the policy doves (209K versus Briefing.com consensus 220K). It showed payroll growth that was weaker than expected, average hourly earnings that were flat, and an uptick in the U6 unemployment rate (accounts for underemployed and unemployed workers) to 12.2% from 12.1%.

All of those factors speak in favor of the Federal Reserve not being in a rush to raise the fed funds rate, but the market did not rally on those cues. Instead, the S&P 500 made a brief morning appearance in the green before sliding into negative territory, where it spent the afternoon. The benchmark average was able to climb off its low into the close, but could not return into positive territory.

Three sectors registered gains, while the remaining seven finished lower. In general, countercyclical groups had a decent showing with consumer staples (+0.8%) and utilities (+0.4%) posting gains, while the telecom services sector (-0.9%) ended among the laggards. The largest countercyclical group—health care—settled flat.

Notably, the staples sector finished in the lead thanks to a boost from Procter & Gamble (PG 79.65, +2.33). The Dow component rallied 3.0% after reporting a bottom-line beat on revenue that was a bit below estimates.

Elsewhere, the health care sector received support from large components like Aetna (AET 78.73, +1.20), McKesson (MCK 195.43, +3.57), and WellPoint (WLP 111.00, +1.19). The three gained between 1.1% and 1.9%, while biotechnology lagged. The iShares Nasdaq Biotechnology ETF (IBB 250.28, -0.55) shed 0.2%.

For its part, the utilities sector staged a rebound after losing 6.9% last month.

On the cyclical side, the materials sector (+0.1%) was the lone advancer thanks to relative strength among miners. The Market Vectors Gold Miners ETF (GDX 26.20, +0.29) added 1.1%, while gold futures climbed 0.9% to $1294.60/ozt.

Meanwhile, the daylong weakness among influential sectors like energy (-0.7%), financials (-0.9%), and technology (-0.4%) prevented the market from turning positive. In the financial sector, JPMorgan Chase (JPM 56.48, -1.19) was the worst performer among the majors, falling 2.1%.

Lastly, the tech sector was pressured by top-weighted components like Google (GOOGL 573.60, -5.95), IBM (IBM 189.15, -2.52), and Microsoft (MSFT 42.86, -0.30). Chipmakers, however, held up relatively well. The PHLX Semiconductor Index added 0.4%.

Treasuries rallied through the first half of the session before holding near their highs during the afternoon. The 10-yr note advanced 17 ticks, sending its yield lower by six basis points to 2.50%.

Participation was above average for the second day in a row with nearly 780 million shares changing hands at the NYSE.

Economic data was plentiful with Nonfarm Payrolls, Personal Income/Spending data, Core PCE Prices, the final reading of the Michigan Sentiment survey, ISM Index, and the Construction Spending report: 

·         Nonfarm payrolls added 209,000 jobs in July after adding an upwardly revised 298,000 (from 288,000) in June, while the Briefing.com consensus expected 220,000 new jobs in July 

o    Private payrolls fared worse, adding only 198,000 jobs in July following a 270,000 increase in June 

§  The consensus expected 225,000 new private jobs in July 

o    Even more disappointing, hourly wages were flat after increasing 0.2% in June and the average workweek remained at 34.5 hours 

o    The unemployment rate ticked up to 6.2% from 6.1% 

·         Personal income increased 0.4% in June after rising by the same amount in May, which matched the Briefing.com consensus 

o    Personal spending also matched estimates with a 0.4% increase in June, up from an upwardly revised 0.3% (from 0.2%) gain in May 

·         The University of Michigan Consumer Sentiment Index increased to 81.8 in the final July reading from 81.3 in the preliminary reading, while the Briefing.com consensus expected an increase to 82.0 

o    The Current Conditions Index was revised up to 97.4 from 97.1 

o    The Expectations Index rose to 71.8 in the final reading from 71.1 

·         The ISM Manufacturing Index increased to 57.1 in July from 55.3 in June, representing the strongest reading since April 2011 

o    The Briefing.com consensus expected the index to increase to 55.9 

·         Construction spending fell 1.8% in June after increasing an upwardly revised 0.8% (from 0.1%) in May, while the Briefing.com consensus expected an increase of 0.3% 

o    Private construction fell 1.0% after increasing 0.4% in May 

o    Residential construction declined 0.3% in June 

There is no economic data scheduled to be released on Monday. 

·         S&P 500 +4.2% YTD 

·         Nasdaq Composite +4.2% YTD 

·         Dow Jones Industrial Average -0.5% YTD 

·         Russell 2000 -4.1% YTD 

Commodities

Closing Commodities: Crude Oil Falls Over 4% On The Week

·         Dec gold lifted from its session low of $1281.00 per ounce as the dollar index weakened following this morning's jobs report.

·         The July employment reading showed that nonfarm payrolls added 209K jobs in July after adding an upwardly revised 298K (from 288K) in June, while the Brieifng.com consensus expected 220K new jobs.

·         The yellow metal rose as high as $1298.40 per ounce and eventually settled with a 0.9% gain at $1294.60 per ounce. Despite today's strength, gold booked a 0.8% loss for the week.

·         Sep silver rose to a session high of $20.58 per ounce after coming off its session low of $20.30 per ounce set in early morning pit trade. However, it slipped into negative territory in afternoon action and settled 0.1% lower at $20.38 per ounce, bringing losses for the week to 1.3%. 

·         Sep crude oil traded in the red all day, extending losses for a fifth consecutive session. The energy component fell as low as $97.07 per barrel in morning action and chopped around slightly above that level for the remainder of the session. It eventually settled 0.3% lower at $97.85 per barrel, bringing losses for the week to 4.2%. 

·         Sep natural gas touched a session high of $3.88 per MMBtu in morning floor trade but quickly retreated back into negative territory. It continued to trend lower and settled with a 1.0% loss at $3.80 per MMBtu, cutting gains for the week to 0.5%.

COMEX Metals Closing Prices

  Dec gold rose $11.50 to $1294.60/oz 

·         Gold lifted from its session low of $1281.00 as the dollar index weakened following this morning's jobs report. The July employment reading showed that nonfarm payrolls added 209K jobs in July after adding an upwardly revised 298K (from 288K) in June, while the Brieifng.com consensus expected 220K new jobs. The yellow metal rose as high as $1298.40 and eventually settled with a 0.9% gain. Despite today's strength, gold booked a 0.8% loss for the week. 

  Sep silver fell $0.03 to $20.38/oz 

·         Silver rose to a session high of $20.58 after coming off its session low of $20.30 set in early morning pit trade. However, it slipped into negative territory in afternoon action and settled 0.1% lower, bringing losses for the week to 1.3%. 

  Sep copper fell 2 cents to $3.21/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Sep corn fell 5 cents to $3.52/bushel 

·         Sep wheat rose 12 cents to $5.43/bushel 

·         Nov soybeans fell 21 cents to $10.60/bushel 

·         Sep ethanol rose 1 cent to $2.00/gallon 

·         Sep sugar (#16 (U.S.)) rose 0.08 of a penny to 24.87 cents/lbs

NYMEX Energy Closing Prices

  Sep crude oil fell $0.27 to $97.85/barrel 

·         Crude oil traded in the red all day, extending losses for a fifth consecutive session. The energy component fell as low as $97.07 in morning action and chopped around slightly above that level for the remainder of the session. It eventually settled 0.3% lower, bringing losses for the week to 4.2%. 

  Sep natural gas fell 4 cents to $3.80/MMBtu 

·         Natural gas touched a session high of $3.88 in morning floor trade but quickly retreated back into negative territory. It continued to trend lower and settled with a 1.0% loss, cutting gains for the week to 0.5%. 

  Sep heating oil fell 2 cents to $2.87/gallon 

  Sep RBOB fell 6 cents to $2.74/gallon


Treasuries

Curve Steepens as Fed Tapers and GDP Prints 4.0%: 10-yr: +16/32..2.497%..USD/JPY: 102.58..EUR/USD: 1.3424
The Week in Review

·         Treasuries saw a mixed week as buying took place up front while sellers had control of longer dated maturities. Click here to see an intraweek yields chart.

·         The Federal Open Market Committee announced a $10 bln trim to its asset purchase program, lowering the figure to $25 bln per month. 

·         Notable were comments indicating "a range of labor market indicators suggests that there remains significant underutilization of labor resources" and that "the likelihood of inflation running persistently below 2 percent has diminished somewhat." 

·         Traders also had to grapple with macro headwinds as Argentina defaulted on its debt, the ability of Portugal's Banco Espirito Santo to meet its debt obligations remained in doubt, and the conflict in Gaza intensified.

·         On Wednesday, the Q2 GDP-Adv. look showed the U.S economy grew at a 4.0% QoQ annualized clip (3.2% QoQ annualized expected), the strongest since Q3 2013.

·         Friday's July nonfarm payroll report missed estimates with a 209K print (220K expected). The unemployment rate ticked up to 6.2% (6.1% expected, 6.1% previous) as the labor force participation rate improved to 62.9% (62.8% previous).

·         Housing data continued to disappoint as pending home sales (-1.1% actual v. -0.8% expected) and Case-Shiller 20-city Index (9.3% actual v. 10.0% expected) were the latest figures to miss the mark. 

·         The rest of the week's data was mostly disappointing Chicago PMI (52.6 actual v. 60.0 expected), hourly earnings (0.0% actual v. 0.2% expected), Michigan Sentiment - Final (81.8 actual v. 82.0 expected), and construction spending (-1.8% actual v. 0.3% expected) all fell short of estimates.

·         Only consumer confidence (90.9 actual v. 85.6 expected) and ISM Index (57.1 actual v. 55.9 expected) beat.  

·         This week's auctions were mixed.

·         Monday's $29 bln 2y note auction drew 0.544%, the highest since May 2011, and saw a slightly less than average 3.22x bid/cover. Support was provided by the 26.9% indirect takedown, and primary dealers were left with a whopping 58.8% of the supply.

·         Tuesday's solid $35 bln 5y note auction drew 1.720% and a 2.81x bid/cover. Strong bids from both indirects (48.2%) and directs (25.9%) left primary dealers with just 25.9% of the supply. 

·         Wednesday's average $29 bln 7y note auction drew 2.250% (WI 2.245%) and a 2.58x bid/cover. A light direct bid (15.2%) was supported by a larger than usual indirect takedown (47.3%). Primary dealers ended up with 37.5% of the supply. 

·         Up front, selling early in the week ran the 2y up to almost 0.600%. The weakness ran the yield to highest levels since May 2011 before sliding to 0.464% by Friday's close.

·         In the belly, the 5y slipped -2bps to 1.673%. The yield flirted with its highest close of 2014 as trade probed the 1.800% level, but a -9bp drop on Friday dropped action off the level.

·         The 10y tacked on +2bps to 2.505%. Mid-week selling caused  the benchmark yield to test resistance and the 100 dma near 2.600% before threatening a sub-2.500% close at week's end. 

·         At the long end the 30y lagged, +4bps @ 3.297%. Buying early in the week dropped action to a 13-month low before seeing several tests of the 50 dma (3.370%). However, trade was unable to punch through the level as resistance in the area held strong.

·         This week's action swung the curve steeper as the 2-10-yr spread widened to 204bps and the 5-30-yr spread expanded to 162.5bps.

The Week Ahead 

·         There is no data on Monday. 

·         Data for the week begins on Tuesday with factory orders and ISM Services (10). 

·         Wednesday will see the weekly MBA Mortgage Index (7) and the trade balance (8:30). 

·         Thursday's data includes initial and continuing claims (8:30) and consumer credit (15).

·         A quiet week for data concludes on Friday with productivity-prel., unit labor costs (8:30), and wholesale inventories (10).

On other news.... 

Employment Growth Disappoints in July
Nonfarm payrolls added 209,000 jobs in July after adding an upwardly revised 298,000 (from 288,000) in June. The Briefing.com consensus expected 220,000 new jobs in July.

Private payrolls fared worse, adding only 198,000 jobs in July following a 270,000 increase in June. The consensus expected 225,000 new private jobs in July.

 Over the past four weeks, the initial claims level dropped to approximately 300,000. That level suggests payroll growth should be in the neighborhood of 300,000 new jobs per month. Obviously, that is not the case.

The key takeaway is that the labor market is nowhere near as strong as the claims data suggest, and the economy is still muddling through a relatively stagnant employment cycle.

It is possible that the claims data have been biased from the motor vehicle industry. Normal plant shutdowns for retooling were possibly delayed or prevented so the manufacturers can keep production up to meet elevated demand. If this scenario is true, then an unbiased claims level would be closer to 310,000 -- 320,000, which would imply payroll growth around 225,000 per month. Actual payrolls came in below this forecast but it was within normal volatility and tolerances.

Even more disappointing, hourly wages were flat after increasing 0.2% in June and the average workweek remained at 34.5 hours. Altogether, aggregate earnings increased a very modest 0.2% in July after rising by 0.5% in June. The lack of strong wage growth will put downward pressure on consumption gains.

Sector-wise, the employment gains were relatively healthy. 

·         Goods producing jobs increased by 58,000, up from a 38,000 increase in June. 

·         Manufacturing added 28,000 new jobs following a 23,000 increase in June. 

·         The services sector added 140,000 new jobs, down from a 232,000 increase in June. 

·         Temporary help employment growth slowed, which signals a slight improvement in long-term job stability. 

The unemployment rate ticked up to 6.2% in July from 6.1% in June. The consensus expected the unemployment rate to remain at 6.1%.

The labor force increased by 329,000, which suggests that some discouraged workers are again looking for employment.

 The number of employed workers increased by 131,000. As opposed to June, most of the newly hired accepted full-time employment rather than part-time.

Currencies

Dollar Pulls Back: 10-yr: +16/32..2.498%..USD/JPY: 102.51..EUR/USD: 1.3430

·         The Dollar Index holds small losses as trade fights to hold the 81.30 area. Click here to see a daily Dollar Index chart. 

·         Early action saw the Index probe 81.50 for the third straight session, but trade was once again unable to take the level as sellers emerged at 10-month highs. 

·         EURUSD is +40 pips @ 1.3425 as trade looks to put in its first real gain in more than two weeks. Recent days have been unkind to the single currency as traders have had to grapple with concerns Portugal's Banco Espirito Santo will be unable to meet its debt obligations. Retaking the 1.3500 level is a high priority for the bulls. Eurozone data is limited to Spanish unemployment change. 

·         GBPUSD is -50 pips @ 1.6835 as sellers have their way for the 12th time in 13 days. Sterling has come under pressure as of late as a slowdown in the data has pushed back against talk the Bank of England will become the first major Western central bank to hike rates and emerge from the crisis. A close below 1.6858 would be notable as it would be the first below the 100 dma in a year. Britain's Construction PMI will be released Monday. 

·         USDCHF is -30 pips @ .9055 as action slides off its best levels of 2014. Today's weakness is more the result of euro strength than anything else, and has action nearing .90000 support. The 50 and 200 dma provide further help just below. Switzerland's SVME PMI is scheduled for Monday. 

·         USDJPY is -25 pips @ 102.55 as sellers take control for the first time in 11 days. The pair probed the 103.00 level in early action after Bank of Japan Governor Haruhiko Kuroda defended the central bank's upbeat outlook despite the recent spell of weak data; however, trade has seen a reversal amid U.S. hours. Support near 102.10 is guarded by the 50, 100, and 200 dma. 

·         AUDUSD is +20 pips @ .9315 as buying develops for the first time in four days. The hard currency has managed to shake off the tepid PPI print, and is climbing off its lowest levels in nearly two months. Australian retail sales and ANZ Job Advertisements will be released Sunday evening. Most Australian banks are closed for holiday. China's Non-Manufacturing PMI is due out Saturday. 

·         USDCAD is +5 pips @ 1.0910 as trade climbs for the sixth time in seven days. The light bid has the pair nearing its best level in two months as the bulls fight to hold the 100 dma. Canadian banks are closed Monday in observance of Civic Day.

Weekly Analysis
Week 1



Technical Updates

Briefing's Commentaries


Week in Review: Stocks Cap July With Broad Slide

The stock market began the last week of July on a quiet note with the S&P 500 ending less than a point above its flat line. Like the benchmark index, the Dow Jones Industrial Average (+0.1%) also posted a slim gain, while the Russell 2000 (-0.5%) and Nasdaq Composite (-0.1%) lagged throughout the session. The major averages were awakened from their weekend slumber with an opening retreat that pressured the S&P 500 below its 20-day moving average (1975). Even though the index dipped early, only two sectors—consumer staples (-0.5%) and industrials (-0.5%)—displayed noteworthy weakness that persisted into the close.

On Tuesday, equities ended on a lower note after generally upbeat earnings took the back seat to geopolitical concerns. The S&P 500 (-0.5%) and Nasdaq Composite (-0.1%) settled on their lows, while the Russell 2000 (+0.3%) displayed relative strength. Once again, market participants were focused on quarterly reports in the early going, but geopolitical worries overshadowed the impact of mostly better than expected earnings. Specifically, equities retreated after it was reported that European EU officials have prepared the new set of sanctions against Russia. The imposition of new sanctions may pique concerns about a boomerang effect on the global economy, and Europe in particular, but it is worth noting that the Russian ruble and Market Vectors Russia ETF (RSX) strengthened in reaction to the news. The reports of forthcoming sanctions were followed by afternoon headlines from Washington indicating the Treasury Department has added VTB, the Bank of Moscow, and Russian Agriculture Bank to the sanction list. After the news crossed the wires, the RSX and the ruble dropped to fresh lows, as did the S&P 500.

On Wednesday, the market finished on a mixed note with small caps displaying relative strength. The Nasdaq Composite (+0.5%) and Russell 2000 (+0.4%) registered modest gains, while the Dow Jones Industrial Average (-0.2%) and S&P 500 (+0.01%) underperformed. Despite the mixed finish, the key indices traded higher across the board at the start of the session after the advance reading of second quarter GDP surpassed estimates (4.0% versus Briefing.com consensus 3.2%). However, the early strength was short-lived with the S&P 500 sliding into red during the opening 90 minutes of action. One could argue that the inability to rally on a strong data point and better than expected earnings resulted from concerns about a potential fed funds rate hike taking place sooner than expected. To that point, Treasuries spent the session in a steady retreat and finished near their lows. The 10-yr note fell 26 ticks, sending its yield higher by nine basis points to 2.55%.

The stock market punctuated July with a broad-based retreat that sent the S&P 500 lower by 2.0% with all ten sectors ending in the red. The benchmark index posted a monthly decline of 1.5%. After upbeat earnings and economic news failed to spark a rally on Wednesday, Thursday's session invited a wave of profit taking. With the sentiment taking a turn for the worse, a batch of poor quarterly results from a handful of global players contributed to the slide. Samsung kicked things off overnight with below-consensus earnings that sent the stock lower by 3.7% in Seoul. Things did not get much better during the European session with Adidas and Deutsche Lufthansa posting respective earnings-driven losses of 15.4% and 6.4% in Frankfurt. The DAX Index, meanwhile, lost 1.9%.

Next Week In View





Economic Commentaries

Economic Summary: NFP's miss expectations; Unemployment rate ticks up to 6.2%; ISM Index tops expectations
Economic Data Summary:

·         July Non-Farm Payrolls 209K vs Briefing.com consensus of 220K; June was revised to 298K from 288K

·         July Nonfarm Private Payrolls 198K vs Briefing.com consensus of 225K; June was revised to 270K from 262K

o    It is possible that the claims data have been biased from the motor vehicle industry. Normal plant shutdowns for retooling were possibly delayed or prevented so the manufacturers can keep production up to meet elevated demand. If this scenario is true, then an unbiased claims level would be closer to 310,000 -- 320,000, which would imply payroll growth around 225,000 per month. Actual payrolls came in below this forecast but it was within normal volatility and tolerances. 

·         July Unemployment Rate 6.2% vs Briefing.com consensus of 6.1%; June was 6.1%

·         July Hourly Earnings 0.0% vs Briefing.com consensus of 0.2%; June was 0.2%

·         July Average Workweek 34.5 vs Briefing.com consensus of 34.5; June was 34.5

·         June Personal Income 0.4% vs Briefing.com consensus of 0.4%; May was 0.4%

·         June Personal Spending 0.4% vs Briefing.com consensus of 0.4%; May was revised to 0.3% from 0.2%

o    The personal income and spending data for June was already incorporated in the second quarter GDP report that was released earlier in the week. The only bit of new information was about how the revisions to the data affected the monthly gains.

o    Overall wages and salaries increased 0.4% in both May and June. That gain was in-line with the 0.5% increase implied in the June employment report. Medicaid gains, which were responsible for a large portion of income growth in Q1 2014, have slowed significantly over the last few months. 

·         June PCE Prices - CORE 0.1% vs Briefing.com consensus of 0.2%; May was 0.2%

·         July Michigan Sentiment - Final 80.8 vs Briefing.com consensus of 82.0; June was 81.3

o    Earlier in the week, the Conference Board's Consumer Confidence Index increased to its highest point since October 2007. The conflicting readings between the sentiment and confidence indices are not new, and they show why one shouldn't take changes in confidence or sentiment too seriously.

·         July ISM Index 57.1 vs Briefing.com consensus of 55.9; June was 55.3

o    Production levels improved as the related index increased to 61.2 in July from 60.0 in June. New orders strengthened to 63.4 from 58.9. Backorders remained in a contraction for a second consecutive month, but the pullback eased as the index increased to 49.5 from 48.0.

·         June Construction Spending -1.8% versus Briefing.com consensus of 0.3%; prior was 0.1%

Upcoming Economic Data:

·         June Factory Orders due out Tuesday at 10:00 (Briefing.com consensus of ; May was -0.5%)

·         July ISM Services due out Tuesday at 10:00 (Briefing.com consensus of ; June was 56.0)

Other International Events of Interest

·         Weak Italian (51.9 actual v. 52.8 expected, 52.6 previous) and Spanish (53.9 actual v. 54.8 expected, 54.6 previous) Manufacturing PMI figures have not helped the cause with those countries' underlying stock indicies off 0.5% and 1.7%, respectively. 

Jason's Commentaries


The market ended lower as the employment report did not meet expectation, unemployment rate rose to 6.2%. The market started flat. However, after 1030am ET, the market started turning down. VIX spiked to new high of 17.57. Volumes were standing at 706.7m shares traded on the NYSE. Volumes are not totally supporting a downward movements of the market. On the technical perspective, the market seemed to have broken down from its consolidation. Sectors were movements were mixed. Consumer staples and Utilities were the largest leaders of 0.77% and 0.39% respectively. However, Energy and Financials were the main laggard of the market. The financial industry, has just broken down from a triple top. Industrials has broken down from its downside wedge. Most of the sectors were exhibiting similar behavior. It's very likely that we're going to go through a short term bear market. However, the market is likely to find some support today as Russells is at the support now. While Dow is holding its support at 16450. I'm expecting the market to either head up or stay flat today.

Market Call: FLAT to upside

Date: 4 Aug 2014