8 Aug 2014 AMC - Market rallied Russia seeks to de-escalate Ukraine Crisis

8 Aug 2014 AMC - Market rallied Russia seeks to de-escalate Ukraine Crisis

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: -0.5%

·         Germany's DAX: -0.3%

·         France's CAC: -0.1%

·         Spain's IBEX: + 0.3%

·         Portugal's PSI: -0.8%

·         Italy's MIB Index: + 0.3%

·         Irish Ovrl Index: -0.3%

·         Greece ASE General Index: -4.0%

Before Market Opens 

S&P futures vs fair value: +5.30. Nasdaq futures vs fair value: +10.50.
The S&P 500 futures trade five points above fair value.

It was a sea of red across Asia as all of the major bourses, aside from China's Shanghai Composite (+0.3%), ended with losses. The Bank of Japan kept policy on hold, but warned of slowing exports. Elsewhere, the Reserve Bank of Australia lowered its growth forecast for the calendar year to 2.50% from 2.75% while also cutting its inflation forecast to 2.00% from 2.75%. 

·         In economic data: 

o    China's trade surplus widened to $47.30 billion from $31.60 billion (expected surplus of $27.00 billion) as exports surged 14.5% (consensus 7.5%; prior 7.2%) and imports fell 1.6% (expected 3.0%; previous 5.5%) 

o    Japan's current account surplus narrowed to JPY130 billion (expected surplus of JPY110 billion; previous surplus of JPY380 billion), while Economy Watchers Current Index rose to 51.3 from 47.7 (expected 48.7) 

o    Australia's Home Loans ticked up 0.2% month-over-month (expected 0.5%; prior 0.0%) 

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·         Japan's Nikkei tumbled 3.0% to a two-month low. Camera maker Nikon sank 9.3% after posting disappointing results. 

·         Hong Kong's Hang Seng shed 0.2%, finishing at a two-week low. China Unicom slid 1.7% after its quarterly results fell short of analyst estimates. 

·         China's Shanghai Composite added 0.3%, remaining near its best levels of 2014. Property stocks lagged with Poly Real Estate off 2.4% and China Vanke lower by 0.8%. 

Major European indices have climbed off their opening lows with Italy's MIB (+0.9%) in the lead. 

·         Participants received several data points: 

o    Germany's trade surplus narrowed to EUR16.20 billion from EUR18.80 billion (expected surplus of EUR17.50 billion) 

o    Great Britain's trade deficit widened to GBP9.41 billion from GBP9.15 billion (expected deficit of GBP8.80 billion) 

o    French Industrial Production rose 1.3% month-over-month (expected 1.0%, previous -1.6%), while the government budget deficit narrowed to EUR59.40 billion from EUR64.30 billion 

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·         Great Britain's FTSE is lower by 0.4% with insurers on the defensive. RSA Insurance and Old Mutual are both down near 1.0%. Consumer names outperform with Burberry, WM Morrison Supermarkets, and Tesco up between 0.9% and 1.7%. 

·         Germany's DAX holds a loss of 0.1%. Deutsche Lufthansa and Deutsche Telekom lag with losses close to 1.5% apiece. Steelmaker ThyssenKrupp is the top performer, up 3.4%.

·         In France, the CAC is flat. Gemalto is higher by 4.7% after acquiring SafeNet for $890 million. Consume names Danone and L'Oreal underperform. The two are both down close to 1.1%. 

·         Italy's MIB has added 0.9% thanks to bank shares. Banco Popolare, Banca di Milano Scarl, UBI Banca, and Mediobanca are up between 3.0% and 6.9%.

U.S. Equities

·         Futures have erased their overnight losses and now suggest a firm open

·         Overnight action saw futures press lower as President Obama approved limited airstrikes on ISIS in Iraq and the cease-fire in Gaza collpased

·         Trade rebounded following reports Russia is looking to deescalate the situation in Ukraine

·         The VIX (16.66) holds near four-month highs

·         Productivity-prel. (2.5% actual v. 1.4% expected)

·         Unit Labor Costs (0.6% actual v. 2.0% expected)

o    S&P Futures +6 @ 1911

o    Dow Futures +25 @ 16,346

o    Nasdaq Futures +9 @ 3866

Asia

·         It was a sea of red across Asia as all of the major bourses, aside from China's Shanghai Composite, ended with losses

·         The Bank of Japan kept policy on hold as it opined overnight, but warned of slowing exports

·         The Reserve Bank of Australia lowered its growth forecast for the calendar year to 2.5% (2.75% previous) while also cutting its inflation forecast to 2.0% (2.75% previous)

·         China's trade surplus expanded to a record $47.3 bln ($26.0 bln expected, $31.6 bln previous) in June as exports surged 14.5% and imports dropped 1.5%

·         Japan's Nikkei (-3.0%) tumbled to a two-month low

·         Hong Kong's Hang Seng (-0.2%) finished at a two-week low

·         China's Shanghai Composite (+0.3%) remained near its best levels of 2014

·         India's Sensex (-1.0%) closed at a three-week low as trade slipped below the 50 dma

·         Australia's ASX (-1.3%) sank to a one-month low

Market Internals

Market Internals -Technical-
The S&P 500 closed up 22 (+1.15%) at 1932, the Dow closed up 186 (+1.13%) at 16554, and the Nasdaq closed up 36 (+0.83%) at 4371. Action came on slightly below average volume (NYSE 616 mln vs. avg. of 668; NASDAQ 1647 mln vs. avg. of 1691), with advancers outpacing decliners (NYSE 2397/773, NASDAQ 1878/827) and new lows outpacing new highs (NYSE 49/59, NASDAQ 33/77).

Relative Strength: 
Turkey-TUR +2.88%, South Africa-EZA +2.71%, Homebuilders-XHB +2.53%, Russia-RSX +2.5%, Spain-EWP +2.45%, U.S. Home Construction-ITB +2.39%, Eastern Europe-ESR +2.38%, Biotechnology-XBI +2.27%, Natural Gas-UNG +2.1%.

Relative Weakness: 
Volatility-VXX -4.07%, Coffee-JO -2.1%, Livestock-COW -2.02%, Corn-CORN -1.56%, Grains-JJG -1.35%, Greece-GREK -0.87%, Canadian Dollar-FXC -0.46%, Singapore-EWS -0.43%, Chile-ECH -0.37%, British Pound-FXB -0.36%.

Leaders and Laggards

 

Technical Updates

Commentaries 

Closing Market Summary: First Full Week of August Ends on Upbeat Note
The major averages finished the first full week of August on a strong note. The S&P 500 settled higher by 1.2% with all ten sectors posting gains. Thanks to the advance, the benchmark index added 0.3% for the week.

Although stocks ended higher, the futures market was pressured overnight after President Obama delivered a statement last evening, authorizing humanitarian air drops and air strikes in Iraq. The announcement weighed on futures, while giving a boost to Treasuries.

Despite the overnight weakness, equity futures began climbing once European markets opened for action. Furthermore, the overall sentiment improved in reaction to a report from RIA, indicating Russia is seeking to de-escalate the Ukraine crisis. However, it is worth noting that regional leaders have recently warned that Russia could invade Ukraine under the guise of ‘peacekeeping.'

Once the opening bell rang, the key indices searched for direction through the first hour of action, but were able to rally to fresh highs with support from heavily-weighted sectors like consumer discretionary (+1.6%), industrials (+1.4%), and health care (+1.1%). The market received another push during the early afternoon after news reports cited Russia's defense ministry as saying Russia's exercises near the border with Ukraine are over.

The afternoon news lifted underperforming sectors into the green, while sending the day's leaders to new highs. On the fixed income side, Treasuries erased all of their overnight gains and ended flat with the 10-yr yield at 2.42%.

The utilities sector (+2.0%) finished in the lead, while other countercyclical groups were somewhat mixed. Consumer staples (+1.0%) and telecom services (+0.5%) lagged, while health care (+1.1%) ended just behind the S&P 500 thanks to strength in the biotechnology space. The iShares Nasdaq Biotechnology ETF (IBB 251.49, +3.34) rose 1.4%, but ended just short of its 50-day moving average (252.10).

Similar to biotechnology, other high-beta areas like chipmakers and homebuilders also rallied.

Microchip manufacturers rallied after NVIDIA (NVDA 19.00, +1.54) reported better than expected earnings and hiked its revenue guidance. The stock surged 8.8%, while the broader PHLX Semiconductor Index rose 1.2%. However, the technology sector (+0.6%) underperformed amid relative weakness in top-weighted components like Apple (AAPL 94.74, +0.26) andMicrosoft (MSFT 43.20, -0.03).

Elsewhere, homebuilders provided a measure of support to the discretionary sector with the iShares Dow Jones US Home Construction ETF (ITB 22.71, +0.53) climbing 2.4%. Retailers and media names also played a part in the outperformance. The SPDR S&P Retail ETF (XRT 85.24, +1.30) added 1.6%, while media stocks were underpinned by CBS (CBS 59.23, +2.33) after the company reported above-consensus results.

Participation was on the light side with a bit more than 615 million shares changing hands at the NYSE.

Economic data was limited to second quarter productivity/unit labor costs data and the Wholesale Inventories report for June: 

·         Nonfarm labor productivity increased 2.5% in Q2 2014 following a downwardly revised 4.5% (from -3.2%) decline in the first quarter 

o    The Briefing.com consensus expected nonfarm productivity to increase 1.4% 

·         An increase in wages led to a 3.1% increase in hourly compensation in the second quarter, down from a 6.8% increase in the first quarter 

o    The larger increase in output, however, reduced unit labor costs growth from an 11.8% gain in the first quarter to only 0.6% growth in the second. The small increase in unit labor costs leaves a lot of room for future profit growth 

·         Wholesale inventories increased 0.3% in June after increasing by a downwardly revised 0.3% (from 0.5%), while the Briefing.com consensus expected an increase of 0.4% 

o    The BEA assumed wholesale inventories increased 0.7% in the second quarter GDP report. The lower-than-expected increase along with the downward revision to the May data will result in a smaller contribution to overall growth from the inventory sector when the second estimate is released at the end of the month 

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

·         S&P 500 +4.5% YTD 

·         Nasdaq Composite +4.7% YTD 

·         Dow Jones Industrial Average -0.1% YTD 

·         Russell 2000 -2.9% YTD 

Commodities

Metals Closing Prices

·         Dec gold fell $1.60 to $1311.00/oz

·         Sep silver fell $0.05 to $19.94/oz 

·         Sep copper fell 1 cent to $3.17/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Sep corn fell 6 cents to $3.53/bushel 

·         Sep wheat fell 12 cents to $5.48/bushel 

·         Nov soybeans rose 7 cents to $10.84/bushel 

·         Sep ethanol rose 2 cents to $2.03/gallon 

·         Sep sugar (#16 (U.S.)) rose 0.41 of a penny to 25.08 cents/lbs

NYMEX Energy Closing Prices

·         Sep crude oil rose $0.27 to $97.61/barrel 

·         Sep natural gas rose 8 cents to $3.96/MMBtu 

·         Sep heating oil fell 2 cents to $2.88/gallon 

·         Sep RBOB fell 2 cents to $2.75/gallon

Treasuries

10y Settles at 2.415%, Lowest Since June 2013: 10-yr: -01/32..2.421%..USD/JPY: 102.06..EUR/USD: 1.3407
The Week in Review

·         Treasuries gained this week as macro headwinds provoked a safety bid that pushed yields to multi-month lows. Click here to see an intraweek yields chart. 

·         Global growth concerns developed after Italy slid into a technical recession with its second straight quarter of negative growth.

·         The U.S. launched targeted airstrikes against ISIS in Iraq and the ceasefire in Gaza collapsed.

·         Russian held military training on Ukraine's border as operations began on Monday and ended on Friday.

·         Economic data was better than expected as factory orders (1.1% actual v. 0.5% expected), ISM Services (58.7 actual v. 56.5 expected), trade balance (-$41.5B actual v. -$454.2 bln expected), initial claims (289K actual v. 308K expected), productivity (2.5% actual v. 1.4% expected), and unit labor costs (0.6% actual v. 2.0% expected) posted better than expected results.

·         Up front, the 2y slipped -4bps to 0.440% and finished near its lowest levels in two months. 

·         In the belly, the 5y shed -6bps to 1.610%. The yield ended near its lowest levels since the beginning of June after seeing a bounce off the 200 dma (1.585%). 

·         The 10y tumbled -9bps to 2.415% as trade finished  the week at levels last seen in June 2013. 

·         At the long end, the 30y fell -6bps to 3.226%. The yield on the long bond pressed to 3.175% early Friday, but has yet to finish below the late-July closing low of  3.222%.

·         The yield curve flattened as the 2-10-yr spread narrowed to 197.5bps and the 5-30-yr spread tightened to 161.5bps.

The Week Ahead 

·         There is no data on Monday.

·         Tuesday's data is limited to the Treasury budget (14). Treasury will auction $27 bln 3y notes. 

·         Data picks up on Wednesday with the weekly MBA Mortgage Index (7), retail sales (8:30), and business inventories (10). Treasury will hold a $24 bln 10y note auction. NY's Dudley and Boston's Rosengren will speak at a NY Fed workshop on "The Risks of Wholesale Funding" (9:05 and 9:20). 

·         Thursday's data includes initial and continuing claims and import/export prices (8:30). Treasury will auction $16 bln 30y bonds. 

·         Friday's data is the most anticipated of the week as PPI, Empire Manufacturing (8:30), Net Long-Term TIC Flows (9), industrial production, capacity utilization (9:15), and Michigan Sentiment (9:55) are due out. Minny's Kocherlakota discusses "The Current and Future State of Community Banking, Community Supervision/Regulation and the Economy" (10:45).

On other news.... 




Currencies 

Dollar Slips in Quiet Trade: 10-yr: unch..2.416%..USD/JPY: 102.04..EUR/USD: 1.3408

·         The Dollar Index holds small losses near 81.40 as an uneventful trade draws to a close. Click here to see a daily Dollar Index chart.

·         Most of today's activity has been confined to a tight 15 cent range. 

·         EURUSD is +45 pips @ 1.3410 as trade contends with its best close in a week. Today's bid has the single currency on track for just its second notable gain in three weeks, and has many traders watching 1.3425 resistance as a breakout puts the 1.3525 area in the cross hairs. 

·         GBPUSD is -60 pips @ 1.6775 as trade presses lower for the 15th time in 18 sessions. Today's wider than expected trade deficit continued the run of mostly disappointing data out of the UK and has action set for its lowest close in two months. 

·         USDCHF is -40 pips @ .9050 as trade slides to its lowest levels of August. A quiet day for news and data out of Switzerland has trade at the mercy of the euro. Swiss data set for Monday is limited to retail sales.

·         USDJPY is -10 pips @ 102.00 as sellers look to put in a third day of losses. The pair slid to 101.50 after the Bank of Japan kept policy on hold and voiced concerns over its slowing export sector, but has recouped almost all of its losses as Russia announced an end to its military exercises on Ukraine's border.Support near 102.00 is helped by the 50 and 100 dma. Japan's tertiary industry activity will cross the wires Sunday evening. 

·         AUDUSD is +10 pips @ .9280 as trade holds just off session highs. The hard currency saw early selling after the Reserve Bank of Australia trimmed its growth and inflation forecasts, but recovered those losses ahead of the U.S. session. Action has spent much of the day in a tight 10 cent range. China's CPI and PPI are due out this evening. 

·         USDCAD is +45 pips @ 1.0970 as trade looks likely to close at a three-month high following the disappointing Canadian jobs report (0.2K actual v. 25.4K expected). Canada's housing starts are scheduled for Monday.

Weekly Analysis




Technical Updates

Briefing's Commentaries


Week in Review: Searching For Direction

On Monday, the market kicked off the new trading week on an upbeat note despite enduring a shaky start to the session. The S&P 500 settled higher by 0.7% with nine sectors ending in the green. Equity indices climbed out of the gate amid upbeat action in Europe where Portugal's Banco Espirito Santo received bailout funds over the weekend. While the actual need for a bailout was not a positive in itself, the news calmed some fears about the stability of the European banking system. Overall, cyclical sectors fared better than defensively-oriented groups with five growth-sensitive sectors ending ahead of the broader market. The energy sector (+1.6%) was an early laggard, but surged into the lead in the afternoon.

The stock market ended the Tuesday session on a broadly lower note. The S&P 500 lost 1.0% with all ten sectors ending in the red. The Russell 2000 outperformed, but still shed 0.3%. Equity indices were on the defensive from the get-go with the early weakness attributed to disappointing data from overseas. China got the ball rolling overnight with a disappointing HSBC Services PMI report (50.0 from 53.1), which fell to its lowest level on record. Things looked a little bit better in Europe, where Services PMI readings from Germany, Great Britain, and Spain improved, but the overall eurozone reading unexpectedly slipped to 54.2 from 54.4. Another item that kept dip-buyers on the sidelines was disappointing guidance provided byTarget (TGT). The retailer lost 4.4% after priming the market for below-consensus results that will include a $148 million expense stemming from the data breach that occurred last year.

The major averages spent some time on both sides of their flat lines on Wednesday before ending little changed. The S&P 500 settled on its flat line with six sectors finishing in the red, while the Russell 2000 (+0.3%) displayed relative strength throughout the session. Although stocks finished on a flat note, the early indication suggested the market could be in for a rough day as economic data from the eurozone and domestic corporate news weighed. On the economic front, Germany reported its second monthly decline in factory orders (-3.2% versus expected 1.0%; prior -1.6%), while the Italian economy slipped into recession following its second consecutive quarterly GDP contraction (-0.2%; previous -0.1%). Back at home, two potential acquisitions were called off with 21st Century Fox (FOXA) terminating its pursuit of Time Warner (TWX) and Sprint (S) withdrawing its offer for T-Mobile (TMUS).

On Thursday, equities finished on a lower note despite showing strength in the early going. The S&P 500 fell 0.6% with eight sectors registering losses. Equities climbed out of the gate after the European Central Bank reaffirmed its commitment to the current policy course. In addition, better than expected earnings and economic data also factored into an upbeat start. Despite the set of positive factors, the S&P 500 could not overtake its opening high at 1928.97. Instead, the index spent about an hour near that level before retreating into the red. An afternoon report from the New York Times concerning potential U.S. airstrikes on militants in Iraq contributed to keeping dip-buyers sidelined. As a result, the S&P 500 ended the session below its 100-day moving average (1913/1914), while the Dow Jones Industrial Average (-0.5%) settled just above its 200-day moving average (16343) after crossing that level for the first time since February 6.

Next Week In View





Economic Commentaries

Economic Summary: Unit Labor Costs lower than expected; Wholesale inventories larger than expected
Economic Data Summary:

·         Q2 Productivity - Prelim 2.5% vs Briefing.com consensus of 1.4%; First Quarter was revised to -4.5% from -3.2%

·         Q2 Unit Labor Costs 0.6% vs Briefing.com consensus of 2.0%; First Quarter was revised to 11.8% from 5.7%

o    Hours worked increased 2.7% in the second quarter, up from a 2.1% increase in the first quarter. That was the largest increase in quarterly hours since Q1 2012 when hours rose 3.2%. Output jumped 5.2% in Q2 2014, which more than reversed the 2.4% decline in the first quarter. That gain was in-line with the second quarter GDP report. 

·         June WholeSale Inventories +0.7% vs Briefing.com consensus of 0.4%; May was revised to 0.3% from 0.5%

o    The BEA assumed wholesale inventories increased 0.7% in the second quarter GDP report. The lower-than-expected increase along with the downward revision to the May data will result in a smaller contribution to overall growth from the inventory sector when the second estimate is released at the end of the month.

Upcoming Economic Data:

·         June JOLTS - Job Openings due out June at 10:00 (Briefing.com consensus of ; May was 4.635 M )

·         July Treasury Budget due out July at 14:00 (Briefing.com consensus of ; June was -$97.6 bln)

Other International Events of Interest

·         Overnight action saw futures press lower as President Obama approved limited airstrikes on ISIS in Iraq and the cease-fire in Gaza collpased.

Jason's Commentaries

Before market open, Russia seeks to de-escalate the Ukraine Crisis. Rumored that Russia might use the opportunity to invade Ukraine. That actually caused the European market to rally as well. Coming out from the States, Obama has authorized air strikes against ISIS in Iraq as Christians are being beheaded for refusal to convert to Islam. That move will very likely reduce the speed of US troops moving out from Iraq. And war literally means more profit for the country. That might be one of the main reasons why short covering and bounce occured. Looking at the internals, it's rather consistent that the market actually rallied. The main leaders in the market was actually Utilities with 1.99% gain while the Energy stocks gained 1.675 which had a greater impact on the broader indices. On the technical perspective, it's expected that we're likely to have a retracement, possibly a dead cat bounce on this. On Monday, I believe without any news interference, we're likely to have some downside day.

Market Call: FLAT to downside

Date: 11 Aug 2014