12 Sep 2014 AMC and Week in review- Market went through extremely volatile week

12 Sep 2014 AMC and Week in review- Market went through extremely volatile week

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: + 0.1%

·         Germany's DAX: -0.4%

·         France's CAC: + 0.0%

·         Spain's IBEX: + 0.0%

·         Portugal's PSI: -0.4%

·         Italy's MIB Index: -0.1%

·         Irish Ovrl Index: + 0.2%

·         Greece ASE General Index: -0.5%

Before Market Opens 

S&P futures vs fair value: -1.30. Nasdaq futures vs fair value: -0.80.
The S&P 500 futures trade one point below far value.

The major Asian bourses endured a mixed session to finish the week. In Japan, Bank of Japan Governor Haruhiko Kuroda indicated the central bank will not hesitate to act if the economic recovery wanes. Elsewhere, Bank of Korea held its key rate steady at 2.25%, as expected. 

·         In economic data: 

o    China's M2 Money Stock grew 12.8% year-over-year (expected 13.4%; prior 13.5%), while New Loans increased by CNY703 billion (consensus CNY700 billion; previous CNY385 billion) 

o    Japan's Industrial Production rose 0.4% month-over-month (expected 0.2%; previous 0.2%), while Capacity Utilization fell 0.8% month-over-month (previous -3.3%) 

o    South Korea's Unemployment Rate ticked up to 3.5% from 3.4% (expected 3.4%) 

o    New Zealand's Business NZ PMI rose to 56.5 from 53.5, while FPI ticked up 0.3% month-over-month (last -0.7%) 

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·         Japan's Nikkei added 0.3% to finish at an eight-month high. The weak yen aided exporters as Nikon gained 2.2% and Toyota Motor rose 1.5%. 

·         Hong Kong's Hang Seng shed 0.3%, seeing its fifth straight day of selling as trade pressed to a one-month low. Energy names were weak with CNOOC losing 2.3% and PetroChina giving up 1.3%. 

·         China's Shanghai Composite added 0.9%, climbing to a 19-month high. Air China rose 3.4% and China Eastern Airlines jumped 1.4% on hopes of a Golden Week holiday. 

·         India's Sensex ticked up 0.2%, advancing for the first time in four days. Heavyweight Bharti Airtel provided support, up 2.0%. 

Major European indices trade little changed with Great Britain's FTSE (+0.2%) in the lead. The Scottish independence movement remains a close contest with the latest polls suggesting the ‘No' camp has reclaimed the lead. Last evening's YouGov poll indicated 52% support for the ‘No' vote. 

·         Participants received several data points: 

o    Eurozone Industrial Production rose 1.0% month-over-month (expected 0.5%; last -0.3%), while the year-over-year reading increased 2.2% (consensus 1.3%; previous 0.2%). Separately, Employment Change came in at 0.2% quarter-over-quarter (expected 0.1%; last 0.1%) 

o    Germany's Wholesale Price Index ticked down 0.2% month-over-month, as expected 

o    French Current Account deficit narrowed to EUR2.20 billion from EUR7.20 billion (expected deficit of EUR4.60 billion) 

o    Italy's Industrial Production fell 1.0% month-over-month (consensus -0.1%; last 0.8%), while the year-over-year reading declined 1.8% (forecast 0.5%; prior 0.3%). Separately, CPI ticked up 0.2% month-over-month, as expected 

o    Spain's CPI increased 0.2% month-over-month (consensus 0.1%; previous -0.9%) 

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·         Germany's DAX is lower by 0.2% with Deutsche Lufthansa showing the largest loss. The stock holds a loss of 1.0%. On the upside, producers of basic materials outperform with BASF and Lanxess both up near 0.4%. 

·         In France, the CAC is lower by 0.1%. Michelin and Electricite de France lag with losses close to 2.0% each. Software names outperform with Cap Gemini and Gemalto up 1.9% and 1.1%, respectively. 

·         Great Britain's FTSE has added 0.2%. Homebuilders are among the leaders with Barratt Developments and Persimmon up 2.5% and 1.0%, respectively. Energy names lag with Royal Dutch Shell and Petrofac both down near 0.5%.

U.S. Equities

·         Futures indicate small losses at the open as the major averages look for a third straight day of gains

·         The VIX (12.80) continues to test one-month highs that are guarded by the 200 dma

·         Retail Sales (0.6% actual v. 0.6% expected)

·         Retail Sales ex-auto (0.3% actual v. 0.3% expected)

·         Export Prices ex-ag (-0.3%)

·         Import Prices ex-oil (0.1%)

o    S&P Futures -1 @ 1988

o    Dow Futures -7 @ 16,953

o    Nasdaq Futures -1 @ 4083

Asia

·         The major Asian bourses endured a mixed session

·         Bank of Japan Governor Haruhiko Kuroda indicated the central bank will not hesitate to act if the economic recovery should wane

·         Bank of Korea held its key rate steady at 2.25%, as expected

·         China's new loans improved to CNY703 bln (CNY710 bln expected, CNY385 bln previous), but fell short of estimates

·         Japan's Nikkei (+0.3%) finished at an eight-month high

·         Hong Kong's Hang Seng (-0.3%) saw a fifth straight day of selling as trade pressed to a one-month low

·         China's Shanghai Composite (+0.9%) climbed to a 19-month high

·         India's Sensex (+0.2%) advanced for the first time in four days

·         Australia's ASX (-0.3%) fell for the seventh time in eight sessions 

Market Internals

Market Internals -Technical-
The S&P 500 closed down 12 (-0.60%) at 1986, the Nasdaq closed down 24 (-0.53%) at 4568, and the Dow closed down 61 (-0.36%) at 16988. Action came on slightly above average volume (NYSE 678 mln vs. avg. of 605; NASDAQ 1624 mln vs. avg. of 1579), with decliners outpacing advancers (NYSE 666/2515, NASDAQ 892/1834) and mixed new highs/lows (NYSE 41/62, NASDAQ 58/40).

Relative Strength: 
Volatility-VXX +2.21%, Egypt-EGPT +1.1%, Cocoa-NIB +0.96%, Copper Miners-COPX +0.87%, Broker-Dealers-IAI +0.76%, Nordic 30-GXF +0.68%, Russia-RSX +0.53%, Banks-KBE +0.45%, British Pound-FXB +0.23%, Vietnam-VNM +0.22%.

Relative Weakness: 
Realty Majors-ICF -3.28%, Real Estate-IYR -2.88%, Junior Gold Miners-GDXJ -2.6%, Latin America 40-ILF -2.58%, Sugar-SGG -2.44%, Oil Services-OIH -2.35%, Turkey-TUR -2.32%, Brazilian Real-BZF -1.89%, BRICs-EEB -1.73%, Greece-GREK -1.63%.

Leaders and Laggards

Technical Updates

Commentaries 

Closing Market Summary: Stocks and Treasuries Settle Near Lows
Equity indices extended this week's losses with a broad-based retreat. The S&P 500 fell 0.6% to end the week lower by 1.1%, while the Russell 2000 (-1.1%) finished with a 0.9% decline since last Friday.

Staying true to the theme observed throughout the week, the energy sector (-1.5%) tumbled out of the gate, thus dragging the broader market down with it. Once again, dollar strength and crude oil weakness contributed to sector's underperformance, but the growth-sensitive group did not see any respite in the afternoon when the Dollar Index (-0.1%) edged lower, while oil made a short-lived appearance in the green. Late-afternoon weakness sent crude oil (-0.6%; $92.26/bbl) to its lowest level in almost a year, while the energy sector widened its September loss to 5.2%.

Meanwhile, the remaining sectors opened closer to their respective flat lines, but could not climb off those levels as the underperformance of small caps and the big loss in the energy sector kept dip-buyers sidelined. Furthermore, the recognition that next week will include an avalanche of global macro data and the latest FOMC policy decision also factored into the cautious approach.

Interestingly, the energy sector was the only cyclical group that ended behind the broader market. The top-weighted sector—technology—shed 0.4% with the relative strength of Apple (AAPL 101.66, +0.23) masking the losses among high-beta chipmaker stocks. The PHLX Semiconductor Index lost 1.3%.

Elsewhere, the financial sector (-0.1%) lurked near its flat line throughout the session with Dow component Goldman Sachs (GS 183.17, +2.17) contributing to the relative strength. The stock added 1.2%, while the sector ended the week lower by 0.4%.

Things did not look much better on the countercyclical side where all four sectors settled behind the broader market. Consumer staples (-0.7%) and health care (-0.7%) registered comparable losses with the health care sector pressured by biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 269.57, -3.78) lost 1.4%.

The other two—telecom services (-1.2%) and utilities (-1.8%)—were hampered by higher interest rates. Staying on that point, the 10-yr note retreated throughout the session to register a half-point loss. The benchmark yield rose six basis points to 2.61% after starting the week at 2.46%.

Also of note, the U.S. Treasury has announced a new set of sanctions on Russian banks, energy, and defense companies. The move followed a similar announcement from the European Union.

Today's session saw relatively strong participation with more than 675 million shares changing hands at the NYSE floor.

Economic data included Retail Sales, Import/Export Prices, Michigan Sentiment Survey, and Business Inventories: 

·         Retail sales increased 0.6% in August following an upwardly revised 0.3% (from 0.0%), which matched the Briefing.com consensus 

o    After missing expectations last month, sales rebounded in August and upward revisions were reported for the prior month (to 0.3% from 0.0%); concerns that consumption could weigh down GDP growth were somewhat alleviated. 

o    Excluding motor vehicles, retail sales increased a respectable 0.3% for a second consecutive month and met the consensus expectations 

·         Export prices, excluding agriculture, decreased 0.3% in August after increasing 0.3% in the prior reading 

o    Excluding oil, import prices ticked up 0.1%, which followed last month's unchanged reading 

·         The University of Michigan Consumer Sentiment Index increased to 84.6 in the preliminary September reading from 82.5 in August, while the Briefing.com consensus expected the index to increase to 83.5 

o    That was the highest reading in the Sentiment Index since July 2013 

o    The Present Conditions Index deteriorated in September, dropping from 99.8 in August to 98.5 

o    The Expectations Index rose to 75.6 in September from 71.3 in August 

·         Business inventories increased an in-line 0.4% in July after increasing by the same amount in June 

o    Inventories for manufacturers (0.1%) and merchant wholesalers (0.1%) were known prior to the release. The only bit of new information was that retailer inventories increased 1.0% in July after increasing 0.7% in June 

On Monday, the Empire Manufacturing Index for September will be released at 8:30 ET, while August Industrial Production and Capacity Utilization will be reported at 9:15 ET. 

·         Nasdaq Composite +9.4% YTD 

·         S&P 500 +7.4% YTD 

·         Dow Jones Industrial Average +2.5% YTD 

·         Russell 2000 -0.1% YTD 

Commodities

Closing Commodities: Crude oil loses 1.2% on the week, gold falls 2.8%

·         Dec gold declined for a fifth consecutive session, falling as low as $1228.60 per ounce, its lowest level since January. The yellow metal pulled back from its session high of $1239.10 per ounce and settled 0.6% lower at $1231.20 per ounce, brining losses for the week to 2.8%.

·         Dec silver chopped around between positive and negative territory, with prices dipping as low as $18.51 per ounce in late morning action. It eventually settled 0.1% higher at $18.61 per ounce, booking a loss of 2.9% for the week.

·         Oct crude oil touched a session high of $93.45 per barrel in early afternoon action but retreated back into negative territory. It settled 0.8% lower at $92.18 per barrel, just above its session low of $92.15 per barrel. Today's weakness brought losses for the week to 1.2%.

·         Oct natural gas broke into positive territory after lifting from its session low of $3.79 per MMBtu set in early morning pit action. It settled 0.8% higher at its session high of $3.86 per MMBtu, booking a weekly gain of 1.8%.

COMEX Metals Closing Prices

  Dec gold fell $7.70 to $1231.20/oz 

·         Gold declined for a fifth consecutive session, falling as low as $1228.60, its lowest level since January. The yellow metal pulled back from its session high of $1239.10 and settled 0.6% lower, brining losses for the week to 2.8%. 

  Dec silver rose $0.01 to $18.61/oz 

·         Silver chopped around between positive and negative territory, with prices dipping as low as $18.51 in late morning action. It eventually settled 0.1% higher, booking a loss of 2.9% for the week. 

  Dec copper rose 2 cents to $3.11/lb

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Dec corn fell 3 cents to $3.38/bushel 

·         Dec wheat fell 6 cents to $5.03/bushel 

·         Nov soybeans rose 3 cents to $9.85/bushel 

·         Oct ethanol fell 1 cent to $1.81/gallon 

·         Nov sugar (#16 (U.S.)) fell 0.04 of a penny to 25.28 cents/lb

NYMEX Energy Closing Prices

  Oct crude oil fell $0.71 to $92.18/barrel 

·         Crude oil touched a session high of $93.45 in early afternoon action but retreated back into negative territory. It settled just above its session low of $92.15, booking a 0.8% loss. Today's weakness brought losses for the week to 1.2%. 

  Oct natural gas rose 3 cents to $3.86/MMBtu 

·         Natural gas broke into positive territory after lifting from its session low of $3.79 set in early morning pit action. It settled 0.8% higher at its session high, booking a weekly gain of 1.8%. 

  Oct heating oil fell 2 cents to $2.74/gallon 

  Oct RBOB settled unchanged at $2.52/gallon


Treasuries

Yields Climb in Anticipation of Hawkish Fed: 10Y: -16/32..2.609%..USD/JPY: 107.33..EUR/USD: 1.2943
The Week in Review

·         Treasuries endured a second week of selling as maturities pushed lower in four of five sessions. Click here to see an intraweek yields chart.

·         The complex was battered amid speculation the Fed will take a more hawkish tone at next week's meeting as recent economic data has pointed to a strengthening economy. 

·         Macro concerns have quieted down in Gaza and Eastern Europe, but remain a flashpoint as President Obama talked tough on ISIL and ordered airstrikes in Syria.

·         Markets are likely to remain schizophrenic through next week as Scotland holds a referendum for its possible independence from the United Kingdom.

·         Economic data was limited to a few notable reports as wholesale inventories (0.1% actual v. 0.5% expected) saw a smaller than anticipated build and Michigan Sentiment (84.6 actual v. 83.5 expected) outpaced estimate while retail sales (0.6%) and business inventories (0.4%) were in-line. 

·         Auctions started off average before concluding on a high note.

·         Tuesday's average $27 bln 3Y note auction drew 1.066% (WI 1.067%) and a lighter than average 3.17x bid/cover. Both indirect (33.1%) and direct (20.2%) bids outpaced their 12-auction averages, leaving primary dealers with 46.7% of the supply.  

·         Wednesday's in-line $21 bln 10Y note reopening drew 2.535% and an average 2.71x bid/cover. A strong indirect (53.0%) takedown helped offset the weak direct (13.5%) bid. Primary dealers ended up with 33.5% of the supply.

·         Thursday's strong $13 bln 30Y bond reopening drew 3.240% and a solid 2.67x bid/cover. Indirect (45.5%) and direct (21.8%) bids were both strong, leaving primary dealers with just 32.7% of the supply. 

·         Up front, the 2Y climbed +5bps to 0.560% as trade tested levels last seen in May 2011. 

·         In the belly, the 5Y added +14bps to 1.819%. The yield finished Friday's session at a one-year high, and remains within a handful of bps of its highest print since July 2011. 

·         The 10Y surged +17bps to 2.614%. Friday's session saw the benchmark yield post a two-month high. 

·         At the long end, the 30Y rallied +14bps to 3.351%. A run through resistance at current levels sets up a test of the 200 dma near 3.500%. 

·         Selling swung the curve steeper as the 2-10-yr spread widened to 205bps.

The Week Ahead 

·         Monday's data includes Empire Manufacturing (8:30), industrial production, and capacity utilization (9:15). 

·         Tuesday will see PPI (8:30) and Net Long-Term TIC Flows (16). 

·         Data picks up on Wednesday with the weekly MBA Mortgage Index (7), CPI, current account balance (8:30), NAHB Housing Market Index (10), and the FOMC rate decision (14). 

·         Data continues to flow on Thursday as initial and continuing claims, housing starts and building permits (8:30), and the Philly Fed (10) are released. Dallas' Fisher participates in an event celebrating 100 years of the Federal Reserve System (20:15). 

·         Friday's data is limited to leading indicators (10).

On other news.... 




Currencies 

Dollar Gains for Ninth Straight Week: 10Y: -16/32..2.608%..USD/JPY: 107.33..EUR/USD: 1.2947

·         The Dollar Index holds small losses as trade holds near 84.25. Click here to see a weekly Dollar Index chart.

·         Today's selling is unlikely to prevent a ninth straight week of gains for the greenback, which has run action to its highest level in 14 months.

·         EURUSD is +30 pips @ 1.2955 as action flirts with its best close in a week. The single currency has seen little reaction to the announcement of further sanctions against Russia as buyers have provided support at levels last seen in July 2013. 

·         GBPUSD is -20 pips @ 1.6255 as trade continues to be whipped around by speculation over whether or not Scotland will remain part of the United Kingdom. Expect more volatility in the days ahead as referendum is scheduled for Thursday with the results likely announced on Friday. 

·         USDCHF is -10 pips @ .9345 as trade slips off one-year highs. Today's action has been rather uninspiring, limited to 50 pips. Switzerland's PPI is due out Monday morning. 

·         USDJPY is +35 pips @ 107.35 as trade readies for its best close in six years. Early buying developed after Bank of Japan Governor Haruhiko Kuroda suggested the central bank will not hesitate to act if the economic recovery wanes. This has caused some to speculate the BOJ will look to up its QE program in the near future. The 110.00 region is setting up as the next key level. Japanese banks are closed Monday for Respect-for-the-Aged-Day.

·         AUDUSD is -60 pips @ .9045 as trade presses to its lowest levels in almost six months amid a slump in commodity prices. Australian data scheduled for Sunday evening is limited to new motor vehicle sales. China's industrial production and fixed asset investment will cross the wires tomorrow.

·         USDCAD is +55 pips @ 1.1090 as trade is likely to close at its best level since the end of March. A run above 1.1250 would produce the best print in over five years.

Weekly Analysis




Technical Updates

Briefing's Commentaries


Week in Review: Backtracking From Record Highs 

The stock market started the first full week of September on a cautious note. The S&P 500 lost 0.3%, but the relative strength of small-cap stocks helped the Russell 2000 (+0.2%) and Nasdaq Composite (+0.2%) finish ahead of the benchmark index. Equity indices struggled from the get-go with the overall risk sentiment dampened by continued dollar strength that sent the US Dollar Index (+0.54, 84.28) near its best level of the year. The greenback surged on the back of yen weakness following a downward revision to Japan's Q2 GDP (to -7.1% from -6.8%), while also drawing strength from weakness in the British pound. The pound fell to 1.6110 from 1.6330 against the greenback after a weekend YouGov poll revealed majority support for Scottish independence with the referendum coming up on September 18. Conversely, the dollar strength weighed on commodities.

Equities ended the Tuesday session on their lows with the S&P 500 sliding 0.7%. After outperforming on Monday, the Russell 2000 erased that uptick with a 1.2% decline the following day. Indices spent the entire session in the red with the early pressure coming from the financial sector (-1.0%). The second-largest group by market cap slumped out of the gate amid broad weakness in top-weighted components. Meanwhile, the consumer discretionary space (-1.0%) also weighed with the quick-service restaurant space adding pressure. McDonald's (MCD) fell 1.5% after reporting a 3.7% decline in comparable store sales during August, which was paced by a 14.5% slump in Asia following the recent food safety scandal.

The stock market ended the midweek session on an upbeat note with the Nasdaq Composite providing leadership. The tech-heavy index advanced 0.8%, while the S&P 500 added 0.4% with seven sectors posting gains. Equities were driven into the red shortly after the open due to notable weakness in the energy sector. The growth-sensitive group was down in excess of 1.0% during the first hour of action, but narrowed its loss to 0.3% by the close. For its part, crude oil fell 1.1% to $91.71/bbl, ending the pit session at its lowest level since early January. The Dollar Index (84.22, -0.06) climbed to its best level in 14 months before slipping in the early afternoon. The greenback retreated against the British pound after latest poll results from Scotland indicated majority support for staying in the UK (weekend YouGov poll gave a slight edge to the pro-independence movement). The pound/dollar pair climbed to 1.6210 after trading at 1.6070 in the early morning.

The Dow Jones Industrial Average (-0.1%), Nasdaq (+0.1%), and S&P 500 (+0.1%) ended the Thursday affair on a flat note, while the relative strength among small caps sent the Russell 2000 higher by 0.7%. The trading day began on a cautious note following Wednesday's remarks from President Obama who announced increased support for Syrian rebels and a U.S.-led coalition effort targeting ISIS militants in Syria and Iraq. The address led to some risk aversion overnight, but that sentiment faded during the day. Treasuries climbed overnight, but wiped out all of their gains over the course of the session. The 10-yr yield ended at 2.55% after marking a low at 2.51% shortly before the opening bell.

Next Week In View





Economic Commentaries

Economic Summary: Retail Sales in line with expectations; Michigan Sentiment tops estimates; Fed decision Wed at 14:00 ET
Economic Data Summary:

·         August Retail Sales 0.6% vs Briefing.com consensus of 0.6%; July was 0.0%

o    Overall, the retail sales data were strong. After missing expectations last month, sales rebounded in August and upward revisions were reported for the prior month. Concerns that consumption could weigh down GDP growth were somewhat alleviated.

o    Strong sales reports from the motor vehicle manufacturers translated into a 1.5% increase in sales at motor vehicle and parts dealers. 

·         August Retail Sales Ex-Auto 0.3% vs Briefing.com consensus of 0.3%; July was 0.1%

·         August Export Prices Ex-Ag -0.3% vs Briefing.com consensus of ; July was 0.3%

·         August Import Prices Ex-Oil 0.1% vs Briefing.com consensus of ; July was 0.0%

·         September Michigan Sentiment Prelim 84.6 vs Briefing.com consensus of 83.5; August was 82.5

o    The Present Conditions Index deteriorated in September, dropping from 99.8 in August to 98.5. The Expectations Index rose to 75.6 in September from 71.3 in August.

·         July Business Inventories vs Briefing.com consensus of 0.4%; June was 0.4%

o    Inventories for manufacturers (0.1%) and merchant wholesalers (0.1%) were known prior to the release. The only bit of new information was that retailer inventories increased 1.0% in July after increasing 0.7% in June.

Upcoming Economic Data:

·         September Empire Manufacturing due out Monday at 8:30 (Briefing.com consensus of ; August was 14.7)

·         August Industrial Production due out Monday at 9:15 (Briefing.com consensus of ; July was 0.4%)

·         August Capacity Utilization due out Monday at 9:15 (Briefing.com consensus of ; July was 79.2%)

Upcoming Fed/Treasury Events:

·         The Fed will begin a two day meeting on Tuesday. The Fed decision will be released Wednesday at 14:00 (along with supplemental economic projections).  Janet Yellen will host a press conference Wednesday at 14:30

Other International Events of Interest

·         Bank of Japan Governor Haruhiko Kuroda indicated the central bank will not hesitate to act if the economic recovery should wane

Jason's Commentaries

Last week has been extremely volatile for the equities market and seeing many days that started with -0.3% on the futures, to a flat day, could be a sign of topping out on the equity market. Such volatily can be contributed to a few issues.

1) Ukraine-Russia crisis. The Ukraine-Russia crisis has been on the pivot point on how the Russia might react to the embargo that the UN has placed. Any huge activities in that area is likely to give traders and investors excuses to exit the market which might spark off a sell off.

2) Disappointing jobs report. The jobs report for August came in way under expectation with 140k jobs compared to a monthly average of 200k expectation. To make things worse, most jobs are still part timer jobs and with no significant increase in the full time positions.

3) Ending of QE. As we are nearing the end of 2014, QE is likely to end and there is likely to be a shift in the money in the market to other asset classes.

4) Iphone 6 release. Apple, being one of the largest movers in the S&P500, is dragging other stocks along as it rise and drops. And Apple has especially released its iphone 6.

On the technical perspective, we've got quite a hanging man on the weekly charts and some nasty consolidation at the support levels for the indices. I suspect if that support is broken, we're likely to head down lower.

Market Call:DOWN

Date: week 37