12 Nov 2014 AMC - Market recovered from bearish start in previous session despite being weighing down by Ukraine's news and financial regulators' probe

12 Nov 2014 AMC - Market recovered from bearish start in previous session despite being weighing down by Ukraine's news and financial regulators' probe

Market Summary 

European Markets Closing

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

·         UK's FTSE: -0.3%

·         Germany's DAX: -1.7%

·         France's CAC: -1.5%

·         Spain's IBEX: -1.8%

·         Portugal's PSI: -2.6%

·         Italy's MIB Index: -2.9%

·         Irish Ovrl Index: -0.9%

·         Greece ASE General Index: -2.3%

Before Market Opens 

S&P futures vs fair value: -7.90. Nasdaq futures vs fair value: -15.80.
The S&P 500 futures trade nine points below fair value.

Markets rallied across much of Asia. News regarding a potential shakeup in Japan's government continued with speculation that Prime Minister Shinzo Abe may use a snap election as a referendum on his plan to increase the sales tax, which is now expected to take place in April 2017. However, Mr. Abe said yesterday that he has not made any references to dissolving the parliament. 

·         In economic data: 

o    Japan's Tertiary Industry Activity Index rose 1.0% month-over-month (expected 0.9%; prior -0.1%) while M2 Money Stock grew 3.2% year-over-year (consensus 2.5%; last 3.1%) 

o    Australia's Westpac Consumer Sentiment increased 1.9% (prior 0.9%) while Wage Price Index rose 0.6% quarter-over-quarter, as expected 

o    South Korea's Unemployment Rate held at 3.5%, as expected o India's CPI rose 5.5% year-over-year (expected 6.2%; previous 6.5%) while Industrial Production rose 2.5% year-over-year (consensus 0.4%; last 0.4%) 

------ 

·         Japan's Nikkei added 0.4% to finish at a fresh seven-year high. Retailers gained on hopes of a delay in the consumption tax hike. Heavyweight Fast Retailing added 0.9% and J Front Retailing spiked 3.1%. 

·         Hong Kong's Hang Seng rose 0.6%, gaining for a third straight day. Financials led the advance as Bank of China rallied 1.1% and HSBC tacked on 0.6%. 

·         China's Shanghai Composite climbed 1.0% to its best levels in three years. Automaker SAIC Motor jumped 3.3% after receiving an analyst upgrade. 

·         India's Sensex advanced 0.4%, finishing at a record high. Automakers led the way as Bajaj Motor and Tata Motors both gained 2.0%. 

Major European indices hold losses across the board with Italy's MIB (-2.2%) leading the region lower. Elsewhere, the Bank of England released its quarterly report, which warned that inflation could fall below 1.0% over the next few months. Furthermore, Governor Mark Carney indicated he does not expect the 2.0% target to be reached for three years. The 2015 growth forecast for the UK was lowered to 2.9%. The pound trades near 1.5820 against the dollar after ending yesterday near 1.5920. Also of note, the euro/franc pair has dipped to 1.2020 with the Swiss National Bank's floor lurking just below at 1.2000. 

·         Investors received several data points: 

o    Eurozone Industrial Production rose 0.6% month-over-month (expected 1.0%; prior -1.4%) while the year-over-year reading also increased 0.6% (consensus -0.2%; last -0.5%) 

o    Germany's Wholesale Price Index slipped 0.6% month-over-month (expected 0.2%; previous 0.1%) while the year-over-year reading decreased 0.7% (prior -0.9%) 

o    Great Britain's Average Earnings Index + Bonus rose 1.0% (consensus 0.9%; last 0.7%) while CB Leading Index slipped 0.4% (expected 0.4%). Separately, Claimant Count declined 20,400 (consensus -24,900; prior -18,400), but the Unemployment Rate held at 6.0% (expected 5.9%) 

------ 

·         Great Britain's FTSE is lower by 0.4% with financials under pressure. Aberdeen Asset Management, Barclays, and Hargreaves Lansdown are down between 2.0% and 4.6%. On the upside, G4S has added 4.3% after announcing the sale of one of its units. 

·         In France, the CAC trades down 1.4% amid weakness in financials. BNP Paribas, Credit Agricole, and Societe Generale are the three weakest performers with losses between 2.4% and 3.3%. Hotel operator Accor leads with a gain of 0.5%. 

·         Germany's DAX has surrendered 1.6% with 29 of its 30 names in the red. Exporters BMW and Daimler hold respective losses of 1.8% and 2.0% while Beiersdorf outperforms. The stock trades up 0.4%. 

·         Italy's MIB holds a loss of 2.2% amid weakness in financials. Banco Popolare, Banca di Milano Scarl, Banca Pop Emilia Romagna, and Unicredit are down between 4.0% and 5.5%.

U.S. Equities

·         Equity futures point to selling at the open 

·         Both the DJIA and S&P 500 finished yesterday's session at record highs while the Nasdaq closed at its best level in more than 15 years

·         The VIX (12.92) holds near two-month lows

·         MBA Mortgage Index (-0.9%)

o    S&P Futures -7 @ 2030

o    Dow Futures -66 @ 17,502

o    Nasdaq Futures -12 @ 4171

Asia

·         Markets rallied across much of Asia

·         Japanese Prime Minister Shinzo Abe indicated he has not decided on early elections

·         Australia's Westpac Consumer Sentiment improved to 1.9% (0.9% previous) and the Wage Price Index posted an in-line 0.6% QoQ

·         Japan's Nikkei (+0.4%) finished at a fresh seven-year high

·         Hong Kong's Hang Seng (+0.6%) gained for a third straight day

·         China's Shanghai Composite (+1.0%) climbed to its best levels in three years

·         India's Sensex (+0.4%) finished at a record high

·         Australia's ASX (-1.0%) saw a third day of losses 

Market Internals

Market Internals -Technical-
The Nasdaq closed up 15 (+0.31%) at 4675, the Dow closed down 3 (-0.02%) at 17612, and the S&P 500 closed down 1 (-0.07%) at 2038. Action came on below average volume (NYSE 702 mln vs. avg. of 779; NASDAQ 1624 mln vs. avg. of 1861), with advancers outpacing decliners (NYSE 1711/1452, NASDAQ 1659/1043) and new highs outpacing new lows(NYSE 138/39, NASDAQ 132/52).

Relative Strength: 
Turkey-TUR +2.15%, Retail-XRT +1.86%, Regional Banks-KRE +1.51%, Volatility-VXX +1.36%, Grains-JJG +1.25%, Indian Rupee-ICN +1.18%, Banks-KBE +1.16%, India-INP +0.87%, New Zealand-ENZL +0.86%, Vietnam-VNM +0.85%.

Relative Weakness: 
Cocoa-NIB -3.12%, Italy-EWI -2.7%, Cotton-BAL -2.39%, Greece-GREK -1.9%, Utilities-XLU -1.75%, Spain-EWP -1.7%, Germany-EWG -1.55%, Heating Oil-UHN -1.45%, Nuclear Energy-NLR -1.44%, France-EWQ -1.43%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries

Closing Market Summary: Energy and Financials Prevent S&P 500 From Posting Gains
The stock market ended the midweek session on a mixed note. The Nasdaq (+0.3%) and Russell 2000 (+0.5%) registered modest gains while the S&P 500 (-0.1%) settled just below its flat line.

Equity indices began the day in negative territory, but the broad weakness was not brought upon by macroeconomic developments. Instead, the benchmark index took a step back after soaring 12.0% off its mid-October low. However, the index could not be held down for long, charging back to its unchanged level before noon ET.

Heavily-weighted financials (-0.3%) and energy (-0.9%) were largely responsible for the opening weakness as the pair accounts for nearly 30.0% of the entire market. The energy sector continued retreating throughout the day while crude oil fell 1.0% to $77.11/bbl. For its part, the financial sector was able to cut its loss in half, but the group kept the benchmark index under pressure into the afternoon. Large banks were the source of the weakness after Bank of America (BAC 17.28, -0.04), Citigroup (C 53.42, -0.39), JPMorgan Chase (JPM 60.56, -0.81), Royal Bank of Scotland (RBS 11.82, -0.22), HSBC (HSBC 50.22, -0.35), and UBS (UBS 17.38, +0.05) were hit with a collective fine of $4.30 billion that was imposed by regulators from the U.S., U.K., and Switzerland. The fine marks the first action taken in a currency-rigging probe that began last year.

The daylong weakness in the two groups prevented the S&P 500 turning positive, but the benchmark index did not go down without a fight. The top-weighted sector—technology—registered a modest gain of 0.2% with help from Apple (AAPL 111.25, +1.55), while consumer discretionary (+0.5%) and industrials (+0.1%) also settled in the green.

Discretionary shares were underpinned by apparel names after Fossil (FOSL 112.48, +8.73) and Macy's (M 61.57, +2.98) reported better than expected results. However, both lowered their guidance and Fossil announced a $1 billion buyback. Retail names in general had a strong showing with the SPDR S&P Retail ETF (XRT 91.54, +1.67), which contains a selection of staple stocks, spiking 1.9%.

Elsewhere, the industrial sector rallied behind transport stocks. The Dow Jones Transportation Average added 0.4% with shipper Matson (MATX 35.21, +5.98) surging 20.5% after agreeing to acquire Horizon Lines (HRZL 0.65, +0.28) for $0.72 per share and the repayment of debt.

Treasuries notched their highs shortly before the start of the session, but retreated throughout the day. The 10-yr yield ended unchanged at 2.36%.

Participation was in-line with long-term averages but below recent trends with 702 million shares changing hands at the NYSE floor.

Economic data was limited to Wholesale Inventories and the MBA Mortgage Index: 

·         Wholesale inventories increased 0.3% in September after increasing a downwardly revised 0.6% (from 0.7%) in August, while the Briefing.com consensus expected an uptick of 0.2% 

o    The BEA assumed that wholesale inventories declined 0.1% in the advance estimate for Q3 GDP, but inventory growth greatly exceeded the estimate, which should result in a positive revision to third quarter growth 

·         The weekly MBA Mortgage Index slipped 0.9% to follow last week's decline of 2.6% 

Tomorrow, weekly Initial Claims (Briefing.com consensus 280K) will be released at 8:30 ET while the Job Openings and Labor Turnover Survey will be reported at 10:00 ET. The day's data will be topped off with the 14:00 ET release of the Treasury Budget for October. 

·         Nasdaq Composite +11.9% YTD 

·         S&P 500 +10.3% YTD 

·         Dow Jones Industrial Average +6.3% YTD 

·         Russell 2000 +1.9% YTD

Commodities

Closing Commodities: Crude oil slides lower, back below $78/barrel

·         Energy was a weak spot today. Dec crude oil rose above $78/barrel, but for only a brief moment

·         Dec crude oil slid lower and ended the day down, closing at $77.16/barrel

·         Dec nat gas lost almost 2% at $4.18/MMBtu

·         Metals were down as well

·         Dec gold and Dec silver each fell 0.4%, while Dec copper lost 0.2%.

Metals price action

  Gold fell $3.90 (-0.4%) to $1159.00/oz

·         Gold trades at a four year low, and continues to bounce around near an important level ~1170. Futures were rangebound between that 1170 level and 1160 overnight, but settled near the low of the session of 1157.4.

  Silver fell 5.8 cents (-0.4%) to $15.62/oz

·         Silver has been in a downtrend since yesterday afternoon, moving lower on light volume overnight; the precious metal is trading at a 4.5 year low. 

  Copper fell 1 cent (-0.3%) to $3.0235/lb

 Agricultural price action

·         Corn rose 4.50 cents (+1.2%) to $3.7825/bushel

·         Wheat rose 16.25 cents (+3.1%) to $5.415/bushel

·         Soybeans fell 15 cents (-1.4%) to $10.49/bushel

·         Ethanol rose 3.2 cents (+1.7%) to $1.94/gallon

·         Sugar #11 was up 0.4% to 16.29 cents/lb

Energy price action

  Crude oil fell 83 cents (-1%) to $77.11/barrel

·         Crude is closing on the session lows, fading hard into settlement. The next level of support for crude is ~75.

  Natural gas fell 6.3 cents (-1.5%) to $4.184/MMBtu

·         Natural gas is down again today, with most of the decline coming yesterday and in the overnight session on relatively low volume. 

  Heating oil fell 2.4 cents t(-1%) to 2.44/gallon

  RBOB was nearly flat on the day at $$2.105/gallon



Treasuries

Treasuries Settle Little Changed: 10Y: +02/32..2.362%..USD/JPY: 115.55..EUR/USD: 1.2430

·         Treasuries finished little changed after paring their early gains. Click here to see an intraday yields chart.

·         The complex ticked higher in early morning trade, putting in its highs shortly ahead of the cash open. 

·         Maturities put in session highs as the slightly larger than expected wholesale inventories (0.3% actual v. 0.2% expected) build crossed the wires. 

·         Selling developed in response to the data, and remained prevalent into the average $24B 10Y note auction.

·         The auction drew 2.365% and a light 2.52x bid/cover. Indirect (44.7%) and direct (13.4%) bids missed their 12-auction averages, but primary dealers were left with just 41.9% of the supply. 

·         Post-auction selling ran action back to the unchanged line before a late-day bid produced slight outperformance at the long end. 

·         Light buying at the long end dropped the 30Y -1.2bps to 3.080%. The yield probed the midpoint of the 3.000%/3.100% range that has been in place for the past two weeks, but was unable to break into the lower half of the range. Resistance in the 3.100% area remains in focus. 

·         A flat session saw the 10Y hold near 2.360%. The benchmark yield continues to flirt with resistance in the area and the 50 dma (2.394%). 

·         In the belly, the 5Y held @ 1.640%. Participants continue to monitor resistance in the 1.650% region that is defended by the 50, 100, and 200 dma. 

·         Up front, the 2Y slipped -0.8bps to 0.531%. Recent action has struggled to retake the 0.550% level. 

·         A slightly steeper curve developed as the 2-10-yr spread widened to 183bps. 

·         Precious metals slipped as gold fell -$4 to $1159 and silver eased -$0.05 to $15.63. 

·         Data: Initial and continuing claims (8:30), JOLTs - Job Openings (10), and the Treasury budget (14). 

·         Auction: $16B 30Y bonds. 

·         Fed Speak: Philly's Plosser takes part in a panel on "Monetary Policy After Recovery: What Is the New Normal?" (12:30).

On other news.... 

Currencies 

Dollar Nears 88.00: 10Y: +01/32..2.364%..USD/JPY: 115.68..EUR/USD: 1.2426

·         The Dollar Index lingers on session highs near 87.90. Click here to see a daily Dollar Index chart.

·         Action spent most of the morning hugging the breakeven line before a lunchtime bid lifted trade to session highs.

·         EURUSD is -45 pips @ 1.2430 as trade presses the worst levels of the day. Today's weakness has erased all of yesterday's gains and comes in response to jawboning by ECB head Mario Draghi indicating the central bank is considering new measures to increase inflation. The recent lows near 1.2365 remain in focus. 

·         GBPUSD is -130 pips @ 1.5785 as action slides to a fresh 14-month low. Sterling has been offered following the dovish Bank of England Inflation report, which suggested inflation is likely to slide below 1% by mid-2015 and that ‘gradual, limited' rate hikes are no guarantee. The 1.5500 area is setting up as support. 

·         USDCHF is +30 pips @ .9675 as trade holds near 14-month highs. However, traders continue to watch EURCHF more closely as today's -10 pip drop has pushed action down to the 1.2020 area. The Swiss National Bank is on alert as EURCHF trade moves closer to its 1.2000 floor. Swiss PPI will be released tomorrow. 

·         USDJPY is -5 pips @ 115.70. The pair tumbled to 114.90 in early trade after reports suggested Prime Minister Abe has not yet decided whether or not to postpone the consumption tax increase. A positive close would be the best in seven years. Japan's core machinery orders are due out tonight.

·         AUDUSD is +25 pips @ .8710 as the bulls fight for a third gain in four sessions. The hard currency has been supported by the improvement in Westpac Consumer Sentiment, and today's action has many believing the recent breakdown to .8550 was a bear trap. Australian data scheduled for this evening is limited to MI Inflation Expectations. China's industrial production and fixed asset investment will cross the wires tonight. 

·         USDCAD is -30 pips @ 1.1305 as trade looks likely to put in its lowest close of November. A breakdown of minor support in the 1.1300 area sets up a move to 1.1200. Canada's New Home Price Index will be reported tomorrow.

Next Week In View




Economic Commentaries

Economic Summary: Wholesale Inventories above Briefing.com consensus; Initial and Continuing Claims due out tomorrow
Economic summary: Economic Data Summary:

·         11/08 MBA Mortgage Index -0.9%; Last Week was 2.6%

·         Sep Wholesale Inventories +0.3% vs Briefing.com consensus of +0.2%; August revised down to 0.6% from 0.7%

o    Wholesale durable goods inventories increased 0.8% for a second consecutive month. Gains were recorded in every sector except for a 0.7% decline in electrical. 

o    The BEA assumed that wholesale inventories declined 0.1% in the advance estimate for Q3 2014 GDP. Inventory growth greatly exceeded the BEA estimate, which should result in a positive revision to third quarter growth. 

Fed/Treasury Events Summary:

·         Fed's Plosser to speak tomorrow 11/12 at 12:30 ET 

·         Fed's Kocherlakota to speak tomorrow 11/12 at 13:30 ET

Upcoming Economic Data:

·         11/08 Initial Claims due out Thursday at 8:30 ET (Briefing.com consensus of 280K; Last Week was 278K)

·         11/01 Continuing Claims due out Thursday at 8:30 ET (Briefing.com consensus of 2353K; Last Week was 2348K)

·         Sep JOLTS - Job Openings due out Thursday at 10:00 ET (Aug was 4.835M)

·         Oct Treasury Budget due out Thursday at 14:00 ET (Briefing.com consensus of -$122.0B; Oct was -$90.6B)

Jason's Commentaries

Despite being dragged down by Ukraine and Russia's crisis and financial regulators' probe into the financials, the market managed to recover from its weakness by 11am ET. However, internals were pointing towards the divergent side towards the close of the market. Volumes at 718.4m shares traded on the NYSE. Utilities and the energy sector were the main laggard of the session. However, consumer discretionary as well as the tech sector led the market higher from the drop. It seems that the market is having quite a bit of strength to be able to shrug off such bearish start. Like i mentioned before, the market is likely to enter into a consolidation soon, if not now.








Market Call: FLAT to upside

Date: 13 Nov 2014