22 Oct 2014 AMC - Market facing resistance with tech lagging

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: -0.9%

·       France's CAC: -1.5%

·       Spain's IBEX: -2.2%

·       Portugal's PSI: -2.8%

·       Italy's MIB Index: -2.2%

·       Irish Ovrl Index: 0.0%

·       Greece ASE General Index: + 0.4%

Before Market Opens 

S&P futures vs fair value: -5.60. Nasdaq futures vs fair value: -14.80.
The S&P 500 futures trade six points below fair value.

Markets ended mixed across Asia. The Reserve Bank of Australia held its key rate unchanged at 2.50% for the 15th consecutive meeting. Elsewhere, discussion about Japan's next sales tax hike continued with Prime Minister Shinzo Abe's advisor Koichi Hamada suggesting the increase should be postponed for about 18 months. Mr. Hamada also voiced his support for additional easing from the Bank of Japan. 

·       Participants received several data points: 

o   Japan's Manufacturing PMI slipped to 52.4 from 52.8 (consensus 52.8) 

o   South Korea's CPI ticked down 0.3% month-over-month (expected -0.1%; previous -0.1%) while the year-over-year reading increased 1.2% (consensus 1.4%; last 1.1%) 

o   Australia's trade deficit widened to AUD2.26 billion from AUD1.01 billion (expected deficit of AUD1.95 billion) as exports rose 1.0% (prior -2.0%) and imports jumped 6.0% (last -3.0%). Separately, Retail Sales rose 1.2% month-over-month (expected 0.4%; prior 0.1%) 

o   Indonesia's Consumer Confidence improved to 120.6 from 119.8 

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·       Japan's Nikkei rallied 2.7% to a seven-year high as traders returned to work following the extended holiday weekend. Real estate names locked in strong gains as Tokyu Fudosan and Heiwa Real Estate surged 7.1% and 6.9%, respectively. 

·       Hong Kong's Hang Seng eased off five-week highs, shedding 0.3%. Sands China fell 3.3% and Galaxy Entertainment lost 2.8% on word Macau gaming revenues tumbled 23% year over year. 

·       China's Shanghai Composite ended flat, holding at its best levels since February 2013. Shanghai Zhenhua Heavy Industry jumped the daily limit, 10%, as Beijing continues its efforts to invest in overseas infrastructure projects. 

·       India's Sensex was closed for holiday. 

Major European indices trade in the red with Italy's MIB (-1.1%) leading the retreat. The European Commission has lowered its GDP forecast for the region, calling for 2014 GDP to grow at 0.8% (prior 1.2%). The Commission has also trimmed its 2015 forecast to 1.1% from 1.7%. 

·       Economic data was scarce: 

o   Eurozone PPI ticked up 0.2% month-over-month (expected 0.1%; previous -0.2%) while the year-over-year reading fell 1.4% (consensus -1.5%; last -1.4%) 

o   Great Britain's Construction PMI ticked down to 61.4 from 64.2 (expected 63.5) 

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·       Germany's DAX is lower by 0.1%. BMW is the weakest performer, down 1.9% while Deutsche Boerse outperforms with a gain of 1.6%. 

·       Great Britain's FTSE is down 0.2% with energy names on the defensive. BP, BG Group, Petrofac, and Tullow Oil are down between 2.0% and 3.6%. Imperial Tobacco is the top performer, up 3.9%. 

·       France's CAC trades down 0.5% amid weakness in growth-sensitive names. ArcelorMittal, Technip, and Total are down between 2.6% and 3.4%. 

·       In Italy, the MIB has given up 1.1%. Oil company Saipem is the biggest laggard, down 3.6%, while financials also underperform. Banca di Milano Scarl, Intesa Sanpaolo, and Banco Popolare are down between 2.4% and 3.1%.

U.S. Equities

·       Futures suggest some selling at the open

·       BABA, KORS, PCLN are among the names in focus following their quarterly reports 

·       The VIX (14.73) flirts with support

·       Trade Balance (-$43.0B actual v. -$42.0B expected)

o   S&P Futures -5 @ 2006

o   Dow Futures -28 @ 17,257

o   Nasdaq Futures -11 @ 4146

Asia

·       Markets ended mixed across Asia 

·       The Reserve Bank of Australia held its key rate unchanged at 2.50% for a 15th consecutive meeting

·       Australia's retail sales (1.2% MoM actual v. 0.3% MoM expected) beat while the trade deficit widened to AUD2.26 bln (AUD1.7 bln expected, AUD1.01 bln previous)

·       Japan's Nikkei (+2.7%) rallied to a seven-year high as traders returned to work following the extended holiday weekend. 

·       Hong Kong's Hang Seng (-0.3%) eased off five-week highs

·       China's Shanghai Composite (UNCH) held at its best levels since February 2013

·       India's Sensex was closed for holiday

·       Australia's ASX (+0.2%) inched up

Earnings/Guidance

·       Alibaba (BABA) reports EPS in-line, beats on revs

·       American Intl (AIG) beats by $0.12, reports revs in-line; adds $1.5 bln to share repurchase

·       Archer-Daniels (ADM) beats by $0.08, misses on revs

·       CVS Health (CVS) beats by $0.02, reports revs in-line; guides Q4 EPS in-line; guides FY14 EPS in-line 

·       Emerson (EMR) beats by $0.07, reports revs in-line; guides FY15 revs in-line

·       Estee Lauder (EL) beats by $0.25, reports revs in-line; guides Q2 EPS below consensus; lowers FY15 EPS guidance

·       IntercontinentalExchange (ICE) beats by $0.14, reports revs in-line 

·       Intl Paper (IP) beats by $0.06, reports revs in-line

·       JPMorgan Chase (JPM) updates in 10-Q filing the range of possible losses for legal proceedings to $0 to $5.9 bln from $0 to $4.6 bln 

·       L Brands (LB) sees October comparable store sales up low single digits, in-line with expectations; sees Q3 EPS of $0.38-0.40 vs 0.32 Capital IQ Consensus Estimate (raised from prior guidance of $0.26-0.31)

·       Marathon Oil (MRO) misses by $0.03, reports revs in-line

·       Michael Kors (KORS) beats by $0.11, beats on revs; guides Q3 EPS/rev in-line, comps below; guides FY15 EPS above consensus, revs in-line, lowers comp guidance; announces $1 bln share repurchase 

·       Priceline (PCLN) beats by $1.07, reports revs in-line; guides Q4 EPS below consensus, revs below consensus 

·       Sprint (S) reports Q3 (Sep) results, misses on revs

·       Tenet Healthcare (THC) beats by $0.27, beats on revs; guides FY14 EPS above consensus 

·       Valero Energy (VLO) beats by $0.45, misses on revs

Market Internals

Leaders and Laggards

Technical Updates

Briefing's Commentaries

Commodities

Metals price action

  Gold fell $2.00 (-0.2%) to $1167.8/oz

·       Gold continues to test important levels of support ~1170 during today's mixed session. Today's HoD of 1175 was briefly touched and then futures trended lower throughout the day; the LoD of 1163.4 was notched in during the overnight session. 

  Silver fell 20 cents (-1.2%) to $16.00/oz

·       For the most part, silver traded in a range of 15.95 and and 16.09, never overcoming yesterday's session high or low. Silver futures remain at 4.5 year lows.

  Copper fell 4.8 cents (-1.6%) to $3.017/lb    

Agricultural price action

·       Corn fell 9 cents (-2.4%) to 3.6450/bushel

·       Wheat fell 6.25 cents (-1.2%) to $5.32/bushel

·       Soybeans fell 19.75 cents (-1.9%) to $10.10/bushel

·       Ethanol fell 0.2 cents (-0.1%) to $1.759/gallon

·       Sugar #11 fell 1.3% to 15.72 cents/lb

Energy price action

  Crude oil fell $1.65 (-2%) to $77.13/barrel

·       WTI crude dropped to a three year low after Saudi Arabia lowered prices for exports to US customers amid speculation that stockpiles rose last week. Crude hit its LoD of 75.84 in early morning GLOBEX trading and futures have since been rangebound between ~76-77. 

  Natural gas rose 8.2 cents (+2%) to $4.128/MMBtu

·       Natural gas has been roaring higher over the last 6 sessions, reaching a HoD of $4.179 shortly after lunch. Futures faded into settlement but are only 4.8 cents of the high.

  Heating oil fell 4.8 cents (-1.9%) to $2.44/gallon

  RBOB fell 4.1 cents (-1.9%) to $2.076/gallon


Treasuries

Treasuries Firm Amid Choppy Trade: 10Y: +02/32..2.335%..USD/JPY: 113.60..EUR/USD: 1.2550

·       Treasuries eked out small gains but finished near their worst levels of the session. Click here to see an intraday yields chart.

·       The complex raced to its best levels of the session in response to the EU downgrading its 2014/2015 growth forecasts before retreating back to the unchanged line after the wider than expected trade deficit (-$43.0B actual v. -$40.2B previous). 

·       Action was unable to press into negative territory after factory orders (-0.6% actual v. 0.5% expected) missed the mark, and rallied to retest the highs.

·       The post-data bid was unable to put in a new peak and early-afternoon trade saw action chop around in a tight range before retreating into the close. 

·       Up front, the 2Y was little changed @ 0.514%. Resistance in the 0.520% area remains in focus. 

·       A flat session in the belly saw the 5Y hold @ 1.634%. Action continues to flirt with resistance in the 1.650% area that is defended by the 50, 100, and 200 dma.

·       The 10Y slipped -0.6bps to 2.342%. The 2.350% resistance levels remains under close watch. 

·       Outperformance at the long end dropped the 30Y -1.3bps to 3.053%. A break below the 3.000% threshold would be problematic for the bears. 

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

·       Precious metals remained weak as gold fell -$1 to $1169 and silver slid -$0.18 to $16.02.

·       Data: MBA Mortgage Index (7), ADP Employment Change (8:15), and ISM Services (10).

·       Fed Speak: Minny's Kocherlakota talks on "Clarifying the Objectives of Monetary Policy" (9:15); Richmond's Lacker discusses "Committing to Financial Stability" (9:30); and Boston's Rosengren takes part in the Ninth High Level Meeting on Global Banking Standards and Regulatory and Supervisory Priorities in the Americas (10).

On other news.... 

Currencies 

Dollar Fights to Hold 87.00: 10Y: +03/32..2.331%..USD/JPY: 113.53..EUR/USD: 1.2550

·       The Dollar Index is lower for the first time in five days with action fighting to hold the 87.00 area. Click here to see a daily Dollar Index chart.

·       EURUSD is +70 pips @ 1.2550 as trade holds just off the highs. The single currency saw an early bid despite the weak Spanish unemployment change and EU lowering its 2014/2015 growth forecasts and marched to its best levels of the day in response to a Reuters report indicating central bankers from the euro area plan to confront Mario Draghi over his management of the central bank. Resistance in the 1.2600 area will be watched into tomorrow's retail sales and Italian and Spanish Services PMI data. 

·       GBPUSD is +30 pips @ 1.6000 as buying takes hold for the first time in five days. Sterling has been able to shake off the weak Construction PMI figure and is on the verge of reclaiming the important 1.6000 level. The ability to do so puts the 1.6150 region in focus. Britain's Services PMI will be released tomorrow. 

·       USDCHF is -65 pips @ .9590 as trade slides off 16-month highs. Traders are more concerned with EURCHF, which is -10 pips @ 1.2045 and nearing the Swiss National Bank's EURCHF1.20 floor. Swiss data scheduled for tomorrow is limited to CPI. 

·       USDJPY is -50 pips @ 113.50 as sellers take control for just the third time in 14 sessions. The 114.00 has proved difficult to conquer over the past couple of sessions and will be watched into tomorrow night's Bank of Japan rate decision. But first, Japan's average cash earnings will cross the wires tonight. Bank of Japan Governor Kuroda will speak in Tokyo.

·       AUDUSD is +55 pips @ .8730 as buyers as buyers emerged in response to the Reserve Bank of Australia's decision to hold its Cash Rate steady at 2.50% for a 15th straight meeting. The hard currency probed the lower end of the .8650/.8850 range before bouncing back up to the midpoint. China's HSBC Services PMI is due out tonight. 

·       USDCAD is +40 pips @ 1.1395 as trade holds at a five-year high. Buying over the past week has added close to 250 pips as trade has climbed for five straight sessions.

Next Week In View

Economic Commentaries

Economic Summary: Trade Balance wider than expected in September; Factory orders show decline roughly in line with estimates
Economic Data Summary:

·       September Trade Balance -$43.0 bln vs Briefing.com consensus of -$40.2 bln; August was -$40.1 bln

o   Exports fell 1.5% in September to $195.6 bln, a drop of $3.0 bln. A significant portion of the decline in exports was the result of lower oil prices impacting petroleum sales. Exports of petroleum-based products fell by $1.8 bln in September. After factoring out the price change, the drop in petroleum-based products was only $1.0 bln. 

·       September Factory Orders -0.6% vs Briefing.com consensus of -0.5%; August was -10.1%

o   Durable orders fell 1.1% in September after declining 18.3% in August. That was a slightly stronger result than the 1.3% decline reported in the advance durable goods report. 

Fed/Treasury Events Summary:

·       Fed's Bullard said we would have to see more repercussions from weaker global growth on the U.S. to see the Fed act; sees 2015 growth more persistent. Will keep the balance sheet at its current size. Sees it as a gradual process that will not have major implications on the markets.  He was asked about concern over a G.O.P. win and its impact on the Fed; says he is confident in the directions the Fed has taken and sees that argument winning out; believes Republican Congress would appreciate principals

Upcoming Economic Data:

·       Weekly MBA Mortgage Applications due out Wednesday at 7:00 (Briefing.com consensus of ; Last Week was -6.6%)

·       October ADP Employment Change due out Wednesday at 8:15 (Briefing.com consensus of 220K; September was 213K)

·       October ISM Services due out Wednesday at 10:00 (Briefing.com consensus of 58.0; September was 58.6)

Upcoming Fed/Treasury Events:

·       Minneapolis Fed President Narayana Kocherlakota (2014 voter, dovish) to speak tomorrow at 9:15

·       Atlanta Fed President Jeffrey Lacker (not a voting FOMC member, hawkish) to speak tomorrow at 9:30

·       Boston Fed President Eric Rosengren (not a voting FOMC member, dovish) to speak tomorrow at 10:00

Other International Events of Interest

·       The Reserve Bank of Australia held its key rate unchanged at 2.50% for a 15th consecutive meeting.

·       Australia's retail sales (1.2% MoM actual v. 0.3% MoM expected) beat while the trade deficit widened to AUD2.26 bln (AUD1.7 bln expected, AUD1.01 bln previous)

Jason's Commentaries










Market Call: FLAT to upside

Date: 24 Feb 2014