7 Nov 2014 AMC - Market ended flat after good but not that great employment report

7 Nov 2014 AMC - Market ended flat after good but not that great employment report

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: -0.9%

·         France's CAC: -0.9%

·         Spain's IBEX: -1.3%

·         Portugal's PSI: -0.7%

·         Italy's MIB Index: -1.0%

·         Irish Ovrl Index: -1.5%

·         Greece ASE General Index: -5.4%

Before Market Opens 

S&P futures vs fair value: +2.90. Nasdaq futures vs fair value: +13.00.
The S&P 500 futures trade three points above fair value.

Asian markets ended the week on a mostly lower note. The Reserve Bank of Australia released its quarterly report, which reiterated that the Australian dollar remains overvalued. The central bank reduced its 2014 CPI target to 1.75% from 2.00% and lowered its forecast for the first half of 2015 to 2.00% from 2.25%. 

·         Economic data was scarce: 

o    Australia's AIG Construction Index fell to 53.4 from 59.1 

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·         Japan's Nikkei slipped from its opening high, but stayed in the green to add 0.5%. Industrial names finished in the lead with Mitsumi Electric, Chubu Electric Power, and Sumitomo Osaka Cement up between 4.3% and 9.1%. 

·         Hong Kong's Hang Seng shed 0.4% to settle near its opening level. Lenovo Group was the weakest performer, down 4.8%, after missing revenue estimates. Gaming and casino names outperformed with Sands China and Galaxy Entertainment up 2.6% and 0.8%, respectively. 

·         China's Shanghai Composite slipped 0.3%, ending near the lows. China Railway Construction fell 4.9% and Maanshan Iron & Steel lost 5.2%. 

·         India's Sensex shed 0.2% after spending the day in a narrow range following yesterday's holiday. Financials were mixed as HDFC Bank and State Bank of India lost near 1.5% apiece while Axis Bank jumped 2.4%. 

Major European indices trade mostly lower with Spain's IBEX (-1.1%) showing the largest decline. Bank of France governor and ECB member, Christian Noyer, said that low interest rates feed into an illusion of debt sustainability and contribute to delaying structural reforms. Elsewhere, reports from Spain indicate Prime Minister Mariano Rajoy will view Sunday's independence referendum in Catalonia as ‘freedom of expression.' Meanwhile, Spain's Constitutional Court said on several occasions that the referendum will be blocked 

·         In economic data: 

o    Germany's trade surplus expanded to EUR18.50 billion from EUR17.50 billion, as expected. Imports increased 5.4% month-over-month (expected 0.8%; prior -1.3%) while exports rose 5.5% (consensus 1.9%; last -5.8%). Separately, Industrial Production rose 1.4% month-over-month (consensus 2.0%; previous -3.1%) 

o    Great Britain's trade deficit widened to GBP9.82 billion from GBP8.95 billion (expected deficit of GBP9.40 billion) 

o    French government budget deficit narrowed to EUR80.50 billion from EUR94.10 billion while the trade deficit narrowed to EUR4.70 billion from EUR5.00 billion (expected deficit of EUR5.90 billion). Separately, Industrial Production was unchanged month-over-month (expected -0.2%; prior -0.2%) 

o    Spain's Industrial Production rose 1.0% year-over-year (expected 0.8%; prior 0.3%) 

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·         Great Britain's FTSE is higher by 0.5% with miners in the lead. Anglo American, Fresnillo, and Rio Tinto are up between 2.1% and 3.7%. Financials lag with Barclays, Standard Chartered, and Admiral Group holding losses between 0.3% and 2.4%. 

·         Germany's DAX is lower by 0.3% with financials also showing weakness. Commerzbank and Deutsche Bank are both down near 2.0%. 

·         In France, the CAC has given up 0.5%. BNP Paribas, Credit Agricole, and Societe Generale display losses between 1.5% and 3.8% while steelmaker ArcelorMittal leads with a gain of 2.6% after beating revenue estimates. 

·         Spain's IBEX underperforms with a loss of 1.1%. BBVA, Bankia, Bankinter, and Santander are down between 1.4% and 2.3%.

Earnings/Guidance: (full Earnings Calendar): 

·         Salix Pharma (SLXP) -40% after the co missed by $0.02, missed on revs; guided Q4 EPS below consensus, revs below consensus

·         Ubiquiti Networks (UBNT) is -16.6% after co missed by $0.05, missed on revs; guided Q2 EPS below consensus, revs below consensus 

·         First Solar (FSLR) is -5.5% after co beat by $0.23, missed on revs; reaffirmed FY14 EPS guidance, guided FY14 revs below consensus; Says there is some risk of potential overcapacity in the solar market; says that argument can be made that it is creeping higher 

·         NVIDIA (NVDA) is +3.9% after co beat by $0.04, beat on revs; guided Q4 revs in-line 

·         Shutterstock (SSTK) is -9.2% after co beat by $0.02, beat on revs; guided Q4 revs in-line; guided FY15 revs above consensus 

·         Gap (GPS) is +3.2% after co reported Oct same store sales -3% vs -2.4% Retail Metrics consensus; issued upside Q3 EPS guidance, net sales below consensus 

·         Bankrate (RATE) missed by $0.01, reported revs in-line; guided FY14 revs in-line 

·         El Pollo Loco (LOCO) is -2.9% after co reported EPS in-line, beat on revs; raised FY14 comp guidance; reaffirmed margins 

·         King Digital (KING) is +4.3% after co beat by $0.09, beat on revs 

·         Tumi (TUMI) is +1.6% after co reported EPS in-line, beat on revs; guided FY14 EPS below consensus 

·         Walt Disney (DIS) is -1.7% after co beat by $0.01, reported revs in-line 

Market Internals

Market Internals -Technical-
The Dow ended up 20 (+0.11%) to 17573, the S&P 500 was up 1 (+0.03%) to 2031, and the Nasdaq was down 6 (-0.13%) to 4632. Action came on slightly below average volume (NYSE 756 mln vs. avg. of 776; NASDAQ 1743 mln vs. avg. of 1855), with mixed advancers outpacing decliners (NYSE 1925/1236, NASDAQ 1331/1390) and new highs outpacing new lows (NYSE 194/40, NASDAQ 111/62). 

Relative Strength: 
Jr. Gold Miners-GDXJ +11.3%, Gold Miners-GDX +8.3%, Silver Miners-SIL +7.9%, Metals&Mining-XME +4.6%, Oil&Gas Explr.-XOP +4.2%, Gold-GLD +2.8%, Copper Miners-COPX +2.5%, Peru-EPU +2.0%, Canada-EWC +1.7%, Russia-RSX +1.3%, Latin America 40-ILF +1.3%, S Africa-EZA +1.2%.

Relative Weakness: 
Greece-GREK -3.6%, US Healthcare Prov.-IHF -2.7%, Vix Short-Term-VXX -1.4%, Biotech-IBB -1.1%, US Nat. Gas-UNG -1.1%, Spain-EWP -1.0%, Healthcare Slct Sectr.-XLV -1.0%, Biotech-XBI -0.8%, Israel-EIS -0.8%, Pharma-PPH -0.8%, Germany-EWG -0.6%, Italy-EWI -0.5%.

Leaders and Laggards

 

Technical Updates

Commentaries 

Closing Market Summary: Stocks End Upbeat Week on Flat Note
The major averages ended Friday on a quiet note with the S&P 500 (unch) locking in a 0.7% gain for the week. Meanwhile, the tech-heavy Nasdaq (-0.1%) spent the duration of the day in negative territory to end the week unchanged.

This morning, the latest Nonfarm Payrolls report revealed the addition of 214,000 jobs in October. The reading came in below the Briefing.com consensus estimate (235,000), but the overall tone of the report did not represent a departure from recent trends. Furthermore, the data did not stoke up fears of the Fed being in a rush to hike the fed funds rate. To that point, the 10-yr note rallied, sending its yield lower by eight basis points to 2.30% while the Dollar Index (87.58, -0.44) took a step back from its best level since mid-2010. The index narrowed its weekly gain to 0.7%.

The weaker dollar served as a supportive factor for crude oil, which climbed 1.0% to $78.71/bbl. Fittingly, the strength helped the energy sector (+0.9%) finish ahead of the remaining cyclical groups. Similarly, the materials space (+0.5%) was also supported by commodities. The Market Vectors Gold Miners ETF (GDX 18.64, +1.43) jumped 8.3% as gold futures soared 2.8% to $1174.70/ozt. Steelmakers gave another boost to the sector after industry giant ArcelorMittal (MT 12.59, +0.21) reported better than expected revenue, which overshadowed below-consensus earnings. Shares of MT spiked 1.7% while the Market Vectors Steel ETF (SLX 41.94, +0.87) rallied 2.1%.

Meanwhile, the remaining cyclical sectors struggled to keep pace with the market. The consumer discretionary sector (-0.2%) lagged throughout the session with Dow component Disney (DIS 90.00, -2.00) falling 2.2% despite reporting a one-cent beat.

The top-weighted technology sector (-0.03%) also spent the day in the red with chipmakers facing broad pressure. NVIDIA (NVDA 19.79, -0.43) and Skyworks (SKWS 59.88, -2.26) reported their quarterly results, but above-consensus earnings from the former and in-line results from the latter could not stop the PHLX Semiconductor Index from surrendering 0.9%.

The high-beta weakness was also apparent in the biotech space as the iShares Nasdaq Biotechnology ETF (IBB 290.14, -3.18) lost 1.1% and contributed to the underperformance of the Nasdaq. As for health care (-1.0%), the sector ended behind the remaining nine groups with DaVita (DVA 74.49, -3.54) and Humana (HUM 130.58, -9.29) contributing to the weakness. The two registered respective losses of 4.5% and 6.6% after DaVita beat by a penny and Humana missed on earnings and revenue.

Elsewhere among countercyclical groups, consumer staples (+0.3%), telecom services (+0.8%), and utilities (+1.0%) settled ahead of the broader market.

Participation was ahead of average with more than 750 million shares changing hands at the NYSE floor.

Economic data included Nonfarm Payrolls and Consumer Credit: 

·         Payrolls increased by 214,000 while the Briefing.com consensus expected a reading closer to 235,000 

o    Although payroll growth exceeded the 200,000 mark for the ninth consecutive month, earnings growth remained anemic, increasing just 0.1% (Briefing.com consensus 0.2%) 

o    The combination of a historically low labor force participation rate and jobless claims steadily tracking below the 300,000 mark should lead to robust growth, but businesses remain reluctant to step up hiring 

·         The Consumer Credit report for September showed an increase of $15.90 billion, which was lower than the Briefing.com consensus estimate of $16.00 billion 

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

·         Nasdaq Composite +10.9% YTD 

·         S&P 500 +9.9% YTD 

·         Dow Jones Industrial Average +6.0% YTD 

·         Russell 2000 +0.9% YTD 

Commodities

Closing Commodities: Gold Rallies 2.4%, Crude Oil Rises

·         Energy and precious metals ran higher today with gold showing a big gain

·         Dec gold rose 2.4% to $1169.80/oz, while Dec silver gained 1.9% to $15.70/oz

·         Dec crude oil (WTI) rallied nicely today, ending $0.78 higher at $78.71/barrel

·         Natural gas ended just 1 cent higher

·         Corn futures lost 3 cents at $3.67/bushel

Metals price action

·         Gold rose $27.60 (+2.4%) to $1169.80/oz by the end of pit trading

·         Silver rose 29 cents (+1.9%) to $15.70/oz

·         Copper rose 2 cents to $3.04/lb

Agricultural price action

·         Corn fell 3 cents (-0.9%) to $3.67/bushel

·         Wheat fell 5 cents (-1%) to $5.15/bushel

·         Soybeans rose 12 cents (+1.2%) to $10.42/bushel

·         Ethanol fell 2 cents (-1%) to $1.88/gallon

·         Sugar #11 rose 0.21 or +1.4% to 15.69 cents/lb

Energy price action

·         Crude oil fell 78 cents to $78.71/barrel

·         Natural gas rose 1 cent to $4.41/MMBtu

·         Heating oil rose 4 cents to $2.50/gallon

·         RBOB rose 1 cent to $2.14/gallon

Treasuries

Treasuries Punch Back after October Employment Report

·         The Treasury market has been hit hard lately, but on Friday it hit back after the October employment report didn't pack a knockout rate-hike punch

·         If anything, the employment report was more of the same as it showed decent job growth and minimal wage gains

o    Nonfarm payrolls increased by 214,000 (Briefing.com consensus 235,000)

§  September nonfarm payrolls revised to 256,000 from 248,000

§  August nonfarm payrolls revised to 203,000 from 180,000

o    Private sector payrolls increased by 209,000 (Briefing.com consensus 230,000)

§  September private payrolls revised to 244,000 from 236,000

§  August private payrolls revised to 200,000 from 175,000

o    Unemployment rate was 5.8% (Briefing.com consensus 5.9%) versus 5.9% in September 

§  The U6 unemployment rate, which accounts for the total unemployed plus persons marginally attached to labor force and the underemployed, was 11.5% versus 11.8% in September

§  Persons unemployed for 27 weeks or more accounted for 32.0% of the unemployed versus 31.9% in September

o    Average hourly earnings increased 0.1% (Briefing.com consensus +0.2%) after being unchanged in September 

§  Aggregate earnings rose 0.6%, which is strong enough to drive an acceleration in consumption growth

§  Over the last 12 months, average hourly earnings have risen 2.0%

o    The average workweek was 34.6 hours (Briefing.com consensus 34.6) versus 34.5 in September 

§  Manufacturing workweek was unchanged at 40.8 hours

§  Factory overtime slipped 0.1 to 3.4 hours

o    The labor force participation rate was 62.8% versus 62.7% in September

·         The impression left by the Treasury market is that it dialed back concerns about the prospect of the Fed raising the fed funds rate sooner than expected

o    2-yr note yield fell five basis points to 0.50%

o    10yr note dropped seven basis points to 2.32%

o    30-yr bond dipped five basis points to 3.05%

·         Some weakness in the dollar also spoke to the idea that rate hike concerns were mitigated somewhat by the employment data. The U.S. Dollar Index dropped 0.4% to 87.64.

·         Oil (+$0.82 to $78.73/bbl) and gold (+$27.10 to $1169.70/troy ounce) prices bounced back helped by the decline in the dollar and a bubbling up of geopolitical concerns following reports Russian tanks moved into eastern Ukraine

·         The geopolitical factor also fostered some safe-haven positioning in Treasuries ahead of the weekend

·         A speech from Fed Chair Yellen discussing policy since the onset of the financial crisis did not contain any hawkish hitches; therefore, it didn't disrupt buying efforts that took root soon after the employment report 

The Week Ahead 

·         There is no data on Monday. Boston's Rosengren travels to Washington and Lee University (17:10). Treasury will auction $26B 3Y notes. 

·         The U.S. Treasury market is closed on Tuesday in observance of Veterans Day. 

·         Data begins to flow on Wednesday as MBA Mortgage Index (7) and wholesale inventories (10) cross the wires. Treasury will hold a $24B 10Y note reopening. Philly's Plosser gives his economic outlook (3). 

·         Thursday's data includes initial and continuing claims (8:30), JOLTs -- Job Openings (10), and the Treasury Budget (14). Treasury will auction $16B 30Y bonds. Philly's Plosser takes part in a panel on "Monetary Policy After Recovery: What Is the New Normal?" (12:30).

·         Friday's data is the most anticipated of the week as retail sales, import/export prices (8:30), Michigan Sentiment (9:55), and business inventories (10) are due out. STL's Bullard speaks on the U.S. economy and monetary policy (9:10).

On other news.... 



Employment Data Are Good, But Not Good Enough
Nonfarm payrolls added 214,000 jobs in October, down from an upwardly revised 256,000 (from 248,000) increase in September. The Briefing.com consensus expected nonfarm payrolls to increase by 235,000. 

First the good news. Payrolls exceeded 200,000 for the ninth consecutive month. Job gains have topped the 120,000 needed to keep the unemployment rate steady every month thus far in 2014. The employment sector is clearly improving and trends remain firm. 

Average hourly earnings increased 0.1% in October after reporting no change in September. The average workweek ticked up to 34.6 hours after a downward revision to the September data brought the workweek down to 34.5 (from 34.6). 

Overall, the combination of increased payrolls, stronger hourly earnings, and the longer workweek drove aggregate earnings up 0.6%. That gain is strong enough to support an acceleration in consumption growth. 

Furthermore, the unemployment rate fell to 5.8% in October from 5.9% in September. The consensus expected the unemployment rate to remain at 5.9%. 

Employment levels increased by 683,000 in October and the labor force rose by 416,000. The increase in both employment and labor force signal that the decrease in the unemployment rate was directly due to improving labor market conditions. 

Yet, it is hard not to feel disappointed about the October employment report. 

Over the past several weeks, the initial claims level has stabilized below 300,000 and layoff activities have been reported at their lowest level in 14 years. These are conditions that normally occur with an employment sector at, or near, full employment. If this is true, then payrolls may not grow much faster than 200,000 per month because there is simply not enough available unemployed workers to meet job growth demand. 

However, since the labor force participation rate remains at historical lows, it would seem that there should still be significant slack in the labor market. There seems to be an ample number of unemployed workers that businesses can easily hire. 

The lack of hiring growth suggests that businesses are not in an accelerated expansion mode. In effect, businesses are content producing at their current production rates. 

Until businesses strive to increase production and grow, steady employment growth of around 200,000 will likely continue. That's good, but not good enough to return the employment/population ratio to pre-recession levels.

Currencies








Weekly Analysis




Technical Updates

Briefing's Commentaries


Week in Review: Dollar Charges Ahead 

The stock market had its issues on Monday, mostly because of what was happening outside the stock market. To that end, the dollar hit a seven-year high against the yen, crude futures slumped below $80/bbl, and economic reports from around the globe were mixed at best. On top of that, market participants were staring straight ahead at political issues wrapped up in election day for the U.S. on Tuesday. Those items were reason enough not to expect the stock market to do all that well on Monday, never mind that it also had to contend with the thought that it was overbought following a 10.8% gain off the October 15 low and due for a period of consolidation.

The major averages ended the Tuesday session on a mixed note. The Dow Jones Industrial Average (+0.1%) spent the bulk of the day near its flat line while the S&P 500 settled lower by 0.3%. Stocks were pressured from the start, but the early weakness could be traced back to Europe where the European Commission lowered its GDP forecast for the region. The commission now expects 2014 GDP to grow at 0.8% (prior 1.2%) while the forecast for 2015 was lowered to 1.1% from 1.7%. Also in Europe, a report from Reuters revealed a potential power struggle at the European Central Bank. According to the report, ECB board members have been unhappy with President Mario Draghi effectively making some policy decisions on his own. Furthermore, the report claimed that up to ten out of 24 ECB members are not in favor of a sovereign QE program.

The market registered a midweek gain with the S&P 500 climbing 0.5% to a fresh record high. The benchmark index maintained a ten-point range while the Nasdaq Composite (-0.1%) spent the bulk of the day near its flat line. Equities climbed at the start after Tuesday's midterm elections altered the balance of power in Washington. The GOP picked up seven Senate seats to claim a 52-seat majority while also adding ten seats to their majority in the House of Representatives. In addition to giving a small overnight boost to index futures, the news helped the Dollar Index (87.45, +0.47) climb to a new multi-year high at the expense of the yen (-105 pips) and the euro (-60 pips).

Equities posted modest gains on Thursday ahead of the Nonfarm Payrolls report for October (Briefing.com consensus 235,000), which will be released tomorrow. The S&P 500 added 0.4% with seven sectors ending in the green. The key indices spent the entire session in a slow and steady climb off their opening lows, but the same could not be said for the greenback. The Dollar Index (88.08, +0.64) spiked 0.7% after the European Central Bank released its latest policy statement. Although the central bank did not announce any changes, the euro tumbled below 1.2380 against the dollar after Mario Draghi said the bank will begin purchases of asset-backed securities soon and will not hesitate to introduce additional easing if needed. The reminder of willingness to consider additional measures boosted European equities and helped U.S. futures climb off their overnight lows. However, it should be noted that the ECB has already discussed its intentions to begin ABS purchases in the past. Furthermore Mr. Draghi's comments about additional easing contrasted with Tuesday's Reuters story, which claimed nearly half of the ECB board opposes the implementation of a sovereign quantitative easing program.

Next Week In View





Economic Commentaries

Economic Summary: Nonfarm Payrolls miss expectations; Unemployment rate falls to 5.8%
Economic Data Summary:

·         October Nonfarm Payrolls 214K vs Briefing.com consensus of 235K; September was revised to 256K from 248K

·         October Nonfarm Private Payrolls 209K vs Briefing.com consensus of 230K; September was revised to 244K from 236K

·         October Unemployment Rate 5.8% vs Briefing.com consensus of 5.9%; September was 5.9%

·         October Hourly Earnings 0.1% vs Briefing.com consensus of 0.2%; September was 0.0%

·         October Average Workweek 34.6 vs Briefing.com consensus of 34.6; September was revised to 34.5 to 34.6

o    Employment levels increased by 683,000 in October and the labor force rose by 416,000. The increase in both employment and labor force signal that the decrease in the unemployment rate was directly due to improving labor market conditions.

o    Yet, it is hard not to feel disappointed about the October employment report.

o    Over the past several weeks, the initial claims level has stabilized below 300,000 and layoff activities have been reported at their lowest level in 14 years. These are conditions that normally occur with an employment sector at, or near, full employment. If this is true, then payrolls may not grow much faster than 200,000 per month because there is simply not enough available unemployed workers to meet job growth demand. 

Fed/Treasury Events Summary:

·         Fed's Mester on CNBC- Sees 3% growth the next couple of years; says Fed will be data dependent; says rates will rise when the date reflects that they should

Upcoming Economic Data:

·         September Consumer Credit due out Friday at 15:00 (Briefing.com consensus of $16.0 bln; August was $13.5 bln)

Upcoming Fed/Treasury Events:

·         Fed Board member Daniel Tarullo to speak today at 14:30

Other International Events of Interest

·         The Reserve Bank of Australia released its quarterly report, which reiterated that the Australian dollar remains overvalued. The central bank reduced its 2014 CPI target to 1.75% from 2.00% and lowered its forecast for the first half of 2015 to 2.00% from 2.25%.

Jason's Commentaries


The main market mover on Friday is definitely the employment data, adding 214k jobs to the economy. However, it's not up to the market's expectation. It's the 9th month that the economy has added more than 200k jobs per month. Economically speaking, it's doing just fine. However, most of the employment are part timer jobs were seasonally speaking, we're entering the holiday seasons, jobs should be picking up higher by now. Seems that the economy might have under performed just a bit. As a result, the market ended flat on Friday's session. The market started with some bearish note where it reversed by 10am ET, however unable to hold it's high past lunch. By closing bell, there was a major short covering. It's seems that the market is likely to end flat on Monday. Judging by the market's reaction, there's not really much commitment right now.

There is no economic report coming out on Monday and it's Veteran's day on Tuesday where the market will be closed.

Market Call: FLAT to upside

Date: 10 Nov 2014