6 Dec 2013 AMC - Market rallied over 1% as jobs reports spiked and unemployment rates drop to 7%

6 Dec 2013 AMC - Market rallied over 1% as jobs reports spiked and unemployment rates drop to 7%

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: + 0.8%

·         Germany's DAX: + 1.0%

·         France's CAC: + 0.7%

·         Spain's IBEX: + 0.1%

·         Portugal's PSI: -0.2%

·         Italy's MIB Index: + 0.7%

·         Irish Ovrl Index: + 1.0%

·         Greece ATHEX Composite: -1.1%

Before Market Opens 

S&P futures vs fair value: +5.80. Nasdaq futures vs fair value: +10.80.
November nonfarm payrolls came in at 203,000 versus the 188,000 expected by the Briefing.com consensus. Nonfarm private payrolls added 196,000 against the 200,000 expected by the consensus. The unemployment rate ticked down to 7.0% while the consensus called for a downtick to 7.2%. 

Hourly earnings increased 0.2% while the consensus expected an increase of 0.2%. The average workweek was reported at 34.5 against the 34.5 expected by the consensus. 

October personal income declined 0.1%, below the increase of 0.3% expected by the Briefing.com consensus. Meanwhile, personal spending rose 0.3% while the consensus expected an uptick of 0.3%. 

Lastly, core PCE prices ticked up 0.1% (consensus +0.1%).

Market Internals

Market Internals -Technical-
The Dow closed up 199 (+1.26%) at 16020, the S&P 500 closed up 20 (+1.12%) at 1805, and the Nasdaq closed up 29 (+0.73%) at 4063. Action came on slightly below average volume (NYSE 671 mln vs. avg. of 700; NASDAQ 1670 mln vs. avg. of 1763), with advancers outpacing decliners (NYSE 2229/867, NASDAQ 1744/827) and new highs outpacing new lows (NYSE 145/101, NASDAQ 173/27). 

Relative Strength: 
South Africa-EZA +4.17%, Turkey-TUR +3.62%, India-INP +2.93%, Middle East and Africa-GAF +2.88%, Russia-RSX +2.26%, Cotton-BAL +1.98%, Cocoa-NIB +1.97%, Lithium-LIT +1.9%, Regional Banks-KRE +1.78%, U.S. Home Construction-ITB +1.62%.

Relative Weakness: 
Volatility-VXX -3.53%, Oil and Gas Exploration-XOP -1.72%, Japanese Yen-FXY -1.11%, Metals and Mining-XME -1.07%, Sugar-SGG -0.98%, Junior Gold Miners-GDXJ -0.96%, Canadian Dollar-FXC -0.15%, Greece-GREK -0.04%.



 

Leaders and Laggards

Technical Updates

Commentaries 

Dow +198.69 at 16020.2, Nasdaq +29.36 at 4062.52, S&P +20.06 at 1805.09 : [BRIEFING.COM] A solid November employment report translated into a solid day of gains for the major averages. While there was some talk that the encouraging job growth raised the odds of the Fed announcing a tapering at its December meeting, the message of the markets today was either that it didn't believe there would be a tapering this month or that it doesn't fear a tapering this month.

It was just one day, yet there was ample meaning wrapped up in the connection that the 10-yr Treasury note (+3/32, 2.87%) and the stock market both pushed higher. Gold prices and the US Dollar Index, meanwhile, were little changed.

The headlines for the employment data were reassuring on just about every front.

• Nonfarm payrolls increased by 203,000 (Briefing.com consensus 188,000) and were revised up for September (to 175,000 from 163,000) and down slightly for October (to 200,000 from 204,000)
• Nonfarm private payrolls increased by 196,000 (Briefing.com consensus 200,000)
• The unemployment rate fell to 7.0% from 7.3%
• Average hourly earnings increased by 0.2% (Briefing.com consensus 0.2%) while aggregate earnings increased 0.6% (a good portent for consumer spending)
• The average workweek edged up 0.1 to 34.5 hours (Briefing.com consensus 34.5) and factory overtime increased 0.1 to 3.5 hours

The employment report drowned out the Personal Income and Personal Spending report for October, which was released at the same time. That report was mixed with personal income declining 0.1% (Briefing.com consensus 0.3%) and personal spending rising 0.3% (Briefing.com consensus 0.3%).

There was nothing mixed, however, about the stock market action.  It was decidedly positive throughout the day and featured broad-based participation that saw every S&P sector finish higher, every Dow component finish higher, and all major indices gain at least 0.7%.

Remarkably, the S&P 500 made up almost the entirety of the ground it lost in its five-session losing streak and came within a whisker of ending higher for the ninth straight week.

The consumer staples (+1.5%), industrials (+1.5%), financial (+1.4%), materials (+1.4%), and health care sectors (+1.4%) led today's winners.  The energy sector, which gained 0.5%, was the weakest performer -- but it wasn't weak.

Weak areas were few and far between today.  A number of retailers, though, were caught in the selling crosshairs after issuing disappointing guidance.  Big Lots (BIG 32.50, -4.63), American Eagle Outfitters (AEO 14.85, -1.55), and Five Below (FIVE 45.30, -2.45) were such offenders.  J.C. Penney (JCP 8.09, -0.76), meanwhile, got hit hit hard after a 10Q filing revealed an SEC request for information regarding the company's liquidity, cash position, and debt and equity financing.

Another area of notable weakness was the CBOE Volatility Index (VIX 13.81, -1.27).  It dropped 8.5% as portfolio protection bets were taken off in the risk-on advance.

Today's gains came on lighter-than-expected volume.  To that point, NYSE volume totaled 671 mln shares versus 700 mln on Thursday.

• Nasdaq +34.5% YTD
• Russell 2000 +32.9% YTD
• S&P 500 +26.6% YTD
• DJIA +22.1% YTD

..NYSE Adv/Dec 2186/846. ..NASDAQ Adv/Dec 1743/833.

Commodities

COMEX Metals Closing Prices

  Feb gold fell $2.60 to $1229.10/ounce 

·         Gold bounced around in volatile trade during early morning pit action following better-than-anticipated economic data. Payroll and Michigan Sentiment data topped expectations and the unemployment rate dropped to 7%. The yellow metal fell to a session low of $1210.10 and quickly rebounded into positive territory and to a session high of $1245.00. Prices then consolidated near the unchanged line and eventually settled 0.2% lower. Today's slight decline brought losses for the week to 1.7%. 

  Mar silver fell $0.03 to $19.53/ounce 

·         Silver also saw choppy action earlier today. Like gold, it slipped to a session low of $19.17 and reversed to a session high of $19.78. It then pulled back towards the break-even line and spent the remainder of the session trading near that level. It settled 0.2% lower, booking a 2.5% loss for the week. 

  Mar copper rose 2 cents to $3.25/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Mar corn settled unchanged at $4.34/bushel 

·         Mar wheat fell 1 cent to $6.51/bushel 

·         Jan soybeans fell 3 cents to $13.26/bushel 

·         Jan ethanol rose 11 cents to $1.99/gallon 

·         Jan sugar (#16 (U.S.)) fell 0.15 of a penny to 19.75 cents/lbs

NYMEX Energy Closing Prices

  Jan crude oil rose $0.31 to $97.70/barrel 

·         Crude oil rose for a sixth consecutive session in choppy trade following strong economic data. Employment and Michigan Sentiment data topped expectations while the unemployment rate dropped to 7%. The energy component rallied to a session high of $97.99 moments after pit trade opened and spent most of the remaining session trading slightly above the unchanged line. It settled 0.3% higher, booking a 5.4% gain for the week, its biggest weekly advance since July. 

  Jan natural gas fell 1 cent to $4.12/MMBtu 

·         Natural gas climbed to a session high of $4.20 in early morning floor action. However, it lost momentum as the session progressed and settled 0.2% lower. Despite today's dip, natural gas gained 4.0% for the week. 

  Jan heating oil settled unchanged at $3.05/gallon 

  Jan RBOB gasoline rose 1 cent to $2.72/gallon

 

 

Treasuries

30y Hits Highest Level Since August 2011: 10-yr: +02/32..2.874%..USD/JPY: 102.85..EUR/USD: 1.3702
The Week in Review  

·         Treasuries were pressured this week as mostly better than expected data ignited fears the Fed may begin to scale back its bond-buying scheme as early as the December meeting. 

·         Friday's strong nonfarm payroll report (203K actual v. 188K expected) saw the unemployment rate fall to 7.0% (7.2% previous), and capped off a strong week of data.

·         ISM Index (57.3 actual v. 55.5 expected), construction spending (0.8% actual v. 0.3% expected), new home sales (444K actual v. 420K expected), GDP - Second Estimate (3.6% actual v. 3.0% expected), and Michigan Sentiment (82.5 actual v. 75.1 expected) all topped forecasts.

·         ISM Services (53.9 actual v. 55.0 expected) and personal income (-0.1% actual v. 0.3% expected) were the only notable misses. 

·         The latest Fed Beige Book suggested, "The economy continued to expand at a modest to moderate pace from early October through mid-November." 

·         This week's selling had the biggest impact on the belly of the curve, where yields climbed as much as +12bps. Click here to see an intraweek yields chart.

·         The 5y jumped +11bps, and managed to breakout above the 1.450% area that had acted as a lid since the middle of September. Friday's early selling ran the yield up to 1.545% before settling the day @ 1.505%.

·         Aggressive selling in 10s ran the benchmark yield through key resistance in the 2.800% area. On the week, the 10y climbed +12bps to finish @ 2.883%. Traders continue to monitor the 3.000% area that corresponds with the September highs.

·         Outperformance at the long end made for a +7bp move in the 30y. The yield on the long bond hit a high of 3.976%, its highest since August 2011, in response to the jobs report; however, it fell to 3.917% by Friday's cash close.

·         A steeper curve developed over the course of the week as the 2-10-yr spread widened to 258bps.  

The Week Ahead 

·         There is no data on Monday. Fed Chairman Ben Bernanke will attend a meeting of the Financial Stability Oversight Committee (14:30). Richmond's Lacker will give his economic outlook in Charlotte, NC (12:50); STL's Bullard will be on his home turf discussing monetary policy and the economy (13:05); Dallas' Fisher will be in Chicago, IL to speak on "U.S. and Regional Economic and Banking Trends" (13:15) and to discuss Fed policy and the economy (18:30). 

·         Data kicks off for the week on Tuesday with wholesale inventories and JOLTS - Job Openings (10). Treasury will auction $30 bln 3y notes. 

·         Wednesday's data is limited to the weekly MBA Mortgage Index (7) and the Treasury budget (14). Treasury will hold a $21 bln 10y note reopening. Treasury Secretary Lew will testify on the IMF in front of the House Financial Services Committee (10). 

·         Data picks up on Thursday with initial and continuing claims, retail sales, retail sales ex-auto, import/export prices (8:30), and business inventories (10). Treasury will reopen $13 bln 30y bonds.

·         Friday will see PPI and core PPI (8:30).

On other news.... 



Employment Situation Continues to Strengthen
Nonfarm payrolls increased by 203,000 in November after adding a downwardly revised 200,000 (from 204,000) in October. The Briefing.com consensus expected nonfarm payrolls to increase by 188,000. Private payrolls were slightly weaker as 196,000 new jobs were added in November. That was down from an increase of 214,000 in October and slightly below the 200,000 gain expected by the consensus. There is no way around it, the labor situation has improved significantly over the past few months. This was shocking considering most economists, including us, initially believed the government shutdown was going to derail the employment sector with increased private layoffs and furloughs. Instead, the private sector showed an unexpected resiliency as firms expanded rather than retrenched during the shutdown. Interestingly, many economists also believed that the October gain was aberration due to data collection problems following the shutdown. It was assumed that these number would be heavily revised down as more data became available. The gains in October retail sales, industrial production, and durable goods orders excluding transportation all supported the October employment surge, but there was still the feeling that the data was somehow wrong. The latest reading showed a slightly downward revision to the October payroll level, but it nothing of the magnitude that was originally expected. The increase in economic activity that was reported across multiple sectors is true. The hourly workweek increased to 34.5 in November from 34.4 in October and average hourly earnings increased 0.2%. Altogether, aggregate wages increased a solid 0.6%. That should be sufficient for another month of strong consumption growth. The unemployment rate dropped to 7.0% in November from 7.2% in October. The consensus expected the unemployment rate to increase to 7.3%. The government shutdown played havoc on the unemployment survey in October. Workers who were furloughed due to the shutdown should have reported themselves as unemployed. Many of them, however, were confused with the question and listed themselves as simply out of the labor force. That artificially deflated the labor force participation rate. Those workers "returned" the labor force in November, which boosted both the labor participation rate and the total employed. On top of those gains, addition people found employment in November. That corresponded to the strong payroll gain. The bonus of workers returning to their employed jobs and the gain of new jobs caused the big decline in the unemployment rate.






Currencies 

Dollar Drifts Near 80.30: 10-yr: +01/32..2.880%..USD/JPY: 102.92..EUR/USD: 1.3691

The Dollar Index hovers near 80.30 amid a mostly uneventful trade. The Index spiked to the 80.60 level following this morning's strong nonfarm payroll report, but trade quickly slipped back to pre-data levels. Most of today's action has been trapped in a tight 15 cent range between 80.25 and 80.40. Click here to see a daily Dollar Index chart.

·         EURUSD is +25 pips @ 1.3690 as buyers remain in control for a fourth session. The single currency has managed to shrug off this morning's disappointing German factory orders data, and is now testing the 1.3700 area. The four-week winning streak has seen the euro tack on roughly 400 pips since the November lows. Eurozone data out Monday includes the German trade balance and German industrial production. 

·         GBPUSD is +5 pips @ 1.6340 as action hovers little changed. Sterling has tested and failed at the 1.6400 level each day this week, causing trade to test minor support near 1.6300. A breakdown of that level sets up a test of more meaningful support near 1.6200. Bank of England Governor Mark Carney will speak Monday in NYC. 

·         USDCHF is -40 pips @ .8925 as trade presses the October lows. The pair has been under pressure throughout the entire session after Swiss CPI printed a hotter than anticipated 0.0% (-0.2% expected). Traders will be tracking the .8900 area over the coming days as that level has provided support since the fall of 2011.Swiss data due out Monday is limited to retail sales. 

·         USDJPY is +110 pips @ 102.90 as trade tests the May highs near 103.00. The pair saw an early test of 101.50 support, and has since managed to wipe away the previous three days of losses. Japan's current account balance and Q3 Final GDP are due out Sunday. Bank of Japan Governor Haruhiko Kuroda will speak tonight in Tokyo. 

·         AUDUSD is +35 pips @ .9095 as buyers remain in control for a second session. The .9150 area has acted as a lid on recent action; however, a breakout would provoke a likely test of the .9300 resistance level that is helped by the 100 dma (.9270). Australian data is limited to ANZ Job Advertisements. China's trade balance is scheduled to cross the wires tomorrow with CPI and PPI due out Sunday evening. 

·         USDCAD is +5 pips @ 1.0655 amid a mostly uneventful day for the pair. The better than expected Canadian employment change (21.6K actual v. 12.3K expected) made for a volatile few minutes as traders had to digest both that and the US data, but trade has spent most of the session near the flat line with action holding at its best level in more than three and a half years.

Weekly Analysis
Week 38



Technical Updates











Briefing's Commentaries

Weekly Wrap Like Maxwell Smart used to say, "Missed it by that much."  Less than a point separated the S&P 500 from its ninth straight winning week, but what a finish to the week it was.  Sparked by an encouraging employment report for November, the S&P 500 jumped 20 points, or 1.1%, on Friday.

The week in review pretty much begins and ends with Friday since the market was preoccupied all week with the question of whether the November employment report would prompt the Fed to make a tapering decision at its December meeting.  The answer to that question was basically yes, no, and maybe.

The report, which featured a 203,000 increase in nonfarm payrolls and a drop in the unemployment rate to 7.0% from 7.3% that was not driven by a decline in the labor force participation rate, was solid enough to convince participants that the labor market is improving but not strong enough necessarily to force the Fed's hand into tapering this month.

Whatever unfolds, the overriding message of the market on Friday was either that it didn't believe there would be a tapering this month or that it doesn't fear a tapering this month (or next month).  Both the 10-yr note and the stock market pushed higher on Friday while gold prices and the US Dollar Index were little changed.

They were moves that stood in contrast to the tapering angst that existed earlier in the week after the release of the better-than-expected ISM Index, higher-than-expected auto sales, a 25% increase in new home sales for October, lower-than-expected initial claims, and an upwardly revised 3.6% GDP growth rate for the third quarter (more on that in a bit).

Every sector finished higher on Friday and so did every Dow component.  For the week, the best-performing sectors were the utilities (+0.8%), technology (+0.7%), consumer staples (+0.1%), and energy (+0.04%) sectors, so a bit of a cyclical and counter-cyclical mix, which probably reflected some hedging with respect to the tapering idea and the thinking that the market is due for a pullback of some kind after its extraordinary rally.

Still, it was clear that money wasn't in a hurry to leave the stock market this week.  That may have been owed to the thinking that another buy-the-dip run would be seen -- and sure enough that ended up being the case.

Now, in terms of the GDP report, it wasn't as robust as it appeared to be at first blush.  The change in inventories accounted for 1.68 percentage points of the change in GDP; moreover, personal consumption expenditures were up just 1.4% (lowest since Q4 2009) while real final sales, which exclude the change in inventories, were revised down to 1.9% from 2.0% in the first estimate.

It is almost certain that there will be some inventory payback in the fourth quarter that will act as a big drag on fourth quarter GDP.  Briefing.com's current forecast calls for growth of just 0.8%.

The Fed will be cognizant of that inventory drag (New York Fed President Dudley spoke about it in a speech a few weeks ago), which is one reason why there is still room to think it will hold off on a tapering decision for the time being.  Another reason embedded in the November employment report is the fact that the number of people unemployed for 27 weeks or more accounted for 37.3% of the unemployed, up from 36.1% in October, demonstrating the ongoing difficulty of finding a new job after being out of work for so long.

Emergency unemployment benefits are due to expire January 1 if Congress doesn't strike an agreement to extend them.  On a related note, there were reports this week that negotiators are close to striking a budget agreement that will prevent another government shutdown, but that emergency unemployment benefits are creating a sticking point in those talks.

The budget negotiations promise to be a focal point in the week ahead along with the Retail Sales report for November and Q3 GDP data for Europe.

Next Week In View



Economic Commentaries

Economic Summary: NFP's top expectations; Unemployment rate drops to 7%; Michigan Sentiment also tops expectations; Bernanke to speak Monday at 14:30
Economic Data Summary:

·         November Nonfarm Payrolls 203K vs Briefing.com consensus of 188K; October was revised to 200K from 204K

o    Notable Jon Gainers:

§  Manufacturing +27%

§  Professional and business services +35K

§  Transportation and warehousing +31K

o    Notable Job Losses

§  Financial activities -3K

§   There is no way around it, the labor situation has improved significantly over the past few months. This was shocking considering most economists, including us, initially believed the government shutdown was going to derail the employment sector with increased private layoffs and furloughs. Instead, the private sector showed an unexpected resiliency as firms expanded rather than retrenched during the shutdown. Interestingly, many economists also believed that the October gain was aberration due to data collection problems following the shutdown. It was assumed that these number would be heavily revised down as more data became available. The gains in October retail sales, industrial production, and durable goods orders excluding transportation all supported the October employment surge, but there was still the feeling that the data was somehow wrong. 

·         November Nonfarm Private Payrolls 196K vs Briefing.com consensus of 200K; October was revised to 214K from 212K

·         November Unemployment Rate 7.0% vs Briefing.com consensus of 7.2%; October was 7.3%

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

·         November Average Workweek 34.5 vs Briefing.com consensus of 34.5; October was 34.4

·         October Personal Income -0.1% vs Briefing.com consensus of 0.3%; September was 0.5%

·         October Personal Spending 0.3% vs Briefing.com consensus of 0.3%; September was 0.2%

o    . The October employment report showed that aggregate wages increased 0.3%. On top of that, the stock market surged throughout the month. Those factors should have resulted in another strong month of income growth. According to the BEA data, however, dividend income -- which normally correlates closely with stock market growth -- fell in October. Farm income also showed a large decline. 

·         October PCE Prices -- Core 0.1% vs Briefing.com consensus of 0.1%; September was 0.1%

·         December Michigan Sentiment - Prelim 82.5 vs Briefing.com consensus of 75.1; November was 75.1

o    While the increase in sentiment was definitely a surprise, this was not a move that would support an underlying change in consumer attitudes. The sentiment index simply regained all it lost during the government shutdown. Current levels are back to where they were in August and July.

Fed/Treasury Events Summary:

·         Fed's Plosser (2014 voter, hawkish) reiterated he was not a fan of the QE in the first place; believes it is wise to taper

Upcoming Economic Data:

·         October Consumer Credit due out Friday at 15:00 (Briefing.com consensus of $15.8 bln; September was $13.7 bln)

Upcoming Fed/Treasury Events:

·         Chicago Fed President Charlie Evans (2013 voter, dovish) to speak today at 15:00

·         Saint Louis Fed President James Bullard (2013 voter, dove) to speak Monday at 13:05

·         Fed Chairman Ben Bernanke to speak at Financial Overnight Meeting at 14:30

·         Dallas Fed President Richard Fisher (2014 voter, hawkish) to speak Monday at 14:15 & 18:30

Other International Events of Interest

·         Japan's Nikkei (+0.8%) led the region higher as a weaker yen provided support. A Bloomberg report released overnight suggested Takatoshi Ito, the man in charge of a pension reform panel, recommended Japan's Government Pension Investment Fund should cut its JGB holdings to the lower limit while raising its equity holdings to the maximum allowance. The 10y JGB climbed +3bps to 0.656%. 

Jason's Commentaries

Market rallied on Friday in reaction towards the blowout numbers for Non-farm Payrolls and the Unemployment rate. Under the U3 Unemployment standard, the unemployment rate dropped to 7% and the jobs added were 20k jobs more than what was being expected. Widely due to the fact that the retailers are expecting more traffic during the Thanksgiving season, hence hired more people for the season. However, I reckon the next employment report is likely to be below expectation and there should be some downwards revision due to seasonal factor.

Macroeconomics aside, the market started way high and held the high despite there is some short correction at 145pm ET to 330pm ET. Volumes were relatively weak at 616.5m shares traded on the NYSE. Internals were pointing towards a flat day as there are not much stocks ticking up during the intraday. VIX dropped to 13.83 on Friday. The Industrials, the Financials, Materials, Utilities and Healthcare were the main gainers with more than 1.3% gain on all these sectors. The energy, being pressured by the oil prices, was the weakest gainers amongst all the sectors. On the Technical Note, we're having the indices all reaching their high once again and I'm expecting some flat monday. As of 10.15am ET, the futures were up 0.22% which is likely to point towards a bullish opening, but i'm expecting that gain to be washed out towards the closing bell.

Meanwhile, stay safe =D

Market Call:FLAT to upside

Date: 9 Dec 2013