23 Jan 2014 AMC- Dow Jones sunk more than 176 points last night... China's contracting PMI hits hard

23 Jan 2014 AMC- Dow Jones sunk more than 176 points last night... China's contracting PMI hits hard

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: -0.9%

·         France's CAC: -1.0%

·         Spain's IBEX: -0.4%

·         Portugal's PSI: -0.1%

·         Italy's MIB Index: -0.7%

·         Irish Ovrl Index: -1.0%

·         Greece ATHEX Composite: 0.0%

Before Market Opens

S&P futures vs fair value: -12.20. Nasdaq futures vs fair value: -18.50.
Recent action saw index futures slide to lows in a move that coincided with a retreat across the European markets with Germany's DAX (-0.6%) leading the slide. The S&P 500 futures now trade 12 points below fair value.

Markets across Asia ended mostly lower after China's HSBC Flash Manufacturing PMI slipped into contraction for the first time since July with a 49.6 print (50.6 expected, 50.5 previous). In other regional data, South Korea's GDP was in-line at 0.9% quarter-over-quarter, Taiwan's industrial production surged 5.1% year-over-year (2.0% expected), and Singapore's inflation rate cooled to 1.5% year-over-year (2.2% expected, 2.6% previous). 

·         Japan's Nikkei fell 0.8%, marking its first loss in three days as a stronger yen weighed. Exporters lagged as Toyota Motor lost 1.3% and Canon shed 0.8%. 

·         Hong Kong's Hang Seng led the region lower with a 1.5% decline. Financials and property developers were pressured as China Construction Bank and Hang Lung Properties gave up 3.0% and 5.1%, respectively. 

·         China's Shanghai Composite fell 0.5%, pulling back after two days of strong gains. Losses were widespread as blue chips Shanghai Pudong Development Bank lost 1.3% and China Vanke fell 1.7%. 

Major European indices hover in the red after the release of several regional PMI readings that were mostly ahead of expectations. Eurozone Manufacturing PMI rose to 53.9 from 52.7 (53.0 expected) while Services PMI improved to 51.9 from 51.0 (51.4 last). Separately, the current account surplus widened to EUR23.50 billion from EUR22.20 billion (EUR19.20 billion forecast). Germany's Manufacturing PMI rose to 56.3 from 54.3 (54.6 consensus) while Services PMI ticked up to 53.6 from 53.5 (54.0 expected). French Manufacturing PMI increased to 48.8 from 47.0 (47.5 forecast) while Services PMI rose to 48.6 from 47.8 (48.1 forecast). Separately, the Business Survey held steady at 100, as expected. Elsewhere, Great Britain's CBI Distributive Trades Survey decreased to 14 from 34 (25 consensus) and Spain's Unemployment Rate rose to 26.03% from 25.98% (26.00% expected). 

·         France's CAC is lower by 0.4% after giving up its modest early gain. Airbus Group is the weakest index performer, down 2.2%. On the upside, financials BNP Paribas, Credit Agricole, and Societe Generale are all up between 0.5% and 1.8%. 

·         Great Britain's FTSE trades down 0.4% with EasyJet and Pearson leading the decline. The two names hold respective losses of 2.8% and 7.9% after issuing profit warnings. Miners are showing strength with Anglo American, Fresnillo, and Randgold Resources up between 1.3% and 3.5%. 

·         In Germany, the DAX holds a loss of 0.7% as financials trade in mixed fashion. Allianz and Muenchener Re are down 2.2% and 1.4%, respectively, while Commerzbank trades higher by 1.8% and Deutsche Bank holds an advance of 1.2%. 

In domestic economic news, the November Housing Price Index from the FHFA increased 0.1%, which followed an uptick of 0.5% observed during the prior month.

Market Internals

Market Internals -Technical-
The Dow closed down 176 (-1.07%) at 16197, the S&P 500 closed down 16 (-0.89%) at 1829, and the Nasdaq closed down 24 (-0.57%) at 4219. Action came on above average volume (NYSE 765 mln vs. avg. of 675; NASDAQ 2002 mln vs. avg. of 1741), with decliners outpacing advancers (NYSE 1030/2119, NASDAQ 818/1799) and new highs outpacing new lows (NYSE 93/39, NASDAQ 110/23).

Relative Strength: 
Cocoa-NIB +3.23%, Volatility-VXX +2.8%, Gold Miners-GDX +2.73%, Silver Miners-SIL +2.03%, Swiss Franc-FXF +1.55%, 20+ Year Treasuries-TLT +1.42%, Japanese Yen-FXY +1.29%, Belgium-EWK +0.61%, Spain-EWP +0.58%, Switzerland-EWL +0.56%.

Relative Weakness: 
Turkey-TUR -4.58%, China 25 Index-FXI -4.47%, BRICs-EEB -2.94%, Hong Kong-EWH -2.6%, Latin America 40-ILF -2.59%, Clean Energy-PBW -2.45%, Social Media-SOCL -2.39%, Copper Miners-COPX -1.82%, Insurance-KIE -1.74%, Financial Services-IYG -1.73%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks Slump Amid China-Related Concerns
The S&P 500 snapped its modest two-day win streak with its second-largest decline of the month. The index lost 0.9% as nine of ten sectors registered losses.

Although stocks sold off throughout the day, the weakness actually started during the overnight futures session when three China-related developments began fueling the risk-off sentiment: 

·         The HSBC flash PMI reading for January was below expectations at 49.6. The sub-50 reading is indicative of manufacturing activity contracting; and the January reading marked a six-month low for the series. 

·         A Financial Times report indicated Chinese authorities are working to prevent a default of a $500 million high-yield investment trust, failure of which could trigger an unnerving fallout in China's shadow banking system. 

·         An SEC administrative law judge issued a ruling that censures the accounting arms of the "Big Four" in China for six months due to their unwillingness to turn over requested documents involving US-listed Chinese companies under investigation for accounting fraud. 

The three developments did enough damage to sentiment that a slate of mostly better-than-expected earnings could not halt the day-long slide. The discretionary sector (-0.7%) finished just ahead of the broader market after last year's top S&P 500 component, Netflix (NFLX 388.72, +54.99), surged 16.5% in reaction to its bottom-line beat and above-consensus guidance.

Outside of the discretionary space, the technology sector (-0.4%) was the only outperformer among cyclical groups. F5 Networks (FFIV 102.49, +5.01) spiked 5.1% following its better-than-expected results while the top sector component, Apple (AAPL 556.18, +4.67), gained 0.9% after investor Carl Icahn said he increased his stake in the company by another $500 million today. This comes after Mr. Icahn made similar comments yesterday.

The remaining four cyclical groups—energy, financials, industrials, and materials—ended with losses between 1.1% and 1.7% with financials posting the largest loss.

On the countercyclical side, the weakest sector of the year, telecom services (+1.0%), posted a solid loss while consumer staples (-0.9%), health care (-0.7%), and utilities (-0.3%) could not stay out of the red.

Treasuries booked solid gains, ending near their highs with the 10-yr yield down nine basis points at 2.78%. The safety bid was also reflected in gold futures (+1.9% to $1262.60) and the CBOE Volatility Index (VIX 13.76, +0.92), which notched a fresh 2014 intraday high at 14.66% before retreating into the close.

The selloff invited above-average participation as 765 million shares changed hands at the NYSE.

Today's economic data included four reports: 

·         The initial claims level increased to 326,000 from a downwardly revised 325,000 (from 326,000) while the Briefing.com consensus expected the reading to increase to 327,000. The seasonal problems from the holiday period have ended, and, as expected, the initial claims have settled around 330,000. The numbers suggest that there have been no notable changes in labor conditions over the last couple of months. 

·         The November Housing Price Index from the FHFA increased 0.1%, which followed an uptick of 0.5% observed during the prior month. 

·         December existing home sales increased 1.0% to 4.87 million from a downwardly revised 4.82 million (from 4.90 million). The Briefing.com consensus pegged December existing home sales at 4.90 million. For the year, 5.090 million homes were sold in 2013. That was the most homes sold since 2006. Unfortunately, the trends are moving in a negative direction. Year-over-year sales in December fell 0.6%. That was the second consecutive, monthly year-over-year decline. Before November, existing home sales had not declined on a year-over-year basis since June 2011.

·         The Conference Board's Index of Leading Indicators increased 0.1% in December after increasing an upwardly revised 1.0% (from 0.8%) in November. The Briefing.com consensus expected the leading indicators to increase 0.2%. On the surface, the drop in the index seems like economic growth is poised for a slowdown. However, the seasonal biases that negatively impacted the initial claims level throughout December resulted in a 0.34 percentage-point reduction in the growth of leading indicators. Now that the volatility has ended and claims have returned to their normal and lower level, the negative contribution should reverse next month. 

There is no economic data of note on tomorrow's schedule. 

·         Nasdaq Composite +1.0% YTD 

·         Russell 2000 +0.9% YTD 

·         S&P 500 -1.1% YTD 

·         Dow Jones Industrial Average -2.3% YTD

Commodities

Closing Commodities: Natural Gas Reverses, But Ends 0.9% Higher

·         Feb gold rose for the first time in three sessions as the dollar index fell deeper into negative territory. In addition, reports indicated that Sonia Gandhi, Indian National Congress party chief, asked the government to ease its gold import restrictions. The yellow metal came off its session low of $1248.70 per ounce set at pit trade open and spent the remainder of the session trading above the $1250 per ounce level. It eventually settled with a 1.9% gain at $1262.60 per ounce. 

·         Mar silver also traded in the black today. Prices rose to a session high of $20.31 per ounce but pulled back in late morning action. Silver then held steady just above the $20 per ounce level and settled at $20.01 per ounce, or 0.9% higher. 

·         Mar crude oil extended gains for a fourth consecutive session as it gained support from the weaker dollar index and weekly inventory data. The EIA reported that for the week ending Jan 17, crude oil inventories had a build of 0.99 mln barrels while a build of 0.6-1.15 mln barrels was anticipated. The energy component lifted from its session low of $96.81 per barrel and brushed a session high of $97.83 per barrel before settling with a 0.5% gain at $97.25 per barrel. 

·         Feb natural gas brushed a session high of $4.89 per MMBtu moments after the EIA reported that natural gas inventories fell by 107 bcf for the week ending Jan 17 vs expectations for a draw of 104-110 bcf. However, the momentum faded and prices trended lower for the remainder of the session. Natural gas eventually settled at $4.73 per MMBtu, or 0.9% higher.

COMEX Metals Closing Prices

  Feb gold rose $24.00 to $1262.60/oz 

·         Gold rose for the first time in three sessions as the dollar index fell deeper into negative territory. The yellow metal came off its session low of $1248.70 set at pit trade open and spent the remainder of the session trading above the $1250 level. It eventually settled with a 1.9% gain. 

  Mar silver rose $0.17 to $20.01/oz 

·         Silver also traded in the black today. Prices rose to a session high of $20.31 but pulled back in late morning action. Silver then held steady just above the $20.00 level and settled with a 0.9% gain. 

  Mar copper fell 5 cents to $3.29/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Mar corn rose 3 cents to $4.29/bushel 

·         Mar wheat rose 9 cents to $5.70/bushel 

·         Mar soybeans fell 6 cents to $12.75/bushel 

·         Feb ethanol fell 4 cents to $1.81/gallon 

·         Mar sugar (#16 (U.S.)) fell 0.09 of a penny to 20.23 cents/lbs

NYMEX Energy Closing Prices

·         Mar crude oil rose $0.53to $97.25/barrel

·         Feb natural gas rose 4 cents to $4.73/MMBtu

·         Mar heating oil rose 1 cent to $2.99/gallon 

·         Mar RBOB fell 2 cents to $2.67/gallon

Treasuries

Treasuries Record Strong Gains: 10-yr: +26/32..2.776%..USD/JPY: 103.12..EUR/USD: 1.3691

·         Treasuries ended on their highs as an aggressive bid developed in the overnight session and persisted throughout the day. Click here to seen an intraday yields chart.

·         Last night's disappointing HSBC Flash Manufacturing PMI out of China got the buying started with reports of a troubles in China's shadow banking system compounding the bid.

·         Buying continued through the mixed initial (326K actual v. 327K expected) and continuing (3056K actual v. 2900K expected) claims data before seeing another leg higher after the existing home sales (4.87M actual v. 4.90M expected) and leading indicators (0.1% actual v. 0.2%) misses.

·         Buyers remained in control for the remainder of the session as weakness in equities sparked a further move into safety. 

·         The 2y fell -4.4bps, settling @ 0.364%, a one-month low. The slip comes despite the need for a debt ceiling deal by February 7. 

·         After days of lagging the rest of the complex, the 5y paced today's decline. The yield tumbled -10.1bps to 1.593% to close at its lowest level in almost two weeks. A breakdown of this area puts 1.500%/1.550% support in play. 

·         The 10y sank -8.7bps to 2.773%, posting its lowest close since the last trading day of November. The benchmark yield ended on its 100 dma, which is helping support in the area.

·         The long bond rallied +1 16/32, accounting for an almost -8bp decline in yield. The 30y saw its lowest close since Halloween, and is nearing a test of the key 3.600% level, which will see help from the 200 dma. 

·         Today's bid flattened the yield curve with the 2-10-yr spread tightening to 241.5bps.

·         Precious metals were firm with gold +$23 @ $1262 and silver +$0.17 @ $20.01. 

·         Data: None.

Next Day In View 

Economic Commentary

Economic Summary: Jobless Claims in line with expectations; Existing home sales and LEI miss expectations
Economic Data Summary:

·         Weekly Initial Claims 326K vs Briefing.com consensus of 327K; Last Week was revised to 325K from 326K

·         Weekly Continuing Claims 3.056 M vs Briefing.com consensus of 2.900 M ; Last Week was revised to 3.022 M from 3.030 M

o    The numbers suggest that there have been no notable changes in labor conditions over the last couple of months. The Emergency Unemployment Compensation program expired on January 1. The official DOL data show that 1.351 mln people lost their unemployment benefits during the first week of January. Many of these workers will likely drop out of the labor force and that will put undue downward pressure on the unemployment rate. 

·         November FHFA Housing Price Index 0.1% vs Briefing.com consensus of ; October was 0.5%

·         December Existing Home Sales 4.87 M vs Briefing.com consensus of 4.90 M ; November was revised to 4.82 M from 4.90 M

o     Before November, existing home sales had not declined on a year-over-year basis since June 2011. While the National Association of Realtors stressed that sales improved in 2013 as a result of income and job growth, we are concerned that sales could weaken in 2014 due to a rising interest rate environment. In fact, since interest rates began increasing during the summer months, sales have steadily fallen by 9.6% Distressed sales accounted for 14% of total existing home sales in December. 

·         December Leading Indicators 0.1% vs Briefing.com consensus of 0.2%; November was revised to 1.0% from 0.8%

On other news.... 

Currencies 

Dollar Threatens Lowest Close of 2014: 10-yr: +27/32..2.773%..USD/JPY: 103.17..EUR/USD: 1.3691

·         The Dollar Index trades on session lows near 80.50 and is on track to post its lowest close of 2014. Click here to see a daily Dollar Index chart.

·         The Index has been under pressure from the get-go as sellers held strong in their defense of the 81.40 level and have not let up. 

·         EURUSD is +140 pips @ 1.3690, propelled by the mostly better than expected Flash Manufacturing and Services PMI data from the region. Today's bid has run the single currency above both its 50 and 100 dma, and has action contending with its best close of the year. The 1.3700 level has served as a headwind in recent trade, and may present further problems. Belgian NBB Business Climate will cross the wires tomorrow and Spain's Home Price Index is tentatively scheduled for release. 

·         GBPUSD is +55 pips @ 1.6630 as buyers remain in control for a fifth straight session. Today's advance comes despite the big CBI Realized Sales miss, and has trade looking like it will register its best close since May 2011. Britain's BBA Mortgage Approvals are due out tomorrow. 

·         USDCHF is -145 pips @ .8970 as today's weakness has wiped away virtually all the gains of 2014. An early bid had action probing .9120 resistance, but sellers have been in control since this morning's Eurozone PMI data as trade has mimicked the euro. 

·         USDJPY is -145 pips @ 103.05 as as selling has snowballed throughout the session. The pair broke below key 104.00 support ahead of the U.S. open, and has since slipped below its 50 dma (103.30). The 103.00 area is home to the 2014 lows and support that dates back to the beginning of December. 

·         AUDUSD is -90 pips @ .8760 as today's disappointing Chinese HSBC Flash Manufacturing PMI weighs. The hard currency has been offered from the open, ignoring the hot MI Inflation Expectations, and is now contending with its lowest close since July 2010. 

·         USDCAD is +50 pips @ 1.1135 as action holds at its best levels since July 2009. An early bid ran the pair to nearly 1.1175, but action slipped off its best levels following the upbeat Canadian retail sales (0.6% MoM actual v. 0.3% MoM expected). Canada's CPI will cross the wires tomorrow.

Jason's Commentaries


What a bearish day last night. Massive drop in all indices last night after China's PMI contracted. The market started with a huge bearish bias and continued going down all the way till 230pm ET where the market started covering their shorts. The China contracting PMI merely gave the market to short it and profit take. Volumes were standing at 767m shares traded on the NYSE and the internals were all pointing towards a bearish day. The TRIN even hit a high of 2.11 last night. VIX spiked as well, however gave back all its gain during the covering last night. Most of the market were red last night, except for a few names like AT&T, Verizon and Apple. As Carl Icahn increased his holdings in Apple, people started buying into Apple which allows its to stay afloat during the bearish day. The Telcos held above 1% gain as well. These 3 components allowed Tech to be the worst laggard. The worst hit sector is Financials, dropped 1.64% last night followed by Materials, losing 1.49% as well. 

I reckon this is a over reaction in the market and losing such a massive amount is totally irrational. I highly doubt that the bearish will continue much longer. There is likely to be a short covering tonight or Monday. Stay safe amongst this earning season!! 

Market Call: UP

Date: 24 Jan 2014