7 Feb 2014 AMC - Market rallied despite employment numbers came in lacklustre

7 Feb 2014 AMC - Market rallied despite employment numbers came in lacklustre

Market Summary 

 European Markets Closing Prices

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

·         UK's FTSE: + 0.2%

·         Germany's DAX: + 0.5%

·         France's CAC: + 1.0%

·         Spain's IBEX: + 1.1%

·         Portugal's PSI: + 0.6%

·         Italy's MIB Index: + 1.0%

·         Irish Ovrl Index: + 1.4%

·         Greece ATHEX Composite: + 0.4%

Before Market Opens 

S&P futures vs fair value: +8.30. Nasdaq futures vs fair value: +15.70.
The S&P 500 futures have returned to their pre-market highs and now trade eight points above fair value.

It was a sea of green across Asia as all of the major bourses saw gains. The region returned to full strength as China's Shanghai Composite reopened after the week-long Lunar New Year celebration. The Reserve Bank of Australia upped its growth forecast through June to 2.75% (2.5% previous) and through 2014 to 2.25%-3.25% (2.0%-3.0% previous). The central bank also raised its FY 2014 CPI forecast to 2.75% (2.5% previous). In economic data, China's HSBC Services PMI slipped to 50.7 (50.9 previous) and Japan's Leading Index rose to 112.1 from 111.1 (111.9 expected). 

·         Japan's Nikkei jumped 2.2%, regaining its 200-day moving average. A weaker yen provided a boost to exporters as Nikon added 5.5% and Toyota Motor climbed 2.0%. 

·         Hong Kong's Hang Seng gained 1.0% as action continued to climb off seven-month lows. Property developers saw robust gains as Sun Hung Kai Properties rallied 3.3% and Henderson Land Development spiked 3.1%. 

·         China's Shanghai Composite rallied 0.6% to start the New Year. Technology shares paced the advance while financials lagged. 

Major European indices trade near their flat lines after the release of several economic data points. Germany's industrial production fell 0.6% month-over-month (0.5% expected, 2.4% prior). Great Britain's industrial production rose 0.4% month-over-month (0.6% forecast, -0.1% previous) while the year-over-year reading climbed 1.8% (2.3% expected, 2.1% last). Manufacturing production ticked up 0.3% month-over-month (0.6% consensus, -0.1% prior) while the year-over-year reading increased 1.5% (2.3% expected, 2.2% last). Separately, the trade deficit narrowed to GBP7.72 billion from GBP9.78 billion (deficit of GBP9.30 expected). French trade deficit narrowed to EUR5.20 billion from EUR5.70 billion (deficit of EUR5.0 billion expected) while the government budget deficit narrowed to EUR74.90 billion from EUR87.00 billion (EUR80.00 billion forecast). Spain's industrial production increased 1.7% year-over-year (0.5% consensus, 2.4% previous). Swiss retail sales rose 2.3% year-over-year (3.9% expected, 4.2% prior).

In news, the German Constitutional Court, which was tasked with determining the legality of ECB's Outright Monetary Transactions (OMTs), has deferred the decision to the European Court of Justice. Also of note, the National Bank of Ukraine has placed limits on foreign exchange transactions. Following the decision, companies will need to go through a waiting period before conducting transactions while individuals will face a monthly limit of UAH50,000 in addition to other restrictions. 

·         Great Britain's FTSE trades up 0.2%. Consumer names outperform with Persimmon and TUI Travel up 3.5% and 2.4%, respectively. Tullow Oil is the weakest performer, down 3.1%. 

·         Germany's DAX is higher by 0.2% with chemical producer Lanxess in the lead. The stock trades up 3.1%. Financials lag with Commerzbank, Deutsche Bank, and Muenchener Re down between 0.2% and 1.4%. 

·         In France, the CAC sports an advance of 0.3%. ArcelorMittal is the top performer, up 3.7% after reporting better-than-expected earnings. Software company Gemalto is the weakest performer, down 1.4%.

Market Internals

Market Internals -Technical-
The Nasdaq closed up 69 (+1.69%) at 4126, the S&P 500 closed up 24 (+1.33%) at 1797, and the Dow closed up 166 (+1.06%) at 15794. Action came on slightly above average volume (NYSE 751 mln vs. avg. of 702; NASDAQ 1934 mln vs. avg. of 1818), with advancers outpacing decliners (NYSE 2409/705, NASDAQ 1825/772) and new highs outpacing new lows (NYSE 71/14, NASDAQ 56/32).

Relative Strength: 
Biotechnology-XBI +5.65%, Junior Gold Miners-GDXJ +5.13%, Silver Miners-SIL +4.10%, Biotechnology-IBB +4.03%, Gold Miners-GDX +3.10%, Egypt-EGPT +2.94%, Peru-EPU +2.30%, Nordic 30-GXF +1.89%, Spain-EWP +1.89%, Austria-EWO +1.71%.

Relative Weakness: 
Volatility-VXX -6.29%, Natural Gas-UNG -4.57%, Thailand-THD -0.88%, U.S. Health Care-IHF -0.81%, Sugar-SGG -0.73%, Lithium-LIT -0.40%, Turkey-TUR -0.23%, Japanese Yen-FXY -0.14%, Vietnam-VNM 0.05%

Leaders and Laggards

Technical Updates

Commentaries 

Closing Market Summary: Stocks Rally Despite Disappointing Jobs Data
The major averages finished a shaky week on an upbeat note. The Nasdaq led the way, climbing 1.7% while the Dow Jones Industrial Average and S&P 500 added 1.1% and 1.3%, respectively. Thanks to the broad rally, the indices managed to register weekly gains between 0.5% and 0.8% but small caps were not as fortunate. The Russell 2000 gained 1.1%, trimming its weekly loss to 1.3%.

Prior to the open, it was reported that only 113,000 nonfarm payrolls were added in January while the Briefing.com consensus expected an increase of 175,000. Immediately after the release, equity futures and the dollar/yen pair tumbled while gold futures and Treasuries rallied. Strikingly, the moves reversed nearly as fast after the dollar/yen pair surged off its low near the 101.50 level.

Once again, the rebound in dollar/yen occurred in conjunction with the rebound in futures and continued into the session. This suggests participants remain very sensitive to the performance of the Japanese currency due to the popularity of the yen-based carry trade that benefits from rising stocks and a falling yen.

An interesting component of today's rally in the stock market, which was presumably predicated on the belief that pent-up demand will unleash better labor market and economic data in coming months, was that the Treasury market also traded higher. The benchmark 10-yr note added four ticks, pressuring its yield to 2.68%. The growth acceleration view, therefore, did not appear to be resonating as much in the fixed income market as it did in the stock market.

In the same vein, the US Dollar Index (DXY 80.65, -0.25) slipped today in a move that didn't exactly mesh with the stock market's seeming optimism about the road ahead. Also of note, gold futures rose 0.5% to $1262.90/ozt.

Just like yesterday, cyclical sectors paced the bulk of the advance. All six growth-sensitive groups posted gains between 1.1% and 1.6% with industrials ending in the lead. The sector drew strength from the likes of Boeing (BA 127.02, +4.35) and Honeywell (HON 93.16, +2.02) while transports lagged. The Dow Jones Transportation Average surged at the open and tested its 50-day moving average (7272) before surrendering a portion of the advance. The bellwether complex ended higher by 0.8% after being up nearly 1.2% in the morning.

Elsewhere among cyclical sectors, the discretionary space advanced 1.3%, extending its weekly gain to 1.9%. The discretionary sector ended the week ahead of the remaining nine groups after losing nearly 6.0% in January.

On the defensive side, health care (+1.7%) seized the lead during the afternoon while the remaining three countercyclical groups—consumer staples (+0.9%), telecom services (+0.7%), and utilities (+0.6%)—lagged. Biotechnology contributed to the outperformance of the health care sector as the iShares Nasdaq Biotechnology ETF (IBB 246.33, +9.54) surged 4.0%.

Participation was a bit above average as 751 million shares changed hands at the NYSE.

Today's data was limited to just two reports: 

·         Nonfarm payrolls added only 113,000 jobs in January. That was up from a 75,000 (from 74,000) gain in December, but well below the Briefing.com consensus expectation of a 175,000 gain. Even though the claims data have shown improvements in labor conditions and a clear decline in layoff trends, it has not translated into employers hiring more workers. The labor market is stuck in the mud. Many analysts will be quick to blame the poor data on extreme cold and other problematic weather conditions, but if this was the case then jobs that are directly affected by the weather-such as construction-should have fallen in January. That did not happen. The construction sector actually added 48,000 new jobs in January, which was the most new jobs since 80,000 jobs were added in March 2007. Total private payrolls added 142,000 jobs in January, up from an 89,000 gain in December. The consensus expected private payrolls to increase by 161,000. The unemployment rate fell to 6.6% from 6.7% while the consensus expected the rate to remain at 6.7%. 

·         The consumer credit report for December showed credit growth of $18.80 billion while the Briefing.com consensus expected the reading to come in at $11.50 billion. The prior month's reading was revised higher to $12.40 billion from $12.30 billion. 

There is no economic data on Monday's schedule.

Commodities

COMEX Metals Closing Prices

·         Apr gold rose $6.10 to $1262.90/oz

·         Mar silver rose $0.01 to $19.93/oz

·         Mar copper rose 5 cents to $3.24/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Mar corn settled $0.02 higher at $4.45/bushel

·         Mar wheat fell 3 cents to $5.77/bushel

·         Mar soybeans rose 6 cents to $13.32/bushel

·         Mar ethanol rose 4 cents to $1.96/gallonM

·         ar sugar (#16 (U.S.)) settled 0.05 cents higher at 21.10 cents/lbs

NYMEX Energy Closing Prices

·         Mar crude oil rose $2.03 to $99.87/barrel

·         Mar natural gas fell 15 cents to $4.78/MMBtu

·         Mar heating oil settled $0.05 higher at $3.05/gallon

·         Mar RBOB rose 6 cents to $2.74/gallon

 

Treasuries

Treasuries See Mixed Week: 10-yr: +04/32..2.682%..USD/JPY: 102.30..EUR/USD: 1.3634
The Week in Review  

·         Treasuries ended the week mixed with buying taking place up front and in the belly and sellers and sellers taking control in longer dated paper. Click here to see an intraweek yields chart.

·         Janet Yellen officially took over as Fed Chair. 

·         Secretary Lew warned Treasury will exhaust its ‘extraordinary measures' by the end of the month if the debt ceiling is not raised.

·         Friday's nonfarm payroll report disappointed with a 113K print (175K expected) as the unemployment rate slipped to 6.6% (6.7% previous).

·         Nonfarm private payrolls also disappointed (142K actual v. 161K expected).

·         The rest of the week's data was mixed as ISM Index (51.3 actual v. 56.0 expected) and the trade balance (-$38.7B actual v. -$36.0B expected) while ISM Services (54.0 actual v. 53.8 expected) and productivity-prel. (3.2% actual v. 2.4% expected) beat.

·         A moderate bid dropped the 5y -4bps on the week to 1.462%. Action presses to its lowest level in two months before ending the week on key support. 

·         The 10y saw an uptick of +2bps to 2.675%. On Monday, the benchmark yield probed the 2.600% level for the first time since early-November.

·         The long bond lagged the rest of the complex as this week's selling ran its yield up +5bps to 3.665%. Monday's bid pressed the 30y down to 3.538%, below its 200 dma and to levels last seen in July.

·         A steeper curve developed as the 2-10-yr spread widened to 237bps.  

The Week Ahead 

·         There is no data on Monday. 

·         Tuesday's data is limited to wholesale inventories (10). Treasury will auction $30 bln 3y notes. Fed Chair Janet Yellen testifies in front of the House Financial Services Committee (10). Philly's Plosser gives his economic outlook (9) and Richmond's Lacker discusses "The Path to Financial Stability" in Stanford, California (20). 

·         Wednesday will see the weekly MBA Mortgage Index (7) and the Treasury budget (14). Treasury will hold a $24 bln 10y note auction. STL's Bullard travels to New York, NY to take part in a panel discussing "Economic and Monetary Policy Challenges Facing the U.S. and Eurozone in 2014" (8:35). 

·         Data picks up on Thursday with initial and continuing claims, retail sales (8:30), and business inventories (10). Treasury will auction $16 bln 30y bonds. Fed Chair Janet Yellen testifies in front of the Senate Banking Committee (10:30). 

·         Friday's data includes import/export prices (8:30), industrial production, capacity utilization (9:15), and Michigan Sentiment (9:55).

On other news.... 








Currencies 

Dollar Weakens on Jobs Report: 10-yr: +04/32..2.678%..USD/JPY: 102.31..EUR/USD: 1.3621

·         The Dollar Index holds small losses as trade hovers near 80.75. Click here to see a daily Dollar Index chart.

·         The Index saw an early test of the 81.00 level before action was slammed down to 80.60 in response to this morning's tepid jobs report. 

·         Current levels are under careful scrutiny as key support rests in the area. 

·         EURUSD is +35 pips @ 1.3620 as buyers remain in control for the fourth time in five sessions. The single currency saw a test of trendline resistance that is aided by the 50 dma in the moments following the jobs report, but was unable to retake the 1.3650 level as sellers held strong. Support in the 1.3500 area remains critical. Eurozone data is limited to French industrial production. 

·         GBPUSD is +90 pips @ 1.6410 as trade holds at one-week highs. Sterling is currently contending with resistance in the 1.6400/1.6450 area that is helped by the 50 dma (1.6416). Early action held key 1.6300 support despite this morning's Manufacturing PMI falling short of estimates. 

·         USDCHF is -25 pips @ .8985 as selling persists for a third day. The three-day slide has pushed action below the 100 dma, and has trade currently contending with the 50 dma. Resistance in the .9000/.9020 area has proved difficult to retake so far in 2014. 

·         USDJPY is +30 pips @ 102.35 as trade holds just off the highs. Action saw a sharp slide into the 101.50 area immediately following this morning's job data, but quickly recovered those losses before drifting in a tight 20 pip range for the remainder of the session. Resistance in the 102.50/103.00 area will be key over the coming days. Japan's current account balance will cross the wires Sunday evening.

·         AUDUSD is flat @ .8960 amid a mostly uneventful session. The hard currency saw some overnight weakness despite the Reserve Bank of Australia upping its growth and inflation forecasts for 2014 before spiking to its best levels (.8998) in response to the nonfarm payroll report. The pair gave up those gains quickly and has spent the remainder of the session hovering little changed. China's new loans are tentatively scheduled for release. 

·         USDCAD is -30 pips @ 1.1035 as trade presses lower for a seventh session. Today's trade has been dictated by this morning's Canadian jobs report, which saw an impressive 29.4K jobs added (19.7K expected) and the unemployment rate dip to 7.0% (7.1% expected, 7.2% previous). The next level of support comes into play near 1.0950.

Weekly Analysis
Week 1



Technical Updates






















Briefing's Commentaries

Week in Review: Stocks Roundtrip 

The stock market began February on a sharply lower note after enduring a rough month of January. Small caps paced the Monday retreat as the Russell 2000 tumbled 3.1% while the S&P 500 fell 2.3%. For its part, the Dow Jones Industrial Average lost 2.1%, ending below its 200-day moving average (15470). Despite the sharply lower finish, the session actually started in the green. However, sellers emerged during the opening minutes and intensified their efforts after the January ISM Manufacturing Index registered a large decline (to 51.3 from 56.6). Although the ISM report itself did not cause the aggressive selloff, it added to the global growth concerns that have been percolating under the surface after China's Manufacturing PMI (50.5) fell to a six-month low while the Non-Manufacturing reading (53.4) registered an 11-month low. Furthermore, the selloff was accompanied by another wave of yen strength. Dollar/yen traded right above the 102.00 level at the start of the session, but retreated along with equities. The pair finished the trading day right under 101.00 while yen futures added 1.4%, extending their 2014 gain to 4.3%.

On Tuesday, the stock market rebounded, erasing roughly a third of Monday's losses. The Nasdaq led the way, rising 0.9% while the S&P 500 gained 0.8%. For its part, the Dow Jones Industrial Average added 0.5%, but was unable to reclaim its 200-day moving average (15474). Equities rallied steadily throughout the session in the absence of yen strength, which has been a headwind to the market since the start of the year. In fact, the yen began retreating overnight, and continued its slide into the close. Dollar/yen finished near 101.65 after starting its rally from just below the 101.00 level. Nine of ten sectors ended in the green with the discretionary space in the lead. The sector added 1.2% after Michael Kors (KORS 94.22, +2.72) and Yum! Brands (YUM 71.73, +0.56) reported above-consensus earnings.

Equities ended the Wednesday session on a mixed note. The Nasdaq and S&P 500 settled with respective losses of 0.5% and 0.2% while the Dow Jones Industrial Average ended flat. Despite its outperformance, the Dow was unable to close above its 200-day moving average (15479) for the second day in a row. The trading day began on a lower note as stocks succumbed to the pressure exerted by the Japanese yen, which strengthened again overnight. Out of the four top-weighted sectors, consumer discretionary (+0.2%), financials (-0.1%), and technology (+0.01%) outperformed while health care (-0.6%) lagged.

Stocks rallied broadly on Thursday, placing the Dow Jones Industrial Average (+1.2%) back above its 200-day moving average (15483). The S&P 500 also gained 1.2%, ending just north of its 100-day average (1772) after flirting with that level during the afternoon. The session began on an upbeat note and equities climbed through the first 90 minutes of action. Much of the advance was paced by groups that faced aggressive selling during the recent pullback, suggesting short covering played a role in the rally. Once again, the discretionary sector finished in the lead after ending January behind eight other sectors. Yen weakness also factored into the advance as the retreat of the Japanese currency calmed fears about some participants being forced out of yen-based carry trades due to strength in the funding currency. The dollar/yen pair ended the New York session right above 102.00 after starting the day near 101.20.

·         Nasdaq Composite -1.2% YTD

·         S&P 500 -2.8% YTD

·         Russell 2000 -4.0% YTD

·         Dow Jones Industrial Average -4.7% YTD

Next Week In View



Economic Commentaries

economic Summary: Nonfarm Payrolls disappoint as Unemployment rate drops to 6.6%; German Constitutional Court deferred decision on OMT legality to European Court
Economic Data Summary:

·         January Nonfarm Payrolls 113K vs Briefing.com consensus of 175K; December was 74K

·         January Nonfarm Private Payroolls 142K vs Briefing.com consensus of 161K; December was 87K

·         January Unemployment Rate 6.6% vs Briefing.com consensus of 6.7%; December was 6.7%

·         January Hourly Earnings 0.2% vs Briefing.com consensus of 0.2%; December was 0.1%

·         January Average Workweek 34.4 vs Briefing.com consensus of 34.4; December was 34.4

o    .The labor market is stuck in the mud. Many analysts will be quick to blame the poor data on extreme cold and other problematic weather conditions, but if this was the case then jobs that are directly affected by the weather -- such as construction -- should have fallen in January. That did not happen. The construction sector actually added 48,000 new jobs in January, which was the most new jobs since 80,000 jobs were added in March 2007. Total private payrolls added 142,000 jobs in January, up from an 89,000 gain in December. 

Upcoming Economic Data:

·         December Consumer Credit due out at 15:00 (Briefing.com consensus of $11.5 bln; November was $12.3 bln)

Other International Events of Interest

·         The German Constitutional Court, which was tasked with determining the legality of ECB's Outright Monetary Transactions (OMTs), has deferred the decision to the European Court of Justice. 

·         Germany's industrial production fell 0.6% month-over-month (0.5% expected, 2.4% prior). 

Jason's Commentaries

That was totally unexpected on Friday. Employment numbers came in terrible and way below expectation and market rallied over 1%? That's seriously puzzling. Unemployment rate dropped to 6.6%. Although it was expected that the employment numbers will be bad, the market reaction is really unexpected. The market started on Friday with a bullish bias and corrected immediately till 10am ET and bounced all the way up till the close. Volumes were decent at 764.1m shares traded. Internals were all pointing to the bullish side. The main sector lead was Industrials, leading by 1.73% while the health care side gained 1.71%. The industrials were mainly led by the defense names like Lockheed Martin, General Dynamics, Boeing and Northdrop.

However, on the technical perspective, it's clear that the market is bouncing off support and on the weekly chart, we're have a inverted hammer. We are likely to head up or sideways for a while. Since the US government have a deadline to meet on Feb 27 and the bond buying has been rather aggressive these few weeks, bonds has been rallying as well. 

Market Call: DOWN

Date: 10 Feb 2014=> my birthday =D