5 Mar 2014 AMC- Market held flat after major rally on Tuesday

5 Mar 2014 AMC- Market held flat after major rally on Tuesday

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: -0.7%

·         Germany's DAX: -0.5%

·         France's CAC: -0.1%

·         Spain's IBEX: + 0.9%

·         Portugal's PSI: + 0.7%

·         Italy's MIB Index: + 1.4%

·         Irish Ovrl Index: + 0.2%

·         Greece ATHEX Composite: -0.3%

Before Market Opens

S&P futures vs fair value: +0.10. Nasdaq futures vs fair value: +0.70.
The S&P 500 futures trade in-line with fair value.

Asian markets ended mostly higher with Japan's Nikkei (+1.2%) finishing ahead of other major indices. Elsewhere, China's National People's Congress announced its 2014 GDP target of 7.5%, matching the forecast from 2013. Economic data was limited. China's HSBC Services PMI improved to 51.0 from 50.7. Australia's GDP rose 0.8% quarter-over-quarter (0.7% expected, 0.6% prior) while the year-over-year reading increased 2.8% (2.5% forecast, 2.3% last). Separately, AIG Services Index rose to 55.2 from 49.3. India's HSBC Services PMI ticked up to 48.8 from 48.3. 

·         Japan's Nikkei rallied 1.2% with help from exporters. Fujitsu and NEC gained 3.6% and 4.2%, respectively. 

·         Hong Kong's Hang Seng slipped 0.3%, pressured by large cap names. Belle International, Lenovo, and Want Want China lost between 1.8% and 2.5%. 

·         China's Shanghai Composite retreated 0.9% as financials weighed. China Vanke lost 2.3%. 

Core European indices hover in the red while peripheral markets outperform. Participants received several economic data points that were mostly better-than-expected. Eurozone GDP rose 0.3% quarter-over-quarter while the year-over-year reading increased 0.5%. Both figures matched estimates. Separately, Services PMI improved to 52.6 from 51.7 (51.7 expected) and retail sales increased 1.6% month-over-month (0.8% expected, -1.3% prior). Germany's Services PMI rose to 55.9 from 55.4 (55.4 consensus). Great Britain's Services PMI ticked down to 58.2 from 58.3 (58.0 expected). French Services PMI increased to 47.2 from 46.9 (46.9 forecast). Italy's Services PMI improved to 52.9 from 49.4 (49.8 consensus). Spain's Services PMI slipped to 53.7 from 54.9 (55.0 expected).

Among news of note, European leaders are scheduled to meet tomorrow in Brussels in order to discuss the latest developments in the standoff between Russia and Ukraine. 

·         In France, the CAC is lower by 0.1%. Technip is the weakest index member, down 2.3%. On the upside, food retailer Carrefour is higher by 4.3% after reporting strong results. 

·         Germany's DAX holds a loss of 0.2% as Adidas weighs. The apparel retailer is lower by 1.8% after reporting disappointing results. 

·         Great Britain's FTSE trades down 0.5% with industrials leading the retreat. Melrose Industries and Meggitt hold respective losses of 8.0% and 3.4%. Admiral Group is the top performer, up 6.9% after reporting strong results. 

·         Elsewhere, Italy's MIB and Spain's IBEX display respective gains of 0.7% and 0.6%. Financials have boosted both markets as Italy's Mediobanca trades higher by 2.3% and Spain's Bankia trades up 2.0%.

Market Internals

Market Internals -Technical-
The Nasdaq closed up 6 (+0.14%) at 4358, the S&P 500 closed flat 1874, and the Dow closed down 36 (-0.22%) at 16360. Action came on mixed volume (NYSE 654 mln vs. avg. of 708; NASDAQ 2079 mln vs. avg. of 1913), with decliners outpacing advancers (NYSE 1503/1570, NASDAQ 1270/1331) and new highs outpacing new lows (NYSE 194/8, NASDAQ 190/10).

Relative Strength: 
Coffee-JO +7.61%, Sugar-SGG +3.54%, Junior Gold Miners-GDXJ +1.79%, Social Media-SOCL +1.75%, Columbia Index-GXG +1.59%, Clean Energy-PBW +1.57%, Indonesia-IDX +1.54%, Italy-EWI +1.45%, India-INP +1.41%, Middle East and Africa-GAF +1.14%. 

Relative Weakness: 
Oil-USO -2.21%, Vietnam-VNM -1.58%, Gasoline-UGA -1.55%, Heating Oil-UHN -1.45%, Livestock-COW -1.32%, Greece-GREK -1.26%, Oil and Gas Exploration-XOP -1.15%, Japan-EWJ -1.12%, China 25 Index-FXI -0.99%, Singapore-EWS -0.87%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks Take Midweek Breather Following Tuesday Rally
The major averages posted modest Wednesday losses after spending the entire session inside narrow ranges. The Dow Jones Industrial Average slipped 0.2% while the S&P 500 shed less than a point. For its part, the Nasdaq Composite (+0.1%) ended just above its flat line.

Although today's session did not generate much (or any) excitement, it should be noted that equity indices essentially held their levels after yesterday's broad-based spike that sent the S&P 500 to a fresh record closing high.

Individual sectors were split right down the middle for the entire trading day with five groups posting gains while the other five registered losses.

The financial sector (+0.7%) took the lead shortly after the open and never relinquished its standing as top components rallied notably. Bank of America (BAC 17.25, +0.53) soared 3.2% while other large names like Citigroup (C 49.42, +0.59), JPMorgan Chase (JPM 58.16, +0.90), andMorgan Stanley (MS 31.97, +0.87) gained between 1.2% and 2.8%.

Today's outperformance of financials marked the second consecutive day of relative strength for a vital sector that has been struggling to keep pace with the broader market so far in 2014. Including today's gain, the sector extended its year-to-date advance to 0.9% versus a 1.4% gain for the S&P 500.

Financials notwithstanding, the remaining four advancers—consumer discretionary, industrials, materials, and technology—posted slim gains of no more than 0.3%. Of the four, the discretionary sector (+0.3%) had the best showing thanks to strength among media names.

On the downside, the four countercyclical sectors—consumer staples, health care, utilities, and telecom services—lost between 0.2% and 0.7% while the energy sector (-1.1%) spent the day in a steady retreat while crude oil fell 1.8% to $101.48/bbl.

The energy space slumped amid the weight of ExxonMobil (XOM 93.80, -2.72), which tumbled 2.8%, marking its largest daily decline since November 2012. Meanwhile, the broader sector widened its year-to-date loss to 2.7%. Only the telecom services sector has had a worse showing as it holds a 5.0% loss so far in 2014.

Treasuries ended modestly higher with the benchmark 10-yr yield down one basis point at 2.69%.

Also of note, today featured the release of the March Beige Book from the Federal Reserve. Similar to other reports received during past weeks, the Beige Book highlighted severe weather as a major headwind. To that end, ‘weather' was mentioned 119 times in the entire release versus an average of 14 mentions in each previous Beige Book report dating back to 1997.

Eight out of twelve Fed Districts reported continued expansion from January to February with the growth characterized as ‘modest' to ‘moderate.' Retail sales saw relative weakness across the board, but that was written off as a result of the weather.

With regards to employment, a gradual improvement was reported in most districts while pressure from wages was characterized as ‘stable.'

Investors received two other economic reports: 

·         The ADP Employment Change report for February indicated an increase of 139K while the Briefing.com consensus called for an increase of 150K. Also of note, the January reading was revised down to 127,000 from 175,000. 

·         The ISM Non-Manufacturing Index fell to 51.6 in February from 54.0 in January. That was the weakest print since February 2010 while the Briefing.com consensus expected the index to fall to 53.5. Not surprisingly, many sectors reported that extreme winter weather conditions wreaked havoc on business activity in February. The evidence in the hard data, however, suggests a cyclical slowdown is more likely taking place. The Employment Index fell a whopping 8.9 points to 47.5 in February from 56.4 in January. That ended a 25-month expansion cycle. 

Tomorrow, the February Challenger Job Cuts report will be released at 7:30 ET while weekly initial claims, fourth quarter productivity, and unit labor costs will be announced at 8:30 ET. The day's data will be topped off with the factory orders report for January. 

·         Nasdaq Composite +4.3% YTD 

·         Russell 2000 +3.8% YTD 

·         S&P 500 +1.4% YTD 

·         Dow Jones Industrial Average -1.3% YTD

Commodities

Closing Commodities: Crude Oil Settles The Day 1.8% Lower Below $101.50/Barrel

·         Precious metals rose as the dollar index slipped into negative territory following weak U.S. economic data. The ADP Employment Change report for February showed an increase of 139K while the Briefing.com consensus called for an increase of 150K. The January reading was revised down to 127K from 175K. In addition, the ISM Non-Manufacturing Index fell to 51.6 in February from 54.0 in January, the weakest print since February 2010, while theBriefing.com consensus expected the index to fall to 53.5.

·         Apr gold erased earlier losses as it lifted from its session low of $1334.20 per ounce and broke into positive territory in morning action. It brushed a session high of $1342.00 per ounce and settled with a 0.2% gain at $1340.20 per ounce.

·         May silver dipped to a session low of $21.19 per ounce but quickly recovered back above the unchanged line. It touched a session high of $21.33 per ounce and eventually settled at $21.27 per ounce, or 0.3% higher.

·         Apr crude oil extended yesterday's losses despite the weaker dollar index. The move came on EIA inventory data that showed a build of 1.4 mln barrels when consensus called for a build of 1.3-1.5 mln barrels.

·         The energy component pulled back from its session high of $103.22 per barrel set moments after equity markets opened and trended lower to a session low of $101.22 per barrel. Unable to gain momentum, it settled 1.8% lower at $101.48 per barrel.

·         Apr natural gas also traded in the red, retreating from its session high of $4.66 per MMBtu. It brushed a session low of $4.51 per MMBtu and settled with a 2.8% loss at $4.53 per MMBtu.

 COMEX Metals Closing Prices

  Apr gold rose $2.40 to $1340.20/oz 

·         Gold erased earlier losses as the dollar index slipped into negative territory following weak U.S. economic data. The ADP Employment Change report for February showed an increase of 139K while the Briefing.com consensus called for an increase of 150K. The January reading was revised down to 127K from 175K. In addition, the ISM Non-Manufacturing Index fell to 51.6 in February from 54.0 in January, the weakest print since February 2010, while the Briefing.com consensus expected the index to fall to 53.5. The yellow metal lifted from its session low of $1334.20 and broke into positive territory in morning action. It brushed a session high of $1342.00 and settled with a 0.2% gain. 

  May silver rose $0.06 to $21.27/oz 

·         Silver dipped to a session low of $21.19 but quickly recovered back above the unchanged line. It touched a session high of $21.33 and eventually settled with a 0.3% gain. 

  May copper fell 1 cent to $3.20/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         May corn fell 3 cents to $4.82/bushel 

·         May wheat fell 2 cents to $6.41/bushel 

·         May soybeans fell 2 cents to $14.21/bushel 

·         Apr ethanol rose 1 cent to $2.29/gallon 

·         May sugar (#16 (U.S.)) rose 0.27 of a penny to 22.05 cents/lbs

NYMEX Energy Closing Prices

  Apr crude oil fell $1.86 to $101.48/barrel 

·         Crude oil extended yesterday's losses despite a weaker dollar index. The move came on EIA inventory data that showed inventories for the week ending Feb 28 had a build of 1.4 mln barrels when consensus called for a build of 1.3-1.5 mln barrels. The energy component pulled back from a session high of $103.22 set moments after equity markets opened and trended lower to a session low of $101.22. Unable to gain momentum, it settled with a 1.8% loss. 

  Apr natural gas fell 13 cents to $4.53/MMBtu 

·         Natural gas also traded in the red, falling from its session high of $4.66. It brushed a session low of $4.51 and settled with a 2.8% loss. 

  Apr heating oil fell 4 cents to $2.99/gallon 

  Apr RBOB fell 4 cents to to $2.94 /gallon

Treasuries

Treasuries Finish Flat: 10-yr: unch..2.695%..USD/JPY: 102.29..EUR/USD: 1.3730

·         Treasuries ended little changed amid a lackluster session. Click here to see an intraday yields chart.

·         Early selling developed in response to the strong MBA Mortgage Index (+9.4%), dropping maturities onto their worst levels. 

·         The complex would see some buying after the ADP Employment Change miss (139K actual v. 150K expected) before slipping back onto the lows into the disappointing ISM Services number (51.6 actual v. 53.5 expected, 54.0 previous). 

·         Post-data buying lifted Treasuries back up to their best levels, near their unchanged lines, where they would spend the remainder of the session. 

·         Trade saw little response to the Fed's Beige Book, which suggested economic conditions expanded at a modest to moderate pace across most regions while winter weather was the scapegoat in those regions that saw a slowdown. 

·         Yields across the curve saw a 4bp range and closed within 1bp of their respective flat lines. 

·         The 10y ended +0.7bps @ 2.698%, spending the entire session testing resistance in the 2.670%/2.700% area. 

·         An unchanged curve saw the 2-10-yr spread hold @ 236bps.

·         Precious metals finished flat with gold and silver @ $1338 and $21.21, respectively. 

·         Data: Challenger Job Cuts (7:30), initial and continuing claims, productivity-rev., unit labor costs-rev. (8:30), and factory orders (10). 

·         Fed Speak: New York's Dudley takes part in a discussion with Dow Jones and the Wall Street Journal (8:15) before Philly's Plosser speaks in London on "Perspectives on the Economy and Monetary Policy" (13) and ATL's Lockhart gives his economic outlook (18).

Next Day In View 

Economic Commentary

Economic Summary: Feb ADP misses expectations; ISM Services falls faster than expected; Fed Beige Book to be released Wednesday at 14:00
Economic Data Summary:

·         Weekly MBA Mortgage Applications 9.4% vs Briefing.com consensus of ; Last Week was -8.5%

·         February ADP Employment Change 139K vs Briefing.com consensus of 150K; January was revised to 127K from 175K

o    Goods-producing 19,000  

o    Service-providing 120,000 

·         February ISM Services 51.6 vs Briefing.com consensus of 53.5; January was 54.0

o    The evidence in the hard data, however, suggests a cyclical slowdown is more likely taking place. Business activity weakened in February as the related index fell to 54.6 from 56.3 in January. The drop was unusual as both new orders (51.3 from 50.9) and unfilled orders (52.0 from 49.0) accelerated in February. Typically, a drop in business activity would be the result of weaker demand. 

Upcoming Economic Data:

·         February Challneger Job Cuts due out Thursday at 7:30 (Briefing.com consensus of ; Last Week was 47.3%)

·         Weekly Initial Claims due out Thursday at 8:30 (Briefing.com consensus of 338K; Last Week was 348K)

·         Weekly Contiuing Claims due out Thursday at 8:30 (Briefing.com consensus of 2.973 M ; Last Week was 2.946 M )

·         Fourth Quarter Productivity - Prelim due out Thursday at 8:30 (Briefing.com consensus of 2.5%; Last Week was 3.2%)

·         Fourth Quarter Unit Labor Costs - Rev due out Thursday at 8:30 (Briefing.com consensus of -0.7%; Last Week was -1.6%)

·         January Factory Orders due out Thursday at 10:00 (Briefing.com consensus of -0.5%; Last Week was -1.5%)

Upcoming Fed/Treasury Events:

·         Richmond Fed President Jeff Lacker (not a voting FOMC member, hawkish) to speak today at 16:15

·         Fed Beige Book to be released Wednesday at 14:00

·         NY Fed President Bill Dudley (voting FOMC member, dovish) to speak tomorrow at 8:15

·         Philadelphia Fed President Charles Plosser (voting FOMC member, hawkish) to speak at 13:00

·         Atlanta Fed President Dennis Lockhart (not a voting FOMC member, moderate) to speak tomorrow at 18:00

Other International Events of Interest

·         Eurozone retail sales (1.6% MoM actual v. 0.9% MoM expected) and Italian Services PMI (52.9 actual v. 50.6 expected, 49.4 previous) topped estimates while Spanish Services PMI (53.7 actual v. 55.3 expected, 54.9 previous) fell short. 

On other news.... 

Fed Beige Book Summary

·         Reports from most of the twelve Federal Reserve Districts indicated that economic conditions continued to expand from January to early February. Eight Districts reported improved levels of activity, but in most cases the increases were characterized as modest to moderate. New York and Philadelphia experienced a slight decline in activity, which was mostly attributed to the unusually severe weather experienced in those regions. Growth slowed in Chicago, and Kansas City reported that conditions remained stable during the reporting period. The outlook among most Districts remained optimistic.

·         Retail sales growth weakened since the previous report for most Districts, as severe winter weather limited activity. However, Richmond, St. Louis, and Minneapolis reported modest sales growth since the beginning of the year. Weather was also cited as a contributing factor to softer auto sales in many Districts, with the exception of Cleveland, which saw strong gains. Tourism increased in a number of Districts but declined in Philadelphia and was reported to have been mixed in New York and Minneapolis.

·         The demand for nonfinancial services was mixed compared with the last report; however, both Boston and San Francisco reported strong demand for technology related services. Manufacturing sales and production in several Districts were negatively impacted by severe winter weather; however, modest improvements were noted in Boston, Atlanta, Minneapolis, and Dallas.

·         Residential real estate markets continued to improve in several areas, albeit modestly. Boston and New York gave mixed reports on sales, and Philadelphia, Cleveland, Minneapolis, and Kansas City noted a decrease in sales. Many Districts cited low inventories of housing and continued home price appreciation. Commercial real estate leasing expanded, according to most reports, while reports on construction activity were mixed. Demand for commercial real estate loans was solid in Boston, improved slightly in Dallas, and continued to grow steadily in Chicago and Kansas City.

·         Of the Districts that reported on agriculture, conditions softened in Kansas City and Dallas as dry soil adversely affected wheat crops. Districts reported that energy production and demand continued to increase as a result of increased demand due to the unusually cold winter.

·         Employment levels improved gradually for most Districts, and shortages of specialized skilled labor continued to be reported. Price pressures remained subdued, with the exception of upward cost pressures for some energy and construction products. Wage pressures remained stable for most Districts.

Retail February Same Store Sales Preview—challenging start to the fiscal year
A handful of retailers report February sales tomorrow (Thursday March 6) before the open (GPS  tomorrow after the close). WAG  already reported upside February results.

February is typically a transitional period (clearing inventory for Spring) and the lowest volume sales month of the fiscal first quarter. Results for the month include sales from the first four weeks of the fiscal year ending March 1. February was another challenging month for retailers with ongoing adverse weather conditions, higher gas prices and payroll tax increases continuing to weigh on results. Other catalysts included Valentine's Day (negative shift--was on Friday vs Thursday last year) and President's Day (February 17)... ICSC updated monthly comps forecast yesterday—pared its monthly sales estimate to ~3% (from 3-3.5% range) due to ongoing negative weather impacts. This revised estimate is in-line Redbook preliminary tgt of +3%.

GUIDANCE: Most retailers already reported Q4 results (or updated guidance with prelim sales with January results—overall Q4 sales were below expectations). Going forward: March is off to rough start with another round of snowstorms and persistent cold temps. Results for the five week period ending April 5 will be reported April 10. Redbook has preliminary March target of +3.3%. A handful of retailers have yet to report Q4 results and are expected to report during March. Other primary catalysts during the month include: Mardi Gras (March 4 vs Feb 12 last year - pushes Easter back to April 20), St Patricks Day (positive shift -- Monday March 17 vs Sunday last year). 

Currencies 

Dollar Slips Amid Sleepy Trade: 10-yr: +02/32..2.688%..USD/JPY: 102.24..EUR/USD: 1.3737

·         The Dollar Index clings to small losses as light selling has action pressing the 80.10 level. Click here to see a daily Dollar Index chart.

·         Today's action has been uneventful, trapped in a 20 cent range, as many traders remain on the sidelines ahead of tomorrow's European Central Bank and Bank of England rate decisions and Friday's U.S. nonfarm payroll report. 

·         EURUSD is -10 pips @ 1.3730 amid a lackluster trade. U.S. action has seen the pair limited to a 30 pip range as trade remains on hold ahead of tomorrow's European Central Bank rate decision. Many participants continue to cast a watchful eye on the 1.3800 level as any close above there would mark the best since November 2011. Germany factory orders will be released tomorrow. 

·         GBPUSD is +65 pips @ 1.6725 as action holds just off the highs. Sterling has been supported by the ISM Services beat, and is now threatening its best close since November 2009. The 1.6750 level remains key into tomorrow's Bank of England rate decision. 

·         USDCHF is flat @ .8875 as trade has spent the entire session holding near resistance in the .8850/.8900 area.

·         USDJPY is +15 pips @ 102.35 as action tests the upper end of its 101.50/102.50 range. Many traders will continue to look elsewhere for opportunity until the range is broken.

·         AUDUSD is +35 pips @ .8985 as trade presses its best levels of the session. The advance has the hard currency higher for a third session with buyers in control following last night's GDP beat. The .9050 area is setting up as a key level to watch. Australia's retail sales and trade balance data are due out tonight. 

·         USDCAD is -50 pips @ 1.1040 as action probes two-week lows. Today's weakness comes after the Bank of Canada held its key rate steady at 1.00% while maintaining a neutral stance. Canada's build permits and Ivey PMI will cross the wires tomorrow.

Jason's Commentaries


As expected, the market took a little breather ahead of the employment report tomorrow and not flying up higher again. Dow was the major laggard while the rest of the indices stayed flat. Dow was being dragged down by Exxon Mobil. However, the market as a whole was flat, held up by the Financials with BfA gaining of 2% and major banks like JP Morgan, Goldman Sachs, gaining more than 1%. The energy sector was heavily hit as the speculation of the oil goes south with the withdrawal of the Russian Troops. I believe that the market is likely to stay flat again today and might have some pricing action to tomorrow's non-farm payrolls. If the report suck, I reckon it will be a good excuse for the market to take profit once again. 

Market Call: FLAT

Date: 6 Mar 2014