6 Mar 2014 AMC - Market mixed ahead of employment data

6 Mar 2014 AMC - Market mixed ahead of employment data

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: + 0.0%

·         France's CAC: + 0.6%

·         Spain's IBEX: + 0.9%

·         Portugal's PSI: + 1.3%

·         Italy's MIB Index: + 0.4%

·         Irish Ovrl Index: + 0.7%

·         Greece ATHEX Composite: 0.0%

Before Market Opens

S&P futures vs fair value: +4.00. Nasdaq futures vs fair value: +4.50.
The S&P 500 futures trade four points above fair value.

Major Asian indices posted gains with the exception of Australia's ASX, which shed less than a point. In China, Finance Minister Lou Jiwei said that GDP growth in the neighborhood of 7.2% would still meet this year's target. This comes after yesterday's headlines indicating the country is targeting 7.5% growth in 2014. Economic data was scarce. Japan's foreign bonds buying report pointed to net sales in the amount of JPY759.00 billion (+JPY601.90 billion prior) and Australia's retail sales increased 1.2% (0.5% expected, 0.7% previous). Separately, the trade surplus expanded to AUD1.43 billion from AUD591 million (AUD270 million expected) as exports grew 4.0% month-over-month (4.0% prior) and imports increased 1.0% (2.0% previous). 

·         Japan's Nikkei rallied 1.6% amid broad strength. The gains were aided by news indicating the country's pension fund does not need to invest in government bonds exclusively. Heavyweight names outperformed with SoftBank climbing 4.9%. 

·         Hong Kong's Hang Seng climbed 0.6% as 37 of its 50 components posted gains. Lenovo and Tencent Holdings both gained near 2.0%. 

·         China's Shanghai Composite eked out a modest gain of 0.3%. with financials providing support. China Vanke surged 8.3%. 

Major European indices trade mixed after seeing broad gains earlier. Participants received several economic data points. The European Central Bank held its key interest rate at 0.25%, as expected. Separately, eurozone Retail PMI fell to 48.5 from 50.5. The Bank of England kept its main interest rate and the purchasing program at their respective 0.5% and GBP375 billion. Separately, Halifax House Price Index increased 2.4% month-over-month (0.7% expected, 1.1% prior) while the year-over-year reading rose 7.9% (7.2% consensus, 7.3% last). Germany's factory orders increased 1.2% month-over-month (0.7% consensus, -0.2% prior). French unemployment rate slipped to 10.2% from 10.3% (11.0% expected).

Among news of note, the Crimean parliament voted in favor of joining the Russian Federation and set a referendum on the matter within ten days. 

·         Germany's DAX is lower by 0.3%. Heavyweights Deutsche Telekom and Merck lag with respective losses of 3.9% and 4.7%. On the upside, HeidelbergCement is higher by 5.5%.

·         Great Britain's FTSE trades up 0.2%. Insurer Aviva leads with a gain of 8.5% after the company reinstated bonuses. On the downside, industrials lag. IMI is lower by 5.4% while Meggitt and BAE Systems trade down 1.4% and 0.4%, respectively. 

·         In France, the CAC is higher by 0.4%. Telecom provider Orange leads with a gain of 8.7% after issuing upbeat guidance. On the downside, industrials Legrand and Schneider Electric are both down near 0.6%.

Market Internals

Market Internals -Technical-
The Dow closed up 62 (+0.38%) at 16422, the S&P 500 closed up 3 (+0.17%) at 1877, and the Nasdaq closed down 6 (-0.13%) at 4352. Action came on mixed volume (NYSE 662 mln vs. avg. of 682; NASDAQ 2007 mln vs. avg. of 1896), with advancers outpacing decliners (NYSE 1763/1329, NASDAQ 1373/1259) and new highs outpacing new lows (NYSE 258/6, NASDAQ 220/9).

Relative Strength: 
Cotton-BAL +3.25%, Columbia Index-GXG +2.89%, Silver Miners-SIL +2.34%, Coal-KOL +2.30%, Turkey-TUR +2.21%, India-INP +2.19%, Junior Gold Miners-GDXJ +2.16%, South Africa-EZA +2.15%, Corn-CORN +2.13%, Taiwan-EWT +2.00%.

Relative Weakness: 
Biotechnology-XBI -3.14%, Biotechnology-IBB -2.67%, Coffee-JO -2.66%, Eastern Europe-ESR -1.85%, Russia-RSX -1.06%, Pharmaceuticals-PPH -1.00%, 20+ Year Treasuries-TLT -0.98%, Japanese Yen-FXY -0.73%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks End Mixed Ahead of February Jobs Report
The stock market ended the Thursday session on a mixed note ahead of Friday's nonfarm payrolls report for February (Briefing.com consensus 163K). The Dow Jones Industrial Average (+0.4%) and S&P 500 (+0.2%) posted modest gains while the Nasdaq Composite (-0.1%) lagged throughout the session.

Equities began the trading day on an upbeat note following comments from the Bank of England and the European Central Bank, both of which reaffirmed their commitment to maintaining their current, accommodative, policy stance.

The reminder of continued monetary support overshadowed concerns about the escalation of the situation in Ukraine where the Crimean parliament voted to join the Russian Federation and hold a referendum on the matter in just over a week.

Another issue that was put on the backburner was the continuation of retailer woes as indicated by disappointing quarterly results from Children's Place (PLCE 50.66, -4.04), Costco (COST 113.26, -3.21), and Staples (SPLS 11.35, -2.05). Costco weighed on the consumer staples sector (-0.04%) while the discretionary space (+0.3%) was able to end among the outperformers thanks to gains among quick-service restaurant names. Yum! Brands (YUM 77.29, +2.48) made a significant contribution, climbing 3.3% following a Robert W. Baird upgrade to ‘Outperform' from ‘Neutral.'

Although the discretionary sector displayed relative strength, it was another cyclical group, financials (+0.7%), that spent the entire day in the lead. The financial sector outperformed for the third consecutive day, extending its week-to-date gain to 2.5% versus a 1.0% increase for the S&P 500.

Despite the relative strength of an influential group, the S&P 500 was knocked off session highs in the early afternoon when significant selling pressure among biotechnology weighed on the health care sector (-0.7%) and the Nasdaq Composite. The iShares Nasdaq Biotechnology ETF (IBB 261.14, -7.15) ended near its session low, down 2.7%. Also exerting pressure on the Nasdaq was the technology sector, which ended flat.

The afternoon weakness contributed to increased demand for volatility protection, sending the CBOE Volatility Index (VIX 14.20, +0.31) higher by 2.2%.

Treasuries ended modestly lower with the 10-yr yield up three basis points at 2.74%.

Participation was below average as 661 million shares changed hands on the NYSE floor.

Also of note, President Obama addressed the situation in Ukraine, touching on the following points: (1) the Crimea referendum to join Russia violates international law (2) there is an executive order that sanctions anyone threatening the sovereignty of Ukraine (3) Russia should allow international monitors into Ukraine and (4) Congress should resolve to support the IMF's capacity to help Ukraine with a loan facility.

Investors received four economic data points: 

·         Initial claims for the week ending March 1 fell by 26,000 to 323,000 (Briefing.com consensus 338,000). The Department of Labor said the decline coincided with strong winter storms, implying that layoffs were either deferred or individuals laid off were unable to file their unemployment claims. 

·         Fourth quarter productivity was revised down to 1.8% (Briefing.com consensus 2.5%) from 3.2%. 

·         Unit labor costs declined 0.1% in the fourth quarter (Briefing.com consensus -0.7%) versus an originally reported 1.6% drop. The improvement was the end result of an increase in hourly compensation (positive) combined with a drop in output (negative). 

·         Factory orders declined 0.7% in January after declining a downwardly revised 2.0% (from -1.6%) in December. The Briefing.com consensus expected factory orders to decline 0.5%. 

Tomorrow, February nonfarm payrolls, unemployment rate, hourly earnings, average workweek, and the January trade balance will all be reported at 8:30 ET while the January Consumer Credit report will be released at 15:00 ET. 

·         Nasdaq Composite +4.2% YTD 

·         Russell 2000 +3.8% YTD 

·         S&P 500 +1.6% YTD 

·         Dow Jones Industrial Average -0.9% YTD

Commodities

Closing Commodities: Natural Gas Rises 3% Following Inventory Data, Gold Gains

·         Apr gold extended yesterday's gains as the dollar index fell on a rally in the euro. The move came as the ECB left its rates unchanged and decided against implementing any potential tools in order to spur pricing.

·         The yellow metal lifted from its session low of $1335.30 per ounce and broke into positive territory in morning action. It continued to trend higher and settled at $1351.70 per ounce, or 0.9% higher.

·         May silver also erased overnight losses as it came off its pit session low of $21.17 per ounce. It rose as high as $21.65 per ounce and settled with a 1.5% gain at $21.58 per ounce.

·         Apr crude oil spent most of today's floor trade in the red, falling to a session low of $100.13 per barrel in early afternoon action. However, buyers stepped in ahead of the close and pushed prices back above the unchanged line, leaving the energy component to settle 0.1% higher at $101.54 per barrel.

·         Apr natural gas dipped to a session low of $4.51 per MMBtu in early morning action but popped on inventory data that showed a draw of 152 bcf when a smaller draw of 137-138 bcf was anticipated. It advanced to a session high of $4.70 per MMBtu and eventually settled with a 2.9% gain at $4.66 per MMBtu.

COMEX Metals Closing Prices

  Apr gold rose $11.50 to $1351.70/oz 

·         Gold extended yesterday's gains as the dollar index fell on a rally in the euro. The move came as the ECB left its rates unchanged and decided against implementing any potential tools in order to spur pricing. The yellow metal lifted from its session low of $1335.30 and broke into positive territory in morning action. It continued to trend higher and settled with a 0.9% gain. 

  May silver rose $0.31 to $21.58/oz 

·         Silver also erased overnight losses as it came off its pit session low of $21.17. It rose as high as $21.65 and settled with a 1.5% gain. 

  May copper rose 2 cents to $3.22/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         May corn rose 9 cents to $4.91/bushel 

·         May wheat rose 6 cents to $6.47/bushel 

·         May soybeans rose 17 cents to $14.38/bushel 

·         Apr ethanol rose 5 cents to $2.34/gallon 

·         May sugar (#16 (U.S.)) rose 0.03 of a penny to 22.08 cents/lbs

 NYMEX Energy Closing Prices

  Apr crude oil rose $0.06 to $101.54/barrel 

·         Crude oil spent most of today's floor trade in the red, falling to a session low of $100.13 in early afternoon action. However, buyers stepped in ahead of the close and pushed prices back above the unchanged line, leaving the energy component to settle 0.1% higher. 

  Apr natural gas rose 13 cents to $4.66/MMBtu 

·         Natural gas dipped to a session low of $4.51 in early morning action but popped on inventory data that showed a draw of 152 bcf when a smaller draw of 137-138 bcf was anticipated. It advanced to a session high of $4.70 and eventually settled with a 2.9% gain. 

  Apr heating oil fell 1 cent to $2.98/gallon 

  Apr RBOB settled unchanged at $2.94 /gallon

Treasuries

Yields Press Key Levels Ahead of Tomorrow's Jobs Report: 10-yr: -09/32..2.733%..USD/JPY: 103.04..EUR/USD: 1.3855

·         Treasuries closed just off their lows. Click here to see an intraday yields chart.

·         Maturities hovered little changed into the cash open before sliding to their worst levels of the session in response to the initial (323K actual v. 338K expected) and continuing (2907K actual v. 2973K expected) claims beats and productivity-rev. (1.8% actual v. 2.5% expected) miss.

·         A small spate of buying developed ahead of the factory orders (-0.7% actual v. -0.5% expected) data with trade sliding back onto the lows after the number fell short of estimates. 

·         Some light buying developed into the lunch hour, but afternoon selling ran yields back towards their highs into the cash close. 

·         Today's weakness caused yields across most of the curve to test key levels ahead of tomorrow's jobs report.

·         The 5y tacked on +3.5bps to finish @ 1.569%. Today's advance ran the yield through the upper end of the 1.450%/1.550% range that had been in place since the beginning of February, causing action to close at its highest level in five weeks. The ability to hold above 1.550% puts in the 1.650% area in play.

·         The 10y rallied +3.9bps to 2.737%. The benchmark yield is testing the key 2.750% level, which dates back to late-January and is defended by the 100 dma. A breakout puts the 2.900% area at risk. 

·         The long bond lagged as selling ran its yield up +4.3bps to 3.687%. The 30y has gained in each of the past three sessions, climbing +12bps over that time. Current action is probing the 200 dma with 3.750% setting up as an important level. 

·         Selling swung the yield curve steeper with the 2-10-yr spread widening to 239bps. 

·         Precious metals saw solid gains as gold added +$12 to near $$1352 and silver climbed $0.24 to $$21.51. 

·         Data: Nonfarm payrolls, nonfarm private payrolls, unemployment rate, hourly earnings, average workweek, trade balance (8:30), and consumer credit (15). 

·         Fed Speak: New York's Dudley discusses local economic conditions (12 noon).

Next Day In View 

Economic Commentary

Economic Summary: Jobless Claims fall faster than expected; Factory orders decline; BoE & ECB leave rates unchanged; NFP's tomorrow at 8:30
Economic Data Summary:

·         February Challenger Job Cuts -24.4% (Last Week was 47.3%)

·         Weekly Initial Claims 323K vs Briefing.com consensus of 338K; Last Week was revised to 349K from 348K

·         Weekly Continuing Claims 2.907 M vs Briefing.com consensus of 2.973 M; Last Week was revised to 2.915 M from 2.946 M

o    The DOL stated that the decline in claims coincided with strong winter storms, which implies that companies were not able to lay off workers due to weather conditions or laid off workers were unable to apply for unemployment insurance. While this is possible, a more likely explanation is that the DOL continues to have problems with its seasonal adjustments. The increase in claims for the week ending February 22 happened during a week with a national holiday. T

·         Fourth Quarter Productivity - Prelim 1.8% vs Briefing.com consensus of 2.5%; Last Week was 3.2%

o     The downward revision to overall productivity was the result of weaker-than-expected output growth. Fourth quarter GDP was revised down (2.4% from 3.2%) which corresponded to a downward revision in output (3.4% from 4.9%). Total hours worked were revised slightly to 1.6% from 1.7%. 

·         Fourth Quarter Unit Labor Costs - Rev -0.1% vs Briefing.com consensus of -0.7%; Last Week was -1.6%

·         January Factory Orders -0.7% vs Briefing.com consensus of -0.5%; Last Week was -1.5%

o    Overall, the data matched up closely with the advance durable goods report that was released last week. There were no big surprises that would alter future expectations. Durable goods orders were unrevised and fell 1.0% in January. Those orders declined 5.3% in December. 

Fed/Treasury Events Summary:

·         NY Fed President Bill Dudley (voting FOMC member, typically dovish) spoke earlier today and indicated that the bar remains pretty high for changing the Fed's tapering plans.

Upcoming Economic Data:

·         February Nonfarm Payrolls due out Friday at 8:30 (Briefing.com consensus of 163K; January was 113K)

·         February Nonfarm Private Payrolls due out Friday at 8:30 (Briefing.com consensus of 170K; January was 142K)

·         February Unemployment Rate due out Friday at 8:30 (Briefing.com consensus of 6.6%; January was 6.6%)

·         February Hourly Earnings due out Friday at 8:30 (Briefing.com consensus of 0.2%; January was 0.2%)

·         February Average Workweek due out Friday at 8:30 (Briefing.com consensus of 34.4; January was 34.4)

·         January Trade Balance due out Friday at 8:30 (Briefing.com consensus of -$37.3 bln; December was -$38.7 bln)

·         January Consumer Credit due out Friday at 10:00 (Briefing.com consensus of $11.8 bln; December was $18.8 bln)

Upcoming Fed/Treasury Events:

·         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

·         Bank of England leaves rates unchanged at 0.50%; leaves asset purchase program unchanged at GBP 375 bln; both were expected

·         ECB Leaves main refinancing operations unchanged at 0.25%

o    Key Comments from press conference

§  Inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%.

§  We continue to expect the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation is based on an overall subdued outlook for inflation extending into the medium term, given the broad-based weakness of the economy, the high degree of unutilised capacity and subdued money and credit creation.

·         China's Shanghai Composite (+0.3%) and Hong Kong's Hang Seng (+0.6%) gained ground despite China's finance minister saying 7.5% growth was a 'target,' but 7.2%-7.3% would be acceptable

On other news.... 

February Same Store Sales Review—mixed results as discounting offsets weather woes for some
Retailers reported February Same Store Sales before the open today (WAG  had already reported upside Feb/qtrly sales, GPS reports today after the close). Results can be accessed on our Same Store Sales calendar.

Challenges continued during the month with ongoing adverse weather conditions—impact noted by nearly every retailer. Discounters, who have been outperforming, were hit hardest—combo of weather and increased competitive pricing from other retailers. On the upside February is typically the lowest volume sales month of the fiscal first quarter. 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).

The retail sector is underperforming the overall market following February results. The SPDRdest Retail (XRT) is -0.6% on the day, Retail HOLDRS Trust (RTH) -0.7%, Consumer Dis Spdr (XLY) 0.1% vs S&P500 index (SPX) +0.3%. 




Currencies 

Dollar Contends with Lowest Close Since Late-October: 10-yr: -09/32..2.734%..USD/JPY: 103.00..EUR/USD: 1.3860

·         The Dollar Index has been battered to session lows near 79.60 as steady selling over the course of the morning dropped action down to levels last seen on December 18, the day the Fed announced the first taper to its QE program. Chart

·         However, participants must look back to the end of October to find a day when the Index closed lower than where it currently holds. 

·         Tomorrow's nonfarm payroll report looms large as trade tests key technical levels.

·         EURUSD is +130 pips @ 1.3860 as trade readies for its best close since November 2011. The single currency held little changed ahead of the European Central rate decision before surging to its best level in more than two years after the ECB kept policy unchanged. The 1.3800 area will be monitored closely into tomorrow's jobs report. German industrial production is due out tomorrow. 

·         GBPUSD is +30 pips @ 1.6750 as trade contends with its best closing print since November 2009. Earlier, the Bank of England held both its key interest rate and asset purchase program unchanged, both of which were expected. British data is limited to consumer inflation expectations. 

·         USDCHF is -70 pips @ .8800 as action presses the lowest levels since November 2011. Action over the past couple of sessions struggled near .8850/.8900 resistance, allowing for bears to regain the upper hand. Many traders continue to look elsewhere for opportunity as trade in the pair is more a derivative of the euro. Swiss data includes CPI and foreign currency reserves.

·         USDJPY is +70 pips @ 103.00 with trade on track to close at a one and a half-month high. Today's bid broke action out of the 101.50/102.50 range that had been in place since the beginning of February, and has the pair probing 103.00 resistance that is helped by the 50 dma. 

·         AUDUSD is +120 pips @ .9100 as trade readies for its best close in three months. Traders will be monitoring the .9050 level as its ability to hold potentially puts .9300 in play. Reserve Bank of Australia Governor Glenn Stevens will testify in Sydney before the House of Representatives of Economic Committee. 

·         USDCAD is -45 pips @ 1.9080 as action slides to its lowest close in almost three weeks. Selling developed this morning following the strong building permits (8.5 % MoM actual v. 1.9% MoM expected) and Ivey PMI (57.2 actual v. 56.7 expected, 56.8 previous) numbers with trade dipping to 1.0950 before buyers emerged at key support helped by the 50 dma (1.0970). Canadian data is heavy as employment change, unemployment rate, trade balance, and labor productivity figures will cross the wires.

Jason's Commentaries


Definitely a mixed day last night. Dow was held up by the Banking and Industrials while Nasdaq was the only laggard as biotech lagged. Market started last night with a bullish bias which subsequently lost most of its gains by 1pm ET. Internals were pointing towards a bullish side as well. However, volumes were at 673.8m shares traded on the NYSE and we're definitely expecting the employment numbers. If the employment numbers suck, we're heading for a retracement. Nonetheless, the market has already priced in for the negative reaction in the market. As of now, employment numbers came in 175k jobs, better than 151k expected. Seems that the market will likely to rally today.

Market Call: UP

Date: 7 Mar 2014