10 April 2014 AMC- Market sunk more than 1.5% after FOMC

10 April 2014 AMC- Market sunk more than 1.5% after FOMC

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: + 0.1%

·         Germany's DAX: -0.6%

·         France's CAC: -0.7%

·         Spain's IBEX: -1.4%

·         Portugal's PSI: -0.9%

·         Italy's MIB Index: -1.3%

·         Irish Ovrl Index: -0.2%

·         Greece ATHEX Composite: -0.7%

Before Market Opens

S&P futures vs fair value: -2.40. Nasdaq futures vs fair value: -4.30.
The S&P 500 futures trade less than three points below fair value.

Most Asian markets posted gains as trade piggybacked yesterday's action on Wall Street. Hong Kong's Hang Seng (+1.5%) and China's Shanghai Composite (+1.4%) outperformed after Beijing announced it would allow for as much as CNY23.50 billion of cross-border equity trading. Also of note, China's trade balance swung from a deficit of $23.00 billion to a $7.70 billion surplus (expected -$900 million). Exports fell 6.6% year-over-year while imports tumbled 11.3% year-over-year.

In other regional data, Australia's employment change rose 18,100 (+7,300 expected), while the unemployment rate tumbled to 5.8% from 6.1% (expected 6.0%). The Bank of Korea held its key rate unchanged at 2.50%, as expected. 

·         Japan's Nikkei ended flat, paring its early gains. Toyota Motor lost another 2.4% after yesterday's 3.1% slide as the fallout from its global recall continues. 

·         Hong Kong's Hang Seng gained 1.5%, posting its best close since the first trading day of 2014. Internet gaming giant Tencent Holdings surged 7.6%, leading for a second day. Casino names were also strong as Sands China jumped 6.8% and Galaxy Entertainment climbed 5.3%. 

·         China's Shanghai Composite rose 1.4%, ending near a two-month high. Citic Securities rallied 9.7% and Sinolink Securities added 5.2% as the brokerage space benefitted from the new cross-border trading agreement. 

Major European indices trade in mixed fashion. Among news, Greece carried out its first bond sale in four years, raising EUR3 billion, with the Finance Ministry confirming that foreign investors took the majority of the issue.

Participants received several data points. The Bank of England made no changes to its policy stance, keeping its interest rate and the purchasing program at their respective 0.50% and GBP375 billion. French CPI rose 0.5% month-over-month (consensus 0.6%, prior 0.5%), while Industrial Production ticked up 0.1% month-over-month (expected 0.3%, previous -0.3%). Italy's Industrial Production slipped 0.5% month-over-month (consensus -0.2%, prior 1.1%), while the year-over-year reading rose 0.4% (expected 0.7%, previous 1.2%). 

·         Great Britain's FTSE is higher by 0.3% with financials showing strength. HSBC and Land Securities Group trade higher by 1.5% and 2.4%, respectively. On the downside, retailers Marks & Spencer Group and Travis Perkins hold respective losses of 2.2% and 0.5%. 

·         Germany's DAX trades up 0.2%. Producers of basic materials BASF and Lanxess lead with respective gains of 0.5% and 2.0%. On the downside, Daimler is lower by 4.1% after going ex-dividend. 

·         In France, the CAC is little changed. LVMH leads with a gain of 4.1% after reporting strong results. Financials lag with BNP Paribas, Credit Agricole, and Societe Generale down between 0.5% and 1.0%. 

·         Spain's IBEX holds a loss of 0.9%. Utilities are leading the slide with Gas Natural, Iberdola, and Red Electrica down between 1.6% and 3.2%.

U.S. Equities

·         Equity futures point to small losses at the open as the bulls look to run the winning streak to three

·         Initial Claims (300K actual v. 325K expected)

·         Continuing Claims (2776K actual v. 2843K expected)

·         Export Prices ex-ag (0.5%)

·         Import Prices ex-oil (0.3%)

o    S&P Futures -2 @ 1863

o    Dow Futures -15 @ 16,345

o    Nasdaq Futures -5 @ 3586

Asia

·         Markets saw gains across much of Asia as trade piggybacked the action on Wall Street

·         Hong Kong's Hang Seng and China's Shanghai Composite outperformed after Beijing announced it would allow for as much as CNY23.5 bln of cross-border equity trading

·         China's trade deficit swung to a $7.7 bln surplus (-$0.9 bln expected, -$23.0 bln previous). Exports fell 6.6% YoY while imports tumbled 11.3% YoY 

·         Australia's employment change posted a +18.1K (+7.3K expected) while the unemployment rate tumbled to 5.8% (6.1% expected, 6.1% previous)

·         The Bank of Korea held its key rate unchanged at 2.50%, as expected

·         Japan's Nikkei (UNCH) ended little changed, paring its early gains

·         Hong Kong's Hang Seng (+1.5%) posted its best close since the first trading day of 2014

·         China's Shanghai Composite (+1.4%) ended near a two-month high

·         India's Sensex (+0.1%) ticked to a record high

·         Australia's ASX (+0.3%) closed at its best level in almost six years

Market Internals

Market Internals -Technical-
The Nasdaq closed down 130 (-3.10%) at 4054, the S&P 500 closed down 39 (-2.09%) at 1833, and the Dow closed down 267 (-1.62%) at 16170. Action came on above average volume (NYSE 786 mln vs. avg. of 731; NASDAQ 2258 mln vs. avg. of 2053), with decliners outpacing advancers (NYSE 720/2425, NASDAQ 366/2300) and mixed new highs/lows (NYSE 63/31, NASDAQ 29/57). 

Relative Strength: 
Volatility-VXX +6.00%, Coffee-JO +3.15%, Natural Gas-UNG +1.34%, Peru-EPU +1.15%, Hong Kong-EWH +1.11%, 20+ Year Treasuries-TLT +0.93%, Silver-SLV +0.84%, Columbia Index-GXG +0.53%, Japanese Yen-FXY +0.50%, Swiss Franc-FXF +0.37%. 

Relative Weakness: 
Biotechnology-XBI -6.46%, Biotechnology-IBB -5.61%, Internet Composite-FDN -4.22%, Social Media-SOCL -4.03%, Clean Energy-PBW -3.86%, Indonesia-IDX -3.74%, Greece-GREK -3.23%, Sweden-EWD -3.14%, Italy-EWI -3.07%, Japan-EWJ -2.87%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks Dive Amid Continued Weakness in Biotechnology
The major averages spent the Thursday session in a daylong retreat that placed the Nasdaq (-3.1%) below its 100-day moving average, while the S&P 500 (-2.1%) finished below its 50-day average. The Dow Jones Industrial Average held up a bit better, but the price-weighted index posted a sharp loss (-1.6%) nonetheless.

Even though the major averages finished yesterday's session on an upbeat note, the sentiment began deteriorating during the overnight session when China reported a surprise trade surplus of $7.71 billion, which was due to disappointing import (-11.3% versus expected 2.4%) and export (-6.6% versus expected 4.0%) figures. This renewed some of the concerns about the strength of the Chinese economy, which have been present since the start of the year. Strikingly, markets in Hong Kong (+1.5%) and China (+1.4%) outperformed, but that was likely due to the announcement that Beijing would allow as much as CNY23.50 billion of cross-border equity trading.

Another major equity index, Japan's Nikkei, ended flat after starting with a solid 1.3% gain. The retreat from highs took place as the Japanese yen strengthened, sending the dollar/yen pair into the 101.50 area.

The caution that was exhibited in the foreign exchange market appeared to have faded by this morning, but the yen began strengthening ahead of the New York open, and returned to the overnight lows not long after.

Meanwhile, equities began their retreat shortly after the opening bell, with the Nasdaq Composite leading the slide.

By and large, there was some indiscriminate selling taking place as the lack of follow through from yesterday's rally piqued concerns about a larger scale correction being under way. In turn, the sharp price pullbacks started to raise worries about collateral damage among highly leveraged accounts that could be facing some margin calls. As those worries percolated, participants reduced their risk exposure with a sell-first-ask-questions-later disposition.

All ten sectors ended in the red with the largest four groups—technology (-2.5%), financials (-2.4%), health care (-3.2%), and consumer discretionary (-2.5%)—posting the largest losses.

Health care spent the duration of the trading day at the bottom of the leaderboard, with continued weakness in biotechnology exacerbating the decline. The iShares Nasdaq Biotechnology ETF (IBB 221.89, -13.19) tumbled to its 200-day moving average before inching up from that level into the close for a loss of 5.6%.

Elsewhere, technology and discretionary shares suffered from noteworthy weakness among momentum names. Amazon.com (AMZN 317.11, -14.69), Google (GOOG 540.95, -23.19), Facebook (FB 59.16, -3.25), and Netflix (NFLX 334.73, -18.30) surrendered between 4.1% and 5.2%, while smaller momentum-favorites fared even worse. FireEye (FEYE 49.75, -6.64), Tableau Software (DATA 65.52, -7.35), and Yelp (YELP 63.47, -7.78) all plunged more than 10.0% apiece.

The financial sector also ended among the laggards, with JPMorgan Chase (JPM 57.40, -1.87) and Wells Fargo (WFC 47.71, -1.39) falling 3.2% and 2.8%, respectively ahead of tomorrow morning's quarterly reports.

While seven sectors posted losses of 1.0% or more, defensively-oriented consumer staples (-0.9%), telecom services (-0.1%), and utilities (-0.4%) outperformed.

With stocks ending on their lows, demand for volatility protection sent the CBOE Volatility Index (VIX 15.77, +1.95) higher by 14.1%, but the near-term volatility measure ended below highs established earlier in the week.

Treasuries posted gains, but finished below their midday highs. The benchmark 10-yr yield fell five basis points to 2.65%.

Participation was a bit above average as 786 million shares changed hands at the NYSE.

Looking back at today's data: 

·         The weekly initial claims level fell to 300,000—its lowest point since May 2007—from an upwardly revised 332,000 (from 326,000), while the Briefing.com consensus expected the claims level to fall to 325,000. The size of the drop in claims was unusual, and while the Department of Labor did not issue any statements explaining the decline, there tends to be normal seasonal volatility over the first few weeks of April due to yearly calendar shifts in the Easter holiday. 

·         Export prices, excluding agriculture, increased 0.5% in March after increasing 0.6% in the prior reading. Excluding oil, import prices rose 0.3%, which follows last month's downtick of 0.1%. 

·         The Treasury Budget for March showed a deficit of $36.90 billion, which followed the prior month's deficit of $106.50 billion. The Briefing.com consensus expected the deficit to hit $36.00 billion. 

Tomorrow, March PPI (Briefing.com consensus 0.1%) and Core PPI (consensus 0.1%) will be released at 8:30 ET, while the preliminary reading of the Michigan Sentiment survey for April (consensus 81.0) will cross the wires at 9:55 ET. 

·         S&P 500 -0.8% YTD 

·         Dow Jones Industrial Average -2.5% YTD 

·         Nasdaq Composite -2.9% YTD 

·         Russell 2000 -3.0% YTD

Commodities

Closing Commodities: Natural Gas Ends 1.5% Higher

·         Precious metals traded higher today as the dollar index retreated into negative territory.

·         June gold brushed a session high of $1324.90 per ounce in early morning action and spent most of the session chopping around near the $1320.00 per ounce level. It eventually settled with a 1.2% gain.

·         May silver touched a session high of $20.40 per ounce moments after pit trade opened and settled with a 1.7% gain at $20.10 per ounce.

·         May crude oil chopped around in negative territory as OPEC lowered its demand forecast for crude oil in 2014. The energy component dipped to a session low of $103.10 per barrel and settled with a 0.2% loss at $103.38 per barrel.

·         May natural gas dipped to a session low of $4.52 per MMBtu in early morning floor trade but rallied sharply into positive territory following bullish inventory data that showed a build of 4 bcf when a larger build of 13-15 bcf was anticipated. It rose as high as $4.70 per MMBtu and closed with a 1.5% gain at $4.65 per MMBtu.

COMEX Metals Closing Prices

  June gold rose $15.10 to $1320.80/oz 

·         Gold traded higher today as the dollar index retreated into negative territory. The precious metal brushed a session high of $1324.90 in early morning action and spent most of the session chopping around near the $1320.00 level. It eventually settled with a 1.2% gain. 

  May silver rose $0.33 to $20.10/oz 

·         Silver touched a session high of $20.40 moments after pit trade opened and traded in positive territory for the remainder of the session. It eventually closed with a 1.7% gain. 

  May copper rose 1 cent to $3.05/lb

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         May corn fell 1 cent to $5.01/bushel 

·         May wheat fell 5 cents to $6.63/bushel 

·         May soybeans fell 14 cents to $14.81/bushel 

·         May ethanol rose 13 cents to $2.40/gallon 

·         July sugar (#16 (U.S.)) fell 0.05 of a penny to 24.63 cents/lbs l>

NYMEX Energy Closing Prices

  May crude oil fell $0.20 to $103.38/barrel 

·         Crude oil chopped around in negative territory as reports indicated that OPEC lowered its forecast demand for crude oil in 2014. The energy component dipped to a session low of $103.10 and settled with a 0.2% loss. 

  May natural gas rose 7 cents to $4.65/MMBtu 

·         Natural gas touched a session low of $4.52 in early morning floor trade but rallied sharply into positive territory following bullish inventory data that showed a build of 4 bcf when a larger build of 13-15 bcf was anticipated. It rose as high as $4.70 and settled with a 1.5% gain. 

  May heating oil fell 1 cent to $2.94/gallon 

  May RBOB settled unchanged at $3.01/gallon

Treasuries

30y Slides to 3.50%, Lowest Since July: 10-yr: +16/32..2.636%..USD/JPY: 101.44..EUR/USD:

·         Treasuries gained for a sixth straight session as money rushed into the complex amid the heavy selling in equities. Click here to see an intraday yields chart.

·         The complex held modest gains ahead of the cash open before seeing some early selling following the 300K initial claims print; however, buyers would soon emerge as heavy selling began to engulf the equity complex. 

·         An aggressive bid lifted maturities to fresh highs ahead of the solid $13 bln 30y bond reopening. 

·         The reopening drew 3.525% and a solid 2.52x bid/cover (12-auction average 2.38x). Solid takedowns by both indirect (43.3%) and direct (17.9%) bidders left primary dealers with 38.8% of the supply. 

·         Post-auction buying would lift maturities to their best levels of the day, where they would linger for the remainder of the session. 

·         Heavy buying was paced at the long end as the 30y rallied +1 08/32 to 102 05/32. The buying dropped the yield on the long bond -6.2bps to 3.503%, marking the lowest close since July 3. Traders will be watching the 3.550% level over the coming days as the inability to regain the mark sets up a potential move into the 3.150% region.

·         The 10y sank -5.6bps to 2.628%, posting its lowest close since March 3. The 2.600% area will be in focus over the coming days with a flush through the level setting up a move into key 2.500% support. 

·         The 5y saw early outperformance before finishing -5.9bps @ 1.576%. Today's bid dropped the yield below its 50 dma and caused action to settle on the 100 dma. The 1.550% area is home to near-term support.

·         Little change along the yield curve saw the 5-30-yr spread hold near 193bps.

·         Precious metals saw solid gains as gold added $14 to $1320 and silver climbed $0.31 to $20.08. 

·         Data: PPI (8:30) and Michigan Sentiment (9:55).

Next Day In View 

Economic Commentary

Economic Summary: Jobless Claims fall to 300K; PPI due out tomorrow at 8:30; BoE leaves rates and asset purchase program unchanged
Economic Data Summary:

·         Weekly Initial Claims 300K vs Briefing.com consensus of 325K; Last Week was revised to 332K from 326K

·         Weekly Continuing Claims 2.776 M vs Briefing.com consensus of 2.843 M ; Last Week was revised to 2.838 M from 2.836 M

o     While the Department of Labor did not issue any statements explaining the decline, there is normal seasonal volatility over the first few weeks of April due to yearly calendar shifts in the Easter holiday. It would not be surprising if poor seasonal adjustments cause the initial claims level to spike up and down for the next couple of weeks before stabilizing back in the 320,000.

·         March Export Prices Ex-Ag 0.5% (February was 0.6%)

·         March Import Prces Ex-Oil 0.3% (February was revised to -0.1% from -0.2%).

Upcoming Economic Data:

·         March Treasury Budget due out Thursday at 14:00 (Briefing.com consensus of -$36.0 bln; February was -$106.5 bln)

·         March PPI due out Friday at 8:30 (Briefing.com consensus of 0.1%; February was -0.1%)

·         March Core PPI due out Friday at 8:30 (Briefing.com consensus of 0.1%; February was -0.2%)

·         April Michigan Sentiment due out Friday at 8:30 (Briefing.com consensus of 81.0; March was 80.0)

Other International Events of Interest

·         China reported a trade surplus of $7.71 billion (expected $900 million, prior -$22.98 billion), but imports (-11.3% versus expected 2.4%) and exports (-6.6% versus expected 4.0%) came in below estimates.

·         Japan's Core Machinery Orders fell 8.8% month-over-month (consensus -3.0%, prior 13.4%), while the year-over-year reading rose 10.8% (expected 17.6%, previous 23.6%). Separately, Machine Tool Orders surged 41.8% year-over-year (last 26.1%).

·         The Bank of England made no changes to its policy stance, keeping its interest rate and the purchasing program at their respective 0.50% and GBP375 billion. 

On other news.... 

March Same Store Sales Review—no ‘Spring’ in sight
Retailers reported March Same Store Sales before the open today (PSMT yesterday with earnings, RAD/ WAG  had already reported downside March sales, GPS reports today after the close). Results can be accessed on our Same Store Sales calendar.

Nearly every retailer missed March sales expectations. Lingering winter weather combined with Spring Break/ Easter shift weighed on results. Any lift in late month sales was not not sufficient to offset the initial weakness and lack of holiday catalyst. Positive sales data out this week from ICSC/Goldman, Redbook and ChannelAdvisor had lifted the sector heading into results (see April 8 comments). The retail sector is underperforming the overall market following March results. The SPDR Retail (XRT) is -0.4% on the day, Retail HOLDRS Trust (RTH) -0.4%, Consumer Dis Spdr (XLY) -0.3% vs S&P500 index (SPX) -0.2%. Going forward: The majority of Easter and Spring Break related sales will fall within April period, which is four weeks ending Saturday May 3. Retailers will report April comps (with prelim Q1 sales and updated guidance) on Thursday May 8. Redbook has preliminary April target of +3.4%.

Only COST and BKE beat March Same-Store Sales: 

·         Costco (COST) reported March comps of +5% vs +2.8% consensus. The stock opened 0.9% higher and is now up ~1.1%. 

·         Buckle (BKE) reported March comps of -1.8% vs -2.6% consensus. The stock opened -0.3% but is now ~1.2% higher. 

Currencies 

Dollar Slides to Lowest Level in Three-Weeks: 10-yr: +15/32..2.637%..USD/JPY: 101.47..EUR/USD: 1.3887

·         The Dollar Index clings to small losses as action holds near 79.40. Click here to see a daily Dollar Index chart.

·         Today's selling has the Index lower for a fifth straight session as trade probes the March lows. 

·         EURUSD is +30 pips @ 1.3885 as buyers remain in control for a fourth session. Action has been able to shrug off the risk-off environment and mostly disappointing data from the region, and instead focus on Greece's return to the sovereign debt market following a four-year absence. The troubled periphery raised EUR3 bln through the sale of 5y paper at a yield of 4.95%. The current win streak has the single currency nearing a test of the March highs with any close above 1.3935 marking the best since November 2011. 

·         GBPUSD is -5 pips @ 1.6785 amid a rather uneventful trade. Sterling has seen a rather tame session despite the Bank of England rate decision as the central bank held both its key rate (0.50%) and asset purchase program (GBP375 bln) unchanged. Any positive close will put in the best finish since November 2009. 

·         USDCHF is -35 pips @ .8760 as moderate weakness persists for a fourth day. The current slide is a derivative of euro strength, and has action nearing a test of the March lows which rest near .8725. A breakdown of the region will trade to levels last seen in late-2011. 

·         USDJPY is -45 pips @ 101.55 as action presses to its lowest level in three weeks. Traders continue to monitor the key 101.50 level with additional help near being provided by the 200 dma (100.80). 

·         AUDUSD is +40 pips @ .9420 as trade readies for its best close in four months. The hard currency has been bolstered by today's strong Australian employment report that saw the unemployment rate drop to 5.8% (6.1% previous). China's CPI and PPI are due out tonight.

·         USDCAD is +40 pips @ 1.0920 as buyers surfaced for the first time in five days. Today's bid has erased all of yesterday's losses and has run trade back above the 100 dma. Canada's New Home Price Index was released earlier, posting an in-line 0.2% MoM.

Jason's Commentaries


This is definitely unexpected. At the start of the session, I was under the impression that the market is still holding strong.... However, supports start to break and the market came crashing down. This is definitely one of the most unpredictable period that I've traded in. That explains the colour of my portfolio right now. Nonetheless, the market may be going into a correction/crash mode. After Nasdaq fell more than 3%, it seems like it's 2007 once again. Volumes were over 800m shares traded on the NYSE. All sectors were in the sea of red last night. Only utilities managed to lose a little. Healthcare were being dragged down by Biotech, losing more than 3%. While Consumer discretionary, Financials, Industrials, Tech and Materials lost more than 2%. As we're in the earnings season, the earnings is the only thing that could break this freefall. However, as I mentioned, the stock price has been too high for the earnings to justify the stock price already. A correction is eminent. Is that correction coming soon? Did the Sell In May come early this year? We've got to wait and observe what the market is doing right now.

Market Call: FLAT

Date: 11 April 2014