4 June 2014 AMC - Market continued volatile session as ADP employment misses

4 June 2014 AMC - Market continued volatile session as ADP employment misses

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: -0.3%

·         Germany's DAX: + 0.1%

·         France's CAC: -0.1%

·         Spain's IBEX: -0.2%

·         Portugal's PSI: + 0.5%

·         Italy's MIB Index: -0.2%

·         Irish Ovrl Index: + 0.8%

·         Greece ATHEX Composite: + 1.3%

Before Market Opens 

S&P futures vs fair value: -4.50. Nasdaq futures vs fair value: -9.30.
The S&P 500 futures trade five points below fair value.

Most Asian markets finished in the red, while Japan's Nikkei (+0.2%) bucked the trend. 

·         In economic data: 

o    Australia's GDP rose 1.1% quarter-over-quarter (consensus 1.0%, previous 0.8%), while the year-over-year reading climbed 3.5% (expected 3.3%, prior 2.7%). Separately, AIG Services Index ticked up to 49.9 from 48.6. 

o    India's HSBC Services PMI rose to 50.2 from 48.5. 

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·         Japan's Nikkei added 0.2%, posting its best close in two months. Yahoo Japan was a standout, rallying 4.4%. 

·         Hong Kong's Hang Seng lost 0.6%, easing off its best levels of 2014. Property stocks were pressured as Henderson Land Development and China Resources Land fell 2.8% and 2.1%, respectively. 

·         China's Shanghai Composite posted its fourth consecutive loss, falling 0.7%. Property shares lagged with China Merchants Property Development tumbling 3.1% to lead the sector's decline. 

Major European indices trade lower across the board with participants awaiting tomorrow's policy decision from the European Central Bank, which could include a rate cut and/or the deployment of a QE-style easing program. 

·         Participants received several economic data points: 

o    Eurozone GDP rose 0.2% quarter-over-quarter, while the year-over-year reading increased 0.9%. Separately, PPI slipped 0.1% month-over-month, while the year-over-year reading fell 1.2%. All four figures matched estimates. Separately, Services PMI fell to 53.2 from 53.5 (consensus 53.5). 

o    Great Britain's Services PMI slipped to 58.6 from 58.7 (expected 58.2). 

o    Germany's Services PMI fell to 56.0 from 56.4 (consensus 56.4). 

o    French Services PMI ticked down to 49.1 from 49.2 (expected 49.2). 

o    Italy's Services PMI improved to 51.6 from 51.1 (consensus 51.5). 

o    Spain's Services PMI fell to 55.7 from 56.5 (expected 56.1). 

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·         Germany's DAX is lower by 0.3% as exporters weigh. BMW and Daimler hold respective losses of 1.3% and 1.1%. On the upside, drug maker Merck outperforms with a gain of 1.1%. 

·         In France, the CAC trades down 0.4%. Energy and industrial names are among the laggards with Bouygues, Schneider Electric, and Total down between 0.8% and 3.2%. 

·         Great Britain's FTSE holds a loss of 0.4%. Food retailer Tesco weighs, down 1.2% after reporting disappointing Q1 results. 

·         Italy's MIB underperforms with a loss of 0.8%. Banco Popolare, BMPS, Intesa Sanpaolo, and UnipolSai are down between 0.6% and 2.2%.

U.S. Equities

·         Equity futures suggest modest losses at the open

·         The DJIA and S&P 500 slipped off record highs amid yesterday's fractional decline as the three-day winning streak came to an end

·         The Nasdaq saw a third straight day of selling, and remains ~3% off its best close in more than 16 years

·         The VIX (11.87) remains near its lowest levels in since March 2013

o    S&P Futures -5 @ 1917

o    Dow Futures -32 @ 16,681

o    Nasdaq Futures -11 @ 3720

Asia

·         Markets closed lower across most of Asia

·         Australia's GDP (1.1% QoQ actual v. 0.9% QoQ expected) topped forecasts

·         Japan's Nikkei (+0.2%) posted its best close in two months

·         Hong Kong's Hang Seng (-0.6%) eased off its best levels of 2014

·         China's Shanghai Composite (-0.7%) fell for a fourth day 

·         India's Sensex (-0.2%) slipped off record highs

·         Australia's ASX (-0.6%) dipped below the 50 dma 

Market Internals

Market Internals -Technical-
The Nasdaq closed up 18 (+0.41%) at 4252, the S&P 500 closed up 4 (+0.19%) at 1928, and the Dow closed up 15 (+0.09%) at 16738. Action came on below average volume (NYSE 579 mln vs. avg. of 683; NASDAQ 1501 mln vs. avg. of 1847), with advancers outpacing decliners (NYSE 1619/1502, NASDAQ 1468/1188) and new highs outpacing new lows (NYSE 183/23, NASDAQ 68/68).

Relative Strength: 
Egypt-EGPT +2.14%, Biotechnology-XBI +1.98%, Insurance-KIE +1.69%, Greece-GREK +1.3%, Biotechnology-IBB +1.06%, Natural Gas-UNG +0.98%, Clean Energy-PBW +0.96%, Poland-EPOL +0.9%, Sweden-EWD +0.73%, Japan-EWJ +0.68%.

Relative Weakness: 
Vietnam-VNM -1.96%, Cotton-BAL -1.95%, Indonesia-IDX -1.85%, Copper-JJC -1.57%, Sugar-SGG -1.5%, Peru-EPU -1.33%, Latin America 40-ILF -1.14%, Volatility-VXX -1.04%, Base Metals-DBB -1.03%, China 25 Index-FXI -0.83%.

Leaders and Laggards

 

Technical Updates

Briefing's Commentaries

Closing Market Summary: Stocks Post Modest Gains With ECB On Tap
The major averages finished the Wednesday session on a modestly higher note with the Nasdaq Composite (+0.4%) in the lead. Like the Nasdaq, the Russell 2000 (+0.4%) also outperformed the S&P 500 (+0.2%), while the Dow Jones Industrial Average (+0.1%) lagged throughout the session.

For the third day in a row, the stock market maintained a narrow range amid spotty sector leadership. Trading volume remained light with just 579 million shares changing hands at the NYSE versus a long-term average of 700 million.

In all likelihood, the quiet environment was a reflection of a wait-and-see approach that has been employed by investors ahead of tomorrow's policy decision from the European Central Bank and the U.S. Nonfarm Payrolls report, which will be released on Friday at 8:30 ET (Briefing.com consensus 220K).

Tomorrow's ECB announcement has the potential to stir things up a bit as investors are anticipating some sort of action from the central bank. While the general consensus is eyeing an easing announcement, it remains unclear what type of stimulus could be introduced by President Mario Draghi tomorrow. Expectations range from a deposit rate cut to an introduction of a QE-style purchasing program, but ECB watchers are well aware that Mr. Draghi's favorite policy tool has been the threat of easing, rather than actual easing for quite some time now. The ECB decision will cross the wires at 7:45 ET with the press conference set to follow at 8:30 ET.

However, before moving into tomorrow, we would like to take a quick look at today's session, which was anything but thrilling. Seven of ten sectors finished in the green with the three largest cyclical groups—consumer discretionary (+0.4%), financials (+0.3%), and technology (+0.3%)—in the lead.

The top performer of the bunch—consumer discretionary—rallied on the back of retailers with the SPDR S&P Retail ETF (XRT 84.44, +0.64) advancing 0.8%, which pulled it back into the green for the quarter. The retail ETF swung to a quarter-to-date gain of 0.2%, but remained lower by 4.2% year-to-date.

Elsewhere, the financial sector, which has been the top performer of the week, added 0.3% with M&A activity contributing to the relative strength. Specifically, Protective Life (PL 69.36, +10.64) surged 18.1% after agreeing to be acquired by Japan's Dai-ichi Life for $70/share, representing a 19.2% premium to yesterday's closing price.

Also of note, the tech space received significant support from its largest component. Shares of Apple (AAPL 644.82, +7.28) spiked 1.1% on the record date for the upcoming 7:1 stock split. Starting Monday, the largest tech company by market cap will begin trading on a split-adjusted basis.

In addition to boosting the tech sector, Apple contributed to the relative strength of the Nasdaq Composite. However, the Nasdaq also drew strength from biotechnology as the iShares Nasdaq Biotechnology ETF (IBB 243.47, +2.55) regained its 100-day moving average, climbing 1.0%. The health care sector, meanwhile, ended in line with the S&P 500.

On the downside, energy (-0.1%), industrials (-0.1%), and telecom services (-0.3%) posted slim losses.

Treasuries ended flat after erasing their overnight gains. The 10-yr yield settled at 2.60%.

Economic data was plentiful and mostly disappointing: 

·         According to the ADP National Employment Report, employment in the nonfarm private business sector rose by 179K in May. That was below the increase of 200K expected by the Briefing.com consensus. Also of note, the April reading was revised down to 215,000 from 220,000. 

·         The trade deficit in April widened appreciably to $47.20 billion from an upwardly revised $44.20 billion (from -$40.40 billion) in March. The April number was worse than the Briefing.com consensus estimate of -$41.30 billion and was the biggest deficit since March 2012. This will be a negative component for Q2 GDP as the real trade deficit in April was 9.2% greater than the first quarter average. 

·         First quarter productivity was revised lower to -3.2% (Briefing.com consensus -2.5%) from -1.7%. That was the largest decrease in productivity since the first quarter of 2008. Hours worked increased 2.2% and output decreased 1.1%. Unit labor costs, in turn, were revised up to 5.7% (Briefing.com consensus 4.8%) from 4.2% due to the decline in productivity and the 2.3% increase in hourly compensation. 

·         The ISM Services report for May checked in at 56.3, which was above the Briefing.com consensus estimate of 55.5 and marked the highest reading for the survey since August 2013. The main takeaway was that the non-manufacturing sector continues to operate comfortably in a state of expansion as May 2014 marked the 52nd consecutive month with a reading above 50.0. 

·         The weekly MBA Mortgage Index fell 3.1% to follow last week's downtick of 1.2%. 

Tomorrow, Challenger Job Cuts for May will be reported at 7:30 ET, while weekly Initial Claims (Briefing.com consensus 310,000) will be released at 8:30 ET. 

·         S&P 500 +4.3% YTD 

·         Dow Jones Industrial Average +1.0% YTD 

·         Nasdaq Composite +1.8% YTD 

·         Russell 2000 -2.8% YTD

Commodities

Closing Commodities: Crude Oil Ends Modestly Lower, Gold Flat

·         Aug gold touched a session high of $1249.40 per ounce in early morning action following a weak ADP National Employment Report that showed employment in the nonfarm private business sector rose by 179K. This was below the Briefing.com consensus that called for an increase of 200K.

·         However, the yellow metal gave up the earlier gain as the dollar index recovered into positive territory. It brushed a session low of $1242.80 per ounce and settled at $1244.40 per ounce, or 20 cents below the unchanged line

·         July silver brushed a session high of $18.88 per ounce in morning pit trade but pulled back slightly as the session progressed. It eventually settled at $18.80 per ounce, or 0.2% higher.

·         July crude oil touched a session high of $103.72 per barrel in morning action but gave up the gain despite better-than-anticipated inventory data. The EIA reported that for the week ending May 30, crude oil inventories had a draw of 3.4 mln barrels when consensus called for a draw of 0.25-0.3 mln barrels. The energy component brushed a session low of $102.51 per barrel moments before settling with a 0.1% loss at $102.62 per barrel.

·         July natural gas came off its session low of $4.58 per MMBtu and broke into positive territory in early afternoon floor trade. It settled 0.4% higher at $4.64 per MMBtu, or just below its session high of $4.65 per MMBtu.

COMEX Metals Closing Prices

  Aug gold fell $0.20 to $1244.40/oz 

·         Gold touched a session high of $1249.40 in early morning action following a weak ADP National Employment Report that showed employment in the nonfarm private business sector rose by 179K. That was below the Briefing.com consensus that called for an increase of 200K. However, the yellow metal gave up the gain as the dollar index recovered into positive territory. It brushed a session low of $1242.80 and settled 20 cents below the unchanged line. 

  July silver rose $0.04 to $18.80/oz 

·         Silver brushed a session high of $18.88 in morning pit trade but pulled back slightly as the session progressed. It eventually settled with a 0.2% gain. 

  July copper fell 5 cents to $3.09/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         July corn fell 1 cent to $4.56/bushel 

·         July wheat rose 2 cents to $6.14/bushel 

·         July soybeans rose 1 cent to $14.83/bushel 

·         June ethanol fell 6 cents to $2.23/gallon 

·         July sugar (#16 (U.S.)) settled unchanged at 25.25 cents/lbs

NYMEX Energy Closing Prices

• July crude oil fell $0.06 to $102.62/barrel 
• July natural gas rose 2 cents to $4.64/MMBtu 
• July heating oil fell 2 cents to $2.85/gallon 
• July RBOB fell 2 cents to $2.93/gallon

 

Treasuries

Treasuries Book Fifth Day of Losses: 10-yr: unch..2.605%..USD/JPY: 102.69..EUR/USD: 1.3600

·         Treasuries fell for a fifth straight session. Click here to see an intraday yields chart.

·         An early bid had the complex on track to halt its four-day skid as trade climbed to session highs in response to the ADP Employment Change (179K actual v. 200K expected), trade balance (-$47.2 bln actual v. -$42.5 bln expected), and productivity (-3.2% actual v. -2.5% expected) misses. 

·         A better than expected ISM Services (56.3 actual v. 55.5 expected) print altered those plans as trade quickly erased its gains and slipped into the red. 

·         Today's selling caused yields across much of the curve to test key resistance levels.

·         The 5y edged up +0.7bps to 1.643%. Action finished at a three-week high and on resistance defended by the 50 dma.

·         The 10y added +1.3bps to 2.606%. The benchmark yield closed the May 13/14 gap (2.611%) while testing what was previously key support near 2.600%. Five days of selling has the 10y +20bps over the past week and at its highest level in three weeks. 

·         At the long end, the 30y climbed +0.9bps to 3.444%. Action closed on key trendline resistance off the 2014 highs, but was unable to reclaim the 50 dma (3.459%), which has not seen a finish above it since April. 

·         An unchanged curve saw the 5-30-yr spread hold @ 180bps. 

·         Precious metals were little changed with gold and silver ending @ $1244 and $18.78, respectively. 

·         Data: Challenger Job Cuts (7:30) and initial and continuing claims (8:30). 

·         Fed Speak: Minny's Kocherlakota discusses "Low Real Interest Rates" (13:30).

On other news.... 




Currencies 

Dollar Holds Key 80.50 Level: 10-yr: -03/32..2.613%..USD/JPY: 102.71..EUR/USD: 1.3600

·         The Dollar Index trades on session highs near 80.65 as trade fights for its best close in four months. Click here to see a daily Dollar Index chart.

·         The key 80.50 level will be in focus for the remainder of the week as the European Central Bank rate decision and U.S. nonfarm payroll report are due out in the days ahead.

·         EURUSD is -25 pips @ 1.3600 as trade presses the key support level ahead of tomorrow's European Central Bank rate decision. Expectations are the central bank will lower its key rates and perhaps cut its deposit rate to below zero. Some even believe the ECB will launch its own QE-style asset purchase program, but that no longer seems to be the base-case scenario. Eurozone data out tomorrow includes retail sales and German factory orders. 

·         GBPUSD is -10 pips @ 1.6740 as an uneventful trade drifts towards the close. Sterling saw some early selling test 1.6700 support, but action bounced off the level following the Services PMI beat. The Bank of England opines tomorrow with no change expected from the current 0.50% and GBP375 bln asset purchase program. 

·         USDCHF is +5 pips @ .8970 as trade remains near four-month highs. Action over much of the past week has flirted with the 200 dma, but the pair has so far avoided its first close above the level since September. Action continues to be dictated by the euro thanks to the Swiss National Bank's EURCHF1.20 floor. 

·         USDJPY is +15 pips @ 102.70 as trade looks to extend its winning streak to a fourth session. Two weeks of gains have tacked on approximately 200 pips, and have action on track for its best close in two months. 

·         AUDUSD is +5 pips @ .9270 amid a mostly uneventful day. The hard currency saw a test of .9300 and the 50 dma following the better than expected GDP print, but was not been able to hold its gains. Support in the .9225 area remains in focus. Australia's trade balance will cross the wires this evening. China's HSBC Services PMI is scheduled for release this evening. 

·         USDCAD is +30 pips @ 1.0935 as trade lifts to a one-month high. The pair found a bid following wider than expected Canadian trade deficit (CAD0.6 bln actual v. CAD0.2 bln expected) and saw some follow through after the Bank of Canada held its key rate steady at 1.00%, as expected. Resistance in the 1.0950 area is helped by the 50 dma. Canadian data is limited to building permits and Ivey PMI.

Next Week In View





Economic Commentaries

Economic Summary: ADP Employment misses expectations; April trade defect wider than expected which will negatively impact Q2 GDP; ECB decision tomorrow at 7:45
Economic Data Summary:

·         Weekly MBA Mortgage Applications -3.1% vs Briefing.com consensus of ; Last Week was

·         May ADP Employment Change 179K vs Briefing.com consensus of 200K; April was revised to 215K from 220K

o     The ADP National Employment Report indicates that professional/business services contributed the most to the lower overall number in May -- adding 46,000 jobs, down from 75,000 in April. Expansion in trade/transportation/utilities grew by 35,000, the same number of jobs added in April. The 6,000 new jobs added in financial activities was down slightly from 8,000 last month. 

·         April Trade Balance -$47.2 bln vs Briefing.com consensus of -$41.3 bln; March was revised to -$44.2 bln from -$40.4 bln

o    The trade deficit in April widened appreciably to $47.2 bln from an upwardly revised $44.2 bln (from -$40.4 bln) in March. The April number was worse than the Briefing.com consensus estimate of -$41.3 bln and was the biggest deficit since March 2012. This will be a negative component for Q2 GDP as the real trade deficit in April was 9.2% greater than the first quarter average

·         First Quarter Productivity - Rev -3.2% vs Briefing.com consensus of -2.5%; Q4 was -1.7%

·         First Quarter Unit Labor Costs 5.7% vs Briefing.com consensus of 4.8%; Q4 was 4.2%

·         May ISM Services 56.3 vs Briefing.com consensus of 55.5; April was 55.2

o    The Employment Index increased to 52.4 from 51.3, which fits with the services-led job growth reported earlier in the ADP Employment Change report for May. The Backlog of Orders Index pushed out of contraction territory, rising to 54.0 from 49.0. The Prices Index, meanwhile, ticked up to 61.4 from 60.8.

Upcoming Economic Data:

·         May Challenger Job Cuts due out Thursday at 7:30 (Briefing.com consensus of ; April was 5.7%)

·         Weekly Initial Claims due out Thursday at 8:30 (Briefing.com consensus of 310K; Last Week was 300K)

·         Weekly Continuing Claims due out Thursday at 8:30 (Briefing.com consensus of 2.650 M ; Last Week was 2.631 M )

Other International Events of Interest

·         Eurozone GDP rose 0.2% quarter-over-quarter, while the year-over-year reading increased 0.9%. Separately, PPI slipped 0.1% month-over-month, while the year-over-year reading fell 1.2%. All four figures matched estimates. Separately, Services PMI fell to 53.2 from 53.5 (consensus 53.5). 

·         BoE decision tomorrow at 7:00

·         ECB decision tomorrow at 7:45 followed by Mario Draghi press conference at 8:30

Jason's Commentaries

The market had a bearish start as the ADP report sucked and it somewhat got cancelled off market by 945am ET. Then the market rallied recovered all the way till closing bell where it ended flat once again. Being led by Russells, bouncing on the support definitely provided the technical catalyst for the market to head up higher ahead of the employment report on Friday. On Thursday, the ECB will be having a rate cute once again, driving real interest rate to be negative. However despite all these economic news, the market will be looking at Friday's employment number.

Market Call: FLAT and Volatile

Date: 5 June 2014