5 June 2014 AMC - Market rallied ahead of employment data as small caps led ( delayed due to modem issues.. some data missing)

5 June 2014 AMC - Market rallied ahead of employment data as small caps led ( delayed due to modem issues.. some data missing)

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: + 0.2%

·         France's CAC: + 1.1%

·         Spain's IBEX: + 1.1%

·         Portugal's PSI: + 1.0%

·         Italy's MIB Index: + 1.5%

·         Irish Ovrl Index: + 0.3%

·         Greece ATHEX Composite: + 2.8%

Before Market Opens 

S&P futures vs fair value: +3.50. Nasdaq futures vs fair value: +5.50.
The S&P 500 futures trade four points above fair value.

Asian markets ended the Thursday session on a mixed note as participants awaited the policy decision from the ECB. 

·         Economic data was limited: 

o    China's HSBC Services PMI slipped to 50.7 from 51.4. 

o    Hong Kong's Manufacturing PMI fell to 49.1 from 49.7. 

o    Australia's trade balance swung from a surplus of $902 million to a deficit of $122 million (expected surplus of $300 million). 

------ 

·         Japan's Nikkei added 0.1%, climbing off its low into the close. Sharp and Mitsumi Electric ended among the leaders with gains close to 3.5% apiece. 

·         Hong Kong's Hang Seng spent the entire session in the red, shedding 0.2%. CNOOC was the weakest performer, down 2.2%. Consumer names also lagged with Belle International and Want Want China Holdings down near 1.2%. 

·         China's Shanghai Composite gained 0.8%, climbing into the close after spending the bulk of the session near its flat line. Shaanxi Aerospace jumped 6.5%. 

Major European indices trade higher across the board. The European Central Bank cut all three interest rates. The bank lowered its main refinancing rate to 0.15% from 0.25%, lowered its marginal lending facility to 0.40% from 0.75%, and cut its deposit facility rate to -0.1% from 0.0%. In addition, the ECB announced the deployment of a targeted LTRO program, while saying preparation work for ABS purchases has begun. The euro slumped in reaction, sliding into the 1.3500 area from 1.3600 against the dollar. 

·         Participants received several data points: 

o    Eurozone Retail Sales increased 0.4% month-over-month (consensus 0.1%, previous 0.1%), while the year-over-year reading rose 2.4% (forecast 1.3%, prior 1.0%). Separately, Retail PMI fell to 49.9 from 51.2. 

o    Germany's Factory Orders jumped 3.1% month-over-month (consensus 1.3%, previous -2.8%). 

o    The Bank of England held its key interest rate and purchasing program unchanged at their respective 0.5% and GBP375 billion. Great Britain's Halifax House Price Index increased 3.9% month-over-month (forecast 0.7%, prior -0.3%), while the year-over-year reading surged 8.7% (consensus 7.4%, previous 8.5%). 

o    French Unemployment Rate held steady at 10.1% (expected 10.3%). 

------ 

·         Great Britain's FTSE is higher by 0.3%. Smith & Nephew leads with a gain of 4.1% in reaction to takeover talks. Homebuilder Persimmon lags with a loss of 6.0% amid speculation the Bank of England could take steps to slow the rapid rise in home prices. 

·         Germany's DAX trades up 0.7%. Commerzbank leads with a gain of 3.0%, while exporters BMW and Daimler follow not far behind with gains close to 1.2% apiece. 

·         In France, the CAC sports an advance of 1.6%. Credit Agricole and Societe Generale hold respective gains of 2.8% and 4.6%. 

·         Italy's MIB outperforms with a gain of 2.1%. Bankinter, Banco Bilbao Vizcaya Argentaria, Banco de Sabadell, and CaixaBank are up between 1.8% and 2.6%.

U.S. Equities

·         Equity futures point to a firm open following the European Central Bank rate cuts

·         The early bid has both the DJIA and S&P 500 on track to open in record territory as trade looks for its 11th gain in the past 14 sessions

·         The VIX (12.08) contends with key resistance in the area

·         Initial Claims (312K actual v. 310K expected)

·         Continuing Claims (2603K actual v. 2650K expected)

·         Challenger Job Cuts (45.5%)

o    S&P Futures +5 @ 1931

o    Dow Futures +57 @ 16775

o    Nasdaq Futures +7 @ 3571

Asia

·         Markets were mixed across Asia

·         Japan's Nikkei (+0.1%) eked out a gain to post its best close in almost three months

·         China's Shanghai Composite (+0.8%) gained for the first time in five sessions despite HSBC Services PMI slipping to 50.4 (51.4 previous)

·         Hong Kong's Hang Seng (-0.2%) slipped

·         Australia's ASX (-0.2%) saw a third day of selling following today's surprise trade deficit (-AUD0.12 bln actual v. AUD0.40 bln expected, AUD0.90 bln previous) 

·         India's Sensex (+0.9%) rallied to another record high 

Market Internals

Market Internals -Technical-
The Nasdaq closed up 44 (1.03%) at 4295, the S&P 500 closed up 12 (0.62%) at 1940, and the Dow closed up 96 (0.57%) at 16833. Action came on slightly below average volume (NYSE 609 mln vs. avg. of 682; NASDAQ 1793 mln vs. avg. of 1841), with advancers outpacing decliners (NYSE 2447/701, NASDAQ 2098/579) and new highs outpacing new lows (NYSE 308/19, NASDAQ 117/43).

Relative Strength: 
Egypt-EGPT +4.7%, Greece-GREK +3.69%, Turkey-TUR +3.49%, Smart Grid Infrastructure-GRID +2.67%, Silver Miners-SIL +2.56%, Russel 2000-IWM +2.55%, Italy-EWI +2.32%, Biotechnology-XBI +2.1%, Regional Banks-KRE +2.1%, Malaysia-EWM +1.98%.

Relative Weakness: 
Volatility-VXX -3.62%, Corn-CORN -1.47%, Sugar-SGG -1.32%, Copper Miners-COPX -0.79%, Sweden-EWD -0.57%.

Leaders and Laggards

 

Technical Updates

Briefing's Commentaries

Closing Market Summary: Stocks Climb While ECB Announces Additional Easing
The stock market finished the Thursday session on an upbeat note after receiving a shot in the arm from an easing announcement made by the European Central Bank. Small-cap stocks led the way with the Russell 2000 climbing 2.1%, while the S&P 500 advanced 0.7% with all ten sectors posting gains.

This morning, the European Central Bank announced several easing measures after the past few months were filled with speculation surrounding potential stimulus from the ECB. The central bank lowered all three of its interest rates (main refinancing rate to 0.15% from 0.25%, marginal lending facility rate to 0.40% from 0.75%, and deposit facility rate to -0.10% from 0.00%), announced the deployment of a targeted long term refinancing operation [LTRO], and said preparations for purchases of asset-backed securities have begun. In addition, the ECB announced it will stop sterilizing purchases under its Securities Market Program [SMP].

One of the factors that forced the action was the continued strength of the euro, which has been stubbornly holding just below its best level since late 2011. Today's announcement knocked the single currency down...for about three hours. The euro/dollar pair slumped from 1.3600 to 1.3500 following the announcement, but rallied all the way to 1.3655 by the end of the New York session. Conversely, the Dollar Index (80.39, -0.28), which was boosted initially, slumped to lows by the close.

Meanwhile, equity indices began with slim gains, but slipped into the red during the first hour of action. However, that weakness did not stick as small-caps bounced, taking the broader market along for the ride.

To be sure, the market also received an encouraging push from fund manager David Tepper, who said his chief market concerns have been alleviated by today's ECB action. This came after Mr. Tepper caused quite a market stir with a comment not that long ago that "it's nervous time" and that he wouldn't advise getting "too freakin' long." In all fairness, Mr. Tepper did not advise shorting the market in his prior comments, but today's remarks were decidedly more optimistic.

The industrial sector (+1.1%) ended in the lead, thanks in part to a 6.7% gain in the shares of Joy Global (JOY 61.70, +3.85) after the company reported better than expected earnings. Dow component Caterpillar (CAT 106.96, +2.65) rallied in sympathy, while other areas of the sector like defense contractors (PHLX Defense Index +1.5%) and transport stocks (Dow Jones Transportation Average +0.8%) also displayed relative strength.

Industrials notwithstanding, three of the remaining five cyclical sectors also finished ahead of the broader market, while energy (+0.6%) and materials (+0.4%) lagged. Meanwhile, the countercyclical side saw relative strength among utilities (+0.8%), while consumer staples (+0.4%), health care (+0.2%), and telecom services (+0.04%) lagged.

Interestingly, the underperformance of the health care sector did not stop biotechnology from rallying alongside other high-growth names. The iShares Nasdaq Biotechnology ETF (IBB 245.19, +1.72) climbed 0.7%.

Strikingly, the broad-based rally did not lure money away from the Treasury market. The 10-yr note slumped immediately following the release, but rallied off those lows, ending higher by five ticks with its yield down two basis points at 2.58%.

Today's participation marked an improvement from recent days, but the final tally of 615 million was still below the longer-term average of 700 million.

Economic data was limited: 

·         Initial claims for the week ending May 31 were 312,000. That was up 8,000 from an upwardly revised reading of 304,000 (from 300,000) in the prior week and basically in-line with the Briefing.com consensus estimate. According to the Department of Labor, there were no special factors impacting the initial claims reading. The latest entry left the four-week moving average at 310,250, down 2,250 from the previous week's revised average. That is the lowest four-week moving average since June 2007. 

·         Continuing claims fell by 20,000 to 2.603 mln (Briefing.com consensus 2.650 mln) for the week ending May 24 versus a downwardly revised 2.623 mln (from 2.631) in the prior week. That left the four-week moving average for this series at 2.635 mln, down 18,250 from the prior week. That is the lowest level since December 2007. 

Tomorrow, the Nonfarm Payrolls report for May will be released at 8:30 ET (Briefing.com consensus 220K), while the April Consumer Credit report (consensus $15.00 billion) will cross the wires at 15:00 ET. 

·         S&P 500 +5.0% YTD 

·         Nasdaq Composite +2.9% YTD 

·         Dow Jones Industrial Average +1.6% YTD 

·         Russell 2000 -0.7% YTD

Commodities

Closing Commodities: Gold Rises 0.7%, Crude Oil Falls Modestly

·         August gold came off its session low of $1243.00 per ounce and rallied to a session high of $1257.90 per ounce in early morning action after the European Central Bank announced several easing measures.

·         The ECB lowered all three of its interest rates and said preparations for purchases of asset-backed securities have begun. The yellow metal consolidated near the $1254.00 per ounce level for the remainder of the session and settled with a 0.7% gain at $1253.50 per ounce.

·         July silver also popped on the announcement and touched a session high of $19.16 per ounce. It eventually settled at $19.09 per ounce, or 1.5% higher.

·         July crude oil traded in negative territory for most of today's floor trade. It brushed a session high of $102.75 per barrel in late morning action after trading as low as $101.57 per barrel earlier in the session. It quickly retreated back into the red and eventually settled with a 0.1% loss at $102.51 per barrel.

·         July natural gas sold off to a session low of $4.59 per MMBtu following inventory data that showed a build of 119 bcf when a smaller build of 114-116 bcf was anticipated. However, buyers stepped in and took prices back into positive territory by afternoon action. Natural gas climbed as high as $4.72 per MMBtu and settled with a 1.1% gain at $4.69 per MMBtu.

COMEX Metals Closing Prices

  Aug gold rose $8.60 to $1253.50/oz 

·         Gold came off its session low of $1243.00 and rallied to a session high of $1257.90 in early morning action after the European Central Bank announced several easing measures. The ECB lowered all three of its interest rates and said preparations for purchases of asset-backed securities have begun. The yellow metal consolidated near the $1254.00 level for the remainder of the session and settled with a 0.7% gain. 

  July silver rose $0.29 to $19.09/oz 

·         Silver also popped in morning pit trade and touched a session high of $19.16. It eventually settled with a 1.5% gain. 

  July copper settled unchanged at $3.09/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         July corn fell 7 cents to $4.49/bushel 

·         July wheat fell 9 cents to $6.05/bushel 

·         July soybeans fell 22 cents to $14.61/bushel 

·         June ethanol fell 1 cent to $2.11/gallon 

·         July sugar (#16 (U.S.)) fell 0.25 of a penny to 25.00 cents/lbs

NYMEX Energy Closing Prices

  July crude oil fell $0.11 to $102.51/barrel 

·         Crude oil traded in negative territory for most of today's floor trade. It brushed a session high of $102.75 in late morning action after trading as low as $101.57 shortly before equity markets opened. It quickly retreated back into the red and eventually settled with a 0.1% loss. 

  July natural gas rose 5 cents to $4.69/MMBtu 

·         Natural gas sold off to a session low of $4.59 following inventory data that showed a build of 119 bcf when a smaller build of 114-116 bcf was anticipated. However, buyers stepped in and took prices back into positive territory by afternoon action. Natural gas climbed as high as $4.72 and settled with a 1.1% gain. 

  July heating oil rose 3 cents to $2.88/gallon 

  July RBOB rose 3 cents to $2.96/gallon

Treasuries

Treasuries See First Advance in Six Sessions: 10-yr: +06/32..2.584%..USD/JPY: 102.41..EUR/USD: 1.3656

·         Treasuries gained for the first time in six days. Click here to see an intraday yields chart.

·         The complex held small gains into the cash open and drifted at those levels into the European Central Bank rate decision. 

·         Initial reaction to the ECB action was to sell Treasuries, sending yields to multi-week highs.

·         Buyers emerged as yields tested key resistance levels, and managed to run maturities back into positive territory where they held for the remainder of the session.

·         A -1.8bp decline dropped the 5y to 1.625%. The yield probed 1.650% resistance before sliding back below the 50 dma, avoiding its highest close in three weeks. 

·         The 10y shed -2.2bps, closing @ 2.584%. The benchmark yield got as high as 2.646% before slipping below the key 2.600% level.

·         At the long end, the 30y eased -1.2bps to 3.432%. Early selling provided a test of 3.500%, but action managed to press back below trendline resistance and the 50 dma that lurk in the 3.450% region. 

·         A slightly steeper curve took hold as the 5-30-yr spread widened to 180.5bps. 

·         Precious metals posted solid gains as gold climbed $9 to $1253 and silver rallied $0.23 to near $19.03.

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

On other news.... 

Capesize shipping rates rise $1,010 or +8% overnight to $13,685/day, but panamax and supramax rates fall. Capesize up 25% on the week

·         Drybulk shipping rates, as measured by the Baltic Dry Index (BDI), rose 18 pts to 977 overnight, completely driven by strength in capesize rates

·         Capesize rates rose $1,010 to $13,685/day. For the week, rates are up $2,702 or +25%.

·         Panamax rates fell $230/day (or -3.6%) to $6,080/day (down 3% on the week) and Supramax rates fell 1.1% (or $98/day) to $8,482/day (down 2.3% on the week)

·         Related drybulk stocks include: DRYS, GNK, PRGN, DSX, FREE, EGLE, NM, NMM, SBLK, KEX, SB, SINO, BALT, SHIP, DCIX.

Who has exposure to what ship?
Exposure of ships by company is as follows:

·         The companies with Capesize ships include DSX, DRYS, GNK, SBLK, NMM and NM

·         Shippers that have Panamax ships are DRYS, DSX, GNK, NM, PRGN, NMM and SB

·         Shippers that have Supramax ships are EGLE

·         Shipping companies with exposure to both Capesize and Panamax ships include DRYS, DSX, NMM and NM

Currencies

Dollar Reverses into the Red: 10-yr: +07/32..2.577%..USD/JPY: 102.44..EUR/USD: 1.3656

·         The Dollar Index presses session lows near 80.35 as trade has seen a sharp reversal during today's session. Click here to see a daily Dollar Index chart.

·         The Index surged to a four-month high above 81.00 in response to this morning's European Central Bank action, but has since given up those gains and is now threatening its lowest close in almost two weeks. 

·         The inability to hold the 80.50 level is troubling for dollar bulls.

·         EURUSD is +60 pips @ 1.3660 as trade squeezes back above the 200 dma. The single currency plunged to its lowest levels since early February after the ECB announced it was cutting its main refinancing rate to 0.15% (0.25% previous), deposit facility rate to -0.10% (0.00% previous), and marginal lending facility rate to 0.40% (0.75% previous) while also implementing a targeted LTRO and prepping for ABS purchases. Action is contending with its best close in two weeks with trade nearing key 1.3700 resistance. Germany's trade balance will cross the wires tomorrow. 

·         GBPUSD is +80 pips @ 1.6815 as buyers take control for the first time in four days. Today's Bank of England rate decision went as expected with the central bank holding its key rate and asset purchase program at 0.50% and GBP375 bln. British data out tomorrow includes consumer inflation expectations and the trade balance. 

·         USDCHF is -50 pips @ .after seeing a sharp reversal amid today's trade. The pair spiked to nearly a four-month high after the ECB rate cut was announced, but has surrendered those gains and is now probing its worst levels of the day. Today's action is key as trade was finally able to break out above the 200 dma (.8978), but now looks likely to close at a three-week low. Switzerland's foreign currency reserves and CPI are due out tomorrow.

·         USDJPY is -30 pips @ 102.40 as trade pulls back following four days of gains. Support in the 102.25 area is guarded by the 50 and 100 dma and will be watched closely. 

·         AUDUSD is +70 pips @ .9345 as trade nears three-week highs. The hard currency saw some early weakness on the heels of the unexpected Australian trade deficit and Chinese HSBC Services PMI miss, but saw a reversal as risk assets gained following the ECB announcement. Resistance in the .9400 area will be watched in the days ahead.

·         USDCAD is -20 pips @ 1.0920 as sellers take control for the first time in five days. Today's selling comes despite Canada's building permits (1.1% MoM actual v. 4.1% MoM expected) and Ivey PMI (48.2 actual v. 56.3 expected, 54.1 previous) both falling well short of estimates, and has dropped action back below the 50 dma. Minor support rests near 1.0900, but 1.0850 is the more important level. Canadian data is heavy as employment change, unemployment rate, and labor productivity are scheduled for tomorrow.

Next Week In View





Economic Commentaries

Economic Summary: Jobless claims rise slightly faster than expected; NFP's tomorrow at 8:30; ECB cuts rates, will launch a target LTRO program, and is prepping for ABS purchases
Economic Data Summary:

·         May Challenger Job Cuts 45.5% vs Briefing.com consensus of ; April was 5.7%

·         Weekly Initial Claims 312K vs Briefing.com consensus of 310K; Last Week was revised to 304K from 300K

·         Weekly Continuing Claims 2.603 M vs Briefing.com consensus of 2.650 M ; Last Week was revised to 2.623 M from 2.631 M

o    Initial claims for the week ending May 31 were 312,000. That was up 8,000 from an upwardly revised reading of 304,000 (from 300,000) in the prior week and basically in-line with the Briefing.com consensus estimate. According to the Department of Labor, there were no special factors impacting the initial claims reading.

Upcoming Economic Data:

·         May Nonfarm Payrolls due out Monday at 8:30 (Briefing.com consensus of 220K; April was 288K)

·         May Nonfarm Private Payrolls due out Monday at 8:30 (Briefing.com consensus of 230K; April was 273K)

·         May Unemployment Rate due out Monday at 8:30 (Briefing.com consensus of 6.4%; April was 6.3%)

·         May Hourly Earnings due out Monday at 8:30 (Briefing.com consensus of 0.2%; April was 0.0%)

·         May Average Workweek due out Monday at 8:30 (Briefing.com consensus of 34.5; April was 34.5)

·         April Consumer Credit due out Monday at 15:00 (Briefing.com consensus of $15.0 bln; March was $17.5 bln)

Other International Events of Interest

·         The main refinancing operations rate was cut to 0.15% (0.25% previous), the deposit facility rate was lowered to -0.10% (0.00% previous), and the marginal lending facility was dropped to 0.40% (0.75% previous)

·         Accompanying comments from the Mario Draghi press conference indicate the central bank will launch a target LTRO program and is prepping for ABS purchases

Jason's Commentaries

It seems that the market is likely to continue going higher after much better than expected non-farm payrolls today. And after the market broke out technically. There's no reason to be bearish now. However, Monday is likely to have some retracement.

Market Call: UP

Date: 6 June 2014