7 June 2014 AMC - Market broke into fresh highs as employment reports came in better than expected

7 June 2014 AMC - Market broke into fresh highs as employment reports came in better than expected

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: + 0.4%

·         France's CAC: + 0.7%

·         Spain's IBEX: + 1.7%

·         Portugal's PSI: + 1.5%

·         Italy's MIB Index: + 1.5%

·         Irish Ovrl Index: + 1.2%

·         Greece ATHEX Composite: + 1.5%

Before Market Opens 

S&P futures vs fair value: +3.90. Nasdaq futures vs fair value: +13.50.
The S&P 500 futures trade four points above fair value.

The major Asian markets ended lower, while India's Sensex (+1.5%) outperformed notably. According to Reuters, Japan's Prime Minister Shinzo Abe urged the Government Pension Investment Fund to accelerate the fund's asset allocation review, which will result in more funds being directed towards the equity market. 

·         In economic data: 

o    Japan's Leading Index fell to 106.6 from 107.1 (expected 106.2). 

o    Australia's AIG Construction Index rose to 46.7 from 45.9. 

o    South Korea's GDP increased an in-line 0.9% quarter-over-quarter, while the year-over-year reading rose 3.9%, which also met expectations. 

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·         Japan's Nikkei shed 0.01% after bouncing around its flat line for the duration of the session. Chipmaker Sumco Corp displayed noteworthy strength, surging 11.3%. On the downside, SoftBank lost 1.6%. 

·         Hong Kong's Hang Seng slumped into the close, losing 0.7%. Hong Kong & China Gas tumbled 11.4%. China Petroleum & Chemical Corp outperformed, climbing 1.3%. 

·         China's Shanghai Composite lost 0.5% after spending the entire session in the red as tech names weighed. Dongfeng Electronic Technology and Xinjiang Dushanzi Tianli High & New Tech Co both lost near 3.5%. 

·         India's Sensex rose 1.5%, ending just a shade below its session high. Oil & Natural Gas Corp soared 11.1% and GAIL India advanced 7.9%. Infosys lagged, falling 1.3%.

European indices trade higher across the board. Notably, peripheral bond yields have fallen to fresh record lows following yesterday's ECB decision to introduce additional easing measures. Italy's 10-yr yield is lower by 16 basis points at 2.77%, while Spain's 10-yr yield is down 17 basis points at 2.66%. 

·         Participants received several data points: 

o    Germany's Industrial Production rose 0.2% month-over-month (consensus 0.4%, previous -0.6%), while the trade surplus expanded to EUR17.70 billion from EUR15.00 billion (expected surplus of EUR15.20 billion). 

o    Great Britain's trade deficit widened to GBP8.92 billion from GBP8.29 billion (expected deficit of GBP8.65 billion), while Inflation Expectations slipped to 2.6% from 2.8%. 

o    French trade deficit narrowed to EUR3.90 billion from EUR4.90 billion (expected deficit of EUR5.00 billion), while the government budget deficit widened to EUR64.20 billion from EUR28.00 billion (expected deficit of EUR50.00 billion). 

o    Spain's Industrial Production rose 4.3% year-over-year (consensus 1.9%, previous 0.9%). 

o    Swiss CPI rose 0.3% month-over-month (consensus 0.2%, previous 0.1%), while the year-over-year reading ticked up 0.2% (consensus 0.1%, prior 0.0%). 

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·         Germany's DAX is higher by 0.4%. Commerzbank leads with a gain of 2.5%, while exporters BMW and Volkswagen trade higher by 0.6% and 0.8%, respectively. 

·         Great Britain's FTSE trades up 0.4%. Financials outperform with RSA Insurance and Schroders both up near 2.0%. Unilever is the weakest performer, down 1.6%. 

·         In France, the CAC holds an advance of 0.7%. AXA, Credit Agricole, and Societe Generale are up between 2.0% and 2.9%. Steelmaker Vallourec lags, down 1.9%. 

·         Spain's IBEX outperforms with a gain of 1.6% amid broad strength. Acciona, Banco de Sabadell, Bankinter, and CaixaBank are up between 1.4% and 3.6%.

U.S. Equities

·         Futures suggest a firm open following the in-line nonfarm payroll report

·         Yesterday's ECB introduction of negative deposit rates and a targeted LTRO program ran both the DJIA and S&P 500 well above their previous record highs while the Nasdaq ended 1.7% off its best levels in more than 16 years

·         The Russell 2000 continues to work its way back towards its May peak, but still remains off the level by ~5.0%

·         The VIX (11.68) remains trapped near its lowest levels since March 2013

·         Nonfarm Payrolls (217K actual v. 220K expected)

·         Nonfarm Private Payrolls (216K actual v. 230K expected)

·         Unemployment Rate (6.3% actual v. 6.4% expected)

·         Hourly Earnings (0.2% actual v. 0.2% expected)

·         Average Workweek (34.5 actual v. 34.5 expected)

o    S&P Futures +3 @ 1941

o    Dow Futures +41 @ 16,859

o    Nasdaq Futures +9 @ 3785

Asia

·         Markets ended mixed across Asia

·         Japan's Nikkei (UNCH) finished flat as trade held near a two-month high

·         Hong Kong's Hang Seng (-0.7%) and China's Shanghai Composite (-0.5%) saw modest weakness amid a mostly uneventful trade

·         India's Sensex (+1.5%) surged to yet another record-high

Market Internals

Market Internals -Technical-
Nasdaq closed up 25 points (+0.6%) at 4321, the Dow closed up 88 (+0.5%) at 16924, and the S&P 500 closed up 9 (+0.5%) at 1949. Action came on below average volume (NYSE 629 mln vs. avg. of 682; NASDAQ 1519 mln vs. avg. of 1841), with advancers outpacing decliners (NYSE 2308/806, NASDAQ 1883/751) and new highs outpacing new lows (NYSE 366/8, NASDAQ 155/23). 

Relative Strength: 
Latin America-ILF +2.5%, Vietnam-VNM +2.5%, Coffee-JO +2.3%, Corn-CORN +2.2%, Emerging Mkts. E. Europe-ESR +2.1%, Grains-JJG +1.9%, BRIC-EEB +1.9%, Russia-RSX +1.9%, Global Wind Energy-FAN +1.8%, Homebuilders-XHB +1.6%, Jr. Gold Miners-GDXJ +1.5%, Home Construction-ITB +1.5%, Oil Service-OIH +1.4% 

Relative Weakness: 
Volatility-VXX -5.0%, Hong Kong-EWH -1.2%, Copper-JJC -1.0%, Cocoa-NIB -0.8%, Diesel-Heating Oil-UHN -0.7%, Cotton-BAL -0.7%, Realty-ICF -0.6%, China-FXI -0.5%, Rare Earth Strategic Metals-REMX -0.5%

Leaders and Laggards

 

Technical Updates

Commentaries 

Closing Market Summary: Small-Caps Pace Broad Gains For the Week
The major averages finished the first week of June on an upbeat note with small-cap stocks leading the charge. The Russell 2000 gained 1.0%, extending its weekly advance to 2.7%, while the S&P 500 added 0.5% to finish the week higher by 1.3%.

Stocks spent the first 90 minutes of action in a steady climb, while the remainder of the session saw range-bound action just below the highs.

The early charge took place after the Nonfarm Payrolls report confirmed that recent trends in the labor market remain intact. Specifically, the addition of 217,000 payrolls (Briefing.com consensus 220,000) reflected a gradual improvement in the labor market, while the participation rate remained low (held at 62.8%), and hourly earnings grew modestly (+0.2%).

The middle-of-the-road report was not weak enough to cause concerns about the overall economy, but it was also not strong enough to lead to concerns about faster policy tightening from the Fed. As such, equity indices continued on their recent course.

After showing relative weakness over the past few weeks, small-cap stocks outperformed their blue chip counterparts. As a result of the increased risk tolerance among investors, the Russell 2000 rallied 2.7% this week, finishing well ahead of the Dow Jones Industrial Average, which added 1.2%.

Fittingly, growth-sensitive sectors paced today's advance with five of six cyclical groups ending ahead of the broader market. The industrial sector (+1.0%) finished in the lead, while energy (+0.8%) and financials (+0.7%) followed.

Industrials received broad support from transports and defense contractors. The Dow Jones Transportation Average (+0.9%) extended to a fresh record high, pushing its year-to-date gain to 10.9%. Defense contractors, meanwhile, were underpinned by General Electric (GE 27.18, +0.41). The largest sector component rose 1.5%, while the PHLX Defense Index climbed 0.8%.

Elsewhere, the energy space was boosted by Dow component ExxonMobil (XOM 101.60, +1.05), which rallied 1.0%. Another Dow member, Chevron (CVX 124.19, +0.67), kept pace with ExxonMobil during the session, but narrowed its gain to 0.5% into the close. For its part, crude oil added 0.3% to $102.77/bbl.

Also of note, the financial sector extended its weekly gain to 2.3%, solidifying its spot atop the leaderboard. The industrial sector was the only other group to add more than 2.0% for the week (2.2%), while the remaining cyclical groups advanced between 1.2% and 1.8%.

On the countercyclical side, the telecom services sector (unch) lost 1.2% for the week, while consumer staples (+0.3%), health care (-0.1%), and utilities (-0.4%) posted respective weekly gains of 0.3%, 0.7%, and 0.7%.

With stocks ending on their highs, the CBOE Volatility Index (VIX 10.78, -0.90) got crushed again, cratering lower by 7.6% as participants did not see the need to hedge their risk exposure. The near-term volatility measure ended at its lowest level since early 2007.

Treasuries displayed some intraday volatility, but finished the day little changed. The 10-yr note slumped ahead of the jobs report, but rallied immediately after. The gains did not hold as the benchmark note slipped back to lows over the course of the session. The 10-yr note shed three ticks with its yield rising one basis point to 2.59% after notching a low at 2.53%.

Once again, participation was well below average with 629 million shares changing hands at the NYSE floor.

Taking another look at today's data: 

·         Nonfarm payrolls increased by 217,000 (Briefing.com consensus 220,000) 

o    April nonfarm payrolls were revised to 282,000 from 288,000 

·         Total private payrolls increased by 216,000 (Briefing.com consensus 230,000) 

o    April private payrolls were revised to 270,000 from 273,000 

·         The unemployment rate held at 6.3% (Briefing.com consensus 6.4%) 

o    The U6 unemployment rate, which also accounts for marginally attached workers and people employed part-time for economic reasons, dipped to 12.2% from 12.3% 

·         Average hourly earnings increased 0.2% (Briefing.com consensus 0.2%) 

·         The average workweek was 34.5 hours (Briefing.com consensus 34.5) 

·         Consumer credit increased a robust $26.80 billion in April from an upwardly revised increase of $19.50 billion (from $17.50 billion) in March. That April figure was well above the Briefing.com consensus estimate of $15.00 billion. 

o    Revolving credit increased by $8.80 billion, from $861.60 billion to $870.40 billion, suggesting consumers were doing more purchasing with credit cards 

o    Once again, though, it was non-revolving credit that led the increase, surging $18.00 billion to $2,304.60 billion from $2,286.60 billion 

Monday's session will be free of noteworthy economic data. 

·         S&P 500 +5.5% YTD 

·         Nasdaq Composite +3.5% YTD 

·         Dow Jones Industrial Average +2.1% YTD 

·         Russell 2000 +0.1% YTD

Commodities

Closing Commodities: Gold Rises 0.5% On The Week, Crude Oil Falls 0.1%

·         Aug gold touched a session high of $1258.20 per ounce in early morning action following the Nonfarm Payrolls report that showed an addition of 217K payrolls vs the Briefing.com consensus of 220K.

·         However, the yellow metal fell to a session low of $1245.70 per ounce moments after equity markets opened and remained in negative territory for the remainder of pit trade. It settled with a 0.1% loss at $1252.70 per ounce, booking a gain of 0.5% for the week.

·         July silver also pulled back from its session high of $19.20 per ounce set shortly after floor trade opened and traded as low as $18.88 per ounce. It eventually settled with a 0.5% loss at $19.00 per ounce, cutting gains for the week to 1.8%.

·         July crude oil touched a session high of $103.12 per barrel moments after floor trade opened but slipped into the red and to a session low of $102.27 per barrel in late morning action. It managed to recover back into positive territory and settled 0.2% higher at $102.67 per barrel, booking a loss of 0.1% for the week.

·         July natural gas came off its session low of $4.68 per MMBtu and rose as high as $4.74 per MMBtu. It pulled back heading into the close and settled 0.4% higher at $4.71 per MMBtu, gaining 3.7% for the week.

COMEX Metals Closing Prices

  Aug gold fell $0.80 to $1252.70/oz 

·         Gold touched a session high of $1258.20 in early morning action following the Nonfarm Payrolls report that showed the addition of 217,000 payrolls vs the Briefing.com consensus of 220,000. However, the yellow metal fell to a session low of $1245.70 moments after equity markets opened and remained in negative territory for the remainder of the session. It settled with a 0.1% loss, booking a 0.5% gain for the week. 

  July silver fell $0.09 to $19.00/oz 

·         Silver also pulled back from its session high of $19.20 set shortly after floor trade opened and traded as low as $18.88. It eventually settled with a 0.5% loss, cutting gains for the week to 1.8%. 

  July copper fell 4 cents to $3.05/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         July corn rose 9 cents to $4.58/bushel 

·         July wheat rose 14 cents to $6.19/bushel 

·         July soybeans fell 4 cents to $14.57/bushel 

·         June ethanol rose 5 cents to $2.16/gallon 

·         July sugar (#16 (U.S.)) settled unchanged at 25.00 cents/lbs

NYMEX Energy Closing Prices

  July crude oil rose $0.16 to $102.67/barrel 

·         Crude oil touched a session high of $103.12 moments after floor trade opened but slipped into the red and to a session low of $102.27 in late morning action. It managed to recover back into positive territory and settled 0.2% higher, booking a loss of 0.1% for the week. 

  July natural gas rose 2 cents to $4.71/MMBtu 

·         Natural gas came off its session low of $4.68 in morning action and rose as high as $4.74. It pulled back heading into the close and settled 0.4% higher, gaining 3.7% for the week. 

  July heating oil fell 1 cent to $2.87/gallon

  July RBOB fell 2 cents to $2.94/gallon



Treasuries

Yields Close on Key Resistance: 10-yr: -03/32..2.593%..USD/JPY: 102.55..EUR/USD: 1.3642
The Week in Review

·         Treasuries posted weekly losses with trade slipping in four of five sessions despite mostly disappointing data. Click here to see an intraweek yields chart.

·         Construction spending (0.2% actual v. 0.7% expected), ADP Employment Change (179K actual v. 200K expected), the trade balance (-$47.2 bln actual v. -$41.3 bln expected), and productivity-rev. (-3.2% actual v. -2.5% expected) all fell short of estimates. 

·         Factory orders (0.7% actual v. 0.5% expected), unit labor costs (5.7% actual v. 4.8% expected), and ISM Services (56.3 actual v. 55.5 expected) topped forecasts. 

·         Friday's nonfarm payroll report (217K actual v. 220K expected) slightly missed estimates while the unemployment rate held steady at 6.3%. 

·         Thursday's Fed Beige Book release suggested the U.S. economy continues to grow at a modest to moderate pace. 

·         This week's European Central Bank policy meeting saw the central bank cut its deposit rate to -0.10%, making it the first major central bank to experiment with negative rates. The ECB also indicated it will conduct targeted LTROs while also laying the groundwork for ABS purchases. 

·         The 5y climbed +9bps on the week to finish @ 1.651%. The yield posted its highest weekly close in a month and settled on resistance guarded by the 50 dma.

·         A +11bp jump in the 10y ran the benchmark yield up to 2.597%. Current levels will be watched closely in the days ahead as the 2.600% area had served as key support from early-February to mid-May. 

·         At the long end, the 30y climbed +11bps to 3.437%. Many traders will continue to monitor the 3.450% area into next week as trendline resistance and the 50 dma lurk at the level. 

·         Selling swung the curve steeper as the 5-30-yr spread widened to 178.5bps. 

The Week Ahead 

·         There is no data on Monday. STL's Bullard discusses monetary policy and the economy (9:10). Boston's Rosengren will be in Guatemala City, Guatemala to take part in the XXIII Cycle of Economic Lectures (13:30). 

·         Tuesday's data includes wholesale inventories and JOLTs Job Openings (10). Treasury will auction $28 bln 3y notes.

·         Wednesday will see the weekly MBA Mortgage Index (7) and the Treasury budget (14). Treasury will reopen $21 bln 10y notes. 

·         Data picks up on Thursday as initial and continuing claims, retail sales, import/export prices (8:30), and business inventories (10) are released. Treasury will hold a $13 bln 30y bond reopening.

·         Data concludes for the week on Friday with PPI (8:30) and Michigan Sentiment (9:55).

On other news.... 




Currencies 

Dollar Drifts Amid Lackluster Trade: 10-yr: -04/32..2.593%..USD/JPY: 102.56..EUR/USD: 1.3636

·         The Dollar Index clings to small gains near 80.45 amid an uneventful session. Click here to see a daily Dollar Index chart.

·         This morning's in-line jobs report dropped action to session lows near 80.25 before buyers emerged and ran the Index back up to the 80.50 resistance level.

·         Some light selling dropped action to 80.45 where the Index has spent the better part of three hours locked in a tight five cent range. 

·         EURUSD is -25 pips @ 1.3635 as trade sees come give back following yesterday's squeeze. Today's decline comes despite the larger than expected German trade balance and has action flirting with support in the 1.3600 region. Notable was the action in peripheral yields as both the Italian (2.745%) and Spanish (2.640%) 10y tumbled -19bps to fresh record lows. French and German banks are closed for Whit Monday.

·         GPBUSD is -15 pips @ 1.6800 as some selling takes hold near the resistance level. Action has been relatively muted, seeing little response to the wider than expected trade deficit and drop in consumer inflation expectations.

·         USDCHF is +20 pips @ .8935 amid a rather lackluster trade. The pair found support early on in the session near .8920 before rallying to session highs near .8950. Many traders have looked elsewhere for opportunity as trade has held in a tight 5 pip range for much of U.S. trade. Swiss banks are closed for Whit Monday. 

·         USDJPY is +15 pips @ 102.60 as trade has recovered half of yesterday's losses. Early buying emerged at support in the 102.20 area; however, a sleepy session has taken hold, causing action to hover near the highs. Japan's current account balance and Final GDP will be released Sunday evening.

·         AUDUSD is flat @ .9335 as the bulls attempt to put in a fourth day of gains. Minor resistance in the .9360 area will be watched closely in the days ahead. Australian banks are closed Monday in observance of the Queen's Birthday. China's trade balance is tentatively scheduled for Sunday evening. 

·         USDCAD is +10 pips @ 1.0930. Trade saw little response to the slightly better than expected Canadian jobs report (25.8K actual v. 24.5K expected) as the unemployment rate ticked up to 7.0% (6.9% expected, 6.9% previous). The 1.0950 area provides minor resistance and is defended by the 50 dma. Canada's housing starts will cross the wires Monday.

Weekly Analysis
Week 23

Week in Review: Small-Caps Surge

The stock market kicked off June on an unassuming note. The S&P 500 added 0.1% after spending the bulk of the day near its flat line, while the Nasdaq Composite (-0.1%) and Russell 2000 (-0.5%) underperformed throughout the session. Equity indices displayed slim gains at the open, but small-cap stocks struggled from the get go. The major averages then had the rug pulled out from under them after a disappointing ISM Index for May (53.2 versus Briefing.com consensus 55.6) crossed the wires. Although stocks slumped to lows in reaction to the report, they were able to trim their losses over the next 90 minutes. The Nasdaq and Russell 2000 could not return into positive territory, while the Dow and S&P 500 managed to regain their flat lines. The recovery in the blue chip indices was assisted by headlines indicating that the original ISM report did not contain the correct seasonal adjustment data. Those headlines were accompanied by reports suggesting 56.0 was the correct reading for May, but when the final release from the ISM crossed the wires, it revealed that the index climbed to 55.4 and not 56.0.

On Tuesday, the stock market finished on a modestly lower note, but small-cap stocks underperformed once again. The Russell 2000 slipped 0.2%, while the S&P 500 snapped its three-day win streak, shedding less than a point. Equity indices faced an uphill climb from the opening bell, but the S&P 500 was able to cut the bulk of its losses during the initial 45 minutes of action; however, the early rebound attempt was stonewalled by the underperformance of small-caps. With high-beta names unable to gain any significant traction, the benchmark index returned to its earlier low. The S&P 500 then staged another recovery, which placed it right below its flat line by the close. To be sure, the (nearly) flat finish reflected a lack of concerted sector leadership during the trading day. On the cyclical side, energy (+0.3%) and financials (+0.1%) posted modest gains, while the remaining four sectors lost between 0.1% and 0.3%.

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. The quiet trading environment was a reflection of a wait-and-see approach employed by investors ahead of Thursday's policy decision from the European Central Bank and Friday's U.S. Nonfarm Payrolls report.

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. Prior to the open, 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. The 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.

Technical Updates

Briefing's Commentaries

Next Week In View





Economic Commentaries

Economic Summary: Nonfarm Payrolls roughly in line with expectations; Unemployment rate ticks down to 6.3%
Economic Data Summary:

·         May Nonfarm Payrolls 217K vs Briefing.com consensus of 220K; April was revised to 282K from 288K

·         May Nonfarm Private Payrolls 216K vs Briefing.com consensus of 230K; April was revised to 270K from 273K

o    The brief summation is that the May employment data conveyed more of the same: continued, gradual improvement in the labor market, a low participation rate, and only modest growth in hourly earnings. The added takeaway for the capital markets is that there is no basis to think expectations for the first rate hike by the Fed need to be moved forward. 

·         May Unemployment Rate 6.3% vs Briefing.com consensus of 6.4%; April was 6.3%

·         May Hourly Earnings 0.2% vs Briefing.com consensus of 0.2%; April was 0.0%

·         May Average Workweek 34.5 vs Briefing.com consensus of 34.5; April was 34.5

Upcoming Economic Data:

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

Upcoming Fed/Treasury Events:

·         Saint Louis Fed President James Bullard (non-voter, typically dovish) to speak Monday at 9:10

·         Boston Fed President Eric Rosengren (non voter, dovish) to speak Monday at 13:30

Jason's Commentaries


It seems that market is on a crazy rally and the NFP managed to do better than expected again. Market broke into the high once again on a not very fantastic volume. Over the weekend to Monday, there's no economic news coming out at all. On the technical side, the Nasdaq and the Small caps are leading the whole market. Industrials, Financials and Energy were the main leader in the market on Friday night, Utilities were lagging. It seems that the market might stay up for a while before correcting once again. We do not have much economic news this week, which means we're likely to be affected by technical factors. Monday is likely to be profit taking today...

Market Call: FLAT to Downside

Date: 9 June 2014