2 July 2014 AMC - Market mixed as ADP report went well over expectation and Yellen's speech

2 July 2014 AMC - Market mixed as ADP report went well over expectation and Yellen's speech

Market Summary 

Before Market Opens 

S&P futures vs fair value: +1.00. Nasdaq futures vs fair value: +2.50.
The S&P 500 futures trade one point above fair value.

Asian markets ended a relatively quiet Wednesday session with broad gains. Press reports in China indicate the Bureau of Statistics may add intellectual property to its GDP calculation. 

·         Economic data was limited: 

o    Japan's Monetary Base expanded 42.6% year-over-year (expected 48.3%, previous 45.6%) 

o    Australia's trade deficit widened to $1.91 billion from $780 million (expected deficit of $120 million) as imports fell 1% (prior 2%) and exports dropped 5% (-1% previous) 

o    New Zealand's ANZ Commodity Price Index fell 0.9% month-over-month (previous -2.2%) 

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·         Japan's Nikkei added 0.3%, ending just above its session low. Exporters Suzuki Motor and NEC displayed strength with respective gains of 4.9% and 4.1%. Producers of basic materials lagged with Sumitomo Osaka Cement and Tokuyama both down near 2.4% 

·         Hong Kong's Hang Seng rallied 1.6% into the close with help from casino and gaming names. Galaxy Entertainment surged 4.8% and Tencent Holdings advanced 3.9% 

·         China's Shanghai Composite rose 0.4%, climbing from a session low to a fresh high during the final two hours of action. Shipping-related names outperformed. Dalian Port and Rizhao Port both surged 10.0% 

Major European indices trade mostly higher. French Prime Minister Manuel Valls commented on the euro, saying the single currency was overvalued, which calls for more action from the European Central Bank. Today, the euro has slid below its 200-day moving average, falling to 1.3650 against the dollar. 

·         In economic data: 

o    Eurozone Q1 GDP was left unrevised at 0.2% quarter-over-quarter and 0.9% year-over-year, as expected. Separately, PPI slipped 0.1% month-over-month, while the year-over-year reading fell 1.0%. Both figures matched expectations. 

o    Great Britain's. Nationwide HPI rose 1.0% month-over-month (consensus 0.6%, previous 0.7%), while the year-over-year reading surged 11.8% (expected 11.2%, prior 11.1%). Separately, Construction PMI improved to 62.6 from 60.0 (expected 59.5) 

o    Spain's Unemployment Claims declined 122,700 (expected -97,300, prior -111,900) 

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·         In France, the CAC is lower by 0.2%. Carrefour outperforms with a gain of 3.2%, while telecom service provider Orange is the weakest listing, down 3.6% 

·         Germany's DAX is higher by 0.1%. Growth-sensitive names like ThyssenKrupp and Daimler are up 1.8% and 1.0%, respectively. Deutsche Lufthansa lags, down 2.6%. 

·         Great Britain's FTSE trades up 0.3% with financials showing strength. Ashtead Group, HSBC Holdings, and Standard Chartered hold gains between 0.9% and 2.0%. 

·         Italy's MIB is higher by 0.7% thanks to broad strength. Mediaset leads with a 3.0% increase.

U.S. Equities

·         Equity futures suggest small gains at the open as the major averages look to build on yesterday's surge to start the third quarter

·         The DJIA, Russell 2000, and S&P 500 all ended yesterday's session in record territory while the Nasdaq settled at its best level in more than 14 years

·         A holiday-shortened week comes to an early end tomorrow at 1pm ET, but before that markets will be action packed as the European Central Bank opines and U.S. nonfarm payrolls are due out

·         MBA Mortgage Index (-0.2% actual v. -1.0% previous)

·         ADP Employment Change (281K actual v. 200K expected)

o    S&P Futures +2 @ 1968

o    Dow Futures +23 @ 16,899

o    Nasdaq Futures +5 @ 3890

Asia

·         Markets rallied across Asia

·         Japan's Nikkei (+0.3%) held near five-month highs

·         Hong Kong's Hang Seng (+1.6%) rallied to its best levels of 2014. Making headlines was the pro-democracy march on the 17th anniversary of the handover to China, which is estimated to have drawn somewhere between 98,600 (police estimates) and 510,000 (organizer estimates) protesters

·         On the Mainland, China's Shanghai Composite (+0.4%)  gained for a fourth straight session and finished at its best level in two weeks

·         India's Sensex (+1.3%) put in another all-time high 

·         Australia's ASX (+1.5%) surged despite the largest trade deficit (AUD1.91 bln actual v. AUD0.16 bln expected, AUD0.78 bln previous) since January 2013

Market Internals

Market Internals -Technical-
The Dow closed up 20 (+0.12%) at 16976, the S&P 500 closed up 1 (+0.07%) at 1975, and the Nasdaq closed down 1 (-0.02%) at 4458. Action came on below average volume (NYSE 583 mln vs. avg. of 678; NASDAQ 1486 mln vs. avg. of 1740), with decliners outpacing advancers (NYSE 1184/1948, NASDAQ 1200/1487) and new highs outpacing new lows (NYSE 192/8, NASDAQ 108/17).

Relative Strength: 
Copper Miners-COPX +4.13%, Base Metals-DBB +2.55%, Copper-JJC +2.07%, India-INP +2.06%, Russia-RSX +2.05%, China 25 Index-FXI +1.88%, Coffee-JO +1.8%, Steel-SLX +1.79%, Egypt-EGPT +1.69%, Hong Kong-EWH +1.67%.

Relative Weakness: 
Utilities-XLU -1.94%, Natural Gas-UNG -1.88%, Nuclear Energy-NLR -1.58%, Cotton-BAL -1.23%, Brazilian Real-BZF -1.23%, Poland-EPOL -1.19%, Oil-USO -1.18%, Latin America 40-ILF -0.65%, Australian Dollar-FXA -0.57%, Canadian Dollar-FXC -0.44%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries

Closing Market Summary: Health Care Climbs But Market Ends Little Changed
The stock market spent the Wednesday session in a narrow range, which resulted in the S&P 500 posting a slim gain of less than two points (0.1%) with six sectors ending in the green. The Dow Jones Industrial Average (+0.1%) outperformed slightly, while the Russell 2000 (-0.4%) lagged.

The major averages climbed out of the gate, but the early strength was short-lived as only a handful of sectors were able to distance themselves from their flat lines. The lack of concerted sector leadership caused the key indices to return to their flat lines, where they remained into the close.

One sector that displayed notable strength throughout the session was yesterday's leader—health care. The countercyclical group added 0.7% with biotechnology underpinning the advance. The iShares Nasdaq Biotechnology ETF (IBB 264.55, +1.43) tacked on 0.5%.

The relative strength of biotechnology was unable to boost the Nasdaq Composite (unch), which suffered from relative weakness among high-growth names. For instance Facebook (FB 66.45, -1.61), Netflix (NFLX 466.74, -6.36), Priceline.com (PCLN 1237.84, -8.93), and Tesla(TSLA 229.42, -10.29) lost between 0.7% and 4.3%. Meanwhile, the consumer discretionary (+0.2%) and technology (unch) sectors ended little changed.

‘Little changed' is how the entire cyclical side ended the trading day. The materials sector (+0.2%) posted a slim gain, while energy (-0.1%), financials (unch), and industrials (-0.1%) settled in the red.

Notably, the industrial sector was pressured by transport stocks, and specifically, airlines. Delta Air Lines (DAL 38.24, -2.07) and United Continental (UAL 39.27, -2.99) registered respective losses of 5.1% and 7.1% after Delta reported disappointing monthly passenger unit revenue, while the broader Dow Jones Transportation Average shed 0.4%.

Returning to countercyclical sectors for a second, two other defensively-oriented groups—consumer staples (+0.2%) and telecom services (+0.5%)—posted gains, while the utilities sector (-2.0%) finished at the bottom of the leaderboard for the second day in a row.

The magnitude of the loss in the rate-sensitive sector was likely assisted by today's increase in Treasury yields. Treasuries tumbled to lows following today's ADP Employment report and continued drifting lower throughout the trading day. The 10-yr note lost half a point, sending its yield higher by six basis points to 2.62%.

Participation was well below average with less than 585 million shares changing hands at the NYSE.

Economic data included May Factory Orders, June ADP Employment, and the weekly MBA Mortgage Index: 

·         Factory orders declined 0.5% in May after increasing an upwardly revised 0.8% (from 0.7%) in April. The Briefing.com consensus expected a decline of 0.4% 

o    The revisions to the May durable goods data were extremely minor. Total orders were revised up from the advance (-1.0%), but still fell 0.9%. These orders increased 0.9% in May 

o    Transportation orders, which were originally down 3.0%, were revised to -2.9% 

o    Excluding transportation, durable goods orders were flat in May after originally reporting a small 0.1% decline 

·         According to the ADP National Employment Report, employment in the nonfarm private business sector rose by 281K in June. That was well above the increase of 200K expected by the Briefing.com consensus 

o    The May reading was left unrevised at 179,000 

·         The weekly MBA Mortgage Index slipped 0.2% to follow last week's 1.0% decline 

Tomorrow, the Challenger Job Cuts report for June will be released at 7:30 ET, while weekly initial claims (Briefing.com consensus 315K), June Nonfarm Payrolls (consensus 210K), and May Trade Balance (consensus -$45.20 billion) will all be released at 8:30 ET. The day's data will be topped off with the 10:00 ET release of the June ISM Services report (expected 56.5). 

·         S&P 500 +6.8% YTD 

·         Nasdaq Composite +6.7% YTD 

·         Dow Jones Industrial Average +2.4% YTD 

·         Russell 2000 +3.1% YTD

Commodities

Closing Commodities: Copper And Dollar Index Close At HoD, Crude At LoD

·         Energy continued to trade in negative territory in afternoon actionCrude oil ended today's session near its LoD

·         Aug crude finished $0.88 lower at $104.48/barrel

·         Natural gas also remained in the red and closed just above its HoD, ending 10 cents lower at $4.36/MMBtu

·         Gold and silver gave up some of their gains, but still ended the session higher

·         Aug gold rose $5.40 to $1331/oz, while Sept silver advanced $0.20 to $21.31/oz.

·         Copper futures held gains and closed at its HoD, finishing 7 cents higher at $3.27/lb.

COMEX Metals Closing Prices; copper ends at HoD, gold and silver closes just under HoD

·         Aug gold rose $5.40 to $1331/oz

·         Sept silver rose $0.20 to $21.31/oz

·         July copper rose $0.07 to $3.27/lb

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices-

·         July corn fell 2 cents to $4.13/bushel

·         July wheat rose 4 cents to $5.76/bushel

·         July soybeans fell 12 cents to $13.15/bushel

·         July ethanol rose 2 cents to $1.97/gallon

·         Sep sugar (#16 (U.S.)) closed unchanged at 26.15 cents/lb

NYMEX Energy Closing Prices

·         Aug crude oil fell $0.88 to $104.48/barrel

·         Aug natural gas fell 10 cents to $4.36/MMBtu

·         Aug heating oil fell 3 cents at $2.95/gallon

·         Aug RBOB fell 2 cents to $3.02/gallon

Treasuries

Strong ADP Print Slams Treasuries: 10-yr: -16/32..2.622%..USD/JPY: 101.81..EUR/USD: 1.3655

·         Treasuries closed on their lows as selling that was brought on by this morning's strong ADP Employment report (281K actual v. 200K expected) persisted throughout the session. Click here to see an intraday yields chart.

·         The better than expected report has increased speculation tomorrow's jobs report will outpace estimates.

·         Action drifted near its worst levels following the weak factory orders (-0.5% actual v. -0.4% expected) print before leaking lower over the remainder of the session. 

·         Fed Chair Janet Yellen spoke at the IMF, but her comments had little weight as she provided nothing new.

·          Selling had the biggest impact on the 30y as the yield tacked on +7.1bps to finish @ 3.466%. Two days of selling has run the yield up ~13bps and has action contending with key resistance in the 3.500% area. 

·         The 10y climbed +6.5bps to 2.628%. The benchmark yield is moving into a test of the June highs and the 100 dma near 2.650%. 

·         In the belly, the 5y added +5.6bps to 1.712%. The yield put in its highest close in two weeks, and is threatening the important 1.750% level. 

·         Significant steepening took place along the curve as the 2-10-yr spread widened to 214bps. 

·         Precious metals finished with gains as gold added $2 to $1328 and silver climbed $0.09 to near $21.21. 

·         Data: Challenger Job Cuts (7:30), nonfarm payrolls, nonfarm private payrolls, unemployment rate, hourly earnings, average workweek, initial and continuing claims, trade balance (8:30), and ISM Services (10). 

·         U.S. equity markets will close at 1pm ET and the U.S. Treasury stops trading at 2pm ET for Independence Day.

On other news.... 

Currencies 

Dollar Threatens 80.00: 10-yr: -15/32..2.623%..USD/JPY: 101.82..EUR/USD: 1.3656

·         The Dollar Index holds on session highs near 80.00 amid a rather subdued trade. Click here to see a daily Dollar Index chart.

·         The Index hovered little changed near 79.85 ahead of this morning's strong ADP Employment report before spiking to its best levels in response to the better than expected results.

·         Action throughout the remainder of the session has held in a tight range between 79.95/80.00.

·         EURUSD is -25 pips @ 1.3655 as some light selling takes hold for a second day ahead of tomorrow's European Central Bank rate decision. Today's weakness dropped the single currency back below the 200 dma, and has action testing minor support in the 1.3640 area. Italian and Spanish Services PMI will cross the wires tomorrow. 

·         GBPUSD is +10 pips @ 1.7160 as trade looks to put in a fifth straight day of gains. Strong Nationwide Home Price Index and Construction PMI readings propelled the pair to almost 1.7180 before some light profit-taking developed. Near-term support rests in the 1.7000/1.7050 area with any positive close being the best since October 2008. 

·         USDCHF is +15 pips @ .8890 as trade climbs off the 100 dma. Resistance in the .8900/.8920 area is guarded by the 50 dma and will be tracked closely in the days ahead.

·         USDJPY is +25 pips @ 101.80 as today's bid has run the pair back above its 200 dma. The current two-day advance has tacked on close to 50 pips while running trade off its lowest levels since February.

·         AUDUSD is -55 pips @ .9435 as trade has surrendered nearly all of yesterday's gains. Weakness in the hard currency comes after last night's Australian trade deficit was the widest since January 2013. Australian data out tonight includes building approvals and retail sales.Reserve Bank of Australia Governor Glenn Stevens will speak this evening in Hobart. China's Non-Manufacturing PMI and HSBC Services PMI will be released. 

·         USDCAD is +30 pips @ 1.0665 as trade ticks off its worst levels of 2014. The 1.0600/1.0700 support band will remain in focus with Canada's trade balance scheduled for tomorrow.

Next Week In View




Economic Commentaries

Economic Summary: ADP blows past estimates ahead of NFP's tomorrow at 8:30; ECB decision tomorrow at 7:45
Economic Data Summary:

·         Weekly MBA Mortgage Applications -0.2% vs Briefing.com consensus of ; Last Week was -1.0%

·         June ADP Employment Change  281K vs Briefing.com consensus of 200K; May was 179K

·         May Factory Orders -0.5% vs Briefing.com consensus of -0.4%; April was revised to 0.8% from 0.7%

o     Excluding transportation, durable goods orders were flat in May after originally reporting a small 0.1% decline. Business investment demand was unrevised. Orders for nondefense capital goods excluding aircraft were up 0.7% in May following a 1.1% decline in April. 

Fed/Treasury Events Summary:

·         Janet Yellen spoke today and said "Corporate bond spreads, as well as indicators of expected volatility in some asset markets, have fallen to low levels, suggesting that some investors may underappreciate the potential for losses and volatility going forward. In addition, terms and conditions in the leveraged-loan market, which provides credit to lower-rated companies, have eased significantly, reportedly as a result of a "reach for yield" in the face of persistently low interest rates."

Upcoming Economic Data:

·         June Challenger Job Cuts due out Thursday at 7:30 (Briefing.com consensus of ; Last Week was 45.5%)

·         June Nonfarm Payrolls due out Thursday at 8:30 (Briefing.com consensus of 210K; Last Week was 217K)

·         June Nonfarm Private Payrolls due out Thursday at 8:30 (Briefing.com consensus of 213K; Last Week was 216K)

·         June Unemployment Rate due out Thursday at 8:30 (Briefing.com consensus of 6.3%; Last Week was 6.3%)

·         June Hourly earnings due out Thursday at 8:30 (Briefing.com consensus of 0.2%; Last Week was 0.2%)

·         June Average Workweek due out Thursday at 8:30 (Briefing.com consensus of 34.5; Last Week was 34.5)

·         Weekly Initial Claims due out Thursday at 8:30 (Briefing.com consensus of 315K; Last Week was 312K)

·         Weekly Continuing Claims due out Thursday at 8:30 (Briefing.com consensus of 2.580 M ; Last Week was 2.571 M )

·         May Trade Balance due out Thursday at 8:30 (Briefing.com consensus of -$45.2 bln; Last Week was -$47.2 bln)

·         June ISM Services due out Thursday at 10:00 (Briefing.com consensus of 56.5; Last Week was 56.3)

Other International Events of Interest

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

Jason's Commentaries

With the ADP employment report reporting 281k vs 207k expected, the market did not much reacted to the economic news, neither did the market reacted much Yellen's speech. Since the actual jobs report is coming today 830am ET, i believe the market will be waiting for the Non-farm payrolls instead before making any moves. The market is closing off early at 12pm ET. Which means that the market will be reacting really quickly during the short 2.5h trading hours. Since the market has successfully priced into the jobs report, the market might start to offload their long positions if the report is dovish. We're very likely to end off the trading session with a flat note today considering the short trading hour. Looking on the technical side, the market consolidated last night as the market decided not to take much action ahead of the jobs report. With the internals confirming, the market is waiting for something to happen, which is likely to be the jobs report.

Since the jobs scene in US is good right now, an expectation of 217k jobs to be added in the US should be easily achievable. I would be expected a figure of more than 230k jobs since ADP reported a outstanding 281k jobs.








Market Call: FLAT to upside

Date: 3 July 2014