4 July 2014 AMC - Market went higher as payrolls were much better than expected

4 July 2014 AMC - Market went higher as payrolls were much better than expected

Market Summary 

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

·         UK's FTSE: + 0.2%

·         Germany's DAX: + 1.2%

·         France's CAC: + 1.0%

·         Spain's IBEX: + 0.7%

·         Portugal's PSI: -0.2%

·         Italy's MIB Index: + 1.0%

·         Irish Ovrl Index: + 1.8%

·         Greece ASE General Index: + 0.5%

Before Market Opens 

S&P futures vs fair value: +5.70. Nasdaq futures vs fair value: +11.00.
The S&P 500 futures trade six points above fair value.

Asian markets ended the Thursday session near their flat lines. Reserve Bank of Australia Governor Glenn Stevens said the Australian dollar remains overvalued by most measures, while troubling inflation in the property sector may be abating. 

·         In economic data: 

o    China's Non-Manufacturing PMI fell to 55.0 from 55.5, while HSBC Services PMI jumped to 53.1 from 50.7 

o    Hong Kong's Retail Sales fell 4.1% year-over-year (expected -6.4%, previous -9.8%) 

o    India's HSBC Services PMI jumped to 54.4 from 50.2 

o    Australia's Retail Sales fell 0.5% month-over-month (expected 0.3%, previous -0.1%), while Building Approvals jumped 9.9% month-over-month (expected 3.0%, prior -5.8%) 

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·         Japan's Nikkei slipped 0.1%, ending on its low amid weakness in discretionary names. Isetan Mitsukoshi Holdings and J Front Retailing lost 2.0% and 2.5%, respectively. On the upside, Pioneer surged 7.1%. 

·         Hong Kong's Hang Seng shed 0.1% after spending the bulk of the session just below its flat line. Li & Fung weighed, falling 10.5% as the stock traded without rights to the company's spinoff for the first day. Property names outperformed with China Resources Land and China Overseas Land up 2.2% and 1.7%, respectively. 

·         China's Shanghai Composite posted a slim gain of 0.2% with shipping-related names showing continued strength. China Shipping Container Lines and Dalian Port both surged 10.0%. 

Major European indices trade higher across the board with Germany's DAX (+0.6%) in the lead. Sweden's Riksbank surprised the market by cutting its main repurchase rate to 0.25% from 0.75%, while the general consensus called for a cut to 0.50%. The European Central Bank, meanwhile, made no changes to its monetary policy, keeping its main lending rate at 0.15%. 

·         Participants received several data points: 

o    Eurozone Retail Sales were unchanged month-over-month (expected 0.2%, previous -0.2%), while the year-over-year reading rose 0.7% (consensus 1.2%, prior 1.8%). Separately, Services PMI held steady at 52.8, as expected 

o    Germany's Services PMI slipped to 54.6 from 54.8 (expected 54.8) 

o    Great Britain's Services PMI fell to 57.7 from 58.6 (expected 58.3) 

o    French Services PMI held steady at 48.2, as expected 

o    Italy's Services PMI rose to 53.9 from 51.6 (expected 51.8) 

o    Spain's Services PMI fell to 54.8 from 55.7 (consensus 55.8) 

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·         In France, the CAC trades higher by 0.3% with Renault in the lead. The stock trades higher by 1.9%. Consumer names underperform with Carrefour and Pernod Ricard both down near 0.5%. 

·         Great Britain's FTSE is higher by 0.5% amid strength in mining shares. Antofagasta and Fresnillo hold respective gains of 4.0% and 2.4%. BG Group lags, down 0.7%. 

·         Germany's DAX sports an advance of 0.5%. Chemical manufacturer K+S is the top performer, up 3.0%. Health care names also display strength with Bayer and Fresenius Medical up 1.4% and 0.9%, respectively. On the downside, Adidas is lower by 0.4%.

U.S. Equities

·         Equity futures suggest small gains at the open following the strong June nonfarm payroll report

·         Yesterday's mixed session on Wall Street ran both the DJIA and S&P 500 to record highs while the Nasdaq slipped off its best level in more than 14 years. 

·         The VIX (10.82) holds near levels last seen in February 2007

·         Nonfarm Payrolls (288K actual v. 210K expected)

·         Nonfarm Private Payrolls (262K actual v. 213K expected)

·         Unemployment Rate (6.1% actual v. 6.3% expected)

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

·         Average Workweek (34.5 actual v. 34.5 expected)

·         Initial Claims (315K actual v. 315K expected)

·         Continuing Claims (2579K actual v. 2580K expected)

·         Trade Balance (-$44.4B actual v. -$45.2B expected)

o    S&P Futures +4 @ 1972

o    Dow Futures +34 @ 16,933

o    Nasdaq Futures +12 @ 3902

Asia

·         Markets ended mixed across Asia

·         Japan's Nikkei (-0.1%) slipped off five-month highs

·         On the Mainland, China's Shanghai Composite (+0.2%) gained for a fifth straight session on the mixed Non-Manufacturing PMI (55.0 actual v. 55.5 previous) and HSBC Services PMI (53.1 actual v. 50.7 expected) readings

·         Hong Kong's Hang Seng (-0.1%) eased off its best levels of 2014

·         Australia's ASX (+0.7%) was boosted by dovish comments from Reserve Bank of Australia Governor Glenn Stevens as he again made reference to the Aussie dollar being too strong

·         A quiet trade in India saw the Sensex (-0.1%) slip off yesterday's record close

Market Internals

Market Internals -Technical-
The Nasdaq closed up 28 (+0.63%) at 4486, the S&P 500 closed up 11 (+0.55%) at 1985, and the Dow closed up 92 (+0.54%) at 17068. Action came on below average volume (NYSE 528 mln vs. avg. of 676; NASDAQ 931 mln vs. avg. of 1726), with advancers outpacing decliners (NYSE 1783/1336, NASDAQ 1776/862) and new highs outpacing new lows (NYSE 191/6, NASDAQ 120/17).

Relative Strength: 
Junior Gold Miners-GDXJ +3.25%, Regional Banks-KRE +1.69%, Broker-Dealers-IAI +1.38%, Metals and Mining-XME +1.34%, Peru-EPU +1.33%, Columbia Index-GXG +1.32%, Retail-XRT +1.31%, Turkey-TUR +1.25%, Brazilian Real-BZF +1.25%, China 25 Index-FXI +1.08%.

Relative Weakness: 
Cocoa-NIB -1.53%, Volatility-VXX -1.38%, Heating Oil-UHN -1.13%, Utilities-XLU -1.09%, Australian Dollar-FXA -0.89%, Sugar-SGG -0.81%, Middle East and Africa-GAF -0.75%, India-INP -0.75%, Poland-EPOL -0.55%, Swiss Franc-FXF -0.55%.

Leaders and Laggards

 

Technical Updates

Commentaries 

Closing Market Summary: Stocks End Strong Week on Upbeat Note
The stock market finished the abbreviated trading week on an upbeat note thanks to a boost from a June jobs report that surpassed expectations. The S&P 500 advanced 0.6% with nine sectors posting gains. As a result, the benchmark index extended its weekly gain to 1.3%.

Today's upbeat tone was set early with the June Nonfarm Payrolls report pointing to the addition of 288,000 jobs (Briefing.com consensus 210,000). In addition, the unemployment rate unexpectedly dropped to 6.1%.

Appropriately, the strong report gave a boost to cyclical sectors, while their countercyclical counterparts struggled a bit in the early going.

Consumer discretionary (+0.8%), financials (+0.8%), and industrials (+0.8%) paced the advance throughout the session and ended ahead of the remaining sectors. The discretionary space owed its outperformance to retailers as the group rallied broadly with the SPDR S&P Retail ETF (XRT 88.65, +1.15) climbing 1.3%. Homebuilders also posted gains, but the iShares Dow Jones US Home Construction ETF (ITB 24.94, +0.10), which added 0.4%, could not keep pace with the sector.

Elsewhere, industrials received support from transport stocks. All 30 components of the Dow Jones Transportation Average (+0.8%) finished in the green with airlines posting solid gains to follow yesterday's relative weakness. United Continental (UAL 39.88, +0.61) led the pack, climbing 1.6%.

Also of note, the financial sector padded its weekly advance to 1.3%.

On the countercyclical side, health care (+0.4%) and telecom services (+0.3%) displayed intraday losses, but returned into the green ahead of the close. The consumer staples sector (+0.6%), however, outperformed due to strength in tobacco names. Lorillard (LO 64.41, +3.26) jumped 5.3% in reaction to reports the company's merger with Reynolds American (RAI 61.56, +1.40) is on track to be announced within weeks.

Lastly, the utilities sector (-1.1%) displayed relative weakness for the third day in a row, ending the week lower by 3.2% as profit-taking continued.

Treasuries slumped in reaction to today's data, but spent the remainder of the session in a climb. The benchmark 10-yr yield inched up two basis points to 2.65%.

Economic data included June Nonfarm Payrolls, weekly initial claims, June Challenger Job Cuts, May Trade Balance, and the ISM Services report for June: 

·         Nonfarm payrolls added 288,000 jobs in June after adding an upwardly revised 224,000 (from 217,000). The Briefing.com consensus expected nonfarm payrolls to increase by 210,000 

o    Private payrolls were up 262,000 jobs in June after adding 224,000 jobs in May. That outpaced the consensus expectations of a 213,000 increase 

o    The unemployment rate fell to 6.1% from 6.3%, while the consensus expected no change from 6.3%

§  The decline resulted from workers finding jobs (+407,000) rather than a drop in the labor force 

o    Average hourly earnings increased 0.2% and hourly workweek was unchanged at 34.5 hours, as expected 

·         The weekly initial claims level increased to 315,000 from an upwardly revised 313,000 (from 312,000). The Briefing.com consensus expected the initial claims level to increase to 315,000 

o    Over the past few weeks, the initial claims level has settled into a range of 310,000 to 320,000 and this week's claims were no different 

·         The Challenger Job Cuts report for June pointed to a 20.0% year-over-year decline 

·         The U.S. trade deficit narrowed in May to $44.40 billion from a downwardly revised $47.00 billion (from $47.20 billion) in April. The Briefing.com consensus expected the trade deficit to fall to $45.2 bln 

o    Total goods deficit fell to $63.30 billion in May from $65.70 billion in April. The services surplus increased to $18.90 billion from $18.60 billion 

·         The ISM Non-Manufacturing Index fell to 56.0 in June from 56.3 in May. The Briefing.com consensus expected the index to increase to 56.5 

o    Business activities softened as the related index declined to 57.5 in June from 62.1 in May as non-manufacturing businesses worked down their backlogs 

o    The Backlog of Orders Index fell to 53.0 from 54.0 

There is no economic data on Monday's schedule. 

·         S&P 500 +7.4% YTD 

·         Nasdaq Composite +7.4% YTD 

·         Dow Jones Industrial Average +3.0% YTD 

·         Russell 2000 +3.7% YTD 

Commodities

Treasuries

Yields Fail to Breakout: 10-yr: -03/32..2.648%..USD/JPY: 102.20..EUR/USD: 1.3608
The Week in Review

·         Treasuries were pressured this week as the start of the third quarter and the strong June nonfarm payroll report sparked selling across the complex. Click here to see an intraweek yields chart.

·         Maturities saw mid-week selling as traders moved money into riskier assets at the start of the quarter and shed safer ones such as Treasuries.

·         Thursday's strong nonfarm payroll report (288K actual v. 210K expected) sparked early selling, but maturities were able to trim their losses into the cash close. 

·         This week's other employment data was also strong as ADP Employment Change (281K actual v. 200K expected), nonfarm private payrolls (262K actual v. 213K expected), and the unemployment rate (6.1% actual v. 6.3% expected) all outpaced estimates.

·         However, the rest of the week's data was mixed. ISM Index (55.3 actual v. 55.8 expected), construction spending (0.1% actual v. 0.4% expected), and factory orders (-0.5% actual v. -0.4% expected) all missed  while Chicago PMI (62.6 actual v. 61.0 expected) and pending home sales (6.1% actual v. 1.5% expected) beat.

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

·         Up front, the 2y rallied +5bps to 0.512% and settled at its highest level since the debt ceiling debate back in September. A run above the 0.530% area would put the yield at levels last seen in May 2011, shortly before the U.S. lost its 'AAA' rating at S&P.

·         In the belly, the 5y added +11bps to finish @ 1.740%. Post-nonfarm payroll selling ran the yield up to 1.780% where it contended with its highest close in three months; however, action slipped back below the June highs (1.750%) before the cash close.  

·         The 10y climbed +12bps to 2.648%. The benchmark yield saw a test of the 2.700% level and the 200 dma amid Thursday's sell off, but finished the week below the June closing high (2.655%) and the 100 dma. 

·         At the long end, the 30y jumped +12bps to 3.483%. Action probed the key 3.500% before dipping back below the mark into week-end. 

·         A steeper curve developed as the 2-10-yr spread widened to 213.5bps and the 5-30-yr spread loosened to 174.5bps. 

The Week Ahead 

·         There is no data on Monday. 

·         Data begins to flow on Tuesday with JOLTS - Job Openings (10) and consumer credit (15). Treasury will auction $27 bln 3y notes. Richmond's Lacker gives his economic outlook (13) and Minny's Kocherlakota discusses monetary policy and the economy (13:45). 

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

·         Thursday's data is limited to initial and continuing claims (8:30) and wholesale inventories (10). KC's George speaks on monetary policy and the economy (13:15). Treasury will hold a $13 bln 30y reopening.

·         Data concludes for the week on Friday with the Treasury budget (14). Philly's Plosser (11:15), Chicago's Evans, and ATL's Lockhart (15) take part in the Sixth Annual Rocky Mountain Economic Summit.

On other news.... 




Currencies 








Weekly Analysis
Week 1



Technical Updates

Briefing's Commentaries


Week in Review: Stocks Rally into Q3 

The stock market finished the second quarter on a subdued note with the major averages ending near their flat lines. The Nasdaq Composite (+0.2%) outperformed throughout the session, while the S&P 500 (-0.04%) surrendered its slim gain into the close. For the quarter, the S&P 500 jumped 4.7%, while the Nasdaq advanced 5.0%. Equity indices displayed losses at the start, but the Nasdaq and S&P 500 returned into the green after a better than expected Pending Home Sales report for June (6.1% versus 1.5% Briefing.com consensus) crossed the wires. Despite the early rebound, the S&P 500 ran into resistance in the 1964 area, which served as the high point for the day. Unlike the Nasdaq and S&P 500, the Dow Jones Industrial Average (-0.2%) could not make a sustained move into the green.

Equities kicked off July and Q3 on a strong note with small caps pacing the rally. The Nasdaq Composite and Russell 2000 jumped 1.1% and 1.0%, respectively, while the S&P 500 advanced 0.7% with nine sectors ending in the green. Stocks displayed early strength after economic data reported overnight and in the early morning indicated expanding manufacturing activity in China, Japan, the eurozone, and the U.S. Although some of the PMI readings missed estimates, they were all above 50, a level that represents the border between expansion and contraction. The data fostered the bullish tone, which was amplified by the arrival of new money at the start of the quarter. In large part, the advance was powered by four of the most influential sectors. Consumer discretionary (+1.1%), health care (+1.3%), financials (+0.6%), and technology (+1.1%) all jumped to the top of the leaderboard at the open and held their ground throughout the session.

The 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 the leader from Tuesday—health care. The countercyclical group added 0.7% with biotechnology underpinning the advance. The iShares Nasdaq Biotechnology ETF (IBB) tacked on 0.5%.

Next Week In View





Economic Commentaries

Economic Summary: NFP's blow past estimates; Unemployment Rate drops to 6.1%
Economic Data Summary:

·         June Challenger Job Cuts -20.2% versus Last Week was 45.5%

·         June Nonfarm Payrolls 288K vs Briefing.com consensus of 210K; Last Week was revised to 224K from 217K

·         June Nonfarm Private Payrolls 262K vs Briefing.com consensus of 213K; Last Week was revised to 224K from 216K

o    Private payrolls were up 262,000 jobs in June after adding 224,000 jobs in May. That outpaced the consensus expectations of a 213,000 increase. Goods-producing industries added 26,000 jobs and the service-providing added 236,000 jobs. Outsized gains in retail trade, up 40,200 in June after adding 10,500 jobs in May, offset slower growth in health care services, which added 33,700 new jobs in June after adding 58,800 jobs in May.

·         June Unemployment Rate 6.1% vs Briefing.com consensus of 6.3%; Last Week was 6.3%

·         June Hourly earnings 0.2% vs Briefing.com consensus of 0.2%; Last Week was 0.2%

·         June Average Workweek 34.5 vs Briefing.com consensus of 34.5; Last Week was 34.5

·         Weekly Initial Claims 315K vs Briefing.com consensus of 315K; Last Week was revised to 313K from 312K

·         Weekly Continuing Claims 2.579 M vs Briefing.com consensus of 2.580 M ; Last Week was revised to 2.568 M from 2.571 M

·         May Trade Balance -$44.4 bln vs Briefing.com consensus of -$45.2 bln; Last Week was revised to -$47.0 bln from -$47.2 bln

o    Exports increased 1% to $195.5 bln in May from $193.5 bln in April. Much of that gain, however, came from a $0.4 bln unsustainable gain in exports of gem diamonds. Capital goods exports fell $1.7 bln, in large part due to $0.5 bln decline in civilian aircraft shipments. Exports of automotive vehicles and parts increased by $0.8 bln and shipments of industrial supplies and products were up $0.2 bln.

·         June ISM Services 56.0 vs Briefing.com consensus of 56.5; Last Week was 56.3

o     Business activities softened as the related index declined to 57.5 in June from 62.1 in May as non-manufacturing businesses worked down their backlogs. The Backlog of Orders Index fell to 53.0 from 54.0. The New Orders Index increased to 61.2 in June from 60.5 in May, confirming firm demand. The Employment Index increased from 52.4 in May to 54.2 in June.

Other International Events of INterest

·         The European Central Bank kept policy on hold and announced meetings will take place every six weeks (currently every four weeks) starting in January 2015

Jason's Commentaries


Well as expected, the market took the opportunity to rally into the long weekend and it seems that the market is likely to go higher once again.The market closed earlier on Thursday in observance of the holidays. It seems that the market is likely to take profit today over the on Monday...

Market Call: FLAT to downside

Date: 7 July 2014