13 Nov 2014 AMC - Market ended flat as expected; oil broke critcal support levels dragging oil companies along

14 Nov 2014 AMC - Market ended flat as expected; oil broke critcal support levels dragging oil companies along

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: + 0.4%

·         Germany's DAX: + 0.4%

·         France's CAC: + 0.2%

·         Spain's IBEX: -0.2%

·         Portugal's PSI: + 1.1%

·         Italy's MIB Index: + 0.4%

·         Irish Ovrl Index: -0.2%

·         Greece ASE General Index: + 1.3%

Before Market Opens 

S&P futures vs fair value: +2.20. Nasdaq futures vs fair value: +9.00.
The S&P 500 futures trade two points above fair value.

Markets finished mixed across Asia. Confusion reigned in Japan amid talk of early elections and a possible delay in the consumption tax hike. Elsewhere, Bank of Korea held its key rate at 2.00%, as expected, and Bank Indonesia unexpectedly held its benchmark rate at 7.50% (7.75% expected). 

·         In economic data: 

o    China's Retail Sales rose 11.5% year-over-year (expected 11.6%; previous 11.6%), Industrial Production rose 7.7% (consensus 8.0%; prior 8.0%), and Fixed Asset Investment increased 15.9% year-over-year, as expected (last 16.1%) 

o    Japan's Industrial Production increased 2.9% month-over-month (expected 2.7%; prior 2.7%), Core Machinery Orders jumped 7.3% year-over-year (consensus -1.3%; previous -3.3%), and Reuters Tankan Index improved to 13 from 8. Separately, CGPI slipped 0.8% month-over-month (consensus -0.4%, last -0.1%) while the year-over-year reading increased 2.9% (expected 3.3%; last 3.5%) 

o    Australia's MI Inflation Expectations increased to 4.1% from 3.4% 

o    New Zealand's Business NZ PMI rose to 59.3 from 58.5 

------ 

·         Japan's Nikkei surged 1.1% to its best levels since October 2007. Heavyweights Fast Retailing and Softbank provided support, rising 1.9% and 2.9%, respectively. 

·         Hong Kong's Hang Seng added 0.3% to register its fourth day of gains. Financials were among the top performers with Industrial & Commercial Bank of China adding 1.2%. 

·         China's Shanghai Composite lost 0.4%, slipping from three-year highs. Real Estate developers weighed as Poly Real Estate gave up 1.5%. 

·         India's Sensex shed 0.2%, but held near all-time highs. Automakers gave back some of yesterday's gains as Hero MotoCorp lost 1.3% and Tata Motors fell 1.0%. 

Major European indices have slipped from their highs and they now trade mostly lower. Italy's MIB (-0.6%) is pacing the slide amid weakness in financials. The European Central Bank released its Survey of Professional Forecasters, which lowered the inflation outlook for the region. According to the survey, harmonized inflation is expected to average 0.5% this year (from 0.7%), 1.0% in 2015 (from 1.2%), and 1.4% in 2016 (from 1.5%) 

·         Participants received several data points: 

o    Germany's CPI slipped 0.3% month-over-month while the year-over-year reading increased 0.8%. Both figures matched expectations 

o    French CPI was unchanged month-over-month (consensus -0.1%; prior -0.4%) while the Current Account deficit narrowed to EUR1.20 billion from EUR3.70 billion (expected deficit of EUR3.70 billion) 

o    Spain's CPI rose 0.5% month-over-month while the year-over-year reading ticked down 0.1%. Both were in-line with estimates 

o    Italy's CPI rose 0.1% month-over-month and the year-over-year reading also increased 0.1%, as expected 

o    Swiss PPI slipped 0.1% month-over-month (expected -0.2%; last -0.1%) while the year-over-year reading fell 1.1% (consensus -1.3%; prior -1.4%) 

------ 

·         Germany's DAX is higher by 0.1%. Utilities E.On and RWE are the two weakest performers, down 1.9% and 3.1%, respectively. On the upside, Adidas has added 3.1%. 

·         Great Britain's FTSE is lower by 0.1% with energy names on the defensive. Royal Dutch Shell and Tullow Oil hold respective losses of 2.1% and 3.3%. Consumer names are showing strength with Carnival up 2.0% and WM Morrison Supermarkets higher by 1.7%. 

·         In France, the CAC has given up 0.4%. Growth-sensitive names Bouygues, Total, and Vinci are down between 1.5% and 2.8%. Credit Agricole outperforms, trading higher by 1.2%. 

·         Italy's MIB underperforms with a loss of 0.6%. Banco Popolare, Intesa Sanpaolo, and Unicredit hold losses between 1.5% and 2.2%. Oil company Saipem also weighs, trading lower by 3.5%.

U.S. Equities

·         Equity futures suggest little change at the open

·         The DJIA and S&P 500 linger near all-time highs while the Nasdaq sits at its best level in 15 years

·         The VIX (13.02) remains near a two-month low

·         Initial Claims (290K actual v. 280K expected)

·         Continuing Claims (2392K actual v. 2350K expected)

o    S&P Futures +1 @ 2037

o    Dow Futures +16 @ 17,593

o    Nasdaq Futures +5 @ 4201

Asia

·         Markets finished mixed across Asia

·         Confusion reigns in Japan amid talk of early elections and a possible delay in the consumption tax hike

·         Bank of Korea held its key rate at 2.00%, as expected

·         Bank Indonesia unexpectedly holds its benchmark rate at 7.50% (7.75% expected)

·         Japan's core machinery orders (2.9% MoM actual v. -1.0% MoM expected) outpaced estimates

·         China's industrial production (7.7% YoY actual v. 8.0% YoY expected) and fixed asset investment (15.9% YTDoY actual v. 16.0% YTDoY expected) both disappointed

·         Australia's MI Inflation Expectations jumped to 4.1% (3.4% expected)

·         Japan's Nikkei (+1.1%) surged to its best levels since October 2007

·         Hong Kong's Hang Seng (+0.3%) saw a fourth day of gains lift action to its best close in one and a half months

·         China's Shanghai Composite (-0.4%) slipped off three-year highs

Market Internals

Market Internals -Technical-
The Dow closed up 41 (+0.23%) at 17653, the Nasdaq closed up 5 (+0.11%) at 4680, and the S&P 500 closed up 1 (+0.05%) at 2039. Action came on slightly below average volume (NYSE 690 mln vs. avg. of 781; NASDAQ 1714 mln vs. avg. of 1860), with decliners outpacing advancers (NYSE 1125/2021, NASDAQ 901/1807) and new highs outpacing new lows (NYSE 198/70, NASDAQ 148/66).

Relative Strength: 
Coffee-JO +2.63%, Corn-CORN +1.63%, Grains-JJG +1.63%, Turkey-TUR +1.46%, Hong Kong-EWH +1.29%, Belgium-EWK +1.19%, Thailand-THD +1.04%, Volatility-VXX +1.03%, Switzerland-EWL +0.96%, Retail-RTH +0.85%.

Relative Weakness: 
Natural Gas-UNG -4.36%, Gasoline-UGA -4.3%, Junior Gold Miners-GDXJ -3.63%, Russia-RSX -3.55%, Eastern Europe-ESR -3.02%, Oil-USO -2.92%, Oil and Gas Exploration-XOP -2.8%, Columbia Index-GXG -2.73%, BRICs-EEB -1.7%, Latin America 40-ILF -1.57%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries

Closing Market Summary: Stocks Eke Out Slim Gains Despite Weakness in Energy
The major averages settled near the middle of their ranges after sliding from early highs. The S&P 500 gained a point while the Russell 2000 (-0.9%) underperformed throughout the trading day.

Equity indices started the day on an upbeat note with the S&P 500 rising into fresh record territory with help from three sectors that represent roughly 40% of the market. To that point, consumer discretionary (+0.6%), consumer staples (+0.5%), and technology (+0.6%) rallied at the start and displayed relative strength throughout the day.

However, the strength in the influential trio was not enough to keep the benchmark index near its high with the energy sector (-1.4%) acting as a big drag. The sector, and crude oil, spent the day in a steady retreat after China's Industrial Production growth slowed to 7.7% (expected 8.0%) and the ECB's Survey of Professional Forecasters lowered the region's 2014 harmonized inflation outlook to 0.5% from 0.7% and cut the 2015 forecast to 1.0% from 1.2%. Crude plunged 3.9% at $74.17/bbl after a daylong retreat that was capped with a $1.33 straight-line dive from the $75.50 level.

As for the energy sector, the group cut its loss in half in reaction to afternoon reports indicating Halliburton (HAL 53.79, +0.56) is in talks to buy Baker Hughes (BHI 58.75, +7.77). Baker Hughes surged 15.2%. The weakness in energy did not stop the Dow Jones Industrial Average (+0.2%) from registering a modest gain since the index contains just two members of the energy sector. Chevron (CVX 116.45, -1.20) and ExxonMobil (XOM 94.66, -0.72) lost 1.0% and 0.8%, respectively. Outside of the two names, Caterpillar (CAT 101.11, -1.88), which relies heavily on China, was the only other laggard of note within the Dow. Shares of CAT ended lower by 1.9%.

On the upside, the consumer discretionary sector received support from media names after the House Energy and Commerce Committee told the Federal Communications Commission that reclassifying the internet as a utility is outside of its authority. Time Warner Cable (TWC 141.05, +4.57) climbed 3.4% to underpin the sector after Comcast(CMCSA 54.30, +0.70) said its merger with TWC remains on track.

Meanwhile, the other consumer sector—staples—spent the day in the green thanks to a better than expected report from Wal-Mart (WMT 82.94, +3.74). The bottom-line beat overshadowed the company's guidance for flat comparable store sales in Q4.

Elsewhere, the technology sector advanced amid gains in top-weighted components. Apple (AAPL 112.82, +1.57), Intel (INTC 33.68, +0.30), and Microsoft (MSFT 49.61, +0.83) added between 0.9% and 1.7% while Cisco Systems (CSCO 25.68, +0.57) jumped 2.3% after beating earnings estimates on light guidance.

Treasuries climbed throughout the day, but backed away from highs into the close. The 10-yr yield fell three basis points to 2.35%.

Participation was a bit below long-term average as 690 million shares changed hands at the NYSE floor.

Economic data included Initial Claims, JOLTs, and the Treasury Budget: 

·         The initial claims level increased to 290,000 from an unrevised 278,000 while the Briefing.com consensus expected an increase to 280,000 

o    The Department of Labor said there were no special factors influencing the report 

·         The Job Openings and Labor Turnover Survey for September indicated job opening decreased to 4.735 million from 4.853 million 

·         The Treasury Budget for October showed a deficit of $121.70 billion, which followed the prior deficit of $90.60 billion while the Briefing.com consensus expected the deficit to hit $122.00 billion 

Tomorrow, the Retail Sales report for October (Briefing.com consensus 0.3%) and October Import/Export Prices will be released at 8:30 ET while the preliminary reading of the November Michigan Sentiment Index (consensus 87.5) and the September Business Inventories report (expected 0.2%) will cross the wires at 9:55 ET and 10:00 ET, respectively. 

·         Nasdaq Composite +12.1% YTD 

·         S&P 500 +10.3% YTD 

·         Dow Jones Industrial Average +6.5% YTD 

·         Russell 2000 +1.1% YTD

Commodities

Closing Commodities: WTI Crude Oil Drops Below $75/Barrel, Nat Gas Back Below $4/MMBtu

·         Crude broke down hard today, down sharply even after crude oil inventories showed a draw -1.735 mln vs consensus for a build of 0.7 mln.

·         The move is highly technical, breaking below what was an important level of support at $75/barrel.

·         Over the past three years, futures have tested, but not broken through that level three times. This big leg lower comes ahead of the Nov 27 OPEC meeting.

·         Natural gas is also tumbling, filling the the 11/3 gap higher and breaking an important level of support at $4. There is a potential support level at its 50 DMA, right around 3.95. On the intraday chart, you can see the move lower started this morning, and has continued falling from there, hitting a LoD of 3.971 just after settlement. The move comes ahead of tomorrow's inventory data due out at 10:30 ET.

Metals price action

  Gold rose $2.40 (+0.2%) to $1161.50/oz

·         Gold hit a LoD of 1153 in overnight trading but has since pushed higher, trading in a range right around the 1162.5 level. 

  Silver rose 0.7 cents (+0.04%) to $15.63/oz

·         Silver has been stuck in a range between 15.75 and 15.5 throughout the session, only briefly breaking out above that range to a HoD of 15.79 for what appears to be one or two ticks before falling back into the range. 

  Copper fell 3.75 cents (-1.2%) to $2.9875/lb

Agricultural price action

·         Corn rose 7.75 cents (+2%) to $3.8550/bushel

·         Wheat rose 11 cents (+2%) to $5.5375/bushel

·         Soybeans rose 7.75 cents (+0.7%) to $10.555/bushel

·         Ethanol rose 4.6 cents (2.4%) to $1.978/gallon

·         Sugar #11 fell 2% to 16.03 cents/lb

Energy price action: WTI Crude breaking down through important support level, trading at three year lows, as natural gas tumbles and breaks below support at $4/MMBtu

  Crude oil fell $3.01 (-3.90%) to $74.17/barrel

·         Crude is breaking down hard today, down sharply even after crude oil inventories showed a draw -1.735 mln vs consensus for a build of 0.7 mln. The move is highly technical, breaking below what was an important level of support at 75. Over the past three years, futures have tested, but not broken through that level three times. This big leg lower comes ahead of the Nov 27 OPEC meeting. 

  Natural gas fell 21.2 cents (-5%) to $3.975/barrel

·         Natural gas is also tumbling, filling the the 11/3 gap higher and breaking an important level of support at $4. There is a potential support level at its 50 DMA, right around 3.95. On the intraday chart, you can see the move lower started this morning, and has continued falling from there, hitting a LoD of 3.971 just after settlement. The move comes ahead of tomorrow's inventory data due out at 10:30 ET.

  Heating oil fell 8.25 cents (-3.28%) to $2.366/gallon

  RBOB fell 10.2 cents (-4.85%) to $2.0047/gallon 

Treasuries

Treasuries Eke Out Gains: 10Y: +07/32..2.351%..USD/JPY: 115.74..EUR/USD: 1.2478

·         Treasuries eked out small gains amid a volatile session. Click here to see an intraday yields chart.

·         The complex held small losses into the cash open and rallied into the disappointing initial (290K actual v. 280K expected) and continuing claims (2392K actual v. 2353K expected) data. 

·         Maturities slide back towards their early lows as some selling developed in response to the claims data, but were unable to make for a full retest of those levels. 

·         Buying developed into today's 30Y auction, but quickly stalled. 

·         The $16 bln 30Y bond auction was tepid, drawing 3.092% (WI 3.078%) and a weak 2.29x bid/cover. Indirect (43.8%) and direct (13.8%) bids were short of their 12-auction averages, but primary dealers were left with just 42.4% of the supply.

·         Post-auction selling provoked a retest of the early lows before heavy buying emerged in what seemed to correspond to UPS lowering its EPS guidance for 2015. 

·         A sharp rally from session lows to session highs developed afternoon trade before some profit-taking emerged ahead of the cash close.

·         Up front, the 2Y fell -3.6bps to 0.507%. Action once again failed at resistance in the 0.550% area. 

·         In the belly, the 5Y slid -1.7bps to 1.623%. Resistance in the 1.650% area once again proved difficult to conquer as buyers defended the 50, 100, and 200 dma. 

·         The 10Y erased -1.2bps to 2.347%. The benchmark yield remains unable to reclaim resistance in the 2.350%/2.400% region that is guarded by the 50 dma. 

·         The long end lagged with the 30Y slipping -0.4bps to 3.076%. The yield on the long bond tested resistance at 3.100%, but was once again unable to capture the level. 

·         A slightly steeper curve took holds as the 2-10-yr spread widened to 184bps. 

·         Precious metals saw a mixed session as gold added $1 to $1160 and silver eased -$0.05 to $15.57. 

·         Data: Retail sales, import/export prices (8:30), Michigan Sentiment (9:55), and business inventories (10). 

·         Fed Speak: STL's Bullard speaks on the U.S. economy and monetary policy (9:10).

On other news.... 

Currencies 

Dollar Slips in Choppy Trade: 10Y: +08/32..2.345%..USD/JPY: 115.63..EUR/USD: 1.2479

·         The Dollar Index continues to hold small losses near 87.75. Click here to see a daily Dollar Index chart.

·         The greenback has spent the entire session below the flat line with most of the action taking place in a tight 15 cent range. 

·         EURUSD is +40 pips @ 1.2480 as trade has recovered all of yesterday's losses. The single currency hovers near 27-month lows as a lack of tradable news and data from the region has made for a choppy session. Tomorrow, Eurozone Final CPI and French nonfarm payrolls accompany GDP data from across the region. 

·         GBPUSD is -70 pips @ 1.5710 as action presses to its lowest levels in 14 months. Sterling remains under pressure following yesterday's dovish inflation report, which suggested inflation could slide below 1% by mid-2015 and that rate hikes are no sure thing. Britain's construction output will be released tomorrow.

·         USDCHF is -30 pips @ .9635 as trade slides off 16-month highs. Traders remain more focused on EURCHF as trade holds unchanged @ 1.2020, and remains just above the Swiss National Bank's 1.2000 floor.

·         USDJPY is +20 pips @ 115.70, and threatens its best close in seven years. The pair saw a volatile trade early as confusion over possible early elections and a delay to the consumption tax hike continue to garner headlines. The 116.00 level has been a headwind over the past couple of sessions. 

·         AUDUSD is flat @ .8720 after surrendering its early gains. The hard currency climbed to a high of .8765 following the jump in inflation expectations, but trade has been capped thanks to disappointing Chinese data.

·         USDCAD is +50 pips @ 1.1365 as action holds near its best levels of the day. The pair found a bid following the disappointing New Home Price Index (0.1% MoM actual v. 0.2% MoM expected) as buyers emerged in defense of 1.1300 support. Canadian data scheduled for tomorrow is limited to manufacturing sales.

Next Week In View




Economic Commentaries

Economic Summary: Jobless Claims rise; November Michigan Sentiment Prelim due out tomorrow at 9:55 ET
Economic Data Summary:

·         Weekly Initial Claims 290K vs Briefing.com consensus of 280K; Last Week was 278K

o    Over the past several weeks, the initial claims level has stabilized below 300,000, a level that is normally associated with employment conditions at, or near, full employment. According to the DOL, no special factors caused the drop in claims.

o    Clearly, businesses have reduced layoff activities, but there has been no clear acceleration in hiring activities. Companies seem to be content with their current labor needs.

·         Weekly Continuing Claims 2.392 M vs Briefing.com consensus of 2353K; Last Week was 2348K

·         September JOLTS - Job Openings 4.735 M; August was 4.835M

Upcoming Economic Data:

·         October Export Prices Ex-Ag due out Friday at 8:30 (September was -0.2%)

·         October Import Prices Ex-Oil due out Friday at 8:30 (September was -0.1%)

·         November Michigan Sentiment Prelim due out Friday at 9:55 (Briefing.com consensus of 87.5; October was 86.9)

·         September Business Inventories due out Friday at 10:00 (Briefing.com consensus of 0.2%; August was 0.2%)

Upcoming Fed/Treasury Events:

·         Saint Louis Fed President James Bullard to speak tomorrow at 9:10

Jason's Commentaries

It came in pretty unexpected that oil actually broke the $76 in Light Sweet Crude Oil, causing the oil companies to go down together with it. The energy sector headed down 1.33% while the Utilities company went down 0.81%. That caused the market to correct by 11am ET as the oil inventories report came out, where the market erased it's initial bullish start. The market did went into the negative during 2-3pm ET period. However, the market managed to erase the losses and ended positive due to short covering. Volumes were pretty healthy, however at the start of the session, the market was pretty divergent as well. The energy sector just added the extra damage. The move in oil prices pass its critical support level is likely to be technical. We're likely to have the oil companies holding their support levels as crude oil remains at $74 level.








Market Call: FLAT to upside

Date: 14 Nov 2014