17 Nov 2014 AMC - Market dragged down by Japan's recession news at start, but regained lost grounds by closing bell

17 Nov 2014 AMC - Market dragged down by Japan's recession news at start, but regained lost grounds by closing bell

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: + 0.3%

·         Germany's DAX: + 0.6%

·         France's CAC: + 0.6%

·         Spain's IBEX: + 1.7%

·         Portugal's PSI: + 0.4%

·         Italy's MIB Index: + 1.3%

·         Irish Ovrl Index: + 0.4%

·         Greece ASE General Index: -1.0%

Before Market Opens 

S&P futures vs fair value: -2.80. Nasdaq futures vs fair value: -4.30.
The S&P 500 futures trade three points below fair value.

Markets fell across most of Asia. Japan reported its third quarter GDP, which contracted for the second consecutive quarter, indicating the country is in a recession. This has all but ensured a delay to the country's sales tax hike, which has been discussed in recent weeks. Prime Minister Shinzo Abe is expected to announce the delay on Tuesday. Elsewhere, Stock Connect debuted, allowing overseas investors access to stocks on Mainland China. 

·         In economic data: 

o    Japan's Q3 GDP fell 0.4% quarter-over-quarter (expected 0.5%; previous -1.9%) while the year-over-year reading contracted 1.6% (consensus 2.1%; prior -7.3%). GDP Price Index rose 2.1% year-over-year (expected 1.9%; prior 2.0%) 

o    Hong Kong's Unemployment Rate held at 3.3%, as expected 

o    Australia's New Motor Vehicle Sales fell 1.6% month-over-month (prior 2.9%) 

o    New Zealand's Retail Sales rose 1.5% quarter-over-quarter (expected 0.9%; last 1.2%) while Core Retail Sales increased 1.4% quarter-over-quarter (consensus 1.0%; prior 1.2%) 

o    India's trade deficit narrowed to $13.35 billion from $14.25 billion (expected deficit of $15.60 billion) 

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·         Japan's Nikkei tumbled 3.0% from seven-year highs on word the economy has slipped into recession. Only Toray Industries and Mitsubishi UFJ Financial finished in the black, adding 4.1% and 2.2%, respectively. 

·         Hong Kong's Hang Seng opened strong, but ended lower by 1.2% with trade settling on the 50-day average. Hong Kong Exchanges was the biggest drag, falling 4.5% on the first day of Stock Connect. 

·         China's Shanghai Composite shed 0.2%, but held near three-year highs. Automaker SAIC Motor saw solid gains, climbing 3.2%. 

·         India's Sensex rallied 0.5% to an all-time high. Automakers were among the top performers as Tata Motors and Hero MotoCorp gained 4.1% and 2.2%, respectively. 

Major European indices trade mostly higher after climbing off their lows. Bank of England MPC member Martin Weale said the situation in the eurozone is not as gloomy as some had feared and that companies were planning to raise wages. 

·         Economic data was limited: 

o    Eurozone trade surplus expanded to EUR17.70 billion from EUR15.40 billion (expected surplus of EUR16.00 billion) 

o    Spain's trade deficit narrowed to EUR2.37 billion from EUR2.77 billion (expected deficit of EUR2.70 billion) 

o    Italy's trade surplus narrowed to EUR2.01 billion from EUR2.06 billion (expected surplus of EUR2.68 billion) 

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·         Great Britain's FTSE is lower by 0.1%. Consumer names lag with J Sainsbury and Tesco down 2.2% and 1.4%, respectively. On the upside, miners Anglo American, BHP Billiton, and Rio Tinto are up between 1.1% and 2.2%. 

·         In France, the CAC trades up 0.1% with ArcelorMittal in the lead. The steelmaker has added 2.1%. Utility stocks are mixed as Veolia Environnement trades up 2.0% while Electricite de France and GDF Suez are lower by 0.5% and 0.8%, respectively. 

·         Germany's DAX is higher by 0.2% with help from ThyssenKrupp, which has jumped 2.6%. Utilities lag with E.On and RWE down 0.2% and 0.5%, respectively. 

·         Spain's IBEX outperforms with a gain of 0.9%. Embattled engineering company Abengoa has surged 22.5% after boosting its debt target.

U.S. Equities

·         Futures point to some modest selling at the open

·         The S&P 500 has stalled in recent days with seven straight closes occurring between 2030 and 2040

·         The VIX (13.31) remains near two-month lows

·         Empire Manufacturing (10.2 actual v. 12.0 expected)

o    S&P Futures -5 @ 2032

o    Dow Futures -35 @ 17,569

o    Nasdaq Futures -9 @ 4213

Asia

·         Markets fell across most of Asia

·         Japan entered recession as Preliminary GDP printed -0.4% QoQ (0.5% QoQ expected). Today's reading calls into question the effectiveness of Abenomics while raising the possibility of early elections and a delay to the consumption tax hike

·         Stock Connect debuted, allowing overseas investors access to stocks on Mainland China

·         India's trade deficit narrowed to $13.35 bln ($14.25 bln previous)

·         Hong Kong's unemployment rate held at 3.3%, as expected

·         Australia's new motor vehicle sales fell 1.6% MoM

·         Japan's Nikkei (-3.0%) tumbled off seven-year highs on word the economy has slipped into recession

·         Hong Kong's Hang Seng (-1.2%) opened strong, but reversed to a one-week low with trade settling on the 50 dma

·         China's Shanghai Composite (-0.2%) held near three-year highs

·         India's Sensex (+0.5%) rallied to an all-time high

·         Australia's ASX (-0.8%) fell to a three-week low

Market Internals

Market Internals -Technical-
The Dow closed up 13 (+0.07%) at 17648, the S&P 500 closed up 2 (+0.07%) at 2041, and the Nasdaq closed down 18 (-0.37%) at 4671. Action came on below average volume (NYSE 673 mln vs. avg. of 786; NASDAQ 1557 mln vs. avg. of 1864), with decliners outpacing advancers (NYSE 1420/1766, NASDAQ 934/1795) and new highs outpacing new lows(NYSE 155/43, NASDAQ 79/62).

Relative Strength: 
Natural Gas-UNG +5.4%, Junior Gold Miners-GDXJ +4.36%, Silver Miners-SIL +2.34%, Utilities-XLU +1.31%, U.S. Health Care-IHF +1.28%, Spain-EWP +1.23%, Vietnam-VNM +1.14%, Italy-EWI +0.98%, Indonesia-IDX +0.72%, United Kingdom-EWU +0.26%.

Relative Weakness: 
China 25 Index-FXI -2.97%, Coffee-JO -2.73%, Oil and Gas Exploration-XOP -2.53%, Social Media-SOCL -2.52%, Hong Kong-EWH -1.71%, Greece-GREK -1.62%, Japan-EWJ -1.61%, Egypt-EGPT -1.54%, Clean Energy-PBW -1.42%, Retail-XRT -1.13%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries

Closing Market Summary: Countercyclical Sectors Pace Slim Advance
The stock market began the new trading week on an unassuming note. The S&P 500 (+0.1%) added just over a point while the Nasdaq (-0.4%) and Russell 2000 (-0.8%) underperformed throughout the session.

The benchmark index started under modest pressure, but was able to finish near its best level of day with help from countercyclical sectors. News from overseas contributed to the early weakness as Japan's preliminary GDP report for Q3 revealed the second consecutive decline (-0.4%; expected 0.5%), meaning the country is now in recession. The news gave an overnight boost to the yen, but the currency was back to unchanged against the dollar (116.20) by the start of the U.S. session. The yen weakened a bit during the session, sending the dollar/yen pair to 116.50.

Although the S&P 500 started in the red, the index was back near its flat line in the first hour with help from comments made by European Central Bank President Mario Draghi. Mr. Draghi appeared in front of a European parliamentary committee and provided another reminder that the ECB stands ready to act if downside risks continue mounting.

The combination of Mr. Draghi's comments and the relative strength in countercyclical sectors kept the S&P 500 from dipping too far into the red. However, the index never climbed too far above its flat line either with participants reluctant to take on additional risk after an 11.2% rally over the past month. Below-average participation spoke to the cautious posture as fewer than 675 million shares changed hands at the NYSE floor.

As mentioned earlier, countercyclical sectors displayed strength with consumer staples (+0.6%), health care (+0.5%), and utilities (+1.3%) registering solid gains while the telecom services sector (-0.2%) underperformed.

The staples sector rallied behind Tyson Foods (TSN 43.01, +2.35), which spiked 5.8% in reaction to a bottom-line beat. Elsewhere, health care was underpinned by news indicating Actavis (ACT 247.94, +4.17) agreed to acquire Allergan (AGN 209.20, +10.55) for $219/share in cash and stock. Biotechnology displayed intraday strength, but theiShares Nasdaq Biotechnology ETF (IBB 288.84, +0.67) narrowed its gain to 0.2% by the close.

M&A activity was not isolated to the health care sector as Halliburton (HAL 49.23, -5.85) agreed to acquire Baker Hughes (BHI 65.23, +5.34) for $78.62/share, representing a 40.8% premium to BHI's price on October 10 before the initial offer was made. As for energy, the sector narrowed its loss to 0.4%, but still ended at the bottom of the leaderboard. Crude oil registered another decline, sliding 0.3% to $75.61/bbl.

The remaining growth-sensitive sectors settled closer to their flat lines, but the relative weakness among chipmakers kept the Nasdaq in the red throughout the session. The PHLX Semiconductor Index lost 0.5% while the technology sector shed 0.2%.

Treasuries ended near their lows with the 10-yr higher by a basis point at 2.33%.

Tomorrow, October PPI (Briefing.com consensus -0.2%) will be released at 8:30 ET while the NAHB Housing Market Index for November (consensus 55) will cross the wires at 10:00 ET. 

·         Nasdaq Composite +11.8% YTD 

·         S&P 500 +10.4% YTD 

·         Dow Jones Industrial Average +6.5% YTD 

·         Russell 2000 +0.1% YTD

Commodities

Closing Commodities: Natural Gas Surges 8% On Weather/Outlook

  Crude oil remained in negative territory all day today, falling as low as $74.72/barrel. By the end of today's session, Dec crude closed 21 cents at $75.61/barrel

  Natural gas futures surged higher today on current weather conditions/current outlook

  As a results, Dec nat gas rose 8% to $4.34/MMBtu

  Dec gold fell 0.7% to $1186.20/oz, while Dec silver -1.4% at $16.06/oz

  Dec copper lost 1 cent to $3.04/lb

Metals price action

·         Gold fell $2.70 (-0.2%) today to $1186.20/oz

·         Silver fell 23 cents (-1.4%) to $16.06/oz

·         Copper fell 1 cent to $3.04/MMBtu

Agricultural price action

·         Corn fell 3.75 cents (-1%) to $3.78/bushel

·         Wheat fell 7.75 cents (-1.4%) to $5.5275/bushel

·         Soybeans rose 12.75 cents (+1.3%) to $10.3525/bushel

·         Ethanol rose 4.3 cents (+2.1%) to $2.063/gallon

·         Sugar #11 fell 0.9% to 15.76 cents/lb

Energy price action

  Crude oil fell 21 cents $75.61/barrel

·         Crude oil has been trading right around an important level at 75 after hitting a LoD of 74.72. 

  Natural gas rose 32 cents (+7.9%) to $4.34/MMBtu

·         Natural gas is on a tear higher today, with the session ending right on the HoD of 4.347. 

  Heating oil fell 1.47 cents (-0.7%) to $2.4016/gallon

  RBOB fell 1.7 cents (-0.8%) $2.0259/gallon


Treasuries

Treasuries Slip Amid Sleepy Trade: 10Y: -04/32..2.338%..USD/JPY: 116.46..EUR/USD: 1.2452

·         Treasuries booked small losses amid an uneventful session. Click here to see an intraday yields chart.

·         The complex was bid into the cash open before disappointing economic data brought sellers out of the woodwork. 

·         The Empire Manufacturing (10.2 actual v. 12.0 expected) miss got the selling started, and maturities put in session lows shortly after this morning's second batch of disappointing data. 

·         Industrial production (-0.1% MoM actual v. 0.2% MoM expected) and capacity utilization (78.9% actual v. 79.3% expected) followed Empire Manufacturing in falling short of estimates. 

·         A choppy trade would persist throughout the remainder of the day, keeping yields in a tight 1bp range. 

·         Up front, the 2Y was flat @ 0.512%. Action remains trapped between 0.500% and 0.550% as it has for the past three weeks. 

·         In the belly, the 5Y ticked up +2.3bps to 1.627%. Resistance in the 1.650% area is defended by the 50, 100, and 200 dma. 

·         The 10Y tacked on +2bps to 2.340%. The benchmark yield has been trapped between 2.300% and 2.400% throughout the month of November. 

·         Slight outperformance at the long end saw the 30Y edge up +1.7bps to 3.059%. A stubborn trade over the past month has kept the yield on the long bond between 3.00% and 3.100%.

·         A slightly steeper curve took hold as the 2-10-yr spread widened to 183bps. 

·         Precious metals were mixed as gold held steady @ $1185 and silver slumped -$0.19 to $16.12. 

·         Data: PPI (8:30), NAHB Housing Market Index (10), and Net Long-Term TIC Flows (16). 

·         Fed Speak: Minny's Kocherlakota discusses "Clarifying the Objectives of Monetary Policy" (13:30).

On other news.... 

Currencies 

Dollar Continues to Test 88.00: 10Y: -03/32..2.335%..USD/JPY: 116.48..EUR/USD: 1.2455

·         The Dollar Index drifts on session highs near 87.90 amid a rather uneventful session. Click here to see a daily Dollar Index chart.

·         Action has spent virtually the entire U.S. session stuck in a 10 cent range.

·         EURUSD is -70 pips @ 1.2450 as trade presses session lows. The single currency neared 1.2600 in early trade, but was battered as European Central Bank President Mario Draghi reiterated sovereign bond buying cannot be ruled out. Critical support in the 1.2400 area will remain in focus as eurozone and German ZEW Economic Sentiment data crosses the wires tomorrow. 

·         GBPUSD is -25 pips @ 1.5640 as sellers remain in control for a fourth day. Today's weakness comes following a further let up in home prices, and has sterling on track to close at a 14-month low British data out tomorrow includes CPI, PPI Input, RPI. 

·         USDCHF is +60 pips @ .9650 as action holds just off 16-month highs. Early selling provided a test of .9550 support, but that level was able to hold as buying emerged in response to some selling in the euro. 

·         USDJPY is +15 pips @ 116.45 as trade flirts with a fresh seven-year high. The pair crossed 117.00 in overnight action as the Japanese economy slid back into recession; however, aggressive selling developed and pushed trade back below the level. 

·         AUDUSD is -40 pips @ .8715 after early buying was rejected at the 50 dma (.8805). Today's selling has the hard currency lower for just the second time in seven sessions, and has many traders focused on the lower end of the .8650/.8850 range that has been in place for much of the past six weeks. The latest Reserve Bank of Australia minutes are due out tonight. Reserve Bank of Australia head Glenn Stevens will speak tomorrow morning in Melbourne. 

·         USDCAD is +15 pips @ 1.1300 as trade ticks higher amid a mostly eventful session. Canada's foreign securities purchases (CAD4.37 bln actual v. CAD11.32 bln expected) fell well short of estimates, but have had little impact on the pair.

Next Week In View




Economic Commentaries

Economic Summary: IP shows unexpected decline; Japan GDP shows contraction
Economic Data Summary:

·         November Empire Manufacturing 10.2 vs Briefing.com consensus of 12.0; October  6.2

·         October Industrial Production -0.1% vs Briefing.com consensus of 0.2; September was revised to 0.8% from 1.0%

·         October Capacity Utilization 78.9% vs Briefing.com consensus of 79.3; September was revised to 79.2% from 79.3%

o    After reaching a peak at 13.24 mln SAAR in July, motor vehicle assemblies have steadily declined for the past three months and now stand at 11.07 mln SAAR. That is the smallest number of assemblies since only 10.54 mln SAAR were built in January. Auto assemblies fell to 3.94 mln SAAR in October from 4.20 mln SAAR in September and truck assemblies declined to 7.13 mln SAAR from 7.27 mln SAAR. Excluding motor vehicles, manufacturing production still rose 0.2%. 

Upcoming Economic Data:

·         November NAHB Housing Market Index due out Tuesday at 10:00 (Briefing.com consensus of 55; October was 54)

·         September Net Long Term TIC Flows due out Tuesday at 16:00 (Briefing.com consensus of ; August was $52.1 bln)

Upcoming Fed/Treasury Events:

·         Minneapolis Fed President Kocherlakota to speak tomorrow at 13:30

·         FOMC Minutes Wednesday at 14:00

Other International Events of Interest

·          Japan entered recession as Preliminary GDP printed -0.4% QoQ (0.5% QoQ expected). Today's reading calls into question the effectiveness of Abenomics while raising the possibility of early elections and a delay to the consumption tax hike

Jason's Commentaries

After being dragged down by Japan's new at the start, where the market started in a very volatile fashion, the market managed to regained its lost grounds by 11am ET. Both S&P500 and Dow Jones were able to close in the green however Nasdaq and Russells as the tech sectors took a beating. Volumes dipped below 700m shares traded on the NYSE and we're 1 day away from the FOMC, i would reckon the market will be sidelined on Tuesday. It is likely to be another sideways and volatile market today. On the Technical front, Dow, S&P500 and Nasdaq is consolidating at the top right now. It's likely to be another catalyst that will decide where the market will head for the rest of the year.








Market Call: FLAT to upside

Date: 18 Nov 2014