20 Nov 2014 AMC -Market rallied as China prepares more growth stimulus

20 Nov 2014 AMC -Market rallied as China prepares more growth stimulus

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: + 1.3%

·         Germany's DAX: -0.3%

·         France's CAC: + 0.3%

·         Spain's IBEX: + 0.7%

·         Portugal's PSI: + 1.6%

·         Italy's MIB Index: + 0.5%

·         Irish Ovrl Index: + 0.5%

·         Greece ASE General Index: + 2.9%

Before Market Opens 

S&P futures vs fair value: +2.00. Nasdaq futures vs fair value: +7.50.
The S&P 500 futures trade two points above fair value.

Markets gained across most of Asia. China's Shanghai Composite (+3.1%) surged to its best levels since July 2011 amid speculation the People's Bank of China will do more to stimulate growth. Elsewhere, the Reserve Bank of Australia kept its key rate at 2.50% and hinted the next move could be a rate cut. Also of note, the Reserve Bank of India held its benchmark interest rate at 8.00% and said it would be comfortable with inflation +/-2% of its 4% target. 

·         In economic data: 

o    Japan's Average Cash Earnings rose 0.5% year-over-year (expected 0.8%; previous 0.7%) 

o    South Korea's CPI slipped 0.2% month-over-month (expected 0.0%; last -0.3%) while the year-over-year reading increased 1.0% (consensus 1.1%; prior 1.2%) 

o    Australia's current account deficit narrowed to $12.50 billion from $13.90 billion (expected deficit of $13.50 billion) while Building Approvals jumped 11.4% month-over-month (expected 5.2%; last -11.2%) 

o    New Zealand's ANZ Commodity Price Index fell 1.6% month-over-month (previous -0.8%) 

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·         Japan's Nikkei rallied 0.4% to a fresh seven-year high as traders shrugged off yesterday's sovereign downgrade at Moody's. The gains came despite heavyweights Fast Retailing and Softbank posting respective losses of 0.4% and 1.6%. 

·         Hong Kong's Hang Seng added 1.2% to hold the 200-day average. Insurers provided support as Ping An jumped 6.1% and China Life rallied 5.9%. 

·         China's Shanghai Composite soared 3.1% with the gain fueled by further rate cut speculation. Financials saw strong gains with Bank of Communications climbing the daily limit, 10%. 

·         India's Sensex slid 0.4% off all-time highs after the RBI held policy steady. Automakers were a drag as Mahindra & Mahindra and Tata Motors fell 2.4% and 1.3%, respectively. 

Major European indices trade mostly higher with Great Britain's FTSE (+1.1%) in the lead. Investors in Europe have begun focusing on the ECB meeting scheduled for Thursday with some expecting the central bank to announce the start of a sovereign QE program. 

·         Economic data was limited: 

o    Eurozone PPI fell 0.4% month-over-month (expected 0.3%; last 0.2%) while the year-over-year reading declined 1.3%, as expected 

o    Great Britain's Construction PMI eased to 59.4 from 61.4 (consensus 61.2) 

o    Spain's claimant count declined 14,700 (expected 57,300; last 79,200) 

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·         Great Britain's FTSE is higher by 1.1% with miners and energy names in the lead. BP, Tullow Oil, and BHP Billiton are up between 2.3% and 4.8%. Royal Mail is the weakest performer, down 2.7%. 

·         In France, the CAC trades up 0.4% with energy names in the lead. Solvay has jumped 1.4% and Total is higher by 2.4%. Financials lag with Credit Agricole and Societe Generale both down near 0.5%. 

·         Germany's DAX hovers just below its flat line. Chemical companies lead with BASF up 1.2% and Linde trading higher by 1.1%. On the flip side, Bayer and Merck KGaA are both down near 1.0%. 

·         Spain's IBEX has added 0.7% with help from bank shares. Bankia, Caixabank, Banco Popular, and BBVA hold gains between 1.0% and 2.6%.

U.S. Equities

·         Futures point to small gains at the open as the major averages look to rebound following two days of selling

·         On-line retailers are in focus as reports of 'Cyber Monday' sales trickle in 

·         Traders are taking note of the VIX (14.29), which holds at a one-month high

o    S&P Futures +3 @ 2054

o    Dow Futures +35 @ 17790

o    Nasdaq Futures +4 @ 4294

Asia

·         Markets gained across most of Asia

·         China's Shanghai Composite (+3.1%) surged to its best levels since July 2011 amid speculation the People's Bank of China will do more to stimulate growth

·         The Reserve Bank of Australia kept its key rate at 2.50% and hinted the next move could be a rate cut

·         The Reserve Bank of India held its benchmark interest rate at 8.00% and suggested it would be comfortable with inflation +/-2% of its 4% target

·         Japan's average cash earnings jumped 0.5% YoY (0.8% YoY expected), missing estimates

·         Australia's building approvals surged 11.4% MoM (5.2% MoM expected) and the current account deficit narrowed to AUD12.5 bln (AUD13.5 bln expected)

·         Japan's Nikkei (+0.4%) rallied to a fresh seven-year high as traders shrugged off yesterday's sovereign downgrade at Moody's

·         Hong Kong's Hang Seng (+1.2%) held the 200 dma

·         China's Shanghai Composite (+3.1%) was fueled by further rate cut speculation

·         India's Sensex (-0.4%) slid off all-time highs after the RBI held policy steady

·         Australia's ASX (+1.4%) rebounded after two days of heavy selling

Market Internals

Market Internals -Technical-
The S^P 500 closed up 13 (+0.64%) at 2067, the Nasdaq closed up 28 (+0.60%) at 4756, and the Dow closed up 103 (+0.58%) at 17879. Action came on mixed volume (NYSE 795 mln vs. avg. of 788; NASDAQ 1694 mln vs. avg. of 1802), with advancers outpacing decliners (NYSE 2118/1067, NASDAQ 1855/900) and new lows outpacing new highs (NYSE 120/123, NASDAQ 73/103).

Relative Strength: 
Greece-GREK +2.83%, Biotechnology-XBI +2.64%, MLP Index-AMJ +2.58%, China 25 Index-FXI +2.46%, Biotechnology-IBB +2.08%, Clean Energy-PBW +1.89%, Hong Kong-EWH +1.37%, Energy-IYE +1.28%, South Africa-EZA +0.89%, Indonesia-IDX +0.88%.

Relative Weakness: 
Junior Gold Miners-GDXJ -6.61%, Silver Miners-SIL -5.62%, Volatility-VXX -5.6%, Russia-RSX -4.18%, Natural Gas-UNG -3.7%, Coffee-JO -3.37%, Eastern Europe-ESR -2.5%, Mexico-EWW -1.93%, Columbia Index-GXG -1.54%, Latin America 40-ILF -1.54%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries

Closing Market Summary: Small Caps Pace Broad Rebound
The stock market enjoyed a broad rebound on Tuesday after starting the week with a Monday retreat. The S&P 500 settled higher by 0.6% while the Russell 2000 (+1.2%) displayed relative strength. Despite today's outperformance, the small-cap index could only narrow its weekly decline to 0.4% while the S&P 500 reclaimed most of its loss from Monday.

The benchmark index spent the day in a steady advance with M&A news from this morning acting as a supportive factor. In the technology sector (+0.3%), Cypress Semiconductor (CY 11.92, +1.48) agreed to a $4 billion merger of equals with Spansion (CODE 27.86, +5.01) while health care component (+1.1%) Avanir Pharmaceuticals (AVNR 16.92, +1.92) agreed to be acquired by Otsuka Pharmaceuticals for $3.5 billion in cash. Also of note, insurer Aviva (AV 15.64, -0.09) announced its acquisition of Friends Life Group.

Outside of corporate deals, the Tuesday session was very quiet, but somewhat surprisingly, trading volume surpassed recent averages with 795 million shares changing hands at the NYSE.

Nine of ten sectors were able to register gains with energy (+1.3%) ending in the lead for the second day in a row. The sector spent the bulk of the session ahead of other groups even as crude oil fell 3.0% to $66.97/bbl. Dow components Chevron (CVX 114.02, +2.29) and ExxonMobil (XOM 94.19, +1.84) both gained near 2.0% while Royal Dutch Shell (RDS.A 69.30, +1.81) surged 2.7% amid press reports the company may be interested in acquiring BP (BP 40.72, +0.89).

Elsewhere, financials (+1.0%) and industrials (+0.8%) were the only other outperformers among cyclical sectors. The industrial space rallied behind transport stocks with their strength sending the Dow Jones Transportation Average higher by 1.2%.

Meanwhile on the countercyclical side, the health care sector (+1.1%) held a solid gain throughout the session with biotechnology providing support. The iShares Nasdaq Biotechnology ETF (IBB 306.87, +6.25) jumped 2.1% to a fresh record high. As for the remaining defensively-oriented groups, consumer staples (+0.4%) and telecom services (-1.8%) lagged while the utilities sector (+0.7%) ended just ahead of the broader market.

Treasuries finished on their lows with the 10-yr yield up five basis points at 2.29%.

Economic data was limited to the Construction Spending report for October, which increased 1.1% while the Briefing.com consensus expected an increase of 0.5%. The value of construction put in place increased 0.9%, which will be a positive factor in Q4 GDP computations.

Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET while the ADP Employment Change report for November will cross the wires at 8:15 ET (Briefing.com consensus 225K). Third quarter Productivity (consensus 2.4%) and Unit Labor Costs data (expected 0.0%) will be reported at 8:30 ET while the November ISM Services report (consensus 57.5) will be released at 10:00 ET. Also of note, the Federal Reserve will release its December Beige Book at 14:00 ET. 

·         Nasdaq Composite +13.9% YTD 

·         S&P 500 +11.8% YTD 

·         Dow Jones Industrial Average +7.9% YTD 

·         Russell 2000 +0.4% YTD

Commodities

Closing Commodities: Commodities Fall On Dollar Strength

  Commodities took a hit today on strength in the dollar index

  The CRB Reuters/Thomson Commodity Index lost just over 2% today

  Oil prices slid lower and natural gas extended losses 

  Jan crude oil ended the day $2.05 lower at $66.97/barrel, while Jan nat gas fell $0.13 at $3.88/MMBtu

  Jan gold lost $19.60 to $1198.60/oz, while Mar silver fell $0.25 to $16.45/oz

  Mar copper climbed off its LoD and erased most of its losses, ending 2 cents lower at $2.88/lb

Metals price action

·         Gold fell $19.60 to $1198.60/oz

·         Silver fell $0.25 to $16.45/oz

·         Copper fell 2 cents to $2.88/lb

Energy price action

·         Crude oil fell $2.05 to $66.97/barrel

·         Natural gas fell 13 cents to $3.88/MMBtu

·         Heating oil fell 7 cents to $2.15/gallon

·         RBOB fell 7 cents to $1.81/gallon

 Agricultural price action

·         Corn closed 8 cents lower at $3.82/bushel

·         Wheat fell 4 cents to $6.03/bushel

·         Soybeans fell 22 cents to $9.96/bushel

·         Ethanol fell 7 cents to $1.67/gallon

·         Sugar #11 fell -0.35 cents to 15.24 cents/gallon

Treasuries

30Y Reclaims 3.00%: 10Y: -13/32..2.281%..USD/JPY: 119.25..EUR/USD: 1.2379

·         Treasuries finished on their lows as sellers remained in control for a second session. Click here to see an intraday yields chart.

·         The complex held small losses into the cash open and put in its worst levels of the morning following the construction spending (+1.1% actual v. +0.5% expected) beat. 

·         Trade would hover near their lows into afternoon trade before slipping further ahead of the cash close. 

·         Two days of selling has longer dated yields up nearly +15bps from yesterday's opening levels. 

·         Up front, the 2Y rallied +5.2bps to 0.536%. The yield regained the lower bound of the 0.500%/0.550% range that had held up throughout November and is within a handful of bps of its highest close since mid-2011. 

·         In the belly, the 5Y tacked on +6.9bps to 1.590%. The yield is testing recent support near 1.600% that gave way in late-November. 

·         The 10Y climbed +6.7bps to 2.285%. Treasury bears are hoping the benchmark yield can reclaim the important 2.300% area.

·         Selling at the long end ran the 30Y up +5.8bps to 3.004%. Today's slide provoked the first close above 3.000% in a week.

·         A steeper curve persisted as the 2-10-yr spread widened to 175bps. 

·         Precious metals lost ground as gold fell -$19 to $1199 and silver slid -$0.22 to $16.47. 

·         Data: MBA Mortgage Index (7), ADP Employment Change (8:15), productivity-rev., unit labor costs-rev. (8:30), ISM Services (10), and the Fed's Beige Book (14). 

·         Fed Speak: Philly's Plosser gives his economic outlook (12:30). Fed Governor Brainard discusses "Financial Stability: a Conversation with Lael Brainard" (14). Dallas' Fisher talks on the economy and monetary policy (19:30).

On other news.... 

Currencies 

Dollar Hits Best Level in Over Four Years: 10Y: -12/32..2.279%..USD/JPY: 119.20..EUR/USD: 1.2382

·         The Dollar Index rests on session highs near 8.65 and remains on track to close at its best level since June 2010. Click here to see a daily Dollar Index chart.

·         EURUSD is -90 pips @ 1.2380 and is contending with its worst close in 28 months. The single currency remains under pressure despite the improvement in Spanish unemployment as traders look ahead to Thursday's European Central Bank rate decision. However, expectations remain low as many anticipate more jawboning and no action from the Mario Draghi-led central bank. Eurozone data scheduled for tomorrow includes retail sales and Italian and Spanish Services PMI. 

·         GBPUSD is -90 pips @ 1.5640 as trade flirts with its worst close since September 2013. Construction PMI was the latest number to miss estimates, causing many to pare back rate hike expectations. Britain's Services PMI will be released ahead of the Treasury's Autumn Forecast Statement. 

·         USDCHF is +85 pips @ .9730 as action nears its best finish since May 2013. The pair remains tightly correlated to the euro.

·         USDJPY is +85 pips @ 119.25 as trade rallies to a fresh seven-year high. The overnight average cash earnings miss got the buying started early, and the pair continued higher as S&P made cautious comments regarding the country's debt load. 

·         AUDUSD is -45 pips @ .8445 as trade remains on track to close at its worst level since October 2010 after the Reserve Bank of Australia held its key rate at 2.50% and hinted the next move may be a rate cut. Support in the .8400 area dates back to 2009 and is being watched closely into tonight's GDP release. China's Non-Manufacturing PMI and HSBC Services PMI are due out this evening. 

·         USDCAD is +65 pips @ 1.1395 as action contends with the October/November highs. Any close above 1.1420 will be the best since July 2009.

Next Week In View




Economic Commentaries

Economic Summary: Construction Spending rose faster than expected; ADP tomorrow
Economic Data Summary:

·         October Construction Spending +1.1% vs Briefing.com consensus of +0.6%; September was revised to -0.1% from -0.4%

o    Total private construction rose 0.6% month-over-month in October, paced by a 1.3% jump in residential spending. Nonresidential construction spending declined 0.1% with spending for commercial (-2.6%) and power (-1.9%) leading that pullback.

Fed/Treasury Events Summary:

·         Fed's Vice Chair Fischer says does not want to surprise markets; reiterates Fed remains data reliant

o    Briefing.com Note: Comment on markets echoes comments yesterday in which Mr. Fischer said the Fed was looking to avoid volatile swings in the markets as it looks to slowly remove itself from QE and stimulus programs.

Upcoming Economic Data:

·         Weekly MBA Mortgage Applications due out Wednesday at 7:00 (Briefing.com consensus of ; Last Week was -4.3%)

·         November ADP Employment Change due out Wednesday at 7:15 (Briefing.com consensus of 225K; October was 230K)

·         Third Quarter Productivity Revenue due out Wednesday at 8:30 (Briefing.com consensus of 2.4%; Second Quarter was 2.0%)

·         Third Quarter Unit Labor Costs - Revised due out Wednesday at 8:30 (Briefing.com consensus of 0.0%; Second Quarter was 0.3%)

·         November ISM Services due out Wednesday at 10:00 (Briefing.com consensus of 57.5; October was 57.1)

Upcoming Fed/Treasury Events:

·         NY Fed President Bill Dudley (voting FOMC member, dovish) to speak today at 15:30

·         Philadelphia Fed President (voting FOMC member, hawkish) to speak tomorrow at 12:30

Other International Events of Interest

·         Eurozone PPI fell 0.4% month-over-month (expected 0.3%; last 0.2%) while the year-over-year reading declined 1.3%, as expected 

Jason's Commentaries


The Asia Market was being led by the Shanghai market as the PBOC is stepping up more efforts to for economic stimulus. What is see here is.... it's going to inflate the assets of neighbouring countries. These money will simply flow out of China, (hint: those rich kids) and get splurge on the other assets overseas. And most importantly, the corporate governance in China is too rampant to keep it under control. I wonder what would be the damage dealt to the RMB which it will further hurt it's export market.

China aside, the market sorta rallied last night, after monday's crasher. As Oil prices stabilizes, the energy stocks seemed to be doing much better. All indices were up much higher and volumes were pretty healthy as well. However, one of the main determinant this week would be the employment data. As of now, the ADP report has been released at 208k vs 225k. It would seem that the market is likely to hold at this support level while waiting for more catalyst.







Market Call: FLAT

Date: 3 Dec 2014