8 Dec 2014 AMC -Market taking a beating with oil prices and eurozone concerns

8 Dec 2014 AMC -Market taking a beating with oil prices and eurozone concerns

Market Summary

 European Markets Closing Prices

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

·         UK's FTSE: -1.1%

·         Germany's DAX: -0.7%

·         France's CAC: -1.0%

·         Spain's IBEX: -0.9%

·         Portugal's PSI: -1.1%

·         Italy's MIB Index: -0.7%

·         Irish Ovrl Index: -0.6%

·         Greece ASE General Index: + 0.2%

Before Market Opens 

S&P futures vs fair value: -4.80. Nasdaq futures vs fair value: -12.80.
The S&P 500 futures trade five points below fair value.

Markets in Asia started the trading week on a mixed note. China's Shanghai Composite surged 2.8% following a spike in the trade surplus that was largely driven by a 6.7% drop in imports (expected 3.5%). In all likelihood, expectations for more easing from the People's Bank of China fueled the advance. 

·         In economic data: 

o    China's trade surplus expanded to $54.47 billion from $45.41 billion (expected surplus of $43.15 billion) as imports fell 6.7% year-over-year (consensus 3.5%; prior 4.6%) while exports increased 4.7% (forecast 7.9%; last 11.6%) 

o    Japan's Q3 GDP was revised down to -0.5% quarter-over-quarter from -0.4% (expected -0.1%) while the year-over-year reading was revised down to -1.9% from -1.6% (expected -0.5%). GDP Capital Expenditure fell 0.4% quarter-over-quarter (consensus 0.8%; last -0.2%) while GDP Price Index was reported at 2.0% (expected 2.1%; prior 2.1%). Separately, Economy Watchers Current Index fell to 41.5 from 44.0 (expected 45.9) 

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·         Japan's Nikkei inched up 0.1% amid strength in industrial names. Ube Industries and Kawasaki Heavy Industries both up near 3.3%. 

·         Hong Kong's Hang Seng added 0.2%, but ended near its low as consumer names weighed. Galaxy Entertainment, Sands China, and Belle International lost between 2.2% and 3.0%. Bank of China led, climbing 4.6%. 

·         China's Shanghai Composite surged 2.8% to continue its breathless rally on hopes for more stimulus from the PBoC. China State Construction Engineering and China First Heavy Industries both surged the limit, 10.0%. 

·         India's Sensex lost 1.2% after spending the session in a steady retreat with Infosys leading the index lower. The stock surrendered 4.8%. Coal India outperformed, climbing 2.3%. 

Major European indices trade lower across the board with France's CAC (-0.9%) leading the region lower. Notably, European Central Bank member Ewald Nowotny said he observed a "massive weakening" in the Eurozone and there is a high possibility of a lower inflation rate in the first quarter. 

·         Economic data was limited: 

o    Eurozone Sentix Investor Confidence improved to -2.5 from -11.9 (expected -9.7) 

o    Germany's Industrial Production inched up 0.2% month-over-month (expected 0.2%; last 1.1%) 

o    Swiss CPI was unchanged month-over-month (expected -0.1%; last 0.0%) while Retail Sales increased 0.3% year-over-year (consensus 0.9%; prior 0.5%) 

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·         Germany's DAX is lower by 0.6% with utilities on the defensive. E.On and RWE are lower by 1.4% and 1.8%, respectively. Commerzbank outperforms with an increase of 1.2%. 

·         UK's FTSE has given up 0.9% amid weakness in miners and industrials. BHP Billiton, CRH, and Weir Group are down between 1.9% and 2.6%. 

·         In France, the CAC trades down 0.9% with Cie de St-Gobain down 6.2% after the company's offer to acquire Sika was rejected. Bouygues and Renault outperform with gains close to 0.5% apiece. 

·         Spain's IBEX is down 0.6%. Construction names Abengoa and Acciona hold respective losses of 2.1% and 1.2% while peers FCC and Sacyr outperform with gains of 2.5% and 0.5%, respectively.

Market Internals

Market Internals -Technical-
The Nasdaq closed down 40 (-0.84%) at 4741, the S&P 500 closed down 15 (-0.72%) at 2060, and the Dow closed down 105 (-0.59%) at 17854. Action came on near average volume (NYSE 794 mln vs. avg. of 794; NASDAQ 1808 mln vs. avg. of 1802), with decliners outpacing advancers (NYSE 962/2224, NASDAQ 718/2063) and new lows outpacing new highs(NYSE 236/300, NASDAQ 147/177).

Relative Strength: 
Volatility-VXX +3.64%, Junior Gold Miners-GDXJ +1.74%, Biotechnology-IBB +1.61%, Sugar-SGG +1.54%, 20+ Year Treasuries-TLT +1.22%, Japanese Yen-FXY +0.69%, British Pound-FXB +0.54%, Indian Rupee-ICN +0.45%, Swiss Franc-FXF +0.13%, South Korea-EWY +0.05%.

Relative Weakness: 
Oil and Gas Exploration-XOP -6.98%, Russia-RSX -5.44%, MLP Index-AMJ -5.22%, Oil Services-OIH -4.56%, Natural Gas-UNG -4.5%, Oil-USO -4.21%, BRICs-EEB -3.46%, Eastern Europe-ESR -2.91%, Latin America 40-ILF -2.69%, Canada-EWC -2.66%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries

Closing Market Summary: Stocks Slip while Oil Endures Another Major Dip
The stock market slumped on Monday as the S&P 500 ended lower by 0.7% with seven sectors in the red. The price-weighted Dow (-0.6%) finished a little ahead of the benchmark index while the Nasdaq (-0.8%) and Russell 2000 (-1.3%) lagged.

Equity markets around the world started the new week on a mostly lower note. However, continued hopes for stimulus from the PBoC sent China's Shanghai Composite higher by 2.8% to extend its gain over the past month to 25.0%. The advance took place after the latest trade data showed a better than expected surplus of $54.47 billion, which resulted from a 6.7% drop in imports (expected +3.5%). Hopes for additional stimulus were also present in Europe, but the key indices there could not stay out of the red amid weakness in growth-sensitive listings.

Fittingly, cyclical sectors were also responsible for the weakness in the U.S. with energy (-3.9%) taking it on the chin amid another decline in crude oil. The sector gave back its entire advance from last week while Chevron (CVX 106.80, -4.07) and ExxonMobil (XOM 91.70, -2.12) lost 3.7% and 2.3%, respectively. As for crude oil, the energy component plunged 5.5% to $63.10/bbl, which represents the lowest level since August 2009. Oil was not the only weak spot among commodities as copper and iron ore also retreated following China's trade data. This kept the pressure on the materials sector (-1.6%), which settled only ahead of energy.

Elsewhere, the technology sector (-1.2%) held up relatively well through the morning, but slipped into the afternoon amid broad weakness. Apple (AAPL 112.40, -2.60), Intel (INTC 37.21, -0.46), and Microsoft (MSFT 47.70, -0.73) lost between 1.2% and 2.3% while the PHLX Semiconductor Index sank 1.4%.

Also of note, the consumer discretionary sector (-0.8%) underperformed with shares of McDonald's (MCD 92.61, -3.70) diving 3.8% after the fast food giant reported a 2.2% decline in global comparable store sales in November, paced by a 4.6% decline in U.S. sales.

Although cyclical sectors were responsible for the bulk of the weakness, financials (+0.4%) tried to resist the broad pressure. The sector climbed through the first two hours of action, but returned in the middle of its range by the close to maintain its market-leading December gain of 2.2%.

Meanwhile, the second-best performer of the month—health care (+0.3%)—followed the same pattern as financials. The sector received an early boost from biotechnology after Merck (MRK 61.88, +0.39) agreed to acquire Cubist Pharmaceuticals (CBST 100.60, +26.24) for $102/share, which represents a 35.0% premium to CBST's average stock price over the past five days. Cubist soared 35.3% while the iShares Nasdaq Biotechnology ETF (IBB 313.79, +4.98) jumped 1.6% to a new record high.

Treasuries ended the day near their highs with the 10-yr yield slipping five basis points to 2.26%. However, the front of the curve saw little change with the 2-yr yield slipping one basis point to 0.64%.

For its part, the Dollar Index (89.16, -0.18) took a step back from its multi-year high, but the index is still up more than 11.5% since May. That strength has prompted the Bank of International Settlements to issue a warning about the rising dollar and the potential impact to $1.1 trillion in dollar-denominated loans held by Chinese banks. The BIS said that continued dollar strength increases the potential for a credit shock being sent through East Asia.

Today's participation was in-line with average as roughly 794 million shares changed hands at the NYSE floor.

Tomorrow's economic data will be limited to October Wholesale Inventories (Briefing.com consensus 0.2%) and October JOLTS with both reports set to be released at 10:00 ET. 

·         Nasdaq Composite +13.5% YTD 

·         S&P 500 +11.5% YTD 

·         Dow Jones Industrial Average +7.7% YTD 

·         Russell 2000 +0.3% YTD

Commodities

 Metals price action

·         Gold ended today's session $4.80 higher at $1195/oz

·         Silver rose $0.02 to $16.28/oz

·         Copper fell 1 cent to $2.89/lb

Agricultural price action

·         Corn closed 6 cents lower at $3.90/bushel

·         Wheat rose 4 cents to $5.93/bushel

·         Soybeans closed unchanged at $10.50/bushel

·         Ethanol fell 2 cents to $1.71/gallon

·         Sugar #11 rose 0.16 cents to 15.30 cents/gallon

Energy price action; oil prices tank, Jan WTI crude falls below $63/barrel

·         Crude oil fell $3.65 (or -5.5%) today, closing today's pit session at $63.10/barrel

o    Jan crude hit a new LoD of $62.78/barrel just ahead of the close

·         Natural gas fell 20 cents (or -5.3%) to $3.60/MMBtu

·         RBOB Gasoline fell 6 cents to $1.71/gallon

·         Heating oil fell 6 cent to $2.06/gallon

 




Treasuries

Treasuries Lead while Stocks (and Oil) Bleed

·         Last Friday stocks were in favor following the November employment report and Treasuries were not. Today, the roles were reversed. 

·         Primary catalysts for the Treasury market's outperformance included: 

o    Slowdown concerns surrounding China and the eurozone 

§  China reported a 6.7% decline in imports in November and a weaker than expected 4.7% increase in exports 

§  ECB member Ewald Nowotny suggested eurozone inflation could continue to fall in the first quarter of 2015 

§  Moody's said there are mostly negative European banking system outlooks in 2015 due to new bail-in regimes 

o    Further drop in crude oil prices which tempered inflation concerns

§  Brent crude -4.0% to $66.74/bbl

§  West Texas Intermediate -4.0% to $63.20/bbl (dropped below $63.00 intraday for the first time since July 2009)

o    Weakness in stocks triggered some safe-haven buying interest 

·         The bulk of Monday's buying interest was concentrated among longer-dated instruments 

o    2-yr yield was unchanged at 0.64% 

o    10-yr yield dropped 6 bps to 2.25% after hitting 2.34% overnight 

o    30-yr yield dropped 7 bps to 2.90% after flirting with 3.00% overnight 

·         Buying efforts picked up after China's trade report, but accelerated when U.S. stocks broke down in afternoon trading 

·         2-10-yr spread narrowed to 161 basis points from 167 basis points on Friday 

·         U.S. Dollar Index dropped 0.3% to 89.06 as the greenback lost some ground versus both the euro and the yen 

o    EUR-USD +0.4% to 1.2327 

o    USD-JPY -0.8% to 120.49 

·         Atlanta Fed President Lockhart (a voting FOMC member in 2015) emphasized Fed's data-dependent nature in a speech on policy and the economic outlook. Noted his own view suggests rate liftoff likely in mid-2015 or later, but in no rush to drop "considerable time" language as he believes "patience regarding timing liftoff and a cautious bias regarding the subsequent pace of moves is a sensible approach to policy" 

·         No U.S. data today. Tuesday features Wholesale Inventories for October (Briefing.com consensus +0.2%; prior +0.3%) at 10:00 a.m. ET and JOLTS Job Openings for October (closely watched by Fed Chair Yellen) at 10:00 a.m. ET

On other news.... 

Currencies 



Next Week In View




Economic Commentaries

Economic Summary: No US data today; Wholesale inventories out tomorrow at 10:00
Upcoming Economic Data:

·         October Wholesale Inventories due out Tuesday at 10:00 (Briefing.com consensus of 0.2%; September was 0.3%)

·         October JOLTS - Job Openings due out Tuesday at 10:00 (Briefing.com consensus of ; September was 4.735 M )

Upcoming Fed/Treasury Events:

·         Atlanta Fed President Dennis Lockhart (not a voting FOMC member) to speak today at 12:30

Other International Events of Interest

·         Germany's Industrial Production inched up 0.2% month-over-month (expected 0.2%; last 1.1%) 

·         Japan Q3 GDP QoQ -1.9% vs -1.6% prior

·         China November Trade Balance $54.47 bln vs $45.41 bln

Jason's Commentaries

It seems that oil managed to drag the materials, industrials and tech down together. The entire sector lost 4.05% last night, while materials, industrials and tech were down by more than 1%. The selling volumes are coming in quick with a 4-1 ratio to the buying volumes. And also, the macroeconomic is pointing towards a possible downturn with the Eurozone again. Right now, the futures are down more than 0.8% before market open as the eurozone weighs. It seems that the market is going to take a correction for this week.








Market Call: DOWN

Date: 8 Dec 2014