2014-12-09



DOW 17852.48 -106.31 (-0.59%), NASDAQ 4740.69 -40.06 (-0.84%),
S&P500 2060.31 -15.06 (-0.73%)

Let’s just say that the reaction to the Nonfarm numbers wasn’t very optimistic.

I’ll be looking for follow through on Monday, and that should dictate the direction for the week.

Direction for Monday 8 Dec 2014: DOWN▼

It was a day that opened with caution, and that caution was warranted as oil broke and send the market down significantly lower thereafter.

However, that drop was primarily oil-driven, and doesn’t look like a concerted sell-off.

Curiously, sector leadership leaned to the defensive, suggesting that we might be seeing some caution ahead.

Market Summary

from Briefing.com

Industry Watch

Strong: Consumer Staples, Financials, Health Care, Telecom Services, Utilities
Weak: Consumer Discretionary, Energy, Materials, Industrials, Technology

Other Market Moving Factors

Japan’s Q3 GDP revised down to -0.5% quarter-over-quarter from -0.4% (expected -0.1%)

China’s trade surplus expands to $54.47 billion from $45.41 billion (expected $43.15 billion) as imports fell 6.7% y/y (expected 3.5%) and exports increased 4.7% (consensus 7.9%)

Bank of International Settlements warns of potential credit shock in Asia stemming from strengthening dollar

Biotechnology outperforms after Cubist Pharmaceuticals (CBST) acquired by Merck (MRK)

[BRIEFING.COM] 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.

Global Markets

ASIA

Asian Markets Close: Nikkei +0.1%, Hang Seng +0.2%, Shanghai +2.8%

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:

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%)

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)

Japan’s Nikkei (+0.1%) inched up amid strength in industrial names. Ube Industries and Kawasaki Heavy Industries both up near 3.3%.

Hong Kong’s Hang Seng (+0.2%) 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 (+2.8%) continued 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 (-1.2%) spent the session in a steady retreat with Infosys leading the index lower. The stock surrendered 4.8%. Coal India outperformed, climbing 2.3%.

Australia’s ASX (+0.7%) was underpinned by financials. ANZ Banking, Macquarie, and Westpac all gained near 1.0% each.

Regional Decliners: Indonesia -0.9%, Malaysia -0.5%, Philippines -1.0%, Singapore -0.8%, South Korea -0.4%, Taiwan -0.2%, Thailand -1.4%, Vietnam -1.2%

Regional Advancers: None

FX: USDCNY rose to 6.1730; USDINR slipped to 61.89; USDJPY is lower near 121.10, AUDUSD is down near .8288

EUROPE

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.

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

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

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%)

Closing Prices

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%

Economic Data

from Briefing.com

Economic Data is listed as Actual vs Consensus. Prior Data is given in brackets. If Prior Data has been revised, revised data will be given instead, together with an indication whether it was revised upward or downward

No Economic Data

Technical Analysis

DOW JONES INDUSTRIAL AVERAGE
17852.48 -106.31 (-0.59%)
Volume: 88,681,138 (below average of 90,398,785)
Range: 17,804.28 – 17,960.56



NASDAQ COMPOSITE
4740.69 -40.06 (-0.84%)
Volume: 498.1M (above average of 494.3M)
Range: 4,722.91 – 4,793.24



S&P500 INDEX
2060.31 -15.06 (-0.73%)
Volume: 547.8M (above average of 535.7M)
Range: 2,054.27 – 2,075.78

That’s a timely retracement. All three indices now sit just above their 20 MAs. The MACD Histogram has also slipped in the red, which might bring in additional sellers moving forward.

Market Internals

NYSE:

Higher Volumes than the day before – 813.7M vs 754.9M
Decliners outpaced Advancers (adv/dec): 922 / 2198
New Lows outpaced New Highs (highs/lows): 227 / 299

NASDAQ:

Higher Volumes than the day before – 1956.1M vs 1755.1M
Decliners outpaced Advancers (adv/dec): 718 / 2063
New Lows outpaced New Highs (highs/lows): 147 / 177

VOLATILITY S&P500 (VIX)
14.21 +2.39 (+20.22%)

Decliners outpaced Advancers by 2.60 on higher volumes than the day before (+259.80 +10.35%).

Internals look like we’ve just had a panic-sell day, despite what the price action suggests.

The VIX spiked up but remains below 15.00. Should it get above 15.00, I reckon this market might not look so good going toward the year end.

Treasury Bonds, Currencies & Commodities

from Briefing.com

Treasury Bonds

10-Yr:+15/32..2.25%.. USD/JPY:120.49.. EUR/USD:1.2327
Role Reversal:

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:

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

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)

Weakness in stocks triggered some safe-haven buying interest

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

2-yr yield was unchanged at 0.64%

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

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

EUR-USD +0.4% to 1.2327

USD-JPY -0.8% to 120.49

Atlanta Fed President Lockhart 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

2Yr 0.64 (-0.01), 5Yr 1.67 (-0.02), 10Yr 2.26 (-0.05), 30Yr 2.90 (-0.07)
2/10 Spread: 162bps (-4); 2/30 Spread: 226bps (-6)

Currencies

DXY Slides Back to 89: The Dollar Index has been slowly grinding lower and is now testing the 89 level for support. The dollar has been pulling back with markets which suggests some profit taking is involved with the move. Comments by Fed member Lockhart have been picked up today. Mr. Lockhart basically repeated his expectations of a mid-2015 rate hike. Perhaps the most interesting comment was that he did not believe it was necessary to remove the  ‘considerable time’ language due to lower inflation pressures.

The euro has been able to stabilize and push back above 1.23. But the currency remains weak and in a firm downward trend. Today EU finance minister met to discuss the Greek bailout and country’s budget plans. It would appear that there will be a couple of month extension to the Greek bailout plan with a Troika meeting in March. And on the budgetary front there remains concerns with Italy and France’s budget as the country’s have been given three month extensions to present a budget.

The pound held the 1.56 level and has climbed to 1.5660 intraday. The pound has recovered some of its recent losses and continues to show signs of being able to hold 1.56.

The yen was able to rally back to 120.20 as a risk off trade dominated today. Still it did not test the 120 level which so it is difficult to ascertain how stiff of resistance the multi-year psyche level will provide.

Commodities

Closing Commodities: Natural Gas Rallies, Reversing Recent Downtrend

Oil prices tanked today as oversupply concerns continue, which following OPEC’s call of not reducing output on Thanksgiving

Jan crude oil dropped 5.5% to end the day at $63.10/barrel

Jan natural gas also tanked, dropping 5.3% to $3.60/MMBtu

Precious metals staged a late-day rally

Feb gold closed +$4.8 at $1195/oz, while Mar silver rose +0.02 to $16.28/oz

Mar copper lost 1 cent to $2.89/lb

Energy price action

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

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

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

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

Preview: Tuesday 9 Dec 2014

Economic Data

Economic Data is listed as Consensus by default. Prior data will be given in brackets. If Consensus Data is not available, Prior data will be given without brackets. If Prior Data has been revised, the revised data will be given together with an indication whether it was an upward or downward revision.

Wholesale Inventories – 10:00 : 0.2% (Prior 0.3%)

JOLTS – Job Openings – 10:00 : Prior 4.735M

Corporate Earnings

BMO :

AZO BURL CONN HDS JW.A PTRY SAIC UTIW

AMC :
ALOG HELI HQY KFY KKD NCS

Other Events of Interest

Fed/Treasury/Political Events

$25-bln 3-Year Note Auction – 13:00

Economic Events

Japan CPI – 21:00

China CPI – 21:30

Commentary

Given the tepid nature of the sell-off, I’m not convinced that this is going to turn into something worse. I reckon it’s going to be a minor pullback before the market resumes the rally.

There is a distinct lack of market-moving factors for the day ahead, and I expect dip buyers to come in here. But caution remains the name of the game.

Update: Given the continuing situation in oil, futures have dropped to lows amid no respite from dropping oil prices. That should continue to set us up for a continued drop.

Direction for Tuesday 9 Dec 2014: DOWN▼

Daily Directional Accuracy (from 14 May 2014): 93/140 (66.43%)
Weekly Directional Accuracy (from 16 May 2014): 16/28 (57.14%)

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