DOW 16976.81 -161.39 (-0.94%), NASDAQ 4363.45 -62.52 (-1.41%),
S&P500 1958.12 -23.45 (-1.18%)
My computer crashed while I was typing this report. I don’t see the market going anywhere else either.
Tomorrow should be pretty straightforward.
Direction for Thursday 17 Jul: DOWN▼
Boom.
Now the strange thing - what sent the market down? Around 10am EST, headlines were suggesting that a Malaysian Airline was shot down over Ukraine. Around the same time, Israel commenced ground operations against Hamas. Before the market open we had disappointing construction data and a round of layoffs by Microsoft. Not to mention that the past few days we’ve had plenty of hints from Fed Chairwoman Janet Yellen.
So? I’m hard-pressed to say that it’s a product of profit-taking on the backdrop of geopolitical and economic concerns – which is soundly just – and that profit-taking turned into volatility protection and panic selling.
Market Summary
Economic Data & News
Technical Analysis
Market Internals
Bonds, Currencies & Commodities
Preview
Market Summary
Industry Watch
Strong: Materials
Weak: Energy, Financials, Industrials, Technology, Telecom Services.
Other Market Moving Factors
U.S. expands sanctions against Russia, targeting energy companies Rosneft and Novatek, banks Gazprombank and VEB, and several defense contractors
Concerns about another default in China surfaced after Huatong Road & Bridge Group said it may miss its bond payment that comes due on Wednesday
Malaysian Air passenger jet goes down in eastern Ukraine with headlines suggesting it was shot down
[BRIEFING.COM] The stock market finished the Thursday session on a lower note with the Russell 2000 (-1.5%) posting its third consecutive loss that took the small-cap index below its 200-day moving average (1140.82). For its part, the S&P 500 fell 1.2%, which represented the first move in excess of 1.0% over the past 63 trading days.
The benchmark index spent the entire session in the red with the early weakness attributed to concerns about the impact of the latest set of U.S. sanctions against Russia. The sanctions targeting two banks (Gazprombank and VEB), two energy companies (Rosneft and Novatek), and several defense contractors were announced shortly after yesterday’s closing bell and they pressured markets in Europe as well.
Despite the lower start, the S&P 500 was on the brink of turning positive at the end of the opening hour, but slid to fresh lows after it was reported that a Malaysian Airlines jet, with nearly 300 passengers and personnel on board, crashed in Ukraine near the border with Russia.
After the initial reports crossed the wires, subsequent headlines indicated that the plane did not crash due to mechanical reasons, but instead, was shot down. One pro-Russian rebel group in the east denied having any involvement, while Ukraine’s President Petro Poroshenko said that the country’s army has not taken any action “against airborne targets” either.
With no clarity regarding who was responsible for bringing down the jet, airlines in France and Germany said they will avoid Ukrainian airspace, while the Federal Aviation Administration prohibited U.S. carriers from flying in the area as well.
Equities attempted an afternoon rebound, but fell to new lows during the last hour of action in reaction to reports indicating Israel has launched a ground offensive in Gaza.
The pair of worrisome reports ensured a lower finish for equities, while safe-haven assets like gold, Treasuries, and the yen rallied. Gold futures rose 1.5% to $1319.70/ozt, while Treasuries ended on their highs with the 10-yr yield down seven basis points at 2.46%. For its part, the dollar/yen pair fell to 101.25, less than 60 pips away from the lowest level of the year for the risk-sensitive pair.
All ten sectors ended in the red with influential cyclical groups like energy (-1.6%), industrials (-1.6%), and technology (-1.3%) finishing at the bottom of the leaderboard. The energy sector diverged from crude oil, which rallied 2.1% to $103.29/bbl, while the industrial sector saw weakness among airline stocks. Delta Air Lines (DAL 36.57, -1.30) and United Continental (UAL 43.35, -1.55) both lost near 3.5%, while the Dow Jones Transportation Average lost 1.4%.
Elsewhere, the tech sector was pressured by chipmakers as evidenced by a 2.5% decline in the PHLX Semiconductor Index. The high-beta group ended broadly lower after SanDisk’s (SNDK 93.21, -14.62) cautious guidance overshadowed its above-consensus results.
Staying on the earnings theme, eBay (EBAY 51.03, +0.33) and SAP (SAP 80.68, +1.04) added 0.7% and 1.3%, respectively after beating bottom-line estimates.
While most sectors posted losses larger than 1.0%, materials (-0.5%) outperformed thanks to a boost from mining shares that sent the Market Vectors Gold Miners ETF (GDX 26.99, +0.71) higher by 2.7%.
Another big move took place in the CBOE Volatility Index (VIX 14.71, +3.71), which surged more than 33.0% off a depressed base to levels not seen since late April as participants rushed for volatility protection.
Despite the news-filled day, participation remained below average with 690 million shares changing hands at the NYSE.
Economic data included weekly initial claims, June Housing Starts and Building Permits, and the Philadelphia Fed Survey for July:
The initial claims level dropped to 302,000 from an upwardly revised 305,000 (from 304,000), while the Briefing.com consensus expected an increase to 311,000
After stabilizing in the 310,000 — 320,000 range, the initial claims level has moved another leg down over the last couple of weeks. If these trends hold, we would expect to see monthly payroll growth close to 300,000
The continuing claims level fell to 2.507 million from an upwardly revised 2.586 million (from 2.584 million), while the consensus expected the level to fall to 2.563 million
Housing starts fell 9.3% in June from a downwardly revised 985,000 (from 1.001 million) in May to 893,000. The Briefing.com consensus expected an increase to 1.020 million.
The drop in starts brought new residential construction levels to their lowest point since 863,000 homes were started in September 2013
Concerning was the new downward trend in single-family construction. This sector tends to produce stable trends yet starts have now fallen precipitously in both May (-2.6%) and June (-9.0%). Construction levels for new single-family homes are at their lowest point since 569,000 homes were started in November 2012
The Philadelphia Fed’s Business Outlook Survey strengthened in July, increasing to 23.9 from 17.8, while the Briefing.com consensus expected a decline to 23.9. That was the best reading since March 2011 with nearly all sub- indices showing significant improvement in July
Global Markets
Asia
Markets ended mixed across Asia
Australia’s CB Leading Index edged up 0.2% MoM while NAB Quarterly Business Confidence slipped to 6 (7 previous)
Singapore’s trade surplus expanded to SGD5890.0 (SGD3013.6 previous)
Japan’s Nikkei (-0.1%) held near five and a half-month highs.
Hong Kong’s Hang Seng (UNCH) remained near its best levels of 2014
China’s Shanghai Composite (-0.6%) fell for a second day as worries of another corporate default surfaced.
India’s Sensex (UNCH) ended little changed amid a quiet trade.
Australia’s ASX (+0.1%) finished just shy of six-year highs.
Indonesia’s Jakarta Composite (-0.8%) continued its whippy trade as the presidential election results remain in limbo.
Europe
UK’s FTSE: -0.7%
Germany’s DAX: -1.1%
France’s CAC: -1.2%
Spain’s IBEX: -1.2%
Portugal’s PSI: -0.8%
Italy’s MIB Index: -2.2%
Irish Ovrl Index: -0.5%
Greece ASE General Index: + 0.0%
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.
Initial Claims – 08:30 : 302K vs 311K (Prior 305K▲)
Continuing Claims – 08:30 : 2507K vs 2563K (Prior 2586K▲)
Housing Starts – 08:30 : 893K vs 1020K (Prior 985K▼)
Building Permits – 08:30 : 963K vs 1037K (Prior 991K)
Philadelphia Fed – 10:00 : 23.9 vs 12.5 (Prior 17.8)
Natural Gas Inventories – 10:30 : 107bcf (Prior 93bcf)
UNEMPLOYMENT CLAIMS
Highlights
The initial claims level dropped to 302,000 for the week ending July 12 from an upwardly revised 305,000 (from 304,000) for the week ending July 5. The Briefing.com consensus expected the initial claims level to increase to 311,000.
The continuing claims level fell to 2.507 mln for the week ending July 5 from an upwardly revised 2.586 mln (from 2.584 mln) for the week ending June 28. The consensus expected the continuing claims level to fall to 2.563 mln.
Key Factors
After stabilizing in the 310,000 – 320,000 range, the initial claims level has moved another leg down over the last couple of weeks. If these trends hold, we would expect to see monthly payroll growth close to 300,000.
Big Picture
Claims data over the past few weeks confirm a general improvement in labor market conditions.
HOUSING STARTS & BUILDING PERMITS
Highlights
Housing starts fell 9.3% in June from a downwardly revised 985,000 (from 1.001 mln) in May to 893,000. The Briefing.com consensus expected housing starts to increase to 1.020 mln in June.
The drop in starts brought new residential construction levels to their lowest point since 863,000 homes were started in September 2013.
Key Factors
Multi-family construction was running hotter than its 12-month trend and was expected to decline. Those starts fell 9.9% to 318,000 in June from 355,000 in May.
The bigger concern is the new trend in single-family construction. This sector tends to produce stable trends yet starts have now fallen precipitously in both May (-2.6%) and June (-9.0%). Construction levels for new single-family homes are at their lowest point since 569,000 homes were started in November 2012.
These large drops seemingly go against the recent improvement in homebuilder sentiment. The July NAHB sentiment reading surpassed the expansion/contraction threshold and increased to 53.
Not all of the construction numbers were bad. The number of homes currently under construction managed not to decline for the 34th consecutive month and increased 1.1% to 758,000 in June. All of the gain came from the multi-family sector, which contributes less per unit to overall construction spending. Thus, the gain should be positive for GDP, but not as much as if the increase had come predominately from the single-family sector.
Big Picture
The drop in multifamily construction was expected, but the second consecutive decline in single-family starts is worrisome for future construction growth.
PHILADELPHIA FED INDEX
Highlights
The Philadelphia Fed’s Business Outlook Survey strengthened in July, increasing to 23.9 from 17.8. The Briefing.com consensus expected the index to fall to 23.9.
Key Factors
That was the best reading since March 2011. Nearly all sub- indices showed significant improvement in July.
Production levels were extremely strong as the Shipments Index increased to 34.2 in July from 15.5 in June.
New Order levels improved to 34.2 from 16.8. The Unfilled Orders Index fell to 9.1 from 11.5.
The Number of Employees Index increased to 12.2 in July from 11.9 in June, and the Average Employee Workweek increased to 12.5 from 7.3.
Big Picture
Raw data available at: http://www.phil.frb.org
In Other News…
HEADLINE NEWS
Bristol-Myers (BMY) and Pfizer (PFE) announce enrollment of first patient in Phase IV EMANATE Trial to assess effectiveness and safety of Eliquis (apixaban) in patients with NVAF undergoing cardioversion
ISS and Glass Lewis recommend Cliffs Natural Resources (CLF) shareholders vote FOR Casablanca Capital Director Nominees on GOLD Proxy Card
J.M. Smucker (SJM) increases quarterly dividend ~10.3% to $0.64 from $0.58 per share
LVMH (LVMUY) confirms settlement reach with eBay (EBAY)
Microsoft (MSFT) Xbox sales double following price cut without Kinect sensor, but actual numbers unknown, according to reports
Microsoft (MSFT) confirms steps to simplify organizations and align devices strategy; steps will result in the elimination of up to 18K positions over the next year; co will take restructuring charge of $1.1 bln to $1.6 bln
Mylan Labs (MYL) wins motion to enjoin GlaxoSmithKline (GSK) from providing Paroxetine CR to Apotex; Apotex can no longer supply authorized generic product; awarded damages in the amount of $106,700,000 by the District Court
Nissan Motor (NSANY) to introduce car into China budget market, according to reports
Tyson Foods (TSN) commences tender offer for The Hillshire Brands (HSH) for $63 per share in cash
WEX Inc. (WEX) announces signing of definitive purchase and sale agreement related to the acquisition of ExxonMobil’s (XOM) Esso Card Program
SEC plans to review brokers/mutual funds in 2015, according to reports out
EARNINGS/GUIDANCE
Baker Hughes (BHI) beats by $0.02, beats on revs; projects strong earnings growth
Baxter (BAX) beats by $0.04, beats on revs; guides Q3 EPS; guides FY14 EPS in-line
Danaher (DHR) beats by $0.01, reports revs in-line
eBay (EBAY) beats by $0.01, reports revs in-line; guides Q3 EPS below consensus, revs below consensus; reaffirms FY14 adjusted EPS guidance, lowers top end of FY14 rev guidance
Fifth Third (FITB) beats by $0.04
KeyCorp (KEY) beats by $0.01, beats on revs
Mattel (MAT) misses on the top & bottom lines
Morgan Stanley (MS) beats by $0.05, beats on revs
Philip Morris International (PM) beats by $0.17, beats on revs; issues FY14 guidance
PPG Industries (PPG) beats by $0.05, misses on revs
SanDisk (SNDK) beats by $0.02, beats on revs
Sherwin-Williams (SHW) misses by $0.03, reports revs in-line; guides Q3 EPS above consensus; raises FY14 EPS guidance
UnitedHealth (UNH) beats by $0.17, beats on revs; raises FY14 EPS and revs guidance
W.W. Grainger (GWW) reports EPS in-line, misses on revs; lowers Fy14 guidance
YUM! Brands (YUM) beats by $0.01, reports revs in-line; reaffirms FY guidance of at least 20% EPS growth
ANALYST ACTIONS
Upgrades
BlackRock (BLK) target raised to $397 at RBC Capital Mkts
Intl Game Tech (IGT) upgraded to Neutral from Sell at Goldman
Time Warner (TWX) upgraded to Buy from Neutral at Janney, tgt $100; upgraded to Buy from Neutral at Guggenheim
Downgrades
Covidien (COV) downgraded to Hold from Buy at Needham
Intl Game Tech (IGT) downgraded to Market Perform from Outperform at Wells Fargo
PetSmart (PETM) downgraded to Sector Perform at RBC Capital Mkts; tgt $66
Other
American Intl (AIG) initiated with a Outperform at RBC Capital Mkts; tgt $64
Bed Bath & Beyond (BBBY) initiated with a Neutral at Nomura; tgt $65
eBay (EBAY) target lowered to $52 from $54 at Susquehanna; Neutral
Fiserv (FISV) initiated with an Outperform at BMO Capital Mkts; tgt $73
Time Warner (TWX) target raised to $76 at RBC Capital Mkts; target raised to $70 at Topeka Capital Markets
Williams-Sonoma (WSM) initiated with a Buy at Nomura
Technical Analysis
DOW JONES INDUSTRIAL AVERAGE
16976.81 -161.39 (-0.94%)
Volume: 99.2M (above average of 76.7M)
Range: 16966.19 – 17151.56
NASDAQ COMPOSITE
4363.45 -62.52 (-1.41%)
Volume: 505.9M (above average of 456.4M)
Range: 4352.23 – 4425.38
S&P500 INDEX
1958.12 -23.45 (-1.18%)
Volume: 541.6M (above average of 452.1M)
Range: 1955.59 – 1981.80
The DOW now barely sits on support at 16970. But a gap down and we should be clear. On the other hand, the NASDAQ and S&P500 have both crashed through their support levels.
I’ll now be eyeing 16700 on the DOW, 4200 on the NASDAQ, and 1900 on the S&P500.
Market Internals
NYSE:
Higher Volumes than the day before – 705.1M vs 674.9M
Decliners outpaced Advancers (adv/dec): 566 / 2496
New Highs outpaced New Lows (highs/lows): 80 / 31
NASDAQ:
Equal Volumes to the day before – 2044.3M vs 2044.2M
Decliners outpaced Advancers (adv/dec): 526 / 2177
New Lows outpaced New Highs (highs/lows): 34 / 74
VOLATILITY S&P500 (VIX)
14.54 +3.54 (+32.18%)
Decliners outpaced Advancers by 4.28 on higher volumes than the day before (+30.3M +1.11%).
One word – VIX. That spike is so scary.
The ratios between Decliners and Advancers has also been the most extreme that I’ve seen this year so far.
This market is definitely going to go down quick and hard.
Treasury Bonds, Currencies & Commodities
from Briefing.com
Treasury Bonds
30y Settles at 3.290%, Narrowly Avoids 13-Month Closing Low:
Treasuries closed on their highs, supported by weak housing data and reports a Malaysian Airlines flight was shot down in the skies of eastern Ukraine.
Maturities held firm into the cash open and climbed to fresh highs following the disappointing housing starts (893K actual v. 1020K expected) and building permits (963K actual v. 1037K expected) data.
A bit of good news came from this morning’s data as initial (302K actual v. 311K expected) and continuing (2507K actual v. 2563K expected) claims outpaced estimates and the Philly Fed (23.9 actual v. 12.5 expected) posted a big beat.
However, a steady bid took hold for the remainder of the session as a Malaysian Airlines jet was shot down in the skies over eastern Ukraine.
Buying at the long end dropped the 30y -5.8bps to 3.290%. The yield on the long bond narrowly avoided its lowest close in 13 months.
The 10y tumbled -6.3bps @ 2.475%. The benchmark yield crashed through the 2.500% level, and posted its lowest close since late-May. Support near 2.450% will be key in the days ahead.
In the belly, the 5y shed -4.9bps to 1.650%. The yield probed the 50 and 100 dma near 1.640% before seeing a bounce off the level. Participants will be monitoring support in the 1.620% region.
A flatter curve persisted as the 2-10-yr spread narrowed to 201bps and the 5-30-yr spread tightened to 164bps.
2Yr 0.47 (-0.03), 5Yr 1.65 (-0.06), 10Yr 2.47 (-0.08), 30Yr 3.27 (-0.08)
2/10 Spread: 200bps (-5); 2/30 Spread: 280bps (-5)
Currencies
Dollar Holds at One-Month Highs:
The Dollar Index hovers little changed near amid a rather subdued session.
Today’s tight 10 cent range is a bit unusual considering the headlines a commercial jet has been shot down in eastern Ukraine.
EURUSD is flat @ 1.3525 as trade steadies following two days of selling. The single currency saw little reaction to this morning’s in-line CPI report, and continues to test key support in the 1.3500/1.3525 area.
GBPUSD is -30 pips @ 1.7110 as trade has pared some of its early losses. Sterling probed 1.7100 support, but has once again been able to hold the level. A breakdown puts the more important 1.7000 area in play.
USDCHF is -5 pips @ .8980 as action stalls at one-month highs. The quiet session comes amid a lack of volatility in the euro.
USDJPY is -40 pips @ 101.25 as trade contends with its lowest close since February. The recent ‘death cross’ continues to garner attention, and a breakdown of the 101.25 area will be key. The latest Bank of Japan minutes will cross the wires this evening.
AUDUSD is +20 pips @ .9380 as action holds just off the highs. The hard currency was able to withstand an early test of .9350 support as buyers emerged at the 50 dma.
USDCAD is -5 pips @ 1.0740 as a sleepy session nears the close. Canada’s foreign securities purchases ($21.43 bln actual v. $14.23 bln expected) crossed the wires this morning, but drew little interest. Data out tomorrow includes CPI and wholesale sales.
Commodities
Closing Commodities: Natural Gas Drops 3.9% On Inventory Data; Gold Rises 1.3%
Precious metals gained strength today on new US Treasury Department sanctions imposed on entities in Russia’s financial, energy and defense sectors and headlines that a Malaysian Airlines passenger jet was shot down over Ukraine near the Russian border.
Aug gold advanced to a session high of $1325.90 per ounce and settled with a 1.3% gain at $1316.90 per ounce.
Sep silver rose as high as $21.30 per ounce in late morning action after touching a session low of $20.81 per ounce earlier in the session. It eventually settled at $21.44 per ounce, or 1.8% higher
Aug crude oil also extended yesterday’s gains on the geopolitical concerns surrounding Russia and Ukraine as well as news of the plane crash.
The energy component rose as high as $103.32 per barrel after touching a session low of $101.86 per barrel in morning action and settled with a 1.9% gain at $103.15 per barrel.
Aug natural gas, on the other hand, retreated from its session high of $4.07 per MMBtu set in early morning floor trade and slid deeper into negative territory on bearish inventory data.
The EIA reported that for the week ending July 11, natural gas inventories grew by 107 bcf when a smaller build of 98-100 bcf was anticipated. Natural gas traded as low as $3.93 per MMBtu and settled with a 3.9% loss at $3.96 per MMBtu.
NYMEX Energy Closing Prices
Aug crude oil rose $1.97 to $103.15/barrel
Crude oil extended yesterday’s gains as the US Treasury Department imposed new sanctions on entities in Russia’s financial, energy and defense sectors. Strength also came on headlines that a Malaysian Airlines passenger jet was shot down over Ukraine near the Russian border. The energy component rose as high as $103.32 after touching a session low of $101.86 in morning action and settled with a 1.9% gain.
Aug natural gas fell 16 cents to $3.96/MMBtu
Natural gas, on the other hand, traded in the red today. It retreated from a session high of $4.07 set in early morning floor trade and slid deeper into negative territory on bearish inventory data. The EIA reported that for the week ending July 11, natural gas inventories showed a build of 107 bcf when a smaller build of 98-100 bcf was anticipated. Natural gas traded as low as $3.93 and settled with a 3.9% loss.
Aug heating oil settled unchanged at $2.86/gallon
Aug RBOB settled unchanged at $2.88/gallon
CBOT Agriculture and Ethanol/ICE Sugar Closing Prices
Sep corn rose 1 cent to $3.79/bushel
Sep wheat rose 13 cents to $5.51/bushel
Aug soybeans fell 13 cents to $11.74/bushel
Sep ethanol rose 1 cent to $2.01/gallon
Sep sugar (#16 (U.S.)) settled unchanged at 24.50 cents/lbs
COMEX Metals Closing Prices
Aug gold rose $17.00 to $1316.90/oz
Gold advanced to a session high of $1325.90 as it gained strength new U.S. sanctions against Russia and reports of a Malaysian Airlines passenger jet crashing in Ukraine near the Russian border. Ukrainian officials stated that the plane was shot down after it was likely mistaken for a military transport jet. The yellow metal settled with a 1.3% gain.
Sep silver rose $0.37 to $21.44/oz
Silver also rose as high as $21.30 in late morning action after touching a session low of $20.81 earlier in the session. It eventually settled with a 1.8% gain.
Sep copper rose 1 cent to $3.22/lbs
Preview: Friday 18 Jul
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.
Michigan Consumer Sentiment – 09:55 : 84.0 (Prior 82.5)
Leading Indicators – 10:00 : 0.5% (Prior 0.5%)
Corporate Earnings
BMO :
ALV BK FHN GE HON HBAN IPG JCI KSU KNL LH ERIC VFC
AMC :
BMI
Other Events of Interest
Fed/Treasury/Political Events
G-20 Meetings – 04:00
Economic Events
None
Analyst/Investor Meetings
None
Conclusion
Overnight, Google posted losses on EPS but beat on revenue. On the other hand, IBM beat top and bottom… barely. IBM will move the DOW while GOOG will move the NASDAQ. This will be interesting.
Nonetheless, it’s July expiration and it has seen the DOW down 8 of the last 13.
I won’t be surprised if we get another big bang.
Direction for Friday 18 Jul: DOWN▼
Daily Directional Accuracy (from 14 May 2014): 29/44 (65.91%)
Weekly Directional Accuracy (from 16 May 2014): 4/8 (50.00%)