DOW 18214.42 -10.15 (-0.06%), NASDAQ 4987.89 +20.75 (+0.42%),
S&P500 2110.74 -3.12 (-0.15%)
With most of the rock and roll now aside, the market should be able to focus on going forward… and looking at the current situation, I doubt it’s going to be pretty. There’s a lot of defensive posturing going on, which suggests that things aren’t going to be looking good.
Direction for Thursday 26 Feb 2015: DOWN▼
And the market continues to stagnate and go nowhere. Consider it as that the broader market isn’t so optimistic and is therefore fairly uncertain about where this is going to go.
Caution is also warranted ahead of the GDP number tomorrow.
Market Summary
from Briefing.com
Industry Watch
Strong: Consumer Staples, Health Care, Technology, Telecom Services
Weak: Energy, Financials, Industrials, Materials, Utilities
Other Market Moving Factors
Crude oil under pressure amid dollar strength
[BRIEFING.COM] The major averages endured another range-bound session on Thursday with the S&P 500 shedding 0.2% after respecting a seven-point range. The benchmark index will enter the Friday session flat for the week while the Nasdaq Composite (+0.4%) outperformed to extend its weekly gain to 0.6%.
The Dow (-0.1%) and S&P 500 began the day under pressure due to noteworthy weakness in the energy sector (-1.8%). Meanwhile, most other cyclical groups also began in the red while technology (+0.7%) outperformed throughout the day and kept the Nasdaq in the green.
The top-weighted technology sector received support from some of its largest components by weight like Apple (AAPL 130.42, +1.62), Google (GOOGL 559.29, +11.96), and Facebook (FB 80.41, +0.85). The three names gained between 1.1% and 2.2% with Apple climbing into the green after announcing a press event on March 9 where the company is expected to launch its wristwatch.
In addition, the tech sector—and Nasdaq Composite—drew strength from several chipmakers after Avago Technologies (AVGO 129.25, +16.57) beat earnings estimates, issued upbeat revenue guidance, and announced the acquisition of Emulex (ELX 7.93, +1.57) for $8.00/share. The broader PHLX Semiconductor Index added 0.7%, but only a third of its components registered gains.
Elsewhere among cyclical sectors, energy narrowed its February advance to 3.9% as crude oil revisited levels last seen at the start of the month. WTI crude tumbled, settling lower by 5.3% at $48.29/bbl, but inched up from that level during electronic trading. It is worth pointing out that today’s crude weakness occurred amid notable greenback strength that sent the Dollar Index (95.30, +1.08) higher by 1.1% and into the neighborhood of its January high (95.85).
Also of note, the consumer discretionary sector (-0.4%) finished among the laggards with media names like Comcast (CMCSA 59.15, -0.47) and Time Warner Cable (TWC 152.40, -2.22) ending lower by 0.8% and 1.4%, respectively, after the FCC approved net neutrality rules with a 3-2 vote, which was expected.
Over on the countercyclical side, the telecom services sector (+0.5%) outperformed throughout the session while consumer staples (+0.1%) and health care (+0.3%) posted slimmer gains. For its part, the utilities sector (-0.8%) widened its February decline to 6.9% as Treasuries retreated.
The 10-yr note turned negative in the morning and continued its slide into the afternoon, pushing the benchmark yield higher by seven basis points to 2.04%.
Participation remained light with roughly 700 million shares changing hands at the NYSE floor.
Economic data included Initial Claims, CPI, Durable Orders, and FHFA Housing Price Index:
The initial claims level increased to 313,000 from an upwardly revised 282,000 (from 281,000) while the Briefing.com consensus expected an increase to 290,000
The Department of Labor reported that there weren’t any special factors impacting the initial claims level
The CPI index declined 0.7% in January after declining an upwardly revised 0.3% (from 0.4%) in December while the Briefing.com consensus expected a decline of 0.6%
As expected, a large drop in gasoline prices was the primary catalyst for the decline in consumer prices. Gasoline costs fell 18.7% in January after declining 9.2% in December. The resulting gasoline decline caused overall energy prices to fall 9.7% in January
Excluding food and energy, core CPI increased 0.2% in January after increasing 0.1% in December while the consensus expected an increase of 0.1%
Durable goods orders increased 2.8% in January after declining a downwardly revised 3.7% (from 3.3%) in December while the Briefing.com consensus expected an increase of 1.7%
Almost the entire increase in orders can be attributed to seasonal adjustments in the aircraft industry. Even though Boeing reported a large decline in January aircraft orders on both a monthly and yearly basis, the Census Bureau showed a 73.7% increase in orders of defense and nondefense aircraft and parts
Excluding aircraft, durable goods orders increased a much more modest 0.3% in January after declining 0.9% in December while the consensus expected an increase of 0.5%
The FHFA Housing Price Index for December rose 0.8%, which followed a revised increase of 0.7% (from 0.8%) in November
Global Markets
ASIA
Asian Markets Close: Japan’s Nikkei +1.1%, Hong Kong’s Hang Seng +0.5%, China’s Shanghai Composite +2.2%
Trading activity in the Asia-Pacific region was mixed on Thursday, yet notable gains were posted by some of the more notable averages, namely the Nikkei (+1.1%), which powered to another 15-year high, and the Shanghai Composite (+2.2%).
Economic data:
Hong Kong
January trade balance -37.0 bln (expected -31.8 bln; prior -59.3 bln)
Exports +2.8% month-over-month (expected +2.2%; prior +0.6%)
Imports +7.9% month-over-month (expected +4.0%; prior +1.9%)
Singapore
January industrial production -4.7% month-over-month (expected -2.4%; prior +2.4%); industrial production +0.9% year-over-year (expected +3.7%; prior -1.9%)
New Zealand
January trade balance 56.0 mln month-over-month (expected -183.0 mln; prior -195.0 mln)
Exports 3.70 bln (expected 3.71 bln; prior 4.40 bln)
Imports 3.64 bln (expected 3.93 bln; prior 4.60 bln)
Japan’s Nikkei jumped 1.1% to a new 15-year high in a broad-based advance. Every sector ended higher, led by strength in the communications (+1.9%), financial (+1.6%), basic materials (+1.4%), and consumer cyclical (+1.3%) groups. Kawasaki Kisen Kaisha (+4.7%) was the biggest individual gainer, followed by Sompo Japan Nipponkoa (+4.6%), MS & AD Insurance Group (+3.8%) and Yahoo Japan (+3.7%). Separately, it was announced that the appointment of Yutaka Harada to the Bank of Japan’s policy board was approved. Harada is known to be in favor of the bank’s reflation policies.
Hong Kong’s Hang Seng increased 0.5% on the back of strength in financial and energy stocks. Leading gainers included China Shenhua Energy (+2.8%), CNOOC (+2.4%), PetroChina (+2.0%), and China Overseas Land & Investment Ltd. (+1.7%). Gaming stocks remained weak on Macau visitation concerns. Sands China (-3.1%) was the biggest individual decliner in the Hang Seng on Thursday.
China’s Shanghai Composite surged 2.2%, closing at its highs for the session. Financial and property stocks powered the advance. Jinling Hotel Corp., Sundy Land Investment Co., China Molybdenum, China Railway Erju Co., and Sinolink Securities all rose 10.0%.
India’s Sensex declined 0.9% in a broad-based retreat that was led by the consumer cyclical (-1.5%), consumer non-cyclical (-1.4%), and technology (-1.4%) sectors. Leading decliners included Bharat Heavy Electricals (-3.6%), Sun Pharmaceutical Industries (-2.8%), Infosys (-2.6%), and Hidalco Industries (-2.5%).
Australia’s S&P/ASX 200 slipped 0.6% bit fought its way back from larger losses earlier in the trading session. Weakness in the banking group and the materials sector pressured the index.
Regional advancers: South Korea +0.1%, Malaysia +0.3%, Thailand +0.3%, Indonesia +0.1%, Vietnam +0.7%
Regional decliners: Taiwan -0.8%, Singapore -0.4%, Philippines -1.0%
FX: USD/CNY unch at 6.2595, USD/INR -0.3% at 61.708, USD/JPY -0.1% at 118.78
EUROPE
Major European indices trade mostly higher with Italy’s MIB (+0.7%) in the lead. European bonds have continued their rally, sending yields to new record lows. Germany’s 10-yr bund yield is lower by four basis points at 0.24%.
Eurozone Business and Consumer Survey rose to 102.1 from 101.4 (expected 101.9). Separately, M3 Money Supply Expanded 4.1% year-over-year (consensus 3.7%; prior 3.6%), but Private Sector Loans declined 0.1% year-over-year (expected -0.3%; prior -0.5%)
Germany’s Unemployment declined by 20,000 (expected -10,000; last -10,000) while the Unemployment Rate held steady at 6.5%, as expected. Separately, GfK Consumer Climate rose to 9.7 from 9.3 (consensus 9.5)
UK’s Q4 GDP rose 0.5% quarter-over-quarter while the year-over-year reading increased 2.7%. Both figures matched expectations. Separately, Index of Services increased 0.8% (consensus 0.7%; prior 0.7%) while Business Investment fell 1.4% quarter-over-quarter (consensus 1.9%; last -1.2%)
Italy’s Business Confidence rose to 99.1 from 97.6 (expected 98.0) while Consumer Confidence jumped to 110.9 from 104.4 (consensus 104.5). Separately, Retail Sales ticked down 0.2% month-over-month (expected 0.3%; last 0.1%)
Spain’s Business Confidence ticked up to -4.8 from -5.4 (expected -5.0) while Q4 GDP was left unrevised at 0.7% quarter-over-quarter
CLOSING PRICES
UK’s FTSE: + 0.2%
Germany’s DAX: + 1.0%
France’s CAC: + 0.6%
Spain’s IBEX: + 0.8%
Portugal’s PSI: + 1.2%
Italy’s MIB Index: + 1.0%
Irish Ovrl Index: + 0.3%
Greece ASE General Index: -2.0%
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 : 313K vs 290K (Prior 282K▼)
Continuing Claims – 08:30 : 2401K vs 2400K (Prior 2422K▼)
CPI – 08:30 : -0.7% vs -0.6% (Prior -0.3%▲)
Core CPI – 08:30 : 0.2% vs 0.1% (Prior 0.1%▲)
Durable Orders – 08:30 : 2.8% vs 1.8% (Prior -3.7%▼)
Durable Goods ex-tran – 08:30 : 0.3% vs 0.6% (Prior -0.9%▼)
FHFA Housing Price Index – 09:00 : 0.8% (Prior 0.7%▼)
Natural Gas Inventories – 10:30 : -219bcf (Prior -111bcf)
UNEMPLOYMENT CLAIMS
Highlights
The initial claims level increased to 313,000 for the week ending February 21 from an upwardly revised 282,000 (from 281,000) for the week ending February 14. The Briefing.com Consensus expected the initial claims level to increase to 290,000.
The continuing claims level fell to 2.401 mln for the week ending February 14 from a downwardly revised 2.422 mln (from 2.425 mln) for the week ending February 7. The consensus expected the continuing claims level to decline to 2.400 mln.
Key Factors
The Department of Labor reported that there weren’t any special factors impacting the initial claims level.
There have been several anecdotal reports from the energy sector that mass layoffs are coming in the near future. So far, those layoffs have not shown up in the level of initial claims.
Big Picture
Despite the increase, the initial claims still support monthly payroll growth over 200,000.
CONSUMER PRICE INDEX
Highlights
The CPI index declined 0.7% in January after declining an upwardly revised 0.3% (from 0.4%) in December. The Briefing.com Consensus expected the CPI to decline 0.6%.
Excluding food and energy, core CPI increased 0.2% in January after increasing 0.1% in December. The consensus expected these prices to increase 0.1%.
Key Factors
As expected, a large drop in gasoline prices was the primary catalyst for the decline in consumer prices. Gasoline costs fell 18.7% in January after declining 9.2% in December. The resulting gasoline decline caused overall energy prices to fall 9.7% in January.
Food prices were flat after increasing 0.2% in December.
The only outlier came from personal care prices (+0.6%), which was the largest increase since that index was created in 1999. Otherwise, trends remain tame and there is no underlying acceleration in consumer prices.
Over the last 12 months, core CPI increased 1.6% in January, the same rate as December. That is well below the Fed’s implied CPI target of roughly 2.5%.
Big Picture
Headline year-over-year CPI growth turned negative in January for the first time since October 2009.
DURABLE GOODS
Highlights
Durable goods orders increased 2.8% in January after declining a downwardly revised 3.7% (from 3.3%) in December. The Briefing.com Consensus expected durable goods orders to increase 1.7%.
Excluding aircraft, durable goods orders increased a much more modest 0.3% in January after declining 0.9% in December. The consensus expected these orders to increase 0.5%.
Key Factors
Almost the entire increase in orders can be attributed to seasonal adjustments in the aircraft industry. Even though Boeing (BA) reported a large decline in January aircraft orders on both a monthly and yearly basis, the Census Bureau showed a 73.7% increase in orders of defense and nondefense aircraft and parts.
Business capital demand ended four consecutive months of contractions. Orders of nondefense capital goods excluding aircraft increased 0.6% in January after declining 0.7% in December.
Unfortunately the impact of the increase in capex won’t be felt this month. Shipments of nondefense capital goods excluding aircraft declined 0.3% in January after increasing by 0.3% in December.
Big Picture
The stock of unfilled orders of nondefense capital goods excluding aircraft continued to grow in January. Manufacturers, however, have been very reluctant so produce off their backlog. As a result, business investment growth is being held back.
Technical Analysis
DOW JONES INDUSTRIAL AVERAGE
18214.42 -10.15 (-0.06%)
Volume: 81,500,575 (below average of 94,166,133)
Range: 18,157.07 – 18,239.43
NASDAQ COMPOSITE
4987.89 +20.75 (+0.42%)
Volume: 438.3M (below average of 449.7M)
Range: 4,955.51 – 4,989.11
S&P500 INDEX
2110.74 -3.12 (-0.15%)
Volume: 504.3M (below average of 532.2M)
Range: 2,103.76 – 2,113.91
The technical picture doesn’t really change – we’re still seeing some divergence in the MACD, which suggests that this rally is losing momentum.
Market Internals
NYSE:
Higher Volumes than the day before – 719.5M vs 704.7M
Decliners outpaced Advancers (adv/dec): 1392 / 1662
New Highs outpaced New Lows (highs/lows): 130 / 19
NASDAQ:
Lower Volumes than the day before – 1888.8M vs 1939.9M
Advancers outpaced Decliners (adv/dec): 1548 / 1217
New Highs outpaced New Lows (highs/lows): 154 / 24
VOLATILITY S&P500 (VIX)
13.91 +0.07 (+0.51%)
Advancers outpaced Decliners by 1.02 on lower volumes than the day before (-36.30M -1.37%).
Volumes remain on the high end of things, which is encouraging going forward. However let’s just say that things remain pretty confused and conflicted, which is a sign to stay out of the markets here.
Treasury Bonds, Currencies & Commodities
from Briefing.com
Treasury Bonds
Treasuries Lose, With 5-Year Note Leading the Way:
Treasuries reversed overnight gains today, selling hard after the 08:30 ET release of CPI, durable goods orders, and weekly jobless claims. A rally following the $29 billion 7-year note auction at 13:00 ET proved to be short-lived. The losses came at all maturities, although the 2-yr and 5-yr were weaker in the morning with the curve steepening in the afternoon
Yield check
2-yr: +4 bps to 0.65%
5-yr: +6 bps to 1.52%
10-yr: +4 bps to 2.01%
30-yr: +4 bps to 2.61%
There was no obvious catalyst for today’s selling in the economic data, except possibly in the Durable Goods Orders report
The Treasury selling began immediately after the 08:30 data release. The market may have been looking for a down-side surprise in the economic data that did not come
January CPI came out one tenth of a percentage point lower than expected, but core-CPI beat the consensus expectation by the same amount
Actual -0.7%, Briefing.com consensus -0.6%, prior -0.3%
According to Briefing.com chief economist, Jeffrey Rosen, “As expected, a large drop in gasoline prices was the primary catalyst for the decline in consumer prices. Gasoline costs fell 18.7% in January after declining 9.2% in December.”
Initial jobless claims came out slightly higher than expected
Actual 313K, Briefing.com consensus 295K, prior 282K
According to Briefing.com chief economist, Jeffrey Rosen: “There have been several anecdotal reports from the energy sector that mass layoffs are coming in the near future. So far, those layoffs have not shown up in the level of initial claims….Despite the increase, the initial claims still support monthly payroll growth over 200K.”
Durable Goods Orders for January
Actual 2.8%, Briefing.com consensus 1.7%, prior -3.7%
Most of the increase in orders came from seasonal adjustments in the aircraft industry
The $29 billion 7-year note auction was met with tepid demand
High yield: 1.834%
Bid-to-cover ratio: 2.37 versus a prior 12-auction average of 2.54
Indirect bid: 52.3% versus a prior 12-auction average of 47.3
Direct bid: 10.5%
Tail: 0.8 bps
Fed Speak:
Cleveland Fed President Mester (non-FOMC voter) said on CNBC that she expects 3% GDP growth in 2015 and inflation going back up to 2% by the end of 2015
She also said that taking the word “patient” out of the FOMC statement does mean that a rate hike is imminent. She reiterated that the Fed is data-dependent and can’t say if she would vote for a rate hike in June
Atlanta Fed President Lockhart had been due to speak but inclement weather led to the cancellation of his speech
2Yr 0.66 (+0.05), 5Yr 1.54 (+0.07), 10Yr 2.03 (+0.07), 30Yr 2.63 (+0.07)
2/10 Spread: 137bps (+2); 2/30 Spread: 197bps (+2)
Currencies
U.S. Dollar Resumes Upward March:
The U.S. Dollar Index rose 1.08 points (+1.15%) to 95.30 today, gaining ground against virtually every other major trading partner
Yields in the Eurozone dropped substantially overnight, driving the carry for long dollar/short euro positions even higher. That may have played a role in the dollar buying
The Japanese Yen lost ground against the U.S. Dollar like every other currency.
Overnight, the Diet approved Yutaka Harada to the BoJ’s Policy Board. He is generally seen as an inflation dove and believes that the BoJ should do more to get inflation up to 2%. $/Y rallied 55 pips or 0.46% to 119.42
The Euro finally broke out of its 250-pip trading range, losing 165 pips or 1.45% to $1.1196.
Most of the selling followed the release of CPI and Durable Goods data at 08:30 ET.
The data did not seem to justify the move, but the larger trend for the Euro is clearly lower
Aussie, Kiwi, the Canadian Dollar, and the British Pound all lost ground to the U.S. Dollar:
AUD/USD: $0.7801 (-60 pips, -0.76%)
NZD/USD: $0.7533 (-22 pips, -0.30%)
USD/CAD: 1.2511 (+79 pips, +0.64%)
GBP/USD: $1.5413 (-108 pips, -0.69%)
Commodities
Closing Commodities: WTI Crude Closed Notably Lower, Ends Just Above $48/Barrel
The dollar index showed some strength, but this didn’t matter much for some commodities
The index closed near today’s highs, but even though there was a pullback, metals closed with gains
Apr gold rose $8.60 to $1210.10/oz, while Mar silver gained $0.16 to $16.59/oz
WTI crude oil prices were weak today.. Apr crude closed $2.72 lower at $48.29/barrel
Apr nat gas fell $0.16 to $2.69/MMBtu
Energy Price Action
Apr crude oil futures fell $2.72/barrel to $48.29/barrel
Apr natural gas fell $0.16 to $2.69/MMBtu
RBOB Gasoline fell $0.01 to $1.90/gallon
Heating oil closed $0.05 lower to $1.89/gallon
Agricultural Price Action
Mar corn closed $0.04 higher at $3.80/bushel
Mar wheat closed $0.07 higher at $5.04/bushel
Feb soybeans closed $0.17 higher at $10.24/bushel
Ethanol closed $0.06 higher at $1.42/gallon
Sugar #11 closed 0.29 cents higher at 14.08 cents/lb
Metals Price Action
Apr gold ended today’s session $8.60 higher at $1210.10/oz
Mar silver ended $0.16 higher at $16.59/oz
Mar copper closed $0.03 higher at $2.69/lb
Note:
Copper: May is now the front month for Copper prices
Preview: Friday 27 Feb 2015
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.
GDP – Second Estimate – 08:30 : 2.1% (Prior 2.6%)
GDP Deflator – Second Est – 08:30 : 0.0% (Prior 0.0%)
Chicago PMI – 09:45 : 58.0 (Prior 59.4)
Michigan Sentiment – Final – 10:00 : 93.8 (Prior 93.6)
Pending Home Sales – 10:00 : 2.2% (Prior -3.7%)
Corporate Earnings
BMO : CAS AAON CNCE CST DFRG DCIX XLS GLOG GDP GVA HTH HMSY HZNP HPT ISIS KERX LBY NRF NRG NYLD NWN PNM PTCT RDC SJI TTI
Other Events of Interest
Fed/Treasury/Political Events
Fed’s Mester – 13:00
Economic Events
UK GDP – 04:00
Commentary
Pretty much the most important day of the week with the GDP number out before the opening bell.
I will once again be abstaining from this session.
Direction for Thursday 26 Feb 2015: ABSTAIN
Daily Directional Accuracy: 24/30 (80.00%)
Weekly Directional Accuracy: 5/7 (71.42%)