DOW 17195.42 +221.11 (+1.30%), NASDAQ 4566.14 +16.91 (+0.37%),
S&P500 1994.65 +12.35 (+0.62)
The reaction to the FOMC decision was predominantly bearish, and I reckon the after-rally was a product of short-covering ahead of tomorrow’s GDP number.
Which means, we have one more day to wait.
Direction for Thursday 30 Oct 2014: DOWN▼
That was strange. Despite the beat on the GDP number BMO, the futures market rallied but remained in the red. Then the market stayed divergent for the first half before a final push in the late afternoon session.
That seems to suggest that bullish reaction isn’t necessarily due to the GDP number, and might be other reasons…
Market Summary
from Briefing.com
Industry Watch
Strong: Consumer Discretionary, Consumer Staples, Health Care, Materials, Utilities
Weak: Energy, Industrials, Technology, Telecom Services
Other Market Moving Factors
Advance Q3 GDP beats estimates (3.5%; Briefing.com consensus 3.0%): real final sales surge 4.2% and government spending spikes 4.6%
Dow component Visa (V) reports better than expected results
[BRIEFING.COM] The major averages ended the Thursday session on a higher note with the Dow Jones Industrial Average (+1.3%) spending the entire day in the lead. However, the strength among blue chips masked the underperformance of high-beta chipmaker and transport stocks. Furthermore, defensively-oriented health care (+1.8%) and utilities (+2.1%) finished in the lead, suggesting a lack of strong conviction.
Shortly before the open, the advance reading of Q3 GDP revealed growth of 3.5% while the Briefing.com consensus expected an increase of 3.0%. The news contributed to a rebound in the futures market, which had been pressured by early weakness in European equities. However, markets across Europe were able to erase their losses before ending for the day.
The Dow held the lead from the start thanks to a surge in its top-weighted component. Shares of Visa (V 236.65, +21.99) soared 10.2% in reaction to a bottom-line beat and news of a $5 billion buyback.
Visa’s peer, MasterCard (MA 83.13, +7.14), also had a strong showing, spiking 9.4%, after it too surpassed earnings estimates. However, the two names were unable to push the technology sector (+0.2%) ahead of the broader market as other influential components like Apple (AAPL 106.98, -0.36), Facebook (FB 74.11, -1.75), and Microsoft (MSFT 46.05, -0.57) underperformed. Chipmakers also lagged with the PHLX Semiconductor Index falling 1.2%.
The high-beta group slumped after ending yesterday’s session on its 50-day average (623.74). The complex widened its October loss to 3.4% with its largest component—Intel (INTC 32.58, -1.34)—plunging 4.0%.
Elsewhere among cyclical sectors, the materials space (+0.7%) had the strongest showing while energy (-0.3%) spent the day in the red. Crude oil, which fell 1.4% to $81.10/bbl, contributed to the weakness, while Chevron (CVX 117.20, +0.06) and ExxonMobil (XOM 94.45, -0.14) ended little changed ahead of their quarterly reports.
Also of note, industrials (+0.4%) could not catch up to the broader market due to the weakness among transports. The Dow Jones Transportation Average slid 1.2% with Con-way (CNW 42.35, -2.81) diving 6.2% despite beating bottom-line estimates. Meanwhile, peer C.H. Robinson (CHRW 69.22, -2.88) tumbled 4.0% in reaction to a Credit Suisse downgrade to ‘Underperform’ from ‘Neutral.’
Meanwhile on the countercyclical side, consumer staples (+0.55%) and telecom services (+0.3%) slipped behind the market in the afternoon while health care (+1.8%) and utilities (+2.1%) finished in the lead.
The health care sector was boosted by strong results from AmerisourceBergen (ABC 84.84, +5.10) and Cigna (CI 97.10, +3.10). As for biotechnology, the iShares Nasdaq Biotechnology ETF (IBB 296.70, +6.07) settled higher by 2.1%.
Treasuries notched their highs right after the GDP report before spending the session in a steady retreat. The 10-yr yield slipped one basis point to 2.31%.
Today’s participation was ahead of average with 730 million shares changing hands at the NYSE.
Global Markets
Asia
The major Asian bourses finished mixed
Australia saw an unexpected drop in import prices (-0.8% QoQ actual v. 0.3% QoQ expected)
Japan’s Nikkei (+0.7%) rallied to a three-week high
Hong Kong’s Hang Seng (-0.5%) was rejected by the 100 dma as disappointing earnings weighed
China’s Shanghai Composite (+0.8%) rallied to its best level since February 2013
India’s Sensex (+0.9%) closed at a record high
Australia’s ASX (+0.5%) climbed to a six-week high
Europe
UK’s FTSE: + 0.2%
Germany’s DAX: + 0.4%
France’s CAC: + 0.7%
Spain’s IBEX: + 0.2%
Portugal’s PSI: -1.5%
Italy’s MIB Index: + 0.2%
Irish Ovrl Index: + 0.3%
Greece ASE General Index: -2.8%
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 : 287K vs 284K (Prior 284K)
Continuing Claims – 08:30 : 2384K vs 2375K (Prior 2351K)
GDP-Adv – 08:30 : 3.5% vs 3.0% (Prior 4.6%)
Chain Deflator-Adv – 08:30 : 1.3% vs 1.5% (Prior 2.1%)
Natural Gas Inventories – 10:30 : 87bcf (Prior 94bcf)
UNEMPLOYMENT CLAIMS
Highlights
The initial claims level increased to 287,000 for the week ending October 25 from an upwardly revised 284,000 (from 283,000) for the week ending October 18. The Briefing.com consensus pegged the initial claims level at 284,000.
The continuing claims level increased to 2.384 mln for the week ending October 18 from an upwardly revised 2.355 mln (from 2.351 mln) for the week ending October 11. The consensus expected the continuing claims level to increase to 2.375 mln.
Key Factors
Over the past several weeks, the initial claims level has stabilized below 300,000. These levels are consistent with an economy at, or near, full employment.
Payroll gains should easily exceed 200,000 per month.
Big Picture
The initial claims level has stabilized at a level that is normally associated with an economy at, or near, full employment.
GROSS DOMESTIC PRODUCT
Highlights
GDP increased 3.5% in the advance estimate of Q3 2014 GDP, down from a 4.6% increase in the second quarter. The Briefing.com consensus expected GDP to increase 3.0%.
Excluding inventory changes, real final sale rose 4.2% after increasing 3.2% in Q2 2014. That was the largest increase since real final sales rose by the same amount in Q4 2010. Since the contribution from inventory changes over time is essentially zero, the solid gain in real final sales suggests an economy on a stable, upward path.
Key Factors
There are still some concerns that GDP growth may not be able to be maintained at its current pace.
Much of the increase in growth came from a sizable contraction in the net export deficit. The deficit dropped from $460.4 bln in the second quarter to $409.9 bln in the third. The decline in the deficit boosted GDP growth in the third quarter by 1.32 percentage points. With global demand expecting to slow over the next few quarters, the market for U.S. goods may not be as strong as it was in the third quarter.
Growth in all of the private domestically-driven sectors slowed in the third quarter.
Consumption growth softened. Personal spending increased 1.8% in Q3 2014 after increasing 2.5% in the second quarter. Spending on goods decelerated, up 3.1% after increasing 5.9% in Q2. Services demand rose 1.1%, down from a 2.2% increase in the second quarter.
Investment demand also weakened. Total fixed investment increased 4.7%, down from a 9.5% increase in the second quarter.
Nonresidential investment increased 5.5% after increasing 9.7% in Q2 2014. Growth in all three nonresidential investment sectors – structures (3.8% vs. 12.6%), equipment (7.2% vs. 11.2%), and intellectual property (4.2% vs. 5.5%) – slowed in the third quarter.
Residential investment increased 1.8%, down from a 8.8% increase in Q2 2014.
Government spending jumped 4.6% in Q3 2014, up from a 1.7% increase in Q2 2014. That was the largest increase in government spending since stimulus-based spending boosted government spending by 7.5% in Q2 2009. Federal spending increased 10.0% in the third quarter, which was the first increase in federal spending since Q3 2012. State and local government spending increased 1.3%, down from a 3.4% increase in the second quarter.
Big Picture
A big boost in exports kept GDP growth above potential for a second consecutive quarter.
Ticker News
from Briefing.com
HEADLINE NEWS
China buyers can now place orders on Amazon.com (AMZN) platforms, according to reports
F5 Networks (FFIV) announces President and CEO John McAdam plans to retire at the end of FY2015
Harman (HAR) authorizes $500 mln, three year share buyback program
Visa (V) announces a new $5.0 billion share repurchase program
Lieff Cabraser Heimann & Bernstein, LLP announces that an appellate court upheld a $203 mln judgment against Wells Fargo (WFC)
EARNINGS / GUIDANCE
Akamai Tech (AKAM) beats by $0.05, beats on revs
Allstate (ALL) beats by $0.07, reports revs in-line
Altria (MO) beats by $0.01, reports revs in-line; reaffirms FY14 EPS guidance
Ball Corp (BLL) beats by $0.05, misses on revs
CME Group (CME) beats by $0.01, reports revs in-line
ConocoPhillips (COP) beats by $0.10
F5 Networks (FFIV) beats by $0.09, reports revs in-line; guides Q1 EPS in-line, revs in-line
JDS Uniphase (JDSU) beats by $0.04, beats on revs; guides Q2 EPS in-line, revs in-line
Johnson Controls (JCI) beats by $0.03, misses on revs; guides Q1 EPS in-line (midpoint below)
Kellogg (K) beats by $0.02, misses on revs; lowers FY14 guidance
Kraft Foods (KRFT) misses by $0.01, including items; misses on revs
MasterCard (MA) beats by $0.09, beats on revs
MetLife (MET) beats by $0.22, beats on revs
Mosaic (MOS) misses by $0.05, misses on revs
Noble Corp PLC (NE) beats by $0.05, beats on revs
Time Warner Cable (TWC) misses by $0.05, reports revs in-line
Visa beats by $0.08, reports revs in-line; guides FY15 ~in-line
Wal-Mart (WMT) disclosed that their Seiyu business in Japan will be closing ~30 non-performing stores in Japan in the future; WMT estimates that charges from the closures in the aggregate will range from ~$0.04 to $0.05 of diluted earnings per share from continuing operations
Williams Cos (WMB) misses by $0.03; affirming dividend-growth guidance of ~15% annually — from the higher Q3 2014 base — through 2017
ANALYST ACTIONS
Upgrades
Newfield Expl (NFX) upgraded to Buy from Hold at Societe Generale
PG&E (PCG) upgraded to Neutral from Sell at Goldman; tgt $48
Sealed Air (SEE) upgraded to Market Perform from Underperform at Wells Fargo
Southern (SO) downgraded to Underperform from Neutral at BofA/Merrill
Southwest Air (LUV) upgraded to Neutral from Underweight at JP Morgan; tgt raised to $42 from $29.50
Sprint (S) upgraded to Neutral from Underperform at Credit Suisse
Downgrades
C.H. Robinson (CHRW) downgraded to Underperform from Neutral at Credit Suisse; tgt lowered to $65 from $68
CNOOC Ltd (CEO) downgraded to Hold from Buy at Jefferies
Kraft Foods (KRFT) downgraded to Neutral from Outperform at Credit Suisse; tgt lowered to $58 from $63
Other
Deckers Outdoor (DECK) initiated with a Overweight at Morgan Stanley
Technical Analysis
DOW JONES INDUSTRIAL AVERAGE
17195.42 +221.11 (+1.30%)
Volume: 80,181,875 (below average of 85,385,529)
Range: 16920.95 – 17,223.96
NASDAQ COMPOSITE
4566.14 +16.91 (+0.37%)
Volume: 517.2M (above average of 476.3M)
Range: 4521.79 – 4575.50
S&P500 INDEX
1994.65 +12.35 (+0.62%)
Volume: 512.0M (above average of 498.8M)
Range: 1974.92 – 1999.40
Does that look like a double top? Well, only the coming week will tell. For all you know, that could be a breakout and we could be seeing higher highs till the end of the year.
Market Internals
NYSE:
Lower Volumes than the day before – 620.6M vs 822.9M
Advancers outpaced Decliners (adv/dec): 2005 / 1161
New Highs outpaced New Lows (highs/lows): 215 / 71
NASDAQ:
Lower Volumes than the day before – 2027.8M vs 2162.7M
Advancers outpaced Decliners (adv/dec): 1702 / 991
New Highs outpaced New Lows (highs/lows): 134 / 63
VOLATILITY S&P500 (VIX)
14.52 -0.63 (-4.16%)
Advancers outpaced Decliners by 1.72 on lower volumes than the day before (-301.2M -10.08%).
Internals continue to be divergent, with the VIX suggesting a fair amount of caution in the market, despite us returning to previous highs.
The lower volumes today suggest that the bullish reaction isn’t data-based, as I’d expect higher volumes with such “good” data. The TRIN also remained above 1 throughout the session, suggesting a fair bit of profit-taking going on in the background.
Treasury Bonds, Currencies & Commodities
from Briefing.com
Treasury Bonds
Treasuries booked small gains as steady selling persisted throughout U.S. trade.
The complex was bid into the cash open amid weakness in Europe and climbed to its best levels of the day in response to the strong Q3 GDP-Adv. (3.5% actual v. 3.0% expected) report.
Trade chopped around near the highs until U.S. equities began to gain momentum.
From there, sellers were in charge into early afternoon trade. Maturities tested their breakeven lines shortly after the weak $29 bln 7Y note auction, but were unable to push into negative territory.
The auction drew 2.018% (WI 2.008%) and a light 2.42x bid/cover. Indirect (46.6%) bids provided support as direct bids (15.4%) fell short of their 12-auction averages. Primary dealers were left with just 38% of the supply.
A choppy trade developed throughout the afternoon, keeping yields in a tight range.
Up front, the the 2Y slipped -0.4bps to 0.485%. Most of U.S. action was confined to a tight 2bp range.
In the belly, the 5Y eased -1.7bps to 1.580%. Early selling ran the yield to a three-week high near 1.620%, but action was unable to pierce resistance in the area guarded by the 50, 100, and 200 dma.
The 10Y fell -1.8bps to 2.305%. Trade managed to hold the closely watched 2.300% level.
At the long end, the 30Y shed -1.2bps to 3.036%. The yield threatened to break below 3.000%, but sellers stepped in to defend the level.
A slightly steeper curve took hold as the 2-10-yr spread narrowed to 182bps.
Treasuries Eke Out Gains:
2Yr 0.48 (unch), 5Yr 1.58 (-0.03), 10Yr 2.32 (-0.02), 30Yr 3.04 (-0.02)
2/10 Spread: 184bps (-2); 2/30 Spread: 256bps (-2)
Currencies
Dollar Holds 86.00:
The Dollar Index held 86.00 and has seen a bounce back into the 86.15 area.
EURUSD is -25 pips @ 1.2610 after recouping most of its early losses. The single currency was pressured to below 1.2550 immediately after the strong U.S. GDP print, but quickly recovered. Trade has been under pressure throughout the session after CPI in both Germany and Spain came in light. Eurozone data scheduled for tomorrow includes core CPI Flash Estimate, the unemployment rate, French consumer spending, and German retail sales.
GBPUSD is -10 pips @ 1.6000 as trade flirts with support in the area. Traders continue to watch this level closely as a breakdown puts the October lows near 1.5900 in jeopardy.
USDCHF is +15 pips @ .9560 as action fights to hold the flat line. The pair spiked above .9600 in response to the early weakness in the euro, but has surrendered most of the gains.
USDJPY is +60 pips @ 109.45 as trade contends with its best levels in more than six years. The pair saw a boost in afternoon trade amid reports Japanese pension GPIF was increasing its equity allocation to 25% while lowering its Japan debt allocation to 35%. Traders should be mindful of stops in the 110.00 area as the Bank of Japan opines tonight. Japan’s household spending and Tokyo core CPI are due out tonight.
AUDUSD is +40 pips @ .8835 as trade nears its best levels of the day. Trade pressed to almost .8750 early in the session following the bog let up in import prices, but has moved back towards the upper end of the .8650/.8850 range as risk assets catch a bid. Tonight’s Australian data is limited to PPI.
USDCAD is flat @ 1.1185 as traders await tomorrow’s Canadian GDP report.
Commodities
Energy price action
Crude oil fell $1.11 (-1.4%) to $81.10/barrel
Crude trended lower overnight into the pit session open, eventually reaching a LoD of 80.8 near lunch time; futures moved higher but has since moved back toward the session low.
Natural gas rose 4.2 cents (+1.2%) to $3.83/MMBtu
Natural gas has been trending higher since yesterday’s LoD of $3.696. Futures are now approached yesterday’s HoD of $3.849.
Heating Oil fell 2.5 cents (-1%) to $2.51/gallon
RBOB fell 2.6 cents (-1.2%) to $2.19/gallon
Agricultural price action
Corn fell 2 cents (-0.5%) to $3.7325/bushel
Wheat fell 2.5 cents to $5.3575/bushel
Soybeans fell 19 cents to $10.30/bushel
Ethanol rose less than 1 cent (0.05%) to $1.839/gallon
Sugar #11 fell 0.3% to 16.25 cents
Metals closing prices
Gold fell $28.40 (-2.2%) to $1198.50/oz
Gold fell below 1200 following the report that Q3 GDP advanced +3.5% vs +3.0% Briefing.com consensus. Futures hit their LoD of 1195.5 around 11am and have now trended lower most of this week.
Silver fell 82.4 cents (-4.8%) to $16.44/oz
Silver plunged on volume and is now trading at a 4.5 year low, hitting its LoD of $16.33 around 11 after trending lower overnight.
Copper fell 4 cents (-1.2%) to $3.0665/lb
Preview: Friday 31 Oct
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.
Personal Income – 08:30 : 0.3% (Prior 0.3%)
Personal Spending – 08:30 : 0.1% (Prior 0.5%)
PCE Prices – Core – 08:30 : 0.1% (Prior 0.1%)
Employment Cost Index – 08:30 : 0.5% (Prior 0.7%)
Chicago PMI – 09:45 : 60.0 (Prior 60.5)
Michigan Sentiment – Final – 09:55 : 86.4 (Prior 86.4)
Corporate Earnings
AON AXL BUD CBOE CHTR CIR CLX COL COMM CVX D DRQ DW FRM GWR HLT HPY ITT IXYS LM MMP MOG.A MSG NS NTLS NWL OSK PNM PNW RUTH SNE SPR SUP TDS TE TYPE USM VTG VVI WETF WY XLS XOM
AMC :
None
Other Events of Interest
Fed/Treasury/Political Events
None
Economic Events
Canada GDP – 04:00
Commentary
There remains a fair bit of caution in the market – in the VIX, in the yield curve, and in the dollar – which makes this rally all the more questionable. But we’ve made it through October without much hassle, and the market looks barely confident to make a break into the year end rally.
The end of the week should see some profit-taking off the top as the market decides tepidly whether to continue or not.
Direction for Friday 31 Oct 2014: DOWN▼
Update: The Bank of Japan announced a surprise round of easing that has sent global markets into euphoria. We’re likely to get a gap-up-and-go-nowhere day, given that everything is up, including the US Dollar.
Daily Directional Accuracy (from 14 May 2014): 75/115 (65.22%)
Weekly Directional Accuracy (from 16 May 2014): 13/22 (59.09%)