DOW 17554.47 +69.94 (+0.40%), NASDAQ 4638.47 +17.75 (+0.38%),
S&P500 2031.21 +7.64 (+0.38%)
Tomorrow is yet another Fed day as attention turns to the ECB’s latest rate decision. We get 4 Fed speakers as well, due to speak in the afternoon through to the evening.
Given that the market looks toppish at the moment, I reckon we’ll get another weak tepid day…
Direction for Thursday 6 Nov 2014: DOWN▼
Another sluggish day with the market making no headway in either direction. An initial profit-take opened the session, but the market quickly found support and went flat just above the opening level. The US Dollar continues to strengthen, and Gold continues its downward slide.
Before the opening bell the market received several pieces of information. The ECB continued its current policy with no change, but comments by ECB President Mario Draghi seemed to indicate more stimulus. Employment data was mixed, with Challenger Job Cuts rising and Initial Claims coming in-line.
Market Summary
from Briefing.com
Industry Watch
Strong:
Weak:
Other Market Moving Factors
[BRIEFING.COM] Equity indices registered modest gains on Thursday ahead of the Nonfarm Payrolls report for October (Briefing.com consensus 235,000), which will be released tomorrow. The S&P 500 added 0.4% with seven sectors ending in the green.
The key indices spent the entire session in a slow and steady climb off their opening lows, but the same could not be said for the greenback.
The Dollar Index (88.08, +0.64) spiked 0.7% after the European Central Bank released its latest policy statement. Although the central bank did not announce any changes, the euro tumbled below 1.2380 against the dollar after Mario Draghi said the bank will begin purchases of asset-backed securities soon and will not hesitate to introduce additional easing if needed. The reminder of willingness to consider additional measures boosted European equities and helped U.S. futures climb off their overnight lows.
However, it should be noted that the ECB has already discussed its intentions to begin ABS purchases in the past. Furthermore Mr. Draghi’s comments about additional easing contrasted with Tuesday’s Reuters story, which claimed nearly half of the ECB board opposes the implementation of a sovereign quantitative easing program.
The resulting dollar strength weighed on crude oil (77.90, -0.78), but the energy sector (+1.3%) ended in the lead despite showing early weakness. The sector climbed to highs during the final hour of the session, rising above the industrial space (+1.1%), which led for the bulk of the day.
Industrials received strong support from General Electric (GE 26.36, +0.54) as the top-weighted sector component reclaimed its 200-day moving average, spiking 2.1% to levels last seen in mid-September. Transports also fared well with the Dow Jones Transportation Average jumping 1.3%.
Elsewhere among cyclical sectors, consumer discretionary (+0.9%) and materials (+0.8%) displayed strength while financials (+0.1%) and technology (-0.1%) lagged.
The materials sector was boosted by miners after Randgold Resources (GOLD 64.61, +5.45) reported earnings. The company missed bottom-line estimates, but investors cheered news indicating Randgold has closed its revolving credit facility. The stock spiked 9.2% while the Market Vectors Gold Miners ETF (GDX 17.21, +0.62) jumped 3.7%.
On the downside, technology (-0.1%) spent the day in negative territory after Qualcomm (QCOM 70.57, -6.63) reported disappointing results. Shares of QCOM plunged 8.6% while the PHLX Semiconductor Index lost 0.9%.
The losses among chipmakers weighed on the Nasdaq, but the index caught up to the broader market during the final hour. Biotechnology factored into the afternoon strength with the iShares Nasdaq Biotechnology ETF (IBB 293.32, +4.42) climbing 1.5%. For its part, the health care sector (+0.6%) settled ahead of the remaining countercyclical groups.
Treasuries ended on their lows with the 10-yr yield up four basis points at 2.38%.
Participation was ahead of average with more than 730 million shares changing hands at the NYSE floor.
Economic data included Initial Claims, Productivity/Labor Cost data, and Challenger Job Cuts:
Nonfarm labor productivity increased 2.0% in the third quarter, down from an upwardly revised 2.9% (from 2.3%) gain in the second quarter
The Briefing.com consensus expected an increase of 1.5%
Output growth decelerated in the third quarter, increasing 4.4% after a 5.5% increase in the second quarter, which was in-line with third quarter GDP growth
The relatively weaker output level resulted in a modest acceleration in unit labors costs, up 0.3% after declining 0.5% in Q2 2014
Initial Claims declined to 278,000 from a revised rate of 288,000 (from 287,000), while the Briefing.com consensus expected a reading of 285,000
Claims have held below the 300,000 mark for the past several weeks, setting expectations for relatively strong job growth
The Challenger Job Cuts report for October rose 11.9% to follow the prior decline of 24.4%
Global Markets
Asia
Markets closed mixed across Asia
The latest Bank of Japan minutes voiced concern the recent drop in oil prices could push inflation below 1%
Portal Rasmi Bank Negara Malaysia kept its benchmark interest rate unchanged at 3.25%, as expected
Australia’s employment change (24.1K actual v. 20.3K expected) topped estimates and the unemployment rate held steady at 6.2%
Japan’s Nikkei (-0.9%) fell from seven-year highs
Hong Kong’s Hang Seng (-0.2%) saw a fourth day of selling
China’s Shanghai Composite (+0.3%) closed near 21-month highs
India’s Sensex was closed for holiday
Australia’s ASX (-0.2%) gave up its early gains and finished slightly in the red
Europe
UK’s FTSE: + 0.2%
Germany’s DAX: + 0.7%
France’s CAC: + 0.5%
Spain’s IBEX: -0.3%
Portugal’s PSI: + 0.5%
Italy’s MIB Index: -0.7%
Irish Ovrl Index: + 0.3%
Greece ASE General Index: + 0.5%
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
Challenger Job Cuts – 07:30 : 11.9% (Prior -24.4%)
Initial Claims – 08:30 : 278K vs 285K (Prior 288K)
Continuing Claims – 08:30 : 2348K vs 2380K (Prior 2387K)
Productivity – Prel. – 08:30 : 2.0% vs 1.4% (Prior 2.3%)
Unit Labor Costs – 08:30 : 0.3% vs 0.9% (Prior -0.1%)
Natural Gas Inventories – 10:30 : 91bcf (Prior 87bcf)
UNEMPLOYMENT CLAIMS
Highlights
The initial claims level fell to 278,000 for the week ending November 1 from an upwardly revised 288,000 (from 287,000) for the week ending October 25. The Briefing.com consensus expected the initial claims level to fall to 285,000.
The continuing claims level fell to 2.348 mln for the week ending October 25 from an upwardly revised 2.387 (from 2.384 mln) for the week ending October 18. The consensus expected the continuing claims level to fall to 2.378 mln.
Key Factors
Over the past several weeks, initial claims have held steady at levels below 300,000. Businesses have clearly reduced layoff activities, which should spur significant job growth.
There have been no special factors influencing the claims data during this time.
Big Picture
The initial claims level has stabilized at a level that is normally associated with an economy at, or near, full employment
PRODUCTIVITY & LABOR COSTS
Highlights
Nonfarm labor productivity increased 2.0% in the third quarter, down from an upwardly revised 2.9% (from 2.3%) gain in the second quarter. The Briefing.com consensus expected nonfarm labor productivity to increase 1.5%.
Key Factors
Output growth decelerated in the third quarter, increasing 4.4% after a 5.5% increase in the second quarter. That was in-line with third quarter GDP growth.
Hours worked also softened, up 2.3% in Q3 after increasing 2.5% in the second quarter. Meanwhile, compensation growth increased 2.3% for a second consecutive quarter.
The relatively weaker output level resulted in a modest acceleration in unit labors costs, up 0.3% after declining 0.5% in Q2 2014. The increase in costs, however, remains benign and is not a driver of inflation growth.
Big Picture
Productivity gains help keep cost-push inflation pressures from rising wages in check. Over the long term, it is productivity gains that provide the increase in output that have led to the consistent gains in living standards in free market economies.
Ticker News
from Briefing.com
HEADLINE NEWS
AES (AES) announced that it has been awarded 20-year contracts by Southern California Edison, to provide 1,284 MW of combined cycle gas-fired generation and 100 MW of interconnected battery-based energy storage
Amazon.com (AMZN) testing taxi delivery service, according to reports out yesterday prior to the close
Archer-Daniels (ADM) names Juan Luciano next CEO; Pat Woertz remains Chairman
Carnival (CCL) will increase fleet capacity by nearly 10% through 2016 with four new ships in less than 18 months
CDW (CDW) increases cash dividend 59% to $0.27 from $0.17/share, initiates $500 mln share repurchase program and agrees to acquire minority stake in Kelway and is expected to be accretive beginning in the first year, but terms were not disclosed
Gilead Sciences (GILD) and Johnson & Johnson (JNJ): Olysio (simeprevir) gains additional FDA approval in combination with sofosbuvir for adults with genotype 1 chronic hepatitis C infection
Palo Alto Networks (PANW) announces discovery of a new family of Apple (AAPL) OS x and iOS malware
Perrigo (PRGO) to acquire Omega Pharma NV for EUR 3.6 bln creating a top five global OTC company; Expected to be immediately accretive to adjusted EPS and double-digit accretion in fiscal year 2016; accretive to Perrigo standalone revenue and adjusted operating income growth rates and cash flow generation
Plains All Amer (PAA) enters into agreement to acquire 50% interest in BridgeTex Pipeline Company from Occidental Petroleum Corporation (OXY); expect the transaction to be ~1.5% accretive to PAA’s targeted 2015 distribution per unit and 5% accretive to PAGP’s corresponding distribution per share for 2015
EARNINGS / GUIDANCE
Apache (APA) reports EPS in-line, beats on revs
Cablevision (CVC) beats by $0.08, reports revs in-line
CBS (CBS) beats by $0.02, beats on revs
CF Industries (CF) misses by $0.56, reports revs in-line
Costco (COST) reports Oct same store sales +4.0% vs +3.8% Retail Metrics consensus
DIRECTV (DTV) beats by $0.02, reports revs in-line
L Brands (LB) reports Oct same store sales +3% vs +2.5% Retail Metrics consensus; reaffirms recently updated Q3 EPS guidance and reports prelim Q3 sales slightly above consensus
Molson Coors Brewing (TAP) misses by $0.02, reports revs in-line
Prudential (PRU) misses by $0.21, beats on revs
Qualcomm (QCOM) misses by $0.06, misses on revs; guides Q1 below consensus; guides FY15 below consensus
Symantec (SYMC) beats by $0.05, reports revs in-line; guides Q3 EPS and rev mid point below consensus; guides Fy15 EPS in line; FY15 revs below consensus
Whole Foods (WFM) beats by $0.03, reports revs in-line; guides FY15 revs below consensus; raises quarterly dividend 8% to $0.12
Zillow (Z) beats by $0.07, reports revs in-line
ANALYST ACTIONS
Upgrades
Crestwood Midstream Partners (CMLP) upgraded to Buy at Stifel; tgt $22
Hermes (HESAY) upgraded to Hold at Societe Generale
Downgrades
American Electric (AEP) downgraded to Market Perform from Outperform at Wells Fargo
Coeur d’Alene Mines (CDE) downgraded to Sell from Hold at Deutsche Bank
Duke Energy (DUK) downgraded to Hold from Buy at Deutsche Bank; downgraded to Sell from Hold at Evercore ISI; tgt raised to $76 from $72
Genworth Financial (GNW) downgraded to Neutral at Compass Point
Hormel Foods (HRL) downgraded to Mkt Perform from Outperform at BMO Capital Mkts; tgt raised to $58 from $53
IntercontinentalExchange (ICE) downgraded to Hold from Buy at Deutsche Bank; tgt raised to $230 from $220
Wisconsin Energy (WEC) downgraded to Market Perform from Outperform at Wells Fargo
Other
Actavis (ACT) target raised to $290 from $260 at Leerink Partners; Outperform
Technical Analysis
DOW JONES INDUSTRIAL AVERAGE
17554.47 +69.94 (+0.40%)
Volume: 70,669,889 (below average of 85,812,613)
Range: 17440.35 – 17560.31
NASDAQ COMPOSITE
4638.47 +17.75 (+0.38%)
Volume: 482.2M (in-line with average of 482.2M)
Range: 4604.76 – 4639.17
S&P500 INDEX
2031.21 +7.64 (+0.38%)
Volume: 497.8M (below average of 503.2M)
Range: 2015.86 – 2031.61
The indices continue to show divergence, with the NASDAQ topping out, the DOW continuing to surge, and the S&P500 holding the middle ground. Reminds you of before when the market was topping out, doesn’t it?
MACD divergence is beginning to emerge as well, with the histograms ticking to the downside.
Market Internals
NYSE:
Lower Volumes than the day before – 751.9M vs 796.7M
Advancers outpaced Decliners (adv/dec): 1742 / 1332
New Highs outpaced New Lows (highs/lows): 166 / 59
NASDAQ:
Lower Volumes than the day before – 1966.6M vs 1979.8M
Advancers outpaced Decliners (adv/dec): 1579 / 1132
New Highs outpaced New Lows (highs/lows): 122 / 65
VOLATILITY S&P500 (VIX)
13.67 -0.50 (-3.53%)
Advancers outpaced Decliners by 1.35 on marginally lower volumes than the day before (-58.0M -2.09%).
The VIX finally broke below its 200 DMA, although internals continue to remain mixed as the market continues its divergent performance of late.
Treasury Bonds, Currencies & Commodities
from Briefing.com
Treasury Bonds
Yields Hit One-Month Highs Ahead of October Jobs Report:
Treasuries booked modest losses as sellers took control ahead of tomorrow’s nonfarm payroll report.
Today’s weakness ran yields across the curve to one-month highs and action probing key resistance levels.
Maturities drifted little changed into the cash open and rallied in response to the better than expected economic data.
Productivity (2.0% actual v. 1.5% expected), initial claims (278K actual v. 285K expected), continuing claims (2348K actual v. 2378K expected), and unit labor costs (0.3% actual v. 0.7% expected) all posted better than expected results.
After a test of the flat line failed, maturities slid to fresh lows in early afternoon trade and drifted at those levels for the remainder of the session.
Up front, the 2Y ticked up +2bps to 0.542%.
In the belly, the 5Y gained +2.5bps to 1.659%. Resistance in the area is guarded by the 50, 100, and 200 dma.
The 10Y added +2.5bps to 2.375%. The benchmark yield is contending with the 50 dma near one-month highs.
The long bond lagged, running the 30Y up +2.8bps to 3.093%. Action is testing the upper bound of the 3.000%/3.10% range that has been in place for the past two weeks.
Today’s selling swung the curve slightly steeper as the 2-10-yr spread widened to 183.5bps.
2Yr 0.54 (+0.02), 5Yr 1.67 (+0.04), 10Yr 2.39 (+0.03), 30Yr 3.09 (+0.03)
2/10 Spread: 185bps (+1); 2/30 Spread: 255bps (+1)
Currencies
Dollar Hits 88.00:
The Dollar Index contends with its first close above 88.00 since June 2010 as trades position themselves for tomorrow’s nonfarm payroll report.
EURUSD is -95 pips @ 1.2390 as trade presses 27-month lows following today’s ECB rate decision and accompany Mario Draghi press conference. The single currency saw little reaction to the central bank keeping its Main Refinancing Rate at 0.05%, but tumbled as Mario Draghi’s press conference got underway. Mr. Draghi warned officials were unanimous in providing more stimulus if the region’s economy were to notably weaken. The 1.2000/1.2200 level remains in focus as support dates back to 2004 and is guarded by the 200 mma.
GBPUSD is -135 pips @ 1.5840 as trade dives to a fresh 14-month low. Sterling saw steady selling over the course of overnight trade, and action continued to press lower even after the Bank of England held both its Official Bank Rate and asset purchase program unchanged at their respective 0.50% and GBP375 bln. British data scheduled for tomorrow is limited to the trade balance.
USDCHF is +75 pips @ .9715 as trade readies for its best close since July 2013. Action remains closely tied to the euro. Swiss data due out tomorrow includes foreign currency reserves and retail sales.
USDJPY is +30 pips @ 114.90 as action flirts with the 115.00 area for the first time in seven years. Today’s bid follows the latest BOJ minutes, which voiced concern the recent drop in oil prices could push inflation below 1%.
AUDUSD is -15 pips @ .8575 as trade slides to its worst levels since July 2010. The hard currency rallied in overnight trade in response to the strong jobs report, but failed as action tested what was previously support in the .8650 area. A move into the .8350 region cannot be ruled out. The latest RBA Statement will be released this evening.
USDCAD is +40 pips @ 1.1425 with action on track to close at its best level since July 2009. The strong building permits (12.7% MoM actual v. 5.2% MoM expected) number was not enough to offset the weak Ivey PMI (51.2 actual v. 59.2 expected) report. Canada’s employment data will cross the wires tomorrow.
Commodities
Closing Commodities: Natural Gas Rallies 5% On Weather Outlook, Oil Falls 1%
The dollar index climbed higher this morning and remained near session highs, creating pressure on select commodities
The big mover this afternoon was in natural gas, which rallied notably on the current weather outlook.
This also follows the weekly EIA storage data, which was bearish as it showed a larger-than-expected build
Dec nat gas closed the day 5.1% higher at $4.41/MMBtu
Dec crude oil remained in negative territory, finishing 1% lower at $77.90/barrel
Precious metals fell modestly today with Dec gold losing 0.3% to $1142.20/oz and Dec silver -0.3% to $15.40/oz
Dec copper rose 0.3% to $3.02/lb
Energy price action
Crude oil fell 78 cents (-1%) to $77.90/barrel
Crude bounced off its LoD 77.12 and trended slightly higher since around 10am; most of crude’s move to the downside was from 6-9am.
Natural gas rose 22 cents (+5.1%) to $4.41/MMBtu
Natural gas is roaring higher today following inventory data that showed a build of 91 bcf vs expectations for a build of about 84.5 bcf. Futures are currently trading at the highs of the session after touching a low of 4.111 just before the data release.
Heating oil rose 2 cents (+0.8%) to $2.4585/gallon
RBOB rose 4.3 cents (+2.1%) to $2.13/gallon
Agricultural price action
Corn rose 0.35 cents (+0.1%) to $3.705/bushel
Wheat fell 4.25 cents (-0.8%) to $5.205/bushel
Soybeans rose 8.75 cents (+0.9%) to $10.28/bushel
Ethanol rose 5.9 cents (+3.2%) to $1.90/gallon
Sugar #11 fell slightly, 0.06%, to 15.5 cents/lb
Metals price action
Gold fell $3.40 (-0.3%) to $1142.20/oz
Gold is still trading below 1170, which represented a strong level of support. Today’s session was a relatively tight one, with futures for the most part trading between 1142-1144.
Silver fell 4.4 cents (-0.3%) to $15.395/oz
Silver is still at a 4.5 year low, and although the session ended in the red, futures trended higher for most of the pit session. Most of silvers move lower came yesterday afternoon.
Copper rose 0.9 cents (+0.3%) to $3.0165/lb
Preview: Friday 7 Nov
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
AGIO BAM BPL CCOI CTB EBIX ERF HUM IDRA ISIS LXP LXU MHR MT NWHM NXST PGEM PGNX SJI SSP STAY TTI WLH
AMC :
None
Other Events of Interest
Fed/Treasury/Political Events
Fed’s Evans – 09:15
Economic Events
German Trade Balance – 04:00
Commentary
Today’s session, while seeming like a breakout to new highs, isn’t convincing of the rally. Tomorrow will see the release of the monthly Employment report, and will either make or break this rally. Given the mixed numbers this week so far, I find it difficult to be optimistic.
Direction for Friday 7 Nov 2014: DOWN▼
Daily Directional Accuracy (from 14 May 2014): 79/120 (65.83%)
Weekly Directional Accuracy (from 16 May 2014): 13/23 (56.52%)