DOW 17113.54 +61.81 (+0.36%), NASDAQ 4456.02 +31.31 (+0.71%),
S&P500 1983.53 +9.90 (+0.50%)
I continue to maintain that the geopolitical movements will take centre stage. Which means that any developments out of Ukraine or Israel will potentially move this market – up or down.
Which means that for now, caution will be name of the game.
Direction for Tuesday 22 Jul: DOWN▼
We’ve seen this happening before, and we know what happens next.
That is by no means an up day.
Market Summary
Economic Data & News
Technical Analysis
Market Internals
Bonds, Currencies & Commodities
Preview
Market Summary
Industry Watch
Strong: Energy, Industrials, Health Care, Technology
Weak: Consumer Staples, Financials, Materials, Telecom Services, Utilities
Other Market Moving Factors
Small-cap stocks pace the advance
Mixed earnings from quick-service restaurant industry: Chipotle Mexican Grill (CMG) beats; McDonald’s (MCD) misses
[BRIEFING.COM] The stock market finished the Tuesday session on an upbeat note with small caps pacing the rally. The Russell 2000 advanced 0.8%, while the S&P 500 added 0.5% with eight sectors ending in the green.
Although geopolitical concerns factored into the modest retreat on Monday, the worries were cast aside today after separatist forces in eastern Ukraine handed over black boxes from MH17 to Malaysian authorities and Secretary of State John Kerry began working on brokering a cease fire in Gaza.
Furthermore, the sentiment was boosted by a slate of mostly better than expected earnings. Notably, Chipotle Mexican Grill (CMG 659.77, +69.84) soared 11.8% after beating estimates and surpassing comparable restaurant sales growth expectations. However, McDonald’s (MCD 96.27, -1.28) painted a less upbeat picture with its stock falling 1.3% in reaction to below-consensus earnings and revenue. Elsewhere among consumer discretionary components, Comcast (CMCSA 54.63, +0.81) added 1.5% after reporting better than expected results.
While the discretionary space (+0.5%) contained a fair share of outperformers, energy (+0.8%) and health care (+0.8%) sectors hovered near the lead throughout the session. Energy rallied even as crude oil fell 0.5% to $102.35/bbl, while health care received support from biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 253.68, +2.82) advanced 1.1%.
There was an added headline stir in the health care space as separate judicial rulings at the federal appellate level contradicted each other regarding the legality of subsidies received to help pay for health care via the federal exchanges. The initial ruling from a federal appeals court panel covering Washington D.C. ruled 2-1 that those subsidies are illegal. Soon thereafter, the 4th U.S. Circuit Court of Appeals ruled 3-0 that the subsidies are legal.
Despite the conflicting rulings, the sector held its ground, implying a belief that the initial ruling would not translate into law anytime soon (if at all). The second ruling helped validate that belief and likely set the stage for a review of the rulings by the full circuit court in both areas and potentially the Supreme Court. Unlike health care, other countercyclical sectors could not keep up with the broader market. The telecom services sector (+0.3%) eked out a slim gain, while consumer staples (-0.2%) and utilities (-0.2%) finished in the red.
The consumer staples sector lagged amid weakness in the shares of Coca-Cola (KO 41.19, -1.21). The Dow component lost 2.9% despite reporting a one-cent beat. Like Coca-Cola, another Dow component—United Technologies (UTX 110.86, -2.12)—also settled lower despite beating estimates.
The relative weakness among blue chip listings had little impact on the performance of high-beta names. Chipmakers (PHLX Semiconductor Index +0.7%), biotechnology (IBB +1.1%), and transport stocks (Dow Jones Transportation Average +1.1%) all finished ahead of the broader market, while the Russell 2000 regained its 50- and 100-day averages.
Treasuries retreated in the early morning, but reclaimed their losses during the day. The 10-yr note ended flat with its yield at 2.46%.
Participation was on the light side with less than 600 million shares changing hands at the NYSE.
Economic data included CPI, FHFA Housing Price Index, and Existing Home Sales:
Consumer prices increased 0.3% in June, down from a 0.4% increase in May, which matched the Briefing.com consensus estimate
As expected from the June PPI report, a strong increase in energy prices, up 1.6% in June, was the main catalyst for the overall increase in consumer prices. That was the largest increase in monthly energy costs since December
Gasoline costs rose 3.3% after increasing 0.7% in May
Food prices moderated a bit in June, increasing only 0.1% after growing by at least 0.4% per month since February
Excluding food and energy, core CPI increased 0.1% in June after increasing 0.3% in May, while the consensus expected an increase of 0.2%
The May Housing Price Index from the FHFA rose 0.4%, which followed a revised increase of 0.1% observed during the prior month (from 0.0%)
Existing home sales increased to 5.04 million SAAR in June from an upwardly revised 4.91 million SAAR (from 4.89 million SAAR) in May, while the Briefing.com consensus an increase to 5.00 million SAAR
This was the first time sales exceeded 5.00 million SAAR since October 2013. Still, sales are down 2.3% year-over-year
Global Markets
Asia
Markets rallied across much of Asia
The Japanese government lowered its 2014 growth forecast to 1.2% (1.4% previous), citing weak demand from emerging markets
Reserve Bank of Australia Governor Glenn Stevens reiterated the central bank’s view that a period of stable rates is likely, and that animal spirits are needed to help the real economy
Japan’s Nikkei (+0.8%) finished just shy of six-month highs as traders returned to work following the extended holiday weekend
Hong Kong’s Hang Seng (+1.7%) surged to an eight-month high
China’s Shanghai Composite (+1.0%) finished at its best level in over a month
India’s Sensex (+1.2%) ended just short of all-time highs
Australia’s ASX (+0.1%) ticked to its best closed in more than six years
Europe
UK’s FTSE: + 1.0%
Germany’s DAX: + 1.2%
France’s CAC: + 1.6%
Spain’s IBEX: + 1.7%
Portugal’s PSI: + 1.1%
Italy’s MIB Index: + 2.2%
Irish Ovrl Index: + 1.2%
Greece ASE General Index: + 0.1%
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.
CPI – 08:30 : 0.3% vs 0.3% (Prior 0.4%)
Core CPI – 08:30 : 0.1% vs 0.2% (Prior 0.3%)
FHFA Housing Price Index – 09:00 : 0.4% (Prior 0.0%)
Existing Home Sales – 10:00 : 5.04M vs 5.00M (Prior 4.89M)
CONSUMER PRICE INDEX
Highlights
Consumer prices increased 0.3% in June, down from a 0.4% increase in May. The Briefing.com consensus expected the CPI to increase 0.3%.
Excluding food and energy, core CPI increased 0.1% in June after increasing 0.3% in May. The consensus expected core prices to increase 0.2%.
Key Factors
As expected from the June PPI report, a strong increase in energy prices, up 1.6% in June, was the main catalyst for the overall increase in consumer prices. That was the largest increase in monthly energy costs since December. Gasoline costs rose 3.3% after increasing 0.7% in May.
Food prices moderated a bit in June. Prices increased only 0.1% after growing by at least 0.4% per month since February.
There were no outliers in the core data and the slowdown in core price growth can be chalked up to normal volatility. The larger-than-normal increase in May was simply offset by slower-than-normal growth in June.
Year-over-year, core CPI increased 1.9%. That was down from a 2.0% y/y increase in May, but slightly higher than the 1.7% yearly increase that the index has averaged over the last five years. Even with the slight uptick in core pricing trends, price growth remains below the FOMC’s implied target rate.
Big Picture
Without substantial income growth, long-term CPI price trends will remain soft.
EXISTING HOME SALES
Highlights
Existing home sales increased to 5.04 mln SAAR in June from an upwardly revised 4.91 mln SAAR (from 4.89 mln SAAR) in May. The Briefing.com consensus expected existing home sales to increase to 5.00 mln SAAR.
Key Factors
This was the first time sales exceeded 5.00 mln SAAR since October 2013. Still, sales are down 2.3% year-over-year.
Distressed sales accounted for 11% of June sales, down from 15% a year ago. Investor sales, however, have not gone away. Sales to all-cash buyers accounted for 32% of existing home sales in June, up from 31% in June 2013.
First-time homebuyers accounted for 28% of all sales, which was the same rate as June 2013. Without an acceleration in first-time buyers, existing home sales growth will likely remain tepid.
Inventory levels improved in June, increasing 2.2% to 2.30 mln from 2.25 mln in May. Unfortunately, that still represents only 5.5 months’ supply at the current sales pace. That will continue to put upward pressure on prices and prevent first-time homebuyers from affording a home.
The median sales price increased 4.3% y/y to $223,300 from $214,000.
Big Picture
While mortgage rates have fallen over the past couple of months, higher home prices remain a hindrance for potential first-time home buyers.
In Other News…
HEADLINE NEWS
Apple (AAPL) has requested that suppliers produce 80 mln large screen iPhones, according to reports (AAPL reports tonight after the close)
Apple (AAPL) has been granted patent for smartwatch
Boston Scientific (BSX) receives FDA approval for REBEL Platinum Chromium Coronary Stent System
comScore (SCOR) releases June 2014 U.S. search engine rankings; Google (GOOG) Sites led the explicit core search market with 67.6%
Starbucks (SBUX) and Burger King (BKW) may also be involved in China food issues, according to repoerts
Time Warner (TWX) discloses bylaw amendment; removed provisions regarding stockholders’ ability to cause Board to call a special meeting of stockholders
Wal-Mart (WMT) planning to increase B2S price cuts, according to reports out
Worldwide notebook shipments to increase 4.3% QoQ in Q3, according to reports
EARNINGS/GUIDANCE
Altria (MO) misses by $0.01, reports revs in-line; narrow FY14 EPS guidance; announces new $1 bln share repurchase program
Chipotle Mexican Grill (CMG) beats by $0.41, beats on revs; Q2 comps +17.3% well above expectations; raises FY14 comp guidance
Coca-Cola (KO) beats by $0.01, misses on revs; discusses outlook
Comcast (CMCSA) beats by $0.04, beats on revs
DuPont (DD) reports EPS in-line with conssens & pre-announcement, revs in-line; guides Q3 EPS below consensus; reaffirms FY14 EPS guidance; raises quarterly div 4%
Harley-Davidson (HOG) beats by $0.16, reports revs in-line; lowers FY14 shipment guidance to +3.5-5.5% from +7-9%
Ingersoll-Rand (IR) beats by $0.02, reports revs in-line; guides Q3 EPS in-line, revs above consensus; guides FY14 EPS in-line, revs in-line
Kimberly-Clark (KMB) misses by $0.01, reports revs in-line; lowers high end of FY14 EPS guidance
McDonald’s (MCD) misses by $0.04, misses on rev and comps; sees FY14 comps similar to YTD; sees July comps negative
Netflix (NFLX) reports EPS in-line, revs in-line; guides Q3 EPS in-line
Omnicom (OMC) beats by $0.06, beats on revs
Regions Fincl (RF) reports EPS in-line, revs in-line
State Street (STT) beats by $0.13, beats on revs
Texas Instruments (TXN) beats by $0.03, reports revs in-line; guides Q3 EPS in-line, revs in-line
Travelers (TRV) misses by $0.14
United Tech (UTX) beats by $0.06, beats on revs; raises bottom end of FY14 EPS in-line with estimates
Verizon (VZ) beats by $0.01, beats on revs; reaffirms FY14 guidance
Zions Bancorp (ZION) beats by $0.11
ANALYST ACTIONS
Upgrades
Allergan (AGN) upgraded to Buy from Neutral at UBS; tgt raised to $200 from $180
Hasbro (HAS) upgraded to Overweight from Equal Weight at Barclays; tgt raised to $59 from $58
Huntington Banc (HBAN) upgraded to Outperform from Mkt Perform at Keefe Bruyette; tgt raised to $11.50 from $10
Downgrades
Amazon.com (AMZN) downgraded to Neutral from Buy at Citigroup
SunTrust Banks (STI) downgraded to Equal Weight from Overweight at Evercore
Other
Chipotle Mexican Grill (CMG) target raised to $740 from $610 at Piper Jaffray, Overweight; tgt raised to $750 from $640 at BofA/Merrill, Buy
Halliburton (HAL) tgt raised to $82 from $73 at Sterne Agee, Buy; tgt raised to $87 from $80 at UBS, Buy
Netflix (NFLX) target raised to $350 at Jefferies from $300, maintain Undperform; tgt raised to $525 from $450 at Janney, Buy
Technical Analysis
DOW JONES INDUSTRIAL AVERAGE
17113.54 +61.81 (+0.36%)
Volume: 77,958,670 (below average of 78,124,972)
Range: 17040.13 – 17133.43
NASDAQ COMPOSITE
4456.02 +31.31 (+0.71%)
Volume: 404.0M (below average of 464.6M)
Range: 4443.35 – 4464.13
S&P500 INDEX
1983.53 +9.90 (+0.50%)
Volume: 425.7M (below average of 459.8M)
Range: 1975.65 – 1986.24
We’ve been here before. We’ve been here so many times. Suffice to say that unless we get a catalyst today for a breakout, we should be turning south.
Market Internals
NYSE:
Higher Volumes than the day before – 582.0M vs 541.4M
Advancers outpaced Decliners (adv/dec): 2088 / 949
New Highs outpaced New Lows (highs/lows): 170 / 13
NASDAQ:
Higher Volumes than the day before - 1696.5M vs 1552.5M
Advancers outpaced Decliners (adv/dec): 1817 / 895
New Highs outpaced New Lows (highs/lows): 91 / 31
VOLATILITY S&P500 (VIX)
12.24 -0.57 (-4.45%)
Advancers outpaced Decliners by 2.12 on higher volumes than the day before (+184.6M +8.82%).
Very decent internals. But what’s new? We’ve seen this before.
Curiously on the VIX – it closed in what looks like a Hammer, indicating more upside. And the DSMA20 (red) looks like it’s about to cross the DSMA50 (blue)… more upside.
Treasury Bonds, Currencies & Commodities
from Briefing.com
Treasury Bonds
30y Slips to 3.25%:
Treasuries gained for the fifth time in six sessions.
Overnight weakness persisted into this morning’s data with action hitting session lows before the in-line CPI (0.3%) report.
The reading sparked a sharp rally to session highs before the FHFA Housing Price Index (0.4%) and existing home sales (5.04 mln actual v. 5.00 mln expected) figures sent yields back towards their best levels of the day.
However, buyers managed to regain control as the major averages stalled, sending yields back into the red.
Today’s bid had the biggest impact on the belly as the 5y slid -2.7bps to 1.658%. Action ended on minor support in the area that is helped by both the 50 and 100 dma.
The 10y fell -0.8bps to 2.466%. The benchmark yield finished just a couple of bps above the late-May closing low of 2.438%.
At the long end, the 30y eased -1.2bps to a 13-month low of 3.252%.
Action must now contend with some support in the 3.200%/3.250% region.
A slightly steeper curve developed as the 2-10-y spread widened to 200bps.
2Yr 0.49 (-0.02), 5Yr 1.68 (-0.02), 10Yr 2.48 (-0.01), 30Yr 3.25 (-0.01)
2/10 Spread: 199bps (+1); 2/30 Spread: 276bps (+1)
Currencies
Dollar Contends with Five-Month Highs: 10-yr: unch..2.469%..USD/JPY: 101.46..EUR/USD: 1.3466
The Dollar Index drifts on session highs near 80.80. Click here to see a daily Dollar Index chart.
Today’s bid has the Index higher for the seventh time in nine sessions and has action contending with its best close in more than five months.
EURUSD is -55 pips @ 1.3465 as trade looks likely to close at an eight-month low. The single currency saw some early selling pressure in response to a Eurostat report suggesting the euro area’s debt load climbed to 93.9% of GDP. The inability to reclaim the 1.3500 level in a timely manner will be problematic.
GBPUSD is -15 pips @ 1.7060 as sellers remain in control for a fifth day. This morning’s mixed public sector net borrowing and CBI Industrial Order Expectations data made for some overnight selling before pressing even lower in early U.S. trade. The latest Bank of England asset purchase facility votes and Official Bank Rate votes will be released tomorrow along with BBA Mortgage Approvals and CBI Realized Sales. Bank of England Governor Mark Carney will speak in Glasgow.
USDCHF is +45 pips @ .9025 as trade readies for its best close in five and a half months. The narrower than expected Swiss trade balance has provided some support, but action continues to be dictated by movements in the euro.
USDJPY is +5 pips @ 101.45 as light buying persists for a third day. Today’s bid comes after the Japanese government lowered its 2014 growth forecast to 1.2% (1.4% previous) due to tepid demand from emerging economies. Resistance near 101.75 is guarded by the 50, 100, and 200 dma.
AUDUSD is +20 pips @ .9390. Some early strength ran the pair to .9422, its best levels in more than two weeks; however, trade has slipped back into the .9350/.9400 range that has dominated for much of July. Australia’s CPI is due out tonight.
USDCAD is -5 pips @ 1.0735 as trade slips amid a lackluster session. Recent action has struggled near 1.0750, but the 1.0800 resistance area is of more importance. Canadian data scheduled for tomorrow is limited to retail sales.
Commodities
Closing Commodities: Oil prices slip, WTI Aug crude falls 0.7%, ending the day below $104/barrel
Aug gold fell for the first time in five sessions as the dollar index gained strength. The yellow metal popped to a session high of $1316.80 per ounce in early morning action but quickly slipped back into the red. It eventually settled with a 0.7% loss at $1306.10 per ounce.
Sep silver oscillated between positive and negative territory today. It traded as high as $21.12 per ounce after coming off its session low of $20.78 per ounce and settled at $21.00 per ounce, just once cent below the unchanged line.
Aug crude oil brushed a session high of $105.01 per barrel in late afternoon floor trade after touching a session low of $103.87 per barrel. It slipped back into the red heading into the close and settled with a 0.7% loss at $103.89 per barrel.
Aug natural gas extended losses for a fifth consecutive session. It pulled back from a session high of $3.83 per MMBtu and eventually settled at its session low of $3.77 per MMBtu, or 1.8% lower.
NYMEX Energy Closing Prices
Aug crude oil fell $0.76 to $103.89/barrel
Aug natural gas fell 7 cents to $3.77/MMBtu
Aug heating oil fell 1 cent to $2.85/gallon
Aug RBOB fell 1 cent to $2.88/gallon
CBOT Agriculture and Ethanol/ICE Sugar Closing Prices
Sep corn fell 4 cents to $3.60/bushel
Sep wheat fell 5 cents to $5.25/bushel
Aug soybeans rose 7 cents to $11.84/bushel
Sep ethanol rose 1 cent to $1.99/gallon
Sep sugar (#16 (U.S.)) rose 0.10 of a penny to 24.60 cents/lbs
COMEX Metals Closing Prices
Aug gold fell $7.80 to $1306.10/oz
Sep silver fell $0.01 to $21.00/oz
Sep copper rose 1 cent to $3.21/lbs
Preview: Wednesday 23 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.
MBA Mortgage Index – 07:00 : Prior -3.6%
Crude Inventories – 10:30 : Prior -7.525M
Corporate Earnings
BMO :
ABB APD APH BEAV BIIB BA CHKP CKSW CNMD COR DAL DOW EMC EVR FDML FCF FCX GDHERO HCBK JAKK JNS KNX LSTR LAD MKTX BABY NYCB NSC NOC OIIM OCR OC PEP PCH PX ROL RES R SEIC SLGN SPG STM TEL MDCO TMO TUP UTL GRA WHR
AMC :
EGHT ALGT AWH ALSN ANGI ANGO AHL AIZ AF T AVB BDN CA CAKE CHE CRUS CTXS CLW CLB CLGX CMRE CSGP CVTI CCI CVBF ETFC EFX ETH RE FFIV FB FR FLS FTNT GILD GGG HBI HWAY HMN IBKC ILMN INFN TILE IPCM KALU LHO MAC MBFI MSA MKSI NSR NVEC NXPI ORLY OII OFG OHI PLCM PTC QCOM QTM RJF SLM SGMO TAL TER TEX TCBI TMK TSCO TRIP TQNT TOUR TYL UMPQ USTR VAR VTL WFT WERN
Other Events of Interest
Fed/Treasury/Political Events
None
Economic Events
New Zealand Central Bank Rate Decision – 16:00
HSBC China Manufacturing PMI – 21:30
Analyst/Investor Meetings
None
Conclusion
There is virtually no data tomorrow.
Amidst the backdrop of geopolitical risks and other things, upside gains should be capped and risk-aversion plays central role.
On an added note, the movements in the bond space are getting scary.
Direction for Wednesday 23 Jul: DOWN▼
Daily Directional Accuracy (from 14 May 2014): 31/47 (65.96%)
Weekly Directional Accuracy (from 16 May 2014): 5/9 (55.56%)