DOW 17427.09 -186.59 (-1.06%), NASDAQ 4639.32 -22.17 (-0.48%),
S&P500 2011.27 -11.76 (-0.58%)
Today’s session obviously shows the market has little interest in pushing higher – but instead leans on the side of caution. With a breakout (or breakdown) ever coming closer, I won’t be surprised if the week ends badly from here.
Today’s session receives a lot of economic data before the market open and the Beige Book in the afternoon, so expect decent volatility.
Direction for Wednesday 14 Jan 2015: DOWN▼
And that was nasty. The session began with a massive drop, and the market failed to stage any recovery until the late session after the release of the FOMC Beige Book. Whether that recovery will translate into a recovery in the next session remains to be seen.
Market Summary
from Briefing.com
Industry Watch
Strong: Energy, Health Care, Utilities
Weak: Consumer Discretionary, Financials, Industrials, Materials
Other Market Moving Factors
World Bank lowers 2015 GDP target to 3.0% from 3.4%: copper futures plummet
December Retail Sales miss expectations (-0.9%; Briefing.com consensus +0.1%)
JPMorgan Chase (JPM) reports below-consensus results
S&P 500 looks to hold 100-day moving average (2007)
[BRIEFING.COM] The major averages endured their fourth consecutive decline with the S&P 500 (-0.6%) making an intraday appearance below its 100-day moving average (2,007). The tech-heavy Nasdaq outperformed, but still lost 0.5%.
Equities faced selling pressure from the start after the overnight session failed to alleviate the growth concerns that contributed to the recent weakness. Instead, the concerns grew larger, starting with the World Bank’s reduced growth outlook for 2015 (to 3.0% from 3.4%) and 2016 (to 3.3% from 3.5%).
The lowered outlook pressured commodities, and especially copper, which remained under pressure throughout the day, ending lower by 4.9% at $2.51/lb after hitting a low near the $2.45/lb level. Crude oil, however, traded in the red during morning action, but rocketed into the pit close, which helped the broader market climb off its intraday low. As for crude, the energy component spiked 5.7% to $48.55/bbl.
The rebound in crude helped the energy sector (+0.1%) finish in the green, but other cyclical groups did not fare as well. Notably, the financial sector (-1.4%) ended at the bottom of the leaderboard, which was largely due to a 3.5% decline in JPMorgan Chase (JPM 56.81, -2.03) after the industry giant reported below-consensus earnings and revenue. For its part, Wells Fargo (WFC 51.25, -0.60) delivered an in-line report, but still lost 1.2%.
Financials inched away from their lows during afternoon action, but could not catch up to the broader market, which was also the case with the consumer discretionary sector (-1.2%). The fourth-largest sector by weight retreated following the disappointing December Retail Sales report (-0.9%; Briefing.com consensus 0.1%) while homebuilders lagged early, but ended just ahead of the broader market with the iShares Dow Jones US Home Construction ETF (ITB 25.90, -0.09) falling 0.4%.
Elsewhere among cyclical sectors, technology (-0.5%) finished just ahead of the broader market while chipmakers kept pace with the S&P 500. Shares of BlackBerry (BBRY 12.60, +2.88) spiked almost 30.0% in afternoon action after Reuters reported the company has been approached by Samsung about a potential takeover.
Unlike cyclical sectors, the four defensively-oriented groups spent the day ahead of the broader market. Health care (-0.1%) settled just below its flat line while the iShares Nasdaq Biotechnology ETF (IBB 315.57, +0.60) added 0.2%. The utilities sector (+0.9%) was the lone advancer on the countercyclical side, extending its January advance to 1.4%.
Treasuries jumped following this morning’s data before surrendering a portion of their gains. The 10-yr yield fell six basis points to 1.84%. Also of note, the 30-yr yield ended at 2.45% (-3 bps), which represented the lowest close on record.
Today’s participation was ahead of average with more than 900 million shares changing hands at the NYSE floor.
Economic data included Retail Sales, Import/Export Prices, Business Inventories, and the MBA Mortgage Index:
Retail sales fell 0.9% in December after increasing a downwardly revised 0.4% (from 0.7%) in November, while the Briefing.com consensus expected an increase of 0.1%.
The sharp pullback in sales was a direct result of poor income growth. The December employment report showed a contraction in the average hourly wage, which resulted in flat aggregate income growth after accounting for payrolls gains
Without income growth, the only way for sales to improve was for consumers to dip into their savings. Households have been very reluctant to do so, which meant retail sales were poised for a pullback in December
Excluding motor vehicles, sales declined 1.0% after increasing a downward revised 0.1% (from 0.5%) in November
The consensus expected these sales to increase 0.1%
Export prices, excluding agriculture, decreased 1.2% in December after decreasing 1.2% in the prior reading
Excluding oil, import prices ticked down 0.1%, which followed last month’s 0.3% decline
Business Inventories rose 0.2% in November, while the Briefing.com consensus expected an increase of 0.3%
The prior month’s reading was left unrevised at +0.2%
The weekly MBA Mortgage Index saw its biggest spike since November 2008, surging 49.1% to follow the previous 11.1% spike
Tomorrow, weekly Initial Claims (Briefing.com consensus 290K), December PPI (consensus -0.4%), and January Empire Manufacturing Survey (expected 6.5) will be released at 8:30 ET while the Philadelphia Fed Survey for January (consensus 19.0) will cross at 10:00 ET.
Russell 2000 -2.4% YTD
S&P 500 -2.3% YTD
Dow Jones Industrial Average -2.2% YTD
Nasdaq Composite -2.0% YTD
Global Markets
ASIA
Asian Markets Close: Nikkei -1.7%, Hang Seng -0.4%, Shanghai -0.4%
Markets fell across Asia.
India’s WPI Inflation ticked up to 0.11% YoY (0.00% YoY previous).
South Korea’s unemployment rate edged up to 3.5% (3.4% previous).
Japan’s Nikkei (-1.7%) slid to a one-month low. Japan Tobacco shed 2.8% due to lingering concerns regarding the cigarette market in Russia.
Hong Kong’s Hang Seng (-0.4%) slipped off four-month highs. Property names saw a mixed session as China Overseas Land & Investment gained 2.3% and Sun Hung Kai Properties lost 1.9%.
China’s Shanghai Composite (-0.4%) held near five and a half-year highs. Financials outperformed as Agricultural Bank of China added 1.9% and ICBC gained 1.5%.
India’s Sensex (-0.3%) held the 100 dma. Metals names were pressured as Sesa Sterlite and Hindalco Industries tumbled 8.1% and 6.3%, respectively.
Australia’s ASX (-1%) fell back below the 50 and 100 dma. Heavyweight miners were a drag as BHP Billiton shed 2.8% and Rio Tinto sank 3.3%.
Regional Decliners: Indonesia -1.1%…Thailand -0.8%…Taiwan -0.6%…Singapore -0.5%…South Korea -0.2%
Regional Advancers: Philippines +1.2%
Fx: USDCNY ticked up to 6.1974…USDINR edged up to 62.15…USDJPY -90 pips @ 117.00…AUDUSD -40 pips @ .8125
EUROPE
Major European indices trade lower across the board with UK’s FTSE (-2.2%) pacing the slide. The European Court of Justice ruled that European Central Bank’s OMT program is in-line with the EU Treaty, but some conditions may have to be met. Also of note, Italy’s President Giorgio Napolitano has stepped down, but the market saw this coming for quite a while.
Eurozone Industrial Production rose 0.2% month-over-month, as expected, while the year-over-year reading fell 0.4% (consensus -0.8%; previous 0.8%)
French CPI rose 0.1% month-over-month (expected 0.0%; previous -0.2%) while the Current Account swung from a deficit of EUR900 million to a surplus of EUR200 million
Italy’s CPI was unchanged month-over-month and year-over-year, as expected
UK’s CB Leading Index slipped 0.3% month-over-month (previous -0.3%)
CLOSING PRICES
UK’s FTSE: -2.4%
Germany’s DAX: -1.3%
France’s CAC: -1.6%
Spain’s IBEX: -1.2%
Portugal’s PSI: + 1.4%
Italy’s MIB Index: -1.6%
Irish Ovrl Index: -1.2%
Greece ASE General Index: -1.9%
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.
MBA Mortgage Index (07:00) : 49.1% (Prior 11.1%)
Retail Sales (08:30) : -0.9% vs 0.1% (Prior 0.4%▼)
Retail Sales ex-auto (08:30) : -1.0% vs 0.1% (Prior 0.1%▼)
Export Prices ex-agri (08:30) : -1.2% (Prior -1.0%▲)
Import Prices ex-oil (08:30) : -0.1% (Prior -0.3%▼)
Business Inventories (10:00) : 0.2% vs 0.3% (Prior 0.2%)
Crude Inventories (10:30) : 5.389M (Prior -3.062M)
Fed’s Beige Book (14:00)
RETAIL SALES
Highlights
Retail sales fell 0.9% in December after increasing a downwardly revised 0.4% (from 0.7%) in November. The Briefing.com Consensus expected retail sales to increase 0.1%.
Excluding motor vehicles, sales declined 1.0% after increasing a downward revised 0.1% (from 0.5%) in November. The consensus expected these sales to increase 0.1%.
Key Factors
The sharp pullback in sales was a direct result of poor income growth. The December employment report showed a contraction in the average hourly wage, which – after accounting for payroll gains – resulted in flat aggregate income growth.
Without income growth, the only way for sales to improve was for consumers to dip into their savings. Households have been very reluctant to do so, which meant retail sales were poised for a pullback in December.
Motor vehicle sales declined 0.7% in December after increasing 1.6% in November. That drop was in-line with the pullback in unit sales reported by the motor vehicle manufacturers last week.
A large portion of the decline in retail demand was due to lower gasoline prices. Sales at gasoline stations declined 6.5% in December after declining 3.0% in November.
Core sales – which exclude motor vehicle dealers, building materials and supply stores, and gasoline stations – declined 0.2% in December after increasing 0.5% in November.
Big Picture
Consumption growth requires income growth. Flat income growth in December resulted in a sharp pullback in retail sales.
BUSINESS INVENTORIES
Highlights
Business inventories increased 0.2% in November after increasing by the same amount in October. The Briefing.com Consensus expected business inventories to increase 0.3% in November.
Key Factors
The changes in inventories for manufacturers (0.1%) and merchant wholesalers (0.8%) were known prior to the release. The only piece of new information was that retailer inventories declined 0.3% in November after being flat in October.
The drop in retailer inventories was primarily the result of a 1.2% decline in motor vehicle and parts inventories and a 0.4% decline in building materials and supply stores.
Total business sales declined 0.2% in November after declining 0.3% in October. Declines from manufacturers (-0.6%) and wholesalers (-0.3%) offset a 0.4% increase in retailer sales.
The inventory-to-sales ratio remained at 1.31 for a second consecutive month.
Big Picture
Business inventories include wholesale inventories, manufacturing inventories, and retail inventories. Inventories are a component of GDP, and thus are of interest to economists, but the financial markets don’t pay much attention to this release. Over the long term, the inventory-to-sales ratio has been declining, due to improving techniques for inventory management.
Technical Analysis
DOW JONES INDUSTRIAL AVERAGE
17427.09 -186.59 (-1.06%)
Volume: 109,180,530 (above average of 89,132,295)
Range: 17,264.90 – 17,609.06
NASDAQ COMPOSITE
4639.32 -22.17 (-0.48%)
Volume: 531.4M (above average of 459.8M)
Range: 4,595.98 – 4,655.37
S&P500 INDEX
2011.27 -11.76 (-0.58%)
Volume: 673.0M (above average of 519.5M)
Range: 1,988.44 – 2,018.40
All 3 indices sport candlestick patterns suggesting a short-term bounce ahead. In fact, the 3 indices took a bounce off the 61.8% green fibonacci.
However, the lower and lower highs aren’t encouraging, and suggest a break below the 61.8 level.
Market Internals
NYSE:
Higher Volumes than the day before – 928.6M vs 875.9M
Decliners outpaced Advancers (adv/dec): 1235 / 1881
New Lows outpaced New Highs (highs/lows): 132 / 218
NASDAQ:
Lower Volumes than the day before – 2058.5M vs 2153.6M
Decliners outpaced Advancers (adv/dec): 1004 / 1755
New Lows outpaced New Highs (highs/lows): 51 / 142
VOLATILITY S&P500 (VIX)
21.48 +0.92 (+4.47%)
Decliners outpaced Advancers by 1.62 on lower volumes than the day before (-42.40M -1.40%).
Internals lead a lot to the bearish end of things, and considering that the price action was not outright bearish, that seems to suggest a stronger bear underlying the market. The volumes also suggest a lack of interest among the bulls.
The VIX seemed to suggest some slight relaxation, but note that it remains elevated… which isn’t good.
Treasury Bonds, Currencies & Commodities
from Briefing.com
Treasury Bonds
30Y Closes at 2.451%, Lowest on Record:
Treasuries gained for the 13th time in 14 days.
The complex held small gains into the cash open and raced to its best levels of the day as retail sales (-0.9% actual v. +0.1% expected) and retail sales ex-auto (-1.0% actual v. +0.1% expected) both missed estimates by a wide margin.
Business inventories (0.2% actual v. 0.3% expected), export prices ex-ag (-1.2%), and import prices ex-oil (-0.1%) also posted uninspiring results.
Yields would bottom as the data was digested and spend the remainder of the session in a steady climb higher.
Up front, the 2Y fell -5.2bps to 0.485%. Support at the level dates back to Halloween.
In the belly, the 5Y eased -5.6bps to 1.303%. The yield finished on the 50 mma while posting its lowest close since October 2013.
The 10Y ended -5.3bps @ 1.837%. The benchmark yield broke below the October 15 panic low and settled at levels last seen in May 2013.
Buying at the long end pressured the 30Y lower by -3.1bps to 2.451%. The yield on the long bond broke below 2.400% early and managed to close at a record low.
Little change along the curve saw the 2-10-yr spread hold near 135bps.
2Yr 0.51 (-0.03), 5Yr 1.33 (-0.04), 10Yr 1.86 (-0.01), 30Yr 2.47 (-0.02)
2/10 Spread: 135bps (-2); 2/30 Spread: 196bps (+1)
Currencies
Dollar Struggles Near 92.30:
The Dollar Index has reclaimed the 92.00 level, but remains in negative territory.
Early buying once again failed at the 92.30 level as action pressed to session lows near 91.60 in response to this morning’s weak retail sales data.
EURUSD is +15 pips @ 1.1785 as buyers look to put in the first gain in three days. The single currency saw early selling pressure trade to a fresh nine-year low of 1.1727 after the ECJ ruled the ECB’s OMT program was acceptable, but has come off that level after US retail sales disappointed. The January 22 ECB meeting that will potentially announce a European QE and the January 25 Greek election remain key drivers in the days ahead. Tomorrow, German Bundesbank head Jens Weidmann gives his 2015 outlook.
GBPUSD is +70 pips @ 1.5225 as trade lifts to a one-week high. Support in the 1.5100 area has held up for the past week, causing some to turn their focus towards 1.5500 resistance.
USDCHF is -5 pips @ 1.0195. A lack of news and data out of Switzerland has kept action tightly tethered to the euro.
USDJPY is -70 pips @ 117.20 as trade presses lower for a fourth straight day. Early selling tested the 116.00 support level, but support dating back to mid-November was able to hold. Japan’s core machinery orders are due out this evening.
AUDUSD is -25 pips @ .8140. The hard currency probed the important .8100 level early, but managed to fight its way back to the flat line amid this morning’s dollar weakness. However, sellers were not able to run action back into positive territory, causing many to look back towards .8100 support. Australian data set for tonight includes employment change and the unemployment rate.
USDCAD is +15 pips @ 1.1970 as trade fights to close at its best level in six years. The psychologically important 1.2000 level was breached early, but a close above it looks unlikely barring a late-day surge from the bulls.
Commodities
Closing Commodities: Crude Oil And Natural Gas Post Big Gains; WTI Crude Almost Hits $49/barrel In Electronic Trade
Natural gas futures surged higher today and have extended gains in electronic trading
Nat gas closed today’s session, but is now over 11% higher
WTI crude oil made a strong recovery off of today’s lows. Near the end of today’s pit trading session, crude gained some steam and rallied higher
Feb crude almost hit $49/barrel. At the end of the session earlier, Feb crude finished +6% at $48.55/barrel
Feb nat gas closed 10% higher at $3.23/MMBtu
Feb gold rose $1.20 higher to $1235/oz, while Mar silver lost $0.14 to $16.9/oz.
Energy Price Action
Feb crude oil rose $2.63/barrel (or +5.7%) to $48.55/barrel
Natural gas rose 28 cents (or +9.5%) to $3.23/MMBtu
RBOB Gasoline closed 8 cents higher to $1.35/gallon
Heating oil rose 3 cents to $1.66/gallon
Agricultural Price Action
Mar corn closed $0.04 lower at $3.82/bushel
Mar wheat fell $0.10 cents to $5.38/bushel
Feb soybeans ended $0.06 higher at $10.11/bushel
Ethanol closed $0.08 lower at $1.33/gallon
Sugar #11 rose 0.06 cents to 14.93 cents/gallon
Metals Price Action
Feb gold ended today’s session $1.20 higher at $1235/oz
Mar silver ended $0.14 lower higher at $16.99/oz
Mar copper closed $0.13 lower (or -4.9%) to $2.51/lb
Preview: Wednesday 14 Jan 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.
Initial Claims (08:30) : 293K (Prior 294K)
Continuing Claims (08:30) : 2400K (Prior 2453K)
PPI (08:30) : -0.4% (Prior -0.2%)
Core PPI (08:30) : 0.1% (Prior 0.0%)
Empire Manufacturing (08:30) : 7.0 (Prior -3.6)
Philadelphia Fed (10:00) : 19.0 (Prior 24.3)
Natural Gas Inventories (10:30) : Prior -131bcf
Corporate Earnings
BMO : BAC BLK C FAST FRC HOMB IIIN LEN PPG TSM WNS
AMC : OZRK INTC PBCT SLB WTFC
Other Events of Interest
Fed/Treasury/Political Events
None
Economic Events
China FDI – 21:00
Commentary
Today’s session isn’t convincing of the bullish momentum, but neither is it convincing of the bearish movement. I reckon we might get some consolidation moving forward, which should put us in an up-down-up-down scenario.
The next session is likely to see some follow-through bullishness, but I’m not being very optimistic.
Direction for Thursday 15 Jan 2015: UP▲
Daily Directional Accuracy: 7/8 (87.50%)
Weekly Directional Accuracy: 1/1 (100.00%)