DOW 17122.01 +15.31 (+0.09%), NASDAQ 4569.62 -1.02 (-0.02%),
S&P500 2000.12 +0.10 (+0.01%)
Looming ahead on Thursday is the revised GDP number. I’m expecting tomorrow to either see profit-taking ahead of the GDP release, or an extremely flat day. I suspect the former. The fact that there isn’t any data tomorrow should give the market the opportunity to profit-take prior to the GDP number.
Direction for Wednesday 27 Aug: DOWN▼
I did say we’ll get an extremely flat day. Boy that was an utterly flat day… Despite a late “sell-off” in the afternoon session, the market managed to climb back to it’s approximate flatlines. Volumes also picked up in the last hour of the day, suggesting that there was an increase in profit-taking/defensive posturing ahead of the GDP number tomorrow.
Defensive plays took front and centre position as bonds rallied while the VIX rose a pint. The Treasury 30-year bond has hit its lowest yield since May 2013. Interestingly, the dollar dropped – but that is more likely due to action in Europe as a supposed “insider” source indicated that the ECB was not taking any action at their next meeting.
Market Summary
Industry Watch
Weak: Consumer Staples, Energy, Financials
Other Market Moving Factors
Retailers Brown Shoe (BWS), Express (EXPR), and Tiffany & Co (TIF) report better than expected earnings
Below-average participation expected after first two sessions of the week generate two lowest NYSE volume totals of the year
[BRIEFING.COM] The major averages ended the midweek session on a flat note after spending the day inside narrow ranges. The S&P 500 hovered near the 2,000 mark for the majority of the trading day, but slumped to new lows during the last hour of action. The index then returned to its flat line, where it settled for the day. For the third day in a row, participation left a lot to be desired with just 487 million shares changing hands at the NYSE.
Equity indices opened with slim gains, but were quick to return to their flat lines as most sectors traded little changed. Two countercyclical groups—telecom services (+0.5%) and utilities (+1.0%)—held gains throughout the day, but neither had much say over the direction of the broader market.
Meanwhile, influential sectors like consumer discretionary (+0.1%), financials (-0.2%), health care (unch), and technology (-0.1%) ended mixed with respect to the S&P 500.
Retailers contributed to the relative strength of the discretionary sector following better than expected quarterly results from Brown Shoe (BWS 29.90, -1.47), Express (EXPR 16.45, +1.86), and Tiffany & Co (TIF 101.75, +0.98). For its part, the SPDR S&P Retail ETF (XRT 89.47, +0.30) advanced 0.3%.
Elsewhere, the health care space displayed intraday strength, but finished in line with the market. Biotechnology contributed to the early outperformance, but the iShares Nasdaq Biotechnology ETF (IBB 275.06, -0.65) settled lower by 0.2% after soaring 9.6% over the past two weeks.
Similar to health care, the top-weighted sector—technology—also showed intraday strength prior to an afternoon retreat. Even though the sector ended in the red, its largest component—Apple (AAPL 102.13, +1.24)—climbed 1.2% amid speculation the company will reveal a wearable device at an event scheduled for September 9.
While equities ended little changed, there was some activity in the foreign exchange market. This morning, the euro/dollar pair jumped from 1.3170 to 1.3210 in reaction to reports suggesting the European Central Bank is unlikely to take action at next week’s policy meeting. The comments were attributed to ECB sources and followed earlier speculation that ECB President Mario Draghi may announce a quantitative easing program at the upcoming meeting. The single currency traded near the 1.3195 level at the end of the New York session.
Treasuries settled near their highs with the 10-yr yield down four basis points at 2.36%. More notably, the 30-yr bond rallied to send its yield lower by six basis points to 3.11%, representing the lowest close since May of last year.
Economic data was limited to the weekly MBA Mortgage Index, which rose 2.8% to follow last week’s uptick of 1.4%.
Global Markets
Asia
It was a sea of green across Asia as all of the major bourses, aside from Hong Kong’s Hang Seng, finished in positive territory
Australia’s construction work done (-1.2% QoQ actual v. -0.4% QoQ expected) missed estimates
Japan’s Nikkei (+0.1%) inched higher amid a muted trade
Hong Kong’s Hang Seng (-0.6%) slid further off six-year highs
China’s Shanghai Composite (+0.1%) gained for the first time in three days
India’s Sensex (+0.4%) closed at a record high
Australia’s ASX (+0.2%) finished at its best level in six years
Europe
UK’s FTSE: + 0.1%
Germany’s DAX: -0.2%
France’s CAC: + 0.0%
Spain’s IBEX: + 0.1%
Portugal’s PSI: + 2.0%
Italy’s MIB Index: + 0.6%
Irish Ovrl Index: + 0.7%
Greece ASE General Index: + 0.0%
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.
MBA Mortgage Index – 07:00 : 2.8% (Prior 1.4%)
Crude Inventories – 10:30 : -2.070M (Prior -4.474M)
Ticker News
from Briefing.com
HEADLINE NEWS
Apple (AAPL) to introduce thinner MacBook in Q4, according to reports
Allergan (AGN) to request California Federal Court block Valeant (VRX) and Pershing Square from voting shares acquired in violation of insider trading laws
Bristol-Myers (BMY): European Commission approves Daklinza across multiple genotypes for the treatment of chronic Hepatitis C infection
Covidien (COV) investor has filed lawsuit to block Medtronic (MDT) deal, according to report
Roper Inds (ROP) announced that it has acquired Strategic Healthcare Programs, LLC and Innovative Product Achievements, LLC; co expects transactions to be accretive to earnings in 2015
Samsung Elect (SSNLF) to supply DRAM to Apple (AAPL) for iPhone 6, according to reports
St. Jude Medical (STJ) resolves FDA warning letter for Plano facility
EARNINGS/GUIDANCE
Analog Devices (ADI) reports EPS in-line, beats on revs; guides Q4 EPS in-line, revs in-line
Brown-Forman (BF.B) misses by $0.02, misses on revs; reaffirms FY15 guidance
Chico’s FAS (CHS) misses by $0.06, misses on revs
Express (EXPR) beats by $0.08, beats on revs; guides Q3 EPS in-line; raises FY15 EPS above consensus; reaffirms FY15 comp guidance; Q2 comps -5%
Michaels Stores (MIK) beats by $0.06, reports revs in-line; guides 2H15 EPS in-line
Smith & Wesson (SWHC) beats by $0.01, misses on revs; Q2 guidance well below consensus; lowers FY15 guidance
Tiffany & Co (TIF) beats by $0.11, reports revs in-line; raises FY15 EPS to in-line, reaffirms revs guidance
TiVo (TIVO) beats by $0.01, misses on revs; guides Q3 rev midpoint below consensus
Yingli Green Energy (YGE) misses by $0.13, misses on revs; lowers FY14 shipment guidance
ANALYST ACTIONS
Upgrades
Tim Hortons (THI) upgraded to Neutral from Underperform at Credit Suisse
Waste Mgmt (WM) upgraded to Buy at Stifel; tgt $55
Downgrades
Scotiabank (BNS) downgraded to Neutral from Outperform at Credit Suisse
Facebook (FB) downgraded to Neutral from Buy at Janney
Sturm Ruger (RGR) downgraded to Fair Value from Buy at CRT Capital; tgt lowered to $55 from $75
Tim Hortons (THI) downgraded to Sector Perform from Sector Outperform at CIBC; downgraded to Mkt Perform from Outperform at Raymond James
Other
Bristol-Myers (BMY) initiated with a Hold at Deutsche Bank; tgt $52
Eli Lilly (LLY) initiated with a Buy at Deutsche Bank; tgt $71
Merck (MRK) initiated with a Hold at Deutsche Bank; tgt $63
Oracle (ORCL) initiated with a Neutral at DA Davidson; tgt $46
Pfizer (PFE) initiated with a Buy at Deutsche Bank; tgt $34
Technical Analysis
Range: 17090.61 – 17134.60
NASDAQ COMPOSITE
4569.62 -1.02 (-0.02%)
Volume: 335.6M (below average of 439.0M)
Range: 4561.84 – 4575.82
Range: 1996.20 – 2002.14
Suffice to say, all three indices remain under their technical resistance levels.
Market Internals
New Highs outpaced New Lows (highs/lows): 150 / 5
New Highs outpaced New Lows (highs/lows): 88 / 16
VOLATILITY S&P500 (VIX)
11.78 +0.15 (+1.29%)
Advancers outpaced Decliners by 1.03 on lower volumes than the day before (-70.9M -3.66%).
And the VIX begins its upward movement. Will this develop into a spike? It’s still difficult to say. But there’s a good chance.
The low volumes characteristic of this market continues to persist as this week literally drags on…
Treasury Bonds, Currencies & Commodities
from Briefing.com
Treasury Bonds
30Y Closes at 3.109%, Lowest Since May 2013: 10-yr: +09/32..2.361%..USD/JPY: 103.86..EUR/USD: 1.3196
A late-day rally lifted Treasuries to session highs into the cash close. Click here to see an intraday yields chart.
Today’s bid was supported by the large decline in European yields, which caused investors to seek the higher yielding U.S. paper.
The complex drifted in a tight 3bp range for most of the session with some initial selling taking hold following the slightly better than average $35 bln 5Y note auction.
The auction drew 1.646% and a solid 2.81x bid/cover. A strong indirect bid (52.7%) provided support as the direct bid (10.8%) was light. Primary dealers ended up with 36.5% of the supply.
Buyers would emerge near the lowest levels of U.S. trade and run action to the highs ahead of the close.
Up front, the 2Y rallied +2bps to 0.516% and is within a couple bps of its highest close since May 2011.
In the belly, the 5Y eased -1.8bps to 1.638%. The yield remained near resistance in the area that is defended by both the 50 and 100 dma.
The 10Y fell -3bps to 2.361%.The benchmark yield finished within 2bps of its lowest close in more than 13 months.
At the long end, the 30Y sank -4.3bps to 3.109%. The yield on the long bond settled at its lowest level since May 2013.
A flatter curve persisted with the 2-10-yr spread narrowing to 184.5bps.
2Yr 0.51 (-0.01), 5Yr 1.65 (-0.03), 10Yr 2.37 (-0.02), 30Yr 3.11 (-0.04)
2/10 Spread: 186bps (-1); 2/30 Spread: 260bps (-3)
Currencies
Dollar Slides Off One-Year Highs: 10Y: +09/32..2.367%..USD/JPY: 103.92..EUR/USD: 1.3195
The Dollar Index presses session lows near 82.40 as trade slides off its best levels in a year. Click here to see a daily Dollar Index chart.
Today’s weakness has the greenback lower for just the second time in eight days.
EURUSD is +30 pips @ 1.3200 as trade attempts to stabilize at the level. The single currency tested the 1.3150 level in early trade, but saw some intraday buying after German Finance Minister Wolfgang Schaeuble suggested markets had overreacted to Mario Draghi’s Jackson Hole speech. A sustained bounce will see 1.3250 act as the first level of resistance. Eurozone data is heavy tomorrow as M3 money supply, private loans, and Spanish Flash CPI accompany Preliminary CPI and unemployment change readings from Germany.
GBPUSD is +40 pips @ 1.6580 as trade attempts to put in its first meaningful gain in over a week. Sterling saw an early test of 1.6600, but was once again unable to reclaim the level. British data scheduled for tomorrow is limited to CBI Realized Sales.
USDCHF is -30 pips @ .9145 as trade slides off eight-month highs in response to the strength in the euro. Minor support in the .9140 area will be watched into tomorrow’s employment level report.
USDJPY is -20 pips @ 103.90 as selling takes hold for just the second time in 13 sessions. Action has struggled to take the 104.00 level over the past couple of sessions, and will likely test 103.00 on a breakdown of 103.60.
AUDUSD is +25 pips @ .9335 as trade contends with its best close in a month. The hard currency has found a bid despite the construction work done miss, and is now testing resistance near .9340 that is defended by the 100 dma. Australia’s private capital expenditure is due out tonight.
USDCAD is -100 pips @ 1.0855 as trade breaks down to a one-month low. The weakness that began yesterday is being attributed to the Burger King/Tim Horton’s deal. Canada’s current account balance will be released tomorrow.
Commodities
Closing Commodities: Crude and natural gas erase losses; Oct crude closed just under $94
The dollar index remained in the red all day, which helped provide some price strength in select commodities
Crude oil climbed off its LoD to recover its losses earlier today. Oct crude finished 4 cents higher at $93.89/barrel
Natural gas traded in a similar way as well, ended the day 5 cents higher at $4.00/MMBtu
Gold consolidated after a mild sell-off and ended $1.90 lower at $1283.50/oz. Sept silver closed 2 cents higher at $19.41/oz
Sept copper lost 1 cent to $3.18/lb.
NYMEX Energy Closing Prices
Oct crude oil rose $0.04 to $93.89/barrel
Sep natural gas rose 5 cents to $4.00/MMBtu
Oct heating oil rose 1 cent to $2.86/gallon
Oct RBOB fell 2 cents at $2.58/gallon
CBOT Agriculture and Ethanol/ICE Sugar Closing Prices
Sep corn rose 1 cent to $3.56/bushel
Sep wheat rose 6 cents to $5.47/bushel
Nov soybeans fell 5 cents to $10.23/bushel
Sep ethanol rose 3 cents to $2.16/gallon
Nov sugar (#16 (U.S.)) fell 0.37 of a penny (or 1.4%) to 25.63 cents/lb
COMEX Metals Closing Prices
Dec gold fell $1.90 to $1283.50/oz
Sep silver rose $0.02 to $19.41/oz
Sep copper fell 1 cent to $3.18/lb
Preview: Thursday 28 Aug
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 : 302K (Prior 298K)
Continuing Claims – 08:30 : 2520K (Prior 2500K)
GDP – 2nd Est – 08:30 : 4.0% (Prior 4.0%)
GDP Deflator – 2nd Est – 08:30 : 2.0% (Prior 2.0%)
Pending Home Sales – 10:00 : 0.5% (Prior -1.1%)
Natural Gas Inventories – 10:30 : Prior 88bcf
Corporate Earnings
ANF ARX CSTM COCO COTY DXLG DG FRO GCO IKGH DATE PLL SIG TD
ADES ANFI AVGO EGAN FRED UEPS NQ OVTI PSUN RALY SPLK VEEV ZOES
Other Events of Interest
Fed/Treasury/Political Events
7-Year $29bln Treasury Note Auction – 13:00
Economic Events
Eurozone Unemployment – 04:00
Eurozone Consumer Confidence – 04:00
Germany CPI – 04:00
Japan CPI & Industrial Production – 18:00
Analyst/Investor Meetings
AMERCO 8th Annual Virtual Analyst & Investor Meeting
Iron Mountain Inc Analyst Day – 14:30 LT
Commentary
Today’s session confirms that the market awaits the GDP number. And they aren’t very confident about it. A strong run into tomorrow would indicate confidence, but we got the opposite instead – profit-taking and defensive posturing.
That doesn’t give us much optimism about tomorrow’s number. The market will be looking for a confirmation of the 4% growth posted last month. Any growth should result in profit-taking as we saw the last time. Any decline will result in panic selling. Of course… nothing’s for certain and there are many factors in play here.
Tomorrow is also the 2nd last trading day of August, and is reliably bearish.
Direction for Thursday 28 Aug: DOWN▼
Daily Directional Accuracy (from 14 May 2014): 45/72 (62.50%)
Weekly Directional Accuracy (from 16 May 2014): 8/14 (57.14%)