DOW 17078.28 +10.72 (+0.06%), NASDAQ 4572.57 -25.62 (-0.56%),
S&P500 2000.72 -1.56 (-0.08%)
Woeful volumes continue to plague the market and we’re likely going to have these wild intraday swings. But it’s always easier to send the market down – which is what September is known for. Today’s only the first day and we’ve seen the lack of bullish conviction in fighting back. I can’t imagine this market breaking higher highs on these September volumes.
Attention tomorrow will turn overseas as the Eurozone reports their GDP. With the Eurozone in its current state, I am doubtful on the data. Let’s also not forget the Fed Beige Book that will be released at 2pm ET.
The next four days following the first day of September are reliably bearish. That should suffice for the rest of the week.
Direction for Wednesday 3 Sep: DOWN▼
I apologise for the mistake on the economic calendar for the Eurozone GDP. Briefing.com reported the incorrect date. The actual date should be 5 Sep 14.
The market had a lot to chew on in terms of news. Ukraine and Russia seemed to agree on a ceasefire – at least, that’s what we’re hearing. Russian President Putin didn’t seem to be too enthusiastic about it however, stating that it’s only a peace understanding. European Services PMIs generally expanded, while Retail Sales disappointed.
On the homefront, U.S. Manufacturing disappointed yet again, with a large number of the Factory Orders report attributed to Boeing Co (BA). Minus that though, and it was a disappointing report. And the Fed Beige Book didn’t reveal anything new in particular.
Ultimately, today’s session developed vaguely similar to yesterday’s. The market opened higher, but couldn’t capitalise on the opening gains and thus opened to a whole lot of profit-taking. Ahead of a busy economic calendar over the next two days, we also saw some defensive positioning in the VIX, bonds, gold, and the market sectors.
Of interest to note – the Russell 2000 and NASDAQ led the broader market lower. That differs from yesterday, where both indices closed higher. You might attribute the sell-off in the NASDAQ to AAPL, but the Russells? There’s something definitely deeper than just AAPL.
Market Summary
from Briefing.com
Industry Watch
Weak: Information Technology, Consumer Discretionary, Financials
Other Market Moving Factors
Talk of a possible cease-fire between Ukraine and Russia
China reports uptick in Services PMI for July; Germany, Italy, and France report downticks in Services PMI reports
Waiting on Bank of Japan, Bank of England, and ECB policy meetings on Thursday
Weak showing from Apple, which is down on profit taking
[BRIEFING.COM] The stock market had difficulty getting anything going on Wednesday as a wait-and-see stance permeated the trading action. That was understandable given some confusing headlines about cease-fire talk between Ukraine and Russia, Apple (AAPL 98.94, -4.36) suffering a 4.2% decline in its stock price, and the specter of policy meetings by the Bank of Japan, the Bank of England, and the ECB on Thursday.
The way things ended on Wednesday was pretty much how they went throughout the day. That is, the Dow (+0.1%) and S&P 500 (-0.1%) held up better than the Nasdaq Composite (-0.6%) and Russell 2000 (-0.6%).
Things sounded more promising before the open when there was talk of a “permanent” cease-fire agreement between Ukraine and Russia. That report, however, got shot down (no pun intended) by the Kremlin, which shrewdly countered that it could not have agreed to such a thing when it is not a party to the conflict in eastern Ukraine.
Ukraine itself subsequently clarified that there was a mutual understanding as to the steps that need to be taken to contribute to the establishment peace. In other words, no one is sticking daisies in their gun barrels just yet. That clarification helped dampen the bullish enthusiasm seen in the overnight trade and it enabled the Treasury market to bounce back from early losses.
Nonetheless, the major indices did start the day on an upbeat note. The S&P 500 established a new intraday high at 2009.35… and then it ran into a wall of resistance when Apple rolled over in a profit-taking spree catalyzed by the analyst at Pacific Crest Securities who suggested taking some profits ahead of the company’s new product announcements on September 9.
It is worth noting, too, that rival Samsung unveiled its latest smartphones today, highlighting for all to see that the competitive landscape in the industry is sure to remain challenging.
Apple’s losses weighed heavily on the information technology sector (-0.7%), which in turn weighed on the broader market.
Things could have been worse if not for the relative strength exhibited by the health care (+0.3%) and energy (+0.3%) sectors. The former garnered support from large-cap pharmaceuticals like Merck (MRK 60.48, +0.69), Abbot Labs (ABT 42.76, +0.53), and Eli Lilly (LLY 64.15, +0.47), while the latter sector rebounded on the back of crude oil prices.
Crude futures, which fell 3.2% on Tuesday, bounced 2.6% on Wednesday to $95.33, aided by some weakness in the dollar.
The best-performing sector on Wednesday was the utilities sector (+0.6%), which drafted off the comeback waged by longer-dated Treasuries. At one point, the yield on the 10-yr note hit 2.46%, but it started to come back down after Russia basically said “nyet” to the cease-fire news, and as the stock market failed to sustain its opening rally effort. The 10-yr note settled the day up six ticks with its yield at 2.40%.
The debt markets promise to be a hotbed of activity on Thursday as participants digest the latest policy pronouncements out of Japan, England, and the ECB. The ECB is getting top billing ahead of time as the market is anxious to hear if any additional stimulus will be provided.
Thursday will also produce a raft of economic data that includes the ADP Employment Change, initial Claims, Trade Balance, Q2 Productivity, and ISM Services reports.
Today’s data didn’t sway things one way or another.
Factory orders rose 10.5% in July, which was slightly below the Briefing.com consensus estimate of 11.0%, yet any disappointment was tempered by the upward revision for June to 1.5% from 1.1%. Auto sales, meanwhile, hit an annual run rate of 17.5 million units in August. That was the best August in eight years, yet there were some rumblings about sales being driven by increased discounts and aggressive financing offers.
In any case, both Ford (F) and General Motors (GM) traded down in the wake of the August sales reports.
Separately, homebuilder Toll Brothers (TOL 33.95, -1.68) had a tough day following its latest earnings report, and so did Delta (DAL 38.82, -2.11), which cut its passenger unit revenue guidance for the third quarter to 2-3% from 2-4%. With the central bank meetings on Thursday, corporate headlines are expected to take a backseat once again as a market driver.
Global Markets
Asia
Markets rallied across Asia, supported by the strong Chinese Non-Manufacturing PMI (54.4 actual v. 54.2 previous) and HSBC Services PMI (54.1 actual v. 50.0 previous) numbers
Australia’s GDP (0.5% QoQ actual v. 0.4% QoQ expected) topped estimates, and RBA Governor Glenn Stevens warned of a potential housing bubble down under
Japan’s Nikkei (+0.4%) finished at its best levels since the end of September, supported by the weaker yen
Hong Kong’s Hang Seng (+2.3%) surged to a more than six-year high
China’s Shanghai Composite (+1.0%) gained for a fourth straight day and finished at its best level since June 2013
India’s Sensex (+0.5%) closed at an all-time high
Australia’s ASX (UNCH) held at six-year highs
Europe
UK’s FTSE: + 0.7%
Germany’s DAX: + 1.3%
France’s CAC: + 1.0%
Spain’s IBEX: + 1.2%
Portugal’s PSI: + 1.0%
Italy’s MIB Index: + 1.9%
Irish Ovrl Index: + 1.3%
Greece ASE General Index: + 1.1%
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.
MBA Mortgage Index – 07:00 : 0.2% (Prior 2.8%)
Factory Orders – 14:00 : 10.5% vs 11.0% (Prior 1.5%▲)
Fed Beige Book – 14:00
Auto Sales – 14:00 : Prior 5.8M
Truck Sales – 14:00 : Prior 7.4M
FACTORY ORDERS
Highlights
Factory orders increased 10.5% in July following an upwardly revised 1.5% (from 1.1%) gain in June. The Briefing.com consensus expected factory orders to increase 11.0%.
Key Factors
As last week’s durable goods report already showed, the unusually large increase in factory orders was not a result of strong improvement in overall manufacturing demand. Instead, it was due an extreme, and likely one-time, bias in the aircraft sector.
Record sales from Boeing (BA) resulted in a 317.3% increase in orders of nondefense aircraft and parts. That resulted in a 22.6% increase in durable goods orders, which were unrevised from the advance release and up from a 2.7% gain in June.
Outside of the aircraft industry, manufacturing demand was notably lower. Stripping out transportation, factory orders fell 0.8% in July after increasing 1.4% in June. Orders of durable goods excluding transportation fell 0.7% in July, which was slightly better than the 0.8% decline reported in the advance release.
Orders of nondurable goods fell 0.9% in July after increasing 0.4% in June. Much of that decline was caused by a 3.2% drop in petroleum and coal product orders.
Demand for nondefense capital goods excluding aircraft was revised lower, falling 0.7% (from -0.5%) in July after increasing 5.4% in June. Shipments of these goods, which factor into GDP, were also revised down to a 1.4% gain from 1.5%.
Big Picture
A huge increase in aircraft orders masked an otherwise poor manufacturing report.
FED BEIGE BOOK
Reports from the twelve Federal Reserve Districts indicated that economic activity has expanded since the previous Beige Book report; however, none of the Districts pointed to a distinct shift in the overall pace of growth. The New York, Cleveland, Chicago, Minneapolis, Dallas, and San Francisco Districts characterized their growth rates as moderate; Philadelphia, Atlanta, St. Louis, and Kansas City reported modest growth. Boston reported that business activity appeared to be improving, and Richmond reported further strengthening.
Philadelphia, Atlanta, Chicago, Kansas City, and Dallas explicitly reported that contacts in their Districts generally remained optimistic about future growth; most of the other Districts cited various examples of ongoing optimism from specific sectors.
General consumer spending grew in most Districts at rates ranging from slight to moderate, with few changes in the pace of growth compared with the last Beige Book. Most Districts reported a continued expansion of auto sales, noting record-high levels for several markets within the Philadelphia and Dallas Districts; however, in some parts of the New York and Philadelphia Districts sales began to fall back from their relatively high levels.
Activity among nonfinancial service sectors improved overall.
District reports on manufacturing were mixed–divided almost evenly into one of three characterizations of the sector’s activity: expanding, contracting, or unchanged. Among Districts reporting on their firms’ near-term expectations, the manufacturing outlook remained generally upbeat, with New York, Philadelphia, Richmond, and Atlanta reporting increased optimism.
Since the previous Beige Book, residential real estate activity, particularly sales of existing homes and construction of new homes, generally expanded or held steady in about half of the Districts. About half of the Districts also reported some growth in construction and in sales or leasing of nonresidential properties.Overall, loan demand rose in eight Districts and held steady in one. Credit standards were largely unchanged.
Reports regarding farm products were mixed; for some crops, high anticipated harvests have put downward pressure on prices and expected farm incomes. Generally, oil and gas production and demand for related activities continued to edge up from already high levels, while total coal production mostly held steady.Trends in employment, wages, and prices were relatively unchanged in the Federal Reserve Districts, with greater wage pressures reported in sectors where shortages of skilled labor persisted.
Ticker News
from Briefing.com
HEADLINE NEWS
Abercrombie & Fitch (ANF) CEO pay lawsuit has been resolved, according to reports
Akamai Tech (AKAM) warns of IptabLes and IptabLex infection on Linux, DDoS attacks; Linux systems infiltrated and controlled in a DDoS botnet
Apple (AAPL) iPhone 6 pre-orders begin at China Mobile (CHL) website, according to reports
Baker Hughes (BHI) closes previously announced acquisition of Weatherford’s (WFT) pipeline and specialty services business
CVS Caremark (CVS) confirms that it is changing its corporate name to CVS Health and will end tobacco sales on September 3, ahead of October 1 target date
General Dynamics (GD) UK awarded GBP3.5 bln to deliver 589 SCOUT SV platforms to the British Army
General Electric (GE) announces FDA approval of SenoClaire, new breast imaging with 3D Tomosynthesis Solution
Infinity Pharmaceutical (INFI) and AbbVie (ABBV) announce global strategic collaboration to develop and commercialize duvelisib (IPI-145) in oncology; INFI to receive $275 mln up-front payment and $530 mln in potential milestones
JPMorgan Chase (JPM) breach did not reach other banks, according to reports
Samsung Elect (SSNLF) and Lenovo (LNVGY) to lower tablet prices, according to reports
Whirlpool (WHR): Lieff Cabraser Heimann & Bernstein, LLP announce that a court has denied Whirlpool’s motion to decertify a class of Ohio residents who purchased certain models of washing machines that developed mold
EARNINGS/GUIDANCE
AK Steel (AKS) guides Q3 EPS below consensus
Altria (MO) reaffirms FY14 $2.54-2.59 vs $2.57 Capital IQ Consensus Estimate
Coca-Cola Ent (CCE) reaffirms FY14 EPS at Barclays Conf.; sees net sales and operating income at low end of prior ranges
G-III Apparel (GIII) beats by $0.13, beats on revs; guides Q3 EPS below consensus, revs above; lowers FY15 EPS in-line, raises revs above consensus
Guidewire Software (GWRE) beats by $0.09, beats on revs
Hanesbrands (HBI) raises FY14 guidance to reflect acquisition of DBApparel
Helen of Troy (HELE) sees FY15 adj. EPS, including Healthy Directions, $3.90-4.04, may not compare to $4.33 Capital IQ Consensus; revs $1375-1405 mln, may not compare to $1.39 bln Capital IQ Consensus Estimate
Office Depot (ODP) reaffirms FY14 outlook of adjusted operating income of not less than $200 mln in 2014
Toll Brothers (TOL) beats by $0.07, beats on revs; raises FY14 ASP guidance, narrows delivery guidance, sees FY14 rev in-line
Union Pacific (UNP) at Cowen Conf: Q3-TD volume up over 7%
Vince Holding (VNCE) beats by $0.04, beats on revs; raises FY15 EPS in-line, revs in-line
ANALYST ACTIONS
Upgrades
JPMorgan Chase (JPM) upgraded to Buy from Neutral at Nomura
Kohl’s (KSS) upgraded to Buy from Hold at Maxim Group
Downgrades
Bank of America (BAC) downgraded to Neutral from Buy at Nomura
C.H. Robinson (CHRW) downgraded to Sell from Hold at Stifel
Frontier Communications (FTR) downgraded to Underweight from Equal-Weight at Morgan Stanley
SAP AG (SAP) downgraded to Underperform from Neutral at Exane BNP Paribas
Stericycle (SRCL) downgraded to Neutral from Buy at Goldman
Tata Motors (TTM) downgraded to Mkt Perform from Outperform at Bernstein
Other
Apple (AAPL) assumed with a Perform at Oppenheimer
Quest Diagnostics (DGX) added to Conviction Buy list at Goldman
Royal Caribbean (RCL) target raised to $73 from $58 at Jefferies; Buy
Technical Analysis
Range: 17060.21 – 17151.89
NASDAQ COMPOSITE
4572.57 -25.62 (-0.56%)
Volume: 455.6M (above average of 435.6M)
Range: 4565.38 – 4610.14
Range: 1998.14 – 2009.28
2000 remains a key level for the S&P500 as it flirts with it – both under and above it. How long have we been stuck here again? And how many of those days have crossed that level? It’s actually getting sickening. Today alone saw the S&P500 go around it 4 or 5 times…
Of interest to note – Inverted Hammer on the DOW, Shooting Star on the S&P500, and a scary looking Bearish Engulfing on the NASDAQ.
Regardless, I continue to maintain my downside view. If it’s anything, the MACD on all three indices tells you a lot.
Market Internals
New Highs outpaced New Lows (highs/lows): 176 / 18
New Highs outpaced New Lows (highs/lows): 127 / 34
VOLATILITY S&P500 (VIX)
12.34 +0.09 (+0.73%)
Decliners outpaced Advancers by 1.43 on higher volumes than the day before (+55.1M +2.26%).
Internals were very much aligned to the bearish side today. Advancers staged a straight-out decline from the market open, while Decliners rose throughout the day. Volumes were mostly on par, with DVOL not able to get a significant edge over UVOL. The TICK was mostly bearish while the TRIN pointed to bullish movement. In totality, that seems to suggest this movement is merely profit-taking, and not bearish short-selling.
The VIX was mostly flat, but it nonetheless ended the day with a minor uptick. Higher lows on the VIX isn’t really a good thing.
Treasury Bonds, Currencies & Commodities
from Briefing.com
Treasury Bonds
Treasuries Erase Early Losses, Close on Highs: 10Y: +04/32..2.407%..USD/JPY: 104.75..EUR/USD: 1.3144
Treasuries finished on session highs. Click here to see an intraday yields chart.
The complex withstood early selling pressure that developed in response to a reported ceasefire in eastern Ukraine and began paring its early losses as U.S. trade opened for business.
Buyers remained in control following the disappointing factory orders (10.5% actual v. 11.0% expected) report, and continued higher into the Fed’s latest Beige Book release.
The Beige Book suggested economic activity expanded since the previous report, but suggested “none of the Districts pointed to a distinct shift in the overall pace of growth.”
Post-Beige Book buying ran maturities to their best levels of the day ahead of the cash close.
Up front, the 2Y eased -1.2bps to 0.516%. Action tested the important 0.550% level amid the early weakness, but was unable to break out to its best levels since May 2011.
The 5Y ticked up +0.3bps to 1.689%. The yield hit a one-month high of 1.735% before pulling back. Support in the 1.680% area is helped by the 50 and 100 dma.
The 10Y fell -0.9bps to 2.410%. The benchmark yield saw an early test of resistance in the 2.460% area before closing on session lows.
Outperformance at the long end dropped the 30Y -1.8bps to 3.156%.
A slightly steeper curve developed as the 2-10-yr spread narrowed to 189.5bps.
Precious metals gained with gold climbing $6 to $1271 and silver adding $0.06 to $19.21.
2Yr 0.52 (-0.01), 5Yr 1.69 (unch), 10Yr 2.41 (-0.01), 30Yr 3.15 (-0.02)
2/10 Spread: 189bps (unch); 2/30 Spread: 263bps (-1)
Currencies
Dollar Slips Off Best Levels Since July 2013: 10-yr: +01/32..2.417%..USD/JPY: 104.86..EUR/USD: 1.3139
The Dollar Index holds small losses as trade presses session lows near 82.85.
An uneventful session has seen the greenback limited to a tight 10 cent range since early this morning.
EURUSD is +5 pips @ 1.3140 as trade attempts to stabilize near one-year lows. The currency has seen a rather muted session as traders await tomorrow’s European Central Bank rate decision. German factory orders will be released ahead of tomorrow’s ECB announcement.
GBPUSD is -20 pips @ 1.6450 as trade readies for its worst close since the middle of February. Today’s selling has sterling lower for the 12th time in 13 sessions, and comes despite the strongest Services PMI reading since November. The Bank of England meets tomorrow.
USDCHF is -5 pips @ .9185 as sellers remain in control for a second session. Minor support in the .9140 area remains of interest, but the .9100 area looks to be the more important level.
USDJPY is -25 pips @ 104.85 as trade pulls back following three days of gains. Reports Prime Minister Shinzo Abe was reshuffling his cabinet ran the pair above 105.30 to its best levels in more than eight months, but trade was rejected as it tested the 2014 highs. The Bank of Japan opines tonight with 104.00 providing support.
AUDUSD is +65 pips @ .9340 as trade presses its best levels of the session. Today’s bid in the hard currency has been fueled by the stronger than expected GDP print and comments from the Reserve Bank of Australia indicating rate cuts are on longer on the table due to a potential housing bubble. Resistance near current levels is guarded by both the 50 and 100 dma. Australia’s retail sales and trade balance will cross the wires tonight.
USDCAD is -50 pips @ 1.0875 as trade has surrendered all of yesterday’s gains. The pair has been offered from the get go, but trade pushed to its worst levels of the day following the Bank of Canada’s decision to hold its key rate unchanged at 1.00%. Support near 1.0860 is helped by the 100 dma. Canada’s trade balance is scheduled for tomorrow.
Commodities
NYMEX Energy Closing Prices
Oct crude oil rose $2.59 to $95.50/barrel
Oct natural gas fell 4 cents to $3.84/MMBtu
Oct heating oil rose 7 cents to $2.87/gallon
Oct RBOB rose 8 cents to $2.62/gallon
CBOT Agriculture and Ethanol/ICE Sugar Closing Price
Dec corn fell 13 cents to $3514/bushel
Dec wheat fell 20 cents to $5.35/bushel
Nov soybeans fell 20 cents to $10.20/bushel
Oct ethanol fell 4 cents at $2.00/gallon
Nov sugar (#16 (U.S.)) fell 0.17 of a penny to 25.43 cents/lb
COMEX Metals Closing Prices
Dec gold rose $5.20 to $1270.10/oz
Dec silver rose $0.04 to $19.20/oz
Dec copper fell 2 cents to $3.13/lb
Preview: Thursday 4 Sep
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.
Challenger Job Cuts – 07:30 : Prior 24.4%
ADP Employment Change – 08:15 : 220K (Prior 218K)
Initial Claims – 08:30 : 300K (Prior 298K)
Continuing Claims – 08:30 : 2525K (Prior 2527K)
Trade Balance – 08:30 : -$42.0B (Prior -$41.5B)
Productivity-Rev – 08:30 : 2.6% (Prior 2.5%)
Unit Labor Costs – 08:30 : 0.5% (Prior 0.6%)
ISM Services – 10:00 : 57.9 (Prior 58.7)
Natural Gas Inventories – 10:30 : 75bcf
Crude Inventories – 11:00 : -2.070M
Corporate Earnings
ARX CIEN HOV JOY LAYN MFRM MEI MBLY PMFG UTIW PAY
ACET ADES AMBA BEBE COO ESL FNSR BLOX SNOW KFY ZQK SEAC VRNT ZUMZ
Other Events of Interest
Fed/Treasury/Political Events
Fed’s Mester (2014 Voting) – 12:30
Fed’s Powell (2014 Voting) – 18:15
Fed’s Kocherlakota (2014 Voting) – 21:00
Economic Events
Bank of Japan Rate Decision – 01:00
Bank of England Rate Decision – 07:00
ECB Rate Decision – 07:45
Mario Draghi Press Conference – 08:30
Analyst/Investor Meetings
Fairchild Semiconductor Investor Day
Darling Ingredients Analyst/Investor Day
InterDigital Investor Day
Noble Corp Investor Briefing
Landstar Mid Quarter Update Conference Call
Commentary
Ultimately, nothing significant has changed in the market. We continue to tread along the same lines as we have been for the past two weeks. My guess is the market is waiting for news from the ECB and/or the Nonfarm Payrolls due on Friday. But… if we’re not breaking higher highs, can this still be considered a rally? It does feel like the market is steadily rolling towards a cliff…
Thursday begins the slew of economic data for the week as we see three employment data points – Challenger Job Cuts, ADP, and Initial Claims being released. There will be three Fed members speaking as well, one during market hours, and two after the close. We also receive Central Bank decisions from Japan, England, and Europe.
It’s a busy calendar that’s going to rock markets. I won’t be surprised if we get our “cliff”.
Direction for Thursday 4 Sep: DOWN▼
Daily Directional Accuracy (from 14 May 2014): 49/76 (64.47%)
Weekly Directional Accuracy (from 16 May 2014): 9/15 (57.14%)