9 May 2014 – AMC (Weekly Review)

090514Other than the Dow, the other two indices ended the week negative. Despite being light on data, the week was filled with volatility, with the “Sell in May” effect kicking in.

090514Market opened lower but rebounded significantly. Dow tested its high and was able to break above its open to close positive for the year.

Data will continue to be light as we head into the last trading day of the week. The bulls have not shown a strong case all week and the bears will likely take control again in the coming session.

Direction for Friday 9 May 2014: Down

 

Stocks End Choppy Week on Upbeat Note
Dow +32.37 at 16583.34, Nasdaq +20.37 at 4071.86, S&P +2.85 at 1878.48
[BRIEFING.COM] The stock market finished a choppy week on cautiously optimistic note. The S&P 500 added 0.2% despite spending the bulk of the session in the red. The benchmark index narrowed its week-to-date loss to 0.1%, while the Russell 2000 (+0.9%) trimmed its weekly decline to 1.8%. For its part, the Dow Jones Industrial Average (+0.2%) managed to eke out a slim gain of 0.4% for the week, finishing at a new closing record high at 16,583.34.Generally speaking, small caps faced the brunt of the selling that took place this week, while some of the money rotated into blue chip listings, allowing indices like the Dow and S&P 500 to stay ahead of their counterparts. Today’s session proved to be a bit of a departure from that trend as small caps rebounded, while blue chips struggled to keep pace with their high-beta counterparts.The S&P 500 spent the first three hours of action stringing together a rebound from its early low. At first, the index was pressured by the four top-weighted sectors, but those groups later separated, leaving the financial sector (-0.1%) among the laggards, while consumer discretionary (+0.6%), health care (+0.6%), and technology (+0.2%) fueled the market-wide bounce.

In particular, the biotech industry was volatile as the iShares Nasdaq Biotechnology ETF (IBB 226.44, +3.09) bounced between its 20- (226.18) and 200-day moving averages (223.16), but ultimately settled closer to its 20-day average with a gain of 1.4%.

Elsewhere, gains in high-beta technology and discretionary components like Facebook (FB 57.24, +0.48), Netflix (NFLX 328.55, +6.89), LinkedIn (LNKD 148.69, +3.62), and Priceline.com (PCLN 1135.91, +27.91) gave a boost to the overall risk sentiment. However, there were still some soft spots among the recent high flyers as Rocket Fuel (FUEL 21.83, -5.98) rocketed lower by 21.5% after its cautious guidance and revenue miss overshadowed its earnings beat.

Unlike momentum names, heavily-weighted tech components were relatively weak. That underperformance was evidenced by the largest member of the tech sector—Apple (AAPL 585.54, -2.45)—which fell 0.4% amid reports the company will acquire Beats Electronics for about $3 billion. In addition, the stock was downgraded to ‘Buy’ from ‘Strong Buy’ at ISI Group.

On the downside, this year’s leading sector—utilities (-1.4%)—spent the session in a steady retreat that trimmed its year-to-date gain to 10.9%. Meanwhile, the second-best sector of the year—energy (-0.2%)—was the second-weakest performer today, narrowing its 2014 advance to 5.2%.

Treasuries surrendered their overnight gains ahead of the open and spent the remainder of the session anchored to their flat lines. The 10-yr yield ended at 2.62%.

Today’s participation was below average as less than 640 million shares changed hands at the NYSE.

Economic data was limited to the Wholesale Inventories report for March and the March Jobs Openings and Labor Turnover Survey:

  • Wholesale inventories increased 1.1% in March after increasing an upwardly revised 0.7% (from 0.5%) in February, while the Briefing.com consensus expected an increase of 1.0%. The BEA assumed that wholesale inventories increased 1.1% in March in the advance estimate of first quarter GDP. The upward revision to February, however, was not built into its model and will result in a positive contribution toward growth in the second estimate.
  • The Job Openings and Labor Turnover Survey for March indicated job openings decreased to 4.014 million from 4.173 million.

On Monday, the Treasury Budget for April will be released at 14:00 ET. Also of note, Ukraine’s regions of Donetsk and Lugansk remain scheduled for independence referendums on Sunday.

  • S&P 500 +1.6% YTD
  • Dow Jones Industrial Average +0.04% YTD
  • Nasdaq Composite -2.6% YTD
  • Russell 2000 -4.6% YTD

Industry Watch
Strong: Consumer Discretionary, Consumer Staples, Health Care
Weak: Energy, Financials, Materials, Utilities

Market Movers
– Biotechnology and high-growth names display volatility
– Russell 2000 stages intraday turnaround after re-testing its low for the year
– Euro continues retreat after ECB President Draghi indicated yesterday the central bank is ready to act in June: euro/dollar pair slides below 1.38

WEEK IN REVIEW

The stock market kicked off the trading week on a sleepy note as the major averages spent the bulk of the Monday session near their flat lines. However, a final push during the last hour of action placed the key indices at new highs into the close. The S&P 500 added 0.2%, while the Russell 2000 (-0.1%) lagged throughout the day. Equities began the session on their lows as renewed global growth concerns, combined with continued worries about Ukraine, conspired to ensure a cautious start. In China, the HSBC Manufacturing PMI fell to 48.1 from 48.3 (expected 48.4), signifying a slowdown in manufacturing activities. Elsewhere, the European Commission warned about slower-than-expected growth by lowering its 2014 inflation forecast to 0.8%. The commission also trimmed next year’s inflation forecast to 1.2%, while lowering its 2015 GDP forecast to 1.7% from 1.8%.

Equity indices finished the Tuesday session on their lows after spending the entire day in negative territory. The S&P 500 tumbled 0.9% with nine sectors registering losses, while the Russell 2000 fell 1.6%, settling below its 200-day moving average for the first time since November 2012. Stocks were pressured from the get-go as index futures slid to their pre-market lows ahead of the opening bell. While the early slide was not brought on by a particular news item, it served as a reflection of the defensive sentiment in the foreign exchange market where the yen rallied to its best level in three weeks. The dollar/yen pair notched a session low in the 101.50 area, before inching up to 101.65 into the close. Once the session got going, dip-buyers tried to force a turnaround, but were unable to do so as some of the top-weighted sectors kept the pressure on the broader market. Most notably, the financial sector (-1.4%) underperformed for the second consecutive day. Influential components like Bank of America, Citigroup, and JPMorgan Chase lost between 1.6% and 2.3%, while AIG plunged 4.1% after reporting a bottom-line beat on revenue that missed estimates.

Stock indices finished the Wednesday session on a mixed note as high-growth names weighed on the Russell 2000 (+0.1%) and the Nasdaq (-0.3%), while the Dow Jones Industrial Average (+0.7%) and S&P 500 (+0.6%) outperformed thanks to strength in blue chip listings. The stock market opened the trading day with modest gains amid headlines indicating Russia’s President Vladimir Putin has reached out to OSCE chief and Swiss President Didier Burkhalter, attempting to de-escalate the Ukraine crisis through diplomatic avenues. Initially, the reports boosted overall risk appetite, sending Treasuries and the yen to lows, but those moves were retraced not long after. The yen returned into the middle of its trading range, while Treasuries reclaimed their losses and spent the afternoon near their flat lines. The benchmark 10-yr yield ended unchanged at 2.59%. Stock indices, meanwhile, surrendered their opening gains during the first hour of action, but only the Nasdaq Composite spent the remainder of the session in the red, while the Dow and S&P 500 rebounded swiftly.

The stock market ended the Thursday session on a defensive note despite showing early strength. The S&P 500 lost 0.1%, while the tech-heavy Nasdaq (-0.4%) fell nearly 60 points from its session high. Also of note, the Russell 2000 (-1.0%) settled below its 200-day moving average after failing to retake that level during the session. Today’s affair proved to be a bit of a rollercoaster ride as equities grinded higher in the morning, but rolled to fresh lows during the afternoon before climbing off those lows into the close. Fittingly, the areas that fueled the early advance (biotechnology and high-growth names) were the same spots that paced the afternoon slide.

Index Started Week Ended Week Change % Change YTD %
DJIA 16512.89 16583.34 70.45 0.4 0.0
Nasdaq 4123.90 4071.87 -52.03 -1.3 -2.5
S&P 500 1881.14 1878.48 -2.66 -0.1 1.6
Russell 2000 1128.80 1107.22 -21.58 -1.9 -4.8

U.S. ECONOMIC DATA AND NEWS UPDATE

U.S. wholesale inventories jump 1.1% in March

WASHINGTON (MarketWatch) — U.S. wholesale inventories rose 1.1% in March, the Commerce Department reported Friday. The gain by itself will not have much impact on estimates first quarter gross domestic product as it was close the Commerce Department’s assumption in the report released last week. Wholesale sales advanced 1.4% in March. At March’s sales pace, the inventory-to-sales ratio was unchanged to 1.19 months. Inventories of durable goods rose 0.7% in March, and inventories of nondurables increased by 1.7%. Inventories rose by a revised 0.7% in February, up a bit from the prior 0.5% reading.

Job openings slip to 4.01 million in March

WASHINGTON (MarketWatch) — The number of job openings dropped in March to 4.01 million from 4.13 million, the Labor Department said Friday . The quits rate, a measure of worker confidence, was unchanged at 1.8% from an upwardly revised February level. The ratio of unemployed to job openings, at 2.61, rose from February’s 2.54.

EUROPEAN MARKETS

  • UK’s FTSE: -0.4%
  • Germany’s DAX: -0.3%
  • France’s CAC: -0.7%
  • Spain’s IBEX: -1.0%
  • Portugal’s PSI: -1.8%
  • Italy’s MIB Index: -1.6%
  • Irish Ovrl Index: -0.9%
  • Greece ATHEX Composite: -2.7%

Major European indices trade lower across the board. The euro has continued its retreat versus the U.S. dollar following yesterday’s comments from European Central Bank President Mario Draghi, who said the ECB is ready to act next month if needed. The single currency has dipped into the 1.3785 area against the dollar. 

  • Participants received several data points:
    • Germany’s trade surplus narrowed to EUR14.80 billion from EUR15.80 billion (expected EUR16.60 billion).
    • French government budget deficit widened to EUR28.00 billion from EUR25.70 billion (expected deficit of EUR33.00 biilion).
    • Great Britain’s trade deficit narrowed to GBP8.48 billion from GBP8.75 billion (expected deficit of GBP9.00 billion). Separately, Manufacturing Production rose 0.5% month-over-month (expected 0.3%, prior 1.0%) and Industrial Production slipped 0.1% month-over-month (consensus -0.2%, previous 0.8%)
    • Italy’s Industrial Production fell 0.5% month-over-month (expected 0.3%, previous -0.4%).
  • Germany’s DAX is lower by 0.1% amid weakness in exporter shares. Adidas and Daimler are both down near 0.6%. On the upside, K+S leads with a gain of 1.8%.
  • Great Britain’s FTSE holds a loss of 0.3%. Petrofac is the weakest index component, down 15.6% after issuing a profit warning. Discretionary shares outperform with Intertek Group and Marks & Spencer Group both up 1.9%.
  • In France, the CAC trades down 0.5%. Steelmakers ArcelorMittal and Vallourec hold respective losses of 2.9% and 4.6% after ArcelorMittal reported mixed quarterly results.
  • Italy’s MIB is lower by 1.2% as financials lag. Banco Popolare and Mediobanca are both lower by 5.0%.

ASIAN MARKETS

Asian markets entered the weekend on a mixed note. The Reserve Bank of Australia released its monetary policy statement, which raised the GDP forecast for the first half of 2014 to 3.00% from 2.75% and affirmed the full-year target at 2.75%; however, the 2015 GDP projection was lowered to 2.75%-3.75% from 3.00%-4.00%.

  • In economic data:
    • China’s CPI rose 1.8% year-over-year (expected 2.0%, previous 2.4%), while the month-over-month reading fell 0.3% (expected -0.1%, prior -0.5%). Separately, PPI decreased 2.0% year-over-year (consensus -1.8%, previous -2.3%).
    • Japan’s Leading Index fell to 106.5 from 108.9 (expected 106.9).
    • The Bank of Korea left its key interest rate unchanged at 2.50%, as expected.
  • Japan’s Nikkei added 0.3%, climbing off its early low with help from industrials. Ebara and Mitsubishi Heavy Industries both surged near 7.0%. On the downside, Olympus and Yokohama Rubber fell 1.8% and 3.0%, respectively.
  • Hong Kong’s Hang Seng tacked on 0.1%, ending little changed. Casino names rallied with Galaxy Entertainment and Sands China both up near 5.7%. China Unicom Hong Kong fell 2.7% after showing considerable strength over the past week.
  • China’s Shanghai Composite shed 0.2% after being unable to make a sustained move into the green. Great Wall Motor tumbled 10.0% and BTG Hotels Group lost 8.5%.
  • India’s Sensex (+2.9%) soared with some attributing the move to an interview with Narendra Modi, who appeared confident the BJP would win a clear majority in the country’s election. HDFC Bank and ICICI Bank surged 5.4% and 7.0%, respectively.
  • Australia’s ASX (-0.3%) posted a slim loss. ANZ Banking Group weighed, falling 3.2% as the stock went ex-dividend.
  • Regional Decliners: Taiwan (-0.5%), Thailand (-0.1%)
  • Regional Advancers: Indonesia (+0.8%), Malaysia (+0.2%), Philippines (+1.2%), Singapore (+0.1%), South Korea (+0.3%), Vietnam (+2.9%)

 

TECHNICAL UPDATE

dow 090514Dow settled positive for the year and made its highest close for the year. It has now formed a Hanging Man which could signal more downside in the next session.

comp 090514Nasdaq formed a Bullish Engulfing pattern, signalling a possible reversal towards the upside in the coming session.

spx 090514Unlike the Dow, S&P 500 did not test its high, but had also formed a Hanging Man pattern, signalling possible downside.

MARKET INTERNALS

NYSE:
Lower than previous day volume @ 636.8 mln vs 694.3 mln
Advancers outpaced Decliners (Adv/Dev): 1680/1339
New Highs outpaced New Lows (High/Low): 63/53

NASDAQ:
Lower
 than previous day volume @ 1956.5 mln vs 2398.9 mln
Advancers outpaced Decliners (Adv/Dev): 1677/952
New Lows outpaced New Highs (High/Low): 20/133

nyse 090514nasdaq 090514

  • NYSE: DVOL outpaced UVOL at a pace of 1.14:1
  • Nasdaq: UVOL outpaced DVOL at a pace of 1.51:1

Volumes dipped further. Despite the strong reversal into the close, internals showed the general market were more bearish with the TRIN ticking higher into the close. This could signal that the late recovery was the covering of the shorts for the week.

COMMODITIES UPDATE

Precious metals started floor trade in positive territory but gave up early gains as the dollar index rose higher. June gold pulled back from its session high of $1293.90 per ounce set in early morning action and fell into the red. It touched a session low of $1285.50 per ounce and settled 40 cents below the unchanged line at $1287.60 per ounce, booking a loss of 1.2% for the week. 

July silver retreated into negative territory after trading as high as $19.24 per ounce. It settled 0.2% lower at $19.11 per ounce, bringing losses for the week to 2.3%. 

June crude oil also erased morning gains as it pulled back from its session high of $101.21 per barrel and slipped into negative territory in early afternoon action. The energy component brushed a session low of $99.71 per barrel moments before selling with a 0.2% loss at $100.02 per barrel. Today’s decline shaved gains for the week to 0.2%. 

June natural gas fell deeper into the red after retreating from its session high of $4.57 per MMBtu set moments after floor trade opened. It traded as low as $4.50 per MMBtu and eventually settled 0.9% lower at $4.53 per MMBtu, booking a 3.0% loss for the week.

CURRENCIES UPDATE

Dollar Nears 80.00 Resistance:
  • The Dollar Index presses session highs near 79.90 as trade looks likely to close at its best level in two weeks.
  • Traders continue to watch resistance in the 80.00 area, which has posed problems over much of the past month.
  • EURUSD is -85 pips @ 1.3755 as trader presses to one-month lows. The single currency has seen a sharp reversal off yesterday’s highs as comments by ECB head Mario Draghi pointed to potential action at the June meeting. Action has tumbled almost 250 pips from yesterday’s peak, and is now moving towards a test of support in the 1.3700 area that is helped by the 100 dma.
  • GBPUSD is -80 pips @ 1.6850 as sellers remain in charge for a third day. Today’s weakness comes despite manufacturing production, the trade balance, and NIESR GDP Estimate all exceeding forecasts. The 1.6800 area should provide some minor help, but 1.6700 is the more important level.
  • USDCHF is +65 pips @ .8865 as trade rallies to a one-month high. The recent win streak has the bulls targeting resistance in the .8950 area, but a test of the level will likely only come on euro weakness as the two currencies remain highly correlated. Swiss data is limited to retail sales.
  • USDJPY is +10 pips @ 101.75 amid a lackluster session. Trade has been limited to a tight 30 pip range, causing many participants to look elsewhere for opportunity. The 100.00/100.25 level remains key in the days ahead. Japan’s current account balance will cross the wires Sunday evening.
  • AUDUSD is -10 pips @ .9355 as action slips back towards session lows. The hard currency has spent virtually the entire session in negative territory as the dovish RBA minutes and cool Chinese CPI and PPI data weigh. Australia’s NAB Business Confidence is due out Sunday night.
  • USDCAD is +70 pips @ 1.0900 as trade has recouped all of yesterday’s losses on the back of the disappointing Canadian jobs report (-28.9K actual v. 12.8K expected) that saw the unemployment rate hold steady at 6.9%.

BOND MARKET UPDATE 

Selling Weighs on Long Bond

  • Treasuries saw a mixed week as buyers were in control up front while selling took place in longer dated maturities.
  • This week’s economic data saw ISM Services (55.2 actual v. 54.0 expected) and the trade balance (-$40.4 bln actual v. -$40.6 bln expected) exceed forecasts while productivity-prel. (-1.7% actual v. -1.2% expected) fell short of estimates.
  • Fed Chair Janet Yellen’s testimony in front of the Joint Economic Committee was littered with much of her usual commentary as she suggested the U.S. economy remained on track for “solid growth.” Ms. Yellen did however express some concern regarding the recent slowdown in housing as she noted, “The recent flattening out in housing activity could prove more protracted than currently expected, rather than resuming its earlier pace of recovery.”
  • A solid bid up front dropped  the 5y -4bps to 0.379% as action settled near a three-week low. Support in the 0.350% area will be watched closely in the days ahead.
  • The 5y shed -4bps to finish the week @ 1.625%, on its 100 dma. The 1.550% support area is setting up as a key level as the 200 dma also lurks in the vicinity.
  • The 10y added +4bps to 2.623%. Action over the past week has pressured key support in the 2.600% area, but so far it has held up.
  • At the long end, the 30y lagged significantly, rallying +11bps to 3.467%. Nearly the entire run up in yield came Thursday afternoon and Friday as traders digested the weak 30y auction. Friday’s close was the highest since May 1.
  • This week’s auctions were mixed.
  • Tuesday’s $29 bln 3y note auction. The auction was solid, drawing 0.928% and a 3.40x bid/cover. A light indirect takedown (28.1%) was offset by a strong showing from direct bidders (24.5%). Primary dealers ended up with 47.4% of the supply.
  • Wednesday’s $24 bln 10y note auction was strong. The auction drew 2.612% and a 2.63x bid/cover. Solid takedowns from both indirect (49.2%) and direct (21.6%) bidders left primary dealers with only 29.2% of the supply.
  • Thursday’s $16 bln 30y bond auction was weak. The auction drew 3.400% (WI 3.403%) and a tepid 2.09x bid/cover, the lowest since August 2011. Indirect (40.3%) and direct (8.4%) bids both fell short of their twelve auction averages, leaving primary dealers with 51.3% of the supply.
  • This week’s action swung the curve steeper as the 5-30-yr spread blew out to 184bps.

 2yr: 0.40 unch
5yr: 1.63 unch
10yr: 2.62 +0.01
30yr: 3.47 +0.02

Longer term maturities continue to sell off from the previous day. The yield curve continued to steepen along the longer end.

SUMMARY

A volatile week despite being light on data. The late rally was most likely brought on by short-covering for the week. Dow managed its highest close for the year but don’t let the indices fool you, the week had seen more bearishness than it had for some time, judging from the internals. However, we had not seen the full force from the “Sell in May” effect , but i do believe we will sell off much more this May.

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08 May 2014 – AMC

080514

Markets opened higher on positive news from a drop in claims, but the rally was not sustainable, dropping all 3 indices into the red before a late rally in the last hour. Dow was the only index to close in the green.

After a strong recovery back towards the close, including the Nasdaq, which staged a late comeback but was unable to close positive. It seems the bulls are back in the game. Jobless claims will likely be the mover for the earlier part of the day. The bulls’ strength will be tested as they have yet to show any firm commitment.

Direction for Thursday 8 May 2014: Up

Small Caps Slide While Blue Chips Display Relative Strength
08-May-14 16:15 ET
Dow +32.43 at 16550.97, Nasdaq -16.18 at 4051.49, S&P -2.58 at 1875.63
[BRIEFING.COM] The stock market ended the Thursday session on a defensive note despite showing early strength. The S&P 500 lost 0.1%, while the tech-heavy Nasdaq (-0.4%) fell nearly 60 points from its session high. Also of note, the Russell 2000 (-1.0%) settled below its 200-day moving average after failing to retake that level during the session.

Today’s affair proved to be a bit of a rollercoaster ride as equities grinded higher in the morning, but rolled to fresh lows during the afternoon before climbing off those lows into the close. Fittingly, the areas that fueled the early advance (biotechnology and high-growth names) were the same spots that paced the afternoon slide.

Equity indices climbed through the first 90 minutes of action with the four top-weighted sectors setting the pace. Consumer discretionary (+0.3%), financials (+0.2%), and technology (+0.1%) continued their outperformance throughout the session, while the health care sector (-0.5%) swung from a position of relative strength to that of weakness when biotechnology reversed from its session high. TheiShares Nasdaq Biotechnology ETF (IBB 223.35, -4.13) lost 1.8%, ending just above its 200-day moving average (223.00) after being up as much as 1.6% during the first half of action.

Elsewhere, momentum names like Facebook (FB 56.76, -0.63), FireEye (FEYE 27.45, -1.20), LinkedIn (LNKD 145.07, +1.70), and Yelp (YELP 53.29, +0.55) gave an early boost to the technology sector before sliding into the close. Facebook and FireEye ended lower, while LinkedIn and Yelp gave up a good portion of their early gains. Similarly, consumer discretionary components Netflix (NFLX 321.66, +1.12) and Priceline.com (PCLN 1108.00, -23.74) also slumped from their intraday highs. Shares of Priceline.com could not stay out of the red as the company’s cautious guidance overshadowed its earnings beat.

Staying on the momentum/earnings theme, Tesla (TSLA 178.59, -22.76) tumbled 11.3% following its quarterly report that featured a bottom-line beat on deliveries that were on the low end of analyst estimates.

Once again, the underperformance of high-beta names took place against the backdrop of relative strength among blue chip issues. The price-weighted Dow Jones Industrial Average eked out a modest gain of 0.2%, narrowing its week-to-date advance to 0.2% versus a 2.7% drop for the Russell 2000 since last Friday.

Even though equities did not display weakness until the afternoon, the foreign exchange market was signaling caution for the better part of the day. Specifically, the Japanese yen surged to a session high less than an hour after the New York open and continued inching higher into the afternoon. The dollar/yen pair dove into the 101.55 area, ending the session just above yesterday’s low of 101.44.

Similarly, Treasuries jumped to highs in the morning, but fell from those levels in reaction to a dismal 30-yr auction that saw a below-average bid/cover ratio of 2.09x (12-auction average 2.39x). Despite the early-afternoon dive, the 10-yr note ended in the green, adding one tick with its yield at 2.61%.

The intraday reversal did not invite unusually strong participation as less than 700 million shares changed hands at the NYSE.

Economic data was limited to just one report:

  • The initial claims level fell to 319,000 for the week ending May 3 from an upwardly revised 345,000 (from 344,000) for the week ending April 26. The Briefing.com consensus expected the initial claims level to fall to 325,000. As expected, the recent volatility surrounding the Easter holiday period is coming to an end. Initial claims are likely to stabilize between 320,000 and 330,000 as labor conditions improve moderately. The continuing claims level fell to 2.685 mln for the week ending April 26 from a downwardly revised 2.761 mln (from 2.771 mln) for the week ending April 19, while the consensus expected a decline to 2.750 mln.

Tomorrow, the Wholesale Inventories report for March and the March Jobs Openings and Labor Turnover Survey will both be released at 10:00 ET.

  • S&P 500 +1.5% YTD
  • Dow Jones Industrial Average -0.2% YTD
  • Nasdaq Composite -3.0% YTD
  • Russell 2000 -5.5% YTD

Industry Watch
Strong: Consumer Discretionary, Financials, Industrials, Technology
Weak: Health Care, Energy, Materials, Utilities

Market Movers
– Biotechnology and momentum names surrender early gains
– Bank of England and European Central Bank make no changes to their policy stances: ECB President Draghi says governing council ready to act in June ‘if needed’
– Independence referendums scheduled to take place in Donetsk and Lugansk on May 11 remain on track despite Vladimir Putin’s call to postpone the votes

U.S. ECONOMIC DATA AND NEWS UPDATE

Fed could publish alternate rate paths: Plosser

WASHINGTON (MarketWatch) — One way for the Federal Reserve to be more transparent might be to publish the likely path of its benchmark policy rate using different versions of a policy rule, said Charles Plosser, the president of the Philadelphia Federal Reserve Bank, on Thursday. In a speech to the Council of Foreign Relations in New York, Plosser again pressed his case for the Fed to adopt a more “systemic” approach to policy. “Quite simply, I mean conducting policy in a more rule-like manner,” Plosser said. Effective communication would include a forecast based on this rule, Plosser said. But because it may be difficult for 19 members of the Fed’s policy committee to achieve a consensus forecast or policy path, the Fed should consider indicating “the likely behavior of interest rates based on a few different rules,” he said.

U.S. jobless claims drop 26,000 to 319,000

Initial jobless claims dropped by 26,000 to a seasonally adjusted 319,000, the Labor Department said Thursday. Economists surveyed by MarketWatch had expected claims to fall to 325,000 in the week ended May 3. The average of initial claims over the past month, meanwhile, rose by 4,500 to 324,750 but also remained near a post-recession low. The monthly figure smooths out the jumpiness in the weekly data. Also, the government said continuing claims decreased by 76,000 to a seasonally adjusted 2.7 million in the week ended April 26. Continuing claims reflect the number of people already receiving benefits. Initial claims from two weeks ago were revised up slightly to 345,000 from 344,000.

EARNINGS

BMO

Priceline beats by $0.89, reports revs in-line; guides Q2 EPS below consensus, revs in-line; Q1 bookings growth exceed co’s guidance (PCLN): Reports Q1 (Mar) earnings of $7.81 per share, excluding non-recurring items, $0.89 better than the Capital IQ Consensus Estimate of $6.92; revenues rose 26.1% year/year to $1.64 bln vs the $1.63 bln consensus. Co issues guidance for Q2, sees EPS of $11.22-12.02 vs. $12.27 Capital IQ Consensus Estimate; sees Q2 revs of +19-29% to ~$2.00-2.17 bln vs. $2.11 bln Capital IQ Consensus Estimate.

Apache beats by $0.14, beats on revs (APA): Reports Q1 (Mar) earnings of $1.78 per share, $0.14 better than the Capital IQ Consensus Estimate of $1.64; revenues fell 6.9% year/year to $3.67 bln vs the $3.6 bln consensus. 

EUROPEAN MARKETS

  • UK’s FTSE: + 0.6%
  • Germany’s DAX: + 0.9%
  • France’s CAC: + 1.4%
  • Spain’s IBEX: + 1.7%
  • Portugal’s PSI: + 0.2%
  • Italy’s MIB Index: + 2.3%
  • Irish Ovrl Index: + 1.5%
  • Greece ATHEX Composite: -0.5%

Major European indices trade higher across the board. The European Central Bank left its main refinancing rate unchanged at 0.25%, as expected. The announcement boosted the euro, sending the single currency into the 1.3985 area against the U.S. dollar, but the pair reversed from highs after ECB President Draghi said the central bank is ready to act in June “if needed.” Elsewhere, the Bank of England also maintained its policy stance, keeping its key rate and the purchasing program at their respective 0.5% and GBP375 billion.

In news from Ukraine, the councils of Donetsk and Lugansk chose to go forward with the independence referendums scheduled for May 11. Participants received several data points today.

    • Great Britain’s Halifax House Price Index slipped 0.2% month-over-month (consensus 0.9%, previous -1.2%), while the year-over-year reading rose 8.5% (expected 9.1%, prior 8.7%).
    • Germany’s Industrial Production fell 0.5% month-over-month (expected 0.2%, prior 0.6%).
    • Spain’s Industrial Production ticked up 0.6% year-over-year (consensus 1.7%, previous 2.5%).
    • Swiss CPI increased 0.1% month-over-month (expected 0.1%, previous 0.4%), while the year-over-year reading was flat (consensus 0.1%, prior 0.0%). Also of note SECO Consumer Climate slipped to 1 from 2 (expected 3).
  • Germany’s DAX is higher by 0.4%. Most financials are on the defensive, while utilities outperform. Allianz, Commerzbank, and Muenchener Re are down between 1.9% and 3.4%, while E.ON and RWE are up close to 1.2% apiece.
  • Great Britain’s FTSE trades up 0.4%. Barclays leads with a gain of 5.8% after announcing its restructuring plan. On the downside, software company Sage Group is the weakest performer, down 5.9%.
  • France’s CAC holds an advance of 0.6%. Steelmaker ArcelorMittal outperforms with a gain of 1.3%. On the downside, defense contractors lag with Airbus Group and Safran down 0.8% and 0.5%, respectively.

ASIAN MARKETS

Most Asian markets finished higher after the release of upbeat data from Australia and China.

    • China’s trade surplus expanded to $18.45 billion from $7.71 billion (expected surplus of $13.90 billion) as exports rose 0.9% year-over-year (expected -1.7%, previous -6.6%) and imports increased 0.8% (consensus -2.3%, prior -11.3%).
    • Australia’s Employment Change came in at 14,200 (expected 6,800, previous 22,000), while the Unemployment Rate held steady at 5.8% (expected 5.9%).
    • Bank Indonesia held its key interest rate unchanged at 7.5%, as expected.

Also of note, Vietnam’s Ho Chi Minh Index (-5.9%) saw its largest one-day drop in 13 years amid an increase in tensions between China and Vietnam in the South China Sea. 

  • Japan’s Nikkei rallied 0.9% with support from growth-sensitive names. Nisshin Steel surged 14.9% after reporting strong results, while Furukawa and Showa Deno both gained near 4.0%.
  • Hong Kong’s Hang Seng added 0.4%, settling in the middle of its range. Telecom names outperformed, while property listings lagged. China Mobile and China Unicom Hong Kong both added near 3.0%. On the downside, China Resources Land and New World Development fell 2.3% and 2.0%, respectively.
  • China’s Shanghai Composite tacked on 0.3%, but surrendered the bulk of its gain into the close. Huayuan Property surged the limit 10.0%, while consumer names lagged. Huafang Textile tumbled 9.0%.
  • India’s Sensex (+0.1%) ended modestly higher following a boost from financials. Axis Bank, HDFC Bank, and ICICI Bank gained between 0.4% and 1.4%.
  • Australia’s ASX (+0.8%) rallied following the strong jobs data. Miners outperformed with BHP Billiton and Rio Tinto both climbing near 1.4%.
  • Regional Decliners: Indonesia (-0.02%), Thailand (-1.7%), Vietnam (-5.9%)
  • Regional Advancers: Malaysia (+0.1%), Philippines (+0.3%), Singapore (+0.4%), South Korea (+0.6%), Taiwan (+0.4%)

TECHNICAL UPDATE

dow 080514Dow tested the year’s open but was unable to stay above it. It has now formed a Shooting Star candlestick formation, which could signal a reversal from the resistance.

comp 080514Nasdaq has now formed a Bearish Crucifix Doji, signalling potential downside. Support will be strong at 4,000, before hitting its 200-day MA.

spx 080514S&P 500 never really tested its all time high and finished a Bearish Harami. This could signal a break in the sideway trend for potential downside. Support will be strong at the year’s open.

MARKET INTERNALS

NYSE:
Lower than previous day volume @ 694.3 mln vs 766.1 mln
Decliners outpaced Advancers  (Adv/Dev): 1285/1791
New Highs outpaced New Lows (High/Low): 145/42

NASDAQ:
Lower
 than previous day volume @ 2398.9 mln vs 2466.4 mln
Decliners outpaced Advancers (Adv/Dev): 857/2824
New Lows outpaced New Highs (High/Low): 54/237

nyse 080514nasdaq 080514

  • NYSE: DVOL outpaced UVOL at a pace of 1.46:1
  • Nasdaq: DVOL outpaced UVOL at a pace of 1.73:1

The internals were favouring the bulls for much of the session till after lunch where the tide turned in the bear’s favour. Volumes dipped yet again.

COMMODITIES UPDATE

  • June gold chopped around near the unchanged line today as the dollar index showed gains. It brushed a session low of $1284.80 per ounce in morning action and eventually settled with a 0.1% loss at $1288.00 per ounce.
  • July silver trended lower after pulling back from its session high of $19.34 per ounce set in early morning action. It brushed a session low of $19.13 per ounce moments before settling at $19.15 per ounce, or 1.0% lower.
  • June crude oil traded in the red, dipping to a session low of $99.85 per barrel in morning action. It eventually settled with a 0.5% loss at $100.24 per barrel.
  • June natural gas sold off sharply following inventory data that showed a build of 74 bcf when a build of 71-73 bcf was anticipated. It touched a session low of $4.56 per MMBtu in afternoon action after trading as high as $4.72 per MMBtu in morning pit trade. Unable to regain momentum, it settled with a 3.6% loss at $4.57 per MMBtu.

 

CURRENCIES UPDATE

Dollar Reverses into Positive Territory:
  • The Dollar Index presses session highs near 79.40 as buyers look to produce a second day of gains.
  • Today’s bid comes despite some early morning selling that pushed action onto the 78.90, which had action contending with its lowest close since the fall of 2012.
  • Trade recouped those losses as European Central Bank head Mario Draghi took the mic for today’s press conference with action now looking to retake 79.50 resistance.
  • EURUSD is -60 pips @ 1.3850 as trade has seen a sharp reversal from session highs to session lows. The single currency printed just short of the 1.4000 level after the ECB held its key rate steady at 0.25%, as expected. However, many traders seemed surprised at Mr. Draghi’s suggestion that action could be taken at the June meeting, and trade quickly sunk into negative territory. Support in the 1.3800 area remains key, and is helped by the 50 dma (1.3824). Eurozone data is limited to the German trade balance.
  • GBPUSD is -20 pips @ 1.6935 as trade slips for a second session. Sterling has seen a muted response to the Bank of England’s decision to keep both its key rate and asset purchase program unchanged at their respective 0.50% and GBP375 bln as that has been par for the course for couple of years. Minor help in the 1.6850 area provides the first level of support. British data includes manufacturing production, trade balance, and NIESR GDP Estimate.
  • USDCHF is +30 pips @.8790 as trade holds near a one-week high. Early selling dropped action onto the .8700 level, but trade managed to hold the March lows as buyers emerged on the weakness in the euro.
  • USDJPY is -35 pips @ 101.50 as trade nears its lowest levels in three weeks. Participants continue to watch the 101.00/101.25 level as it has provided a floor since November.
  • AUDUSD is +55 pips @ .9380 as action remains on track to post its best close in over three weeks. Today’s bid has been supported by the solid Australian jobs report and the larger than expected Chinese trade surplus. A close above .9415 would be the best since November. The latest Reserve Bank of Australia minutes are due out tonight. China’s CPI and PPI will cross the wires this evening.
  • USDCAD is -75 pips @ 1.0820 as trade slides to its lowest level in four months following the upbeat Canadian housing starts data (195K actual v. 177K expected). A test of the 200 dma (1.0707) looks likely as little support exists until the level. Canada’s employment change and unemployment rate will be released tomorrow.

BOND MARKET UPDATE 

 Treasuries Finish Mixed:

  • Treasuries ended mixed amid a volatile session.
  • The complex hovered little changed ahead of the cash open before climbing into positive territory following the better than expected initial (319K actual v. 325K expected) and continuing (2685K actual v. 2750K expected) claims data.
  • A continued dovish rhetoric from Fed Chair Janet Yellen pressed Treasuries to their highs ahead of the $16 bln 30y bond auction.
  • The 30y bond auction was horrific, drawing 3.400% (WI 3.403%) and a tepid 2.09x bid/cover, the lowest since August 2011. Indirect (40.3%) and direct (8.4%) bids both fell short of their twelve auction averages, leaving primary dealers with 51.3% of the supply.
  • Sharp selling developed at the long end in response to the auction as the 30y spiked to a session high of 3.438% in the moments following the auction only to slip into the close. The yield on the long bond ended +1.2bps @ 3.415%, settling at a one-week high.
  • The 10y slipped -1.6bps to 2.602%. Action continues to press the lower bound of the 2.600%2.800% range that has held up since the beginning of February.
  • Outperformance could be seen in the belly as the 5y shed -2.8bps to 1.618%. The yield pressed below its 100 dma and ended at a three-week low.
  • A steeper curve took hold as the 5-30-yr spread widened to 179.5bps.

 2yr: 0.40 -0.01
5yr: 1.63 -0.02
10yr: 2.61 -0.01
30yr: 3.45 +0.05

The yield curve flattened on the shorter end and steepened on the longer end. Shorter term maturities were bought up while the longer term were sold aggressively. We could be looking at shorter term fear.

PREVIEW FOR FRIDAY 9 MAY 2014

 

TIME (ET)   REPORT                               PERIOD FORECAST PREVIOUS

FRIDAY, MAY 9
10 am Job openings March 4.2 mln
10 am Wholesale inventories March 0.5%

SUMMARY

Data will continue to be light as we head into the last trading day of the week. The bulls have not shown a strong case all week and the bears will likely take control again in the coming session.

Direction for Friday 9 May 2014: Down

07 May 2014 – AMC

070514

The market should take a breather after such a bearish session. I’d reckon we will have a flat session, more towards the downside as there seems little potential for the bulls to come in and take control. However, Fed Speak, especially Janet Yellen’s testimony could potentially gyrate the market.

Direction for Wednesday 7 May 2014: Down

Session ended pretty mixed, with Dow and S&P 500 finishing in the green and the tech-heavy index Nasdaq in the red. Market was able to shake off Janet Yellen’s comments in her testimony and rally back into the positive territory.

Stocks End Mixed Amid Weakness in Momentum Names
07-May-14 16:10 ET
Dow +117.52 at 16518.54, Nasdaq -13.09 at 4067.67, S&P +10.49 at 1878.21
[BRIEFING.COM] Equity indices finished the Wednesday session on a mixed note as high-growth names weighed on the Russell 2000 (+0.1%) and the Nasdaq (-0.3%), while the Dow Jones Industrial Average (+0.7%) and S&P 500 (+0.6%) outperformed thanks to strength in blue chip listings.

The stock market opened the trading day with modest gains amid headlines indicating Russia’s President Vladimir Putin has reached out to OSCE chief and Swiss President Didier Burkhalter, attempting to de-escalate the Ukraine crisis through diplomatic avenues. Initially, the reports boosted overall risk appetite, sending Treasuries and the yen to lows, but those moves were retraced not long after. The yen returned into the middle of its trading range, while Treasuries reclaimed their losses and spent the afternoon near their flat lines. The benchmark 10-yr yield ended unchanged at 2.59%.

Stock indices, meanwhile, surrendered their opening gains during the first hour of action, but only the Nasdaq Composite spent the remainder of the session in the red, while the Dow and S&P 500 rebounded swiftly.

The S&P 500 tested its 50-day moving average (1865), spring-boarding off its early low with help from a handful of large sectors. Consumer staples (+1.0%), energy (+0.8%), and industrials (+0.9%) contributed to the recovery, while financials (+1.3%) finished ahead of the remaining cyclical groups following yesterday’s underperformance.

Even though the financial sector posted a solid gain, it was unable to turn positive for the year, trimming its year-to-date loss to 0.01%. Meanwhile, the only other sector that holds a year-to-date loss—consumer discretionary (-0.2%)—joined health care (+0.2%) and technology (-0.2%) among today’s laggards.

All three sectors contain a fair share of momentum names, which were the source of the relative weakness within the Nasdaq. Most notably, shares of FireEye (FEYE 28.65, -8.48) plunged 22.8% after the company reported in-line earnings, but issued disappointing guidance. Other momentum names fared a bit better, but Facebook (FB 57.39, -1.14) and Twitter (TWTR 30.66, -1.19) lost 2.0% and 3.7% respectively, while Tesla (TSLA 201.35, -5.93) slid 2.9% ahead of its after-hours quarterly report. Similarly, Priceline.com (PCLN 1131.74, -36.62) sank 3.1% prior to its report, which is due out tomorrow.

Elsewhere, biotechnology also factored into the underperformance of the Nasdaq. The iShares Nasdaq Biotechnology ETF (IBB 227.48, -1.85) fell 0.8%, while the broader health care sector (+0.2%) returned to its early high into the close.

The other countercyclical sectors ended among the leaders with the utilities sector (+1.6%) widening its year-to-date gain to 13.8%. For its part, consumer staples (+1.0%) overcame a disappointing quarterly report from Whole Foods (WFM 38.93, -9.02) that pressured the stock back to levels not seen since early 2012.

Participation was above average as roughly 750 million shares changed hands at the NYSE.

Economic data was limited to Q1 productivity and unit labor costs and the Consumer Credit report for March:

  • Nonfarm business labor productivity declined 1.7% in the first quarter after increasing an upwardly revised 2.3% (from 1.8%) in Q4 2013. The Briefing.com consensus expected the reading to decline 1.2%. This was the first decline in productivity since Q1 2013 when it declined 1.8%. With a 0.1% increase in Q1 2014 GDP, there was no doubt that productivity declined during the first quarter. Output levels managed to increase a minimal 0.3% in the first quarter, but that was dwarfed by a 2.0% increase in hours worked. Hours growth had not exceeded 2% since Q4 2012.
  • Hourly compensation increased 2.4%, up from a 1.9% gain in Q4 2013. That was the largest increase since Q4 2012 when it rose 10.2%. Given the flat wage data in the April Employment Report, compensation growth is unlikely to remain at its first quarter pace. The combination of higher hours and compensation along with weak output growth caused unit labor costs to increase 4.2% in the first quarter.
  • Consumer credit increased by $17.50 billion in March, which was higher than the Briefing.com consensus estimate of $16.10 billion. The prior month’s credit growth was revised lower to $13.30 billion from $16.50 billion.

Tomorrow, weekly initial claims (Briefing.com consensus 325,000) will be announced at 8:30 ET.

  • S&P 500 +1.6% YTD
  • Dow Jones Industrial Average -0.4% YTD
  • Nasdaq Composite -2.6% YTD
  • Russell 2000 -4.5% YTD

Industry Watch
Strong: Consumer Staples, Energy, Financials, Industrials, Utilities
Weak: Consumer Discretionary, Health Care, Technology

Market Movers
– High-growth names weigh on technology sectors
– S&P 500 finds support at 50-day moving average (1865)
– Continued concerns about China’s economic growth as HSBC Services PMI fall to 51.4 from 51.9
– Vladimir Putin to discuss the Ukraine situation with OSCE chair and Swiss President Burkhalter

U.S. ECONOMIC DATA AND NEWS UPDATE

U.S. productivity declines by 1.7% in first quarter

WASHINGTON (MarketWatch) – The nation’s productivity fell in the first quarter at a 1.7% annual rate, reflecting weak economic growth and disruptions caused at U.S. workplaces by harsh winter weather. Economists polled by MarketWatch had expected a seasonally adjusted 1.1% decline. Hours worked climbed 2.0% while output of goods and services rose a scant 0.3%, the Labor Department said Wednesday. Unit-labor costs jumped by 4.2% – the biggest increase in five quarters – but they rose just 0.9% in the 12 months ended March 31. Hourly wages advanced 2.4% in the first quarter, but just 0.5% after adjusting for inflation. The manufacturing sector was the one bright spot: productivity climbed 3.3% and inflation-adjusted wages rose 1.4%. Unit-labor costs among manufacturers barely increased with a 0.1% gain. In the fourth quarter, the increase in overall U.S. productivity was revised up to 2.3% from 1.8.

Yellen sees economy improving over rest of year

WASHINGTON (MarketWatch) — The U.S. economy will end the year in better shape than 2013 despite the slow start to the first quarter, Federal Reserve Chairwoman Janet Yellen said Wednesday. “With the harsh winter behind us, many recent indicators suggest that a rebound in spending and production is already under way, putting the overall economy on track for solid growth in the current quarter,” Yellen said in remarks prepared for the Joint Economic Committee of Congress. Yellen said she expects growth will expand at a “somewhat faster pace” this year than the 1.9% growth rate seen in 2013. Yellen said that one risk is the slowdown in the housing sector could be more protracted than expected. Yellen said that labor market conditions have improved but remain far from satisfactory. The Fed chairwoman said given the slack in the economy a high degree of monetary accommodation remains warranted. She once again emphasized a flexible policy path that would respond to changes in the outlook. On financial stability, Yellen said there is some evidence of “reach for yield behavior” in the corporate bond market, but said duration and credit risks to large banks and life insurers appear modest. More generally, asset values remain within norms, she said.

Consumer credit accelerates in March

WASHINGTON (MarketWatch) — U.S. consumer credit growth accelerated in March to its fastest pace in a little over a year, the Federal Reserve reported Wednesday. U.S. consumers increased their debt in March by a seasonally adjusted $17.5 billion, the fastest pace since February 2013. The debt increase in March is well above Wall Street expectations of a $15.5 billion gain. But February’s credit growth was trimmed back sharply to a gain of $13 billion from the initial estimate of a $16.5 billion increase. Monthly debt rose at a 6.7% annual rate in March, compared with a 5.0% rate in the prior month. Consumer debt has risen every month since August 2011. Non-revolving category of debt, especially federal student loans, stayed strong, rising $16.4 billion or 8.7% in March following an 8.4% gain in February. Credit card debt rose $1.1 billion in March or 1.6%.

U.S. April budget surplus $114 billion: CBO

WASHINGTON (MarketWatch) — The federal government had a budget surplus of $114 billion in April, the Congressional Budget Office estimated Wednesday. That is $1 billion more than a year ago and would be the biggest April surplus since 2008. CBO estimates receipts were 2% higher in April versus the same month a year ago. Spending rose 2.5%. For the fiscal year to date, CBO estimates the deficit to be $301 billion, down $187 billion compared to the same period in 2013. The fiscal year runs from October to September.

EARNINGS

BMO

Anheuser-Busch InBev modestly higher following Q1 results: CO missed EPS estimates on higher than expected rev (BUD): Co reported Q1 (Mar) earnings of $0.87 per share, excluding non-recurring items, $0.21 worse than the Capital IQ Consensus of $1.08; revenues rose 15.7% year/year to $10.61 bln vs the $10.44 bln consensus. 

Guidance: “We expect an improvement in the trend of US industry volumes compared to 2013, driven by a stronger economy, partly offset by challenging winter weather in 1Q14. We expect the Mexican beer industry to return to growth in FY14, driven by a stronger economy, as well as our own commercial programs. We continue to expect Brazil beer industry volumes to resume growth in FY14, helped by the 2014 FIFA World Cup. This is despite the volume impact that will result from the pass-through of the recently announced Federal Excise tax increase. We expect a year of solid industry volume growth in China.”

AMC

Transocean beats by $0.41, beats on revs (RIG): Reports Q1 (Mar) earnings of $1.43 per share, excluding non-recurring items, $0.41 better than the Capital IQ Consensus Estimate of $1.02; revenues rose 7.1% year/year to $2.34 bln vs the $2.27 bln consensus. 

CF Industries beats by $0.01, misses on revs (CF): Reports Q1 (Mar) earnings of $4.51 per share, excluding non-recurring items, $0.01 better than the Capital IQ Consensus Estimate of $4.50; revenues fell 15.3% year/year to $1.13 bln vs the $1.19 bln consensus.

CONTRACT COMMISSIONS

United Tech: Sikorsky wins $1.24 bln U.S. Navy contract to replace ‘Marine One’ helicopter fleet (UTX): The U.S. Navy today announced that Sikorsky Aircraft, a subsidiary of United Technologies Corp. (UTX), has been selected to build the next fleet of Marine One helicopters for the Office of the President. With the selection comes a $1.24 billion Engineering and Manufacturing Development (EMD) contract to modify, test and deliver six FAA-certified S-92 helicopters and two trainer simulators to the U.S. Marine Corps. Covering a period of performance into late 2020, the fixed price incentive firm contract is the initial step to providing, by 2023, a VXX Presidential Helicopter Replacement fleet totaling 21 operational aircraft.

EUROPEAN MARKETS

  • UK’s FTSE: 0.0%
  • Germany’s DAX: + 0.6%
  • France’s CAC: + 0.4%
  • Spain’s IBEX: -0.6%
  • Portugal’s PSI: -1.7%
  • Italy’s MIB Index: -1.3%
  • Irish Ovrl Index: -1.2%
  • Greece ATHEX Composite: + 1.3%

Major European indices spiked off their lows amid reports from Interfax indicating Russia’s President Putin will discuss the Ukraine crisis with the OSCE chairman. 

Economic data was limited: 

    • Eurozone Retail PMI rose to 51.2 from 49.2.
    • Germany’s Factory Orders fell 2.8% month-over-month (consensus 0.3%, previous 0.9%).
    • French Industrial Production declined 0.7% month-over-month (forecast 0.2%, last 0.1%), while the trade deficit widened to EUR4.90 billion from EUR3.80 billion (expected deficit of EUR4.00 billion).
    • Swiss Unemployment Rate held steady at 3.2%, as expected.
  • Germany’s DAX is higher by 0.5% as heavyweights Siemens and Henkel lead with respective gains of 2.2% and 4.9%. Commerzbank lags, trading lower by 3.3% after missing earnings estimates.
  • In France, the CAC is higher by 0.2%. Credit Agricole leads with a gain of 5.4% after beating earnings estimates. On the downside, Veolia Environnement is lower by 3.5% following its disappointing results.
  • Great Britain’s FTSE is lower by 0.2%. WM Morrison Supermarkets is among the laggards, down 5.1% after Credit Agricole downgraded the stock to ‘Sell.’ Consumer names outperform with ITV and InterContinental Hotels both up near 1.5%.
  • Italy’s MIB holds a loss of 0.4%. Shares of Fiat lead the retreat with a loss of 8.2% in reaction to the company’s earnings and its five-year plan that was released today. The company said it expects to sell roughly 7 million vehicles per year by 2018 versus 4.4 million sold in 2014.

ASIAN MARKETS

Asian markets ended lower across the board with Japan’s Nikkei (-2.9%) leading the slide as the market reopened following a two-day closure. Applications for new IPOs in China continued flowing in with 32 more applications being announced by the China Securities Regulatory Commission. Elsewhere, the Bank of Japan released the minutes from its latest meeting, but the release was a non-event for the most part. Policymakers described consumer spending as ‘resilient’ following the April tax hike. 

In economic data:

    • China’s HSBC Services PMI fell to 51.4 from 51.9.
    • Hong Kong’s Manufacturing PMI slipped to 49.7 from 49.9.
    • Australia’s Retail Sales ticked up 0.1% month-over-month (consensus 0.4%, previous 0.3%), while the AIG Construction Index fell to 45.9 from 46.2.
    • New Zealand’s Employment Change came in at 0.9% quarter-over-quarter (expected 0.6%, previous 1.1%), while the Unemployment Rate held steady at 6.0% (consensus 5.9%). Separately, the Labor Cost Index rose 0.3% quarter-over-quarter (consensus 0.5%, previous 0.6%).
  • Japan’s Nikkei (-2.9%) ended on lows as industrials weighed. OKUMA and Yaskawa Electric both lost near 6.0%. On the upside, only three listings posted slim gains, with Japan Tobacco adding 0.9%.
  • Hong Kong’s Hang Seng (-1.1%) spent the entire session in the red amid weakness in property names. China Resources Land and China Overseas Land led the retreat with respective losses of 4.7% and 4.5%.
  • China’s Shanghai Composite (-0.9%) slumped into the close. Technology shares lagged as Routon Electronic and Shanghai Potevio lost 6.0% and 6.7%, respectively. China Vanke outperformed, climbing 1.0%.
  • India’s Sensex (-0.8%) went out on its low as tech listings weighed. Infosys and Wipro lost 3.1% and 1.7%, respectively.
  • Australia’s ASX (-0.8%) was pressured by financials. ANZ Banking Group and Macquarie both lost near 1.0%.
  • Regional Decliners: Malaysia (unch), Philippines (-0.3%), Singapore (-0.3%), South Korea (-1.0%), Taiwan (-0.2%), Thailand (-0.1%)
  • Regional Advancers: Indonesia (+0.6%), Vietnam (+0.9%)

TECHNICAL UPDATE

dow 070514Dow stay mired within its year opening and the next support at 16,250. It is currently in no man’s land, resting on the 50-day MA. It has now formed a Bullish Harami candlestick formation, which could signal a break in the current sideway trend to the upside. Resistance will once again be strong at the year’s open at 16,572.

compq 070514Nasdaq could bounce after a Hammer and a possible third candle reversal in the next session. Resistance is at the year’s open at 4,160.

spx 070514Similar to Dow, S&P 500 is resting on the 50-day MA with a Bullish Harami. Support is at the year’s open while the all time high at 1,892 will prove a significant resistance.

MARKET INTERNALS

NYSE:
Higher
 than previous day volume @ 766.1 mln vs 699.6 mln
Advancers outpaced Decliners (Adv/Dev): 1994/1071
New Highs outpaced New Lows (High/Low): 133/75

NASDAQ:
Higher than previous day volume @ 2466.4 mln vs 1821.0 mln
Decliners outpaced Advancers (Adv/Dev): 1178/1464
New Lows outpaced New Highs (High/Low): 38/178

NYSE 070514NASDAQ 070514

  • NYSE: UVOL outpaced DVOL at a pace of 2.01:1
  • Nasdaq: DVOL outpaced UVOL at a pace of 1:1.59

Volumes continued to improve. Internals showed a divergent picture between both exchanges as Technology lagged significantly. TICK and TRIN remained on the bullish territory for most of the session, with the bulls taking a slender advantage on the NYSE.

COMMODITIES UPDATE

  • Precious metals trended lower in negative territory today as the dollar index traded slightly higher
  • Fed Chair Yellen appeared before the Joint Economic Committee and noted that she expects economic activity will expand at a “somewhat faster pace” this year than it did in 2013
  • June gold pulled back from its session high of $1305.50 per ounce set moments after pit trade opened and settled with a 1.5% loss at $1288.90 per ounce
  • July silver retreated from its session high of $19.59 per ounce in early morning action. Unable to gain momentum, it settled at $19.34 per ounce, or 1.5% lower
  • June natural gas fell into negative territory after it pulled back from its session high of $4.81 per MMBtu set at floor trade open. It touched a session low of $4.71 per MMBtu and settled with a 1.3% loss at $4.74 per MMbtu.
  • June crude oil, on the other hand, traded higher following better-than-anticipated inventory data. The EIA reported that for the week ending May 2, crude oil inventories had a draw of 1.78 mln barrels when consensus called for a build of 1.25-1.4 mln barrels
  • The energy component rose from a session low of $99.79 per barrel and touched a session high of $101.09 per barrel. It eventually settled with a 1.3% gain at $4.74 per MMBtu.

 

CURRENCIES UPDATE

  • The Dollar Index is showing some signs of holding the 79 level after selling pressure in the prior sessions drove it to multi-month lows. The dollar is attempting to climb higher as markets watch Fed Chair Janet Yellen’s testimony in front of Congress. Ms. Yellen has kept a consistent message that points to expectations for a stronger economy in 2H14 with an eye on inflation that continues to run below the 2% target as well as persistent slack in the labor markets. The market will digest the latest commentary but the story remains the same with tapering expected to continue. Politicians are also trying to pigeonhole Ms. Yellen on an exact date for the end of QE and rise of rates but she has proven to have learned from her prior ‘6 month’ comment and pointed to data dependency when these events would occur.
  • The euro has slipped back to the low end of the 1.39 area but remains in a firm upward trend. Economic data was weak as German Factory Orders and French Industrial Production were light. The move lower comes ahead of tomorrow’s ECB meeting. There has been plenty of verbal intervention by ECB members ahead of the meeting but the market doubts there will be any follow through on the jawboning.
  • The pound continues to trade just below the 1.69 level and is holding recent gains firmly. The Bank of England is also set to meet tomorrow but there are few expectations that it will take any action at this point.
  • The yen pulled back from yesterday’s highs but has held its ground above the 102 level as investors remain cautious. The latest Bank of Japan minutes were released last night but were uneventful. The yen briefly rose to a three week high overnight but began to give up some recent gains as Europe opened for trade

BOND MARKET UPDATE 

Treasury Market Stands Its Ground:

  • The Treasury market dipped early, but it didn’t spend too much time in the doldrums.  The 10-yr note settled unchanged with its yield at 2.59%.
  • The front to intermediate part of the Treasury curve saw a pickup in buying interest after her remarks
    • 2-yr note yield fell four basis points to 0.39%
    • 5-yr note yield fell three basis points to 1.65%
  • The weak spot today was the 30-yr bond, which slipped 11 ticks and saw its yield jump two basis points to 3.40%, resulting in a widening of the 5-30 spread to 175 basis points versus 170 basis points at Tuesday’s cash settlement

 2yr: 0.41 -0.02
5yr: 1.65 -0.03
10yr: 2.62 +0.01
30yr: 3.40 +0.02

Some short term fear as money moved out of the longer term maturities into the shorter term.

PREVIEW FOR THURSDAY 8 MAY 2014

  • Key Events Thursday
    • Bank of England policy announcement (7 ET)
    • ECB policy announcement (07:45 ET) followed by Draghi press conference at 08:30 ET
    • Second day of testimony for Janet Yellen in front of Senate Budget Committee
TIME (ET)   REPORT                               PERIOD FORECAST PREVIOUS

THURSDAY, MAY 8
8:30 am Jobless claims 5/3 325,000 344,000

SUMMARY

After a strong recovery back towards the close, including the Nasdaq, which staged a late comeback but was unable to close positive. It seems the bulls are back in the game. Jobless claims will likely be the mover for the earlier part of the day. The bulls’ strength will be tested as they have yet to show any firm commitment.

Direction for Thursday 8 May 2014: Up

06 May 2014 – AMC

060514

A divergent market with low volumes. We narrowly escaped Down Friday Down Monday, however, the recovery was not supported by volumes at all. With data light for the day, resistance might prove strong for the bulls. With the “Sell in May” effect to come into full force, the bulls don’t seem to have a strong case.

Direction for Tuesday 6 May 2014: Down

The breakdown wasn’t brought on by any news, but perhaps the fear of the “Sell in May” effect. An early attempt by the bulls to crawl back up was overran by the bears.

 

Stocks Slide as Russell 2000 Surrenders 200-Day Moving Average
Dow -129.53 at 16401.02, Nasdaq -57.30 at 4080.76, S&P -16.94 at 1867.72
[BRIEFING.COM] Equity indices finished the Tuesday session on their lows after spending the entire day in negative territory. The S&P 500 tumbled 0.9% with nine sectors registering losses, while the Russell 2000 fell 1.6%, settling below its 200-day moving average for the first time since November 2012.

Stocks were pressured from the get-go as index futures slid to their pre-market lows ahead of the opening bell. While the early slide was not brought on by a particular news item, it served as a reflection of the defensive sentiment in the foreign exchange market where the yen rallied to its best level in three weeks. The dollar/yen pair notched a session low in the 101.50 area, before inching up to 101.65 into the close.

The cautious posture was also visible in the Treasury market as the 10-yr note climbed off its overnight low into the New York open and continued into the afternoon. As a result, the 10-yr note added four ticks, sending its yield lower by two basis points to 2.59%.

Once the session got going, dip-buyers tried to force a turnaround, but were unable to do so as some of the top-weighted sectors kept the pressure on the broader market.

Most notably, the financial sector (-1.4%) underperformed for the second consecutive day. Influential components like Bank of America (BAC 14.73, -0.35), Citigroup (C 46.36, -0.82), and JPMorgan Chase (JPM 53.34, -0.88) lost between 1.6% and 2.3%, while AIG (AIG 50.54, -2.18) plunged 4.1% after reporting a bottom-line beat on revenue that missed estimates.

Elsewhere, the discretionary sector (-1.4%) also posted a loss larger than 1.0% amid broad weakness. Retailers (XRT -1.7%) and homebuilders (ITB -2.0%) played a part in the underperformance, while Office Depot (ODP 4.83, +0.66) surged 15.8% after beating earnings estimates.

Also of note, the technology sector (-1.2%) held up a bit better than financials and discretionary shares, but was unable to stay out of the bottom third of today’s leaderboard. Chipmakers, however, had a decent showing as the PHLX Semiconductor Index shed 0.4%.

Momentum names were not nearly as fortunate, with Facebook (FB 58.53, -2.69), LinkedIn (LNKD 142.33, -8.58), and Yelp (YELP 52.13, -8.06) diving between 4.4% and 13.4%, while Twitter (TWTR 31.85, -6.90) sank 17.8% on heaviest volume on record.

Just like momentum names, biotechnology lagged, sending the iShares Nasdaq Biotechnology ETF (IBB 229.33, -3.95) lower by 1.7%, while the health care sector ended in line with the broader market.

On the upside, the energy sector (+0.2%) posted a slim gain to extend its quarter-to-date advance to 5.7%.

Despite the daylong selling, participation was a bit below average as less than 690 million shares changed hands at the NYSE.

Today’s economic data was limited to the March Trade Balance report:

  • The U.S. trade deficit narrowed to $40.40 billion in March from a downwardly revised $41.90 billion (from $42.3 billion) in February, while the Briefing.com consensus expected the trade balance to decline to -$40.6 billion. The BEA assumed that the trade balance would increase to roughly $42.5 billion in the advance estimate to first quarter GDP. The lower-than-expected trade deficit should boost first quarter GDP growth in the second estimate. The goods deficit fell by $0.6 billion to $60.8 billion in March from $61.3 billion in February. The services surplus increased by $0.9 billion to $20.4 billion in March from $19.5 billion in February.

Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET, while Q1 Productivity and Unit Labor Costs will be announced at 8:30 ET. The day’s data will be topped off with a 15:00 ET release of the March Consumer Credit report. Also of note, Fed Chair Janet Yellen will appear before the Joint Economic Committee at 10:00 ET.

  • S&P 500 +1.1% YTD
  • Dow Jones Industrial Average -1.1% YTD
  • Nasdaq Composite -2.3% YTD
  • Russell 2000 -4.6% YTD

 

Industry Watch
Strong: Energy, Utilities
Weak: Consumer Discretionary, Financials, Industrials, Technology

Market Movers
– Yen strength weighs on sentiment: USDJPY slips below 101.75 for the first time since mid-April
– Financials lag for the second consecutive day
– Russell 2000 underperforms

U.S. ECONOMIC DATA AND NEWS UPDATE

U.S. trade deficit falls 3.6% to $40.4 billion in March

The U.S. trade deficit narrowed to $40.40 billion in March from a downwardly revised $41.90 billion (from $42.3 billion) in February, while the Briefing.com consensus expected the trade balance to decline to -$40.6 billion. The BEA assumed that the trade balance would increase to roughly $42.5 billion in the advance estimate to first quarter GDP. The lower-than-expected trade deficit should boost first quarter GDP growth in the second estimate. The goods deficit fell by $0.6 billion to $60.8 billion in March from $61.3 billion in February. The services surplus increased by $0.9 billion to $20.4 billion in March from $19.5 billion in February.

EARNINGS

BMO

Mosaic misses by $0.05, misses on revs (MOS): Reports Q1 (Mar) earnings of $0.54 per share, $0.05 worse than the Capital IQ Consensus Estimate of $0.59; revenues fell 14.1% year/year to $1.99 bln vs the $2.01 bln consensus. 

AMC

Walt Disney beats by $0.15, beats on revs (DIS): Reports Q2 (Mar) earnings of $1.11 per share, excluding non-recurring items,$0.15 better than the Capital IQ Consensus Estimate of $0.96; revenues rose 10.4% year/year to $11.65 bln vs the $11.24 bln consensus.

EUROPEAN MARKETS

  • UK’s FTSE: -0.4%
  • Germany’s DAX: -0.7%
  • France’s CAC: -0.8%
  • Spain’s IBEX: 0.0%
  • Portugal’s PSI: + 0.5%
  • Italy’s MIB Index: -0.6%
  • Irish Ovrl Index: -0.6%
  • Greece ATHEX Composite: -1.4%

Major European indices have slumped to lows during the past 30 minutes of action. Participants received several regional non-manufacturing PMI surveys today. Eurozone Retail Sales rose 0.3% month-over-month (consensus -0.2%, prior 0.1%), while the year-over-year reading increased 0.9% (forecast 1.0%, previous 1.0%). Separately, Services PMI held steady at 53.1, as expected. Germany’s Services PMI fell to 54.7 from 55.0 (consensus 55.0). Great Britain’s Services PMI increased to 58.7 from 57.6 (forecast 57.6). French Services PMI ticked up to 50.4 from 50.3 (consensus 50.3). Italy’s Services PMI rose to 51.1 from 49.5 (expected 50.4). Spain’s Services PMI jumped to 56.5 from 54.0 (forecast 54.4), while the unemployment count declined 111,600 (expected -49,100, previous -16,600). 

Among news of note, with the Bank of England’s policy statement coming up on Thursday, the British pound was boosted by reports suggesting BoE members will discuss interest rates at the upcoming meeting. The pound has climbed to 1.70, its best level since August 2009. 

  • Great Britain’s FTSE is lower by 0.5% as miners weigh. Anglo American, BHP Billiton, and Rio Tinto are all down between 1.6% and 1.9%. On the upside, Persimmon is higher by 3.5% after Barclays hiked its price target for the stock.
  • France’s CAC holds a loss of 0.7% amid weakness in financials. AXA trades down 1.7% and Credit Agricole is lower by 1.1%. On the upside, utilities GDF Suez and Veolia Environnement are both up near 0.8%.
  • Germany’s DAX is lower by 0.8% with exporters on the defensive. BMW, Daimler, and Volkswagen hold losses between 0.8% and 1.5%. Merck is little changed after selling its consumer unit to Bayer for $14.20 billion.

ASIAN MARKETS

In Asia, markets in Japan, Hong Kong, and South Korea were closed, while most other regional indices posted slim gains. In China, the Securities Regulatory Commission has received 30 more applications for IPO filings, increasing the total number of recent applications to more than 240.

Economic data was limited. The Reserve Bank of Australia made no changes to its policy, leaving its key interest rate unchanged at 2.50%. Separately, the trade surplus narrowed to $731 million from $1.26 billion ($1.20 billion expected) as exports fell 2.0% (prior 0.0%) and imports were unchanged (previous 1.0%). Elsewhere, India’s HSBC Services PMI improved to 48.5 from 47.5.

  • Japan’s Nikkei was closed for Greenery Day.
  • Hong Kong’s Hang Seng was closed for Buddha’s Birthday.
  • China’s Shanghai Composite (+0.03%) ended flat after surrendering its intraday gain. Financials held up well with China Vanke climbing 0.7%.
  • India’s Sensex (+0.3%) retreated from its opening high into the close. Financials displayed relative strength, while technology names lagged. ICICI Bank gained 1.9% and Wipro fell 1.1%.
  • Australia’s ASX (+0.4%) was supported by bank shares. ANZ Banking Group, Macquarie, and Westpac gained between 0.2% and 0.7%.
  • Regional Decliners: Indonesia (-0.2%), Philippines (-0.01%), Malaysia (-0.01%), Thailand (-1.2%), Vietnam (-1.7%)
  • Regional Advancers: Singapore (+0.1%), Taiwan (+0.5%)

TECHNICAL UPDATE

dow 060514Long bearish candle. Next intermediate support is at 16,250 before going down to 16,125.

compq 060514Next level of support is the big round number of 4,000.

spx 060514

The year’s open at 1,845 will be the next support for the S&P 500.

MARKET INTERNALS

NYSE:
Higher
 than previous day volume @ 699.6 mln vs 607.1 mln
Decliners outpaced Advancers (Adv/Dev): 969/2094
New Highs outpaced New Lows (High/Low): 86/37

NASDAQ:
Lower than previous day volume @ 1821.0 mln vs 1543.8 mln
Decliners outpaced Advancers (Adv/Dev): 567/20715
New Lows outpaced New Highs (High/Low): 38/93

nyse 060514nasdaq 060514Volumes improved slightly. DVOL outpaced UVOL at a ratio of 3.08:1, highlighting the bear’s dominance. Internals showed a convergent bearish session for today.

COMMODITIES UPDATE

  • June gold chopped around slightly below the unchanged line today despite a weaker dollar index.
  • Economic data showed that the U.S. trade deficit narrowed to $40.40 bln in March from a downwardly revised $41.90 bln (from $42.3 bln) in February, while the Briefing.com consensus expected the trade balance to decline to -$40.6 bln. The yellow metal dipped to a session low of $1304.40 per ounce in morning action and eventually settled with a 0.1% loss at $1308.30 per ounce.
  • July silver, on the other hand, traded higher today. It brushed a session high of $19.70 per ounce in early morning action and consolidated near the $19.65 per ounce level for the remainder of the session. It settled with a 0.4% gain at $19.64 per ounce.
  • June crude oil pushed to a session high of $100.42 per barrel in morning action but gave up the gain in the last hour of pit trade. The energy component fell to a session low of $99.47 per barrel moments before settling at $99.52 per barrel, just 0.1% higher.
  • June natural gas trended higher after lifting from its session low of $4.74 per MMBtu. It held on to the momentum and settled 2.3% higher at $4.80 per MMBtu, just below its session high of $4.81 per MMBtu.

 

CURRENCIES UPDATE

Dollar Breaks to Lowest Level Since October:
  • The Dollar Index presses session lows near 79.10 as trade readies for its worst close in more than six months.
  • The 79.00 area remains squarely in focus as trade presses the level which has held up since late-2011/early 2012.
  • EURUSD is +55 pips @ 1.3930 as trade contends with its best close since November 20111. Today’s bid has the single currency on track to record a fifth straight day of gains as traders begin to position themselves for Thursday’s European Central Bank rate decision. Most participants expect the ECB to stand pat with expectations of any action being pushed back to the June meeting. Eurozone data includes French industrial production and German factory orders.
  • GBPUSD is +110 pips @ 1.6980 as trade holds at its best levels since August 2009. Today’s bid developed following the strong Services PMI number, and has run action up to the 100 mma. A print above 1.7043 would be the best since October 2008.
  • USDCHF is -40 pips @ .8735 as action tests the March lows. Today’s selling has the pair lower for the eighth time in ten days as several attempts to reclaim the 50 dma have failed. A flush below .8700 will produce the lowest print since October 2011. Switzerland’s Fx reserves will be announced tomorrow.
  • USDJPY is -55 pips @ 101.60 as trade slides to its lowest level in three weeks. Action over the past two days has come a deuced volumes as Japanese banks were closed for holiday, meaning tonight’s action will be watched closely. The 101.00/101.25 level remain critical to the bull case in the days ahead. The latest Bank of Japan minutes will cross the wires tonight.
  • AUDUSD is +85 pips @ .9360 as action looks to put in its best close in two weeks. The hard currency has attracted buyers in today’s session after the Reserve Bank of Australia held its key rate unchanged at a record low 2.50%. Notable were comments from the RBA suggesting that while the currency remains too strong, rates are likely to remain stable for the foreseeable future. Australian data is limited to retail sales.
  • USDCAD is -75 pips @ 1.0880 as trade slides to three-week low despite today’s disappointing Canadian trade balance ($0.1 bln actual v. 0.4 bln expected) and Ivey PMI (54.1 actual v. 54.5 expected, 55.2 previous) figures. A close below 1.0880 would be the lowest since mid-January. Canada’s building permits are due out tomorrow.

BOND MARKET UPDATE 

Treasuries End on Highs:
  • Treasuries closed near their highs, supported by this afternoon’s $29 bln 3y note auction.
  • The complex held small losses into the cash open before retaking the flat line following the release of this morning’s in-line trade data (-$40.4 bln actual v. -$40.6 bln expected).
  • A choppy trade would persist into this afternoon’s solid $29 bln 3y note auction.
  • The auction drew 0.928% and a 3.40x bid/cover. A light indirect takedown (28.1%) was offset by a strong showing from direct bidders (24.5%). Primary dealers ended up with 47.4% of the supply.
  • Post-auction buying dropped yields onto their lows, where they would spend the remainder of the session.
  • The long bond led the way with the 30y slipping -2.7bps to 3.381%. The yield on the long bond settled just off its lowest level in more than 10 months.
  • The 10y eased -1.6bps to 2.595%. That area will be under close watch in the days ahead as support there dates back to November.
  • A flat trade saw the 5y hold @ 1.681% following yesterday’s bounce off the 50 dma (1.647%).
  • A flatter curve took hold as the 5-30-yr spread narrowed to 170bps.

 2yr: 0.43 unch
5yr: 1.68 unch
10yr: 2.61 -0.02
30yr: 3.38 -0.03

The bond market paints a fearful picture as the yields on the longer term maturities dropped significantly, signalling more buying as long term fear creeps into the risk market.

PREVIEW FOR TUESDAY 7 MAY 2014

 

  • Auction: $24 bln 10y note offering.
  • Fed Speak: Fed Chair Janet Yellen will testify before the Joint Economic Committee (10). Dallas’ Fisher will speak in front of the Louisiana Bankers Association (12 noon) and Minny’s Kocherlakota makes keynote remarks at the Council on Asian Pacific Minnesotans 2014 Asian Heritage Dinner (20:10).

 

TIME (ET)   REPORT                               PERIOD FORECAST PREVIOUS
WEDNESDAY, MAY 7
8:30 am Productivity 1Q -1.1% 1.8%
8:30 am Unit labor costs 1Q -0.1%
10 am Janet Yellen testimony
3 pm Consumer credit March $16.5 bln

SUMMARY

The market should take a breather after such a bearish session. I’d reckon we will have a flat session, more towards the downside as there seems little potential for the bulls to come in and take control. However, Fed Speak, especially Janet Yellen’s testimony could potentially gyrate the market.

Direction for Wednesday 7 May 2014: Down

05 May 2014 – AMC

050514

All 3 indices opened lower with worries on the Ukraine situation and the poor PMI data from China. However, a strong data from the ISM non-manufacturing index sparked a rally to close the market flat. We narrowly escaped another Down Friday Down Monday.

 

Stocks Begin Trading Week on Quiet Note
Dow +17.66 at 16530.55, Nasdaq +14.16 at 4138.06, S&P +3.52 at 1884.66
[BRIEFING.COM] The stock market kicked off the new trading week on a sleepy note as the major averages spent the bulk of the session near their flat lines. However, a final push during the last hour of action placed the key indices at new highs into the close. The S&P 500 added 0.2%, while the Russell 2000 (-0.1%) lagged throughout the day.Equities began the session on their lows as renewed global growth concerns, combined with continued worries about Ukraine, conspired to ensure a cautious start. In China, the HSBC Manufacturing PMI fell to 48.1 from 48.3 (expected 48.4), signifying a slowdown in manufacturing activities.Elsewhere, the European Commission warned about slower-than-expected growth by lowering its 2014 inflation forecast to 0.8%. The commission also trimmed next year’s inflation forecast to 1.2%, while lowering its 2015 GDP forecast to 1.7% from 1.8%.Strikingly, the worries that pressured index futures overnight were cast aside once the opening bell rang. The major averages returned to their flat lines during the first 90 minutes of action, but were unable to continue their rally as financials (-0.4%) acted as a wet blanket.

The second-largest sector finished the day at the bottom of the leaderboard as JPMorgan Chase (JPM 54.22, -1.36) weighed after guiding for a 20.0% year-over-year decline in Q2 markets revenue. Shares of JPM fell 2.5%, while peers Bank of America (BAC 15.08, -0.17) and Citigroup (C 47.18, -0.55) both lost near 1.2%.

Meanwhile, the remaining top-weighed sectors finished on a mixed note. Health care (+0.6%) and technology (+0.4%) outperformed, while the discretionary sector (+0.1%) lagged.

Retailers contributed to the underperformance of the discretionary space, with Target (TGT 59.87, -2.14) falling 3.5% after announcing Chief Executive Officer Gregg Steinhafel will step down from his post. Homebuilders also factored into the relative weakness of the discretionary sector after investor Jeffrey Gundlach recommended shorting the housing sector at the Ira Sohn conference. The iShares Dow Jones US Home Construction ETF (ITB 23.66, -0.29) lost 1.2%.

Elsewhere, the two commodity-related sectors—energy (+0.5%) and materials (+0.5%)—finished among the leaders. The energy space rallied even as crude oil shed 0.4% to $99.46/bbl, while producers of basic materials drew strength from miners. The Market Vectors Gold Miners ETF (GDX 24.41, +0.09) gained 0.4%, while gold futures climbed 0.5% to $1309.60/ozt.

On the fixed income side, Treasuries finished in the red after sliding from their overnight highs. The benchmark 10-yr yield rose two basis points to 2.61%.

Participation was well below average with less than 600 million shares changing hands at the NYSE.

Economic data was limited to just one report:

  • The ISM Non-manufacturing Index increased to 55.2 in April from 53.1 in March. That was the strongest reading since August 2013, while the Briefing.com consensus expected the index to increase to 54.0. Business activities/production levels improved to 60.9 in April from 53.4 in March. The increase in production was predicated on a large increase in new orders (58.2 from 53.4). There is some concern that production may not be sustainable without another influx of new orders growth. Order backlogs slipped into a contraction in April (49.0 from 51.5). The Employment Index fell to 51.3 in April from 53.6 in March, which was unusual considering the April Employment Situation Report showcased a large increase in payrolls that month.Tomorrow, the Trade Balance for March (Briefing.com consensus -$42.50 billion) will be released at 8:30 ET.
  • S&P 500 +2.0% YTD
  • Dow Jones Industrial Average -0.3% YTD
  • Nasdaq Composite -0.9% YTD
  • Russell 2000 -3.0% YTD

 

Industry Watch
Strong: Energy, Technology, Materials, Utilities
Weak: Consumer Discretionary, Financials, Industrials

Market Movers
– JPMorgan Chase (JPM) cuts Q2 markets revenue guidance
– European Commission lowers 2014 inflation forecast to 0.8%
– China’s HSBC Manufacturing PMI disappoints (48.1 versus expected 48.4)

U.S. ECONOMIC DATA AND NEWS UPDATE

ISM non-manufacturing index rises to 55.2% in April

WASHINGTON (MarketWatch) — Growth picked up last month for the U.S. service sector and other non-manufacturing companies, according to data released Monday. The Institute for Supply Management said its non-manufacturing index rose to 55.2% in April — the highest reading in six months — from 53.1% in March. Economists polled by MarketWatch had expected an April reading of 54.2%. Readings over 50% signal expansion — the higher the reading, the faster the expansion. ISM said the new-orders barometer rose 4.8 points to 58.2%, and the business activity/production barometer increasd 7.5 points to 60.9%. Meanwhile, the non-manufacturing employment gauge fell 2.3 points to 51.3%. Among 18 industries tracked by ISM, 14 reported growth last month, while four contracted.

EARNINGS

BMO

Pfizer beats by $0.02, misses on revs; reaffirms FY14 guidance (PFE) 30.75 : Reports Q1 (Mar) adj. earnings of $0.57 per share, $0.02 better than the Capital IQ Consensus Estimate of $0.55 (reported EPS $0.36); revenues fell 8.5% year/year to $11.35 bln vs the $12.01 bln consensus, which reflects an operational decline of $693 million, or 6%, and the unfavorable impact of foreign exchange of $364 million, or 3%. Co reaffirms guidance for FY14, sees EPS of $2.20-2.30, excluding non-recurring items, vs. $2.24 Capital IQ Consensus; sees FY14 revs of $49.2-51.2 bln, excluding non-recurring items, vs. $49.61 bln Capital IQ Consensus Estimate. 

AMC

American Intl beats by $0.15, misses on top line (AIG) 52.72 +0.37 : Reports Q1 (Mar) earnings of $1.21 per share, excluding non-recurring items, $0.15 better than the Capital IQ Consensus Estimate of $1.06; net premiums earned fell 3.8% year/year to $8.23 bln vs the $8.62 bln consensus. 

EUROPEAN MARKETS

  • UK’s FTSE: Closed
  • Germany’s DAX: -0.3%
  • France’s CAC: + 0.1%
  • Spain’s IBEX: 0.0%
  • Portugal’s PSI: -0.2%
  • Italy’s MIB Index: -0.7%
  • Irish Ovrl Index: Closed
  • Greece ATHEX Composite: -0.6%

Major European indices trade lower across the board, while Great Britain’s FTSE is closed for an Early May Bank Holiday. Today’s economic data was limited. Eurozone PPI fell 0.2% month-over-month, as expected, while the year-over-year reading declined 1.6% (consensus -1.7%, prior -1.7%). Separately, Sentix Investor Confidence fell to 12.8 from 14.1 (expected 14.2).

Among news of note, the European Commission has lowered its GDP and inflation forecasts for the eurozone. The Commission now expects 2014 inflation to come in at 0.8%, while next year’s inflation is expected to increase 1.2%. The 2015 GDP forecast was also revised lower, to 1.7% from 1.8%.

  • Great Britain’s FTSE is closed.
  • In France, the CAC is lower by 0.9% amid weakness in financials. AXA, Credit Agricole, and Societe Generale are down between 1.8% and 2.3%. On the upside, telecom provider Orange is the lone advancer, up 0.3%.
  • Germany’s DAX holds a loss of 1.4% with all 30 components in the red. Growth-sensitive names weigh as BMW and Deutsche Bank trade lower by 2.0% and 2.3%, respectively.

ASIAN MARKETS

Asian markets began the week on a mixed note, while Japan’s Nikkei was closed for Children’s Day. Elsewhere, Hong Kong’s Hang Seng (-1.3%) trailed the region after China’s HSBC Manufacturing PMI fell to 48.1 from 48.3 (expected 48.4). Separately, Non-Manufacturing PMI ticked up to 54.8 from 54.5. Also of note, China Securities Regulatory Commission has announced that 25 new companies will come to market, pushing the total number of recent IPOs past 200.

In other regional data, Australia’s Building Approvals fell 3.5% month-over-month (consensus 1.0%, previous -5.4%), while ANZ Job Advertisements increased 2.2% (prior 1.4%). Separately, MI Inflation Gauge ticked up 0.4% month-over-month (previous 0.2%). Indonesia’s GDP rose 0.95% quarter-over-quarter (expected 1.26%, prior -1.42%), while the year-over-year reading increased 5.21% (consensus 5.60%, previous 5.72%).

  • Japan’s Nikkei was closed
  • Hong Kong’s Hang Seng lost 1.3% after spending the bulk of the session in negative territory. Heavyweight names lagged, with Hutchinson Whampoa, Want Want China Holdings, and Lenovo Group down between 1.8% and 8.1%. China Unicom Hong Kong outperformed, climbing 2.7%.
  • China’s Shanghai Composite rallied off lows during the final 90 minutes of action, finishing with a slim gain of 0.1%. Utility provider Shenyang Jinshan Energy surged 8.8%, while financials lagged. China Vanke fell 2.0%.
  • India’s Sensex (+0.2%) was supported by energy names. Oil & Natural Gas Corp and Reliance Industries both gained near 2.0%. Technology names lagged as Infosys and Wipro fell close to 1.4% apiece.
  • Australia’s ASX (+0.1%) eked out a slim gain as miners rallied. BHP Billiton and Rio Tinto gained 0.6% and 1.1%, respectively.
  • Regional Decliners: Malaysia (-0.5%), Singapore (-0.3%), Vietnam (-2.3%)

TECHNICAL UPDATE

dow 050514Despite the recovery, the Dow was unable to break above its high and closed near the resistance with a Hanging Man. Seems like more downside potential as we continue into May.compq 050514The tech-heavy index made solid gains despite opening lower, mainly due to AAPL pushing through $600 since 2012. Similar to Dow, it was unable to break above the year’s open.

spx 050514S&P 500 was also unable to break above its all time high and has formed a Hanging Man candlestick formation. Support is relatively strong at the year’s open.

 

MARKET INTERNALS

NYSE:
Lower
than previous day volume @ 607.1 mln vs 694.9 mln
Decliners outpaced Advancers (Adv/Dev): 1491/1529
New Highs outpaced New Lows (High/Low): 82/26

NASDAQ:
Lower than previous day volume @ 1543.8 mln vs 1824.5 mln
Decliners outpaced Advancers (Adv/Dev): 1153/1473
New Lows outpaced New Highs (High/Low): 31/70

nyse 050514nasdaq 050514Volumes were significantly lower on a quiet Monday. DVOL outpaced UVOL 1.32:1 on the NYSE. The TICK was in positive territory for most of the session while the TRIN never crossed into the bullish territory for the entire session. Internals are painting a much different and divergent picture.

COMMODITIES UPDATE

  • June gold traded higher as it got a boost from a slightly weaker dollar index and escalating tension in Ukraine. The yellow metal brushed a session high of $1315.80 per ounce in early morning action and eventually settled with a 0.5% gain at $1309.40 per ounce.
  • July silver pulled back from its session high of $19.75 per ounce set moments after floor trade opened. Although it remained in positive territory, silver cut gains for the day to 0.1% as it settled at $19.57 per ounce.
  • June crude oil fell into the red as a disappointing Chinese HSBC Final Manufacturing PMI reading that came in at 48.1 (down from the flash reading of 48.4) weighed on prices. The energy component retreated from its session high of $100.06 per barrel and dipped as low as $98.91 per barrel. It eventually settled at $99.46 per barrel, or 0.4% lower.
  • June natural gas traded in positive territory, touching a session high of $4.73 per MMBtu. It pulled back heading into the close and settled with a 0.4% gain at $4.69 per MMBtu.

 

CURRENCIES UPDATE

Dollar Trades Flat:
  • The Dollar Index hovers little changed near 79.50 as a sleepy session drifts into the final hour of trading.
  • Today’s action has been lackluster, limited to a less than 10 cent range.
  • EURUSD is +10 pips @ 1.3880 as trade fights for its best close in over three weeks. The single currency has managed to tick higher amid today’s sleepy session despite the EU lowering its 2015 growth and inflation forecasts. Minor resistance in the area is that all guards the March highs near 1.3925. Eurozone data is heavy as retail sales accompany Spanish unemployment change and Italian and Spanish Services PMI.
  • GBPUSD is -5 pips @ 1.6870 as trade holds near its best levels since August 2009. Today’s session has been lackluster as British banks were closed in observance of May Day. British data is limited to Services PMI.
  • USDCHF is flat @ .8775 as a sleepy session nears the finish. Traders have looked elsewhere for opportunity as trade has been limited to just 15 pips.
  • USDJPY is -5 pips @ 102.10 after early selling dropped trade to a three-week low. All in all, action has been sloppy as Japanese banks were closed for Children’s Day, and remain closed tomorrow for Greenery Day.
  • AUDUSD is flat @ .9275. Trade over much of the past two weeks has been trapped in a tight 50 pip range (.9250/.9300). The Australian trade balance will cross the wires ahead of the Reserve Bank of Australia rate decision.
  • USDCAD is -20 pips @ 1.0950 as trade fails to reclaim the 100 dma for a fourth straight session. A breakdown of minor support in the area puts the April lows (1.0850) back in play. Canada’s trade balance and Ivey PMI are due out tomorrow.

BOND MARKET UPDATE 

Treasuries Close on Lows:
  • Treasuries closed on their lows as sellers took control for the first time in five days.
  • Maturities held small overnight gains into the cash open, but quickly tumbled off of those levels after Services PMI (55.2 actual v. 54.0 expected) topped estimates.
  • Post-data selling quickly dropped Treasuries onto their lows, where they would remain for the remainder of the session.
  • Selling weighed heaviest at the long end as the 30y added +4.1bps to 3.408%. Today’s selling ran the 30y off its 10-month lows.
  • The 10y tacked on +2bps to finish @ 2.611%. Overnight buying dropped the benchmark yield to its lowest since Halloween, but the post-ISM Services selling allowed the yield to reclaim key 2.600% support.
  • Light selling in the belly saw the 5y climb +0.7bps to 1.681%. The yield saw an early bounce off 1.650% support that is aided by the 50 dma.
  • A steeper curve took hold as the 5-30-yr spread widened to 172.5bps.

 2yr: 0.43 +0.01
5yr: 1.68 +0.01 
10yr: 2.63 +0.03
30yr: 3.41 +0.04

Yields rose across the board as bonds sold off. The selloff was significantly apparent in the longer term maturities, which might mean a shift of money into the risk market, which coincided with a recovery from a negative open.

PREVIEW FOR TUESDAY 6 MAY 2014

  • Auction: $29 bln 3y notes
  • Fed Speak: Fed Governor Stein will speak at NYU (19)
TIME (ET)   REPORT PERIOD FORECAST PREVIOUS
TUESDAY, MAY 6
8:30 am Trade deficit March -$39.8 bln -$42.3 bln

SUMMARY

A divergent market with low volumes. We narrowly escaped Down Friday Down Monday, however, the recovery was not supported by volumes at all. With data light for the day, resistance might prove strong for the bulls. With the “Sell in May” effect to come into full force, the bulls don’t seem to have a strong case.

Direction for Tuesday 6 May 2014: Down