Thursday, 13 Nov 2014 - AMC

A Divergent Session with unconvincing gains

Market Summary

from Briefing.com

[BRIEFING.COM] The major averages settled near the middle of their ranges after sliding from early highs. The S&P 500 gained a point while the Russell 2000 (-0.9%) underperformed throughout the trading day.

Equity indices started the day on an upbeat note with the S&P 500 rising into fresh record territory with help from three sectors that represent roughly 40% of the market. To that point, consumer discretionary (+0.6%), consumer staples (+0.5%), and technology (+0.6%) rallied at the start and displayed relative strength throughout the day.

However, the strength in the influential trio was not enough to keep the benchmark index near its high with the energy sector (-1.4%) acting as a big drag. The sector, and crude oil, spent the day in a steady retreat after China's Industrial Production growth slowed to 7.7% (expected 8.0%) and the ECB's Survey of Professional Forecasters lowered the region's 2014 harmonized inflation outlook to 0.5% from 0.7% and cut the 2015 forecast to 1.0% from 1.2%. Crude plunged 3.9% at $74.17/bbl after a daylong retreat that was capped with a $1.33 straight-line dive from the $75.50 level.

As for the energy sector, the group cut its loss in half in reaction to afternoon reports indicating Halliburton (HAL 53.79, +0.56) is in talks to buy Baker Hughes (BHI 58.75, +7.77). Baker Hughes surged 15.2%. The weakness in energy did not stop the Dow Jones Industrial Average (+0.2%) from registering a modest gain since the index contains just two members of the energy sector. Chevron (CVX 116.45, -1.20) and ExxonMobil (XOM 94.66, -0.72) lost 1.0% and 0.8%, respectively. Outside of the two names, Caterpillar (CAT 101.11, -1.88), which relies heavily on China, was the only other laggard of note within the Dow. Shares of CAT ended lower by 1.9%.

On the upside, the consumer discretionary sector received support from media names after the House Energy and Commerce Committee told the Federal Communications Commission that reclassifying the internet as a utility is outside of its authority. Time Warner Cable (TWC 141.05, +4.57) climbed 3.4% to underpin the sector after Comcast (CMCSA 54.30, +0.70) said its merger with TWC remains on track.

Meanwhile, the other consumer sector—staples—spent the day in the green thanks to a better than expected report from Wal-Mart (WMT 82.94, +3.74). The bottom-line beat overshadowed the company's guidance for flat comparable store sales in Q4.

Elsewhere, the technology sector advanced amid gains in top-weighted components. Apple (AAPL 112.82, +1.57), Intel (INTC 33.68, +0.30), and Microsoft (MSFT 49.61, +0.83) added between 0.9% and 1.7% while Cisco Systems (CSCO 25.68, +0.57) jumped 2.3% after beating earnings estimates on light guidance.

Treasuries climbed throughout the day, but backed away from highs into the close. The 10-yr yield fell three basis points to 2.35%.

Participation was a bit below long-term average as 690 million shares changed hands at the NYSE floor.

Economic data included Initial Claims, JOLTs, and the Treasury Budget:
The initial claims level increased to 290,000 from an unrevised 278,000 while the Briefing.com consensus expected an increase to 280,000
The Department of Labor said there were no special factors influencing the report
The Job Openings and Labor Turnover Survey for September indicated job opening decreased to 4.735 million from 4.853 million
The Treasury Budget for October showed a deficit of $121.70 billion, which followed the prior deficit of $90.60 billion while the Briefing.com consensus expected the deficit to hit $122.00 billion

Economic Data

• Unemployment Claims - 8.30am : 290k vs 282k ; Prior 278k
• JOLTS Job Opening - 10:00am: 4.735k vs 4.81k ; Prior 4.84M
• Crude Oil Inventories - 11:00am : -1.735M vs 0.7M;Prior 0.5M
• Treasury Budget - 2:00pm : -121.7B vs -111.5B; Prior 105.8B

Note: Continuous claims?

Technical Update

Under Construction

Market Internals

NYSE :
Lower than prev day volume @ 708.1M vs 718.4M
Decliners outpaced Advancers(adv/dec): 1094M/1986M
New highs outpaced low(high/low): 177/62

NASDAQ :
Higher than prev day volume @ 1843.1M vs 1565.4M
Decliners outpaced Advancers(adv/dec): 901M/1807M
New highs outpaced low(high/low): 148/66


VOLATILITY S&P500 (VIX)
13.79 +0.77(5.91%)

Decliners outpaced Advancer by an average 1.90 to 1 on higher volumes than prev day (+267.4 +11.71%)

Bonds, Currencies & Commodities

from Briefing.com

Bonds

Treasuries Eke Out Gains

• Treasuries eked out small gains amid a volatile session.
• The complex held small losses into the cash open and rallied into the disappointing initial (290K actual v. 280K expected) and continuing claims (2392K actual v. 2353K expected) data. 
• Maturities slide back towards their early lows as some selling developed in response to the claims data, but were unable to make for a full retest of those levels. 
• Buying developed into today's 30Y auction, but quickly stalled. 
• The $16 bln 30Y bond auction was tepid, drawing 3.092% (WI 3.078%) and a weak 2.29x bid/cover. Indirect (43.8%) and direct (13.8%) bids were short of their 12-auction averages, but primary dealers were left with just 42.4% of the supply.
• Post-auction selling provoked a retest of the early lows before heavy buying emerged in what seemed to correspond to UPS lowering its EPS guidance for 2015. 
• A sharp rally from session lows to session highs developed afternoon trade before some profit-taking emerged ahead of the cash close.
• Up front, the 2Y fell -3.6bps to 0.507%. Action once again failed at resistance in the 0.550% area. 
• In the belly, the 5Y slid -1.7bps to 1.623%. Resistance in the 1.650% area once again proved difficult to conquer as buyers defended the 50, 100, and 200 dma. 
• The 10Y erased -1.2bps to 2.347%. The benchmark yield remains unable to reclaim resistance in the 2.350%/2.400% region that is guarded by the 50 dma. 
• The long end lagged with the 30Y slipping -0.4bps to 3.076%. The yield on the long bond tested resistance at 3.100%, but was once again unable to capture the level. 
• A slightly steeper curve took holds as the 2-10-yr spread widened to 184bps. 
• Precious metals saw a mixed session as gold added $1 to $1160 and silver eased -$0.05 to $15.57. 
• Data: Retail sales, import/export prices (8:30), Michigan Sentiment (9:55), and business inventories (10). 
• Fed Speak: STL's Bullard speaks on the U.S. economy and monetary policy (9:10).

Currencies

Dollar Slips in Choppy Trade:

• The Dollar Index continues to hold small losses near 87.75. 
• The greenback has spent the entire session below the flat line with most of the action taking place in a tight 15 cent range. 
• EURUSD is +40 pips @ 1.2480 as trade has recovered all of yesterday's losses. The single currency hovers near 27-month lows as a lack of tradable news and data from the region has made for a choppy session. Tomorrow, Eurozone Final CPI and French nonfarm payrolls accompany GDP data from across the region. 
• GBPUSD is -70 pips @ 1.5710 as action presses to its lowest levels in 14 months. Sterling remains under pressure following yesterday's dovish inflation report, which suggested inflation could slide below 1% by mid-2015 and that rate hikes are no sure thing. Britain's construction output will be released tomorrow.
• USDCHF is -30 pips @ .9635 as trade slides off 16-month highs. Traders remain more focused on EURCHF as trade holds unchanged @ 1.2020, and remains just above the Swiss National Bank's 1.2000 floor.
• USDJPY is +20 pips @ 115.70, and threatens its best close in seven years. The pair saw a volatile trade early as confusion over possible early elections and a delay to the consumption tax hike continue to garner headlines. The 116.00 level has been a headwind over the past couple of sessions. 
• AUDUSD is flat @ .8720 after surrendering its early gains. The hard currency climbed to a high of .8765 following the jump in inflation expectations, but trade has been capped thanks to disappointing Chinese data.
• USDCAD is +50 pips @ 1.1365 as action holds near its best levels of the day. The pair found a bid following the disappointing New Home Price Index (0.1% MoM actual v. 0.2% MoM expected) as buyers emerged in defense of 1.1300 support. Canadian data scheduled for tomorrow is limited to manufacturing sales.

Commodities

WTI Crude Oil Drops Below $75/Barrel, Nat Gas Back Below $4/MMBtu :

Crude broke down hard today, down sharply even after crude oil inventories showed a draw -1.735 mln vs consensus for a build of 0.7 mln.

The move is highly technical, breaking below what was an important level of support at $75/barrel.

Over the past three years, futures have tested, but not broken through that level three times. This big leg lower comes ahead of the Nov 27 OPEC meeting.

Natural gas is also tumbling, filling the the 11/3 gap higher and breaking an important level of support at $4. There is a potential support level at its 50 DMA, right around 3.95. On the intraday chart, you can see the move lower started this morning, and has continued falling from there, hitting a LoD of 3.971 just after settlement. The move comes ahead of tomorrow's inventory data due out at 10:30 ET.

Preview: Friday, 14 Nov 2014

Economic Data

• Retail Sales – 08:30 : 0.3% /Prior -0.3%
• Retail Sales ex-auto – 08:30 : 0.3% /Prior -0.2%
• Export Prices ex-ag. – 08:30 : Prior -0.2%
• Import Prices ex-oil – 08:30 : Prior -0.1%
• Michigan Sentiment – 09:55 : 87.5 /Prior 86.9
• Business Inventories – 10:00 : 0.2% /Prior 0.2%

Note: Why Export & Import Prices ex- ag, ex-oil?

Other Events of Interest

• Fed’s Plosser (2014 voting; 2015 non-voting) – 12:30
• 30 Year $16-bln Treasury Note Auction – 13:00

Commentary