Market was short selling down at the opening and remained in red for the rest of the session. Black Friday sales was not doing great as expected and the weakening in manufacturing index seems to bring the market down.
Furthermore, the slowing down in China's and Germany's manufacturing PMI also led to an increase in the short selling.
Market Summary
Industry Watch
Strong: Health Care, Utilities
Weak: Consumer Discretionary, Consumer Staples, Financials, Industrials, Materials, Technology
Other Market Moving Factor:
- Growth concerns persist after Moody's downgrade of Japan (A1 from Aa3) and Germany's Manufacturing PMI falling into contraction (49.5; expected 50.0)
- Crude oil rebounds from overnight low at $64.00/bbl
Equities faced selling pressure from the opening bell after the overnight session reminded investors about persistent growth concerns around the globe. In Asia, China's HSBC Manufacturing PMI fell to an eight-month low (50.3; expected 50.5) while Japan's debt rating was lowered to A1 from Aa3 at Moody's. Making matters worse, Germany's Manufacturing PMI slid into contraction (49.5; expected 50.0) while the eurozone Manufacturing PMI narrowly avoided the same fate (50.1; expected 50.4).
Accordingly, the concerns about major economies kept cyclical sectors under pressure with five of six growth-sensitive groups ending behind the broader market. The industrial sector (-1.3%) slumped to the bottom of the leaderboard at the start and remained in that spot until the close. Transport stocks were largely responsible for the weakness with the Dow Jones Transportation Average ending lower by 2.7%.
Elsewhere among cyclical sectors, the top-weighted technology space (-1.1%) endured a late-morning plunge in the shares of Apple (AAPL 115.05, -3.88). The largest sector component was down as much 6.3% during the opening hour, but narrowed its loss to 3.3%. Chipmakers fared a bit better than Apple, but worse than the sector as evidenced by a 1.3% decline in the PHLX Semiconductor Index.
The energy sector (+0.8%) was the only cyclical group that finished ahead of the market thanks to a rebound in crude oil. The energy component rallied 4.1% to $69.02/bbl after marking an overnight low at $64.00/bbl. As for the energy sector, the group was underpinned by some of its main components like Chevron (CVX 111.73, +2.86) and ExxonMobil (XOM 92.35, +1.81). The two Dow components gained 2.6% and 2.0%, respectively, to help the price-weighted Dow (-0.3%) finish ahead of the broader market.
Over on the countercyclical side, the utilities sector (+0.2%) spent the bulk of the day in the green while other defensively-oriented sectors ended mixed. Health care (-0.2%) and consumer staples (-0.6%) settled ahead of the S&P 500 while the telecom services sector (-1.0%) lagged.
Treasuries notched their highs shortly after the opening bell and spent the remainder of the day in a steady retreat. The 10-yr yield climbed five basis points to 2.22%.
Today's participation was ahead of average with more than 850 million shares changing hands at the NYSE floor.
Economic data was limited to the ISM Index, which fell to 58.7 from 59.0 while the Briefing.com consensus expected a decline to 58.0. The Production Index fell to 64.4 from 64.8, which resulted from manufacturers delaying production until a later time. New orders improved as the related index increased to 66.0 from 65.8. Meanwhile, order backlogs increased to 55.0 from 53.0 in October.
Tomorrow, the Construction Spending report for October will be released at 10:00 ET (Briefing.com consensus 0.6%).
Macroeconomic Data
Economic Data
from Bloomberg
MANUFACTURING PMI
Highlights
Composite monthly growth in Markit's US manufacturing sample slowed in November, to a 10-month low of 54.8 from 55.9 in October. The mid-month flash for November was 54.7. Looking at details, output slowed for a 3rd straight month and is also at a 10-month low for this sample. New orders also slowed and are also at a 10-month low with export orders in contraction. A plus in the report is a strong gain for employment, yet whether Markit's sample will continue to hire is uncertain given the slowing in new orders. Price readings in this report remain soft, reflecting falling fuel prices for inputs and strong competition for finished goods. The manufacturing sector has been flat going into year end and these results point to moderation for the upcoming ISM report at 10:00 a.m. ET this morning, a report that has been running very hot relative to other data.
ISM MANUFACTURING PMI
Highlights
Rates of monthly growth in ISM's manufacturing sample remain extremely strong and well beyond other reports, especially government data which have been flat. ISM's composite index held very strong near recovery highs, at 58.7 in November vs 59.0 in October. New orders came in at a blistering 66.0 vs October's 65.8 with backlog orders up 2.0 points to 55.0 which is very strong for this reading. Employment growth remained solid, at 54.9 vs 55.5, while production growth remained very strong at 64.4 vs 64.8. Delivery times slowed in a further indication of strength while inventories held steady. A notable reading in today's report is contraction in input prices, at 44.5 vs October's 53.5. This is the first price contraction since July last year and reflects falling oil prices.
It's difficult to make conclusions based on ISM's sample which, again, has been reporting some of the strongest readings of any manufacturing indicator on the calendar. The Dow is moving slightly off opening lows following today's report.
It's difficult to make conclusions based on ISM's sample which, again, has been reporting some of the strongest readings of any manufacturing indicator on the calendar. The Dow is moving slightly off opening lows following today's report.
Market Internals
NYSE:
Higher Volumes than the day before – 877.3M vs 605.7M
Decliners outpaced Advancers (adv/dec): 695 / 2423
New Lows outpaced New Highs (highs/lows): 130 / 237
NASDAQ:
Higher Volumes than the day before – 1882.1M vs 980.0M
Decliners outpaced Advancers (adv/dec): 617 / 2146
New Lows outpaced New Highs (highs/lows): 56 / 168
VOLATILITY S&P500 (VIX)
14.29 +0.96 (+7.20%)
Market internals still remain bearish. VIX went up despite it has been volatile. From the looks of it, I think the bulls are still not out of the game...
Technical Updates
17,776.80 -51.44 (-0.29%)
Volume: 86,391,921 (below average of 89,027,012)
Range: 17,726.55 - 17,827.27
4,727.35 -64.28 (-1.34%)
Volume: 481,089,211 (below average of 491,695,814)
Range: 4,724.62 - 4782.07
S&P 500 INDEX (SPX: CBOE)
2,053.44 -14.12 (-0.68%)
Volume: 547,609,000 (above average of 528,296,938)
Range: 2,049.57 - 2,065.78
Technically speaking, the market is having a breakout. I think the market is likely to correct if the economic data continues to show a weakening economy. That would have to depend on how the employment data is going to be...
Commodities, Currencies and Bonds
Currency: Dollar Dives Below 88.00
- The Dollar Index lingers near session lows as trade consolidates near 87.80.
- Today's weakness has some traders turning their attention back towards 88.50 support.
- EURUSD is +30 pips @ 1.2480 as trade holds just off the highs. The single currency tested the key 1.2400 in early trade, but was bid off the support level following the mixed Italian and Spanish Manufacturing PMI data. Traders continue to look ahead to Thursday's ECB rate decision, which has traders contemplating the announcement of a QE-type program. Spanish unemployment change is due out tomorrow.
- GBPUSD is +105 pips @ 1.5745 as trader recoups all of Friday's losses and then some. Sterling probed the key 1.5600 level in overnight action before finding support in response to the Manufacturing PMI beat. Resistance near 1.5800 will be watched into tomorrow's Construction PMI release.
- USDCHF is flat @ .9640 after 78% voted ‘NO' in the gold referendum. Traders are more interested in EURCHF, which has tacked on 10 pips to 1.2030 and is on track to post its best close in three weeks.
- USDJPY is -30 pips @ 118.30 as action holds near seven-year highs. The pair probed the 119.00 level after Moody's lowered Japan's credit rating to A1 from Aa3, but slipped into the red as the news was digested. Japanese data scheduled for tonight is limited to average cash earnings.
- AUDUSD is +10 pips @ .8505 after rallying sharply off the overnight lows. The hard currency pressed to a low of .8415 after the disappointing Chinese Manufacturing PMI number, but has seen steady buying throughout the session. Australia's building approvals and current account balance will be released ahead of tonight's Reserve Bank of Australia rate decision.
- USDCAD is -85 pips @ 1.1330 as trade gives up all of Friday's gains. Early buying had the action testing the November highs as trade probed 1.1450, but selling throughout the day now has the pair on the lows. Support in the 1.1250 region is helped by the 50 dma.
Bonds: Treasuries See First Loss in Seven Sessions
Treasury Yields:- Treasuries ended on their lows as selling took hold for the first time in seven days.
- Maturities held small gains into the cash open as China's Manufacturing PMI missed and Japan was downgraded at Moody's.
- The complex tested its best levels of the day into the ISM Index (58.7 actual v. 58.0 expected, 59.0 previous) beat, but began slipping off those levels as traders digested the data.
- Trade would slip over the course of the day.
- Up front, the 2Y tacked on +0.4bps to 0.488%. Treasury bears are hoping to reclaim the 0.500% level as support there held throughout the month of November.
- In the belly, the 5Y added +1bp to 1.521%. Early buying tested minor support in the 1.450% area before seeing a significant bounce.
- The 10Y rallied +2.4bps to 2.218%. The benchmark yield tested the 2.150% area, a 50% retracement of the move off the October 15 lows, before reversing.
- Selling at the long end ran the 30Y up +3.6 to 2.946%. The yield on the long bond flirted with its lowest close since late-2012 before today's reversal.
- A steeper curve developed as the 2-10-yr spread widened to 173bps.
- Precious metals rallied sharply with gold up +$37 to $1213 and silver higher by +$0.96 to $16.52.
- Data: Construction spending (10) and auto/truck sales (14).
- Fed Speak: Fed Vice Chair Stanley Fischer sits on a panel at the 2014 Wall Street CEO Council Annual Meeting (8:10). Fed Chair Janet Yellen makes opening remarks at the 2014 College Fed Challenge National Finals (8:30). Fed Governor Brainard opens the Economic Growth and Regulatory Paperwork Reduction Act Outreach Meeting (12). NY's Dudley appears at Lehman College (15:30).
- 2 Year Note 0.49% +0.02
- 5 Year Note 1.52% +0.03
- 10 Year Note 2.22% +0.04
- 30 Year Bond 2.95% +0.06
2/30 Spread: 246 bps ( +4 ) … 2/10 Spread: 173 bps ( +2 )
Preview for Tuesday 2 Dec, 2014
Summary
The slowing of improvement in the US economy seems to take its toll on the market. Black Friday sales is likely to be less than expected.
I suppose Tuesday might have some short covering but I am thinking the market is still cautious at the moment.
I suppose Tuesday might have some short covering but I am thinking the market is still cautious at the moment.
Direction for the Tuesday 2 Dec, 2014; Down
Daily Directional Accuracy (from 25 November 2014): 1/4 (25.00%)
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