Early session was pretty much flat. Energy sector suffered as oil price continues to fall and subsequently the market was brought down to the red with some short selling...
Market Summary
Industry Watch
Strong: Consumer Staples, Financials, Health Care, Telecom Services, Utilities
Weak: Consumer Discretionary, Energy, Materials, Industrials, Technology
Other Market Moving Factor:
- Japan's Q3 GDP revised down to -0.5% quarter-over-quarter from -0.4% (expected -0.1%)
- China's trade surplus expands to $54.47 billion from $45.41 billion (expected $43.15 billion) as imports fell 6.7% y/y (expected 3.5%) and exports increased 4.7% (consensus 7.9%)
- Bank of International Settlements warns of potential credit shock in Asia stemming from strengthening dollar
- Biotechnology outperforms after Cubist Pharmaceuticals (CBST) acquired by Merck (MRK)
Equity markets around the world started the new week on a mostly lower note. However, continued hopes for stimulus from the PBoC sent China's Shanghai Composite higher by 2.8% to extend its gain over the past month to 25.0%. The advance took place after the latest trade data showed a better than expected surplus of $54.47 billion, which resulted from a 6.7% drop in imports (expected +3.5%). Hopes for additional stimulus were also present in Europe, but the key indices there could not stay out of the red amid weakness in growth-sensitive listings.
Fittingly, cyclical sectors were also responsible for the weakness in the U.S. with energy (-3.9%) taking it on the chin amid another decline in crude oil. The sector gave back its entire advance from last week while Chevron (CVX 106.80, -4.07) and ExxonMobil (XOM 91.70, -2.12) lost 3.7% and 2.3%, respectively. As for crude oil, the energy component plunged 5.5% to $63.10/bbl, which represents the lowest level since August 2009. Oil was not the only weak spot among commodities as copper and iron ore also retreated following China's trade data. This kept the pressure on the materials sector (-1.6%), which settled only ahead of energy.
Elsewhere, the technology sector (-1.2%) held up relatively well through the morning, but slipped into the afternoon amid broad weakness. Apple (AAPL 112.40, -2.60), Intel (INTC 37.21, -0.46), and Microsoft (MSFT 47.70, -0.73) lost between 1.2% and 2.3% while the PHLX Semiconductor Index sank 1.4%.
Also of note, the consumer discretionary sector (-0.8%) underperformed with shares of McDonald's (MCD 92.61, -3.70) diving 3.8% after the fast food giant reported a 2.2% decline in global comparable store sales in November, paced by a 4.6% decline in U.S. sales.
Although cyclical sectors were responsible for the bulk of the weakness, financials (+0.4%) tried to resist the broad pressure. The sector climbed through the first two hours of action, but returned in the middle of its range by the close to maintain its market-leading December gain of 2.2%.
Meanwhile, the second-best performer of the month—health care (+0.3%)—followed the same pattern as financials. The sector received an early boost from biotechnology after Merck (MRK 61.88, +0.39) agreed to acquire Cubist Pharmaceuticals (CBST 100.60, +26.24) for $102/share, which represents a 35.0% premium to CBST's average stock price over the past five days. Cubist soared 35.3% while theiShares Nasdaq Biotechnology ETF (IBB 313.79, +4.98) jumped 1.6% to a new record high.
Treasuries ended the day near their highs with the 10-yr yield slipping five basis points to 2.26%. However, the front of the curve saw little change with the 2-yr yield slipping one basis point to 0.64%.
For its part, the Dollar Index (89.16, -0.18) took a step back from its multi-year high, but the index is still up more than 11.5% since May. That strength has prompted the Bank of International Settlements to issue a warning about the rising dollar and the potential impact to $1.1 trillion in dollar-denominated loans held by Chinese banks. The BIS said that continued dollar strength increases the potential for a credit shock being sent through East Asia.
Today's participation was in-line with average as roughly 794 million shares changed hands at the NYSE floor.
Tomorrow's economic data will be limited to October Wholesale Inventories (Briefing.com consensus 0.2%) and October JOLTS with both reports set to be released at 10:00 ET.
- No Economic Data
Economic Data
from Briefing.com
- No Economic Data
Market Internals
NYSE:
Higher Volumes than the day before – 813.7M vs 754.9M
Decliners outpaced Advancers (adv/dec): 922 / 2198
New Lows outpaced New Highs (highs/lows): 227 / 299
NASDAQ:
Higher Volumes than the day before – 1956.1M vs 1755.1M
Decliners outpaced Advancers (adv/dec): 718 / 2063
New Lows outpaced New Highs (highs/lows): 147 / 177
VOLATILITY S&P500 (VIX)
14.21 +2.39 (+20.22%)
Internals are pointing towards bearish with the sell off on Monday. VIX spiked up and I think the resistance level at 15.00 will serve as a good indicator. If it breaks above, the market is going to see more red coming...
Technical Updates
17,852.48 -106.31 (-0.59%)
Volume: 88,681,138 (below average of 90,372,360)
Range: 17,804.28 - 17,960.56
4,740.69 -40.06 (-0.84%)
Volume: 497,777,372 (above average of 494,431,391)
Range: 4,722.91 - 4,793.24
S&P 500 INDEX (SPX: CBOE)
2,060.31 -15.06 (-0.73%)
Volume: 547,803,000 (above average of 535,770,969)
Range: 2,054.27 - 2,075.78
DOW and S&P is showing an engulfing pattern. Given that all three indices break below their 20MA respectively, I reckon that market is going to get a pullback.
Commodities, Currencies and Bonds
Currency: DXY Slides Back to 89
The Dollar Index has been slowly grinding lower and is now testing the 89 level for support. The dollar has been pulling back with markets which suggests some profit taking is involved with the move. Comments by Fed member Lockhart have been picked up today. Mr. Lockhart basically repeated his expectations of a mid-2015 rate hike. Perhaps the most interesting comment was that he did not believe it was necessary to remove the 'considerable time' language due to lower inflation pressures.
The Dollar Index has been slowly grinding lower and is now testing the 89 level for support. The dollar has been pulling back with markets which suggests some profit taking is involved with the move. Comments by Fed member Lockhart have been picked up today. Mr. Lockhart basically repeated his expectations of a mid-2015 rate hike. Perhaps the most interesting comment was that he did not believe it was necessary to remove the 'considerable time' language due to lower inflation pressures.
- The euro has been able to stabilize and push back above 1.23. But the currency remains weak and in a firm downward trend. Today EU finance minister met to discuss the Greek bailout and country's budget plans. It would appear that there will be a couple of month extension to the Greek bailout plan with a Troika meeting in March. And on the budgetary front there remains concerns with Italy and France's budget as the country's have been given three month extensions to present a budget.
- The pound held the 1.56 level and has climbed to 1.5660 intraday. The pound has recovered some of its recent losses and continues to show signs of being able to hold 1.56.
- The yen was able to rally back to 120.20 as a risk off trade dominated today. Still it did not test the 120 level which so it is difficult to ascertain how stiff of resistance the multi-year psyche level will provide.
Bonds: Role Reversal
Treasury Yields:- Last Friday stocks were in favor following the November employment report and Treasuries were not. Today, the roles were reversed.
- Primary catalysts for the Treasury market's outperformance included:
- Slowdown concerns surrounding China and the eurozone
- China reported a 6.7% decline in imports in November and a weaker than expected 4.7% increase in exports
- ECB member Ewald Nowotny suggested eurozone inflation could continue to fall in the first quarter of 2015
- Moody's said there are mostly negative European banking system outlooks in 2015 due to new bail-in regimes
- Further drop in crude oil prices which tempered inflation concerns
- Brent crude -4.0% to $66.74/bbl
- West Texas Intermediate -4.0% to $63.20/bbl (dropped below $63.00 intraday for the first time since July 2009)
- Weakness in stocks triggered some safe-haven buying interest
- Slowdown concerns surrounding China and the eurozone
- The bulk of Monday's buying interest was concentrated among longer-dated instruments
- 2-yr yield was unchanged at 0.64%
- 10-yr yield dropped 6 bps to 2.25% after hitting 2.34% overnight
- 30-yr yield dropped 7 bps to 2.90% after flirting with 3.00% overnight
- Buying efforts picked up after China's trade report, but accelerated when U.S. stocks broke down in afternoon trading
- 2-10-yr spread narrowed to 161 basis points from 167 basis points on Friday
- U.S. Dollar Index dropped 0.3% to 89.06 as the greenback lost some ground versus both the euro and the yen
- EUR-USD +0.4% to 1.2327
- USD-JPY -0.8% to 120.49
- Atlanta Fed President Lockhart emphasized Fed's data-dependent nature in a speech on policy and the economic outlook. Noted his own view suggests rate liftoff likely in mid-2015 or later, but in no rush to drop "considerable time" language as he believes "patience regarding timing liftoff and a cautious bias regarding the subsequent pace of moves is a sensible approach to policy"
- No U.S. data today. Tuesday features Wholesale Inventories for October (Briefing.com consensus +0.2%; prior +0.3%) at 10:00 a.m. ET and JOLTS Job Openings for October (closely watched by Fed Chair Yellen) at 10:00 a.m. ET
- 2 Year Note 0.64% -0.01
- 5 Year Note 1.67% -0.02
- 10 Year Note 2.26% -0.05
- 30 Year Bond 2.90% -0.07
2/30 Spread: 226 bps ( -6 ) … 2/10 Spread: 162 bps ( -4 )
Preview for Tuesday 9 Dec, 2014
Summary
Since there was no major economic data releasing, the selloff was mainly led by the falling oil prices as well as the weakening in Japanese economy. I presume that will be more to profit taking and some speculation going on. Other than that, the market remains cautious.
Although I am expecting the market to consolidate for the next few days. Perhaps we might see some pullback before the market gets another rally (maybe)...
Although I am expecting the market to consolidate for the next few days. Perhaps we might see some pullback before the market gets another rally (maybe)...
Direction for the Tuesday 8 Dec, 2014; Down
Daily Directional Accuracy (from 25 November 2014): 4/9 (44.44%)
Weekly Directional Accuracy (from 31 October 2014): 2/6 (33.33%)
Weekly Directional Accuracy (from 31 October 2014): 2/6 (33.33%)
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