The market was thrown into confusion after ECB announced no stimulus plan until further notice. There were massive short selling at the start but the market managed to recover most of the losses at the second half of the trading session. Plenty of action for the day eh?
Market Summary
Industry Watch
Strong: Materials, Technology
Weak: Consumer Discretionary, Energy, Health Care, Financials, Industrials
Other Market Moving Factor:
- Bank of England and European Central Bank keep monetary policy unchanged
- China's Shanghai Composite soars 4.3% to its best level since May 2011 amid expectations for more easing from the People's Bank of China
- Retailers Aeropostale (ARO), Dollar General (DG), Express (EXPR), PVH (PVH) dissappoint with their earnings and/or guidance
Thursday served as a perfect reminder for how dependent global equity markets have become on central bank stimulus. The first reminder occurred during the Asian session with China's Shanghai Composite soaring 4.3% amid expectations the People's Bank of China will introduce additional stimulus measures. While today's advance was impressive, it pales in comparison with an 18.3% surge in the index since November 20.
Meanwhile, the second reminder manifested itself through volatility in European and U.S. markets in reaction to the European Central Bank's latest policy statement and subsequent press reports.
As expected, the ECB made no changes to its interest rate corridor, but more notably, President Mario Draghi did not call for the start of a sovereign QE program, which had been expected by some. Instead, Mr. Draghi said the economic situation in the eurozone will be reassessed early next year. Furthermore, the ECB lowered its 2015 GDP projection to 1.0% from 1.6% and cut its harmonized inflation forecast for the region to 0.7% from 1.1%.
The absence of a QE announcement gave a boost to the euro while pressuring European and U.S. stocks. However, U.S. equities were able to string together a rebound after markets in Europe closed for the day. That recovery was capped with the S&P 500 spiking into the green just after 12:30 ET when Bloomberg reported the European Central Bank will prepare a broad-based QE package for the January meeting. In a way, preparations for such a program should be expected even if no announcement is made in January and it is worth pointing out that Mr. Draghi was pressed to define ‘early' during his press conference, to which he responded, "Early, it means early, it doesn't mean the next meeting."
The vague report knocked the euro off its high to 1.2380 against the dollar after the single currency tested the 1.2455 level in the morning. Conversely, the Dollar Index (88.62, -0.33) halved its loss to 0.4%.
Although the early afternoon rebound sent the benchmark index back to its flat line, the S&P 500 was unable to extend that move. The index spent the next two hours within a point of unchanged before sliding away from its flat line into the close. Once again, an ECB-related report was cited for the afternoon weakness after Germany's Die Welt reported Mr. Draghi no longer enjoys majority support on the Executive Board.
Eight sectors finished in the red with energy (-0.9%) spending the day at the bottom of the leaderboard. The sector slumped as crude oil surrendered 0.8% to $66.75/bbl, but despite the decline, the energy sector will enter Friday with a week-to-date gain of 2.4% versus a slim 0.2% uptick for the S&P 500.
Outside of energy, telecom services (-0.2%) and industrials (-0.5%) were the only two groups unable to keep pace with the market. The industrial sector followed its top component—General Electric (GE 26.09, -0.29)—lower, while transport stocks held up relatively well with the Dow Jones Transportation Average ending in-line with the market.
Elsewhere, the consumer discretionary sector also finished in-line with the S&P 500, but retail stocks were pressured after Aeropostale (ARO 2.48, -0.71), Express (EXPR 13.19, -1.30), Guess? (GES 20.07, -2.10), and PVH (PVH 122.68, -1.72) disappointed with their earnings and/or guidance. The four names lost between 1.4% and 22.3% while the SPDR S&P Retail ETF (XRT 92.73, -0.64) fell 0.7%.
On the upside, financials (+0.1%), materials (+0.3%), and technology (+0.1%) registered modest gains. Notably, the tech sector received a measure of support from the PHLX Semiconductor Index, which added 0.1%. Shares of Avago Technologies (AVGO 103.07, +7.94) spiked 8.4% and were responsible for the bulk of the uptick in reaction to strong quarterly results and guidance.
Treasuries ended on their highs with the 10-yr yield sliding four basis points to 2.24%.
Participation was a bit below average with just over 780 million shares changing hands at the NYSE floor.
Economic data was limited to initial claims and the Challenger Job Cuts report:
- Weekly initial claims fell to 297,000 from an upwardly revised rate of 314,000 (from 313,000) while the Briefing.com consensus expected a decline to 295,000
- Continuing claims increased to 2.362 million from an upwardly revised 2.323 million (from 2.316 million)
- The Challenger Job Cuts report showed a 21.0% year-over-year decline in planned layoffs to follow the prior increase of 11.9%
Macroeconomic Data
Economic Data
from Bloomberg
UNEMPLOYMENT CLAIMS
Highlights
The prior week's spike proved to be a fluke as initial claims, which surged an upwardly revised 22,000 in the November 22 week, fell 17,000 in the November 29 week to a roughly as expected 297,000. But the prior spike is still elevating the 4-week average which rose 4,750 to a 299,000 level that is trending a very large 20,000 above the month ago trend.
The November 22 week also was a tough week for continuing claims which are reported with a 1-week lag. Continuing claims in the week rose 39,000 to 2.362 million with the 4-week average up 1,000 to 2.355 million. But here the 4-week average is down 20,000 from the month-ago trend. The unemployment rate for insured workers is unchanged at 1.8 percent. This rate had dipped to a recovery low of 1.7 percent in the initial data for the prior week which now, however, is revised 1 tenth higher.
There are no special factors in today's report, one that in sum, despite the rise in the 4-week average for initial claims, will confirm confidence in the health of the labor market going into tomorrow's monthly employment report.
The November 22 week also was a tough week for continuing claims which are reported with a 1-week lag. Continuing claims in the week rose 39,000 to 2.362 million with the 4-week average up 1,000 to 2.355 million. But here the 4-week average is down 20,000 from the month-ago trend. The unemployment rate for insured workers is unchanged at 1.8 percent. This rate had dipped to a recovery low of 1.7 percent in the initial data for the prior week which now, however, is revised 1 tenth higher.
There are no special factors in today's report, one that in sum, despite the rise in the 4-week average for initial claims, will confirm confidence in the health of the labor market going into tomorrow's monthly employment report.
NATURAL GAS STORAGE
Highlights
Natural gas in storage fell 22 billion cubic feet in the November 29 week to 3,410 bcf.
Market Internals
NYSE:
Higher Volumes than the day before – 798.7M vs 775.9M
Decliners outpaced Advancers (adv/dec): 1122 / 1973
New Highs outpaced New Lows (highs/lows): 162 / 119
NASDAQ:
Lower Volumes than the day before – 1715.9M vs 1729.8M
Decliners outpaced Advancers (adv/dec): 1081 / 1640
New Highs outpaced New Lows (highs/lows): 120 / 98
VOLATILITY S&P500 (VIX)
12.38 -0.09 (-0.72%)
Internals seems to be bearish but New Highs and New Lows are still showing otherwise. Similarly VIX is not able to break lower its support level.
Technical Updates
17,900.10 -12.52 (-0.07%)
Volume: 76,266,765 (below average of 89,979,829)
Range: 17,814.81 - 17,937.96
4,769.44 -5.04 (-0.11%)
Volume: 448,628,513 (below average of 492,412,985)
Range: 4,753.71 - 4,785.41
S&P 500 INDEX (SPX: CBOE)
2,071.92 -2.41 (-0.12%)
Volume: 495,739,000 (below average of 533,028,692)
Range: 2,062.34 - 2,077.34
Technicals are showing doji for all three indices. I am just seeing the market continues to go sideway...
Commodities, Currencies and Bonds
Currency: Dollar Pulls Back as Euro Squeezes
- The Dollar Index has recouped some of its early losses as trade probes the 88.70 level.
- The greenback hovered little changed into this morning's claims data and pressed to fresh lows as the numbers disappointed.
- Action continued lower following an ECB-fueled squeeze in the euro, hitting a low of nearly 88.20 before recovering.
- EURUSD is +55 pips @ 1.2365 as trade fights to hold onto its gains. This morning's ECB announcement went as expected as the central bank held its key rate at 0.05%, and the single currency dipped to a fresh 28-month low beneath 1.2300 as Mario Draghi's press conference got underway. However, the euro squeezed higher after Mr. Draghi indicated the ECB would ‘reassess' sovereign debt purchases. Action probed 1.2450 before seeing some slippage following a headline suggesting a ‘broad based' program might start in January. The ability to reclaim 1.2400 would be a victory for the bulls. Eurozone data scheduled for tomorrow is limited to German factory orders.
- GBPUSD is -10 pips @ 1.5675 after the Bank of England kept both its benchmark interest rate and asset purchase program steady at their respective 0.50% and GBP375 bln. A rather tame trade has seen sterling stuck at 15-month lows near 1.5600.
- USDCHF is -55 pips @ .9720 as trade pulls back from 19-month highs. As usual, today's trade has little to do with the fundamentals in Switzerland and everything to do with the tight correlation to the euro. Switzerland's foreign currency reserves are due out tomorrow.
- USDJPY is flat @ 119.80. The pair climbed to a fresh seven-year high of 120.25 in early action, but pulled back amid the broad based weakness in the dollar.
- AUDUSD is -20 pips @ .8385 as sellers remain in control for a sixth day. Today's weakness comes despite the better than expected retail sales and trade data, and has action pressing key support that dates back to the summer of 2009.
- USDCAD is +20 pips @ 1.1385. The pair has shrugged off this morning's strong Ivey PMI (56.9 actual v. 52.7 expected, 51.2 previous) report and has spent the U.S. session in a tight 30 pip range. Canada's jobs report and trade balance will be released tomorrow.
Bonds: Yields Fail to Breakout as November Jobs Report Looms
Treasury Yields:- Treasuries gained for a second day.
- The complex drifted little changed into the cash open and raced to its best levels of the morning after both initial (297K actual v. 295K expected) and continuing (2362K actual v. 2343K expected) claims missed the mark.
- Trade slid to session lows after Mario Draghi announced the ECB would ‘reassess' sovereign bond purchases, but the selling would not last long as equities slid deeper into the red.
- Maturities pressed back to session highs ahead of the lunchtime hour and held in a tight range before putting in new highs just ahead of the cash close.
- Today's action saw yields flirt with key resistance levels, but there would be no breakouts as the November nonfarm payroll report looms tomorrow.
- Up front, the 2Y slipped -2.3bps to 0.528%. The yield remains trapped in the tight 0.500%/0.550% range that was in place throughout November.
- In the belly, the 5Y eased -2.1bps to 1.587%. Action probed 1.600% resistance, but could not hold the level.
- The 10Y fell -3bps to 2.257%. The benchmark yield tested 2.300% early, but pulled back from the resistance.
- At the long end, the 30Y shed -3.5bps to 2.958%. The yield on the long bond continues to struggle near 3.000%.
- A slightly flatter curve persisted as the 2-10-yr spread tightened to 173bps.
- Precious metals saw a mixed session as gold lost $1 to $1208 and silver added +$0.12 to $16.53.
- Data: Nonfarm payrolls, nonfarm private payrolls, unemployment rate, hourly earnings, average workweek, trade balance (8:30), factory orders (10), and consumer credit (15).
- 2 Year Note 0.55% -0.02
- 5 Year Note 1.59% -0.02
- 10 Year Note 2.25% -0.04
- 30 Year Bond 2.94% -0.05
2/30 Spread: 239 bps ( -3 ) … 2/10 Spread: 170 bps ( -2 )
Preview for Friday 5 Dec, 2014
Summary
Tomorrow will be a big day since we will be having the Non-Farm Payroll at 8.30am ET. That will definitely be a big mover. Personally I think the data should beat expectation but it will not be promising...
I also closed all my positions and cut some losses on Thursday after the wild movement in the market.
I also closed all my positions and cut some losses on Thursday after the wild movement in the market.
Direction for the Friday 5 Dec, 2014; Up
Daily Directional Accuracy (from 25 November 2014): 2/7 (28.57%)
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