Dow +64.73 at 18024.17, Nasdaq -16.00 at 4765.42, S&P +3.63 at 2082.17
Tuesday have quite a number of economic data out and it is likely to shake the bullishness up a bit. It is important to look into the transport sector meanwhile as they are an good indicator on whether the economy is likely to pick up or soften.
At last, I think the play in the market remains cautious.Direction for Tuesday 23 Dec, 2014; Up
Market is not making any big movement as volume remains weak. NASDAQ was the only index in red due to the underperformance from Biotechnology sector. Given so, DOW and S&P managed to make a new highs.
Market Summary
Industry Watch
Strong: Consumer Discretionary, Energy, Financials, Industrials, Materials, Technology, Telecom Services
Weak: Health Care
Other Market Moving Factor:
- Q3 GDP revised up to 5.0% from 3.9% (Briefing.com consensus 4.3%)
- Crude oil rebounds
- Biotechnology underperforms once again
- Outperformance of Dow components
- Greece fails to elect president in second round of voting: third and final round scheduled for next week
Equity indices began the day in the green after a better than expected revision to Q3 GDP (5.0%; Briefing.com consensus 4.3%) provided a pre-market boost. The GDP report was a bright spot among a torrent of mostly disappointing data, which was taken in stride by the market.
Nine of ten sectors registered gains with the energy space (+1.3%) ending in the lead. The growth-sensitive sector opened ahead of other groups and held the lead into the close. Crude oil, meanwhile, settled higher by 3.1% at $57.09/bbl and continued its advance in electronic trading with the move taking place even as the Dollar Index (90.13, +0.36) climbed 0.4%.
The energy sector was followed closely by materials (+0.8%) while the remaining cyclical groups also settled ahead of the broader market. Consumer discretionary (+0.6%) and financials (+0.6%) enjoyed broad support while the technology sector (+0.3%) rallied behind its top components like Google (GOOGL 538.77, +6.47), Intel (INTC 37.43, +0.22), and Microsoft (MSFT 48.45, +0.47). The three names gained between 0.6% and 1.2%, but the largest component—Apple (AAPL 112.54, -0.40)—shed 0.4% and kept the Nasdaq pressured.
However, Nasdaq's woes were not isolated to its largest member. Biotech names retreated across the board with the iShares Nasdaq Biotechnology ETF (IBB 294.70, -14.38) dipping below its 50-day average (294.47). The biotech ETF was able to reclaim that level ahead of the close, but still ended the day lower by 4.7%. For its part, the health care sector (-2.2%) was the only group that ended behind the S&P 500.
The underperformance of biotechnology prevented the S&P 500 from extending its gain, while the price-weighted Dow Jones Industrial Average benefitted from containing just four health care names with two of the four priced below $60/share. In total, only five Dow components registered losses while the two largest listings—Visa (V 265.26, +1.05) and Goldman Sachs (GS 195.50, +1.06) gained 0.4% and 0.6%, respectively. Today's outperformance extended the Dow's year-to-date gain to 8.7%, but the index remains behind the S&P 500, which has added 12.7% so far in 2014.
Elsewhere among Dow members, shares of Coca-Cola (KO 42.97, +0.62) gained 1.5% after The Wall Street Journal reported the company plans to cut between 1,000 and 2,000 jobs globally. As for the broader consumer staples sector (+0.8%), the countercyclical group ended among the leaders.
Treasuries ended near their lows with the 10-yr yield spiking ten basis points to 2.26%.
Today's participation was below average with fewer than 700 million shares changing hands at the NYSE floor.
Economic data was plentiful, including GDP, Durable Orders, FHFA Housing Price Index, Michigan Sentiment, Personal Income/Spending, and New Home Sales:
- Third quarter GDP was revised up to 5.0% in the third estimate after an originally reported 3.9% gain, which was the largest increase since a 6.9% spike in Q3 2003
- The Briefing.com consensus expected GDP to be revised up to 4.3%
- Real final sales were revised up to 5.0% from 4.1%, which was the largest increase since Q1 2006 when sales climbed 5.5%
- Consumption was revised up to 3.2% from 2.2% after increasing 2.5% in Q2 2014
- Durable goods orders declined 0.7% in November after increasing a downwardly revised 0.3% (from 0.4%) in October
- The Briefing.com consensus expected an increase of 2.7%
- A large portion of the miss was a result of seasonal adjustments impacting nondefense aircraft orders
- Excluding transportation, durable goods orders declined 0.4% while the consensus expected an increase of 1.0%
- The October Housing Price Index from the FHFA rose 0.6%, which followed an unchanged reading in September
- New home sales in November hit an annualized rate of 438,000, which was down from the revised October rate of 445,000 (from 458,000) and worse than the rate of 460,000 that had been broadly expected by the Briefing.com consensus
- The University of Michigan Consumer Sentiment Index was virtually unchanged at 93.6 (from 93.8) in the final December reading while the Briefing.com consensus expected no change
- The December sentiment reading marked the highest point since January 2007
- Personal income increased 0.4% in November while the Briefing.com consensus expected an increase of 0.5%
- Personal spending increased 0.6% in November while the consensus expected an increase of 0.5%
- Core PCE prices were flat in November while the consensus expected an uptick of 0.1%
There is no economic data on tomorrow's schedule with the session scheduled to end early at 13:00 ET.
Macroeconomic Data
Economic Data
from Briefing.com
- Durable Orders : -0.7% vs 2.7% (Prior 0.3%)
- Durable Orders - ex transportation : -0.4% vs 1.0% (Prior -1.0%)
- GDP - Third Estimate : 5.0% vs 4.3% (Prior 3.9%)
- GDP Deflator - Third Estimate : 1.4% vs 1.4% (Prior 1.4%)
- FHFA Housing Price Index : 0.6% (Prior 0.0%)
- Michigan Sentiment - Final : 93.6 vs 93.8 (Prior 93.8)
- Personal Income : 0.4% vs 0.5% (Prior 0.3%)
- Personal Spending : 0.6% vs 0.5% (Prior 0.3%)
- PCE Price - Core : 0.0% vs 0.1% (Prior 0.2%)
- New Home Sales : 438K vs 460K (Prior 445K)
DURABLE ORDERS
Highlights
- Durable goods orders declined 0.7% in November after increasing a downwardly revised 0.3% (from 0.4%) in October. The Briefing.com consensus expected durable goods orders to increase 2.7%.
- Excluding transportation, durable goods orders declined 0.4% in November after declining a downwardly revised 1.0% (from -0.9%) in October. The consensus expected these orders to increase 1.0% in November.
Key Factors
- A large portion of the big miss was a result of seasonal adjustments impacting nondefense aircraft orders. Boeing (BA) reported 224 aircraft orders in November, which was up from only 46 aircraft orders in October. The surge in orders was expected to drive up overall transportation order levels.
- That did not happen.
- Instead, a 51.3% nonseasonally adjusted monthly gain in nondefense aircraft was reduced to a minor 0.6% monthly increase.
- There were reasons to be concerned that seasonal adjustments would impact the aircraft numbers prior to the durable goods release. In dollar terms, Boeing orders fell on a year-over-year basis, which is what occurred in the durables data. If the consensus had used the year-over-year data and statistically backed out a monthly orders number, it would have shown a small gain that was in-line with the actual November growth rate.
- The Federal Reserve manufacturing surveys were mixed in November, but leaned slightly toward the downside. However, growth in these surveys over the previous few months had not translated into gains in durable demand outside of transportation. It was expected that there would be a slight catch-up period in November that would result in an outsized orders gain. A similar trend occurred within manufacturing production data in the industrial production report.
- The weakness stemmed from declines in primary and fabricated metals, computer and electronic products, and other durable goods orders. Machinery orders increased 0.9% in November after declining 2.0% in October.
- Orders of nondefense capital goods excluding aircraft was flat in November after falling 1.9% in October. Shipments, which factor into GDP, rose a miniscule 0.2% in November after declining 0.9% in October.
Big Picture
- There has been very little momentum for growth in durables demand.
GDP
Highlights
- Third quarter GDP was revised up and increased 5.0% in the third estimate after an originally reported 3.9% gain. GDP increased 4.6% in the second quarter. The Briefing.com consensus expected GDP to be revised up to 4.3%.
- That was the largest increase in GDP since a 6.9% increase in Q3 2003.
- Real final sales were revised up to 5.0% from 4.1% in the second estimate. That was the largest increase in real final sales since Q1 2006 when sales increased 5.5%.
Key Factors
- Consumption was revised up to 3.2% from 2.2%. Consumption increased 2.5% in Q2 2014.
- Nonresidential investment was revised up to 8.9% from 7.1%. Structures increased 4.8% (from 1.1%), equipment increased 11.0% (from 10.7%) and intellectual properties increased 8.8% (from 6.4%).
- Nonresidential investment was revised up to 3.2% from 2.7%.
- The trade deficit was virtually unrevised.
Big Picture
- Upward revisions were widespread and show broad-based economic growth in the third quarter.
MICHIGAN SENTIMENT
Highlights
- The University of Michigan Consumer Sentiment Index was virtually unchanged at 93.6 (from 93.8) in the December final reading. The Briefing.com consensus expected the Consumer Sentiment Index to remain at 93.8.
Key Factors
- The December sentiment reading market the highest point since January 2007.
- Declining oil prices and substantial improvements in the labor sector were behind the strong December numbers.
- Consumption growth relies on income gains. As long as income growth accelerates, consumption growth follow regardless of how sentiment trends.
Big Picture
- Consumer sentiment has little influence on consumption. As long as payroll levels continue to expand, the resulting income growth should keep consumption gains steady regardless of the monthly ebbs and flows in sentiment.
PERSONAL INCOME & SPENDING
Highlights
- Personal income increased 0.4% in November after increasing an upwardly revised 0.3% (from 0.2%) in October. The Briefing.com Consensus expected personal income to increase 0.5%.
- Personal spending increased 0.6% in November after increasing an upwardly revised 0.3% (from 0.2%) in October. The consensus expected spending to increase 0.5%.
Key Factors
- The BEA reported only a 0.5% increase in wages and salaries in November. That gain was a little light of the 0.9% increase in aggregate earnings from the November employment report. It is likely that a future revision will bring these numbers more in-line with each other, but it is unknown if it will be a downward revision to the employment data or an upward revision to income growth.
- Goods spending increased 0.6%, which was in-line with the 0.7% increase in November retail sales. Services spending also increased 0.6% in November.
- Core PCE prices were flat in November and up only 1.4% year-over-year versus 1.5% in October. That is well below the Fed’s implied target rate of 2.0%.
Big Picture
- The weaker-than-expected income data could mean a future negative revision to the November employment numbers may be in the cards.
NEW HOME SALES
Highlights
- New home sales declined 1.6% to 438,000 in November from a downwardly revised 445,000 (from 458,000) in October. The Briefing.com Consensus expected new home sales to increase to 460,000.
Key Factors
- Over the past 12 months, new home sales have averaged 433,000 with very little volatility. The November sales data was right in-line with recent trends.
- Other than the West region (+14.8%), sales fell in all areas across the U.S.
- Inventories increased 1.4% to 213,000. That represents 5.8 months’ supply at the current sales rate.
- During periods of normal demand, supply is generally maintained at 6.0 months. With the steady trend in sales, current home production is in-line with demand. A near-term acceleration in construction levels seems unlikely.
Big Picture
- Sales trends have been flat for that last 12 months.
Market Internals
NYSE:
Lower Volumes than the day before – 692.7M vs 790.5M
Advancers outpaced Decliners (adv/dec): 2008 / 1090
New Highs outpaced New Lows (highs/lows): 289 / 24
NASDAQ:
Lower Volumes than the day before – 1573.2M vs 1705M
Advancers outpaced Decliners (adv/dec): 1418 / 1365
New Highs outpaced New Lows (highs/lows): 176 / 56
VOLATILITY S&P500 (VIX)
14.80 -0.45 (-2.95%)
The bulls seems to run out of strength soon. Volumes remain weak during Christmas period. VIX closed slightly lower than 15.00. Seems like the market is feeling cautious looking at the internals.
Technical Updates
18,024.17 +64.73 (+0.36%)
Volume: 82,885,784 (below average of 95,205,615)
Range: 17,970.16 - 18,069.22
4,765.42 -16.00 (-0.33%)
Volume: 405.5M (below average of 506,131,719)
Range: 4,761.39 - 4,798.06
S&P 500 INDEX (SPX: CBOE)
2,082.17 +3.63 (+0.17%)
Volume: 473.3M (below average of 563,506,922)
Range: 2,079.77 - 2,086.73
Market feels kind of strange to me. DOW remains bullish but S&P and NASDAQ are lagging. Looking at the technicals, it seems to be that we are going to see a breakout. Let's see what is happening for the next few sessions...
Commodities
Energy price action
- Jan crude oil rose $1.71/barrel, closing today’s pit session at $57.09/barre
- Natural gas rose 3 cents to $3.17/MMBtu
- RBOB Gasoline rose 3 cents to $1.57/gallon
- Heating oil rose 4 cents to $1.95/gallon
Agricultural price action
- Mar Corn closed $0.03 higher at $4.14/bushel
- Mar wheat rose 11 cents to $6.36/bushel
- Jan soybeans ended unchanged at $10.37/bushel
- Ethanol closed unchanged at $1.61/gallon
- Sugar #11 fell 0.03 cents to 14.83 cents/gallon
Metals price action
- Feb gold ended today’s session $1.10 lower at $1178/oz
- Mar silver also ended $0.10 higher at $15.78/oz
- Mar copper closed unchanged to $2.87/lb
Currencies
Strong GDP Print Sends Dollar to Best Levels Since March 2006:
- The Dollar Index holds at its best levels since March 2006 as trade tests the 90.10 level.
- The greenback has found bids despite today's mostly disappointing economic data as Q3 GDP -Third Estimate expanded at a 5.0% clip.
- Banks across much of the world are shuttered tomorrow in observance of Christmas Eve.
- EURUSD is -55 pips @ 1.2175 as trade dips to its lowest levels in 28 months. The single currency continues to chop wood in the 1.2000/1.2200 support band, which is also home to the 200 dma.
- GBPUSD is -80 pips @ 1.5505 as action dives to a fresh 15-month low. Sterling has been under pressure in response to today's disappointing data. The 1.5000/1.5300 region provides key support.
- USDCHF is +45 pips @ .9880 as trade ticks to its best levels since August 2012. A lack of news and data has kept the franc tightly tied to the euro. Switzerland's KOF Economic Barometer will cross the wires tomorrow.
- USDJPY is +65 pips @ 120.70 as buyers take control for a fifth day. The current rally has the pair nearing a retest of the December highs in the 1.2200 area.
- AUDUSD is -35 pips @ .8095 as trade slides to its lowest levels in 54 months. The hard currency has been under significant pressure as of late as weakness in commodity prices and a presumed slowdown in China have cornered the Reserve Bank of Australia into a potential rate cut mode.
- USDCAD is -10 pips @ 1.1615 as trade fights to regain the flat line. The pair raced to session highs into this morning's data, but was unable to breakout to its best levels since July 2009 as Canadian GDP (0.3% MoM actual v. 0.1% MoM expected) outpaced estimates.
Bonds
Strong GDP Print, Weak 5Y Auction Propel Yields Higher:
- Treasuries closed on their as a strong Q3 GDP - Third Estimate and tepid 5Y auction brought sellers out of the woodwork.
- The complex drifted little changed into this morning's data before the 5.0% GDP - Third Estimate (4.3% actual v. 3.9% expected) got the selling started.
- Traders looked past the disappointing durable orders ex-transportation (-0.4% actual v 1.0% expected) number and pushed maturities to fresh lows into the second batch of data.
- Michigan Sentiment - Final (93.6 actual v. 93.8 expected), personal income (0.4% actual v. 0.5% expected), and new home sales (438K actual v. 460K expected) all missed, but the selling did not let up.
- The weakness continued into the tepid $35 bln 5Y note auction and throughout the afternoon.
- The auction drew 1.739% and a light 2.39x bid/cover. Indirect bidders (58.7%) provided support as directs (7.3%) were light. Primary dealers were left with just 34% of the supply. Afternoon selling ran yields to session highs into the cash close.
- Up front, the 2Y +8.3bps to 0.738%. Much of the run up can be attributed to an adjustment from yesterday's auction, but it cannot be overlooked that the yield closed at its highest level since April 2011.
- In the belly, the 5Y jumped +6.8bps to 1.727%. Action broke out above 1.700% resistance and ended at a 12-week high.
- The 10Y climbed +9.5bps to 2.257%. The benchmark yield finished on the 50 dma and at a two-week high.
- Selling at the long end ran the 30Y up +10.2bps to 2.852%. Today marked the biggest bp move in the 30Y since November 8, 2013 when the jobs report printed 204K (100K expected).
- Little change along the yield curve saw the 2-10-yr spread hold @ 152bps.
- Precious metals saw a mixed session as gold fell -$7 to $1173 and silver added +$0.01 to $15.70.
- Data: MBA Mortgage Index (7) and initial and continuing claims (8:30).
- Auction: $29B 7Y notes (11:30).
- U.S. equity markets will close at 1pm ET and the U.S. Treasury market will finish at 2pm ET for Christmas Eve.
Treasury Yields:
- 2 Year Note 0.73% +0.02
- 5 Year Note 1.76% +0.09
- 10 Year Note 2.26% +0.09
- 30 Year Bond 2.85% +0.10
2/30 Spread: 212 bps ( +8 ) … 2/10 Spread: 153 bps ( +7 )
Preview for Wednesday 24 Dec, 2014
Summary
Market remains cautious as it reaches a new high. I think it is likely that market is going to consolidate before we see another breakout. With Christmas coming along the way, I reckon the week is going to be up too.
Do bear in mind tomorrow is a shortened trading session and the market will be closed at 1300 ET.
Wishing everyone a Merry Christmas and a Happy New Year. Cheers.
Do bear in mind tomorrow is a shortened trading session and the market will be closed at 1300 ET.
Wishing everyone a Merry Christmas and a Happy New Year. Cheers.
Direction for Wednesday 24 Dec, 2014; Up
Daily Directional Accuracy (from 25 November 2014): 10/17 (58.82%)
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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