Market just continues the bullish momentum with an increase in buying at the last few hours. Other than that market was actually kinda flat most of the time...
Market Summary
Industry Watch
Strong: Energy, Industrials, Materials, Technology
Weak: Consumer Staples, Consumer Discretionary, Health Care, Utilities, Telecom Services
Other Market Moving Factor:
- Global markets relatively quiet overnight
- Crude oil on the rise despite dollar strength
Similar to yesterday, equities were essentially left to their own devices amid a lack of market-moving news. Cyclical sectors were responsible for the bulk of the advance as all six growth-sensitive groups ended in the green while health care (+0.2%) was the lone gainer on the countercyclical side.
The materials sector (+1.4%) settled in the lead after showing relative strength throughout the session. The group benefitted from strength among steelmakers and miners with Market Vectors Steel ETF (SLX 39.15, +0.90) and Market Vectors Gold Miners ETF (GDX 19.60, +0.40) climbing 2.4% and 2.1%, respectively.
Meanwhile, another commodity-related sector—energy (+1.2%)—settled just behind materials, which represented the third consecutive day of relative strength for the recently-battered sector. Today's advance occurred amid a 0.5% gain in crude oil ($67.30/bbl) and helped the sector extend its week-to-date gain to 3.2%.
Elsewhere, the industrial sector (+1.3%) was the only other group to add more than 1.0%. The top-weighted sector component—General Electric (GE 26.38, +0.33)—spiked 1.3% while transport stocks also displayed relative strength. The Dow Jones Transportation Average settled higher by 0.8% with Alaska Air (ALK 56.76, +1.51) setting the pace.
Also of note, the technology sector (+0.5%) underperformed in the morning, but powered to new highs during the final hour. The sector was underpinned by chipmakers and its strength helped the S&P 500 to a new high just ahead of the close. As for chipmakers, the group rallied broadly after Microchip Technology (MCHP 46.59, +1.94) said it is confident the small correction experienced in the third quarter is now in the past. The stock spiked 4.3% while the PHLX Semiconductor Index jumped 2.0%.
Over on the countercyclical side, consumer staples (-0.8%), telecom services (-0.8%), and utilities (-0.3%) ended in the red while health care (+0.2%) turned positive in the early afternoon. Biotechnology contributed to the rebound with the iShares Nasdaq Biotechnology ETF (IBB 308.25, +1.38) climbing 0.5%.
Treasuries spent the bulk of the session near their flat lines before ending close to highs. The 10-yr yield slipped one basis point to 2.28%.
Participation was a bit below average with just over 755 million shares changing hands at the NYSE floor.
Economic data included ADP Employment Change, Q3 Labor Productivity Data, ISM Services, and the MBA Mortgage Index:
- The ADP report revealed that employment in the nonfarm private business sector rose 208K in November, which was below the increase of 225K expected by the Briefing.com consensus.
- Q3 nonfarm business productivity was revised up to 2.3% from an originally reported 2.0% gain while the Briefing.com consensus expected a revision to 2.4%
- Unit labor costs were revised down and now show a 1.0% decline in the third quarter after initially showing a small 0.3% increase. The consensus expected a flat reading.
- This was the second consecutive quarterly decline
- Unit labor costs were revised down and now show a 1.0% decline in the third quarter after initially showing a small 0.3% increase. The consensus expected a flat reading.
- The ISM Services Index for November rose to 59.3 from 57.1 while the Briefing.com consensus expected an uptick to 57.5
- The weekly MBA Mortgage Index fell 7.3% to follow last week's 4.3% decline
Macroeconomic Data
Economic Data
from Bloomberg
ADP EMPLOYMENT REPORT
Highlights
ADP's estimate for private payroll growth for November is 208,000 vs the Econoday consensus for 225,000 and against a revised 233,000 for October. The corresponding Econoday consensus for Friday's jobs report from the government is 225,000 vs October's 209,000.
PRODUCTIVITY AND COSTS
Highlights
Nonfarm productivity growth for the third quarter was revised up to an annualized 2.3 percent from the first estimate of 2.0 percent and following a 2.9 percent boost in the second quarter. Unit labor costs were revised down notably to minus 1.0 percent from a first estimate of up 0.3 percent after falling an annualized 3.7 percent in the second quarter.
Output growth slowed to 4.9 percent in the third quarter, following a 5.5 percent jump the prior quarter. Compensation growth in the third quarter was up 1.3 percent annualized after a dip of 0.9 percent the previous period.
Year-on-year, productivity was up 1.0 percent in the third quarter, down from 1.3 percent in the second quarter. Year-ago unit labor costs were up 1.2 percent, compared to up 0.7 percent in the second quarter.
The latest productivity report points to positive company profits and mild gains in consumer income.
ISM NON-MANUFACTURING PMI
Highlights
ISM's non-manufacturing sample reports very solid conditions, at a composite 59.3 in November vs 57.1 in October. Aside from August's 59.6, November is a recovery high going back more than 9 years. New orders are very strong, up 2.3 points in the month to 61.4 with backlog orders up 4.0 points to 55.5 in a reading last matched in April 2011. Strength in orders is keeping up business activity which rose 4.4 points to a very strong 64.4. Employment remains solid but did slow 2.9 points from October's near record of 59.6. Deliveries slowed noticeably, which is another sign of strength, while inventories rose. Pressures on input prices rose a bit to 54.4 which, however, is still benign for this reading. A look at industries shows the retail sector at top, which of course is very good news going into the holidays, and construction right behind which is also very good news. This report points to solid year-end acceleration for the economy.
CRUDE OIL INVENTORIES
Highlights
A rise in refinery demand for oil and a decline in oil imports contributed to a 3.7 million barrel draw in oil inventories to 379.3 million barrels in the November 28 week. Refineries operated at a very active 93.4 percent of capacity in the week and are filling up product inventories with gasoline inventories up 2.1 million barrels and distillates up 3.0 million. These product builds point to slowing refinery output ahead as does a look at supplies to wholesalers. Wholesale supplies of gasoline, which had been in the negative column, are now up a year-on-year 3.2 percent with distillate supplies, which had been deeply in the negative column, down only 1.5 percent. WTI, near $67.50, is little changed following today's results.
BEIGE BOOK
Highlights
The Beige Book indicated a moderately positive outlook for the economy. Information was collected on or before November 24. Sources of strength are autos and aerospace. Construction and real estate were mixed. Inventories are seen in line with sales. Some improvement is expected in business investment. Also, job gains were widespread.
Consumer spending continued to expand in most Districts. Lower gasoline prices were seen as boosting other spending and cold weather lifted apparel sales. Many Districts were optimistic about holiday sales. Auto sales were strong in many Districts.
"Hiring plans increased in New York, Chicago, and St. Louis. With labor market conditions strengthening, contacts in the Kansas City and Dallas Districts noted that firms were having increased difficulty retaining key workers. Various Districts continued to report that firms had difficulties filling positions in IT and engineering, legal and health-care services, management, skilled manufacturing and building trades, and transportation and warehousing. Most Districts reported little change in holiday-related hiring relative to last year, though there were some reports of slightly higher rates of seasonal hiring in New York and Chicago."
Manufacturers in several Districts were expanding capital budgets both to replace existing equipment and to expand capacity.
Residential construction increased on balance across the Districts and multifamily construction remained stronger than single-family construction in a number of Districts.
Overall price and wage inflation remained subdued in October and November.
The latest Beige Book is moderately positive. There are arguments for both hawks and doves within the Fed. The economy is improving-including the labor market-but inflation still appears to be below target.
Output growth slowed to 4.9 percent in the third quarter, following a 5.5 percent jump the prior quarter. Compensation growth in the third quarter was up 1.3 percent annualized after a dip of 0.9 percent the previous period.
Year-on-year, productivity was up 1.0 percent in the third quarter, down from 1.3 percent in the second quarter. Year-ago unit labor costs were up 1.2 percent, compared to up 0.7 percent in the second quarter.
The latest productivity report points to positive company profits and mild gains in consumer income.
ISM NON-MANUFACTURING PMI
Highlights
ISM's non-manufacturing sample reports very solid conditions, at a composite 59.3 in November vs 57.1 in October. Aside from August's 59.6, November is a recovery high going back more than 9 years. New orders are very strong, up 2.3 points in the month to 61.4 with backlog orders up 4.0 points to 55.5 in a reading last matched in April 2011. Strength in orders is keeping up business activity which rose 4.4 points to a very strong 64.4. Employment remains solid but did slow 2.9 points from October's near record of 59.6. Deliveries slowed noticeably, which is another sign of strength, while inventories rose. Pressures on input prices rose a bit to 54.4 which, however, is still benign for this reading. A look at industries shows the retail sector at top, which of course is very good news going into the holidays, and construction right behind which is also very good news. This report points to solid year-end acceleration for the economy.
CRUDE OIL INVENTORIES
Highlights
A rise in refinery demand for oil and a decline in oil imports contributed to a 3.7 million barrel draw in oil inventories to 379.3 million barrels in the November 28 week. Refineries operated at a very active 93.4 percent of capacity in the week and are filling up product inventories with gasoline inventories up 2.1 million barrels and distillates up 3.0 million. These product builds point to slowing refinery output ahead as does a look at supplies to wholesalers. Wholesale supplies of gasoline, which had been in the negative column, are now up a year-on-year 3.2 percent with distillate supplies, which had been deeply in the negative column, down only 1.5 percent. WTI, near $67.50, is little changed following today's results.
BEIGE BOOK
Highlights
The Beige Book indicated a moderately positive outlook for the economy. Information was collected on or before November 24. Sources of strength are autos and aerospace. Construction and real estate were mixed. Inventories are seen in line with sales. Some improvement is expected in business investment. Also, job gains were widespread.
Consumer spending continued to expand in most Districts. Lower gasoline prices were seen as boosting other spending and cold weather lifted apparel sales. Many Districts were optimistic about holiday sales. Auto sales were strong in many Districts.
"Hiring plans increased in New York, Chicago, and St. Louis. With labor market conditions strengthening, contacts in the Kansas City and Dallas Districts noted that firms were having increased difficulty retaining key workers. Various Districts continued to report that firms had difficulties filling positions in IT and engineering, legal and health-care services, management, skilled manufacturing and building trades, and transportation and warehousing. Most Districts reported little change in holiday-related hiring relative to last year, though there were some reports of slightly higher rates of seasonal hiring in New York and Chicago."
Manufacturers in several Districts were expanding capital budgets both to replace existing equipment and to expand capacity.
Residential construction increased on balance across the Districts and multifamily construction remained stronger than single-family construction in a number of Districts.
Overall price and wage inflation remained subdued in October and November.
The latest Beige Book is moderately positive. There are arguments for both hawks and doves within the Fed. The economy is improving-including the labor market-but inflation still appears to be below target.
Market Internals
NYSE:
Lower Volumes than the day before – 775.9M vs 813.0M
Advancers outpaced Decliners (adv/dec): 2029 / 1083
New Highs outpaced New Lows (highs/lows): 184 / 66
NASDAQ:
Lower Volumes than the day before – 1729.8M vs 1812.8M
Advancers outpaced Decliners (adv/dec): 1694 / 1049
New Highs outpaced New Lows (highs/lows): 121 / 85
VOLATILITY S&P500 (VIX)
12.47 -0.38 (-2.96%)
Internals are still looking bullish at the moment despite lower volume. On the other hand, VIX is sitting on a support line and seems like it is not able to break lower. Well we will see where it is heading tomorrow...
Technical Updates
17,912.62 +33.07 (+0.18%)
Volume: 99,400,965 (above average of 89,705,324)
Range: 17,855.59 - 17,924.15
4,774.47 +18.66 (+0.39%)
Volume: 450,700,483 (below average of 491,834,104)
Range: 4,745.14 - 4,781.37
S&P 500 INDEX (SPX: CBOE)
2,074.33 +7.78 (+0.38%)
Volume: 536,333,000 (above average of 531,899,203)
Range: 2,066.65 - 2,076.28
DOW continues to make a new high and S&P also hitting a resistance. Not to mention that MACD is still showing a divergence. I think it is better to be cautious than greedy now...
Commodities, Currencies and Bonds
Currency: Dollar Flirts with 89.00
- The Dollar Index drifts on session highs near 89.00 amid a rather subdued trade.
- The Index raced to the level following this morning's data, and has held in a tight range near the highs for the remainder of the session.
- EURUSD is -75 pips @ 1.2305 as trade slides to a 28-month low ahead of tomorrow's European Central Bank policy decision. Expectations remain low for the central bank to announce a QE-type program, but traders cannot completely rule out such action.
- GBPUSD is +55 pips @ 1.5690 action contends with 15-month lows. Sterling has been supported despite the latest Autumn Forecast Statement suggesting the government is expected to borrow more money (GBP91.3 bln actual v. GBP86.6 previous) than previously anticipated. The 1.5600 level will be watched closely into tomorrow's Bank of England rate decision.
- USDCHF is +60 pips @ .9780 as trade readies for its best close in over one and a half years. The pair saw little response to the better than expected Swiss GDP print, and instead remained tightly correlated to the fluctuations in the euro.
- USDJPY is +65 pips @ 119.85 as action rallied to its best levels in over seven years. Buyers emerged early in the session, and ran the pair to fresh highs after a Nikkei report suggested Prime Minister Shinzo Abe was likely to win a super majority in the upcoming election. The psychologically important 1.2000 level remains within striking distance.
- AUDUSD is -35 pips @ .8405 as trade readies for its worst close since July 2010. The hard currency came under pressure in overnight trade after Australian GDP missed forecasts, but managed to pare its losses as China's Non-Manufacturing PMI and HSBC Services PMI both showed improvement from prior readings. Australia's retail sales and trade balance are due out tonight.
- USDCAD is -45 pips @ 1.1360 after the Bank of Canada held its overnight rate at 1.00% and suggested the recent uptick in inflation was temporary. Trade has struggled in recent days near 1.1400/1.1450. Bank of Canada Governor Stephen Poloz will speak early this evening in Toronto. Canada's Ivey PMI is scheduled for tomorrow.
Bonds: Long Bond Leads Late-Day Rally
Treasury Yields:- A late-day rally propelled the Treasury complex to a mixed close.
- The complex saw light selling ahead of the cash open and whipped around as today's mixed data crossed the wires.
- The soft ADP Employment Report (208K actual v. 225K expected) got the data started with both productivity-rev. (+2.3% actual v. +2.4% expected) and unit labor costs-rev. (-1.0% actual v. 0.0% expected) also missing estimates.
- However, not all of the data was bad as ISM Services (59.3 actual v. 57.5 expected) saw one of its strongest readings on record.
- Yields across the complex held in a tight 3bp range throughout the session, and saw some slippage into the close after the release of the latest Beige Book.
- The Beige Book showed 'widespread' job growth and suggested the U.S. economy continues to expand.
- Up front, the 2Y added +1.5bps to 0.551%. The yield is probing the upper end of the 0.500%/0.550% range that was in place throughout November.
- In the belly, the 5Y tacked on +1.8bps to 1.608%. The yield reclaimed both the 50 dma and prior support at the 1.600% level.
- The 10Y edged up +0.2bps to 2.287%. The benchmark yield probed the important 2.300% area early in the session, but was unable to register a close above the mark.
- The 30Y slipped -1.1bps to 2.993% thanks to some late-day buying. What was previously support near 3.000% is now critical resistance.
- A slightly flatter curve developed as the 2-10-yr spread tightened to 173.5bps.
- Precious metals saw a mixed session as gold rallied +$10 to $1209 and silver eased -$0.08 to $16.38.
- Data: Challenger Job Cuts (7:30) and initial and continuing claims (8:30).
- Fed Speak: Cleveland's Mester makes opening remarks at the 2014 Financial Stability Conference (8:30). Fed Governor Brainard duplicates his speech from the previous day (13:15).
- 2 Year Note 0.57% +0.02
- 5 Year Note 1.61% +0.02
- 10 Year Note 2.29% +0.01
- 30 Year Bond 2.99% -0.01
2/30 Spread: 242 bps ( -3 ) … 2/10 Spread: 172 bps ( -1 )
Preview for Thursday 4 Dec, 2014
Summary
The oil saga seems to have put behind for the time being as market continues to outperform. I suppose we might see some profit taking as market moves higher...
Other than that I think the market is still very much waiting for the Non-farm Payroll on Friday as it will be a market mover definitely. Chances are we would not be seeing any major gyration in the market prior to Friday. A point to note will be the announcement of BoE bank rate and ECB conference. Have to watch out for that as well...
Other than that I think the market is still very much waiting for the Non-farm Payroll on Friday as it will be a market mover definitely. Chances are we would not be seeing any major gyration in the market prior to Friday. A point to note will be the announcement of BoE bank rate and ECB conference. Have to watch out for that as well...
Direction for the Thursday 4 Dec, 2014; Up
Daily Directional Accuracy (from 25 November 2014): 2/6 (33.33%)
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