Dow +211.86 at 17884.88, Nasdaq +48.39 at 4765.10, S&P +21.01 at 2062.52
Market went the opposite way from what I thought. Market started strongly but it remained flat for most of the time afterwards. Anyway I feel the overall sentiment improved mainly due to the recent better than expected earnings reports.I feel that the bulls are losing their steams. Market seems pretty weak to climb higher. As I mentioned on Tuesday, I am still sticking to technicals. Speaking of which, I think we should start to see a reversal.
In addition, we are expecting Non-farm payroll and unemployment data on Friday. I suppose we are going to see more profit-taking prior to the numbers released.
Direction for Thursday 5 Feb, 2015; Down
Market Summary
Industry Watch
Strong: Energy, Financials, Health Care, Materials
Weak: Consumer Staples, Technology, Telecom Services, Utilities
Other Market Moving Factor:
- Greek Finance Minister met with his German counterpart, but the meeting has not produced any results
- Pfizer (PFE) acquires Hospira (HSP) for $90/share
[BRIEFING.COM] The major averages zoomed higher on Thursday, allowing the S&P 500 (+1.0%) to reclaim its loss from yesterday and then some. The benchmark index erased the remainder of its decline from January while the Dow (+1.2%) and Russell 2000 (+1.3%) outperformed.
Equity indices made the bulk of their advance during the opening hour and spent the rest of the trading day in narrow ranges near their highs. The opening spike took place after investors realized that yesterday's ECB decision to lift a waiver that allowed for the acceptance of Greek government bonds as collateral was political at its core.
For the time being, Greek banks are still allowed to turn to the Bank of Greece, which in turn has access to funds through Emergency Liquidity Assistance from the European Central Bank. To that point, Germany's Die Welt reported that the ECB has granted up to EUR60 billion in funding to the Bank of Greece through ELA channels.
That being said, the negotiations are unlikely to unfold without a hitch, evidenced by today's press conference after Greece's Finance Minister Yanis Varoufakis met with his German counterpart Wolfgang Schaeuble. Mr. Schaeuble said he was advised to say the two "Agreed to disagree," but Mr. Varoufakis countered, saying "We didn't even agree to disagree."
The S&P 500 opened just above its 50-day moving average (2,044) and built on its early gain with the assistance from most sectors. The materials space (+2.4%) finished in the lead while health care (+1.6%) and energy (+1.4%) also outperformed.
The energy sector received a helping hand from crude oil, which followed yesterday's 9.3% plunge with a 4.2% spike to $50.47/bbl. Despite the surge, the energy component remains below its 50-day moving average, which resides in the $55.00/bbl area.
Meanwhile, the health care sector benefitted from strength in the biotech group with the iShares Nasdaq Biotechnology ETF (IBB 319.91, +7.36) climbing 2.4% to snap its four-day losing streak. Furthermore, Dow component Pfizer (PFE 32.99, +0.92) added 2.9% after agreeing to acquire Hospira (HSP 87.64, +22.84) for $90/share, which represents a 38.9% premium to HSP's closing price from yesterday.
Elsewhere among influential sectors, financials (+1.0%), industrials (+1.0%), and technology (+0.9%) finished near the broader market while the consumer discretionary sector (+0.6%) underperformed. Homebuilders struggled amid today's increase in Treasury yields with the iShares Dow Jones US Home Construction ETF (ITB 26.20, -0.15) shedding 0.6%. Also of note, apparel names ended in mixed fashion with Michael Kors (KORS 69.77, -1.61) falling 2.3% after cautious guidance and below-consensus comparable store sales overshadowed a bottom-line beat.
Treasuries retreated, ending near their lows with the 10-yr yield higher by six basis points at 1.81%.
Today's participation was below average with roughly 775 million shares changing hands at the NYSE floor.
Economic data included Initial Claims, Trade Deficit, Productivity/Unit Labor Cost Data, and Challenger Job Cuts:
- The initial claims level increased to 278,000 from an upwardly revised 267,000 (from 265,000) while the Briefing.com consensus expected an increase to 290,000
- For the first few weeks of January, the initial claims level suddenly accelerated above 300,000. There was no supporting evidence that explained the increase, but we assumed that it must have been the result of increased layoff activities in the oil and gas sector
- The trade deficit widened to $46.60 billion in December from a downwardly revised $39.8 billion ($39.0 billion) in November while the consensus expected a decrease to $38.00 billion
- According to the advance fourth quarter GDP report, the BEA assumed that the trade deficit would widen in December to roughly $45.00 billion. Not only did the December deficit exceed those expectations but inclusion of the downside November revisions means that the trade deficit will subtract more from GDP growth in the second estimate than it did in the advance release
- Nonfarm labor productivity declined 1.8% in the fourth quarter after increasing an upwardly revised 3.7% (from 2.3%) in Q3 2014 while the Briefing.com consensus expected an increase of 0.2%
- Unit labor costs increased 2.7% in the fourth quarter after declining in both the second and third quarters. The increase resulted from a 0.9% jump in hourly compensation coupled with lower output gain
- The Challenger Job Cuts report for January indicated a 17.6% increase to follow the prior rise of 6.6%
Macroeconomic Data
Economic Data
from Briefing.com
- Challenger Job Cuts : 17.6% (Prior 6.6%)
- Initial Claims : 278K vs 290K (Prior 267K - Up)
- Continuing Claims : 2400K vs 2388K (Prior 2394K - Up)
- Trade Balance : -$46.6B vs -$38.0B (Prior -$39.8B - Up)
- Productivity - Prelim : -1.8% vs 0.2% (Prior 3.7% - Up)
- Unit Labour Costs : 2.7% vs 1.2% (Prior -2.3% - Up)
- Natural Gas Inventories : -115bcf (Prior -94bcf)
UNEMPLOYMENT CLAIMS
Highlights
- The initial claims level increased to 278,000 for the week ending January 31 from an upwardly revised 267,000 (from 265,000) for the week ending January 24. The Briefing.com Consensus expected the initial claims level to increase to 290,000.
- The continuing claims level increased to 3.400 mln for the week ending January 24 from an upwardly revised 2.394 mln (from 2.385 mln) for the week ending January 17. The consensus pegged the continuing claims level at 2.388 mln.
Key Factors
- For the first few weeks of January, the initial claims level suddenly accelerated above 300,000. There was no supporting evidence that explained the increase, but we assumed that it must have been the result of increased layoff activities in the oil and gas sector.
- Layoff activities have returned to its previous trend after the brief uptick, signaling that the labor market was never in real danger of softening.
Big Picture
- The initial claims level supports monthly payroll growth above 200,000.
TRADE BALANCE
Highlights
- The U.S. trade deficit widened to $46.6 bln in December from a downwardly revised $39.8 bln ($39.0 bln) in November. The Briefing.com Consensus expected the trade deficit to decrease to $38.0 bln.
Key Factors
- According to the advance fourth quarter GDP report, the BEA assumed that the trade deficit would widen in December to roughly $45 bln. Not only did the December deficit exceed those expectations but inclusion of the downside November revisions means that the trade deficit will subtract more from GDP growth in the second estimate than it did in the advance release.
- Fortunately, the negative revision won’t be as large as the headline suggests. For GDP purposes, trade in nonmonetary gold is excluded and a large portion of the increase in the deficit ($1.7 bln) came from that sector.
- The widening of the trade deficit was clearly unexpected by the consensus. Low oil prices were expected to reduce demand for petroleum imports and recent volatility in the aircraft sector was expected to end. While aircraft shipments were nearly flat, petroleum-based imports increased by $1.8 bln in December. The overall petroleum-based trade deficit increased by $3.1 bln.
- Overall, the goods deficit increased by $6.9 bln in December to $66.0 bln from $59.1 bln. The services surplus increased by $0.1 bln to $19.5 bln.
- Total exports fell 0.8% to $194.8 bln in December from $196.4 bln in November. Big reductions in exports were seen in industrial supplies and materials (-$3.1 bln), which mostly came from the aforementioned decline in nonmonetary gold exports, and food and feeds (-$0.3 bln). Capital goods (+$0.9 bln) and autos (+$0.4 bln) offset some of the losses.
- Imports increased by 2.2%, from $236.2 bln in November to $241.4 bln in December. All major sectors posted increases in imports in December and the largest gains came from industrial supplies and materials ($2.7 bln) and autos ($0.9 bln).
Big Picture
- The larger-than-expected trade deficit will reduce fourth quarter GDP in the next revision.
PRELIM PRODUCTIVITY
Highlights
- Nonfarm labor productivity declined 1.8% in the fourth quarter after increasing an upwardly revised 3.7% (from 2.3%) in Q3 2014. The Briefing.com Consensus expected nonfarm labor productivity to increase 0.2%.
Key Factors
- The decline in productivity was a result of labor hours increasing at a faster rate than output. Output in the fourth quarter increased 3.2% after increasing 6.3% in the third quarter. Meanwhile, hours increased 5.1%, which was the largest increase since Q4 1998, after increasing 2.5% in the previous two quarters.
- Hours growth is likely to decelerate considerably next quarter, which could mean softer monthly payroll gains in 2015.
- Unit labor costs increased 2.7% in the fourth quarter after declining in both the second and third quarters. The increase in unit costs was a result of a 0.9% increase in hourly compensation coupled with the lower output gain.
Big Picture
- Productivity gains help keep cost-push inflation pressures from rising wages in check. Over the long term, it is productivity gains that provide the increase in output that have led to the consistent gains in living standards in free market economies.
Market Internals
NYSE:
Lower Volumes than the day before – 793.7M vs 899.9M
Advancers outpaced Decliners (adv/dec): 2366 / 751
New Highs outpaced New Lows (highs/lows): 138 / 14
NASDAQ:
Lower Volumes than the day before – 2020.8M vs 2196.5M
Advancers outpaced Decliners (adv/dec): 2037 / 730
New Highs outpaced New Lows (highs/lows): 92 / 37
VOLATILITY S&P500 (VIX)
16.85 -1.48 (-8.07%)
The internals are pointing to more bullishness but the lack in volume still concerns me. VIX also closed below its 50MA and maybe we might see more confidence getting back if employment number is good.
Technical Updates
17,884.88 +211.86 (+1.20%)
Volume: 79,893,893 (below average of 92,337,666)
Range: 17,677.26 - 17,889.58
4,765.10 +48.39 (+1.03%)
Volume: 501,774,519 (above average of 449,547,016)
Range: 4,722.80 - 4,767.38
S&P 500 INDEX (SPX: CBOE)
2,062.52 +21.01 (+1.03%)
Volume: 532,688,000 (above average of 525,466,631)
Range: 2,043.45 - 2,063.55
DOW seems to break out of the downtrend with the higher high. NASDAQ and S&P also on the verge of breaking out of their consolidation. Could that be a sign of bullishness or just a false pretence?
Commodities
Morning Commodities: WTI Oil Closes Above $50/barrel
- Oil was at it again today, which was driven by a few catalysts including rising violence in Libya and a declining dollar
- Mar crude oil rallied today as high as $52.10/barrel and closed pit trading $2.03 higher at $50.47/barrel
- Nat gas was in the red all morning/afternoon and closed $0.06 lower at $2.60/MMBtu
- Apr gold lost $1.60 to $1263/oz and Mar silver fell $0.22 to $17.19/oz
- Mar copper futures climb slowly higher today off its low and ended $0.01 higher at $2.60/lb
Energy Price Action
- Mar crude oil futures rose $2.03/barrel to $50.47/barrel
- Mar natural gas fell $0.06 cents to $2.60/MMBtu
- RBOB Gasoline closed $0.05 higher (or +3.4%) at $1.53/gallon
- Heating oil closed $0.05 higher (or +2.8%) at $1.81/gallon
Agricultural Price Action
- Mar corn closed $0.01 higher at $3.85/bushel
- Mar wheat closed $0.14 higher at $5.26/bushel
- Feb soybeans ended $0.08 higher at $9.81/bushel
- Ethanol closed $0.01 higher at $1.45/gallon
- Sugar #11 closed 0.04 cents lower at 14.41 cents/lb
Metals Price Action
- Apr gold ended today’s session $1.60 lower at $1263/oz
- Mar silver ended $0.22 lower at $17.19/oz
- Mar copper closed $0.01 higher at $2.60/lb
Currencies
Currency Commentary: DXY Remains Offered
- The Dollar Index continues to see selling pressure. The DXY is down over 1% this week as it appears to have finally met resistance at the 95 area. The Trade deficit widened to $46 bln today which is notable as most economists were expecting lower on falling oil prices. However volume was higher and erased some of the expected gains from the lower cost. Exports were also down mainly due to a weakening in non-monetary gold. Participants will be watching this closely to see the impact of weaker global markets and a strong dollar. The number also suggests a downside revision to Q4 GDP when it posts its second print at the end of the month. Initial Claims came in better than expected which will raise expectations for tomorrow’s jobs report. Also of interest was the increase in Q4 Labor Unit Costs which rose 2.7%, well above the +1.2% expectations.
- The euro has regained some of yesterday’s losses. The single currency was quickly dropped yesterday afternoon as headlines that the ECB would pull exemptions for Greece to borrow crossed wires. The ECB did leave open the ELA funding so it did not cut off Greece but the costs were likely to rise. Greece FM Varoufakis and German FM Schaubel met today in order to discuss the situation. There was no further developments but it would appear the two sides talking was enough to cool market tensions. This has helped the euro climb back over 1.14.Markets will continue to watch the 1.15 area closely to see if it continues to provide resistance.
- The pound is a big winner in the currency markets today. Sterling has been able to extend gains over the 1.52 level and is at tis best level since January 5. The Bank of England met today but did not make any changes to its rates or asset purchases. This was widely expected but it also highlighted that the BoE was not following the majority of central banks into further easing. This is helping provide a bid for cable.
- Global markets continue to gyrate but the yen is certainly not following suit. Yen continues to bounce around in the 117 area. This points to uncertainty on risk as traders would prefer to sit back and hold rather than get overly aggressive. Japan auctions off 30-year debt and saw the yield climb to 1.46% (prior 1.12%) while demand fell to 2.7x (prior 3.6x).
Roller-Coaster Ride:
- Treasuries were sold in overnight action and that's pretty much how they stayed throughout Thursday's trading, ending near their worst levels of the day
- 2-yr yield +2 bps at 0.51%
- 5-yr yield +4 bps at 1.29%
- 7-yr yield +5 bps at 1.61%
- 10-yr yield +6 bps at 1.81%
- 30-yr yield +7 bps at 2.42%
- Two key factors drove the defensive action
- Tempered angst over the European Central Bank's (ECB) decision to stop accepting Greek bonds as collateral for ECB funds, effective February 11
- Participants comforted by renewed focus on point that Greek banks can still get liquidity needs met by way of the Greek central bank through the Emergency Liquidity Assistance (ELA) program
- Underlying belief that a worst-case scenario won't unfold, even if things look and sound dicey between now and the end of the month (as they likely will)
- A solid rebound effort in the U.S. stock market that diminished some of the safe-haven appeal of the Treasury market
- Tempered angst over the European Central Bank's (ECB) decision to stop accepting Greek bonds as collateral for ECB funds, effective February 11
- Economic data were generally supportive of Treasuries, yet buyers kept to the sidelines ahead of the January Employment Situation report on Friday
- Initial claims for the week ending January 31 increased 11,000 to 278,000 (Briefing.com consensus 290,000)
- Pretty much on trend at levels that support nonfarm payroll growth in excess of 200,000
- The trade deficit widened to $46.6 billion in December (Briefing.com consensus -$38.0 bln) from a downwardly revised $39.8 bln in November
- Exports dropped by 0.8% to $194.9 billion while imports rose 2.2% to $241.4 billion
- The December report, coupled with the downward revision to November, means the trade deficit will subtract more from Q4 GDP growth in the second estimate than it did in the advance estimate.
- Q4 Productivity declined 1.8% (Briefing.com consensus +0.2%) while Unit Labor Costs rose 2.7% (Briefing.com consensus +1.2%)
- With a bigger increase in hours than output, compensation should be up modestly; however, hours growth is likely to decelerate considerably next quarter, which could mean softer payroll gains in 2015
- Initial claims for the week ending January 31 increased 11,000 to 278,000 (Briefing.com consensus 290,000)
- Central Bank Watch
- Boston Fed President Rosengren, citing total and core inflation trends, said being patient with raising rates is the right policy
- As expected, Bank of England left its key lending rate unchanged and size of its asset purchase program unchanged at 0.50% and GBP375 bln, respectively
- Denmark central bank cut rates 25 bps to -0.75% (fourth cut in three weeks as it aims to keep the krone pegged to the euro)
- Friday: Atlanta Fed President Lockhart (an FOMC voter) speaks at 12:45 ET on monetary policy and economic outlook
- U.S. Dollar Index was weak (-0.4% at 93.58) on the back of a stronger euro
- EUR/USD +1.3% to 1.1474
- Weaker dollar helped aid a rebound in oil prices. After dropping 9.0% on Wednesday, WTI crude rose 4.2% to settle at $50.47/bbl
- Friday Data: January Employment Situation report (08:30 ET), December Consumer Credit (15:00)
- Employment report expected to be a market mover. Average hourly earnings number (Briefing.com consensus +0.3%; prior -0.2%) will be in the spotlight.
Treasury Yields:
- 2 Year Note 0.52% UNCH
- 5 Year Note 1.30% +0.01
- 10 Year Note 1.83% +0.02
- 30 Year Bond 2.42% +0.03
2/30 Spread: 190 bps ( +3 ) … 2/10 Spread: 131 bps ( +2 )
Preview for Friday 6 Feb, 2015
Friday (6 Feb) :
- Nonfarm Payrolls : 235K (Prior 252K)
- Nonfarm Private Payrolls : 225K (Prior 240K)
- Unemployment Rate : 5.6% (Prior 5.6%)
- Hourly Earnings : 0.3% (Prior -0.2%)
- Average Workweek : 34.6 (Prior 34.6)
- Consumer Credit : $15.0B (Prior $14.1B)
Earnings Highlights
Friday (6 Feb) :
BMO - AAN AXL AON BECN BPL CAE CBOE UFS FLIR FELP HRS MSG MMC MCO SIRO STRA VVI WETF
AMC - CCJ GBDC
Summary
The bull run was not convincing in my opinion as I feel the bears are sitting out to watch prior to the Non-farm payroll and unemployment number.
Technically we are seeing the indices are looking to break out of their consolidation and so Friday will be an important session.
Technically we are seeing the indices are looking to break out of their consolidation and so Friday will be an important session.
Direction for Friday 6 Feb, 2015; Abstain
2015 Daily Directional Accuracy: 9/22 (40.91%)
2015 Weekly Directional Accuracy: 3/4 (75.00%)
2015 Weekly Directional Accuracy: 3/4 (75.00%)
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