Dow -36.87 at 18126.12, Nasdaq -8.62 at 5097.97, S&P -2.69 at 2120.78
Market started slow as it opened lower. Probably some profit taking after the release of unemployment claims. However market did pick in the second half of the session despite still under the negative side. It was rather a quiet session ahead of Friday's GDP number.I am quite skeptical as the market recovers on Wednesday. One concern would be the technology sector. Looking at NASDAQ, it seems that they are going for a breakout. They can be a tipping point for the market. Other than that I suppose what we saw was mostly short-covering and some dip buying. Maybe the market is pricing in prior to the release of macroeconomic data.
Direction for Wednesday 27 May, 2015; Up
Market Summary
Industry Watch
Strong: Utilities
Weak: Energy, Financials, Industrials, Telecom Services
Other Market Moving Factor:
- Avago Technologies (AVGO) confirms acquisition of Broadcom (BRCM) for $37 billion: semiconductor names outperform
- China's Shanghai Composite plunges 6.5% on regulatory concerns and stricter margin requirements
Equity indices began the day in the red with some residual damage to risk tolerance after China's Shanghai Composite tumbled 6.5% in reaction to more equity brokers increasing their margin requirements. Furthermore, repurchase operations conducted by the People's Bank of China stirred concerns that the central bank may be preparing to stop or slow its easing cycle. To be fair, today's decline in the Shanghai Composite only caused the index to surrender its week-to-date gain.
In either case, things did not get any more cheery by the start of the European session with signals from the G7 meeting in Dresden suggesting that wide-ranging differences remain between Greece and the creditor institutions. To that point, yesterday's ‘deal—no deal' may have been topped by today's headlines from Frankfurter Allgemeine Zeitung, which quoted International Monetary Fund's Managing Director Christine Lagarde as saying it is possible that Greece will exit the eurozone. Not long after, the IMF sought to clarify the quotes obtained from Ms. Lagarde, claiming they were inaccurate. However, the Fund did not specify what the inaccuracies were. FAZ responded, saying Ms. Lagarde's quotes will be removed. In the midst of all this, Spain's Economy Minister Luis de Guindos reportedly said that a deal between Greece and the institutions remains possible.
All in all, things have not gotten any clearer for quite a while and nothing will be certain until official bridge agreements are signed or the bridge between Greece and Western Europe is burning. The euro handled today's developments well, adding 0.4% against the dollar to 1.0950. Conversely, the Dollar Index shed 0.2% after enjoying a solid spike yesterday.
Similar to the Dollar Index, equities backtracked after yesterday featured a broad advance. Only three sectors registered gains, but losses among the seven decliners were contained to no more than 0.5%.
Industrials and telecom services finished at the bottom of the barrel with the industrial sector enduring continued weakness among transport stocks. The Dow Jones Transportation Average lost 0.9% and widened its 2015 decline to 9.2%. In addition, heavy machinery names like Caterpillar (CAT 86.01, -1.91), Deere (DE 93.50, -0.86), and Joy Global (JOY 39.65, -1.29) underperformed as investors grappled with implications stemming from potential policy changes in China, where each company has a large footprint.
Similar to industrials, the energy sector (-0.4%) struggled throughout the session and finished among the laggards even though crude oil recouped an early loss, adding almost 0.5% for the day to end near $58.00/bbl. However, natural gas fell 4.2% to $2.71/MMBtu.
Elsewhere, the technology sector (-0.2%) was tucked in right behind the broader market, but that masked broad strength among chipmakers. The PHLX Semiconductor Index added 0.1% after yesterday's rumor became today's news and Avago Technologies (AVGO 142.38, +0.89) confirmed its acquisition of Broadcom (BRCM 56.25, -0.91) for $37 billion. Broadcom lost 1.9% today as some traders took quick profits after taking the stock higher by almost 22.0% yesterday.
On the upside, utilities (+0.2%) and materials (+0.3%) outperformed, but had little impact on the overall market. Also of note, the health care sector (+0.1%) ended just above its flat line even though biotechnology struggled with iShares Nasdaq Biotechnology ETF (IBB 364.89, -2.07) falling 0.6%.
Treasuries ranged near their flat lines throughout the day with the 10-yr note ending unchanged and its yield at 2.13%. That being said, there were gains up front (2-yr yield -3 bps to 0.62%) and a downtick at the long end (30-yr +2 bps to 2.89%), making for a slightly steeper curve.
Today's participation was comparable to recent totals with roughly 675 million shares changing hands at the NYSE floor.
Economic data included Initial Claims and Pending Home Sales:
- Weekly initial claims increased to 282,000 from an upwardly revised 275,000 (from 274,000) while the Briefing.com consensus expected a reading of 274,000
- The four-week moving average inched up a little higher to 271,500 from 266,500 for the week ending May 16, but despite the increase, initial claims remain near 15-year lows
- The continuing claims level increased to 2.222 mln from an unrevised 2.211 mln while the consensus expected an increase to 2.250 mln
- Pending home sales for April rose 3.4% while the Briefing.com consensus expected an increase of 1.0%
Global Market
ASIA
Asian Markets Close: Japan’s Nikkei +0.4%; Hong Kong’s Hang Seng -2.2%; China’s Shanghai Composite -6.5%
Markets in the Asia-Pacific region were mostly lower on Thursday, none more so than China’s Shanghai Composite, which plunged 6.5% amid concerns about tighter margin financing requirements. Japan’s Nikkei, however, stood its ground and recorded its tenth consecutive gain to close at a 15-year high.
Economic data
- Japan
- April Retail Sales +5.0% year-over-year (expected +5.4%; prior -9.7%)
- Hong Kong
- April Trade Balance HKD -39.2 bln (expected HKD -45.0 bln; prior HKD -46.2 bln)
- Exports +2.2% month-over-month (expected +1.0%; prior -1.8%)
- Imports -2.9% month-over-month (expected +0.5%; prior -2.7%)
- Australia
- Q1 Building Capital Expenditure -6.5% month-over-month (expected -2.5%; prior -2.8%)
- Q1 Private New Capital Expenditure -4.4% quarter-over-quarter (expected -2.4%; prior -1.7%)
- Q1 Plant/Machinery Capital Expenditure -0.5% quarter-over-quarter (expected -1.2%; prior +0.5%)
Equity Markets
- Japan’s Nikkei increased 0.4%, aided by a weaker yen. That is the Nikkei’s tenth consecutive gain, which, according to Reuters, is its longest streak of gains since February 1988. In that span, the Nikkei has increased 5.0%. Thursday’s gain was led by the financial (+1.5%) and technology (+1.4%) sectors. Individual standouts included Tokyo Electric Power (+6.2%) and Mizuho Financial Group (+5.9%). Mitsumi Electric Co (-2.7%) was the worst-performing issue. Out of the 225 index members, 131 ended higher, 83 finished lower, and 11 were unchanged.
- Hong Kong’s Hang Seng dropped 2.2%, stumbling in conjunction with the mainland market. Every sector lost ground. The consumer cyclical sector (-2.7%) suffered the largest decline while the influential financial sector (-1.9%) weighed heavily on the proceedings. Belle International (-5.2% and China Life Insurance (-4.4%) led all decliners. CK Hutchison Holding (+2.4%) was the only stock to advance in Thursday’s trade. Out of the 49 index members, 1 ended higher and 48 finished lower.
- China’s Shanghai Composite plummeted 6.5% on the back of concerns about tighter margin financing requirements. Losses were deep across all sectors in the Chinese market, ranging from 6.0% to 9.2%. Thursday’s retreat ended an eight-session winning streak for the Shanghai Composite, during which time it had gone up 15.4%.
- India’s Sensex declined 0.2%, with losses in the consumer non-cyclical (-1.6%), communications (-1.4%), and financial (-0.7%) sectors driving the negative finish. Cipla Ltd/India (-2.6%), Tata Power Co (-2.3%), and Sun Pharmaceutical (-2.1%) led declining issues while Vedanta (+2.7%) sat atop the short list of winners.
- Australia’s S&P/ASX 200 declined 0.2%, weighed down by weak capital expenditure data and losses in the gold (-3.9%), telecom services (-0.9%), and metals & mining (-0.8%) sectors.
- Regional advancers: Taiwan +0.2%, South Korea +0.2%, Malaysia +0.03%, Vietnam +1.2%
- Regional decliners: Singapore -0.2%, Thailand -0.5%, Indonesia -0.3%, Philippines -1.2%
FX
- USD/CNY unch at 6.2012
- USD/INR unch at 63.826
- USD/JPY +0.3% at 124.06
EUROPE
Major European indices trade lower across the board with France’s CAC (-0.7%) leading the pullback. There has been no change on the Greek bailout front with German Finance Minister Wolfgang Schaeuble saying he is surprised that reports out of Greece always maintain a sunny disposition, claiming that the two sides are very close to an agreement
- Eurozone May Business and Consumer Survey held at 103.8 (expected 103.5)
- Germany’s April Import Price Index +0.6% month-over-month (expected 0.5%; prior 1.0%); -0.6% year-over-year (consensus -0.6%; last -1.4%)
- UK’s Q1 GDP +0.3% quarter-over-quarter (expected 0.4%; prior 0.3%); +2.4% year-over-year (consensus 2.5%; prior 2.4%). Separately, Q1 Business Investment +1.7% quarter-over-quarter (expected 1.0%; previous -0.9%) and BBA Mortgage Approvals 42,100 (consensus 39,200; prior 39,200)
- Spain’s April Retail Sales +4.0% year-over-year (expected 2.0%; last 3.2%) while Q1 GDP +0.9% quarter-over-quarter, as expected
- Italy’s Business Confidence ticked down to 103.5 from 104.0 (expected 104.5) while Consumer Confidence fell to 105.7 from 108.0 (consensus 108.2)
- Swiss April trade surplus widened to CHF2.86 billion from CHF2.50 billion (expected surplus of CHF2.77 billion)
Closing Prices
- UK’s FTSE: + 0.1%
- Germany’s DAX: -0.8%
- France’s CAC: -0.9%
- Spain’s IBEX: -0.5%
- Portugal’s PSI: + 0.1%
- Italy’s MIB Index: -0.5%
- Irish Ovrl Index: -0.2%
- Greece ASE General Index: -1.7%
Macroeconomic Data
Economic Data
from Briefing.com
- Initial Claims : 282K vs 274K (Prior 275K - Up)
- Continuing Claims : 2222K vs 2250K (Prior 2211K)
- Pending Home Sales : 3.4% vs 1.0% (Prior 1.2% - Up)
- Natural Gas Inventories : 112 bcf (Prior 92 bcf)
- Crude Inventories : -2.802M (Prior -2.674M)
UNEMPLOYMENT CLAIMS
Highlights
- The initial claims level increased to 282,000 for the week ending May 23 from an upwardly revised 275,000 (from 274,000) for the week ending May 16. The Briefing.com Consensus pegged the initial claims level at 274,000.
- The continuing claims level increased to 2.222 mln for the week ending May 16 from an unrevised 2.211 mln for the week ending May 9. The consensus expected the continuing claims level to increase to 2.250 mln.
Key Factors
- The four-week moving average inched up a little higher to 271,500 from 266,500 for the week ending May 16. Despite the increase, initial claims remain near 15-year lows.
- At their current level, the initial claims data support monthly payroll growth of at least 200,000.
Big Picture
- Employment conditions remain strong as the initial claims level holds at 15-year lows.
Market Internals
NYSE:
Lower Volumes than the day before – 690.2M vs 722.0M
Decliners outpaced Advancers (adv/dec): 1296 / 1758
New Highs outpaced New Highs (highs/lows): 64 / 56
NASDAQ:
Lower Volumes than the day before – 1724.5M vs 1795.4M
Decliners outpaced Advancers (adv/dec): 1301 / 1486
New Highs outpaced New Highs (highs/lows): 89 / 48
VOLATILITY S&P500 (VIX)
13.31 +0.04 (+0.30%)
Volume remains weak and internals are not going anywhere. However VIX is reflecting some confidence ahead of Friday's GDP number. Yet it is still sitting on its 20 and 50 MAs. It would be more appropriate to say market is in a mixed state.
Technical Updates
18,126.12 -36.87 (-0.20%)
Volume: 67,514,977 (below average of 99,070,625)
Range: 18,066.40 - 18,154.14
Range: 18,066.40 - 18,154.14
5,097.98 -8.62 (-0.17%)
Volume: 400,525,535 (below average of 428,499,088)
Volume: 400,525,535 (below average of 428,499,088)
Range: 5,080.24 - 5,106.65
S&P 500 INDEX (SPX: CBOE)
2,120.79 -2.69 (-0.13%)
Volume: 434,135,000 (below average of 525,721,508)
Range: 2,112.86 - 2,122.27
The candlestick patterns are telling us that the market is getting uncertain. Both NASDAQ and S&P are still at the resistance level. I am seeing double top forming in NASDAQ if it does not break above its resistance. Prior to the GDP number, I suppose that reaction is justifiable.
Commodities
Closing Commodities: Natural Gas Closes Sharply Lower, WTI Oil Reverses LossesCommodities
- A small reversal in the dollar index gave some help to commodities such as metals and oil prices
- Natural gas futures held down today’s losses, however, following storage data, ending the day -4.2% lower at $2.71/MMBtu
- July crude oil closed $0.12 higher at $57.69/barrel
- Copper ended flat at $2.77/lb and precious metals showed very small gains
- June gold rose $2.50 today to $1188.20/oz, while July silver gained $0.01 to $16.67/oz
Energy
- July crude oil futures rose $0.12 to $57.69/barrel
- June natural gas closed $0.12 lower (-4.2%) at $2.71/MMBtu
- RBOB Gasoline closed $0.04 higher to $1.97/gallon
- Heating oil futures closed $0.01 higher at $1.87/gallon
Agriculture
- July corn closed $0.04 higher to $3.53/bushel
- July wheat closed $0.01 lower to $4.88/bushel
- July soybeans closed $0.01 lower to $9.26/bushel
- Ethanol closed $0.01 higher at $1.54/gallon
- Sugar #11 closed 0.07 cents higher to 11.94 cents/lb
Metals
- June gold ended today’s session $2.50 higher to $1188.20/oz
- July silver closed $0.01 higher at $16.67/oz
- July copper closed flat at $2.77/lb
Currencies
- The dollar fell today against the euro, the yen, the loonie, and the Swissy. U.S. Pending Home Sales for April beat expectations, rising 3.4% versus the Briefing.com consensus of +1.0% and the rise of 1.1% in March, but the positive surprise failed to ignite any dollar buying. The U.S. dollar has gotten very overbought over the prior 7 sessions and traders may have been taking profits from longs and waiting for lower prices to re-enter
- U.S. Dollar Index: -0.22% to 97.15
- EUR/USD rallied 0.25% to $1.0926
- Repeated denials by EU and IMF officials that an agreement on Greece is close failed to weigh on the single currency
- Spain's GDP grew at a rate of 2.7%, ahead of estimates and better than the 2.6% from Q4 2014
- GBP/USD: -0.32% to $1.5300
- GDP in the U.K. grew at an annualized rate of 2.4% in the first quarter, short of expectations but in line with Q4 2014
- USD/JPY: +0.13% to 123.92
- The pair touched a fresh multi-year high but pulled back after the strongly-bid 7-year Treasury note auction
- USD/CHF: -0.60% to 0.9442
Bonds
Yield Curve Steepens
- The front end gained and bonds lost ground today in a trade after data showed an improving U.S. economy but played second fiddle to risk from Greece and China
- Yield Check:
- 2-yr: -3 bps to 0.62%
- 5-yr: -2 bps to 1.51%
- 10-yr: unch at 2.13%
- 30-yr: +2 bps to 2.89%
- News:
- Chinese equities plummeted overnight with the Shanghai Composite falling 6.5%
- In the U.S., there were 282,000 Initial Jobless Claims for the week ending May 23 from an upwardly revised 275,000 (from 274,000) for the week ending May 16. The Briefing.com consensus called for 274,000
- The current level of claims is commensurate with a monthly employment number of at least 200,000
- The finance ministers of the G7 nations met in Dresden and discussed how to improve economic growth from its current, sluggish pace. Greece was not officially on the agenda, but it will be on Friday
- The National Association of Realtors' pending home sales index hit a 9-year high, rising 3.4% m/m in April
- The $29 billion 7-year Treasury note auction was met with strong demand. The auction stopped through, although by less than 1 basis point
- High yield: 1.888% (26.73% allotted at high)
- Bid-to-cover: 2.49
- Indirect bid: 53.83%
- Direct bid 12.0%
- Commodities:
- WTI Crude: +0.43% to $57.76/bbl
- Gold: +0.25% to $1,188.60/troy oz.
- Copper: +0.13% to $2.772/lb.
- Currencies:
- EUR/USD: +0.36% to $1.0938
- USD/JPY: +0.24% to 124.05
- Data out Friday:
- Q1 GDP – Second Estimate and GDP Deflator – Second Estimate (08:30 ET)
- May Chicago PMI (09:45 ET)
- May Michigan Sentiment – Final (10:00 ET)
Treasury Yields:
- 2 Year Note 0.62% -0.02
- 5 Year Note 1.51% -0.02
- 10 Year Note 2.13% -0.01
- 30 Year Bond 2.89% +0.01
2/30 Spread: 227 bps ( +3 ) … 2/10 Spread: 151 bps ( +1 )
Preview for Friday 29 May, 2015
Economic Data
Friday (29 May) :
- GDP - Second Estimate : -0.7% (Prior 0.2%)
- GDP Deflator - Second Estimate : -0.1% (Prior -0.1%)
- Chicago PMI : 53.0 (Prior 52.3)
- Michigan Sentiment - Final : 89.0 (Prior 88.6)
Friday (29 May) :
BMO - BIG CCG CMGE DXLG FRO GCO GHM BNS
AMC - None Scheduled
BMO - BIG CCG CMGE DXLG FRO GCO GHM BNS
AMC - None Scheduled
Summary
For the week, market has been uncertain. Market was trying to recover on Thursday but without much volume, the slight pullback is not getting convincing. I think the traders are staying out of the game ahead of the GDP number and it's a no brainer to continue fighting with the market.
Direction for Thursday 28 May, 2015; Abstain
2015 Daily Directional Accuracy: 43/80 (53.75%)
2015 Daily Directional Accuracy: 43/80 (53.75%)
2015 Weekly Directional Accuracy: 10/18 (55.56%)
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