Dow -190.48 at 18041.54, Nasdaq -56.61 at 5032.75, S&P -21.86 at 2104.19
Market continues its momentum to the downside after the long weekend. Economic data has shown some improvement in productions in the US and subsequently this led to question when the Fed will raise the interest rate. I suppose that was part of the reason why market profit take as well. The Dollar Index strengthens and crude oil is also pressured by the strong dollar.The week ended relatively flat again. From Friday session, it seems that market is more likely to go down than up. That being said, market is uncertain and I suppose we need more confirmation. Next week we will see the GDP number releasing and that might give us some indications.
Market is closed on Monday for Memorial Day.
Direction for Tuesday 26 May, 2015; Down
Meanwhile in Greece, the default risk is back to surface as they are unlikely to repay the debt payment next week. That would pose a threat to the Euro economy.
Market Summary
Industry Watch
Strong: Consumer Discretionary, Consumer Staples, Telecom Services, Utilities
Weak: Materials, Technology, Industrials, Energy
Other Market Moving Factor:
- Durable Orders report for April is better than expected, fanning expectations the Fed will raise rates this year
- Greece making waves about not making debt payment to IMF next week
- Strengthening dollar weighing on commodities and reigniting concerns about earnings growth prospects for U.S. multinationals
That reluctance started early and it continued for most of Tuesday's session, which saw the S&P 500 flirt with testing support at its 50-day simple moving average (2096). The fact that the S&P 500 didn't pierce that level was perhaps the lone bright spot in Tuesday's action, which saw all ten sectors lose ground and all 30 Dow components end with a loss.
The catalysts for Tuesday's weakness were debatable, yet proximate causes included the following:
- Some angst that the better than expected Durable Orders and New Home Sales reports for April fell in the realm of encouraging a rate hike from the Federal Reserve before the end of the year
- A surge in the dollar, which weighed heavily on commodities and related stocks (the U.S. Dollar Index rose 1.3% to 97.29)
- Crude prices -2.7% to $58.04/bbl
- Greek officials firing a barb that the country could possibly miss its debt payment to the IMF next week
- The continued underperformance of the Dow Jones Transportation Average (-1.6%), which is deemed to have leading indicator status; and
- The absence of any leadership
The worst-performing areas on the day were among the most economically-sensitive sectors, including energy (-1.6%), materials (-1.2%), and industrials (-1.1%). The information technology sector (-1.4%), meanwhile, was another key drag on things with losses in Apple (AAPL 129.63, -2.91) factoring prominently in its underperformance.
Pockets of relative strength were found among the market's more defensive-oriented groups like telecom services (-0.4%), consumer staples (-0.7%), and utilities (-0.7%), although the consumer discretionary sector (-0.6%) was one cyclical sector that held up reasonably well.
Separately, Charter Communications (CHTR 179.78, +4.45) and Time Warner Telecom (TWC 183.60, +12.42) bucked the broader trend after it was announced that Charter will acquire Time Warner Telecom in a cash-and-stock deal valued at approximately $78.7 billion, including debt.
The stock market's weak showing and the rumblings about Greece contributed to a significant pickup in the CBOE Volatility Index (VIX 14.07, +1.94), which jumped 16%. The latter hit its lows for the year last week, offering participants the opportunity to add some downside protection at relatively cheap prices. Additionally, the 10-yr Treasury yield dropped eight basis points to 2.13% on some safe-haven positioning.
Given the scope of Tuesday's losses, it was no surprise to see decliners beat advancers at the NYSE and Nasdaq by a significant margin. In turn, trading volume increased with 792 million shares changing hands at the NYSE. That was comfortably ahead of last Tuesday when 739 million shares were traded, marking the heaviest trading session in the prior week.
A look at today's economic data:
- The Conference Board's Consumer Confidence Index increased to 95.4 in May from a downwardly revised 94.3 (from 95.2) in April. The Briefing.com Consensus expected the index to decrease to 94.0.
- New home sales increased 6.8% in April to 517,000 from an upwardly revised 484,000 (from 481,000) in March. The Briefing.com Consensus expected new home sales to increase to 510,000.
- Sales topped 500,000 for the third time in the first four months of 2015. Trends are significantly stronger than they were at this time in 2014, when an average of only 421,000 homes were sold each month.
- Sales growth was the strongest in the Midwest (+36.8%), which offset declines in both the Northeast (-5.6%) and West (-2.3%).
- Supply problems continue to plague the sector. During normal periods of buying and selling, supply usually runs at about 6 months' at the current sales pace. Lackluster construction growth during the recovery has pushed the supply rate down to 4.8 months.
- The median new home sales price increased 8.3% y/y to $297,300.
- Durable goods orders declined 0.5% in April after increasing an upwardly revised 5.1% (from 4.4%) in March. The Briefing.com Consensus expected durable goods orders to decrease 0.6%. A steep decline in defense (-12.8%) and nondefense (-4.0%) aircraft orders made up the bulk of the April decline.
- Excluding transportation, durable goods orders increased 0.5% in April after increasing an upwardly revised 0.6% (from 0.4%) in March. The consensus expected these orders to increase 0.3%.
- Orders of nondefense capital goods excluding aircraft increased 1.0% in April after increasing 1.5% in March. Shipments -- which factor into second quarter GDP calculations -- increased 0.8% in April after increasing 1.0% in March. That is the first time shipments of business capital have increased for two consecutive months since July and August 2014.
Global Market
ASIA
Asian markets Close: Japan’s Nikkei +0.1%; Hong Kong’s Hang Seng +0.9%; China’s Shanghai Composite +2.0%
Markets in the Asia-pacific region had a mixed showing on Tuesday, yet there was nothing mixed about the performance of the Shanghai Composite. It surged another 2.0% on the heels of a 3.4% gain on Monday, with plans out of Beijing for a major infrastructure initiative helped to fuel the early-week rally.
Economic data
- Japan
- Corporate Services Price Index +0.7% year-over-year (expected +0.6%; prior +3.1%)
- South Korea
- May Consumer Confidence 105 (expected 103; prior 104)
- New Zealand
- April Trade Balance NZD 123 mln month-over-month (expected NZD 100 mln; prior NZD 754 mln)
- Exports NZD 4.17 bln (expected NZD 4.20 bln; prior NZD 4.92 bln)
- Imports NZD 4.04 bln (expected 4.10 bln; prior 4.16 bln)
- Singapore
- Q1 GDP +3.2% quarter-over-quarter (expected 1.8%; prior 1.1%); +2.6% year-over-year (expected +2.2%; prior +2.1%)
- April Industrial Production -5.8% month-over-month (expected +0.5%; prior +1.2%); -8.7% year-over-year (expected -3.0%; prior -5.5%)
Equity Markets
- Japan’s Nikkei increased 0.1% after a 0.7% increase on Monday. Tuesday’s gains were led by the energy (+1.3%) and basic materials (+0.8%) sectors. Individual standouts included JFE Holdings (+4.5%), Fujitsu Ltd (+3.9%), and Nippon Steel & Sumitomo Metal (+3.5%). Shionogi & Co (-1.6%) was the worst-performing issue. Out of the 225 index members, 99 ended higher, 112 finished lower, and 14 were unchanged.
- Hong Kong’s Hang Seng increased 0.9%, bolstered by the outperformance of the Shanghai Composite and a Reuters report that mutual funds domiciled in Hong Kong and China will be permitted for sale in each market, effective July 1. Tuesday’s gains were paced by the financial sector (+1.6%). Hong Kong Exchanges & Clearing (+5.4%) led all gainers while Li & Fung Ltd (-6.6%) paced the decliners. Out of the 50 index members, 33 ended higher, 15 finished lower, and 2 were unchanged.
- China’s Shanghai Composite surged 2.0% following a 3.4% gain on Monday. The rally effort has been aided by reports of Beijing announcing a major infrastructure improvement initiative and a 50% reduction on average in import duties for consumer products that include clothing, shoes, and cosmetics. Separately, the IMF said on Tuesday that it no longer thinks the renminbi is undervalued. In the last six sessions, the Shanghai Composite has increased 14.7%.
- India’s Sensex declined 0.4% after falling 1.1% on Monday. Losses on Tuesday were led by the energy (-0.7%) and consumer non-cyclical (-0.7%) sectors. Oil & Natural gas Co (-2.1%), Tata Motors (-1.5%), and NTPC Ltd (-1.3%) led declining issues. Coal India (+1.4%) was the only stock to gain more than 1.0%.
- Australia’s S&P/ASX 200 increased 0.9% after jumping 1.0% on Monday. The market was riding the strength of China’s continued outperformance and infrastructure improvement plan. The utilities (+2.5%), gold (+1.2%), and consumer discretionary (+1.2%) sectors were the best-performing areas on Tuesday.
- Regional advancers: Taiwan +0.3%, Indonesia +0.6%, Vietnam +0.8%
- Regional decliners: South Korea -0.1%, Singapore -0.03%, Malaysia -0.2%, Thailand -0.7%, Philippines -0.4%
FX:
- USD/CNY +0.03 at 6.2039
- USD/INR +0.8% at 63.986
- USD/JPY +0.8% at 122.60
EUROPE
Major European indices trade mostly lower while France’s CAC-40 (+0.3%) outperforms. EU bourses are once again plagued by Greece’s waffling of whether it will (or can) pay the IMF debt this month. With little progress made in negotiations with creditors, Greek 10yr yields are trading higher by 3bps. The uncertainty has put some pressure on the major indexes this morning (the FTSE and DAX were also closed yesterday).
- Swiss Q1 Non-Farm Payrolls: 4.225 mln vs 4.231 mln in Q4
- Netherlands May Producer Confidence Index: 4.1 v 3.1 exp
- Sweden Apr PPI: -0.3% vs +0.3% in Mar
- Poland Apr Unemployment Rate: 11.2% vs 11.3% exp
Closing Prices
- UK’s FTSE: -1.2%
- Germany’s DAX: -1.6%
- France’s CAC: -0.7%
- Spain’s IBEX: -0.8%
- Portugal’s PSI: -2.0%
- Italy’s MIB Index: + 0.2%
- Irish Ovrl Index: + 0.1%
- Greece ASE General Index: + 1.2%
Macroeconomic Data
Economic Data
from Briefing.com
- Durable Orders : -0.5% vs -0.6% (Prior 5.1% - Up)
- Durable Goods - ex transportation : 0.5% vs 0.3% (Prior 0.6% - Up)
- Case-Shiller 20-city Index : 5.0% vs 4.6% (Prior 5.0%)
- FHFA Housing Price Index : 0.3% (Prior 0.6% - Down)
- New Home Sales : 517K vs 510K (Prior 484K - Up)
- Consumer Confidence : 95.4 vs 94.0 (Prior 94.3 - Down)
DURABLE ORDERS
Highlights
- Durable goods orders declined 0.5% in April after increasing an upwardly revised 5.1% (from 4.4%) in March. The Briefing.com Consensus expected durable goods orders to decrease 0.6%.
- Excluding transportation, durable goods orders increased 0.5% in April after increasing an upwardly revised 0.6% (from 0.4%) in March. The consensus expected these orders to increase 0.3%.
Key Factors
- A steep decline in defense (-12.8%) and nondefense (-4.0%) aircraft orders made up the bulk of the April decline.
- Nearly all of the regional manufacturing surveys released by the Federal Reserve Banks showed that orders had contracted in April. The slight upward trend in new orders excluding transportation was a nice positive surprise when viewed against the survey data.
- Order gains in machinery (3.1%), fabricated metals (1.9%), and primary metals (1.0%) paced the overall increase in orders outside of transportation. Demand for computer and electronic products pulled back (-3.6%) after an outsized gain (7.7%) in March.
- Orders of nondefense capital goods excluding aircraft increased 1.0% in April after increasing 1.5% in March. Shipments – which factor into second quarter GDP calculations – increased 0.8% in April after increasing 1.0% in March. That is the first time shipments of business capital have increased for two consecutive months since July and August 2014.
Big Picture
- Business investment demand has turned around over the past two months.
NEW HOME SALES
Highlights
- New home sales increased 6.8% in April to 517,000 from an upwardly revised 484,000 (from 481,000) in March. The Briefing.com Consensus expected new home sales to increase to 510,000.
Key Factors
- Sales topped 500,000 for the third time in the first four months of 2015. Trends are significantly stronger than they were at this time in 2014, when an average of only 421,000 homes were sold each month.
- Sales growth was the strongest in the Midwest (+36.8%), which offset declines in both the Northeast (-5.6%) and West (-2.3%).
- Supply problems continue to plague the sector. During normal periods of buying and selling, supply usually runs at about 6 months’ at the current sales pace. Lackluster construction growth during the recovery has pushed the supply rate down to 4.8 months.
- The median new home sales price increased 8.3% y/y to $297,300.
Big Picture
- New home demand has accelerated from 2013 and 2014 levels.
CONSUMER CONFIDENCE
Highlights
- The Conference Board’s Consumer Confidence Index increased to 95.4 in May from a downwardly revised 94.3 (from 95.2) in April. The Briefing.com Consensus expected the index to decrease to 94.0.
Key Factors
- Improvements in the employment situation, as shown by the 15-year low in the initial claims level, offset slightly higher gasoline prices and a volatile equity market.
- The Present Situation Index increased to 108.1 in May from 105.1 in April. That was the first increase in three months.
- The Expectations Index declined to 86.9 in May from 87.1 in April.
- The overall increase in confidence is unlikely to have much of an impact on consumption growth. Consumption trends follow patterns in income growth. As long as the employment sector continues to improve, consumption growth should follow along in tandem.
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.
Market Internals
NYSE:
Higher Volumes than the day before – 811.4M vs 593.3M
Decliners outpaced Advancers (adv/dec): 663 / 2434
New Lows outpaced New Highs (highs/lows): 33 / 76
NASDAQ:
Higher Volumes than the day before – 1712.0M vs 1530.3M
Decliners outpaced Advancers (adv/dec): 706 / 2085
New Lows outpaced New Highs (highs/lows): 49 / 73
VOLATILITY S&P500 (VIX)
14.06 +1.93 (+15.91%)
Internals are bearish with volume significantly higher. This certainly means something here. VIX also took a huge gap up and sitting on its 20 and 50 MAs. I believe more fear is creeping in the market now.
Technical Updates
18,041.54 -190.48 (-1.04%)
Volume: 109,441,699 (above average of 99,040,941)
Range: 17,990.02 - 18,229.75
Range: 17,990.02 - 18,229.75
5,032.75 -56.61 (-1.11%)
Volume: 442,169,324 (above average of 429,045,509)
Volume: 442,169,324 (above average of 429,045,509)
Range: 5,016.73 - 5,081.17
S&P 500 INDEX (SPX: CBOE)
2,104.20 -21.86 (-1.03%)
Volume: 557,833,000 (above average of 526,336,046)
Range: 2,099.18 - 2,125.34
DOW and NASDAQ went down to their respective support levels after unable to break through the resistance. S&P also went down to its Fibonacci 100% level. MACD is indicating a lack in bullish momentum. If the support level doesn't hold, I guess we should see more correction...
Commodities
Closing Commodities: Dollar Weighs on Precious Metals and Copper, WTI Down to Near $58Commodities
- The dollar has extended its morning rally well into afternoon trading, which put selling pressure on oil, precious metals and copper going into the close
- A set of positive mid-morning housing, producer and consumer economic data has caused the dollar index to currently trade up 1.4% to 97.33
- Precious metals extended earlier losses into the close, fueled largely by inverse movements with the dollar index
- June gold closed at -1.7% to $1186.70/oz and July silver closed at -1.8% to $17.05/oz
- WTI oil also finished down 2.72% to $58.04/barrel for the session, driven by multiple catalysts- dollar strength, Mid-east tensions and considerations on the slowing of US oil rig shutdowns.
- Natural gas closed modestly lower by 2.1% to $2.82/MMBtu while July copper lost 1.1% and closed at $2.78/lb
Energy
- July crude oil futures fell $1.62 to $58.04/barrel
- June natural gas closed $0.06 lower at $2.82/MMBtu
- RBOB Gasoline closed $0.06 lower to $21.98/gallon
- Heating oil futures closed $0.06 lower at $1.90/gallon
Agriculture
- July corn closed $0.05 lower to $3.55/bushel
- July wheat closed $0.22 lower to $4.93/bushel
- July soybeans closed $0.03 lower to $9.22/bushel
- Ethanol closed $0.01 lower at $1.57/gallon
- Sugar #11 closed 0.23 cents lower to 12.08 cents/lb
Metals
- June gold ended today’s session $17.50 lower (-1.5%) to $1186.70/oz
- July silver closed $0.30 lower (-1.8%) at $16.75/oz
- July copper closed $0.03 lower to $2.78/lb
Currencies
- The euro currency now stands more than 600 pips below its level 7 days ago, with concerns over Greece's membership in the eurozone taking front stage. Furthermore, Spain's local election wins for anti-austerity parties have increased the odds of another, much more significant debt negotiation process in the eurozone after that country's general election later this year
- Greece's ability to make the 305 million euro, June 5th, IMF payment has been questioned by members of the Greek government. Greek yields moved higher to start off the week, although at 5 and 10-year maturities, they were still within their recent ranges
- EUR/USD: -0.96% to 1.0875
- U.S. Dollar Index: +1.29% to 97.26
- USD/JPY: +1.22% to 123.04
- The pair made a new 7-year high
- The Bank of Japan will release the minutes from its April 30th meeting at 19:50 ET
- The commodity currencies fell sharply in sympathy with the general dollar trend higher
- AUD/USD: -1.15% to $0.7738
- NZD/USD: -1.06% to $0.7236
- USD/CAD: +0.89% to 1.2423
Bonds
Treasuries Rally on Safe-Haven Demand
- The yield curve flattened violently today as investors bought 10-year notes and bonds in response to falling global equities. The 2-year/10-year yield spread came in 7 bps to 153 bps and 5's/30's fell 5 bps to 138 bps
- Yield check:
- 2-yr: unch at 0.61%
- 5-yr: -4 bps to 1.52%
- 10-yr: -7 bps to 2.14%
- 30-yr: -9 bps to 2.90%
- News:
- Anti-austerity parties made strong gains in Spain's regional elections, indicating popular support for politicians who have promised to change fiscal course ahead of that country's general election later this year
- Orders for durable goods declined 0.5% in April, better than the Briefing.com consensus of -0.6% but worse than the 5.1% rise in March
- Durable goods ex-transportation rose 0.5% in April, higher than the Briefing.com consensus of +0.3% but short of the upwardly revised +0.6% from the prior month
- The data was a positive surprise in light of the contractions reflected by nearly all of the regional manufacturing surveys for April
- The Case-Shiller 20-City Index of U.S. home prices rose 5.0% y/y in March, higher than the Briefing.com consensus of +4.6% and in line with February's reading
- The Conference Board's Consumer Confidence Index increased to 95.4 in May from a downwardly revised 94.3 (from 95.2) in April. The Briefing.com consensus expected the index to decrease to 94.0
- New home sales increased 6.8% in April to 517,000 from an upwardly revised 484,000 (from 481,000) in March. The Briefing.com Consensus expected new home sales to increase to 510,000
- Sales growth was the strongest in the Midwest (+36.8%), which offset declines in both the Northeast (-5.6%) and West (-2.3%)
- The $26 billion 2-year note auction was met with better-than-average demand:
- High yield: 0.648%
- Bid-to-cover ratio: 3.40
- Indirect bid: 42.3%
- Stop-through: 0.1 bp
- Commodities:
- WTI crude: -2.71% to $58.10/bbl. The front-month contract traded as low as $57.71/bbl earlier in the session, a new low for the month of May
- Gold: -1.34% to $1,187.90/troy oz.
- Copper: -1.32% to $2.774/lb.
- Currencies:
- EUR/USD: -1.04% to $1.0866
- USD/JPY: +1.25% to 123.08
- Data out Wednesday:
- MBA Mortgage Index for the week of 5/23 (07:00 ET)
- New Supply:
- $35 billion 5-year note auction (13:00 ET)
Treasury Yields:
- 2 Year Note 0.64% UNCH
- 5 Year Note 1.54% -0.03
- 10 Year Note 2.14% -0.07
- 30 Year Bond 2.89% -0.10
2/30 Spread: 235 bps ( -10 ) … 2/10 Spread: 150 bps ( -7 )
Preview for Wednesday 27 May, 2015
Economic Data
Wednesday (27 May) :
- MBA Mortgage Index : (Prior -1.5%)
Earnings Highlights
Wednesday (27 May) :
BMO - BMO BWS CHS CRRC DSW LITB KORS MOV ROLL THR TIF TOL VAL
AMC - ANW UHAL CPRT COST PANW PLKI RENT SB SMTC SPTN TLYS
BMO - BMO BWS CHS CRRC DSW LITB KORS MOV ROLL THR TIF TOL VAL
AMC - ANW UHAL CPRT COST PANW PLKI RENT SB SMTC SPTN TLYS
Summary
It was not quite a surprise to see the market suffered some more short selling on Tuesday as the rally to new high perviously was rather unconvincing. However I can't tell how much the market is going to correct ahead, I think there isn't much bullishness to cheer about at the moment.
Direction for Wednesday 27 May, 2015; Down
2015 Daily Directional Accuracy: 43/78 (55.13%)
2015 Daily Directional Accuracy: 43/78 (55.13%)
2015 Weekly Directional Accuracy: 10/18 (55.56%)
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