Dow +38.97 at 18039.37, Nasdaq +5.82 at 5082.51, S&P +3.66 at 2108.86
From the look of it, I think the bulls are running out of steam after the strong pullback/rally. With the better retail sales data, market again opened strongly but it didn't maintain and was consolidating thereafter. There was some profit taking before market closed too. Crude oil continues to slide lower amid the large drawdown in inventories.The stalling after the early rally in last session does raise some question on whether it might still continue. I think market was more or less covering shorts and the effect from dip buyers. Tomorrow unemployment claims and retails sales should give the us more confirmation to the market movement. My call is that if market does not break above the trend resistance, we should see more selling soon.
Direction for Thursday 11 June, 2015; Up
Market Summary
Industry Watch
Strong: Consumer Discretionary, Health Care, Industrials, Utilities
Weak: Consumer Staples, Energy, Technology
Other Market Moving Factor:
- Several EU officials urge for quicker solution to the Greek conundrum: European Council President Tusk says decision needed at next week's Eurogroup meeting
- IMF Spokesman Gerry Rice says institutions are "well away" from an agreement with Greece
- Retail Sales surpass expectations in May (+1.2%; Briefing.com consensus +1.1%)
Equity indices rallied out of the gate, hitting their highs during the opening hour of action; however, the market was knocked back into the middle of its range after it was reported that International Monetary Fund representatives left Brussels for Washington due to insufficient progress between Greece and the creditors. Furthermore, IMF spokesman Gerry Rice stressed the continued presence of major differences, saying, "We are well away from an agreement."
The reports from Europe short-circuited the market's advance, but the S&P 500 remained above its 50-day moving average (2,102), which is a level the index reclaimed yesterday when Bloomberg reported that a staggered deal may be in the cards for Greece.
Seven of ten sectors registered gains while consumer staples (-0.1%) and energy (-0.4%) spent the day in the red. In addition, technology (-0.1%) turned negative during the afternoon.
The energy sector struggled as crude oil fell 1.0% to $60.74/bbl with dollar strength exerting pressure on the energy component. The Dollar Index (94.88, +0.24) climbed 0.3% with the greenback adding 0.4% against the euro (1.1274).
On the upside, countercyclical groups fared better than their growth-sensitive counterparts with health care (+0.5%), telecom services (+0.6%), and utilities (+0.7%) finishing ahead of the broader market. Large cap health care components outperformed from the start while biotechnology gathered strength as the day wore on. The iShares Nasdaq Biotechnology ETF (IBB 368.07, +2.24) gained 0.6%.
Over on the cyclical side, the industrial sector (+0.4%) ended ahead of its peers thanks to strength among transport stocks. The Dow Jones Transportation Average climbed 1.1% to extend its June advance to 1.8%. The broad-based advance was paced by railroad names with CSX (CSX 34.97, +1.00) rising 2.9%.
Elsewhere, the top-weighted technology sector (-0.1%) lagged throughout the day, which prevented the market from revisiting its early high. In general, large sector members fared relatively well, but Apple (APPL 128.59, -0.29), Google (GOOGL 550.04, -2.56), and Microsoft (MSFT 46.44, -0.17) posted losses while high-beta chipmakers also lagged with the PHLX Semiconductor Index shedding 0.1%.
Although the tech sector kept a lid on the market in the afternoon, a modest gain in the financial sector (+0.3%) prevented the S&P 500 from turning negative. Thanks to today's gain, the financial sector is now up 2.2% since the end of May.
Interestingly, financials outperformed today even as Treasuries spiked, dropping the benchmark 10-yr yield ten basis points to 2.39%.
Today's participation was in-line with yesterday's session as roughly 770 million shares changed hands at the NYSE floor.
Economic data included Initial Claims, Retail Sales, Import/Export Prices, and Business Inventories:
- Weekly initial claims increased to 279,000 from an upwardly revised 277,000 (from 276,000) while the Briefing.com consensus expected an increase to 278,000
- The four-week moving average inched up to 278,500 from 275,000
- The continuing claims level increased to 2.265 million from an upwardly revised 2.204 million (from 2.196 mln) while the consensus expected a reading of 2.200 million
- Retail sales increased 1.2% in May after increasing an upwardly revised 0.2% (from 0.0%) in April while the Briefing.com consensus expected an increase of 1.1%
- As expected from the auto manufacturer reports, auto sales were strong in May, increasing 2.0%
- Excluding autos, retail sales increased 1.0% in May after increasing an unrevised 0.1% in April while the consensus expected an increase of 0.7%
- Export prices, excluding agriculture, increased 0.7% in May after decreasing 0.7% in the prior reading
- Excluding oil, import prices were unchanged, which followed last month's 0.4% decline
- Business inventories increased 0.4% in April after increasing an unrevised 0.1% increase in March while the Briefing.com Consensus expected an increase of 0.2%
- The inventory changes from manufacturers (0.1%) and merchant wholesalers (0.4%) were known prior to the release. The only new information was that retailer inventories increased by 0.8% in April after increasing 0.3% in March
Global Market
Asian Markets Close: Japan’s Nikkei +1.7%; Hong Kong’s Hang Seng +0.8%; China’s Shanghai Composite +0.3%
Following Wall Street’s lead from Wednesday, and responding to a batch of in-line data out of China, an encouraging employment report out of Australia, and rate cuts from central banks in South Korea and New Zealand, markets in the Asia-Pacific region ended Thursday mostly higher, led by Japan’s Nikkei (+1.7%).
Economic data
China
- May Retail Sales +10.1% year-over-year (expected +10.1%; prior +10.0%)
- May Fixed Asset Investment +11.4% year-over-year (expected +12.0%; prior +12.0%)
- May Industrial Production +6.1% year-over-year (expected +6.0%; prior +5.9%)
- May New Loans CNY 900.8 bln (expected CNY $900.0 bln; prior CNY 707.9 bln)
- May M2 Money Stock +10.8% year-over-year (expected +10.5%; prior +10.1%)
- Q2 BSI Large Manufacturing Conditions -6.0 (expected 3.2; prior 2.4)
- May Employment Change +42,000 (expected +11,000; prior -13,700)
- May Unemployment Rate 6.0% (expected 6.2%; prior 6.1%)
- MI Inflation Expectations 3.0% (prior 3.6%)
- Bank of Korea lowers main lending rate 25 bps to 1.50% as expected
- Reserve Bank of New Zealand cuts main lending rate 25 bps in a surprise move to 3.25%
Equity Markets
- Japan’s Nikkei jumped 1.7%, bolstered by a weaker yen and Wall Street’s gains on Wednesday. The advance was led by the consumer cyclical (+2.4%), consumer non-cyclical (+2.4%), and industrial (+1.8%) sectors. Nippon Kayaku (+5.5%), West Japan Railway (+5.3%), and Central Japan Railway (+5.2%) topped the list of winners. Unitika (-1.7%) led a small group of losers. Out of the 225 index members, 197 ended higher, 25 finished lower, and 3 were unchanged.
- Hong Kong’s Hang Seng increased 0.8% and closed near its best levels of the day, fueld by gains in the industrial (+3.0%), basic materials (+1.4%), communications (+1.3%), and financial (+0.8%) sectors. Cheung Kong Property Holdings (+3.7%), China Merchants Holdings Intl (+3.3%), and MTR Corp (+3.0%) led the gainers while China Resources Power Holdings (-3.1%) paced a small group of losers. Out of the 50 index members, 34 ended higher, 11 finished lower, and 5 were unchanged.
- China’s Shanghai Composite added 0.3% thanks to a 1.0% rally in the final hour of trading. The modest gain for the day followed a batch of economic data, which included retail sales, industrial production, and fixed asset investment, that was mostly in-line with expectations. The technology (+3.9%) and consumer non-cyclical (+1.4%) sectors were the big movers in the CSI 300 Index.
- India’s Sensex declined 1.8% in a trend-down day that ended with the index at its lows for the session. Every sector lost ground, but none more so than the energy (-2.3%), financial (-2.1%), and industrial (-1.9%) sectors. Tata Motors (-3.7%), Reliance Industries (-3.2%), and Cipla Ltd (-3.1%) were the worst-performing issues. Vedanta (+1.6%), meanwhile, was the only stock among the 30 index members that ended higher.
- Australia’s S&P/ASX 200 surged 1.4% following an encouraging employment report for the month of May. The energy (+2.1%), resources (+2.0%), and materials (+2.0%) sectors led the way. STW Communications (+8.6%) and Fortescue Metals Group (+6.4%) topped the list of individual winners. Out of the 200 index members, 150 ended higher, 41 finished lower, and 9 were unchanged.
- Regional advancers: South Korea +0.3%, Taiwan +0.04%, Singapore +0.7%, Thailand +0.8%, Vietnam +1.2%, Philippines +1.6%
- Regional decliners: Malaysia -0.1%, Indonesia -0.1%
FX
- USD/CNY +0.01% at 6.2066
- USD/INR +0.4% at 64.001
- USD/JPY +0.8% at 123.62
EUROPE
Major European indices trade higher across the board with Germany’s DAX (+1.1%) in the lead. Several eurozone officials have stressed the urgency of reaching a deal with Greece in the next few days. For instance, European Council President Donald Tusk said, “I’m afraid the day is coming that someone says the game is over” and that a decision will be needed at next week’s Eurogroup meeting. Strikingly, French and German equities climbed to new highs immediately following the remarks.
- French May CPI +0.2% month-over-month (expected 0.3%; prior 0.1%) while Q1 Nonfarm Payrolls 0.0% (expected -0.1%; prior -0.1%)
Closing Prices
- UK’s FTSE: + 0.2%
- Germany’s DAX: + 0.6%
- France’s CAC: + 0.7%
- Spain’s IBEX: + 0.5%
- Portugal’s PSI: + 1.2%
- Italy’s MIB Index: + 0.4%
- Irish Ovrl Index: + 1.4%
- Greece ASE General Index: + 8.2%
Macroeconomic Data
Economic Data
from Briefing.com
- Initial Claims : 279K vs 278K (Prior 276K)
- Continuing Claims : 2265K vs 2200K (Prior 2196K)
- Retail Sales : 1.2% vs 1.1% (Prior 0.0%)
- Retail Sales ex-auto : 1.0% vs 0.7% (Prior 0.1%)
- Export Prices ex-agri: 0.7% (Prior -0.7%)
- Import Prices ex-oil : 0.0% (Prior -0.4%)
- Business Inventories : 0.4% vs 0.2% (Prior 0.1%)
- Natural Gas Inventories : 111bcf (Prior 132 bcf)
Highlights
- The initial claims level increased to 279,000 for the week ending June 6 from an upwardly revised 277,000 (from 276,000) for the week ending May 30. The Briefing.com Consensus expected the initial claims level to increase to 278,000.
- The continuing claims level increased to 2.265 mln for the week ending May 30 from an upwardly revised 2.204 mln (from 2.196 mln) for the week ending May 23. The consensus pegged the continuing claims level at 2.200 mln.
Key Factors
- The four-week moving average for the initial claims level increased to 278,500 from 275,000. While trends have bounced off 15-year lows, the claims report still shows a labor market than can easily expand by at least 200,000 payrolls per month.
Big Picture
- The minor upward move in the four-week average for initial claims is nothing to worry about.
RETAIL SALES
Highlights
- Retail sales increased 1.2% in May after increasing an upwardly revised 0.2% (from 0.0%) in April. The Briefing.com Consensus expected retail sales to increase 1.1%.
- Excluding autos, retail sales increased 1.0% in May after increasing an unrevised 0.1% in April. The consensus expected these sales to increase 0.7%.
Key Factors
- As expected from the auto manufacturer reports, auto sales were strong in May. Sales at motor vehicles and parts dealers increased 2.0% in April after increasing 0.7% in May.
- Core sales, which strip out the volatile auto dealers, building materials and supply stores, and gasoline stations, increased 0.6% in May after increasing 0.3% in April. These sales more closely reflect goods consumption growth in the GDP report than the headline.
- According to the May employment report, aggregate earnings increased 0.5% in May. With sales outpacing income growth, the personal savings rate likely declined in May. That would go against a trend of higher savings that began several months ago.
- If economic growth trends are going to return to pre-recession potential instead of the “New Normal” outlook, the personal savings rate will need to come down from its currently elevated level.
- The details in the retail sales report were impressive. With the exception of a minor decline in health and personal care stores (-0.3%), every retail sector showed positive sales growth. That included a 1.5% increase in clothing stores, a 2.1% increase in building materials and supply stores, and a 0.8% increase in general merchandise stores.
- Sales at nonstore retailers, where on-line sales reside, increased 1.4% in May.
Big Picture
- Consumers opted to spend rather than save, at least during the month of May.
BUSINESS INVENTORIES
Highlights
- Business inventories increased 0.4% in April after increasing an unrevised 0.1% increase in March. The Briefing.com Consensus expected business inventories to increase 0.2%.
Key Factors
- The inventory changes from manufacturers (0.1%) and merchant wholesalers (0.4%) were known prior to the release. The only new information was that retailer inventories increased by 0.8% in April after increasing 0.3% in March.
- The increase in retailer inventories was primarily the result of a 1.2% increase in motor vehicle and parts dealer inventories and a 1.4% increase in general merchandise store inventories. Inventories at furniture stores (-0.3%) and food and beverage stores (-1.0%) both declined.
- Total business sales increased 0.6% for a second consecutive month in April. Nearly the entire gain was the result of a 1.6% increase in merchant wholesaler sales.
- The inventory-to-sales ratio remained at 1.36 in April.
Big Picture
- Business inventories include wholesale inventories, manufacturing inventories, and retail inventories. Inventories are a component of GDP, and thus are of interest to economists, but the financial markets don't pay much attention to this release. Over the long term, the inventory-to-sales ratio has been declining, due to improving techniques for inventory management.
Market Internals
NYSE:
Higher Volumes than the day before – 785.3M vs 782.3M
Advancers outpaced Decliners (adv/dec): 1878 / 1213
New Highs outpaced New Lows (highs/lows): 100 / 85
NASDAQ:
Lower Volumes than the day before – 1600.0M vs 1780.9M
Advancers outpaced Decliners (adv/dec): 1430 / 1360
New Highs outpaced New Highs (highs/lows): 127 / 30
VOLATILITY S&P500 (VIX)
12.85 -0.37 (-2.80%)
Technical Updates
18,039.37 +38.97 (+0.22%)
Volume: 89,486,641 (below average of 98,413,199)
Range: 18,001.27 - 18,109.77
Range: 18,001.27 - 18,109.77
5,082.51 +5.82 (+0.11%)
Volume: 407.0M (below average of 424,788,844)
Volume: 407.0M (below average of 424,788,844)
Range: 5,075.05 - 5,101.39
2,108.86 +3.66 (+0.17%)
Volume: 529,774,046 (above average of 523,613,785)
Range: 2,106.24 - 2,115.02
Both 3 indices are somewhat held below their resistance level. I can't say they have broke out of the trend judging from the candlestick pattern but they are still fairly bullish. The 20 MA seems to serve as a good resistance level for DOW and S&P. If market can't break above in the next session, I think we should see more profit taking.
Commodities
Closing commodities: Dollar Holds AM Econ Data Gains; Energy Moderately DownCommodities
- The dollar finished positive on the session, influenced largely by sentiment surrounding the release of U.S. unemployment and retail sale data this morning.
- The index saw a brief sell-off on the news’ release, but quickly regained prior levels, and is now holding gains of 0.4% to end at 94.98
- Crude traded in the red all day; bottoming mid-morning, then gradually climbing higher all session to finish at moderate losses.
- Overall, the dollar’s early strength and over-supply fears overwhelmed bearish sentiment for WTI, which closed -1% to $60.74/barrel
- Natural gas inventory data was released mid-morning, showing a build of 111 bcf (on-par with expectations), which had little initial effect on the commodity
- As the session progressed however, negative sentiment built surrounding the report and put selling pressure on the July contract, which ended the day down 2.1% to $2.83/MMBtu
- Copper extended morning losses, driven primarily by economic data out overnight from China. Copper caught some support near the $2.66 level however, and ended down 2.9% to $2.67/lb
- Precious metals traded largely on the dollar, whose strength weighed heaviest on gold. August gold closed -0.7% to $1180/oz while July silver closed -0.1% to $15.95/oz
Energy
- July crude oil futures fell $0.63 to $60.74/barrel
- July natural gas closed $0.06 lower at $2.83/MMBtu
- RBOB Gasoline closed flat at $2.14/gallon
- Heating oil futures closed $0.02 lower to $1.92/gallon
Agriculture
- July corn closed flat at $3.57/bushel
- July wheat closed $0.08 lower to $5.05/bushel
- July soybeans closed $0.08 lower to $9.41/bushel
- Ethanol closed $0.02 lower at $1.49/gallon
- Sugar #11 closed 0.37 cents lower (-3.1%) to 11.64 cents/lb
Metals
- August gold ended today’s session $08.60 lower at $1180.00/oz
- July silver closed $0.02 lower at $15.95/oz
- July copper closed $0.08 lower at $2.67/lb
Currencies
- The dollar gained against all of the majors today, but the gains came during the European session, and the index failed to push higher after the May Retail Sales report
- EUR/USD: -0.49% to $1.1263
- The French Harmonized Index of Consumer Prices rose 0.2% in May, in line with estimates but more than the 0.1% bump in April
- French Non-Farm Payrolls surprised on the upside, remaining flat in Q1 (q/q) versus a fall of 0.1% in Q4 2014
- USD/JPY: +0.46% to 123.41
- The pair is still digesting the remarks BoJ Governor Haruhiko Kuroda made on Wednesday, where he said that the yen is unlikely to weaken further in real effective terms
- The yen is rallying at the pixel as U.S. Treasuries continue higher and reduce the spread between Treasuries and JGB's
- USD/CHF: +0.25% to 0.9348
- GBP/USD: +0.13% to $1.5519
- NZD/USD: -0.63% to $0.7006
- The Kiwi got torched after the RBNZ cut its policy rate by 25 bps and indicated another cut may be on the way. The central bank referred to weak demand and low inflation in justifying the cut
- AUD/USD: +0.23% to $0.7754
- Australia's economy added 42K jobs in May, well above the consensus, but the Aussie sunk nevertheless in sympathy with the Kiwi
- USD/CAD: +0.11% to 1.2287
Bonds
Treasuries Rally With Long End Leading
- The Treasury complex reminded investors that it can trade in both directions today as the yield curve flattened and all maturities climbed despite better-than-expected economic data
- Yield Check:
- 2-yr: -1 bp to 0.72%
- 5-yr: -6 bps to 1.73%
- 10-yr: -10 bps to 2.39%
- 30-yr: -11 bps to 3.10%
- News:
- Retail Sales rose a better-than-expected 1.2% in May. The Briefing.com consensus called for +1.1% and the reading for April was +0.2% (revised from 0.0%)
- The details in the retail sales report were impressive. With the exception of a minor decline in health and personal care stores (-0.3%), every retail sector showed positive sales growth
- Excluding autos, retail sales increased 1.0% in May after increasing an unrevised 0.1% in April. The consensus expected these sales to increase 0.7%
- Initial Jobless Claims increased to 279K for the week ending June 6 from an upwardly revised 277K (from 276K) for the week ending May 30. The Briefing.com consensus expected the initial claims level to increase to 278K
- Continuing Claims rose to 2.265 mln for the week ending May 30 from an upwardly revised 2.204 mln (from 2.196 mln) for the week ending May 23. The consensus pegged the continuing claims level at 2.200 mln
- The IMF's technical team in Brussels left that city to return to Washington. A spokesman said that there are still "major differences" between Greece's demands and the IMF's position
- The announcement of the withdrawal sent global equities lower from strong gains earlier in the session
- Export Prices excluding agricultural products increased 0.7% in May versus a 0.7% decline in April
- Import Prices excluding oil were flat in May after falling 0.3% in April
- Business Inventories for April blew out expectations, growing 0.4% versus a consensus estimate of 0.2% and and 0.1% growth in March
- The $13 billion 30-year bond auction (reopening) was met with strong demand. The auction stopped through more than 2 basis points
- Results:
- High yield: 3.138%
- Bid-to-cover: 2.54
- Indirect bid: 52%
- Results:
- Retail Sales rose a better-than-expected 1.2% in May. The Briefing.com consensus called for +1.1% and the reading for April was +0.2% (revised from 0.0%)
- Commodities:
- WTI crude: -1.29% to $60.64/bbl
- Gold: -0.43% to $1,181.4/troy oz.
- Copper: -2.68% to $2.6735/lb.
- Currencies:
- EUR/USD: -0.51% to $1.1261
- USD/JPY: +0.48% to 123.44
- Data out Friday:
- May PPI and Core PPI (08:30 ET)
- June Michigan Sentiment (10:00 ET)
Treasury Yields:
- 2 Year Note 0.73% -0.02
- 5 Year Note 1.74% -0.06
- 10 Year Note 2.39% -0.11
- 30 Year Bond 3.11% -0.11
2/30 Spread: 238 bps ( -9 ) … 2/10 Spread: 166 bps ( -9 )
Preview for Friday 12 June, 2015
Economic Data
Friday (12 June) :
- PPI : 0.5% (Prior -0.4%)
- Core PPI : 0.1% (Prior -0.2%)
- Michigan Sentiment : 91.5 (Prior 90.7)
Friday (12 June) :
BMO - None Scheduled
AMC - None Scheduled
BMO - None Scheduled
AMC - None Scheduled
Summary
I think the market is more or less done with the pullback. Economic data seems to be showing some improvement which could bring back the speculation of Fed's interest rate. We will be seeing PPI tomorrow and that might give the market some reason to continue profit taking.
Direction for Friday 12 June, 2015; Down
2015 Daily Directional Accuracy: 48/87 (55.17%)
2015 Daily Directional Accuracy: 48/87 (55.17%)
2015 Weekly Directional Accuracy: 12/20 (60.00%)
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