Dow +5.74 at 17408.25, Nasdaq -10.83 at 5033.55, S&P -2.66 at 2083.40
Maybe there was some follow through from Wednesday but it doesn't look convincing. Market was rather mixed as we saw a flat day and certainly a rise in volatility this few sessions.
China market saw some upside amid confidence from PBoC on Yuan devaluation while the rest of Asia markets were showing recovery. Europe markets also mostly closed higher.
Crude oil continues to break lower to a 6 years low as we saw oil price fell under previous low at around $42.40. The concern on the demand and stronger dollar is pressuring down the oil price. Given now we have saw a new low, how low can it go next?
Market Summary
Industry Watch
Strong: Consumer Discretionary, Financials, Technology
Weak: Energy, Materials, Telecom Services, Utilities
Other Market Moving Factor:
- People's Bank of China attempts to calm markets during a press conference: officials claim yuan adjustment nearly complete
- July Retail Sales beat estimates (+0.6%; Briefing.com consensus 0.5%): June reading revised up to 0.0% from -0.3%
Before delving into the details of today's session, it is worth noting that the People's Bank of China tried to calm investor fears during overnight action by holding a press conference. During that conference, bank officials said the yuan adjustment "is almost complete" and called the rumors of a 10.0% devaluation "nonsense." Markets across Asia posted gains while European indices ended mostly higher.
Once the U.S. session got going, stocks slipped from their opening levels, but the early weakness was largely isolated to the energy sector (-1.4%), which retreated alongside crude oil. The energy component faced selling pressure throughout the day, notching a fresh six-year low under $42.00/bbl during intraday action before inching up to settle lower by 2.3% at $42.25/bbl.
The daylong weakness in the energy sector was not enough to keep the market in negative territory as the four largest sectors displayed modest strength at the start and helped the market climb out of the red; however, only two groups were still in the green once the closing bell rang. The consumer discretionary sector (+0.6%) and financials (+0.3%) held their gains throughout the day while technology (-0.2%), and health care (-0.2%) slipped ahead of the close.
Notably, the discretionary sector received broad support from automakers, homebuilders, and retailers after the Retail Sales report for July beat expectations. On the earnings front, News Corp (NWSA 15.19, +1.07) spiked 7.6% after reporting a two-cent beat on light revenue while other media names ended mixed. Meanwhile, the homebuilder group displayed notable strength with iShares Dow Jones US Home Construction ETF (ITB 28.66, +0.43) spiking 1.5%. Despite today's outperformance, the discretionary sector remains lower by 2.4% so far in August, which puts the group behind the other nine sectors.
Elsewhere, financials (+0.3%) displayed relative strength throughout the session as the sector rebounded from yesterday's underperformance. Heavyweights like Citigroup (C 57.30, +0.39) and JPMorgan Chase (JPM 67.55, +0.31) gained near 0.6% apiece while the sector narrowed its week-to-date loss to 0.4%.
Also of note, the top-weighted technology sector (-0.2%) settled in-line with the market while chipmakers struggled, evidenced by a 1.0% decline in PHLX Semiconductor Index. Advanced Micro (AMD 1.79, -0.11) was a clear soft spot in the chipmaker index as the stock fell 5.8%.
As for large cap tech names, Cisco Systems (CSCO 28.70, +0.80) spiked 2.9% after beating bottom-line estimates on light revenue while other influential components ended in mixed fashion.
Treasuries retreated during overnight action and they added to their losses during the session. The benchmark 10-yr yield rose six basis points to 2.13%.
Today's participation was a bit below recent averages as 750 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 274,000 from a downwardly revised 269,000 (from 270,000) while the Briefing.com consensus expected an increase to 271,000
- The four-week moving average fell to 266,250 from 268,000, representing the lowest level since April 2000, when it also reached 266,250
- Continuing claims increased to 2.273 million from an upwardly revised 2.258 million (from 2.255 million) while the consensus expected a decline to 2.247 million
- Retail sales increased 0.6% in July while the Briefing.com consensus expected an increase of 0.5%
- An upward revision lifted June sales to the flat line from -0.3%
- Motor vehicle demand played a large part in the increase in sales growth as motor vehicle manufacturers reported unit sales increased to 17.6 million SAAR in July from 17.0 million SAAR in June. That gain pushed up sales at motor vehicle and parts dealers by 1.4% after declining 1.5% in May
- Excluding autos, retail sales increased 0.4% in July after increasing an upwardly revised 0.4% (from -0.1%) in June
- Export prices, excluding agriculture, decreased 0.4% in July after decreasing 0.1% in the prior reading
- Excluding oil, import prices decreased 0.3%, which followed last month's decrease of 0.2%
- Business inventories increased 0.8% in June after an unrevised 0.3% gain in May while the Briefing.com consensus expected an increase of 0.3%
- The inventory changes from manufacturers (0.6%) and merchant wholesalers (0.9%) were known prior to the release. The only new information was that retailer inventories increased 0.9% in June after a 0.2% gain in May
- Retailer inventory growth was strong across the board as all sectors reported growth above 0.5%, with the largest gains coming from motor vehicles (1.4%), building materials (1.0%), and furniture (0.9%)
- The inventory changes from manufacturers (0.6%) and merchant wholesalers (0.9%) were known prior to the release. The only new information was that retailer inventories increased 0.9% in June after a 0.2% gain in May
Global Market
Asian Markets Close: Japan’s Nikkei +1.0%; Hong Kong’s Hang Seng +0.4%; China’s Shanghai Composite +1.8%
A sea of red on Wednesday was replaced by a field of green on Thursday in the Asia-Pacific region. With only a few exceptions, equity markets advanced on reassurances from the People’s Bank of China that a further material depreciation of the yuan seemed unlikely or, at least, unjustified.
Economic data
- Japan
- June Core Machinery Orders -7.9% month-over-month (expected -5.6%; prior +0.6%); +16.6% year-over-year (expected +16.4%; prior +19.3%)
- South Korea
- Bank of Korea leaves main policy rate unchanged at 1.50%, as expected
- Australia
- MI Inflation Expectations 3.7% (prior 3.4%)
Equity Markets
- Japan’s Nikkei increased 1.0%, finishing near its best levels of the day despite hearing core machinery orders declined a weaker than expected 7.9%. Some chatter that the Bank of Japan could implement additional easing to offset the impact of a weakening Chinese yuan helped support things. Kyowa Hakko Kirin (+6.2%), Chiyoda (+5.4%), and Trend Micro (+5.2%) topped a lengthy list of winners while Softbank Group (-2.6%), Pacific Metals (-2.5%), and Resona Holdings (-2.4%) brought up the rear. Out of the 225 index members, 158 ended higher, 60 finished lower, and 7 were unchanged.
- Hong Kong’s Hang Seng increased 0.4%, bouncing back from an early dive into negative territory. A turnabout in mainland markets after the People’s Bank of China tried to talk up the yuan helped settle things for Hong Kong. Leading gainers included Tencent Holdings (+6.8%), China Resources (+2.9%), and PetroChina (+1.9%). The biggest losers were Lenovo Group (-9.1%), Cathay Pacific Airways (-4.2%), and Sands China (-3.2%). Out of the 50 index members, 21 ended higher, 28 finished lower, and 1 was unchanged.
- China’s Shanghai Composite increased 1.8% after a shaky start and finished at its highs for the day. Buyers stepped back into the mix following a press conference by the People’s Bank of China where, according to reports, it touted reasons why a further material depreciation of the yuan was unlikely and said there wasn’t a need to weaken the yuan to drive exports. The CSI 300 Index for its part jumped 1.5%.
- India’s Sensex increased 0.1%, surrendering most of what it gained early in a steady fade throughout the day. Mahindra & Mahindra (+3.1%), Cipla Ltd (+2.5%), and Lupin (+2.1%) were upside leaders while Vedanta (-9.2%), Tata Steel (-6.2%), and Hindalco Industries (-5.3%) paced the laggards. Out of the 30 index members, 16 ended higher and 14 finished lower.
- Australia’s S&P/ASX 200 increased 0.1%, but had a weak finish as it slipped 0.7% in the final hour of trading. A rebound in the gold (+3.2%), energy (+1.5%), and resources (+1.3%) sectors helped underpin the market. Out of the 200 index members, 95 ended higher, 91 finished lower, and 14 were unchanged.
- Regional advancers: South Korea +0.03%, Taiwan +0.3%, Malaysia +0.7%, Indonesia +2.3%, Singapore +1.0%, Thailand +0.01%
- Regional decliners: Vietnam -1.7%, Philippines -0.8%
FX
- USD/CNY +0.2% at 6.3982
- USD/INR +0.5% at 65.1188
- USD/JPY +0.3% at 124.53
EUROPE
Major European indices trade higher across the board with Italy’s MIB (+2.2%) in the lead. Elsewhere, the European Central Bank released the minutes from its latest meeting, showing willingness to employ additional easing measures, if necessary.
- Germany’s July CPI +0.2% month-over-month, as expected; +0.2% year-over-year, as expected
- France’s July CPI -0.3% month-over-month (expected -0.4%; prior -0.1%)
- Spain’s July CPI -0.9% month-over-month (consensus -1.0%; last 0.3%); +0.1% year-over-year, as expected
- Swiss July PPI -0.3% month-over-month (expected -0.2%; prior -0.1%); -6.4% year-over-year (consensus -6.3%; last -6.1%)
Closing Prices
- UK’s FTSE: 0.0%
- Germany’s DAX: + 0.8%
- France’s CAC: + 1.3%
- Spain’s IBEX: + 0.6%
- Portugal’s PSI: + 2.1%
- Italy’s MIB Index: + 1.6%
- Irish Ovrl Index: + 2.1%
- Greece ASE General Index: -0.7%
Macroeconomic Data
Economic Data
from Briefing.com
- Initial Claims : 274K vs 273K (Prior 269K - Down)
- Continuing Claims : 2273K vs 2247K (Prior 2258K - Up)
- Retail Sales : 0.6% vs 0.5% (Prior 0.0% - Up)
- Retail Sales ex-auto : 0.4% vs 0.5% (Prior 0.4% - Up)
- Export Prices ex-agri : -0.4% (Prior -0.2% - Down)
- Import Prices ex-oil : -0.3% (Prior -0.2%)
- Business Inventories : 0.8% vs 0.3% (Prior 0.3%)
- Natural Gas Inventories : 65 bcf (Prior 32 bcf)
UNEMPLOYMENT CLAIMS
Highlights
- The initial claims level increased to 274,000 for the week ending August 8 from a downwardly revised 269,000 (from 270,000) for the week ending August 1. The Briefing.com Consensus expected the initial claims level to increase to 271,000.
- The continuing claims level increased to 2.273 mln for the week ending August 1 from an upwardly revised 2.258 mln (from 2.255 mln) for the week ending July 25. The consensus expected the continuing claims level to decline to 2.247 mln.
Key Factors
- The four-week moving average fell to 266,250 from 268,000. That was the lowest four-week moving average since April 2000, when it also reached 266,250.
- These trends support an economy that is at or, at least, very near full employment.
Big Picture
- The initial claims level returned to its previous range after the historic drop during the week ending July 18.
Highlights
- Retail sales increased 0.6% in July after an upward revision brought sales to the flat line (from -0.3%) in June. The Briefing.com Consensus expected retail sales to increase 0.5%.
- Excluding autos, retail sales increased 0.4% in July after increasing an upwardly revised 0.4% (from -0.1%) in June.
- Core sales - which exclude sales at motor vehicle dealers, gasoline stations, and building material and supply stores – increased 0.3% in July, up from a 0.2% gain in June. These sales more closely track the goods component of GDP than the headline retail sales.
Key Factors
- As expected, motor vehicle demand played a large part in the increase in sales growth. Motor vehicle manufacturers reported that unit sales increased to 17.6 mln SAAR in July from 17.0 mln SAAR in June. That gain pushed up sales at motor vehicle and parts dealers by 1.4% after declining 1.5% in May.
- The July gain seems solid on the surface. However, it came at a time when aggregate earnings rose a much more substantial 0.7%. Taken together, consumers held back some of their newfound income growth, which likely drove up the savings rate.
- At a time when consumer sentiment is strong and there is labor market security, measured by trends in the initial claims level, which is near a 40-year low, it was expected that consumers would relax their savings behavior and demand more consumables.
- Sector wise, large gains were reported in the furniture (0.8%), sporting goods (0.9%), and nonstore (1.5%)sectors. Sales declined at electronics and appliance stores (-1.2%) and department stores (-0.8%).
Big Picture
- Sales picked up in July, but there is still more room for improvement given the latest income trends.
Highlights
- Business inventories increased 0.8% in June after an unrevised 0.3% gain in May. The Briefing.com Consensus expected business inventories to increase 0.3%.
Key Factors
- The inventory changes from manufacturers (0.6%) and merchant wholesalers (0.9%) were known prior to the release. The only new information was that retailer inventories increased 0.9% in June after a 0.2% gain in May.
- Retailer inventory growth strong across the board. All sectors reported growth above 0.5%, with the largest gains coming from motor vehicles (1.4%), building materials (1.0%), and furniture (0.9%).
- Total business sales increased 0.2% in June after increasing 0.4% in May. A 0.5% increase in manufacturer shipments were offset by a 0.1% decline retailer sales.
- The inventory-to-sales ratio increased to 1.37 in June from 1.36 in May. That was the largest ratio since February.
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:
Lower Volumes than the day before – 768.0M vs 938.0M
Decliners outpaced Advancers (adv/dec): 1218 / 1825
New Lows outpaced New Highs (highs/lows): 57 / 115
NASDAQ:
Lower Volumes than the day before – 1624.2M vs 2081.0M
Decliners outpaced Advancers (adv/dec): 1251 / 1600
New Lows outpaced New Highs (highs/lows): 49 / 78
VOLATILITY S&P500 (VIX)
13.49 -0.12 (-0.88%)
Technical Updates
17,408.25 +5.74 (+0.03%)
Volume: 88,548,268 (below average of 93,172,830)
Range: 17,341.34 - 17,481.78
Range: 17,341.34 - 17,481.78
5,033.56 -10.83 (-0.21%)
Volume: 376,046,912 (below average of 433,563,794)
Volume: 376,046,912 (below average of 433,563,794)
Range: 5,029.61 - 5,071.46
2,083.39 -2.66 (-0.13%)
Volume: 502,475,000 (below average of 534,748,354)
Range: 2,078.26 - 2,092.93
DOW did not break above the resistance at around 17,470 and formed a similar long-legged doji which is suggesting some uncertainty. NASDAQ remained outside of the channel but find a support at around 5,034. S&P was rejected by the resistance at 2,093 and continue to find a support on its ascending trend line. I reckon there might still be some support play in the market and if the support fails, we are going to see more downside. Or the market might still consolidate and try to push higher before the break to downside. Either way it seems market needs a strong catalyst to bounce back.
Commodities
- The big story was in oil today.
- WTI crude oil futures broke below the widely watched Mar. 2015 multi-year low print of $42.03 in the continuous futures contract.
- At the end of today’s pit trading session, Front-month Sept WTI crude oil closed -2.3% at $42.25/barrel.
- In other energy, Sept nat gas dropped 5% to end at $2.79/MMBtu.
- Precious metals pulled back some today, while copper ended unchanged at $2.35/lb
- Dec gold slipped -0.7% at $1115.70/oz, while Sept declined -0.5% at $15.40/oz
Energy
- September crude oil futures fell $0.98 (-2.3%) to $42.25/barrel
- September natural gas closed $0.14 lower (-4.8%) at $2.79/MMBtu
- RBOB Gasoline closed $0.04 lower at $1.72/gallon
- Heating oil futures closed $0.02 lower at $1.57/gallon
Agriculture
- December corn closed $0.06 higher at $3.75/bushel
- September wheat closed $0.09 higher at $5.03/bushel
- November soybeans closed $0.16 higher to $9.26/bushel
- Sugar #11 closed $0.05 cents lower at 10.49 cents/lb
Metals
- December gold ended today’s session $8.00 lower (-0.7%) at $1115.70/oz
- September silver closed today’s session $0.08 lower (-0.5%) at $15.40/oz
- September copper closed flat at $2.35/lb
Currencies
- The U.S. Dollar Index jumped 0.20% to 96.46, as Treasury yields bumped up and the Chinese government held a press conference to quell the worst fears about the change in its currency regime
- Retail sales increased 0.6% in July after an upward revision brought sales to the flat line (from -0.3%) in June. The Briefing.com Consensus expected retail sales to increase 0.5%
- Excluding autos, retail sales increased 0.4% in July after increasing an upwardly revised 0.4% (from -0.1%) in June
- EUR/USD: -0.16% to $1.1138
- Germany, France, and Spain reported their inflation gauges for July
- The German CPI rose 0.2% m/m, as expected
- The French Harmonized Index of Consumer Prices fell 0.4% m/m, less than expected. In June, the HICP fell 0.1%
- The Spanish HICP was flat y/y versus expectations for a 0.1% decline
- Germany, France, and Spain reported their inflation gauges for July
- GBP/USD: +0.01% to $1.5613
- The RICS House Price Balance was 44% in July. That number was better than expected and the 40% in June. Readings above 0% indicate that home prices are rising
- USD/JPY: +0.15% to 124.44
- In Japan, Core Machinery Orders fell 7.9% m/m in June, worse than expected. Order rose 0.6% in May
- USD/CHF: +0.13% to 0.9767
- Switzerland's PPI fell 0.3% m/m in July, a larger decline than anticipated
- USD/CAD: +0.72% to 1.3077
- Canada's New Housing Price Index grew 0.3% m/m in June, better than expectations
- AUD/USD: -0.40% to $0.7355
- Melbourne Institute Inflation Expectations rose 3.7% in August from 3.4% in July
- NZD/USD: -0.71% to $0.6563
- The Business NZ Purchasing Managers' Index fell to 53.5 in July from 55.2 in June
- The New Zealand Food Price Index grew 0.6% in July, lower than expected. The index increased 0.5% in June
Bonds
- The Treasury complex lost ground today as the markets got acclimated to the idea of a liberalized currency regime in China and U.S. Retail Sales (and the revisions to the June data) spooked investors who had been thinking that the December FOMC meeting was the liftoff point for rates. 5 and 10-year notes took the brunt of the selling, while the long bond held up surprising well despite a weak $16 billion auction
- Yield Check:
- 2-yr: +4 bps to 0.71%
- 5-yr: +5 bps to 1.57%
- 10-yr: +6 bps to 2.19%
- 30-yr: +1 bp to 2.85%
- News:
- Retail sales increased 0.6% in July after an upward revision brought sales to the flat line (from -0.3%) in June. The Briefing.com consensus expected retail sales to rise 0.5%
- As expected, motor vehicle demand played a large part in the increase in sales growth. Motor vehicle manufacturers reported that unit sales increased to 17.6 mln SAAR in July from 17.0 mln SAAR in June. That gain pushed up sales at motor vehicle and parts dealers by 1.4% after declining 1.5% in May
- Initial Jobless Claims rose to 274,000 for the week ending August 8 from a downwardly-revised 269,000 (from 270,000) for the week ending August 1. The Briefing.com consensus expected initial claims to increase to 271,000
- Continuing Jobless Claims increased to 2.273 mln for the week ending August 1 from an upwardly revised 2.258 mln (from 2.255 mln) for the week ending July 25. The consensus expected the continuing claims level to decline to 2.247 mln
- July Import Prices ex-oil fell 0.3% versus a 0.2% decline in June
- Export Prices ex-agriculture dropped 0.4% in July versus a 0.1% fall in June
- Business Inventories increased 0.8% in June after an unrevised 0.3% gain in May. The Briefing.com consensus expected Business Inventories to increase 0.3%
- The inventory changes from manufacturers (0.6%) and merchant wholesalers (0.9%) were known prior to the release. The only new information was that retailer inventories increased 0.9% in June after a 0.2% gain in May
- The $16 billion 30-year Treasury auction was met with tepid demand. The auctioned tailed by 2 basis points, indicating that Treasury market had anticipated a much lower high yield than what actually materialized:
- High yield: 2.880%
- Bid-to-cover: 2.26
- Indirect bid: 51.9%
- Direct bid: 9.9%
- Retail sales increased 0.6% in July after an upward revision brought sales to the flat line (from -0.3%) in June. The Briefing.com consensus expected retail sales to rise 0.5%
- Commodities:
- WTI crude: -2.66% to $42.15/bbl.
- Gold: -0.86% $1,113.90/troy oz.
- Copper: +0.13% to 2.353
- Currencies:
- EUR/USD: -0.11% to $1.1143
- USD/JPY: +0.14% to 124.43
- Data Out Friday:
- July PPI and Core PPI (08:30 ET)
- July Industrial Production and Capacity Utiliziation (09:15 ET)
- August Michigan Sentiment (10:00 ET)
Treasury Yields:
- 2 Year Note 0.72% +0.05
- 5 Year Note 1.58% +0.06
- 10 Year Note 2.19% +0.05
- 30 Year Bond 2.86% +0.02
2/30 Spread: 214 bps ( -3 ) … 2/10 Spread: 147 bps ( UNCH )
Preview for Friday 14 August, 2015
Economic Data
Friday (14 Aug) :
- PPI : 0.1% (Prior 0.4%)
- Core PPI : 0.1% (Prior 0.3%)
- Industrial Production : 0.3% (Prior 0.2%)
- Capacity Utilisation : 78.0 (Prior 77.8)
- Michigan Sentiment : 93.9 (Prior 93.1)
Earnings Highlights
Friday (14 Aug) :
BMO - JCP
AMC - None
BMO - JCP
AMC - None
Summary
Market did not really move much since last Friday as we have seen quite a lot of volatility in the market this week. I think the market is still relatively weak and looking at the technicals, S&P is not clear from danger as it is just a whisker away from breaking below its 200MA. And we did not see much conviction in the buying to break above the respective resistance levels in the indices.
I think we might still see the market moving sideway for the time being given the volatility but I don't think it should go anywhere higher.
Market did not really move much since last Friday as we have seen quite a lot of volatility in the market this week. I think the market is still relatively weak and looking at the technicals, S&P is not clear from danger as it is just a whisker away from breaking below its 200MA. And we did not see much conviction in the buying to break above the respective resistance levels in the indices.
I think we might still see the market moving sideway for the time being given the volatility but I don't think it should go anywhere higher.
Direction for Friday 14 Aug, 2015: Up
2015 Daily Directional Accuracy: 80/126 (63.49%)
2015 Weekly Directional Accuracy: 18/29 (62.07%)
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