Dow +369.26 at 16654.77, Nasdaq +115.17 at 4812.71, S&P +47.15 at 1987.66
Quite a follow through from Wednesday. We saw the market went to the upside but there was a sharp dip as the rally somehow ran out of strength. However market managed to pick things up quickly, forming an intra-day V shape.
GDP number reflected a strong growth in Q2. With the unemployment claims showing a decrease, possibility of Fed rate hike in 2015 seems imminent.
Markets around the world were showing similar recovery. China gained more than 5% after previous slumping while most markets closed with a gain too.
Market Summary
Industry Watch
Strong: Consumer Discretionary, Energy, Financials, Industrials, Materials, Technology
Weak:
Other Market Moving Factor:
- Second estimate of Q2 GDP beats expectations (+3.7%; Briefing.com consensus 3.1%)
- China's Shanghai Composite spikes 5.3%: reports suggest the People's Bank of China intervened in the market
[BRIEFING.COM] The stock market registered its second consecutive advance on Thursday with the S&P 500 jumping 2.4% while the Nasdaq Composite (+2.5%) outperformed slightly. The market endured a late afternoon swoon, but was able to return to its high by the close.
Equities began the trading day on an upbeat note after the overnight session featured a rally across major global equity markets. China's Shanghai Composite took part in that move, soaring 5.3%, but the spike was reportedly aided by an intervention from the People's Bank of China.
Once the U.S. session got going, stocks followed the lead from Asia, rallying across the board with the energy sector pacing the advance. The growth-sensitive sector surged 5.0% while crude oil settled on its high, spiking 10.3% to $42.53/bbl., which represented the largest gain since 2009.
Similar to energy, the remaining nine sectors posted solid gains. Meanwhile, the S&P 500 surrendered 30 points in just an hour but reclaimed all 30 of those points during the next 30 minutes or so, highlighting the elevated volatility that has been in place as of late. To that point, at their Monday lows hit soon after the open, the Dow, Nasdaq, and S&P 500 were down 6.6%, 8.8%, and 5.3%, respectively. At their highs today, they were up 8.4%, 12.3%, and 6.6% from those lows, respectively.
Generally speaking, the indices have pivoted from being oversold on a short-term basis to being overbought on a short-term basis. The speed at which the sell-off and the rebound occurred has left everyone grappling to explain why it happened, what it means, and what comes next. No explanation is wholly sufficient and often matches the character of the market at the time it is provided.
While there might be reason to feel better about the market after the recent rebound, all this week's action truly succeeded in doing was damage retail investor psychology further and increase the level of uncertainty that was already in the market and had kept the S&P 500 range-bound.
On the corporate front, Avago Technologies (AVGO 126.26, +10.06) surged 8.7% after beating bottom-line estimates while the broader PHLX Semiconductor Index jumped 3.7%. For its part, the technology sector rallied 2.3%, settling not far behind the broader market.
Treasuries held gains during overnight action, but they slumped in the morning, hitting their lows right around 9:30 ET. After spending the morning in the red, the 10-yr note rallied off its low as stocks slid from highs. The benchmark note slipped from its afternoon high just ahead of the close, ending little changed with its yield at 2.18%.
Once again, participation was above average amid the heightened volatility with more than 1.2 billion shares changing hands at the NYSE floor.
Economic data included Initial Claims, Q2 GDP, and Pending Home Sales:
- Initial jobless claims for the week ending August 22 declined by 6,000 to 271,000 while the Briefing.com consensus expected a reading of 275,000.
- The prior week was left unrevised and there were no special factors affecting the latest claims report
- The four-week moving average bumped up by 1,000 to 272,500
- As expected, the second estimate for Q2 GDP produced an upward revision, but the surprise is that it was larger than expected
- Q2 GDP was revised up to an annual growth rate of 3.7% from the advance estimate of 2.3% while the Briefing.com consensus estimate was looking for a jump to 3.1%
- The drivers of the upward revision were personal consumption expenditures, nonresidential fixed investment, and private inventories
- Pending home sales for July rose 0.5% while the Briefing.com consensus expected an increase of 1.0%
Tomorrow, July Personal Income (Briefing.com consensus 0.4%), Spending (expected 0.4%), and core PCE Prices (expected 0.1%) will be reported at 8:30 ET while the final reading of the Michigan Sentiment index for August (expected 93.0) will cross the wires at 10:00 ET.
Global Market
ASIA
Asian Markets Close: Japan’s Nikkei +1.1%; Hong Kong’s Hang Seng +3.6%; China’s Shanghai Composite +5.3%
Markets in the Asia-Pacific region took their cue from the strong rebound on Wall Street on Wednesday and closed markedly higher Thursday in a bargain-hunting rally. China’s Shanghai Composite (+5.3%) led the gainers. Strikingly, it was negative for the day with less than an hour to go in the session before a barrage of closing buying interest kicked in and pushed the Composite back above the 3,000 level.
Economic data
Australia
Q2 Building Capital Expenditure -5.6% month-over-month (expected -4.7%; prior -6.7%)
Plant/Machinery Capital Expenditure -1.2% quarter-over-quarter (expected -1.0%; prior -0.8%)
Private New Capital Expenditure -4.0% quarter-over-quarter (expected -2.5%; prior -4.7%)
Equity Markets
- Japan’s Nikkei increased 1.1%, fading from higher levels as the session progressed. The consumer staples (+3.5%), financials (+2.2%), and health care (+1.6%) sectors were the strongest areas. Kikkoman Corp (+6.1%) led all winners followed by Shimizu Corp (+5.2%) and Obayashi Corp (+4.9%). The worst-performing stocks were Unitika (-3.1%), Yokogawa Electric (-3.0%), and Sumco Corp (-2.9%). Out of the 225 index members, 170 ended higher, 49 finished lower, and 6 were unchanged.
- Hong Kong’s Hang Seng increased 3.6% after jumping as much as 2.6% in the final two hours of trading. Once again, the late move in the Hang Seng tracked the late move in the Shanghai Composite. CNOOC (+14.4%), China Resources Land (+10.5%), and China Life Insurance Co (+10.4%) charged up the leaderboard. Meanwhile, China Mengniu Dairy Co (-3.0%) was left behind as the only stock among the 50 index components that did not log a gain in Thursday’s trading.
- China’s Shanghai Composite increased 5.3%, with the entirety of that gain coming in the final hour of trading. The Composite opened the session higher, but then surrendered its gains and was trading with a small loss with less than an hour to go in trading. There wasn’t a specific news catalyst for the late spike. Reports attributed the move largely to a bounce from oversold conditions.
- India’s Sensex jumped 2.0% and finished near its best levels of the day. The gains were paced by the materials (+4.5%), financials (+3.8%), and health care (+2.8%) sectors. Housing Development Finance Corp (+8.3%), Vedanta (+6.6%), and Lupin Ltd (+4.9%) were the best-performing stocks. Bharat Heavy Electricals (-3.6%), Bajaj Auto (-2.3%), and Hero MotoCorp (-0.4%) led a small group of losers. Out of the 30 index members, 22 ended higher and 8 finished lower.
- Australia’s S&P/ASX 200 increased 1.2%, bolstered by strength in the utilities (+2.9%), health care (+2.8%), and information technology (+2.4%) sectors. Out of the 200 index members, 151 ended higher, 40 finished lower, and 9 were unchanged.
- Regional advancers: South Korea +0.7%, Taiwan +1.4%, Malaysia +1.4%, Indonesia +4.6%, Singapore +2.5%, Thailand +3.4%, Vietnam +1.8%, and Philippines +2.2%
- Regional decliners: None
FX
- USD/CNY -0.06% at 6.4056
- USD/INR -0.2% at 65.9950
- USD/JPY +0.3% at 120.30
EUROPE
Major European indices trade higher across the board with Germany’s DAX (+3.2%) in the lead. Elsewhere, European Stability Mechanism chief, Klaus Regling, said he does not expect the ESM to fund the entire Greek bailout, suggesting the International Monetary Fund will be involved in the program.
- Eurozone July M3 Money Supply +5.3% year-over-year (expected 4.9%; prior 5.0%) and July Private Sector Loans +0.9% year-over-year (consensus 0.8%; previous 0.6%)
- Germany’s July Import Price Index -0.7% month-over-month (consensus -0.4%; prior -0.5%); -1.7% year-over-year (expected -1.4%; last -1.4%)
- French August Business Survey rose to 103 from 102 (expected 101)
- UK’s August Nationwide HPI +0.3% month-over-month (expected 0.4%; prior 0.4%); +3.2% year-over-year (consensus 3.1%; last 3.5%)
- Spain’s Q2 GDP +1.0% quarter-over-quarter; +3.1% year-over-year, as expected
Closing Prices
- UK’s FTSE: + 3.6%
- Germany’s DAX: + 3.2%
- France’s CAC: + 3.5%
- Spain’s IBEX: + 3.1%
- Portugal’s PSI: + 2.7%
- Italy’s MIB Index: + 3.4%
- Irish Ovrl Index: + 3.4%
- Greece ASE General Index: + 0.7%
Macroeconomic Data
Economic Data
from Briefing.com
- Initial Claims : 271K vs 272K (Prior 277K)
- Continuing Claims : 2269K vs 2249K (Prior 2256K - Up)
- GDP - Second Estimate : 3.7% vs 3.1% (Prior 2.3%)
- GDP Deflator - Second Estimate : 2.1% vs 2.0% (Prior 2.0%)
- Pending Home Sales : 0.5% vs 1.0% (Prior -1.7% - Up)
- Natural Gas Inventories : 69 bcf (Prior 53 bcf)
UNEMPLOYMENT CLAIMS
Highlights
- Initial jobless claims for the week ending August 22 declined by 6,000 to 271,000 (Briefing.com consensus 275,000).
- Continuing claims for the week ending August 15 increased by 13,000 to 2.269 million (Briefing.com consensus 2.249 mln).
Key Factors
- There were no special factors affecting the latest claims report.
- The four-week moving average for initial claims bumped up by 1,000 to 272,500.
- The four-week moving average for continuing claims dipped by 250 to 2.265 million.
- There were no special factors affecting the latest claims report.
- The four-week moving average for initial claims bumped up by 1,000 to 272,500.
- The four-week moving average for continuing claims dipped by 250 to 2.265 million.
Big Picture
- The initial claims data remained in-line with the encouraging readings seen for some time now that have seen claims bounded between 250,000 and 300,000. This report will help solidify expectations that nonfarm payrolls will again exceed 200,000 in the August employment report.
Highlights
- As expected, the second estimate for Q2 GDP produced an upward revision. The surprise is that it was larger than expected. Specifically, Q2 GDP was revised up to an annual growth rate of 3.7% from the advance estimate of 2.3%. The Briefing.com consensus estimate was looking for a jump to 3.1%.
- The GDP Deflator was revised up to 2.1% from 2.0%.
Key Factors
- The drivers of the upward revision were personal consumption expenditures, nonresidential fixed investment, private inventories, and government spending.
- Nonresidential fixed investment, which subtracted 0.07 percentage points from GDP growth in the advance estimate, added 0.41 percentage points with the second estimate.
- The change in private inventories, which subtracted 0.08 percentage points from GDP growth in the advance estimate, added 0.22 percentage points in the second estimate.
- Government spending, which contributed 0.14 percentage points to GDP growth in the advance estimate, added 0.47 percentage points with the second estimate, almost all of which came from state and local government spending.
- With the second estimate, the contribution from personal consumption expenditures jumpd to 2.11 percentage points from 1.99 percentage points.
- The 0.54 percentage-point drag from imports in the advance estimate was lowered to a 0.42 percentage-point drag with the second estimate. The helped bump up the contribution from net exports to 0.23 percentage points from 0.13 percentage points.
Big Picture
- GDP showed some notable improvement after the weak first quarter. The upward revision to Q2 GDP will continue to stir the debate about when is the right time for the Federal reserve to begin its rate normalization process.
Market Internals
NYSE:
Lower Volumes than the day before – 1256.0M vs 1311.6M
Advancers outpaced Decliners (adv/dec): 2825 / 328
New Lows outpaced New Highs (highs/lows): 3 / 21
NASDAQ:
Lower Volumes than the day before – 2339.6M vs 2608.9M
Advancers outpaced Decliners (adv/dec): 2218 / 654
New Lows outpaced New Highs (highs/lows): 20 / 49
VOLATILITY S&P500 (VIX)
26.10 -4.22 (-13.92%)
Technical Updates
16,654.77 +369.26 (+2.27%)
Volume: 171,979,851 (above average of 105,329,236)
Range: 16,285.51 - 16,666.69
Range: 16,285.51 - 16,666.69
4,812.71 +115.71 (+2.45%)
Volume: 590,549,246 (above average of 461,308,118)
Volume: 590,549,246 (above average of 461,308,118)
Range: 4,721.79 - 4,818.71
1,987.66 +47.15 (+2.43%)
Volume: 924,279,000 (above average of 584,089,563)
Range: 1,942.77 - 1,989.60
DOW continue to break above its resistance around 16,360 and it is approaching another resistance at 16,730-16,740 area. Likewise for NASDAQ is testing its resistance at 4,820 and 1,990 for S&P. We have saw the indices pullback from its previous bottom and as they are approaching their respective resistance level, it is likely to see the bears step back into the market.
Commodities
- Oil is the big story again. Both WTI crude brent crude oil have rallied as much as +10% today.
- Front-month WTI crude oil ended today’s floor session +9.8% at $42.47/barrel, while in other energy, Sept nat gas fell +0.03% to $2.66/MMBtu.
- Sept copper put in a nice rally today, rising +3.6% to $2.33/lb, while Dec gold fell -0.2% to $1112.50/oz. Sept silver +2.6 to $14.41/oz.
- The dollar index continued to climb higher today, which helped weigh on commodities, which are currently sitting at a 16-year low, according to the Bloomberg Commodity Index.
Energy
- October crude oil futures rose $3.79 (+9.8%) to $42.47/barrel
- September natural gas closed $0.03 lower at $2.66/MMBtu
- RBOB Gasoline closed $0.09 higher at $1.32/gallon
- Heating oil futures closed $0.11 higher at $1.51/gallon
Agriculture
- December corn closed $0.02 higher at $3.75/bushel
- December wheat closed $0.05 lower at $4.89/bushel
- November soybeans closed $0.13 higher to $8.78/bushel
- Sugar #11 closed $0.53 cents higher at 11.06 cents/lb
Metals
- December gold ended today’s session $2.20 lower (-0.2%) at $1112.50/oz
- September silver closed today’s session $0.36 higher (+2.6%) at $14.41/oz
- September copper closed $0.08 higher (+3.6%) at $2.33/lb
Currencies
Dollar Index Wins Third Straight
- The dollar rallied against the euro, yen, and Swissy today as risk aversion receded, for most of the day at least
- DXY: +0.58% to 95.65
- EUR/USD: -0.57% to $1.1272
- Spain's GDP grew 1.0% q/q in the second quarter, in line with estimates and the prior reading
- The German Import Price Index fell a greater-than-expected 0.7% m/m in July. The index dropped 0.5% in June
- The French Business Survey climbed to 103 in August from 102 in July, beating market expectations
- GBP/USD: -0.33% to $1.5426
- In the U.K., the Nationwide Housing Price Index climbed 3.2% in the year to August, better than forecast but worse than July's growth of 3.5%
- USD/JPY: +0.35% to 120.56
- Foreign investment in Japanese Stocks fell by 461.9 bln yen
- USD/CHF: +1.28% to 0.9641
- In Switzerland, industrial orders fell 2.4% in the second quarter versus a decline of 4.8% in Q1
- USD/CAD: -0.47% to 1.3239
- AUD/USD: +0.51% to $0.7156
- Australia's Private New Capital Expenditure fell 4.0% q/q in the second quarter, more than expectations but less than the 4.7% fall in Q1
- NZD/USD: +0.04% to $0.6445
Bonds
Governments Unchanged in Eventful Session
- U.S. Treasuries ended today's session mostly unchanged, despite a very strong upward revision to second quarter GDP growth. The $29 bln dollar 7-year note Treasury auction was well-received and the S&P 500 rallied 50 points and then gave back 40 before rallying another 25. WTI crude had its biggest rally in months, climbing back above $40/bbl.
- Yield Check:
- 2-yr: unch at 0.68%
- 5-yr: unch at 1.49%
- 10-yr: unch at 2.18%
- 30-yr: -1 bp to 2.92%
- News:
- GDP growth for the second quarter was revised up to 3.7% from the previous estimate of 2.3%. The Briefing.com consensus called for 3.1%
- The drivers of the upward revision were personal consumption expenditures, nonresidential fixed investment, and private inventories. The latter two in particular made a big difference. With the advance estimate, they contributed negatively to Q2 GDP growth, but with the second estimate, they made a positive contribution of 0.41 and 0.22 percentage points, respectively
- The GDP Deflator beat expectations too, rising to 2.1% from the prior estimate of 2.0%
- There were 271K Initial Jobless Claims for the week ended August 22nd, slightly below the consensus of 275K and the prior reading of 277K
- Continuing Claims edged up to 2269K from the Briefing.com consensus 2254K in the prior week. The Briefing.com consensus was 2249K
- July Pending Home Sales missed estimates, rising only 0.5% versus the Briefing.com consensus of 1.0%
- Overnight, Bloomberg reported that China has reduced its holdings of U.S. Treasuries to use the dollars for currency intervention
- The $29 bln 7-year note auction was met with strong demand, stopping through by 1 basis point
- High Yield 1.930%
- Bid-to-Cover 2.53
- Indirect Bid 50.8%
- Direct Bid 14.1%
- GDP growth for the second quarter was revised up to 3.7% from the previous estimate of 2.3%. The Briefing.com consensus called for 3.1%
- Commodities:
- WTI crude: +9.56% to $42.49/bbl.
- Gold: -0.14% to $1,123.00/troy oz.
- Copper: +3.09% to $2.3175/lb.
- Currencies:
- EUR/USD: -0.75% to $1.1252
- USD/JPY: +0.64% to 120.91
- Data Out Friday:
- July Personal Income, Personal Spending, and PCE Prices – Core (08:30 ET)
- August Michigan Sentiment – Final (10:00 ET)
Treasury Yields:
- 2 Year Note 0.68% +0.01
- 5 Year Note 1.49% UNCH
- 10 Year Note 2.18% UNCH
- 30 Year Bond 2.93% -0.01
2/30 Spread: 225 bps ( -2 ) … 2/10 Spread: 150 bps ( -1 )
Preview for Friday 28 August, 2015
Economic Data
Friday (28 Aug) :
- Personal Income : 0.3% (Prior 0.4%)
- Personal Spending : 0.4% (Prior 0.2%)
- PCE Prices - Core : 0.1% (Prior 0.1%)
- Michigan Sentiment - Final : 93.0 (Prior 92.9)
Earnings Highlights
Friday (28 Aug) :
BMO - BIG RGS BNS
AMC - None
Summary
Thursday has been a rather confidence session. Both equities and commodities market were mostly up. However there are a few questions popping up in my head. Are we seeing a V shape forming in the market or is this just merely a short-covering? We saw a sell-off in the market but yield curve did not invert. Either we are getting complacent or there is still more upside to come...
At the moment, I am looking at more intra-day and scalp trading. Meanwhile the rise in volatility certainly have benefited options traders.
After Hours Report (Briefing)
Futures are higher after hours: S&P 500 futures are +3.39 from fair value of 1,984.76 and Nasdaq100 futures are +3.19 from fair value of 4,322.71.
Tomorrow morning before the open three economic reports are scheduled to be released: 1) Personal Income (Consensus 0.4%), 2) Personal Spending (Consensus 0.4%), and 3) PCE Prices - Core (Consensus 0.1%)
Tomorrow before the open the following companies are scheduled to report earnings: BNS, BIG, RGS
Direction for Friday 28 Aug, 2015: Down
2015 Daily Directional Accuracy: 85/136 (62.50%)
2015 Weekly Directional Accuracy: 19/31 (61.29%)
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