Dow -212.33 at 17402.84, Nasdaq -65.01 at 5036.78, S&P -20.10 at 2084.08
Not really that much of a surprise to see the market returned to the downside. I would consider the market to be technically bearish now as DOW forms a death cross, with S&P also threatening to break below its 200MA soon.
Meanwhile in China, we saw the central bank devaluate their currency to improve their weakening growth. That did not help much for the global markets as Europe markets and Asia markets were mostly in red on Tuesday as well.
Market Summary
Industry Watch
Strong: Telecom Services, Utilities
Weak: Consumer Discretionary, Energy, Industrials, Materials, Financials
Other Market Moving Factor:
- China devalues yuan by the largest amount on record, sending USD/CNY higher by 1.9% to 6.3249: exporter stocks lead global equities lower
- Google (GOOGL) bucks market-wide selling pressure after revealing new operating structure
- S&P 500 returns below 50-day (2,096) and 100-day moving averages (2,098)
The move invited renewed trepidations about the pace of economic growth in China while also feeding concerns that China's trading partners may feel compelled to respond by weakening their own currencies. For instance, the Japanese yen was in focus during the session amid speculation the Bank of Japan may be forced to step up its easing efforts to support the country's exporters. As a result, the dollar/yen pair climbed 0.4% to 125.07, nearing a 13-year high.
The major European indices lost between 1.1% and 2.7% with the retreat paced by exporter stocks while the S&P settled lower by 1.0% and retraced the bulk of its advance from Monday.
Today's selling sent the benchmark index back below its 50-day (2,096) and 100-day (2,098) moving averages with eight sectors registering losses. To little surprise, cyclical groups paced the slide, but the energy sector (-0.2%) spent the day in a steady rally off its opening low. The sector fought its way back to yesterday's highs even as crude oil plunged 4.2% to $43.08/bbl, settling at a six-year low.
Meanwhile, the other commodity-related sector—materials (-1.9%)—ended at the bottom of the leaderboard with steelmakers showing broad weakness, evidenced by Market Vectors Steel ETF (SLX 27.22, -1.15), which fell 4.1%. On a somewhat related note, copper futures fell 2.6% to $2.338/lbs, erasing the bulk of their gain from yesterday.
Elsewhere among cyclical groups, the technology sector (-1.7%) displayed relative strength at the start, but could not stay ahead of the broader market into the afternoon. That being said, the early outperformance was due to a spike in the shares of Google (GOOGL 690.30, +27.16) after the company announced plans for a new operating structure. As part of the announced change, Google will create a new company called Alphabet, which will replace Google as a publically-traded entity and should make it easier to evaluate different segments of the company's business. Shares of GOOGL settled higher by 4.1% after being up more than 6.0% at the start. As for other tech heavyweights, Apple (AAPL 113.55, -6.17), Intel (INTC 28.99, -0.65), and Microsoft (MSFT 46.41, -0.92) lost between 1.9% and 5.2% as China-related concerns pressured the multinational companies.
On the upside, rate-sensitive telecom services (+0.1%) and utilities (+0.5%) ended in the green, benefitting from strength in the Treasury market that sent the 10-yr yield lower by nine basis points to 2.14%.
Today's participation was roughly in-line with recent averages as more than 830 million shares changed hands at the NYSE floor.
Economic data included Productivity/Labor Cost data and Wholesale Inventories:
- Nonfarm productivity increased 1.3% in Q2 2015 after declining an upwardly revised 1.1% (from -3.1%) in the first quarter while the Briefing.com consensus expected an increase of 1.4%
- The increase in second quarter productivity ended two consecutive quarterly declines.
- Year-over-year, nonfarm productivity increased 0.3%, down from a 0.6% gain in Q1 2015
- Unit labor costs increased 0.5% in the second quarter while the consensus expected an increase of 0.1%; however, the reported increase was the smallest rise since a 0.1% increase in Q3 2014
- Wholesale inventories increased 0.9% in June after a downwardly revised 0.6% increase (from 0.8%) in May while the Briefing.com consensus expected an increase of 0.3%
- Wholesale sales increased 0.1% in June after a 0.2% increase in May while durable sales declined 1.1% in June, which resulted mostly from a 2.8% decline in automotive sales. Nondurable sales increased 1.2% on strong demand for farm products (3.6%) and petroleum (3.7%)
- The inventory-to-sales ratio increased to 1.30 in June from 1.29 in May
Global Market
Asian Markets Close: Japan’s Nikkei -0.4%; Hong Kong’s Hang Seng -0.1%; China’s Shanghai Composite flat
There were broad-based declines across markets in the Asia-Pacific region after China’s central bank surprisingly implemented a near 2.0% devaluation of the yuan, presumably in an effort to help boost the competitiveness of the country’s exporters. The move sent regional currencies reeling against the greenback and triggered worries about competitive devaluation that weighed on most equity markets.
Economic data
- China
- M2 Money Stock +13.3% year-over-year (expected +11.7%; prior +11.8%)
- New Loans CNY 1480.0 bln (expected CNY 725.0 bln; prior CNY 1280.0 bln)
- Japan
- Machine Tool Orders +1.6% year-over-year (prior +6.6%)
- M2 Money Stock +4.1% year-over-year (expected +3.9%; prior +3.9%)
- South Korea
- July Export Price Index -1.7% year-over-year (expected -4.2%; prior -2.2%)
- July Import Price Index -13.7% (prior -14.1%)
- Australia
- July NAB Business Confidence 4.0 (expected 11.0; prior 8.0)
- July NAB Business Survey 6.0 (prior 10.0)
- Singapore
- Q2 GDP -4.0% quarter-over-quarter (expected -4.6%; prior +4.1%); +1.8% year-over-year (expected +1.5%; prior +1.7%)
Equity Markets
- Japan’s Nikkei declined 0.4%, led lower by the consumer staples (-2.6%), consumer discretionary (-1.0%), health care (-0.8%), and financials (-0.4%) sectors. Shiseido (-4.8%), Kansai Electric Power (-4.7%), and MEIJI Holdings (-4.5%) were the worst-performing issues. Sumco Corp (+8.6%), Sekisui House (+5.2%), and Nisshin Steel Co (+4.6%) topped the list of winners. Out of the 225 index members, 110 ended higher, 110 finished lower, and 5 were unchanged.
- Hong Kong’s Hang Seng started strong but faded as the day progressed and ended down 0.1%. Leading laggards were Cathay Pacific Airways (-2.0%), Cheung Kong Property Holdings (-1.8%), and CK Hutchison Holdings (-1.5%). Li & Fung (+5.0%), CNOOC (+4.1%), and China Overseas Land & Investment (+3.7%) paced the winners. Out of the 50 index members, 23 ended higher, 25 finished lower, and 2 were unchanged.
- China’s Shanghai Composite had a jagged session in a narrow range and ended the day flat after the People’s Bank of China surprisingly implemented a near 2.0% devaluation of the yuan. The move came after China reported weaker than expected trade data over the weekend and is considered to be an effort to help boost the prospects of China’s exporters. The yuan dropped 1.9% against the dollar to 6.3250.
- India’s Sensex declined 0.8% and ended near its lows for the day. The weakness was driven by the materials (-4.9%), consumer staples (-1.6%), energy (-1.4%), industrials (-1.2%), and financials (-1.2%) sectors. Tata Steel (-5.5%), State Bank of India (-4.9%), and Tata Motors (-4.3%) were the worst-performing issues while Infosys (+2.1%) and Tata Consultancy Services (+1.3%) were the only stocks to gain more than 1.0%. Out of the 30 index members, 9 ended higher and 21 finished lower.
- Australia’s S&P/ASX 200 declined 0.7%, pressured by weakness in the health care (-1.6%), industrials (-1.5%), and financials (-1.2%) sectors. Separately, the Australian dollar was sent reeling by China’s move to devalue the yuan. USD/AUD was last up 1.3% to 1.3669. Out of the 200 index members, 66 ended higher, 123 finished lower, and 11 were unchanged.
- Regional advancers: Philippines +0.5%
- Regional decliners: South Korea -0.8%, Taiwan -0.9%, Malaysia -1.1%, Indonesia -2.7%, Singapore -1.4%, Thailand -1.0%, Vietnam -0.2%
FX
- USD/CNY +1.9% at 6.3250
- USD/INR +0.6% at 64.2375
- USD/JPY +0.2% at 124.92
EUROPE
Major European indices trade lower across the board with Germany’s DAX (-2.0%) trailing the region. Earlier, the European Commission announced that Eurozone creditors and Greek officials have reached a technical agreement on a third bailout package, but regional equities have retreated amid concerns related to China’s devaluation of the yuan.
- Eurozone ZEW Economic Sentiment rose to 47.6 from 42.7 (expected 43.9)
- Germany’s August ZEW Economic Sentiment fell to 25.0 from 29.7 (consensus 65.7) while ZEW Current Conditions improved to 65.7 from 63.9 (expected 64.3). Separately, July Wholesale Price Index +0.1% month-over-month (expected 0.2%; prior -0.2%)
- Italy’s July CPI -0.1% month-over-month, as expected; +0.2% year-over-year, as expected
Closing Prices
- UK’s FTSE: -1.1%
- Germany’s DAX: -2.7%
- France’s CAC: -1.9%
- Spain’s IBEX: -1.4%
- Portugal’s PSI: -1.8%
- Italy’s MIB Index: -1.1%
- Irish Ovrl Index: -0.7%
- Greece ASE General Index: + 2.1%
Macroeconomic Data
Economic Data
from Briefing.com
- Productivity - Prelim : 1.3% vs 1.4% (Prior -1.1% - Up)
- Unit Labour Costs - Prelim : 0.5% vs 0.1% (Prior 2.3% - Down)
- Wholesale Inventories : 0.9% (Prior 0.6% - Down)
PRODUCTIVITY - PRELIM
Highlights
- Nonfarm productivity increased 1.3% in Q2 2015 after declining an upwardly revised 1.1% (from -3.1%) in the first quarter. The Briefing.com Consensus expected nonfarm productivity to increase 1.4%.
Key Factors
- The increase in second quarter productivity ended two consecutive quarterly declines.
- Year-over-year, nonfarm productivity increased 0.3%, down from a 0.6% gain in Q1 2015.
- Big upward revisions to first quarter GDP growth, which changed a previously reported 0.2% decline into a 0.6% gain, led to an upward revision in the first quarter productivity numbers. Instead of declining by the largest amount since Q1 2014, first quarter productivity levels were more in-line with end of 2014 trends.
- Looking at the details of the second quarter, output increased 2.8% in Q2 2015, up from a 0.5% gain in the first quarter. That was the largest increase in output since a 5.5% increase in Q3 2014.
- Hours worked increased 1.5% in the second quarter, which was about the same increase (1.6%) as the first quarter.
- Employers still hold the upper hand during wage negotiations.
- Compensation per hour rose 1.8% in the second quarter, topping the 1.1% gain in the first quarter. The second quarter gain, however, was still well below the growth rates from the second half (3.2% and 3.4%) of 2014.
- Despite the increase in hourly compensation, workers lost money after adjusting for inflation. Real compensation declined 1.1% in the second quarter after increasing 4.2% in Q1 2015. That was the first decline in real hourly compensation since a 3.1% decline in Q2 2014.
- Cost-push inflation pressures remain subdued. Unit labor costs only increased 0.5% in the second quarter. While unit costs growth topped the consensus expectation of a 0.1% increase, it was still the smallest increase in costs since a 0.1% increase in Q3 2014.
Big Picture
- Productivity gains help keep cost-push inflation pressures from rising wages in check. Over the long term, it is productivity gains that provide the increase in output that have led to the consistent gains in living standards in free market economies.
WHOLESALE INVENTORIES
Highlights
- Wholesale inventories increased 0.9% in June after a downwardly revised 0.6% increase (from 0.8%) in May. The Briefing.com Consensus expected wholesale inventories to increase 0.3%.
Key Factors
- The BEA assumed that wholesale inventories increased 0.7% in the advance estimate of second quarter GDP. After combining the stronger-than-expected June gain with the downward revision to May inventories, wholesale inventories still came out ahead of what the BEA expected. That should lead to a positive revision to second quarter GDP growth.
- Wholesale durable goods inventories increased 0.1% in June after a 0.5% increase in May. Gains in automotive (2.0%) offset declines in machinery (-0.5%).
- Led by a 15.5% increase in farm product inventories and a 3.6% increase in petroleum inventories, nondurable goods inventories rose 2.3% in June after a 1.0% increase in May.
- Wholesale sales increased 0.1% in June after a 0.2% increase in May. Durable sales declined 1.1% in June, which came mostly as a result of a 2.8% decline in automotive sales. Nondurable sales increased 1.2% on strong demand for farm products (3.6%) and petroleum (3.7%).
- The inventory-to-sales ratio increased to 1.30 in June from 1.29 in May.
Big Picture
- Wholesale inventories are just one component of total business inventories. Manufacturing and retail inventories make up the rest of total business inventories. The market ignores this release and doesn't pay much attention to the full business inventory release that comes a few days later. Improved inventory management in recent years has reduced the economic swings associated with inventories and has helped produce a long-term downtrend in the inventory-to-sales ratio.
Market Internals
NYSE:
Lower Volumes than the day before – 857.1M vs 868.5M
Decliners outpaced Advancers (adv/dec): 1159 / 1941
New Lows outpaced New Highs (highs/lows): 42 / 147
NASDAQ:
Higher Volumes than the day before – 1899.2M vs 1760.2M
Decliners outpaced Advancers (adv/dec): 869 / 1980
New Lows outpaced New Highs (highs/lows): 42 / 129
VOLATILITY S&P500 (VIX)
13.71 +1.48 (+12.10%)
Technical Updates
17,402.84 -212.33 (-1.21%)
Volume: 103,011,382 (above average of 92,677,651)
Range: 17,352.63 - 17,593.59
Range: 17,352.63 - 17,593.59
5,036.79 -65.01 (-1.27%)
Volume: 451,203,696 (above average of 432,341,679)
Volume: 451,203,696 (above average of 432,341,679)
Range: 5,013.45 - 5,089.33
2,084.07 -20.11 (-0.96%)
Volume: 562,080,000 (above average of 531,456,672)
Range: 2,076.49 - 2,102.66
DOW is technically bearish now as it formed the death cross. It got rejected by the resistance at 17,580 and went down to find a support at 17,500. NASDAQ broke below its 50MA and still sit above its support at 5,010. It managed to close above its 100MA and stay within the channel. S&P also closed below both 20 and 50MAs while it sits on the ascending trend line with the 200MA as a key support. The 3 indices somehow found a support before a minor pullback on Monday. I reckon we might see some short-covering but looking forward, I think market should still go for more downside.
Commodities
- Commodities saw some broad market weakness today following Chinese Yuan devaluation.
- In current trade Oil was the big story today with WTI front-month Sept crude oil falling 4.1% to end floor trading at $43.12/barrel.
- Sept nat gas rallied in afternoon trade, closing up 0.4% higher to $2.85/MMBtu
- Copper held losses, ending today’s session -3% at $2.33/lb.
- Sept silver ended near the unchanged mark at $15.29/oz (up 1 cent), while Dec gold rose 0.3% at $1108.10/oz
Energy
- September crude oil futures fell $1.83 (-4.1%) to $43.12/barrel
- September natural gas closed $0.01 higher (+0.4%) at $2.85/MMBtu
- RBOB Gasoline closed flat at $1.69/gallon
- Heating oil futures closed $0.03 lower at $1.56/gallon
Agriculture
- December corn closed $0.14 lower at $3.88/bushel
- September wheat closed $0.19 lower at $5.07/bushel
- November soybeans closed $0.24 lower to $9.72/bushel
- Sugar #11 closed $0.05 cents higher at 10.62 cents/lb
Metals
- December gold ended today’s session $3.60 higher (+0.3%) at $1108.10/oz
- September silver closed today’s session $0.01 higher (+0.1%) at $15.29/oz
- September copper closed $0.07 lower (-2.9%) at $2.33/lb
Currencies
- The dominant theme in FX markets today was the Chinese government's decision to allow market forces to play a greater role in determining the yuan's exchange rate. The timing looks like the Chinese government seizing a moment of financial market stress to allow market forces to depreciate the RMB and thereby boost its export sector which was shown to have weakened dramatically over the weekend, and the IMF will not likely include the yuan in its special drawing rights (SDR's) later this year
- The U.S. Dollar Index gained 0.11% to 97.26
- Nonfarm productivity increased 1.3% in Q2 2015 after declining an upwardly revised 1.1% (from -3.1%) in the first quarter. The Briefing.com consensus expected an increase to 1.4%
- Wholesale inventories rose 0.9% in June after a downwardly revised 0.6% increase (from 0.8%) in May. The Briefing.com consensus expected wholesale inventories to increase 0.3%
- EUR/USD: +0.13% to $1.1035
- Germany's ZEW Economic Sentiment Index unexpectedly fell to 25.0 in August from 29.7 in July
- Current Conditions jumped more than expected to 65.7 versus 63.9 in July
- ZEW Economic Sentiment for the whole eurozone soared to 47.6 in August from 42.7 July
- Germany's ZEW Economic Sentiment Index unexpectedly fell to 25.0 in August from 29.7 in July
- GBP/USD: -0.13% to $1.5570
- The Conference Board's Leading Index for the U.K. fell 0.2% m/m in July versus -0.4% in June
- USD/JPY: +0.47% to 125.13
- In Japan, Machine Tool Orders grew 1.6% y/y
- USD/CAD: +0.92% to 1.3129
- Canadian Housing Starts fell to a worse-than-expected 193.0K in July from 202.3K in June
- The antipodean currencies were particularly badly hit by the pseudo-flotation of the yuan
- AUD/USD: -1.72% to $0.7292
- NAB Business Confidence in Australia unexpectedly fell to 4 in July from 8 in June
- NZD/USD: -1.31% to $0.6529
- AUD/USD: -1.72% to $0.7292
Bonds
- U.S. Treasuries rallied sharply today after the Chinese government announced that it would allow market forces to help determine the yuan's value in FX markets. The move may have been prompted by data released over the weekend, showing that exports declined 8.3% in July. A cheaper local currency will make Chinese exports more competitive on global markets at the expense of the country's trading partners
- Yield Check:
- 2-yr: -5 bps to 0.67%
- 5-yr: -9 bps to 1.53%
- 10-yr: -9 bps to 2.14%
- 30-yr: -10 bps to 2.80%
- News:
- China announced that it will let the yuan float more freely, prompting many of its East Asian neighbors' currencies to fall
- Greece and its official creditors have reached an agreement on an 85 bln euro bailout that can now go to national parliaments for approval
- Nonfarm productivity increased 1.3% in Q2 2015 after declining an upwardly-revised 1.1% (from -3.1%) in the first quarter. The Briefing.com consensus was for +1.4%
- Unit labor costs only increased 0.5% in the second quarter. While unit costs growth topped the consensus expectation of a 0.1% increase, it was still the smallest increase in costs since 0.1% growth in Q3 2014
- Wholesale inventories rose 0.9% in June after a downwardly-revised 0.6% increase (from 0.8%) in May. The Briefing.com consensus expected wholesale inventories to increase 0.3%
- The BEA assumed that wholesale inventories increased 0.7% in the advance estimate of second quarter GDP. After combining the stronger-than-expected June gain with the downward revision to May inventories, wholesale inventories still came out ahead of what the BEA expected. The beat should lead to a positive revision to Q2 GDP growth
- $24 billion 3-year note auction
- High yield: 1.013%
- Bid-to-cover: 3.34
- Indirect bid: 52.8%
- Direct bid: 8.2%
- Commodities:
- WTI crude: -4.00% to $43.16/bbl.
- Gold: +0.435% to $1,108.00/troy oz.
- Copper: -2.69% to $2.3355/lb.
- Currencies:
- EUR/USD: +0.11% to $1.1033
- USD/JPY: +0.44% to 125.10
- News Out Wednesday:
- MBA Mortgage Index for the week ending 8/08 (07:00 ET)
- June JOLTS – Job Openings (10:00 ET)
- Crude Inventories for the week ending 8/08 (10:30 ET)
- July Treasury Budget (14:00 ET)
- Fed Speaker:
- NY Fed President Dudley (FOMC voter) (08:30 ET)
- Treasury Auction:
- $24 bln 10-year note auction (results at 13:00 ET)
Treasury Yields:
- 2 Year Note 0.68% -0.05
- 5 Year Note 1.53% -0.09
- 10 Year Note 2.15% -0.09
- 30 Year Bond 2.81% -0.08
2/30 Spread: 213 bps ( -3 ) … 2/10 Spread: 147 bps ( -4 )
Preview for Wednesday 12 August, 2015
Economic Data
Wednesday (12 Aug) :
- MBA Mortgage Index : (Prior 4.7%)
- JOLTS - Job Openings : (Prior 5.363M)
- Crude Inventories : (Prior -4.407M)
- Treasury Budget : -$149.0B (Prior -$94.6B)
Earnings Highlights
Wednesday (12 Aug) :
BMO - BABA AIT ARMK ATTO CAE ENZY EZCH HSGX IGT ICL M MRKT SOL SHLX STKL VWR W
AMC - AMPH AEC BGG CACI CSCO CPA ECR FLO GKOS JUNO LXFT MXPT MDLY NTES NWSA NQ RELY RNDY RYI SEDG SPKE TGB UPLD XNET YDLE
BMO - BABA AIT ARMK ATTO CAE ENZY EZCH HSGX IGT ICL M MRKT SOL SHLX STKL VWR W
AMC - AMPH AEC BGG CACI CSCO CPA ECR FLO GKOS JUNO LXFT MXPT MDLY NTES NWSA NQ RELY RNDY RYI SEDG SPKE TGB UPLD XNET YDLE
Summary
I suppose the bears are still fairly in control of the market looking at the strength of the pullback. The 3 indices are showing lower highs which reflects a downward trend. And with the technicals specifically the death cross indicating a bearish market, I reckon we are going to see more downside.
Oil price continues to drop amid the oversupply situation. Weak growth in China does not help in pushing up the demand. The inventory report on Wednesday is likely to determine if market would break below the low of $42.40.
I suppose the bears are still fairly in control of the market looking at the strength of the pullback. The 3 indices are showing lower highs which reflects a downward trend. And with the technicals specifically the death cross indicating a bearish market, I reckon we are going to see more downside.
Oil price continues to drop amid the oversupply situation. Weak growth in China does not help in pushing up the demand. The inventory report on Wednesday is likely to determine if market would break below the low of $42.40.
Direction for Wednesday 12 Aug, 2015: Down
2015 Daily Directional Accuracy: 78/124 (62.90%)
2015 Weekly Directional Accuracy: 18/29 (62.07%)
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