Tuesday, 25 Aug 2015 - AMC

Dow -204.91 at 15666.37, Nasdaq -19.76 at 4506.49, S&P -25.60 at 1867.61

The pullback in the market was definitely not convincing. There was no conviction from the bulls and as the bears are still in control of the market. So it is no surprise to see the market returned to the downside. We saw market succumb to the selling pressure in the last hour and closed in red.

Asia markets were rather mixed and China remains enigmatic as Shanghai Composite continues to suffer another huge sell-off. While Europe was doing better with some recovery to the upside.

For update, PBoC decided to lower its rate again in effort to recover its economy and its highly bearish market. 2015 seems to be a year for central bankers around the world to loosen their monetary policies. However effectiveness wise is another question. 

Market Summary

Industry Watch

Strong: Consumer Discretionary, Financials, Health Care, Technology

Weak: Utilities

Other Market Moving Factor:

• Index futures hit pre-market highs after People's Bank of China cuts main lending rate 25 bps to 4.6% and lowers reserve requirement ratio 50 bps to 18.0%
• Dollar Index erases bulk of yesterday's decline

[BRIEFING.COM] The stock market ended the Tuesday session on a lower note despite starting the day with a sharp spike. The S&P 500 lost 1.4% after being up 2.9% while the Nasdaq Composite surrendered 0.4% after being up 3.6%. 

The market began the day with a broad-based spike after most global stock markets rebounded during overnight action. Interestingly, the rebound did not include China's Shanghai Composite as the index lost 7.6%. That being said, the focus will be on the index tonight considering the People's Bank of China cut its main lending rate 25 basis points to 4.6% and lowered its reserve requirement ratio 50 basis points to 18.0% this morning. 

The PBoC rate-cut announcement took place well after Asian markets ended for the day, and the news was met with a spike in S&P futures. Once the trading day began, the S&P 500 rallied through the first two hours of action, but returned into the middle of its trading range during the afternoon, and fell to lows during the final 60 minutes of the session. 

In some ways, the selling during the final hour resembled action observed on Monday morning as liquidity dried up notably and bid-ask spreads widened past typical levels. The S&P 500 surrendered nearly 40 points during the final hour, pulling all sectors into the red. Interestingly, the utilities sector (-3.2%) ended at the bottom of the leaderboard as the rate-sensitive group suffered from higher yields intraday and extended its losses during afternoon selling. 

More notably, heavily-weighted sectors like financials (-1.7%), industrials (-1.6%), and health care (-1.4%) ended in the red while consumer discretionary (-0.4%) and technology (-1.2%) surrendered their gains after being up more than 3.0% apiece. 

The late afternoon tumble occurred after the Treasury market closed for the day, but 10-yr note futures rallied after the cash close. The benchmark instrument settled on its low with the yield up 13 basis points at 2.13%, but safe-haven demand drove the yield to 2.09% after the cash close. 

Interestingly, the CBOE Volatility Index (VIX 37.08, -3.66) ended on its high, but still finished the day well below yesterday's settlement despite the late swoon. 

Once again, corporate news was relegated to the backburner, but investors did receive a couple earnings reports this morning. Best Buy (BBY 32.95, +3.68) soared 12.6% after beating earnings and revenue estimates while Toll Brothers (TOL 35.08, -2.98) lost 7.8% after missing earnings and revenue estimates. 

Economic data included Consumer Confidence, New Home Sales, Case-Shiller 20-city Index, and FHFA Housing Price Index: 

• The Conference Board's Consumer Confidence Index increased to 101.5 in August from an upwardly revised 91.0 (from 90.9) while the Briefing.com consensus expected an increase to 93.1 
  • The August jump in confidence wiped away all of the discomfort from July and returned the index past June levels (99.8) to the highest mark since January 2015 
• New home sales increased 5.4% in July to 507,000 from a downwardly revised 481,000 (from 482,000) while the Briefing.com consensus expected an increase to 511,000 
  • After starting the year on a tear, new home sales have settled into a range of around 500,000 per month since March 
• The Case-Shiller 20-city Home Price Index for June rose 5.0% against a 5.1% increase expected by the Briefing.com consensus 
  • This followed the previous month's increase of 4.9% 
• The FHFA Housing Price Index for June rose 0.2%, which followed a revised increase of 0.5% in May (from 0.4%) 

Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET while July Durable Orders (Briefing.com consensus -0.6%) will be reported at 8:30 ET.

Global Market

ASIA

Asian Markets Close: Japan’s Nikkei -4.0%; Hong Kong’s Hang Seng +0.7%; China’s Shanghai Composite -7.6%

The Shanghai Composite (-7.6%) and the Nikkei (-4.0%) had another rough outing on Tuesday, but strikingly, other markets in the Asia-Pacific region closed higher on some bargain-hunting interest following Monday’s rout. Losses in China accelerated over the final two hours as investors rued the lack of any additional policy support to help prop up the market. After the close of trading, however, the PBOC announced a 25 basis point cut in its one-year lending and deposit rates, and a 50 basis point cut in its required reserve ratio.

Economic data

• Hong Kong
• July Trade Balance HKD -28.4 bln (expected HKD -41.2 bln; prior HKD -45.8 bln)
• Exports -1.6% month-over-month (expected -2.5%; prior -3.1%)
• Imports -5.2% month-over-month (expected -2.7%; prior -2.0%)
• New Zealand
• Inflation expectations +1.9% quarter-over-quarter (prior +1.9%)
• Australia
• CB Leading Index -0.2% month-over-month (prior +0.2%)

Equity Markets

• Japan’s Nikkei declined 4.0% in a roller-coaster session that saw it drop big at the start of trading, rebound into negative territory, and then collapse over the final two hours. The material weakness was pinned on selling by foreign investors and a stronger yen hurting the nation’s exporters. The consumer discretionary (-5.1%), materials (-4.1%), and industrials (-4.1%) sectors were the weakest areas. Sapporo Holdings (-9.3%), Nippon Kayaku (-8.0%), and Toho Zinc (-7.5%) were the worst-performing issues. Ricoh (+2.2%) and Sharp (+1.2%) led only a handful of stocks that closed with a gain. Out of the 225 index members, 5 ended higher and 220 finished lower.
• Hong Kong’s Hang Seng increased 0.7%, finishing on an upswing that ran in contrast to the late downswing in mainland markets. AIA Group (+5.0%), Tencent Holdings (+4.7%), and Hang Seng Bank (+3.9%) led the winners while Tingyi Cayman Islands Holdings (-5.1%), Cathay Pacific Airways (-3.6%), and China Shenhua Energy (-3.4%) paced the losers. Out of the 50 index members, 23 ended higher and 27 finished lower.
• China’s Shanghai Composite plunged another 7.6% with losses accelerating over the final two hours of trading as participants bailed out without any signs of policy support. A short time ago, however, the People’s Bank of China laid some groundwork for a potential bounce back on Wednesday when it announced a 25 basis point cut in the one-year lending rate to 4.60%, a 25 basis point cut in the one-year deposit rate to 1.75%, and a 50 basis point reduction in the required reserve ratio to 18%.
• India’s Sensex increased 1.1% and closed near its highs, bolstered by strength in the materials (+4.4%) and energy (+3.5%) sectors. Tata Motors (+6.9%), Vedanta (+6.5%), and ICICI Bank (+5.2%) topped the list of winners. Housing Development Finance Corp (-1.5%) and Maruti Suzuki India (-1.0%) were the only two stocks to drop more than 1.0%. Out of the 30 index members, 24 ended higher and 6 finished lower.
• Australia’s S&P/ASX 200 increased 2.7%, powered by gains in the financials (+3.9%), REIT (+3.3%), and Materials (+2.4%) sectors. Out of the 200 index members, 160 ended higher, 37 finished lower, and 3 were unchanged.
• Regional advancers: South Korea +0.7%, Taiwan +3.6%, Malaysia +2.1%, Indonesia +1.6%, Singapore +1.5%, Thailand +2.5%, Vietnam +0.6%, Philippines +0.6%
• Regional decliners: None

FX

• USD/CNY +0.1% at 6.4128
• USD/INR -1.1% at 65.9337
• USD/JPY +1.4% at 120.08

EUROPE

Major European indices trade higher across the board with France’s CAC (+4.6%) leading the rally. Elsewhere, Bundesbank member Joachim Nagel commented on China, saying he does expect the situation spreading to other regional economies since emerging markets are better positioned than they were in the 1990s.

• Germany’s Q2 GDP +0.4% quarter-over-quarter; +1.6% year-over-year, as expected. Separately, August Ifo Business Climate Index 108.3 (expected 107.7; prior 108.0) as Current Assessment rose to 114.8 from 113.9 (consensus 113.9) while Business Expectations ticked down to 102.2 from 102.3 (expected 102.0)
• Spain’s PPI -1.3% year-over-year, as expected (prior -1.3%)

Closing Prices

• UK’s FTSE: + 3.1%
• Germany’s DAX: + 5.0%
• France’s CAC: + 4.1%
• Spain’s IBEX: + 4.0%
• Portugal’s PSI: + 4.7%
• Italy’s MIB Index: + 5.9%
• Irish Ovrl Index: + 4.3%
• Greece ASE General Index: + 9.4%

Macroeconomic Data

Economic Data

from Briefing.com

• Case-Shiller 20-city Index : 5.0% vs 5.0% (Prior 5.0% - Up)
• FHFA Housing Price Index : 0.2% (Prior 0.5% - Up)
• New Home Sales : 507K vs 507K (Prior 481K - Down)
• Consumer Confidence : 101.5 vs 92.6 (Prior 91.0 - Up) 

NEW HOME SALES

Highlights

•  New home sales increased 5.4% in July to 507,000 from a downwardly revised 481,000 (from 482,000) in June. The Briefing.com Consensus expected new home sales to increase to 511,000.

Key Factors

• After starting the year on a tear, new home sales have settled into a range of around 500,000 per month since March. That’s way up from the 437,000 homes sold in 2014, but we are not seeing an acceleration in demand trends that a recovering market would have expected by now.
• Gains were reported in the Northeast (23.1%), West (6.7%), and South (5.8%). Sales declined 6.9% in the Midwest.
• Inventory levels inched up 1.9% to 218,000. That represents a 5.2 months’ supply at the current sales rate, down from a 5.3 months’ supply in June. Inventories are typically maintained at a 6 months’ supply during normal selling periods.
• The median existing home price increased 2.0% y/y to $285,900.

Big Picture

• While sales are still trending above 2013 and 2014 levels, we haven't seen the clear move higher that would indicate a normalizing market.

CONSUMER CONFIDENCE

Highlights

• The Conference Board’s Consumer Confidence Index increased to 101.5 in August from an upwardly revised 91.0 (from 90.9) in July. The Briefing.com Consensus expected the Consumer Confidence Index to increase to 93.1.

Key Factors

• The jump in confidence in August wiped away all of the discomfort from July and returned levels above where they were in June (99.8). In fact, this was the strongest confidence reading since January 2015.
• The gain in confidence was likely the result of improvements in labor market conditions – as shown by historically low initial claims filings – and lower gasoline prices. Uneven stock trends, which likely dampened the preliminary August reading from the University of Michigan Consumer Sentiment Index, did not seem to make much of an impact on these sentiment levels.
• The Present Situation Index increased to 115.1 in August from 104.0 in July. The Expectations Index rose to 92.5 from 82.3.
• The improvements in confidence are unlikely to have much of an impact on consumption trends. Consumption relies on income growth, not confidence. As long as the labor market continues to improve and income rises, consumption trends are likely to follow.

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:

Lower Volumes than the day before – 1270.2M vs 1661.7M 


Decliners outpaced Advancers (adv/dec): 1389 / 1740

New Lows outpaced New Highs (highs/lows): 2 / 239

NASDAQ:

Lower Volumes than the day before – 2596.9M vs 3473.9M

Decliners outpaced Advancers (adv/dec): 1385 / 1495

New Lows outpaced New Highs (highs/lows): 6 / 147

VOLATILITY S&P500 (VIX)
36.02 -4.72 (-11.59%)

The internals seem to suggest some slacking in the bearishness. Despite New Lows dipped significantly, there is no action from New Highs. This is reflecting the bears are still in control. VIX remains above its support at around 31.00 and continue to show some rise. The huge rise in volatility is certainly concerning and I suppose there are still a lot of fear in the market. So any optimism is looking unlikely.

Technical Updates

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)

15,666.44 -204.91 (-1.29%)

Volume: 213,216,133 (above average of 101,998,602)
Range: 15,651.24 - 16,312.94

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)

4,506.49 -19.76 (-0.44%)
Volume: 657,534,972 (above average of 455,181,006)

Range: 4,506.10 - 4,689.54

S&P 500 INDEX (SPX: CBOE)

1,867.61 -25.60 (-1.35%)

Volume: 1,100M (above average of 566,358,438)

Range: 1,867.08 - 1,948.04

The bears are showing they are not a pushover here. DOW could not break above 16,300 and eventually closed slightly under the support at 15,680. NASDAQ was rejected by yesterday's high near 4,700 level and could not hold on to its support at 4,610. S&P could not close above its resistance around 1,900 and went down to yesterday's closing price. Monday's low for all 3 indices remain a crucial support level for the market and honestly speaking, we are not too far from it. 

Commodities

Closing Commodities: Oil Recovers Some, Copper Rise As Well

• The dollar index continued to trade in positive territory all day, which helped weigh on commodities
• Following recent losses, commodities, as measured by the Bloomberg Commodity Index, are at a 16-year low
• Oil prices remain a big story
• Oil rallied this morning, but have since given back some. Oct crude finished today’s pit session +2.8% at $39.32/barrel. In electronic trade, crude is at $39.05/barrel
• In other energy, Sept nat gas rose +1.5% to $2.69/MMBtu today.
• Precious metals lost out today, while copper futures rallied
• Dec gold lost -1.3% today to end at $1138.90/oz, while Sept silver fell -0.5% to $14.65/oz
• Sept copper gained +2.2% to $2.31/lb

Energy

• October crude oil futures rose $1.07 (+2.8%) to $39.32/barrel
• September natural gas closed $0.04 higher (+1.5%) at $2.69/MMBtu
• RBOB Gasoline closed $0.03 lower at $1.44/gallon
• Heating oil futures closed flat at $1.41/gallon

Agriculture

• December corn closed $0.04 lower at $3.77/bushel
• December wheat closed $0.13 lower at $4.96/bushel
• November soybeans closed $0.02 higher to $8.77/bushel
• Sugar #11 closed $0.21 cents higher at 10.60 cents/lb

Metals

• December gold ended today’s session $14.50 lower (-1.3%) at $1138.90/oz
• September silver closed today’s session $0.08 lower (-0.5%) at $14.65/oz
• September copper closed $0.05 higher (+2.2%) at $2.31/lb

Currencies

Dollar Climbs as Monday's Trade Reverses

• The U.S. Dollar Index rallied 1.30% today to 94.55 as the panic selling of dollars from Monday abated
  • New home sales rose 5.4% in July to 507,000 from a downwardly-revised 481,000 in June. The Briefing.com consensus expected new home sales to increase to 511,000
  • The Conference Board’s Consumer Confidence Index increased to 101.5 in August from an upwardly-revised 91.0 in July. The Briefing.com consensus expected the Consumer Confidence Index to rise to 93.1
  • The Case-Shiller 20-City Index of home prices jumped 5.0% y/y in June versus the Briefing.com consensus of 5.1%. The index rose 5.0% y/y in May
• EUR/USD: -1.40% to $1.1428
  • Germany's GDP grew 0.4% q/q in the second quarter, in line with estimates and the performance from Q1
• GBP/USD: -0.46% to $1.5690
• USD/JPY: +0.82% to 119.67
• USD/CHF: +1.35% to 0.9945
  • Swiss employment rose to 4.24 mln in the second quarter from 4.225 mln in Q1
• USD/CAD: +0.31% to 1.339
• AUD/USD: +0.01% to 0.7166
  • The Conference Board's Leading Index fell 0.2% m/m in June versus a 0.2% gain in May
• NZD/USD: +0.88% to 0.6498
  • Inflation expectations were stable for the third quarter at 1.9%

Bonds

Treasuries Fall Sharply

• U.S. Treasuries declined today, with buyers failing to find inspiration even from a late bout of equity selling. The economic data was mostly in line with estimates, although the People's Bank of China did surprise with a large dose of monetary easing  
• Yield Check:
  • 2-yr: +6 bps to 0.63%
  • 5-yr: +11 bps to 1.48%
  • 10-yr: +12 bps to 2.13%
  • 30-yr: +12 bps to 2.85%

• News:
  • The People's Bank of China cut its benchmark one-year lending rate by 25 basis points to 4.6%, effective immediately
    • The central bank will also cut the reserve requirement ratio (RRR) by 50 basis points to 18.00% and the one-year deposit rate by 25 basis points to 1.75%
  • The Case-Shiller 20-City Index of home prices climbed 5.0% y/y in June, less than the Briefing.com consensus of 5.1% and in line with the prior reading
  • The June FHFA Housing Price Index rose 0.2% m/m, worse than May's jump of 0.4%
  • Consumer confidence jumped to 101.5 in August versus the Briefing.com consensus of 93.1 and an upwardly revised 91.0 in July
    • The rise in confidence was likely the result of improvements in labor market conditions -- as shown by historically low initial claims filings -- and lower gasoline prices
  • New Home Sales in July rose to 507K from 482K in June. The Briefing.com consensus was 507K
    • Gains were reported in the Northeast (23.1%), West (6.7%), and South (5.8%). Sales declined 6.9% in the Midwest
  • $26 bln 2-year note auction: 
    • High yield 0.663%
    • Bid-to-cover 3.16
    • Indirect bid 47.1%
    • Direct bid 10.3%

• Commodities:
  • WTI crude: +2.54% to $39.21/bbl.
  • Gold: -1.30% to $1,138.60/troy oz.
  • Copper: +2.24% to $2.3095/lb.

• Currencies:
  • EUR/USD: -1.41% to $1.1427
  • USD/JPY: +0.71% to 119.54

• Data Out Wednesday:
  • Mortgage Index for the week ended 8/22 (07:00 ET)
  • July Durable Goods Orders and Durable Goods ex-transportation (08:30 ET)
  • Crude Inventories for the week ended 8/22 (10:30 ET)
• Treasury Auction:
  • $35 bln 5-year note auction (13:00 ET)

Treasury Yields:

• 2 Year Note 0.67% +0.08
• 5 Year Note 1.48% +0.09
• 10 Year Note 2.12% +0.11
• 30 Year Bond 2.84% +0.11

2/30 Spread: 217 bps ( +3 ) …  2/10 Spread: 145 bps ( +3 )

Preview for Wednesday 26 August, 2015

Economic Data

Wednesday (26 Aug) : 

• MBA Mortgage Index : (Prior 3.6%)
• Durable Orders : -0.8% (Prior 3.4%)
• Durable Goods - ex transportation : 0.5% (Prior 0.8%)
• Crude Inventories : (Prior 2.620M)

Earnings Highlights

Wednesday (26 Aug) :
BMO - ANF WMS BF.B CHS DANG EVLV EXPR OLLI RY
AMC - VNET AGTC ARCW AVGO GES NQ OOMA PSEC PVH STB TLYS WSM WDAY

Summary
As the bears are still very much in control of the market, any recovery is going to be difficult. Most likely we would see the same thing happening like Tuesday. With that being said, there is a possibility that we might see a bounce back in the market. Albeit a short-lived one.

We are seeing FOMC member William Dudley speaking tomorrow and that could also influence the action in the market to some extent.

After Hours Report (Briefing)
Futures are higher after hours: S&P 500 futures are +9.78 from fair value of 1,864.37 and Nasdaq100 futures are +12.34 from fair value of 4,014.06.

Tomorrow morning before the open three economic reports are scheduled to be released: 1) MBA Mortgage Index, 2) Durable Orders (Consensus -0.6%), and 3) Durable Goods -ex transportation (Consensus 0.4%)

Tomorrow before the open the following companies are scheduled to report earnings: RY, BF.B, ANF, CHS, EXPR, EVLV, FRO

Direction for Wednesday 26 Aug, 2015: Down

2015 Daily Directional Accuracy: 84/134  (62.69%) 

2015 Weekly Directional Accuracy: 19/31 (61.29%)