Dow -272.38 at 16102.38, Nasdaq -49.58 at 4683.92, S&P -29.91 at 1921.22
Market had a sharp sell down at the opening as we saw a mixed response in the economic data released on Friday. NFP was disappointing but somehow unemployment rate drops and average hourly earnings increases. Put it into the Fed's context, I suppose that could still refer to an improvement in the US employment.
Meanwhile Europe markets saw a sea of red and Asia was similarly weak.
Market Summary
Industry Watch
Strong:
Weak: Consumer Staples, Financials, Industrials, Materials, Telecom Services
Other Market Moving Factor:
- August Nonfarm Payrolls below estimates (173,000; Briefing.com consensus 217,000), but hourly earnings (+0.3%; consensus 0.2%) and unemployment rate (5.1%; consensus 5.2%) come in better than expected: market believes September rate hike remains on the table
[BRIEFING.COM] The stock market finished the first week of September on a defensive note after a daylong retreat pressured the S&P 500 (-1.5%) back to Wednesday's opening levels. The benchmark index lost 3.4% for the week while the Nasdaq Composite (-1.1%) outperformed, ending the week lower by 3.0%.
Equity indices slumped out of the gate, responding to the overnight weakness in the futures market. To that point, index futures began marching lower during the Asian session, setting pre-market lows after this morning's release of the Nonfarm Payrolls report for August. At first glance, the report appeared mediocre as the headline number came in below expectations (173,000; Briefing.com consensus 217,000); however, better than expected hourly earnings growth (+0.3%; consensus +0.2%) and a drop in the Unemployment Rate (to 5.1% from 5.3%) meant that the report is unlikely to deter the Federal Reserve from raising the fed funds rate as early as this month.
Treasuries fell from their overnight highs immediately after the report, but the 10-yr note found support on its flat line. The benchmark instrument traded little changed as the equity market opened, but returned to its overnight high as equities retreated throughout the day. Thanks to the intraday strength in Treasuries, the 10-yr yield fell four basis points to 2.12%.
Interestingly, the Dollar Index (96.27, -0.13) only saw a brief spike back to its flat line after the jobs report before setting a fresh session low. The greenback surrendered about 0.2% to the euro (1.1145) and gave up 0.9% against the yen (119.05).
In some ways, today's retreat was not that surprising since the U.S. market will be closed for Labor Day on Monday while potentially-volatile trading will resume in China after a two-day holiday. As a result, today's action at the NYSE floor generated a trading volume of 828 million, which was a bit below totals observed earlier this week.
Today's daylong retreat induced some demand for volatility protection, evidenced by the CBOE Volatility Index (VIX 27.87, +2.26), which returned near its closing level from August.
All ten sectors finished the day in negative territory with financials (-1.9%) and materials (-2.0%) ending at the bottom of the leaderboard. Elsewhere, the health care sector (-1.3%) finished a bit ahead of the broader market thanks to relative strength in biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 337.79, -0.84) shed 0.3%, which helped the Nasdaq settle ahead of the S&P 500. Meanwhile, large cap Nasdaq components traded in-line with the broader market.
Elsewhere, the energy sector surrendered 1.7% on Friday, widening its weekly decline to 3.1%. On a related note, crude oil slid 0.7% to $45.97/bbl, ending the week higher by 1.7%.
Taking another look at the August Nonfarm Payrolls report:
- Nonfarm payrolls increased by 173,000 (Briefing.com consensus 217,000)
- July nonfarm payrolls revised to 245,000 from 215,000
- June nonfarm payrolls revised to 245,000 from 231,000
- Private sector payrolls increased by 140,000 (Briefing.com consensus 210,000)
- July private sector payrolls revised to 224,000 from 210,000
- June private sector payrolls revised to 218,000 from 227,000
- Unemployment rate was 5.1% (Briefing.com consensus 5.2%) versus 5.3% in July
- The U6 unemployment rate, which accounts for the total unemployed plus persons marginally attached to the labor force and the underemployed, was 10.3% versus 10.4% in July
- Persons unemployed for 27 weeks or more accounted for 27.7% of the unemployed versus 26.9% in July
- Average hourly earnings increased 0.3% (Briefing.com consensus 0.2%) after a 0.2% increase in July
- Aggregate earnings were up 0.7% versus a downwardly revised 0.4% increase in July.
- Over the last 12 months, average hourly earnings have risen 2.2% versus 2.1% in July
- The average workweek was 34.6 hours (Briefing.com consensus 34.6) versus a downwardly revised 34.5 hours in July
Bond and equity markets will be closed on Monday in observance on Labor Day.
- Nasdaq Composite -1.1% YTD
- S&P 500 -6.7% YTD
- Russell 2000 -5.6% YTD
- Dow Jones Industrial Average -9.7% YTD
Week in Review: Volatility Persists
The trading week began on a defensive note with all eyes on crude oil after the energy component soared more than 10.0% on Friday. Specifically, crude prices were down 3.6% in early trading to $43.60 per barrel. They would settle the day up 8.8% at $49.20 per barrel, representing a huge 13.0% swing from low to settlement price. The reversal in oil prices triggered a reversal in the S&P 500 energy sector, which was down 2.6% shortly after the start of trading. It would end the day up 1.1%, which left it as the best-performing sector in the S&P 500, as well as the only sector to finish the day in positive territory. For its part, the S&P 500 surrendered 0.8%.
On Tuesday, the market began September on a defensive note with a broad-based retreat that sent the S&P 500 lower by 3.0%. The benchmark index widened its Q3 loss to 7.0% while the Dow (-2.8%) and Nasdaq Composite (-2.9%) spent the day just ahead of the S&P 500. Equity indices slumped at the start, responding to the overnight weakness in the futures market. To that point, index futures began retreating shortly after Monday's closing bell and extended their losses during the Asian session with disappointing manufacturing data from China contributing to the cautious posture. Specifically, the official Manufacturing PMI slipped to 49.7 from 50.0 while the Caixin Manufacturing PMI ticked up to 47.3 from 47.2, but both readings came in below 50.0, which signifies contraction. The Shanghai Composite began the month with a 1.2% slide while the disappointing data from China reminded global investors about the persistent growth concerns.
The stock market snapped its two-day skid on Wednesday with the Nasdaq Composite leading the advance. The tech-heavy index climbed 2.5% while the Dow (+1.8%) and S&P 500 (+1.8%) registered slimmer gains. Although the market ended the midweek session on a higher note, the advance did not feature the characteristics of a sharp bounce. Instead, stocks traded in sideways fashion before spiking to new highs during the final 30 minutes of the day. Nine sectors posted gains while the utilities space (UNCH) underperformed amid higher Treasury yields. The 10-yr note slumped in the morning, briefly retraced its loss during the session, and fell back to lows into the close. As a result, the 10-yr yield increased three basis points to 2.19%.
Thursday ended on a cautious note ahead of Friday's release of the Nonfarm Payrolls report for August (Briefing.com consensus 217,000). The S&P 500 added 0.1% after being up as much as 1.3% while the Nasdaq Composite (-0.4%) underperformed throughout the session. Equities climbed steadily through the first hour of action as global investors rushed into risk assets after European Central Bank President Mario Draghi indicated the ECB's quantitative easing program may be extended. To that point, the ECB made no changes to its policy course, but the central bank will now be allowed to buy up to 33.0% of any particular issue, up from the previous limit of 25.0%. On a related note, the ECB lowered its 2015 GDP forecast for the eurozone to 1.4% from 1.5%. The news from Europe pressured the euro, sending the single currency lower by 0.8% against the dollar to 1.1125. The euro remained in the neighborhood of its low throughout the day while stocks reached their highs during the first 90 minutes of the day before pulling back.
Global Market
ASIA
Asian Markets Close: Japan’s Nikkei -2.2%; Hong Kong’s Hang Seng -0.5%; China’s Shanghai Composite closed for holiday
There was a lot of weakness across markets in the Asia-Pacific region on Friday, led by Japan’s Nikkei (-2.2%). Most reports attributed the selling pressure to nervousness ahead of the U.S. employment report, but it might have also been some nervousness ahead of China opening for trading again on Monday when the U.S. markets will be closed. China was closed Friday in celebration of Victory Day.
Economic Data
- Japan
- July Average Cash Earnings +0.6% year-over-year (expected +2.3%; prior -2.5%)
- July Overtime Pay +0.6% year-over-year (prior -0.4%)
- Hong Kong
- August Manufacturing PMI 44.4 (prior 48.2)
Equity Markets
- Japan’s Nikkei declined 2.2%, with exporters weighing on the back of yen strength. Broad-based losses were paced by the communications (-3.2%), consumer staples (-2.5%), and materials (-2.1%) sectors. Minebea (-5.8%), Shiseido (-5.7%), and Pioneer (-5.7%) were the top laggards while Shizuoka Bank (+3.2%) and Obayashi (+1.8%) led a small group of winners. Out of the 225 index members, 15 ended higher, 204 finished lower, and 6 were unchanged. For the week, the Nikkei declined 7.0%.
- Hong Kong’s Hang Seng declined 0.5%, ending near its lows for the session after a weaker than expected manufacturing PMI report, which reflected contraction for the sixth consecutive month. PetroChina (-3.7%), China Petroleum & Chemical (-3.4%), and Ping An Insurance Group (-3.3%) led the selling. Out of the 50 index members, 18 ended higher, 28 finished lower, and 4 were unchanged. For the week, the Hang Seng declined 3.6%.
- China’s Shanghai Composite: closed for holiday (Victory Day)
- India’s Sensex declined 2.2%, closing near its lows for the session. The bulk of the losses occurred right after the open. The action was paced by weakness in the materials (-5.0%), utilities (-4.3%), health care (-2.6%), and financials (-2.6%) sectors. Vedanta (-5.1%), Tata Steel (-4.7%), and GAIL India (-4.7%) were the biggest laggards. Out of the 30 index members, only two — Bharti Airtel (+0.9%) and Coal India (+0.6%) — ended higher. For the week, the Sensex declined 4.5%.
- Australia’s S&P/ASX 200 increased 0.3% in a choppy day of trading. The modest gains were helped by leadership from the utilities and metals and mining sectors. Out of the 200 index members, 111 ended higher, 72 finished lower, and 17 were unchanged. For the week, the S&P/ASX 200 declined 4.2%.
- Regional advancers: Vietnam +0.5%
- Regional decliners: South Korea -1.5%, Taiwan -1.2%, Malaysia -0.9%, Indonesia -0.4%, Singapore -1.5%, Thailand -1.2%, Philippines -0.7%
FX
- USD/CNY unch at 6.3559
- USD/INR +0.4% at 66.4875
- USD/JPY -0.8% at 119.13
EUROPE
Major European indices trade lower across the board. On a separate note, Bundesbank President Jens Weidmann said he does not see a “lasting danger” for the world economy due to the uncertainty surrounding China.
- Eurozone Retail PMI 51.4 (prior 54.2) Germany’s July Factory Orders -1.4% month-over-month (expected -0.6%; prior 1.8%)
- France’s August Consumer Confidence held at 93 (expected 94)
Closing Prices
- FTSE100 -2.44%
- DAX -2.71%
- CAC40 -2.81%
- IBEX35 -2.19%
- Stoxx600 -2.55%
Macroeconomic Data
Economic Data
from Briefing.com
- Nonfarm Payrolls : 173K vs 217K (Prior 245K - Up)
- Nonfarm Private Payrolls : 140K vs 212K (Prior 224K - Up)
- Unemployment Rate : 5.1% vs 5.2% (Prior 5.3%)
- Hourly Earnings : 0.3% vs 0.2% (Prior 0.2%)
- Average Workweek : 34.6 vs 34.6 (Prior 34.5 - Down)
NONFARM PAYROLLS
Highlights
- Nonfarm payrolls added 173,000 new jobs in August after adding an upwardly revised 245,000 (from 215,000) in July. The Briefing.com Consensus expected nonfarm payrolls to increase by 217,000.
- Private payrolls increased by 140,000 in August, down from an upwardly revised 224,000 (from 210,000) in July. The consensus expected private payrolls to increase by 210,000.
- The unemployment rate fell to 5.1% in August from 5.3% in July. The consensus expected the unemployment rate to drop to 5.2%.
Key Factors
- Headline payroll numbers failed to meet expectations. In fact, that was the slowest month for job growth since only 119,000 jobs were added in March.
- The disappointment in the headlines, however, are easily tempered when looking at the strong upward revisions to June (245,000 from 231,000) and July.
- More importantly, average hourly earnings accelerated, up 0.3% in August from a 0.2% gain in July. The average workweek also expanded to 34.6 hours from 34.5 hours.
- In all, aggregate earnings increased a solid 0.7% in August, up from a 0.4% gain in July.
- That is the number the Fed is going to focus on when it decides on whether or not to raise rates at the September meeting. A 0.7% gain implies a strong acceleration in consumption growth – possibly already indicated by the huge gain in August auto sales – and also begets higher inflation pressures.
- Labor force participation was flat between August and July, which means the decrease in the unemployment rate was the result of job growth and not from discouraged workers.
- At its current level, the unemployment rate is well below the CBO’s estimate for full employment (roughly 5.5%). The output gap – in the labor sector – has gone away and inflation growth is expected to follow.
Big Picture
- Another solid, yet unspectacular, jobs report puts the onus on the Fed to raise rates at the September meeting.
Market Internals
NYSE:
Lower Volumes than the day before – 849.2M vs 888.4M
Decliners outpaced Advancers (adv/dec): 724 / 2319
New Lows outpaced New Highs (highs/lows): 7 / 131
NASDAQ:
Higher Volumes than the day before – 1183.8M vs 1112.3M
Decliners outpaced Advancers (adv/dec): 997 / 1843
New Lows outpaced New Highs (highs/lows): 7 / 63
VOLATILITY S&P500 (VIX)
27.80 +2.19 (+8.55%)
Technical Updates
Volume: 127,266,385 (above average of 109,273,292)
Range: 16,026.61 - 16,371.76
Range: 16,026.61 - 16,371.76
4,683.92 -49.58 (-1.05%)
Volume: 378,945,141 (below average of 464,850,731)
Volume: 378,945,141 (below average of 464,850,731)
Range: 4,657.82 - 4,712.67
1,921.22 -29.21 (-1.53%)
Volume: 665,450,000 (above average of 606,624,108)
Range: 1,911.21 - 1,947.76
DOW did formed a reversal pattern as it broke below its resistance at 16,360. S&P also continue to go lower as it formed a similar reversal patten as DOW. NASDAQ gap down at opening and eventually closed below its 61.8% Fib level. The indices are forming a lower highs but it is unsure if they are forming lower lows. It seems to me that there is a wedge pattern forming and that reflects the uncertainty in the market.
Commodities
- Some commodities remained near today’s lows following morning weakness, such as nat gas, oil and copper
- WTI crude oil volatile again today, ultimately closing pit trading -0.7% at $45.97/barrel
- Oct nat gas lost -2.6% to end at $2.65/MMBtu as oversupply issues in the industry remain
- Dec gold lost -1% today at $1121.30/oz, while Dec silver -0.6% at $14.57/oz
- Dec copper closed -2.5% at $2.32/lb
Energy
- October crude oil futures fell $0.33 (-0.7%) to $45.97/barrel
- October natural gas closed $0.07 lower (-2.6%) at $2.65/MMBtu
- RBOB Gasoline closed $0.02 lower at $1.42/gallon
- Heating oil futures closed $0.02 lower at $1.60/gallon
Agriculture
- December corn closed $0.02 higher at $3.63/bushel
- December wheat closed $0.02 higher at $4.67/bushel
- November soybeans closed $0.03 lower to $8.67/bushel
- Sugar #11 closed $0.07 cents lower at 11.27 cents/lb
Metals
- December gold ended today’s session $11.80 lower (-1%) at $1121.30/oz
- December silver closed today’s session $0.09 lower (-0.6%) at $14.57/oz
- December copper closed $0.06 lower (-2.5%) at $2.32/lb
Currencies
Safe Havens Rally, Antipodeans Lose
- The U.S. Dollar Index fell 0.23% to 96.19 after going positive following the August Employment Situation Report. Treasury yields turned lower in late morning and that took the air out of the dollar rally
- Nonfarm Payrolls grew by 173K versus the Briefing.com consensus of 217K. The July figure was revised up from 245K to 215K
- Hourly Earnings rose 0.3% m/m in August versus the Briefing.com consensus of 0.2% growth. The reading in July was +0.2%
- EUR/USD: +0.26% to $1.1153
- German Factory Orders fell a worse-than-expected 1.4% m/m in July after a 1.8% jump in June
- The eurozone's Retail Purchasing Managers' Index dropped to 51.4 from 54.2 in August
- The figures for Germany, France, and Italy all declined and only Germany's retail sector remains in expansion
- French Consumer Confidence disappointed expectations, holding steady at 93 in August
- GBP/USD: -0.44% to $1.5187
- USD/JPY: -1.00% to 118.92
- In Japan, cash earnings saw nominal growth of 0.6% y/y in July versus expectations for a 2% jump. Wages fell 3% in June
- USD/CHF: -0.10% to 97.31
- Swiss inflation fell to its lowest level since 1959, with the Consumer Price Index falling 1.4% y/y in August (-0.2% m/m)
- USD/CAD: +0.35% to 1.3242
- The Canadian economy added 12K jobs in August, much better than both expectations and the prior month's gain of 6,600
- The Ivey Purchasing Managers' Index rose to 58.0 in August versus 52.9 in July. Analysts had expected a decline
- AUD/USD: -1.37% to $0.6922
- NZD/USD: -1.42% to 0.6298
- USD/RUB: +1.82% to 68.06
- Russia's Consumer Price Index unexpectedly jumped to 15.8% y/y growth in August from a 15.6% annual rate in July
Bonds
Treasuries Rally, Yield Curve Flattens
- The August Employment Situation Report was released this morning and the interest rates market initially reacted by increasing the probability of a September rate hike. This interpretation appeared logical as Hourly Earnings beat expectations (indicating mounting inflationary pressure) and the surprising decline in the unemployment rate indicated that few long-term unemployed workers are coming back into the labor market. As the day progressed, however, equities extended their losses, the dollar retreated, and Treasuries rallied to moderate gains for the session. The yield curve was flatter immediately following the announcement this morning, and the curve held that flatter posture into the close. The Treasury market appears to be betting on a Yellen put option
- Yield Check:
- 2-yr: unch at 0.70%
- 5-yr: -2 bps to 1.46%
- 10-yr: -4 bps to 2.12%
- 30-yr: -5 bps to 2.89%
- News:
- The August Employment Situation Report showed 173K nonfarm jobs added to the U.S. economy in August, well short of the Briefing.com consensus of 217K
- The July reading was revised up to 245K from 215K
- Nonfarm Private Payrolls increased by 140K versus the Briefing.com consensus of 210K and the prior reading of 210K
- The Unemployment Rate declined to 5.1%, better than the Briefing.com consensus of 5.2% and July UE rate of 5.3%
- Hourly Earnings rose 0.3% in August, more than the Briefing.com consensus of 0.2% which was also the reading in July
- The Average Workweek was 34.6 hours, in line with the consensus and July's number
- Richmond Fed President Lacker (FOMC voter and hawk) spoke publicly, saying that the recent market turmoil would have limited effects on the U.S. and that wages are rising along with productivity gains, suggesting a labor market nearing capacity. Lacker said that one jobs report would not alter the picture "materially"
- The August Employment Situation Report showed 173K nonfarm jobs added to the U.S. economy in August, well short of the Briefing.com consensus of 217K
- Commodities:
- WTI crude: -1.71% to $45.95/bbl.
- Gold: -0.33% to $1,120.9/troy oz.
- Copper: -2.79% to $2.318/lb.
- Currencies:
- EUR/USD: +0.23% to $1.1149
- USD/JPY: -0.99% to 118.93
- Week Ahead:
- Monday: July Consumer Credit (15:00 ET)
- Tuesday: $24 bln 3-year auction (results at 13:00 ET)
- Wednesday: MBA Mortgage Index for the week ending 9/5 (07:00 ET); July JOLTS – Job Openings (10:00 ET); $21 bln 10-year auction (reopening) (results at 13:00 ET)
- Thursday: Initial Jobless Claims for the week ending 9/5 and Continuing Jobless Claims for the week ending 8/29 (08:30 ET); August Export Prices ex-ag. and Import Prices ex-oil. (08:30 ET); July Wholesale Inventories (10:00 ET); Natural Gas Inventories for the week ending 9/5 (10:30 ET); Crude Inventories for the week ending 9/5 (11:00 ET); $13 bln 30-year auction (reopening) (results at 13:00 ET)
- Friday: August PPI and Core PPI (08:30 ET); September Sentiment (10:00 ET); August Treasury Budget (14:00 ET)
Treasury Yields:
- 2 Year Note 0.71% UNCH
- 5 Year Note 1.47% -0.02
- 10 Year Note 2.13% -0.05
- 30 Year Bond 2.89% -0.06
2/30 Spread: 218 bps ( -6 ) … 2/10 Spread: 142 bps ( -5 )
Preview for the week Monday 7 Sept to Friday 11 Sept, 2015
Economic Data
Monday (7 Sept) : US Market Closed - Labour Day
- No Economic Data
- Consumer Credit : $18.0B (Prior $20.7B)
- MBA Mortgage Index : (Prior 11.3%)
- JOLTS - Job Openings : (Prior 5.249M)
- Initial Claims : 275K (Prior 282K)
- Continuing Claims : 2257K (Prior 2257K)
- Export Prices ex-agri : (Prior -0.4%)
- Import Prices ex-oil : (Prior -0.3%)
- Wholesale Inventories : 0.3% (Prior 0.9%)
- Natural Gas Inventories : (Prior 94 bcf)
- Crude Inventories : (Prior 4.670M)
- PPI : -0.1% (Prior 0.2%)
- Core PPI : 0.1% (Prior 0.3%)
- Michigan Sentiment : 91.5 (Prior 91.9)
- Treasury Budget : (Prior -$128.7B)
Earnings Highlights (to be update BMO)
Monday (7 Sept) : US Market Closed - Labour Day
BMO - None
AMC - None
BMO - None
AMC - None
Tuesday (8 Sept) :
BMO - NSSC YGE
AMC - AVNW CASY HELI PLAY FCEL HQY KFY LAYN MRVL MW PSUN PBY PPHM SPA TIVO TPLM
Wednesday (9 Sept) :
BMO - WMS BKS CONN FRAN HDS HOV SNOW JW.A LITB MBUU NOV NX TITN
AMC - APIC ARCW BOX DTEA EPM IRET KKD LMNR OLLI PANW PAHC ZQK SIGM STB
Thursday (10 Sept) :
BMO - CBK LULU MANU NTWK SKIS
AMC - ACET DDC EGAN FNSR LAKE RH ZUMZ
Friday (11 Sept) :
BMO - BRC KR MFRM
AMC - None
Summary
We had another bearish week (2nd worst week in 2015). However it looks like market is getting reluctant to break lower. I am seeing more uncertainty in the market and I reckon its going to be another heavy bulls vs bears fight. Market has dropped around 20% for the correction. Maybe we might see more short-covering in the short-term?
Please note that US market is closed on Monday in celebration of Labor Day.
We had another bearish week (2nd worst week in 2015). However it looks like market is getting reluctant to break lower. I am seeing more uncertainty in the market and I reckon its going to be another heavy bulls vs bears fight. Market has dropped around 20% for the correction. Maybe we might see more short-covering in the short-term?
Please note that US market is closed on Monday in celebration of Labor Day.
Direction for Tuesday 8 Sept, 2015: Up
Direction for the week Monday 7 Sept to Friday 11 Sept, 2015: Up
Direction for the week Monday 7 Sept to Friday 11 Sept, 2015: Up
2015 Daily Directional Accuracy: 90/141 (63.83%)
2015 Weekly Directional Accuracy: 20/33 (60.61%)
No comments:
Post a Comment