Thursday, 3 Sept 2015 - AMC

Dow +23.38 at 16374.76, Nasdaq -16.48 at 4733.50, S&P +2.27 at 1951.13

There was a follow through in the early session but eventually taken over by the short-sellers. Market closed in a flat-ish manner which was more or less expected ahead of NFP number on Friday and this undermines the strength of the rally. 

Both Asia and Europe markets were mostly up as Shanghai Composite is closed for the week to celebrate WWII holidays. Europe markets had a strong session as they were buoyed by the possibility of extended QE from ECB. 
  

Market Summary

Industry Watch

Strong: Consumer Discretionary, Consumer Staples, Financials, Industrials, Materials, Telecom Services

Weak: Health Care, Technology

Other Market Moving Factor:

• European Central Bank makes no changes to monetary policy, but ECB President Draghi signals quantitative easing is likely to be extended: euro slides
• Biotechnology underperforms

[BRIEFING.COM] The stock market ended Thursday on a cautious note ahead of Friday's 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. 

The early advance was paced by the health care sector (-0.6%), but the influential group was also the first to retreat from its high while others followed suit. Biotechnology hinted at the impending weakness from the get-go as iShares Nasdaq Biotechnology ETF (IBB 338.63, -7.60) lagged throughout the session, ending lower by 2.2%. 

Biotechnology's daylong underperformance also took its toll on the Nasdaq as the tech-heavy index spent the entire session behind the S&P 500. Meanwhile, large cap components like Apple (AAPL 110.37, -1.97), Google (GOOGL 637.05, -7.86), and Facebook (FB 88.10, -1.79) also struggled, which kept the technology sector (-0.1%) among today's laggards. That being said, high-beta chipmakers fared well, evidenced by a 0.8% gain in the PHLX Semiconductor Index. Only four index members posted losses while SunEdison (SUNE 11.94, +1.15) surged 10.7% after the company's Chief Executive Officer appeared on Bloomberg, saying the company expects to see positive cash flows later this year or early next year. 

Elsewhere, the energy sector (+0.3%) was forced from its high by the late-afternoon weakness while crude oil jumped 1.0% to $46.30/bbl. Following today's advance, crude is set to enter the Friday session up 3.5% for the week versus a 1.4% week-to-date decline for the energy sector. 

Treasuries entered the day with gains and settled near their highs after overcoming a brief intraday slip. The 10-yr note added four ticks, lowering its yield by two basis points to 2.17%. 

Investor participation remained above average with more than 860 million shares changing hands at the NYSE floor. 

Economic data included Initial Claims, Trade Balance, ISM Services, and Challenger Job Cuts: 

• The initial claims level increased to 282,000 for the week ending August 29 from a downwardly revised 270,000 (from 271,000) while the Briefing.com consensus expected an increase to 273,000 
  • This was the first time the initial claims level exceeded 280,000 since the week ending July 11, but the overall trend supports a labor market that is at, or very near, full employment 
• The U.S. trade deficit narrowed to $41.90 billion in July from an upwardly revised $45.20 billion ($43.80 billion) while the Briefing.com consensus expected a decline to $42.70 billion 
  • The goods deficit decreased to $61.40 billion in July from $64.80 billion in June while the services surplus was virtually unchanged at $19.60 billion 
• The ISM Non-Manufacturing Index declined to 59.0 in August from 60.3 in July while the Briefing.com consensus expected a fall to 58.4 
• The Challenger Job Cuts report for August showed a 2.9% increase to follow last month's 125.4% spike 

Tomorrow, the August Nonfarm Payrolls report will be released at 8:30 ET (Briefing.com consensus 217,000).

Global Market

ASIA
Asian Markets Close: Japan’s Nikkei +0.5%; Hong Kong’s Hang Seng (closed for holiday); China’s Shanghai Composite (closed for holiday)

Markets in the Asia-Pacific region finished Thursday mostly higher, supported by Wall Street’s positive showing on Wednesday and a lack of drama related to trading in China’s stock market, which was closed to commemorate the end of World War II. Australia (-1.4%) was a notable exception as it backtracked in the wake of a disappointing retail sales report.

Economic data

• Japan
• August Nikkei Services PMI 53.7 (prior 51.2)
• India
• August Nikkei Services PMI 51.8 (prior 50.8)
• South Korea
• Revised Q2 GDP +0.3% quarter-over-quarter (expected +0.3%; prior +0.3%); +2.2% year-over-year (expected +2.2%; prior +2.2%)
• Australia
• July Retail Sales -0.1% month-over-month (expected +0.4%; prior +0.6%)
• August AIG Services Index 55.6 (prior 54.1)
• July Trade Balance AUD -2.46 bln (expected AUD -3.10 bln; prior AUD -3.05 bln)
• Exports +2.0% month-over-month (prior +3.0%)
• Imports 0.0% month-over-month (prior +4.0%)

Equity Markets

• Japan’s Nikkei increased 0.5%, but had been up 2.1% shortly after the start of trading. The remainder of the session featured a steady fade from those opening gains. The health care (+1.2%), technology (+1.2%), financials (+0.8%), and industrials (+0.7%) sectors provided underlying support. Leading gainers included Minebea Co (+8.9%), Nippon Soda (+5.1%), and Nippon Electric Glass (+5.0%). The worst-performing issues were Furukawa (-3.2%), Tokuyama (-3.0%), and Yamato Holdings (-2.0%). Out of the 225 index members, 147 ended higher, 71 finished lower, and 7 were unchanged.
• Hong Kong’s Hang Seng: closed for holiday (Anniversary day of victory in war against Japan)
• China’s Shanghai Composite: closed for holiday (Victory Day)
• India’s Sensex increased 1.2%, closing just off its highs for the session. Gains were paced by the materials (+4.2%), financials (+2.8%), and industrials (+2.7%) sectors. Tata Steel (+4.6%), Vedanta (+4.4%), and Housing Development Finance Corp (+4.4%) topped the list of winners while Lupin Ltd. (-0.8%) brought up the rear. Out of the 30 index members, 27 ended higher and 3 finished lower.
• Australia’s S&P/ASX 200 declined 1.4% and closed on its low for the session following a disappointing retail sales report. The index was held back by a weak showing from the consumer discretionary (-3.2%), utilities (-1.8%), and telecom services (-1.7%) sectors. Department store Myer (-20.6%) took it on the chin after announcing plans to raise equity. Out of the 200 index members, 31 ended higher, 162 finished lower, and 7 were unchanged.
• Regional advancers: South Korea +0.02%, Taiwan +0.8%, Malaysia +0.8%, Indonesia +0.7%, Singapore +1.0%, Thailand +0.7%, Philippines +0.4%
• Regional decliners: Vietnam -1.4%

FX

• USD/CNY unch at 6.3559
• USD/INR +0.01% at 66.2012
• USD/JPY +0.02% at 120.35

EUROPE

Major European indices trade higher across the board with Germany’s DAX (+2.3%) in the lead. The European Central Bank made no changes to its policy stance, keeping its interest rate corridor steady, as expected, but during his press conference, ECB President Mario Draghi indicated the central bank has increased its share limit for asset purchases to 33% from 25%, signaling that the quantitative easing program may continue for longer. Furthermore, the ECB has lowered its GDP forecast for 2015 to 1.4% from 1.5%.

• Eurozone August Services PMI 54.4 (expected 54.3; prior 54.3) while July Retail Sales +0.4% month-over-month (expected 0.6%; prior -0.2%); +2.7% year-over-year (consensus 2.0%; last 1.7%)
• Germany’s August Services PMI 54.9 (consensus 53.6; last 53.6)
• UK’s August Services PMI 55.6 (expected 57.6; last 57.4)
• France’s August Services PMI 50.6 (consensus 51.8; prior 51.8) while Q2 Unemployment Rate held at 10.3%
• Italy’s August Services PMI 54.6 (expected 53.0; prior 52.0)
• Spain’s August Services PMI 59.6 (consensus 59.6; last 59.7)

Closing Prices

• FTSE100 +1.82%
• DAX +2.69%
• CAC40 +2.18%
• IBEX35 +1.04%
• Stoxx600 +2.30%

Macroeconomic Data

Economic Data

from Briefing.com

• Challenger Job Cuts : 2.9% (Prior 125.4%)
• Initial Claims : 282K vs 273K (Prior 270K - Down) 
• Continuing Claims : 2257K vs 2261K (Prior 2266K - Down)
• Trade Balance : -$41.9B vs -$43.1B (Prior -$45.2B - Down)
• ISM Services : 59.0 vs 58.4 (Prior 60.3)
• Natural Gas Inventories : 94 bcf (Prior 69 bcf) 

UNEMPLOYMENT CLAIMS

Highlights

• The initial claims level increased to 282,000 for the week ending August 29 from a downwardly revised 270,000 (from 271,000) for the week ending August 22. The Briefing.com Consensus expected the initial claims level to increase to 273,000.
• The continuing claims level decreased to 2.257 mln for the week ending August 22 from a downwardly revised 2.266 mln (from 2.269 mln) for the week ending August 15. The consensus expected the continuing claims level to decrease to 2.261 mln.

Key Factors

• This was the first time the initial claims level exceeded 280,000 since the week ending July 11. Despite the increase, the overall trend in claims supports a labor market that is at, or very near, full employment.

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.

TRADE BALANCE

Highlights

• The U.S. trade deficit narrowed to $41.9 bln in July from an upwardly revised $45.2 bln ($43.8 bln) in June. The Briefing.com Consensus expected the trade deficit to decline to $42.7B.

Key Factors

• The goods deficit decreased to $61.4 bln in July from $64.8 bln in June.The services surplus was virtually unchanged at $19.6 bln.
• Total exports increased by $0.8 bln to $188.5 bln in July. Small gains in industrial supplies exports ($0.3 bln), capital goods ($0.2 bln), and automotive ($0.5 bln) were partially offset by a $0.4 bln decline in consumer goods exports.
• Total imports fell by $2.5 bln to $230.4 bln in July. There were large declines in imports of consumer goods ($2.6) – specifically from pharmaceuticals ($1.4 bln) and cell phones ($1.2 bln) – and foods stuffs ($0.6 bln). Industrial supplies imports increased by $0.4 bln.
• Despite a sharp decline in crude prices, the petroleum-based trade deficit increased to $8.1 bln in July from $7.3 bln in June.

Big Picture

• Despite a weaker dollar, imports fell to their lowest level since the West coast port strike delayed imports in February.

ISM SERVICES

Highlights

• The ISM Non-Manufacturing Index declined to 59.0 in August from 60.3 in July. The Briefing.com Consensus expected the index to fall to 58.4.

Key Factors

• It was only natural for the ISM Non-Manufacturing Index to pullback in August after the index unexpectedly accelerated to 10-year high in July.
• Production growth softened as the related index fell to 63.9 in August from 64.9 in July. Despite the small pullback, there is no question that underlying production trends still remain very strong. The New Orders Index fell to 63.4 in August from 63.8 in July. Backlogs accelerated as the related index increased by 2.5 points to 56.5.
• The Employment Index declined to 56.0 in August from 59.6 in July.

Big Picture

• The market generally doesn't pay much attention to the services index because the services sector is less cyclical than the manufacturing sector. To that end, August marked the 67th consecutive month in which economic activity in the non-manufacturing sector has expanded.

Market Internals

NYSE:

Lower Volumes than the day before – 888.4M vs 1068.3M 


Advancers outpaced Decliners (adv/dec): 1976 / 1075

New Lows outpaced New Highs (highs/lows): 6 / 26

NASDAQ:

Lower Volumes than the day before – 1112.3M vs 1902.2M

Advancers outpaced Decliners (adv/dec): 1507 / 1290

New Lows outpaced New Highs (highs/lows): 24 / 27

VOLATILITY S&P500 (VIX)
25.61 -0.48 (-1.84%)

Volume has dropped significantly for the past few sessions. Internals was not reflecting any strong sign of bullishness nor bearishness. VIX remained above the support at 25.00 and if we see VIX bounce up from here, I reckon it is going to be very hard to stay bullish.

Technical Updates

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)

16,374.76 +23.38 (+0.14%)

Volume: 109,729,970 (above average of 108,686,723)
Range: 16,317.31 - 16,550.07

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)

4,733.50 -16.48 (-0.35%)
Volume: 434,443,372 (below average of 465,579,747)

Range: 4,721.91 - 4,800.19

S&P 500 INDEX (SPX: CBOE)

1,951.13 +2.27 (+0.12%)

Volume: 632,699,000 (above average of 604,558,266)

Range: 1,944.72 - 1,975.01

DOW was rejected by its 61.8% Fib level and barely stay above its support at 16,350. Despite NASDAQ closed the gap from early this week, it was unable to break above 4,800 level. S&P also could not break above its 61.8% Fib level. As the indices were unable to break above their respective resistance levels, market is likely to stay down. Both S&P and DOW formed an inverted crucifix doji which might suggest a lack of direction in the market ahead of Friday NFP. 

Commodities

Closing Commodities: Natural Gas Closes On Strong Note Despite Bearish Storage Data

• The dollar index continued to hold solid gains after surging higher in morning action. Oil prices were volatile once again, trading in a wide range today. In morning action, Oct WTI crude rallied as much as $2.73 to $48.41/barrel, but quickly lost ground, falling back near $46/barrel.
• As we’ve been seeing more recently, extra volatility kicked in as the end of floor trading came near. Oil rallied some heading into the close, ending the day +1% at $46.30/barrel.
• In other energy, Oct nat gas initially pulled back a little following storage data results, but rallied shortly after, rising as high as $2.73/MMBtu. Oct nat gas ended the day +2.65 at $2.72/MMBtu.

Energy

• October crude oil futures rose $0.44 (+1%) to $46.30/barrel
• October natural gas closed $0.07 higher (+2.6%) at $2.72/MMBtu
• RBOB Gasoline closed $0.01 higher at $1.44/gallon
• Heating oil futures closed $0.01 higher at $1.62/gallon

Agriculture

• December corn closed $0.06 lower at $3.61/bushel
• December wheat closed $0.14 lower at $4.65/bushel
• November soybeans closed $0.04 lower to $8.70/bushel
• Sugar #11 closed $0.61 cents higher at 11.34 cents/lb

Metals

• December gold ended today’s session $8.80 lower (-0.8%) at $1133.10/oz
• December silver closed today’s session $0.05 higher at $14.66/oz
• December copper closed $0.05 higher (+2.1%) at $2.38/lb

Currencies

Euro Falls on ECB Press Conference

• The euro sold off sharply today after Mario Draghi, the president of the European Central Bank, emphasized that the ECB is vigilantly monitoring events and stands ready to act if monetary conditions deteriorate further in the eurozone. The ECB's staff forecasts for inflation and economic growth were revised downward. The central bank left its policy rates unchanged, as expected 
• The U.S. Dollar Index rallied 0.53% to 96.34. The move was simply the reciprocal of the euro currency sell-off
• EUR/USD: -0.76% to $1.1131
  • The main refinancing rate was held at 0.05%. The Marginal Lending Facility rate remains at 0.30% and the Deposit Facility rate is still at -0.20%    
• GBP/USD: -0.30% to $1.5260
  • The U.K.'s Services PMI U.K. was 55.6 in August, missing estimates. The reading for July was 57.4
• USD/JPY: -0.51% to 120.00
  • The Markit/Nikkei Japan Services PMI rose to a multi-year high of 53.7 in August versus 51.2 in July
• USD/CHF:  +0.34% to 0.9736
• USD/CAD: -0.51% to 1.3199
  • Canada's trade deficit narrowed to 0.59 bln Canadian dollars in July from 0.81 bln in June
• AUD/USD: -0.44% to $0.7018
  • Australian Retail Sales unexpectedly fell 0.1% m/m in July after growth of 0.6% in June
  • Australia's trade deficit unexpectedly narrowed to 2.46 bln AUD in July from -3.05 bln AUD in June
• NZD/USD: +0.45% to $0.6402

Bonds

Treasuries Gain on Risk Aversion 

• U.S. Treasuries rallied today after U.S. equities halted their 24-hour rally begun on Wednesday afternoon and WTI crude reversed over $2.50 from its high. European sovereigns rallied earlier in the day on ECB President Draghi's remarks at the press conference following the ECB rate decision. Mario Draghi said that the ECB would stand ready to provide more policy accommodation if financial and economic conditions warrant. The ISM Services PMI for the U.S. beat expectations in August
• Yield Check:
  • 2-yr: -2 bps to 0.70%
  • 5-yr: -2 bps to 1.49%
  • 10-yr: -2 bps to 2.17%
  • 30-yr: -1 bp to 2.95%

• News:
  • The ISM Non-Manufacturing Index declined to 59.0 in August from 60.3 in July. The Briefing.com consensus was for 58.4
    • Production growth softened as the related index fell to 63.9 in August from 64.9 in July. Despite the small pullback, there is no question that underlying production trends still remain very strong. The New Orders Index fell to 63.4 in August from 63.8 in July. Backlogs accelerated as the related index increased by 2.5 points to 56.5
  • Initial Jobless Claims rose to 282K for the week ended August 29 from a downwardly-revised 270K (from 271K) for the week ended August 22. The Briefing.com consensus was for 273K
    • Continuing Jobless Claims fell to 2.257 mln for the week ended August 22 from a downwardly revised 2.266 mln (from 2.269 mln) for the week ended August 15. The consensus expected 2.261 mln
  • The U.S. trade deficit narrowed to $41.9 bln in July from an upwardly-revised $45.2 bln ($43.8 bln) in June. The Briefing.com consensus expected the trade deficit to decline to $42.7B
  • The ECB met and kept its policy rates unchanged
    • ECB President Mario Draghi gave a press conference half an hour after the rate decision was announced
      • He emphasized that the ECB stands willing and able to provide more monetary stimulus if warranted
      • The ECB staff revised down their forecasts for inflation and growth
      • The tangible result of the meeting was that the 25% limit on any country's total debt that the ECB is allowed to buy has been increased to 33%
      • European sovereign debt soared on the news. Treasuries and U.S. equities also rallied, but they gave back their gains rather quickly

• Commodities:
  • WTI crude: +1.30% to $46.85/bbl.
  • Gold: -0.83% to 1,124.20/troy oz.
  • Copper: +1.91% to $2.734/lb. 

• Currencies:
  • EUR/USD: -0.81% to $1.1126
  • USD/JPY: -0.59% to 119.90

• Data Out Friday:
  • Richmond Fed President Lacker (FOMC voter) speaks on “The Case Against Further Delay” (08:10 ET)
  • August Employment Situation Report (08:30 ET)

Treasury Yields:

• 2 Year Note 0.71% -0.01
• 5 Year Note 1.49% -0.03
• 10 Year Note 2.18% -0.02
• 30 Year Bond 2.95% -0.02

2/30 Spread: 224 bps ( -1 ) …  2/10 Spread: 147 bps ( -1 )

Preview for Friday 4 Sept, 2015

Economic Data

Friday (4 Sept) : 

• Nonfarm Payrolls : 217K (Prior 215K)
• Nonfarm Private Payrolls : 212K (Prior 210K)
• Unemployment Rate : 5.2% (Prior 5.3%)
• Hourly Earnings : 0.2% (Prior 0.2%)
• Average Workweek : 34.6 (Prior 34.6)

Earnings Highlights

Friday (4 Sept) : 
BMO - VPG
AMC - None

Summary
Well we are going to see the release of NFP tomorrow. Whether we like it or not, it is a strong market mover. Technical analysis at this point in time might not even be reliable.

From what I observe, market is still rather weak. As we are seeing death cross across the indices, it requires a strong catalyst to push the market back up. Perhaps a rate hike from the Fed might do the trick.

After Hours Report (Briefing)
Futures are lower after hours: S&P 500 futures are -2.24 from fair value of 1,949.19 and Nasdaq100 futures are -2.19 from fair value of 4,233.29.

Tomorrow morning before the open five economic reports scheduled to be released: 1) Nonfarm Payrolls (Consenuss 217K), 2) Nonfarm Private Payrolls (Consensus 210K), 3) Unemployment Rate (Consensus 5.2%), 4) Hourly Earnings (Consensus 0.2%), and 5) Average Workweek (Consensus 34.6)

Tomorrow before the open no companies are scheduled to report earnings.

Direction for Friday 4 Sept, 2015: Abstain

2015 Daily Directional Accuracy: 90/141  (63.83%) 

2015 Weekly Directional Accuracy: 19/32 (59.38%)