Dow +228.89 at 16599.85, Nasdaq +54.75 at 4860.51, S&P +25.06 at 1978.09
I think what we saw in the market was more of a "Bear market rally" as most traders are looking towards Thursday Fed meeting decision. Maybe the stock market wanted a rate hike?
Weakness persists in China market as Shanghai Composite recorded another huge loss on Tuesday. Meanwhile Europe markets were mostly showing some upside.
Market Summary
Industry Watch
Strong: Energy, Financials, Health Care, Technology, Industrials
Weak: Utilities
Other Market Moving Factor:
- August retail sales (+0.2%; Briefing.com consensus +0.3%) and industrial production (-0.4%; consensus -0.2%) miss expectations
[BRIEFING.COM] The stock market raced higher on Tuesday with the Dow Jones Industrial Average (+1.4%) pacing the advance while the S&P 500 (+1.3%) followed not far behind. Thanks to the broad-based rally, the S&P 500 erased all of its decline from Monday and then some, settling at its best level since August 28.
Although the Tuesday tone differed greatly from Monday, it is worth noting that trading volume remained relatively light with 760 million shares changing hands at the NYSE floor. That total falls short of yesterday's tally (765 million), representing a notable decline from the 20-day average of more than a billion shares. All things considered, the dynamic is not that surprising as some investors continue sticking to the sidelines ahead of Thursday's policy statement from the Fed and a potential fed funds rate hike.
Economic data released today is unlikely to affect the Fed's decision, but it is worth noting that today's rally began in the futures market shortly after the release of the Retail Sales report for August, which came in just below expectations (+0.2%; Briefing.com consensus +0.3%); however, core sales increased 0.5%, suggesting the presence of some underlying consumption strength.
Stocks followed the report's release with a rally while Treasuries began a daylong retreat. The 10-yr note settled on its low with its yield higher by nine basis points at 2.28%.
All ten sectors posted gains with eight groups adding 1.1% or more. The energy sector (+1.1%) grabbed the lead early on with strength in crude oil futures (+1.2% to $44.65/bbl) supporting the move. The commodity-sensitive sector held a solid gain into the close, but was leapfrogged by several groups in afternoon action.
Most notably, the industrial sector (+1.7%) settled in the lead with transport stocks powering the outperformance. The Dow Jones Transportation Average spiked 1.9% with UPS (UPS 100.52, +3.51) surging 3.6% after announcing plans to hire between 90,000 and 95,000 seasonal employees to support the expected volume increase ahead of the holidays. Another DJTA component, FedEx (FDX 154.00, +3.77) climbed 2.5%.
The industrial sector ended well ahead of the broader market, but other influential groups also held their own. To that point, health care (+1.4%), technology (+1.3%), and financials (+1.4%) spent the bulk of the session ahead of the S&P 500.
With stocks on the rise, investors lifted some of their hedges, sending the CBOE Volatility Index (VIX 22.56, -1.69) lower by nearly two points. That being said, the near-term volatility measure remains elevated by recent standards.
Economic data included Retail Sales, Empire Manufacturing, Industrial Production, and Business Inventories:
- Retail sales increased 0.2% in August after increasing an upwardly revised 0.7% (from 0.6%) in July while the Briefing.com consensus expected an increase of 0.3% in August
- The headline 0.2% gain was well below the 0.7% increase in aggregate income that was highlighted in the August employment report, meaning another month of falling gasoline prices has translated into higher savings instead of spending
- Excluding autos, retail sales increased 0.1% in August after increasing an upwardly revised 0.6% (from 0.4%) in July while the consensus expected an increase of 0.2%
- The Empire Manufacturing Survey for September registered a reading of -14.7, which was above the prior month's reading of -14.9, but below the Briefing.com consensus estimate, which was pegged at 0.5
- Industrial Production decreased 0.4% in August, which was worse than the 0.2% decrease expected by the Briefing.com consensus
- The pullback in industrial production resulted from motor vehicle assemblies returning to more normal trends. Excluding motor vehicles, industrial production was flat in August after increasing 0.3% in July
- Capacity utilization hit 77.6% while the Briefing.com consensus expected a reading of 77.8%
- Business Inventories rose 0.1% in July, which is what the Briefing.com consensus expected. This followed the prior month's revised increase of 0.7% (from 0.8%).
- Manufacturers (-0.1%) and merchant wholesalers (-0.1%) already reported their July results. The only new information was that retailer inventories increased 0.6% in July after increasing 1.0% in June
Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET, August CPI (Briefing.com consensus -0.1%) will be reported at 8:30 ET, and the September NAHB Housing Market Index (consensus 61) will cross the wires at 10:00 ET.
Global Market
ASIA
Many markets in the Asia-Pacific region traded lower on Tuesday, none more so than China’s Shanghai Composite (-3.5%) which continued to feel the weight of economic growth concerns. Elsewhere, the S&P/ASX 200 in Australia (-1.5%) had a tough outing amid news of a leadership change in the ruling Liberal Party.
Economic data
- Japan
- Bank of Japan leaves key lending rate unchanged at 0.10% (expected 0.10%; prior 0.10%)
- September Reuters Tankan Index 9.0 (prior 17.0)
- South Korea
- August Trade Balance unrevised at KRW 4.30 bln (prior KRW 4.30 bln)
- Exports revised to -14.9% year-over-year (prior -14.7%)
- Imports unrevised at -18.3% year-over-year (prior -18.3%)
- Australia
- August New Motor Vehicle Sales -1.6% (prior -1.3%)
- Singapore
- Q2 Unemployment Rate unrevised at 2.0% (expected 2.0%; prior 2.0%)
- July Retail Sales -2.2% month-over-month (prior +0.7%); +5.2% year-over-year (expected +3.0%; prior +7.0%)
Equity Markets
- Japan’s Nikkei increased 0.3%, but had been up as much as 2.0% early in the session. As expected, the Bank of Japan held its key lending rate unchanged at 0.10% while noting it expects growth to accelerate in the third quarter. The modest gain was led by the consumer discretionary (+1.3%) and utilities (+0.9%) sectors. Nisshin Seifun Group (+4.7%), Nichirei Corp (+4.2%), and Marui Group (+3.6%) were the best-performing issues. Nitto Boseki (-7.0%), KDDI Corp (-5.7%), and Ebara Corp (-4.0%) were the biggest losers. Out of the 225 index members, 113 ended higher, 100 finished lower, and 12 were unchanged.
- Hong Kong’s Hang Seng declined 0.5%, dragged lower by growth concerns surrounding China and a weak finish to the trading day for the mainland market. Belle International Holdings (-5.2%), Cheung Kong Property Holdings (-4.0%), and China Resources Power Holdings (-3.8%) paced the way lower. Tencent Holdings (+2.5%), China Resources Enterprise (+1.4%), and Power Assets Holdings (+1.1%) topped the list of winners. Out of the 50 index members, 14 ended higher, 31 finished lower, and 5 were unchanged.
- China’s Shanghai Composite declined 3.5% with selling efforts picking up in the afternoon session. Ongoing growth concerns and a report from the securities regulator that its investigation of illegal margin trading has only had a limited impact on the equity market were cited as drivers of the selling interest.
- India’s Sensex declined 0.6% and closed near its low for the day. Losses were led by the materials (-4.9%) and industrials (-2.8%) sectors. Tata Steel (-5.2%), Vedanta (-4.5%), and Tata Motors (-3.7%) were the worst-performing issues. Hindustan Unilever (+1.3%), ITC Ltd (+1.2%), and Sun Pharmaceuticals (+1.1%) were the biggest gainers. Out of the 30 index members, 6 ended higher and 24 finished lower.
- Australia’s S&P/ASX 200 declined 1.5%, pressured by the news of a leadership change in the Liberal Party, which voted out Prime Minister Tony Abbott in favor of Malcolm Turnbull, as well as weakness in the financials and resources sector. Out of the 200 index members, 27 ended higher, 167 finished lower, and 6 were unchanged.
- Regional advancers: Malaysia +0.5%, Philippines +0.3%, South Korea +0.3%
- Regional decliners: Taiwan -0.6%, Thailand -0.5%, Indonesia -1.0%
FX
- USD/CNY +0.03% at 6.3699
- USD/INR +0.1% at 66.4113
- USD/JPY -0.4% at 119.72
EUROPE
Major European indices trade near their flat lines while Italy’s MIB (+0.6%) outperforms. On a related note, Italy’s Finance Minister Pier Carlo Padoan said the Italian economy has returned to growth thanks to domestic and foreign demand .
- Eurozone ZEW Economic Sentiment 33.3 (expected 42.1; prior 47.6) while Q2 Employment Change +0.3% quarter-over-quarter (expected 0.1%: prior 0.2%). Separately, July Trade Surplus expanded to EUR31.40 billion from EUR26.40 billion
- Germany’s September ZEW Economic Sentiment 12.1 (expected 18.4; prior 25.0) while ZEW Current Conditions 67.5 (expected 64.0; last 65.7)
- UK’s House Price Index +5.2% year-over-year (consensus 6.2%; prior 5.7%) while August CPI +0.2% month-over-month (expected 0.2%; prior 0.2%); 0.0% year-over-year (expected 0.0%; prior 0.1%). Also of note Input PPI -2.4% month-over-month, as expected; -13.8% year-over-year (expected -13.7%). Separately, Core CPI +1.0% year-over-year, as expected
- France’s August CPI +0.3% month-over-month (expected -0.4%; last -0.3%)
Closing Prices
- UK’s FTSE: + 0.9%
- Germany’s DAX: + 0.6%
- France’s CAC: + 1.1%
- Spain’s IBEX: + 1.0%
- Portugal’s PSI: + 0.4%
- Italy’s MIB Index: + 1.6%
- Irish Ovrl Index: + 1.1%
- Greece ASE General Index: + 1.4%
Macroeconomic Data
Economic Data
from Briefing.com
- Retail Sales : 0.2% vs 0.3% (Prior 0.7% - Up)
- Retail Sales ex-auto : 0.1% vs 0.2% (Prior 0.6% - Up)
- Empire Manufacturing : -14.7 vs 0.3 (Prior -14.9)
- Industrial Production : -0.4% vs -0.2% (Prior 0.9% - Up)
- Capacity Utilization : 77.6% vs 77.8% (Prior 78.0%)
- Business Inventories : 0.1% vs 0.1% (Prior 0.7% - Down)
RETAIL SALES
Highlights
- Retail sales increased 0.2% in August after increasing an upwardly revised 0.7% (from 0.6%) in July. The Briefing.com Consensus expected retail sales to increase 0.3% in August.
- Excluding autos, retail sales increased 0.1% in August after increasing an upwardly revised 0.6% (from 0.4%) in July. The consensus expected these sales to increase 0.2%.
- Core sales – which exclude motor vehicle dealers, gasoline stations, and building material and supply dealers – increased a healthy 0.5% in August. That was still down, however, from an upwardly revised 0.6% (from 0.3%) gain in July. These sales closely follow the trends in goods spending in the GDP report and imply higher consumption growth than the disappointing headline.
Key Factors
- The headline 0.2% gain was well below the 0.7% increase in aggregate income that was highlighted in the August employment report. That means another month of falling gasoline prices translated into higher savings instead of spending.
- Motor vehicle manufacturers reported 17.8 mln SAAR vehicles sold in August, which was the best-performing month since July 2005. Unfortunately, that didn’t translate into a large increase in sales at auto dealers. Sales at motor vehicle and parts dealers increased 0.7%, down from a 1.3% increase in July.
- Much of the weakness in sales outside of autos stemmed from a steep drop in sales at gasoline stations (-1.8%), which was mainly the result of lower gasoline prices.
- Looking at the details, large gains in restaurant spending (0.7%), grocery stores (0.7%), and clothing stores (0.4%) were offset by 1.8% decline at both gasoline stations and building material and supply stores.
Big Picture
- Big income gains in August failed to spark an acceleration in retail sales growth.
INDUSTRIAL PRODUCTION
Highlights
- Industrial production declined 0.4% in August after increasing an upwardly revised 0.9% (from 0.6%) in July. The Briefing.com Consensus expected industrial production to decline 0.2%.
Key Factors
- The pullback in industrial production came as a result of motor vehicle assemblies returning to more normal trends. In July, assemblies rose to 13.38 mln SAAR from 11.81 mln SAAR. That was the most vehicles assembled since November 1978. Assemblies in August fell back to 11.78 mln, which lopped off 0.4 percentage points of industrial production growth.
- Excluding motor vehicles, industrial production was flat in August after increasing 0.3% in July.
- Overall, manufacturing production declined 0.5% in August after increasing 0.9% in July. Durable goods manufacturing declined 0.9%, almost all of which can be attributed to a 6.4% decline in motor vehicles and parts production. Nondurable goods manufacturing production was flat.
- After two months of gains, mining production declined 0.5% in August. Year-over-year, mining production is down 3.2%.
- Warmer-than-normal temperatures aided utilities demand, which boost production by 0.6% in August.
Big Picture
- A pullback in auto assemblies following their historic July rise caused the August decline in industrial production.
BUSINESS INVENTORIES
Highlights
- Business inventories increased 0.1% in July after increasing a downwardly revised 0.7% (from 0.8%) in June. The Briefing.com Consensus expected business inventories to increase 0.1%.
Key Factors
- Manufacturers (-0.1%) and merchant wholesalers (-0.1%) already reported their July results. The only new information was that retailer inventories increased 0.6% in July after increasing 1.0% in June.
- With the exception of a 0.2% decline in clothing inventories, all retail sectors posted positive inventory growth. That included a 1.4% gain at motor vehicles and parts dealers, which accounted for the majority of the overall increase in retailer inventories.
- Total business sales increased 0.1% in July after increasing 0.3% in June. Declines in manufacturing shipments (-0.2%) and merchant wholesale sales (-0.3%) were offset by a 0.8% gain in retailer sales.
- The inventory-to-sales ratio remained at 1.36 for a fifth consecutive month in July.
Big Picture
- Business inventories include wholesale inventories, manufacturing inventories, and retail inventories. Inventories are a component of GDP, and thus are of interest to economists, but the financial markets don't pay much attention to this release. Over the long term, the inventory-to-sales ratio has been declining, due to improving techniques for inventory management.
Market Internals
NYSE:
Lower Volumes than the day before – 778.5M vs 783.1M
Advancers outpaced Decliners (adv/dec): 2139 / 925
New Lows outpaced New Highs (highs/lows): 19 / 80
NASDAQ:
Higher Volumes than the day before – 1580.1M vs 1458.0M
Advancers outpaced Decliners (adv/dec): 1946 / 892
New Lows outpaced New Highs (highs/lows): 42 / 68
VOLATILITY S&P500 (VIX)
22.54 -1.71 (-7.05%)
Technical Updates
Volume: 93,051,069 (below average of 110,138,919)
Range: 16,382.58 - 16,644.11
Range: 16,382.58 - 16,644.11
4,860.52 +54.76 (+1.14%)
Volume: 353.4M (below average of 461,724,887)
Volume: 353.4M (below average of 461,724,887)
Range: 4,802.09 - 4,872.35
1,978.09 +25.06 (+1.28%)
Volume: 538,205,000 (below average of 611,440,815)
Range: 1,954.30 - 1,983.19
Both DOW and S&P somehow reflected a breakout from the symmetrical triangle pattern. However there was no sign of increase in volume for DOW and it is approaching the 61.8% Fib level which is a strong resistance going forward. NASDAQ barely close above the resistance level at 4,850 and I am looking at whether we would see a breakout here. Next resistance is likely to be around 4,920. S&P managed to form a breakout and broke above its 61.8% Fib level, but it is facing a strong resistance near 1,980. It seems to me that the 3 indices are facing a strong resistance at the moment and we might see a strong bullish follow through if the resistance level is broken. If not, we should see the market come back lower to retest the support. Nonetheless Thursday's Fed News is going to provide a strong catalyst.
Commodities
- The dollar index remains sitting near today’s high, which is helping weigh on commodities
- Oil has been volatile with the help of headlines about the U.S. oil export ban
- In recent trade, oil sold off some after the White House said it will not support lifting the crude oil export ban
- However, price has since bounced back. In pit trading, Oct crude oil ended the day +1.2% at $44.59/barrel
- In other energy, Oct nat gas +1.1% at $2.73/MMBtu
- Copper came back off of overnight lows, ending the session +0.8% at $2.43/lb (Oct contract)
- Precious metals, on the other hand, lost some steam today. Dec gold fell -0.4% to $1102.80/oz, while Dec silver -0.3% to $14.32/oz
Metals
- December gold ended today’s session $4.90 lower (-0.4%) at $1102.80/oz
- December silver closed today’s session $0.04 lower (-0.3%) at $14.32/oz
- December copper closed $0.02 higher (+0.8%) at $2.43/lb
Agriculture
- December corn closed $0.03 lower (-0.8%) at $3.90/bushel
- December wheat closed $0.06 lower (-1.2%) at $4.95/bushel
- November soybeans closed $0.06 higher (+0.7%) to $8.90/bushel
- Sugar #11 closed $0.10 cents lower at 11.40 cents/lb
Energy
- October crude oil futures rose $0.52 (+1.2%) to $44.59/barrel
- October natural gas closed $0.03 lower (+1.1%) at $2.73/MMBtu
- RBOB Gasoline closed $0.02 higher at $1.33/gallon
- Heating oil futures closed $0.01 lower at $1.50/gallon
Currencies
Greenback Gains against All Majors
- The U.S. Dollar Index jumped 0.39% to 95.61 today as core retail sales grew more than expected in August. The Treasury market read that data as a signal that higher rates would be forthcoming and currency traders took the opportunity to buy dollars
- Retail sales grew 0.2% in August as gasoline spending declined. The Briefing.com consensus was for +0.3%. The growth in July was revised up to 0.7% from the initial reading of 0.6%
- Core sales – which exclude motor vehicle dealers, gasoline stations, and building material and supply dealers – increased a healthy 0.5% in August. That was still down, however, from an upwardly revised 0.6% (from 0.3%) gain in July. These sales closely follow the trends in goods spending in the GDP report and imply higher consumption growth than the disappointing headline number
- Industrial production declined 0.4% in August after increasing an upwardly revised 0.9% (from 0.6%) in July. The Briefing.com Consensus expected industrial production to decline 0.2%
- EUR/USD: -0.34% to $1.1271
- The eurozone's trade surplus hit a fresh record in July, widening to 31.4 bln euro from 26.4 bln in June. Germany was responsible for 15.7 bln of the total
- The ZEW Economic Sentiment Index for the eurozone fell more sharply than expected to 33.3 in September from 47.6 in August
- GBP/USD: -0.60% to $1.5331
- Consumer prices in the U.K. remained flat in the year to August. The CPI had risen 0.1% y/y in July. Lower fuel prices were the main culprit
- U.K. housing prices rose 5.2% in the year to July, led by gains in Northern Ireland. That was the slowest growth rate in two years
- USD/JPY: +0.14% to 120.47
- The Bank of Japan maintained interest rate policy, as expected
- The statement noted a leveling off of export growth due to the slowdown in emerging markets, but provided only subtle cover for an expansion of unconventional monetary policy measures at next month's meeting
- USD/CHF: +0.64% to 0.9746
- USD/CAD: -0.01% to 1.3253
- AUD/USD: -0.41% to $0.7126
- The minutes from the September meeting of the Reserve Bank of Australia's monetary policy board showed that the members felt continued stimulus was appropriate
- They were concerned about lower commodities exports and the prices received for those goods. They said that inflation would probably remain in the target range for roughly two years
- The RBA's benchmark lending rate remains at a record low of 2.00%
- The minutes from the September meeting of the Reserve Bank of Australia's monetary policy board showed that the members felt continued stimulus was appropriate
- NZD/USD: -0.05% to $0.6333
Bonds
Treasury Yields Spike
- U.S. Treasuries took sharp losses today in a curve-steepening trade on the back of a rallying stock market and core retail sales for August that showed continued growth. The data was not all positive, as headline retail sales, retail sales excluding automobiles, the Empire Manufacturing Index, and industrial production all missed estimates. Lower liquidity likely exacerbated the declines as investors and traders were hesitant to take positions ahead of Thursday's FOMC rate decision
- Yield Check:
- 2-yr: +6 bps to 0.79%
- 5-yr: +9 bps to 1.60%
- 10-yr: +9 bps to 2.28%
- 30-yr: +10 bps to 3.06%
- News:
- Retail sales grew 0.2% in August as gasoline spending declined. The Briefing.com consensus was for +0.3%. The growth in July was revised up to 0.7% from the initial reading of 0.6%
- Retail sales excluding automobiles grew 0.1%, shy of the Briefing.com consensus of 0.2%. July's reading was revised up to 0.6% growth from 0.4%
- Core sales – which exclude motor vehicle dealers, gasoline stations, and building material and supply dealers – increased a healthy 0.5% in August. That was still down, however, from an upwardly revised 0.6% (from 0.3%) gain in July. These sales closely follow the trends in goods spending in the GDP report and imply higher consumption growth than the disappointing headline number
- The Empire State Manufacturing Index rose slightly to 14.7 in September from 14.9 in August. The Briefing.com consensus had been for 0.5
- The orders index stayed negative at -12.9 while the employment index fell to a three-year low of -6.2
- The six-month outlook fell to 23.3 from 33.6
- The survey was likely heavily influenced by the financial market volatility from late August
- Industrial production fell 0.4% m/m in August, missing the Briefing.com consensus for a decline of 0.2%. Production rose an upwardly-revised 0.9% in July versus the initial estimate of 0.6%
- The decline in industrial production came as a result of motor vehicle assemblies returning to more normal trends from a 37-year high in July
- Capacity utilization fell to 77.6% in August from a July reading of 78.0%. The Briefing.com consensus was for 77.8%
- Business inventories edged higher by 0.1% in July, in line with the Briefing.com consensus but short of the 0.7% growth seen in June (downwardly-revised from 0.8%)
- Retail sales grew 0.2% in August as gasoline spending declined. The Briefing.com consensus was for +0.3%. The growth in July was revised up to 0.7% from the initial reading of 0.6%
- Commodities:
- WTI crude: +1.43% to $44.63/bbl.
- Gold: -0.36% to $1,103.70/troy oz.
- Copper: +0.89% to $2.4275/lb.
- Currencies:
- EUR/USD: -0.35% to $1.1269
- USD/JPY: +0.11% to 120.44
- Data Out Wednesday:
- MBA Mortgage Index for the week ending 9/12 (07:00 ET)
- August CPI and Core CPI (08:30 ET)
- September NAHB Housing Market Index (10:00 ET)
- Crude Inventories for the week ending 9/12 (10:30 ET)
- July Net Long-Term TIC Flows (16:00 ET)
Treasury Yields:
- 2 Year Note 0.82% +0.09
- 5 Year Note 1.61% +0.10
- 10 Year Note 2.28% +0.10
- 30 Year Bond 3.06% +0.11
2/30 Spread: 224 bps ( +2 ) … 2/10 Spread: 146 bps ( +1 )
Preview for Wednesday 16 Sept, 2015
Economic Data
Wednesday (16 Sept) :
- MBA Mortgage Index : (Prior -6.2%)
- CPI : -0.1% (Prior 0.1%)
- Core CPI : 0.1% (Prior 0.1%)
- NAHB Housing Market Index : 61 (Prior 61)
- Crude Inventories : (Prior 2.570M)
- Net Long-Term TIC Flows : (Prior $103.0B)
Earnings Highlights
Wednesday (16 Sept) :
BMO - ASNA CBRL FDX LITB
AMC - ALOG APOG ARCW CLC MLHR ORCL SANW
BMO - ASNA CBRL FDX LITB
AMC - ALOG APOG ARCW CLC MLHR ORCL SANW
Summary
I reckon market is rather neutral right now as it literally can go anywhere from here. As tomorrow commences the first day of FOMC meeting, I would expect more volatility but also uncertainty. Tomorrow session is likely to be flat ahead of the Fed's announcement on Thursday. If we see enough buying interest, maybe we might even see a breakout. But I am doubtful on the latter.
I reckon market is rather neutral right now as it literally can go anywhere from here. As tomorrow commences the first day of FOMC meeting, I would expect more volatility but also uncertainty. Tomorrow session is likely to be flat ahead of the Fed's announcement on Thursday. If we see enough buying interest, maybe we might even see a breakout. But I am doubtful on the latter.
Direction for Wednesday 16 Sept, 2015: Down
2015 Daily Directional Accuracy: 91/144 (63.19%)
2015 Weekly Directional Accuracy: 21/34 (61.76%)
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