Thursday, 5 Nov 2015 - AMC

Dow -4.15 at 17863.43, Nasdaq -14.74 at 5127.74, S&P -2.38at 2099.93

Just another quiet and flat day. Market was moving sideway ahead of NFP tomorrow. I am not sure how you view it but I feel that the sellers are not active and maybe that could mean this pullback is going to be a short-lived. However the market looks like it can go anyway here. 

Both Europe and Asia markets are continuing with the positive mood as we also saw some upside in Nikkei and Shanghai Composite. 
  

Market Summary

Industry Watch

Strong: Technology, Industrials, Consumer Discretionary, Consumer Staples, Financials

Weak: Energy, Materials, Health Care, Utilities

Other Market Moving Factor:

• Biotechnology lags

[BRIEFING.COM] The major averages registered their second consecutive decline on Thursday with the S&P 500 shedding 0.1% while the Nasdaq Composite (-0.3%) underperformed. 

Broadly speaking, the Thursday affair was fairly quiet, but that was not particularly surprising considering Friday morning will feature the release of the Employment Situation report for October. The Briefing.com consensus expects the report to reveal the addition of 181,000 payrolls while hourly earnings are expected to have increased 0.2% in October. 

Tomorrow's report could lead to volatility in the market, making today's reluctance among investors to push the market in either direction rather understandable. The S&P 500 is set to enter the Friday session with a week-to-date gain of 1.0% while the Nasdaq is higher by 1.5% for the week despite today's underperformance. 

Biotechnology was largely responsible for today's relative weakness in the tech-heavy Nasdaq. Valeant Pharmaceuticals (VRX 78.77, -13.21) was in focus once again as the stock dove 14.4% amid continued concerns about the company's revenue recognition practices. However, biotech's woes were not isolated to Valeant as Gilead Sciences (GILD 107.83, -1.15) lost 1.1% while Celgene(CELG 120.46, -6.71) dove 5.3% after reporting a one-cent beat on below-consensus revenue. For its part, the broader iShares Nasdaq Biotechnology ETF (IBB 331.16, -6.47) lost 1.9% while the health care sector surrendered 0.4% after being down more than 1.0% in the early going. 

Similar to health care, influential sectors like energy (-1.0%) and technology (-0.3%) also finished among the laggards. The energy sector narrowed its week-to-date gain to 2.9% amid a decline in crude oil. To that point, WTI crude fell 2.3% to $45.26, widening this week's decline to 2.9% after being up nearly 4.0% at its best level on Tuesday. 

As for technology, the top-weighted sector struggled amid weakness in the chipmaker arena after Qualcomm's (QCOM 51.07, -9.19) cautious guidance overshadowed better than expected earnings. Shares of QCOM fell 15.3% while the PHLX Semiconductor Index fell 2.1%. Elsewhere in the tech sector, Facebook (FB 108.76, +4.82) surged 4.6% in reaction to better than expected results. 

Treasuries spent the day in negative territory, ending roughly in the middle of their ranges with the 10-yr yield rising one basis point to 2.24%. 

Today's participation was roughly in line with average as more than 870 million shares changed hands at the NYSE floor. 

Economic data released today included initial claims and productivity/unit labor cost data: 

• Initial claims for the week ending October 31 increased 16,000 to 276,000 (Briefing.com consensus 262,000) from an unrevised 2600,000 level in the prior week. There were no special factors influencing the jump in claims, which are still running at encouragingly low levels. 
  • The four-week moving average for initial claims increased by 3,500 to 259,250 
  • Continuing claims for the week ending October 24 increased 17,000 to 2.163 million (Briefing.com consensus 2.145 mln) from the prior week's upwardly revised level of 2.146 million (from 2.144 mln) 
• The preliminary third quarter productivity report showed nonfarm business productivity increasing 1.6% quarter to quarter (Briefing.com consensus -0.2%) versus 3.5% in the second quarter 
  • Output increased 1.2% while hours worked decreased 0.5%, marking the first decline in that series since the third quarter of 2009 
  • Unit labor costs were up just 1.4% (Briefing.com consensus 2.2%) 

Tomorrow, October Nonfarm Payrolls (Briefing.com consensus 181,000) will be reported at 8:30 ET while the September Consumer Credit report (consensus $18.00 billion) will be released at 15:00 ET.

Global Market (currently unavailable)

Macroeconomic Data

Economic Data

from Briefing.com

• Challenger Job Cuts : -14.0% (Prior 93.2%)
• Initial Claims : 276K vs 262K (Prior 260K)
• Continuing Claims : 2163K vs 2145K (Prior 2144K)
• Productivity - Prel : 1.6% vs -0.2% (Prior 3.3%)
• Unit Labour Costs - Prel : 1.4% vs 2.2% (Prior -1.4%)
• Natural Gas Inventories : 52 bcf (Prior 63 bcf)

UNEMPLOYMENT CLAIMS

Highlights

• Initial claims for the week ending October 31 increased 16,000 to 276,000 (Briefing.com consensus 262,000) from an unrevised 260,000 level in the prior week.
• Continuing claims for the week ending October 24 increased 17,000 to 2.163 million (Briefing.com consensus 2.145 mln) from the prior week's upwardly revised level of 2.146 million (from 2.144 mln).

Key Factors

• The four-week moving average for initial claims increased by 3,500 to 259,250.
• There were no special factors influencing the jump in initial claims, which are still running at encouragingly low levels. 
• The four-week moving average for continuing claims declined by 11,500 to 2.162 million, which is the lowest level since November 11, 2000.

Big Picture

• The latest initial claims reading is the highest level for initial claims since late September, but pretty much in the middle of the 250,000 to 300,000 range that has predominated since July 2014.  The overall trend initial claims supports a labor market that is at, or very near, full employment.

PRODUCTIVITY - PREL

Highlights

• Third quarter nonfarm business productivity increased 1.6% from the second quarter where productivity was revised up to 3.5% from 3.3%. The third quarter number was well above the Briefing.com consensus estimate, which called for a 0.2% decline in productivity.
• Unit labor costs increased 1.4%, falling short of the 2.2% increase projected by the Briefing.com consensus, but noticeably higher than the downwardly revised 1.8% decline (from -1.4%) in the second quarter. 

Key Factors

• The third quarter productivity gain was driven by a 1.2% increase in output and a 0.5% decrease in hours worked.
• The uptick in unit labor costs flowed from a 3.0% increase in hourly compensation and a 1.6% increase in productivity. Real hourly compensation was up 1.4%.
• On a year-over-year basis, third quarter productivity was up just 0.4% while unit labor costs were up 2.0%.

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 has led to consistent gains in living standards in free market economies.

Market Internals

NYSE:

Lower Volumes than the day before – 895.0M vs 933.5M 


Decliners outpaced Advancers (adv/dec): 1484 / 1563

New Highs outpaced New Lows (highs/lows): 88 / 62

NASDAQ:

Lower Volumes than the day before – 2052.5M vs 2085.8M

Decliners outpaced Advancers (adv/dec): 1303 / 1520

New Highs outpaced New Lows (highs/lows): 96 / 75

VOLATILITY S&P500 (VIX)
15.05 -0.46 (-2.97%)

Internals are also showing a flat session as Decliners barely outpaced Advancers. However New Highs continues to fall as New Lows rises. VIX was rejected by its 200MA and it came down to test the support at 15.00. Market is not looking that bearish actually and perhaps the bulls are still having the control over the market.

Technical Updates

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)

17,863.43 -4.15 (-0.02%)

Volume: 98,908,878 (below average of 116,590,752)
Range: 17,779.19 - 17,929.51

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)

5,127.74 -14.74 (-0.29%)
Volume: 456,548,881 (below average of 469,103,667)

Range: 5,098.49 - 5,154.86

S&P 500 INDEX (SPX: CBOE)

2,099.93 -2.38 (-0.11%)

Volume: 589,737,000 (below average of 653,568,297)

Range: 2,090.41 - 2,108.78

Both DOW and S&P formed a long-legged doji, indicating the uncertainty prior to NFP number on Friday. NASDAQ manage to stay above its support at 5,110 while DOW is also sitting on its support level at around 17,750. If the support fails to hold, I think we might still see the market go lower for the pullback and probably the 200MA would be another good support level.

Currencies

Sterling Loses on BoE Dovishness

• The U.S. Dollar Index fell 0.01% to 97.94 today, having run through a short bout of volatility overnight after German factory order growth missed expectations in September 
• EUR/USD: +0.16% to $1.0884
  • Eurozone retail sales fell 0.1% m/m in September, confounding economists' expectations for a modest gain. Retail sales were unchanged in August
  • In Germany, factory orders unexpectedly fell 1.7% m/m in September after declining 1.8% in August
• GBP/USD: -1.14% to $1.5210
  • The Bank of England voted 8-1 in favor of holding its main policy rate at 0.5%
    • The central bank also forecast that consumer prices would grow at less than 1% until H2 2016 in its quarterly inflation report, while also citing downside risks to the outlook
    • The 2015 and 2016 GDP growth forecasts were both lowered to 2.7% and 2.5%, respectively
    • The BoE saw the domestic economic picture as strong, helped along by low energy prices and interest rates, while the risk factors were mostly external
    • The U.K.'s Halifax House Price Index rose a better-than-expected 1.1% m/m in October after falling 0.9% in September. The index was up 9.7% y/y
• USD/CHF: +0.11% to 0.9952
  • Switzerland's SECO Consumer Climate Index rose less than expected to -18 in the fourth quarter from -19 in Q3
    • The Swiss CPI unexpectedly rose 0.1% in October after gaining the same amount in September 
• USD/JPY: +0.14% to 121.69
  • Japan's Ministry of Finance auctioned JPY 2.4 tln ($19.76 bln) of 10-year JGBs at a high yield of 0.320%. The auction tailed ever so slightly and drew a bid-to-cover ratio of 2.80
• USD/CAD: +0.08% to 1.3164 
  • Canada's Ivey PMI unexpectedly fell to 53.1 in October from 53.7 in September
• AUD/USD: +0.02% to $0.7143
• NZD/USD: +0.41% to $0.6619
• USD/RUB: +0.36% to 63.43
  • Russia's services purchasing managers' index, as compiled by Markit, fell more than expected to 47.8 in October from 51.3 in September

Bonds

Treasury Yields Edge Higher

• U.S. Treasuries sold off this morning but recovered by the end of the session to only minor losses. Unit labor costs for the third quarter showed that upward wage pressure remains quite low in the U.S. and productivity showed an encouraging turn higher. Tomorrow morning, we will get the October Employment Situation Report 
• Yield Check:
  • 2-yr: +3 bps to 0.84%
  • 5-yr: +1 bp to 1.64%
  • 10-yr: +1 bp to 2.24%
  • 30-yr: +1 bp to 3.00%

• News:
  • Initial jobless claims rose to 276K for the week ending 10/31 from 260K in the prior week. The Briefing.com consensus was for 262K
    • Continuing jobless claims jumped to 2163K for the week ending 10/24 from the prior reading of 2146K. The Briefing.com consensus was for 2145K
  • Productivity in the U.S. rose at a 1.6% annualized rate in the third quarter. The Briefing.com consensus was for a fall of 0.2%, following growth of 3.5% in Q2
  • Higher productivity meant that unit labor costs only grew 1.4% in Q3, missing the Briefing.com consensus of 2.2%. Unit labor costs fell a downwardly-revised 1.8% in Q2
    • Output grew by 1.2% while hours worked fell 0.5%, with the decline being led by the self-employed
  • The 2-year note yield touched its highest level since February 2011 
  • Atlanta Fed President Lockhart (FOMC voter) Lockhart noted that rate liftoff remains a close call. A relatively small adjustment in an estimate of the neutral rate of interest, or revisions in his forecast of how quickly remaining output and inflation-target gaps might close, could quite easily point to a longer period for a zero federal funds rate

• Commodities:
  • WTI crude: -2.09% to 45.35
  • Gold: -0.29% to $1,103.0/troy oz.
  • Copper: -3.01% to $2.2525/lb.

• Currencies:
  • EUR/USD: +0.18% to $1.0885
  • USD/JPY: +0.16% to 121.70

• Data out Friday:
  • October Employment Situation Report (08:30 ET)
  • September Consumer Credit (15:00 ET)
  • Fed Governor Brainard (FOMC voter) participates in forum at IMF conference (17:15 ET)

Treasury Yields:

• 2 Year Note 0.85% +0.01
• 5 Year Note 1.65% +0.01
• 10 Year Note 2.26% +0.01
• 30 Year Bond 3.01% +0.01

2/30 Spread: 216 bps ( UNCH ) … 2/10 Spread: 141 bps ( UNCH )

Preview for Friday 6 Nov, 2015

Economic Data

Friday (6 Nov) : 

• Nonfarm Payrolls : 181K (Prior 142K)
• Nonfarm Private Payrolls : 160K (Prior 118K)
• Unemployment Rate : 5.1% (Prior 5.1%)
• Hourly Earnings : 0.2% (Prior 0.0%)
• Average Workweek : 34.5 (Prior 34.5)
• Consumer Credit : $18.0B ($16.0B) 

Earnings Highlights 

Friday (6 Nov) : 

BMO - AEE MT BAM CI CIO EBIX SATS ERF HMSY HZNP HUM HTCH IMN LMIA LXU MHR MOG.A OSIR PMC DOC SSP TTI TC TPH TNP EGY VSAT WLH
During Mkt Hrs - YORW
AMC - BRK.B KRO

Summary

The market is looking uncertain ahead of the Nonfarm employment report tomorrow. With the market potentially able to go anywhere from here, I reckon the NFP is going to be a huge market mover. We have seen the market remained in a flat-ish manner for the past few sessions and tomorrow is likely to set the market up for some direction.

I still think market is generally bullish but a correction would be good before the rally continues.

Direction for Friday 6 Nov, 2015: Abstain

2015 Daily Directional Accuracy: 113/176  (64.20%) 

2015 Weekly Directional Accuracy: 25/40 (62.50%)