This morning. Today, U.S. equity futures are moderate lower after fair value adjustment and trade near their morning lows. In Asia, equity markets closed lower, with notable weakness in Japan, but slighter losses in Shanghai, an indication that Japan remains a favored method to hedge Chinese exposures. Economic news is light, though Chinese industrial production reports this evening. The dollar is mixed. Commodities are mostly lower. Thursday's Nikkei 225 March 2014 (NKH4) equity futures down -0.809% lower.
Since February 7th, the U.S. equity market outlook is "confirmed uptrend", following a brief, but sharp "in correction" episode that commenced on January 23rd. The S&P 500 Index (SPX) rose +3.93% subsequently. The quarter's earnings reports are nearly complete, with U.S. materials reports particularly strong, followed by financials.
Since last Tuesday's strong rally, world equity markets have given back most or all of last week's rally. The SPX, DJ Industrials (Private:DJI), Nasdaq, and NYSE composite closed down -0.51%, -0.41%, -0.63%, and -0.58%, respectively. The DJ Transports (TRAN) fell -0.43%. Only the DJI is lower on the year. NYSE volume rose +2.34% to 0.90x its 20-day moving average.
Trading desks attribute poor worldwide equity trading to China, where the weekend's export report continue to feed doubts that the economy can meet the +7.5% GDP growth target. Other concerns include Russia, which is expected to annex Crimea with this weekend's referendum. Russian credit default swap rates have soared. Tuesday, U.S. equity markets sold off through the afternoon and closed near their late afternoon intraday lows. Weakness followed announcement of a Congressional compromise on the future of the mortgage GSE FNMA and FHLMC.
Despite what appears to be a higher bias to the market, with the market at or near records and with an elevated P/E multiple, traders continue to doubt a breakout. With SPX equities trading at a 17.0x 2013 earnings multiple, attention focuses on 2014 earnings and valuations (17.0x times survey $117.60 2014 SPX operating earnings suggests a 1993.96 SPX level next year, a +6.76% rise).
Technicals were little changed. All indexes closed above their respective 5-, 10-, 20-, 50-, 100-, and 200-day moving averages. All market segments closed lower. Market breadth was negative, though up volume lagged down volume. Volatility rose. Treasury bond markets strengthened. The U.S. Treasury 10-year bond yield fell -0.90 bps to 2.7680%, compared to 2.7770% at the prior close.
This morning, 10-year U.S. Treasury yields are down -2.99 bps at 2.7381%, compared to the prior close. Spanish and Italian 10-year debt yields are 3.32% and 3.39%, respectively, compared to 3.32% and 3.40% the prior day. The U.S. dollar is mixed.
U.S. options markets are neutral to bullish, compared to neutral to bullish the prior day. The CBOE SKEW fell -0.97% to 130.08, compared to 131.35 the prior day, above a neutral range (115-120) and again above 130, which generally correlates well with short-term market tops.
In pre-market futures trading, March SPX equity futures (SPH4) price near the bottom of a 1857-1867 trading range. After a fair value adjustment of +1.63 points, SPX equity futures price at 1858.50, down -8.13 points. The SPX opens +0.96%, +2.15%, +3.45%, and +7.68% above its respective 20-, 50-, 100-, and 200-day moving averages. Initial resistance is 1878.69. Initial support is 1860.22, then 1852.80.
In Asia, equity markets closed lower, with the weakness attributed to Chinese growth concerns ahead of tomorrow's Chinese industrial production report. In Japan, the Nikkei 225 index (NYSEARCA:NKY) fell -2.59%. The Hang Sang index (HSI) fell -1.65%. The SHCOMP fell -0.17%. Today's volumes are unavailable.
Notably, the weakness was much greater in Japan's much more liquid markets than in China. Japan's equity markets often serve as means to hedge Chinese exposures.
Commentary continued to focus on the weekend's poor Chinese trade report (which may related to emerging market weakness and currency control avoidance) and currency developments. In China, short-term interbank lending rates remain surprisingly volatile, with 7-day Shibo rates at 2.20%, compared to 2.26% the prior day, at levels last seen in March 2013 and down from the February 7th 5.41% recent high.
Regional relative strength indexes (RSI) show Tokyo in a neutral range, while Hong Kong and Shanghai are now in the lower end of a neutral ranges. The NKY RSI fell to 47.73, compared to 56.05 the prior day, up from an oversold 27.92 on February 4th. The HSI RSI ended at 38.86, compared to 45.42 the prior day and an oversold 24.02 on February 5th. The SHCOMP's RSI closed at 35.25, compared to 35.81 the prior session. On June 27, 2013, the index's RSI fell to a low of 15.27, which was also last year's low index close.
This week, the NKY, HSI, and SHCOMP are down -2.90%, -3.35%, and -2.93%, respectively. Last week, the NKY gained +2.92%, the HSI fell -0.77%, and SHCOMP rose +0.08%. In March, the NKY is down -0.07%, while the HSI and SHCOMP are down -4.09% and -2.85%, respectively. In February, the NKY closed down -0.49%, while the HSI and the SHCOMP gained +3.64% and +1.14%, respectively.
In 2014, the NKY, HSI, and SHCOMP are down -8.97%, -6.03%, and -5.59%, respectively. In 2013, the NKY rose +56.7%. The HSI closed up +2.87%. The SHCOMP closed down -6.75%.
In Japan, the NKY closed at 14,830.39, compared to 15,224.11 the prior day and -61.9% below its late-1989 38,915.87 high close. The index opened at 15,000 and generally trended lower through the session and closed at the intraday low. The index closed +0.00%, -2.34%, -1.60%, and +2.15% above its respective 20-, 50-, 100-, and 200-day moving averages. All market segments closed at least -1.82% lower. Leaders were utilities, health care, and technology. Financials fell -2.57%. Laggards were oil and gas, basic materials, and telecommunications, which fell at least -2.86%.
In China, the HSI closed at 21,901.95, compared to 21,901.95 at the prior close. In early trading, the index gapped lower to 21,880, then improved back to 21,990 by mid-morning. The index trended lower to an early afternoon 21,873.20 intraday low, then traded narrowly to the close. All market segments closed at least -0.62% lower. Leaders were consumer services, utilities, and financials. Laggards were telecommunications, technology, and basic materials, which fell at least -1.84%. The index closed -8.40% below its recent December 3rd 23,910.47 high, but +22.5% above its 18,185.59 June 4, 2012 low.
In Shanghai, the SHCOMP closed at 1,997.69, compared to 2,001.16 at the prior close, +2.45% above the 1,950.01 June 27th close, last year's low. In early trading, the index opened modestly lower, but reversed higher to a late morning 2,010.96 intraday high before again turning lower and falling to an early afternoon 1974.339 intraday low. The index improved through the final 2 hours to substantially narrow the loss. Market segments closed mixed. Leaders were financials, basic materials, and consumer services, which rose at least +0.20%. Laggards were technology, telecommunications, and oil and gas, which fell at least -0.67%.
In Europe, major equity indexes are lower. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -1.04%, -0.91%, -0.129%, and -1.23%, respectively. The Spanish IBEX 35 is down -0.92% and the Italian FTSE MIB is down -0.17%. Commentary focuses on Ukrainian concerns, as Russian credit default swaps rise to their highest levels in years.
European bourses have recently outperformed U.S. equity indexes. Euro Stoxx50 relative strength (RSI) is 43.04, compared to 49.90 the prior day, still in a neutral (30-70) range and better than its recent February 5th 33.57 low, its 2014 low. The indexes lowest recent RSI level was 25.77 on June 24th, which marked the 2013 2,494.54 closing low.
Today, the Euro Stoxx50 trades at 3,060.68, 3,091.08, -3.68% below its 3,168.76 January 15th post-2008 high close, and -41.9% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,092.55 close, the index opened lower and fell to a mid-session 3,048.37 intraday low. All market segments are at least -0.11% lower. Leaders are utilities, telecommunications, and consumer services. Financials are down -0.83%. Laggards are health care, industrials, and consumer goods, which are down at least -1.28%.
This week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -1.40%, -1.45%, -1.87%, and -1.89%, respectively. Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed down -1.71%, -1.42%, -0.95%, and -3.52%, respectively. In March, Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -3.08%, -2.85%, -2.80%, and -5.35%, respectively. In February, the indexes closed at least +4.14% higher. In January, the indexes close at least -2.57% lower.
In 2014, the indexes are now lower. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -1.83%, -1.98%, -0.26%, and -3.96%. In 2013, the indexes closed up +18.0%, +14.4%, +18.0%, and +25.5%, respectively.
4Q2013 SPX Earnings. Of 495 (of 499) reporting companies, 363 or 73.8% surprised positively on earnings, with an average +4.58% surprise average. Of reporting companies, 303 or 61.6% reported sales or revenues above estimates. The average sales/revenue surprise is +0.86%. Materials lead with +13.6% EPS and +0.72% revenue surprises. Financials follow with a 9.59% earnings surprise and +3.47% revenue surprise.
Valuation. The SPX trades at 17.0x estimated 2013 earnings ($110.15), 15.9x estimated 2014 earnings ($117.60), 14.3x estimated 2015 earnings ($130.86), and 12.9x estimated 2016 earnings ($144.45). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2013, 2014, 2015, and 2016 earnings to grow +6.52%, +6.76%, +11.3%, and 10.4%, respectively.
The BKX trades at 13.7x 2013 adjusted EPS ($5.16), 12.7x estimated 2014 earnings ($5.56), 11.5x estimated 2015 earnings ($6.14), and 10.2x 2016 earnings ($6.90). Analysts expect 2013, 2014, 2015, 2016 EPS will grow +19.4%, +7.66%, +10.5%, and +12.3%, respectively.
Composite, index, and equity options. Options markets are unchanged at neutral to bullish, compared to neutral to bullish the prior session. Composite options are bullish, index options are bullish, and equity options are neutral. The composite put/call ratio is 0.82, compared to 0.83 the prior day, and worse than 5- and 10-period moving averages of 0.81 and 0.83, respectively. The index put/call ratio is 0.82, compared to 0.70 the prior day, and better than its 5- and 10-period moving averages of 1.00 and 0.98, respectively. The equity put/call ratio closed the day at 0.82, compared to 0.93 the prior day, and worse than its 5- and 10-period moving averages of 0.77 and 0.79, respectively.
NYSE Volume, Breadth Indicators. Volume rose +2.34% to 642.77 million shares, compared to 628.09 million shares the prior day, 0.90x the 710.53 million share 20-day moving average. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged by -1,053 (compared to -401 the prior day), or 0.48:1. Up volume was 0.39:1 down volume.
Distribution day count and market outlook. On February 7th, with the SPX at 1797.02, the market outlook improved to "confirmed uptrend". The subsequent distribution day count is 2 for the SPX and 6 for the Nasdaq. The SPX's subsequent rise is +3.93%.
Libor, LOIS, Currencies, Treasuries, Commodities:
· USD LIBOR is 0.08850%, compared to 0.09010% the prior day. USD 3-month LIBOR is 0.23330%, up from 0.23435% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.
· The US Libor-OIS (LOIS) spread is 15.230 bps, compared to 15.335 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 13.400 bps, up from 13.700 bps the prior day, and down from the December 27, 2011, high of 98.800 bps. Moves in the LOIS indicate changes in intra-bank lending risk premiums.
· The 3-month Euro basis swap is -4.223 bps, compared to -4.075 bps the prior day, up from a trough of -147.00 bps on December 14, 2011, but far better than a normal -10 bps and -40 bps range.
· German 10-year debt yields are 1.59%, compared to 1.64% the prior day. Japanese 10-year debt yields are 0.63%, compared to 0.64% the prior day. Spanish 10-year debt yields are 3.32%, compared to 3.32% the prior day. Italian 10-year debt yields are at 3.39%, compared to 3.40% the prior day.
· U.S. Treasury yields are higher, with 2- and 10-year maturities yielding 0.358% and 2.744%, respectively, compared to 0.370% and 2.768% Tuesday. The yield curve narrowed -1.260 bps, with the 2- to 10-year spread at +2.386%, compared to 2.396% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.429% on May 1, 2013, to a high of +2.648% on December 31, 2013.
· The U.S. dollar is mixed, weaker compared to the euro and Japanese yen, but stronger compared to the British pound. The dollar trades at US$79.765, compared to a US$79.859 intraday high and US$79.736 the prior day, and worse compared to its $80.521 50-day, US$80.480 100-day, and US$80.999 200-day averages. The euro trades at US$1.3870, compared to a US$1.3875 intraday low and US$1.3860 the prior day. The euro trades better compared to its US$1.3670 50-day and US$1.3646 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥102.71, compared to ¥103.02 the prior day. The yen trades better than its 50-day moving average ¥102.95, and better than its January 1st 105.31 closing low, its weakest prior multi-year closing low.
· Citigroup Economic Surprise Index worsened to -33.60, compared to -31.60 the prior day, its 15th consecutive negative reading. The index is worse compared to its respective -30.46 5-day and -22.43 10-day moving averages. The index fell to a 52-week low of -32.90 on June 10th. The index improved and turned positive on July 30th and rose to 53.30 on October 1st, but subsequently fell on dollar weakness to -2.10 on October 31st. It subsequently strengthened to a +72.70 high on January 15th, but then subsequently trended lower and turned negative on February 19th. After a lag, the CESIUSD correlates with EPS revisions.
· Commodities prices are mostly lower, with lower energy, higher precious metals, lower aluminum and copper, and mostly lower agriculture prices.
· The CBOE SPX Volatility Index (VIX) rose +4.23% to 14.80, compared to 14.20 at the prior close. The VIX is +3.15% above the 14.20 20-day moving average. Its 30-day high is 21.48. Its 30-day low is 13.44. The index's all-time closing low is 9.31 on December 22, 1993. The long-term average is 20.14.
· The Euro Stoxx 50 volatility index (V2X) is 21.33, up +7.91% from 19.77 at the prior day's close. The V2X index trades +18.8% above its 17.95 20-day moving average, -13.3% below the 24.60 30-day high, and +33.4% above the 15.99 30-day low.
· The Hang Seng volatility index (VHSI) closed at 18.15, up +4.07% from 17.55 at the prior close. The VHSI index trades +4.07% above its 17.44 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.
· CBOE SKEW (SKEW) fell -0.97% to 130.08, compared to 131.35 the prior day, above a neutral (115-120) range, and above 130 for a 4th consecutive session, a level which correlates well with market tops. The recent high was a record 143.20 on December 20th. Its recent low was 112.47 on May 25, 2013. Spikes in excess of 130 correlate well with short-term market tops, though not in October or November. The prior record high was 139.25, on March 12, 2012. The index rarely falls below 110, last on July 31, 2009. The index correlates with market tail risks, the cost of buying out-of-the-money, long-dated options, i.e., options not affected by expirations. A rise suggests that investors are buying more puts than calls, a bearish signal.
U.S. Economic Reporting and News:
Overseas Economic Reporting and News:
- Australia - March Westpac consumer confidence was 99.5, compared to 100.2 prior.
- China - This evening, February YoY industrial production, with +9.5% survey and +9.7% prior.
- Japan - February consumer confidence was 38.3, compared to 40.0 survey and 40.5 prior.
- Eurozone - January MoM industrial production fell -0.2%, compared to +0.5% survey and -0.4% revised prior.
Tuesday's Trade. On greater, but below average NYSE volume, U.S. equity indexes moderately lower. Equities traded narrowly through late morning, then weakened on Chinese and Ukrainian macro concerns and trended lower to late afternoon intraday lows. The SPX, DJI, Nasdaq, and NYSE composite lost -0.51%, -0.41%, -0.63%, and -0.58%, respectively. The SPX, Nasdaq, NYSE composite, and RTY are all higher this year. The DJI is -1.36% lower in 2014.
Since February 7th, the U.S. equity market outlook is "confirmed uptrend". The subsequent distribution count is 2 on the SPX and 6 on the Nasdaq. The SPX closed +3.93% above the February 7th 1797.02 close.
Market breadth was negative, with gainers 0.48x losing stocks. All SPX market segments closed at least -0.20% lower. Leaders were technology, health care, and consumer goods. Financials fell -0.64%. Laggards were industrials, basic materials, and oil and gas, which fell at least -0.71%.
NYSE volume rose +2.34% to 642.77 million shares, compared to 628.09 million shares the prior day, 0.90x the 710.53 million share 15-day moving average volume. On the day, bond markets strengthened. The U.S. 10-year yield opened at 2.7788%, and traded narrowly through mid-afternoon, then fell to a late 2.7607% intraday low. The yield ended at 2.7680%, down -0.90 bps compared to the 2.7680% prior close.
From its prior day 1877.17 close, SPX futures signaled a modestly higher open, and the index traded narrowly higher through mid-morning, with a 1882.35 intraday high. The index eased lower before mid-session, and generally fell through the afternoon to a late 1863.88 intraday low. The index ended at 1867.63. The index closed +73.7% above the 1074.77 October 4, 2011, intraday low.
The DJ Transportation index (TRAN) fell -0.43%, compared to the DJI's -1.36% loss. From its prior 7,580.25 record close, the TRAN fell below 7,550 in early trading, but reversed higher to a late morning 7,611.73 intraday high. The index eased back to breakeven through mid-afternoon, then fell to a late afternoon 7,543.92 intraday low. Volume rose -18.1% to 9.673 million shares, compared to 11.814 million shares the prior session, and 0.79x the 15-day moving average volume. The TRAN closed +2.75% and +3.07% above its respective 20- and 50-day moving averages, and +4.70% and +10.8% above its respective 100- and 200-day moving averages.
Market volatility rose +4.23%, as the CBOE SPX volatility index (VIX) closed at 14.80, compared to 14.20 at the prior close. The VIX opened at 14.20, fell to an early 13.84 intraday low, then general trended higher to a final hour 14.93 intraday high. The VIX's all-time closing low was 9.31, on December 22, 1993. Its lifetime average is 20.09.
The market's technical factors were little changed. All exchanges closed above their 20-, 50-, 100-, and 200-day moving averages. SPX relative strength (RSI) eased to 60.68, compared to 65.92 the prior day, in a neutral range, and much better than an oversold 31.24 on February 3rd. The RSI is also down from an overbought 71.26 on December 31st, when the SPX closed an earlier record high, but above earlier oversold levels of 35.14 on August 27th and 39.19 on October 9th. The CBOE put/call SKEW fell -0.97% to 130.08, compared to 131.35 the prior day, well above a neutral 115-120 range and above 130 for a 2nd consecutive day, a level that correlates well with short-term market tops.
This week, the SPX, SJI, Nasdaq, and NYSE composite are down -0.55%, -0.62%, -0.02%, and -0.82%, respectively. Last week, the SPX, DJI, Nasdaq, and NYSE composite closed up +1.00%, +0.80%, +0.65%, and +0.83%, respectively. In March, the SPX, DJI, and NYSE composite are up +0.44%, +0.18%, and +0.00%, respectively, while the DJI is Nasdaq is down -0.02%. In February, the SPX, DJI, Nasdaq, and NYSE composite closed up +4.31%, +3.97%, +4.98%, and +4.60%, respectively. In January, the SPX, DJI, Nasdaq, and NYSE composite closed down -3.56%, -5.30%, -1.74, and -4.16%, respectively.
In 2014, the SPX, Nasdaq, and NYSE composite are up +1.04, +3.13%, and +0.24%, respectively, while the DJI is down -1.36%. In 2013, the SPX, DJI, Nasdaq, and NYSE composite closed up +29.6%, +26.5%, +38.2%, +23.2%, respectively. All closed at least +5.91% higher in 2012.
KBW Bank Index (BKX). On notably lower and below average volume, the BKX closed at 70.37, down -1.08% from 71.37 at the prior day's close, its 5th consecutive close above 70.00. The index sold off through mid-session to 70.60, then traded narrowly through the afternoon with a final hour 70.50 intraday low. Volume fell -1.00% to 42.074 million shares, compared to 42.498 million shares the prior day, and 0.79x the 52.897 million shares 15-day moving average.
Large cap banks underperformed the regional banks, as the KBW regional banking index (KRX) fell -0.51%.
This week, the BKX is down -1.04%. Last week, the BKX closed up +3.36%, compared to a gain of +0.70% the prior week. In March, the BKX is up +2.29%. In February, the BKX closed up +2.41%, compared to January, when the BKX closed down -1.07%. In 2014, the BKX is up +1.93%. In 2013, the BKX rose +35.1%, better than the SPX's +29.6% rise.
The BKX is now +19.3% better than the June 24th 59.19 close, its worst since May 13, 2013. The index crossed above 50 on December 17, 2012, 60 on May 15, 2013, and 70 on January 8, 2014, but then dropped back below 70 on January 24th, which persisted until March 6th. The BKX closed +116.8% above the 32.56 intraday low on October 4, 2011. Large-cap bank stocks have outperformed the broader market's rebound, with the SPX up +73.8% in the same period.
The BKX index closed -41.7% below its February 20, 2007, record 121.06 high. The BKX is up +279.2% from its 18.62 March 6, 2009, closing low.
Technical indicators were little changed. The index closed +2.24%, +2.25%, +4.29%, and +7.79% above its respective 20-, 50-, 100-, and 200-day moving averages. The 20-day moving average rose +14 bps to 69.05. The 69.05 50-day moving average rose +3 bps. Its 100-day moving average rose +7 bps to 67.69, and the 200-day moving average rose +5 bps to 65.50. The 20-day closed (by +0.00 points) above the 50-day, and the gap narrowed -11 bps. The 50-day moving average closed (by +3.55 points) above the 200-day moving average, and the gap narrowed -2 bps. The 100-day moving average closed (by +2.20 points) above the 200-day moving average, and the gap widened +3 bps.
The directional movement indicator narrowed to -15.777, compared to +20.146 the prior day, its 7th consecutive positive reading. Relative strength fell to 59.91, compared to 66.56 the prior day, in a neutral range, up from the recent 32.95 low on February 3rd, but down sharply from an overbought 75.56 and 71.88 on January 9th and 10th, respectively. The recent low RSI level 31.08 on November 14, 2012, which is also the date of the BKX's 2012 closing low. Next resistance is 71.20; next support is 70.25.