Closing Market Summary: Stocks End Flat with Rates and Employment Data in FocusThe stock market finished a range bound week on a relatively flat note as investors pored over the Employment Situation Report for September. Interest rate volatility remained at the forefront as participants assessed an evolving fed funds rate hike picture and further Brexit shocks from across the pond. The Nasdaq Composite (-0.3%) settled in-line with the S&P 500 (-0.3%) and slightly behind the Dow Jones Industrial Average (-0.2%).
Long-term interest rates struggled for direction as a mixed reading from the September employment report shifted the U.S. rate hike outlook. Headline nonfarm payrolls increased by 156,000 (consensus 176k) while August's reading was revised to 167,000 from 151,000. Furthermore, average hourly earnings increased by 0.2% (consensus +0.2%), which could pave the way to an increase in inflation expectations. Average hourly earnings growth also registered the largest year-over-year increase in several years.
The fed funds futures market responded by discounting the odds of a November rate hike and improving the outlook for a December hike. The implied probability of an interest rate hike at the December meeting increased to 69.5% from 63.4% in the prior session. Rate hike odds also improved as participants assessed remarks from Cleveland Fed President Mester (an FOMC voter) and Fed Vice Chair Fischer. President Mester stated that the employment report appeared consistent with her expectations while Mr. Fischer called the reading a "Goldilocks number."
The benchmark index finished in the middle of its trading range, testing technical resistance near the 2155 price level. Nine sectors ended in the red with materials (-1.8%), industrials (-1.2%), and consumer discretionary (-0.4%) acting as notable laggards. On the flipside, financials (+0.1%) and health care (+0.1%) settled in positive territory.
In the heavyweight industrials sector (-1.2%), Honeywell (HON 106.94, -8.67) tumbled 7.5% after projections for its third and fourth quarter fell short of analyst estimates. Meanwhile, Dow component United Technologies (UTX 100.58, -1.50) finished at the bottom of the price-weighted average as it moved lower in sympathy with the name. The broader sector declined 1.4% this week, which compares to a loss of 0.7% in the benchmark index.
The Dow Jones Transportation Average (-0.9%) displayed relative weakness as airlines trimmed their weekly advance. The U.S. Global Jets ETF (JETS 23.09, -0.35) declined by 1.5%, erasing its weekly gain.
In the consumer discretionary space (-0.4%), retail names outperformed, evidenced by the 0.1% loss in the SPDR S&P Retail ETF (XRT 43.85, -0.03). In the ETF, Gap (GPS 26.25, +3.47) displayed relative strength after comparable store sales for September came in better than feared. The stock was also upgraded to "Hold" from "Sell" at Deutsche Bank. The discretionary space finished the week lower by 0.4%.
Property and casualty insurers led in the financial sector (+0.1%) as Dow component Travelers (TRV 114.53, +1.35) jumped 1.2%. The sub-group rebounded after Hurricane Matthew avoided a direct hit to Florida's east coast last evening. Banking names also continued their recent winning streak as the SPDR S&P Bank ETF (KBE 34.22, +0.03) extended its weekly gain to 2.1%. The broader sector advanced 1.5% this week.
Treasuries ended on a mostly higher note as the long end of the curve underperformed. The yield on the 2-yr note slipped two basis points (0.83%) while the yield on the 10-yr note declined one basis point (1.73%). The spread between the 2-yr and 10-yr note has expanded to 90 basis points from 83 basis points last Friday.
Today's participation was above the recent average as more than 929 million shares changed hands at the NYSE floor.
Today's economic data included the Employment Situation Report for September, the Wholesale Inventory Report for August, and Consumer Credit for August:
- Nonfarm payrolls increased by 156,000 (consensus 176,000). Job gains have averaged 178,000 per month so far this year versus an average of 229,000 per month in 2015.
- August nonfarm payrolls revised to 167,000 from 151,000
- July nonfarm payrolls revised to 252,000 from 275,000
- Private sector payrolls increased by 167,000 (consensus 171,000)
- August private sector payrolls revised to 144,000 from 126,000
- July private sector payrolls revised to 221,000 from 225,000
- Unemployment rate was 5.0% (consensus 4.9%) versus 4.9% in August
- Persons unemployed for 27 weeks or more accounted for 24.9% of the unemployed versus 26.1% in August
- September average hourly earnings were up 0.2% (consensus +0.2%) after being up 0.1% in August
- Over the last 12 months, average hourly earnings have risen 2.6% versus 2.4% for the 12-month period ending in August
- The average workweek was up 0.1 to 34.4 hours (consensus 34.4)
- September manufacturing workweek was up 0.1 hour to 40.7 hours
- Factory overtime was unchanged at 3.3 hours
- The labor force participation rate was 62.9% versus 62.8% in August
- Wholesale inventories declined 0.2% month-over-month in August (consensus -0.1%) following a downwardly revised 0.1% decline (from 0.0%) in June.
- Wholesale sales were up 0.7% on the heels of a downwardly revised 0.6% decline (from -0.4%) in July.
- Total outstanding consumer credit increased by $25.8 billion in August (consensus $18.0 billion) after increasing an upwardly revised $17.8 billion (from $17.7 billion) in July.
There is no economic data of note scheduled to be released on Monday.
This is a very high level.
DB US +3% on News
...Rather than admitting they are wrong, this group, who failed to predict the current economic malaise, have constructed this theory to explain why ever more stimulus is required. In particular Warsh warned that the Fed had become the slave of the S&P (I think the cartoon below from the fine folks at Hedgeye sums up the situation nicely). Warshs views were indeed a breath of fresh air for someone so close to policy . I have recently seen his name mooted as a future Fed Chair, and should a vacancy (unexpectedly) arise, he would definitely be my choice.
VW does not plan to undertake capital increase or brand sales (translated)
07 OCT 2016
German car group Volkswagen (VW) is not contemplating the sale of any brands or a capital hike to help pay the costs associated with the emissions cheating scandal, the chairman of its supervisory board told German newspaper Boersen-Zeitung.
The chairman, Hans Dieter Poetsch, said the VW group was solid financially and had a range of financing options, and that is not including measures of an extraordinary nature, such as a capital hike. He said in the interview that VW was not considering a capital increase at the current time or divesting brands.
The company has put aside EUR 17.8bn to meet the costs arising from the emissions affair.
Gapping up
In reaction to strong earnings/guidance:
In reaction to strong earnings/guidance:
- GPS +6.8%, CMTL +1.2%
Select metals/mining stocks trading higher:
- MT +4.1%, AG +1.6%, PAAS +1.6%, SLW +0.9%
Other news:
- UVE +12.6% (Rebounding on optimism that Hurricane Matthew won't hit Florida as hard as initially expected)
- CPRX +5.8% (continued volatility in pre-mkt)
- CIT +5.4% (Reached agreement to sell CIT Commercial Air to Avolon Holdings Limited for $10 bln; additionally discloses receiving non-objection to amended capital plan), INCY +3.9% (presents new Phase 1 data from ECHO-202; reinforces durability of response in patients in combination with Keytruda)
- DVAX +3.5% (Point72 Asset Management disclosed 5.9% passive stake)
- COUP +2.9% (continued strength following IPO)
- EXEL +2.3% (presents Phase 1 Trial Results for Cabozantinib; finds encouraging tolerability results )
- AHP +1.0% (Raging Capital disclosed 7.9% active stake, has met with management regarding its business operations and ways to enhance shareholder value
Analyst comments:
- RUN +5.7% (Upgraded to Buy from Neutral at Goldman)
- VSLR +4.7% (Upgraded to Neutral from Sell at Goldman)
- TRIL +4% (initiated with a Buy at BTIG Research)
- RH +3.7% (upgraded to Neutral from Underperform at Buckingham Research)
- GWPH +2.8% (initiated with a Buy at Goldman)
- ZYNE +1.4% (initiated with a Buy at H.C. Wainwright)
- KLAC +1% (upgraded to Buy from Hold at Needham)
Early premarket gappers
Gapping up: UVE +12.8%, CPRX +10.1%, CIT +6.9%, GPS +6.5%, RUN +5.7%, VSLR +4.7%, CMTL +4.7%, MT +4.6%, DVAX+3.5%, GWPH +2.8%, AG +2.1%, GG +1.8%, SLW +1.1%, JD +1%, COUP +1%, AHP +0.8%, FTI +0.8%, VRX +0.8%, TWTR+0.8%
Gapping down: XCOM -17%, IDRA -7.3%, MG -7.2%, HON -5.3%, SEDG -4.8%, RBS -4.4%, NGG -4.1%, LYG -3.9%, BT -3.6%,RYAAY -3.6%, BCS -3.1%, RT -2.8%, HELE -2.3%, FSLR -2.1%, GFI -1.9%, CLF -1.8%, CCL -1.8%, PUK -1.7%, VOD -1.6%, AZN-1.3%, FIT -1.2%, GSK -1.2%, DB -1%, HMY -1%, YHOO -0.9%
Gapping down: XCOM -17%, IDRA -7.3%, MG -7.2%, HON -5.3%, SEDG -4.8%, RBS -4.4%, NGG -4.1%, LYG -3.9%, BT -3.6%,RYAAY -3.6%, BCS -3.1%, RT -2.8%, HELE -2.3%, FSLR -2.1%, GFI -1.9%, CLF -1.8%, CCL -1.8%, PUK -1.7%, VOD -1.6%, AZN-1.3%, FIT -1.2%, GSK -1.2%, DB -1%, HMY -1%, YHOO -0.9%
RTRS - GERMAN ECONOMY MINISTER GABRIEL SAYS GERMAN GOVT DOESN'T HAVE A RISK ASSESSMENT FOR DEUTSCHE BANK
DBK low of the day 12.05 +0.17%