Thursday, December 6 , 2018, 12:38 PM, EST
- NASDAQ Composite -1.01% Dow -2.16% S&P 500 -1.87% Russell 2000 -1.60%
- NASDAQ Advancers: 650 Decliners: 1738
- Today's Volume (vs yesterday) +36.86%
- Crude -2.87% , Gold +$0.44
- November US ADP Employment +179K vs. consensus +195K (Oct revised to +225K from +227K)
- US Q3 Productivity (revised) +2.3% vs. consensus +2.2%; Unit Labor Costs +0.9% vs. consensus +1.2%
- US Jobless Claims for w/e 1-Dec 231K vs. consensus 224K; Continuing Claims for w/e 24-Nov 1631K vs. consensus 1705K
- November US ISM Non-Manufacturing 60.7 vs. consensus 59.2; Nov New Orders 62.5 vs. 61.5 in Oct
- October US Factory Orders (2.1%) vs .consensus (1.9%)
- DOE reports crude oil inventories (7.32M) barrels vs consensus (1.6M) barrels
- Bloomberg Consumer Comfort for the period ending 12/2 came in at 60.3 compared to the prior 60.6 reading
Yesterday's break in US equity trading offered investors a much needed respite from the rout that occurred during Tuesday's session. There was no shortage of culprits behind Tuesday's down draft ranging from the lack of progress in the trade war, conflicting signals from the White House, the flattening Treasury yield curve to bearish technical signals but the underlying narrative behind all of the excuses appears to be the mounting concern that the global growth picture is not as robust as it seems.
While yesterday's equity markets were quiet, the news flow continued with one particular story that seemed to calm some frayed nerves overseas……temporarily. China's Commerce Ministry said that Beijing will start to quickly implement specific items where there's consensus with the US and will push forward on trade negotiations within the 90 day timetable.
That was particularly meaningful as China had essentially gone radio silent following the meeting between President Trump and Xi Jinping. This simple statement confirmed earlier White House statements that said progress was being made.
That glimmer of goodwill yesterday has all been forgotten this morning as new concerns over a trade accord with China have surfaced. The arrest of HuawaI's CFO on violations of U.S. trade sanctions on Iran is seen as a potentially significant setback for U.S. / China trade relations.
Huawai is a very large smartphone manufacturer that has recently surpassed Apple in smartphone shipments and is possibly the largest provider of networking equipment to wireless carriers. The CFO is also the daughter of the CEO and founder who has been rumored to potentially be the next Premier of the country. China authorities reacted furiously, with the spokesperson of the Chinese Embassy in Canada demanding the release of the Huawei executive.
It remains to be seen if this one action is the cause to all of this morning's angst, but one thing for sure this was not factored into the negotiations and is fraying the already fragile nerves of investors worried over a lengthy list of other factors.
We have a laundry list of economic data to peruse as many of the significant reports from yesterday, were pushed to today. November ADP came in at 179,000, slightly below the median estimates. Small firms added 46,000 jobs in November, medium-size businesses added 119,000 to large companies added 13,000. Nonfarm business sector labor productivity for the third quarter was revised up to 2.3% while unit labor cost growth was revised down to 0.9% from 1.2%.
This indicates fairly subdued labor costs for the third quarter. October's trade deficit widened to $55.5 billion, a ten year high, which ultimately does not reflect any improvement despite the imposed trade tariffs. The goods and services deficit has increased by 11.4% from the same period in 2017.
Third quarter U.S. productivity was raised to 2.3% slightly higher than the previous reading of 2.2% but matching estimates. Unit-labor costs rose a revised 0.9%, smaller than the initially reported 1.2% advance. Initial jobless claims fell 4,000 for the week ending 12/1 to 231,000.
Continuing claims for the week ending 11/24 decreased by 74,000 to 1.631 million. Economists have stated that while the latest readings have shown a decrease, they expect that the lows have been reached and that claims could start to pick up.
November ISM Non-Manufacturing came in stronger than expected at 60.7 vs the consensus 59.2. On the other hand, October Factory Orders was uglier than expected decreasing by -2.1% vs the consensus -1.9%. There was one piece of economic data released yesterday. The Federal Reserve's Beige Book showed fading optimism over growth prospects at U.S. firms despite the fact that most districts continued to report modest expansion.
Treasuries continue to be in focus as the yield curve inversion between the 3 and 5 year notes widen a bit continuing to signal a possible looming recession. The 3 year yield currently stands at 3.12 while the 5 year is 2.69. Typically a recession doesn't come until years after and many traders don't see the inversion as official until the two-year yield (2.69) rises above the 10-year yield (2.84)
Moving to the commodity space oil prices are trading lower again as Saudi Energy Minister told reporters that they would indeed cut production but he deemed a cut of 1 million barrels sufficient. Most analysts expected a cut of 1.3 million barrels.
Both Brent and WTI have fallen over 30% over the last 2 months. Prices however have come well off the lows after the Department of Energy reported that U.S. stockpiles dropped by 7.3 million barrels. Looking at gold today, it is trading somewhat range bound as the dollar strengthened and traders booked profits
From a sector perspective, all segments are falling with financials, materials and energy bearing the brunt of the pressure. Technology is also seeing its share of selling especially in the semi sub segment after the arrest of Huawai CFO in Canada.
While still negative on the day, faring somewhat better than the rest are REIT's, communications and utilities. Volume on the day is robust with the S&P on pace for approximately 3.4 billion shares. That would be 50% higher than the 100 day average. That's it for now. Stay nimble and keep that chin strap tightened.
Click the image for larger view
Brian's Technical Take: The German Bear
Equities are deep in the red across the globe and I won't speculate the reason(s) as this type of price action has been ongoing since early October, shortly after Powell stated rates are "a long way" from neutral. The Fed Chairman reversed course last week as market conditions have since warranted such an about face.
The 2-year treasury yield has broken the key 2.79% support level and quickly slid to an intraday low of 2.695%. The technical breakdown projects a minimum measured move to 2.59%. While the Fed is likely to raise rates at its December 19th meeting (now a 64% probability) as a pause then may instill more fear than confidence, markets are now pricing in less than one rate hike for 2019.
As bad as things are here in the US, many overseas markets are worse. Europe is leading to the downside with the leading exchanges in the UK, Netherlands, Italy, France, and Germany all down more than 3%. The German DAX is down more than 3.5%, on pace for its largest decline since the Brexit reaction (-6.8%) in June 2016. The DAX first made its major technical breakdown in early October.
At the time it was already down more than 12% from its 52-week highs, but during the week ending October 12th it broke down below a MAJOR 20-month support line which represented the neckline of a large "head & shoulder" reversal pattern. We last highlighted this "textbook" technical pattern and breakdown in the 10/11 midday market recap
The DAX has now declined more than 20% from its January highs, "officially" in bear market territory, and the technicals project it has another ~5.5% down towards 10,175.
Click the image for larger view
Nasdaq's Market Intelligence Desk (MID) Team includes:
Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.
Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.
Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.
Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq's Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).
Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.