TradeTheNews.com: Contrast
Grows Sharper Between US and the Rest
Fri, 05 Dec 2014 16:15 PM EST
Markets got off to a weak start on Monday, with fluky US Thanksgiving sales
numbers and weak PMI data in Europe and China weighing on global stocks. The
ECB intervened verbally again on Thursday indicating that it is very close to
launching a full-fledged QE program, although the final details of the campaign
appear to still be under discussion. The Yen kept sliding amid the Japanese
Prime Minister's rush for a new mandate for Abenomics with elections scheduled
for Dec 14th, and Moody's cut Japan's sovereign rating thanks to heightened
uncertainty over the government's political objectives. US equity indices were
once again testing all-time highs on Friday after a stunning November US jobs
report helped close out a seventh straight week of gains. In China, the
Shanghai Composite continued to mark 42-month highs. The blowout US jobs report
cut both ways, with the Fed now facing another data point that suggests rates
need to rise sooner rather than later, though markets showed little sign of
panicking yet over the prospects of a Fed 'rate lift off.' Despite the
blockbuster jobs data, the spread between the10-year TIPS and the 10-year
Treasury remained at a three year low, indicating that markets are still more
concerned about the disinflationary effects of falling oil prices and the
global economic malaise. For the week, the DJIA rose 0.7% nearing the 18,000
milestone, while the S&P500 gained 0.4%, and the Nasdaq slipped 0.2%.
The November non-farm payrolls report delivered its highest reading in more
than three years, while the October non-farm total was revised up by more than
10%. Along with big payrolls gains came a surprising m/m bump up in hourly
earnings, which was twice the expected rate. Between the ECB statement and the
US jobs report, the dollar saw another week of strong gains. EUR/USD briefly
testing below 1.2280 and USD/JPY hit a fresh 7.5-year high near 121.70 on
Friday.
At the post-decision press conference, ECB President Draghi outlined his
thinking about the shape of a potential QE program and said the committee would
not tolerate a prolonged period of low inflation. He indicated the ECB was
mulling purchases of any class of asset except gold and foreign assets and a
subsequent press report suggested the ECB would most likely buy bonds but not
equities. As for the launch date, he suggested the program would start in early
2015, but not necessarily at the January meeting. Obliquely addressing German
resistance to sovereign QE, Draghi reminded listeners that the ECB does not
need unanimity to proceed on QE and has made decisions that were not unanimous
in the past.
The five-month slide in oil prices moderated somewhat this week, although both
Brent and WTI futures ended below $70. An unexpected drawdown in crude stocks
seen in the weekly DoE inventories report briefly arrested the price drop
mid-week, although shares of shale producers continued their steep declines.
According some reports Saudi Arabia is eyeing $60/barrel Brent crude as a floor
where oil prices could stabilize, while separate reports indiscated crude sold
at the wellhead in the Bakken shale region in North Dakota was being discounted
to under $50 a barrel in some cases.
Black Friday sales numbers revealed a stark and growing divide between
brick-and-mortar sales and online sales. According to ShoppperTrak, Black
Friday shopping at physical stores was down about 7%, while IBM data showed
online Black Friday sales were up 9.5% y/y. A National Retail Federation survey
covering Thanksgiving Day through Sunday showed total spending was down 11%
y/y. One bright spot: auto sales. There were reports that Black Friday auto
sales grew 10% y/y, helping to boost November SAAR to 17.2M, the strongest pace
since 2003.
Thanks to that boost in holiday weekend sales, most of the major automakers
beat expectations for November US car sales. Chrysler again led the pack with a
20% y/y increase, while GM saw a more modest 6% gain. Nissan's sales were down
on a y/y basis but still better than expected, while Toyota eked out a slight
gain. Ford was the laggard, with sales down 2%, right in line with consensus
estimates, while truck sales flagged, mostly due to the changeover to the
highly anticipated 2015 models.
Apple suffered a minor flash crash on Monday morning just after the open of
cash trade. Shares of AAPL plummeted 6.4% in one minute as trading algorithms
sold the name hard for no apparent reason. Post-hoc rationalizations of the
sudden move included Morgan Stanley's downgrade of the tech sector from
overweight to market weight, including a recommendation to trim positions in
Apple, although the news had been out for hours by the time of the mini-crash.
A nearly 10% gain for the week in Shanghai Composite - it's best week in 5
years - has given the mainland index an almost 40% rise for the year, even
though the manufacturing and services PMI figures out this week were not stellar.
Official manufacturing and final HSBC prints hit 8-month and 6-month lows
respectively, while Services PMIs edged slightly higher. Nevertheless, the
early Santa Claus rally in the Far East is in full swing, as the tailwinds of
the recent PBoC interest rate cuts and analyst expectations for even more
easing are lifting the relatively undervalued A-shares. The Shanghai index
could continue its roll on next week's data, beginning with the release of the
November trade balance on Sunday night ET.
On Monday, Moody's registered a vote of no confidence in Abenomics, cutting
Japan's sovereign rating one notch, citing heightened uncertainty over the
achievability of fiscal deficit reduction targets after a sales tax hike was
delayed. A brief market reaction to the Moody's action was quickly absorbed and
then the yen and Nikkei Index resumed their relentless rise. The Nikkei225
ended the week up 2.6% above 17,900, and will likely test the 14-year high
around 18,300 early next week given continued sharp gains in the USD/JPY pair
after the US jobs data. Japan's focus now turns to Sunday's release of the
final Q3 GDP data which is likely to get a lift from much stronger than
expected CapEx figures out this week, as well as the final stretch of political
campaigning ahead of the December 14th parliamentary elections.