TradeTheNews.com TradeTheNews.com Weekly Market Update: Autumn Rally Vanishes
Fri, 13 Nov 2015 16:16 PM EST
US equities broke a six-week winning streak as global economic weakness finally
caught up with the autumn rally. After last Friday's big October US jobs
report, the reality of Fed rate hikes in December is starting to sink in, but
at the same time, the US economic data out this week suggested that the US is
hardly a bastion of strength even compared to the anemic global economy.
Chinese October economic data was looking pretty poor, and a raft of European
preliminary third-quarter GDP numbers were flat or up tenths of a percent.
Commodity prices remained under pressure, with markets watching WTI crude move
ever closer to $40/bbl. For the week, the DJIA fell 3.7%, the S&P500 lost
3.6% and the Nasdaq swooned 4.3%.
Press reports out this week indicated that the ECB Council was coming to a
consensus that interest rates should be cut deeper into negative territory to
support the flagging European recovery. The thinking appears to be that a
dominant faction on the council wants to see a steeper cut to the deposit rate
than current expectations for a ten basis point reduction. Expectations were
high for President Draghi's speech on Thursday, however Super Mario merely
reiterated his standing positions that QE will run beyond Sept 2016, if needed,
and that the ECB is not short of instruments to achieve price stability. Most
of Europe reported anemic preliminary third-quarter GDP numbers on Friday,
further highlighting the dim prospects for the continent and handing the ECB
doves the ammunition they were looking for. EUR/USD was mostly constrained
within the 1.0700-1.0800 range for the week, retesting April lows.
The September JOLTS report gives the Fed even more evidence the US economy at
or very near to full employment. The JOLTS survey beat expectations, rising to 5.53M
and moving it back toward the record high of 5.735M in July. Analysts note that
the quits rate has been stalled at 1.9% for the last six surveys, since the
April report, arguing the reluctance of workers to quit and seek other
(presumably better) jobs shows the labor market is still not entirely healed.
Meanwhile, the weekly jobless claims report showed initial claims steady at
recent 15-year lows.
October economic data out of Beijing further cemented the belief that the PBoC
and the Chinese State Council would be forced to open the door to even more
policy easing. China's October trade balance saw the highest surplus on record
since 1995, however both exports and imports saw steep declines: Exports fell
nearly 7%, the fourth month of decline, while imports fell an eye watering
-19%. October CPI slowed to a six-month low of 1.3%. October industrial output
slowed to a 7-month low, missing expectations, while urban asset investment hit
new multi-year low. Meanwhile, China Securities regulator CSRC provided some
stimulus of its own for Chinese equities, saying it was confident in its
ability to reopen the China IPO market by the end of 2015 after a four-month
suspension due to stability in financial markets.
Crude futures ended the week not far from their late August lows after an
eight-session meltdown. WTI cratered came within pennies of $40 and Brent
dipped to $44.50. The weekly inventory reports turned in another round of huge
builds. Both Russia and Saudi Arabia reiterated their long-standing opposition
to cutting production in order to support prices, strongly suggesting that
chances of any sort of deal to trim production at the upcoming OPEC meeting is
dead. In its monthly report, the IEA forecasted a 2016 slowdown in global
demand. However, the strengthening USD and poor economic data reports out of
China and Europe are likely the biggest factors behind crude's dramatic retest
of its lows.
Alibaba provided 24 hours of running commentary on its big 'Singles Day' sales
event, although investors were not impressed. Jack Ma shared that the total
value of goods sold at the event was $14.3B, a 60% increase over the year ago
total. Ma claimed the positive numbers were not just a good indicator for
Alibaba, but also for China's shift to consumer-driven economy. Shares of BABA
lost about 10% on the week, mostly reflecting the weaker data out of Beijing.
Meanwhile, Amazon continued to notch all-time highs around $675, driven higher
by positive analyst commentary.
Three major US retailers suffered double-digit percentage declines this week
after reporting third-quarter results. The Gap lost over 10% on the week after
warning investors in a preliminary report that it would miss expectations for
the quarter on -3% comps. Macys shares cratered after it missed widely on
revenue and cut its FY15, on -3.6% same store sales. In addition, Macys
disclosed it would not pursue a REIT transaction to extract value from its real
estate holdings, citing the many costs associated with the structure. Nordstrom
lost nearly 17% on Friday after missing top- and bottom-line expectations and
also cutting its FY15 guidance. JC Penny and Kohl's both beat expectations and
turned in positive sales comps in the quarter, however shares of both firms
have been dragged much lower by their competitors' failures.
Tech was not immune to earnings weakness either. Cisco reported quarterly
results that were better than expected but shares sold off on weak guidance.
Homebuilders DR Horton and Beazer Homes reported strong fourth-quarter results.
DR Horton's profits rose nearly 45% y/y and revenue gained 27% y/y, although
the firm only just met expectations. Beazer's y/y gains in profits and revenue
were considerably less, but still pretty positive. However, Beazer's new orders
rate flat-lined in the quarter, while DR Horton continues to see double-digit
In M&A news, AB InBev has formally launched its $100 billion-plus offer for
SABMiller and agreed to sell the latter's stake in MillerCoors to help win
regulatory approval. The deal would be one of the largest mergers in history,
worth about £70 billion or $106 billion. Mylan failed in its bid to acquire
Perrigo, falling short of the 50% threshold in its unsolicited tender offer.
Troubled natural gas producer Apache Corp received and rejected an unsolicited
takeover approach from Anadarko. Press reports also said that Syngenta was back
on the block, having received and rejected a preliminary offer from ChemChina.