Thursday, December 24, 2015

Chipotle Suffers, Crude Awakening Weekly Market Update: Chipotle Suffers, Crude Awakening
Thu, 24 Dec 2015 13:17 PM EST

**Economic data:
- (FR) France Nov Net Change Jobseekers: -15.0K v -10.0Ke; Total Jobseekers: 3.575M v 3.590Me
- (IL) Israel Nov Unemployment Rate: 5.4% v 5.3% prior
- (RU) Russia Gold and Forex Reserve w/e Dec 18th: $368.9B v $371.2B prior
- (US) Initial Jobless Claims: 267K v 270Ke; Continuing Claims: 1.195M v 2.20Me
- (MX) Mexico Nov Trade Balance: -$1.6B v -$2.2Be
- (MX) Mexico Nov Unemployment Rate: 4.0% v 4.3%e; Unemployment Rate (Seasonally Adj): 4.1% v 4.3%e
- (US) Weekly EIA Natural Gas Inventories: -32 bcf vs. -28 to -24 bcf expected range

Markets lulled into holiday mode on a shortened Christmas Eve trading day and ended flat, with no discernible sign of a Santa Claus rally. Jobless claims came in largely in line with estimates Thursday morning, and the dollar weakened against most major pairs. EIA natural gas inventories fell more than expected, sending prices higher briefly, but couldn't catch the same momentum as crude prices, which gained for the third straight day. In equity news, Omega's Leon Cooperman disclosed an increased stake in REXI, sending its shares up +28%, and Fiat Chrysler announced a recall of 350K SUVs in the US due to a vanity mirror wiring issue.

For the week, the markets shook off anxieties about rising Fed rates and problems developing in the high yield market, as well as concerns about the inconclusive Spanish election on Sunday, and equity markets lifted on light volume. For the week, the DJIA gained 2.5%, the S&P500 rose 2.8%, and the Nasdaq added 2.5%.

The third and final reading of third-quarter GDP showed the US economy grew at a 2% pace in the quarter. Expectations were for the reading to show the economy growing at a 1.9% pace in the third quarter, down slightly from the preliminary reading of 2.1% reported last month. The slight downgrade was triggered by a larger trade deficit and a smaller buildup in inventories. The November existing home sales report was somewhat concerning, as the annualized sales rate plunged more than 10% from October levels and undershot expectations by approximately the same percentage. The NAR cited a range of possible reasons for the surprisingly weak report, including new regulations that came on line last month, the lead-up to Fed rate hikes and a big rise in median home prices on a y/y basis.

Spain's general elections offered a consolation prize to the anti-austerity camp, but hardly delivered the upset some were predicting. The conservative, ruling Popular Party (PP) won the most seats, but lost its majority as two upstart parties divided the vote. PP ceded a number of seats to leftist, populist Podemos and centrist Ciudadanos, and will either have to look for a partner or attempt to form a minority government, increasing the chances of political turmoil. Spains IBEX index fell more than 3% on the inconclusive election result, while the bond market reaction was more muted: Spanish 10-year treasuries were up a maximum of 20 bps at their weakest on Monday, but had regained nearly half that amount by Tuesday. EUR/USD shrugged off the election almost completely.

In the first half of the week crude futures continued to slide, but with a new wrinkle. Within days of the US Congress lifting a 40 year old ban on oil exports, WTI and Brent prices converged, and by Tuesday Brent has lost its entire premium over WTI. After hitting fresh multi-year lows, crude rebounded sharply on Wednesday and Thursday, helped by an OPEC report forecasting higher oil prices over the long term and by a big draw in weekly DOE crude inventory data.

Nike reported another solid quarter with strong futures orders, but profit taking emerged after shares hit a new all-time high. In the tech sector, Micron mostly met expectations for its first quarter, but gave terrible guidance for Q2, pushing its growth story to the second half of the fiscal year. Home goods retailer Bed Bath & Beyond plumbed a new 52-week low after cutting Q3 guidance, indicating disappointing holiday shopping results. Shares of Chipotle puked again after the CDC announced a second strain of E.coli had sickened restaurant patrons in three new states.

On the M&A front, Pep Boys shares saw more gains as billionaire Carl Icahn is now in an all-out bidding war with Bridgestone. In raising his offer this week, Icahn said he would be willing to outbid Bridgestone by $0.10 a share on any bona fide offer from Bridgestone, up to $18.10/share. Carl Icahn's bid received FTC early termination approval, and now PBY awaits a counteroffer from Bridgestone expected later Thursday afternoon. The FTC rejected Staples' offer to revise its $6.3 billion acquisition of rival Office Depot, casting more doubt on the completion of a merger of the two largest office supply chains. Staples disclosed the FTC had rejected its offer to sell $1.25 billion of contracts in what it described as "an effort to create an acceptable remedy" to concerns that the combined company would have too much control of the commercial market for office supplies.

**Looking Ahead***
All times listed for economic events are denominated in Eastern Standard Time (Add 5 hours for GMT equivalent)
- 18:30 (JP) Japan Nov Jobless Rate: 3.2%e v 3.1% prior; Job-To-Applicant Ratio: 1.24e v 1.24 prior
- 18:30 (JP) Japan Nov Overall Household Spending Y/Y: -2.2%e v -2.4% prior
- 18:30 (JP) Japan Nov National CPI Y/Y: 0.3%e v 0.3% prior; CPI Ex-Fresh Food (Core) Y/Y: 0.0%e v -0.1% prior; CPI Ex Food/Energy (Core/Core) Y/Y: 0.8%e v 0.7% prior
- 18:30 (JP) Japan Dec Tokyo CPI Y/Y: 0.1%e v 0.2% prior; CPI Ex-Fresh Food Y/Y: 0.1%e v 0.0% prior; CPI Ex Food/Energy Y/Y: 0.6%e v 0.6% prior
- 18:50 (JP) Japan Nov PPI Services Y/Y: 0.4%e v 0.5% prior
- 23:00 (JP) BOJ Gov Kuroda speech

Friday events
- 00:00 (JP) Japan Oct Final Leading Index CI: No est v 102.9 prelim; Coincident Index: No est v 114.3 prelim
- 00:00 (JP) Japan Nov Annualized Housing Starts: 890Ke v 862K prior; Housing Starts Y/Y: +0.6%e v -2.5% prior; Construction Orders Y/Y: No est v -25.2% prior
- 03:00 (CN) Shanghai Futures Exchange (SHFE) Weekly Copper Stockpiles: No est v 179.6K prior
- 03:00 (RU) Russia Narrow Money Supply w/e Dec 18th (RUB): No est v 8.20T prior
- 20:30 (VN) Vietnam Q4 YTD GDP Y/Y: 6.6%e v 6.5% prior
- 20:30 (VN) Vietnam Dec Trade Balance: No est v -$200M prior; Exports YTD Y/Y: No est v 8.3% prior; Imports YTD Y/Y: No est v 13.7% prior
- 20:30 (VN) Vietnam Dec Industrial Production Y/Y: No est v 8.9% prior
- 20:30 (VN) Vietnam Dec YTD Retail Sales Y/Y: No est v 9.4% prior

Weekend data
- Sat: 20:30 (CN) China Nov Industrial Profits Y/Y: No est v -4.6% prior