Macro Market · Market Commentary · Newsletter

Weekly Commentary – Lackluster NFP and Market Reaction

On Friday, I was not following the news or markets much, but seemed I did not miss much neither. I did see the headline that NFP was weaker than expected at 156k vs 167k in August. Quick recap from Reuters:

“The Labor Department’s report on Friday suggested the economy was on firm ground, but not growing so swiftly as to knock the U.S. central bank off its game plan of raising borrowing costs only gradually. Nonfarm payrolls rose by 156,000 last month, down from a gain of 167,000 in August. The unemployment rate ticked up a tenth of a percentage point to 5.0 percent as more Americans rejoined the labor force.”

Post-NFP equity futures spiked temporarily on bets that Fed will hold off rate hike for rest of the year, but that was put to bed as market digested that the number was neither too strong nor weak to change the big picture. The subsequent market action became lackluster as conviction is lacking in every asset class. S&P futures plunged from +10 to deeply negative territory before closing -10. What that means is that SPY remains inside the tight triangle wedge and fireworks will have to wait until at least next week

20161008-SPY.png

The weak number was able to stall the safe haven trio (Gold, Treasuries and Yen) from falling further, but at the same time, they were not able to muster much of a rally neither. Yen was the outperformer among the three, but it is evident the LT trend has changed and rallies should be sold into. Looking at the FXY (Yen ETF), we have confirmed 20-50DMA bearish crossover and broken trendline which are solid evidence of a trend change.

20161010-FXY.png

The 30yr Treasury Yield was flat like a pancake after failing to get above September highs, and closed with a doji like candle. In the ST I expect we have a slight pullback but LT still expect rates to move higher. First hurdle is getting above the key swing point of 2.5% but lacking a catalyst it take a while to get over the hurdle

 

Last but not least, gold was up slightly on Friday but week over week dived more than $60 and suffered the biggest technical damage on the year by closing solidly below 200WMA. McClellan published a weekly piece on how “Big Drops Do Not Mark Final Gold Bottoms”.

http://www.mcoscillator.com/learning_center/weekly_chart/big_drops_do_not_mark_final_gold_bottoms/

I tend to agree, but we remain inside in a bullish channel and dips towards 50WMA would be great entry point for longs.

20161010-GOLD.png

Sector-wise, the top performing sector on the week was financials (XLF +1.6%, KRE +2.2%) while REITs (IYR -5%) and Utilities (XLU -3.8%) performed the worst. We already covered this extensively during the week but once again the interest rate move was the main driver. Given that interest rates stabilize in the ST we expect a relief rally in IYR and XLU.

20161010-XLU.png

Meanwhile, the other weakling on the week was IBB (-1.8%), as negative headlines surrounding aggressive drug pricing continue to affect the beleaguered sector. In particular, the recent spotlight has been on Mylan (MYL),   which were accused of unethical pricing practices on EpiPen. MYL plummeted another 6% on the week, however during AH, it erased all losses on the following report:

Mylan to Pay $465 Million to Settle Medicaid Claims

“Mylan NV agreed to pay $465 million to settle allegations that it overcharged the government for its EpiPen products, the latest move by the embattled pharmaceuticals firm to quell the furor over its pricing practices.”

http://www.wsj.com/articles/mylan-to-pay-465-million-in-epipen-settlement-1475874312

The stock surged on the news as uncertainty has been removed, and should provide relief on the entire sector.   Technically, IBB closed just slightly below 50WMA but remains above 20WMA, and we likely continue to oscillate between the two moving averages until a breakout on either side.

20161010-IBB.png

 

But the highlight of the week was across the pond with the pounding of the Pound stealing the thunder. As of now, the clear cause is still not determined but it’s widely blamed on algos or fat finger.

http://www.telegraph.co.uk/business/2016/10/07/what-caused-the-sterling-flash-crash-overnight/

Technically, the picture turned dire every since the triple bottom was broken, and that was the ultimate signal to stay away if you are long (or stay bearish). Now that a parabolic waterfall drop is complete, are are deeply oversold below the lower bollinger band and we are likely due for a relief rally. It is hard to catch the bottom, but scale in small positions in FXB.

20161010-FXB.png

Weekly Market Snapshot

Sector ETFs by Weekly Return %

SYMBOL NAME CLOSE DAILY (%) WTD % YTD %
KRE SPDR KBW Regional Banking ETF 43.24  

0.03

0.07%

2.29% 3.15%
XLF SPDR Select Sector Fund – Financial 19.62  

-0.01

-0.05%

1.66% 2.94%
XLFS S&P SmallCap Financials Portfolio 30.95  

0.02

0.06%

1.64% 0.23%
XRT SPDR S&P Retail ETF 43.85  

-0.03

-0.07%

0.69% 1.41%
SMH HOLDRS Merrill Lynch Semiconductor 69.62  

0.05

0.07%

0.22% 30.67%
XLE SPDR Select Sector Fund – Energy Select Sector 70.61  

-0.41

-0.58%

0% 17.06%
XLG Rydex Russell Top 50 ETF 152.48  

-0.09

-0.06%

-0.19% 5.46%
QQQ PowerShares QQQ Trust 118.47  

-0.26

-0.22%

-0.21% 5.91%
DIA Dow Jones Industrial Average ETF 182.22  

-0.3

-0.16%

-0.31% 4.79%
XLV SPDR Select Sector Fund – Health Care 71.87  

-0.05

-0.07%

-0.33% -0.22%
XLK SPDR Select Sector Fund – Technology 47.62  

-0.13

-0.27%

-0.33% 11.18%
XLY SPDR Select Sector Fund – Consumer Discretionary 79.74  

-0.36

-0.45%

-0.37% 2.02%
SPY SPDR S&P 500 215.04  

-0.74

-0.34%

-0.58% 5.48%
PFF iShares S&P US Preferred Stock Fund 39.17  

-0.02

-0.05%

-0.84% 0.82%
IWM iShares Russell 2000 122.83  

-0.99

-0.80%

-1.11% 9.07%
XLI SPDR Select Sector Fund – Industrial 57.56  

-0.75

-1.29%

-1.40% 8.58%
XLP SPDR Select Sector Fund – Consumer Staples 52.33  

-0.14

-0.27%

-1.65% 3.64%
IBB iShares Nasdaq Biotechnology 284.1  

-0.06

-0.02%

-1.85% -16.03%
XLB Materials Select Sector SPDR 46.86  

-0.89

-1.88%

-1.86% 7.92%
XLU SPDR Select Sector Fund – Utilities 47.12  

-0.06

-0.13%

-3.82% 8.87%
IYR iShares Dow Jones U.S. Real Estate Index Fund 76.55  

-0.11

-0.14%

-5.07% 1.96%

 

Commodity & Bond ETFs

SYMBOL NAME CLOSE DAILY  (%) MTD % YTD %
USO United States Oil Fund 11.33  

-0.18

-1.58%

3.66% 3%
DBA PowerShares DB Agriculture Fund 20.05  

0.01

0.05%

0.35% -2.72%
HYG iShares iBoxx $ HY Corp Bond Fund 87.15  

0.2

0.23%

-0.13% 8.15%
AGG iShares Barclays Aggregate Bond Fund 111.58  

0.02

0.02%

-0.75% 3.31%
LQD iBoxx $ Investment Grade Corporate Bond Fund 122.11  

0.29

0.24%

-0.87% 7.10%
TLT iShares Barclays 20 Year Treasury Bond Fund 133.92  

0.09

0.07%

-2.44% 11.06%
GLD SPDR Gold Trust 119.74  

0.08

0.07%

-4.70% 18.02%
SLV iShares Silver Trust 16.6  

0.16

0.97%

-8.79% 25.85%
GDX Market Vectors TR Gold Miners 23  

0.16

0.70%

-12.98% 67.64%

Country ETFs

SYMBOL NAME CLOSE DAILY (%) MTD % YTD %
EWZ iShares MSCI Brazil Index Fund 35.46  

0.32

0.91%

5.13% 71.47%
DXJ WisdomTree Japan Total Dividend Fund 43.68  

-0.33

-0.75%

1.79% -12.78%
EWW iShares MSCI Mexico Index Fund 49.19  

-0.35

-0.71%

1.46% -1.28%
FXI iShares FTSE/Xinhua China 25 Index Fund 38.49  

-0.31

-0.80%

1.26% 9.07%
EWX SPDR S&P Emerging Markets Small Cap ETF 43.59  

-0.11

-0.25%

1% 15.59%
EEM iShares MSCI Emerging Index Fund 37.69  

-0.17

-0.45%

0.64% 17.09%
EWH iShares MSCI Hong Kong Index Fund 22.1  

-0.04

-0.18%

0.41% 11.50%
EWT iShares MSCI Taiwan Index Fund 15.75  

0

0%

0.32% 23.34%
EWD iShares MSCI Sweden Index Fund 29.15  

-0.19

-0.65%

0.28% -0.10%
EWI iShares MSCI Italy Index Fund 10.99  

-0.03

-0.27%

-0.27% -20.01%
EWA iShares MSCI Australia Index Fund 20.83  

-0.08

-0.38%

-0.33% 9.86%
EWO iShares MSCI Austria Index Fund 16.24  

-0.05

-0.31%

-0.49% 3.77%
EWM iShares MSCI Malaysia Index Fund 8.07  

-0.03

-0.37%

-0.49% 4.26%
EWQ iShares MSCI France Index Fund 24.02  

-0.14

-0.58%

-0.58% -0.78%
EWJ iShares MSCI Japan Index Fund 12.45  

0

0%

-0.72% 2.72%
EWN iShares MSCI Netherlands Index Fund 24.88  

-0.28

-1.12%

-0.72% 4.36%
EWG iShares MSCI Germany Index Fund 26.08  

-0.19

-0.73%

-0.72% -0.42%
EWY iShares MSCI South Korea Index Fund 57.61  

-0.35

-0.61%

-0.89% 15.99%
EWK iShares MSCI Belgium Index Fund 18.64  

-0.04

-0.21%

-1.17% 3.21%
EWL iShares MSCI Switzerland Index Fund 30.16  

-0.17

-0.56%

-1.28% -2.84%
EWS iShares MSCI Singapore Index Fund 10.72  

-0.12

-1.11%

-1.29% 4.28%
EWP iShares MSCI Spain Index Fund 26.38  

-0.36

-1.36%

-1.64% -6.69%
EWU iShares MSCI United Kingdom Index Fund 15.55  

-0.18

-1.15%

-1.83% -3.66%
EWC iShares MSCI Canada Index Fund 25.14  

-0.21

-0.83%

-2.14% 16.93%

Week Ahead – Events and Economic Data

10/12 Wednesday

Time Event / Data
8:00am FOMC Member Dudley Speaks
9:40am FOMC Member George Speaks
10:00am JOLTs Job Openings
2:00pm FOMC Meeting Minutes

 

10/13 Thursday

Time Event / Data
8:30am Initial Jobless Claims
12:15pm FOMC Member Harker Speaks

 

10/14 Friday

Time Event / Data
8:30am PPI, Retail Sales
10:00am Michigan Consumer Expectation
1:30pm Fed Chair Yellen Speaks

 

 

 

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