Market Update 11-15 Oct - Upbeat Earnings Season broke market downtrend

This week we manage to see the market breaking out of the consolidation, with a boost from the earnings season with Goldman Sachs, Alcoa, Charles Swabs.

Retail sales in September were up 0.7% m/m higher, resulting in Amazon gained 3.3% on Friday. Leasing the consumer discretionary sector by 3.6%.

10 of the 11 sectors of S&P500 ended the week higher with consumer discriminate gaining 3.6%, materials 3.6%, real estate 3.5%. The other sectors all ended with 3.5% with the exception of communication service sector. On the commodities side, WTI (Crude Oil) continues its rally to $81, giving the boost to the energy sector.

FOMC from September meeting also showed that the asset purchases will be reduced on a monthly basis by $15bil ($10bil in treasuries and $5bil in agency MBS) if begun later this year and lasting until middle of 2022.

Furthermore, Biden also inked the agreement to increase debt ceiling.

Market Heat Map

Market Internals

Technical Updates

On the technical end, we can see that the S&P500 broke the short term down trend while finding support at the 100 Day Moving Average, sparked by the upbeat earnings from the banking sector and the strong sales for the Consumer Discretionary Sector.

• U.S. Treasuries finished the abbreviated week on a lower note with issues in the belly of the curve leading the retreat after outperforming yesterday. The trading day started with modest losses across the curve after overnight action featured a solid showing from most equity markets and an extension of this week's gains in energy prices, though natural gas reversed during the U.S. session. The market widened its opening losses in early trade, sliding through the release of a much better than expected Retail Sales report for September (actual 0.7%; Briefing.com consensus -0.3%). The 5-yr note and shorter tenors continued sliding as the day went on with the 5-yr yield rising toward its high from Wednesday while the 2-yr yield was lifted to its highest level since March 2020. Longer tenors outperformed, continuing this week's dynamic, as the 10-yr note found support near its morning low while the 30-yr bond returned to its opening level. The 2s10s spread narrowed by 12 basis points to 118 bps over the course of the week. The U.S. Dollar Index spent the day near its flat line at 93.96, slipping 0.2% for the week after marking a fresh 2021 high on Tuesday.

• Yield Check:

  • 2-yr: +5 bps to 0.40% (+9 bps for the week)

  • 3-yr: +7 bps to 0.70% (+12 bps for the week)

  • 5-yr: +7 bps to 1.12% (+7 bps for the week)

  • 10-yr: +6 bps to 1.58% (-3 bps for the week)

  • 30-yr: +3 bps to 2.05% (-11 bps for the week)

• News:

  • Axios reported that a White House source expects a deal on the Biden administration's massive spending plans soon.

  • Japan's Cabinet office maintained its economic assessment in the latest monthly report but lowered its assessment of public investment and exports. Bank of Korea Governor Lee repeated that a rate hike in November is possible if there are no negative surprises.

  • Japan's August Tertiary Industry Activity Index fell 1.7% m/m (last -0.6%).

  • South Korea's September trade surplus reached $4.21 bln last surplus of $4.20 bln). September Imports rose 31.0% yr/yr (last 31.0%) while exports increased 16.7% yr/yr (last 16.7%).

  • Eurozone's August trade surplus reached EUR4.80 bln (expected EUR16.10 bln; last EUR20.70 bln).

  • France's September CPI was down 0.2% m/m, as expected (last 0.6%) but up 2.2% yr/yr (expected 2.1%; last 1.9%).

  • Italy's September CPI was down 0.2% m/m (expected -0.1%; last 0.4%) but up 2.5% yr/yr (expected 2.6%; last 2.0%). August trade surplus reached EUR1.316 bln (last surplus of EUR8.780 bln).

• Today's Data:

  • Total retail sales in September were up 0.7% month-over-month (Briefing.com consensus -0.3%) following an upwardly revised 0.9% increase (from 0.7%) in August. Excluding autos, retail sales jumped 0.8% month-over-month (Briefing.com consensus +0.4%) following an upwardly revised 2.0% increase (from 1.8%) in August. Given the current inflation environment, it's worth noting that retail sales are adjusted for seasonal factors, but not for price changes. In other words, the jump in sales was likely aided by inflation.

    • The key takeaway from the report is the recognition that the broad-based sales increases reflect a rebound from some of the Delta-related restraint shown in August and presumably price increases that are a byproduct of supply chain constraints and higher transportation costs.

• The preliminary October University of Michigan Index of Consumer Sentiment dropped to 71.4 (Briefing.com consensus 73.5) from the final reading of 72.8 for September, leaving it pinned near the lows that were registered last year following the shutdown of the economy to combat the spread of COVID.

  • The key takeaway from the report is the finding that confidence in economic policies is fading regardless of political affiliation, as well as across all age, income, and education subgroups.

• The Empire State Manufacturing index fell to 19.8 in October (Briefing.com consensus 25.0) from 34.3 in September.

• Import Prices increased 0.4% in September after decreasing 0.3% in August. Excluding oil, import prices were unchanged after decreasing 0.1% in August. Export prices rose 0.1% in September after increasing 0.4% in August while export prices excluding agriculture rose 0.3% after increasing a revised 0.3% (from 0.2%) in August.

• Business Inventories increased 0.6% in August (Briefing.com consensus 0.7%) after increasing a revised 0.6% (from 0.5%) in July.

• Commodities:

  • WTI crude: +1.2% to $82.26/bbl

  • Gold: -1.7% to $1768.10/ozt

  • Copper: +2 bps to $4.731/lb

• Currencies:

  • EUR/USD: UNCH at 1.1602

  • GBP/USD: +0.5% to 1.3743

  • USD/CNH: UNCH at 6.4334

  • USD/JPY: +0.5% to 114.24

• The Week Ahead:

  • Monday: September Industrial Production (Briefing.com consensus 0.2%; prior 0.4%) and Capacity Utilization (Briefing.com consensus 76.5%; prior 76.4%) at 9:15 ET; October NAHB Housing Market Index (Briefing.com consensus 75.0; prior 76.0) at 10:00 ET; and August Net Long-Term TIC Flows (prior $2.00 bln) at 16:00 ET

  • Tuesday: September Housing Starts (Briefing.com consensus 1.620 mln; prior 1.615 mln) and Building Permits (Briefing.com consensus 1.670 mln; prior 1.728 mln) at 8:30 ET

  • Wednesday: Weekly MBA Mortgage Index (prior 0.2%) at 7:00 ET; weekly crude oil inventories (prior +6.09 mln) at 10:30 ET; $24 bln 20-yr Treasury bond reopening results at 13:00 ET; and October Fed Beige Book at 14:00 ET

  • Thursday: Weekly Initial Claims (Briefing.com consensus 303,000; prior 293,000), Continuing Claims (prior 2.593 mln), and October Philadelphia Fed Survey (Briefing.com consensus 24.5; prior 30.7) at 8:30 ET; September Existing Home Sales (Briefing.com consensus 6.05 mln; prior 5.88 mln) and September Leading Indicators (Briefing.com consensus 0.5%; prior 0.9%) at 10:00 ET; and weekly natural gas inventories (prior +81 bcf) at 10:30 ET

  • Friday: Preliminary October IHS Markit Manufacturing PMI (prior 60.7) and preliminary October IHS Markit Services PMI (prior 54.9) at 9:45 ET

Other Notable News

On the global scene, we have the Monetary Authority of Singapore tightened the Sing dollar on a surprise move which caused the Sing Dollar to rally against most currencies.

With the US dollar poised to rally further, it faced a little resistance but will likely continue its uptrend, and gold rallied on Wednesday but dropped back down on Friday.

Commentary

With all these positive news, it provided a catalyst to break the technical downtrend line, overshadowing the bearish sentiment coming from the tapering news. Furthermore, S&P500 managed to bounce of the 100 Moving average with the help all these news.

I will be expecting that the equity market will be going back to its previous high, with little possibility to break the previous high unless there are a slew of positive news.