Market Update: Monday, October 10, 2016

LPL Financial Research

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  • Global markets move up to start week. U.S. equities are trading higher this morning amid gains overseas following a lackluster session on Friday which saw the S&P 500 shed 0.3% as traders digested the nonfarm payrolls report; materials and industrials led to the downside while only healthcare and financials managed slight gains. Overseas, both Europe and Asia are higher, with China’s Shanghai Composite (+1.5%) setting the tone overnight as it posted its largest gain in two months following a week-long holiday and a move by the country’s central bank to reset the renminbi’s peg to the dollar at its lowest point since 2010. Germany’s DAX (+1.1%) and France’s CAC (+0.9) indexes are leading widespread gains in Europe following better-than-expected trade data. Elsewhere, WTI crude oil is adding more than 2%, moving above $51/barrel, after comments out of Russia supporting a global supply cut. COMEX gold is up 0.8%, and the

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Stocks Close Up More than 1% Amid Greece Relief

© Katrina Tuliao, Flickr, Creative Commons
© Katrina Tuliao, Flickr, Creative Commons

U.S. stocks closed more than 1 percent higher in light volume trade Monday, following gains overseas on news of a bailout agreement between Greece and its creditors.

“I think it’s just a sigh of relief that it’s over, but let’s face it, they just kicked the can,” said Maris Ogg, president of Tower Bridge Advisors. “It seems like we kicked the can on a number of fronts. Earnings probably will be front and center int he next couple of weeks.”

About 11 stocks advanced for every 4 decliners on the New York Stock Exchange, with an exchange volume of 571 million and a composite volume of 2.8 billion as of 3:59 p.m. Average volume for the entire day is 3.4 billion.

“You’ve got a relief going on, short covering going on,” said Quincy Krosby, market strategist at Prudential Financial. “What you want for confidence buying is to see a market close with buying orders on the close.”

The Dow Jones industrial average traded about 220 points higher, with Microsoft and DuPont leading most blue chips higher. The index recovered recent losses to trade about 0.80 percent higher for the year.

The Nasdaq Composite jumped 1.5 percent as Apple and the iShares Nasdaq Biotechnology ETF (IBB) rose more than 1.5 percent.

The S&P 500 held near 2,100, led by a rise in information technology stocks and consumer discretionary’s 1.3 percent gain to an all-time high.

The Dow transports also briefly advanced more than 1 percent, with airlines leading gains.

“I think the market’s technically very oversold,” said Bruce Bittles, chief investment strategist at RW Baird. “The market’s poised to go up but to break this trading range (we’ve been in) since January you need to see volume pick up… number of stocks hitting 52-week highs expand.”

He said the S&P 500 breaking past 2,100 would be an encouraging sign.

European Council President Donald Tusk said early on Monday that euro zone leaders reached an unanimous agreement with Greece after all-night talks in Brussels to move forward with a bailout loan for the cash-strapped nation, provided Athens implement tough reforms.

“The jury’s still out on whether or not this is going to be accomplished,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

To receive this third bailout, Greece’s parliament must pass the new rules in areas such as privatization, labor laws and pension reforms by Wednesday. The 86 billion euro ($95.2 billion) in funds would come over three years.

In the meantime, euro zone finance ministers were expected to discuss Monday how to keep Greece financed before the bailout deal is reached. Athens faces a 7 billion euro repayment deadline on July 20 to the European Central Bank.

The ECB announced it maintains the emergency assistance cap for Greek banks, which will remain closed for at least two more days.

The Dow Jones industrial average futures were about 140 points higher before the open.

European stocks jumped on news of the conditional Greece deal, with the German DAX up about 1.5 percent and the STOXX Europe 600 up nearly 2 percent

In Asia, stocks surged with the Nikkei up 1.57 percent and the Shanghai Composite leaping 2.4 percent as it extended a recovery from a recent plunge.

Art Hogan, chief market strategist at Wunderlich Securities, said the domestic response will likely be less exuberant since the major averages ended last week little changed. Only the Dow eked out a gain, of a mere 0.17 percent.

Stocks rose slightly past their opening levels, while bond yields held steady. The U.S. 10-year note yield was 2.44percent and the 2-year held near 0.67 percent. The German 10-year bund yield fell to 0.85 percent.

The U.S. dollar extended gains with the euro dipping below $1.10.

Also in focus is the Iranian nuclear deal, which would allow more oil exports. Talks on a deal were extended past a June 30 deadline and are expected to reach a conclusion Monday.

Crude oil futures settled down 54 cents, or 1.02 percent, at $52.20 a barrel on the New York Mercantile Exchange. Gold futures fell $1.70 to $1,156.20 an ounce in afternoon trade.

No economic data or earnings of note were expected Monday.

Second-quarter earnings season gets underway with a slew of major reports on Tuesday that include JPMorgan Chase and Wells Fargo. On the economic front, retail sales are due Tuesday morning.

“Each data point in and of itself may not be important, but collectively they’re important, especially since there’s a premium on the data,” Krosby said.

Federal Reserve Chair Janet Yellen delivers her semi-annual testimony on the economy to Congress on Wednesday and Thursday.

“If she focuses on (international news and the dollar) that will give the market a huge boost because she’s more concerned about it than she suggested in her speech Friday,” Krosby said.

In other news, the United States posted a budget surplus of $51.8 billion in June, down 27 percent from the same period last year, the U.S. Treasury Department said on Monday.

The Dow Jones Industrial Average traded up 211, or 1.19 percent, at 17,972, with Microsoft and Caterpillar leading gains and Merck and UnitedHealth the only decliners.

The S&P 500 traded up 21 points, or 1.05 percent, at 2,098, with information technology leading nine sectors higher and utilities the only decliner.

The Nasdaq traded up 72 points, or 1.45 percent, at 5,070.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 14.

Written by Evelyn Cheng of CNBC

(Source: MSN)

Eurozone Reaches Deal on Greece

© European Pressphoto Agency
© European Pressphoto Agency

BRUSSELS—Eurozone leaders said Monday morning that they would give Greece up to €86 billion ($96 billion) in fresh bailout loans as long as the government of Prime Minister Alexis Tsipras manages to implement a round of punishing austerity measures in the coming days.

The rescue deal—hammered out after 22 hours of, at times acrimonious, negotiations between the currency union’s leaders and finance ministers—requires the Greek left-wing government’s near-total surrender to its creditors’ demands.

But it gives the country at least a fighting chance to hold on to the euro as its currency.

“The deal is hard,” Mr. Tsipras said after the summit, warning that the measures required by creditors will send the country’s economy further into recession.

European stocks rallied early Monday on the news. By mid-morning, the Stoxx Europe 600 was up 1.5%, building on Friday’s hefty gains. Germany’s DAX rose 1.4%, France’s CAC-40 added 1.9% and London’s FTSE 100 rose 0.6%. In southern Europe, Italy’s FTSE MIB climbed 1.2% and Spain’s IBEX gained 1.5%.

By Wednesday, Athens’s Parliament has to pass pension overhauls and sales tax increases that voters overwhelmingly rejected in a referendum just one week ago. Greece now has to implement European Union rules that make it easier to wind down broken banks, including by sharing the cost with investors and creditors.

“Trust needs to be restored,” German Chancellor Angela Merkel said at a news conference.

“The agreement was laborious. It took time but it was done,” said Jean-Claude Juncker, the president of the European Commission.

“There won’t be a Grexit,” Mr. Juncker added, referring to a Greek exit from the eurozone.

In a concession to Greece, eurozone governments will consider measures to make the country’s debt more manageable, for instance by giving it more time to repay rescue loans.

A detailed rescue program that will have to be negotiated after the first overhauls and cuts have been implemented will contain measures that go far beyond the kind of oversight and external control other governments under eurozone bailouts have endured.

The most divisive step demanded by Greece’s creditors is the creation of a fund that would hold some €50 billion in state-owned assets slated to be privatized or wound down in the coming years. The fund will be under European supervision, Ms. Merkel said.

Most of the money raised will go to pay off Greece’s debt and help recapitalize its broken banks, while €12.5 billion can be used for investment, said Ms. Merkel.

“The advantages outweigh the disadvantages,” she said about the deal, while warning that Greece’s path back to growth will be long and arduous.

Despite these big concessions by Mr. Tsipras, Greece’s future in Europe’s currency union still hangs in the balance.

Passing the tough new bailout measures through Greece’s Parliament could split Syriza and its right-wing coalition partner, the Independent Greeks, which in turn could trigger fresh elections. And there wasn’t an answer on when the country’s banks—closed for most business for the past two weeks—will reopen or how Greece will make a €4.2 billion payment to the European Central Bank on July 20.

The eurozone’s finance ministers will discuss how to come up with a mechanism to meet Greece’s short-term financial needs “as a matter of urgency,” Donald Tusk, the president of the European Council who led the talks, said after the summit.

A statement issued after the summit says Greece will need between €82 billion and €86 billion in fresh funding over the next three years. Between €10 billion and €25 billion will be required to recapitalize Greek banks, damaged by months of deposit outflows and two weeks of capital controls.

French President François Hollande, whose government lobbied hard for Greece in recent weeks, said he expects the ECB to step in with additional liquidity for Greek lenders, as long as Athens follows through on a deal. That could allow banks to gradually reopen.

“That was the indispensable condition, but it will take a few days,” Mr. Hollande said.

In a concession to Greece, eurozone governments will discuss ways to make the country’s debt load more manageable later this year.

“There will be a reprofiling of the debt by extending maturities and doubtless a negotiation on the interest rates,” said Mr. Hollande. “That is part of the agreement.” Ms. Merkel stressed that there won’t be a cut to the nominal value of rescue loans.

European officials said negotiations came close to collapse at some points during the night, when Mr. Tsipras argued that some of the creditors’ demands would be impossible to meet. Germany in particular has been driving a hard line, which for much of the evening included the possibility of a “time-out” for Greece from the currency union.

“In Germany there was strong opinion for Grexit,” Mr. Hollande said, “and not just in Germany.”

“I refused this solution,” he added.

As part of the deal, Greece’s administration will be modernized and depoliticized, Ms. Merkel said, adding that the Athens government will be expected to make first proposals by July 20.

The measures laid out in Monday’s statement reach deep into the workings of Greece’s economy. They include changes to labor laws that would make it easier to fire workers, as well as the further liberalization of markets for products such as pharmaceuticals, milk and baked goods, the statement said. Greece also would have to privatize state assets, including the electricity network operator.

Contrary to Greece’s wishes, the International Monetary Fund will remain involved in bailing it out even after the fund’s existing rescue program expires in March. Athens defaulted on a €1.56 payment to the IMF on June 30 and is unlikely to make a €456 million payment due Monday. The summit statement said it was important for the government to cover the failed payments.

“It has been a laborious night, but I think it is a good step to rebuild confidence,” said IMF Managing Director Christine Lagarde.

Written by Gabriele Steinhauser, Viktoria Dendrinou, Matthew Dalton of The Wall Street Journal

(Source: MSN)

S&P Negative for Year, Dow Briefly Falls 200 Points Amid Greece

© Provided by CNBC
© Provided by CNBC

U.S. stocks fell nearly 1 percent or more on Tuesday, with the S&P 500 falling below its 200-day moving average, as investors awaited developments in the Greece debt crisis.

The S&P 500 fell below that key level for its first time since October 20, joining the Dow Jones industrial average in negative territory for the year. The blue chip index is about 1.5 percent lower for the year and traded about 140 points lower on Tuesday after falling more than 200 points.

“Investors want to get out, not just because of Greece but because there’s a lack of bullish impetus here,” said Adam Sarhan, CEO of Sarhan Capital.

The major averages opened higher but quickly turned lower, with the Nasdaq Composite underperforming and falling more than 1 percent.

“I think right now you’re in a situation where you’re waiting for new news,” said Ben Pace, chief investment officer at HPM Partners. “You can’t ignore what’s happening to (Greece).”

Euro zone leaders held an emergency summit in Brussels to discuss Greece.

Greece will submit a new aid proposal to European creditors “maybe” on Wednesday, euro zone officials said, with Athens’ European partners convening in Brussels for emergency talks.

However, the government’s latest proposals differ only slightly from previous versions, German media reported.

“Optimism over getting a deal done faded away here because the IMF is looking at Greece exactly the same as before,” said Art Hogan, chief market strategist at Wunderlich Securities. “We’re still very much held hostage to what’s next. The market will be hard-pressed to gather any enthusiasm.”

“The good news is, as we look at the selloff thus far, it could have been a lot worse,” he said.

Stocks closed mildly lower on Monday despite the Greek’s rejection of its creditors proposals in a Sunday referendum. However, the Dow Jones industrial average closed below its 200-day moving average.

“The major indices are retesting short-term support on weakness in the energy and materials sectors,” BTIG Chief Technical Strategist Katie Stockton said in a note. “An intraday trading range has formed and it is characterized by positive divergences that bode well for a breakout in the days ahead. We would add exposure once the S&P futures clear 2082 because it would affirm the short-term oversold “buy” signal that is in place per the daily stochastics.”

In U.S. economic data, May international trade numbers showed that the U.S. trade deficit widened, fueled by a drop in exports.

Bond yields continued to fall, with the U.S. 10-year yield (US10Y) below 2.20 percent and the 2-year yield at 0.56 percent. The German 10-year bund yield was 0.64 percent.

The dollar gained nearly 1 percent, while the euro hit a low of $1.0915, its lowest since June 2.

JOLTS job openings data came in slightly higher for May than the previous month. Consumer credit figures are due at 3 p.m. The U.S. Treasury is scheduled to hold a three-year note auction later in the day.

The Federal Reserve releases its meeting minutes Wednesday afternoon.

European shares also reversed to trade trade lower, while in Asia, Japan’s blue-chip Nikkei closed 1.3 percent higher and volatility continued to mark trade in Chinese stocks.

The benchmark Shanghai Composite fell more than 1 percent amid doubts that steps taken by Beijing in the past week would shore up battered stock markets.

Oil continued to decline, with U.S. crude futures near $50 a barrel on Tuesday—off more than 3 percent.

Companies reporting earnings this session include The Container Store (TCS).

Carnival (CCL) announced Tuesday that it gained approval from the U.S. government for limited cruises to Cuba as early as next year.

The Dow Jones Industrial Average (.DJI) traded down 180 points, or 1 percent, at 17,505, with UnitedHealth (UNH) and JPMorgan Chase (JPM) the greatest decliners and Procter & Gamble (PG) leading advancers.

The S&P 500 (.SPX) traded down 20 points, or 0.97 percent, at 2,048, with materials leading eight sectors lower and utilities and consumer staples leading advancers.

The Nasdaq (.IXIC) traded down 78 points, or 1.5 percent, at 4,915.

About three stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of 294 million and a composite volume of 1.3 billion.

Crude oil futures fell $1.71 to $50.82 a barrel on the New York Mercantile Exchange. Gold futures fell $20.00 to $1,153.30 an ounce in late morning trade.

Written by Evelyn Cheng of CNBC

(Source: MSN)

Greece’s Banks Are on the Brink as ECB Mulls Next Move

© REUTERS/Yannis Behrakis "No" supporters wave Greek national flags on the main Constitution (Syntagma) square in Athens, Greece July 5, 2015.
© REUTERS/Yannis Behrakis

After Sunday’s landslide “no” result in Greece, the survival of the country’s banks — closed for the past week and with a daily ATM withdrawal limit of €60 per customer — hangs in the balance as the European Central Bank considers its next move.

The ECB’s governing council was due to meet Monday in Frankfurt, Germany, to discuss whether to continue propping up the Mediterranean country’s struggling lenders after Greeks voted 61.3% to 38.7% to reject the terms of a European Union-led bailout to replace the one that expired on June 30.

With the prospect of a Greek exit from the eurozone now very real, that puts the already fragile banking system in even more of a capital crunch, observers warned.

“Bad blood, closed banks and no more bailout,” tweeted ING-DiBa Economist Carsten Brzeski, while Berenberg Bank Chief Economist Holger Schmieding blogged that the absence of an immediate bailout deal makes it “very hard” for the ECB to authorize continuing emergency support for Greek lenders.

The Greek banks most at risk are the country’s largest: National Bank of Greece, Piraeus Bank, Alpha Bank and Eurobank Ergasias. They account for more than 90% of Greek banking assets.

All four had their long- and short-term issuer default ratings, along with their viability ratings, downgraded last week by Fitch Ratings, which warned that they would have defaulted had capital controls not been imposed at the start of the week.

However, shares in the banks rose sharply on Monday, with Alpha Bank closing up almost 13%.

As for how to plug the capital holes, Credit Suisse Group analysts Neville Hill and William Porter suggested three possible courses in a Monday research note: bankruptcy; a recapitalization from the European stability mechanism that would put Greek banks under EU ownership; or, in the case of a ‘Grexit,’ or Greek exit from the eurozone, capitalization by the Bank of Greece. The latter would entail converting all euro contracts into a new currency, meaning that a Greek banking system as such would cease to exist.

For now, the ECB is staying mum on whether to lift its €88.6 billion ($97.7 billion) ceiling on emergency liquidity assistance for Greek lenders, two weeks before another crucial deadline when Greece has to repay €3.5 billion to the ECB.

“Regarding Greece, we currently have no communication planned for today,” an ECB representative said.

Besides the ECB meeting, Sunday’s referendum outcome left politicians scrambling to prevent a major Greek financial meltdown and unprecedented eurozone exit.

EU Council President Donald Tusk spoke by phone earlier in the day with ECB President Mario Draghi and Eurogroup chief Jeroen Djisselbloem, while German Chancellor Angela Merkel and French President François Hollande are due to compare notes over dinner in Paris. Euro-area finance ministers will gather in Brussels on Tuesday afternoon, followed by an evening summit of EU leaders likely to drag on for most of the night.

In a short statement Monday, Djisselbloem called the referendum outcome “very regrettable for the future of Greece,” warning that difficult measures and reforms are inevitable for the economy to recover.

As politicians and monetary policy makers try to figure out what happens next and await a revised bailout proposal from Greek Prime Minister Alexis Tsipras, observers weighed in on the consequences of a Grexit.

“A Greek exit from the common currency would be a financial, economic, social and potentially also political catastrophe for Greece, aggravated by the chaotic way a new currency would have to be introduced,” analysts at the Brussels-based European Policy Centre wrote on Monday.

They added: “Greece would be cut off from international financial markets, with disastrous repercussions for Greek banks and companies, while capital flight and emigration would become endemic … The political system might well be undermined, with potential dire consequences for stability and democracy in Greece, which is already under strain because of the deep split in society.”

Written by Renee Cordes of The Street

(Source: MSN)