Asset Management & Market Research

Week in review ...

The major averages began the week on a slightly lower note with small caps leading the weakness. The Russell 2000 shed 0.3% while the SPX 500 slipped less than a point with six sectors ending in the red. Weak data from China reignited worries about a global economic slowdown, while investors also remain cautious over tensions in Ukraine. Nervousness was on display again Tuesday, the the SPX slipped to support levels near 1,865. News circulated that another Chinese electric company may be facing imminent default. This was but one story out of China, where equities have been under pressure since last Friday’s Chinese trade data was released. The report showed a severe drop in copper imports. Copper futures fell 2.7% on Tuesday. The news out of Ukraine and Russia was also unsettling, with reports that NATO was conducting reconnaissance overflights near Crimea, and Ukraine’s government stating that it would mobilize 20,000 troops to protect its borders from Russian incursions.

US equities were under pressure again Wednesday morning, as the combination of weakness in copper and geopolitical tensions surrounding Ukraine weighed on investors. The Russian Foreign Ministry stated that if the US provided financial aid to the new Ukraine government, it would be in breach of its own laws that prohibit any aid to regimes that take control by force. Reuters reported that the U.S. was considering the release of 5 million barrels of oil from the Strategic Petroleum Reserve, which sent WTI down over 2% (some posited that this was meant to show the Russians we have even more economic levers to pull in the chess match with Vladimir Putin). The SPX 500 traded as low as -0.71% before closing the day flat.

On Thursday, China’s Premier Li Keqiang spoke at the National People’s Congress, saying the country’s government will not let systemic risks come to the forefront as a result of debt defaults. This comes amid recent worries about an impending wave of defaults. After the Chinese Premier spoke, the Shanghai Composite went from a 0.5% gain to a 1.3% rally, while Hong Kong’s Hang Seng Index also extended its gain to rise 0.5%. He also indicated the government is prepared to tolerate what appears to be the country’s slowing growth. “The GDP growth target (for 2014) is around 7.5%,” Li said. “‘Around’ means there is some flexibility.” Li also reiterated the government’s increased acceptance of bankruptcy but said it needs to guard against “systemic and regional risks.” (ht MarketWatch). Importantly, the Shanghai Composite rose 1.07% in its session overnight owing to speculation that the PBOC would cut its reserve ratio requirement to ease financial conditions in the country.

Weak China data and tensions in Ukraine conspired to drive investors into risk-off mode Thursday, as the SPX dropped 1.17%. From its morning high, the SPX lost 35 points to a intraday low of 1842, before closing at 1846.43. Reports of Ukrainian planes being shot stirred fears that the conflict is inexorably headed towards war. Ukraine’s acting president said he sees a real risk of war with Russia and that it is ready to invade the Ukraine. The VIX rose 3.8 percent to 17.30 on Thursday. More than a few analysts also cited Stanley Fisher’s testimony before the Senate Banking committee, where he made the  claim that the Fed is currently doing all it can to help the economy, even as it slows down its asset purchases.

In advance of the Crimean referendum, Friday opened on a dour note in Asia, with the MSCI Pacific Index dropping 1.7%. The Nikkei resumed its decline with a 3.3% drop, pressured on a number of fronts (including a stronger Yen). Unlike U.S. equities, which are off a couple of percentage points from the highs, the Nikkei closed Friday over 12% below its  December 30 high. Here at home, equities closed modestly lower as the SPX lost just over 5 points to close the week at 1841.

One clear sign of the safe haven trade: money poured into Treasuries this week, pushing the yield on the 10-year UST dropping 14 basis points this week to 2.65%. Another clear sign: volatility protection was in demand, as the VIX closed up 1.55 to 17.77, a level last seen on February 6.

The SPX and Dow sustained their worst losses in 7 weeks. For the week, the SPX recorded a 2% loss, the Dow fell 2.4% while the Nasdaq dropped 2.1%.


The following are this week’s top 20 percentage gainers and top 20 percentage losers, categorized by sectors (over $300 million market cap and 100,000 average daily volume).

This week’s top 20 % gainers

  • Technology: CALL (22.76 +24.71%)
  • Services: VLCCF (14 +26.13%), BYD (13.82 +14.4%)
  • Industrial Goods: CPST (2.22 +21.31%)
  • Healthcare: CMRX (27.14 +44.9%), TSRO (36.76 +21.88%), AMRI (18.81 +20.42%), VNDA (17.65 +15.21%), UNIS (4.8 +14.56%)
  • Financial: CISG (8.94 +22.13%)
  • Basic Materials: SAND (6.71 +26.37%), EPL (38.05 +26.08%), BPZ (2.97 +20.73%), MUX (3.56 +18.27%), PPP (7.8 +16.59%), ANV (6.39 +15.97%), EMES (53.25 +15.76%), GFI (4.36 +15.65%), ALJ (15.94 +14.59%), NG (4.57 +13.4%)

This week’s top 20 % losers

  • Technology: VRNS (42 -21.47%), PLUG (6.71 -18.86%), YOKU (29.16 -18.11%), CUDA (34.69 -17.09%), TSL (15.26 -16.79%)
  • Services: DL (19.73 -25.46%), HELI (7.26 -25%), BPI (14.55 -24.53%), HTHT (23.44 -21.47%), ARO (5.83 -21%), HMIN (30.55 -18.66%), QUNR(29.03 -18.29%), DANG (15.54 -16.72%), WBAI (41.43 -16.3%)
  • Industrial Goods: AMRC (7.52 -25.62%), RAVN (32.44 -17.1%)
  • Healthcare: RPTP (11.25 -27.93%), PETX (17.03 -17.21%)
  • Financial: RM (24.45 -19.52%), WRLD (81.03 -17.7%)


Here’s a summary of the week’s economic reports …


Chinese exports dropped 18.1% on year in February vs growth of 10.6% in January and consensus of +6.8%. Imports rose 10% from a year earlier in February, causing China to report the first monthly trade deficit since March 2013. However, the trend may have been distorted by the Lunar New Year holiday and fake invoicing that boosted the data a year earlier, while the severe winter weather in the U.S. may also have had an effect. The Shanghai Composite fell 2.9%, leading other Asian indices lower.


As expected, the Bank of Japan left its key interest rate unchanged at 0.1% and maintained its program of expanding the monetary base by ¥60-70T a year. The BOJ upgraded its assessment of industrial output and investment but cut its analysis for exports. The bank’s latest policy decision comes ahead of next month’s rise in sales tax, which is expected to drag on the economy.

Small business optimism continues its winter hibernation with the latest Index dropping 2.7 points to 91.4, a reading that historically has been associated with recessions and periods of sub-par growth. The one highlight in the January survey, a surge in hiring plans, was crushed in February by the continued onslaught of a wintry recovery now in its 5th year. “Uncertainty is a major cause of the Index’s dip. Lacking any progress in Washington and facing continued unknowns with the healthcare law, the EPA, the minimum wage, tax reform and more, it is no surprise that the Small Business Optimism Index fell, reversing a few months of modest gains,” said NFIB chief economist Bill Dunkelberg. “As long as uncertainty remains high, owners will remain cautious when it comes to increasing inventory. Business owners aren’t going to bet their money on a future they cannot see clearly.”

The Labor Department’s JOLT survey showed that job openings in the U.S. increased less than expected in January, a sign labor market cooling from late 2013 persisted as severe winter weather hammered the eastern and midwestern U.S. The number of positions waiting to be filled increased by 60,000 to 3.97 million, from a revised 3.91 million the prior month. The pace of hiring fell and fewer Americans quit their jobs.

U.S. wholesale inventories rose 0.6% in January while wholesale sales fell by 1.9%, the Commerce Department reported Tuesday. At January’s sales pace, the inventory-to-sales ratio rose to 1.20 months from 1.18 in December Inventories of durable goods rose 0.4% in January, and inventories of nondurables increased by 0.8%. Inventories rose by a revised 0.4% in December, up a bit from the prior 0.3% reading.


The Mortgage Bankers Association said the average number of mortgage applications slid 2.1% on a seasonally adjusted basis as interest rates grew from the prior week. Applications volume has dropped in three of the past four weeks according to MBA, as interest rates have generally ticked higher. That trend is a reversal from the beginning of the year, when lower interest rates led to modest growth in application volume. On an unadjusted basis, the MBA said the market composite slipped 1% from a week earlier. The refinance index dropped 3%, while the seasonally adjusted purchase index fell 1%. The average rate on 30-year fixed-rate mortgages with conforming loans grew to 4.52% from 4.47% the previous week. Rates on 30-year fixed-rate mortgages with jumbo-loan balances increased to 4.41% from 4.37%.


China’s industrial production slowed to 8.6% in the January-February period, compared to 9.7% in December, while retail-sales growth also eased to 11.8% from 13.6% in December, the National Bureau of Statistics said Thursday. Both data failed to meet the forecasts, as markets expected the industrial output to grow 9.5% and retail sales to expand 13.5% in the period, according to a Dow Jones Newswires poll of economists.

U.S. retail sales rose a seasonally adjusted 0.3% in February, the first increase in three months. Economists polled by MarketWatch had forecast retail sales to rise 0.2%. Spending for January and December were both were revised lower. The decline in spending in January was changed to 0.6% from 0.4% and the sales drop for December was revised to 0.3% from 0.1%. Over the past year, U.S. retail sales have risen by a modest 1.5%

Initial jobless claims fell by 9,000 to 315,000 in the week ended March 8, marking the lowest level since the end of November (MarketWatch’s consensus called for expected claims to total 330,000). The 4-week average declined by 6,250 to 330,500, the lowest level since early December. Continuing claims decreased by 48,000 to a seasonally adjusted 2.86 million in the week ended March 1. Initial claims from two weeks ago were revised up to 324,000 from 323,000.

U.S. business inventories rose in January, but a drop in sales meant it was now taking the longest time since late 2009 to move goods from shelves. The Commerce Department said inventories rose 0.4 percent after increasing 0.5 percent in December. Economists polled by Reuters had forecast inventories increasing 0.4 percent in January. Inventories are a key component of gross domestic product changes. Retail inventories, excluding autos, which go into the calculation of GDP, gained 0.7 percent. That was the largest gain since last July and followed a 0.6 percent rise in December.

U.S. import prices rose more than expected and recorded their largest gain in a year in February as petroleum soared, but there was little sign of a broad pick-up in imported inflation. The Labor Department said import prices increased 0.9 percent last month, the biggest rise since February last year. January’s import prices were revised to show a 0.4 percent increase rather than the previously reported 0.1 percent gain. Economists polled by Reuters had forecast import prices rising 0.4 percent in February. In the 12 months through February, import prices fell 1.1 percent, indicating overall imported inflation remained subdued.


Producer prices in the U.S. unexpectedly dropped in February, held back by the biggest decrease in the cost of services in almost a year. The 0.1 percent decrease in the producer-price index followed a 0.2 percent rise the prior month, and fell shy of the Bloomberg consensus estimate for a 0.2 percent increase. Over the past 12 months, wholesale prices rose 0.9 percent. Clothing retailers, airlines and residential real-estate brokers were among the service providers that saw their pricing power diminish last month. Weak inflation gives Federal Reserve policy makers meeting next week room to maintain low borrowing costs.

Preliminary results of the University of Michigan’s monthly consumer confidence survey are out. The report’s headline index fell to 79.9 from February’s 81.6 reading. The consensus forecast of market economists predicted it would rise slightly to 82.0. The economic conditions sub-index rose to 96.1 from 95.4, but the economic outlook sub-index fell to 69.4 from 72.7. Inflation expectations one and five years ahead remained unchanged at 3.2% and 2.9%, respectively.


Author: Kevin Lane

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