20 Sep 2013 AMC

20 Sep 2013 AMC

Market Summary 

European Markets Closing Prices

European markets are now closed; stock markets across Europe performed as follows:

·         UK's FTSE: -0.4%

·         Germany's DAX: -0.2%

·         France's CAC: -0.1%

·         Spain's IBEX: + 0.2%

·         Portugal's PSI: + 1.1%

·         Italy's MIB Index: -0.5%

·         Irish Ovrl Index: -0.4%

·         Greece ATHEX Composite: -3.8%

Before Market Opens 

S&P futures vs fair value: flat. Nasdaq futures vs fair value: +6.00.
The S&P 500 futures trade lower by 0.1%.

The major Asian markets ended lower, but the session saw limited participation as markets in China, Hong Kong, South Korea, and Taiwan were closed. Japan's Nikkei (-0.2%) ended modestly lower amid reports indicating Prime Minister Shinzo Abe has decided to raise the sales tax and introduce stimulus measures in the amount of JPY5 trillion as early as April of next year. Elsewhere, the Reserve Bank of India surprised the market with a 25 basis point rate hike to 7.50%. In addition, the central bank cut the marginal standing facility rate by 75 basis points to 9.50% in order to facilitate short-term lending. Economic data was limited as Japan's foreign bonds buying report indicated net purchases in the amount of JPY921.6 billion. (-JPY72.2 billion prior). Also of note, New Zealand's visitor arrivals were unchanged month-over-month (1.2% prior) and credit card spending rose 6.6% year-over-year (4.8% prior). 

·         In Japan, the Nikkei shed 0.2% as industrials lagged. Hitachi Construction Machinery and Mitsui OSK Lines both lost near 3.0%. Exporters displayed strength with Konica Minolta and Nikon rising 2.1% and 6.4%, respectively. 

·         Hong Kong's Hang Seng was closed. 

·         In China, the Shanghai Composite was closed. 

Major European indices trade little changed as participants play it safe ahead of this weekend's German national election. While the ruling CDU-CSU coalition is expected to remain in power, the anti-euro party has been polling around 5.0%, which puts it on track to enter parliament. In regional economic data, Great Britain's public sector net borrowing increased GBP11.5 billion (GBP12.0 billion expected, -GBP1.1 billion prior). Elsewhere, Italian industrial new orders slipped 0.7% month-over-month (1.5% forecast, 3.2% prior) while the year-over-year reading fell 2.2% (-1.1% previous). Separately, industrial sales ticked down 0.8% month-over-month (0.1% prior). Also of note, Spain's trade deficit widened to EUR0.80 billion from EUR0.10 billion (EUR0.50 billion surplus expected). 

·         Great Britain's FTSE is lower by 0.2%. Miners lead to the downside with Anglo American, Fresnillo, and Randgold Resources down between 2.8% and 3.5%. Consumer names have displayed strength as GKN, J Sainsbury, and Persimmon hold gains between 1.4% and 2.3%. 

·         In Germany, the DAX is off 0.1%. Utilities E.ON and RWE weigh on the index with respective losses of 0.7% and 1.7%. Meanwhile, Bayer is among the outperformers. The drug maker trades higher by 1.9%. 

·         France's CAC holds a loss of 0.1% as bank shares weigh. AXA, Credit Agricole, and Societe Generale are down between 1.0% and 1.4%. Oil company Technip sports a gain of 2.9% and is the top index performer.

Market Internals

Leaders and Laggards

Technical Updates

Commentaries 

Closing Market Summary: Stocks End Week on Cautious Note
The S&P 500 settled lower by 0.7%, but managed to end the week with a solid gain of 1.3%. The major indices spent the entire session in a steady retreat off their opening levels with industrials and materials leading to the downside. 

Sellers remained in control throughout the day amid divisive headlines from Washington. The House of Representatives passed a continuing resolution bill to fund the government through December 15, but the inclusion of a provision to defund Obamacare means the bill will most likely be voted down in the Senate. 

In addition, participants heard from two Fed officials whose remarks reflected quite a bit of static on the Fed's open line of communication with the market. During a morning interview on Bloomberg TV, St. Louis Fed President James Bullard said the Fed could taper at its October meeting, but added that the current low rates of inflation suggest the central bank should be patient in its assessment of Quantitative Easing. 

Meanwhile, Kansas City Fed President Esther George expressed some disenchantment that the Fed did not taper at the September meeting despite believing the markets were ready. Ms. George added that she thinks the Fed lost some credibility by not following through with the taper. 

Although all ten sectors ended in the red, nine finished the week with a gain while today's weakest performer (telecom services) closed the week flat. 

Elsewhere, the industrial sector (-1.4%) weighed on the broader market as defense contractors lagged after Rockwell Collins (COL 70.00, -4.28) issued downside guidance for fiscal year 2014. The broader PHLX Defense Index fell 1.7%. 

Also of note, the materials sector (-1.2%) finished among the laggards as steelmakers and miners slumped. The Market Vectors Steel ETF (SLX 45.81, -1.01) slid 2.2% after AK Steel (AKS 4.08, -0.36) said it expects a larger third quarter loss than what analysts had estimated. Miners lagged as gold fell 3.2% to $1326.10 per troy ounce. The Market Vectors Gold Miners ETF (GDX 25.76, -1.60) tumbled 5.9%. 

With the stock market ending on its lows, only financials (-0.5%) and health care (-0.2%) outperformed while technology (-0.7%) and discretionary shares (-0.7%) ended in-line. In the technology sector, Visa (V 198.83, +4.12) added 2.2% ahead of its entry into the Dow Jones Industrial Average along with Goldman Sachs (GS 169.75, +1.97) and Nike (NKE 69.37, -0.37). The three names will replace Alcoa (AA 8.29, -0.15), Bank of America (BAC 14.44, -0.17), and Hewlett-Packard (HPQ 21.22, -0.09) in the price-weighted index. 

In stock-specific news, Blackberry (BBRY 8.72, -1.80) plunged 17.1% after cutting its second quarter guidance well-below consensus estimates. The company also announced plans to cut its global workforce by 40%. 

Treasuries ended near the middle of their range with the benchmark 10-yr yield slipping two basis points to 2.74%. 

Aided by quadruple witching, trading volume was strong as 2.06 billion shares changed hands on the floor of the New York Stock Exchange. 

There is no economic data scheduled to be reported on Monday, but global markets will be reacting to the results of the German federal election. While Chancellor Angela Merkel is not expected to lose her seat, the anti-euro party has been polling close to the 5.0% threshold needed to enter parliament. 

Commodities

Closing Commodities: Gold And Silver Give Back Large Amount Of Fed-Driven Gains (Gold Gives Back About Half, Silver Gives Back Most)

·         Nov crude oil extended yesterday's losses as tension eased over the Middle East conflict on news that Syria issued an "initial declaration" of its chemical weapons program. The energy component fell from its session high of $105.96 per barrel and brushed a session low of $104.50 per ounce moments before settling with a 0.9% loss at $104.86 per barrel.

·         Today's drop brought losses for the week to 2.5%. 

·         Nov natural gas spent its entire floor session in the red. It dipped to a session low of $3.66 per MMBtu and eventually settled with a 0.8% loss at $3.69 per MMBtu, booking a 0.3% gain for the week.

·         Precious metals fell deeper into negative territory after St. Louis Fed President James Bullard suggested the Fed could make a tapering decision at the October FOMC meeting.

·         Dec gold fell as low as $1327.20 per ounce and eventually settled with a 2.7% loss at $1332.60 per ounce.

·         Dec silver brushed a session low of $21.80 per ounce and settled with a 5.9% loss at $21.91 per ounce. Despite the drop, gold and silver booked respective gains of 1.8% and 0.9% for the week.

COMEX Metals Closing Prices

·         Dec gold fell $36.50 to $1332.60/ounce 

·         Dec silver fell $1.38 to $21.91/ounce 

·         Dec copper fell 3 cents to $3.32/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Dec corn fell 9 cents to $4.51/bushel 

·         Dec wheat fell 10 cents to $6.46/bushel 

·         Nov soybeans fell 24 cents to $13.16/bushel 

·         Oct ethanol fell 2 cents to $1.86/gallon 

·         Nov sugar (#16 (U.S.)) rose 0.11 of a penny to 21.13 cents/lbs

NYMEX Energy Closing Prices

  Nov crude oil fell $1.00 to $104.86/barrel 

·         Crude oil extended yesterday's losses as tension eased over the Middle East conflict on news that Syria issued an "initial declaration" of its chemical weapons program. The energy component fell from its session high of $105.96 and brushed a session low of $104.50 moments before settling with a 0.9% loss. Today's decline brought losses for the week to 2.5%. 

  Oct natural gas fell 3 cents to $3.69/MMBtu 

·         Natural gas chopped around in negative territory for its entire floor session. It dipped to a session low of $3.66 and eventually settled with a 0.8% loss. Despite today's drop, natural gas booked a 0.3% gain for the week. 

  Nov heating oil settled unchanged at $3.01/gallon 

  Nov RBOB gasoline fell 1 cent to $2.67/gallon

 

Treasuries

Safety Trade Benefits Treasuries
There was a lot for the Treasury market to chew on today and the meal ended up being somewhat appetizing as Treasuries managed to gain a little ground on a day that wasn't so great for stocks and commodities.

In effect, today's action had the semblance of being a safety trade more than anything else. Some contributing factors to that trade included the following: 

·         Rancor in Congress where the House passed a continuing resolution almost entirely along party lines that called for funding the government through December 15 on the provision that Obamacare also be defunded. The Senate is widely expected to reject the measure, but its passage in the House made it clear that a budget agreement and a debt ceiling agreement won't be reached easily. 

·         Notable weakness in the stock market, which endured a trend-down day based on a lack of buying catalysts. 

·         More mixed messages out of the Fed, highlighted by St. Louis Fed President Bullard saying the Fed could taper at the October meeting, but that the current low rates of inflation suggest the Fed should be patient in its assessment of QE. Kansas City Fed President George, meanwhile, expressed disenchantment that the Fed did not taper this week and even added that she thinks it's fair to say the Fed lost some credibility by not doing so. 

·         A sense of caution ahead of the Sunday election in Germany. Ms. Merkel is expected to win, but reports said that she may perhaps have to form a coalition with the rival Social Democratic party. 

·         A surprise rate hike by the Bank of India that created some tumult in the Indian stock market and raised questions about future responses from other emerging market central banks.

Longer-dated Treasury securities saw their yields slip about 1-2 basis points today, so it was not as if there was a big flight to safety. That could change in the coming week if stocks continue to roll over or Congress fails to make strides in reaching a budget agreement.

The Week Ahead 

·         There is no data on Monday. A heavy week of Fed speak kicks off with ATL's Lockhart in New York, NY, speaking at the Blouin Creative Leadership Summit (9:20). NY's Dudley will be on his home turf, speaking at the Fordham University Graduate School of Business (9:30). Dallas' Fisher will be in San Antonio, TX discussing "Banking Conditions in Texas and the U.S. and comments on Too Big to Fail" (13:30).
 

·         Data kicks off for the week on Tuesday with the Case-Shiller 20-city Index, FHFA Housing Price Index (9), and consumer confidence (10). Treasury will auction $33 bln 2-yr notes. Cleveland's Pianalto will be discuss "In Pursuit of a Better Payments System" (9:30) at the Chicago Fed's Payments Symposium. KC's George will be at the same event, giving luncheon remarks (13).
 

·         Wednesday's data includes the weekly MBA Mortgage Index (7), durable orders, durable orders ex-transportation (8:30), and new home sales (10). Treasury will hold a $35 bln 5-yr note auction.
 

·         Thursday will see initial and continuing claims, GDP -- Third Estimate (8:30), and pending home sales (10). Treasury will auction $29 bln 7-yr notes. Minny's Kocherlakota will be in Houghton, MI to discuss "Monetary Policy Strategy" (12:15). KC's George travels to Denver, CO to speak on the U.S. economy (21:15).
 

·         Data concludes on Friday with personal income and spending, PCE prices -- core (8:30), and Michigan Sentiment -- Final (9:55). Chicago's Evans will be in Oslo, Norway discussing "The Role of Monetary Policy Revisited" (5:45 & 10:15). Boston's Rosengren will give opening remarks at the NY Fed's Conference on Stable Funding (8:30). NY's Dudley will be upstate in Syracuse to speak before the Syracuse University Whitman School of Management (14).

On other news.... 








Currencies 

Currency Commentary: Markets Prepare For Busy Week of Fed Speak

·         The Dollar Index has pulled back from its intraday highs. The greenback was bid following comments from St. Louis Fed president James Bullard that noted the decision not to taper was a close one. He went on to say the Fed could hold a press conference after its October 29-30 meeting which suggests a potential for tapering. The DXY is now straddling the 80.40 level as we head towards the weekend. Next week there will be no less than eleven Fed speakers so the central bank should continue to dominate headlines. 

·         The euro is holding its 1.35 level as we head toward the weekend. German elections are set for Sunday and promise to be a driver of markets on Monday. Merkel's CDU party should take the most votes but its ability to continue with its current coalition partner the FDP remains in question. A failure to garner enough votes would force an uncertain grand coalition. PMI data next week will be a key factor for European markets as well as a Bundesbank Quarterly report and two Draghi speeches.

·         The pound continues to test the 1.60 level. So far it has been able to hold it but it is facing some of the first significant headwinds over the past few weeks as its current rally is showing some signs of tiring. 

·         The yen is back cutting its teeth in the 99-100 range. Markets are awaiting an October 2 meeting on the consumption tax. All signs are pointing to the Abe government moving ahead with the hike in April but it is far from a certainty. The potential for corporate tax cuts and other stimulus to offset the consumption hike is also being closely watched (FOREX, BONDX). 

Weekly Analysis
Week 38



Technical Updates















Briefing's Commentaries

Economic Summary: Fed speech will pick up next week following surprising Fed decision to maintain pace of asset purchases
Fed/Treasury Events Summary:

·         Typically dovish St. Louis Fed President Bullard: "While I expect inflation to rise during the coming quarters, I want to see evidence of such an increase before endorsing less accommodative policy action by the FOMC."

·         Typically hawkish KC Fed President George indicated a slow Taper would've been approriate.

Upcoming Economic Data:

·         July Case Schiller 20 City Index due out Tuesday at 9:00 (June was 12.1%)

·         July FIFA Housing Price Index due out Tuesday at 9:00 (June was 0.7%)

·         September Consumer Confidence due out Tuesday at 10:00 (August was 81.5)

Upcoming Fed/Treasury Events:

·         Atlanta Fed President Dennis Lockhart (not a voting FOMC member, typically moderate) to speak Monday at 9:20

·         NY Fed President William Dudley (voting FOMC member, typically dovish) to speak Monday at 9:30

·         Dallas Fed President Richard Fisher (not a voting FOMC member, typically hawkish) to speak Monday at 13:30

Other International Events of Interest

·         India's Central Bank surprised the market with a 25bp rate hike and the Sensex finished down 1.9% on the day.

·         Japan was one of the few major Asian markets that was open, but it closed down slightly (Nikkei -0.2%). 

·         Exports suggest that PM Abe is ready to make the official sales tax and stimulus proposal but it appears his Fin-Min Aso may not be on the same page, as additional reports suggest he is reluctant to approve corporate tax cuts.

Next Week In View



Economic Commentaries


Week in Review: Taper Schmaper 

On Monday, the S&P 500 added 0.6% after a pair of weekend headlines provided an opening boost to equities. Stocks began the session sharply higher after Larry Summers, who was thought to be the hawkish frontrunner, withdrew his name from consideration to be the next chairman of the Federal Reserve. In addition, news that Russia and the United States have signed an agreement to decommission Syria's chemical weapons within a year also contributed to the early bid. With Larry Summers out of the running, bonds and equities rallied while the dollar slipped. The benchmark 10-yr note was up close to a point before surrendering most of its gain into the close. The 10-yr yield ended lower by two basis points at 2.87%. 

There wasn't much to be said about the trading action in the stock market on Tuesday because there wasn't a whole lot of trading action. Volume at the NYSE totaled a piddly 577 million shares versus an average of 661 million shares. The light volume reflected a wait-and-see mindset ahead of Wednesday's highly-anticipated announcement from the FOMC on whether it has decided to begin curtailing its asset purchase program. 

On Wednesday, the S&P 500 jumped 1.2%, closing at a record high of 1,725.52 after the Federal Open Market Committee failed to announce plans to reduce the pace of its asset purchases, as many had expected. Although the Federal Reserve did not make a tapering announcement, the policy statement did contain updated economic projections. Notably, the forecast for 2013 and 2014 GDP was lowered with the Committee expecting this year's growth between 2.0% and 2.3% (2.3%-2.6% June forecast) and 2014 growth ranging between 2.9% and 3.1% (3.0%-3.5% June projection). During his press conference, Mr. Bernanke said economic data received since June has not been strong enough to justify scaling back asset purchases just yet. The Fed Chairman also said that recent tightening of financial conditions, as well as the ongoing fiscal uncertainty, played a part in the decision to maintain asset purchases at a pace of $85 billion per month ($40 billion in mortgage-backed securities, $45 billion in Treasuries). Similar to equities, Treasuries and precious metals welcomed the lack of a tapering announcement. The 10-yr note rallied more than a point, pushing its yield down 14.5 basis points to 2.71%. This marked the lowest close for the benchmark yield since August 12. 

Thursday's session did not generate many headlines as the S&P 500 shed 0.2% while the tech-heavy Nasdaq added 0.2%. After spiking to new record highs on Wednesday, the Dow, S&P 500 and Russell 2000 spent the entire session in a slow retreat off their opening levels. Seven of ten sectors finished in the red while industrials (+0.1%), technology (+0.2%), and discretionary shares (+0.01%) posted modest gains. The discretionary sector received support from retailers as the SPDR S&P Retail ETF (XRT 82.30, -0.42) added 0.2%.


Jason's Commentaries

What an unexpected profit taking on Expiration Friday.. Real high volume over here, over 1500m shares traded on the NYSE. After the no-taper talk on Wednesday, we got the new high broken on S&P500 and Nasdaq Composite. I believe it's likely to be a correction, coming back to test the previous support. VIX went down, new highs outpacing new lows, tonnes of Down volumes on a expiration Friday. Utilities were the biggest loser on the sectors. None of the sectors were up. It's kind of a divergent in the market. On the weekly perspective, it looks scary and we might enter a sideways market. This week is likely to be a flat to downside week as we do not have much data coming out in this week. Let's see if we have any strength left to push the market up higher...

Market Call: FLAT 

Date: 23 Sep 2013