30 Oct 2013 AMC- ADP Employment report disappoints, no surprises from FOMC Statement

30 Oct 2013 AMC- ADP Employment report disappoints, no surprises from FOMC Statement

Market Summary 

 European Markets Closing Prices

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

·         UK's FTSE: 0.0%

·         Germany's DAX: -0.1%

·         France's CAC: -0.1%

·         Spain's IBEX: -0.9%

·         Portugal's PSI: + 1.3%

·         Italy's MIB Index: -0.5%

·         Irish Ovrl Index: + 0.5%

·         Greece ATHEX Composite: + 0.6%

  Before Market Opens

S&P futures vs fair value: +2.30. Nasdaq futures vs fair value: +10.70.
The S&P 500 futures have trimmed their pre-market gain to 0.1%.

It was a sea of green across Asia as all of the major bourses, aside from Thailand's SET (-1.7%), ended with gains. The overnight bid came following another day of gains on Wall Street, and lifted markets in Australia, India, and Taiwan to multi-year highs. A 78bp spike to 5.230% in China's overnight SHIBOR was unable to derail the buying as the Shanghai Composite jumped 1.5% and Hong Kong's Hang Seng rallied 2.0%. Japan's Nikkei (+1.2%) firmed after the government upped its assessment of industrial production following the 1.8% month-over-month advance in its preliminary reading. The Bank of Japan will opine tonight. Data was absent from the rest of the region. 

·         In Japan, the Nikkei advanced 1.2% as trade climbed to a one-week high. Exporters saw solid gains thanks to a weaker yen with Toyota Motor adding 1.6% and Honda Motor gaining 1.3%. Elsewhere, heavyweight Softbank jumped 2.0% on reports suggesting the company earned a record operating profit for the fiscal first half. 

·         Hong Kong's Hang Seng gained 2.0% as only one stock in the index saw losses. Power Assets was the lone decliner, slipping 0.1%. On the upside, casino related names outperformed as Galaxy Entertainment and Sands China surged 5.1% and 4.6%, respectively. 

·         In China, the Shanghai Composite settled higher by 1.5% as trade climbed off seven-week lows. PetroChina advanced 2.2% following its earnings report, and rival Sinopec tacked on 3.5% following yesterday's release. 

Major European indices hover near their highs with Italy's MIB (+0.4%) in the lead after Prime Minister Enrico Letta made some optimistic-sounding remarks, saying the country is expected to recover by year's end. Elsewhere, Spain registered its first expansionary GDP reading in nine quarters as GDP grew 0.1%. Participants received several economic data points. Eurozone Consumer Confidence slipped to -15.0 from -14.9, as expected and Consumer Inflation Expectations rose to 17.5 from 14.9. Separately, Business Climate ticked up to 0.0 from -0.2 (-0.2 forecast) and the Business and Consumer Survey improved to 97.8 from 96.9 (97.3 expected). Also of note, retail PMI fell to 47.7 from 48.6 and industrial sentiment rose to -5.0 from -7.0 (-7.0 forecast). Germany's unemployment increased by 2,000 (5,000 expected, 24,000 forecast) while the unemployment rate held steady at 6.9%, as expected. Spain's GDP rose 0.1% quarter-over-quarter, as expected (-0.1% prior) while the year-over-year reading reflected a contraction of 1.2%, as expected (-1.6% last). Swiss KOF Leading indicators rose to 1.72 from 1.54 (1.60 forecast) while the Consumption Indicator rose to 1.56 from 1.32. 

·         Germany's DAX is higher by 0.3% as exporters pace the advance after Volkswagen reported better-than-expected results. BMW, Daimler, and Volkswagen sport gains between 1.1% and 4.5%. On the downside, chemical producers lag with Linde down 1.6%. 

·         Great Britain's FTSE holds a modest gain of 0.4% as consumer names display strength. Retailer Next leads with a gain of 4.8% after reporting strong quarterly results while Experian outperforms with an advance of 3.4%. Insurers lag with Standard Life and RSA Insurance Group down 3.6% and 0.5%, respectively. 

·         In France, the CAC trades up 0.4% as ArcelorMittal leads with a gain of 2.6%. Consumer names weigh as Danone and L'Oreal trade with respective losses of 1.2% and 0.6%. 

·         Italy's MIB is higher by 0.4%. Eni and UniCredit are the top performers, trading higher by 3.0% and 2.1%, respectively.

Market Internals

Market Internals -Technical-
The Nasdaq closed down 22 (-0.55%) at 3931, the S&P 500 closed down 9 (-0.49%) at 1763, and the Dow closed down 62 (-0.39%) at 15619. Action came on near average volume (NYSE 697 mln vs. avg. of 710; NASDAQ 1811 mln vs. avg. of 1667), with decliners outpacing advancers (NYSE 917/2167, NASDAQ 680/1883) and new highs outpacing new lows (NYSE 220/13, NASDAQ 167/29).

Relative Strength: 
Gold Miners-GDX +1.73%, China 25 Index-FXI +1.38%, Gasoline-UGA +1.08%, Austria-EWO +1.05%, Copper-JJC +1.04%, Heating Oil-UHN +0.97%, Volatility-VXX +0.94%, Hong Kong-EWH +0.89%, Indian Rupee-ICN +0.56%, Chile-ECH +0.59%.

Relative Weakness: 
Thailand-THD -3.49%, Biotechnology-XBI -3.47%, Clean Energy-PBW -2.43%, Turkey-TUR -2.26%, Poland-EPOL -2.22%, Indonesia-IDX -2.19%, Biotechnology-IBB -2.06%, Israel-EIS -1.94%, U.S. Home Construction-ITB -1.92%, Oil and Gas Exploration-XOP -1.89%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks Slump While FOMC Holds Pat
The S&P 500 registered its first decline in five sessions, losing 0.5%. Small caps faced additional selling pressure as the Russell 2000 fell 1.4%.

Stocks held modest losses into the afternoon, but slid to fresh lows after the Federal Reserve released its latest policy directive, which was little changed from prior statements. Most notably, the directive acknowledged the recent slowdown in the housing sector and noted that fiscal policy is presenting a headwind to growth. In addition, the Committee dropped the reference to "tightening financial conditions" that appeared in the September statement.

While the statement did not throw the market any taper-related curveballs, it may have been perceived to be somewhat hawkish as the Committee did not alter its outlook to account for the impact from the partial government shutdown.

Although stocks slumped in reaction to the release, it should be noted today's weakness occurred after the S&P rallied more than 7.0% over the course of 15 sessions since October 8. Therefore, it is more likely the policy statement served as an excuse for the selling rather than a catalyst.

All ten sectors settled in the red, but their losses were limited to less than 0.8%. Defensive sectors led to the downside, and consumer staples (-0.8%) ended at the bottom of the leaderboard. Meanwhile, utilities (-0.7%) ended among the laggards despite seeing some intraday strength in reaction to above-consensus earnings from Exelon (EXC 28.55, +0.50).

Among cyclical groups, energy (-0.6%) and materials (-0.6%) trailed the S&P while industrials (-0.4%) and technology (-0.2%) outperformed.

Even though the tech sector ended ahead of the broader market, the tech-heavy Nasdaq (-0.6%) lagged as the iShares Nasdaq Biotechnology ETF (IBB 207.25, -4.35) lost 2.1%. With just one more session left in October, the biotech ETF is on track to end the month with a loss of 1.0% after gaining more than 50.0% so far this year.

Treasuries ended lower with the 10-yr yield up three basis points at 2.53%.

Trading volume was well below average as only 697 million shares changed hands on the floor of the New York Stock Exchange.

Looking back at today's economic data, the CPI increased 0.2% in September after ticking up 0.1% in August. The Briefing.com consensus expected headline CPI growth of 0.1%. Energy prices, which fell 0.3% in August, were up 0.8% in September. That was the strongest increase since prices rose 3.4% in June. Food prices were flat in September after increasing 0.1% for the previous two months. Unlike the PPI, there were no large moves in any one sector. Food price movements were generally weak, up or down, across the board.

Excluding food and energy, core CPI increased 0.1% in September for a second consecutive month. That was exactly what the consensus expected.

Separately, according to today's ADP National Employment Report, employment in the nonfarm private business sector rose by 130K in October. This was a bit above the increase of 125K expected by the Briefing.com consensus.

Lastly, the weekly MBA Mortgage Index rose 6.4% to follow last week's decline of 0.6%.

Tomorrow, October Challenger Job Cuts will be released at 7:30 ET and weekly initial claims will be reported at 8:30 ET. The day's data will be topped off with the 9:45 ET release of the Chicago PMI for October. 

·         Russell 2000 +30.2% YTD 

·         Nasdaq +30.2% YTD 

·         S&P 500 +23.6% YTD 

·         DJIA +19.2% YTD

Commodities

Closing Commodities: Metals Drop Following FOMC

·         Dec crude oil extended yesterday's losses following a higher-than-expected climb in stockpiles. The EIA reported that for the week ending Oct 25, crude oil had a build of 4.1 mln barrels when consensus called for a smaller build of 2.3 mln barrels. The energy component touched a session low of $96.59 per barrel moments before settling with a 1.6% loss at $96.72 per barrel

·         Dec gas chopped around between positive and negative territory, with prices trading in a tight range between $3.61 and $3.65 per MMBtu. It eventually settled 0.3% lower at $3.62 per MMBtu

·         Dec gold traded higher ahead of the 14:00 ET release of the latest policy directive from the FOMC. A slightly weaker dollar index also boosted prices. The yellow metal advanced to a session high of $1359.60 per ounce in morning action and settled with a 0.3% gain at $1348.90 per ounce. Gold gave up the gain in electronic trade as the Fed left its asset purchase unchanged and is currently trading 0.3% lower at $1342.10 per ounce

·         Dec silver climbed to a session high of $23.09 in early morning pit trade. Prices held steady near the $23.00 per ounce level for most of the session and settled 2.2% higher at $22.98 per ounce. Silver fell to a low of $22.45 per ounce in electronic trade and is currently 0.7% higher at $22.65 per ounce.

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Dec corn fell 2 cents to $4.30/bushel 

·         Dec wheat fell 8 cents to $6.74/bushel 

·         Nov soybeans rose 7 cents to $12.86/bushel 

·         Dec ethanol settled unchanged at $1.66/gallon 

·         Jan sugar (#16 (U.S.)) fell 0.19 of a penny to 21.64 cents/lbs

NYMEX Energy Closing Prices

  Dec crude oil fell $1.54 to $96.72/barrel 

·         Crude oil extended yesterday's losses following a higher-than-anticipated climb in stockpiles. The EIA reported that for the week ending Oct 25, crude oil had a build of 4.1 mln when a smaller build of 2.3 mln was expected. The energy component brushed a session low of $96.59 moments before settling with a 1.6% loss. 

  Dec natural gas fell 1 cent to $3.62/MMBtu 

·         Natural gas oscillated between positive and negative territory today. Prices chopped around in a tight range between $3.61 and $3.65, and eventually settled 0.3% lower. 

  Dec heating oil rose 2 cents to $2.98/gallon 

  Dec RBOB gasoline rose 3 cents to $2.62/gallon

Treasuries

Post-FOMC Selling Drops Treasuries into the Red: 10-yr: -06/32..2.525%..USD/JPY: 98.60..EUR/USD: 1.3726

·         Treasuries booked modest losses as today's FOMC rate decision was met with aggressive selling. 

·         The complex held gains throughout the majority of the session, but saw heavy selling over the final hour as the FOMC maintained its current asset purchase program of $85 bln per month while insisting "economic activity has continued to expand at a moderate pace." 

·         Maturities saw a steady climb throughout the morning following the in-line ADP Employment Change (130K actual v. 125K expected, 145K previous) and CPI data, and remained firm into the $29 bln 7y note auction. 

·         The auction drew 1.870% and a 2.66x bid/cover as both indirect (42.0%) and direct (23.9%) bids saw strong than usual takedowns. Primary dealers were left with 34.1% of the supply. 

·         Treasuries hovered near their best levels of the session ahead of the FOMC decision, but saw a sharp reversal as traders digested the Statement. Click here to see an intraday yields chart.

·         Selling had the biggest impact on the belly of the curve as the 5y climbed +4.2bps to 1.308%. 

·         Modest selling of 10s caused the benchmark yield to tack on 2bps for the session, ending @ 2.527%. Today's settlement was the highest for the 10y in a week's time. 

·         The wings of the curve ended the day in the lead. Selling weighed heaviest on the long bond for most of the session, but let up in late trade. The 30y ticked up 1bp on the session to finish @ 3.632%. Meanwhile, a flat close for the 2y saw its yield settle at 0.297%. 

·         A steeper curve developed as the spread between 2s and 10s widened to 223bps. 

·         Precious metals ended mixed with gold -$3 @ $1343 and silver +$0.20 @ $22.70. 

·         Tomorrow's Data: Challenger Job Cuts (7:30), initial and continuing claims (8:30), and Chicago PMI (9:45).

Next Day In View 

Economic Commentary

Economic Summary: Fed leaves QE III at $85 bln/month
Economic Data Summary:

·         Weekly MBA Mortgage Applications 6.4% vs Briefing.com consensus of ; Last Week was -0.6%

·         October ADP Employment Change 130K vs Briefing.com consensus of 125K; September was 166K

·         September CPI 0.2% vs Briefing.com consensus of 0.1%; August was 0.1%

·         September Core CPI 0.1% vs Briefing.com consensus of 0.1%; August was 0.1%

Fed/Treasury Events Summary:

·         Fed leaves asset purchase program unchanged; reiterates it remains accomodative; reiterates 'moderate' economic growth

o    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.

o     Asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's economic outlook as well as its assessment of the likely efficacy and costs of such purchases.To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.

o    Voting against the action was Esther L. George,

Upcoming Economic Data:

·         October Challenger Job Cuts due out Thursday at 7:30 (Briefing.com consensus of ; September was 19.1%)

·         Weekly Initial Claims due out Thursday at 8:30 (Briefing.com consensus of 335K; Last Week was 350K)

·         Weekly Continuing Claims due out Thursday at 8:30 (Briefing.com consensus of 2.850 M ; Last Week was 2.874 M)

·         October Chicago PMI due out Thursday at 9:45 (Briefing.com consensus of 55.0; September was 55.7)

On other news.... 

DoE Inventory Data
Dept of Energy reports that for the week ending Oct 25: 

·         Crude oil inventories had a build of 4.087 mln (consensus called for a build of 2.3 mln) 

·         Gasoline inventories had a draw of 1.713 mln (consensus called for a draw of 0.15 mln) 

·         Distillate inventories had a draw of 3.058 mln (consensus called for a draw of 0.3-1.0 mln)

FOMC Statement
Information received since the Federal Open Market Committee met in September generally suggests that economic activity has continued to expand at a moderate pace. Indicators of labor market conditions have shown some further improvement, but the unemployment rate remains elevated. Available data suggest that household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months. Fiscal policy is restraining economic growth. Apart from fluctuations due to changes in energy prices, inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.

Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.

The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In judging when to moderate the pace of asset purchases, the Committee will, at its coming meetings, assess whether incoming information continues to support the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective. Asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's economic outlook as well as its assessment of the likely efficacy and costs of such purchases.To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Charles L. Evans; Jerome H. Powell; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.


Currencies 

Dollar Jumps as FOMC Stands Pat: 10-yr: -05/32..2.532%..USD/JPY: 98.49..EUR/USD: 1.3715
The Dollar Index spiked to session highs near 79.75 following today's FOMC rate decision, and remains near those levels as the headlines are digested. Today's announcement brought nothing new in terms of policy with the Committee insisting "economic activity has continued to expand at a moderate pace." Click here to see a 5 minute Dollar Index chart.

·         EURUSD is -20 pips at 1.3725 as trade presses session lows. The single currency has seen a sharp reversal from session highs to session lows following the FOMC announcement, and moving towards a test of minor support in the 1.3750 area. Eurozone data includes CPI Flash Estimate, the unemployment rate, German retail sales, GfK German Consumer Climate, and French consumer spending. 

·         GBPUSD is -20 pips at 1.6025 as trade pushes lower for a fourth day. The 1.5950 area is setting up as a key level with bulls hoping to see additional support from the 50 dma (1.5925). Britain's Nationwide Home Price Index will be released tomorrow. 

·         USDCHF is +10 pips at .8995 as trade holds just off the highs. The pair saw steady selling over the course of U.S. trade, but has run back towards the highs as the Statement is digested. 

·         USDJPY is +30 pips at 98.50 as buyers remain in control for a fourth day. The current win streak has run action off the 200 dma (97.48), and now has trade probing the 50 and 100 dma ahead of tonight's Bank of Japan rate decision. 

·         AUDUSD is -15 pips at .9460 as trade presses session lows. The hard currency appeared to be on track for its first gain in six days, but it now appears sellers will remain in control. The .9450 area is home to near-term support. Australian data is heavy with building approvals, import prices, and private sector credit. 

·         USDCAD is +20 pips at 1.0485 as trade readies for its best close in nearly two months. Today's bid has the pair higher for the fifth time in six days, and has action testing key resistance in the 1.0500 area. Canadian data out tomorrow is limited to GDP.

Jason's Commentaries


Before the market opens, the ADP report disappointed everyone else... Street consensus was expecting 151k jobs to be added to the economy while the ADP report came in 130k jobs. So when the market started, people started profit taking ahead of the FOMC minutes. At 2pm ET, market started a crazy gyration then began crashing down quick. The later part of the day is mostly covering. One week ahead from the next employment report, we might be entering a consolidation. The street is expecting the jobs report to be terrible and it might give them a perfect opportunity to lock in their profits from the recent rally.

Market internals were showing a slight bearishness in the market. Volumes were slightly below average as the FOMC came out to be what the market widely expects. FOMC cited there is no change to the current pace of QE and there won't be any tapering. Till Jan, i'll still be bullish in the market, probably have some slight profit taking along the way. VIX spiked a few times last night, probably due to some fat finger trades. 

Market Call: FLAT to downside

Date: 31 Oct 2013