15 Oct 2013 AMC - 1 more day to default..... Will the White House strike a deal?

15 Oct 2013 AMC - 1 more day to default..... Will the White House strike a deal? 

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: + 0.6%

·         Germany's DAX: + 0.9%

·         France's CAC: + 0.8%

·         Spain's IBEX: + 1.1%

·         Portugal's PSI: + 0.6%

·         Italy's MIB Index: + 0.4%

·         Irish Ovrl Index: + 1.1%

·         Greece ATHEX Composite: + 0.1%

Before Market Opens

S&P futures vs fair value: -2.00. Nasdaq futures vs fair value: +3.70.
The S&P 500 futures trade lower by 0.1%.

Markets across Asia ended mixed as U.S. debt ceiling negotiations progress. Traders in Japan (+0.3%) and Hong Kong (+0.5%) bid up shares on hopes U.S. lawmakers could reach an agreement to avoid an October 17 default. Elsewhere, Australia's ASX (+1.0%) was among the leaders after the latest Reserve Bank of Australia minutes suggested the central bank was happy with the way recent cuts have worked their way through the system and that there was no urgency for a further reduction. China's Shanghai Composite (-0.2%) lagged after Nomura suggested the PBOC will look to tighten policy in November. Data from the region was light, limited to Australian new motor vehicle sales (-0.1% month-over-month), Japan's industrial production (-0.9% actual, -0.7% expected), and Japan's capacity utilization (-2.1% month-over-month). 

·         In Japan, the Nikkei added 0.3% as shares rallied for a fifth session. Exporters outperformed as Sony added 1.0% and Mitsubishi Motors tacked on 0.8%. Elsewhere, Fuji Heavy Industries gained 0.8% as traders gobbled up shares ahead of its earnings report. 

·         Hong Kong's Hang Seng rose 0.5% to end at a three-week high. Chinese rail stocks posted solid gains as CSR jumped 5.3% and China Railway Construction rallied 3.6% in response to Premier Li Keqiang's trip to Thailand to promote the sector. 

·         In China, the Shanghai Composite shed 0.2% as shares fell for just the second time in eight days. Financials lagged as Bank of China and Industrial and Commercial Bank of China lost 1.4% and 1.0%, respectively. 

Major European indices trade near their best levels of the session with Great Britain's FTSE (+0.8%) pacing the advance. In news of note, Eurogroup head Jeroen Dijsselbloem discussed the situation in Greece, saying there is no support among the Eurogroup for haircuts on Greek debt. Mr. Dijsselbloem also said the current support for the bail-in sequence is widespread. Participants received a moderate amount of economic data as Eurozone ZEW Economic Sentiment slipped to 59.1 from 59.4 (58.6 previous) while Germany's ZEW Economic Sentiment improved to 52.8 from 49.6 (49.6 prior) and the Import Price Index ticked up 0.1% month-over-month (-0.1% expected, 0.1% prior). French CPI slipped 0.2% month-over-month (-0.3% expected, 0.4% last). Great Britain's CPI rose 0.4% month-over-month (0.3% forecast, 0.4% prior) while the year-over-year reading rose 2.7% (2.6% expected, 2.7% previous). Also of note, core CPI rose 2.2% year-over-year (2.0% forecast, 2.0% last) and input PPI rose 1.1% year-over-year (2.6% expected, 2.4% prior). Separately, the House Price Index increased 3.8% year-over-year (3.6% forecast, 3.3% previous). 

·         Great Britain's FTSE is higher by 0.8% as Rio Tinto leads with a gain of 3.7% after reporting record coal and iron ore output. Burberry is the weakest index member, down 5.6% after announcing Chief Executive Officer Angela Ahrendts will depart the company to take a new position at Apple. 

·         In Germany, the DAX holds a gain of 0.7%. Chemical producers are among the outperformers as BASF, K+S, and Lanxess trade with gains between 0.7% and 2.8%. Utilities lag with E.ON and RWE down 0.3% and 1.6%, respectively. 

·         In France, the CAC trades up 0.5% as growth-sensitive names outperform. Steelmaker ArcelorMittal and chemical producer Solvay are both up near 4.0%. Defense contractor EADS underperforms with a loss of 0.6%.

Market Internals

Market Internals -Technical-
The Dow closed down 133 (-0.87%) at 15168, the S&P 500 closed down 12 (-0.71%) at 1698, and the Nasdaq closed down 21 (-0.56%) at 3794. Action came on near average volume (NYSE 690 mln vs. avg. of 694; NASDAQ 1684 mln vs. avg. of 1595), with decliners outpacing advancers (NYSE 713/2368, NASDAQ 732/1788) and new highs outpacing new lows (NYSE 158/55, NASDAQ 144/25). 

Relative Strength: 
Volatility-VXX +5.99%, Gold Miners-GDX +2.81%, Cocoa-NIB +1.96%, Corn-CORN +1.36%, Steel-SLX +1.17%, Egypt-EGPT +0.88%, Belgium-EWK +0.26%, Japanese Yen-FXY +0.25%, Australian Dollar-FXA +0.15%, Netherlands-EWN +0.12%.

Relative Weakness: 
India-INP -2.84%, Indonesia-IDX -2.59%, Rare Earths-REMX -2.40%, U.S. Home Construction-ITB -2.39%, Homebuilders-XHB -2.07%, Mexico-EWW -1.91%, Cloud Computing-SKYY -1.89%, Sugar-SGG -1.85%, Israel-EIS -1.80%, Asia-AAXJ -1.31%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks Slump as Budget Deal Remains Elusive
The S&P 500 settled lower by 0.7% after contradicting headlines from Washington fostered volatile price action throughout the session. 

Equity indices displayed modest losses at the open, but were able to turn positive by late afternoon. The rebound was predicated on optimism associated with budget talks in Washington after Senate Majority Leader Harry Reid was quoted as saying ‘tremendous progress' had been made. 

However, contradicting headlines from House Republicans began pouring in during the early afternoon, and House Speaker John Boehner called the Senate proposal a ‘hand grenade' during a closed-door meeting with Republican lawmakers. To counter this ‘hand grenade,' the House is expected to vote on its own bill later today. 

Selling pressure intensified during the final 90 minutes of the session amid headlines indicating the Senate has halted its negotiations pending the outcome of the House vote. California Senator Dianne Feinstein weighed in on the situation, saying budget talks have ‘all fallen apart.' 

All ten sectors ended in the red with countercyclical consumer staples (-0.9%) and utilities (-1.4%) leading to the downside. Among staple stocks, Coca-Cola (KO 37.66, -0.25) lost 0.7% following its in-line earnings report. 

Elsewhere, the industrial sector slid 0.9% as the underperformance of defense contractors outweighed the relative strength of transports. FLIR (FLIR 28.59, -4.58) tumbled 13.8% after announcing restructuring plans and issuing below-consensus guidance while the broader PHLX Defense Index slumped 2.3%. Meanwhile, the Dow Jones Transportation Average ended with a modest loss of 0.2%, drawing strength from the 4.1% gain in the shares of FedEx (FDX 120.08, +4.71) after the company authorized a 32 million share buyback program. 

Also of note, the financial sector (-0.8%) underperformed the broader market after Citigroup (C 48.86, -0.74) reported a 7.8% year-over-year decline in revenue. 

With regard to commodities, crude oil fell 1.3% to $101.08 per barrel while gold futures added 0.3% to $1281.00 per troy ounce. 

Treasuries ended near their lows with the 10-yr yield up four basis points at 2.73%. More notably, short-term debt was pressured with traders dumping the paper amid the increased probability of a default. The 4-week yield ended higher by 6.5 basis points at 0.317% while both the 3-month (+3 bps to 0.09%) and 6-month (+5 bps to 0.124%) bills were the subject of some selling. 

Trading volume was below average as 690 million shares changed hands on the floor of the New York Stock Exchange. 

On the economic front, today's data pointed to a bit of a slowdown in manufacturing growth in the New York Fed region as The Empire Manufacturing Survey for October registered a reading of 1.5. This was down from the prior month's reading of 6.3 while economists polled by Briefing.com had expected that the survey would slip to 4.5. 

As a result of today's decline, the S&P 500 trimmed its year-to-date gain to 19.1%.

Commodities

Closing Commodities: Gold And Silver Hit New Highs For The Day In Electronic Trade, Crude Oil Back Near $101/barrel

·         In afternoon action, energy commodities weakened, while precious metals gained steam as headlines about the govt shutdown kept hitting the market. The dollar index continued to trade just under the HoD, but dropped about an hour ago, erasing about half of its gains

·         Gold and silver hit new highs for the day about 45 minutes ago and are now mixed in electronic trade. Dec gold ended $3.30 lower to finish at $1273.30/oz, while Dec silver ended $0.16 lower at $21.19/oz

·         Crude oil was in the red all day, excluding one brief moment overnight where it was up a few cents. Crude oil extended losses in today's afternoon session and about 10 after floor trading ended, crude broke below the $101/barrel level. At the end of floor trading session, crude oil ended $1.22/barrel lower at $101.17/barrel

·         Natural gas was higher overnight, but lost steam and sold 20-25 minutes after floor trading began this morning. After that sell off, nat gas spent the rest of the day in the red, closing three cents lower at $3.79/MMBtu

NYMEX Energy Closing Prices

·         Nov crude oil fell $1.22 to $101.17/barrel

·         Nov natural gas fell 3 cents to $3.79/MMBtu

·         Nov heating oil fell $0.02 at $3.01/gallon

·         Nov RBOB gasoline fell 1 cent to $2.66/gallon

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Dec corn rose 7 cents to $4.44/bushel

·         Dec wheat fell 6 cents at $6.86/bushel

·         Nov soybeans fell 5 cents to $12.67/bushel

·         Nov ethanol rose 5 cents to $1.79/gallon

·         Jan sugar (#16 (U.S.)) fell 0.11 of a penny to 21.87 cents/lbs

COMEX Metals Closing Prices

·         Dec gold fell $3.3 to $1273.30/ounce

·         Dec silver fell $0.16 to $21.19/ounce

·         Dec copper rose 1 cent to $3.31/lbs

Treasuries

Treasuries Slide as Debt Ceiling Deadline Nears: 10-yr -10/32..2.728%..USD/JPY: 98.30..EUR/USD: 1.3518

·         Treasuries ended mostly lower as a budget/debt ceiling deal remains elusive ahead of the October 17 deadline. Click here to see an intraday yields chart.

·         Short-term paper was hit hard as traders dumped the paper as the possibility of a default grows with every passing moment until a deal is reached. The 4w ended +6.5bps @ 0.317% while both the 3m (+3bps @ 0.09%) and 6m (+5bps @ 0.124%) bills were also under pressure. 

·         The belly of the curve saw slight outperformance as traders camped out in 2s and 3s, causing their yields to end little changed at 0.362% and 0.675%, respectively. 10s spent the day locked in a 4 bp range (2.693%-2.733%) before settling +3bps @ 2.720%. 

·         The 30y ended +3bps @ 3.777%, closing above its 50 dma for the first time in nearly a month. 

·         A steeper curve played out as the 2-10-yr spread widened to 236bps. 

·         Precious metals rallied to a mixed closed with gold +$4 @ $1281 and silver -$0.05 near $21.30. 

·         Data: MBA Mortgage Index (7), NAHB Housing Market Index (10), and the Fed's Beige Book (14). CPI, core CPI, and Net Long-Term TIC Flows are delayed due to the government shutdown. 

·         Fed Speak: Cleveland's Pianalto in Westlake, OH discussing "Housing in the National Economy" (12:25); KC's George in Oklahoma City, OK for the unveiling of an exhibit honoring Oklahoma Senator Robert Owen's role in the formation of the Federal Reserve System (18:30); Dallas' Fisher in New York, NY discussing "Break Up the Big Banks" (18:45).

Next Day In View 

Events and conferences of interest for tomorrow
Events and conferences of interest for tomorrow September 16th include:

·         Canaccord Genuity Global Resources Conference

o    Scheduled to appear: SYRG, SLW, RRC, TGA, EXXI, UNT, AXAS, CRZO, GDP, NOG, PXD, DVN, CCJ, CPE

·         John Tumazos Very Independent Research Metals and Mining Conference

o    Scheduled to appear: PVG, CGR, NG, GMO, LODE

·         Fed Beige Book Book at 14:00

Economic Commentary

Economic Summary: Empire Manufacturing misses expectations; typically hawkish Fisher says he will argue against tapering at October Fed meeting
Economic Data Summary:

·         October Empire Manufacturing 1.5 vs Briefing.com consensus of 4.5; September was 6.3%

Fed/Treasury Events Summary:

·         Dallas Fed President Richard Fisher said that due to the fiscal stand off, he will not personally argue for tapering in October

o    Fed's Fisher has been one of the more hawkish members so his comments suggests there is nearly zero chance of a taper at the October 29-30 meeting. This has been priced in by the markets.

Upcoming Economic Data:

·         Weekly MBA Mortgage Index due out Wednesday at 7:00 (Last Week was 1.3%)

·         September CPI due out September at 8:00 (Briefing.com consensus of 0.1%; August was 0.1%)

·         September Core CPI due out September at 8:30 (Briefing.com consensus of 0.1%; August was 0.1%)

·         August Net Long Term TIC Flows due out August at 9:00 (July was $31.1 bln)

·         October NAHB Housing Market Index due out October at 10:00 (Briefing.com consensus of 57; September was 58)

Upcoming Fed/Treasury Events:

·         Kansas City Fed President Esther George (voting FOMC member, hawkish) to speak tomorrow at 18:30

·         October Fed's Beige Book due out tomorrow at 14:00

Other International events of Interest

·         Eurozone ZEW Economic Sentiment slipped to 59.1 from 59.4 (58.6 previous). 

On other news.... 

Citigroup on Conference Call- Bank does not own any Treasuries maturing prior to November 1; have drastically lowered any holdings that would mature before December 16 (49.70 +0.10)

Floor Talk
The stock market has bounced around throughout the morning, lacking clear direction due in large part to a volley of headlines pertaining to the discussions taking place in Washington over the budget and the debt ceiling. 

·         Early headlines made it sound as if the Senate was making progress on forging a deal that would fund the government through January 15 and cover the nation's borrowing needs through mid-February.

·         A follow-up headline said the GOP-led House was preparing an alternate bill that will include a delay in the medical device tax and instill income verification for Obamacare.

The GOP leadership of the House recently completed a press conference. Strikingly, there was no specific mention of the provisions of any alternate plan. The market bounced on a few takeaways from the press conference: 

·         Speaker Boehner said the idea of default is wrong and we should not come close to it (he might want to check his calendar)

·         The House is trying to find a bipartisan way forward to ensure there is no issue of default; and

·         No decisions have been made on exactly what the House will do (this mitigated some concerns about the earlier headline regarding the medical device tax and income verification)

Given the knee-jerk response to the press conference, it would appear the market is still of the belief that a deal will get done in time to avoid the worst-case scenario of a debt default. On a related note, the Treasury market is trading near its lows of the day as the stock market probes its best levels since the start of trading.

The DC drama remains the driving focal point.  Prior to the press conference, the S&P 500 was in a slow roll toward session lows after Citigroup (C) noted on its earnings conference call that the uncertainty over tapering is keeping investors on the sidelines and that it sees an uneven and difficult environment in the markets for the next few months.



Currencies 

Dollar Readies For Best Close in a Month: 10-yr: -10/32..2.730%..USD/JPY: 98.47..EUR/USD: 1.3498
The Dollar Index sits just off session highs as action straddles the 80.60 level. The Index has seen a rather quiet session as trade has been confined to just a 10 cent range. Current action has the DXY on track to post its best close in a month. Click here to see a daily Dollar Index chart.

·         EURUSD is -65 pips at 1.3495 as sellers take control for the first time in four days. The 1.3470 area is in focus as a breakdown sets up a test of 1.3400 support that is helped by the 50 dma. Eurozone data is limited to CPI and core CPI. 

·         GBPUSD is -5 pips at 1.5975 as bulls and bears jockey for position. Sterling saw an early test of the 1.5900/1.5950 level, but that area was able to hold for a fifth straight session as buyers emerged at support. A breakdown paves the way for a test of the 50 dma (1.5795) and potentially 1.5700 support. Britain's claimant count change, unemployment rate, and Average Earnings Index are due out tomorrow. 

·         USDCHF is +45 pips at .9150 as bulls remain in control for the fifth time in six days. Today's advance has the pair on track to post its best close in a month, and nearing .9170/.9200 resistance. Switzerland's ZEW Economic Expectations will cross the wires tomorrow. 

·         USDJPY is -15 pips at 98.50 as trade probes the 50 and 100 dma. Resistance in the 98.50 area has held over the past three days, causing some to look towards the 200 dma (97.00). 

·         AUDUSD is +30 pips at .9520 as action remains on track to post its best close in four months after the latest Reserve Bank of Australia minutes pushed back rate cut hopes til next year. Traders continue to monitor the .9500 area as a breakout sets up the potential for a test of the 200 dma (.9775). 

·         USDCAD is +30 pips at 1.0380 as today's bid has run the pair back above its 50 and 100 dma. The 1.0400 area is being watched closely as a breakout sets up a likely test of the late August/early September highs in the 1.0500/1.0550 area. Canada's manufacturing sales will be released.

Jason's Commentaries

The market is getting really volatile... The White House is still not getting to a deal and the talk was postponed by John Boehner at 2pm ET last night to sort out the matters within the Republicans. As the treasuries default clock drew near, the market started panicking. Market started the some sort of bearish bias but once the talk was being postponed, market entered into a sell off mode, Dow lost more than 70 points in just 10 Minutes. Afterwhich, shortcovering started taking place and market sold off into the close, ending the market's 4th day winning streak with a 133 points loss on the Dow. The VIX spiked 16% as the market started to hedge against potential default by the US government. I believe once the White House comes to a deal to prevent the default, there will be a lot of people taking their hedges off in the market. What makes things worse is Citi started scaring people that they are unloading their treasuries and US might be downgraded by Fitch today. The internals were pointing towards a bearish day with TRIN showing some sort of divergence in the market. Utilities, Industrials and the Staples got hit quite a bit last night with losses of  -1.4%, -1% and -0.91% respectively. On the technical perspective, the 5th candle reversal held true. And we're so gonna have another volatile day as the White House is coming to the last day before treasuries will default. 

Market Call: VOLATILE

Date: 16 Oct 2013