16 Dec 2013 AMC- Market rallies ahead of FOMC Statements

16 Dec 2013 AMC- Market rallies ahead of FOMC Statements

Market Summary 

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

·         UK's FTSE: + 1.3%

·         Germany's DAX: + 1.7%

·         France's CAC: + 1.5%

·         Spain's IBEX: + 1.7%

·         Portugal's PSI: + 0.7%

·         Italy's MIB Index: + 2.3%

·         Irish Ovrl Index: + 0.9%

·         Greece ATHEX Composite: -0.9%

Before Market Opens

S&P futures vs fair value: +9.10. Nasdaq futures vs fair value: +20.20.
The S&P 500 futures trade higher by 0.5%.

It was a sea of red across Asia as virtually all of the major averages ended with losses. Regional data of note was limited to China's HSBC Manufacturing PMI (50.5 actual, 51.0 expected, 50.8 prior) and the Tankan Survey out of Japan. The Large Manufacturers Index rose to 16 from 12 (15 expected) while the Non-Manufacturers Index improved to 20 from 14 (16 consensus). Also of note, the Large Non-Manufacturers Diffusion Index increased to 17 from 14 (19 consensus) while the Small Non-Manufacturers Diffusion Index ticked up to 1 from -2 (2 expected). 

·         Japan's Nikkei lost 1.6%, ending at its lowest level in a month as traders chose to lock in profits before the capital gains tax increases in 2014. Exporters sank as the yen strengthened with Honda Motor and Toyota Motor shedding 2.8% and 1.9%, respectively. 

·         China's Shanghai Composite fell 1.6% after the disappointing HSBC Manufacturing PMI. Brokerage names underperformed as Citic Securities lost 2.1% amid an uptick in the overnight lending rate. Most notable was the 13 basis point jump in one-month SHIBOR to 5.557%. 

·         Hong Kong's Hang Seng shed 0.6% as trade slumped to its own four-week low. Industrial and Commercial Bank of China gave up 1.7%. 

Major European indices hover near their best levels of the session as they rebound from last week's losses. Among news of note, Joerg Asmussen has left the European Central Bank's governing council to assume the junior labor minister post in Chancellor Angela Merkel's cabinet. Deutsche Bundesbank vice-president Sabine Lautenschlager is expected to replace Mr. Asmussen on the governing council. Investors received several economic data points. Eurozone trade surplus narrowed to EUR14.50 billion from EUR12.40 billion (EUR15.20 billion expected). Separately, the Manufacturing PMI improved to 52.7 from 51.6 (51.9 consensus) while Services PMI ticked down to 51.0 from 51.2 (51.5 forecast). Germany's Manufacturing PMI rose to 54.2 from 52.7 (53.0 consensus) while Services PMI slipped to 54.0 from 55.7 (55.5 expected). French Manufacturing PMI ticked down to 47.1 from 48.4 (49.1 expected) while Services PMI eased to 47.4 from 48.0 (49.0 consensus). Italy's trade surplus expanded to EUR4.07 billion from EUR0.83 billion (EUR1.24 billion consensus). 

·         Great Britain's FTSE is higher by 1.1% with basic materials pacing the advance. CRH and Mondi are both up near 3.5%. On the downside, consumer names Next and Persimmon lag with respective losses of 0.4% and 1.3%. 

·         In France, the CAC trades higher by 1.4% as 37 of 40 components register gains. Growth-sensitive Gemalto and Lafarge lead with respective gains of 4.0% and 2.8%. 

·         Germany's DAX sports an advance of 1.8% as all but two components trade in positive territory. Financials Commerzbank and Deutsche Boerse outperform, trading higher by 3.4% and 2.4%, respectively. 

In domestic economic news, the October net long-term TIC flows report indicated a $35.4 billion inflow of foreign capital into U.S. denominated assets. This follows the prior month's $25.5 billion inflow.

Market Internals

Market Internals -Technical-
The Dow closed up 129 (+0.82%) at 15885, the Nasdaq closed up 29 (+0.71%) at 4030, and the S&P 500 closed up 11 (+0.63%) at 1787. Action came on slightly below average volume (NYSE 669 mln vs. avg. of 697; NASDAQ 1819 mln vs. avg. of 1763), with advancers outpacing decliners (NYSE 2082/1038, NASDAQ 1762/828) and new highs outpacing new lows (NYSE 113/81, NASDAQ 111/32).

Relative Strength: 
Italy-EWI +2.13%, Turkey-TUR +2.03%, Chile-ECH +1.83%, Spain-EWP +1.77%, Smart Grid Infrastructure-GRID +1.66%, Regional Banks-KRE +1.52%, Junior Gold Miners-GDXJ +1.49%, Germany-EWG +1.48%, Silver-SLV +1.42%, Rare Earths-REMX +1.39%.

Relative Weakness: 
Natural Gas-UNG -2.76%, Columbia Index-GXG -1.42%, Vietnam-VNM -0.74%, Social Media-SOCL -0.69%, Corn-CORN -0.65%, Japan-EWJ -0.59%, Greece-GREK -0.43%, 20+ Year Treasuries-TLT -0.37%, U.S. Dollar-UUP -0.19%, Australian Dollar-FXA -0.17%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Russell 2000 Leads Stocks Higher
The S&P 500 settled higher by 0.6%, snapping its four-day losing streak. Despite today's gain, the benchmark index remains lower by 1.1% in December.

The bulk of today's advance occurred shortly after the open as the Dow, Nasdaq, and S&P 500 notched their highs during the initial 30 minutes. Small-caps were a notable exception as the Russell 2000 (+1.2%) climbed throughout the day, trimming its month-to-date loss to 2.0%.

Nine of ten sectors registered gains with cyclical groups maintaining their lead throughout the session. The energy sector (+1.0%) displayed strength from the open after its largest component, Exxon Mobil (XOM 97.22, +1.91), was upgraded to ‘Buy' from ‘Neutral' at Goldman Sachs. Crude oil, which added 0.9% to $97.47/bbl, also played a part in the sector's strength.

Elsewhere, the industrial sector (+1.0%) assumed the lead in afternoon trade as defense contractors and transports rallied. The PHLX Defense Index settled higher by 1.2% while the Dow Jones Transportation Average climbed 0.9%.

Although heavily-weighted financials (+0.6%) and health care (+0.2%) were a bit tentative in today's advance, the largest S&P 500 sector, technology (+1.0%) picked up the slack. The sector received support from chipmakers after Avago (AVGO 50.10, +4.45) agreed to acquire LSI Logic(LSI 10.96, +3.05) for $11.15 per share. The broader PHLX Semiconductor Index ended higher by 1.3%.

Even though equities registered solid gains, all ten sectors remain in the red for the month. Countercyclical consumer staples, health care, telecom services, and utilities are down between 1.0% and 2.7% in December while losses among cyclical groups are limited to no more than 1.2% (consumer discretionary and financials).

Despite today's advance, the CBOE Volatility Index (VIX 16.06, +0.30) climbed for the fourth session in a row, ending at a two-month high.

Treasuries registered modest losses as the 10-yr yield ticked up one basis point to 2.88%.

Today's participation was on the light side as only 669 million shares changed hands on the floor of the New York Stock Exchange.

On the economic front, revised productivity data for the third quarter showed an increase of 3.0%, which was above the 2.7% increase that had been expected by the Briefing.com consensus. Unit labor costs for the third quarter were revised lower to reflect a decrease of 1.4% (from -0.6%). The consensus expected the reading to reflect a decrease of 1.3%.

Separately, the Empire Manufacturing Survey for December registered a reading of 1.0, which was up from the prior month's reading of -2.2. However, the reading came in below the 5.0 expected by the Briefing.com consensus.

November industrial production increased 1.1% while the Briefing.com consensus expected an uptick of 0.4%. Meanwhile, capacity utilization hit 79.0%, which was better than the 78.4% expected by the consensus.

Lastly, the October net long-term TIC flows report reflected an inflow of $25.5 billion into U.S. denominated assets. This followed the prior month's $25.5 billion inflow.

Tomorrow, November CPI, core CPI, and the third quarter current account balance will all be reported at 8:30 ET. Separately, the NAHB Housing Market Index for December will be released at 10:00 ET. 

·         Nasdaq +33.5% YTD 

·         Russell 2000 +31.9% YTD 

·         S&P 500 +25.3% YTD 

·         DJIA +21.2% YTD

Commodities

Closing Commodities: Crude Oil Gains On PMI/Libya, While More Mild Weather Weakens Nat Gas Prices

·         Commodities ended the mostly higher with metals higher, excluding platinum futures, energy mixed (WTI crude oil, RBOB and heating oil higher, while Brent crude oil and U.S. nat gas declined) and ag mixed (grains mostly higher, softs mostly lower)

·         Crude oil futures are higher this morning, which follows an upbeat euro zone PMI report and unrest in Libya. Libya so far refuses to reopen the oil ports in the east of Libya, creating smaller exports to the market. Jan crude oil finished pit trading +$0.94 higher at $97.47/barrel

·         Natural gas futures sold off today as more moderate weather conditions in the U.S. weighed on prices. At the end of today's session, Jan nat gas lost 10 cents at $4.26/MMBtu.

·         Gold and silver rallying this morning, but began to trend lower off those highs for the day

·         Feb gold erased about $10 of gains and ended up $9.20 at $1244.30/oz, while silver erased about half of its gains and finished $0.49 higher at $20.09/oz.

COMEX Metals Closing Prices

·         February gold rose $9.20 to $1244.30/oz

·         March silver rose $0.49 to $20.09/oz

·         March copper rose $0.02 to $3.33/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Mar corn fell 2 cents to $4.23/bushel

·         Mar wheat fell 7 cents to $6.22/bushel

·         Jan soybeans rose 10 cents to $13.37/bushel

·         Jan ethanol rose 1 cent to $1.78/gallon

·         Mar sugar (#16 (U.S.)) rose 0.16 of a penny to 19.89 cents/lbs

NYMEX Energy Closing Prices

·         Jan crude oil rose $0.94 to $97.47/barrel 

·         Jan natural gas fell 10 cents to $4.26/MMBtu

·         Jan heating oil settled one cent higher at $2.99/gallon

·         Jan RBOB settled 1 cent higher at $2.64/gallon

Treasuries

Treasuries Slip Amid Quiet Trade: 10-yr: -02/32..2.884%..USD/JPY: 102.99..EUR/USD: 1.3762

·         Treasuries slipped amid a quiet trade as many opted to remain on the sidelines ahead of Wednesday's FOMC rate decision. Click here to see an intraday yields chart.

·         The complex saw small overnight gains turn into losses following this morning's mostly better than expected economic data. 

·         Productivity-rev (3.0% actual v. 2.7% expected) and industrial production (1.1% actual v. 0.4% expected) posted notable beats, and stoked concerns the Fed may begin to lay the foundation of a taper to its bond-buying program as early as this week's meeting. 

·         Light selling was paced by weakness in the long bond, which saw its yield climb +2.2bps to 3.895%. 

·         The selling lifted the 30y to within 2bps of its highest closing print since August 2011. 

·         The 10y closed +1bp to end the day just below 2.880%. Action over the past two weeks has tested, but failed to breakout above resistance in the 2.900% area that is guarding the September highs. 

·         A flat day for the 5y saw its yield settle @ 1.531%. 

·         A slightly steeper curve developed over the course of the session as the 2-10-yr spread widened to 255.5bps. 

·         Precious metals were bid with gold climbing $8 to $1243 and silver adding $0.43 to $22.04. 

·         Tomorrow's Data: CPI, core CPI, current account balance (8:30), and the NAHB Housing Prince Index (10). 

·         Tomorrow's auction: $32 bln 2y notes.

Next Day In View 

Economic Commentary

Economic Summary: Productivity tops expectations; Industrial Production beats estimates; Fed decision Wednesday at 14:00
Economic Data Summary:

·         December Empire Manufacturing 1.0% vs Briefing.com consensus of 5.0; November was -2.2%

·         Third Quarter Productivity Revenue 3.0% vs Briefing.com consensus of 2.7%; Second Quarter was 1.9%

o    The upward revision reflects the gain in inventory growth reported in the second estimate to Q3 2013 GDP. Hours worked were unrevised and increased 1.7% in the third quarter. The upward revision to output coupled with the unchanged hours worked resulted in the big upward revision to overall nonfarm business productivity. Hourly compensation growth increased 1.6%, up from a 1.3% gain reported in the preliminary productivity reading. 

·         Third Quarter Unit Labor Costs -1.4% vs Briefing.com consensus of -1.3%; Second Quarter was -0.6%

·         October Net Long Term TIC Flows $35.4 bln vs Briefing.com consensus of ; September was $25.5 bln

·         November Industrial Production 1.1% vs Briefing.com consensus of 0.4%; October was revised to 0.1% from -0.1%

o    Industrial production increased 1.1% in November after increasing an upwardly revised 0.1% (from -0.1%) in October. That was the largest increase since November 2012 and was comfortably ahead of the Briefing.com consensus estimate, which called for a 0.4% increase. Furthermore, with the gain in November, industrial production for the first time topped its pre-recession peak of December 2007. 

·         November Capacity Utilization 79.0% vs Briefing.com consensus of 78.4%; October was revised to 78.2% from 78.1

Upcoming Economic Data:

·         November CPI due out Tuesday at 8:30 (Briefing.com consensus of 0.1%; October was -0.1%)

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

·         Third Quarter Current Account Balance due out Tuesday at 8:30 (Briefing.com consensus of -$101.0 bln; Second Quarter was -$98.9 bln)

·         December NAHB Housing Market Index due out Tuesday at 10:00 (Briefing.com consensus of 55; November was 54)

Upcoming Fed/Treasury Events:

·         The Federal Reserve will begin at two day meeting on Tuesday.  The Decision will be announced at 14:00 along with economic projections.  The Ben Bernanke press conference (his last as Chairman) will be held at 14:30.

Other International Events of Interest

·         Germany's Manufacturing PMI rose to 54.2 from 52.7 (53.0 consensus) while Services PMI slipped to 54.0 from 55.7 (55.5 expected). 

·         Japan's Tankan Large Manufacturers Index rose to 16 from 12 (15 expected) while the Non-Manufacturers Index improved to 20 from 14 (16 consensus). Also of note, the Large Non-Manufacturers Diffusion Index increased to 17 from 14 (19 consensus) while the Small Non-Manufacturers Diffusion Index ticked up to 1 from -2 (2 expected). 

On other news.... 

Currencies 

Dollar Holds 80.00: 10-yr: -02/32..2.884%..USD/JPY: 102.98..EUR/USD: 1.3759
The Dollar Index trades near its best levels of the session, but remains in the red, as action hovers near 80.10. Overnight selling dropped the Index briefly below the 80.00 level, but a steady bid emerged following this morning's economic data, lifting trade to its best levels. Action is likely to remain choppy ahead of Wednesday's FOMC rate decision. Click here to see a daily Dollar Index chart.

·         EURUSD is +15 pips @ 1.3755 as trade looks likely to halt its brief two-day skid. The single currency tested the 1.3800 level following this morning's mixed Flash Manufacturing and Services data, but has been leaking lower over the course of U.S. trade. Also aiding the early advance was the continuation of dovish commentary from ECB head Mario Draghi, who insisted the euro is ‘irreversible' and that the central bank has more tools at its disposal, if needed. Resistance in the 1.3800 remains in focus while a breakdown of minor support near 1.3700 is likely to produce a test of 1.3600. Eurozone data includes CPI, core CPI, ZEW Economic Sentiment and German ZEW Economic Sentiment. 

·         GBPUSD is +5 pips @ 1.6300 after giving up most of its early gains. An overnight bid saw sterling test resistance in the 1.6350 area, but trade has slipped back onto near-term support in the 1.6300 region. A breakdown sets up a test of 1.6200 support helped by the 50 dma (1.6154). Britain's CPI, PPI input, and RPI are due out tomorrow along with CBI Industrial Order Expectations. 

·         USDCHF is -20 pips @ .8870 as action lingers near the December lows. Traders will continue to monitor the .8850 area as a breakdown would produce the lowest print since November 2011. 

·         USDJPY is -25 pips @ 102.95 as trade hovers just shy of five-year highs. This pair is one to watch in the days ahead as the Bank of Japan opines on Friday. 

·         AUDUSD is -5 pips @ .8950 amid a rather quiet trade. The hard currency managed to erased most of its early losses that developed following China's HSBC Flash Manufacturing PMI miss as bulls stepped into defend the important .8900 area. Australia's CB Leading Index will be released ahead of the latest Reserve Bank of Australia minutes and new motor vehicle sales. 

·         USDCAD is +5 pips @ 1.0585 as a sloppy trade nears the close. The pair saw little reaction to the large drop in Canada's foreign securities purchases as trade checked up near 1.0580 support. Today's action has been confined to just a 20 pip range. Canadian data is limited to manufacturing sales.

Jason's Commentaries


A 129 points gain on the Dow last night, totally neglected the possibilities of pricing in ahead of the FOMC minutes. Market rallied at least 0.63% ahead of the FOMC statements with much weaker volumes at 676.8m shares traded on the NYSE. The Energy sector was the strongest gainers as Exxon Mobil is pushing its highs, gaining 2% which also contributed to the Dow's movement. IBM, Cisco and Goldman Sachs were also part of the reason why the price weighted Dow is the strongest leader of the indices. The market started with a strong bullish bias and stayed flat throughout. The bullishness came in the Asian Market hours were the index futures were up 0.5% before the opening bell, which gave the bulls a head start to price in the Fed's movement. As the possibility of the taper grows with the decrease of unemployment rate at 7%, the market might get a little shakey. However, I reckon the Fed will taper any time soon since Bernanke is stepping down. That anticipation caused Treasuries to slip last night as well. 

On the technicals, we can see that the market actually bounced off their support levels, with the most significant on the Russells, bouncing off my trendlines... It seems that technically we're likely to have another up day coming, approximately 0.2-0.3% gain on Tuesday's session. 

Market Call: FLAT to upside

Date: 17 Dec 2013