19 Dec 2014 AMC - Market staged massive rally after oil catalysed drop

19 Dec 2014 AMC - Market staged massive rally after oil catalysed drop

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: + 1.2%

·         Germany's DAX: -0.3%

·         France's CAC: -0.2%

·         Spain's IBEX: -0.3%

·         Portugal's PSI: -0.7%

·         Italy's MIB Index: -0.4%

·         Irish Ovrl Index: 0.0%

·         Greece ASE General Index: -1.4%

Before Market Opens 

S&P futures vs fair value: +6.00. Nasdaq futures vs fair value: +6.20.
The S&P 500 futures trade six points above fair value.

Markets rallied across Asia as the Fed-induced enthusiasm on Wall Street traveled across the Pacific. The Bank of Japan kept policy on hold and said inflation could dip to 1.0% into March due to low oil prices. 

·         Economic data was limited: 

o    Japan's All Industries Activity Index ticked down 0.1% month-over-month (expected 0.2%; previous 1.4%) 

o    Hong Kong's current account deficit of HKD8.08 billion swung to a surplus of HKD43.30 billion 

o    New Zealand's ANZ Business Confidence slipped to 30.4% from 31.5% 

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·         Japan's Nikkei jumped 2.4% to post its biggest gain since Halloween. Heavyweights Softbank and Fast Retailing provided support, rising 2.4% and 2.3%, respectively. 

·         Hong Kong's Hang Seng added 1.3% as part of its second consecutive day of buying after hitting seven-month lows on Wednesday. Financials led AIA Group gained 3.4% and Bank of Communications added 2.6%. 

·         China's Shanghai Composite climbed 1.7% to its best levels since November 2010. Aluminum maker Chalco surged the limit, 10%, after announcing intentions to sell non-core assets. 

·         India's Sensex climbed 0.9%, gaining for the second day in a row, but struggled to reclaim the 50-day average. Commodity plays were strong as Hindalco Industries jumped 3.2% and Reliance Industries added 2.3%. 

Major European indices trade mostly lower with Italy's MIB (-1.3%) showing the largest decline. According to Reuters, the ECB is looking into ways of making weaker eurozone countries bear a larger portion of the risk associated with a sovereign QE program. The same countries would stand to benefit most from asset purchases. 

·         In economic data: 

o    Eurozone Current Account surplus narrowed to EUR20.50 billion from EUR32.00 billion (expected surplus of EUR27.40 billion) 

o    Germany's PPI was unchanged month-over-month (expected -0.2%; previous -0.2%) while the year-over-year reading fell 0.9% (expected -1.2%; previous -1.0%). Separately, GfK Consumer Climate improved to 9.0 from 8.7 (expected 8.8) 

o    UK's Public Sector Net Borrowing increased to GBP13.41 billion from GBP6.43 billion (expected GBP15.37 billion). Separately, CBI Distributive Trades Survey jumped to 61 from 27 (expected 31) 

o    French Business Survey held at 99, as expected 

o    Italy's Industrial New Orders rose 0.1% month-over-month (previous -1.5%) while Wage Inflation ticked up 0.1% month-over-month (prior 0.1%) 

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·         UK's FTSE is higher by 0.4% with miners in the lead. Antofagasta and Randgold Resources hold gains close to 3.0% apiece. Consumer names lag with Diageo, Next, and Coca-Cola HBC down between 0.7% and 1.6%. 

·         In France, the CAC is lower by 0.7% with Alstom leading the decline. The stock has surrendered 3.5%. Financials trade in mixed fashion with AXA and Unibail-Rodamco sporting respective gains of 0.4% and 1.0% while Societe Generale trades lower by 2.1%. 

·         Germany's DAX has given up 0.9%. Influential index components lag with BMW, Deutsche Bank, and Bayer down between 1.1% and 1.7%. Henkel AG outperforms, trading higher by 1.6%. 

·         Italy's MIB leads to the downside with a 1.3% decline. Financials lag with BMPS, Intesa Sanpaolo, Unicredit, and Mediobanca holding losses between 2.6% and 4.0%.

U.S. Equities

·         Futures point to a modest gains at the open

·         Early gains will have the S&P 500 threatening all-time highs

·         The VIX (16.81) slumped to a one-week low as a result of yesterday's surge in equities

·         Today is quadruple witching options expiration

o    S&P Futures +2 @ 2062

o    Dow Futures +23 @ 17749

o    Nasdaq Futures +12 @ 4275

Asia

·         Markets rallied across Asia as the Fed induced enthusiasm on Wall Street traveled across the Pacific

·         The Bank of Japan kept policy on hold and suggested inflation could dip to 1% into March due to the weakness in oil prices

·         Hong Kong's current account deficit swung to a surplus (HKD43.3 bln actual v. -HKD8.08 bln previous)

·         Japan's Nikkei (+2.4%) posted its biggest gain since Halloween

·         Hong Kong's Hang Seng (+1.3%) saw a second day of buying after hitting seven-month lows on Wednesday

·         China's Shanghai Composite (+1.7%) climbed to its best levels since November 2010

·         India's Sensex (+0.9%) gained for a second day, but struggled to reclaim the 50 dma

·         Australia's ASX (+2.5%) surged to its best close in nine sessions as three days of gains have erased six days of selling 

Market Internals

Market Internals -Technical-
The S&P 500 closed up 9 (+0.46%) at 2071, the Nasdaq closed up 17 (+0.36%) at 4765, and the Dow closed up 28 (+0.16%) at 17806. Action came on above average volume (NYSE 2421 mln vs. avg. of 877; NASDAQ 2735 mln vs. avg. of 1822), with advancers outpacing decliners (NYSE 2052/1131, NASDAQ 1437/1335) and new highs outpacing new lows(NYSE 222/22, NASDAQ 132/51).

Relative Strength: 
Russia-RSX +8.51%, Eastern Europe-ESR +8.18%, Oil-USO +5.88%, Oil and Gas Exploration-XOP +5.4%, Energy-IYE +4.95%, Columbia Index-GXG +4.52%, Oil Services-OIH +4.23%, Gasoline-UGA +3.48%, BRICs-EEB +2.21%, Egypt-EGPT +1.78%.

Relative Weakness: 
Natural Gas-UNG -5.55%, Middle East and Africa-GAF -3.07%, Emerging Markets Small Cap-EWX -2.59%, Junior Gold Miners-GDXJ -2.58%, Vietnam-VNM -2.09%, Poland-EPOL -1.8%, Grains-JJG -1.18%, Thailand-THD -1.14%, Insurance-KIE -1.03%, Regional Banks-KRE -0.95%.

Leaders and Laggards

 

Technical Updates

Commentaries 

Closing Market Summary: Stocks End Strong Week on Upbeat Note
The stock market capped a strong week with an advance that sent the S&P 500 higher by 0.5% to extend its weekly gain to 3.4%. The Dow Jones Industrial Average (+0.2%) underperformed today, but the price-weighted index still managed to add 3.0% for the week.

After adding more than 88 points in the previous two sessions, the S&P 500 spent the first half of the day near its flat line, but climbed ahead of the close. Despite the sharp midweek surge, buying interest remained in place today with nine of ten sectors ending the day in the green.

The energy sector (+3.1%) finished in the lead and extended its weekly gain to 9.7%, which put the growth-sensitive group well ahead of the remaining sectors. Crude oil contributed to today's rally as the energy component settled higher by 5.4% at $57.10/bbl and continued its advance into the $58.00/bbl area in electronic trade.

Meanwhile, the other commodity-related sector—materials—ended in the second place with a solid gain of 1.2%. Steelmakers contributed to the advance with the Market Vectors Steel ETF (SLX 36.61, +1.05) climbing 3.0%.

Outside of energy and materials, only one other sectors was able to end ahead of the broader market. Industrials (+0.5%) rallied behind their top-weighted component—General Electric (GE 25.62, +0.48)—while transport stocks ended just behind the broader market. The Dow Jones Transportation Average climbed 0.4% with freight carriers pacing the advance.

Elsewhere, the health care sector (+0.4%) slipped behind the market into the close, but biotechnology outperformed. Juno Therapeutics (JUNO 35.00, +11.00) surged 45.8% in its debut, which represented the largest biotech IPO of the year. For its part, the iShares Nasdaq Biotechnology ETF (IBB 317.20, +3.23) rallied 1.0% and helped the Nasdaq Composite end just behind the broader market even as chipmakers lagged.

The PHLX Semiconductor Index shed 0.3% with Xilinx (XLNX 43.00, -0.70) falling 1.6% after Bank of America/Merrill Lynch downgraded the stock to ‘Underperform' from ‘Neutral.' As for the broader technology sector (+0.1%), the top-weighted group was kept behind the broader market by relative weakness in influential components like Apple (AAPL 111.78, -0.87),Intel (INTC 36.37, -0.65), and Visa (V 261.67, -2.49).

Shares of Visa were also partially responsible for the underperformance of the Dow Jones Industrial Average. However it wasn't just the top-priced listing that kept the index behind the S&P 500. Nike (NKE 94.84, -2.24) fell 2.3% after the company's below-consensus futures orders growth overshadowed better than expected earnings and revenue. Retail names in general displayed weakness with the SPDR S&P Retail ETF (XRT 94.13, -0.68) shedding 0.7%.

Treasuries climbed throughout the day and ended just below their highs. The benchmark 10-yr yield slipped four basis points to 2.17%.

Today's participation was well ahead of average, which was caused by quadruple witching. As a result more than 2.1 billion shares changed hands at the NYSE floor.

Investors did not receive any economic news today and Monday's data will be limited to the Existing Home Sales report (Briefing.com consensus 5.20 million), which will be released at 10:00 ET. 

·         Nasdaq Composite +14.1% YTD 

·         S&P 500 +12.0% YTD 

·         Dow Jones Industrial Average +7.4% YTD 

·         Russell 2000 +2.7% YTD 

Commodities

Closing Commodities: WTI Crude Oil Soaring Over $58/Barrel In Electronic Trade

·         WTI crude oil prices continued to soar higher in electronic trade, rising as high as $58.34/barrel

·         Jan crude oil finished today's session $2.91 higher at $57.10/barrel.

·         Natural gas futures sold off on a warm weather forecast, falling sharply

·         Jan nat gas ended $0.16 to $3.47/MMBtu

·         Precious metals showed very modest gains today

·         Feb gold gained $1.10 to $1196.00/oz, while Mar silver rose $0.10 to $16.03/oz

Metals price action

·         Feb gold ended today's session $1.10 higher at $1196/oz

·         Mar silver also ended $0.10 higher at $16.03/oz

·         Mar copper rose 3 cents to $2.88/lb

 Agricultural price action

·         Mar Corn closed unchanged at $4.11/bushel

·         Jan wheat fell 20 cents to $6.33/bushel

·         Jan soybeans fell 6 cents at $10.30/bushel

·         Ethanol fell 3 cents to $1.62/gallon

·         Sugar #11 fell 0.01 cents to 14.98 cents/gallon

Energy price action

·         Jan crude oil rose $2.91/barrel, closing today's pit session at $57.10/barrel

·         Natural gas fell 16 cents to $3.47/MMBtu

·         RBOB Gasoline rose 2 cents to $1.56/gallon

·         Heating oil rose 4 cents to $1.93/gallon

Treasuries

Yields Climb as Fed Signals Patience on Rates: 10Y: +12/32..2.175%..USD/JPY: 119.57..EUR/USD: 1.2224
The Week in Review

·         Treasuries lost ground this week as the Federal Reserve signaled it would remain 'patient' as to the course of future rate hikes. Click here to see an intraweek yields chart.

·         The Bank of Japan kept policy unchanged and hinted inflation could slow to 1% into March as a result of the drop in oil prices.

·         Reports out Friday indicated Europe's periphery could bear the biggest burden of any QE risk should the ECB take that route.

·         Russia's ruble saw a volatile five days as the currency plunged to a record low near 79.50 before ending the week little changed near 58.18. 

·         U.S. economic data was largely disappointing as Empire Manufacturing (-3.6 actual v. 14.0 expected), housing starts (1028K actual v. 1035K expected), building permits (1035K actual v. 1060K expected), CPI (-0.3% actual v. -0.1% expected), and Philly Fed (24.5 actual v. 26.0 expected) all missed the mark. 

·         Only industrial production (1.3% actual v. 0.7% expected), capacity utilization (80.1% actual v. 79.3% expected), and leading indicators (0.6% actual v. 0.5% expected) topped estimates.

·         Up front, the 2Y tacked on +9bps to 0.638%. The yield ended just shy of its highest close since April 2011. 

·         The 5Y jumped +12bps to 1.654%. The yield finished on the 100 and 200 dma, and is attempting a run at 1.700% resistance. 

·         The 10Y climbed +9bps to 2.176%. The benchmark yield flirted with the key 2.220%, but was unable to finish the week above the level. 

·         Outperformance at the long end saw the 2Y tick up just +2bps to 2.774%. The ability to hold 2.700% will be critical for the bear case. 

·         Little change along the curve saw the 2-10-yr spread hold near 154bps. 

The Week Ahead 

·         Monday's data is limited to existing home sales (10). Treasury will auction $27B 2Y notes.

·         Tuesday's data is heavy as durable orders, GDP - Third Estimate (8:30), FHFA Housing Price Index (9), Michigan Sentiment - Final (9:55), personal income and spending, PCE Prices - Core, and new home sales (10) cross the wires. Treasury will hold a $35B 5Y note auction. 

·         Data concludes for the week on Wednesday with the weekly MBA Mortgage Index (7) and initial and continuing claims (8:30). U.S. equity markets will close at 1pm ET and the U.S. Treasury market will finish at 2pm ET for Christmas Eve. Treasury will auction $29B 7Y notes. 

·         Markets are closed Thursday in observance of Christmas Day. 

·         There is no data on Friday.

On other news.... 




Currencies 

Dollar Hits Best Levels Since April 2006: 10Y: +09/32..2.180%..USD/JPY: 119.55..EUR/USD: 1.2226

·         The Dollar Index presses session highs near 89.60 and remains on track for its best close since April 2006. Click here to see a daily Dollar Index chart.

·         The 200 mma provides a headwind near 89.90. 

·         EURUSD is -60 pips @ 1.2225 as trade flushes to levels last seen in August 2012. The single currency has come under pressure during today's session after a report surfaced suggesting the weaker countries from the region could shoulder the largest burden if a QE-type program is implemented. Key support in the 1.2000/1.2200 area is guarded by the 200 mma. 

·         GBPUSD is -45 pips @ 1.5625 as trade continues to test 15-month lows. Sterling was unable to gain traction in overnight trade despite the strongest CBI Realized Sales print in over 25 years, but did manage to reclaim the flat line in early U.S. action. However, the late-morning rally in the greenback pushed the pound back into negative territory. The 1.5600 area is key.

·         USDCHF is +40 pips @ .9835 as trade readies for its best close in more than two years. Action has recoupled with the euro after briefly decoupling in response to yesterday's decision by the Swiss National Bank to initiate a negative rate policy. EURCHF was little changed near 1.2030. 

·         USDJPY is +70 pips @ 119.55. Today's bid has the pair testing resistance in the area, and comes after the Bank of Japan held policy unchanged but warned inflation could slide to 1% into March as a result of the drop in oil prices. 

·         AUDUSD is -30 pips @ .8130 as trade presses back onto 54-month lows. Support in the .8100 remains under scrutiny. 

·         USDCAD is +40 pips @ 1.1615 as trade ticks back up towards its best levels since July 2009. The pair drifted little changed into this morning's mixed core CPI (-0.2% MoM actual v. +0.1% expected) and core retail sales (0.2% actual v. 0.2% expected) data before grinding higher over the remainder of the session.

Weekly Analysis




Technical Updates

Briefing's Commentaries


Week in Review: Oil Remains in Focus 

The major averages began the new week amid some old concerns. The S&P 500 settled lower by 0.6% while the Nasdaq Composite (-1.0%) underperformed, but most of the attention was directed to crude oil trading pits once again. After plunging nearly 4.0% on Friday and inviting questions about macroeconomic implications of the continued weakness, crude oil enjoyed an overnight rebound before resuming its downtrend. The energy component ended the pit session lower by 3.2% at $55.96/bbl and continued its retreat into the $55.50/bbl area in electronic trade. Similar to oil, European equities and U.S. equity futures rebounded in overnight action, but accelerated their retreat from highs once the U.S. cash market opened. All ten sectors finished the day in negative territory with heavily-weighted financials (-0.9%), health care (-0.9%), and consumer discretionary (-0.6%) keeping the market under pressure.

The stock market endured a volatile session on Tuesday with investors keeping one eye on the oil market and one on the dollar/ruble exchange rate. The Russell 2000 (-0.1%) registered the slimmest decline while the S&P 500 settled lower by 0.9% after failing to hold its 100-day (1988) and 50-day moving averages (2001). On Monday evening, the Central Bank of Russia hiked its key interest rate by 650-basis points to 17.0% with the move aimed at halting the recent freefall in the ruble. The news gave a brief boost to the Russian currency, but the ruble was down more than 18.0% against the dollar in the morning, which invited concerns about potential economic and financial risks stemming from the continued plunge. This sent participants scrambling in search of safe havens, which boosted Treasuries and the yen. Meanwhile in the commodity market, crude oil was down in excess of 2.5% this morning, but the energy component spiked off its low shortly after the start of the pit session. Oil was able to return to its flat line, but could not make a sustained move into the green, ending with a nine-cent loss at $55.87/bbl.

Stocks ended the Wednesday session with solid gains that were paced by the Russell 2000. The small-cap index jumped 3.1% while the S&P 500 settled higher by 2.0% with all ten sectors registering gains. Equities climbed through the first half of action and saw an extension of their rally in the afternoon once the FOMC released its latest policy directive. As expected by some, the Fed removed the "considerable time" language from its policy statement, but that reference was replaced with a call for "patience," which essentially conveyed the same message. Above all, Chair Yellen reiterated that the central bank will remain data-dependent and reserves the right to accelerate, or defer, a rate hike in accordance with what the data are communicating about the progress being made toward the Fed's dual mandate. The policy statement was followed by volatile action in the bond market, but Treasuries slid to lows into the close. The benchmark 10-yr yield spiked eight basis points to 2.14%. As for equities, the energy sector (+4.2%) paced the advance and ended near its high even as crude oil slumped into the close, narrowing its gain to 1.0% at $56.44/bbl.

Equity indices ended the Thursday affair on their highs with the S&P 500 (+2.4%) extending its two-day advance to 88 points. The key averages started the Thursday session on a sharply higher note after equity futures received an early morning boost, which took place after the Swiss National Bank imposed negative deposit rates (-0.25%). The central bank said the move is aimed at lowering the three-month LIBOR below zero and European investors viewed the announcement as a prelude to a sovereign QE program from the European Central Bank. European equities, U.S. futures, and commodities rallied following the news, but crude oil fell victim to renewed selling interest after climbing above the $58.50/bbl level in the early morning. The energy component ended near its worst level of the day, down 4.0% at $54.19/bbl. For its part, the energy sector (+2.1%) displayed relative strength at the start, but was pressured from its high by the intraday weakness in crude. Marathon Oil (MRO) finished ahead of the sector, adding 3.3%, after lowering its 2015 capital, investment, and exploration budget by about 20.0% from this year's levels due to the recent plunge in the price of crude.

Next Week In View





Economic Commentaries

Economic summary: No US data today; Evans and Lacker to speak later today; Existing home sales Monday at 10:00
Upcoming Economic Data:

·         November Existing Home Sales due out Monday at 10:00 (October was 5.26 M )

Upcoming Fed/Treasury Events:

·         Chicago Fed President Charlie Evans (not a voting FOMC member in 2014, dovish) to speak tomorrow at 10:00

·         Richmond Fed President Jeff Lacker (not a voting FOMC member in 2014, hawkish) to speak tomorrow at 12:30

Other International Events of interest

·         The Bank of Japan kept policy on hold and suggested inflation could dip to 1% into March due to the weakness in oil prices

·         Reports out this morning indicate the most troubled countries may be forced to shoulder the heaviest burden of QE risk

·         Germany's PPI was unchanged month-over-month (expected -0.2%; previous -0.2%) while the year-over-year reading fell 0.9% (expected -1.2%; previous -1.0%). Separately, GfK Consumer Climate improved to 9.0 from 8.7 (expected 8.8) 

Jason's Commentaries

Towards the last few weeks in the market, the market has been very volatile, spiked mainly by the sudden drop in oil prices which caused macroeconomics concerns over the sustainability of profits in oil producing nations. The OPEC did not want to do anything in response to the drop in oil prices which could possibly cause some negative GDP in some nations. Russia was one of the affected ones which it has to hike its interest rate to salvage the Ruble. However, the market is not taking that seriously. Now Russia might have to seek China’s help stabilize its currency. The drop in Ruble also caused the Swiss bank to impose negative interest rates as the Russians are flooding swiss banks with cash. To maintain the value of the Swiss Franc, I believe it’s actually quite a fast move to prevent a fast surge in Swiss Franc value. 

With all these issues happening, the market decided to rally for the past few sessions which push the market back to its high once again as crude oil prices stabilized at $55 region. Volumes remained very healthy and no doubt the Energy companies are the leading ones so far. However, there remains a good possibility that it could be a dead cat bounce. Nonetheless, we’re still have the Santa Claus rally!

Market Call: DOWN

Date: 22 Dec 2014