29 Jan 2014 AMC- FOMC began taper, cutting asset purchasing by $10b per month

29 Jan 2014 AMC- FOMC began taper, cutting asset purchasing by $10b per month

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: -0.8%

·         France's CAC: -0.7%

·         Spain's IBEX: + 0.2%

·         Portugal's PSI: -0.2%

·         Italy's MIB Index: -0.6%

·         Irish Ovrl Index: 0.0%

·         Greece ATHEX Composite: -0.9%

Before Market Opens

S&P futures vs fair value: -12.90. Nasdaq futures vs fair value: -27.30.
The S&P 500 futures have continued their decline during the past 30 minutes. The S&P 500 futures now trade 13 points below fair value. It should be noted the weakness in futures has been taking place in conjunction with a strengthening yen. Carry unwinds pressured the broader market at the end of last week, and yen strength is posing a headwind to equities once again.

Markets across Asia ended mostly higher, piggybacking Tuesday's gains on Wall Street. Action was aided by the Turkish central bank's decision to hike its overnight lending rate 425 basis points to 12.00% and by additional liquidity injections from the People's Bank of China ahead of the Lunar New Year. Elsewhere, Bank Negara Malaysia held its key rate steady at 3.00%, as expected.

In economic data, South Korea's industrial production rose 3.4% month-over-month (0.6% forecast, 0.1% prior) while retail sales fell 1.3% month-over-month (0.8% consensus, 0.9% last). Separately, December current account surplus came in at $6.43 billion ($6.03 billion prior).

Also of note, markets across the region will be shuttered for different parts of the next week in observance of the Lunar New Year. 

·         Japan's Nikkei jumped 2.7%, posting its biggest gain in four months as action was aided by the weak yen. Exporters saw solid gains with Toyota Motor adding 2.0% and Fanuc climbing 3.3%. 

·         Hong Kong's Hang Seng rose 0.8%, gaining for the first time in five sessions. Financials displayed strength with Industrial & Commercial Bank of China and Construction Bank of China rallying 4.1% and 2.5%, respectively. 

·         China's Shanghai Composite ticked higher by 0.6%, marking its second consecutive gain, aided by the PBOC injections. Financials outperformed with China Minsheng Bank rising 2.6% to lead the sector higher. 

Major European indices trade near their lows after starting the session with solid gains. France's CAC (-1.2%) is leading the retreat with other indices not far behind. Investors received a handful of economic datapoints. Eurozone M3 money supply rose 1.0% year-over-year (1.7% expected, 1.5% prior) but loan creation remained an issue as private loans fell 2.3% year-over-year, as expected (-2.3% prior). Elsewhere, Germany's GfK Consumer Climate ticked up to 8.2 from 7.7 (7.6 consensus); Great Britain's Nationwide HPI increased 0.7% month-over-month (0.6% forecast, 1.4% last); Italy's Business Confidence ticked down to 97.7 from 98.2 (98.7 expected); and Spain's retail sales declined 1.0% year-over-year (-2.1% expected, 1.8% last).

Among news of note, Turkey's central bank surprised the market last night with its 445 basis point rate hike to 12.00% in an attempt to halt the rapidly weakening lira. Although USD/TRY initially fell from 2.2550 to 2.1645, it has since erased the entire decline. Currently, the pair trades near 2.2793. 

·         In France, the CAC is lower by 1.2% as consumer names lag. Danone and L'Oreal are both down near 1.0% apiece. Producers of basic materials outperform with Lafarge and Solvay up 1.2% and 0.8%, respectively. 

·         Germany's DAX holds a loss of 1.0% as all but three index members hover in the red. Exporters lag broadly with BMW, Daimler, and Volkswagen down 1.5% and 2.3%. Fresenius SE outperforms with a modest gain of 0.4%. 

·         Great Britain's FTSE trades down 0.8% with defensive names leading the retreat. Coca-Cola, Imperial Tobacco, and J Sainsbury display losses between 0.8% and 2.6%. Miners are showing strength with Antofagasta, Anglo American, and Fresnillo up between 3.5% and 6.5%.

Market Internals

Market Internals -Technical-
The Dow closed down 190 (-1.19%) at 15739, the Nasdaq closed down 47 (-1.14%) at 4051, and the S&P 500 closed down 18 (-1.02%) at 1774. Action came on slightly above average volume (NYSE 721 mln vs. avg. of 684; NASDAQ 2073 mln vs. avg. of 1774), with decliners outpacing advancers (NYSE 729/2401, NASDAQ 621/2006) and new lows outpacing new highs (NYSE 26/96, NASDAQ 43/33).

Relative Strength: 
Natural Gas-UNG +10.6%, Volatility-VXX +6.7%, Junior Gold Miners-GDXJ +4.3%, Coffee-JO +3.3%, Silver Miners-SIL +3.1%, Egypt-EGPT +1.1%, Japanese Yen-FXY +0.6%, Swiss Franc-FXF +0.2%.

Relative Weakness: 
South Africa-EZA -3.8%, Middle East and Africa-GAF -3.8%, Turkey-TUR -3.2%, Chile-ECH -3.2%, Singapore-EWS -2.6%, Internet Composite-FDN -2.2%, Sugar-SGG -2.2%, Regional Banks-KRE -1.9%, U.S. Consumer Goods-IYK -1.9%, Consumer Staples-XLP -1.8%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks Slump as Fed Tapers Once Again
Equities ended broadly lower with small caps leading the weakness. The Russell 2000 lost 1.5% while the S&P 500 fell 1.0% as nine of ten sectors finished in the red. Although today's session generated plenty of excitement, some of the events that played out over the course of the day were set in motion yesterday.

Shortly after yesterday's session on Wall Street ended, the Central Bank of Turkey shocked the market with a 445-basis point hike to 12.00% in an attempt to halt the rapidly weakening lira. The move worked...for 15 hours. The lira strengthened after the announcement, but spent the remainder of the overnight session in a steady retreat, giving up all of its gains.

Interestingly, yesterday's news of out of Turkey also gave a boost to U.S. equity futures while weighing on the yen. The moves did not hold as futures spent the night in a steady retreat while the yen rallied.

The Japanese currency maintained its strength throughout the session, posing a headwind to equities. Dollar/yen spent the entire trading day just above the 102.00 level while yen futures gained 0.6%, extending their 2014 advance to 3.0%.

Meanwhile, stocks hovered near their opening levels in the morning, but fell to fresh lows after the Federal Open Market Committee released its latest policy statement, which called for another $10 billion reduction to monthly asset purchases. Strikingly, just like losses observed earlier in the day, the post-FOMC retreat was accompanied by more yen strength.

The materials sector (+0.5%) withstood the broad-based weakness with help from Dow Chemical (DOW 44.77, +1.71), which rallied 4.1% after beating on earnings. Miners also outperformed as the Market Vectors Gold Miners ETF (GDX 23.86, +0.46) gained 2.0%. On a related note, gold futures advanced 0.9% to $1262.00 per troy ounce.

Elsewhere, the other commodity-related sector, energy, outperformed with a loss of 0.3%. The sector finished well ahead of the broader market thanks to bottom-line beats reported by Marathon Petroleum (MPC 86.85, +3.68) and Valero (VLO 51.50, +1.30).

Other cyclical groups were mixed with respect to the broader market as technology (-0.9%) outperformed while consumer discretionary (-1.7%), financials (-1.1%), and industrials (-1.0%) lagged.

On the countercyclical side, health care (-0.9%), telecom services (-0.4%), and utilities (-0.1%) outperformed while consumer staples (-1.8%) ended behind the remaining sectors.

Treasuries ended on their highs with the 10-yr yield down seven basis points at 2.69%.

Tomorrow, weekly initial claims and the advance fourth quarter GDP report will be released at 8:30 ET while the December Pending Home Sales report will cross the wires at 10:00 ET. 

·         Nasdaq Composite -3.0% YTD 

·         Russell 2000 -3.5% YTD 

·         S&P 500 -4.0% YTD 

·         Dow Jones Industrial Average -5.1% YTD

Commodities

Closing Commodities: Natural Gas Futures Surge 10%, Ending Near $5.50/MMBtu

·         Mar natural gas extended yesterday's advance, gaining steam on expectations for a large draw in inventories on tomorrow's EIA report due to cold weather persisting in various regions of the U.S. Prices lifted from a session low of $4.97 per MMBtu and rose as high as $5.49 per MMBtu, a new high since February 2010 for the continuous contract, moments before settling with a 9.9% gain at $5.43 per MMBtu.

·         Mar crude oil, on the other hand, traded lower as the EIA reported a build of 6.421 mln barrels in inventories while a smaller build of 2.25-2.3 mln barrels was anticipated. The energy component traded as low as $96.42 per barrel in early morning pit action but managed to erase most of the loss. It brushed a session high of $97.75 per barrels just before settling 0.1% lower at $97.30 per barrel.

·         Feb gold traded higher ahead of the 2:00pm FOMC announcement, with prices touching a session high of $1269.30 per ounce in early morning pit trade. It settled the session with a 0.9% gain at $1262.00 per ounce. The yellow metal slipped slightly following the FOMC decision to cut another $10 bln from its asset purchase program but has since reversed the initial move lower.Mar silver pulled back from its session high of $19.97 per ounce set in morning action and trended lower. It settled at its session low of $19.55 per ounce, booking a gain of 0.3%.

COMEX Metals Closing Prices

·         Feb gold rose $11.50 (+0.9%) to $1262.00/oz 

·         Mar silver rose $0.05 (+0.3%) to $19.55/oz 

·         Mar copper fell 1 cent to $3.24/lbs

CBOT Agriculture and Ethanol Closing Prices

·         Mar corn fell 4 cents to $4.28/bushel 

·         Mar wheat fell 15 cents to $5.51/bushel 

·         Mar soybeans fell 16 cents to $12.69/bushel 

·         Mar ethanol rose 2 cents to $1.79/gallon

NYMEX Energy Closing Prices

  Mar crude oil fell $0.13 to $97.30/barrel 

·         Crude oil traded lower today as the EIA reported a build of of 6.421 mln barrels in inventories while a smaller build of 2.25-2.3 mln barrels was anticipated. The energy component traded as low as $96.42 in early morning pit action but managed to erase most of the loss. It brushed a session high of $97.75 moments before settling 0.1% lower. 

  Mar natural gas rose 49 cents to $5.43/MMBtu 

·         Natural gas, on the other hand, continued to climb higher ahead of tomorrow's inventory report and as cold weather persists across various regions of the U.S. Prices lifted from a session low of $4.97 and rose as high as $5.49, a new high since February 2010 for the continuous contract, moments before settling with a 9.9% gain. 

  Mar heating oil rose 3 cents to $3.02/gallon 

  Mar RBOB rose 3 cents to $2.67/gallon

Treasuries

Treasuries Rally as Fed Tapers: 10-yr: +26/32..2.684%..USD/JPY: 102.14..EUR/USD: 1.3657

·         Treasuries finished on their highs as buyers emerged in response to the Fed's decision to trim its asset purchase plan by another $10 bln. Click here to see an intraday yields chart.

·         The taper drops the Fed's monthly purchases of MBS to $30 bln per month and its Treasury purchases to $35 bln per month. 

·         Treasury held its inaugural floating rate note auction. The $15 bln auction drew a 0.045% spread, 5.67x bid/cover, 37.8% indirect bidders, 8.9% direct bidders, 53.2% primary dealers 

·         The complex withstood some overnight selling pressure that develop in response to the emergency 425bp rate hike by the Turkish central bank, and then solid buying over the remainder of the session. 

·         A modest bid up front dropped the 2y -2.4bps to 0.355%, and has action contending with levels last seen around the time of the Fed's previous taper. 

·         The 5y slid -6.2bps to 1.492%, and closed on its 100 dma. Participants will be watching the 1.450/1.500% region in the days ahead. 

·         The 10y paced the decline, dropping -7.1bps to 2.675%. The benchmark yield settled at its lowest level since Veterans' Day. 

·         A +1 16/32 advance at the long end pushed the 30y down -5bps to 3.622%. Many are fixated on 3.600% support that is sided by the 200 dma. 

·         Aggressive flattening developed along the yield curve as the 2-10-yr spread narrowed to 232.5bps. 

·         Precious metals held firm with gold +$17 @ $1268 and silver +$0.26 @ $19.76.

·         Data: Initial and continuing claims, GDP-Adv. (8:30), and pending home sales (10). 

·         Auctions: $35 bln 5y notes (11:30 am ET) and $29 bln 7y notes (1pm ET).

Next Day In View 

Economic Commentary

Economic Summary: Fed tapers by $10 bln
Economic Data Summary:

·         Weekly MBA Mortgage Applications -0.2% (last Week was 4.7%)

Fed/Treasury Events Summary:

·         The Fed tapered asset purchases by $10 bln as expected ($5 bln from MBS, $5 bln from treasuries). Key statements included:

o    "Beginning in February, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 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."

o     The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal. 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. 

Upcoming Economic Data:

·         Weekly Initial Claims due out Thursday at 8:30 (Briefing.com consensus of 325K; Last Week was 326K)

·         Weekly Continuing Claims due out Thursday at 8:30 (Briefing.com consensus of 3.000 M ; Last Week was 3.056 M )

·         Fourth Quarter GDP - Adv due out Thursday at 8:30 (Briefing.com consensus of 3.0%; Fourth Quarter was 4.1%)

·         Fourth Quarter Chain Deflator - Adv due out Thursday at 8:30 (Briefing.com consensus of 1.2%; Fourth Quarter was 2.0%)

·         December Pending Home Sales due out Thursday at 10:00 (Briefing.com consensus of -0.2%; November was 0.2%)

Upcoming Fed/Treasury Events:

·         The Treasury is scheduled to auction off $102 bln in new debt this week.  Remaining auctions include:

o    Thursday 11:30 AM -- $35 bln in 5 year notes

o    Thursday 1:00 PM  -- $29 bln in 7 year notes

On other news.... 

Currencies 

Dollar Sees Little Reaction to Fed Taper: 10-yr: +22/32..2.697%..USD/JPY: 102.11..EUR/USD: 1.3651

·         The Dollar Index has seen little reaction to today's announcement the Fed will trim another $10 bln ($5 bln MBS, $5 bln Treasuries) from its asset purchase plan. 

·         The Index has spent much of the session hovering around the breakeven line, and that is continuing post-FOMC. Click here to see a daily Dollar Index chart.

·         EURUSD is -25 pips @ 1.3645 as action slips for a fourth straight session. Current action has the pair testing its lowest levels since shortly after the open for U.S. equities with trade probing the 50 dma. All in all a rather uneventful session. Eurozone data out tomorrow includes German preliminary CPI, German unemployment change, and Spanish Flash GDP. 

·         GBPUSD is -20 pips @ 1.6560 as some selling has surfaced in the face of the Fed's taper. Like the euro, action has been uneventful as a $10 bln cut to the Fed's program was largely expected. Britain's net lending to individuals will cross the wires tomorrow. 

·         USDCHF is -20 pips @ .8950 as trade has ticked off the lows. Action over the past couple of sessions has tested trendline support off the mid-December lows, but so far the line remains intact.

·         USDJPY is -95 pips @ 101.95 as heavy selling has the pair threatening its lowest close in two months. The pair has seen a volatile session, testing the 50 dma (103.50) before probing 102.00 support. Japanese data is limited to retail sales. 

·         AUDUSD is -35 pips @ .8740 as today's losses have erased all of yesterday's gains. Traders have had to deal with a report written by Australi's Hearld Sun that suggests RBA Governor Glenn Stevens will look to remove any downside bias in rates at the next meeting as inflation concerns mount. The .8700 level remains key with a breakdown producing the lowest print since July 2010. Australia's import prices will be released ahead of China's HSBC Final Manufacturing PMI. 

·         USDCAD is flat @ 1.1150 as trade sees little reaction to the Fed taper. An early bid lifted action to a high of 1.1186, its best since July 2009.

Jason's Commentaries


The market started last night with a bearish intent as the Turkish overnight lending rate spiked, causing the market to head south by 1% before the opening bell. The market attempted to reverse the drop, however by midday, the market went down again. At 2pm ET, FOMC released its statements, as expected, cut asset purchasing program by $10b per month, which caused some major gyration in the market. Last night, consumer staples and the discretionary are the heaviest hit, losing 1.75% and 1.6% respectively. P&G, Philip Morris, Boeing were some big names that led the drop last night. On the internals, volumes were standing at 735.9m shares traded on the NYSE and we definitely got some divergence in the early trading session. However, at the later trading session, it's definitely getting bearish. On the Technical side, we've got S&P500 bouncing off its critical support at 1770 points. If that support breaks... it's gonna get really bearish. Dow jones is bouncing off 15700 points. It seems that the double top of the S&P500 worked and it is likely that the S&P500 has reached its profit point, likely to run out of steam. Assuming if the support holds, we're likely to see a reversal. Else, it's going down...    

Market Call: UP

Date: 30 Jan 2014