27 Feb 2014 AMC- Russells and Nasdaq broke into the high as Yellen testify

27 Feb 2014 AMC- Russells and Nasdaq broke into the high as Yellen testify

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: + 0.2%

·         Germany's DAX: -0.8%

·         France's CAC: 0.0%

·         Spain's IBEX: -0.6%

·         Portugal's PSI: + 0.7%

·         Italy's MIB Index: -0.4%

·         Irish Ovrl Index: + 0.7%

·         Greece ATHEX Composite: -0.7%

Before Market Opens

S&P futures vs fair value: -1.50. Nasdaq futures vs fair value: +2.50.
The S&P 500 futures have climbed off their lows and now trade less than two points below fair value.

Asian markets ended mostly higher while Japan's Nikkei (-0.3%) underperformed. Economic data was plentiful. Japan's foreign bonds buying report indicated net purchases in the amount of JPY598.80 billion (JPY503.50 billion prior). South Korea's current account surplus narrowed to $3.61 billion from $6.43 billion. Australia's Building Capital Expenditure fell 3.5% month-over-month (0.6% expected, 5.4% prior) while Plant/Machinery Expenditures fell 8.6% quarter-over-quarter (0.5% consensus, -2.8% previous). Separately, Private New Capital Expenditure fell 5.2% quarter-over-quarter (-1.0% forecast, 2.6% prior). New Zealand's trade surplus narrowed to $306 million from $493 million ($216 million expected).

Among news of note, People's Bank of China director of research said the country's economy is likely to be more volatile in 2014. Elsewhere, North Korea launched four short-range missiles into the sea ahead of the annual joint U.S.-South Korean Foal Eagle military exercises. 

·         Japan's Nikkei slipped 0.3%, posting its second consecutive loss. Financials lagged with Mitsubishi Estate, Mitsui Fudosan, and Sumitomo Realty & Development down between 3.0% and 3.3%. Suzuki Motor outperformed, climbing 3.1%. 

·         Hong Kong's Hang Seng led the region with a 1.7% gain amid strength in large cap names. China Petroleum & Chemical, Tencent Holdings, and Lenovo Group gained between 4.2% and 5.3%. 

·         China's Shanghai Composite posted a modest gain of 0.3% as automakers outperformed. China XD Electric and Songliao Automobile both jumped the limit, 10.0%. 

Major European indices hover in the red with Germany's DAX (-1.0%) leading the retreat. Regional markets are seeing pressure after unrest in the Ukraine was rekindled when protesters seized the Crimean parliament in Simferopol.

Participants received a full slate of economic data. Eurozone Business and Consumer Survey ticked up to 101.2 from 101.0 (100.9 expected). Business Climate improved to 0.4 from 0.3 (0.2 consensus) and Consumer Confidence fell to -13.0 from -11.7, as expected. Separately, M3 money supply rose 1.2% year-over-year (1.1% consensus, 1.0% prior) but private loans fell 2.2% year-over-year (-2.1% forecast, -2.3% last). Germany's unemployment fell 14,000 (-10,000 expected, -28,000 prior) but the unemployment rate held steady at 6.8%, as expected. French Consumer Confidence slipped to 85 from 86 (86 consensus). Swiss GDP increased 0.2% quarter-over-quarter (0.4% consensus, 0.5% prior) while the year-over-year reading climbed 1.7% (2.0% expected, 2.1% prior). Elsewhere, Spain's GDP rose 0.2% quarter-over-quarter (0.3% consensus, 0.3% prior) while the year-over-year reading ticked down 0.2% (-0.1% expected, -0.1% last). Separately, House Price Index fell 4.0% year-over-year (-0.1% consensus, -4.5% previous). 

·         Great Britain's FTSE holds a loss of 0.3% as financials weigh. Standard Life is lower by 3.1% and Royal Bank of Scotland trades down 7.7% after reporting disappointing results. On the upside, defense contractor Rolls-Royce Holdings trades higher by 1.7%. 

·         In France, the CAC trades lower by 0.4%. Financials AXA and Societe Generale underperform with respective losses of 1.6% and 1.3%. Utility provider Veolia Environnement leads with a gain of 7.1% after issuing an upbeat outlook. 

·         Germany's DAX is lower by 1.0%. Allianz is the weakest performer, down 2.6%, after missing earnings expectations. Chemical producer Lanxess leads, up 2.6%.

Asia

·         Markets across Asia ended mostly higher 

·         China's Shanghai Composite (+0.3%) eked out a small gain despite 1W SHIBOR climbing +35.8bps to 3.430%

·         The recent weakening of China's yuan has caught the attention of many with today's action dropping CNY to 6.1287 versus the greenback, its lowest since the beginning of August

·         Hong Kong's Hang Seng (+1.7%) saw the bulk of its gains come into the close

·         Japan's Nikkei (-0.3%) slipped as the yen strengthened to near three-week highs 

·         Tensions are mounting on the Korean Peninsula after North Korea fired four short-range missiles into the sea. The actions came after markets in Asia were closed so developments should be watched closely into the Asian open tonight

Market Internals

Market Internals -Technical-
The Nasdaq closed up 27 (+0.63%) at 4319, the S&P 500 closed up 9 (+0.50%) at 1854, and the Dow closed up 74 (+0.46%) at 16273. Action came on near average volume (NYSE 683 mln vs. avg. of 704; NASDAQ 1886 mln vs. avg. of 1886), with advancers outpacing decliners (NYSE 2102/993, NASDAQ 1693/922) and new highs outpacing new lows (NYSE 134/15, NASDAQ 145/3).

Relative Strength: 
Lithium-LIT +4.40%, Indonesia-IDX +3.14%, Egypt-EGPT +2.96%, Sugar-SGG +2.83%, Clean Energy-PBW +2.81%, China 25 Index-FXI +2.76%, Thailand-THD +2.60%, South Africa-EZA +2.51%, Metals and Mining-XME +2.00%, Rare Earths-REMX +1.96%.

Relative Weakness: 
Nuclear Energy-NLR -1.43%, Natural Gas-UNG -1.27%, Heating Oil-UHN -1.20%, Grains-JJG -1.19%, Gasoline-UGA -0.96%, Austria-EWO -0.72%, Vietnam-VNM -0.54%, Russia-RSX -0.36%, Canadian Dollar-FXC -0.08%, Australian Dollar-FXA -0.07%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: S&P 500 Posts Fresh Record Closing High
Equity indices finished the Thursday session on an upbeat note with the S&P 500 settling above its 2013 closing high of 1848.36 after three unsuccessful attempts.

Stocks climbed throughout the session despite starting the day on a cautious note. The early weakness could be traced to European markets, which were pressured by news of renewed tensions in the pro-Russian region of Crimea in Southern Ukraine.

The developments weighed on European equities and contributed to a risk-off sentiment in the foreign exchange market where the yen strengthened notably against all major currencies. The dollar/yen pair fell as low as 101.70, which fueled worries about forced unwinds of yen-based carry trades.

Those worries were calmed by a rebound that sent the currency pair to a session high of 102.20. Meanwhile, the stock market began the trading day on a flat note and continued climbing throughout the day.

Participants heard from Fed Chair Janet Yellen today, but Ms. Yellen struck a familiar tone during her appearance before the Senate Banking Committee.

The Fed Chair did not provide any startling insights, which seemed to sit well with the market. To that end, the market didn't need her to sound outright dovish, just not clearly hawkish. She reiterated that further assessment time is necessary to determine what type of impact the severe winter weather has had on the economy and reminded her listeners that asset purchases are not on a preset course.

Eight of ten sectors ended in the green while energy (-0.01%) and utilities (-0.3%) posted modest losses.

On the upside, telecom services (+1.7%) outperformed notably thanks to a 2.5% gain in Verizon (VZ 47.50, +1.15), which rallied after being added to JPMorgan's Focus List.

The telecom sector was followed by materials (+0.7%) and technology (+0.7%). The materials sector drew strength from steelmakers as the Market Vectors Steel ETF (SLX 45.73, +0.65) gained 1.4%.

Meanwhile, the tech sector received significant support from its top component, Apple (AAPL 527.67, +10.32), which gained 2.0%. Despite Apple's strength, other large tech names did not fare as well. Cisco Systems (CSCO 21.92, -0.01), Google (GOOG 1219.21, -0.96), Qualcomm (QCOM 75.19, +0.14), and Intel (INTC 24.76, -0.04) were all little changed.

Elsewhere among influential groups, health care (+0.5%) and financials (+0.6%) ended in-line or just ahead of the broader market.

Strikingly, Treasuries finished the session on their highs with the benchmark 10-yr yield down two basis points at 2.65%.

Participation was a bit below average as 683 million shares changed hands at the NYSE.

Economic data was limited to weekly initial claims and durable orders for January: 

·         Initial claims increased to 348,000 from a downwardly revised 334,000 (from 336,000) while the Briefing.com consensus pegged the initial claims level at 335,000. We had anticipated that the initial claims level would hold between 330,000 and 340,000 for the next several weeks. The increase in claims obviously exceeded this range, but we are not concerned. While the Department of Labor stated that there was nothing unusual in the claims data, the DoL has had extreme difficulties accounting for holiday-shortened weeks with their seasonal adjustment factors. It was likely that the Presidents' Day holiday negatively impacted the seasonal adjustments last week. 

·         Regarding durable goods, orders fell 1.0% in January after declining a downwardly revised 5.3% (from -4.2%) in December. The Briefing.com consensus expected durable goods orders to fall 1.0%. A big drop in aircraft orders (-7.2%) pulled overall transportation demand down 5.6%. Excluding transportation, orders increased 1.1% after falling a downwardly revised 1.9% (from -1.3%) in December. The consensus expected these orders to decline 0.2%. 

Tomorrow, the second estimate of Q4 GDP will be released at 8:30 ET while the Chicago PMI for February will cross the wires at 9:45 ET. The final reading of the Michigan Sentiment survey for February will be reported at 9:55 ET while the Pending Home Sales report for January will be released at 10:00 ET. 

·         Nasdaq Composite +3.4% YTD 

·         Russell 2000 +2.3% YTD 

·         S&P 500 +0.3% YTD 

·         Dow Jones Industrial Average -1.8% YTD

Commodities

Closing Commodities: Natural Gas Settled 0.7% Lower, Crude Falls 0.2%

·         Precious metals traded slightly higher today as the dollar index dipped into negative territory while Fed Chair Janet Yellen testified in front of Congress. She reaffirmed that if there is a significant change to outlook, the Fed would be open to reconsidering the pace of tapering. She said that she needs to get a firmer handle on how much of the recent soft economic data can be explained by weather.

·         Apr gold advanced to a session high of $1336.40 per ounce in morning action and eventually settled with a 0.3% gain at $1331.80 per ounce.

·         May silver dipped to a session low of $20.20 per ounce shortly after equity markets opened but recovered back into positive territory. It brushed a session high of $21.47 per ounce and settled at $21.35 per ounce, or 0.3% higher.

·         Apr crude oil retreated into negative territory after pulling back from its session high of $102.94 per barrel set at pit trade open. It dipped to a session low of $101.75 per barrel but managed to inch back up above the $102 per barrel level and settled with a 0.2% loss at $102.38 per barrel. 

·         Apr natural gas spent most of the session chopping around below the break-even line as inventory data showed a draw of 95 bcf when a larger draw of 101-107 bcf was anticipated. It slipped to a session low of $4.44 per MMBtu and then rose as high as $4.57 per MMBtu. It eventually settled with a 0.7% loss at $4.51 per MMBtu.

COMEX Metals Closing Prices

  Apr gold rose $3.80 to $1331.80/oz 

·         Gold traded slightly higher today as the dollar index dipped into negative territory while Fed Chair Janet Yellen testified in front of Congress. She reaffirmed that if there is a significant change to outlook, the Fed would be open to reconsidering the pace of tapering. She said that she needs to get a firmer handle on how much of soft data can be explained by weather. The precious metal advanced to a session high of $1336.40 in morning action and eventually settled with a 0.3% gain. 

  May silver rose $0.06 to $21.35/oz 

·         Silver dipped to a session low of $20.20 shortly after equity markets opened but managed to recover back into positive territory. It brushed a session high of $21.47 and settled with a 0.3% gain. 

  May copper fell 2 cents to $3.20/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         May corn fell 4 cents to $4.56/bushel 

·         May wheat fell 14 cents to $5.91/bushel 

·         May soybeans fell 10 cents to $13.88/bushel 

·         Apr ethanol fell 1 cent to $2.13/gallon 

·         May sugar (#16 (U.S.)) rose 0.03 of a penny to 22.15 cents/lbs

NYMEX Energy Closing Prices

  Apr crude oil fell $0.24 to $102.38/barrel 

·         Crude oil retreated into negative territory after pulling back from its session high of $102.94 set at pit trade open. Prices dipped to a session low of $101.75 but managed to inch back up above the $102 level. The energy component eventually settled with a 0.2% loss. 

  Apr natural gas fell 3 cents to $4.51/MMBtu

·         Natural gas spent most of the session chopping around below the break-even line. It slipped to a session low of $4.44 and then rose to a session high of $4.57 following inventory data that showed a draw of 95 bcf when a larger draw of 101-107 bcf was anticipated. However, natural gas retreated back into the red and settled 0.7% lower. 

  Apr heating oil fell 3 cents to $3.01/gallon 

  Apr RBOB fell 3 cents to to $2.96/gallon

Treasuries

Longer Dated Yields Press to Lowest Levels in Three Weeks: 10-yr: +06/32..2.645%..USD/JPY: 102.10..EUR/USD: 1.3706

·         Treasuries gained for the fourth time in five sessions and finished near their best levels of the day. Click here to see an intraday yields chart.

·         Yields hovered in a tight 2bp range throughout the U.S. session as trade remained pinned near the highs. 

·         The modest overnight bid dissipated as durable orders and claims data outpaced estimates and equity markets opened with strong gains as Fed Chair Janet Yellen took her semi-annual testimony to the Senate Banking Committee. 

·         The Chair suggested it is difficult to determine how much of an impact the winter weather is having on the data. 

·         Sellers were never really able to gain the upper hand as the complex found support from the strong $29 bln 7y note auction. 

·         The auction drew 2.105% and a solid 2.72x bid/cover (highest since November 2012) as direct bidders (24.6%) provided support. An in-line indirect takedown (41.1%) left primary dealers with just 34.3% of the supply. 

·         Buying had the biggest impact on the long end as the 30y shed -3.9bps to 3.596%. The yield on the long bond closed at its lowest level in three weeks, and is moving towards a test of the key 3.550% level. A breakdown drops the 30y to levels last seen in early July. 

·         The 10y fell -3.1bps to 2.642%. The benchmark yield settled just above the 200 dma (2.638%), narrowly missing its first close below the mark since the Fed first mentioned the possibility of tapering back in early May. 

·         The 5y lagged throughout the session, finishing little changed @ 1.484%. Action saw the yield close on its 100 dma as trade remains locked between 1.450%/1.550% as it has for most of the month of February. 

·         A flatter yield curve persisted as the 2-10-yr spread narrowed to 230.5bps. 

·         Precious metals closed little changed with gold +$2 @ $1330 and silver flat @ $21.25. 

·         Data: GDP - Second Estimate (8:30), Chicago PMI (9:45), Michigan Sentiment - Final (9:55), and pending home sales (10). 

·         Fed Speak: Minny's Kocherlakota and Fed Governor Stein discuss monetary policy and financial stability (13:30) while Chicago's Evans and Philly's Plosser take part in a panel on "Communications Strategies in a World of Unconventional Monetary Policy" (13:30).

Next Day In View 

Economic Commentary

Economic Summary: Durable Orders slightly below estimates; Yellen says if there is a significant change to outlook it would be open to reconsidering pace of tapering; Q4 GDP (second est) due out tomorrow at 8:30
Economic Data Summary:

·         Weekly Initial Claims 348K vs Briefing.com consensus of 335K; Last Week was 336K

·         Weekly Continuing Claims 2.964 M vs Briefing.com consensus of 2.975 M ; Last Week was 2.981 M

o    The increase in claims obviously exceeded this range, but we are not concerned. While the DOL stated that there was nothing unusual in the claims data, the DOL has had extreme difficulties accounting for holiday shortened weeks with their seasonal adjustment factors. It was likely that the Presidents Day holiday negatively impacted the seasonal adjustments last week. 

·         January Durable Goods -1.0% vs Briefing.com consensus of -1.1%; December was revised to from -4.2%

·         January Durable Goods Ex-Transportation 1.1% vs Briefing.com consensus of -0.3%; December was -1.3%

o    The only unknown was how large the seasonal adjustments -- which were responsible for the entire 12% decline in transportation orders in December -- would upwardly adjust the January transportation data. Excluding transportation, orders increased 1.1% after falling a downwardly revised 1.9% (from -1.3%) in December. The consensus expected these orders to decline 0.2%. The strength in orders excluding transportation was a shock considering the national ISM orders index plummeted 13.2 points and barely remained above the expansion/contraction threshold. 

Fed/Treasury Events Summary:

·         Janet Yellen testified to the Senate. Key comments included:

o    She said that there has been some weaker econ data since her House testimony; said at this time it is difficult to determine effects of weather conditions on this data.

o    She said  if economy grows as expected it will continue tapering and end asset purchases some time this fall; said does not plan on selling MBS or treasuries; would like securities to run off the books.

o    She was asked if softness in the economy is not due to weather would the Fed slow the pace of tapering; reaffirms purchases are not on a preset course, and reaffirms if there is a significant change to outlook it would be open to reconsidering pace of tapering. She said need to get a firmer handle on how much of soft data can be explained by weather. If a significant change in the outlook it would reconsider current tapering but 'does not want to jump to conclusions'.

Upcoming Economic Data:

·         Fourth Quarter GDP- Second Estimates due out Friday at 8:30 (Briefing.com consensus of 2.6%; Third Quarter was 3.2%)

·         Fourth Quarter GDP Deflator - Second Estimate due out Friday at 8:30 (Briefing.com consensus of 1.3%; Third Quarter was 1.3%)

·         February Chicago PMI due out Friday at 9:45 (Briefing.com consensus of 56.0; January was 59.6)

·         February Michigan Sentiment due out Friday at 9:55 (Briefing.com consensus of 81.5; January was 81.2)

·         January Pending Home Sales due out Friday at 10:00 (Briefing.com consensus of 0.8; December was -8.7%)

Upcoming Fed/Treasury Events:

·         Atlanta Fed President Dennis Lockhart (not a voting FOMC member, typically moderate) to speak today at 15:15/

·         Minneapolis Fed President Kocherlakota (dove, voter) to speak tomorrow at 10:15

·         Chicago Fed President Charlie Evans (dove, non voter) and Philadelphia Fed President Charles Plosser (voter, hawkish) to speak together at 13:30

On other news.... 

News

·         Bank of America (BAC) plans to dispute $2.1 bln fraud claim, according to reports

·         Forest Labs (FRX) submits a New Drug Application for Nebivolol and Valsartan combination in Hypertension

·         MPLX LP (MPLX) announces acquisition of additional interest in MPLX Pipe Line Holdings from a subsidiary of Marathon Petroleum (MPC) for $310 mln; expected to be immediately accretive to distributable cash flow

·         Riverbed Technology (RVBD) announces Satya Nadella has retired from the board of directors; Mr. Nadella is stepping down in order to more fully devote time to his new position as CEO of Microsoft (MSFT)

·         Williams Partners (WPZ) signs agreement to acquire Williams' (WMB) Canadian assets for $1.2 bln; acquisition is immediately accretive

·         EU updates tabacco legislation; would require all packs to carry picture warnings covering 65% of their surface. E-cigarettes would be regulated, either as medicinal products if they claim to help smokers to quit, or as tobacco products

·         Over 5.8 mln tablets were sold in China in Q4 of 2013, according to reports

Currencies 

Dollar Struggles Near 80.50 Resistance: 10-yr: +03/32..2.654%..USD/JPY: 102.16..EUR/USD: 1.3714

·         The Dollar Index holds small losses near 80.30 after an early attempt to retake 80.50 resistance failed. Click here to see a daily Dollar Index chart.

·         The greenback pressed the resistance level for much of the overnight session and into this morning before dropping to its worst levels shortly after Fed Chair Janet Yellen began her testimony in front of the Senate Banking Committee. 

·         While some suggest the weakness came in response to a more dovish Yellen, others noted the selling was a result of the month-end fix. 

·         EURUSD is +20 pips @ 1.3705 as trade has managed to reverse its early losses. The single currency slumped to a three-month low in early morning trade, but buyers emerged at support in the 1.3650 area that is aided by the 50 and 100 dma and have not relinquished control. Tomorrow, eurozone data is plentiful as CPI Flash Estimate, unemployment rate, German retail sales, and French consumer spending are set for release. 

·         GBPUSD is +15 pips @ 1.6685 as a choppy session plays out. Sterling has held in a tight range between 1.6600/1.6750 for the past two weeks as a lack of tradable data and news out of the U.K. has made for some sloppy action as of late. British data out tomorrow is limited to the Nationwide Home Price Index. 

·         USDCHF is -20 pips @ .8880 as trade has given up its early gains and continues to test key support in the area. Traders continue to monitor the .8840/.8860 region as a breakdown would drop action to levels last seen in November 2011. Switzerland's KOF Economic Barometer will cross the wires tomorrow. 

·         USDJPY is -20 pips @ 102.15 as action continues to test the upper bound of the 101.50/102.50 range that has been in place for most of February. Overnight selling dropped the pair to a low of nearly 101.70, but support in the area held as buyers stepped in to defend the 100 dma. Japanese data is heavy as household spending, preliminary industrial production, retail sales, and Tokyo core CPI are due out tonight. 

·         AUDUSD is -5 pips @ .8960 as trade has managed to erase virtually all of the early losses. The hard currency sank to a three-week low of almost .8900 in response to the disappointing private capital expenditures data, but has seen a steady bid throughout the day after buyers showed up in defense of the 50 dma. Australia's private sector credit will be released tonight.

·         USDCAD is +20 pips @ 1.1145 as trade holds just off its highs. The pair fell to its worst levels of the day following the narrower than expected Canadian current account deficit (CAD16 bln actual v. CAD16.5 bln expected), but has seen buyers provide support throughout the remainder of the session. The 1.1200 level remains in focus ahead of Canada's GDP report, which is scheduled for tomorrow. Any move through that mark puts levels last seen in July 2009 in play.

Jason's Commentaries


It seems that Yellen's testimony is not as deadly as Ben Bernanke's speech. At least she brought the market higher last night. The market started with a a little bearish bias. However, after Yellen's speech, the market just headed all the way up with some minor correction in between. Internals were all supporting the bullish movement. Volumes were barely below 700m shares traded while all sectors except utilities were green. The strongest leader once again is the Tech followed by Materials, gaining 0.81% and 0.79% respectively. It seems that the move in Apple and Verizon last night were the main moving factor that the indices moved higher. However, it seems to me that we're still in that consolidation zone. Right now at 4am ET, the futures is down by 0.1%. I suspect the market is likely to stay flat to downside today. 

Market Call: FLAT to downside

Date: 28 Feb 2014