11 Feb 2014 AMC - Market rallied on Yellen's 'dovish' testimony

11 Feb 2014 AMC - Market rallied on Yellen's 'dovish' testimony

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: + 2.0%

·         France's CAC: + 1.1%

·         Spain's IBEX: + 1.1%

·         Portugal's PSI: + 1.3%

·         Italy's MIB Index: + 1.0%

·         Irish Ovrl Index: + 0.8%

·         Greece ATHEX Composite: -1.1%

Before Market Opens

S&P futures vs fair value: +2.40. Nasdaq futures vs fair value: +9.00.
The S&P 500 futures have trimmed their gain and now trade less than three points above fair value.

Markets across Asia saw gains. Australian data was mixed as NAB Business Confidence (8 actual versus 6 previous) and Home Price Index (3.4% quarter-over-quarter actual versus 3.2% expected) impressed while home loans fell short (-1.9% month-over-month actual versus 0.5% expected). Elsewhere, India's trade deficit narrowed to $9.92 billion from $10.14 billion. 

·         Japan's Nikkei was closed for National Founding Day. 

·         Hong Kong's Hang Seng jumped 1.8%, seeing its biggest gain in over two months. Insurers led as Ping An and China Life both surged 5.1%. 

·         China's Shanghai Composite gained 0.8%, finishing at its best level in six weeks. Financials posted strong gains as China Citic Bank rose the limit, 10%, and China Minsheng Bank climbed 3.5%. 

Major European indices hold gains across the board with Germany's DAX (+1.3%) in the lead. There was no economic data of note reported today.

In news, Germany's Finance Minister Wolfgang Schaeuble commented on the region, saying there is no danger of deflation in Europe. Elsewhere, Spain's Finance Minister Luis de Guindos said the country's government is likely to hike its GDP forecast in April. Currently, Spain is expected to see growth of 1.0% in 2014. 

·         In France, the CAC is higher by 0.5% with Publicis Groupe in the lead. The advertiser trades higher by 3.6%. On the downside, L'Oreal trades lower by 3.6%. 

·         Great Britain's FTSE trades up 0.7%. Miners are showing strength while financials lag. Fresnillo and Randgold Resources are both up near 3.0% apiece while Barclays and RSA Insurance hold respective losses of 5.1% and 3.7%. Notably, Barclays reported disappointing results and announced up to 12,000 job cuts. 

·         Germany's DAX is higher by 1.3% as 28 of its 30 components register gains. Exporters are in the lead with Daimler and BMW both up near 2.4%. On the downside, steelmaker ThyssenKrupp is lower by 1.1%.

Market Internals

Market Internals -Technical-
The Dow closed up 193 (+1.22%) at 15995, the S&P 500 closed up 20 (+1.11%) at 1820, and the Nasdaq closed up 43 (+1.03%) at 4191. Action came on near average volume (NYSE 697 mln vs. avg. of 702; NASDAQ 1877 mln vs. avg. of 1825), with advancers outpacing decliners (NYSE 2432/695, NASDAQ 1828/790) and new highs outpacing new lows (NYSE 92/18, NASDAQ 101/14).

Relative Strength: 
Natural Gas-UNG +6.67%, Junior Gold Miners-GDXJ +4.68%, Silver Miners-SIL +4.46%, China 25 Index-FXI +3.81%, Indonesia-IDX +3.22%, Metals and Mining-XME +2.59%, Thailand-THD +2.47%, Hong Kong-EWH +2.47%, Turkey-TUR +2.46%, Steel-SLX +2.45%.

Relative Weakness: 
Volatility-VXX -3.78%, Sugar-SGG -1.39%, Corn-CORN -0.95%, 20+ Year Treasuries-TLT -0.58%, Japanese Yen-FXY -0.44%, TIPS-TIP -0.32%, Swiss Franc-FXF -0.2%, Chinese Yuan-CYB -0.12%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks Rally Amid Uneventful Yellen Testimony
The stock market rallied steadily throughout the Tuesday session with the Dow Jones Industrial Average (+1.2%) providing the lead. Thanks to the advance, the Dow narrowed its 2014 loss to 3.5% while the Nasdaq (+1.0%) was able to swing from a loss to a year-to-date gain of 0.4%. The S&P 500 (+1.1%) regained its 50-day moving average with all ten sectors contributing to the climb.

Heading into the session, many participants were anxious to hear Janet Yellen's first testimony as the new Fed Chair, but the lengthy appearance before the House Financial Services Committee was largely uneventful.

Like her predecessor, Ms. Yellen indicated the Fed plans to remain data dependent in its decision making and that measured tapering will continue unless economic data takes a turn for the worse. When asked about the impact of the disappointing jobs reports for December and January on the Fed's reaction function, Ms. Yellen said it would be premature to alter policy based on a limited sample size.

In other news from Washington, all signs pointed to the House of Representatives being ready to pass an unconditional bill to raise the debt ceiling, which likely contributed to the market's sunny disposition.

All ten sectors took part in today's advance with energy (+1.4%) and materials (+1.2%) ending in the lead. The energy sector drew strength from top components like Chevron (CVX 113.58, +1.89) while crude oil ended little changed at $99.95 per barrel.

Elsewhere, the materials space received significant support from miners. Royal Gold (RGLD 65.20, +2.66) and Randgold Resources (GOLD 77.08, +2.55) posted respective gains of 4.3% and 3.4% while the broader Market Vectors Gold Miners ETF (GDX 25.65, +0.95) jumped 3.9% and regained its 200-day moving average. On a related note, gold futures rose 1.2% to $1289.70 per troy ounce.

With regard to other growth-sensitive sectors, technology (+1.2%) and industrials (+1.1%) outperformed while consumer discretionary (+0.7%) and financials (+1.0%) lagged.

On the countercyclical side, health care and telecom services both gained 1.3% while consumer staples and utilities added 1.1% and 0.9%, respectively.

Treasuries ended on their lows with the 10-yr yield up four basis points at 2.72%.

Despite the broad rally, trading volume was below average as less than 700 million shares changed hands at the NYSE.

Today's economic data was limited to December wholesale inventories, which increased 0.3% after increasing 0.5% in November. The Briefing.com consensus expected an increase of 0.6%. The BEA assumed merchant wholesaler inventories rose 0.6% in December when calculating the advance fourth quarter GDP report. The lower-than-expected increase in wholesale inventories will result in a negative revision to fourth quarter GDP growth.

Tomorrow, the weekly MBA Mortgage Index will be reported at 7:00 ET while the January Treasury budget will be released at 14:00 ET. 

·         Nasdaq Composite +0.4% YTD 

·         S&P 500 -1.6% YTD 

·         Russell 2000 -2.9% YTD 

·         Dow Jones Industrial Average -3.5% YTD

Commodities

Closing Commodities: Natural Gas Books First Gain In Five Sessions

·         Apr gold extended gains for a third consecutive session on Janet Yellen's first testimony as the new Fed Chair. Ms. Yellen indicated that measured tapering will continue unless economic data takes a turn for the worse. The yellow metal lifted from its session low of $1275.90 per ounce set moments after floor trade opened and advanced as high as $1294.40 per ounce by late morning action. It eventually settled with a 1.2% gain at $1289.70 per ounce.

·         Mar silver slipped to a session low of $19.92 per ounce but recovered into positive territory in mid-morning action. It brushed a session high of $20.29 per ounce and settled at $20.15 per ounce, or 0.1% higher.

·         Mar crude oil fell for the first time in six sessions, with prices slipping to a session low of $99.60 per barrel in morning action. The energy component spent the remainder of the session chopping around near the unchanged level and eventually settled at $99.95 per barrel, or 0.1% lower.

·         Mar natural gas lifted from a session low of $4.65 per MMBtu set moments after floor trade opened and trended higher to a session high of $4.85 per MMBtu. It settled 5.0% higher at $4.81 per MMBtu, booking its first gain in five sessions.

COMEX Metals Closing Prices

  Apr gold rose $14.90 to $1289.70/oz 

·         Gold rose for a third consecutive session as investors reacted to Janet Yellen's first testimony as the new Fed Chair. Ms. Yellen indicated that measured tapering will continue unless economic data takes a turn for the worse. The yellow metal lifted from its session low of $1275.90 set moments after floor trade opened and advanced as high as $1294.40 by late morning action. It eventually settled with a 1.2% gain. 

  Mar silver rose $0.03 to $20.15/oz 

·         Silver slipped to a session low of $19.92 but recovered into positive territory in mid-morning pit action. It brushed a session high of $20.29 and settled 0.1% higher. 

  Mar copper fell 1 cent to $3.22/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Mar corn fell 1 cent to $4.42/bushel 

·         Mar wheat rose 4 cents to $5.89/bushel 

·         Mar soybeans rose 11 cents to $13.36/bushel 

·         Mar ethanol fell 2 cents to $1.97/gallon

·         May sugar (#16 (U.S.)) rose 0.08 of a penny to 21.38 cents/lbs

NYMEX Energy Closing Prices

  Mar crude oil fell $0.12 to $99.95/barrel 

·         Crude oil fell for the first time in six sessions, with prices slipping to a session low of $99.60 in early morning floor action. The energy component spent the remainder of the session chopping around near the unchanged line and eventually settled 0.1% lower. 

  Mar natural gas rose 23 cents to $4.81/MMBtu 

·         Natural gas rose for the first time in five sessions as it lifted from a session low of $4.65 set moments after floor trade opened. It trended higher to a session high of $4.85 and settled slightly below that level, booking a gain of 5.0%. 

  Mar heating oil rose 2 cents to $3.02/gallon 

  Mar RBOB rose 2 cents to $2.75/gallon

Treasuries

Treasuries Slide as Yellen Goes to Congress: 10-yr: -14/32..2.723%..USD/JPY: 102.65...EUR/USD: 1.3636

·         Treasuries closed near their lows as Fed Chair Janet Yellen's Humphrey Hawkins testimony sparked a continued flight into risk assets. Click here to see an intraday yields chart.

·         Today's testimony went as expected with Chair Yellen noting, "The Committee will likely reduce the pace of asset purchases in further measured steps at future meetings."

·         Yesterday's inversion up front dissipated during today's session as reports indicate the House will vote on a clean debt ceiling bill later today, and that it is expected to pass. The 1M-3M spread has narrowed to 0.5bps after early action caused an inversion of 1.3bps. 

·         This afternoon's $30 bln 3y note auction drew 0.715% and a 3.42x bid/cover as a solid indirect takedown (42.0%) helped offset the weak direct bid (16.6%). Primary dealers were left with just 41.4% of the supply.

·         Sellers continued to focus on maturities in the belly of the curve as the 5y added +5bps to lead today's advance. The yield ended @ 1.525%, but was unable to reclaim the 1.550% resistance level. 

·         The 10y tacked on +4.1bps, finishing today's session @ 2.719%. Action in the benchmark yield continues to flirt with resistance in the area that is defended by the 100 dma.

·         Outperformance at the long end saw the 30y rally +2.2bps to 3.685%. 

·         Selling swung the yield curve steeper as the 2-10-yr spread widened to 239.5bps. 

·         Precious metals went off near their highs with gold +$17 @ $1292 and silver +$0.10 @ $20.21. 

·         Data: MBA Mortgage Index (7) and the Treasury budget (14). 

·         Auction: $24 bln 10y note auction. 

·         Fed Speak: STL's Bullard travels to New York, NY to take part in a panel discussing "Economic and Monetary Policy Challenges Facing the U.S. and Eurozone in 2014" (8:35).

Next Day In View 

Economic Commentary

Economic Summary: Janet Yellen says reason to consider pause will be notable change in outlook; Plosser maintains hawkish stance; Wholesale Inventories lower than expected; Yellen to give Senate Testimony Thursday at 10:30
Economic Data Summary:

·         December JOLTS -- Jobs Openings 3.99 M vs Briefing.com consensus of ; November was revised to 4.033 M from 4.001 M

·         December Wholesale Inventories 0.3% vs Briefing.com consensus of 0.6%; November was 0.5%.

o    The BEA assumed merchant wholesaler inventories rose 0.6% in December when calculating the advance fourth quarter GDP report. The lower-than-expected increase in wholesale inventories will result in a negative revision to fourth quarter GDP growth. Durable wholesale inventories increased 1.3% in December, up from a 0.6% gain in November. Computer equipment (5.3%) and machinery (2.2%) reported large gains. 

Fed/Treasury Events Summary:

·         House Speaker Boehner saying he plans on putting forth a clean debt ceiling bill/

·         Janet Yellen gave her testimony to the House today. Key statements included:

o    That said, purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on its outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

o    Asked about recent weak jobs report- says surprised that the pace of Dec and Jan ran below expectations but have to be careful not to jump to conclusions; notes weather factors that were involved; committee will meet in March with additional data (Notes Feb report); says will take time to assess; a reason to consider a pause is a notable change in the outlook.

o    Asked what would take for Fed to increase buying- says would have to see a notable turn in the jobs market or a slow down in inflation; reiterates purchase program is not on a pre-set course...

·         Philadelphia Fed President Charles Plosser (2014 voter, hawkish) spoke today, He made the following comments:

o    Based on the economic progress that has been made and his economic outlook, President Plosser believes it is appropriate to end asset purchases, and he supported the FOMC's decision in January to continue to reduce the pace of purchases. 

Upcoming Economic Data:

·         Weekly MBA Mortgage Applications due out Wednesday at 7:00 (Briefing.com consensus of ; Last Week was 0.4%)

·         January Treasury Budget due out Wednesday at 14:00 (Briefing.com consensus of -$10.0 bln; December was $2.9 bln)

Upcoming Fed/Treasury Events:

·         Saint Louis Fed President James Bullard (not a voting FOMC member, dovish) to speak tomorrow at 8:35

·         Fed Chair Janet Yellen to give testimony to Senate Thursday at 10:30

·         The Treasury is expected to auction off $70 bln in new debt this week.  Results will be announced at 13:00 Remaining auctions include:

o    Wednesday: $24 bln in 10 year notes

o    Thursday: $16 bln in 30 year bonds

Other International Events of Interest

·         Australian data was mixed as NAB Business Confidence (8 actual v. 6 previous) and Home Price Index (3.4% QoQ actual v. 3.2% QoQ expected) impressed while home loans fell short (-1.9% MoM actual v. 0.5% MoM expected) 

On other news.... 

Currencies 

Dollar Recovers Early Losses, Hovers Flat: 10-yr: -13/32..2.723%..USD/JPY: 102.61..EUR/USD: 1.3639

·         The Dollar Index hovers little changed near 80.65 after erasing its early losses. Click here to see a daily Dollar Index chart.

·         The Index saw two separate tests of the 80.45 level during today's action, and both times buyers emerged in defense of the key level.

·         EURUSD is -5 pips @ 1.3640 as early buying has faded. The single currency looked to be on its way for a sixth gain in seven sessions, but some afternoon selling has dropped action back in to the red. Resistance in the 1.3650 area that is helped by the 50 dma continues to pose a problem, as it has for most of 2014. Eurozone industrial production is due out. European Central Bank President Mario Draghi will speak in Belgium. 

·         GBPUSD is +45 pips @ 1.6445 as action readies for its best close in almost two weeks. Sterling has been bid throughout the session, buoyed by today's strong BRC Retail Sales Monitor print (3.9% YoY). The Bank of England Inflation Report will be released tomorrow. 

·         USDCHF is +20 pips @ .8985 as buying over the course of U.S. trade has run the pair to session highs. The pair saw an early test of the important .8940 level, but it was once again able to hold as buyers stepped in near the late-January lows. A breakdown of that area puts the late-2013 lows near .8840 in play. Swiss data is limited to CPI. 

·         USDJPY is +45 pips @ 102.65 as action holds just off session highs. The pair, along with risk, has been bid throughout the session, and is on track to finish at its best levels of February. Resistance in the 102.50/103.00 area holds strong. Japanese data includes core machinery orders and tertiary industry activity. 

·         AUDUSD is +85 pips @ .9035 as trade preps for its best finish in a month. Aiding the hard currency was today's mostly better than expected data out of Australia, and the appetite for risk assets in general. Australia's Westpac Consumer Sentiment is due out tonight.China's new loans are tentatively scheduled for release. 

·         USDCAD is -30 pips @ 1.1020 as sellers regain control after yesterday's bid halted the pair's seven-day losing streak. The 1.0950 area remains one to watch as the next level of any meaningful support rests in the area. Canada's annual budget is due out as markets close.

Jason's Commentaries


Last night was quite widely expected that Yellen is going to deliver something rather dovish. Market was up more than 1 percent. The rally makes the 4th consecutive up day in the market. Volumes is not as strong as during the tanker that the market experienced. Volumes were only at 709.5m shares traded on the NYSE. Internals were all supporting the direction of the market. VIX dropped to 14.51 as well.  The sectors that benefited Yellen's speech last night were the Healthcare and the Energy sector. Each gaining 1.36% and 1.3% respectively. It was a green day across the board with only a few outliers. While on the technical perspective, we've got S&P500 crossing the 20MA and broke above the 50MA as well. However, the market is starting to face resistance from the support before the drop, namely the 1820 level on the S&P500. It seems that the market is likely to take a short breather before going into a volatile period. I highly doubt we got much upside to go. 

Market Call: FLAT to downside

Date: 12 Feb 2014