17 March 2014 AMC- Market rallies on Crimea's vote to join Russia

17 March 2014 AMC- Market rallies on Crimea's vote to join Russia

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: + 0.6%

·         Germany's DAX: + 1.4%

·         France's CAC: + 1.3%

·         Spain's IBEX: + 1.7%

·         Portugal's PSI: + 1.8%

·         Italy's MIB Index: + 2.5%

·         Irish Ovrl Index: + 1.1%

·         Greece ATHEX Composite: + 3.5%

Before Market Opens

S&P futures vs fair value: +8.00. Nasdaq futures vs fair value: +20.00.
S&P 500 futures trade seven points above fair value. Trade has taken the results of Crimea's referendum in stride as approximately 93% of the vote was in favor of the region joining Russia. Western leaders have said they do not recognize the outcome of the vote and are now likely to announce economic sanctions on Russia.

Markets finished mixed across Asia. The People's Bank of China widened its trading band to +/- 2% (+/-1% previous) above or below the officially set midpoint. Hong Kong's unemployment rate held at 3.1%, as expected. Singapore's trade surplus widened to SGD4.29 bln (SGD3.97 bln previous). 

·         Japan's Nikkei (-0.4%) slumped to its lowest level in six weeks. Heavyweight Softbank outperformed, surging 4.9% on reports its affiliate, Alibaba, announced it will go public in the United States. 

·         Hong Kong's Hang Seng (-0.3%) slipped to a five-week lows. Property stocks lagged as New World Development sank 5.6% and China Overseas Land & Investment gave up 2.1%. 

·         China's Shanghai Composite (+1.0%) rallied on Beijing's announcement its plans to speed up urbanization. Infrastructure and property names saw solid gains with Anhui Conch Cement adding 2.6% and China Vanke tacking on 3.1% to lead their respective sectors higher. 

The major European bourses trade higher across the board. Peripheral bourses lead the way with Spain's IBEX (+1.0%) and Italy's MIB (+0.9%) out front. Eurozone CPI was released this morning, posting a cooler than expected 0.7% (0.8% expected). 

·         Britain's FTSE is firm, up 0.4%. Miners lead the way with Anglo American and Glencore Xstrata both holding gains of 2.4%. 

·         Germany's DAX trades higher by 0.7%. RWE is up 1.4% after announcing the sale of its Dea oil and gas unit for $7.1 bln. 

·         France's CAC sports a 0.6% gain. Financials outperform with BNP Paribas and Credit Agricole both up 1.0%.

Market Internals

Market Internals -Technical-
The Dow closed up 182 (+1.13%) at 16247, the S&P 500 closed up 18 (+0.96%) at 1859, and the Nasdaq closed up 35 (+0.81%) at 4280. Action came on below average volume (NYSE 593 mln vs. avg. of 706; NASDAQ 1695 mln vs. avg. of 2004), with advancers outpacing decliners (NYSE 2253/850, NASDAQ 1684/949) and new highs outpacing new lows (NYSE 116/16, NASDAQ 111/14).

Relative Strength: 
Greece-GREK +3.89%, Eastern Europe-ESR +3.38%, Russia-RSX +2.98%, Poland-EPOL +2.96%, Italy-EWI +2.81%, Smart Grid Infrastructure-GRID +2.74%, Lithium-LIT +2.2%, Wind Energy-FAN +2.19%, Coal-KOL +1.99%, Natural Gas-UNG +1.84%.

Relative Weakness: 
Volatility-VXX -4.68%, Junior Gold Miners-GDXJ -4.57%, Coffee-JO -3.6%, Gold Miners-GDX -3.35%, Silver Miners-SIL -2.68%, Japanese Yen-FXY -0.44%, Swiss Franc-FXF -0.09%, Chinese Yuan-CYB -0.04%, British Pound-FXB -0.02%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Short-Covering Activity Drives Up Market
All of the fear and loathing last week about the Sunday referendum in Crimea was set aside today. Stock markets in Europe and the US rallied, not because there was a de-escalation of the standoff in Ukraine, but because there has yet to be an escalation of the standoff that would threaten global economic growth.

As expected, Crimeans voted overwhelmingly in favor (95.5% of votes cast) of joining the Russian Federation. As expected, the outcome of the referendum was not accepted as valid by President Obama and EU leaders. Still, there were two points of relief that sparked a short-covering rally on Monday: 

·         Military force has not been used; and 

·         Hard-hitting economic sanctions have yet to be imposed 

President Obama made a brief speech today to discuss a signed executive order that freezes the assets and imposes travel bans on a small group of advisors and allies of Vladimir Putin and only warned that more sanctions would be forthcoming if Russia continued to push a provocative stance in Ukraine.

Things have the potential to get more serious, but from the market's standpoint, it hasn't been given reason yet in the aftermath of the referendum to fear a worst-case scenario of economic sanctions being handed down that would impede global GDP growth.

The latter consideration ignited a short-covering rally in European stock markets that carried over to the US. Gains here were fast-paced off the open as the Dow Jones Industrial Average sported a 205-point gain a little more than 30 minutes after the opening bell rang.

The early rush of buying activity was helped along by a positive showing out of China's stock market (+1.0%), which responded favorably to news of a new urbanization plan. Separately, there were reports that the People's Bank of China would expand the yuan's daily trading band to 2% from 1%. In the event of further yuan weakness, that would bode well for the country's exporters.

Basically, then, last week's main points of concern -- Ukraine and China -- were minimized, if only for a day. To be sure, plenty of questions remain about China's growth prospects and shadow banking system, as well as the path Russia will follow in Ukraine.

The gains in the US were broad-based. Every stock in the Dow Jones Industrial Average ended higher and so did every sector in the S&P 500. From a broader perspective, there wasn't any true weakness on Monday. Rather, weakness was couched in terms of which sectors were up the least. Gains for the major indices ranged from 0.6% for the Russell 2000 to 1.1% for the Dow Jones Industrial Average.

The stock market was underpinned throughout the day by quality leadership from some of its most heavily-weighted sectors. That included the technology (+1.3%), industrials (+1.3%), financial (+1.0%), and health care (+0.9%) sectors. The utilities sector (+0.6%) trailed all other sectors, but it still made a respectable showing, particularly with interest rates rising at the back end of the Treasury yield curve.

Some of the weakness there followed an encouraging report that industrial production increased 0.6% in February, bolstered by a 0.8% jump in manufacturing production. The February strength came on the heels of a 0.2% decline in industrial production in January.

Separately, the Empire Manufacturing Index for March was slightly better than expected with a 5.6 reading (Briefing.com consensus 5.4). A number above zero denotes expansion. The NAHB Housing Market index, however, still reflected declining builder confidence with a reading of 47 for March. That was up from 46 in February but below the Briefing.com consensus estimate that called for a jump to 50.0, which is the dividing line between rising and declining confidence.

Despite today's nice-sized gains for the major indices, participation in the move was unequivocally light. Just 593 mln shares traded at the NYSE versus a recent average of 706 mln shares. This was a tacit sign that today's move wasn't so much a relief rally in unbridled form as it was a short-covering move to account for a negative development that has yet to live up to its advance, fear-based billing.

Tuesday's economic calendar will feature the Housing Starts (Briefing.com consensus 915,000) and Building Permits (Briefing.com consensus 955,000) report for February, as well as the CPI report for February. The Briefing.com consensus calls for total CPI and core CPI to be up 0.2% and 0.1%, respectively. After Tuesday's close, Oracle (ORCL 38.22, +0.62) and Adobe Systems (ADBE 68.17, +0.98) will report their quarterly earnings results. 

·         Dow Jones Industrial Average -1.95% YTD 

·         Nasdaq Composite +2.5% YTD 

·         S&P 500 +0.6% YTD 

·         Russell 2000 +2.1% YTD 

·         S&P Midcap 400 Index +2.3% YTD

Commodities

Closing Commodities: Natural Gas Gains 2.5%, While Crude Oil And Precious Metals Close Lower

·         Apr gold fell for the first time in six sessions despite a slightly weaker dollar index. The yellow metal rose to a session high of $1382.90 per ounce in morning floor trade but gave up the gain as it slipped to a session low of $1370.00 per ounce. It spent afternoon action trading just above that level and settled with a 0.4% loss at $1373.10 per ounce.

·         May silver brushed a session high of $21.44 per ounce in morning action but quickly fell back into the red. It settled 0.7% lower at $21.27 per ounce, slightly above its session low of $21.23 per ounce. 

·         Apr crude oil fell for the first time in three sessions as investors reacted to relatively limited sanctions imposed by the West against Russia following the completion of Crimea's referendum with no escalation of violence. 95.5% voted in favor of the region joining Russia. The energy component retreated from its session high of $98.69 per barrel and brushed a session low of $97.37 per barrel. It eventually settled at $98.05 per barrel, or 0.9% lower. 

·         Apr natural gas, on the other hand, spent its entire floor session in the black, trading as high as $4.59 per MMBtu in early morning action. It spent the remainder of the session trading slightly above the $4.50 per MMBtu level and settled with a 2.5% gain at $4.53 per MMBtu.

COMEX Metals Closing Prices

  Apr gold fell $6.10 to $1373.10/oz 

·         Gold fell for the first time in six sessions despite a slightly weaker dollar index. The yellow metal rose to a session high of $1382.90 in morning floor trade but gave up the gain as it slipped to a session low of $1370.00. It spent afternoon action trading just above that level and settled with a 0.4% loss. 

  May silver fell $0.14 to $21.27/oz 

·         Silver brushed a session high of $21.44 in morning action but quickly fell back into the red. It settled slightly above its session low of $21.23, booking a 0.7% loss. 

  May copper settled unchanged at $2.95/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         May corn fell 7 cents to $4.78/bushel 

·         May wheat fell 12 cents to $6.74/bushel 

·         May soybeans rose 1 cent to $13.91/bushel 

·         Apr ethanol fell 2 cents to $2.45/gallon 

·         May sugar (#16 (U.S.)) fell 0.13 of a penny to 21.95 cents/lbs

NYMEX Energy Closing Prices

  Apr crude oil fell $0.86 to $98.05/barrel 

·         Crude oil fell for the first time in three sessions as investors reacted to relatively limited sanctions against Russia by the West following the completion of Crimea's referendum with no escalation of violence. 95.5% voted in favor of the region joining Russia. The energy component retreated from its session high of $98.69 and brushed a session low of $97.37. It eventually settled with a 0.9% loss. 

  Apr natural gas rose 11 cents to $4.53/MMBtu 

·         Natural gas, on the other hand, spent its entire session in the black, trading as high as $4.59 in early morning floor trade. It spent the remainder of the session trading slightly above the $4.50 level and settled with a 2.5% gain. 

  Apr heating oil fell 5 cents to $2.89/gallon

  Apr RBOB fell 8 cents to $2.88/gallon

Treasuries

Treasuries Close on Lows: 10-yr: -09/32..2.694%..USD/JPY: 101.73..EUR/USD: 1.3922

·         Treasuries drifted little changed throughout the session before some late-day selling dropped maturities to their lows into the cash close. Click here to see an intraday yields chart.

·         The complex was met with some light overnight selling after the results of Crimea's referendum pointed to the region becoming part of Russia despite Western governments suggesting they would not recognize the results. 

·         A choppy trade persisted throughout the morning following Empire Manufacturing (5.6 actual v. 5.4 expected, 4.5 previous) and industrial production (0.6% actual v. 0.1% expected) beats and NAHB Housing Market Index (47 actual v. 50 expected) miss. 

·         Afternoon selling dropped the complex to fresh lows as the major equity averages ticked to new highs. 

·         Selling ran yields up as much as 5.5bps with the 10y ticking up to 2.700%. Today's selling caused the benchmark yield to retake its 200 dma with action now up roughly +10bps from Friday's low. Resistance in the 2.755% area will be watched closely as it is also home to both the 50 and 100 dma. 

·         At the long end, the 30y tacked on +4.3bps. Traders are looking towards the 3.700% resistance level as both the 50 and 200 dma lurk in the vicinity. 

·         Some flattening took hold in the knob of the curve as the 10-30-yr spread tightened to 93bps. 

·         Precious metals lost ground as gold fell $12 to $$1367 and silver slumped $0.20 to $21.21. 

·         Data: Housing starts, building permits, and CPI (8:30).

Next Day In View 

Economic Commentary

Industrial Production tops expectations; FOMC decision Wednesday at 14:00 followed by Janet Yellen's first press conference at 14:30
Economic Data Summary:

·         March Empire Manufactruing 5.6 vs Briefing.com consensus of 5.4; February was 4.5

·         February Industrial Production 0.6% vs Briefing.com consensus of 0.1%; January was -0.3%

o    Those reports turned out to be wrong. According to the industrial production data, manufacturing production increased 0.8% in February and completely wiped away the January decline. The index has returned to December levels. The report suggests that the turnaround was a result of a one-time, weather-related shock in January. We still believe, however, the downturn in January was the result of cyclical trends. A big portion of the increase in manufacturing production came from the motor vehicle sector. After declining 5.2% in January, motor vehicle production increased 4.8% in February. 

·         February Capacity Utilization 78.8% vs Briefing.com consensus of 78.5%; January was 78.5%

·         March NAHB Housing Market Index 47 vs Briefing.com consensus of 50; February was 46

Upcoming Economic Data:

·         February Housing Starts due out Tuesday at 8:30 (Briefing.com consensus of 915K; January was 880K)

·         February Building Permits due out Tuesday at 8:30 (Briefing.com consensus of 955K; January was 937K)

·         February CPI due out Tuesday at 8:30 (Briefing.com consensus of 0.2%; January was 0.1%)

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

Upcoming Fed/Treasury Events:

·         The FOMC is scheduled to begin a two day meeting on Tuesday.  The statement (along with supplemental economic projections) will be announced at 14:00.  At 14:30, Janet Yellen will host her first press conference as Chair of the Fed.

Other International Events of Interest

·         Eurozone CPI increased 0.3% month-over-month (0.4% expected, -1.1% prior) while the year-over-year reading increased 0.7% (0.8% consensus, 0.8% last). Core CPI rose 0.5% month-over-month (-1.7% previous) while the annualized reading came in at 1.0% (1.0% prior).

On other news.... 

Among news of note: 

·         Crimeans voted 95.5% in favor of Crimea being annexed to Russia.  EU foreign ministers meet to today to determine a response.

·         Vodaphone (VOD) bought Spanish cable operator Ono for $10 bln

In U.S. corporate news: 

·         Yahoo (YHOO 38.75, +1.15): indicated 3.2% higher after Alibaba.com announced it is preparing for a US IPO

·         General Motors (GM 34.21, +0.12): trading slightly higher despite news of first lawsuit filed over the ignition recall

·         Wells Fargo (WFC 48.09, +0.69): reports out this morning that it is being accused by New York attorney general of fabricating foreclosure documents 

Currencies 

Dollar Slips in Quiet Trade: 10-yr: -07/32..2.686%..USD/JPY: 101.65..EUR/USD: 1.3919

·         The Dollar Index clings to small losses as trade presses the 79.50 level. Click here to see a daily Dollar Index chart.

·         Today's weakness has the Index lower for the fourth time in five sessions with trade on track to close at its lowest level in four and a half months.

·         EURUSD is +10 pips @ 1.3920 as trade readies for its best close since October 2011. The single currency has been able to shake off this past weekend's Crimea referendum that made the region a part of Russia, and the cooler than expected CPI data. The 1.3850 level is home to minor support. Eurozone data includes ZEW Economic Sentiment and German ZEW Economic Sentiment. 

·         GBPUSD is -10 pips @ 1.6635 amid an uneventful session. Today's action has been limited to a 60 pip range with the pair struggling near minor resistance in the 1.6650 area. Bank of England Governor Mark Carney will speak in London. 

·         USDCHF is +5 pips @ .8730 as trade ticks off 29-month lows. Action has been trapped in a 45 pip range during today's session with trade spending most of the day pressing the lows. 

·         USDJPY is +30 pips @ 101.65 as buyers take control for the first time in five days. Data and news out of Japan were absent overnight with buyers instead focusing on the appetite for risk assets.

·         AUDUSD is +65 pips @ .9095 as trade contends with three-month highs. The hard currency is trading on its best levels of the session with bulls setting their sights on the .9150 level, which is home to the 200 dma. The latest Reserve Bank of Australia minutes will cross the wires tonight.

·         USDCAD is -55 pips @ 1.1050 as trade presses session lows. Action has been trapped between 1.1050/1.1130 for much of the past month with a breakdown likely putting pressure on 1.0950. Canadian data is limited to manufacturing sales. Bank of Canada Governor Steven Poloz will speak in Halifax.

Jason's Commentaries


As expected, the market went higher once again. What I did not expect is the market managed to help up so high. As Crimea votes to join Russia, both US and EU did not approve. This likely to destabilize the region. The market started last night with a bullish bias, then it just went volatile till the closing end. Volumes were barely 700m shares on the NYSE, internals were showing slight flatness. Leaders in the market were Industrials, Tech and Financials. Kinda strong for a flat day. I reckon it's likely to be short covering turning into a rally. Ahead of the FOMC, the market is likely to stay flat for Tuesday, awaiting Wednesday's statement.  

Market Call: FLAT to downside

Date: 18 March 2014