31 March 2014 AMC- Market rallied as Yellen released Dovish comments

31 March 2014 AMC- Market rallied as Yellen released Dovish comments

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: -0.3%

·         Germany's DAX: -0.3%

·         France's CAC: -0.5%

·         Spain's IBEX: + 0.1%

·         Portugal's PSI: + 0.4%

·         Italy's MIB Index: + 0.9%

·         Irish Ovrl Index: + 0.1%

·         Greece ATHEX Composite: + 0.6%

Before Market Opens

The S&P 500 futures trade 11 points above fair value. 

Asian markets ended mostly higher with China's Shanghai Composite (-0.4%) underperforming amid reports of continued increases in nonperforming loans at major banks. In other regional news, North Korea conducted a military drill, firing a series of artillery rounds into South Korean waters, which was met with return fire from the South. 

In regional economic data, Japan's Manufacturing PMI fell to 53.9 from 55.5 while Industrial Production fell 2.3% month-over-month (consensus 0.3%, prior 3.8%). Separately, Housing Starts rose 1.0% year-over-year (expected 4.9%, prior 12.3%) and Construction Orders jumped 12.3% year-over-year (previous 15.2%). Hong Kong's Retail Sales fell 2.3% year-over-year (prior 14.5%). South Korea's current account surplus narrowed to $7.57 billion from $8.56 billion. Australia's HIA New Home Sales rose 4.6% month-over-month (consensus 0.5%) while Private Sector Credit increased 0.4% month-over-month (previous 0.4%). New Zealand's ANZ Business Confidence came in at 67.3% (prior 70.8%) while Building Consents fell 1.7% month-over-month (last -8.6%). 

·         Japan's Nikkei gained 0.9%, finishing on its session high with support from growth-sensitive names. Tosoh Corp and Tokyo Tatemono both gained near 5.5% while Sony jumped 4.0%. 

·         Hong Kong's Hang Seng added 0.4%, drawing strength from property names. Henderson Land Development and New World Development gained 2.6% and 3.7%, respectively. On the downside, CNOOC plunged 5.4% in reaction to disappointing earnings. 

·         China's Shanghai Composite slipped 0.4% after spending the bulk of the session in the red. Financials lagged with China Vanke falling 0.4%. 

The major European indices trade little changed while markets in Italy (+0.8%) and Spain (+0.5%) outperform. After speculating about the potential implementation of a European QE program, Bundesbank President Jens Weidmann said the eurozone is not in a deflationary cycle with inflation expected to pick up along with economic recovery. 

Participants received several data points. Eurozone CPI rose 0.5% year-over-year (consensus 0.6%, prior 0.7%) while core CPI increased 0.8%, as expected (prior 1.0%). Germany's Retail Sales rose 1.3% month-over-month (expected -0.5%, prior 1.7%) while the year-over-year reading increased 2.0% (consensus 0.8%, last 0.9%). Great Britain's BoE Consumer Credit came in at GBP550 million (expected GBP700 million, prior GBP620 million) while Mortgage Lending rose GBP1.70 billion (consensus GBP1.60 billion, prior GBP1.50 billion). French GDP rose 0.3% quarter-over-quarter, as expected. Italian CPI ticked up 0.1% month-over-month (expected 0.1%, previous -0.1%) while the year-over-year reading increased 0.4% (consensus 0.4%, prior 0.5%). Spain's current account swung from a surplus of EUR2.10 billion to a deficit of EUR3.60 billion. 

·         In France, the CAC is lower by 0.1% with consumer names on the defensive. Danone, LVMH Moet Hennessy, and Pernod Ricard hold losses between 0.4% and 1.7%. On the upside, Alstom leads with a gain of 1.8%. 

·         Germany's DAX is higher by 0.1% as producers of basic materials outperform. BASF, HeidelbergCement, K+S, and Lanxess are all up between 1.4% and 2.5%. 

·         Great Britain's FTSE trades up 0.3% with growth-sensitive names providing support. Anglo American, ARM Holdings, and Petrofac hold gains between 1.7% and 2.3%. Drug makers lag with AstraZeneca, GlaxoSmithKline, and Shire down between 0.6% and 1.3%. 

·         Italy's MIB (+0.8%) and Spain's IBEX (+0.5%) outperform amid strength in financials. UniCredit and CaixaBank trade higher by 1.8% and 3.0%, respectively.

U.S. Equities

·         Futures suggest solid gains at the open as window dressing continues into the quarter-end

·         The S&P 500 sits ~1.5% off all-time highs

·         Traders continue to monitor the VIX (14.41), which has spent much of the past six weeks consolidating in the 14.00 area

o    S&P Futures +10 @ 1861

o    Dow Futures +90 @ 16,330

o    Nasdaq Futures +27 @ 3590

Asia

·         Markets finished mostly higher across Asia 

·         Japan's Nikkei (+0.9%) led after the weak preliminary industrial production (-2.3% MoM actual v. 3.6% MoM expected) reading sparked speculation the BOJ may introduce further easing

·         China's Shanghai Composite (-0.4%) was the lone indice in the red as sellers took control ahead of tonight's PMI data

Market Internals

Market Internals -Technical-
The Nasdaq closed up 43 (+1.04%) at 4199, the Dow closed up 135 (+0.82%) at 16458, and the S&P 500 closed up 15 (+0.79%) at 1872. Action came on mixed volume (NYSE 825 mln vs. avg. of 736; NASDAQ 1902 mln vs. avg. of 2020), with advancers outpacing decliners (NYSE 2378/752, NASDAQ 2037/645) and new highs outpacing new lows(NYSE 144/8, NASDAQ 74/29).

Relative Strength: 
Russia-RSX +4.76%, Turkey-TUR +3.49%, Biotechnology-XBI +3.46%, Biotechnology-IBB +3.06%, Corn-CORN +3%, Eastern Europe-ESR +2.97%, Sweden-EWD +2.12%, Regional Banks-KRE +1.9%, Broker-Dealers-IAI +1.87%, Austria-EWO +1.83%.

Relative Weakness: 
Volatility-VXX -3.21%, Junior Gold Miners-GDXJ -2.87%, Egypt-EGPT 2.74%, Natural Gas-UNG -2.32%, Gold Miners-GDX -2.05%, Coffee-JO -2.01%, Middle East and Africa-GAF -0.43%, Japanese Yen-FXY -0.39%, Malaysia-EWM -0.38%, Chile-ECH -0.33%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks End March on Upbeat Note
The stock market closed out a volatile month of March on an upbeat note with small caps leading the advance. The Russell 2000 gained 1.8% while the S&P 500 settled higher by 0.8% with nine sectors ending in the green. The benchmark index was able to eke out a 0.7% gain for the month while the Nasdaq Composite and Russell 2000 could only trim their losses. The Nasdaq ended the month with a decline of 2.5% while the Russell 2000 lost 1.0% in March.

Equity indices made the bulk of their advance during the opening hour before spending the remainder of the session inside narrow ranges. The upbeat start took place after a weekend phone call between President Obama and Vladimir Putin, discussing the situation in Ukraine, was viewed as a step that increased the chances for a diplomatic solution to the standoff between Russia and Ukraine.

The early buying interest was also bolstered by comments from Fed Chair Janet Yellen, who spoke at a conference in Chicago, saying the Fed remains short of its employment and inflation goals and that the economy requires ‘considerable support for some time.'

Today's session featured outperformance in some areas that have been lacking in strength recently. Biotechnology, which was under close scrutiny over the past two weeks, displayed broad gains with the iShares Nasdaq Biotechnology ETF (IBB 236.40, +7.02) climbing 3.1%. The ETF trimmed its March decline to 10.6% while the group's outperformance gave a boost to the health care sector (+1.3%), which finished the day ahead of the remaining groups.

Similar to health care, most other top-weighted sectors ended among the leaders. Financials (+1.0%), industrials (+1.0%), and technology (+0.8%) outperformed while the discretionary sector (+0.6%) lagged.

Notably, the industrial sector received strong support from transports as indicated by a 1.7% gain in the Dow Jones Transportation Average. The bellwether complex rallied with all 20 components finishing in the green. Airlines had the best showing among specific industry groups with United Continental (UAL 44.63, +1.67) setting the pace.

Elsewhere, the discretionary space trailed the benchmark index throughout the session, which was fitting for a sector that ended the month at the bottom of the leaderboard (-2.9%). General Motors (GM 34.42, -0.31) lost 0.9% after Reuters reported the company accepted ignition switches from its supplier even though the parts did not meet standards set by the company.

Treasuries ended flat after showing morning losses. The benchmark 10-yr yield ended at 2.72%.

Participation was above average with month-end flows contributing to the strong volume as more than 820 million shares changed hands at the NYSE.

Today's economic data was limited to the Chicago PMI for March, which fell to 55.9 from 59.8 while the Briefing.com consensus expected an increase to 60.1. After three consecutive months above 60, the Chicago PMI fell to into the 59 range in January and February. At the time, severe winter weather conditions were blamed for the weakness in the PMI. As temperatures returned to normal, the consensus assumed manufacturing activities would return to their Q4 2013 levels, but that did not happen. A sharp drop in new orders (58.8 from 63.6) led to an overall pullback in manufacturing activities. Production, meanwhile, managed to improve to 61.7 from 59.6 as manufacturers worked down their backlogs (50.4 from 53.7).

Tomorrow, the ISM Index for March (Briefing.com consensus 54.0) and February Construction Spending (Briefing.com consensus 0.1%) will both be reported at 10:00 ET. 

·         S&P 500 +1.3% YTD 

·         Russell 2000 +0.9% YTD 

·         Nasdaq Composite +0.5% YTD 

·         Dow Jones Industrial Average -0.7% YTD

Commodities

Closing Commodities: Grains Rally Following USDA Report, Corn Ends Above $5/Bushel

·         Commodities ended mostly lower with energy and metals posting losses and ag posting mixed results, between grains and soft commodities.

·         Following USDA reports, corn, wheat and soybeans all rallied after initial volatility

·         May corn ended the day up 2.2% at $5.02/bu, May wheat rose 2 cents at $6.97/bu and May soybeans rose 1.8% at $14.62/bu

·         Natural gas futures sold off today and ended the day at its session low.

·         May nat gas closed 2.6% higher at $4.37/MMBtu

·         May crude oil lost $0.10 to close at $101.57/barrel

COMEX Metals Closing Prices:

·         June gold fell $10.60 to $1283.70

·         May silver fell $0.03 to $19.78/oz 

·         May copper fell 2 cents to $3.02/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         May corn rose 11 cents to $5.02/bushel

·         May wheat rose 2 cents to $6.97/bushel

·         May soybeans rose 26 cents to $14.62/bushel

·         Apr ethanol rose 10 cents to $2.71/gallon

·         May sugar (#16 (U.S.)) fell 0.05 of a penny to 22.30 cents/lbs

NYMEX Energy Closing Prices

·         May crude oil fell $0.10 to $101.57/barrel

·         May natural gas fell 11 cents to $4.37/MMBtu

·         May heating oil fell 2 cents to $2.93/gallon

·         May RBOB fell 1 cent at $2.92/gallon

Treasuries

Treasuries Recover Early Losses, Finish Little Changed: 10-yr: unch..2.720%..USD/JPY: 103.20..EUR/USD: 1.3777

·         Treasuries finished little changed after recouping their early losses. Click here to see an intraday yields chart.

·         The complex held small losses ahead of the cash open, and drifted to its worst levels of the session as equity markets saw window-dressing into the end of the quarter. 

·         This morning's weak Chicago PMI (55.9 actual v. 60.1 expected) marked the lows as buyers emerged following the miss, but the real driver of action was the dovish commentary from Fed Chair Janet Yellen. 

·         Chair Yellen spoke with a dovish tone at the Federal Reserve Bank of San Francisco/Federal Reserve Bank of Chicago/Community Development Financial Institutions Fund 2014 National Interagency Community Reinvestment Conference, suggesting the central bank is missing both its employment and inflation targets and that ‘extraordinary support' will be needed for some time. 

·         The 5y ended -0.4bps @ 1.732% after early selling provided a test of nearly 1.800%. Today's action was notable as the yield looked as though it was going to breakout above trendline resistance off the September highs only to slip back below the key level before the close. 

·         The 10y added +1.1bps to finish @ 2.723%. The benchmark yield was unable to climb above the 100 dma (2.777%) as buyers defended the upper end of the 2.600%/2.800% range that has been in place for the past two and a half months. 

·         At the long end, the 30y tacked on +1.7bps to end the session @ 3.561%. Traders will continue to watch the key 3.550% support level over the coming days with a breakdown setting up a likely move into the 3.150% region. 

·         Today's selling swung the yield curve steeper with the 2-10-yr spread widening to 229.5bps. 

·         Precious metals ended in the red with gold -$9 @ $1285 and silver -$0.03 @ $19.76. 

·         Data: ISM Index, construction spending (10), and auto/truck sales (14).

Next Day In View 

Economic Commentary

Economic Summary: Chicago PMI misses expectations; Janet Yellen said 2% inflation target is taken seriously
Economic Data Summary:

·         March Chicago PMI 55.9 vs Briefing.com consensus of 60.1; February was 59.8

o    At the time, severe winter weather conditions were blamed for the weakness in the PMI. As temperatures returned to normal, the consensus assumed manufacturing activities would return to their Q4 2013 levels. That did not happen. A sharp drop in new orders (58.8 from 63.6) led to an overall pullback in manufacturing activities. Production and unfilled orders also softened in March. Employment levels also suffered as the related index dropped to 50.0 from 59.3. It is getting clearer that the overall trends point toward winter weather not having much of an impact on the manufacturing sector.

Fed/Treasury Events Summary:

·         Fed Chair Janet Yellen spoke today. She said QE taper does not mean reduced stimulus; said 2% inflation target is taken seriously; economy needs extraordinary support for some time; Fed short of reaching its targets.

Upcoming Economic Data:

·         March ISM Index due out Tuesday at 10:00 (Briefing.com consensus of 54.0; February was 53.2)

·         February Construction Spending due out Tuesday at 10:00 (Briefing.com consensus of 0.1%; January was 0.1%)

Other International Events of Interest

·         Japan's Manufacturing PMI fell to 53.9 from 55.5 while Industrial Production fell 2.3% month-over-month (consensus 0.3%, prior 3.8%). Separately, Housing Starts rose 1.0% year-over-year (expected 4.9%, prior 12.3%) and Construction Orders jumped 12.3% year-over-year (previous 15.2%). 

On other news.... 

Currencies 

Dollar Slips Amid Quiet Trade: 10-yr: -01/32..2.726%..USD/JPY: 103.15..EUR/USD: 1.3775

·         The Dollar Index holds small losses as trade hovers near 80.10. Click here to see a daily Dollar Index chart.

·         Today's action has been rather lackluster, trapped between 80.00/80.10 for the majority of the session. 

·         EURUSD is +25 pips @ 1.3775 as trade has managed to shrug off the coolest eurozone inflation reading since November 2009. The single currency slumped to session lows near 1.3725 as the tame reading crossed the wires, but bulls quickly emerged in defense of the 50 dma as the European Central Bank is set to opine Thursday. Support in the 1.3700/1.3750 area will remain in focus into the decision. Eurozone data is heavy and Manufacturing PMI data from across the region accompanies the unemployment rate and German unemployment change. 

·         GBPUSD is +40 pips @ 1.6675 as trade looks likely to finish with a sixth straight day of gains. The current winning streak has run sterling through 1.6600/1.6650 resistance, putting the February/March highs near 1.36750 in the crosshairs. Britain's Manufacturing PMI will be released tomorrow. 

·         USDCHF is -35 pips @ .8835 as sellers take control for the first time in five sessions. Early buying developed following the KOF Economic Barometer miss, but buyers were unable to penetrate resistance in the .8850/.8875 area that was guarded by the 50 dma. Participants will be watching the .8800 area closely over the coming days as a breakdown puts the March lows near .8700/.8725 in jeopardy. 

·         USDJPY is +35 pips @ 103.15 as buyers remain in control following the big preliminary industrial production miss. The weak reading has increased speculation the Bank of Japan will up its asset purchase program as the consumption tax increase goes into effect tomorrow. Japan's Tankan Manufacturing Index and Tankan Non-Manufacturing Index will cross the wires ahead of average cash earnings. 

·         AUDUSD is +20 pips @ .9265 as trade rallies for the seventh time in eight sessions. Traders will be watching .9300 resistance into tonight's Reserve Bank of Australia rate decision. Markets are expecting no change from the current 2.50%. China's Manufacturing PMI and HSBC Final Manufacturing PMI will be released this evening. 

·         USDCAD is -10 pips @ 1.1050 as trade has spent the entire U.S. session in a steady climb. The pair tumbled to session lows near 1.1000 in response to the stronger than expected Canadian GDP (0.5% MoM actual v. 0.4% MoM expected), but steady buying over the remainder of the session has wiped away almost all of the early losses. Canadian data is limited to the Raw Materials Price Index.

Jason's Commentaries


Definitely did not expect Yellen to release such a dovish comments that rallied the market near1% last night. Volumes were strong in the market of 836.9m shares traded on the NYSE. The Healthcare sector was the strongest beneficiary in the session last night as Biotech was heavily beaten down in the past session. Utilities, Industrials and Financials gained over 1% last night as well. Internals were also pointing towards the bullish side as well as the market rallied. The market started last session with a bullish intent and held there all the way till closing bell. Seems that the market do want to stay up here. As we're nearing the employment reports, there might be some unusual pricing happening.  

Market Call: FLAT

Date: 1 April 2014