9 Jul 2014 AMC - Market ended higher with FOMC minutes release

9 Jul 2014 AMC - Market ended higher with FOMC minutes release

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: + 0.4%

·         France's CAC: + 0.4%

·         Spain's IBEX: + 0.5%

·         Portugal's PSI: -2.1%

·         Italy's MIB Index: + 0.9%

·         Irish Ovrl Index: + 0.5%

·         Greece ASE General Index: -1.5%

Before Market Opens 

S&P futures vs fair value: +5.40. Nasdaq futures vs fair value: +12.50.
The S&P 500 futures trade five points above fair value.

Markets in Asia finished lower across the board. The Hong Kong Monetary Authority injected HKD1.938 billion into the system in defense of the strong-end of its range. Elsewhere, early indications suggest Jakarta Governor Joko Widodo has claimed a narrow victory in the Indonesian presidential election, but nothing has been made official yet. 

·         In economic data: 

o    China's CPI slipped 0.1% month-over-month (previous 0.1%), while the year-over-year reading rose 2.3% (consensus 2.4%, prior 2.5%). Separately, PPI fell 1.1% year-over-year (expected -1.0%, last -1.4%) 

o    Australia's Westpac Consumer Sentiment rose 1.9% (previous 0.2%) 

o    New Zealand's Electronic Card Retail Sales were unchanged month-over-month (expected 0.2%, previous 1.3%), while the year-over-year reading increased 4.0% (last 7.6%) 

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·         Japan's Nikkei slipped 0.1%, remaining near its best level in almost six months. Exporters were pressured with Toyota Motor falling 1.1% and Sony Corp losing 1.2% 

·         Hong Kong's Hang Seng fell 1.6%, sliding off its best levels of 2014. Casino stocks remained under pressure for a third session after Standard Chartered downgraded the sector. Sands China gave up 2.2% and Wynn Macau tumbled 4.1%. 

·         China's Shanghai Composite fell 1.2% to its lowest level in a week and a half with trade settling on the 50-day moving average. Financials were weak with Bank of China off 0.8% and ICBC down 1.4%. 

Major European indices trade mostly higher, but Great Britain's FTSE (-0.4%) is struggling to keep up with the rest of the region. European Central Bank member Peter Praet commented on regional inflation, saying weak price pressure has extended into non-stressed countries and that core inflation was also trending below potential 

·         Economic data was limited: 

o    Great Britain's Halifax House Price Index fell 0.6% month-over-month (consensus 0.2%, previous 4.0%), while the year-over-year reading jumped 8.8% (forecast 8.9%, prior 8.7%) 

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·         Great Britain's FTSE holds a loss of 0.4% with Admiral Group factoring into the weakness. The insurer trades down 5.9% after issuing a cautious outlook. Airlines outperform with easyJet and International Consolidated Airlines up 2.8% and 1.0%, respectively. 

·         In France, the CAC trades up 0.1%. Technology and telecom names appear among the leaders with Gemalto and Orange holding respective gains of 2.0% and 0.7%. Financials lag with BNP Paribas and Societe Generale both down near 1.5%. 

·         Germany's DAX is higher by 0.2%. Deutsche Lufthansa leads with a 2.9% gain, while adidas is the weakest performer, down 1.8%. 

·         Italy's MIB outperforms with a gain of 0.9%. Financials are responsible for the bulk of the move as BMPS, Banco Popolare, Mediobanca, and Intesa Sanpaolo trade up between 1.7% and 2.9%.

U.S. Equities

·         Equity futures suggest a firm open as the major averages look to get back on track following two days of selling.

·         Earnings season got off to a positive start as former Dow component Alcoa (AA) beat top and bottom line estimates

·         Traders are keeping a close eye on the VIX (11.98), which settled at near a two-week high

·         MBA Mortgage Index (1.9%)

o    S&P Futures +2 @ 1963

o    Dow Futures +10 @ 16,870

o    Nasdaq Futures +5 @ 3868

Asia

·         Markets finished lower across most of Asia

·         China's CPI (2.3% YoY actual v. 2.4% YoY expected, 2.5% YoY previous) and PPI (-1.1% YoY actual v. -1.1% YoY expected, -1.4% YoY previous) were mostly in-line with estimates

·         The Hong Kong Monetary Authority injected HKD1.938 bln into the system in defense of the strong-end of its range

·         Early indications are Jakarta Governor Joko Widodo has claimed a narrow victory in the Indonesian presidential election, but nothing has yet been made official

·         Australia's Westpac Consumer Sentiment climbed to 1.9% (0.2% previous)

·         Japan's Nikkei (-0.1%) remained near five and a half-month highs

·         Hong Kong's Hang Seng (-1.6%) slid off its best levels of 2014

·         China's Shanghai Composite (-1.2%) fell to a one and a half-week low as trade settled on the 50 dma

·         India's Sensex (-0.5%) saw a second day of selling ahead of tomorrow's budget release

·         Australia's ASX (-1.1%) sank to a one-week low

Market Internals

Market Internals -Technical-
The Nasdaq closed up 28 (0.63%) at 4419, the Dow closed up 79 (0.47%) at 16986, and the S&P 500 closed up 9 (0.09%) at 1973. Action came on below average volume (NYSE 554 mln vs. avg. of 669; NASDAQ 1623 mln vs. avg. of 1708), with advancers outpacing decliners (NYSE 1825/1304, NASDAQ 1465/1202) and new highs outpacing new lows (NYSE 98/17, NASDAQ 36/28). 

Relative Strength: 
Junior Gold Miners-GDXJ +5.41%, Indonesia-IDX +4.41%, Silver Miners-SIL +2.61%, Social Media-SOCL +2.59%, Latin America 40-ILF +1.77%, Chile-ECH +1.77%, Russia-RSX +1.72%, Egypt-EGPT +1.5%, MLP Index-AMJ +1.39%, Consumer Discretionary-XLY +1.29%. 

Relative Weakness: 
Volatility-VXX -1.92%, Corn-CORN -1.73%, Sugar-SGG -1.6%, Heating Oil-UHN -1.46%, Greece-GREK -1.44%, Grains-JJG -1.41%, Columbia Index-GXG -0.71%, Hong Kong-EWH -0.61%, China 25 Index-FXI -0.47%, New Zealand-ENZL -0.45%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries

Closing Market Summary: Stocks, Bonds, and Gold Settle Near Highs
The major averages snapped their two-day losing streak with the Nasdaq Composite leading today's charge. The tech-heavy index rose 0.6%, while the S&P 500 advanced 0.5% with nine sectors posting gains.

Equity indices displayed opening strength, but the early advance was a bit shaky as the Russell 2000 (+0.1%) had a tough time keeping pace with the broader market. The small-cap index underperformed throughout the session, while the other key indices powered to new highs after the Federal Reserve released the minutes from the June FOMC meeting.

Most notably, the minutes revealed the belief among officials that investors have displayed too much complacency with regard to risk. Furthermore, the minutes indicated that the committee has discussed its exit strategy tools with the general expectation of a final $15 billion taper taking place in October if the current outlook holds up.

The subsequent rally in equities could likely be attributed to participants being encouraged by the relatively consistent language in the minutes. However, it was a bit striking to see a concurrent spike in Treasuries and gold futures.

The 10-yr note hovered on its session low ahead of the release, but reclaimed its entire loss in short order. As a result, the benchmark yield ended at 2.55% after being near 2.60% when the minutes crossed the wires. One could argue that this spike was also related to the consistent language in the minutes with participants viewing the status quo at the Fed as a sign that the central bank could fall behind on its growth forecast.

Elsewhere, gold futures spiked to $1329.00/ozt to register a solid 1.0% gain, suggesting some participants believe the Fed could be underestimating inflationary pressures given the apparent lack of urgency to move off the zero bound.

The consumer discretionary sector (+1.2%) spent the entire session in the lead thanks to support from restaurants and retail names. Interestingly, the retail sector appeared unaffected by cautious comments made by the CEO of The Container Store (TCS 24.80, -2.27). The specialty retailer tumbled 8.9% following its earnings miss while the CEO said the retail industry as a whole was in a ‘funk.'

Unlike the discretionary sector, other top-weighted groups settled on a mixed note with respect to the broader market. Health care (+0.4%) and technology (+0.5%) ended essentially in line with the S&P 500, while financials (+0.3%) and industrials (+0.2%) were limited to slim gains.

The modest uptick among industrials masked the relative strength of transport stocks. The Dow Jones Transportation Average rose 0.5% with 16 components settling higher. Matson (MATX 28.99, +1.64) was a standout, surging 6.0% after BB&T upgraded the stock to ‘Buy' from ‘Hold.' Airlines also displayed broad strength following positive monthly data from American Airlines (AAL 41.98, +1.73).

On the downside, the utilities sector (-0.2%) was the lone decliner following two days of relative strength.

Participation was below average with 557 million shares changing hands at the NYSE floor.

Economic data was limited to the weekly MBA Mortgage Index, which rose 1.9% to follow last week's downtick of 0.2%.

Tomorrow, weekly initial claims will be reported at 8:30 ET (Briefing.com consensus 311K), while the Wholesale Inventories report for May will cross the wires at 10:00 ET (consensus 0.5%). 

·         S&P 500 +6.7% YTD 

·         Nasdaq Composite +5.8% YTD 

·         Dow Jones Industrial Average +2.5% YTD 

·         Russell 2000 +0.8% YTD

Commodities

COMEX Metals Closing Prices

  Aug gold rose $7.80 to $1324.40/oz 

·         Gold traded higher as investors awaited the release of the latest FOMC minutes from the June meeting today at 14:00 ET. The yellow metal traded as high as $1327.90 and settled with a 0.6% gain. 

  Sep silver rose $0.05 to $21.07/oz 

·         Silver also traded in positive territory but pulled back from a session high of $21.22 set in early morning action. It brushed a session low of $21.04 and settled with a 0.2% gain.

  Sep copper fell 1 cent to $3.25/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Sep corn fell 8 cents to $3.91/bushel 

·         Sep wheat fell 5 cents to $5.51/bushel 

·         Aug soybeans fell 2 cents to $12.46/bushel 

·         Sep ethanol rose 1 cent to $2.05/gallon 

·         Sep sugar (#16 (U.S.)) rose 0.25 of a penny to 24.80 cents/lbs

NYMEX Energy Closing Prices

  Aug crude oil fell $1.12 to $102.24/barrel 

·         Crude oil trended lower in negative territory today as inventory data put pressure on prices and reports indicated that the El Sharara oil field in Libya was restarted. Although crude oil inventories for the week ending July 4 fell by 2.37 mln barrels when consensus called for a draw of 1.7-2.2 mln, gasoline inventories had a build of 0.579 mln barrels (a draw of 0.2-0.4 mln barrels was anticipated). The energy component pulled back from its session high of $102.91 set at pit trade open and traded as low as $102.00. Unable to find buying support, it settled with a 1.1% loss. 

  Aug natural gas fell 3 cents to $4.17/MMBtu 

·         Natural gas rose to a session high of $4.23 but gave up the gain and slipped back into negative territory in afternoon action. It settled just above its session low of $4.16, booking a loss of 0.7%.

  Aug heating oil settled unchanged at $2.87/gallon 

  Aug RBOB fell 3 cents to $2.94/gallon

 


Treasuries

Yields Reverse to One-Week Lows: 10-yr: +01/32..2.550%..USD/JPY: 101.60..EUR/USD: 1.3642

·         Treasuries closed on their highs, buoyed by this afternoon's release of the June FOMC minutes. Click here to see an intraday yields chart.

·         The complex held small losses into the cash open and saw a choppy trade ensue throughout the morning. 

·         Maturities pressed to session lows following today's sloppy $21 bln 10y reopening. The reopening drew 2.597% (WI 2.585%) and a light 2.57x bid/cover. Indirect (39.6%) and direct (13.9%) bids were below their 12-auction averages, but primary dealers were left with just 46.5% of the supply. 

·         It should be noted that reopenings tend to be a bit sloppy as participants already have the maturities on their books.

·         Post-auction selling caused maturities to probe their lows, but trade reversed to session highs as traders digested the FOMC minutes. 

·         The FOMC minutes indicated the Fed could end QE3 at the October meeting with a $15 bln taper if the economy progresses as expected. 

·         Not to be forgotten was a line indicating in the minutes the door to more QE remains open, if necessary. 

·         Buying in the belly dropped the 5y -2.3bps to 1.674%. the yield closed at a one-week low, and is moving back towards a test of support in the 1.650% area that is helped by the 50 and 100 dma. 

·         The 10y fell -1.8bps to 2.547%. The benchmark yield is closing in on important 2.525% support as action presses one-week lows. 

·         At the long end, the 30y slipped -2bps to 3.360%. Traders will be monitoring support in the 1.350% area over the coming days with a breakdown putting the May lows in focus. 

·         A flatter curve took hold as the 2-10-yr spread narrowed to 204.5bps.

·         Precious metals went off on their highs with gold +$15 @ $1331 and silver +$0.22 @ $21.23. 

·         Data: Initial and continuing claims (8:30) and wholesale inventories (10). 

·         Auction: $13 bln 30y reopening. 

·         Fed Speak: KC's George speaks on monetary policy and the economy (13:15).

On other news.... 

Excerpts from FOMC minutes

• The information reviewed for the June 17--18 meeting indicated that real gross domestic product (GDP) had dropped significantly early in the year but that economic growth had bounced back in recent months. 
• The average pace of employment gains stepped up, and the unemployment rate declined markedly in April and held steady in May, although it was still elevated. 
• Consumer price inflation picked up in recent months, while measures of longer-run inflation expectations remained stable. 
• Most measures of labor market conditions improved in recent months.
• While the current asset purchase program is not on a preset course, participants generally agreed that if the economy evolved as they anticipated, the program would likely be completed later this year. 
• If the economy progresses about as the Committee expects, warranting reductions in the pace of purchases at each upcoming meeting, this final reduction would occur following the October meeting

Currencies 

Dollar Looks at Third Day of Losses: 10-yr: -03/32..2.569%..USD/JPY: 101.62..EUR/USD: 1.3634

·         The Dollar Index briefly regained the 80.20 flat line following the release of the June FOMC minutes, but has slipped back into the red as trade presses 80.10. Click here to see a daily Dollar Index chart.

·         The minutes showed the Committee discussed ending its QE program in October with a $15 bln taper, but nothing is set in stone. 

·         EURUSD is +5 pips @ 1.3615 as trade struggles to hold on to a third day of gains. The single currency tested the 1.3650 level early in U.S. trade, but has steadily given up those gains over the course of the session. Eurozone data is limited to French industrial production. 

·         GBPUSD is -20 pips @ 1.7110 as trade slips back onto 1.7100 support. A batch of weaker than expected data has sterling holding at a one and a half-week low ahead of tomorrow's Bank of England rate decision. Participants will be looking for clues as to whether or not the BoE is set to begin raising rates later this year/early next year. 

·         USDCHF is -15 pips @ .8915 as action holds just off the lows. Today's selling has the pair lower for a third session and probing the 50 dma.  

·         USDJPY is +20 pips @ 101.75 as buyers take control for the first time in four sessions. The pair saw buyers emerge at 101.50 support early on in the session, and action is now looking to reclaim the 200 dma. Japan's core machinery orders and tertiary industry activity are due out tonight. 

·         AUDUSD is -10 pips @ .9390 amid a lackluster session. The aussie saw some early strength following the uptick in the Westpac Consumer Sentiment reading, but has given up those gains amid a sleepy trade. Australian data set for tonight includes MI Inflation Expectations, employment change, and the unemployment rate. China's trade balance is tentatively scheduled for release this evening.

·         USDCAD is -25 pips @ 1.0650 as trade slides to the lower end of the range that has been in place over the past two weeks. Today's selling has been supported by the better than expected Canadian housing starts (198K actual v. 191K expected), and puts the 1.0600 support level in focus.

Next Week In View




Economic Commentaries

Economic summary: June FOMC Minutes out at the top of the hour
Economic Data Summary:

·         MBA weekly mortgage apps +1.9% vs. -0.2% last week

Fed/Treasury Events Summary:

·         $21 bln 10-yr note reopening results: 2.597% (wi 2.585%); bid/cover 2.57x (prior 2.88x, 12-auction avg 2.68x); indirect bidders 39.6% (prior 36.1%, 12-auction avg 43.9%)

Upcoming Economic Data:

·         Initial Claims Thursday at 8:30 (Briefing.com consensus of 311K vs. 315K last week)

o    Continuing Claims (Briefing.com consensus 2.567 mln vs. 2.579 mln last week)

·         May Wholesale Inventories Thursday at 10:00 (Briefing.com consensus of +0.5%; was +1.1%)

·         International:

o    China Trade balance tonight at 21:30

Upcoming Fed/Treasury Events:

·         June FOMC Minutes at 14:00

·         30 Year $13 bln Treasury Bond Auction at 13:00

·         KC Fed President Esther George speaks tomorrow at 13:15

·         Federal Reserve Vice Chair Stanley Fischer speaks tomorrow at 16:30

Jason's Commentaries

The market had a rather volatile start to the day then held flat ahead of the FOMC statements. After the FOMC minutes were released, the market spiked to a high, ending the day on a higher note. Volumes traded on the NYSE 564.8m shares traded on the NYSE. Internals were all pointing towards the bullish side. The sector that benefited from the FOMC minutes is the Consumer Discretionary, which gained a 1.21%. While there is only one laggard which is the Utilities. This just shows that the market is definitely on the bullish side. On the technical side, i believe the Dow might have a good support at 16800. Right now, the market is not on any support and have a good chance of going down to test the support levels. After that gain during FOMC, market is likely to take a retracement.








Market Call: FLAT to downside

Date: 10 Jul 2014