19 Sep 2014 - Market ended higher as FOMC cuts purchase by $10b; Alibaba IPO shook the market

19 Sep 2014 - Market ended higher as FOMC cuts purchase by $10b; Alibaba IPO shook the market

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: + 0.0%
• France's CAC: -0.1%
• Spain's IBEX: + 0.5%
• Portugal's PSI: + 0.1%
• Italy's MIB Index: -0.7%
• Irish Ovrl Index: -0.3%
• Greece ASE General Index: + 3.7%

Before Market Opens 
S&P futures vs fair value: +7.00. Nasdaq futures vs fair value: +17.00.
The S&P 500 futures trade seven points above fair value.

It was a sea of green across Asia as only India's Sensex (-0.1%) failed to gain. Elsewhere, the Japanese government downgraded its economic assessment, as speculated earlier in the week.

• In economic data: 
  • Japan's Leading Index ticked down to 105.4 from 105.5 (expected 105.5), while All Industries Activity Index slipped 0.2% month-over-month (consensus 0.4%; previous -0.3%) 
  • South Korea's PPI ticked down 0.1% month-over-month (previous 0.1%), while the year-over-year reading fell 0.2% (last 0.2%) 
  • New Zealand's Credit Card Spending rose 4.2% year-over-year (prior 4.5%), while Visitor Arrivals declined 3.0% month-over-month (last -0.6%) 

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• Japan's Nikkei gained 1.6%, surging to its best levels since November 2007, fueled by the yen slumping to a fresh six-year low. Heavyweight Fast Retailing provided support with a 3.6% gain while exporters Canon and Honda Motor Corp tacked on 1.4% and 1.2%, respectively. 
• Hong Kong's Hang Seng added 0.6%, climbing off eight-week lows. Financials linked to the United Kingdom gained as Scotland voted ‘No." HSBC Holdings rallied 1.7% and Standard Chartered added 0.9%. 
• China's Shanghai Composite rose 0.6% to near six-month highs. Technology shares were strong, boosted by the Alibaba IPO in the U.S. 
• India's Sensex shed 0.1%, but held near record highs. Automakers were among the laggards as Mahindra & Mahindra and Tata Motors fell 1.3% and 1.2%, respectively. 

Major European indices trade mostly higher, while France's CAC (-0.2%) and Italy's MIB (-0.5%) underperform. French President Francois Hollande commented on the euro, saying the single currency has weakened to a ‘more suitable level.' Elsewhere, the British pound surged overnight in reaction to the first set of results from the failed Scottish independence vote, but succumbed to a ‘sell-the-news' reaction once the results became clear. The pound/dollar pair traded as high as 1.6524 before sliding below the 1.6350 level.

• Economic data was limited: 
  • Eurozone Current Account surplus widened to EUR18.70 billion from EUR18.60 billion (expected surplus of EUR16.50 billion) 
  • Germany's PPI ticked down 0.1% month-over-month, while the year-over-year reading declined 0.8%. Both figures matched expectations 

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• Germany's DAX has added 0.2% with support from defensively-oriented names. Deutsche Telekom, Deutsche Post, and E.On are up between 1.6% and 3.2%. SAP is the weakest performer, down 3.4% after agreeing to acquire Concur Technologies. 
• Great Britain's FTSE is higher by 0.6% with Royal Bank of Scotland in the lead following the failed independence campaign in Scotland. The stock has added 2.9%. Miners lag with Anglo American and Rio Tinto down 0.5% and 1.1%, respectively. 
• In France, the CAC trades lower by 0.2% amid weakness in growth-sensitive names. Cap Gemini and Credit Agricole hold respective losses of 1.3% and 1.0%. Utilities outperform with Veolia Environnement up 2.2%. 
• Italy's MIB is lower by 0.5% with financials on the defensive. Banco Popolare, Banca di Milano Scarl, and Intesa Sanpaolo are down between 1.4% and 2.0%.

U.S. Equities

• Both the DJIA and S&P 500 finished yesterday's session at record highs while the Nasdaq ended just shy of 15-year highs
• The VIX (12.03) holds near its lowest levels in a month
• Today is a quadruple witching day
• Today's Alibaba IPO will be the largest in U.S. history

• S&P Futures +6 @ 2010
• Dow Futures +65 @ 17,243
• Nasdaq Futures +13 @ 4110

Asia

• It was a sea of green across Asia. 
• The Japanese government downgraded its economic assessment
• Japan's Nikkei (+1.6%) surged to its best levels since November 2007, fueled by the yen slumping to a fresh six-year low
• Hong Kong's Hang Seng (+0.6%) climbed off eight-week lows
• China's Shanghai Composite (+0.6%) neared six-month highs
• India's Sensex (-0.1%) held near record highs
• Australia's ASX (+0.3%) defended the 200 dma

Market Internals

Market Internals -Technical-
The Dow closed up 15 (+0.08%) at 17281, the S&P 500 closed down 1 (-0.04%) at 2011, and the Nasdaq closed down 14 (-0.30%) at 4580. Action came on above average volume (NYSE 1805 mln vs. avg. of 632; NASDAQ 2673 mln vs. avg. of 1683), with decliners outpacing advancers (NYSE 1245/1894, NASDAQ 957/1811) and mixed new highs/lows(NYSE 122/100, NASDAQ 96/119).

Relative Strength:
Greece-GREK +2.25%, Cocoa-NIB +2.2%, Poland-EPOL +1.42%, 20+ Year Treasuries-TLT +1.27%, Utilities-XLU +0.9%, MLP Index-AMJ +0.75%, Gasoline-UGA +0.73%, Japan-EWJ +0.17%, Chinese Yuan-CYB +0.08%, Indian Rupee-ICN +0.06%.

Relative Weakness:
Silver Miners-SIL -3.63%, Junior Gold Miners-GDXJ -3.56%, Silver-SLV -3.26%, Grains-JJG -2.2%, Gold Miners-GDX -2.03%, Turkey-TUR -2%, Egypt-EGPT -1.52%, Italy-EWI -1.5%, Latin America 40-ILF -1.42%, Canada-EWC -1.22%.

Leaders and Laggards

 

Technical Updates

Commentaries 

Closing Market Summary: Upbeat Week Ends on Cautious Note
The stock market finished an upbeat week on a mixed note. The S&P 500 shed less than a point, ending the week higher by 1.3%, while the Dow Jones Industrial Average (+0.1%) cemented a 1.7% advance for the week. High-beta names underperformed, which weighed on the Nasdaq Composite (-0.3%) and the Russell 2000 (-1.3%).

Equity indices displayed strength in the early going with the S&P 500 tagging the 2,019 level during the opening 30 minutes of the action. However, that represented the high watermark for the benchmark index, which returned to its flat line by the close.

The early advance followed the failed independence referendum in Scotland, which averted a potential storm in the financial markets. Once the uncertainty was cast aside, participants directed their focus to the Alibaba Group (BABA 93.89, +25.89) IPO, which represented the largest public debut to date. Shares of Alibaba opened at $92.70 after pricing at $68/share, but could not settle above the opening print.

Alibaba followed a similar pattern as the broader market with the latter being weighed down by influential sectors like financials (-0.3%), technology (-0.4%), and industrials (-0.1%).

Despite today's underperformance, the financial sector finished the week among the leaders with a solid gain of 1.5% since last Friday. Meanwhile, technology lagged since the open following disappointing quarterly results from Oracle (ORCL 39.80, -1.75). The stock tumbled 4.2% in reaction to below-consensus earnings/revenue and news that CEO Larry Ellison will step down from his post.

Also of note, Oracle's peer, SAP (SAP 74.00, -3.35), lost 4.3% after announcing the acquisition of Concur Technologies (CNQR 126.82, +19.02) for $129 per share. High-beta chipmakers were unable to fill the void left by the two software giants as evidenced by a 1.2% decline in the PHLX Semiconductor Index. Despite today's slide, the index still finished the week with a strong gain of 1.5%.

For its part, the industrial sector lagged amid weakness in machinery stocks after Caterpillar (CAT 102.47, -1.87) provided a disappointing update regarding its sales over the past three months. The Dow component lost 1.8%, while peer Joy Global (JOY 58.02, -1.20) fell 2.0%.

Caterpillar was the weakest performer in the Dow and the only stock that fell more than 1.0%. On the upside, 22 index components posted gains with Coca-Cola (KO 42.05, +0.26) leading the pack. The stock climbed 0.6%, contributing to the relative strength of the consumer staples sector (+0.2%).

Similar to consumer staples, the remaining three countercyclical groups settled ahead of the broader market. Telecom services and utilities both jumped near 1.0%, while health care (+0.1%) ended among the leaders despite volatile action in the biotech space. The iShares Nasdaq Biotechnology ETF (IBB 275.23, +0.16) tacked on 0.1%.

Treasuries spent the session in a steady climb, pressuring the 10-yr yield to 2.58%. Participation was well ahead of average thanks to the Alibaba IPO and quadruple witching. More than 1.8 billion shares changed hands at the NYSE floor.

Economic data was limited to the Leading Indicators report for August, which showed an increase of 0.2% on top of an upwardly revised 1.1% (from 0.9%) reading for July. The Briefing.com consensus estimate called for an increase of 0.4%. The difference between what was expected and what was reported can be traced directly to the building permits contribution, which subtracted 0.18 percentage points in August. Consensus estimates could not be updated in a timely manner to reflect the impact of the weaker than expected building permits report, which was released yesterday.

On Monday, the Existing Home Sales report for August will be released at 10:00 ET.

• Nasdaq Composite +9.7% YTD 
• S&P 500 +8.8% YTD 
• Dow Jones Industrial Average +4.2% YTD 
• Russell 2000 -1.6% YTD 

Commodities

Closing Commodities: Gold Books 1.2% Weekly Loss; Silver Falls to Four Year Lows
The commodity complex was under pressure today as a stronger dollar index weighed on prices.

Dec gold pulled back from its session high of $1226.30 per ounce set in morning action and traded as low as $1214.60 per ounce, its lowest since January 2014. Unable to gain momentum, it settled 0.8% lower at $1216.50 per ounce, booking a loss of 1.2% for the week.

Dec silver fell to four year lows after trading as high as $18.49 per ounce in early morning floor trade. It touched $17.83 per ounce, its lowest since August 2010, moments before settling with a 3.6% loss at $17.85 per ounce. Today's weakness brought losses for the week to 4.1%.

Oct crude oil retreated into negative territory after touching a session high of $93.22 per barrel in morning action. The energy component dipped to a session low of $91.85 per barrel and eventually settled with a 0.7% loss at $92.42 per barrel, shaving gains for the week to 0.3%.

Oct natural gas was also weak today. It fell as low as $3.83 per MMBtu after trading at a session high of $3.88 per MMBtu in early morning action. Unable to find buying support, it settled 1.8% lower at $3.84 per MMBtu, booking a loss of 0.5% for the week.

COMEX Metals Closing Prices

Dec gold fell $10.30 to $1216.50/oz 

• Gold traded in negative territory today while the dollar index advanced. The yellow metal pulled back from its session high of $1226.30 set in morning action and traded as low as $1214.60, its lowest since January 2014. Unable to gain momentum, it settled 0.8% lower, booking a loss of 1.2% for the week. 

Dec silver fell $0.66 to $17.85/oz

• Silver fell to four year lows after trading as high as $18.49 in early morning floor trade. It touched $17.83, its lowest since August 2010, moments before settling with a 3.6% loss. Today's weakness brought losses for the week to 4.1%. 

Dec copper fell 5 cents to $3.09/lb

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

• Dec corn fell 7 cents to $3.32/bushel 
• Dec wheat fell 14 cents to $4.74/bushel 
• Nov soybeans fell 14 cents to $9.58/bushel 
• Oct ethanol settled unchanged at $1.66/gallon 
• Nov sugar (#16 (U.S.)) rose 0.19 of a penny to 25.24 cents/lb

NYMEX Energy Closing Prices

• Oct crude oil fell $0.65 to $92.42/barrel 
• Crude oil retreated into negative territory after touching a session high of $93.22 in morning action as a stronger dollar index weighed on prices. The energy component dipped to a session low of $91.85 and eventually settled with a 0.7% loss, shaving gains for the week to 0.3%. 
• Oct natural gas fell 7 cents to $3.84/MMBtu 
• Natural gas was also weak today. It fell as low as $3.83 after trading at a session high of $3.88 in early morning action. Unable to find buying support, it settled 1.8% lower, booking a loss of 0.5% for the week. 
• Oct heating oil rose 1 cent to $2.72/gallon 
• Oct RBOB rose 5 cents to $2.61/gallon

Treasuries

Yields Rejected at Key Resistance: 10Y: +10/32..2.582%..USD/JPY: 108.95..EUR/USD: 1.2834
The Week in Review

• Treasuries ended mixed amid a choppy trade. Click here to see an intraweek yields chart.
• Friday's bid pushed longer dated yields into the red for the week.
• The Federal Reserve tapered its bond buying program by another $15 bln and announced its purchases will be cut to zero at next month's meeting so long as the economic recovery remains intact. The Statement still contained the 'considerable period' language that many believed would be removed.
• Succession fears subsided on Friday as Scotland voted 'NO' and will remain part of the United Kingdom. 
• Global growth concerns caused the Japanese government to downgrade its economic assessment and the People's Bank of China to inject CNY500 bln into the country's five largest banks.
• Economic data was mostly disappointing as industrial production (-0.1% actual v. 0.3% expected), capacity utilization (78.8% actual v. 79.3% expected), CPI (-0.2% actual v. 0.0% expected), housing starts (956K actual v. 1045K expected), building permits (998K actual v. 1054K expected), Philly Fed (22.5 actual v. 23.5 expected) and leading indicators (0.2% actual v. 0.4% expected) all missed estimates. 
• Only Empire Manufacturing (27.5 actual v. 16.0 expected) and the NAHB Housing Market Index (59 actual v. 56 expected) beat.
• Up front, the 2Y tacked on +1bp to 0.565%. The yield finished the week near levels last seen in May 2011.
• The 5Y ticked up +1bp to 1.819%. Thursday's selling ran the yield above 1.870% for the first time since July 2011 before slipping into week's end. The 1.750% area provides the first level of support. 
• The 10Y eased -2bps to 2.587%. The benchmark yield tested resistance in the 2.650% area, but was unable to reclaim the level that is guarded by the 200 dma. 
• A modest bid at the long end dropped the 30Y -4bps to 3.299%. Support near 3.250% is helped by the 50 dma. 
• A flatter curve took hold as the 2-10-yr spread narrowed to 202bps and the 5-30-yr spread tightened to 148bps.

The Week Ahead

• Monday's data is limited to existing home sales (10). KC's George gives opening remarks at the Shift Innovation; Community Development Conference (9:30) and Minny's Kocherlakota discusses "The Objectives of Monetary Policy" (19:30). 
• Tuesday will see just the FHFA Housing Price Index (9). Treasury will auction $29 bln 2Y notes. STL's Bullard gives opening remarks at the "Community Banking in the 21st Century" conference (9) before Fed Governor Powell (9:20) and KC's George (9:30) participate over webcast. Later, KC's George discusses the U.S. economy (21:15). 
• Data remains slow on Wednesday with the weekly MBA Mortgage Index (7) and new home sales (10). Treasury will hold a $35 bln 5Y note auction. Cleveland's Mester gives her economic outlook (12:15) and Chicago's Evans discusses the economy (13). 
• Thursday's data includes initial and continuing claims and durable orders (8:30). Treasury will auction $29 bln 7Y notes. ATL's Lockhart will speak on monetary policy and the economy (13:20).
• Data for the week concludes on Friday as GDP - Third Estimate (8:30) and Michigan Sentiment - Final (9:55) are due out.

On other news.... 




Currencies 

Dollar Sees 10th Straight Week of Gains: 10Y: +08/32..2.582%..USD/JPY: 108.94..EUR/USD: 1.2839

• The Dollar Index holds on session highs near 84.70 as trade looks likely to put in its best close since July 2014. Click here to see a weekly Dollar Index chart.
• EURUSD is -70 pips @ 1.2845 as action flirts with 14-month lows. A quiet session in the eurozone has seen trade held hostage by the broad-based dollar strength. ECB head Mario Draghi will speak in Brussels on Monday. 
• GBPUSD is -125 pips @ 1.6310 after seeing sharp reversal off the overnight highs. Sterling kissed 1.6525 in early action as it was apparent the majority of Scotland voted ‘No' and the country will remain in the United Kingdom. However, sellers emerged in defense of resistance in the area, and has action pressing the lows ahead of the close. 
• USDCHF is +60 pips @ .9400 as trade climbs back towards one-year highs. A lack of news and data out of Switzerland has kept the pair closely correlated to the euro. 
• USDJPY is +20 pips @ 108.95 as action looks likely to close at a fresh six-year high. The pair neared the 109.50 level in overnight trade after the Japanese government downgraded its economic assessment, but has since surrendered most of those gains. 
• AUDUSD is -50 pips @ .8935 as trade dips to a six and a half-month low. The .8900 area remains under close watch as solid support rests in the vicinity.
• USDCAD is +30 pips @ 1.0970 as trade has recovered from its early weakness. The pair probed the 50 and 200 dma before buyers emerged in defense of 1.0900 support following the mixed CPI (0.0% actual v. -0.1% expected) and wholesale sales (-0.3% MoM actual v. 0.8% MoM expected) data.

Weekly Analysis




Technical Updates

 

Briefing's Commentaries

Week in Review: Stocks Rally While FOMC Stays the Course 

The stock market welcomed the new trading week with a mixed session that saw relative strength among large-cap stocks, while high-beta names underperformed. The Dow Jones Industrial Average (+0.3%) and S&P 500 (-0.1%) finished near their flat lines, while the Nasdaq Composite and Russell 2000 both lost 1.1%. Equities began the day on a cautious note amid continued concerns regarding the strength of the global economy. Over the weekend, China reported its first decline in electricity production since 2009, while Industrial Production (6.9%; expected 8.8%) grew at its slowest pace since December 2008. Likewise, the Industrial Production report from the U.S. (-0.1%; Briefing.com consensus 0.3%) also left a bit to be desired. 

The major averages posted solid gains on Tuesday ahead of Wednesday's policy directive from the Federal Open Market Committee. The S&P 500 rallied 0.8%, while the Russell 2000 (+0.3%) could not keep pace with the benchmark index. Equity indices hovered near their flat lines during the first two hours of action, but surged in reaction to reports from the Wall Street Journal concerning next day's FOMC statement. Specifically, Fed watcher Jon Hilsenrath indicated that the statement would once again reflect the Fed's intentions to keep the fed funds rate at the zero bound for a considerable time after quantitative easing is wound down. The report sent the market higher since it contrasted with recent speculation that the Fed would drop the ‘considerable time' language from its guidance, thus implying a swifter rate hike. 

Stocks ended the midweek session with slim gains after showing some intraday volatility in reaction to the release of the latest policy directive from the Federal Open Market Committee. The S&P 500 added 0.1%, while the relative strength among small caps sent the Russell 2000 higher by 0.3%. The key indices spent the first half of the session near their flat lines as participants stuck to the sidelines ahead of the FOMC statement, which conveyed no changes to the Fed's current policy course. As expected, the Fed reduced the monthly pace of its asset purchases by $10 billion to $15 billion, setting expectations for the program to be wound down at the next meeting. Furthermore, the Fed maintained the "considerable time" language in its forward guidance, suggesting the first rate hike remains somewhat distant. 

The market finished the Thursday session on a higher note with the S&P 500 climbing 0.5%. The benchmark index registered an early high within the first 90 minutes and inched to a new session best during the final hour of the action. Equities rallied out of the gate with the financial sector (+1.1%) providing noteworthy support for the second day in a row. The growth-oriented sector extended its September gain to 1.9% versus a more modest uptick of 0.4% for the S&P 500. Although financials did some heavy lifting, other influential sectors like health care (+0.8%) and technology (+0.7%) also served up a measure of support.


Next Week In View





Economic Commentaries

Economic Summary: Leading Indicators miss expectations
Economic Data Summary:

• August Leading Indicators 0.2% vs Briefing.com consensus of 0.4%; July was revised to 0.7% from 0.9%
• The difference between what was expected and what was reported can be traced directly to the building permits contribution, which subtracted 0.18 percentage points in August. Consensus estimates could not be updated in a timely manner to reflect the impact of the weaker than expected building permits report, which was released yesterday.

Fed/Treasury Events Summary:

• Fed's Fisher (voting FOMC member, hawkish) said he sees first rate hike in the Spring (Prior was 'early 2015'); balance sheet to be unwound slowly; seeing some wage price inflation in Texas; sees slow and gradual increase for rate hikes.

Upcoming Economic Data:

• August Existing Home Sales due out Monday at 10:00 (Briefing.com consensus of ; July was 5.15 M )

Upcoming Fed/Treasury Events:

• Kansas City Fed President Esther George (not a voting FOMC member, typically hawkish) to speak Monday at 9:30
• NY Fed President Bill Dudley (voting FOMC member) to speak Monday at 10:05

Other International Events of Interest

• Eurozone current account surplus widened to EUR18.7 bln (EUR14.3 bln expected, EUR18.6 bln previous)
• Scotland voted 'NO' and will remain in the United Kingdom; Britain's FTSE (+0.6%) leads the region higher

Jason's Commentaries

It seems that last week was a very volatile week with the FOMC shaving another $10b off the asset purchasing program to $15b per month. To add to the news, Scotland rejected independence from UK. And to hype things up further, the IPO of Alibaba which jumped 38% on the first day of trading. Everything is adding up to form a lot of divergence in the market. With the drop in the volumes to approx 600m shares traded daily, volumes is diminishing. It makes it very easy for market makers to gyrate the market. Hence we have to prepare for unwanted gyration ahead in the market. However, since it's the expiration Friday, volume was at 1220m shares traded on the NYSE. 

Looking at the internals, there is a lot of divergence around. The volumes is not supporting the TRIN, while new highs outpaced the new lows while the decliners outpaced the advancers. On the technical front, We're having a very nice shooting star on the S&P500 while the Dow high a fresh high with a shooting star as well. It seems that on the technical side, we're likely to head down on Monday. Right now, the futures are already pointing the downside.

Market Call: FLAT and VOLATILE

Date: 24 Feb 2014