18 Oct 2014 AMC - Dow, S&P500 and Nasdaq punched new highs ahead of FOMC minutes

18 Oct 2014 AMC - Dow, S&P500 and Nasdaq punched new highs ahead of FOMC minutes

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: + 1.6%

·         France's CAC: + 0.9%

·         Spain's IBEX: + 1.2%

·         Portugal's PSI: + 0.9%

·         Italy's MIB Index: + 0.7%

·         Irish Ovrl Index: + 0.6%

·         Greece ASE General Index: + 3.9%

Before Market Opens 

S&P futures vs fair value: +0.60. Nasdaq futures vs fair value: +2.70.
The S&P 500 futures trade within a point of fair value.

Markets closed mixed across Asia. Japan's Prime Minister Shinzo Abe said he will dissolve parliament, call for a snap election, and delay the sales tax hike by at least 18 months. The remarks were in-line with what had been speculated by the press in recent weeks. Elsewhere, Bank Indonesia unexpectedly hiked its key rate 25 basis points to 7.75% after fuel subsidies were reduced by new President Joko Widodo. 

·         Economic data was limited: 

o    China's House Prices fell 2.6% year-over-year (prior -1.3%) while Foreign Direct Investment decreased 1.2% (previous -1.4%) 

o    Australia's CB Leading Index ticked down 0.3% month-over-month (last -0.1%) 

------ 

·         Japan's Nikkei gained 2.2% to finish near seven-year highs. Exporters posted strong gains as Sony surged 6.4% and Fanuc advanced 2.1%. 

·         Hong Kong's Hang Seng sank 1.1% to a three-week low. Casino stocks were pressured as Sands China and Galaxy Entertainment tumbled 3.2% and 3.0%, respectively. 

·         China's Shanghai Composite eased off three-year highs, sliding 0.7%. Poly Real Estate fell 2.7% as developers were sold in response to the decline in new home prices. 

·         India's Sensex shed 0.1%, slipping from record highs. Mahindra & Mahindra edged up 1.2% on strength in automakers while Tata Consultancy Services lost 1.2% as IT service providers lagged. 

Major European indices trade higher across the board with Germany's DAX (+1.2%) in the lead. A better than expected ZEW Survey was viewed as a sign that the domestic economy is stabilizing. This has underpinned the DAX, which leads the region. 

·         Participants received several data points: 

o    Eurozone ZEW Economic Sentiment rose to 11.0 from 4.1 (expected 4.3) 

o    Germany's ZEW Economic Sentiment jumped to 11.5 from -3.6 (expected 0.9) and ZEW Current Conditions ticked up to 3.3 from 3.2 (consensus 1.2) 

o    Great Britain's CPI ticked up 0.1% month-over-month, as expected, while the year-over-year reading increased 1.3% (expected 1.2%; last 1.2%). Separately, Input PPI fell 1.5% month-over-month (consensus -1.4%; prior -0.6%) and Output PPI ticked down 0.3% month-over-month (expected -0.2%; last -0.2%) 

------ 

·         Great Britain's FTSE is higher by 0.5% with energy names showing strength. Tullow Oil and Royal Dutch Shell hold respective gains of 4.0% and 1.8%. Financials lag with Admiral Group and Standard Chartered both down near 0.7%. 

·         In France, the CAC has jumped 0.7% amid broad strength. Technip leads with a gain of 3.1% while financials BNP Paribas, Credit Agricole, and Societe Generale are up between 1.2% and 1.5%. 

·         Germany's DAX trades up 1.2% with all but one component in the green. BASF and Volkswagen lead with gains close to 2.0% apiece while Commerzbank sits just below its flat line.

U.S. Equities

·         Futures suggest little change at the open

·         Both the DJIA and S&P 500 linger near record highs

·         The VIX (13.99) is attempting to climb off two-month lows

o    S&P Futures -1 @ 2039

o    Dow Futures unch @ 17,617

o    Nasdaq Futures +2 @ 4214

Asia

·         Markets closed mixed across Asia

·         Japanese Prime Minister Shinzo Abe announced an 18-month delay to the consumption tax hike and said he will dissolve parliament on November 21

·         New home prices in China fell in 69 of 70 cities

·         Bank Indonesia hiked its key rate 25bps to 7.75% at a surprise meeting

·         The action follows a recently announced fuel price hike by the Indonesian government

·         Reserve Bank of Australia Governor Glenn Stevens discussed ways to tighten lending standards, but also said low rates were "well warranted" 

·         Japan's Nikkei (+2.2%) finished near seven-year highs

·         Hong Kong's Hang Seng (-1.1%) sank to a three-week low

·         China's Shanghai Composite (-0.7%) eased off three-year highs

·         India's Sensex (-0.1%) slipped off record highs

·         Australia's ASX (-0.2%) slumped to a three-week low 

Market Internals

Market Internals -Technical-
The Nasdaq closed up 31 (+0.67%) at 4702, the S&P 500 closed up 10 (+0.51%) at 2052, and the Dow closed up 40 (+0.23%) at 17688. Action came on slightly below average volume (NYSE 714 mln vs. avg. of 788; NASDAQ 1540 mln vs. avg. of 1858), with advancers outpacing decliners (NYSE 1937/1243, NASDAQ 1652/1090) and new highs outpacing new lows (NYSE 184/40, NASDAQ 107/62).

Relative Strength: 
Junior Gold Miners-GDXJ +6.75%, Greece-GREK +5.92%, Silver Miners-SIL +5.6%, Clean Energy-PBW +2.88%, Germany-EWG +2.45%, Biotechnology-IBB +2.22%, Sweden-EWD +1.99%, Spain-EWP +1.97%, Austria-EWO +1.95%, Biotechnology-XBI +1.78%.

Relative Weakness: 
Volatility-VXX -1.75%, Oil-USO -1.67%, Hong Kong-EWH -1.64%, Copper-JJC -1.42%, Corn-CORN -1.36%, Vietnam-VNM -1.36%, Grains-JJG -1.34%, China 25 Index-FXI -1.1%, Indian Rupee-ICN -0.61%, Taiwan-EWT -0.52%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries

Closing Market Summary: Biotechnology Leads S&P 500 To New Record
The major averages ended Tuesday near their highs with the S&P 500 (+0.5%) registering its fifth consecutive advance. The benchmark index settled at a fresh record at 2,051.80 high while the Nasdaq Composite (+0.7%) outperformed after struggling yesterday.

The Tuesday session began on an unassuming note, but the health care sector (+1.6%) quickly pulled away from its flat line thanks to significant strength in biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 295.25, +6.41) jumped 2.2% and contributed to the relative strength of the Nasdaq.

In addition to drawing support from biotech, the Nasdaq received a solid boost from chipmakers after SunEdison (SUNE 21.50, +4.89) agreed to acquire First Wind for $2.40 billion as part of a joint venture with TerraForm Power (TERP 32.75, +6.91). Shares of SUNE soared 29.4% while the broader PHLX Semiconductor Index spiked 1.9% with all but two components registering gains.

The broad strength among chipmakers was not enough to bring the technology sector (+0.4%) in line with the benchmark index as Google (GOOGL 544.51, -2.13), IBM (IBM 161.89, -2.27), and Microsoft (MSFT 48.74, -0.41) weighed.

Meanwhile, the remaining cyclical sectors registered gains across the board with materials (+1.1%) leading the bunch. Fertilizer stocks like Mosaic (MOS 46.77, +1.50) and Potash (POT 35.41, +1.62) underpinned the sector after world's largest potash miner, Uralkali, suspended operations due to elevated levels of brine.

For its part, the other commodity-related sector, energy, started in the lead, but narrowed its gain to just 0.1% by the close. Crude oil factored into the sector's retreat from highs, falling 1.4% to $74.60/bbl. The energy component finished near its low even as the Dollar Index (87.58, -0.35) lost 0.4%.

Today's dollar weakness was driven by a better than expected ZEW Sentiment Survey in Germany, which gave a boost to the euro and helped the DAX settle higher by 1.6%. The greenback did show some intraday strength against the yen after Nikkei reported Japan's Prime Minister Shinzo Abe plans to cut the corporate tax next year. The report followed an overnight announcement from the premier, who said he will dissolve parliament, call for a snap election, and delay the impending sales tax hike by at least 18 months.

On the downside, the telecom services sector (-0.2%) was the lone decliner while the consumer discretionary sector (+0.1%) climbed out of the red in the early afternoon. Retailers kept the discretionary space under pressure with Home Depot (HD 95.98, -2.05) and Urban Outfitters (URBN 28.79, -2.04) losing 2.1% and 6.6%, respectively. Urban Outfitters missed estimates while Dow component Home Depot beat by a penny.

Interestingly, the advance to a new record did not lure money out of the Treasury market. The 10-yr note registered a modest gain with its yield slipping two basis points to 2.32%.

Participation was in-line with long-term average as roughly 710 million shares changed hands at the NYSE floor.

Economic data was limited to PPI and NAHB Housing Market Index: 

·         Producer prices edged up 0.2% in October after declining 0.1%, while the Briefing.com consensus a decline of 0.2% 

o    The upside surprise in producer price growth was a result of a sharp 0.5% increase in prices of final demand for services, which was the largest increase since a similar 0.5% gain was recorded in July 2013. The services component was added to the PPI when the new methodology was introduced last year and is difficult to estimate. 

o    Final demand of finished goods, which was the headline PPI index under the previous methodology, fell 0.3% in October and was much closer to expectation. 

o    The decline in crude and gasoline prices led to a 3.0% drop in the energy price index, while a 5.3% increase in meat prices led to a 1.0% overall increase in food in October 

o    Excluding food and energy, core prices rose 0.4% in October after reporting no change in September while the consensus expected an increase of 0.1%. 

·         The NAHB Housing Market Index for November jumped to 58 from 54 while the Briefing.com consensus expected an uptick to 55 

Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET while October Housing Starts (Briefing.com consensus 1.025 million) and Building Permits (consensus 1.04 million) will be reported at 8:30 ET. The day's data will be topped off with the 14:00 ET release of the FOMC Minutes from the October meeting. 

·         Nasdaq Composite +12.6% YTD 

·         S&P 500 +11.0% YTD 

·         Dow Jones Industrial Average +6.7% YTD 

·         Russell 2000 +0.6% YTD

Commodities

Closing Commodities: Oil And Copper End At Today's Lows

  Copper and oil futures remained in the red all session and finished the day at today's lows

  Dec crude closed 1.4% lower at $74.60/barrel

  Dec copper ended down 1.3% at $3.00/lb

  Natural gas sunk lower this morning, but recovered some. Ultimately, Dec nat gas ended 2.2% lower at $4.25/MMBtu

  Dec gold gained 1.1% to $1196.30/oz, while Dec silver +0.8% at $16.18/oz

Metals price action

  Gold rose $12.80 (+1.1%) to $1196.30/oz

·         Gold is testing the 1200 level, reaching a HoD of 1204.1 in early morning trading.

  Silver rose 12.3 cents (+0.8%) to $16.18/oz

·         Silver hit a session low of 15.97 last night, and then this morning reached a HoD of 16.4. For the past few hours, futures have traded around the 16.20 level. 

  Copper fell 3.85 cents (-1.3%) to $3.001/lb

Agricultural price action

·         Corn fell 5.50 cents (-1.5%) to $3.7175/bushel

·         Wheat fell 1.75 cents (-0.4%) to $5.50/bushel

·         Soybeans fell 12.25 cents (-1.2%) to $10.24/bushel

·         Ethanol fell 1 cent (-0.4%) to $2.058/gallon

·         Sugar #11 fell 0.4% to 15.70 cents/lb

Energy price action

  Crude oil is down $1.06 (-1.4%) to $74.60/barrel

·         Crude oil is down 20% YTD, with today's session extending losses with futures trading near the LoD of 74.26

  Natural gas is down 9.2 cents *-0.2.2%) to $4.249/MMBtu

·         Natural gas has been trading around the 4.25 level throughout much of the session, with the LoD 4.149 reached around lunch. Futures have since moved here and are again testing the 4.25 level.

  Heating oil is down 2.3 cents (-1%) $2.3808/gallon

  RBOB is up 1.69 cents (+0.8%) to $2.042/gallon


Treasuries

Treasuries Edge Up in Sleepy Trade: 10Y: +02/32..2.323%..USD/JPY: 116.92..EUR/USD: 1.2532

·         Treasuries booked slim gains amid another sleepy session. Click here to see an intraday yields chart.

·         Yields across the curve held in a tight 3bp range throughout the U.S. session and remained trapped in their ranges that have been in place over the past couple of weeks. 

·         The complex raised to its best levels of the day shortly after the hot PPI (+0.2% actual v. -0.2% expected) and core PPI (+0.4% actual v. +0.1% expected) readings crossed the wires, but retreated back to the unchanged line as the numbers were digested. 

·         Action saw little response to the strong NAHB Housing Market Index (58 actual v. 55 expected, 54 previous) number, and held in a tight range for the remainder of the session.

·         Up front, the 2Y slipped -1.2bps to 0.500%. The yield ended the day on support that dates back to the beginning of November. 

·         In the belly, the 5Y eased -1.8bps to 1.609%. Action continues to test support in the 1.600% area has held up since the end of October. 

·         The 10Y fell -1.8bps to 2.322%. The benchmark yield continues to test support in the 2.300% area that has held up for the past three weeks. 

·         Light buying at the long end dropped the 30Y -1.6bps to 3.043%. The yield on the long bond has been stuck between 3.000% and 3.100% since October 23. 

·         A slightly flatter curve took hold as the 2-10-yr spread narrowed to 182bps.

·         Precious metals gained as gold climbed $11 to $1194 and silver added +$0.08 to $16.14. 

·         Data: MBA Mortgage Index (7), housing starts, building permits (8:30), and the FOMC minutes (14).

On other news.... 

Currencies 

Dollar Drifts Aimlessly: 10Y: +02/32..2.325%..USD/JPY: 116.78..EUR/USD: 1.2532

·         The Dollar Index continues to test session lows near 87.55. Click here to see a daily Dollar Index chart.

·         Action has held in an extremely tight five cent range since shortly before the lunchtime hour. 

·         EURUSD is +90 pips @ 1.2540 as trade holds at the best levels of the day. The single currency saw early support after the better than expected eurozone and German ZEW Economic Sentiment numbers, but has struggled to reclaim the 1.2550 level. Today's bid has action contending with its best close of November. 

·         GBPUSD is -5 pips @ 1.5635 as trade fights to avoid a fifth straight day of losses. Action has seen little reaction to the in-line inflation data with trade so far able to hold the lows of the past two sessions. The most recent Bank of England votes will cross the wires tomorrow. 

·         USDCHF is -70 pips @ .9580 as action flirts with its lowest close of November. A lack of news and data out of Switzerland has kept the pair tightly correlated to the euro.

·         USDJPY is +15 pips @ 116.80 after Prime Minister Abe announced the second phase of the consumption tax hike would be delayed 18 months and parliament would be dissolved. Overnight buying threatened the 117.00 level for a second session, but that level has once again managed to hold strong. A Nikkei report out during U.S. trade suggested the corporate tax cuts were likely to begin in 2015. The Bank of Japan holds its latest policy meeting tonight.

·         AUDUSD is +25 pips @ .8730 as bulls look to remain in control for the sixth time in eight days. The hard currency has held its own despite Chinese new home prices slumping in 69 of 70 cities. 

·         USDCAD is -5 pips @ 1.1300 amid an uneventful trade. Minor support in the 1.1250 area has been tested over the past several sessions, but has been able to hold.

Next Week In View




Economic Commentaries

Economic Summary: PPI hotter than expected; NAHB Housing Index tops expectations
Economic Data Summary:

·         October PPI 0.2% vs Briefing.com consensus of -0.2%; September was -0.1%

·         October Core PPI 0.4% vs Briefing.com consensus of 0.1%; September was 0.0%

o    The upside surprise in producer price growth was a result of a sharp 0.5% increase in prices of final demand for services. That was the largest increase since a similar 0.5% gain was recorded in July 2013. The services component was added to the PPI when the new methodology was introduced last year and is difficult to estimate. 

·         November NAHB Housing Market Index 58 vs Briefing.com consensus of 55; October was 54

Upcoming Economic Data:

·         October Building Permits due out Wednesday at 8:30 (Briefing.com consensus of 1.040 M ; September was 1.018 M )

Upcoming Fed/Treasury Events:

·         Minneapolis Fed President Kocherlakota to speak today at 13:30

·         FOMC Minutes Wednesday at 14:00

Other International Events of Interest

·         Japanese Prime Minister Shinzo Abe announced an 18-month delay to the consumption tax hike and said he will dissolve parliament on November 21

·         New home prices in China fell in 69 of 70 cities

Jason's Commentaries

Ahead of the FOMC minutes, the market decided to pull off a rally to punch new highs. Volumes are healthy, the bulls outpaced the bears by 2:1. However, TRIN showed divergence at the first half of the trading session but started to converge at later part of the day.

Looking at the global economic situation, we have Japan's slipping into recession unexpectedly and Prime Minister Abe decides to delay his 18 month tax hike and dissovles his parliament to hold for another election. I believe Abe is very confident of his relection chances and if succeeded, he would be able to hold on to his seat for another 4 years for his Abenomics to work. While Japan slipped into recession, Germany barely managed to scrap pass a contracting quarter. And also China has its new home prices falling across 69 of 70 cities, that's not a good sign.. When the major economic powerhouse is slipping into recessions or slowly growth, I believe we need to tighten our seat belts. This Santa Claus rally will be a highly important one to gauge the consumer consumptions to see if the US economy has a chance to hold its GDP growth at an average of 3%.








Market Call: ABSTAIN

Date: 19 Nov 2014