Equities retraced after expected rate hike; Energy continues to lag

21 Feb 2014 AMC - Equities retraced after expected rate hike; Energy continues to lag

Jason's Commentaries

Even though the rate hike was expected, the equities market is taking some knee jerk reaction having 2 straight major losses on Thursday and Friday, while Treasuries edged up despite the rate hike. The US Central Bank raised 25 basis points on Wednesday as widely expected which caused a spike up in the equities. However, the bullish momentum did not last long. 2 straight losses wiped out all gains for the week.

The previous week, the market has been focusing on the oil market which dragged down the entire energy sector. I think that the equity market would unlikely fare well for the next 2 years, with very limited upside in the market, while the energy market continues to be depressed, which will cause negative impact in the global economy. With Iran pumping more oil into the market in 2016, oil prices are expected to come down more, possibly to a low of $20.

Another indicator in the market will be the retrencement signs in the financial instituions. Major cuts has been annouced throughout the major banks. However, with the continued easing in Europe and Japan, there might be more upside in the European market. I'm expecting the equity market to consolidate to the downside.

On the technical perspective, I believe that the market might stage a increase in the market before the Chrismas.




Market Summary 

 European Markets Closing Prices

	European markets are now closed; stock markets across Europe performed as follows: UK's FTSE: -0.8% Germany's DAX: -1.2% France's CAC: -1.1% Spain's IBEX: -1.6% Portugal's PSI: + 0.6% Italy's MIB Index: -1.3% Irish Ovrl Index: -0.3% Greece ASE General Index: + 0.1%

Before Market Opens 

S&P futures vs fair value: -12.20. Nasdaq futures vs fair value: -17.70.
The S&P 500 futures trade twelve points below fair value.

Markets in the Asia-Pacific region took a cue from yesterday's dive on Wall Street, ending the week on a mostly lower note. Interestingly, Japan's Nikkei lost 1.9% even though the Bank of Japan expanded its quantitative and qualitative easing program by stepping up its purchases of ETFs and lengthening the average maturity of government securities in the bank's possession. Despite the change, the yen rallied, sending the dollar/yen pair into the 121.35 area after trading near 123.00 overnight. The market response suggests investors believe the BoJ's actions may be insufficient. Elsewhere, China's Shanghai Composite outperformed the region, ending flat after November House Prices increased 0.9% year-over-year (previous 0.1%).

• In economic data:
  • China's November House Prices +0.9% year-over-year (previous 0.1%)
  • The Bank of Japan leaves key interest rate unchanged at 0.10%, as expected
  • New Zealand's December ANZ Business Confidence 23.0 (prior 14.6)
  • South Korea's November PPI -0.3% month-over-month (previous -0.7%); -4.6% year-over-year (last -4.6%)

---Equity Markets---

• Japan's Nikkei flirted with its November high, but reversed to end the day lower by 1.9% after the Bank of Japan failed to satisfy a stimulus-hungry market. Every sector ended in the red with health care (-0.4%) registering the slimmest decline. Meanwhile, the remaining groups lost more than 1.2% apiece. To little surprise, energy brought up the rear with a 3.4% plunge. Looking at individual issues, SUMCO, Okuma, Fujitsu, Toho Zinc, Sumitomo Metal Mining, and Kobe Steel ended among the laggards with losses between 3.7% and 4.7%.
• Hong Kong's Hang Seng lost 0.5% with energy names showing relative weakness. CNOOC, Petrochina, and China Petroleum & Chemical lost between 1.7% and 1.9% while select financials also struggled. Hang Seng Bank, China Life Insurance, and Bank of East Asia surrendered between 1.1% and 2.0%.
• China's Shanghai Composite ended flat. Airlines had a strong showing with China Southern Airlines, Hainan Airlines, and China Eastern Airlines spiking between 2.6% and 7.9%. Financials rebounded from recent weakness with Agricultural Bank of China, Everbright Bank, and Bank of China adding between 0.3% and 0.7%.

European markets trade lower across the board with Spain's IBEX (-1.6%) trailing the region ahead of this weekend's general elections. Despite today's weakness, regional indices remain on track to end the week in the green after suffering two consecutive weekly losses. The Friday session has been relatively quiet on the news front while the euro has held its ground against the dollar, trading at 1.0837. European Central Bank member Ewald Nowotny spoke about the ECB QE program, saying that ECB policy is helping drove down lending rates and that the Austrian banking sector is likely to lose a third of its workforce in the next few years.

• Economic data was limited:
  • Eurozone October Current Account EUR20.40 billion (expected EUR29.90 billion; previous EUR30.10 billion)
  • Italy's November Wage Inflation +0.2% month-over-month (expected 0.1%; previous 0.1%); +1.3% year-over-year (consensus 1.2%; last 1.2%)
  • France's November PPI +0.1% month-over-month (prior 0.2%)

---Equity Markets---

• Spain's IBEX has tumbled 1.6% with Mediaset, Telefonica, Inditex, and ACS down between 2.5% and 3.4%. On the upside, FCC has surged 23.8% after receiving a capital injection.
• Germany's DAX is lower by 1.1% with all but two components in the red. Exporters Daimler and BMW have paced the slide with losses close to 2.5% apiece while financials Deutsche Bank and Commerzbank are both down near 1.1%. On the upside, Deutsche Boerse has climbed 0.8% while HeidelbergCement trades higher by 0.3%.
• In France, the CAC trades down 1.2% amid broad weakness. Airbus Group has given up 3.1% while consumer names Louis Vuitton, L'Oreal, Accor, Kering, and Carrefour show losses between 1.6% and 2.9%. Steelmaker ArcelorMittal has bucked the trend, trading higher by 1.2%.
• UK's FTSE has slid 0.4% with ARM Holdings diving 2.2%. Homebuilder Barratt Developments is down 1.8% while industrials Ashtead Group and Meggitt have given up 1.5% apiece. A handful of miners have been able to show some strength with Anglo American, BHP Billiton, and Fresnillo up between 0.2% and 1.3%.

Read more: http://www.briefing.com/Platinum/InDepth/InPlayFull.htm#ixzz3uwHdau3A

Market Internals

Market Internals -Technical-

DOW down to 17128.45 ( -2.1%). Nasdaq down to 4923.08 ( -1.59%). S&P500 down to 2005.52 ( -1.78%). Action came on higher than average volume (NYSE 2508 mln vs avg. of 1358 mln; Nasdaq 2995 mln vs avg. of 1759 mln) , w/ decliners outpacing advancers (NYSE 1545/1588, NASDAQ 1536/1327) and new lows outpacing new highs (NYSE 20/227, NASDAQ 39/153) .

Relative Strength:

S&P 500 VIX ST Furtures-VXX +8.04%, Copper Sub-JJC +3.45%, Copper Miners -COPX +2.81%, Sugar-SGG +2.79%, Junior Gold Mine-GDXJ +2.71%, Poland-EPOL +1.28%, Japanese Yen-FXY +1.2%, Australia-EWA +1.15%, China Large Cap-FXI +0.963%, Austrialian Dollar-FXA +0.79%

Relative Weakness:

Rare Earth Stratregic Metals-REMX -4.25%, Financials Select-XLF -3.2%, Oil Services -OIH -3.1%, Latin America 40 -ILF -2.76%, Energy Select-XLE -2.7%, U.S. Financial Services-IYG -2.63%, Russia-RSX -2.47%, Provident Financial Services-PFS -2.08%, Thailand-THD -1.83%, Brazilian Real Strategy-BZF -1.78%

Read more: http://www.briefing.com/Platinum/InDepth/InPlayFull.htm#ixzz3uwGg4Av1

Leaders and Laggards

 

Technical Updates

Commentaries 

Closing Market Summary: Cyclical Sectors Lead Market Lower

The stock market ended a volatile week on a defensive note. The Dow Jones Industrial Average paced the Friday slide, falling 2.1% while the S&P 500 (-1.8%) and Nasdaq Composite (-1.6%) registered slimmer losses.

Overnight, the Bank of Japan stepped up its easing efforts by announcing plans to purchase JPY300 billion worth of ETFs starting in April of 2016; however, the market scoffed at the news with Japan's Nikkei diving 1.9% while the yen climbed 1.1% against the dollar (121.27). This is noteworthy because stimulus from major central banks has been a big reason for the rally seen in global markets over the past few years. Therefore, a negative market reaction to news of more stimulus could be indicative of a sentiment change as participants begin wondering whether global central banks have reached their limits.

Investor sentiment saw little improvement as the focus shifted to the European session and the selling carried over to U.S. markets. Consequently, the first three hours of the day saw a steady slide in the key indices and they hit new lows ahead of the closing bell.

All ten sectors ended the day in negative territory with cyclical sectors showing relative weakness. The financial sector (-2.5%) spent the day behind its peers, but despite today's underperformance, the economically-sensitive sector ended the week flat. However, other growth-sensitive groups were not nearly as fortunate, posting weekly losses between 0.4% (consumer discretionary) and 3.1% (materials).

The top-weighted technology sector (-2.0%) lost 1.3% for the week after having to contend with weeklong underperformance in the shares of Apple (AAPL 105.90, -3.08). The largest stock by market cap tumbled 2.8% on Friday, ending the week lower by 6.4%.

Elsewhere, the energy sector (-1.6%) settled ahead of the broader market, but the group was knocked down from its high by an intraday reversal in crude oil. The energy component flashed a brief gain in the late morning, but followed that with a slide to a new low for the week, ending the pit session down 0.7% at $34.72/bbl.

The broad retreat that unfolded over the course of Thursday and Friday masked the fact that the S&P 500 ended the week little changed, shedding 0.3%. Five of six cyclical sectors finished the week in negative territory, but the four countercyclical groups posted weekly gains between 0.5% (consumer staples) and 2.8% (utilities), suggesting some sector rotation took place as investors tested the waters in defensively-oriented areas of the market.

Today's slide in equities was accompanied by strength in the bond market as the 10-yr note rallied overnight and held its ground during the day. The benchmark note ended near its high, pressuring its yield three basis points to 2.19%.

Investor participation was strong today, but that was largely due to quadruple witching. As a result, more than two billion shares changed hands at the NYSE floor.

Market participants will not receive any economic data on Monday.

• Nasdaq Composite +4.0% YTD
• S&P 500 -2.6% YTD
• Dow Jones Industrial Average -3.9% YTD
• Russell 2000 -6.8% YTD

Week in Review: Stocks Gyrate as Fed Hikes Rates

Equities began the trading week on a higher note, but not before showing some late morning volatility. The S&P 500 climbed 0.5% after briefly dipping below the 2,000 mark while the Nasdaq Composite (+0.4%) underperformed slightly. Equity indices slumped out of the gate with cyclical sectors fueling the early weakness. That selling was congruent with a retreat in the oil market, but a reversal in crude futures helped halt the slide in equities. The stock market spent the afternoon near its flat line, rallying to a fresh high during the final 15 minutes of the session. Crude oil was in focus throughout the day as the energy component probed the $34.60/bbl area in overnight action before rallying to end the day higher by 2.0% at $36.34/bbl. The late morning reversal underpinned the energy sector (+0.8%), which rebounded from last week's 6.6% dive. The energy sector climbed into the green with relative ease, but the same could not be said for most of the remaining cyclical groups. The technology sector (+0.6%) was an exception as the top-weighted group climbed ahead of the broader market during the afternoon after showing relative weakness at the start. That early weakness could be traced back to the shares of Apple (AAPL 112.48, -0.70) as the tech giant struggled after Morgan Stanley lowered its iPhone sales forecast. Apple settled lower by 0.6% after being down more than 2.0% in the early going.

The stock market enjoyed a broad-based rally on Tuesday, which lifted the S&P 500 (+1.1%) back above its 100-day moving average (2,030). The benchmark index extended its weekly gain to 1.5% ahead of Wednesday's FOMC announcement, which is widely expected to call for the first fed funds rate hike since 2006. Overnight, the early portion of the Asian session was highlighted by some caution among investors, but the overall sentiment began improving once the attention shifted to Europe. Accordingly, markets in France (+3.2%), Germany (+3.1%), and the UK (+2.5%) soared amid broad support. Contributing to the upbeat sentiment was a rally in crude oil as the energy component climbed despite greenback strength that sent the Dollar Index (98.22, +0.62) higher by 0.6%. As for oil, WTI crude surged 2.7% to $37.32/bbl, taking the energy sector (+2.9%) along for the ride. The growth-sensitive energy sector settled atop the leaderboard, but despite the surge, the sector is still down 7.8% for the month. Similarly, the financial sector (+2.4%) was also at the forefront of the Tuesday advance after showing relative weakness as of late. The economically-sensitive group narrowed its December loss to 2.0% versus a 1.8% month-to-date decline for the S&P 500.

Equity indices ended the midweek session on a higher note with the S&P 500 climbing 1.5%. The benchmark index shrugged off the first fed funds rate hike in nine years, reclaiming its 50- (2,060) and 200-day moving averages (2,062) in the process. The key indices spiked at the start of the trading day, but the first half of the session featured a slow drip from opening highs as investors employed some caution ahead of the FOMC rate announcement; however, a rally to new highs unfolded during the late afternoon. The Federal Reserve lived up to expectations, calling for a 25-basis point hike to the federal funds target range, which had been stuck in the 0.00-0.25% range for exactly seven years. Interestingly, the rate hike did not stop the committee from slightly lowering its core PCE inflation outlook for 2016 to 1.5-1.7% from 1.5-1.8% that had been expected in September. The Dollar Index (98.35, +0.13) displayed some volatility, but ended in the green. The index saw some pressure as Fed Chair Janet Yellen addressed the media, stressing the Fed's intention to stick to a gradual tightening path. Ms. Yellen acknowledged that the rate hike is taking place while inflation is well below the Fed's 2.0% target, but the Fed Chair believes that inflation will return to the 2.0% target once transitory factors fade away.

The market stumbled on Thursday, erasing its entire post-Fed advance. The S&P 500 lost 1.5%, falling below its 50- and 200-day moving averages (2,062), while the Nasdaq Composite (-1.4%) settled just a step ahead. Equity indices held slim gains at the open after the overnight session saw a broad rally in Japan (+1.6%), France (+1.1%), and Germany (+2.6%); however, that bullish sentiment faded in a flash, pulling stocks lower through the first two hours of the session. The key indices ranged near their morning lows into the late afternoon, hitting new lows into the close. The Thursday retreat was not a huge surprise considering a higher fed funds rate will translate into increased borrowing costs. Furthermore, the resulting dollar strength is expected to be a negative for U.S.-based companies that conduct a large portion of their activities overseas. Fittingly, the greenback was on the rise, climbing 0.7% against the euro (1.0808) while the yen (122.50) resisted some of the pressure, but still slid 0.4% against the dollar. As a result, the Dollar Index (99.23, +0.65) gained 0.7%, returning into the neighborhood of this year's high (100.51).

Read more: http://www.briefing.com/Platinum/InDepth/InPlayFull.htm#ixzz3uwGrdPXo

Commodities

Closing Commodities: Precious Metals See Large Gains On Weaker Dollar

• The dollar traded weak all session, being pressed to moderate losses early this morning on Yen strength- driven by market reaction to underwhelming QE announcements from the Bank of Japan. The index saw modest positive momentum in late afternoon, holding substantive losses into the commodity closes. 
• The index is now -0.5% to 98.73
• Crude traded in a volatile range for most of the day, with early headlines reporting/focusing on a lack of supply coordination between Russian firms and OPEC. 
• The mid-day Baker Hughes US rig count came in unchanged, with total rigs still at 709. This did little to support the commodities' descent, and the February contract closed -0.7% to $36.27/barrel.
• Metals all saw a positive close on the weaker dollar- with both gold and silver seeing sharp mid-morning rallies. Both precious metals closed strong positive for the day: gold at +1.5% to 1064.90 and silver +2.8% to $14.09. Copper ended up 3.4% to $2.11/lb
• Natural gas closed +0.9% to $1.77/MMBtu

Read more: http://www.briefing.com/Platinum/InDepth/InPlayFull.htm#ixzz3uwGvzt83
Energy Closing Prices

• February Crude Oil futures fell $0.24 (-0.66%) to $36.27/barrel
• January Natural Gas closed $0.015 higher (0.85%) at $1.77/MMBtu
• January RBOB Gasoline closed $0.005 higher at $1.27/gallon
• January Heating oil futures closed $0.005 higher at $1.11/gallon

 Agricultural Closing Prices

• March corn closed flat at $3.74/bushel
• March wheat closed $0.03 higher at $4.87/bushel
• January soybeans closed $0.16 higher at $8.93/bushel

 Metals closing prices

• February gold ended today's session $15.40 higher (+1.5%) at $1064.90/oz
• March silver closed today's session $0.39 higher (+2.8%) at $14.09/oz
• March copper closed $0.07 higher (+3.4%) at $2.11/lb

Treasuries

On other news.... 























Currencies 


Currency Market Summary

Dollar Pulls Back as Investors Flee Risky Assets

• The U.S. Dollar Index fell -0.49% to 98.78 today as Treasury yields moved lower and investors worried about the ability for the economy and financial markets to deal with higher interest rates. The greenback feel against all of the majors
• EUR/USD: +0.17% to $1.0853
  
  • The eurozone's current account surplus narrowed more than expected to EUR 20.4 bln in October from EUR 30.1 bln in September
    
    • The French Business Survey Index unexpectedly rose to 103 in December from 102 in November
    • Italian wages grew by 1.3% in the year to November, beating expectations for a continuation of October's 1.2% y/y growth
• GBP/USD: +0.01% to $1.4907
• USD/CHF: -0.24% to 0.9927
• USD/JPY: -1.03% to 121.31
  
  • The Bank of Japan kept its benchmark interest rate at 0.1% but said that it would extend the average maturity of its government bond portfolio. This is similar to the Fed's "Operation Twist" that began in September 2011
• USD/CAD: -0.16% to 1.3925
  
  • Canada's consumer price index fell 0.1% m/m in November, missing expectations. The CPI grew 0.1% in October
    
    • The core CPI fell 0.3% m/m in November, also missing economists' estimates. The core CPI grew 0.3% m/m in October
  • Canadian wholesale sales fell a worse-than-expected 0.6% m/m in October after declining 0.3% in September. Economists had expected a reading much closer to November's 56.1
• AUD/USD: +0.97% to $0.7188
• NZD/USD: +0.80% to $0.6745
  
  • The ANZ Business Confidence index jumped to 23.0 in December from 14.6 in November

Read more: http://www.briefing.com/Platinum/InDepth/InPlayFull.htm#ixzz3uwGzjBQP

Next Week In View








Economic Commentaries

Economic Summary: No US data today; Lacker to speak at 12:30 PM ET

Upcoming Fed/Treasury Events

• Richmond Fed President Jeffrey Lacker (voting FOMC member in 2015, not in 2016) will speak today at 12:30 PM ET

Other International Events of Interest

• The Bank of Japan announced a new JPY300 billion ETF purchase program, which was deemed insufficient by the market as the yen strengthened, sending the dollar/yen pair into the 121.30 area after testing 123.00 overnight

Read more: http://www.briefing.com/Platinum/InDepth/InPlayFull.htm#ixzz3uwHXabSn

Market Call: UP

Date: 18 Dec 2015