10 July 2013 AMC

10 July 2013 AMC

Market Summary 

Market Internals

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Stock Market Update 16:15 ET Dow -8.68 at 15291.66, Nasdaq +16.50 at 3520.76, S&P +0.30 at 1652.62 :[BRIEFING.COM] The major averages ended in mixed fashion as the Dow shed 0.1% while the Nasdaq added 0.5%. For its part, the S&P 500 ended flat.  Equities held their levels into the afternoon as market participants awaited the Minutes from the June 18/19 meeting of the Federal Open Market Committee. Most notably, the Minutes indicated several members judged a reduction in asset purchases would be warranted ‘soon.' However, the Fed will continue to look for more evidence suggesting projected acceleration of growth remains on track before tapering.  With regard to Treasury yields, some participants voiced concern about a few institutions being ill-prepared to handle a rapid run-up in rates. In addition, other members said that ‘a prolonged period of low interest rates would encourage investors to take on excessive credit or interest rate risk and would distort some asset prices.'  Committee participants also stressed their desire to emphasize the distinction between decisions about slowing bond buying and future rate hikes.  Overall, the Minutes did not provide too much fresh insight. With that in mind, the major averages returned to their earlier levels after spiking to fresh highs immediately after the Minutes crossed the wires.  Energy and financials displayed weakness throughout the day before settling near their lows. The energy sector shed 0.6% despite the continued rise in crude oil, which added 2.4% to $106.04 per barrel. The energy component has rallied steadily since late June, and reports of a well leak off the coast of Louisiana contributed to today's strength.  Elsewhere, major banks registered losses across the board as the financial sector settled lower by 0.6%.  Also of note, the Dow Jones Transportation Average fell 1.0% after jumping 2.3% yesterday.  While most cyclical groups finished in the red, the technology sector outperformed with a gain of 0.5% as most of its top components registered gains. Qualcomm (QCOM 60.46, +1.08) ended higher by 1.8% after providing leadership throughout the session.  Countercyclical consumer staples, health care, and utilities added between 0.1% and 0.7% while the telecom services sector shed 0.4%.  May wholesale inventories decreased 0.5% while the Briefing.com consensus expected an uptick of 0.3%. Today's report followed last month's revised decrease of 0.1%.  Tomorrow, weekly initial claims, June import prices ex-oil, and export prices ex-agriculture will be reported at 8:30 ET. In addition, the Treasury will release its June budget at 14:00 ET.  The U.S. Treasury will auction $13 billion in 30-yr bonds. ..NYSE Adv/Dec 1601/1395. ..NASDAQ Adv/Dec 1427/1028.

Commodities

Treasuries

Bonds: Treasuries Slide Following FOMC Minutes
Treasuries ended on their worst levels of the session as sellers took control following the release of the June FOMC minutes. The minutes suggested tapering could begin later this year and that some members were calling for it to start at the June meeting. Sellers were in control early in the U.S. session, dropping the complex onto its lows ahead of the wholesale inventories miss (-0.5% actual v. +0.3% expected). Some light buying surfaced following the data, but sellers managed to regain control, dropping maturities to fresh lows ahead of this afternoon's in-line $21 bln 10-yr reopening. The reopening drew 2.670% and a weak 2.57x bid/cover as indirect bidders took down 38.6% of the offering (12-auction average 37.5%) and direct bidders bought 16.3% of the supply (12-auction average 22.4%). Buyers flexed their muscles following the auction with Treasuries paring their losses ahead of the minutes. Trade was whippy following the release of the minutes with sellers eventually retaking control and dropping the complex to new lows at the cash close. The long bond finished with a loss of nearly one full point, but it was the belly of the curve that saw the biggest jump in yield. The benchmark 10-yr yield ended the day higher by 5 bps at 2.680%, just 3.5 bps below Friday's two-year closing high. Selling swung the yield curve steeper as the 2-10-yr spread widened to 231.5 bps. 

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Jason's Commentaries



IN OTHER NEWS ...

Fed releases FOMC minutes

Discussion on rates rising
In their discussion of financial market developments over the intermeeting period, participants weighed the extent to which the rise in market interest rates and increase in volatility reflected a reassessment of market participants' expectations for monetary policy and the extent to which it reflected growing confidence about the economic outlook. It was noted that corporate credit spreads had not widened substantially and that the stock market had posted further gains, suggesting that the higher rates reflected, at least in part, increasing confidence that moderate economic growth would be sustained. 

Several participants worried that higher mortgage rates and bond yields could slow the recovery in the housing market and restrain business expansion. However, some others commented that any adverse effects of the increase in rates on financial conditions more broadly appeared to be limited. A number of participants offered views on risks to financial stability. 

A couple of participants expressed concerns that some financial institutions might not be well positioned to weather a rapid run-up in interest rates. Two others emphasized the importance of bolstering the resilience of money market funds against disorderly outflows. And a few stated their view that a prolonged period of low interest rates would encourage investors to take on excessive credit or interest rate risk and would distort some asset prices. However, others suggested that the recent rise in rates might have reduced such incentives. While market volatility had increased of late, it was noted that the rise in measured volatility, while noticeable, occurred from a low level, and that a broad index of financial stress remained below average. 

One participant felt that the Committee should explore ways to calibrate the magnitude of the risks to financial stability so that those considerations could be more fully incorporated into deliberations on monetary policy.

Appropriate Path
Participants also described their views regarding the appropriate path of the Federal Reserve's balance sheet. Given their respective economic outlooks, all participants but one judged that it would be appropriate to continue purchasing both agency MBS and longer-term Treasury securities. About half of these participants indicated that it likely would be appropriate to end asset purchases late this year. Many other participants anticipated that it likely would be appropriate to continue purchases into 2014. Several participants emphasized that the asset purchase program was effective in supporting the economic expansion, that the benefits continued to exceed the costs, or that continuing purchases would be necessary to achieve a substantial improvement in the outlook for the labor market. A few participants, however, indicated that the Committee could best foster its dual objectives and limit the potential costs of the program by slowing, or stopping, its purchases at the June meeting.

What a nasty session with the FOMC Minutes. Market started off with some bearish bias and remained flat till 2pm ET, where the FOMC Minutes was released which created a nasty gyration 1400-1450 ET. Nasdaq Composite ended the highest amongst the indices while Dow was the only laggard. Amongst the Dow components, we can see that it was a mixed session while the Nasdaq was led by names like Microsoft, HP and Cisco which made 1.02%, 1.81% and 0.99% gain respectively. 

Volumes were lower than average last night which showed some bearish bias towards the closing bell. On the technical perspective, the resistance at 15300 remain significant. With the Nasdaq Composite leading the way, I reckon that resistance could be broken very soon. After the closing bell, Treasuries spiked as Ben Bernanke conducted the press conference and reinstated that the rates will not go up anytime soon. However, more than half the Fed members supported the notion to taper QE by the end of this year, which is likely to be after the handing over of Fed Chairman's position. Moreover, BOJ maintained its rates. Consequently, futures were up and Asia was in the green today with Shanghai index closing at 3.23% and Hang Seng closing at 2.55%. Seems that the European market is going open much higher. It's gonna take a lot of strength to keep that bullishness going.

Market Call: FLAT to upside

Date: 11 Jul 2013