18 Sep 2013 AMC

18 Sep 2013 AMC

Market Summary 

European Markets Closing Prices

European markets are now closed; stock markets across Europe performed as follows:

·         UK's FTSE: -0.2%

·         Germany's DAX: + 0.5%

·         France's CAC: + 0.6%

·         Spain's IBEX: + 0.8%

·         Portugal's PSI: + 0.6%

·         Italy's MIB Index: + 0.3%

·         Irish Ovrl Index: 0.0%

·         Greece ATHEX Composite: + 0.1%

 

 Before Market Opens

S&P futures vs fair value: +0.70. Nasdaq futures vs fair value: +7.00.
The S&P 500 futures hover just above their flat line.

Major Asian markets ended mixed with Japan's Nikkei (+1.4%) in the lead. Sentiment was bolstered by indications that members of the cabinet have softened their opposition to lowering corporate tax rates to counterbalance the effects of the planned sales tax increase. Elsewhere, Standard & Poor's has cut Western Australia's credit rating to ‘AA+' from ‘AAA.' Economic data was limited. China's house prices increased 8.3% month-over-month (7.5% last). Australia's CB Leading Index came in at 0.3% (-1.1% prior) while the MI Leading Index rose 0.6% (0.0% previous). New Zealand's trade deficit widened to NZD1.25 billion from NZD0.66 billion (-NZD1.80 billion expected).

·         In Japan, the Nikkei advanced 1.4% with consumer names providing support. Fast Retailing and Pioneer jumped 3.3% and 9.7%, respectively. Industrial companies underperformed with Ebara and Taisei both losing near 1.8%. 

·         Hong Kong's Hang Seng slipped 0.3% as energy names lagged for a second day in a row. China Coal Energy and CNOOC lost 1.4% and 0.4%, respectively. Property names displayed strength once again as Henderson Land Development rose 1.2% and New World Development climbed 2.6%. 

·         In China, the Shanghai Composite added 0.3% with financials contributing to the gains. China Vanke tacked on 0.3%. Growth-sensitive names lagged as Anhui Expressway and Zhejiang Xinan Chemical Industrial both lost near 3.8%. 

Major European indices trade with modest gains as the largely uneventful session continues. In news of note, the minutes from the latest Bank of England policy meeting revealed a unanimous vote to leave the key interest rate and the purchasing program unchanged at their respective 0.5% and GBP375 billion. Economic data was limited as Spanish industrial new orders climbed 1.8% year-over-year (-3.3% expected, -8.1% prior) and Swiss ZEW Expectations improved to 16.3 from 7.2 (20.0 expected). 

·         Great Britain's FTSE holds a slim gain of 0.1% as financials outperform. HSBC Holdings, Lloyds Banking Group, and Standard Chartered are all up between 1.1% and 2.1%. Most miners trade in the red with Antofagasta and Fresnillo both down near 2.8%. 

·         In Germany, the DAX trades up 0.4% after notching a fresh all-time high. Daimler and Volkswagen have provided some support as the two automakers sport respective gains of 0.4% and 0.5%. 

·         France's CAC is higher by 0.5% as cyclical names outperform Air Liquide and EADS are both up near 2.0%. Food retailer Carrefour underperforms with a loss of 0.7%.

Market Internals

Market Internals -Technical-
The S&P 500 closed up 21 (+1.22%) at 1726, the Nasdaq closed up 38 (+1.01%) at 3784, and the Dow closed up 147 (+0.95%) at 15677. Action came on above average volume (NYSE 820 mln vs. avg. of 664; NASDAQ 1776 mln vs. avg. of 1543), with advancers outpacing decliners (NYSE 2676/449, NASDAQ 1618/903) and new highs outpacing new lows (NYSE 326/30, NASDAQ 248/22).

Relative Strength: 
Junior Gold Miners-GDXJ +11.28%, Silver Miners-SIL +11.05%, Indonesia-IDX +8.60%, Poland-EPOL +6.20%, Thailand-THD +5.71%, Turkey-TUR +5.61%, Chile-ECH +5.31%, U.S. Home Construction-ITB +4.84%, Metals and Mining-XME +4.02%, Coal-KOL +3.69%.

Relative Weakness: 
Volatility-VXX -3.74%, Egypt-EGPT -2.58%, U.S. Health Care-IHF -1.46%, U.S. Dollar-UUP -1.14%, Broker-Dealers-IAI -0.97%, Regional Banks-KRE -0.77%, Chinese Yuan-CYB -0.04%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks Rally as FOMC Maintains Policy Stance
The S&P 500 jumped 1.2%, closing at a record high of 1,725.52 after the Federal Open Market Committee failed to announce plans to reduce the pace of its asset purchases, as many had expected. 

Although the Federal Reserve did not make a tapering announcement, the policy statement did contain updated economic projections. Notably, the forecast for 2013 and 2014 GDP was lowered with the Committee expecting this year's growth between 2.0% and 2.3% (2.3%-2.6% June forecast) and 2014 growth ranging between 2.9% and 3.1% (3.0%-3.5% June projection). 

During his press conference, Mr. Bernanke said economic data received since June has not been strong enough to justify scaling back asset purchases just yet. The Fed Chairman also said that recent tightening of financial conditions, as well as the ongoing fiscal uncertainty, played a part in the decision to maintain asset purchases at a pace of $85 billion per month ($40 billion in mortgage-backed securities, $45 billion in Treasuries). 

Similar to equities, Treasuries and precious metals welcomed the lack of a tapering announcement. The 10-yr note rallied more than a point, pushing its yield down 14.5 basis points to 2.71%. This marked the lowest close for the benchmark yield since August 12. 

Meanwhile, gold spiked 4.4% and silver surged 6.1% to their respective $1366.30 and $23.13 per troy ounce. Miners also received an afternoon boost, and the Market Vectors Gold Miners ETF (GDX 28.25, +2.32) settled higher by 9.0%. On a related note, the materials space ended ahead of the remaining cyclical sectors, posting a gain of 2.3%. 

The other commodity-related sector, energy (+1.2%), settled in-line with the S&P even as crude oil surged 2.6% to $108.12 per barrel. Transportation companies appeared largely unaffected by the sharp gain in crude as the Dow Jones Transportation Average climbed 1.5%. FedEx (FDX 116.25, +5.57) spiked 5.1% after reporting an earnings beat and announcing plans to increase its shipping rates by an average of 3.9% next year. 

Five of six cyclical sectors ended ahead of the broader market while financials (+1.0%) underperformed. Although major banks fared relatively well, the sharp drop in rates pressured brokerage names like TD Ameritrade (AMTD 26.93, -1.12) and Charles Schwab (SCHW 21.36, -1.28). 

Countercyclical sectors ended in mixed fashion as health care (+0.7%) and telecom services (+0.4%) lagged while consumer staples (+1.3%) and utilities (+3.0%) outperformed. 

Trading volume reached a one-month high as 820 million shares changed hands on the floor of the New York Stock Exchange. 

Today's economic data focused on housing. The weekly MBA Mortgage Index jumped 11.2% to follow its recent string of declines including last week's 13.5% slide. 

Separately, housing starts increased 0.9% in August to a seasonally adjusted annual rate of 891,000. That was a bit below the Briefing.com consensus estimate of 910,000, yet that sting was mitigated by the understanding that single-family starts increased a solid 7.0% to 628,000. That was the highest level of single-family starts since February. 

Building permits declined 3.8% from July to a seasonally adjusted annual rate of 918,000 (Briefing.com consensus 943,000). That disappointment notwithstanding, the housing starts report carried positive implications for Q3 GDP as the number of units under construction increased 2.2% to 654,000. 

Tomorrow, weekly initial claims and the second quarter current account deficit will be reported at 8:30 ET while August existing home sales, August Leading Indicators, and the September Philadelphia Fed Index will all be reported at 10:00 ET.

Commodities

Closing Commodities: Commodities Spike Higher Following FOMC Announcement

·         Oct crude oil advanced for the first time in four sessions, gaining support from strong inventory data and the Federal Reserve decision to maintain its current monetary stimulus. The Dept. of Energy reported that for the week ending Sep 13, crude oil inventories had a draw of 4.368 mln barrels when consensus called for a draw of 1.2-1.4 mln barrels. The energy component trended higher after lifting from its session low of $105.60 per barrel. It pushed above the $108.00 per barrel level moments before closing at $108.14 per barrel, or 2.6% higher

·         Oct natural gas, however, spent its entire session in the red. It slipped to a session low of $3.67 per MMBtu in morning pit action and eventually settled with a 0.8% loss at $3.71 per MMBtu

·         Dec gold spent most of today's floor trade in negative territory as many investors speculated that the Federal Reserve would announce a modest tapering to the stimulus program. The yellow metal dipped below the $1300 per ounce level but rallied to a session high of $1313.40 per ounce ahead of the close. Unable to hold the gain, it settled 0.1% lower at $1307.40 per ounce

·         Dec silver also chopped around in the red, slumping to a session low of $21.23 per ounce in late morning action. It managed to inch slightly higher in afternoon pit trade and settled with a 0.9% loss at $21.58 per ounce. The precious metals rallied sharply on the lack of a tapering announcement in electronic trade and continue to push to new HoDs

NYMEX Energy Closing Prices

  Oct crude oil rose $2.75 to $108.14/barrel 

·         Crude oil rose for the first time in four sessions as it gained support from strong inventory data and the Federal Reserve decision to maintain its current monetary stimulus. The energy component came off its session low of $105.60 and trended higher as the session progressed. It pushed above the $108.00 in the last few minutes of floor trade and settled with a 2.6% gain. 

  Oct natural gas fell 3 cents to $3.71/MMBtu 

·         Natural gas, on the other hand, spent its entire session in negative territory. It slipped to a session low of $3.67 in morning pit action but managed to erase some of the loss. It eventually settled 0.8% lower. 

  Oct heating oil rose 4 cents to $3.04/gallon 

  Oct RBOB gasoline rose 8 cents to $2.74/gallon

CBOT Agriculture and Ethanol Closing Prices

·         Dec corn rose 3 cents to $4.57/bushel 

·         Dec wheat rose 4 cents to $6.46/bushel 

·         Nov soybeans rose 6 cents to $13.48/bushel 

·         Oct ethanol rose 6 cents to $1.84/gallon

COMEX Metals Closing Prices

  Dec gold fell $1.60 to $1307.40/ounce 

·         Gold spent most of today's floor trade in negative territory ahead of the 14:00 FOMC decision. Many speculate that the Federal Reserve will announce a modest tapering to the stimulus program. The yellow metal dipped below the $1300 level but rallied into positive territory and to a session high of $1313.40 as it headed into the close. Unable to hold the gain, it settled with a 0.1% loss. 

  Dec silver fell $0.20 to $21.58/ounce 

·         Silver also traded in the red. It slumped to a session low of $21.23 in late morning action but managed to inch slightly higher in afternoon pit trade. It settled slightly below its session high of $21.71, booking a 0.9% loss. 

  Dec copper rose 6 cents to $3.28/lbs

Treasuries

Treasuries Surge as Taper is Delayed: 10-yr: +1 12/32..2.681%..USD/JPY: 98.10..EUR/USD: 1.3496
Treasuries ended on session highs as traders stampeded into the complex on word the Fed would delay the tapering of its bond-buying program. Today's FOMC Statement suggested that while "economic activity has been expanding at a modest pace" the Committee decided to "await more evidence that progress will be sustained before adjusting the pace of its purchases." The announcement ignited heavy buying across the complex as maturities seven years on up jumped more than one full point. The rush back into the complex had the biggest impact on the belly of the curve, where yields ended lower by as much as 17.5 bps. The 5-yr paced the decline in yield with today's action dropping it to 1.436%, marking its lowest close since August 12. Meanwhile, the benchmark 10-yr yield tumbled 14.5 bps to 2.708%, ending on its 50-day moving average. Traders will be watching current levels closely as support in the area dates back to the beginning of July. The yield is off close to 30 bps from the two-year plus high of near 3.000% set in early September. The wings of the curve lagged as the 2-yr slipped 4 bps to 0.339% and the 30-yr shed 8.5 bps to 3.755%. Aggressive curve flattening developed on today's bid as the 2-10-yr spread narrowed to 236 bps. Elsewhere, precious metals saw strong gains as gold surged $49 to $1358 and silver rallied $1.20 to near $23.00. Data is heavy on Thursday with initial and continuing claims, the current account balance (8:30), existing home sales, Philly Fed, and leading indicators (10). Cleveland's Pianalto will be at the Cleveland Fed's summit on housing, human capital, and inequality, discussing "Looking for Common Ground and New Solutions in Household and Consumer Finance" (12:20).

Next Day In View 

Economic Commentary

Economic Summary: QE III maintained at $85 bln/month
Economic Data Summary:

·         Weekly MBA Mortgage Applications 11.2% vs Briefing.com consensus of ; Last Week was -13.5%

·         August Housing Starts 891K vs Briefing.com consensus of 910K; July was 896K

·         August Building Permits 918K vs Briefing.com consensus of 943K; July was 943K

o     The trends in the data were much stronger than the headline gain suggests. Single-family construction, which tends to be stable and a longer-term indicator for overall growth, jumped 7.0% in August to 628,000 from 587,000 in July. That was the most homes started since February when builders began construction on 652,000 new single-family homes. The current single-family starts level is more consistent with the improvements in the NAHB Housing Market Index.

Fed/Treasury Events Summary:

·         Fed maintains asset purchase program of $85 bln/month ($40 bln in MBS and $45 bln in treasuries purchases). Key points from statement include:

o    Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.

o    The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.

o    Information received since the Federal Open Market Committee met in July suggests that economic activity has been expanding at a moderate pace. 

o    In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.

o    n. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations. 

·         Economic Projections

o    See 14:07, 14:11 comments for detailed charts.

·         Ben Bernanke Press Conference Key Points:

o    Tightening conditions, if sustained, could slow pace of recovery; notes fiscal policy also downside risk

o    Generally outlook for most is moderate economic growth that will pick up over time

o    'conditions in labor market are still far from what all of us would like to see'

o    Notes prior comments that conditions pointed toward potential tapering but notes it made clear that conditions would be on receipt of evidence of a sustainable recovery

o    Bernanke said broad contour of medium economic outlook were close to the views it held in June but still did not have confirmation that would allow it to move forward.

o    Reiterates targets are thresholds not triggers; says committee unlikely to cut asset purchases if inflation remains below target; says first cuts may not happen for some time even if unemployment hits 6.5%

o    Notes downward trend in participation rate in the labor force... tries to communicate policy as clearly as possible... emphasizes no preset schedule for tapering... declines to comment on succession... says there are 8 meetings of note; says if there was a decision made that necessitates a press conference it would do so.

o    Bernanke indicated that an inflation floor could be a 'sensible modification' to guidance.

Upcoming Economic Data:

·         Weekly Initial Claims due out Thursday at 8:30 (Briefing.com consensus of 340K; Last Week was 292K)

·         Weekly Continuing Claims due out Thursday at 8:30 (Briefing.com consensus of 2.880 M ; Last Week was 2.871 M )

·         Q2 Current Account Balance due out Thursday at 8:30 (Briefing.com consensus of -$100.0 bln; Q1 was -$106.1 bln)

·         August Existing Home Sales due out Thursday at 10:00 (Briefing.com consensus of 5.30 M ; July was 5.39 M )

·         September Philadelphia Fed due out Thursday at 10:00 (Briefing.com consensus of 9.0; August was 9.3)

·         August Leading Indicators due out Thursday at 10:00 (Briefing.com consensus of 0.6%; July was 0.6%)

Upcoming Fed/Treasury Events:

·         Cleveland Fed President Sandra Pianalto (not a voting FOMC member, typically dovish) to speak tomorrow at 11:30

Other International Events of Interest

·         China's house prices increased 8.3% month-over-month (7.5% last). 

On other news.... 

Fed releases September statement
Information received since the Federal Open Market Committee met in July suggests that economic activity has been expanding at a moderate pace. Some indicators of labor market conditions have shown further improvement in recent months, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has been strengthening, but mortgage rates have risen further and fiscal policy is restraining economic growth. Apart from fluctuations due to changes in energy prices, inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall, but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.

Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.

The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In judging when to moderate the pace of asset purchases, the Committee will, at its coming meetings, assess whether incoming information continues to support the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective. Asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's economic outlook as well as its assessment of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Charles L. Evans; Jerome H. Powell; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations. 






Currencies 

Fed Chairman Ben Bernanke- reiterates targets are thresholds not triggers; says committee unlikely to cut asset purchases if inflation remains below target; says first cuts may not happen for some time even if unemployment hits 6.5%

Dollar Hammered as Fed Delays Taper: 10-yr: +22/32..2.766%..USD/JPY: 98.40..EUR/USD: 1.3470
The Dollar Index tumbled to session lows near 80.40 after the Fed decided to delay the tapering of its asset purchase program, suggesting more data is needed to see if the economy can stand on its own. Today's selling has dropped the Index below the important 80.80/81.00 support level with trade now taking place at the lowest level since February. Click here to see a daily Dollar Index chart.

·         EURUSD is +100 pips at 1.3455 as trade hits its best level in more than seven months. Near-term resistance rests in the 1.3500 region while a move above 1.3700 would mark the highest print since November 2011. 

·         GBPUSD is +145 pips at 1.6050 as trade has pushed through 1.6000 resistance. Sterling saw early outperformance following the unanimous 9-0 vote in favor of keeping both the asset purchase program and benchmark interest rate unchanged, but surged to its best levels of the session following the FOMC Statement. Traders will be watching the 1.6300 level over the coming days as a close north of there would be the best in 25 months. Britain's public sector net borrowing is due out tomorrow. 

·         USDCHF is -90 pips at .9165 as trade probes key support in the area. The .9160/.9200 area is under careful watch as a breakdown would produce the worst print in more than seven months. 

·         USDJPY is -85 pips at 98.30 with today's selling dropping the pair below 99.00 support that had held up throughout September. Today's weakness also has the pair below both its 50- and 100-day moving averages, and has focus moving towards the 97.00 level. Bank of Japan Governor Kuroda will speak at the Kisaragi-kai meeting in Tokyo. 

·         AUDUSD is +115 pips at .9470 as trade surges to its best level in three months. The .9500 resistance level will be monitored, with a breakout likely leading to a test of the 200-day moving average (.9875). Chinese banks are closed for Mid-Autumn Festival. 

·         USDCAD is -55 pips at 1.0240 as today's selling has action testing key trendline support off the September 2012 lows. This level is critical as a breakdown would likely be a precursor to broad-based dollar weakness due to this pair's tendency to lead larger moves in the greenback. Traders should keep a close watch on action over the coming days. Canada's CPI will be released tomorrow.

Jason's Commentaries


The Fed fooled the market once again. Just when the entire market was expecting a taper on the QE, the taper did not happen. And guess what, the market spiked to a new time high once again. Not only that, treasuries spiked as well. The market started with a slight bearish bias as people are taking their positions off, the market had some minor losses before the FOMC minutes. However, right after the FOMC minutes, all indices spiked up. S&P500 and Nasdaq Composite is at their all time high once again. Volumes were strong at 830m shares traded and it's a clear bullish day. Almost every sector gained more than 1%. Utilities gained near a 3% and Materials were up above 2%. We're in a bull market right now.

Market Call: FLAT to upside

Date: 19 Sep 2013