14 Nov 2013 AMC - All indices broke their highs once again as Yellen testifies

14 Nov 2013 AMC - All indices broke their highs once again as Yellen testifies

Market Summary 

 European Markets Closing Prices

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

·         UK's FTSE: + 0.5%

·         Germany's DAX: + 1.1%

·         France's CAC: + 1.0%

·         Spain's IBEX: + 0.4%

·         Portugal's PSI: 0.0%

·         Italy's MIB Index: + 0.2%

·         Irish Ovrl Index: + 0.4%

·         Greece ATHEX Composite: + 1.0%

Before Market Opens

S&P futures vs fair value: +2.00. Nasdaq futures vs fair value: -7.30.
The S&P 500 futures trade higher by 0.1%.

Asian markets advanced across the board amid dovish comments from Fed Chair nominee Janet Yellen. Japan's Nikkei paced the regional rally with a 2.1% gain while the dollar gained nearly 100 pips against the yen. On a related note, Japan's Finance Minister Taro Aso said the country must be prepared to correct ‘excessive, one-sided forex moves.' In regional economic data, Japan's GDP rose 0.5% quarter-over-quarter (0.4% forecast, 0.9% prior) while the GDP Price Index slipped 0.3% year-over-year (-0.5% expected, -0.5% last). Separately, industrial production rose 1.3% month-over-month (1.5% forecast, 1.5% last) while capacity utilization increased 1.2% month-over-month (-2.1% last). Elsewhere, The Bank of Korea left its key interest rate unchanged at 2.5%, as expected. New Zealand's retail sales increased 0.3% quarter-over-quarter (0.9% forecast, 1.7% last) while core retail sales slipped 0.1% (1.4% expected, 2.1% prior). India's Wholesale Price Index increased 7.0% year-over-year (6.9% expected, 6.5% last). 

·         In Japan, the Nikkei gained 2.1%, ending at a four-month high as exporters outperformed. Fujitsu, Isuzu Motors, and Panasonic gained between 4.0% and 4.8%. Financials lagged as Aozora Bank and Sumitomo Mitsui Trust lost 1.0% and 0.4%, respectively. 

·         Hong Kong's Hang Seng rose 0.8% as casino and gaming names led. Sands China rose 2.1% and Tencent Holdings jumped 4.6%. Food producer Want Want China underperformed with a loss of 1.6%. 

·         In China, the Shanghai Composite settled higher by 0.6% as technology rallied. China Spacesat and People.cn both surged the limit, 10.0%. Financials lagged as China Vanke lost 0.8%. 

Core European indices trade in positive territory while peripheral markets lag after the release of several GDP reports. Eurozone GDP ticked up 0.1% quarter-over-quarter (0.2% expected, 0.3% prior). Germany reported in-line GDP growth of 0.3% quarter-over-quarter (0.7% last) while the year-over-year reading reflected growth of 1.1% (0.7% forecast, 0.9% previous). French GDP contracted 0.1% quarter-over-quarter (+0.1% expected, 0.5% prior) while nonfarm payrolls decreased 0.1% quarter-over-quarter, as expected. Also of note, CPI ticked down 0.1% month-over-month (0.0% forecast, -0.2% last) while the current account deficit widened to EUR3.90 billion from EUR3.60 billion. Italy's GDP contracted 0.1% quarter-over-quarter (-0.1% expected, -0.3% last) while the year-over-year reading fell 1.9% (-1.8% forecast, -2.2% last). Great Britain's retail sales fell 0.7% month-over-month (0.1% forecast, 0.6% last) while core retail sales decreased 0.6% month-over-month (-0.2% expected, 0.8% prior). Spain's industrial new orders declined 0.3% year-over-year (-3.6% expected, -5.6% forecast). Among news of note, Italian debt chief Maria Cannata said she is not worried about risks to European bonds in the event of tapering by the Fed. In addition, Ms. Cannata said investors should anticipate more action from the European Central Bank at the December meeting. 

·         Great Britain's FTSE is higher by 0.5% as consumer names outperform. J Sainsbury trades with a gain of 2.4% and Persimmon sports an advance of 1.7%. Centrica is the weakest index performer, down 4.8% following cautious guidance. 

·         In Germany, the DAX trades up 0.7%. Exporters Daimler and BMW outperform with respective gains of 1.1% and 0.9%. Electricity provider RWE has tumbled 7.1% after issuing disappointing guidance. 

·         In France, the CAC holds an advance of 0.7%. Bouygues leads with a gain of 7.3% after reporting better-than-expected results. 

·         Markets in Italy (-0.6%) and Spain (-0.2%) are being pressured by financials. Italy's UniCredit is lower by 1.9% and Spain's CaixaBank holds a loss of 7.5%.

Market Internals

Market Internals -Technical-
The S&P 500 closed up 9 (+0.48%) at 1791, the Dow closed up 55 (+0.35%) at 15876, and the Nasdaq closed up 7 (+0.18%) at 3973. Action came on above average volume (NYSE 728 mln vs. avg. of 633; NASDAQ 1913 mln vs. avg. of 1774), with mixed advancers/decliners (NYSE 2003/1056, NASDAQ 1218/1305) and new highs outpacing new lows (NYSE 249/22, NASDAQ 178/43).

Relative Strength: 
Turkey-TUR +3.67%, Junior Gold Miners-GDXJ +2.85%, Silver Miners-SIL +2.85%, Gold Miners-GDX +2.68%, Mexico-EWW +2.58%, Indonesia-IDX +2.55%, South Africa-EZA +2.47%, U.S. Home Construction-ITB +2.39%, Gasoline-UGA +2.2%, Latin America 40-ILF +2.01%. 

Relative Weakness: 
India-INP -1.67%, Corn-CORN -1.15%, Volatility-VXX -1.06%, Sugar-SGG -1.06%, Cotton-BAL -1.04%, Austria-EWO -0.9%, Egypt-EGPT -0.89%, Italy-EWI -0.72%, Cloud Computing-SKYY -0.67%, Japanese Yen-FXY -0.61%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks Climb Despite Weakness in Technology
The S&P 500 added 0.5%, extending this week's advance to 1.1%. Meanwhile, the Nasdaq underperformed with a gain of 0.2% as Cisco Systems (CSCO 21.36, -2.63) weighed on the tech-heavy index.

Shares of Cisco plunged 11.0% after the company reported below-consensus top-line results and said it expects second quarter revenue to decline by up to 10.0%. Interestingly, the disappointing guidance had little effect on other tech names. The largest technology—and Nasdaq—component, Apple (AAPL 528.16, +7.53), settled higher by 1.5% while the broader tech sector (-0.4%) spent the entire session climbing off its opening low.

Outside of technology, the remaining nine sectors posted gains between 0.4% and 0.9%. Countercyclical groups—consumer staples, health care, utilities, and telecom services—outperformed from the start while cyclical sectors caught up in late morning/early afternoon action.

The intraday rally took place during Janet Yellen's confirmation hearing in front of the Senate Banking Committee. The hearing did not generate any bombshells, and all of Ms. Yellen's comments were in-line with her prepared remarks that were released last evening. In addition, her comments made it clear that the central bank will not be in any hurry to reduce the pace of its asset purchases. On that note, the Fed Chair nominee said: 

·         The benefits of bond buying exceed the costs · The Fed is apt to maintain accommodative policy for some time after the asset purchase program ends 

·         QE cannot go on forever, but there is no set time for when the Fed will reduce the pace of its asset purchases 

·         It is important not to remove support while the recovery is still fragile 

·         There doesn't appear to be a bubble in stock prices when considering the level of P/E ratios and the equity risk premium 

Stocks and bonds drew support from these comments, and although the Treasury market saw some afternoon weakness following a disappointing 30-yr auction, the 10-yr note ended near its high with its yield down three basis points at 2.70%.

The prospects of continued easing also provided support to gold futures, which settled higher by 1.4% at $1286.50 per troy ounce. On a related note, miners underpinned the materials sector (+0.8%), which ended among the leaders. The Market Vectors Gold Miners ETF (GDX 24.55, +0.64) advanced 2.7%.

Today's participation was well below average as just over 630 million shares changed hands on the floor of the New York Stock Exchange.

On the economic front, weekly initial claims were essentially in-line with recent trends as the claims level fell to 339,000 from an upwardly revised 341,000 (from 336,000). The Briefing.com consensus expected the initial claims level to fall to 330,000. After weeks of biases from the government shutdown and computer glitches in California, the initial claims level has entered a relatively calm phase. Layoff levels are holding steady at around 335,000.

Separately, nonfarm labor productivity increased 1.9% in the third quarter. That was up from a downwardly revised 1.8% (from 2.3%) in the second quarter, and the strongest quarterly gain since increasing 2.5% in Q3 2012. The Briefing.com consensus expected nonfarm business productivity to increase 2.0%.

Output levels increased 3.7% in the third quarter, up from a 3.3% increases in Q2 2013. Compensation growth softened, increasing only 1.3% after increasing 2.3% in the second quarter. The combination of faster output growth and slower compensation gains resulted in unit labor costs falling 0.6% in the third quarter. Unit labor costs have declined for two out three quarters thus far in 2013. The consensus expected unit labor costs to increase 0.8%.

Lastly, the September trade deficit widened to $41.8 billion from a downwardly revised $38.7 billion (from $38.8 billion) in August. The consensus expected the trade deficit to increase to $39.1 billion. The advance reading of the third quarter GDP data assumed the trade deficit narrowed to roughly $38 billion in September. The wider-than-expected September trade deficit will likely reduce the positive effect net exports had on third quarter GDP growth.

Tomorrow, the November Empire Manufacturing Index, October export prices ex-agriculture, and import prices ex-oil will all be released at 8:30 ET while October industrial production and capacity utilization will cross the wires at 9:15 ET. The September wholesale inventories report will be the final economic data point of the week, scheduled for a 10:00 ET release. 

·         Nasdaq +31.6% YTD 

·         Russell 2000 +30.9% YTD 

·         S&P 500 +25.6% YTD

·         DJIA +21.2% YTD

Commodities

Closing Commodities: Crude Rallies, But Ends Lower And Below $94/Barrel

·         Commodities ends mixed with crude oil losing groun, nat gas, heating oil and RBOB gasoline rising, gold and siver rising and copper ending flat.

·         In the agriculture market, corn and soybeans fell, wheat and sugar were flat.

·         Crude oil futures rallied mid-morning, rising above $94/barrel, hitting as high as $94.43/barrel. At the end of today's session, Dec crude fell $0.16 to $93.75/barrel.

·         Dec natural gas gained three cents to $3.60/MMBtu.

·         Dec gold rallied $18/oz to end pit trading at $1286.50/oz, while Dec silver rose $0.26 to $20.71/oz.

NYMEX Energy Closing Prices

·         Dec crude oil fell $0.16 to $93.75/barrel

·         Dec natural gas rose 3 cents to $3.60/MMBtu

·         Dec heating oil rose 3 cents to $2.93/gallon

·         Dec RBOB gasoline rose 5 cents to $2.68/gallon

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Dec corn fell 4 cents to $4.26/bushel

·         Dec wheat settled unchanged at $6.45/bushel

·         Jan soybeans fell 1 cent to $13.14/bushel

·         Dec ethanol rose 1 cent to $1.78/gallon

·         Jan sugar (#16 (U.S.)) settled unchanged at 20.90 cents/lbs

COMEX Metals Closing Prices

·         Dec gold rose $18 to $1286.50/ounce

·         Dec silver rose $0.26 to $20.71/ounce

·         Dec copper unchanged at $3.16/lb

Treasuries

Treasury Market Draws Support from Yellen Remarks
All eyes and ears were tuned to Janet Yellen's confirmation hearing today before the Senate Banking Committee. What they saw and heard looked very familiar as the nominee for Fed Chairman struck a dovish (and professionally savvy) chord with her remarks. She covered a lot of ground in the hearing but a few remarks stood out above all others and provided underlying support for both the bond market and the stock market. In particular, she said: 

·         The benefits of bond buying exceed the costs

·         The Fed is apt to maintain accommodative policy for some time after the asset purchase program ends

·         QE cannot go on forever, but there is no set time for when the Fed will reduce the pace of its asset purchases

·         It is important not to remove support while the recovery is still fragile

·         There doesn't appear to be a bubble in stock prices when considering the level of P/E ratios and the equity risk premium

It comforted market participants to hear these views. Additionally, it didn't hurt market sentiment either that Ms. Yellen's inquisitors struck a fairly conciliatory note during the Q&A part of the hearing.

Notably, the modest buying interest seen in the Treasury market after the lackluster initial claims, trade balance, and productivity reports picked up just as Ms. Yellen began her remarks and continued throughout the course of the hearing. The 30-yr bond rallied close to a point at its best level of the day while the 10-yr note added 12 ticks. Prior to the hearing, most longer-dated maturities were slightly weaker.

The Treasury market ran into a hurdle though in the form of the $16 bln 30-yr bond auction that was met with relatively weak demand. 

·         The auction drew a high yield of 3.81% on a 2.16 bid-to-cover ratio that was well below the 12-auction average of 2.51x

·         Indirect bidders accounted for 35.3% of accepted offers (avg. 38.8%) while direct bidders accounted for 18.3% (avg. 15.7%). Primary dealers were left with 46.5% of the supply.

Following the auction, the 10-yr note gave back all of its intraday gains and the 30-yr bond nearly did the same. Selling efforts, however, eventually tapered off and the Treasury market ended the day on an upswing with the back end of the curve outpacing the front end on the performance scale. Separately, gold prices (+$17.70 at $1286.10/oz.) responded favorably to the dovish hue painted by Ms. Yellen. 

·         10-yr note +6/32 at 2.70% (-2 bps)

·         30-yr bond +12/32 at 3.80% (-2 bps)

Next Day In View 

Economic Commentary

Economic Summary: Trade Balance wider than expected; Jobless claims fall from revised levels; Yellen says there are dangers in ending QE too early or too late; says QE cant last forever
Economic Data Summary:

·         Weekly Initial Claims 339K vs Briefing.com consensus of 330K; Last Week was revised to 341K from 336K

·         Weekly Continuing Claims 2.874 M vs Briefing.com consensus of 2.862 M ; Last Week was revised to 2.874 M from 2.868 M

o    As the October employment report confirmed, layoff levels at its current trend can produce employment gains in the neighborhood of 200,000. The Veterans Day holiday forced the Labor Department to estimate the initial claims levels for 5 states. These estimates are usually robust and we do not expect to see a major revision in next week's data. 

·         September Trade Balance -$41.8 bln vs Briefing.com consensus of -$39.1 bln; August was revised to -$38.7 bln from -$38.8 bln

o     The advance reading of the third quarter GDP data assumed the trade deficit narrowed to roughly $38 bln in September. The wider-than-expected September trade deficit will likely reduce the positive effect net exports had on Q3 2013 GDP growth. The goods deficit increased by $3.0 bln, from $58.3 bln in August to $61.3 bln in September. The services surplus declined to $19.5 bln from $19.6 bln. Total exports fell by $0.4 bln, or 0.2%, in September to $188.9 bln. 

·         Third Quarter Productivity - Prel 1.9% vs Briefing.com consensus of 2.0%; Second Quarter was revised to 1.8% from 2.3%

·         Third Quarter Unit Labor Costs -0.6% vs Briefing.com consensus of 0.8%; Second Quarter was revised to 0.5% from 0.0%

Fed/Treasury Events Summary:

·         Janet Yellen gave testimony to the Senate.  Key comments are as follows:

o    She indicated  dangers on ending too early and holding the program for too long; objective is to insure a robust recovery to improve unemployment and keep inflation under control

o    Senator Warren questions about regulatory role of Fed- Yellen says the Fed takes its job seriously... understands and agrees savers are hurt by policies; says need to get the economy back to normal 'and that is what I hope this policy will succeed in doing'... does not have an exact number of what she believes meets full employment criteria (probably in the 5-6% range); says the measured unemployment rate is 7.3% but notes some weakness in some of the metrics.

o    Will continue to promote a drive for robust economic growth... says too much long unemployment included in the number; says unprecedented situation; long spells of unemployment are particularly painful on households... continuing asset purchase program which it intends to put in place to assure substantial labor market improvement; taking into account costs and efficacy; saws the benefits exceed the costs; indicated that it expects to maintain a highly accommodative policy; message it wants to send is that it will do what is in its power to insure recovery keeping an eye on price stability

o    Asked how long can we remain accommodative: says agrees that program can not continue forever and costs and risks exist; monitoring this closely; committee focused on a variety of risk; the longer the program continues the more worries arise; will not continue the program indefinitely; have seen meaningful progress in the jobs market; needs to see continued progress; does see strength in private sector and does expect continued progress; says no set time it will reduce; looking at it in each meeting.

Upcoming Economic Data:

·         November Empire Manufacturing due out Friday at 8:30 (Briefing.com consensus of 4.3; October was 1.5)

·         October Export Prices Ex-Ag due out Friday at 8:30 (September was 0.3%)

·         October Import Prices Ex-Oil due out Friday at 8:30 (September was 0.1%)

·         October Industrial Production due out Friday at 9:15 (Briefing.com consensus of 0.1%; September was 0.6%)

·         October Capacity Utilization due out Friday at 9:15 (Briefing.com consensus of 78.3; September was 78.3%)

·         September Wholesale Inventories due out Friday at 10:00 (Briefing.com consensus of 0.3%; September was 0.5%)

Upcoming Fed/Treasury Events:

·         The Treasury is scheduled to auction off $16 bln in 30 year bonds today. The results will be announced at 13:00

Other International Events of Interest

·         Japan's GDP rose 0.5% quarter-over-quarter (0.4% forecast, 0.9% prior) while the GDP Price Index slipped 0.3% year-over-year (-0.5% expected, -0.5% last). Separately, industrial production rose 1.3% month-over-month (1.5% forecast, 1.5% last) while capacity utilization increased 1.2% month-over-month (-2.1% last).

·         Germany reported in-line GDP growth of 0.3% quarter-over-quarter (0.7% last) while the year-over-year reading reflected growth of 1.1% (0.7% forecast, 0.9% previous). 

·         French GDP contracted 0.1% quarter-over-quarter (+0.1% expected, 0.5% prior) while nonfarm payrolls decreased 0.1% quarter-over-quarter, as expected. Also of note, CPI ticked down 0.1% month-over-month (0.0% forecast, -0.2% last) while the current account deficit widened to EUR3.90 billion from EUR3.60 billion. 

On other news.... 

Summary of Weekly Petroleum Data for the Week Ending Nov 8, 2013
Production: U.S. crude oil refinery inputs averaged about 15.4 mln barrels per day (bpd) during the week ending November 8, 2013, 343 thousand bpd higher than the previous week's average. Refineries operated at 88.7% of their operable capacity last week. Gasoline production rose from the previous week, averaging 9.4 mln bpd. Distillate fuel production increased last week to 4.9 mln bpd.

Imports: U.S. crude oil imports averaged about 7.8 mln bpd last week, up by 620 thousand bpd from the previous week. Over the last four weeks, crude oil imports averaged 7.5 mln bpd, 7.5% below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 446 thousand bpd. Distillate fuel imports averaged 130 thousand bpd last week.

Inventory: U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.6 mln barrels from the previous week. At 388.1 mln barrels, U.S. crude oil inventories are above the upper range for this time of year. Total motor gasoline inventories decreased by 0.8 mln barrels last week, but are near the top of the average range. Finished gasoline inventories increased while gasoline blending component inventories decreased. Distillate fuel inventories decreased by 0.5 mln barrels last week and remain near the lower limit of the average range for this time of year.

Demand: Total products supplied over the last four-week period averaged 19.7 mln bpd, up by 5.0% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 9.0 mln bpd, up by 4.7% from the same period last year. Distillate fuel product supplied averaged 3.9 mln bpd over the last four weeks, up by 6.9% from the same period last year.




Currencies 









Jason's Commentaries


The market broke into the high once again as Yellen testify in front of the Congress. What she was doing is all providing politically correct answers and not giving a clear direction. Seems that she might become another Ben Bernanke. All 3 indices broke into the high. The Tech sector was the worst performer as Orcle, HP, Cisco sunk by 1.77%, 5.38% and 10.58% respectively. The Financials, Utilities, Materials and Consumer Discretionary did well and gained more than 0.7%. Volumes were way below average at 632m shares traded, possibly due to the inactivity in the early hours before Yellen testifies. Internals were pointing towards the bullish side. Seems that we've got somemore upside to go until next week's FOMC minutes on Wednesday. Stay safe for this expiration Friday =D

Market Call: FLAT to upside

Date: 15 Nov 2013