20 Nov 2013 AMC- FOMC minutes discussed on QE tapering, citing good economic report will likely push for a taper

20 Nov 2013 AMC-  FOMC minutes discussed on QE tapering, citing good economic report will likely push for a taper

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: -0.3%

·         Germany's DAX: + 0.1%

·         France's CAC: -0.1%

·         Spain's IBEX: -0.7%

·         Portugal's PSI: -0.9%

·         Italy's MIB Index: -0.2%

·         Irish Ovrl Index: + 0.4%

·         Greece ATHEX Composite: -0.7%

Before Market Opens

S&P futures vs fair value: +3.30. Nasdaq futures vs fair value: +9.20.
The S&P 500 futures trade higher by 0.2%. 

Markets across Asia ended mostly lower with only China's Shanghai Composite (+0.6%) and Hong Kong's Hang Seng (+0.2%) seeing gains as investors continued to gobble up shares following the third plenum. Those markets were able to shake off the concerns of a State official suggesting a couple of small banks would fail next year. Little stress could be seen in SHIBOR as the 2w rate shed 10.2 basis points to 5.430%, and only the one-month rate saw a notable advance (+5.8bps to 6.179%). Shifting focus to Japan, the Nikkei (-0.3%) fell after the latest trade data showed a larger than anticipated deficit of JPY1.07 trillion on an adjusted basis (JPY0.88 trillion expected), which came thanks to a 68.0% increase in energy imports. Data from the rest of the region was limited to the larger than expected Taiwanese current account surplus ($14.9 billion actual versus 14.7 billion expected, $13.8 billion previous). 

·         In Japan, the Nikkei closed shed 0.3% as trade remained near six-month highs. Industrials were the worst performers as Amada and JTEKT lost 3.3% and 2.3%, respectively. 

·         Hong Kong's Hang Seng added 0.2% as trade holds near two and a half-year highs. Gains were widespread as Hong Kong Exchanged rallied 3.0% and Ping An Insurance tacked on 2.2%. 

·         In China, the Shanghai Composite settled higher by 0.6% as defense stocks remained strong. Beijing Aerospace Changfeng and Xi'An Aero-Engine both surged the daily limit, 10%. 

Major European indices hover near their lows with markets in Spain (-1.0%) and Italy (-0.5%) pacing the decline. Among news of note, German Chancellor Angela Merkel indicated her party expects to finish coalition talks near the middle of next week. Economic data was limited to just a handful of reports. Germany's PPI slipped 0.2% month-over-month (0.1% expected, 0.3% prior) while the year-over-year reading fell 0.7% (-0.6% expected, -0.5% last). Spain's trade deficit widened to EUR2.59 billion from EUR1.80 billion (-EUR2.50 billion expected). Swiss ZEW Expectations improved to 31.6 from 24.9 (30.0 forecast). 

·         Germany's DAX is lower by 0.1% as growth-sensitive names like K+S and ThyssenKrupp lead the weakness with each losing 1.8%. 

·         In Great Britain, the FTSE sports a loss of 0.3% as defensive names lag. Food retailers J Sainsbury and Tate & Lyle are lower by 2.5% and 1.7%, respectively. On the upside, Aberdeen Asset Management trades higher by 1.8%. 

·         France's CAC trades down 0.4% with producers of basic materials pressuring the index. Solvay and Vallourec are both down near 2.3%. 

·         Italy's MIB (-0.5%) and Spain's IBEX (-1.0%) are being pressured by broad-based weakness. In Italy, Banco Popolare and Mediobanca trade lower by 2.4% and 1.8%, respectively. Meanwhile, industrial names lead Spanish equities lower as Fomento de Construcciones y Contractas holds a loss of 4.1% and Sacyr trades down 6.5%.

Market Internals

Market Internals -Technical-
The Dow closed down 66 (-0.41%) at 15901, the S&P 500 closed down 7 (-0.36%) at 1781, and the Nasdaq closed down 10 (-0.26%) at 3921. Action came on below average volume (NYSE 622 mln vs. avg. of 728; NASDAQ 1674 mln vs. avg. of 1780), with decliners outpacing advancers (NYSE 1034/2056, NASDAQ 1170/1369) and new highs outpacing new lows (NYSE 74/70, NASDAQ 89/34).

Relative Strength: 
Natural Gas-UNG +3.07%, Coffee-JO +1.6%, Middle East and Africa-GAF +1.49%, Heating Oil-UHN +1.45%, Biotechnology-XBI +0.93%, Biotechnology-IBB +0.88%, Japanese Yen-FXY +0.23%, Canadian Dollar-FXC +0.22%, Canada-EWC +0.14%, Japan-EWJ +0.04%.

Relative Weakness: 
Junior Gold Miners-GDXJ -4.63%, Silver Miners-SIL -3.01%, Indonesia-IDX -2.64%, Lithium-LIT -2.34%, Gold-GLD -2.3%, Poland-EPOL -2.22%, Spain-EWP -2.1%, Volatility-VXX -2.02%, India-INP -1.73%, Thailand-THD -1.62%.

Leaders and Laggards

Ma

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks Slump as Taper Talk Returns
The major averages ended on their lows after early gains turned into afternoon losses. The late decline occurred in reaction to the October FOMC minutes, which mentioned the possibility of tapering in the ‘coming months.' It should be noted that despite today's 0.4% decline, the S&P 500 remains higher by 7.5% since October 9.

Stocks held modest gains through the bulk of the session after a better-than-expected October retail sales report set the stage for an upbeat open. The report pointed to an increase of 0.4% while the Briefing.com consensus expected a more modest uptick of 0.1%. More importantly, the report indicated the government shutdown had essentially no effect on consumer spending.

The above-consensus data helped retailers outperform the broader market as the SPDR S&P Retail ETF (XRT 86.87, +0.03) ended flat. Among individual names of note, J.C. Penney (JCP 9.44, +0.73) surged 8.4% after its upbeat-sounding guidance overshadowed its bottom-line miss.

As the opening hour drew to its close, stocks spiked amid reports the European Central Bank will weigh implementing negative deposit rates if more easing is needed. The euro weakened on the news, falling below 1.3500 against the dollar. It is worth mentioning that negative rates have been discussed in recent weeks. In fact, just yesterday, ECB Executive Board member Joerg Asmussen said the central bank could implement negative deposit rates if the 2.0% inflation target remains elusive. However, Mr. Asmussen added he would be ‘very, very careful' with regards to deploying the policy tool.

Equity indices then returned to their earlier levels after St. Louis Fed President James Bullard said that a strong November jobs report would increase the chances of tapering in December.

Taper talk resurfaced this afternoon when the minutes from the October FOMC meeting indicated tapering is ‘likely in the coming months.' The rest of the statement struck a familiar tone as the FOMC said the economy is expanding at a moderate pace while some downside risks remain.

The market's reaction was consistent with what transpired after previous mentions of tapering by the Fed. Equities, Treasuries (10-yr yield +8 bps to 2.79%), and gold futures (-2.3% to $1245.50/ozt) sold off while the Dollar Index (+0.4% to 81.02) rallied.

Even though the market received tapering hints from Mr. Bullard and the October minutes, it should be noted the labor situation represents just one half of the picture. The Federal Reserve has also committed to maintaining annual inflation close to 2.0%, but has struggled in achieving this target. Today's CPI report spoke to that point as October prices slipped 0.1% while the Briefing.com consensus expected no change. Core prices increased 0.1%, below the 0.2% expected by the Briefing.com consensus. On an annualized basis, CPI came in at 1.0% while core CPI was reported at 1.7%.

When the dust settled, the health care sector (+0.3%) was the only group left in positive territory while the other sectors ended with losses between 0.3% and 1.2%. Rate-sensitive utilities (-1.1%) and telecom services (-0.8%) ended at the bottom of the leaderboard as elevated rates weighed.

Participation was on the light side as only 622 million shares changed hands on the floor of the New York Stock Exchange.

Looking back at today's remaining economic data, business inventories rose 0.6% in September after increasing 0.4% in August. The Briefing.com consensus expected inventory levels to increase 0.4%.

Separately, existing home sales fell 3.2% to 5.12 million in October from an unrevised 5.29 million in September. The Briefing.com consensus expected home sales to fall to 5.20 million. Surprisingly, the National Association of Realtors did not blame the government shutdown for the drop in sales. The shutdown left many banks unable to verify income through the IRS before closing. That was one of the main reasons why mortgage purchase applications fell during the month. We expected the delays in the mortgage approval process to push a number of home purchases that would have occurred in October into November.

Tomorrow, weekly initial claims and October PPI will be reported at 8:30 ET while the November Philadelphia Fed survey will be released at 10:00 ET.

·         Nasdaq +29.9% YTD

·         Russell 2000 +29.5% YTD

·         S&P 500 +24.9% YTD

·         DJIA +21.3% YTD

Commodities

Closing Commodities: Commodities Mostly Weak; Gold And Silver Lose Over 2%
Commodities continued to remain pressured given the strength in the dollar index. 

The dollar index spiked this morning after headlines said ECB to weigh -0.1% deposit rate if more easing is needed. Also, St. Louis Fed President came out suggested that a strong November jobs report would increase the likelihood the Fed would begin tapering its bond-buying program, which influenced the dollar index.

And then, Fed minutes were released, which caused the dollar index to spike to a new session high. All of this weighed on the commodity complex, but mostly on the metals.

Natural gas futures were strong all session and rose as high as $3.68. At the end of floor trading, Dec nat gas closed $0.12 higher at $3.67/MMBtu.

Jan crude oil ended the day $0.07 lower at $93.86/barrel after a mixed session.

Metals were the worst performers today, led by precious metals. Each fell over 2% today and are near session lows in electronic trade. Dec gold ended $15.40 lower at $1257.80/oz, while Dec silver lost $0.25 at $20.05/oz.

COMEX Metals Closing Prices

·         Dec gold fell $15.40 to $1257.80/ounce

·         Dec silver fell $0.25 to $20.05/ounce

·         Dec copper remained unchanged at $3.16/lb

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Dec corn fell 2 cents to $4.16/bushel

·         Dec wheat fell 3 cents to $6.47/bushel

·         Jan soybeans fell 4 cents to $12.75/bushel

·         Dec ethanol rose 9 cents to $1.93/gallon

·         Jan sugar (#16 (U.S.)) fell 0.27 cents at 20.58 cents/lbs

NYMEX Energy Closing Prices

• Dec crude oil fell $0.07 to $93.86/barrel
• Dec natural gas rose 12 cents to $3.67/MMBtu
• Dec heating oil rose 4 cents to $2.95/gallon
• Dec RBOB gasoline rose 2 cents to $2.66/gallon

Treasuries

Longer Dated Treasuries Hammered on Tapering Fears: 10-yr: -23/32..2.797%..USD/JPY: 100.02..EUR/USD: 1.3427

·         Treasuries held little changed for much of the morning before aggressive selling throughout the afternoon caused longer dated maturities to close sharply lower. 

·         Comments from STL Fed President James Bullard got the selling started as he suggested a strong November jobs report would increase the likelihood the Fed would begin tapering its bond-buying program. 

·         The complex saw another thrust lower after the latest FOMC Minutes indicated the Fed may begin to taper in the ‘coming months' with better data. Click here to see an intraday yields chart.

·         Selling was most severe in the long bond as a -1 22/32 decline caused the 30y to spike +10.1bps to 3.905% where it put in its highest close since August 2011. Participants will now be watching the 3.930% mark as that represents the recent U.S. cash session highs set back in August. 

·         10s were not spared from the selling as a -21/32 drop propelled the 10y higher by +8bps to 2.792%. The selling has the 10y probing the neckline of an inverse head and shoulders pattern off late September levels, which if broken ignites a retest of the 3.000% threshold. 

·         A flat session for the 5y saw its yield hold little changed near 1.360%. 

·         Maturities led the way upfront as a modest bid dropped the 2y -1.6bps to 0.828%.

·         The aggressive selling of longer dated paper swung the yield curve steeper, causing the 2-10-yr spread to widen to 251.5bps. 

·         Precious metals were hit hard as gold tumbled -$30 to $1243 and silver slumped -$0.42 to near $19.92. 

·         Tomorrow's Data: Initial and continuing claims, PPI, core PPI (8:30), Philly Fed, and leading indicators (10). 

·         Tomorrow's Fed Speak: Richmond's Lacker will give his economic outlook in Asheboro, NC (12:30) and STL's Bullard is in Rogers, AR to speak on monetary policy and the economy (13).

Next Day In View 

Economic Commentary

Economic Summary: Retail Sales rise faster than expected; Existing home sales decline faster than expected; CPI turns negative; FOMC Minutes show taper likely in coming months with better data
Economic Data Summary:

·         Weekly MBA Mortgage Applications -2.3% vs Briefing.com consensus of ; Last Week was -1.8%

·         October Retail Sales 0.4% vs Briefing.com consensus of 0.1%; September was revised to 0.0% from -0.1%

·         October Retail Sales Ex-Auto 0.2% vs Briefing.com consensus of 0.1%; September was revised to 0.3% from 0.4%

o    As the strong retail sales report shows, the government shutdown did not derail the economy or harm consumption/savings trends. This was expected after Congress quickly authorized back pay for all federal workers furloughed during the shutdown. In fact, core retail sales, which exclude the highly volatile motor vehicle dealers, business materials and garden stores, and gasoline stations, rose 0.5%. That matches July for the biggest gain of the year. Based on the extremely weak consumer sentiment indicators, core sales should have fallen considerably if the government shutdown actually impacted regular non-government consumers.

·         October CPI -0.1% vs Briefing.com consensus of 0.0%; September was 0.2%

·         October Core CPI 0.1% vs Briefing.com consensus of 0.2%; September was 0.1%

o    Prices of those goods fell 1.7%, including a 2.9% decline in gasoline. Food prices rose 0.1% after showing no growth in September. Excluding food and energy, core prices increased 0.1% for a third consecutive month. The consensus expected those prices to increase 0.2%.

·         October Existing Home Sales 5.12 M vs Briefing.com consensus of 5.20 M ; September was 5.29 M

o    The shutdown left many banks unable to verify income through the IRS before closing. That was one of the main reasons why mortgage purchase applications fell during the month. We expected the delays in the mortgage approval process to push a number of home purchases that would have occurred in October into November. Yet, the National Association of Realtors explained the weakness in sales in October as a continued payback period that developed following the initial mortgage rate hikes that occurred earlier in the summer. 

·         September Business Inventories 0.6% vs Briefing.com consensus of 0.4%; August was revised to 0.4% from 0.3%

Fed/Treasury Events Summary:

·         FOMC Minutes from the October meeting were released today. Below are some key comments:

o    Fed taper likely in coming months with better data; sees impact of shutdown as temporary.

o    FOMC sees inflation moving back toward 2% in medium term; IOER cut worth considering; economy expanding at a moderate pace; downside risk to economy, labor markets has diminished

·         Saint Louis Fed President James Bullard (2013 voter, dovish) gave an interview to Bloomberg TV today. He said tapering is on the table in the December meeting. He said he believes the markets will react favorably if tapering is due to a better economy.

Upcoming Economic Data:

·         Weekly Initial Claims due out Thursday at 8:30 (Briefing.com consensus of 333K; Last Week was 339K)

·         Weekly Continuing Claims due out Thursday at 8:30 (Briefing.com consensus of 2.863 M ; Last Week was 2.874 M )

·         October PPI due out Thursday at 8:30 (Briefing.com consensus of -0.2%; September was -0.1%)

·         October Core PPI due out Thursday at 8:30 (Briefing.com consensus of 0.1%; September was 0.1%)

·         November Philadelphia Fed due out Thursday at 10:00 (Briefing.com consensus of 11.9; Octoebr was 19.8)

Upcoming Fed/Treasury Events:

·         Fed Governor Jerome Powell (voting FOMC member, moderate) to speak tomorrow at 9:45

·         Richmond Fed President Jeff Lacker (not a voting FOMC member, hawkish) to speak tomorrow at 12:30

·         Saint Louis Fed President James Bullard (2013 voter, dovish) to speak tomorrow at 13:00

Other International Events of Interest

·         Japan's trade deficit widened to JPY1.09 trillion from JPY932 billion (JPY814 billion expected) as exports grew 18.6% year-over-year (16.5% forecast, 11.5% prior) and imports increased 26.1% year-over-year (19.0% consensus, 16.5% last). Meanwhile, the adjusted trade balance narrowed to JPY1.07 trillion from JPY1.13 trillion (JPY0.88 trillion forecast). Also of note, the All Industries Activity Index ticked up 0.4% month-over-month (0.5% prior, 0.3% last). 

On other news.... 

Raytheon increases share repurchase authorization by $2 bln (85.50 -0.09)

Co's Board of Directors authorized the repurchase of up to an additional $2.0 billion of the company's outstanding common stock. Share repurchases may take place from time to time at the company's discretion depending on market conditions.

Summary of Weekly Petroleum Data for the Week Ending Nov 15, 2013
Production: U.S. crude oil refinery inputs averaged over 15.4 mln barrels per day (bpd) during the week ending November 15, 2013, 36 thousand bpd higher than the previous week's average. Refineries operated at 88.6% of their operable capacity last week. Gasoline production decreased last week, averaging 9.3 mln bpd. Distillate fuel production decreased last week, averaging 4.9 mln bpd.

Imports: U.S. crude oil imports averaged about 7.9 mln bpd last week, up by 19 thousand bpd from the previous week. Over the last four weeks, crude oil imports averaged 7.6 mln bpd, 3.7% below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 451 thousand bpd. Distillate fuel imports averaged 97 thousand bpd last week.

Inventory: U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 0.4 mln barrels from the previous week. At 388.5 mln barrels, U.S. crude oil inventories are well above the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 0.3 mln barrels last week, but are near the upper limit of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories decreased by 4.8 mln barrels last week and are near the lower limit of the average range for this time of year.

Demand: Total products supplied over the last four-week period averaged 20.3 mln bpd, up by 7.4% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 9.1 mln bpd, up by 3.8% from the same period last year. Distillate fuel product supplied averaged 4.2 mln bpd over the last four weeks, up by 8.8% from the same period last year.




Currencies 

Dollar Crosses 81.00: 10-yr: -14/32..2.763%..USD/JPY: 100.07..EUR/USD: 1.3433
The Dollar Index has ticked to its best levels of the session after the release of the latest FOMC Minutes indicated the Fed may begin to taper in the ‘coming months' with better data. The bid has run the Index up to 81.10, and has action moving in on a test of the 100 dma (81.30). Click here to see a daily Dollar Index chart.

·         EURUSD is -115 pips at 1.3420 as trade breaks down to its lowest level in a week. The single currency an early bid disappear after headlines crossing suggested the European Central Bank was considering a -0.1% deposit rate. Support in the 1.3400 area is helped by the 100 dma. Eurozone data is heavy as Flash Manufacturing and Services PMI numbers from across the region will be released. 

·         GBPUSD is -15 pips at 1.6100 as trade presses session lows. Sterling has seen a moderate reversal during today's trade as this morning's Bank of England minutes provided an early bid. Curiously, the minutes had led some to believe the Bank of England would hike rates sooner than anticipated as both the asset purchase facility and official bank rate votes were unanimous at 9-0 in favor of keeping policy unchanged. Britain's public sector net borrowing and CBI Industrial Orders Expectations will cross the wires tomorrow.

·         USDCHF is +70 pips at .9180 as today's advance has bulls in control for just the second time in right sessions. The pair found support early in the session at its 50 dma (.9095), and has seen a steady rise throughout the session. A victory for the bulls would be the retaking of the 200 dma (.9317). 

·         USDJPY is -5 pips at 100.05 as traders await tonight's Bank of Japan rate decision. The pair has seen a relatively stable session despite today's trade data showing one of the largest deficits on record. Near-term support rests in the 99.00 area and is helped by the 50 and 100 dma. 

·         AUDUSD is -90 pips at .9340 as trade holds just off the lows. The selling has the hard currency testing minor support in the area with bulls looking to keep action above the 100 dma (.9275). China's HSBC Flash Manufacturing PMI is due out tonight. 

·         USDCAD is -25 pips at 1.0445 as sellers have managed to wipe away most of yesterday's losses. The weakness in the pair comes despite this morning's Canadian wholesale sales data, which showed a weaker than expected 0.2% MoM advance (0.4% MoM expected). Near-term support rests in the 1.0400 area.

Jason's Commentaries


The market started with flat as the market is expecting the FOMC minutes to be released at 2pm ET. As we can see, the market stayed flat until 2pm where the market went bananas. The minutes was citing that the FOMC is looking to taper if economic report is good, which means that good economic report can be interpreted as bad economic report now. This is really getting funky. Volumes were at 621m shares traded as most of the volume was missing from the first half of the trading session. On the technical side, we're past the 3rd candle reversal and we're likely to head for another 1 more or 2 bearish session. The materials and the Discretionary were the main laggard of the session. I reckon some small correction is good before the market goes into a rally mode ahead of the Black Friday which is next week, and the Santa Claus rally.

Market Call: FLAT to downside

Date: 21 Nov 2013