17 Dec 2013 AMC- Market stayed flat ahead of FOMC Statements

17 Dec 2013 AMC- Market stayed flat ahead of FOMC Statements

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: -0.6%

·         Germany's DAX: -0.9%

·         France's CAC: -1.2%

·         Spain's IBEX: -0.9%

·         Portugal's PSI: -0.2%

·         Italy's MIB Index: -1.6%

·         Irish Ovrl Index: + 0.5%

·         Greece ATHEX Composite: 0.0%

Before Market Opens

S&P futures vs fair value: +1.40. Nasdaq futures vs fair value: +2.00.
The S&P 500 futures trade higher by 0.1%.

Asian markets ended on a mixed note as Japan's Nikkei (+0.8%) led while indices in China (-0.5%) and Hong Kong (-0.2%) lagged. Money market rates in China were on the rise after the People's Bank of China chose not to provide additional liquidity for the fourth consecutive session. Most notable was the one-month rate, which climbed almost 68 basis points to 6.235%. Regional economic data was limited. Australia's CB Leading Index rose 0.5% month-over-month (0.3% previous) while New Motor Vehicle Sales increased 1.8% month-over-month (-0.9% last). Hong Kong's unemployment rate held steady at 3.3%, as expected. Elsewhere, South Korea's PPI ticked down 0.2% month-over-month (-0.4% prior) while the year-over-year reading reflected a decline of 0.9% (-1.4% consensus). 

·         Japan's Nikkei gained 0.8%, climbing off one-month lows, bolstered by strength in blue chips. Fast Retailing and Softbank rallied 1.5% and 1.7%, respectively. 

·         Hong Kong's Hang Seng shed 0.2% amid a quiet trade. Casino stocks posted solid gains with Sands China adding 1.5% and closing at an all-time high. Meanwhile, energy shares led to the downside as CNOOC sank 3.5% and PetroChina lost 1.2%. 

·         China's Shanghai Composite lost 0.5%, slumping for a sixth straight session as trade checked up on the 100-day moving average. Automakers were weak as Tianjin, a city just southeast of Beijing, announced it would restrict license plate issuance in an effort to combat the recent wave of pollution. BYD and SAIC Motor Corp. both lost 1.8%. 

Major European indices have spent the entire first half of the session in the red. In Spain, the budget chief of the Andalusia region, Maria Jesus Montero Cuadrado, said the country cannot cut spending any further. Ms. Cuadrado followed up by saying that implementing a tax on bank deposits is a better solution to filling the funding gap. Participants received several economic data points. Eurozone CPI ticked down 0.1% month-over-month while the year-over-year reading increased 0.9% (0.9% prior), as expected. Separately, core CPI was unchanged month-over-month (0.0% last) while the year-over-year reading increased 0.9%, as expected. Lastly, the Labor Cost Index increased 1.0% year-over-year (1.1% prior) and ZEW Economic Sentiment improved to 68.3 from 60.2 (60.9 expected). Germany's ZEW Economic Sentiment rose to 62.0 from 54.6 (55.0 consensus). The Current Conditions Index ticked up to 32.4 from 28.7 (30.0 expected). Elsewhere, Great Britain's CPI ticked up 0.1% month-over-month (0.2% expected, 0.1% prior) while the year-over-year reading increased 2.1% (2.2% consensus, 2.2% prior). Separately, input PPI fell 0.7% month-over-month (-0.5% expected, -0.4% last) while output PPI ticked down 0.2% month-over-month (-1.2% consensus, -0.3% previous). Also of note, CBI Industrial Trend Orders ticked up to 12 from 11 (11 expected). 

·         Germany's DAX is lower by 0.1% as producers of basic materials pace the decline. HeidelbergCement and ThyssenKrupp are lower by 1.8% and 0.8%, respectively. On the upside, Commerzbank and Deutsche Boerse outperform with respective gains of 1.0% and 0.7%. 

·         Great Britain's FTSE displays a loss of 0.2% with staple stocks leading the weakness. Tesco is lower by 1.5% and J Sainsbury trades with a loss of 2.8%. 

·         In France, the CAC trades down 0.8% as growth-oriented names underperform. Technip, Lafarge, and Vinci are all down between 2.0% and 3.9%. On the upside, telecom provider Orange outperforms with a gain of 2.8%.

Market Internals

Market Internals -Technical-
The S&P 500 closed down 6 (-0.31%) at 1781, the Nasdaq closed down 6 (-0.14%) at 4024, and the Dow closed down 9 (-0.06%) at 15875. Action came on slightly below average volume (NYSE 656 mln vs. avg. of 698; NASDAQ 1723 mln vs. avg. of 1769), with decliners outpacing advancers (NYSE 1443/1657, NASDAQ 1172/1428) and new lows outpacing new highs (NYSE 79/87, NASDAQ 82/34). 

Relative Strength: 
Clean Energy-PBW +1.32%, Corn-CORN +0.84%, Brazilian Real-BZF +0.86%, Semiconductors-SMH +0.83%, Social Media-SOCL +0.74%, Basic Materials-IYM +0.54%, Peru-EPU +0.52%, Middle East and Africa-GAF +0.51%, Indian Rupee-ICN +0.45%, Vietnam-VNM +0.43%.

Relative Weakness: 
Turkey-TUR -4.98%, Sugar-SGG -2.19%, Junior Gold Miners-GDXJ -2.02%, Poland-EPOL -1.72%, Biotechnology-XBI -1.38%, Rare Earths-REMX -1.31%, China 25 Index-FXI -1.25%, Mexico-EWW -1.11%, New Zealand-ENZL -1.11%, Coffee-JO -1.10%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks End Little Changed Ahead of FOMC
Equities spent the bulk of today's session in the red, but afternoon buying interest helped the major averages end just below their respective flat lines. The S&P 500 shed 0.3% as eight of ten sectors registered losses.

Meanwhile, the Dow (-0.1%) traded ahead of its peers all session long as some of its top components provided support. 3M (MMM 131.39, +3.73) and Boeing (BA 135.88, +1.16) posted respective gains of 2.9% and 0.9% after both increased their quarterly dividends. The price-weighted index also received notable support from its top member, Visa (V 213.25, +5.50), which advanced 2.7%.

In turn, Visa's relative strength helped the technology sector (+0.03%) spend the entire session in the green. Chipmakers also factored into the modest gain as the PHLX Semiconductor Index ended higher by 1.0%.

Even though the tech sector outperformed, the tech-heavy Nasdaq could not stay out of the red as biotechnology weighed. The iShares Nasdaq Biotechnology ETF (IBB 213.66, -2.24) lost 1.0%, widening its December decline to 4.7%.

The losses in biotechnology also pressured the health care (-0.4%) space, which ended among the laggards. The remaining countercyclical groups did not fare much better as consumer staples (-0.5%) and telecom services (-0.8%) underperformed while utilities (-0.2%) ended just ahead of the broader market.

Today's losses among equities translated into a 1.4% gain for the CBOE Volatility Index (VIX 16.25, +0.22), which posted its fifth consecutive increase ahead of tomorrow's FOMC policy directive.

Treasuries climbed throughout the session as the benchmark 10-yr fell four basis points to 2.85%.

Participation was on the light side with only 656 million shares changing hands on the floor of the New York Stock Exchange.

Today's economic data was limited to just a handful of reports. November consumer prices were unchanged while the Briefing.com consensus expected an uptick of 0.1%. Core prices increased 0.2%, above the 0.1% increase expected by the Briefing.com consensus.

Separately, the current account deficit for the third quarter totaled $94.8 billion, which was narrower than the $101.0 billion deficit that had been broadly anticipated.

Lastly, the December NAHB Housing Market Index rose to 58 from 54 while the Briefing.com consensus expected the reading to tick up to 55.

Tomorrow, the weekly MBA Mortgage Index will be reported at 7:00 ET while November Building Permits and Housing Starts for September, October, and November will be released at 8:30 ET. The day's data will be topped off with the much-anticipated 14:00 ET release of the FOMC policy directive.

Below we lay out some key reasons why the FOMC might decide, or not decide, to make a tapering announcement on Wednesday.

The case for tapering now: 

·         The House has passed the budget agreement and signs point toward the Senate doing the same this week. That signals the likelihood of less fiscal disruption, and less fiscal restraint, out of Washington in 2014. 

·         Labor market trends are certainly improving. Nonfarm payroll gains have been 200,000+ in three of the last four months and have averaged 191,000 per month over the prior 12 months versus 151,000 (includes revisions) when QE3 was launched in September 2012. 

·         Markets have hung in reasonably well as the case for a taper has gotten stronger, giving the Fed some measure of confidence (and another window of tapering opportunity) that participants are ready for a taper predicated on improving economic activity 

o    Moody's notes high-yield spreads have hit a cycle low 

o    The S&P 500 hit a new record high 

o    After the strong November employment report, the fed funds futures market did not alter its view that the first rate hike will wait until July 2015 

o    The 10-yr yield is down two basis points since the strong November employment report 

·         The next scheduled FOMC press conference isn't until March. If a tapering announcement is made, the presumption is that the Fed chairman will want to explain it at a press conference (and the Fed chair may not want to wait until March given the improving data that could create financial market imbalances in the interim). 

·         In the face of a declining budget deficit and an improving economy, there is growing uneasiness within the Fed about its balance sheet expansion 

The case against tapering now: 

·         Inflation rates remain well below the Fed's target rate 

·         Real final sales, up 1.9% in Q3, remain relatively weak; and Q4 GDP is apt to be under 2.0% 

·         The framework for a budget agreement is in place, but nothing has been resolved yet on the debt ceiling 

·         There are reports that year-end liquidity issues will factor into a decision to hold off for now 

·         Once the tapering begins, the Fed runs a heightened risk of seeing its credibility get eroded if it has to increase its purchases again on account of weakening data. While recent data have been encouraging, the Fed will want to be more certain about the sustainability of the improvement. 

--- 

·         Nasdaq +33.3% YTD 

·         Russell 2000 +31.7% YTD 

·         S&P 500 +24.9% YTD 

·         DJIA +21.2% YTD

Commodities

Closing Commodities: Gold And Silver Each Lose Over 1%, Crude Oil Falls Modestly

·         Precious metals traded lower today as investors awaited tomorrow's FOMC rate decision. Feb gold fell for the first time in three sessions, pulling back from its session high of $1242.50 per ounce set moments after equity markets opened. The yellow metal then chopped around near $1230.00 per ounce level and settled there with a 1.1% loss

·         Mar silver popped to a session high of $20.12 per ounce in morning pit action but quickly reversed back into the red. It eventually settled 1.2% lower at $19.84 per ounce

·         Feb crude oil brushed a session high of $98.15 per barrel but erased the gain in afternoon floor trade. Prices dipped into negative territory and touched a session low of $97.35 per barrel. Unable to regain momentum, the energy component settled with a 0.3% loss at $97.47 per barrel

·         Jan natural gas lifted from its session low of $4.19 per MMBtu set in morning pit trade and trended higher, rising as high as $4.33 per MMBtu. It pulled back slightly heading in the close and closed unchanged at $4.28 per MMBtu

 COMEX Metals Closing Prices

·         Feb gold fell $14.30 to $1230.00/oz

·         Mar silver fell $0.25 to $19.84/oz

·         Mar copper fell 1 cent to $3.32/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Mar corn rose 4 cents to $4.27/bushel 

·         Mar wheat fell 3 cents to $6.19/bushel 

·         Jan soybeans rose 7 cents to $13.44/bushel 

·         Jan ethanol rose 3 cents to $1.81/gallon 

·         Mar sugar (#16 (U.S.)) fell 0.35 of a penny to 19.54 cents/lbs

NYMEX Energy Closing Prices

·         Feb crude oil fell $0.30 to $97.47/barrel

·         Jan natural gas settled unchanged at $4.28/MMBtu 

·         Jan heating oil fell 3 cents to $2.96/gallon 

·         Jan RBOB rose 1 cent to $2.65/gallon

Treasuries

Treasuries Gain Ahead of Fed Day: 10-yr: +08/32..2.845%..USD/JPY: 102.63..EUR/USD: 1.3763

·         Treasuries ended on their highs as a steady bid persisted throughout much of the U.S. session. Click here to see an intraday yields chart.

·         The complex held early gains ahead of the cash open before slipping briefly into the red following this morning's in-line CPI data and better than expected current account balance and NAHB Housing Market Index numbers. However, a bid got started in late-morning trade as many maturities tested key support levels. 

·         Maturities ticked to their best levels of the session ahead of this afternoon's strong $32 bln 2y note auction, and continued higher into the close. 

·         The auction drew 0.345% and a solid 3.77x bid/cover. A light indirect bid (21.5%) was offset by the strong showing from directs (30.2%). Primary dealers were left with 48.3% of the supply. 

·         A modest post-auction bid lifted Treasuries to session highs into the cash close as some traders may have been covering short positions to reduce exposure ahead of tomorrow's FOMC rate decision. 

·         Today's bid had the biggest impact on the belly of the curve, where yields were lower by as much as 3.5bps. 

·         The 5y ended -3.5bps @ 1.495% as action edged off three-month highs, and closed the gap from December 11/12.

·         The 10y slid -3.5bps to 2.843% as early action was once again unable to pierce 2.900% resistance. A breakout above that level puts the 3.000% mark back in play. 

·         The wings of the curve lagged as both the 2y and 30y shed roughly 2bps, ending @ 0.318% and 3.872%, respectively. Recent trade has the 2y holding at its highest levels in close to two months while the 30y has slipped just off its highest print since August 2011. 

·         Curve flattening took hold as the 2-10-yr spread tightened to 253bps. 

·         Precious metals were weak with gold -$13 @ $1231 and silver -$0.22 @ $19.88. 

·         Fed Chairman Ben Bernanke's press conference (14:30) will follow the FOMC rate decision (14). 

·         Tomorrow's Data: MBA Mortgage Index (7), three months of housing starts figures, and building permits (8:30). 

·         Tomorrow's $35 bln 5y note auction will be held at 11:30am ET due to the FOMC rate decision.

Next Day In View 

Economic Commentary

Economic Summary: Headline CPI flat and slightly lower than expectations; Fed begins two day meeting, Decision tomorrow at 14:00
Economic Data Summary:

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

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

o     That drop was in-line with the November PPI report and recent declines in crude oil and gasoline costs. In fact, gasoline prices fell 1.6% in the November CPI report. Food prices inched up 0.1% for a second consecutive month. Excluding food and energy, core CPI increased 0.2% in November and ended a streak of three consecutive months of 0.1% growth. The consensus expected these prices to increase 0.1%. According to motor vehicle manufacturers, record sales in November were sparked by large price reductions and incentives. 

·         Third Quarter Current Account Balance -$94.8 bln vs Briefing.com consensus of -$101.0 bln; Second Quarter was -$98.9 bln

·         December NAHB Housing Market Index 58 vs Briefing.com consensus of 55; November was 54

Fed/Treasury Events Summary:

·         The Fed has begun a two day policy meeting. The decision will be announced tomorrow at 14:00 along with economic projections.  The Ben Bernanke press conference will be held at 14:30. Here are some recent notable comments from Fed Presidents:

o    December 9th -- Fed's Bullard (2013 voter, dovish) reiterated rates will stay low as Fed needs to convince markets tapering is not tightening; inflation continues to surprise to the downside; says employment is recovering

o    December 3rd -- Fed's Williams (non voter, moderate) said he expects to end QE some time next year; capping bond buying program could add clarity; sees GDP at above 3% in 2014; Unemployment could be at 6.5% before most expect.

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

o    November 20th -- Ben Bernanke said "When, ultimately, asset purchases do slow, it will likely be because the economy has progressed sufficiently for the Committee to rely more heavily on its rate policies, the associated forward guidance, and its substantial continued holdings of securities to maintain progress toward maximum employment and to achieve price stability. In particular, the target for the federal funds rate is likely to remain near zero for a considerable time after the asset purchases end, perhaps well after the unemployment threshold is crossed and at least until the preponderance of the data supports the beginning of the removal of policy accommodation."

o    November 18th -- Fed's Plosser (2014 voter hawkish) said "My preference would be for the FOMC to announce a fixed amount for QE3, just as we did for the two prior rounds of asset purchases. When we reach that amount, we should stop the asset purchases, and then reassess the state of the economy to determine if further action would be beneficial. At that point, monetary policy would still be highly accommodative."

o    November 14th -- Janet Yellen 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. 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.

o    November 12th -- Minneapolis Fed President Narayana Kocherlakota (2014 voter, dove) said "The Committee could also promote a goal-oriented approach to monetary policy by making other changes to its communication. The Committee has said little about how it plans to adjust the fed funds rate—the short-term interbank lending rate—once the unemployment rate falls below 6.5 percent. In previous speeches, I've recommended that the FOMC announce its intention to keep the fed funds rate extraordinarily low at least until the unemployment rate falls below 5.5 percent, as long as the one-to-two-year-ahead outlook for the inflation rate stays below 2.5 percent."

Upcoming Economic Data:

·         Weekly MBA Mortgage Applications due out Wednesday at 7:00 (Last Week was 1.0%)

·         September Housing Starts due out Wednesday at 8:30 (Briefing.com consensus of 915K; August was 891K)

·         October Housing Starts due out Wednesday at 8:30 (Briefing.com consensus of 920K; September was )

·         November Housing Starts due out Wednesday at 8:30 (Briefing.com consensus of 950K; October was )

·         November Building Permits due out Wednesday at 8:30 (Briefing.com consensus of 983K; October was 1034K

On other news.... 

Currencies 

Dollar Flat Ahead of the Fed: 10-yr: +07/32..2.849%..USD/JPY: 102.63..EUR/USD: 1.3769
The Dollar Index holds little changed near 80.05 as trade remains lackluster ahead of tomorrow's FOMC rate decision. The Index spent most of the overnight session hovering little changed before climbing to session highs near 80.30 following this morning's better than expected data. However, the bid would not hold as trade slipped back onto the key 80.00 level ahead of tomorrow's decision. Click here to see a daily Dollar Index chart.

·         EURUSD is +10 pips @ 1.3770 as trade ticks higher for a second session. Buying over the course of U.S. trade has lifted action back towards the overnight highs just shy of 1.3800 resistance. That level has provided a ceiling on trade since November 2011, and will be watched closely tomorrow. Eurozone data is limited to German Ifo Business Climate.

·         GBPUSD is -25 pips @ 1.6275 as trade looks to post its lowest close in nearly a month. Early selling had sterling testing the 1.6215 area, but trade has lifted off the lows after Bank of England Governor Mark Carney suggested there would be a ‘great risk' to scaling back policy too soon. Britain's claimant count change and unemployment rate accompany the release of the latest Bank of England votes. 

·         USDCHF is -25 pips @ .8845 as trade looks likely to finish at its worst levels since November 2011. Action in the pair continue to track that of the euro as the Swiss National Bank maintains its EURCHF floor. Switzerland's ZEW Economic Expectations will cross the wires tomorrow. 

·         USDJPY is -40 pips @ 102.60 as sellers hold control for a third session. Recent trade has stalled near five-year highs as trade remains on hold for tomorrow's FOMC decision and Friday's Bank of Japan announcement. Japan's trade balance is due out tonight. 

·         AUDUSD is -45 pips @ .8905 as trade tests the August lows. The hard currency has been offered throughout the session following today's dovish Reserve Bank of Australia minutes. RBA Governor Glenn Stevens will testify early this evening in front of the House of Representatives Standing Committee on Economics. 

·         USDCAD is +20 pips @ 1.0615 after early action tested, and held, support in the 1.0575 region. Today's advance comes despite this morning's strong Canadian manufacturing sales (1.0% MoM actual v. -0.2% MoM expected), and has trade attempting to make another run at 1.0700. Canada's wholesale sales are due out tomorrow.

Jason's Commentaries


The market went through a volatile period last night ahead of the FOMC Statement coming out on Wednesday 2pm ET. Both S&P500 and Nasdaq started with a bearish bias which subsequently reversed at 11am ET to cover back most of its losses by closing bell. However, S&P500 was being dragged down by the financial sector and energy which lost 0.66% and 0.57% respectively. Volumes were standing at 667.6m shares traded on the NYSE and internals were pointing to flat to downside sentiment. Ahead of the statement, many are not expecting the taper to occur until next year as it's the final month of Ben Bernake's last month on the chair. Although unemployment rate is at 7%, jobs added averaged at 191k per month, it would appear that the economy is getting back on track. However, I reckon, the tapering would start next year as the unemployment rate were to drop further. I reckon the market is likely to start flat and then... major gyration will kick in. Ain't gonna call a direction today =D Stay Safe!   

Market Call: ABSTAIN

Date: 18 Dec 2013