8 Jan 2014 AMC- Market went through a volatile session with the release of FOMC Minutes

8 Jan 2014 AMC- Market went through a volatile session with the release of FOMC Minutes

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: -0.1%

·         France's CAC: 0.0%

·         Spain's IBEX: + 0.7%

·         Portugal's PSI: + 1.4%

·         Italy's MIB Index: -0.2%

·         Irish Ovrl Index: + 0.4%

·         Greece ATHEX Composite: + 3.3%

Before Market Opens

S&P futures vs fair value: -2.20. Nasdaq futures vs fair value: -2.80.
The S&P 500 futures trade two points below fair value.

Asian markets ended mostly higher with Japan's Nikkei pacing the regional advance. Economic data was limited to Australia's AIG Construction Index, which fell to 50.8 from 55.2.

In news, China's Bank of Communications said it expects the country's 2014 GDP to come in at 7.8% with exports expected to grow at 8.5%. In addition, money market rates eased once again with the one-month SHIBOR falling 27.5 basis points to 5.65%. 

·         Japan's Nikkei jumped 1.9%, boosted by industrials as Furukawa Electric Company, IHI, and Mitsubishi Heavy Industries surged between 5.2% and 6.5%. 

·         Hong Kong's Hang Seng gained 1.3%, registering its second consecutive gain as consumer names outperformed. Belle International soared 12.9% and Li & Fung gained 1.9%. 

·         China's Shanghai Composite shed 0.2% after HSBC downgraded Chinese equities to ‘Underweight.' China Vanke shed 0.1%. 

Major European indices hold modest losses with Great Britain's FTSE (-0.3%) leading the slide after the Halifax House Price Index fell 0.6% month-over-month (+0.6% expected, 0.9% prior) while the year-over-year reading increased 7.5% (8.2% forecast, 7.7% previous). Participants received several other economic data points. Eurozone retail sales increased 1.4% month-over-month (0.2% expected, -0.4% last) while the year-over-year reading rose 1.6% (0.3% forecast, -0.3% prior). Separately, the unemployment rate held steady at 12.1%, as expected. Elsewhere, Germany's trade surplus expanded to EUR17.80 billion from EUR16.70 billion (EUR18.00 billion forecast) and factory orders rose 2.1% month-over-month (1.5% expected, -2.1% prior). Italy's monthly unemployment rate increased to 12.7% from 12.5% (12.5% expected). Norway's Manufacturing Production slipped 0.2% month-over-month (0.5% forecast, -0.6% last). 

·         Germany's DAX is lower by 0.1% as financials lag. Allianz and Muenchener Re trade lower by 0.9% and 2.0%, respectively. On the upside, fertilizer producer K+S trades higher by 4.6%. 

·         In France, the CAC trades down 0.2% with consumer names underperforming. Danone, L'Oreal, and LVMH Moet Hennessy Louis Vuitton are all down between 1.0% and 2.3%. Banks are holding up well as BNP Paribas and Credit Agricole display gains close to 1.5% apiece. 

·         Great Britain's FTSE holds a loss of 0.3% as staple stocks lag. Imperial Tobacco, Tate & Lyle, and Tesco are all down between 2.1% and 2.8%.

Market Internals

Market Internals -Technical-
The Nasdaq closed up 12 (+0.30%) at 4166, the S&P 500 closed down 0.4 (-0.02%) at 1837, and the Dow closed down 68 (-0.41%) at 16463. Action came on above average volume (NYSE 743 mln vs. avg. of 686; NASDAQ 2195 mln vs. avg. of 1769), with decliners outpacing advancers (NYSE 1353/1724, NASDAQ 1237/1341) and new highs outpacing new lows (NYSE 158/17, NASDAQ 185/13).

Relative Strength: 
Coffee-JO +3.19%, Greece-GREK +2.67%, Biotechnology-XBI +2.60%, Egypt-EGPT +2.22%, Biotechnology-IBB +2.05%, China 25 Index-FXI +1.19%, U.S. Home Construction-ITB +1.14%, Semiconductors-SMH +1.08%, Spain-EWP +1.03%, Austria-EWO +0.89%. 

Relative Weakness: 
Natural Gas-UNG -2.61%, Turkey-TUR -2.48%, Junior Gold Miners-GDXJ -2.31%, Sugar-SGG -2.21%, Corn-CORN -2.20%, Rare Earths-REMX -2.19%, South Africa-EZA -1.66%, Middle East and Africa-GAF -1.60%, Mexico-EWW -1.41%, Peru-EPU -1.40%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks End Mixed
The major averages ended the Wednesday session on a mixed note as the Nasdaq added 0.3%, the Dow shed 0.4% while the S&P 500 essentially split the difference, ending flat.

Equity indices began the session on a lower note, but the Nasdaq and S&P 500 staged swift rallies to new highs. The two indices hovered near their best levels of the session for the remainder of the trading day, but tested their lows during the final hour. For its part, the Dow Jones Industrial Average was unable to eclipse its morning high as 20 of its 30 components registered losses.

Prior to the open, it was reported that private sector employment increased by 238,000 in December while the Briefing.com consensus expected a reading of 203,000. The strong report was received by the bond market as a sign suggesting the Fed could engage in additional tapering sooner rather than later. On that note, the December FOMC minutes revealed that some officials saw "waning benefits" from monthly bond purchases. Furthermore, some members wanted to see a quicker end to the asset purchasing program. Treasuries settled near their lows with the 10-yr yield up five basis points at 3.00%.

Six of ten sectors ended in the red with rate-sensitive consumer staples (-0.7%), telecom services (-1.7%), and utilities (-0.6%) leading the slide as higher yields weighed. The fourth defensive sector—health care (+0.9%)—finished in the lead with help from biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 231.58, +4.65) jumped 2.1%, also contributing to the outperformance of the Nasdaq.

Outside of health care, financials (+0.3%), materials (+0.6%), and technology (+0.1%) were the only other advancers. The materials sector received support from chemical producers after Monsanto (MON 115.23, +2.12) beat on earnings and revenue.

Elsewhere, the technology sector ended flat with its relative strength providing a boost to the Nasdaq. Chipmakers rallied broadly after Micron (MU 23.86, +2.13) beat on earnings and revenue. Micron soared 9.9% while the broader PHLX Semiconductor Index rose 1.6%.

On the downside, the energy sector (-0.7%) was the weakest cyclical group as crude oil fell 1.4% to $92.32/bbl.

Today's session saw the most activity since December 20 as 742 million shares changed hands on the floor of the New York Stock Exchange.

Tomorrow, the December Challenger Job Cuts report will be released at 7:30 ET while weekly initial claims will be reported at 8:30 ET. 

·         Nasdaq -0.3% YTD 

·         Russell 2000 -0.4% YTD 

·         S&P 500 -0.6% YTD 

·         DJIA -0.7% YTD

Commodities

Closing Commodities: Precious Metals Slide Lower, Crude Ends Lower Following Inventory

·         Precious metals traded lower today as the dollar index rose on strong U.S. private sector jobs data. The ADP Employment report showed that the private sector added 238,000 jobs in December, while the Briefing.com consensus expected the reading to come in at 203,000

·         Feb gold extended losses for a third consecutive session, falling to a session low of $1218.30 per ounce in morning pit action. It eventually settled at $1225.50 per ounce, or 0.3% lower

·         Mar silver dipped to a session low of $19.31 per ounce after pulling back from a session high of $19.64 per ounce set moments after floor trade opened. Unable to regain much momentum, it settled with a 1.3% loss at $19.53 per ounce

·         Feb crude oil fell deeper into negative territory as weekly inventory data and the stronger dollar index weighed on prices. The EIA reported that for the week ending Jan 3, crude oil inventories had a draw of 2.675 mln barrels when a draw of 0.9-2.75 mln barrels was anticipated. In addition, both gasoline and distillate inventories came in higher-than-expected. The energy component retreated from its session high of $93.77 per barrel and fell below the $93 per barrel level by mid-morning pit action. It eventually settled with a 1.4% loss at $92.32 per barrel

·         Feb natural gas touched a session high of $4.32 per MMBtu but slipped into negative territory in late morning floor trade. It continued to trend lower for the remainder of the session and settled 1.9% lower at $4.22 per MMBtu

COMEX Metals Closing Prices

·         Feb gold fell $3.70 to $1225.50/oz 

o    Gold extended losses for a third consecutive session as the dollar index rose on strong U.S. private sector jobs data. The ADP Employment report showed  that the private sector added 238,000 jobs in December while the Briefing.com consensus expected the reading to come in at 203,000. The yellow metal brushed a session low of $1218.30 in morning pit action and eventually settled with a 0.3% loss. 

·         Mar silver fell $0.26 to $19.53/oz 

o    Silver also spent all of today's session in negative territory. Prices dipped as low as $19.31 after pulling back from a session high of $19.64 set moments after floor trade opened. Unable to gain much momentum, silver settled 1.3% lower. 

·         Mar copper fell 2 cents to $3.34/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Mar corn fell 10 cents to $4.16/bushel 

·         Mar wheat fell 14 cents to $5.88/bushel

·         Mar soybeans fell 5 cents to $12.69/bushel 

·         Feb ethanol fell 3 cents to $1.91/gallon 

·         Mar sugar (#16 (U.S.)) settled unchanged at 20.13 cents/lbs

NYMEX Energy Closing Prices

·         Feb crude oil fell $1.35 to $92.32/barrel 

o    Crude oil fell deeper into negative territory as weekly inventory data and a stronger dollar index weighed on prices. The EIA reported that for the week ending Jan 3, crude oil inventories had a draw of 2.675 mln barrels while a draw of 0.9-2.75 mln was anticipated. In addition, both gasoline and distillate inventories showed higher-than-expected builds. The energy component pulled back from its session high of $93.77 and fell below the $93 level by mid-morning pit action. It eventually settled with a 1.4% loss. 

·         Feb natural gas fell 8 cents to $4.22/MMBtu 

o    Natural gas touched a session high of $4.32 but slipped into the red  in late morning pit trade. It continued to trend lower for the remainder of the session and settled with a 1.9% loss. 

·         Feb heating oil fell 1 cent to $2.95/gallon 

·         Feb RBOB fell 2 cents to $2.66/gallon

Treasuries

10y Retests 3.000%: 10-yr: -13/32..2.996%..USD/JPY: 104.74..EUR/USD: 1.3581

·         Treasuries ended near their lows as selling persisted over the course of the session. Click here to see an intraday yields chart.

·         Light overnight selling turned into sizable losses following this morning's stronger than expected ADP Employment report (238K actual v. 203K expected) before steady selling over the remainder of the day produced a close near the lows. 

·         The complex drifted on the lows into this afternoon's average $21 bln 10y reopening that drew 3.009% (3.007% when issued), its highest since May 2011, and saw a slightly weak 2.61x bid/cover. A strong indirect bid (46.6%) helped offset the weak takedown by directs (13.6%).

·         Light selling continued into the release of the latest FOMC minutes, which were generally in-line with expecations but did show some Committee members were hoping an end date would be place on the Fed's QE program. 

·         Notable weakness could be seen up front as the 2y tacked on +4bps to finish @ 0.437%, its highest level since shortly after the debate ceiling was raised in September. Traders will be watching the front of the curve over the next month or so as another round of debt ceiling discussion moves into focus. 

·         Today's weakness had the biggest impact on the 5y, which rallied +8.6bps to 1.760%, a four-month high. 

·         The 10y flirted with the 3.000% level for much of the session before ending the day +5.6bps @ 2.993%. 

·         Outperformance at the long end limited the 30y to a +2.2bp advance. 

·         Selling swung the yield curve steeper as the 2-10-yr spread widened to 255.5bps.

·         Precious metals fell for a second day as gold shed -$4 to $1226 and silver lost -$0.22 to near $19.56. 

·         Data: Challenger Job Cuts (7:30), and initial and continuing claims (8:30). 

·         Auction: $13 bln 30y bond reopening. 

·         Fed Speak: KC's George will be in Madison, WI to discuss "Banking and the U.S. Economy" (13:30) and Minny's Kocherlakota will take place in "Public Town Hall Forum with President Kocherlakota" at the Minneapolis Fed (20).

Next Day In View 

Economic Commentary

Economic Summary: ADP easily tops expectations; FOMC Minutes today at 14:00; Consumer Credit at 15:00
Economic Data Summary:

·         Weekly MBA Mortgage Applications 2.6%

·         December ADP Employment Change 238K vs Briefing.com consensus of 203K; November was 215K

o    Goods-producing employment rose by 69,000 jobs in December, up from an upwardly revised figure of 46,000 in November. 

o    Service-providing industries added 170,000 jobs in December, down slightly from an upwardly revised November figure of 182,000. 

Upcoming Economic Data:

·         November Consumer Credit due out Today at 14:00 (Briefing.com consensus of $15.2 bln; October was $18.2 bln)

·         December Challenger Job Cuts due out Thursday at 7:30 (November was -20.6%)

·         Weekly Initial Claims due out Thursday at 8:30 (Briefing.com consensus of 338K)

·         Weekly Continuing Claims due out Thursday at 8:30 (Briefing.com consensus of 2.875 M)

Upcoming Fed/Treasury Events:

·         FOMC Minutes to be released today at 14:00

·         The Treasury is set to auction off $64 bln in new debt this week.  The results for each auction will be announced at 13:00. Remaining auctions include:

o    Wednesday: $21 bln in 10 year notes

o    Thursday; $13 bln in 30 year bonds

On other news.... 

FOMC Minutes: Key Comments

·         Participants were most concerned about the marginal cost of additional asset purchases arising from risks to financial stability, pointing out that a highly accommodative stance of monetary policy could provide an incentive for excessive risk-taking in the financial sector.

·         Most participants judged the marginal costs of asset purchases as unlikely to be sufficient, relative to their marginal benefits, to justify ending the purchases now or relatively soon.

·         Participants also expressed some concern that additional asset purchases increase the likelihood that the Federal Reserve might at some point suffer capital losses. But it was pointed out that the Federal Reserve's asset purchases would almost certainly provide significant net income to the Treasury over the life of the program.

·         Manufacturing production accelerated briskly in October and November after increasing at a subdued pace in the third quarter, and the gains were broad based across industries.

·         The pace of activity in the housing sector appeared to continue to slow somewhat, likely reflecting the higher level of mortgage rates since the spring.

·         On net, judging by financial market quotes on interest rate futures, the expected federal funds rate path through the end of 2015 moved only slightly since the October FOMC meeting.

·         In the economic projection prepared by the staff for the December FOMC meeting, the forecast for growth in real gross domestic product (GDP) in the second half of this year was revised up a little from the one prepared for the previous meeting, as the recent information on private domestic final demand--particularly consumer spending--was somewhat better, on balance, than the staff had anticipated.

·         The staff viewed the risks around the projection for the unemployment rate as roughly balanced, with the risk of a higher unemployment rate resulting from adverse developments roughly countered by the possibility that the unemployment rate could continue to fall more than expected, as it had in recent years... In their discussion of the economic situation and the outlook, meeting participants viewed the information received over the intermeeting period as suggesting that the economy was expanding at a moderate pace. 

·         Almost all participants continued to project that the rate of growth of economic activity would strengthen in coming years, and all anticipated that the unemployment rate would gradually decline toward levels consistent with their current assessments of its longer-run normal value.

·         Inflation remained below the Committee's longer-run objective over the intermeeting period. Nevertheless, participants still anticipated that with longer-run inflation expectations stable and economic activity picking up, inflation would move back toward its objective over the medium run. But they noted that inflation persistently below the Committee's objective would pose risks to economic performance and so saw a need to monitor inflation developments carefully.

·         Fiscal policy continued to restrain economic growth. However, participants generally judged that the extent of the restraint may have begun to diminish as the effects of the payroll tax increases earlier in the year seem to have waned, and the drag on real activity from restrictive fiscal policies was expected to decline further going forward.

·         Committee participants generally viewed the increases in nonfarm payroll employment of more than 200,000 per month in October and November and the decline in the unemployment rate to 7 percent as encouraging signs of ongoing improvement in labor market conditions... Participants also considered the potential for clarifying or strengthening the Committee's forward guidance for the federal funds rate. In general, participants who favored amending the forward guidance saw a need to more fully communicate how, if the unemployment rate threshold was reached first, the Committee would likely set monetary policy after that threshold was crossed.

Currencies 

Dollar Climbs to Best Levels of 2014: 10-yr: -14/32..3.005%..USD/JPY: 104.80..EUR/USD: 1.3570
The Dollar Index trades on session highs near 81.15 following the release of the latest FOMC minutes. The minutes were generally in-line with previous commentary; although, they did indicate some members wanted to put an end date on the completion of the Fed's bond-buying program. Click here to see a daily Dollar Index chart.

·         EURUSD is -55 pips @ 1.3555 as trade presses to one-month lows ahead of tomorrow's European Central Bank rate decision. Recent market chatter seems to suggest the ECB is likely to venture off into its own quantitative easing program, but an announcement at tomorrow's meeting would be a surprise as the region has seen some positive developments as of late. Both Ireland and Spain exited their bailout programs in December, and peripheral yields are at multi-year lows with some even at their lowest levels of the European Monetary Union era. Support in the 1.3550 area is helped by the 100 dma. German industrial production will be released before the European Central Bank rate decision. 

·         GBPUSD is +50 pips @ 1.6445 as trade looks likely to end its four-day skid. Today's advance comes ahead of tomorrow's Bank of England rate decision, and has been supported by the BOE Credit Conditions survey, which noted banks are expecting a ‘significant' increase in mortgages and business loans over the coming year. A breakout above 1.6450 puts the recent highs near 1.6550/1.6600 in jeopardy. Britain's trade balance will be released ahead of the Bank of England rate decision. 

·         USDCHF is +35 pips @ .9120 as trade rallies to its best levels since Thanksgiving. The pair has climbed in five of seven sessions, and is testing resistance in the .9100/.9150 area. A victory for the bulls would be the retaking of the 200 dma (.9243), something that has not happened since late-summer. 

·         USDJPY is +35 pips @ 104.95 as buyers remain in control for a second session. Today's advance has the pair back near the January 2nd highs, which mark the best level since October 2008. 

·         AUDUSD is -30 pips @ .8895 as sellers take charge for a second day. The inability to hold the breakout above .8950 has participants turning their attention back to the .8850 level, which represents the lowest the pair has traded since July 2010. Australia's building approvals and retail sales will cross the wires tonight. China's CPI and PPI are due out tonight. 

·         USDCAD is +45 pips @ 1.0810 as today's trade has produced a fresh four-year high (1.0829). What was previously resistance near 1.0700 is now support. Canada's building permits and New Home Price Index are scheduled for tomorrow.

Jason's Commentaries


What a volatile session last night. All 3 indices went through a bearish opening last night, and stayed flat throughout the session FOMC minutes were coming out. By the time when the FOMC minutes comes out, the market went through crazy gyration again. By the closing bell, the market went into a massive rally that wiped out most of the losses. Volumes were much higher than expected at 758.3m shares traded. Internals were showing mixed sentiments as well. 

We've got Healthcare leading last night, while staples, energy were lagging behind. Healthcare led by 0.88% while staples and energy lagged by 0.75% and 0.7% respectively. The heaviest laggard was Procter and Gamble, Coke and Philip Morris. Each lost more than 1.1% last night. While the energy sector were being dragged down by Chevron. Some major tech players like Microsoft, IBM, HP, AT&T and Verizon suffered huge losses last night with more than 1.5% losses. On the technical side, we're likely to be sideways bounded today as employment report is coming out. Dow is support by the 16400 level, S&P500 has formed a upside crucifix after a reversal pattern. I reckon we're likely to end slightly flat but to the upside today.

It seems that the market was more bearish than bullish last night. Right now, We've gotta observe how the market behave after the employment reports tomorrow. Stay safe =D 

Market Call: FLAT to upside

Date: 9 Jan 2014