19 Feb 2014 AMC- Market ended winning streak as FOMC releases minutes.

19 Feb 2014 AMC- Market ended winning streak as FOMC releases minutes.

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: 0.0%

·         Germany's DAX: 0.0%

·         France's CAC: + 0.2%

·         Spain's IBEX: + 0.1%

·         Portugal's PSI: -0.4%

·         Italy's MIB Index: -0.2%

·         Irish Ovrl Index: + 0.3%

·         Greece ATHEX Composite: -1.4%

Before Market Opens

S&P futures vs fair value: -4.60. Nasdaq futures vs fair value: -6.30.
The S&P 500 futures have climbed off their lows, but remain almost five points below fair value.

Markets across Asia ended mostly higher. In China, SHIBOR slid to its lowest levels since May as rates continued normalizing following the Lunar New Year. Elsewhere, Australia released the latest CB Leading Index (0.8% month-over-month, 0.2% previous) and Wage Price Index (0.7% quarter-over-quarter versus 0.7% expected) readings. Also of note, Malaysia's inflation rate ticked up to 3.4% year-over-year (3.2% previous). 

·         Japan's Nikkei fell 0.5% amid some profit-taking as the yen strengthened. Real estate stocks were pressured as Sumitomo Realty & Development lost 2.4% and Mitsui Fudosan shed 0.7%. 

·         Hong Kong's Hang Seng eked out a small gain of 0.3%. Financials led as Bank of East Asia jumped 4.8% after announcing record profit. 

·         China's Shanghai Composite climbed 1.1% to its best level in nine weeks. Coal-based China Shenhua Energy rallied 1.4% after announcing an 18% year-over-year rise in coal production. 

Major European indices trade lower across the board with Italy's MIB (-0.6%) seeing the largest loss. Participants received several economic data points. Great Britain's claimant count fell 27,600 (-20,000 forecast, -27,700 prior) and the unemployment rate ticked up to 7.2% from 7.1% (7.1% expected). Separately, average earnings index + bonus increased 1.1% (1.0% consensus, 0.9% previous). Elsewhere, Spain's trade deficit narrowed to EUR1.83 billion from EUR1.76 billion (deficit of EUR1.20 billion expected) and Swiss ZEW Expectations fell to 28.7 from 36.4 (40.0 expected).

In news, European Central Bank member Ewald Nowoty said the ECB is nearing an agreement to terminate sterilizing bond purchases completed under the Securities Markets Program. 

·         In France, the CAC is lower by 0.1%. Steelmaker Vallourec leads the decline with a loss of 4.7%. On the upside, utilities Electricite de France GDF Suez outperform with respective gains of 0.6% and 0.9%. 

·         Germany's DAX trades down 0.2% with financials showing weakness. Deutsche Bank and Commerzbank are lower by 0.8% and 2.7%, respectively. Similar to France, utilities are showing strength with RWE trading higher by 1.0%. 

·         Great Britain's FTSE holds a loss of 0.4% with health care displaying weakness. AstraZeneca and GlaxoSmithKline are lower by 3.5% and 1.3%, respectively. Rolls Royce Holdings outperforms, trading higher by 2.4%. 

·         Italy's MIB sports a loss of 0.6% amid broad weakness. Banco Popolare is lower by 2.9% and UniCredit trades down 1.4%.

Asia

·         Markets across Asia ended mostly higher

·         China's SHIBOR slid to its lowest levels since May as rates normalize following the Lunar New Year

·         Australia released the latest CB Leading Index (0.8% MoM actual v. 0.2% MoM previous) and Wage Price Index (0.7% QoQ actual v. 0.7% QoQ expected) readings 

·         Malaysia's inflation rate ticked up to 3.4% YoY (3.2% YoY previous)

·         Japan's Nikkei (-0.5%) saw some profit-taking as the yen strengthened

·         Hong Kong's Hang Seng (+0.3%) eked out a small gain

·         China's Shanghai Composite (+1.1%) climbed to its best level in nine weeks

·         Australia's ASX (+0.3%) advanced for the ninth time in ten sessions

Market Internals

Market Internals -Technical-
The Nasdaq closed down 35 (-0.82%) at 4238, the S&P 500 closed down 12 (-0.65%) at 1829, and the Dow closed down 90 (-0.56%) at 16041. Action came on slightly below average volume (NYSE 688 mln vs. avg. of 700; NASDAQ 1800 mln vs. avg. of 1853), with decliners outpacing advancers (NYSE 1113/2014, NASDAQ 739/1876) and new highs outpacing new lows (NYSE 162/15, NASDAQ 143/10).

Relative Strength: 
Coffee-JO +10.13%, Volatility-VXX +6.61%, Natural Gas-UNG +2.86%, Sugar-SGG +1.96%, Agriculture-DBA +1.8%, Egypt-EGPT +0.71%, China 25 Index-FXI +0.5%, India-INP +0.32%, Indonesia-IDX +0.26%, Malaysia-EWM +0.13%.

Relative Weakness: 
Junior Gold Miners-GDXJ -6.81%, Silver Miners-SIL -3.34%, Gold Miners-GDX -3.14%, Russia-RSX -2.96%, Eastern Europe-ESR -2.83%, Regional Banks-KRE -2.8%, Turkey-TUR -2.78%, Greece-GREK -2.69%, Banks-KBE -2.46%, Chile-ECH -2.14%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: S&P 500 Snaps Three-Day Win Streak
Equities ended on their lows with the S&P 500 snapping its three-day win streak. The benchmark index fell 0.7% while the Nasdaq (-0.8%) lagged throughout the session.

Stocks began the day with slim losses, but the Dow and S&P 500 were quick to erase the early weakness. For its part, the Nasdaq was unable to make a sustained move into the green.

The S&P 500 climbed through the first hour of action, but the rally stalled with the index less than four points shy of its all-time intraday high of 1850.84. Shortly before midday, equities slumped to lows in a move that coincided with a headline from the International Monetary Fund reminding investors that global growth remains uneven and fragile with persistent downside risks.

While the IMF headline presented a convenient excuse for the swift dive, the stock market was challenged with increasing resistance prior to the release. The Nasdaq was bouncing up against its flat line while influential sectors like consumer discretionary (-0.9%), financials (-1.2%), and industrials (-0.9%) underperformed. Once the headline hit, the earlier underperformers drove the remainder of the market lower.

Eight of ten sectors ended in the red with financials registering the largest decline. Citigroup (C 48.19, -1.19) was the weakest performer among the majors while regional banks also endured significant losses. The SPDR S&P Regional Banking ETF (KRE 37.83, -1.09) fell 2.8%.

Elsewhere, the discretionary sector slumped despite some M&A activity among luxury retailers. Signet Jewelers (SIG 93.65, +14.38) spiked 18.1% after announcing an agreement to acquire Zale (ZLC 20.92, +6.01) for $21 per share, representing a 41.0% premium to Tuesday's closing price.

Also of note, the industrial sector was pressured by transports as The Dow Jones Transportation Average saw its second day of losses. The bellwether complex lost 1.3% and finished the session down 2.3% for the week.

On the upside, energy and telecom services added 0.1% and 0.5%, respectively.

Treasuries finished on their lows (10-yr yield +2 bps at 2.73%) with the bulk of the retreat coming after the release of the FOMC minutes from the January meeting. Although the minutes did not contain any major surprises, they did indicate that some officials said there should be a ‘clear presumption' in support of continued tapering in $10 billion increments.

Participation was on the light side with 688 million shares changing hands on the floor of the New York Stock Exchange.

Today's economic data included two reports: 

·         Housing starts fell 16% in January, from an upwardly revised 1.048 million (from 999,000) in December to 880,000. The Briefing.com consensus expected housing starts to fall to 963,000. There are some questions about how much of a role the adverse weather played in the decline. Surely the 67.7% decline in starts in the Midwest was partially weather driven. However, starts in the South, which was not that affected by the polar vortex, declined 12.5% in January. Furthermore, the hard-hit Northeast saw starts increase 61.9% in January. Normally, an exogenous shock -- such as the weather -- would result in a sizable rebound in the next month or two. However, after looking at all of the regional data, it is difficult to state with assurance that starts will return to the 1.00 million trend that they averaged in November and December. 

·         January PPI increased 0.2% after ticking up 0.1% in December. The Briefing.com consensus expected the PPI to increase 0.2%. The BLS reconstructed the PPI index for January. Instead of using a Stage-of-Processing method, the PPI is now calculated based on a Final Demand-Intermediate Demand system. Beyond the typical manufacturing data, the new index also includes price trends for services, government spending, and exports. Prices of final demand goods increased 0.4% in January after increasing by the same amount in December. Energy price growth softened, up 0.3% in January after increasing 1.5% in December. Much of the gain in the final demand goods index was due to a 2.7% increase in pharmaceutical preparations. 

Tomorrow, weekly initial claims and January CPI will be reported at 8:30 ET while January Leading Indicators and the Philadelphia Fed survey for February will both be released at 10:00 ET. 

·         Nasdaq Composite +2.6% YTD 

·         Russell 2000 -1.1% YTD 

·         S&P 500 -1.1% YTD 

·         Dow Jones Industrial Average -3.2% YTD

Commodities

Closing Commodities: Natural Gas Closes 11% Higher

·         Mar natural gas extended yesterday's gains on forecasts calling for frigid weather at the end of Feb and heading into early March. Prices lifted from a session low of $5.83 per MMBtu and rose as high as $6.28 per MMBtu, a new high since Jan 2009 for the continuous contract.

·         Natural gas pulled back slightly in the last half hour of pit trade and settled with a solid 11.0% gain at $6.15 per MMBtu. 

·         Mar crude oil was higher today despite a slightly stronger dollar index. Prices dipped to a session low of $102.40 per barrel but quickly regained momentum. The energy component pushed to a high of $103.47 per barrel, its highest level since Oct, as it headed into the close and settled at $103.46 per barrel, or 0.9% higher. 

·         Apr gold traded in negative territory ahead of the release of FOMC minutes at 14:00 ET. The yellow metal brushed a session low of $1317.50 per ounce in early afternoon pit trade and settled 0.3% lower at $1320.60 per ounce, booking its first loss in eight sessions. 

·         Mar silver chopped around in the red for most of today's floor trade. It touched a session high of $21.92 per ounce in morning action but quickly slipped back below the unchanged line. It eventually settled at $21.85 per ounce, or 0.2% lower.

·         Both of the precious metals slipped further into the red in electronic trade following the release of the FOMC minutes. Gold is now down 0.7% at $1314.70 per ounce while silver is down 1.2% at $21.64 per ounce.

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Mar corn rose 4 cents to $4.54/bushel 

·         Mar wheat rose 8 cents to $6.20/bushel 

·         Mar soybeans fell 6 cents to $13.55/bushel 

·         Mar ethanol rose 1 cent to $2.10/gallon 

·         May sugar (#16 (U.S.)) rose 0.06 of a penny to 21.83 cents/lbs

NYMEX Energy Closing Prices

  Mar crude oil rose $0.94 to $103.46/barrel 

·         Crude oil was higher today despite a slightly stronger dollar index. Prices dipped to a session low of $102.40 in morning action but quickly regained momentum. The energy component pushed to a high of $103.47, its highest level since Oct, as it headed into the close and settled just below that level with a 0.9% gain. 

  Mar natural gas rose 61 cents $6.15/MMBtu 

·         Natural gas extended yesterday's gains as forecasts call for frigid weather at the end of Feb and heading into early March. Prices lifted from a session low of $5.83 and rose as high as $6.28, a new high since Jan 2009 for the continuous contract. Natural gas pulled back slightly in the last half hour of pit trade and settled with a solid 11.0% gain. 

  Mar heating oil rose 4 cents to $3.14/gallon 

  Mar RBOB fell 2 cents to $2.82/gallon

Treasuries

Treasuries Reverse to Losses: 10-yr: -07/32..2.735%..USD/JPY: 102.25..EUR/USD: 1.3735

·         Treasuries closed on their lows, giving up their early gains. Click here to see an intraday yields chart.

·         The complex saw modest overnight gains persist into early U.S. trade, but sellers managed to gain the upper hand after this morning's disappointing housing starts (880K actual v. 963K expected) and building permits (937K actual v. 980K expected) data failed to ignite another round of buying. 

·         The lack of a follow through bid following the disappointing housing data was pinned on positioning as data suggested participants were rather long duration.

·         Maturities pressed to their worst levels of the day following the release of the latest FOMC minutes, which suggested the economy continues to expand at a moderate pace, and hinted the Committee may alter its forward guidance as the unemployment rate approaches 6.5%.

·         Today's selling had the biggest impact on the belly of the curve. 

·         The 5y added +3.3bps to finish @ 1.512% after seeing an early test of 1.450% support. 

·         The 10y tacked on +2.3bps to end today's trade @ 2.734%. Action in the benchmark yield settled just shy of 2.750% resistance and the 100 dma (2.746%). 

·         A slightly flatter curve developed as the 2-10

·         -yr spread narrowed to 241.5bps.

·         Precious metals slid as gold fell -$10 to $$1314 and silver lost -$0.25 to near $$21.65. 

·         Data: Initial and continuing claims, CPI (8:30), Philly Fed, and leading indicators (10).

Next Day In View 

Economic Commentary

Economic Summary: PPI in line with expectations; Housing Starts miss expectations; FOMC members agree on measured tapering; CPI, and Philly Fed due out tomorrow
Economic Data Summary:

·         January Housing Starts 888K vs Briefing.com consensus of 963K; December was revised to 1.048 M from 999K

·         January Building Permits 937K vs Briefing.com consensus of 980K; December was revised to 991K from 986K

o     There are some questions about how much of a role the adverse weather played in the decline. Surely the 67.7% decline in starts in the Midwest was partially weather driven. However, starts in the South, which was not that affected by the polar vortex, declined 12.5% in January. Furthermore, the hard-hit Northeast saw starts increase 61.9% in January. Normally, an exogenous shock -- such as the weather -- would result in a sizable rebound in the next month or two. 

·         January PPI 0.2% vs Briefing.com consensus of 0.2%; December was revised to 0.1% from 0.1%

·         January Core PPI 0.2% vs Briefing.com consensus of 0.1%; December was revised to 0.2% from 0.3%

o     The BLS reconstructed the PPI index for January. Instead of using a Stage-of-Processing method, the PPI is now calculated based on a Final Demand-Intermediate Demand system. Beyond the typical manufacturing data, the new index also includes price trends for services, government spending, and exports. For more information, please read our Economic Insight "A Big Change at Hand for the Calculation of the PPI." Prices of final demand goods increased 0.4% in January after increasing by the same amount in December. Energy price growth softened, up 0.3% in January after increasing 1.5% in December. Much of the gain in the final demand goods index was due to a 2.7% increase in pharmaceutical preparations. 

Fed/Treasury Events Summary:

·         FOMC Minutes Summary:

o    In their discussion of the economic situation and the outlook, participants generally noted that economic activity had strengthened more in the second half of 2013 than they had expected at the time of the December meeting. In particular, consumer spending had strengthened, and business investment appeared to be on a more solid uptrend.

o    In their discussion of monetary policy in the period ahead, all members agreed that the cumulative improvement in labor market conditions and the likelihood of continuing improvement indicated that it would be appropriate to make a further measured reduction in the pace of its asset purchases at this meeting. 
In considering forward guidance about the target federal funds rate, all members agreed to retain the thresholds-based language employed in recent statements. 

o    In addition, the Committee decided to repeat the qualitative guidance, introduced in December, clarifying that a range of labor market indicators would be used when assessing the appropriate stance of policy once the unemployment rate threshold had been crossed. 

Upcoming Economic Data:

·         Weekly Initial Claims due out Thursday at 8:30 (Briefing.com consensus of 335K; Last Week was 339K)

·         Weekly Continuing Clams due out Thursday at 8:30 (Briefing.com consensus of 2.973 M ; Last Week was 2.953 M )

·         January CPI due out Thursday at 8:30 (Briefing.com consensus of 0.2%; December was 0.3%)

·         January Core CPI due out Thursday at 8:30 (Briefing.com consensus of 0.1%; December was 0.1%)

·         February Philadelphia Fed due out Thursday at 10:00 (Briefing.com consensus of 7.4; January was 9.4)

·         January Leading Indicators due out Thursday at 10:00 (Briefing.com consensus of 0.4%; December was 0.1%)

Upcoming Fed/Treasury Events:

·         Saint Louis Fed President (non a voting FOMC member, typically dovish) to speak Friday at 13:10

Other International Events of Interest

·         Britain's claimant count change came out at -27.6K (-18.3K expected) and the unemployment rate ticked up to 7.2% (7.1% previous)

On other news.... 

Fed FOMC minutes exerpts
Staff Review of the Economic Situation

·         Overall, labor market indicators appeared consistent with a gradual ongoing improvement in labor market conditions. Manufacturing production increased at a robust pace in the fourth quarter, with broad-based gains across industries. The pace of activity in the housing sector showed some tentative signs of stabilizing, as the effects of the past year's rise in mortgage rates appeared to wane.

Participants' Views on Current Conditions and the Economic Outlook: 

·         In their discussion of the economic situation and the outlook, participants generally noted that economic activity had strengthened more in the second half of 2013 than they had expected at the time of the December meeting. In particular, consumer spending had strengthened, and business investment appeared to be on a more solid uptrend.

·         Participants agreed that, with the unemployment rate approaching 6-1/2 percent, it would soon be appropriate for the Committee to change its forward guidance in order to provide information about its decisions regarding the federal funds rate after that threshold was crossed. A range of views was expressed about the form that such forward guidance might take. Some participants favored quantitative guidance along the lines of the existing thresholds, while others preferred a qualitative approach that would provide additional information regarding the factors that would guide the Committee's policy decisions. Several participants suggested that risks to financial stability should appear more explicitly in the list of factors that would guide decisions about the federal funds rate once the unemployment rate threshold is crossed, and several participants argued that the forward guidance should give greater emphasis to the Committee's willingness to keep rates low if inflation were to remain persistently below the Committee's 2 percent longer-run objective. Additional proposals included relying to a greater extent on the Summary of Economic Projections as a communications device and including in the guidance an indication of the Committee's willingness to adjust policy to lean against undesired changes in financial conditions.

·         A few participants raised the possibility that it might be appropriate to increase the federal funds rate relatively soon. 

Committee Policy Action 

·         Committee members saw the information received over the intermeeting period as indicating that growth in economic activity had picked up in recent quarters. Labor market indicators were mixed but on balance showed further improvement.  In their discussion of monetary policy in the period ahead, all members agreed that the cumulative improvement in labor market conditions and the likelihood of continuing improvement indicated that it would be appropriate to make a further measured reduction in the pace of its asset purchases at this meeting. 

·         In considering forward guidance about the target federal funds rate, all members agreed to retain the thresholds-based language employed in recent statements. In addition, the Committee decided to repeat the qualitative guidance, introduced in December, clarifying that a range of labor market indicators would be used when assessing the appropriate stance of policy once the unemployment rate threshold had been crossed. 

Currencies 

Dollar Ticks Higher on FOMC Minutes: 10-yr: -06/32..2.731%..USD/JPY: 102.41..EUR/USD: 1.3737

·         The Dollar Index climbed to session highs near 80.20 following the release of the latest FOMC minutes. Click here to see a daily Dollar Index chart.

·         The minutes suggested the U.S. economy continues to strengthen at a moderate pace, and discussed the possibility of the Committee altering its forward guidance as the unemployment rate approaches the 6.5% threshold.

·         EURUSD is -20 pips @ 1.3735 as trade presses session lows. The pair held little changed ahead of the FOMC minutes before sellers took control following the release. Participants will continue to view the 1.3700 area as support into tomorrow's release of Flash Manufacturing and Services PMI data from across the region. 

·         GBPUSD is +5 pips @ 1.6685 as action hovers little changed. Sterling ran into some early selling following this morning's uptick in the unemployment rate to 7.2% (7.1% previous), but saw a steady bid throughout much of U.S. trade erase those losses. Near-term support rests in the 1.6600 area. Britain's CBI Industrial Orders are due out tomorrow.

·         USDCHF is +20 pips @ .8890 as buyers take control for the first time in five days. Early selling dropped action to its lowest levels of 2014 (.8855), but trade has reversed course and is now pressing the highs. The first level of resistance rests at .8940. 

·         USDJPY is +5 pips @ 102.40 as trade tests session highs. A quiet day for news and data out of Japan has seen trade trapped in the 102.00/102.50 region. 

·         AUDUSD is -30 pips @ .8995 as sellers have taken control following the FOMC minutes. The recent selling has dropped the hard currency to its lowest level in three days, and has turned focus towards .8950 support. China's HSBC Flash Manufacturing PMI will cross the wires tonight. 

·         USDCAD is +130 pips @ 1.1075 as today's bid has erased 10 days of action. The pair has been aided by Canada's disappointing wholesale sales (-1.4% MoM actual v. -0.5% MoM expected) and Canadian Natural Resources' $2.8 bln acquisition of Devon Energy natural gas assets.

Jason's Commentaries


Got it right on last night's call. Market was at the high and the FOMC minutes gave the market a perfect reason to profit take. Although the FOMC minutes came in expected, the market reacted in a negative fashion. The market started last night with a bullish bias which covered the bearish gap. However, the bullish bias was being dragged down by Nasdaq which subsequently broke the streak by 12pm ET. Volumes were at 702.3.m shares traded on the NYSE and the bears are winning the bulls by 2:1. The Financials and the industrials were the 2 worst performer in the session last night. Financials lost 1.38%, while the industrial lost 0.94%. Not exactly good to see 2 of the most important sector leading the lost. On the technical perspective, we' re have bearish candlesticks pattern at the resistance lines and we're likely continue the short retracement. Yellen's speech was being cancelled once again and Yellen will not be testifying in front of Congress today. Stay safe for this volatile period =D

Market Call: DOWN

Date: 20 Feb 2014