9 April 2014 AMC- Market rallied after FOMC minutes

9 April 2014 AMC- Market rallied after FOMC minutes

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: + 0.7%

·         Germany's DAX: + 0.2%

·         France's CAC: + 0.4%

·         Spain's IBEX: 0.0%

·         Portugal's PSI: + 0.4%

·         Italy's MIB Index: + 0.2%

·         Irish Ovrl Index: + 0.6%

·         Greece ATHEX Composite: -0.5%

Before Market Opens

S&P futures vs fair value: +4.50. Nasdaq futures vs fair value: +15.00.
The S&P 500 futures trade almost five points above fair value.

Asian markets finished broadly higher with the exception of Japan's Nikkei (-2.1%), which lagged as the strong yen weighed.

Australia's Home Loans climbed 2.3% month-over-month (expected 1.7%), while the Westpac Consumer Sentiment improved to 0.3% from -0.7%. Also of note, South Korea's Unemployment Rate sank to 3.5% from 3.9%. 

·         Japan's Nikkei lost 2.1%, closing at a two-week low. Automaker Toyota fell 3.1% after announcing a worldwide recall of 6.39 million vehicles. 

·         Hong Kong's Hang Seng gained 1.1%, posting its best close in two and a half months. Internet gaming giant Tencent Holdings saw a second day of gains, adding 2.5%. 

·         China's Shanghai Composite added 0.3%, reclaiming its 200-day moving average. Media names were in the spotlight as bargain hunters emerged. Beijing Gehua CATV Network led the space higher with a 7.5% surge. 

In Europe, the major indices trade higher across the board after the release of just three data points. Germany's trade surplus narrowed to EUR15.70 billion from EUR17.30 billion (expected surplus of EUR17.80 billion); Great Britain's trade deficit shrunk to GBP9.09 billion from GBP9.46 billion (expected deficit of GBP9.20 billion); and the BRC Shop Price Index fell 1.7% year-over-year (consensus -1.5%, prior -1.4%). 

·         Germany's DAX is higher by 0.3% with Volkswagen in the lead. The stock trades higher by 3.3% after receiving an upgrade. Meanwhile, Daimler trades higher by 0.4% after issuing upbeat guidance. 

·         In France, the CAC trades up 0.6%. Apparel designer Kering leads with a gain of 3.8%, while financials lag. AXA, BNP Paribas, and Societe Generale hold losses between 0.5% and 1.0%. 

·         Great Britain's FTSE trades higher by 0.8% with discretionary names providing support. Barratt Developments, Burberry Group, and Kingfisher are up between 2.7% and 3.1%.

U.S. Equities

·         Equity futures press their best levels of the session

·         Yesterday's bid ended the market's three-day slide with the Nasdaq (-4.5%) seeing the heaviest selling amid the losing streak

·         Despite the recent dip, the S&P 500 remains just 2.1% off its record-high close

·         The VIX (14.89) continues to consolidate in the 13.50/16.00 range has it has for much of the past two months

o    S&P Futures +6 @ 1851

o    Dow Futures +63 @ 16,243

o    Nasdaq Futures +18 @ 3546

Asia

·         Markets across Asia finished broadly higher. 

·         Australia's home loans climbed 2.3% MoM (1.7% MoM expected) and Westpac Consumer Sentiment printed 0.3%. 

·         South Korea's unemployment rate sank to 3.5% (3.9% previous). 

·         Japan's Nikkei (-2.1%) lagged as the yen strengthened with action closing at a two-week low 

·         Hong Kong's Hang Seng (+1.1%) posted its best close in two and a half months

·         China's Shanghai Composite (+0.3%) gained for a third straight session and reclaimed its 200 dma.

·         India's Sensex (+1.6%) rallied into record territory

·         Australia's ASX (+1.0%) climbed to its best level in nearly six years

Market Internals

Market Internals -Technical-
The Nasdaq closed up 71 (+1.72%) at 4184, the Dow closed up 181 (+1.11%) at 16437, and the S&P 500 closed up 20 (+1.09%) at 1872. Action came on below average volume (NYSE 687 mln vs. avg. of 730; NASDAQ 1822 mln vs. avg. of 2025), with advancers outpacing decliners (NYSE 2269/836, NASDAQ 1956/680) and new highs outpacing new lows (NYSE 84/11, NASDAQ 40/25). 

Relative Strength: 
Biotechnology-IBB +4.10%, Biotechnology-XBI +3.84%, Social Media-SOCL +3.30%, Rare Earths-REMX +2.74%, Internet Composite-FDN +2.44%, Austria-EWO +2.27%, Middle East and Africa-GAF +1.99%, South Africa-EZA +1.93%, Australia-EWA +1.67%, India-INP +1.63%.

Relative Weakness: 
Volatility-VXX -2.48%, Corn-CORN -1.50%, Indonesia-IDX -1.41%, Turkey-TUR -1.24%, Cotton-BAL -0.94%, Silver-SLV -0.62%, 20+ Year Treasuries-TLT -0.49%, Columbia Index-GXG -0.47%, Japanese Yen-FXY -0.24%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Stocks Surge With Boost From FOMC Minutes
The stock market finished the Wednesday session on a sharply higher note, with the Nasdaq Composite (+1.7%) in the lead.

Equity indices held solid gains into the afternoon, with a second push coming after the release of the FOMC Minutes from the March policy meeting. For the most part, the minutes reiterated several points that were already known, but market participants zeroed in on a specific portion that commented on the expected trajectory of the fed funds rate.

Specifically, the minutes revealed that policymakers are not necessarily committed to hiking the fed funds rate in the first half of 2015. While that timetable could still come to fruition, it is becoming increasingly clear that the FOMC is unwilling to back itself into a corner by providing calendar-based guidance. That proved to be a relief for the stock and bond markets, while pressuring the dollar.

Treasuries cut the bulk of their losses after the release of the minutes, with the benchmark 10-yr yield ending at 2.69% after hovering near 2.72% in the early afternoon. Elsewhere, the Dollar Index (-0.3%) slumped to lows, while gold futures recovered their losses, clawing back to the 1309.00/ozt level.

Eight of ten sectors posted gains, with health care (+2.1%) ending in the lead after showing strength throughout the session. Since the advance was powered by many of the recent laggards, it is not a stretch to suspect that short covering fueled a significant part of the rally.

Biotechnology was a big contributor to the gains in health care as the iShares Nasdaq Biotechnology ETF (IBB 235.08, +9.25) surged 4.1%. It is worth mentioning that the strength of biotech also gave a boost to the Nasdaq.

The tech-heavy Nasdaq also received support from many recently-battered momentum names. Facebook (FB 62.41, +4.22) and LinkedIn (LNKD 176.18, +7.08) surged 7.3% and 4.2%, respectively, while discretionary components Amazon.com (AMZN 331.80, +4.74) and Netflix (NFLX 353.03, +4.14) posted gains close to 1.3% apiece. The broader discretionary sector (+1.1%), meanwhile, ended in line with the S&P 500.

Although three of four top-weighted sectors fared as well, or better than, the benchmark index, financials (+0.9%) were a reluctant participant in the advance.

On the downside, telecom services (-0.7%) and utilities (-0.3%) were the only two sectors ending in the red.

Participation was a bit below average as less than 690 million shares changed hands at the NYSE.

Today's economic data was limited to the Wholesale Inventories report, which pointed to an increase of 0.5% in February after increasing an upwardly revised 0.8% (from 0.6%) in January. The Briefing.com consensus expected wholesale inventories to increase 0.5%. There were concerns that strong inventory growth in February would be the result of severe winter weather conditions. In theory, the extreme cold would keep shoppers away, which would result in more goods being left on the shelves. That notion has been debunked in just about all of the economic data over the last several weeks, including the February wholesale inventory data. Sales, which should have weakened from weather effects, increased 0.7% in February after falling 1.8% in January.

Tomorrow, weekly initial claims (Briefing.com consensus 325K) and March Import/Export Prices will be released at 8:30 ET, while the Treasury Budget for March (Briefing.com consensus -$36.0 billion) will cross the wires at 14:00 ET. 

·         S&P 500 +1.3% YTD 

·         Nasdaq Composite +0.2% YTD 

·         Russell 2000 -0.1% YTD 

·         Dow Jones Industrial Average -0.8% YTD

Commodities

Closing Commodities: Precious Metals End Lower Following Fed Minutes

·         Precious metals traded lower today as investors awaited the release of FOMC Minutes.

·         June gold dipped to a session low of $1301.10 per ounce in morning action and settled with a 0.3% loss at $1305.70 per ounce. 

·         May silver fell as low as $19.60 per ounce in early morning action and then consolidated near the $19.75 per ounce level. It eventually settled 1.5% lower at $19.77 per ounce. 

·         May crude oil extended yesterday's gains following bullish gasoline data. The EIA reported a build of 4.030 mln barrels in crude oil inventories for the week ending Apr 4 when consensus called for a smaller build of 0.8-1.3 mln barrels.

·         However, gasoline inventories had a draw of 5.188 mln barrels vs expectations for a draw of 0.7-1.0 mln.

·         The energy component lifted from its session low of $102.37 per barrel and brushed a session high of $103.77 per barrel before settling with a 1.0% gain at $103.58 per barrel. 

·         May natural gas slipped to a session low of $4.50 per MMBtu in morning floor trade but quickly recovered back into positive territory. It advanced to a session high of $4.59 per MMbtu and settled with a 1.1% gain at $4.58 per MMbtu.

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         May corn fell 5 cents to $5.02/bushel 

·         May wheat fell 14 cents to $6.68/bushel 

·         May soybeans rose 12 cents to $14.95/bushel 

·         May ethanol fell 1 cent to $2.27/gallon 

·         July sugar (#16 (U.S.)) rose 0.03 of a penny to 24.68 cents/lbs

NYMEX Energy Closing Prices

  May crude oil rose $0.99 to $103.58/barrel 

·         Crude oil extended yesterday's gains following bullish gasoline inventory data. The EIA reported a build of 4.030 mln barrels in crude oil inventories for the week ending Apr 4 when consensus called for a smaller build of 0.8-1.3 mln barrels. However, gasoline inventories had a draw of 5.188 mln barrels vs expectations for a draw of 0.7-1.0 mln. The energy component lifted from its session low of $102.37 and brushed a session high of $103.77 before settling with a 1.0% gain. 

  May natural gas rose 5 cents to $4.58/MMBtu 

·         Natural gas slipped to a session low of $4.50 in morning floor trade but quickly recovered back into positive territory. It advanced to a session high of $4.59 and settled with a 1.1% gain. 

  May heating oil rose 2 cents to $2.95/gallon 

  May RBOB rose 3 cents to $3.01/gallon

Treasuries

Treasuries Finish Mixed: 10-yr: -01/32..2.690%..USD/JPY: 101.78..EUR/USD: 1.3850

·         Treasuries finished mixed amid after a whippy trade took hold following the release of the latest FOMC minutes. Click here to see an intraday yields chart.

·         Steady selling over the course of the morning had yields pressing session highs into the average $21 bln 10y note reopening. 

·         The reopening drew 2.720% (WI 2.707%) and a 2.76x bid/cover. Indirect (44.6%) and direct (15.2%) bids both outpaced their 12-auction averages, leaving primary dealers with 40.2% of the supply. 

·         Maturities would continue to press lower as the auction was digested, marking fresh lows ahead of the release of the minutes from the March 18/19 FOMC meeting. 

·         The minutes suggested the Fed continues to view inflation risks tilted to the downside while blaming the winter weather for the recent slowdown in economic activity. 

·         Buying had the biggest impact up front as the 2y shed -3.2bps to 0.363%.The yield ended today's session at its lowest level since just ahead of the March 18/19 meeting. 

·         The 5y fell -2.9bps to 1.635%. Today's bid pushed the yield lower for a fourth straight session, and caused action to slip below 1.650% support.A test of 1.550% support that is helped by the 50 and 100 dma is looking more likely. 

·         The 10y ticked up +0.3bps to 2.684%. Early selling caused the benchmark yield to probe its 200 dma (2.722%), but the post-FOMC minutes bid dropped action back onto the 2.680% pivot. 

·         The 30y lagged after outperforming for most of the session, settling +2.5bps @ 3.565%. Traders will continue to watch the key 3.550% level in the days ahead.

·         A steeper curve developed as the 5-30-yr spread blew out to 193bps.

·         Precious metals ended mixed with gold +$2 @ $1311 and silver -$0.15 @ $19.90. 

·         Data: Initial and continuing claims, import/export prices (8:30), and the Treasury budget (14). 

·         Auction: $13 bln 30y bond reopening. 

·         Fed Speak: Chicago's Evans discusses "Central Banking After the Great Recession" (11:50).

Next Day In View 

Economic Commentary

Economic Summary: Wholesale Inventories in line with expectations; FOMC Minutes today at 14:00
Economic Data Summary:

·         Weekly MBA Mortgage Applications -1.6% vs Briefing.com consensus of ; Last Week was -1.2%

·         February Wholesale Inventories +0.5% vs Briefing.com consensus of 0.5%; January was -0.6%

o    In theory, the extreme cold would keep shoppers away, which would result in more goods being left on the shelves. That notion has been debunked in just about all of the economic data over the last several weeks, including the February wholesale inventory data. Sales, which should have weakened from weather effects, increased 0.7% in February after falling 1.8% in January. Durable inventories increased a solid 0.7% in February after increasing 0.8% in January. Most of the gain was the result of a 1.4% increase in machinery inventories. 

Upcoming Economic Data:

·         Weekly Initial Claims due out Thursday at 8:30 (Briefing.com consensus of 325K; Last Week was 326K)

·         Weekly Continuing Claims due out Thursday at 8:30 (Briefing.com consensus of 2.843 M ; Last Week was 2.836 M )

·         March Export Prices Ex-Ag due out Thursday at 8:30 (February was 0.6%)

·         March Import Prces Ex-Oil due out Thursday at 8:30 (February was -0.2%)

·         March Treasury Budget due out Thursday at 14:00 (Briefing.com consensus of -$36.0 bln; February was -$106.5 bln)

Upcoming Fed/Treasury Events:

·         FOMC Minutes today at 14:00

·         Chicago Fed President Charlie Evans (not a voting FOMC member, dovish) to speak today at 15:30 and tomorrow at 11:50

·         Fed Board Member Daniel Taruillo (voting FOMC member, dovish) to speak today at 16:00

·         The Treasury is expected to auction off $21 bln in 10 year notes today and $13 bln in 30 year bonds tomorrow. Results at 13:00

Other International Events of Interest

·         Germany's trade surplus narrowed to EUR15.70 billion from EUR17.30 billion (expected surplus of EUR17.80 billion).

·         Great Britain's trade deficit shrunk to GBP9.09 billion from GBP9.46 billion (expected deficit of GBP9.20 billion), while the BRC Shop Price Index fell 1.7% year-over-year (consensus -1.5%, prior -1.4%). 

On other news.... 

Key Statements from the FOMC

·         The information reviewed for the March 18-19 meeting indicated that economic growth slowed early this year, likely only in part because of the temporary effects of the unusually cold and snowy winter weather. Total payroll employment expanded further, while the unemployment rate held steady, on balance, and was still elevated. Consumer price inflation continued to run below the Committee's longer-run objective, but measures of longer-run inflation expectations remained stable.

·         Total nonfarm payroll employment rose in January and February at a slower pace than in the fourth quarter of last year.

·         Manufacturing production was roughly flat, on balance, in January and February, in part because of the effects of the severe winter weather, which held down both motor vehicle output and production outside the motor vehicle sector.

·         Real personal consumption expenditures (PCE) increased a little, on net, in December and January.

·         The pace of activity in the housing sector appeared to soften.

·         Measures of labor compensation indicated that increases in nominal wages remained subdued.

·         Financial market conditions in the United States over the intermeeting period appeared to have been influenced by an easing of concerns about developments in the EMEs but relatively little affected by the generally weaker-than-expected economic data, which market participants appeared to attribute in large part to the temporary effects of unusually severe winter weather. On balance, U.S. financial conditions remained supportive of growth in economic activity and employment: The expected path of the federal funds rate was little changed, longer-term yields on Treasury securities edged down, equity prices rose, speculative-grade corporate bond spreads narrowed, and the foreign exchange value of the dollar depreciated slightly.

·         Broad stock price indexes rose over the intermeeting period, apparently boosted by a solid finish to the corporate earnings season. Equity prices were also supported by a broad increase in investors' willingness to take riskier positions, in part likely reflecting an easing of concerns about EMEs early in the period... House prices registered a further notable rise in January.

·         The staff's assessment was that the unusually severe winter weather could account for some, but not all, of the recent unanticipated weakness in economic activity, and the staff lowered its projection for near-term output growth. Largely because of the combination of recent downward surprises in the unemployment rate and weaker-than-expected real GDP growth, the staff lowered slightly the assumed pace of potential output growth in recent years and over the projection period. As a result, the staff's medium-term forecast for real GDP growth also was revised down slightly. Nevertheless, the staff continued to project that real GDP would expand at a faster pace over the next few years than it did last year, and that real GDP growth would exceed the growth rate of potential output.

·         A few participants, however, highlighted factors other than weather that had likely contributed to the slowdown during the first quarter, including slower growth in net exports following its unusually large positive contribution to growth in the fourth quarter of 2013. Moreover, it was noted that some of the pickup in economic growth that had appeared to have been indicated by the data available at the January meeting had been reversed by subsequent data revisions. For many participants, the outlook for economic activity over coming quarters had changed little, on balance, since the time of the December meeting.

·         While there was general agreement that slack remains in the labor market, participants expressed a range of views regarding the amount of slack and how well the unemployment rate performs as a summary indicator of labor market conditions. Several participants pointed to a number of factors--including the low labor force participation rate and the still-high rates of longer-duration unemployment and of workers employed part time for economic reasons--as suggesting that there might be considerably more labor market slack than indicated by the unemployment rate alone.

·         However, in light of their concerns about the possible persistence of low inflation, members agreed that inflation developments should be monitored carefully for evidence that inflation was moving back toward the Committee's longer-run objective.

·         Members again judged that, if the economy continued to develop as anticipated, the Committee would likely reduce the pace of asset purchases in further measured steps at future meetings.

USDA releases its first crop progress report of the year; WASDE report scheduled for release at noon EST today
Crop progress report
Late yesterday, the USDA released its very first crop progress report of the year. Normally, this is released at 4pm EST every Monday, during the crop season.

Corn was not mentioned in this week's release, but the USDA noted that an update on corn progress will be reported in next week's release, which we expect should be released at 4pm EST on Monday.

Corn prices have been on the rise after the recent Jan 9 low at $4.12 and are 23.3% higher at $5.08/bushel since then. Corn prices are currently at a level not seen since July 2013, while soybean futures are currently at a level not seen since June 2013.

Current prices action is as follows: 

·         Corn futures +0.1% at $5.08/bu

·         Wheat +0.8% at $6.06/bu

·         Soybeans +0.8% at $14.95bu

Last month's WASDE...
On the U.S. corn balance sheet, there weren't many changes at all.

U.S. ending stocks fell to 1.456 bln from 1.481 bln, while world Ending corn stocks rise 0.7% to 158.47 mln metric tons WASDE corn data last month was bullish after the government agency cut its ending inventory forecast for the upcoming crop year. The USDA cut world ending stocks expectations by 1.8% to 157.30 million metric tons for the coming crop year (ending inventory at the end of the fiscal crop year).

On the global production side, world corn production rose 0.1% to 967.52 mln metric tons (mmt), while exports rose to 144.53 mln mmt and ending stocks rose 0.7% to 158.47 mmt. Projected U.S. feed grain ending stocks for 2013/14 are reduced with higher corn exports and lower oats imports. Corn exports are projected 25 mln bushels higher on stronger world imports and the rising pace of shipments in recent weeks.

World soybeans production expectations call for a decline of 0.8% to 285.43 mmt and now estimate ending stocks at 70.64 mmt, 3.2% below last month's estimate. U.S. soybean supply and use projections for 2013/14 include higher imports and exports, reduced crush, and reduced ending stocks compared with last month's report.

World wheat production is now expected to be 712.92 mmt, 0.01% higher than the prior estimate, while ending stocks remained basically unchanged (183.81 mmt from 183.73 mmt). A 15-mln-bushel increase in projected Hard Red Spring wheat exports is offset by a decrease for Soft Red Winter wheat, with both changes reflecting the pace of sales and shipments.
 
Ukraine/Russia tension...
Ukraine/Russia tension is a catalyst for wheat prices (WEAT = wheat ETF), since Ukraine is one of the largest exporters of wheat and disruptions may affect wheat supply in the Black Sea region.

Planting season is here...  planting delays largely expected. However, weather has been improving
Accuweather released its Spring 2014 Planting Forecast report recently, which said that lingering effects of the winter season will cause planting delays.

Accuweather said, "While the South will be right on schedule weather-wise for prime planting with looming frost concerns, delays will become more and more likely with every mile heading north." This is critical since the corn belt is in the Midwest.

Iowa, Illinois and Nebraska are always the largest corn producing states each year and are notable catalysts for corn prices. In 2013, 37.3% of all the corn produced in the U.S. came from these three states.

Given this delay, next week's crop progress update will be interesting.

Following is a list of agriculture stocks/ETFs that are affected by moves in the grain markets as well USDA data:

·         Fertilizer stocks (POT, MOS, CF, AGU, IPI, UAN, TNH, RNF, RTK, BG)

·         Farm machinery (DE, AGCO, CNH, TITN)

·         Seed names (MON, SYT, DD, DOW)

·         Irrigation (LNN)Ag processors (ADM, ANDE)

·         Livestock (SAFM, HRL, SFD, TSN)

·         Related ETFs: JJG (grains ETF), CORN (corn ETF) and WEAT (wheat ETF)

Currencies 

Dollar Pressured Following FOMC Minutes: 10-yr: unch..2.685%..USD/JPY: 101.79..EUR/USD: 1.3847

·         The Dollar Index crumbled to session lows near 79.55 following the release of the latest FOMC minutes. Click here to see a daily Dollar Index chart.

·         The minutes indicated the central bank continues to see inflation risk tilted to the downside and that the winter weather was responsible for the slowdown in economic activity.

·         EURUSD trades +40 pips @ 1.3835 as trade presses it best levels of the session. The single currency remains on track to post a third straight day of gains as action nears a test of near-term resistance in the 1.3850 area. A push through the resistance level puts the March highs near 1.3950 back in play. Eurozone data is limited to French industrial production.

·         GBPUSD is +20 pips @ 1.6765 as buyers remain in control for a third session. Sterling has been bid throughout the day following the narrower than expected British trade surplus. Any positive close marks the best since November 2009. The Bank of England opines tomorrow with expectations calling for the central bank to hold both its benchmark rate and asset purchase program at their respective 0.50% and GBP375 bln. 

·         USDCHF is -35 pips @ .8800 as trade presses key support. Moderate selling over the past three sessions has been a result of euro weakness as the pair remains a derivative of the single currency. 

·         USDJPY is flat @ 101.85 as trade stabilizes following three days of losses. Action has settled back into the 101.50/102.50 range that has been in place for much of the past three months as trade probes one-month lows. Japan's core machinery orders are due out tonight. 

·         AUDUSD is +20 pips @ .9375 as trade holds at four and a half-month highs. Recent gains have some traders looking towards reistance in the .9450/.9475 area. Australian data includes employment change and the unemployment rate. China's trade balance is scheduled for tonight. 

·         USDCAD is -60 pips @ 1.0860 as trade breaks down to its lowest level in almost three months. Selling in 12 of 15 sessions has dropped action below both the 50 and 100 dma, and has trade looking at a potential retest of the 1.0700 level. Canadian data due out tomorrow is limited to the New Home Price Index.

Jason's Commentaries


As expected, the market took the opportunity to cover the shorts accumulated over on Friday and Monday. Volumes were at 700m shares traded on the NYSE as the bulk of the activity came in after the FOMC minutes. The market held flat ahead of the FOMC minutes. Right after the release of the statements, the market shot up like a rocket, gaining more than 1% across all indices. The healthcare sector had the biggest boost with more than 2% gain. While Utilities were the only lagging sector. On the technical perspective, I believe Nasdaq and Russells have more room to move higher. I believe we're very likely to be able to end flat or up high this week. Which means we are very likely to end bullish for Thursday and Friday.    

Market Call: UP

Date: 10 April 2014