20 May 2014 AMC - Market turned down more than expected last night ahead of FOMC minutes

20 May 2014 AMC - Market turned down more than expected last night ahead of FOMC minutes

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: -0.6%

·         Germany's DAX: -0.2%

·         France's CAC: -0.4%

·         Spain's IBEX: + 0.3%

·         Portugal's PSI: -0.1%

·         Italy's MIB Index: + 0.3%

·         Irish Ovrl Index: -0.2%

·         Greece ATHEX Composite: + 5.0%

Before Market Opens 

S&P futures vs fair value: -1.50. Nasdaq futures vs fair value: -1.50.
The S&P 500 futures trade two points below fair value.

Asian markets endured a mixed session, but most of the moves were subdued. Thailand's SET, however, lost 1.1% after the country's army implemented martial law. Elsewhere, the Reserve Bank of Australia released its policy meeting minutes, which suggested lower capital inflows could weaken the Australian dollar. In data: 

o    Australia's CB Leading Index eased to 0.0% from 0.2%. 

o    Singapore posted a better than expected final Q1 GDP of 2.3% (1.0% expected) and its current account surplus narrowed to SGD16.3 billion from SGD16.8 billion. 

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·         Japan's Nikkei gained 0.5%, climbing off one-month lows. Yahoo Japan surged 11.7% after announcing it would no longer pursue the purchase of eAcess from Softbank. 

·         Hong Kong's Hang Seng rose 0.6%, closing at its best level in almost five weeks. Internet gaming giant Tencent Holdings paced the advance, climbing 4.0%. 

·         China's Shanghai Composite edged up 0.2% after China announced it would limit the number of IPOs in the second half of the year to 100. Technology shares saw solid gains with Yonyou Software climbing 5.4% to lead the sector higher. 

Core European indices trade in the red, while markets in Italy (+0.2%) and Spain (+0.4%) rebound from yesterday's underperformance. Participants received several data points today: 

o    Germany's PPI slipped 0.1% month-over-month (consensus 0.1%, previous -0.3%), while the year-over-year reading fell 0.9% (forecast -0.8%, prior -0.9%). 

o    Great Britain's CPI rose 0.4% month-over-month (consensus 0.3%, prior 0.2%), while the year-over-year reading increased 1.8% (expected 1.7%, last 1.6%). Separately, Core CPI increased 2.0% year-over-year (forecast 1.8%, previous 1.6%) and Input PPI fell 1.1% month-over-month (consensus -0.2%, prior -0.4%). 

o    Italy's Industrial New Orders rose 1.3% month-over-month (consensus 2.8%, previous -3.2%), while the year-over-year reading increased 2.8% (expected 3.5%, last 2.8%). 

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·         Great Britain's FTSE is lower by 0.5% amid weakness in shares of Vodafone after the company issued a cautious outlook for next year. Shares of the telecom operator trade lower by 4.4%. Carnival leads with a gain of 4.3% after receiving a downgrade. 

·         In France, the CAC holds a loss of 0.3%. Consumer stocks underperform with Carrefour and Danone down 0.3% and 1.3%. Software stock Gemalto leads with an increase of 2.4%. 

·         Germany's DAX trades down 0.2% as producers of basic materials trade on both sides of the flat line. Linde trades up 0.4%, while BASF and Lanxess hold respective losses of 0.6% and 1.0%. 

·         Spain's IBEX is higher by 0.4% with Bankinter, and Banco Santander providing support. The Two trade higher by 3.1% and 0.9%, respectively.

U.S. Equities

·         Equity futures suggest little change at the open

·         Yesterday's bid ran the S&P 500 to within ~0.6% of a record-high close 

·         The VIX (12.42) remains near its lowest levels in four months

o    S&P Futures -2 @ 1880

o    Dow Futures -7 @ 16,474

o    Nasdaq Futures unch @ 3613

Asia

·         Markets saw a mixed session across Asia

·         The Reserve Bank of Australia suggested lower capital inflows could weaken the Australian dollar

·         Thailand's military imposed martial law

·         Australia's CB Leading Index eased to 0.0% (0.2% previous)

·         Japan's Nikkei (+0.5%) ticked off one-month lows 

·         Hong Kong's Hang Seng (+0.6%) closed at its best level in almost five weeks

·         China's Shanghai Composite (+0.2%) edged up after China announced it would limit the number of IPOs in the second half of the year to 100

·         India's Sensex (-0.1%) slipped off record highs

·         Australia's ASX (+0.2%) gained for the first time in three days

·         Thailand's SET (-1.1%) fell as the government implemented martial law

·         Indonesia's Jakarta Composite (-2.4%) came under pressure after the challenger to frontrunner Joko Widodo surprised many with his ability to form a coalition with Indonesia's second largest party, Golkar

Market Internals

Market Internals -Technical-
The Dow closed down 138 (-0.83%) at 16374, the Nasdaq closed down 29 (-0.7%) at 4097, and the S&P 500 closed down 12 (-0.65%) at 1873. Action came on below average volume (NYSE 635 mln vs. avg. of 714; NASDAQ 1656 mln vs. avg. of 1946), with decliners outpacing advancers (NYSE 938/2217, NASDAQ 653/2014) and mixed new highs/lows (NYSE 81/39, NASDAQ 30/72).

Relative Strength: 
Greece-GREK +4.87%, Natural Gas-UNG +1.53%, Russia-RSX +1.24%, Cotton-BAL +1.23%, Cocoa-NIB +1.12%, Wind Energy-FAN +0.72%, Coffee-JO +0.64%, Eastern Europe-ESR +0.35%, Japanese Yen-FXY +0.15%, British Pound-FXB +0.13%.

Relative Weakness: 
Indonesia-IDX -3.88%, Retail-XRT -2.47%, Metals and Mining-XME -2.42%, Thailand-THD -2.41%, Biotechnology-XBI -2.09%, Chile-ECH -2.05%, Clean Energy-PBW -1.98%, Steel-SLX -1.88%, New Zealand-ENZL -1.86%, Australia-EWA -1.55%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries

Closing Market Summary: Stocks Slide Amid Disappointing Retail Earnings
The major averages ended the Tuesday in the red after surrendering their gains from Monday. In fact, the Russell 2000, which led the way on Monday, paced today's retreat after being unable to reclaim its 200-day moving average (1117/1118). The small cap index fell 1.5%, while the S&P 500 lost 0.7% with nine sectors ending in the red.

Equity indices began the day with modest losses amid general weakness in most cyclical sectors. Most notably, retailers pressured the discretionary sector (-0.9%) after Dick's Sporting Goods (DKS 43.60, -9.56), Staples (SPLS 11.71, -1.68), TJX (TJX 53.95, -4.45), and Urban Outfitters (URBN 32.98, -3.19) all reported disappointing earnings.

Similar to the four names, Home Depot (HD 77.96, +1.46) also reported below-consensus earnings, but the Dow component was able to stay out of the red as upbeat comments from the management overshadowed the earnings miss. Despite Home Depot's outperformance, the retail space struggled with the SPDR S&P Retail ETF (XRT 81.83, -2.07) falling 2.5%.

Elsewhere among influential sectors, financials (-0.7%) and industrials (-1.3%) lagged, while technology (-0.5%) and health care (-0.6%) outperformed.

Notably, the second-weakest sector of the month—financials—extended its May loss to 1.3%. In all fairness, the economically-sensitive group has been unable to gain any traction since the start of the year as today's loss widened its year-to-date decline to 0.9%.

Also of note, the health care sector was able to keep pace with the S&P 500 even as biotechnology struggled. The iShares Nasdaq Biotechnology ETF (IBB 228.36, -3.14) lost 1.4%, which contributed to the underperformance of the Nasdaq.

All in all, today's early price action was relatively sloppy, which opened the door to a more pronounced retreat in the afternoon. In addition, the overall sense of caution was heightened by continued yen strength as the dollar/yen pair registered its fifth consecutive decline while testing its 200-day moving average (101.19).

In all likelihood, some will attribute today's retreat to comments from Philadelphia Fed President Charles Plosser, who said he felt the economy is on its firmest footing since the recovery began. However, it is worth noting that equities began sliding ahead of Mr. Plosser's comments and that longer-dated Treasuries actually climbed to highs following the remarks. The 10-yr note advanced nine ticks, pressuring its yield four basis points to 2.51%.

Today's participation marked an improvement from yesterday, but remained below average with less than 650 million shares changing hands at the NYSE.

Tomorrow, the weekly MBA Mortgage Index will be reported at 7:00 ET, while the minutes from the latest FOMC policy meeting will be released at 14:00 ET. 

·         S&P 500 +1.3% YTD 

·         Dow Jones Industrial Average -1.2% YTD 

·         Nasdaq Composite -1.9% YTD

·         Russell 2000 -5.5% YTD

Commodities

Closing Commodities: Natural Gas Rises 1.8%, Gold Gains $0.40, Closes Below $1300

·         Precious metals rallied into positive territory today as equity markets opened.

·         June gold traded as low as $1286.00 per ounce in early morning action and rose to a session high of $1297.20. It eventually settled 40 cents higher at $1294.50 per ounce.

·         July silver brushed a session low of $19.23 moments after floor trade opened and climbed as high as $19.47. It managed to hold on to most of the gain and settled at $19.40 per ounce, or 0.3% higher.

·         July crude oil slipped to a session low of $101.69 per barrel but recovered back into positive territory by late morning action. It brushed a session high of $102.46 per barrel and settled with a 0.2% gain at $102.31 per barrel.

·         June natural gas trended higher after lifting from its session low of $4.48 per MMBtu set moments after floor trade opened. It rose as high as $4.57 per MMBtu and settled with a 1.8% gain at $4.55 per MMBtu.

NYMEX Energy Closing Prices

  July crude oil rose $0.20 to $102.31/barrel

·         Crude oil slipped to a session low of $101.69 but recovered back into positive territory by late morning action. It brushed a session high of $102.46 and settled with a 0.2% gain.

  June natural gas rose 8 cents to $4.55/MMBtu

·         Natural gas trended higher after lifting from its session low of $4.48 set moments after floor trade opened. It brushed a session high of $4.57 and settled with a 1.8% gain.

  June heating oil rose 1 cent to $2.95/gallon

  June RBOB settled unchanged at $2.96/gallon

 COMEX Metals Closing Prices

·         June gold rose $0.40 to $1294.50/oz 

·         July silver rose 6 cents to $19.40/oz

·         July copper fell 3 cents to $3.14/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Price

·         July corn fell 3 cents to $4.74/bushel

·         July wheat fell 7 cents to $6.69/bushel

·         July soybeans fell 14 cents to $14.69/bushel

·         June ethanol fell 3 cents to $2.19/gallon

·         July sugar (#16 (U.S.)) rose 0.42 of a penny to 24.75 cents/lbs

Treasuries

Treasuries See Modest Bid: 10-yr: +08/32..2.512%..USD/JPY: 101.29..EU/USD: 1.3700

·         Treasuries close on their highs as money moved into the complex amid the weakness in equities. Click here to see an intraday yields chart.

·         Maturities hovered little changed into the cash open, and pressed to their worst levels as stocks attempted to recover their early losses.

·         However, equities were never able to reclaim the flat line, igniting a bid in Treasuries. 

·         Buying continued to have the biggest impact on the belly of the curve as the 5y shed -3.3bps to 1.506%. Today's close marked the lowest in more than two months, and has action off -25bps in 2014. 

·         The 10y slipped -2.7bps to 2.509%. The benchmark yield narrowly avoided its lowest close in seven months, and continues to test key support in the 2.500% region.

·         Underperformance at the long end saw the 30y fall -0.8bps to 3.375%. Early selling provided a test of 3.380%/3.400% resistance, but buying at that level prevented a breakout to one-week highs.

·         Curve steepening persisted as the 5-30-yr spread widened to 187bps. 

·         Precious metals ticked higher as gold added +$1 to $1295 and silver tacked on +$0.04 to $19.40. 

·         Data: MBA Mortgage Index (7) and the latest FOMC minutes (14).

·         Fed Speak: Fed Chair Janet Yellen will receive an honorary degree at the NYU Commencement (11:30). NY's Dudley discusses regional economic conditions (10) and KC's George speaks on the U.S. economy (12:50).

On other news.... 




Currencies 

Dollar Holds 80.00: 10-yr: +09/32..2.511%..USD/JPY: 101.27..EUR/USD: 1.3694

·         The Dollar Index has spent the entire U.S. session in a tight five cent range as trade holds just above the key 80.00 support level. Click here to see a daily Dollar Index chart.

·         Today's lack of tradable data and news has made for a sleepy session.

·         EURUSD is -15 pips @ 1.3695 as trade continues to press key support in the area. The single currency has managed to shrug off ongoing chatter of negative deposit rates as expectations mount for some sort of easing at the June ECB meeting. Eurozone data is limited to the current account balance. 

·         GBPUSD is +25 pips @ 1.6840 as trade ticks higher for a fourth session. Today's bid comes following mixed pricing pressures in the UK, and has action testing minor resistance near 1.6850. A breakout puts the May highs near 1.7000 in play. The latest Bank of England MPC votes accompany retail sales. 

·         USDCHF is flat @ .8920 after giving up its early gains. Recent action has struggled near .8925 resistance, but any close above that level would be the best in three months.

·         USDJPY is -20 pips @ 101.25 as action presses to its lowest level in three and a half months ahead of tonight's Bank of Japan rate decision. Today's selling has the pair flirting with its first sub-200 dma close since November 2012, when it became clear Shinzo Abe would become Japan's prime minister. Japan's trade balance will cross the wires.

·         AUDUSD is -80 pips @ .9245 as trade flushes below the 50 dma. Today's losses have the hard currency testing support in the area that has held up since late-March as trade readies for its lowest close in two and a half months. Australian data due out tonight includes Westpac Consumer Sentiment and the Wage Price Index. 

·         USDCAD is +30 pips @ 1.0900 as trade probes trendline resistance off the March highs. The pair found a bid early in today's session as Canada's wholesale sales (-0.4% MoM actual v. 0.4% MoM expected) missed estimates by a wide margin. The trend still remains lower, and a test of the 200 dma (1.0729) cannot be ruled out.

Next Week In View





Economic Commentaries

Economic Summary: Stocks fall as Plosser says that asset purchases may end sooner than many expect; FOMC minutes tomorrow at 14:00
Fed/Treasury Events Summary:

·         Bill Dudley (voter, dovish) remarks:

o    There are two considerations that suggest to me that ending the reinvestments prior to lift-off may not be the best strategy. First, such a decision might complicate our communications regarding the process of normalization. Ending reinvestments as an initial step risks inadvertently bringing forward any tightening of financial conditions as this might foreshadow the impending lift-off date for rates in a manner inconsistent with the Committee's intention.

·         Charles Plosser (voter, hawkish) remarks:

o    President Plosser is optimistic about the housing recovery. He believes that even though sales have leveled off recently, prices are still rising, and fundamentals remain sound, including stronger household formation, solid job growth, and consumers with stronger balance sheets.... President Plosser believes reducing the pace of asset purchases in measured steps is moving in the right direction, but the time may come sooner than many expect when interest rates may have to rise if we are to avoid falling behind the curve.

Upcoming Economic Data:

·         Weekly MBA Mortgage Applications due out Wednesday at 7:00 (Briefing.com consensus of ; Last Week was 3.6%)

Upcoming Fed/Treasury Events

·         Fed Chair Janet Yellen to receive honorary degree tomorrow at 11:30

·         Kansas City Fed President Esther George (not a voting FOMC member, hawkish) to speak tomorrow at 12:50

·         Minneapolis Fed President Kocherlakota (voting FOMC member, dovish) to speak tomorrow at 13:30

·         FOMC Minutes tomorrow at 14:00

Other International Events of Interest

·         The Reserve Bank of Australia released its latest policy meeting minutes, which reiterated the expectation for low rates to remain in place for "some time." 

Jason's Commentaries

The market came in a little unexpected, going down more than what i expected... volumes were at 648.2m shares... The initial drop was probably due to a short covering that quickly turned into a short situation by 11am ET. Industrials led the drop last night and discretionary was the second largest laggard. It seems that the market is following the technicals today. I reckon today might be the day where the market break the support or resistance. Ain't gonna call for a direction today. Stay safe guys. 

Market Call: ABSTAIN

Date: 21 May 2014