21 May 2014 AMC -Market rallied as FOMC Minutes focuses on exit but makes no decisions

21 May 2014 AMC -Market rallied as FOMC Minutes focuses on exit but makes no decisions

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: + 0.3%

·         Germany's DAX: + 0.6%

·         France's CAC: + 0.4%

·         Spain's IBEX: + 0.7%

·         Portugal's PSI: -0.6%

·         Italy's MIB Index: + 1.1%

·         Irish Ovrl Index: + 0.9%

·         Greece ATHEX Composite: + 1.6%

Before Market Opens 

S&P futures vs fair value: +5.20. Nasdaq futures vs fair value: +9.70.
The S&P 500 futures trade five points above fair value.

Asian markets ended the session on a mixed note. The Bank of Japan kept policy on hold while upping its economic assessment. The accompanying comments from BoJ Governor Kuroda indicated the central bank remains on track to reach its 2.0% inflation target. Also of note, the outlook for China's property sector was lowered to ‘Negative' from ‘Stable' at Moody's. 

·         In economic data: 

o    The trade deficit narrowed to JPY840 billion from JPY1.63 trillion (expected deficit of JPY600 billion) as imports rose 3.4% (expected 0.8%, previous 18.1%) and exports climbed 5.1% (forecast 4.8%, prior 1.8%). 

o    Australia's Westpac Consumer Sentiment plunged -6.8% to a two-year low. 

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·         Japan's Nikkei slipped 0.2%, but held the key 14,000 level. The strong yen weighed on exporters as Komatsu lost 3.1% and Toyota Motor shed 0.8%. 

·         Hong Kong's Hang Seng ended flat as trade held near one-month highs. Shares of Lenovo jumped 3.4% after the company posted better than expected quarterly results. 

·         China's Shanghai Composite rallied 0.8% into the close and finished on session highs. Coal stocks outperformed on reports Beijing was looking to establish markets for trading. Datong Coal Industry gained the limit, 10.0%. 

Major European indices trade in mixed fashion with peripheral markets showing strength. The Bank of England released its latest policy meeting minutes, which indicated an increasing number of committee members believe an interest rate hike will be in order sooner rather than later. The pound rallied, climbing to 1.69 versus the dollar. 

·         Economic data was limited: 

o    Eurozone Current Account surplus narrowed to EUR18.80 billion from EUR21.80 billion (expected surplus of EUR23.00 billion). 

o    Great Britain's Retail Sales rose 1.3% month-over-month (consensus 0.5%, previous 0.5%), while the year-over-year reading jumped 6.9% (forecast 5.2%, prior 4.8%). Also of note, Core Retail Sales increased 1.8% month-over-month (consensus 0.5%, previous 0.1%), while the year-over-year reading rose 7.7% (consensus 5.3%, prior 4.9%). 

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·         Great Britain's FTSE is lower by 0.1% with WM Morrison Supermarkets leading the retreat. The stock trades down 3.6% after receiving a downgrade from Deutsche Bank. AstraZeneca outperforms with a gain of 1.7%. 

·         In France, the CAC is flat. Telecom name Orange weighs, trading lower by 2.4%. Financials are mixed as Credit Agricole and Societe Generale display respective gains 0.9% and 2.0%, while BNP Paribas trades lower by 1.7%. 

·         Germany's DAX trades up 0.4% thanks to strength among utilities. E.ON and RWE are both up near 3.5%. 

·         Italy's MIB is higher by 1.0% as financials provide support. Banco Popolare, UniCredit, and Unione di Banche Italiane are all up between 1.9% and 3.0%.

U.S. Equities

·         Equity futures point to modest gains at the open

·         Yesterday's selling dropped the DJIA below the 50 dma

·         The Russell 2000 is -9.4% off the March highs, and is contending with correction territory

·         The VIX (12.96) remains near four-month lows

o    S&P Futures +6 @ 1874

o    Dow Futures +48 @ 16,385

o    Nasdaq Futures +8 @ 3605

Asia

·         Markets ended mixed across Asia

·         The Bank of Japan kept policy on hold while upping its economic assessment

·         BOJ head Haruhiko Kurdoa suggested the central bank remains on track to achieve its 2% inflation target

·         The outlook for China's property sector was lowered to ‘Negative' from ‘Stable' at Moody's

·         Australia's Westpac Consumer Sentiment plunged -6.8% to a two-year low

·         Japan's Nikkei (-0.2%) held the key 14,000 level

·         Hong Kong's Hang Seng (UNCH) held near one-month highs. 

·         China's Shanghai Composite (+0.8%) rallied into the close and finished on session highs

·         India's Sensex (-0.3%) continued to slip off record highs

·         Australia's ASX (+0.1%) recovered its early losses and eked out a gain

Market Internals

Market Internals -Technical-
The Dow closed up 159 (+0.97%) at 16533, the Nasdaq closed up 35 (+0.85%) at 4132, and the S&P 500 closed up 15 (+0.81%) at 1888. Action came on below average volume (NYSE 575 mln vs. avg. of 713; NASDAQ 1585 mln vs. avg. of 1931), with advancers outpacing decliners (NYSE 2015/1088, NASDAQ 1569/1036) and mixed new highs/lows (NYSE 99/35, NASDAQ 31/57).

Relative Strength: 
Clean Energy-PBW +3.99%, Turkey-TUR +2.82%, Vietnam-VNM +2.64%, Greece-GREK +2.15%, Thailand-THD +1.76%, Oil and Gas Exploration-XOP +1.71%, Broker-Dealers-IAI +1.63%, China 25 Index-FXI +1.38%, Oil-USO +1.23%, Consumer Discretionary-XLY +1.21%.

Relative Weakness: 
Coffee-JO -1.65%, Volatility-VXX -1.59%, Natural Gas-UNG -1.43%, Sugar-SGG -0.77%, 20+ Year Treasuries-TLT -0.61%, Egypt-EGPT -0.27%, Swiss Franc-FXF -0.16%, Australian Dollar-FXA -0.16%, Japanese Yen-FXY -0.15%, Canadian Dollar-FXC -0.14%.

Leaders and Laggards

 

Technical Updates

Briefing's Commentaries

Closing Market Summary: Cyclical Sectors Lead Stocks Higher
The major averages rallied on Wednesday, which allowed the Dow (+1.0%), Nasdaq (+0.9%), and S&P 500 (+0.8%) to reclaim yesterday's losses. For its part, the Russell 2000 advanced 0.5% despite a brief dip into the red that took place in the morning.

Even though small caps endured an intraday hiccup, that short-lived weakness had little impact on the S&P 500, which rallied at the open before spending the bulk of the trading day in a six-point range. For the most part, the index was unperturbed by the underperformance of small caps, while also showing little reaction to the FOMC minutes from the April 29-30 meeting.

To be fair, the lack of a reaction to the minutes reflected the lack of new information within the minutes. The document revealed a discussion of the expected path to an eventual rate hike, but there was no mention regarding the potential timing. The minutes also indicated that the committee sees inflation reaching the 2.0% target in the next "few" years with little risk of spillover inflation resulting from fueling payroll growth.

Interestingly, the Treasury market was not too concerned with the Fed mapping out its exit strategy as the 10-yr note registered its low when the minutes were released, before climbing higher into the close. The 10-yr note narrowed its loss to six ticks, while the benchmark yield increased two basis points to 2.53%.

All ten sectors posted gains with cyclical groups faring a bit better than their defensive counterparts. Of the six growth-sensitive sectors, five settled in line or ahead of the S&P 500. The financial sector (+0.8%) provided leadership through the first half of the session, but energy (+1.1%) and consumer discretionary (+1.2%) overtook financials during the afternoon.

The consumer discretionary sector finished in the lead even as quarterly earnings from a handful of retailers disappointed. American Eagle Outfitters (AEO 10.60, -0.73), PetSmart (PETM 57.02, -5.17), and Lowe's (LOW 45.41, -0.11) ended lower in reaction to below-consensus earnings and/or guidance, while Target (TGT 57.20, +0.59) was able to post a solid gain of 1.0% after its report was dubbed ‘better than feared.' Also of note, Tiffany (TIF 96.30, +8.07) surged 9.2% following its solid results.

On the countercyclical side, telecom services and utilities ended little changed, while health care (+0.8%) settled in line with the broader market. The consumer staples sector (+0.6%) spiked into the close as shares of Lorillard (LO 62.63, +5.90) surged 10.4% amid reports Reynolds American(RAI 59.77, +2.51) is in discussions to acquire Lorillard.

Today's participation was well below average with the final tally of 574 million shares coming in just ahead of Monday's total that marked the second-lowest volume of the year.

Economic data was limited to the weekly MBA Mortgage Index, which rose 0.9% to follow last week's increase of 3.6%. Despite the headline increase, purchase applications declined 3.0%, while the overall index was driven higher by a 4.0% gain in refinancing applications.

Tomorrow, weekly initial claims (Briefing.com consensus 305K) will be released at 8:30 ET, while the Existing Home Sales report for April (consensus 4.66 million) and the April Leading Indicators report (consensus 0.5%) will cross the wires at 10:00 ET. 

·         S&P 500 +2.2% YTD 

·         Dow Jones Industrial Average -0.3% YTD 

·         Nasdaq Composite -1.1% YTD 

·         Russell 2000 -5.0% YTD

Commodities

Closing Commodities: Crude Oil Ends Near $104/Barrel, Gold Ended Modestly Lower

·         Metals remains weak today, while crude oil futures held strength

·         Crude oil initially displayed a muted reaction following EIA weekly inventory data

·         However, July crude climbed higher in afternoon trade and rose as high as $104.25/barrel. Crude closed the day $1.68 higher at $103.99/barrel

·         Natural gas sold in afternoon trade, falling as low as $4.47/MMBtu. June nat gas ended today's session eight cents lower at $4.47/MMBtu.

·         Gold and silver remained choppy today

·         June gold finished $6 lower at $1288.10/oz, while July silver fell one cent to $19.33/oz

·         Copper remained in the red all day, closing five cents lower at $3.12/lb.

COMEX Metals Closing Prices

·         June gold fell $6 to $1288.10/oz

·         July silver fell 1 cent to $19.33/oz

·         July copper fell 5 cents to $3.12/lb

CBOT Agriculture and Ethanol/ICE Sugar Closing Price

·         July corn was unchanged at $4.74/bushel 

·         July wheat fell 5 cents to $6.64/bushel 

·         July soybeans rose 38 cents to $15.07/bushel 

·         June ethanol rose 9 cents to $2.28/gallon 

·         July sugar (#16 (U.S.)) fell 0.17 of a penny to 24.58 cents/lbs

NYMEX Energy closing prices

·         July crude oil rose $1.68 to $103.99/barrel 

·         June natural gas fell 8 cents to $4.47/MMBtu 

·         July heating oil settled unchanged at $2.95/gallon 

·         July RBOB rose 3 cents to $2.98/gallon

Treasuries

Treasuries Lose for Third Time in Four Days: 10-yr: -08/32..2.537%..USD/JPY: 101.43..EUR/USD: 1.3683

·         Treasuries endured losses for the third time in four sessions. Click here to see an intraday yields chart.

·         Maturities pressed their lows ahead of the cash open and drifted lower as equities opened with strong gains. 

·         Trade slipped to its worst levels of the day after the release of the latest FOMC minutes, which showed Fed officials believe the economy has begun to pick up following the winter doldrums. 

·         The complex saw little reaction to comments from Minneapolis Fed President Narayana Kocherlakota as he suggested the Fed will likely not hit its 2% inflation target until 2018 and that it should consider introducing price level targeting. 

·         Selling continued to weigh heaviest on the long end as the 30y added +4.2bps to 3.417%, and closed at its highest level in a week. The yield on the long bond is now up ~12bps off the May lows with trendline resistance off the opening levels of 2014 coming into play in the 3.450% area. 

·         The 10y climbed +2.8bps to 2.537%. Post-FOMC selling caused the benchmark yield to probe yesterday's highs, but action slipped into the cash close. Previous support in the 2.580%/2.600% area is now resistance. 

·         The 5y edged up +1.5bps to 1.521%, but was unable to reclaim the 200 dma. 

·         Curve steepening persisted as the 5-30-yr spread widened to 189.5bps. 

·         Precious metals were mixed with gold -$4 @ $1290 and silver flat near $19.40. 

·         Data: Initial and continuing claims (8:30), existing home sales, and leading indicators (10). 

·         Fed Speak: Minny's Kocherlakota opines on monetary policy and the economy (13:30).

On other news.... 




Currencies 

Dollar Probes Trendline Resistance Off March Highs: 10-yr: -08/32..2.542%..USD/JPY: 101.44..EUR/USD: 1.3666

·         The Dollar Index is testing session highs near 80.25 following the release of the latest FOMC minutes. Click here to see a daily Dollar Index chart.

·         The minutes showed FOMC members believe economic growth has begun to pick up following the longer than usual winter weather. 

·         Trendline resistance off the July 2013 highs aids resistance in the area. 

·         EURUSD is -30 pips @ 1.3665 as trade looks likely to put in its lowest close in three months. Early selling pressured the single currency to its first test of the 200 dma (1.3630) since September, but that level saw a strong defense from the bulls. Expectations remain high for the European Central Bank to take action at the June meeting. 

·         GBPUSD is +40 pips @ 1.6875 as buyers remain in control for a fifth session. Today's bid comes after the latest Bank of England minutes suggested MPC members have begun rate-hike discussions, but members remain mixed as to when such a hike should occur. The May highs near 1.7000 remain in focus. 

·         USDCHF is +25 pips @ .8945 as trade climbs higher for the ninth time in eleven days. The .9000 area is being watched closely as resistance there is defended by the 200 dma.

·         USDJPY is +15 pips @ 101.45 after the Bank of Japan kept policy unchanged and upgraded its economic assessment. Overnight selling pressured the pair to a low of 100.80 as trade slipped below the 200 dma for the first time since November 2012, but a strong defense at the February lows has managed to run trade back into positive territory. 

·         AUDUSD is -25 pips @ .9215 as action contends with its lowest close in nearly two months. The hard currency has been offered throughout the session as Australia's Westpac Consumer Sentiment posted its lowest reading in two years and Moody's downgraded China's property sector. 

·         USDCAD is +30 pips @ 1.0935 as trade gains for a third day. Today's advance has broken the downtrend off the March highs, and sets up a test of resistance in the 1.0950 region.

Next Week In View





Economic Commentaries

Economic Summary: FOMC Minutes later today at 14:00; Existing Home Sales due out Thursday at 10:00
Economic Data Summary:

·         Weekly MBA Mortgage Applications 0.9% vs Briefing.com consensus of ; Last Week was 3.6%

Upcoming Economic Data:

·         Weekly Initial Claims due out Thursday at 8:30 (Briefing.com consensus of 305K; Last Week was 297K)

·         Weekly Continuing Claims due out Thursday at 8:30 (Briefing.com consensus of 2.700 M ; Last Week was 2.667 M )

·         April Existing Home Sales due out Thursday at 10:00 (Briefing.com consensus of 4.66 M ; March was 4.59 M )

·         April Leading Indicators due out Thursday at 10:00 (Briefing.com consensus of 0.5%; March was 0.8%)

Upcoming Fed/Treasury Events:

·         Janet Yellen to receive honorary degree at 11:30

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

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

·         FOMC Minutes today at 14:00

·         San Fran Fed President John Williams (not a voting FOMC member, typically moderate) to speak tomorrow at 16:00

Other International Events of Interest

·         The Bank of Japan kept policy on hold while upping its economic assessment.

Jason's Commentaries

The market rallied as the FOMC minutes did not make any decisions on tapering. While I was expecting the FOMC to continue to taper at $10b a month but somehow it did not happen. Given the volume at 580m shares traded on the NYSE, it seems that the market wasn't committed to go into a rallied. Despite having breaking the resistance for Nasdaq, It may be a rinse by the market. Russells continue to be on a downtrend. Dow surprisingly is the biggest gainer last night as Goldman, Visa and IBM gained more than 0.8%. I believe the market will likely to reveal their true expectation on Thursday or Friday which will likely indicate the next week's movement. It's going to be tough call on thursday but I'm gonna call it a volatile and flat day. Possible having some upside bias from Nasdaq.

Market Call: FLAT to upside

Date: 24 Feb 2014