19 Nov 2014 AMC - Nasdaq weighs as FOMC minutes offers no surprises

19 Nov 2014 AMC - Nasdaq weighs as FOMC minutes offers no surprises

Market Summary 

European Markets Closing Prices

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

·         UK's FTSE: -0.2%

·         Germany's DAX: + 0.2%

·         France's CAC: + 0.1%

·         Spain's IBEX: -0.5%

·         Portugal's PSI: 0.0%

·         Italy's MIB Index: + 0.1%

·         Irish Ovrl Index: + 1.1%

·         Greece ASE General Index: + 4.2%

Before Market Opens 

S&P futures vs fair value: -2.70. Nasdaq futures vs fair value: -4.50.
The S&P 500 futures trade three points below fair value.

Markets dipped across most of Asia. The Bank of Japan opined overnight, opting to keep policy on hold. The central bank lowered its inflation assessment to 1.00% from 1.25%, causing buyers to run USDJPY to a fresh seven-year high above 117.50 amid speculation additional asset purchases may be needed to reach the 2% target. Elsewhere, the breakdown in iron ore prices to the lowest levels since June 2009 continues posing problems for Australia's outlook.

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·         Japan's Nikkei eased off seven-year highs, shedding 0.3%. Heavyweights Softbank and Fast Retailing weighed, falling 1.6% and 1.2%, respectively.

·         Hong Kong's Hang Seng endured its third consecutive decline, falling 0.7%. Hong Kong Exchanges has been weak since Monday's Stock Connect launch and gave up another 3.4% on Wednesday. 

·         China's Shanghai Composite slipped 0.2% in its third consecutive decline. Financials saw some selling pressure with Industrial & Commercial Bank of China losing 0.8%. 

·         India's Sensex slid 0.5% from all-time highs. Materials names were weak as Tata Steel and Sesa Sterlite fell 3.2% and 2.7%, respectively. 

Major European indices trade mostly higher with Italy's MIB (+0.8%) leading the way. Elsewhere, the Bank of England released the minutes from its latest meeting which indicated a 7-2 vote in favor of staying on hold, as expected. 

·         Economic data was limited: 

o    Eurozone Current Account surplus expanded to EUR30.00 billion from EUR22.80 billion (expected surplus of EUR21.30 billion) 

o    Swiss ZEW Expectations improved to -7.6 from -30.7 

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·         Great Britain's FTSE hovers just below its flat line with miners on the defensive. Anglo American, BHP Billiton, and Rio Tinto are down between 1.5% and 2.2%. Utilities outperform with Severn Trent and National Grid higher by 2.5% and 0.7%, respectively. 

·         In France, the CAC trades up 0.4% amid strength in financials. AXA, BNP Paribas, Credit Agricole, and Societe Generale hold gains between 0.6% and 1.4%. Oil services company Technip is the biggest laggard, down 1.3%. 

·         Germany's DAX has added 0.5% with help from bank shares. Commerzbank, Deutsche Bank, and Munich Re are up between 0.8% and 1.1%. Steelmaker ThyssenKrupp is the weakest performer, down 1.3%. 

·         In Italy, the MIB outperforms with a gain of 0.8%. Banca di Milano Scarl, Banco Popolare, Mediobanca, and UnipolSai are up between 1.9% and 3.1%.

U.S. Equities

·         Equity futures suggest some selling at the open

·         The major averages broke out of their week-long ranges with the DJIA and S&P 500 hitting all-time highs and the Nasdaq ticking to its best level in 14 years

·         The VIX (13.86) remains near two-month lows

·         MBA Mortgage Index (+4.9%)

·         Housing Starts (1009K actual v. 1025K expected)

·         Building Permits (1080K actual v. 1040K expected)

o    S&P Futures -3 @ 2046

o    Nasdaq Futures -21 @ 17,639

o    Dow Futures -3 @ 4235

Asia

·         Markets dipped across most of Asia

·         The Bank of Japan opined overnight, opting to keep policy on hold. Notable was the central bank lowering its inflation assessment to 1% (1.25% previous), which has pushed the yen to a fresh seven-year low of 117.65 as traders price in the possibility of even more asset purchases in an effort to meet the 2% target

·         The breakdown in iron ore prices to the lowest levels since June 2009 continues to pose problems for Australia

·         Japan's Nikkei (-0.3%) eased off seven-year highs

·         Hong Kong's Hang Seng (-0.7%) saw selling for a third straight session

·         China's Shanghai Composite (-0.2%) slipped for a third day in a row

·         India's Sensex (-0.5%) slid off all-time highs

·         Australia's ASX (-0.6%) pressed to a one-month low 

Market Internals

Market Internals -Technical-
The Nasdaq closed down 27 (-0.57%) at 4676, the S&P 500 closed down 3 (-0.15%) at 2049, and the Dow closed down 2 (-0.01%) at 17686. Action came on below average volume (NYSE 719 mln vs. avg. of 791; NASDAQ 1515 mln vs. avg. of 1855), with decliners outpacing advancers (NYSE 1210/1963, NASDAQ 776/1956) and new highs outpacing new lows(NYSE 82/56, NASDAQ 49/71).

Relative Strength: 
Natural Gas-UNG +3.86%, Coffee-JO +3.46%, Greece-GREK +2.8%, Volatility-VXX +2.42%, Latin America 40-ILF +2.05%, Taiwan-EWT +1.1%, Copper-JJC +1.08%, Mexico-EWW +1.07%, Retail-RTH +0.96%, Eastern Europe-ESR +0.88%.

Relative Weakness: 
Junior Gold Miners-GDXJ -7.14%, Silver Miners-SIL -4.81%, Metals and Mining-XME -3.65%, Australia-EWA -2.55%, Corn-CORN -2.38%, Grains-JJG -2.34%, Japan-EPP -1.65%, South Korea-EWY -1.47%, Peru-EPU -1.26%, Australian Dollar-FXA -1.21%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries

Closing Market Summary: Small Caps Lead Stocks Lower
The major averages ended the midweek session on a lower note with Tuesday's leader—Russell 2000—pacing the retreat. The small-cap index lost 1.1% while the S&P 500 surrendered 0.2% with seven sectors finishing in the red.

The benchmark index slumped at the start due to notable losses among several heavily-weighted sectors. However, the S&P 500 was able to pull away from its late-morning low thanks to relative strength in consumer discretionary (+0.5%), consumer staples (+0.4%), and energy (+0.6%).

Although the trio helped the S&P 500 recover from its low, the index could not complete its comeback as industrials (-0.3%), technology (-0.6%), and health care (-0.5%) weighed. The index was able to briefly kiss the flat line after minutes from the October FOMC meeting crossed the wires, but that move was retraced as the dust settled and it became clear the minutes did not introduce anything new into the discussion. Instead, the minutes reminded investors for the umpteenth time that the central bank intends to remain data-dependent when deciding the appropriate timing for the first rate hike.

Treasuries followed a similar intraday pattern. The 10-yr note spiked to highs immediately after the release, but returned to lows shortly thereafter. As a result, the benchmark 10-yr yield rose four basis points to 2.36%.

As mentioned earlier, only three sectors managed to spend the bulk of the session in the green. Energy (+0.6%) ended in the lead even as crude oil remained volatile during the day. WTI crude ended the pit session lower by 0.2% at $74.48/bbl.

Elsewhere, the two consumer sectors were underpinned by retailers after Staples (SPLS 13.92, +1.16), Target (TGT 72.48, +4.97), and Lowe's (LOW 62.26, +3.73) reported one-cent beats. The three soared between 6.4% and 9.1% while the SPDR S&P Retail ETF (XRT 91.04, +0.67) added 0.7%.

Retail names notwithstanding, finding areas of relative strength proved challenging. The top-weighted technology sector (-0.6%) ended among the laggards due to broad-based losses. Chipmakers settled in-line with the sector as the relative weakness among small caps weighed on sentiment in other high-beta areas.

Also of note, biotechnology tried to resists the pressure, but the iShares Nasdaq Biotechnology ETF (IBB 294.21, -1.04) slipped to lows by the close. The ETF settled lower by 0.4% after being up near 0.6% intraday. As for health care, the top-weighted countercyclical group never took the biotech bait and spent the day near its low.

Participation was in-line with long-term trends with roughly 720 million shares changing hands at the NYSE floor.

Economic data was limited to MBA Mortgage Index and Housing Starts/Building Permits: 

·         Housing starts declined 2.8% in October from an upwardly revised 1.038 million (from 1.017 million) to 1.009 million while the Briefing.com consensus pegged the reading at 1.025 million 

o    Since June, housing starts have followed a sawtooth pattern, which has continued with the October decline 

o    Despite the headline miss, single-family construction, which generally follows stable trends, increased 4.2% to 696,000, which was the highest reading since November 2013 

o    Building permits slipped to a seasonally adjusted annualized rate of 1.08 million in October from an unrevised 1.031 million for September, while the Briefing.com consensus expected permits to come in at 1.04 million. 

·         The weekly MBA Mortgage Index jumped 4.9% to follow the previous decline of 0.9% 

Tomorrow, weekly Initial Claims (Briefing.com consensus 285K) and October CPI (expected -0.1%) will be released at 8:30 ET while October Existing Home Sales (consensus 5.17 million), October Leading Indicators (expected 0.6%), and the Philadelphia Fed Survey for November (consensus 18.0) will all be reported at 10:00 ET. 

·         Nasdaq Composite +12.0% YTD 

·         S&P 500 +10.8% YTD 

·         Dow Jones Industrial Average +6.7% YTD 

·         Russell 2000 -0.5% YTD

Commodities

Metals price action

  Gold fell $3.00 (-0.2%) to $1194.10/oz 

·         Gold took a big leg lower following Oct building permits, hitting a LoD of 1173.9 before rebounding toward the 1195 level. 

  Silver rose 15.6 (+1%) to $16.33/oz

·         Silver mirrored the move in gold, hitting a LoD of 15.87 before also rebounding, touching a HoD of 16.535 before fading lower. 

  Copper rose 3.7 cents (+1.2%) to $3.039/lb

Agricultural price action

·         Corn fell 9 cents (-2.4%) to $3.63/bushel

·         Wheat fell 10.50 cents (-1.9%) to $5.385/bushel

·         Soybeans fell 17.75 cents (-XXX%) to $10.055/bushel

·         Ethanol fell 21 cents (-9.8%) to $1.86/gallon

·         Sugar #11 rose 0.8% to 15.83 cents/lb

Energy price action

  Crude oil  fell 20 cents (-0.2%) to $74.48/barrel

·         Crude hit an overnight low of 73.92 before pushing higher; crude took another leg lower on inventory data that showed  inventories had a build 2.608 mln vs consensus of a draw of 1.2 mln, but never reached the overnight low. Futures subsequently recovered, but again took a small hit on the FOMC minutes that were released at 14:00 ET. Crude continues to flirt with the all important support level ~75

  Natural gas rose 12.8 cents (+XXX%) to $4.373/MMBtu

·         Nat gas has been pushing forward since yesterday, reaching a HoD of 4.508 around lunch, but futures have somewhat faded back toward support at 4.35. 

  Heating oil fell 2.22 cents (-0.9%) to $2.3591/gallon

  RBOB was nearly flat on the day at $2.0431/gallon
Treasuries

Yields Firm as FOMC Minutes Offer Little Surprise: 10Y: -11/32..2.357%..USD/JPY: 117.94..EUR/USD: 0.2542

·         Treasuries booked modest losses as trade was whipped around in response to the October FOMC minutes. Click here to see an intraday yields chart.

·         While volatility picked up a bit following the release of the minutes, yields remained stuck in their recent ranges. 

·         The complex held small losses into the cash open and pressed to its worst levels of the day shortly after the mixed housing starts (1009K actual v. 1025K expected) and building permits (1080K actual v. 1040K expected) data crossed the wires. 

·         Some buying emerged as U.S. equities opened up in the red, but trade held in a tight range into the release of the FOMC minutes.

·         Key takeaways from the minutes included some members wanted to remove the ‘considerable time' language and that the staff inflation forecast was reduced as a result of the decline in energy prices. 

·         Maturities surged back to their respective flat lines in an initial response to the minutes, but quickly retreated back onto session lows into the cash close as the minutes were digested. 

·         Up front, the 2Y tacked on +1.7bps to 0.517%. Action tested both the lower and upper bounds of the 0.500%/0.550% band that has held up over the past month, but remained unable to break out. 

·         In the belly, the 5Y added +3bps to 1.639%. Resistance in the 1.650% region that is defended by the 50, 100, and 200 dma remains squarely in focus. 

·         The 10Y gained +2.9bps to 2.351%. Action has held between 2.300%and 2.400% since the end of October. 

·         The 30Y edged up +2.4bps to 3.067%. The yield on the long bond has been trapped between 3.000% and 3.100% for the past month. 

·         A slightly steeper curve took hold as the 2-10-yr spread widened to 183.5bps. 

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

·         Fed Speak: Fed Governor Tarullo speaks at the ClearingHouse Annual Conference Kickoff Breakfast (7:45). SF's Williams will be in Seoul, Korea to take part in a panel at the "Macroeconomic Rebalancing for Sustainable Growth Conference" (20:30).

On other news.... 

FOMC Minutes- Considerable Time Debate
"Some participants preferred to eliminate language in the statement indicating that the current target range for the federal funds rate would likely be maintained for a "considerable time" after the end of the asset purchase program. These participants were concerned that such a characterization could be misinterpreted as suggesting that the Committee's decisions would not depend on the incoming data. However, other participants thought that the "considerable time" phrase was useful in communicating the Committee's policy intentions or that additional wording could be used to emphasize the data-dependence of the Committee's decision process. A couple of them noted that the removal of the "considerable time" phrase might be seen as signaling a significant shift in the stance of policy, potentially resulting in an unintended tightening of financial conditions. A couple of others thought that the current forward guidance might be read as suggesting an earlier date of liftoff than was likely to prove appropriate, given the outlook for inflation and the downside risks to the economy associated with the effective lower bound on interest rates. With regard to the pace of interest rate increases after the start of policy normalization, a number of participants thought that it could soon be helpful to clarify the Committee's likely approach. It was noted that communication about post-liftoff policy would pose challenges given the inherent uncertainty of the economic and financial outlook and the Committee's desire to retain flexibility to adjust policy in response to the incoming data. Most participants supported retaining the language in the statement indicating that the Committee anticipates that economic conditions may warrant keeping the target range for the federal funds rate below longer-run normal levels even after employment and inflation are near mandate-consistent levels. However, a couple of participants thought that the language should be amended in light of the prescriptions suggested by many monetary policy rules and the risks associated with keeping interest rates below their longer-run values for an extended period of time".

Currencies

October FOMC Minutes Weigh on Greenback: 10Y: -06/32..2.336%..USD/JPY: 117.71..EUR/USD: 1.2562

·         The Dollar Index presses session lows near 87.40 as traders digest the minutes from the October FOMC meeting. Click here to see a daily Dollar Index chart.

·         The post-minutes selling has action probing the lower end of the 87.50/88.00 range that been in place the past two weeks.

·         The minutes were largely in-line with expectations with only some participants noting the ‘considerable time' language should be removed. 

·         Today's choppy trade has been unable to break action out of the 87.50/88.00 region that has held up for the past two weeks. 

·         EURUSD is +50 pips @ 1.2580 as trade remains on track to post its best close of November. The single currency spiked to the key 1.2600 area as the Fed minutes crossed the wires, but quickly pulled back from that level. All in all, today's session has been rather uneventful. Eurozone data scheduled for tomorrow is heavy as Flash Manufacturing and Services PMI from across the region is released. 

·         GBPUSD is +85 pips @ 1.5715 as action looks likely to end its five-day skid. Sterling has been bid since the Bank of England votes crossed the wires early this morning, and showed two members remained in favor of hiking rates. Britain's retail sales and CBI Industrial Orders Expectations will be announced tomorrow. 

·         USDCHF is -40 pips @ .9540 as trade slides to its lowest levels since the end of October. Traders have taken note of a Swiss gold referendum poll showing only 38% of would be votes are in favor of the initiative. EURCHF remains little changed on the day near 1.2010, holding just above the Swiss National Bank's 1.2000 floor. Switzerland's trade balance will be released tomorrow.

·         USDJPY is +80 pips @ 117.65 as action presses to a fresh seven-year high. While the Bank of Japan held policy steady overnight, action has been driven by the central bank lowering its inflation assessment to 1% (1.25% previous). This has increased speculation the BOJ will have launch an even bigger bazooka to reach its 2% target. Japan's trade balance is due out tonight.

·         AUDUSD is -80 pips @ .8640 as trade dives to a one-week low. The hard currency remains under pressure as iron ore prices press to their lowest levels since June 2009. China's HSBC Flash Manufacturing PMI will cross the wires this evening.

·         USDCAD is +20 pips @ 1.1315 as trade reverses to session lows. The pair saw some early buying after the U.S. Senate voted against the Keystone XL deal, but has surrendered most of those gains as traders price in the minutes. Canadian data set for tomorrow is limited to wholesale sales.

Next Week In View




Economic Commentaries

Economic Summary: Housing Starts miss expectations; FOMC Minutes due out at 14:00
Economic Data Summary:

·         Weekly MBA Mortgage Applications 4.9% vs Briefing.com consensus of ; Last Week was -0.9%

·         October Housing Starts 1.009 M vs Briefing.com consensus of 1.025 M; September was revised to 1.038 M from  1.017 M

·         October Building Permits 1.080 M vs Briefing.com consensus of 1.040 M ; September was revised to 1.031 M from 1.018 M

o    Single-family construction, which generally follows stable trends, increased 4.2% to 696,000 in October from 668,000 in September. That was the most single-family home starts since 710,000 were started in November 2013. 

Upcoming Economic Data:

·         October CPI due out Thursday at 8:30 (Briefing.com consensus of -0.1%; September was 0.1%)

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

·         October Existing Home Sales due out Thursday at 10:00 (Briefing.com consensus of 5.17 M ; September was 5.17 M )

·         November Philadelphia Fed due out Thursday at 10:00 (Briefing.com consensus of 18.3; October was 20.7)

·         October Leading Indiactors due out Thursday at 10:00 (Briefing.com consensus of 0.6%; September was 0.8%)

Upcoming Fed/Treasury Events:

·         FOMC Minutes today at 14:00

·         Fed Board member Tarullo to speak tomorrow at 7:45 and Friday at 9:30

·         San Fran Fed President John Williams (not a voting FOMC member, moderate) to speak tomorrow at 20:30

Jason's Commentaries

The start of the market is highly volatile, started the session in a bearish mood,  which recovers by 11am ET. However, towards the FOMC minutes, the market decides to take a breather and the market remained flat till the FOMC. However, the FOMC minutes offered no surprises, no changes in interest rate yet until more data support their decision to raise interest rates. However, right now, the futures are down 0.3% as of 4.52am ET. It seems that the beaish are going to weigh at the opening bell.








Market Call: DOWN

Date: 20 Nov 2014