DOW 16994.22 +274.83 (+1.64%), NASDAQ 4468.59 +83.39 (+1.90%),
S&P500 1968.89 +33.79 (+1.75%)
Today confirms one thing – the bears are firmly in charge and the bulls have lost all initiative. With the market making lower highs with every recovery effort, the bulls look like they’ve lost all fuel.
Tomorrow will see the release of the latest Fed Minutes at 2pm ET. While traditionally a non-event, the market might take this report seriously. If they do, they will be looking for hints of a rate hike and/or if the hawks have managed to influence the doves.
But really, there isn’t much to say.
Direction for Wednesday 8 Oct 2014: DOWN▼
Looks like the Fed Minutes came out as a major market mover, and given the dovish nature of the minutes, the market rallied. With the NASDAQ and Russell 2000 leading, that was quite a forward surge.
So the question to ask is whether this is our bounce… and whether it is time for the market to turn higher. We’ll never know for sure, but the next few sessions should give us an answer.
On the macroeconomic front, the Fed minutes suggested that a rate hike might not come so soon, as the global economy isn’t performing as well as expected. The minutes also highlighted that the Fed was concerned that the downside risks present greater danger than the upside risks. However, fact of the matter is, I suspect the Fed is just keeping the market afloat and preventing a major crash.
Market Summary
from Briefing.com
Industry Watch
Strong: Consumer Staples, Financials, Health Care, Utilities
Weak: Energy, Materials, Telecom Services
Other Market Moving Factors
Growth concerns remain at the forefront: China’s HSBC Services PMI slips to 53.5 from 54.1 (expected 53.8)
FOMC Minutes echo concerns about a potential global slowdown
Dow Jones Transportation Average continues recent weakness
Crude oil slides below $88.00/bbl
[BRIEFING.COM] The stock market ended the Wednesday session on an upbeat note despite enduring a shaky start. The S&P 500 spiked 1.8% with the bulk of the gain coming after the release of the FOMC minutes from the September meeting.
Equity indices began the day near their flat lines following another reminder about slowing global growth. To that point, China’s HSBC Services PMI slipped to 53.5 from 54.1 (expected 53.8), but remained above 50.0, which marks the difference between expansion and contraction.
The first half of the session saw a brief dip into the red that was fueled by weakness in the energy sector. At its lowest level, the group was down near 2.0% with crude oil exerting pressure on the sector. Crude fell 1.3% to $87.67/bbl, while the sector ended with a solid gain (+1.0%) after the FOMC minutes sparked an afternoon rally that likely featured a short-covering component.
Most notably, the minutes acknowledged that growth concerns overseas could have an impact on the U.S. through a strengthening dollar, which would lead to a decline in inflation expectations. This was viewed as an indication that the Fed would not rush to raise the fed funds rate, but instead maintain its accommodative policy stance. Treasuries spiked from lows to new highs in response (10-yr yield -3 bps to 2.31%) while the Dollar Index (85.27, -0.40) slumped to a two-week low.
The dovish-sounding statement was accompanied by yet another reminder that economic data would serve as the driving force behind future policy changes. That being said, the overall tenor of the key passages suggests the Fed isn’t convinced recent progress toward its objectives can be sustained.
Accordingly, the prospects of continued easy-money policy resulted in a broad-based rally with high-beta groups leading the way. Chipmakers soared with Intel (INTC 34.27, +0.80) climbing 2.4%, while the broader PHLX Semiconductor Index gained 2.3% to narrow this week’s loss to 0.5%. For its part, the technology sector (+2.0%) ended the day ahead of the remaining cyclical groups. Germany-based business software developer SAP (SAP 69.21, -1.20) bucked the trend, falling 1.7% amid speculation the company will implement a hiring freeze until 2015.
Elsewhere among cyclical sectors, industrials settled in-line with the market, but that concealed the underperformance of transport stocks. The Dow Jones Transportation Average gained 1.0%, but despite today’s advance, the bellwether complex remains down 2.7% since last Friday versus no change for the S&P 500.
On the countercyclical side, the telecom services sector (+0.1%) edged into the green just before the close, while consumer staples (+1.4%), health care (+2.5%), and utilities (+2.2%) posted stronger gains.
The staples sector received a measure of support from Costco (COST 128.73, +3.46), which reported better than expected results. As for health care, the sector received help from biotechnology with the iShares Nasdaq Biotechnology ETF (IBB 274.13, +7.51) surging 2.8%.
Today’s session invited above-average participation with roughly 900 million shares changing hands at the NYSE floor.
Economic data released this morning was limited to the weekly MBA Mortgage Index, which rose 3.8% to follow last week’s downtick of 0.2%.
Global Markets
Asia
Markets fell across most of Asia
China’s Services PMI slid to 53.5 (54.1 previous)
Japan’s current account surplus expanded to JPY0.13 trln (JPY0.10 trln previous), but fell short of estimates
Japan’s Nikkei (-1.2%) pressed to its lowest level since the beginning of September
Hong Kong’s Hang Seng (-0.7%) fell for the first time in four days
China’s Shanghai Composite (+0.8%) climbed to an 18-month high as markets reopened following Golden Week
India’s Sensex (-0.1%) finished at its lowest level in almost two months
Australia’s ASX (-0.8%) fell to an eight-month low
Europe
UK’s FTSE: -0.2%
Germany’s DAX: -1.0%
France’s CAC: -1.0%
Spain’s IBEX: -0.7%
Portugal’s PSI: -2.1%
Italy’s MIB Index: -0.6%
Irish Ovrl Index: -1.6%
Greece ASE General Index: -0.4%
Economic Data
from Briefing.com
Economic Data is listed as Actual vs Consensus. Prior Data is given in brackets. If Prior Data has been revised, revised data will be given instead, together with an indication whether it was revised upward or downward.
MBA Mortgage Index – 07:00 : 3.8% (Prior -0.2%)
Crude Inventories – 10:30 : 5.015M (Prior -1.363M)
FOMC Minutes – 14:00
FOMC MINUTES
Labor market conditions improved a little further, although the unemployment rate was essentially unchanged over the intermeeting period. Although some measures of household expectations of the labor market situation deteriorated somewhat, the rates of job openings and of gross private-sector hiring moved up, initial claims for unemployment insurance were essentially flat at a relatively low level, and some readings on firms’ hiring plans improved… The pace of activity in the housing sector seemed to be picking up.
Real private expenditures for business equipment and intellectual property products appeared to rise further going into the third quarter. In addition, other forward-looking indicators, such as surveys of business conditions, were consistent with moderate gains in business equipment spending in the near term… The U.S. international trade deficit narrowed in both June and July.
indicators of economic activity in the euro area remained weak, and Chinese economic data for July and August suggested some slowing in the third quarter.
Issuance of institutional leveraged loans continued apace in July and August, traditionally a slow period in this market. The issuance of “new money” loans, which are typically earmarked for corporate leveraged-buyouts and mergers and acquisitions, was strong, and the pipeline of such loans was reported to be quite large heading into the fall.
The staff’s medium-term forecast for real GDP was also revised down a little, reflecting a higher projected path for the foreign exchange value of the dollar along with slightly smaller projected gains for home prices.
The staff’s near-term forecast for inflation was a little lower than the projection prepared for the previous FOMC meeting, reflecting recent readings on core consumer price inflation that were lower than anticipated and declines in oil prices that were faster than expected, but the forecast for inflation over the medium term was little changed.
According to national and regional surveys, manufacturing activity was strong, and several participants had received reports of hiring and increased capital spending in that sector. Among the other industries cited as relatively strong in recent months were transportation, energy, and services.
The improvement in business conditions was reflected in reports of increased demand for loans at banks in several Districts.
In their discussion of the appropriate path for monetary policy over the medium term, meeting participants agreed that the timing of the first increase in the federal funds rate and the appropriate path of the policy rate thereafter would depend on incoming economic data and their implications for the outlook. That said, several participants thought that the current forward guidance regarding the federal funds rate suggested a longer period before liftoff, and perhaps also a more gradual increase in the federal funds rate thereafter, than they believed was likely to be appropriate given economic and financial conditions
Read the full minutes
Ticker News
from Briefing.com
HEADLINE NEWS
Allergan (AGN) disclosed that it filed a motion for preliminary injunction seeking an order that would enjoin Pershing Square from exercising any of the privileges of ownership attaching to its 9.7% stake in AGN
American Airlines (AAL) Sept RPM -0.2% YoY; narrows Q3 PRASM to +0.5-1.5%
Apple (AAPL) Watch introduction should not be impacted by GT Advanced (GTAT) bankruptcy, according to reports
Carlisle (CSL) to acquire liquid finishing business assets from Graco (GGG) for $590 mln in cash
Cisco Systems (CSCO) re-organization may impact 25K employees, according to reports
CytRx (CYTR) announces unexpected passing of Chairman Max Link
NASDAQ (NDAQ) Sept US matched equity volume +12% to 25.2 bln shares
EARNINGS/GUIDANCE
Advanced Semi (ASX) reports Q3 revs rose 17.4% YoY to NT$66.6 bln vs NT$68.0 bln CIQ est
Costco (COST) beats by $0.06, reports revs in-line; reports Sep comps of +4% vs +5.6% Retail Metrics consensus
Interface (TILE) issues downside Q3 revenue guidance
Monsanto (MON) misses by $0.03, beats on revs; guides FY15 EPS below consensus
Park City Group (PCYG) says it expects 22-24% subscription revenue growth in SepQ
RPM Inc (RPM) reports Q1 (Aug) results, misses on revs; reaffirms FY15 guidance; guides FY16 EPS midpoint above consensus
YUM! Brands (YUM) misses by $0.01, misses on revs; lowers 2014 EPS outlook; reports Q3 China same store sales of -14%, guided for -13%
ANALYST ACTIONS
Upgrades
Applied Materials (AMAT) upgraded to Outperform from Underperform at Credit Agricole; tgt raised to $23 from $22
CNOOC Ltd (CEO) upgraded to Buy from Hold at Jefferies
Downgrades
Natl Oilwell Varco (NOV) downgraded to Neutral from Overweight at HSBC Securities; tgt lowered to $80 from $87.16
Other
Alibaba (BABA) initiated with a Neutral at Macquarie; tgt $88
Becton Dickinson (BDX) target raised to $132 at RBC Capital Mkts
Cummins (CMI) initiated with a Buy at Stifel; tgt $160
Delphi Automotive (DLPH) target lowered to $75 at RBC Capital Mkts
McKesson (MCK) initiated with a Buy at Citigroup
Technical Analysis
DOW JONES INDUSTRIAL AVERAGE
16994.22 +274.83 (+1.64%)
Volume: 106,928,713 (above average of 78,963,977)
Range: 16663.26 – 17006.91
NASDAQ COMPOSITE
4468.59 +83.39 (+1.90%)
Volume: 595.4M (above average of 446.6M)
Range: 4355.34 – 4473.73
S&P500 INDEX
1968.89 +33.79 (+1.75%)
Volume: 610.7M (above average of 460.8M)
Range: 1925.25 – 1970.36
And we’re back to Friday last week… The S&P500 and NASDAQ continue to remain under their 50MAs, while the DOW does slightly better at staying afloat – it’s above its 50MA.
I can’t say for sure that we’re about the bounce, given that this move is mainly news driven. But it wouldn’t be wrong if the market did bounce, it is the right season for it. But this all feels like the calm before the storm, and I have gut feeling that this is just a temporary move.
In terms of upside resistances, the DOW still remains stuck below the 17000 psychological barrier, and that will put downward pressure on the index. The 20MA also remains resistance for the DOW. I will look at 4470 on the NASDAQ and its 50MA, while I will look at the 50MA for the S&P500.
Market Internals
NYSE:
Higher Volumes than the day before – 920.2M vs 790.8M
Advancers outpaced Decliners (adv/dec): 2500 / 612
New Lows outpaced New Highs (highs/lows): 35 / 276
NASDAQ:
Higher Volumes than the day before - 2435.1M vs 2089.5M
Advancers outpaced Decliners (adv/dec): 1929 / 785
New Lows outpaced New Highs (highs/lows): 23 / 285
VOLATILITY S&P500 (VIX)
15.11 -2.09 (-12.15%)
Advancers outpaced Decliners by 3.17 on higher volumes than the day before (+475.0M +16.49%).
Convergent bullish internals for a massively bullish day. Why not?
The New Lows and New Highs continue to be exceptionally bearish, and I will be watching these numbers over the next few days for signs of convergence/divergence.
The VIX plunged to the 15.00 level, and this should give it some short-term support over the next few sessions.
Treasury Bonds, Currencies & Commodities
from Briefing.com
Treasury Bonds
10Y Settles at 2.33%, Lowest Since June 2013:
Maturities across most of the Treasury complex finished on session highs after the latest FOMC minutes suggested the global economy was slowing and that its ‘considerable time’ language is misunderstood.
Yields drifted little changed into the cash open before seeing a steady climb into this afternoon’s tepid $21 bln 10Y note reopening.
The reopening drew 2.381% (WI 2.367%) and a light 2.52x bid/cover. Indirect bids (44.4%) were close to their 12-auction averages, but directs (6.6%) were light. Primary dealers took down just less than 50% of the supply.
The weak auction ran yields to their highest levels of the session, but the advance would not last long as the dovish FOMC minutes produced an aggressive bid and pushed yields to their lows.
Up front, the 2Y tumbled -6.4bps to 0.448%. Today’s bid pushed the yield below 0.500% support that had been in place since the beginning of September and caused action to close at an almost two-month low.
In the belly, the 5Y plunged -6.4bps to 1.573%. Buying over the past three weeks has dropped the yield -30bps off the September highs.
The 10Y shed -2bps to 2.330%. The benchmark yield settled at its lowest level since June 2013.
The long end lagged as the 30Y added +0.6bps to 3.062%. The light selling caused the yield to tick off 17-month lows.
A steeper curve developed with the 2-10-yr spread widening to 188bps and the 5-30-yr spread growing to 149bps.
2Yr 0.46 (-0.06), 5Yr 1.57 (-0.07), 10Yr 2.35 (-0.01), 30Yr 3.07 (-0.01)
2/10 Spread: 189bps (+5); 2/30 Spread: 261bps (+7)
Currencies
Dovish FOMC Minutes Weigh on Greenback:
The Dollar Index tumbled to session lows near 85.40 after the latest FOMC minutes hinted at risks to the global economy and suggested the ‘considerable time’ language is misunderstood.
EURUSD is +45 pips @ 1.2710 as trade climbs to its best level in almost two weeks. The recent bid has the single currency higher for a third straight session with action now more than 200 pips off Monday’s lows. ECB head Mario Draghi speaks tomorrow in Washington D.C.
GBPUSD is +10 pips @ 1.6105 as trade fights to put in a third day of gains. The 11-month lows near 1.5950 will be monitored into tomorrow’s Bank of England rate decision.
USDCHF is -25 pips @ .9540 as trade continues to slide off 14-month highs. Three days of selling has erased close to 200 pips and has action testing minor support in the area.
USDJPY is +10 pips @ 108.25 as trade drifts little changed. The pair has seen a volatile trade amid today’s session, but neither bulls nor bears have been able to gains the upper hand. Japan’s core machinery orders are due out tonight.
AUDUSD is -10 pips @ .8795 as trade rallies off the lows. The pair hit session lows near .8740 ahead of the minutes, but is now testing the .8800 area that has served as a ceiling for the past two weeks. Australia’s employment date will cross the wires this evening.
USDCAD is -30 pips @ 1.1135 as trade contends with its lowest close in two weeks. This morning’s housing starts data (197K actual v. 195K expected) was in-line with estimates and traders now await tomorrow’s New Home Price Index release.
Commodities
Closing commodities: Crude oil probing new lows on the daily chart, natural gas follows; gold broke down early in the session but rebounded and is now higher on the day
Gold traded higher overnight, broke down in a big way this morning, but has since fully recovered, now higher by 0.6% and back in the upper band of this week’s trading range.
Silver continues to probe support levels near $17, trading lower throughout much of the session, but the metal, mirroring the move in gold, is now higher by 0.75%.
Crude oil tanked today, now trading down 1.7% to $87.32/barrel, following inventory data that showed inventories had a build of 5.015 mln vs consensus for a build of 1.5-2.0 mln (see 10:30 comment for details). Oil is creating fresh lows on the daily chart, trading down and testing lows from the week of 4/17/13.
Natural gas also had a rough session, falling 2.45% to $3.86; the LoD was $3.837/MMB, a new 10-day low.
Energy
Crude oil tanked today, now trading down 1.7% to $87.32/barrel, following inventory data that showed inventories had a build of 5.015 mln vs consensus for a build of 1.5-2.0 mln (see 10:30 comment for details). Oil is creating fresh lows on the daily chart, trading down and testing lows from the week of 4/17/13.
Natural gas also had a rough day, falling 2.45% to $3.86; the LoD was $3.837/MMB, a new 10-day low.
Heating oil declined 3 cents or 1.2% to $2.576/gallon
RBOB took a hit as well, falling 2% or nearly 5 cents to $2.32/gallon
Agriculture
Corn advanced 2 cents to $3.43/bushel
Wheat climbed nearly 2 cents to $5.08/bushel
Soybeans fell 6 cents to $9.35/bushel
Ethanol rose 2 cents to $1.59/gallon
Sugar #11 was down slightly, 0.2%, on the day closing at nearly 17 cents/lb
Metals
Gold traded higher overnight, but those gains were quickly erased starting at 10am, breaking down with the S&P 500 (which has since recovered), now trading down 0.5% to $1206.2. The precious metal is still flirting with Dec 2013 lows, having trended lower following the 52 week high reached on 3/17/14 of $1,392.6.
Silver continues to probe support levels near $17, trading lower throughout the session now off 1% at LoD to $17.07
Copper moved lower on the session, now down 1.2% to ~$3.00
Preview: Thursday 9 Oct
Economic Data
Economic Data is listed as Consensus by default. Prior data will be given in brackets. If Consensus Data is not available, Prior data will be given without brackets. If Prior Data has been revised, the revised data will be given together with an indication whether it was an upward or downward revision.
Initial Claims – 08:30 : 295K (Prior 287K)
Continuing Claims – 08:30 : 2425K (Prior 2398K)
Wholesale Inventories – 10:00 : 0.3% (Prior 0.1%)
Natural Gas Inventories – 10:30 : Prior 112bcf
Corporate Earnings
BMO :
LNN PEP ZEP
AMC :
ADES ANGO CUDA CMTL FN HELE NQ VOXX
Other Events of Interest
Fed/Treasury/Political Events
Fed’s Bullard (2014 non-voting) – 09:45
ECB Draghi – 11:00
Fed’s Williams (2014 non-voting) – 12:40
$13-bln 30-Year Treasury Bond Auction – 13:00
Fed’s Lacker (2014 non-voting) – 13:15
Economic Events
BoE Rate Decision – 07:00
Commentary
Well.. the bulls might be back in the picture. Or was that massive short-covering followed by retailer buying? We don’t know for sure. But one thing’s for certain – that rally wasn’t convergent and there are still many unanswered questions.
I reckon that Thursday might see some profit-taking. Whatever it is, it definitely won’t be as strong as today. The next two sessions will be crucial for saving, or ruining.. this market.
Direction for Thursday 9 Oct 2014: DOWN▼
Daily Directional Accuracy (from 14 May 2014): 66/99 (66.67%)
Weekly Directional Accuracy (from 16 May 2014): 11/19 (57.89%)