#Fed Keeps Dovish Stance at Today’s Meeting

The market was largely on hold waiting for the Fed’s statement to be released at 2:00pm ET. The statement was little changed, keeping in the “considerable period” phrase that many in the market had believed it would drop. The rest of the statement was little changed, which was much less than many market participants had expected the FOMC would do. However, the Summary of Economic Projections (SEP) showed a different picture. Although the commitee members’ outlooks for GDP and inflation were the same or lower, it raised its forecasts for interest rate projections in 2015, 2016, and 2017 – a curious development. This caused interest rates to rise and influenced a bear flattening in the Treasury yield curve.

Two FOMC members dissented at this meeting: Presidents Fisher and Plosser. Fisher argued that due to the recent increase in economic activity, labor market utilization, and financial market excess, the Fed will need to begin normalizing policy earlier. Plosser dissented for the same reason as the last meeting, believing that the FOMC’s forward guidance was not warranted now that the committee is closer to its economic goals.

Trading was predictably all over the map following the statement and Fed Chair Janet Yellen’s press conference. The biggest standout was the strength in the US dollar, which rallied 0.72% by the end of the equity session, a move in excess of three standard deviations. This caused gold and other commodities to fall. The yellow metal lost more than 1% for the day.

Equities traded around flat for much of the session. After the meeting, stocks briefly rose, the S&P 500 (SPX) gaining as much as 0.58% to breach its prior all-time highs, before settling back to just 0.13% for the session. Energy stocks were predictably weak thanks to the stronger USD and utilities lost in sympathy to higher interest rates. Materials and transportation stocks were strong this morning thanks to a strong earnings report from Fedex (FDX) and one of US Steel’s (X) Canadian units filing for creditor protection. Market breadth was neutral with exactly half of the issues in the SPX advancing.

August consumer prices fell 0.2% from the prior month, lowering the annual rate of change to 1.7% from 2.0% in July. Economists had expected the sequential change to be flat and the year-on-year rate to fall to 1.9%. The core rate was unchanged for the first time since 2010 (economists expected a 0.2% gain) and its year-on-year rate fell to 1.7% from 1.9% in the prior month. The NAHB survey of real-estate agent and realtor sentiment rose to its highest level since 2005.

If you didn’t get enough of the Fed today, not to worry, tomorrow morning at 8:45am Chair Janet Yellen will give a speech to the Corporation for Enterprise Development’s 2014 Assets Learning Conference. The prepared text will be released through a prerecorded video so there will be no Q&A session. Weekly initial jobless claims will be released in the morning in conjuction with August housing starts and permits. Jobless claims are expected to remain near the 300K level from the past six months. Last week’s claims rose to 315K and 304K are expected this week. New housing starts are expected to remain at a similar annual pace of 1.040 million after last month’s figure rose to 1.052 million.

Arguably the second most important event of the week – the Swiss National Bank (SNB) rate decision – is scheduled to be released at 7:30am GMT tomorrow. Because the ECB has chosen to set a deposit rate of -0.20% and the SNB must defend its EURCHF peg of 1.20, this will likely result in a second developed market central bank setting a negative interest rate. Previous comments from SNB policymakers have hinted this is a distinct possibility and the foreign exchange markets have reacted accordingly. This could end up being another headwind for the US dollars as the SNB may be forced to diversify into USD assets rather than Euro.

Another significant event is the Scottish referendum vote, which will determine whether or not it will break from the UK. The first exit polls will be released at 2:00am local Scottish time on Friday and continue until 6:00am.

Oracle (ORCL) is a major earnings report scheduled for tomorrow, the first for the tech sector. ConAgra (CAG), TIBCO Software (TIBX), RiteAid (RAD), and RedHat (RHT) will also report.

#China #Liquidity Injection Helps Propel Risk #Assets Higher

Two pieces of relevant news was released near midday that propelled risk assets higher. Fed watcher Jon Hilsenrath of the WSJ said on a discussion panel that he thinks the central bank will keep its “considerable time” language in the FOMC’s statement, scheduled for release tomorrow, on when the central bank would begin normalizing monetary policy. This caused a sharp drop in the USD, steepening in the yield curve, and a rally in commodities.

Separately, it was revealed that the People’s Bank of China (PBoC) had lent 500 billion yuan to the five largest Chinese banks through a special lending facility. The move is the equivalent of a 50bps rate cut to the banks’ reserve requirements. Chinese H-shares indices – only tradeable by locals – had been down more than 1.8% last night following a report on foreign direct investment that showed a collapse in August. The 1.82% drop in the Shanghai Composite (SHCOMP) is the equivalent of two standard deviations or a 230 point drop in the Dow Jones Industrials (INDU).

Much of the rally in US stocks was attributed to generally heavy short positioning in preparation for tomorrow’s FOMC meeting and the Scottish independence vote in Thursday. With the risk of a hawkish meeting diminishing and further polls showing the gap between the “No” and “Yes” votes widening, this provided a tailwind for the S&P 500 (SPX). The benchmark index opened the day down a few points and reversed more than 1% during the session to finish up 0.75%. Healthcare, utilities, and energy stocks all led with every sector finishing positive. Trading activity on US exchanges was the most active it’s been in months.

The August producer prices report was completely inline with expectations. Prices were flat in the month and the rate of growth from a year ago rose to 1.8% from 1.7% in the month prior. Same-store sales showed a drop of 2.6% for the week ending September 13 following a spending spree around the turn of the month coinciding with the back-to-school shopping season. Demand for fall apparel has not picked up yet, according to ICSC.

Tomorrow will be the long awaited conclusion of the FOMC meeting. The Federal Reserve’s monetary policy committee will release its statement and economic projections at 2:00pm ET with a press conference scheduled to begin thirty minutes later. The statement will reveal the committee’s 2017 economic projections for the first time. Many market participants expect the release of the economic projections to show a higher rate of Fed funds in 2017 than is currently priced into the interest rate market. Additionally, they expect the FOMC to reconfigure its language surrounding the normalization of policy, which would leave the door open for a rate hike in the first quarter of next year. The market currently expects the Fed to hike at the June meeting or slightly after. Trading will likely be quiet up until the statement is released as positions have largely already been set.

The August consumer price index will be released tomorrow morning. Following 15 months of sequential gains, consumer inflation is expected to remain flat for August and at a 1.9% annual pace of growth. That is down from 2.0% in the month prior. The NAHB survey of homebuilder and real-estate sentiment is due to be reported in the late morning.

Overnight, the Bank of England (BoE) will release the minutes from its latest monetary policy meeting. At the last meeting, two members of the Monetary Policy Committee (MPC) dissented, having advocated the need for a rate hike at that meeting. In the release of the minutes, their dissent was marginalized as a “minority,” which was received positively by the market. Some of that dissent has been quelled by recent speeches from both BoE Governors Carney and Broadbent. However, if more MPC members dissent at this meeting, then it may become a problem and accelerate the central bank’s time table. Separately, Carney is scheduled to speak at 9:45am ET to the UK Parliament.

Lennar (LEN), Fedex (FDX), Pier 1 Imports (PIR), and General Mills (GIS) are scheduled to report earnings tomorrow. Fedex will be an important bellwether to help corroborate the recent acceleration in activity seen in various manufacturing surveys.

Daily outlook for FX markets

Quotes from Danske Bank:

-The reaction in the FX markets to the FOMC decision was relatively muted. The larger reaction came on the back of the strong US GDP data. We have changed our Fed forecast, expecting the first rate hike to come in April 2015. This supports our bullish USD call, particularly versus EUR, JPY and CHF.

-We forecast USD to rise 5-10% versus EUR, JPY and CHF over the coming 6-12 months. Short-term technicals are bullish for USD/JPY and we note that positioning is less crowded now, according to IMM data.

-Focus today will be on the euro-zone CPI data, which we expect to come out at 0.4% y/y putting further downward pressure on EUR/USD, as expectations that the ECB will have to do more will resurface.

Fed Comments on Investor Complacency Fails to Deter Markets

The Federal Reserve released the minutes of its June meeting this afternoon. In the minutes, FOMC officials noted that investor complacency was too low, and that investors were not concerned enough the future path of monetary policy and the economy. The minutes also contained new comments on the Fed’s plan for exiting extraordinary policy (QE), and indicated that the current asset purchase program would likely conclude in October. Comments were generally mixed about the recently higher readings of inflation and what they would mean for inflation in the future. However, the committee still viewed upward wage pressures as a necessary precursor to future inflation gains, and noted that wages have recently continued to rise at a modest pace.

US markets generally rebounded from two days of selling pressure. The S&P 500 (SPX) rose 0.40% and increased its gains after the FOMC minutes were released. All of the index’s 10 basic sectors were higher today, led by consumer discretionary stocks. Small cap stocks lagged, even though the tech-based Nasdaq-100 (NDX) outperformed significantly.  Treasury yields dropped on the FOMC news, which caused the US dollar to fall against all major currencies. Gold jumped more than 1%.

Early this morning, Portuguese sovereign bonds and the notes of its second largest bank Espirito Santo (BES) collapsed. A newspaper reported that the parent holding company had partially defaulted on its commercial paper. Outstanding senior bonds for its holding company collapsed by more than half of their value and prompted a ratings downgrade from Moody’s.

The only US report scheduled to be released tomorrow is weekly initial jobless claims. Claims are expected to remain unchanged from the prior week at 315,000, which is also their 4-week moving average and near the average for the last three months. Fed Vice Chairman Stanley Fischer is expected to address financial market reform in a speech after the market close. It will be his first time speaking since being elected to the Fed more than six months ago, and his first public appearance in 12 months.

Newly elected Indian Prime Minister Modi will release his first budget overnight. Modi was elected largely due to his potential ability to improve India’s fiscal situation and has been a key driver of the 20% rally in his country’s stocks year-to-date. Also scheduled to be released is China loan supply growth, Australia’s unemployment data, and the Bank of England’s monthly monetary policy decision. The Australian data will draw increased scrutiny because recent data showed an increasing dispersion between full- and part-time workers.

The only earnings report scheduled for tomorrow is Family Dollar (FDO).

FOMC Decision Boosts Stocks and Bonds; Amazon’s Phone Is a Hit With Investors

Following a slow start to the day, US stocks reacted very positively to today’s FOMC announcement at 2:00 p.m.

The FOMC reduced its monthly asset purchases by $10 billion, as was broadly expected. The committee’s statement reflected a less optimistic tone than the market had anticipated, with weaker growth noted in consumer spending. The committee’s central tendency for 2014 real GDP growth was reduced to a range of 2.1% – 2.3%, from 2.8% – 3.0%, at its March meeting. Additionally, its median long-run Fed funds forecast was reduced to 3.75% from 4%. Lastly, the addition of Vice Chairman Fischer to the committee added another dovish forecast for Fed funds over the next three years.

Both stocks and bonds rallied in reaction to the Dovish commentary from the Fed.

The S&P 500 (SPX) finished up 0.77% at 1,957, breaking the record high from earlier this month. However, the strength was not quite so broad-based — both the Nasdaq Composite (NDX)  and Russell 2000 (RUT) underperformed.

Importantly, the strongest sector was utilities, which is typically indicative of cautious sentiment.

Elsewhere, transport stocks impressed, led by FedEx (FDX), which was up nearly 6% on better-than-expected fourth-quarter earnings. FedEx missed analysts’ expectations in the last two quarters, setting the stage for a nice upside surprise.

Amazon.com (AMZN) rose 2.62% to $334.16 after unveiling its highly-anticipated Fire Phone, which goes on sale soon at AT&T (T). Amazon also benefited from positive comments by FedEx regarding e-commerce shipment activity.

Adobe Systems (ADBE) was another winner, shooting up 8.17% on its own better-than-expected earnings report, driven by solid demand for its Creative Cloud service.

OpenTable (OPEN), which is set to be acquired by PriceLine (PCLN) for $103 per share, squeezed higher to finish at $105.17, implying that traders are speculating on a competing bid.

On the negative side, biotech, industrials, and housing names underperformed.

In international news, the Financial Times reported that the IMF is urging the ECB to conduct large-scale purchases of sovereign bonds to hold down rates and stabilize the Eurozone economy.

The situation in Iraq remains tense. Iraq asked the US for air support as ISIL (also known as ISIS) insurgents attempted to overtake the country’s biggest oil refinery. Stateside, there has been heavy debate over just how much the US should get involved, particularly when it comes to the use of ground troops.

Weekly jobless claims are scheduled to be released tomorrow morning. Claims are expected to remain near their average for the last four months at 313,000. Additionally, the second regional manufacturing survey for June, from Philadelphia, will be released. The survey is expected to drop to 14.0 from 15.4 last month, still showing strong growth.

Overnight, New Zealand will report first quarter GDP, the last developed market country to do so. Swiss National Bank will announce its rate decision tomorrow a.m. in what should be the morning’s most important market event. It’s expected that the SNB will lower its rate below zero in response to a similar decision by the ECB, to prevent excessive capital inflows into the country. If so, it would shift safe asset flows away from Switzerland and into the US or other highly-rated countries.

Oracle (ORCL), considered a barometer stock for the corporate tech sector, is scheduled to report earnings tomorrow afternoon. Smith & Wesson (SWHC), Kroger (KR), and Rite Aid (RAD) are all scheduled to report earnings as well.

Minyanville Daily Recap 29/04/2014

It was a slow day for US markets as investors waited on making any big changes before tomorrow’s advance estimate of US first-quarter GDP and the conclusion of the FOMC’s monetary policy meeting. Tensions continued in Ukraine as the defense spokesman for the US said the Pentagon was thinking about increasing its military exercises in the Baltics. The S&P 500 opened the day up a few points and, after a quick plunge in the opening minutes, finished near its highs of the day. Japanese markets were closed last night. Financials, materials, and tech stocks were the best performers today, while utilities lagged. Bank of America (BAC) regained almost 2% in today’s session after it lost more than 6% yesterday following its restatement of its capital ratios and suspension of its dividend and buyback program. Its refiled plan with the Federal Reserve would likely push for the dividend increase but abandon its buyback program. Apple (AAPL) sold $12 billion of debt in a seven-part offering. The order book for the deal was said to be in excess of $40 billion. The new debt will be used to fund the company’s $30 billion expansion in its stock buyback plan and 8% increase in its quarterly dividend. German engineering and manufacturing company Siemens AG (SIE) announced that it would make a bid for Alstom SA’s (ALO) assets if it was given the proper time to perform due diligence on the company’s books and management. General Electric (GE) has already submitted a binding offer over the weekend, which Alstom prefers at present, but the French government has urged the company to entertain both offers. It was also reported that Siemens was exploring the purchase of Rolls-Royce’s energy assets. Twitter (TWTR) reported earnings after the close, beating on EPS, revenues, and raising guidance for the full year and coming quarter. However, the subscriber growth did not beat analyst expectations strongly enough and the stock sold off in excess of 8% in extended trading. There are three significant events tomorrow that will drive what is likely to be a volatile day: the advance estimate of first-quarter US GDP, the ADP private payrolls report, and the policy statement from the FOMC. US GDP is expected to rise at a quarterly annualized rate of 1.2% in the first quarter, down from its 2.6% rate in the quarter prior. For April, private payrolls are expected to rise 210,000 after gaining 191,000 last month. And lastly, the Fed is expected to further reduce its monthly asset purchases by $10 billion to $45 billion and leave the language of its statement unchanged. The regional Chicago purchasing manager index is also scheduled to be reported. It will be equally busy in the rest of the world. Preliminary March Japanese industrial production is scheduled to be reported in addition to the advance manufacturing survey for April. Germany’s retail sales report for March and employment change for April is also scheduled to be reported. Finally, and most importantly, the April eurozone consumer price index will be reported at 4:00 a.m. EDT. Today’s German HICP inflation only rose 1.1% year-on-year, below the 1.3% expectations, which foreshadows a broader report that’s below expectations. Eurozone CPI is expected to rise to a year-on-year rate of 0.8% from 0.5% last month. Fifty-four major US companies are scheduled to report earnings tomorrow. Notable reports include Hess (HES), International Paper (IP), Yelp (YELP), Tesoro (TSO), Western Digital (WDC), and MetLife (MET).

FOMC Minutes Help Clarify Fed Funds Forecasts

The Fed released the minutes of its last FOMC meeting in March this afternoon. The minutes furthered the previous speeches given by a number of Fed officials over the past few weeks that indicated the market was overreacting to the change in the committee’s Fed funds forecasts. However, a number of FOMC members said that their updated rate projections reflected improvement in the labor market outlook. This suggests that the hawkish members of the committee are seeing an improvement in the economic outlook, which would be consistent with rate hikes next year.

US equities continued their rally after the minutes were released. The S&P 500 rose an additional eight points after 2 p.m. EDT, completing the session up 1.09%. Beaten-down tech stocks in the cloud, biotech, and frontier sectors all gained the most. The February release of wholesale inventories showed a 0.5% month-over-month gain, in line with expectations, and the prior month’s gains were revised up by 0.1%. The positive revision was enough for economists to modestly increase their first-quarter GDP projections.

General Motors (GM) was downgraded by Morgan Stanley (MS) this morning, seeing increased competition from Ford (F) and Tesla (TSLA) and profits that were too dependent on China. Citigroup (C) defended the stock, saying that the sell-off is a buying opportunity and that the threats of new technology in the auto space would not impact 2015 estimates.

Tomorrow, weekly jobless claims will be released. Economists expect claims will be 320,000 for last week, which trends back toward their four-week moving average of 319,500. March import prices are expected to decline at a 0.9% annual rate after dropping 1.1% in the month prior. The last economic report of the day, the March Treasury budget, is expected to narrow to a deficit of $36 billion after a deficit of $106.5 billion in February.

The major news event tomorrow globally is the rate decision by the Bank of England, scheduled for 7:00 a.m. EDT. The modest rise in the UK’s unemployment rate last month should give the central bank cover to be less hawkish in its message. Also scheduled to be reported are Chinese new credit growth and Australia’s employment change from March. Both should have an effect on the Aussie dollar.

Family Dollar (FDO) and Rite Aid (RAD) are scheduled to report earnings tomorrow morning.

Fed Meeting Provides Fireworks for the Market

The FOMC released its monetary policy statement at 2 p.m. EDT. As expected, the Fed reduced its monthly asset purchase program by $10 billion and dropped its 6.5% unemployment threshold. The threshold was dropped because policymakers agreed that the employment situation had improved, but the magnitude of the continued drop in the rate was due to workers leaving the labor force.

Interest rate markets were spooked after the summary of the FOMC’s fed funds projections were released, which indicated that the members saw a faster pace of rate hikes in 2015. The median rate at the end of 2015 moved up to 1% from its prior 0.50%. Three- and five-year Treasury rates rose 14 and 16 basis points, respectively.

Equity markets were also spooked when Janet Yellen responded to a question in her press conference following the statement. In the FOMC’s statement, it said that the committee saw the need to keep rates near zero for a considerable amount of time after the asset purchase program end. Yellen indicated in her answer that a considerable amount of time would be about six months, which was significantly faster than the market had been prepared for. The S&P 500 initially lost as much as 20 points after her comment, but it recovered much of these losses by the end of the session. The benchmark index closed down 0.61%. Banks showed relative strength versus the broad market weakness, closing up 0.55% as a group.

The US current account balance deficit shrank to the smallest level since 1999 at $81.1 billion. The drop was largely due to less dollar capital leaving the US and foreigners becoming net investors in the US.

 

Tomorrow morning, weekly jobless claims, the March regional Philadelphia manufacturing index, and February existing home sales will be released. Existing home sales, which make up about 85% of monthly home sales, are expected to remain unchanged from the prior month at an annual rate of 4.62 million. The Philadelphia manufacturing index will be the third piece of information we receive about March economic activity. Lastly, jobless claims are expected to trend hire to 325,000, closer to the 330,500 four-week moving average.

There are only a few events of note tomorrow in the rest of the world. Germany will release February producer prices and the Swiss National Bank will announces its bimonthly monetary policy decision. The Bank of Japan governor Haruhiko Kuroda will speak in Tokyo.

Two important earnings reports are scheduled for tomorrow: Nike (NKE) and Lennar Homes (LEN). Respectively, they are the first consumer and homebuilder to report earnings from the quarter passed. Nike’s results will give a good idea of overseas sales and the recent strength in the US dollar. Other companies scheduled to report are ConAgra Foods (CAG) and Silver Wheaton (SLW).

Stop Kidding Yourself! – 01/30/2014 (great truth)

Here is the false equation being made by too many investors.

Fed expanded taper = stocks went down

However, stocks were already in the tank Wednesday before the FOMC announcement. In fact, they are now down for 4 of the last 5 sessions. So obviously the cause is elsewhere… which I will simplify as follows.

The market is now down because everyone expected it go up in January.

Yes, when everyone is onboard, and of the same mind, then there are not enough new buyers for a while which causes downside pressure. As the pullback gains steam and more folks panic, it then creates the next buying opportunity.

That is why it is often said the market “slides down a slope of hope” and “climbs a wall of worry”. Meaning it often does th e opposite of what is commonly believed by investors. So as perception becomes more bearish, then likely the time to buy. (If you are looking for an easy and logical place to make money, then stock investing is probably not for you 😉

Best,

Steve Reitmeister (aka Reity…pronounced “Righty”)

Executive Vice President

Zacks Investment Research

Japanese equity sell-off runs its course? – UBS

2013-06-24 10:55 GMT | FXStreet.com

FXstreet.com (New York) – According to Research Analyst Gareth Berry at UBS, “UST yields are still pushing higher in the wake of last week’s FOMC decision – crucially though, JGB yields have not followed suit.”

This spread widening will, over time, incentivize Japanese real money investors to shift funds abroad. “Although Japanese investors have been net sellers of foreign bonds for each of the past five weeks, we would not be surprised to see yen outflows return soon, especially given our asset allocation team see fair value for the UST 10y yield at 2.9% in 2013.” Berry adds.

Moreover, the savage selloff in Japanese equities appears to have run its course, for now at least. That means rising US yields will have greater freedom to boost THE USD/JPY without having to push against selling pressure due to softer equities. Equities are not out of the woods yet of course, but at least US stocks seem to have already found a foothold in the wake of last week’s FOMC decision, and the selloff there was not at all severe.