Market seems to be at their respective support level. I suppose tomorrow session will decide if the market is likely to pullback or continue to go down more.
Looking at the yield curve, I have noticed that it has been flattening as there is more doubt in the market given the fact that oil prices have not found a bottom yet and geopolitical situation at Euro, China and Japan.
On Tuesday we will have building permits out and that could be a market mover too.Direction for the Tuesday 16 Dec, 2014; Up
Market had another wild session prior to FOMC meeting on Wednesday. DOW went up about 300 points after opening before it gets another sell off to end the session in red (or should I say flat). In fact it is the same for all three indices.
Market Summary
Industry Watch
Strong: Consumer Staples, Energy, Industrials, Materials, Telecom Services
Weak: Consumer Discretionary, Financials, Technology
Other Market Moving Factor:
- Cautious sentiment in FX market with yen climbing against major currencies
- Crude oil remains volatile
- China's HSBC Manufacturing PMI slides into contraction (49.5; expected 49.9)
Yesterday evening, the Central Bank of Russia hiked its key interest rate by 650-basis points to 17.0% with the move aimed at halting the recent freefall in the ruble. The news gave a brief boost to the Russian currency, but the ruble was down more than 18.0% (77.93) against the dollar this morning, which invited concerns about potential economic and financial risks stemming from the continued plunge. This sent participants scrambling in search of safe havens, which boosted Treasuries and the yen.
Meanwhile in the commodity market, crude oil was down in excess of 2.5% this morning, but the energy component spiked off its low shortly after the start of the pit session. Oil was able to return to its flat line, but could not make a sustained move into the green, ending with a nine-cent loss at $55.87/bbl.
The rebound in crude occurred as equities climbed off their lows, while the ruble managed to reclaim its overnight loss. Also of note, the dollar/yen pair narrowed its decline to about 110 pips (116.70), allowing the Dollar Index (87.93, -0.53) to climb off its low. The index hovers just below its November high going into tomorrow's FOMC policy directive, which will be released at 14:00 ET.
While the FOMC statement is likely to acknowledge continued growth and strength in the U.S. labor market, it is unlikely that it will have a strong hawkish undertone considering the recent weakness in crude oil and the resulting impact on inflation.
Only two sectors ended the day in the green with energy (+0.7%) representing the lone advancer on the cyclical side. The energy sector was able to rally as participants deemed the growth-sensitive sector oversold on a short-term basis after losing 8.1% so far in December. Today's advance trimmed the sector's month-to-date loss to 7.0% with Dow component Chevron (CVX 101.70, +0.84) climbing 0.8%.
Also of note, the industrial ended on its flat line, owing its outperformance to defense contractors, and specifically, shares of Boeing (BA 124.25, +2.17). The stock jumped 1.8% after the company hiked its quarterly dividend 25.0% to $0.91 per share and increased its share repurchase plan to $12 billion.
The remaining cyclical sectors could not stay out of the red with consumer discretionary (-1.6%), financials (-1.0%), and technology (-1.5%) driving the market to fresh lows during afternoon action.
Notably, the tech sector trailed the broader market throughout the day, but its underperformance proved to be a significant drag in the afternoon. Google (GOOGL 498.16, -17.68) and Microsoft (MSFT 45.22, -1.45) posted respective losses of 3.4% and 3.1%, with the latter suffering from a Bank of America/Merrill Lynch downgrade to ‘Underperform' from ‘Neutral.'
The underperformance of technology kept the Nasdaq (-1.2%) behind the S&P 500 throughout the day while afternoon weakness in the biotech space pressured the tech-heavy index to a fresh low ahead of the close. The iShares Nasdaq Biotechnology ETF (IBB 293.67, -3.99) and the health care sector both lost 1.3%.
Treasuries ended near their highs with the 10-yr yield lower by seven basis points at 2.05%.
Participation was ahead of average with more than 996 million shares changing hands at the NYSE floor.
Economic data was limited to Housing Starts and Business Permits:
- Housing starts declined 1.6% in November to 1.028 million from an upwardly revised 1.045 million (from 1.009 million) while the Briefing.com consensus expected a reading of 1.035 million
- Recent gains in the NAHB Homebuilders survey suggested rapid construction growth is on the near-term horizon. Over the last 12 months, however, housing starts have averaged 994,000 per month and recent trends are slightly upward moving. Homebuilders may be saying that they expect strong demand growth, yet the lackluster housing starts data clearly show that they are not actively preparing for accelerated demand
- Building Permits declined 5.2% to 1.035 million while the consensus expected a reading of 1.060 million
from Briefing.com
- Housing Starts : 1028K vs 1035K (Prior 1045K)
- Building Permits : 1035K vs 1060K (Prior 1092K)
HOUSING STARTS & BUILDING PERMITS
Highlights
- Housing starts declined 1.6% in November to 1.028 mln from an upwardly revised 1.045 mln (from 1.009 mln) in October. The Briefing.com consensus pegged housing starts at 1.035 mln.
Key Factors
- Recent gains in the NAHB Homebuilders survey suggested rapid construction growth is on the near-term horizon. Over the last 12 months, however, housing starts have averaged 994,000 per month and recent trends are slightly upward moving. Homebuilders may be saying that they expect strong demand growth, yet the lackluster housing starts data clearly show that they are not actively preparing for an acceleration in demand.
- Single-family starts declined 5.4% in November to 677,000 from an upwardly revised 716,000 (from 696,000) in October. The upward revision to October brought new single-family construction to its highest point since 728,000 units were started in March 2008. A pullback in November was only natural.
- Multifamily construction increased 6.7% from 329,000 in October to 351,000 in November. This volatile sector has followed a sawtooth trend since the beginning of the summer.
Big Picture
- Over the last 12 months housing starts have averaged 994,000 per month and recent trends are slightly upward moving.
Market Internals
NYSE:
Higher Volumes than the day before – 1022.6M vs 979.7M
Decliners outpaced Advancers (adv/dec): 1292 / 1805
New Lows outpaced New Highs (highs/lows): 22 / 419
NASDAQ:
Higher Volumes than the day before – 2219.2M vs 2135.9M
Decliners outpaced Advancers (adv/dec): 1240 / 1522
New Lows outpaced New Highs (highs/lows): 28 / 222
VOLATILITY S&P500 (VIX)
23.57 +3.15 (+15.43%)
Looking into the internals, the market is not as bearish as it seen. Yet New Lows vs New Highs is still a concern here. VIX remains very volatile lately perhaps due to quadruple witching week and went up to 25.00 during the session.
Technical Updates
17,068.87 -111.97 (-0.65%)
Volume: 116,647,057 (above average of 93,772,951)
Range: 17,067.59 - 17,427.44
4,547.83 -57.32 (-1.24%)
Volume: 587,097,998 (above average of 500,557,844)
Range: 4,547.31 - 4,645.19
S&P 500 INDEX (SPX: CBOE)
1,972.74 -16.89 (-0.85%)
Volume: 690,265,000 (above average of 551,786,538)
Range: 1,972.56 - 2,016.89
All three indices are forming an inverted hammer. This could mean that the market might still have some bullishness in play. With the volume supporting, I reckon we might see a reversal if there is no major bad news.
Commodities, Currencies and Bonds
Closing Commodities: Oil Prices Rally Over $2 Barrel Off Its LoD, But Ends 9 Cents Lower
- Oil prices sold off hard this morning, but managed to come back with a nice rally
- Jan crude fell as low as $53.60/barrel, but gained some buying interest and rallied above $57/barrel.
- Jan pulled back following a fast rally and ultimately settled nine cents lower at $55.87/barrel
- Natural gas were weak today on forecasts for mild U.S. temperatures
- Jan nat gas ended the day 10 cents lower at $3.62/MMBtu.
- Silver has a brutal session, falling far more than gold prices did today
- Mar silver lost $0.77 or -5% to $15.73/oz today, while Feb gold lost $13.30 to $1194.30/oz
Energy price action
- Crude oil fell 9 cents today, closing today’s pit session at $55.87/barre
- Natural gas fell 10 cents to $3.62/MMBtu
- RBOB Gasoline fell 4 cents to $1.54/gallon
- Heating oil fell 4 cents to $1.96/gallon
Agricultural price action
- Mar Corn fell 3 cents higher to $4.06/bushel
- Jan wheat rose 3 cents to $6.21/bushel
- Jan soybeans fell 14 cents at $10.23/bushel
- Ethanol fell 7 cents higher at $1.59/gallon
- Sugar #11 fell 0.25 cents to 14.71 cents/gallon
Metals price action
- Feb gold ended today’s session $13.30 lower at $1194.30/oz
- Mar silver fell $0.77 (or -5%) to $15.73/oz
- Mar copper fell 2 cents to $2.86/lb
- The Dollar Index remains modest lower as action presses the 88.00 level.
- The greenback has spent the entire session in negative territory and is contending with its lowest close in two weeks ahead of tomorrow's FOMC decision.
- EURUSD is +65 pips @ 1.2500 as mostly better than expected economic data has produced a tailwind for the pair. Right now markets are looking past whether or not the European Central Bank will embark on its own QE-type program and are instead focused on if the Fed will remove its ‘considerable time' language at tomorrow's meeting. Resistance near 1.2500 is helped by the 50 dma (1.2534). Eurozone Final CPI will cross the wires tomorrow.
- GBPUSD is +105 pips @ 1.5740 after surviving yet another test of the key 1.5600 level. Sterling has rallied despite CPI sliding to a 12-year low and the inaugural stress test of the banking system seeing Co-op Bank fail. The 1.5800 area remains a key hurdle. British data is heavy tomorrow as Average Earnings Index, claimant count change, unemployment rate, and MPC votes will be released.
- USDCHF is -50 pips @ .9605 as action flirts with its lowest close in nearly a month. Early selling pressured the pair to .9550 support, but buyers stepped in as the euro slid off its best levels of the day.
- USDJPY is -60 pips @ 117.20 as trade flushes to its lowest level in a month. Safe-haven flows into the yen dropped action to a two-month low near 115.55 before reserve as money rushed back into riskier assets. Japan's trade balance is due out tonight.
- AUDUSD is +10 pips @ .8220 as trade looks to put in just its second gain in the past 14 sessions. The hard currency has found bids after the latest Reserve Bank of Australia minutes suggested a period of stable rates is the most likely outcome. Action has managed to shrug off China's HSBC Flash Manufacturing PMI (49.5 actual v. 49.8 expected, 50.0 previous) sliding into contraction.
- USDCAD is -40 pips @ 1.1630 as sellers push the pair off its best levels since July 2009. The loonie has strengthened in response to manufacturing sales (-0.6% MoM actual v. -0.4% MoM expected) missing estimates and foreign securities purchases (CAD9.53 bln actual v. CAD5.21 bln expected) surging past expectations. Canadian data set for tomorrow is limited to wholesale sales.
- USDRUB holds +3.7% @ 68.33. The pair has been whipped around amid an extremely volatile session that developed in response to the Russian central bank hiking its key rate 650bps to 17.00%. Action has seen an extremely wide range between 58.23 and 79.52.
Bonds: 10Y Closes at 2.07%, Lowest Since May 2013
- Treasuries booked their eighth gain in 10 sessions.
- The complex saw an aggressive bid early as weakness in oil prices coincided with money moving into the safety of Treasuries.
- Maturities slipped off their highs into the housing starts (1025K actual v. 1035K expected) and building permits (1035K actual v. 1060K expected) data before making another run at the highs as those numbers disappointed.
- Action fell short of the best levels of the day and saw steady selling into the lunchtime hour.
- Yields came within one or two bps of their respective flat lines, but would not climb any higher.
- Some light buying throughout the afternoon caused most yields to settle lower between -4/-5bps.
- Tomorrow's FOMC decision is highly anticipated as participants await the potential for an alteration of the Statement's ‘considerable time' language.
- Up front, the 2Y eased -3.3bps to 0.560%. The yield continues to test support in the 0.550% area that dates back to July.
- In the belly, the 5Y shed -5.1bps to 1.526%. Today's bid pushed action back below the 50 dma and provoked a test of 1.500% support early. The yield narrowly avoided its lowest close since late-October.
- The 10Y fell -4.5bps to 2.071%. The benchmark yield flirted with a sub-2.00% print before settling at levels last seen in May 2013.
- At the long end, the 30Y slid -4.3bps to 2.702%. The yield on the long bond posted its lowest close since September 2012.
- A flatter curve persisted as the 2-10-yr spread narrowed to 151bps.
- Precious metals remained under pressure as gold sank -$14 to $1194 and silver plunged -$0.81 to $15.75.
- Data: MBA Mortgage Index (7), CPI, current account balance (8:30), and the FOMC rate decision (14).
Treasury Yields:
- 2 Year Note 0.58% -0.02
- 5 Year Note 1.53% -0.05
- 10 Year Note 2.07% -0.05
- 30 Year Bond 2.69% -0.05
2/30 Spread: 211 bps ( -3 ) … 2/10 Spread: 149 bps ( -3 )
Preview for Wednesday 17 Dec, 2014
Summary
Market ended flat in facing FOMC meeting tomorrow. In any case, that is going to be a market mover. In addition to that, situation at Russia seems to get worse after they raised the interest rate to 17% from 10.5% previously. Not to mention the uncertainty of oil prices that had gone to a recent low that brought the market down as well.
Given on what I saw from the market, everyone is putting their attention on tomorrow Fed's meeting.
Direction for the Wednesday 17 Dec, 2014; ABSTAIN
Daily Directional Accuracy (from 25 November 2014): 6/13 (46.15%)
Weekly Directional Accuracy (from 31 October 2014): 2/6 (33.33%)
Weekly Directional Accuracy (from 31 October 2014): 2/6 (33.33%)
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