Thursday, 17 Sept 2015 - AMC

Dow -65.21 at 16674.74, Nasdaq +4.71 at 4893.95, S&P -5.11 at 1990.20

The Fed did not announce a rate hike and keep it unchanged. According to the statement, it seems that Federal Reserve did not want to increase the interest rate due to global weaknesses especially from China. Key word here is "global weakness". Well that raises the question on when exactly would the Fed decide to raise the interest rate in future? Because we are not going to see a quick recovery in those economies in the short term... 

Thursday session was basically flat prior to FOMC statement at 2pm ET. We saw the market spike up following the Fed's announcement but eventually it went lower and settled near the flatline. Maybe that was a fake out move. The day after is more important after the fund managers and traders have absorbed the news, which might give us a clearer outlook in the market.  

Meanwhile markets around the world were showing a mixed performance ahead of FOMC announcement. Nothing surprising in particular. 
  

Market Summary

Industry Watch

Strong: Consumer Discretionary, Energy, Health Care, Utilities

Weak: Consumer Staples, Technology, Telecom Services

Other Market Moving Factor:

• FOMC makes no changes to policy stance

[BRIEFING.COM] The stock market ended the Thursday session on a lower note after the Federal Reserve made no changes to its policy stance. The S&P 500 shed 0.3% while the Nasdaq Composite (+0.1%) outperformed throughout the day. 

FOMC days are known for afternoon volatility and today's affair lived up to that billing even though the policy statement from the Federal Reserve was virtually a carbon copy of the previous directive. The FOMC acknowledged positive labor market conditions in the U.S., but indicated that concerns related to an economic slowdown in China have outweighed the domestic positives. Ms. Yellen stressed that these developments have weighed on the inflation outlook, contributing to today's decision to maintain status quo. 

Furthermore, Ms. Yellen emphasized that the expected rate path is more important than the first rate hike, indicating that the Committee expects to see rate normalization by 2018. Hearing ‘2018' in that context was music to the market's ears, inviting a stampede of buyers in stocks while Treasuries spiked to highs with the 10-yr yield falling ten basis points to 2.20%. 

The post-FOMC move higher was followed by a dive to new lows, with the reversal paced by the financial sector (-1.4%), which settled in the red as bank stocks responded to rates remaining lower for longer. The sector accelerated its decline as Fed Chair Yellen responded to a question about the possibility that the U.S. falls into a Japan-like deflationary trap. To little surprise, Ms. Yellen said that such a scenario is not anticipated at this time. 

Meanwhile, another influential group—technology (-0.7%)—also weighed on the broader market, ending near the bottom of the leaderboard after struggling throughout the session. The top-weighted sector was pressured by Oracle (ORCL 36.74, -1.53) as the stock lost 4.0% after its one-cent beat was not enough to dispel concerns about the company's guidance and lack of revenue growth. High-beta chipmakers also struggled with the PHLX Semiconductor Index falling 0.9%. 

Elsewhere, another influential sector—health care (+0.9%)—settled well ahead of the S&P 500 with biotechnology powering the move. The iShares Nasdaq Biotechnology ETF (IBB 362.50, +7.36) surged 2.1% with the strength keeping the S&P 500 from sliding deeper into the red. 

Also of note, the consumer discretionary space (+0.9%) managed to stay in the green, thanks to support from media names after Cablevision (CVC 32.51, +3.97) agreed to be acquired by Altice for roughly $17.70 billion in cash. 

On the flip side, industrials (-0.5%), energy (-0.1%), and materials (-0.5%) succumbed to the afternoon selling pressure, which invited above-average volume with more than 975 million shares changing hands at the NYSE floor. 

Economic data included Initial Claims, Housing Starts, Current Account, and the Philadelphia Fed Survey: 

• The initial claims level declined to 264,000 from an unrevised 275,000 while the Briefing.com consensus expected no change at 275,000 
  • Over the past four weeks, the initial claims level has averaged 272,500, and weekly volatility has been minimal, suggesting a strong labor market 
  • The continuing claims level decreased to 2.237 mln from an upwardly revised 2.263 mln (from 2.260 mln) while the consensus expected a drop to 2.255 mln 
• Housing starts declined 3.0% in August to 1.126 mln from a downwardly revised 1.161 mln (from 1.206 mln) in July while the Briefing.com consensus a drop to 1.158 mln 
  • As expected, single-family starts pulled back in August after reaching a seven-year high in July while construction levels remained strong 
    • Single-family starts slipped only 3.0% to 739,000 in August from 762,000 in July, and new construction is running well above its three-month (729,333) and 12-month (692,417) averages 
• The current account deficit for the second quarter totaled $109.70 billion while the Briefing.com consensus expected the deficit to hit $112.20 billion 
  • The first quarter deficit was revised to $118.30 billion from $113.30 billion 
• The Philadelphia Fed's Business Outlook Survey declined to -6.0 in September from 8.3 in August while the Briefing.com consensus expected an increase to 6.5 
  • That was the first reported contraction in the Philadelphia region since February 2014 
  • The Philadelphia region is not the only region where manufacturing activities experienced a sudden downturn. Just about all of the August regional Federal Reserve manufacturing surveys were negative, and the latest September reading of the New York Fed's Empire Manufacturing Survey reported a second consecutive sizable contraction in manufacturing activities 

Tomorrow's economic data will be limited to the 10:00 ET release of the Leading Indicators report for August (Briefing.com consensus 0.2%).

Global Market

ASIA

Most markets in the Asia-Pacific region followed Wall Street’s lead from Wednesday and ended higher in front of the FOMC decision. That included Japan’s Nikkei (+1.4%), which advanced despite some disappointing trade data. China’s Shanghai Composite (-2.1%) was in the mix of winners until it came undone in the final 30 minutes on a wave of selling interest.

Economic data

• Japan
• August Trade Balance JPY -570.0 bln (expected JPY -541 bln; prior JPY -268 bln)
• Imports -3.1% year-over-year (expected -2.2%; prior -3.2%)
• Exports +3.1% year-over-year (expected +4.0%; prior +7.6%)
• Hong Kong
• August Unemployment Rate 3.3% (expected 3.3%; prior 3.3%)
• New Zealand
• Q2 GDP +0.4% quarter-over-quarter (expected +0.5%; prior +0.2%); +2.4% year-over-year (expected +2.5%; prior +2.6%)
• Singapore
• August Non-Oil Exports-4.6% month-over-month (expected +0.5%; prior +2.5%); -8.4% year-over-year (expected -3.0%; prior -0.7%)

Equity Markets

• Japan’s Nikkei increased 1.4% in the wake of some weaker than expected trade data for August. Gains were led by the industrials (+2.4%), consumer staples (+2.2%), and materials (+1.6%) sectors. Individual standouts included Minebea Co. (+6.2%), Shiseido Co. (+6.2%), and Mitsui Chemicals (+5.3%). The biggest laggards were Fukuoka Financial Group (-3.2%), Shizuoka Bank (-2.9%), and Chiba Bank (-2.0%). Out of the 225 index members, 183 ended higher, 39 finished lower, and 3 were unchanged.
• Hong Kong’s Hang Seng declined 0.5% on the back of selling interest that accelerated in the late stages of trading, mirroring the move seen in the mainland market. The Hang Seng had been up as much as 1.1% at its best levels of the day. Downside leaders were BOC Hong Kong Holdings (-3.8%), Belle International Holdings (-3.6%), and MTR Corp (-2.3%). Lenovo Group (+5.7%), China Resources Enterprise (+4.1%), and Tingyi Cayman Islands Holding Corp (+3.8%) topped the list of winners. Out of the 50 index members, 18 ended higher, 30 finished lower, and 2 were unchanged.
• China’s Shanghai Composite declined 2.1% after coming unraveled in the final 30 minutes of trading. Prior to that, the Composite had been up 1.7%. The late sell-off lacked a specific headline catalyst.
• India’s Sensex: closed for holiday (Ganesh Chatuthri)
• Australia’s S&P/ASX 200 increased 0.9%, supported by gains in the energy, resources, and financial sectors. Out of the 200 index members, 145 ended higher, 45 finished lower, and 10 were unchanged.
• Regional advancers: South Korea +0.1%, Taiwan +1.4%, Malaysia +2.1%, Indonesia +1.1%, Singapore +0.9%, Thailand +0.7%, Philippines +0.4%
• Regional decliners: Vietnam -0.3%

FX

• USD/CNY -0.1% at 6.3658
• USD/INR +0.1% at 66.46
• USD/JPY +0. 3% at 120.94

EUROPE

Major European indices trade in cautious fashion with Germany’s DAX (+0.1%) hovering ahead of its peers.

• UK’s August Retail Sales +0.2% month-over-month, as expected; +3.7% year-over-year (consensus 3.8%; prior 4.1%). Separately, Core Retail Sales +0.1% month-over-month, as expected; +3.5% year-over-year (consensus 3.9%; last 4.1%)
• Italy’s July trade surplus expanded to EUR8.03 billion from EUR2.81 billion (expected surplus of EUR2.47 billion)
• The Swiss National Bank made no changes to its policy stance, keeping its sight deposit rate at -0.75%, as expected

Closing Prices

• UK’s FTSE: -0.7%
• Germany’s DAX: + 0.0%
• France’s CAC: + 0.2%
• Spain’s IBEX: + 1.3%
• Portugal’s PSI: + 0.2%
• Italy’s MIB Index: + 0.2%
• Irish Ovrl Index: + 0.5%
• Greece ASE General Index: 0.0%

Macroeconomic Data

Economic Data

from Briefing.com

• Initial Claims : 264K vs 275K (Prior 275K)
• Continuing Claims : 2237K vs 2254K (Prior 2263K - Up)
• Housing Starts : 1126K vs 1160K (Prior 1161K - Down)
• Building Permits : 1170K vs 1159K (Prior 1130K - Up)
• Current Account Balance : -$109.7B vs -$112.2B (Prior -$118.3B - Down)
• Philadelphia Fed : -6.0 vs 6.5 (Prior 8.3)
• Natural Gas Inventories : 73 bcf (Prior 68 bcf)
• FOMC Rate Decision : 0.25% vs 0.25% (Prior 0.25%)

UNEMPLOYMENT CLAIMS

Highlights

• The initial claims level declined to 264,000 for the week ending September 12 from an unrevised 275,000 for the week ending September 5. The Briefing.com Consensus expected the initial claims level to remain at 275,000.
• The continuing claims level decreased to 2.237 mln for the week ending September 5 from an upwardly revised 2.263 mln (from 2.260 mln) for the week ending August 29. The consensus expected the continuing claims level to fall to 2.255 mln.

Key Factors

• Over the past four weeks, the initial claims level has averaged 272,500, and weekly volatility has been minimal. These are signs of a stable and strong labor market.

Big Picture

• The overall trend in claims supports a labor market that is at, or very near, full employment.

HOUSING STARTS

Highlights

• Housing starts declined 3.0% in August to 1.126 mln from a downwardly revised 1.161 mln (from 1.206 mln) in July. The Briefing.com Consensus expected housing starts to fall to 1.158 mln.

Key Factors

• As expected, single-family starts pulled back in August after reaching a seven-year high in July. Construction levels, however, still remained relatively robust. Single-family starts slipped only 3.0% to 739,000 in August from 762,000 in July, and new construction is running well above its three-month (729,333) and 12-month (692,417) averages.
• Multifamily starts declined to 387,000 in August from 399,000 in July. After a flurry of new starts in April, May, and June (averaging 451,000), construction trends are returning to more normal levels.
• The number of homes currently under construction increased 1.3% to 920,000 in August from 908,000 in July. Importantly, half of the gain came from single-family construction, which accounts for more construction spending per unit than multifamily. That should help bolster third quarter GDP growth.

Big Picture

• Construction trends have recovered following the unusually cold winter and are back on their late 2014 accelerated pace.

PHILADELPHIA FED

Highlights

• The Philadelphia Fed's Business Outlook Survey declined to -6.0 in September from 8.3 in August. The Briefing.com Consensus expected the index to increase to 6.5.

Key Factors

• That was the first reported contraction in the Philadelphia region since February 2014. The Philadelphia region is not the only region where manufacturing activities experienced a sudden downturn. Just about all of the August regional Federal Reserve manufacturing surveys were negative, and the latest September reading of the New York Fed's Empire Manufacturing Survey reported a second consecutive sizable contraction in manufacturing activities.
• Despite the weakness in overall activities, general production trends remain firm.
• The Shipments Index declined to 14.8 in September from 16.7 in August, which is well above the expansion/contraction threshold. Furthermore, new orders growth accelerated as the related index increased to 9.4 in September from 5.8 in August.
• The contraction in backlogs, however, grew deeper as the Unfilled Orders Index fell to -6.6 from -1.0. 
• Employment trends were also robust. The Number of Employees Index increased to 10.2 in September from 5.3 in August. The Average Employee Workweek Index fell slightly to 7.0 from 8.5.

Big Picture

• That was the largest reported contraction in the Philadelphia region since February 2013.

Market Internals

NYSE:

Higher Volumes than the day before – 1004.5M vs 884.6M 


Advancers outpaced Decliners (adv/dec): 1876 / 1209

New Highs outpaced New Lows (highs/lows): 44 / 27

NASDAQ:

Higher Volumes than the day before – 1885.2M vs 1662.7M

Advancers outpaced Decliners (adv/dec): 1560 / 1256

New Highs outpaced New Lows (highs/lows): 66 / 31

VOLATILITY S&P500 (VIX)
21.14 -0.21 (-0.98%)

Internals seemed relatively flattish albeit some bullishness. Volume was definitely strong on this one. New Highs is increasing which probably indicates a regain in confidence in the market. VIX had a volatile session as it tanked after the announcement from the Fed and barely managed to close above the support level at 21.

Technical Updates

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)

16,674.74 -65.21 (-0.39%)

Volume: 129,602,027 (above average of 110,527,696)
Range: 16,639.93 - 16,933.43

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)

4,893.95 +4.71 (+0.10%)
Volume: 444,765,250 (below average of 460,036,530)

Range: 4,880.50 - 4,960.87

S&P 500 INDEX (SPX: CBOE)

1,990.20 -5.11 (-0.26%)

Volume: 704,674,000 (above average of 615,617,138)

Range: 1,986.73 - 2,020.86

Somehow the candlestick pattern for the 3 indices are indicating an uncertainty after the Fed rate is kept unchanged. DOW closed slightly below the 61.8% Fib level after rejected at 16,940. NASDAQ was rejected by its 50MA and closed below the resistance level at 4,900. Meanwhile S&P was rejected at 2,020 level. I am looking at whether the support is going to hold for the market as the bears are likely to step back into the game... 

Commodities

Closing Commodities: Precious Metals And Copper Remain Near Today’s Highs Post-Fed

• Following the Fed’s decision to keep rates unchanged, the dollar index dropped to a new low for the day, which caused oil, copper, gold and silver futures to all spike to new highs for the day.
• In current trade, commodities including gold, silver and copper remains near today’s new high as Yellen’s press conference continues.
• Natural gas futures continue to hold a modest loss, while WTI oil sits near $47/barrel.
• Ahead of the Fed decision, Dec gold ended floor trading -0.2% at $1117.00/oz, while Dec silver ended +0.7% at $14.99/oz.
• Dec copper finished +0.3% at $2.46/lb.
• In current trade, gold is at $1131.60/oz, while silver is at $15.18/oz.
• In energy, Oct WTI crude oil lost -0.5% at $46.92/barrel, while Oct nat gas lost one cent to $2.65/MMBtu. Both oil and nat gas are near closing levels.

Metals

• December gold ended today’s session $2.20 lower (-0.2%) at $1117.00/oz
• December silver closed today’s session $0.10 higher (+0.7%) at $14.99/oz
• December copper closed $0.01 higher (+0.4%) at $2.46/lb

Agriculture

• December corn closed $0.06 lower at $3.80/bushel
• December wheat closed $0.08 lower at $4.81/bushel
• November soybeans closed $0.02 lower to $8.85/bushel
• Sugar #11 closed $0.03 cents lower at 11.44 cents/lb

Energy

• October crude oil futures fell $0.22 (-0.5%) to $46.92/barrel
• October natural gas closed $0.01 lower (-0.4%) at $2.65/MMBtu
• RBOB Gasoline closed flat at $1.38/gallon
• Heating oil futures closed $0.01 lower at $1.53/gallon

Currencies

Dollar Gets Slammed

• The FOMC announced that it is maintaining the Fed funds rate at its current level and it supplemented the decision with a dovish statement
• The Fed is forecasting that the U.S. economy will grow by 2 to 2.3% in 2015 compared with its June estimate of 1.8-2%. For 2016, it predicts 2.2-2.6% growth which is down slightly from its June forecast of 2.4-2.7%
• Changes to the statement:
• “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.”
• “The Committee is monitoring developments abroad.”
• The committee noted that “net exports have been soft” while business fixed investment is now increasing moderately, whereas it had been “soft” in the previous statement
• Yield Check:
• 2-yr: -10 bps to 0.71%
• 5-yr: -10 bps to 1.51%
• 10-yr: -8 bps to 2.22%
• 30-yr: -5 bps to 3.03%

Bonds

Treasuries Soar, Curve Steepens after Fed

• The FOMC held rates steady today, saying in its statement that recent developments in the global economy and financial markets "may restrain economic activity somewhat" and would negatively affect inflation in the "near term." During her press conference, Fed Chair Yellen said that the great majority of participants continue to see 2015 as an appropriate time for raising rates. She also noted that all FOMC meetings could potentially result in a liftoff decision, quelling speculation that the lack of a scheduled press conference at the October meeting means that December is the next meeting that is "in play" for a rate hike. The Treasury complex jumped sharply in the wake of the decision in a curve-steepening trade
• Yield Check:
  • 2-yr: -12 bps to 0.59%
  • 5-yr: -13 bps to 1.49%
  • 10-yr: -10 bps to 2.20%
  • 30-yr: -7 bps to 3.01%

• News:
  • The Federal Open Market Committee held its target band for the Fed funds between 0.00 and 0.25%
    • The Committee noted that it sees risk to the outlook as nearly balanced but it is monitoring developments abroad
    • It went on to say, "Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term." 
  • Fed Chair Yellen held a press conference at 2:30 ET:
    • She said that inflation continues to run below expectations and that international developments will keep downward pressure on prices
    • Yellen said that the employment participation rate remains low
    • She noted that the Fed is watching the yuan exchange rate and that the Fed should not be responding to market volatility, but its root causes
    • She said that October is on the table despite the lack of a scheduled press conference and that the great majority of participants believe liftoff will be in 2015
  • Initial jobless claims fell to an 8-week low of 264K in the week ending 9/12 from 275K in the prior week. The Briefing.com consensus called for 275K initial claims
    • Continuing jobless claims fell to 2237K in the week ending 9/5, better than both the Briefing.com consensus of 2255K and the prior reading of 2263K (downwardly-revised from 2260K)
  • Housing starts fell to 1126K in August from a downwardly-revised 1161K in July. The Briefing.com consensus was for a more modest fall to 1158K
    • Building permits rose to 1170K in August from 1130K in July. The July figure was revised up from 1119K and the Briefing.com consensus was for 1158K in August
  • The United States' current account deficit shrank to a narrower-than-expected $-109.7 bln in the second quarter versus the Briefing.com consensus of $-112.2 bln. The CAD was $-118.3 bln in Q1
  • The Philadelphia Fed Manufacturing Index fell more sharply than expected to -6.0 in September from 8.3 in August. The Briefing.com consensus was for a decline to 6.5
    • The subcomponents were generally still strong. On an ISM-equivalent basis, the index rose to 53.2 this month from 52.8 in August, matching this year's highest reading (June)

•  Commodities:
  • WTI crude: -0.42% to $46.93/bbl.
  • Gold: +1.03% to $1,130.50/troy oz.
  • Copper: +0.65% to $2.468/lb.

•  Currencies:
  • EUR/USD: +1.25% to $1.1430
  • USD/JPY: -0.45% to 120.02

• Data Out Friday:
  • August Leading Indicators (10:00 ET)
  • $13 bln 10-year TIPS auction (reopening) (results at 13:00 ET)

Treasury Yields:

• 2 Year Note 0.70% -0.12
• 5 Year Note 1.50% -0.12
• 10 Year Note 2.21% -0.09
• 30 Year Bond 3.02% -0.06

2/30 Spread: 232 bps ( +6 ) …  2/10 Spread: 151 bps ( +3 )

Preview for Friday 18 Sept, 2015

Economic Data

Friday (18 Sept) : 

• Leading Indicators : 0.2% (Prior -0.2%)

Earnings Highlights 

Friday (18 Sept) : 
BMO - ZAYO
AMC - None

Summary
Today's Fed news did not really move the market. We ended the day from where we started off actually. Maybe the effect has already been priced in. Nonetheless it remains unclear where the market is heading after Thursday.

Usually there are many fakes moves in the market after Fed's announcement on interest rate and it is better to look at the day after. However in this case Friday could be a tricky one as we are expecting Quad Witching. Perhaps we would only see a clearer sign in the market next week. I reckon tomorrow is going to be another volatile session and we might see some profit-taking amid the uncertainty.

Direction for Friday 18 Sept, 2015: Down

2015 Daily Directional Accuracy: 91/145  (62.76%) 

2015 Weekly Directional Accuracy: 21/34 (61.76%)