Monthly Archives: October 2013

John’s Daily 10/31/13

Stocks Take Slight Step Back to End October

Domestic equities finished lower in what was a choppy trading session, as investors mulled a mixed bag of earnings and economic data along with yesterday’s decision by the Federal Reserve to maintain its current pace of asset purchases.

In earnings news, Dow member Visa Inc posted inline quarterly results but offered some cautious commentary, and Starbucks Corp beat the Street’s profit expectations, while issuing disappointing guidance. Meanwhile, Facebook Inc topped analysts’ quarterly expectations but noted signs of slowing usage by teens,

Dow component Exxon Mobil Corp bested the Street’s estimates, and Expedia Inc reported stronger-than-expected earnings.

Treasuries were mixed following yesterday’s Fed decision and as a slightly higher-than-expected rate of weekly U.S. initial jobless claims was met with an unexpected jump in Midwest manufacturing activity.

The Dow Jones Industrial Average (DJIA) lost 73 points to 15,546

The S&P 500 Index dipped 7 points to 1,757

The Nasdaq Composite was 11 points (0.3%) lower at 3,920

In moderate volume, 908 million shares were traded on the NYSE, and 2.3 billion shares changed hands on the Nasdaq. Crude oil fell $0.48 to $96.29 per barrel, wholesale gasoline was $0.03 lower at $2.59 per gallon, and the Bloomberg gold spot price declined $19.93 to $1,324.62 per ounce.

Jobless claims slightly above estimates, while regional manufacturing activity jumps

Weekly initial jobless claims declined by 10,000 to 340,000 last week, just above the 338,000 level that economists surveyed by Bloomberg had expected, as the prior week’s figure was unrevised at 350,000. The four-week moving average, considered a smoother look at the trend in claims, rose by 8,000 to 356,250.

Treasuries were mixed following the data, with the yield on the 2-year note 1 basis point lower at 0.31%, while the yield on the 10-year note rose 1 bp to 2.55%, and the 30-year bond rate was nearly unchanged at 3.64%. Bond yields have moved higher in the wake of the Federal Reserve’s monetary policy decision yesterday, in which it kept its stance unchanged, as expected, maintaining its current level of asset purchases. However, the Fed made some subtle changes to its statement, omitting comments pertaining to higher mortgage rates, but pointing out that the housing market recovery has slowed somewhat in recent months.

Overseas markets mixed

The European equity markets finished mostly higher, as traders digested a plethora of earnings reports and diverging economic data in the region, along with the decision yesterday by the U.S. Federal Reserve to keep its monetary policy unchanged, as expected.

Meanwhile, economic data was mixed, with the Eurozone unemployment rate remaining at a record high of 12.2%, while German consumer confidence and retail sales both unexpectedly deteriorated. However, a separate report showed Eurozone consumer prices came in cooler than expected in October.

Stocks in Asia finished mostly to the downside as the U.S. equity markets pulled back yesterday from record highs in the wake of the Fed’s policy decision to keep its stance unchanged. Japan’s Nikkei 225 Index lost ground, as the yen strengthened versus the U.S. dollar to weigh on export-related stocks, while the Bank of Japan held its monetary policy unchanged and a report showed the country’s manufacturing activity expanded at an accelerated rate in October.

China’s Shanghai Composite Index and the Hong Kong Hang Seng Index declined, bogged down by disappointing earnings reports out of the nation’s banking sector, which overshadowed the People’s Bank of China injecting liquidity into the financial markets for the second time this week to try to alleviate concerns about a liquidity crunch in the country’s money markets.

Australia’s S&P/ASX 200 Index and South Korea’s Kospi Index fell, pulling back from yesterday’s multi-year highs ahead of tomorrow’s October trade data. Finally, India’s S&P BSE Sensex 30 Index rose, as earnings optimism received a boost following some stronger-than-expected profit reports in the nation.

John’s Daily 10/30/13

Stocks Slip, Fed Keeps Pace of Asset Purchases

Domestic equity markets were unable to extend recent gains as stocks closed the trading session lower on the heels of yesterday’s record setting performances for the Dow and S&P.

In economic news, the Federal Reserve announced no changes to its asset purchase program, leaving the target for the fed funds rate unchanged near zero. The ADP employment change report showed that private sector payrolls rose at a lower-than-forecasted rate.

Treasuries were mostly lower following the Fed statement and domestic data. In earnings news,

General Motors Co posted stronger-than-expected profits despite smaller-than-forecasted revenues, while Comcast Corp posted disappointing 3Q revenues. Meanwhile, Linkedin Corp issued softer-than-expected 4Q sales guidance, while Electronic Arts Inc raised its full-year EPS outlook.

Elsewhere, gold was slightly lower, crude oil prices were mixed, while the US dollar was higher.

The Dow Jones Industrial Average (DJIA) declined 62 points (0.4%) to 15,619

The S&P 500 Index lost 9 points to 1,763

The Nasdaq Composite was 22 points lower at 3,931

In moderate volume, 697 million shares were traded on the NYSE, and 1.9 billion shares changed hands on the Nasdaq.

WTI crude oil fell $1.43 to $96.77 per barrel, wholesale gasoline was $0.03 higher at $2.62 per gallon, and the Bloomberg gold spot price decreased $1.76 to $1,343.28 per ounce.

Treasuries were mostly lower, with the yield on the 2-year note nearly unchanged at 0.31%, while the yields on the 10-year note and the 30-year bond increased 3 bps to 2.47%, and 3.64%, respectively.

Fed maintains stimulus, while private sector job growth softer than expected

The statement from the two-day Federal Open Market Committee meeting was released at 2:00 p.m. ET, wherein the Fed made no changes to its asset purchase program, leaving the target for the fed funds rate unchanged near zero and maintaining its mortgage-backed securities purchases at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.

The Committee said that information it has received since September generally suggests that economic activity has continued to expand at a moderate pace, while it repeated a phrase from the previous two meetings saying that the Committee decided to “await more evidence that progress will be sustained before adjusting the pace of its purchases.” The statement omitted an initial reference to being prepared to increase or decrease the velocity of the purchases, but reiterated that asset purchases are not on a preset course, and decisions about their pace will remain contingent on the Committee’s economic outlook as well as its assessment “of the likely efficacy and costs of such purchases.”

Additionally, there were no changes to the FOMC’s thresholds of 6.5% unemployment, inflation no more than a half a percentage point above the Committee’s 2% longer-run goal, and well anchored longer-term inflation expectations for keeping rates “exceptionally low.”

Europe gives back gains, Asia higher

The European equity markets erased early gains and finished mostly lower with traders digesting the disappointing employment data in the U.S. ahead of today’s Federal Reserve’s monetary policy announcement. In economic news, Spain’s 3Q GDP grew 0.1% quarter-over-quarter, matching expectations, after contracting 0.1% in 2Q, while Germany’s unemployment change unexpectedly rose in October. Separately, Eurozone economic confidence improved more than expected for this month.

Elsewhere, stocks in Asia finished higher on the heels of another record high for the S&P 500 Index in the U.S. yesterday, ahead of today’s monetary policy decision by the Fed. Japan’s Nikkei 225 Index gained ground, as the yen maintained recent weakness versus the U.S. dollar to underpin export-related issues. Japanese stocks moved higher despite a report showing the country’s industrial production rose at a smaller rate than had been expected for September.

China’s Shanghai Composite Index and the Hong Kong Hang Seng Index rallied, despite a spike to a four-month high for the nation’s short-term benchmark money-market rate. Yesterday, China’s central bank offered a liquidity injection into the markets for the first time in two weeks, which may have helped soothe concerns about a credit crunch.

South Korea’s Kospi Index rose, with gains possibly being limited by a report that showed the country’s industrial production fell much more than expected in September. Rounding out the day, Australia’s S&P/ASX 200 Index and India’s S&P BSE Sensex 30 Index both advanced.

The international economic docket for tomorrow will be chock full, yielding the Bank of Japan monetary policy statement as well as housing starts and construction orders for the island nation. Additionally, we will receive the GfK consumer confidence readings from Germany and the UK, CPI data from Italy and the Eurozone, PPI and consumer spending from France and GDP figures from Canada.

John’s Daily 10/29/13

Markets Rise Ahead of the Fed

Despite a mixed bag of data from the earnings and economic fronts, and the Federal Reserve’s monetary policy decision on the horizon, U.S. equities notched gains today with the S&P 500 continuing to set records. Apple easily beat analysts’ expectations on record iPhone sales, but shares of the tech giant came under pressure amid analyst concerns over its gross margin guidance.

On the economic front, producer prices unexpectedly declined at the headline level, retail sales were mixed, and home prices increased again, while consumer confidence declined to its lowest level in one-and-a-half years and business inventories rose inline with forecasts.

Treasuries finished unchanged following the deluge of data, gold and crude oil prices were lower, while the U.S. dollar was higher.

The Dow Jones Industrial Average rose 111 points to 15,680,

The S&P 500 Index added 10 points to 1,772.

The Nasdaq Composite gained 12 points to 3,952.

In moderate volume, 676 million shares were traded on the NYSE, and 1.9 billion shares changed hands on the Nasdaq.

Crude oil fell $0.48 to $98.20 per barrel, wholesale gasoline was $0.02 lower at $2.59 per gallon, and the Bloomberg gold spot price declined $7.84 to $1,344.79 per ounce.

U.S. retail sales and producer prices mixed, while Consumer Confidence drops

Advance retail sales for September missed expectations on a headline level, dipping 0.1% month-over-month, compared to the flat reading forecasted by economists surveyed by Bloomberg, while August’s 0.2% gain was unrevised. However, September sales ex-autos rose 0.4%, matching expectations, while the 0.1% gain in the previous month was unrevised. Finally, sales ex-autos and gas were higher by 0.4% m/m in September, compared to the 0.5% increase that was anticipated, and August’s rise of 0.1% was unadjusted. Nine of thirteen major categories rose, led by a 0.7% gain at electronics stores, which may have benefitted from the launch of new iPhones, while sales fell 2.2% at auto and other motor vehicle dealers, as Labor Day weekend sales were counted in August.

The Producer Price Index (PPI) showed a 0.1% decline m/m in prices at the wholesale level in September, compared to the 0.2% gain expected by economists, while August’s 0.3% increase was unrevised. Moreover, the core rate, which excludes food and energy, was up 0.1% m/m, inline with forecasts, and August’s flat reading was unadjusted. On a y/y basis, the headline PPI was 0.3% higher last month, versus projections of a 0.6% increase, while the core rate was up 1.2%, matching expectations. In August, producer prices were up 1.4% and 1.1% y/y on the headline and core levels respectively.

Meanwhile, the Consumer Confidence Index declined to 71.2 in October—the lowest level since April 2013—from an upwardly revised 80.2 in September, and compared to the 75.0 reading that economists had anticipated. The softer-than-expected read on sentiment came as both components pertaining to the current situation and expectations of business conditions deteriorated. Moreover, on employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get” —declined to -24.5 from -22.2 last month.

In housing news, the 20-city composite S&P/Case-Shiller Home Price Index showed a gain in home prices of 12.82% y/y in August, versus the 12.50% increase that economists had expected. Moreover, m/m, home prices were higher by 0.93% on a seasonally adjusted basis for August, compared to forecasts of a 0.65% increase.

Treasuries finished unchanged following the data, with the yields on the 2-year and 10-year notes, as well as the 30-year bond, flat at 0.32%,2.52%, and 3.61%, respectively.

Finally, the Federal Reserve two-day Open Market Committee meeting began today and will conclude with its monetary policy decision tomorrow at about 2:00 p.m. ET. Most experts believe it seems highly unlikely the Fed will begin its pullback of bond buying at this meeting. Little time has passed since their September meeting, which concluded with the surprise decision to maintain its current level of asset purchases, and data has potentially been distorted by the government shutdown.

Plus, the Fed has been adamant about ensuring that the U.S. economy is healthy enough to withstand a deceleration of Central Bank support, and September’s softer-than-expected employment report released last week due to the shutdown suggested the recovery in the labor market continues to frustrate the Fed.

In addition to the Fed statement, the economic calendar will offer the Consumer Price Index (CPI), forecasted to show that prices at the consumer level rose 0.2% m/m during September, following the 0.1% m/m rise seen in August, while excluding food and energy, the core rate is expected to have also gained 0.2% m/m, after posting a 0.1% m/m increase in the month prior, while the ADP Employment Change report is anticipated to show that private sector payrolls added 150,000 during October following September’s gain of 166,000.

Europe mostly higher, Asia mixed following Japanese data and India rate hikes

The European equity markets traded mostly higher, as traders digested the lukewarm U.S. economic data, along with a plethora of earnings reports in the region. In economic news, UK mortgage approvals slightly exceeded economists’ expectations for September, and French consumer confidence came in below forecasts for October, while Spanish retail sales grew more than expected and the nation’s budget deficit narrowed for last month.

\Stocks in Asia finished mixed as traders digested some economic and earnings data in Japan, a liquidity injection in China, and rate hikes in India. Japan’s Nikkei 225 Index declined as dampened earnings sentiment and a stronger yen offset some favorable economic reports. However, data for September showed Japan’s overall household spending and retail sales both rose much more than anticipated.

Meanwhile, China’s Shanghai Composite Index finished lower and the Hong Kong Hang Seng Index advanced, after the People’s Bank of China injected liquidity into the money markets for the first time in two weeks, per Bloomberg, though concerns about a credit crunch continued to fester. Elsewhere, India’s S&P BSE Sensex 30 Index rose solidly as the rupee strengthened in the wake of the Reserve Bank of India raising its benchmark interest rates for the second-straight month, as expected, with the nation battling rising inflation.

John’s Daily 10/25/13

Chinese Manufacturing Data Creates Domestic Gains

Domestic equity markets closed the trading session nicely higher, in the wake of a stronger-than-forecasted read on Chinese manufacturing activity and as another plethora of earnings reports flooded the Street. Treasuries were slightly lower following a report that showed initial weekly jobless claims came in above expectations, while the domestic trade deficit came in narrower than anticipated.

In other economic news, a preliminary read on October manufacturing activity came in below expectations, while regional manufacturing growth surprisingly accelerated. On the equity front, Ford Motor Co posted better-than-expected profits and upbeat guidance, while Dow members AT&T Inc and 3M Co reported earnings that were slightly above analysts’ forecasts.

Elsewhere, the US dollar was nearly unchanged, while gold and crude oil prices were higher.

The Dow Jones Industrial Average closed 96 points higher at 15,509-

The S&P 500 Index rose 6 points (0.3%) to 1,752-

The Nasdaq Composite added 22 points (0.6%) to 3,929.-

In moderate volume, 710 million shares were traded on the NYSE, and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil added $0.25 to $97.11 per barrel, wholesale gasoline was $0.03 higher at $2.57 per gallon, and the Bloomberg gold spot price gained $12.90 to $1,346.37 per ounce.

Elsewhere, the Dollar Index – a comparison of the US dollar to six major world currencies – was nearly unchanged at 79.19.

Jobless claims top forecasts, while the trade deficit smaller than expected

Weekly initial jobless claims declined by 12,000 to 350,000 last week, above the 340,000 level that economists surveyed by Bloomberg had expected, as the prior week’s figure was upwardly revised by 4,000 to 362,000. The four-week moving average, considered a smoother look at the trend in claims, increased by 10,750 to 348,250, while continuing claims declined by 8,000 to 2,874,000, north of the forecast of economists, which called for a level of 2,870,000. A Labor Department spokesperson said applications in California remained elevated due to its recent technical issues, while analysts weren’t able to determine how many non-federal workers filed due to the government shutdown.

In regional manufacturing news, the Kansas City Fed Manufacturing Activity Index showed growth in activity unexpectedly accelerated, rising to 6 in October, from 2 in September, where economists had expected it to remain. A reading above zero depicts expansion in manufacturing activity.

Treasuries were slightly lower following the data, with the yield on the 2-year note flat at 0.31%, while the yields on the 10-year note and the 30-year bond ticked 2 basis points higher to 2.52%, and 3.60%, respectively.

Tomorrow’s economic docket will also yield the final University of Michigan Consumer Sentiment Index for October, with a downwardly revised reading of 75.0 expected, down from 77.5 the previous month. Rounding out the day, we will receive the release of wholesale inventories, which are expected to rise 0.3% m/m for August.

Europe higher, Asia mixed

The European equity markets traded higher, aided by an upbeat read on Chinese manufacturing activity. Stocks in the region gained ground despite a report that showed the Eurozone PMI Composite Index – a gauge of business activity in both the manufacturing and services sectors – unexpectedly declined to 51.5 in October, from 52.2 in September, versus the improvement to 52.4 that economists had forecasted. However, a reading above 50 denotes expansion in eurozone business activity. The disappointing report came as French activity missed expectations, more than offsetting a slightly better – than-expected read on German manufacturing output

Elsewhere, stocks in Asia finished mixed, despite the favorable read on Chinese manufacturing output. China’s HSBC/Markit Flash Manufacturing PMI Index increased to 50.9 for October, from 50.2 in September, compared to the 50.4 level that economists had expected. A reading above 50 denotes expansion; however, China’s Shanghai Composite Index and the Hong Kong Hang Seng Index closed lower. Chinese stocks continued to see pressure amid festering concerns about a liquidity crunch in the nation as short term money-market rates continued to rise as the country’s central bank held off on injecting cash into the financial system.

China’s government appeared to defend 7.0% as the “bottom line” GDP growth for 2013 by taking measures to boost the infrastructure and property sectors. Most experts believe growth will continue to be stimulated ahead of the November Third Plenary Session of the 18th CPC (Communist Party of China) Central Committee. However, China’s economy needs to transition away from debt-led construction growth. Hopes are high for both a free trade zone in Shanghai and the potential for reforms at the November planning meeting, but we believe reforms will progress at a slow pace.

Chinese-related investments, including emerging market stocks, could rally in the near-term due to China’s economic rebound; but we remain concerned about structural headwinds to growth and have a neutral view on emerging market stocks.

Japan’s Nikkei 225 Index was able to advance, overcoming early losses in the wake of the Chinese data. Elsewhere, Australia’s S&P/ASX 200 Index and South Korea’s Kospi Index were higher, while India’s S&P BSE Sensex 30 Index declined.

The international economic docket for tomorrow will yield CPI data from Japan, the Ifo Business Climate Index from Germany and retail sales for Italy, while the UK will release GDP data.

John’s Daily 10/24/13

Following four – straight sessions of record highs for the S&P 500, equities finished the session in negative territory, as Chinese liquidity and banking concerns along with mixed domestic earnings reports weighed on sentiment.

In earnings news, Dow member Boeing Co easily exceeded the Street’s quarterly expectations and increased its full – year profit outlook, while fellow Dow component Caterpillar Inc severely missed analysts’ quarterly forecasts and cut its full – year guidance.

Elsewhere, stronger – than – forecasted earnings reports from Eli Lilly, Bristol – Myers Squibb, and Amgen were met with some uncertainty regarding their pipelines of new drugs, while Broadcom Corp issued disappointing 4Q revenue guidance.

Meanwhile, Treasuries were mixed following reports that showed U.S. import prices rose and mortgage applications dipped. Finally, gold and crude oil prices dipped, while the U.S. dollar was nearly unchanged.

The Dow Jones Industrial Average (DJIA) declined 54 points to 15,413

The S&P 500 Index lost 8 points to 1,746

The Nasdaq Composite dipped 23 points to 3,907.

In moderate volume, 692 million shares were traded on the NYSE, and 1.9 billion shares changed hands on the Nasdaq.

WTI crude oil decreased $1.43 to $96.87 per barrel, wholesale gasoline was $0.06 lower at $2.56 per gallon, and the Bloomberg gold spot price dipped $6.29 to $1,333.82 per ounce.

Import prices rise, while mortgage applications dip

The Import Price Index showed the prices of imported goods increased 0.2% month – over – month for September, matching expectations of economists surveyed by Bloomberg, while the flat reading that was registered in August was revised to a 0.2% rise. The rise was attributed to higher fuel prices as an increase in petroleum prices – the largest component of imported fuels – more than offset a solid drop in natural gas prices. Also, year over year, import prices were lower by 1.0% last month, inline with forecasts, after declining by an upwardly revised 0.2% in August.

In housing news, the MBA Mortgage Application Index dipped 0.6% last week, after the index ticked 0.3% higher in the previous week. The modest decline came as a 1.3% decrease for the Refinance Index more than offset a 0.7% increase for the Purchase Index. The average 30 – year mortgage rate fell 7 basis points to 4.39%.

Treasuries were mixed following the data, with the yield on the 2 – year note ticking 2 bps higher to 0.32%, while the yields on the 10 – year note and the 30 – year bond declined 2 bps to 2.50% and 3.59%, respectively.

Tomorrow’s economic calendar will be chock full of reports, including weekly jobless claims, forecasted to drop to 340,000 from the prior week’s figure of 358,000, as well as the Kansas City Fed Manufacturing Index, with economists projecting a reading of 2 for October which is unchanged from September’s reading.

Finally, the US government will continue to roll out previously delayed reports due to the shutdown, with the release of the trade balance for the month of August, estimated to show that the deficit widened further to $39.4 billion from the $39.1 billion gap posted in July, and the JOLTS job openings report for the month of August.

Chinese banking and liquidity concerns pressure stocks overseas

The European equity markets finished broadly lower, with sentiment being bogged down by Chinese bank and liquidity concerns, along with some disappointing reports from the corporate sector. Meanwhile, European banking stocks saw some pressure after the European Central Bank announced details of its comprehensive assessment of the health of the region’s banking sector starting in November, including requiring its banks to have a capital ratio of 8%. In economic news, the Bank of England released its minutes from its last monetary policy meeting, showing members were unanimous in keeping its benchmark interest rate at a record low of 0.50% and maintaining its target for its asset purchases.

Stocks in Asia lost ground, with the aforementioned financial concerns in China dampening sentiment. China’s Shanghai Composite Index and the Hong Kong Hang Seng Index saw pressure, after the Chinese government refrained from injecting liquidity into market leading to a surge in short – term money – market rates in the region. Moreover, banking stocks came under pressure as China’s largest banks tripled the amount of bad loans written off in the first half of the year.

Amid the dampened sentiment toward China, Japan’s Nikkei 225 Index fell, exacerbated by some solid strength in the yen versus the U.S. dollar, which weighed on export – related issues. Elsewhere, Australia’s S&P/ASX 200 Index declined, following a hotter – than – expected read on the nation’s 3Q consumer price inflation, which dampened expectations regarding further interest rates cuts by the Reserve Bank of Australia. Rounding out the day, South Korea’s Kospi Index and India’s S&P BSE Sensex 30 Index both traded lower.

Tomorrow’s international economic calendar will yield PMI data for France, Germany, and the Eurozone, Italy’s consumer confidence and retail sales, Eurozone M3 money supply, Germany’s IBusiness Climate Index, and Japan’s CPI.