Daily Market Color 09.23.2013

Daily Market Color

09.23.2013

Economic Reports & Headlines

Angela Merkel won a third term to serve as Germany's Chancellor. Angela Merkel's party, the Christian Democratic Union, fell short of having the majority seats in parliament; however, they were awfully close.
 
The PMI estimates are pouring in this morning from all over the globe. Below you could find the actual figures versus consensus for September's Flash PMI reports:

France: Manufacturing 49.5 Vs 50.0, Services 50.7 Vs 49.2

Germany: Manufacturing 51.3 Vs 52.2, Services 54.4 Vs 53.2

Eurozone: Manufacturing 51.1 Vs 51.8, Services 52.1 Vs 51.0

US: Manufacturing 52.8 Vs 54.0

China: Manufacturing 51.2 Vs 50.9

The Federal Reserve Bank of Chicago released their monthly national activity report for August, which was better than July's reading, 0.14 Vs -0.15.  

New York Fed president William Dudley stated that two key tapering tests, GDP and Employment, have not been met yet, according to CNBC.

Trades

France Flash PMI was mixed, however, it did beat on the more imperative front, which is services. The same goes for Germany and the Eurozone as a whole. China came in with a better than expected flash PMI report as well. The sentiment is wonderful across the globe when you glance at the economic reports released during today's session. In addition to the upbeat reports, we could add Merkel's reappointment as chancellor of Germany to the list of cheerful reports. The sentiment switches once you leave Europe and travel to the other side of the Atlantic ocean. US flash manufacturing PMI disappointed and that should put a bad taste in the mouth's of market players who are already enduring uncertainty from the Fed, from the federal government and the upcoming earnings season.

As US capital market players begin to worry, I will continue to recommend that US treasury notes and bonds be shorted. The trend is still there. Despite the uncertainties that lie ahead, I expect the Fed to begin tapering this year as planned. A downward surprise in GDP and Non farm payroll, going forward, should make any knowledgeable person forecast a delay in tapering. The Federal Government should not shut down and they should come to an agreement of some sort to keep the government functioning. In the event of that not happening, we all should be knowledgeable enough to short US equities. Its common sense trading.

Daily Market Color 09.20.2013

Daily Market Color

09.20.2013

Economic Reports & Headlines
Today is a relatively light day for the economic calendar. Consumer prices in Canada increased less than expected in August on a year over year basis, 1.1% Vs 1.2%.

According to Bloomberg, the House passed a Stopgap bill to defund President Obama's Health Care Law.

James Bullard, President of the St Louis Fed, hinted at a possible bond taper during the Federal Open Market Committee's meeting in October.

Trades

The market is still taking in the news of inaction from the Fed. The Dow and the S&P 500 came in lower following the last two sessions post the Fed's announcement. I expect US stocks to retrace the upward move made on Wednesday due to the impending showdown in Washington. As we approach the second week of October, US equities should begin to race to the bottom. I do expect the differences between the Democratics and Republicans to come to a compromise just like they did in the last two budget deadline feuds. As usual, I will end this note with a recommendation to short US treasuries. The rally in them is starting to appear unsustainable.

Daily Market Color 09/19/2013

Daily Market Color

09/19/2013

Economic Reports & Headlines

Japan’s All Industry Index in July surpassed consensus on a year over year basis, 1.2% Vs 0.6%. This index is similar to the Tertiary Index, except that accounts from additional industries. This report is good measure of GDP.

Retail sales in the UK were poor in August on a year over year basis, 2.1% Vs 3.4%.    

The CBI Industrial Trends Survey was better than expected in September, 9 Vs 3. This survey of manufacturing officers gauges activity in UK’s manufacturing sector.

Weekly jobless claims in the US were way better than expected 309k Vs 341k. The legitimacy of the numbers is still under question due to the technical glitch that occurred last week.

Existing home sales in the US for August beat analysts’ estimates, 5.48m Vs 5.25m. This figure marks another recovery high.

The Federal Reserve Bank of Philadelphia issued its regional report of manufacturing conditions within its district. The index beat consensus significantly, 22.3 Vs 10.0.

Trades
The next event that warrants immediate attention is the debt ceiling. President Obama vowed to veto any budget bill from congress that strips away funding from his historic health care bill  This show down has brought volatility to the markets, in a massive way, at the start of this year and a few summers ago. This ongoing debate should bring turmoil to the markets as usual, like the rest of the last minute debt ceiling votes.

Moving along, US 10 year notes are wasting no time in proving that the rally will be short-lived. Market participants will get over the taper’s postponement, eventually. Our attention is going be rerouted to the debt ceiling and after the debt ceiling we have corporate earnings along with another round of economic indicators that the taper is contingent upon. I see nothing but opportunities ahead. I still recommend short selling US treasuries. It is part of a broader trend in investment grade debt issued by developed countries.

Daily Market Color 09/18/2013

Daily Market Color

09/18/2013

Economic Reports & Headlines

The Bank of England Monetary Policy Committee minutes for their most recent meeting were in line with expectations. The committee voted unanimously to keep their asset purchase program at its current level.

Housing starts in the US were below consensus in August, 891k Vs 915k. Permits were also below consensus as well, 918k Vs 950k.

The Federal Open Market Committee decided to postpone the taper.

2013 GDP and unemployment forecasts in September were revised lower by the Fed when compared to forecasts issued in June:

GDP: 2.0% - 2.3% from 2.3% - 2.6%

Unemployment: 7.1% - 7.2% from 7.2% - 7.3%.   

PCE inflation forecast was increased in September to 1.1% - 1.2% from 0.8% - 1.2%.

Overseas in the resource rich country of Australia, second quarter GDP was better than expected on an annualized basis, 2.7% Vs 2.3%.

Japan’s trade deficit was better than expected for August, Y$-960.3b Vs Y$-1070.0b.

Trades
The elephant in the room was Ben Bernanke and his gang’s decision to withhold tapering yesterday. US equity indices responded positively. I forecasted the outcome of this meeting accurately. You could refer back to previous market color reports, dating all the way back to August, where I predicted that the taper is unlikely to occur in September. The reasons I listed for my prediction were practically the same exact reasons Chairman Bernanke cited yesterday in his press conference. Inflation, economic growth and employment warranted inaction by the Fed yesterday. Every time I tuned in to CNBC, market commentators cited every metric, and reason, which made them conclude that tapering, was inevitable this month. These commentators failed to cite the metrics that the Fed is watching to make the decision to taper. Now I believe that the taper might still occur before this year is over. But after watching the Chairman’s press conference, I will pay more attention to the indicators the FOMC is watching. It appears as if the wind down in asset purchases could be prolonged into 2014.

The next event that is coming up is the debt ceiling showdown, that should bring fire and brimstone to the markets. US treasuries, which is my favorite market to trade at the moment, rallied heavily yesterday. I don’t believe the postponed taper will reverse the downward trend in Treasuries. This rally should only be sustained until next Tuesday, the latest. I predict by Monday that interest rates will resume their upward trend. Debt ceiling woes should only serve as an opportunity to open short positions on the 10 year.

Daily Market Color 09/17/2013

Daily Market Color

09/17/2013

Economic Reports & Headlines

Consumer prices in the UK, for August, were lower than consensus on a month over month basis, 40 basis points versus 50 basis points.

Eurozone’s trade surplus for July was below consensus, 11.1bn Vs 13.5bn.

Germany’s ZEW survey, which is a business/economic sentiment measurement, was stronger than expected on both fronts of the report. Current conditions: 30.6 Vs 20.5, Business Expectations: 49.6 Vs 45.0.

Consumer prices in the US August were in line with consensus by growing 10 basis points on a month over month basis.  

The National Association of Home Builders’ housing market index missed consensus by a slight margin in September, 58 Vs 59.

Tomorrow we will find out if the Federal Open Market Committee will pass a motion to taper.

Trades
Tomorrow is pivotal day for many. Markets should move wildly by the action, or inaction, taken by the Fed. I am under the impression that the Fed will vote down any motion to taper. My conclusion is drawn up by three key economic indicators that the FOMC stated that they will base their monetary policy decisions on. (1) Inflation is mild and on the verge of drifting in the opposite direction of the Fed’s target. (2) The employment situation in the US is making progress, but at a sluggish pace. (3) Gross domestic product is failing to rise exponentially. The output of this country has been subdued since the recovery started.

I do believe that taper will occur, but I doubt it will occur in any form tomorrow. In the event of the upset you have a trade. In the event of me being wrong, you have a trade. There is plenty of money to be made tomorrow because a significant monetary policy shift is expected to take place. I recommend shorting US treasuries. The trade should be placed after the policy statement is released, never before.

Daily Market Color 09/16/2013

Daily Market Color

09/16/2013

Economic Reports & Headlines

Over the weekend, President Obama’s top choice to replace Ben Bernanke as chairman of the Federal Reserve withdrew his name from the running. Janet Yellen appears to be the next choice.

Italy’s merchandise trade surplus for July came in lower than expected, 2.1bn Vs 3.4bn.

Eurozone’s harmonized index of consumer prices was in line with consensus, for August, by growing 1.3% on a year over year basis.

On the domestic front, the Federal Reserve Bank of New York’s Empire State Manufacturing Survey came in below analysts’ expectations for September, 6.29 Vs 9.00.

Industrial production in the US for August missed consensus by a small margin, 40 basis points versus 50 basis points.

The Reserve Bank of Australia released minutes for the meeting they held on September 3^rd. The minutes showed no strong indication of a rate cut in the near future.      

Trades
The session was light on results from economic reports that could move the markets, however, the Larry Summers withdrawal made markets rallied. Larry Summers is against the asset purchases currently being conducted by the Fed. His appointment would have probably caused a sell off. The scale back in the Fed’s asset purchase program would be anything but gradual if Summers were appointed, according to many. The Fed meeting is happening this week. The taper is expected to be focused on Treasuries instead of agencies bonds and it is expected to be approximately 10 - 15 billion. I personally still expect the meeting to pass without a motion to taper, or with a failed motion to taper. Inflation is nonexistent and gross domestic product in the US is mild. Jobs are the only aspect of the US economy that is consistently moving towards the Fed’s target.

The taper will come eventually. Housing is booming in the US once again. And interest rates are rising. The world is not expected to come to an end anytime soon, so there is no reason for you to be in safe haven. UK Gilts and German Bunds are selling off. Look at the chart of US treasuries and analyze the fundamentals that influence their value. Anyone could come to the conclusion that you should short sell treasuries. It is a trade I have been recommending for some time now. It is a trade that many market players were waiting for. The trade is finally here. 

Daily Market Color 09/13/2013

Daily Market Color

09/13/2013

Economic Reports & Headlines

Producer prices in the US increased more than expected on a month over month basis in August, 30bps Vs 20bps.

Retail sales in August came in below consensus on a monthly basis, 20bps Vs 50bps.

The University of Michigan consumer sentiment index came in below consensus during the month of September, 76.8 versus 82.0.

Business inventories in the US grew slightly more than consensus, 40bps versus 30bps.

Trades
Today’s economic calendar merits no attention. The roller coaster ride of a potential military strike in Syria faded away. It first started with President Obama sending threats to attack Syria. Russia’s leader Putin vowed to assist Syria if the US attacked. The threat of an attack began to dissipate once it was clear that congress will not back a vote to strike Syria. Syria entered into an agreement to get rid of their chemical weapons. Now the focus should be on the Fed, congress and the Eurozone going forward. I still recommend the shorting of US treasuries. 

Daily Market Color 09/12/2013

Daily Market Color

09/12/2013

Economic Reports & Headlines

Consumer prices in France for August were below consensus on a year over year basis, 90bps vs 110bps.

Industrial production in Italy for the month of July was horrid. On a month over month basis, industrial production declined 1.1% versus an expected increase of 0.3%.

Consumer prices in Italy for August were higher than expected by a slight margin on annualized basis, 1.2% Vs 1.1%.

Industrial production in the Eurozone was poor as well when compared to consensus. In July, EMU’s industrial production fell 1.5% on a month over month basis. Consensus was calling for IP to remain unchanged for the month.

US Jobless claims in the US were way better than expected, 292k Vs 330k; however, the numbers could have been skewed by a computer glitch.

Import/export prices in the US came in below consensus during the month of August. Export prices, on a month over month basis, declined 50 basis points instead of increasing the expected 10 basis points. Imports prices did not change, market participants were expecting prices to climb 50 basis points.

Trades

The jobless claims report may have been buoyant, but it is inaccurate according to many financial pundits. Economic reports from the EMU stilled showed a region plagued with a mediocre economic performance. Today’s economic calendar failed to give us anything to be bullish about, but it also did not give us anything to become bears about. Syria, the Fed tapering, fiscal gridlock and Germany’s elections are all events that should move these markets. US treasuries appears to be the best market to trade right now due to the trend it has been in since May of this year. 

Daily Market Color 09/11/2013

Daily Market Color

09/11/2013

Economic Reports & Headlines

Consumer prices in Germany were in line with consensus on an annualized basis in August by coming in at 1.5%.

The labor market report in Great Britain, for August, surpassed economists’ estimates. The claimant count declined 32.6k versus consensus of 22k. The jobless rate remained unchanged at 7.7%.

The Reserve Bank of New Zealand left its key rate unchanged at 2.5% in its most recent monetary policy announcement.

Over in the island nation of Japan, machine orders in July missed consensus on a year over year basis, 6.5% Vs 7.5%.

Australia’s labor force survey for August surprised analysts and missed. Although the jobless rate stood at 5.8%, employment fell by 10,800.

Trades

The calendar was light on the domestic front. Global economic reports were mixed. Over in the UK, it appears as if the policy makers are winning with their economic strategy. The trend is upwards fundamentally and the pound is surely following the fundamentals. Machine orders in Japan were below consensus but still strong nonetheless. Syria, the taper, the gridlock and the German elections should move these markets in the coming weeks. In the meantime, US treasuries are still trending lower and are worth trading.

Daily Market Color 09/10/2013

Daily Market Color

09/10/2013

Economic Reports & Headlines

The economic reports from China continued to pour in ahead of Tuesday’s trading session. Industrial production in August was slightly better than expected on a year over year basis, 10.4% Vs 9.9%.

Retail sales in China for August were better than expected by a tiny margin on an annualized basis, 13.4% Vs 13.2%.

Industrial production in France, during the month of July, was worse than expected on an annualized basis, -1.8% Vs -0.4%.

Producer prices in Japan were better than expected by a slight margin during the month of August on an annualized basis, 2.4% Vs 2.3%.

Trades

China had a stellar month economically and Japan is crawling along in the right direction. Looking forward the markets should rally. There is hardly anything in the way to derail this equity rally. Syria, the Fed and the fiscal deadline, are all problems that should not set the world ablaze. I ask myself everyday if the world is going to end. When I answer that question, I trade accordingly to what I conclude. US treasures is the only thing on my radar at the moment. There is no other market that is trending both technically and fundamentally like US treasuries.  

Daily Market Color 09/09/2013

Daily Market Color

09/09/2013

Economic Reports & Headlines

Over the weekend, four reports were released that merited extra attention. First we will start off with China’s merchandise trade balance for August, which came in way better than expected, $28.61bn Vs $18.95bn. Export growth surpassed estimates by rising 7.2% versus consensus of 5.1% on an annualized basis.

Consumer prices in China, for August, were in line with analysts’ estimates on a year over year basis, 2.6%.

Producer prices were in line with consensus as well by declining 1.8% on a year over year basis in August.

Second quarter GDP estimates in Japan were in line with consensus on an annualized basis by increasing 3.8%.

Monday’s session was light on economic reports. The Bank of Japan released minutes from their most recent meeting. Monetary Policy Board members stated that price increases were aided by a reversal in energy prices along with a wide range of other items.

The Tertiary Index, which measure activity in 13 industries in Japan, contracted on a monthly basis, as expected. July’s reading showed the index fell 40 basis points on a month over month basis, but increased 100 basis points on a annualized basis.

Trades

In light of all the reports released over the weekend and throughout today’s trading session, I’m under the impression that global capital markets are likely to rally. US largest trading partner, China, released a great merchandise trade report that should surely be a blow to traders who are bearish on the Chinese economy. They are a few obstacles that stand in the way of the rally, of course. We have Syria, German elections, political gridlock in Washington and the effects of tapering just to name a few. There is a lot of noise in the markets, however, you could definitely find a trend and anchor yourself with classic trading principles. I won’t delve into those principles, but I will say that US treasuries are declining and it is the only thing worth trading at the moment. 

Daily Market Color 09/06/2013

Daily Market Color

09/06/2013

Economic Reports & Headlines

Today we got three merchandise trade reports for July, which all came from European countries. Below are the actual figures versus consensus:

Germany: E$14.5bn Vs E$16.1bn

France: E$-5.1bn Vs E$-4.5bn

UK: S$9.9bn Vs S$8.2bn

The Halifax Home Price index for August came in worse than expected on a month over month basis, 40bps Vs 70bps.

Industrial production in the UK was unchanged for July on a month over month basis. Manufacturing output was slightly better than expected, 20bps Vs 10bps.

Industrial production in Germany was horrid for July. Production fell more than expected on a month over month basis, -1.7% Vs -0.5%. On a year over year basis, industrial production contracted 2.2% versus consensus of 0.8% increase.

Over in Canada, employment increased 59.2k in August and the jobless rate ticked down 10 basis points to 7.1%

On the domestic front, the highly anticipated nonfarm payrolls report for August came in below consensus, 169,000 Vs 175,000. The jobless rate decreased ten basis points to 7.3%.

Putin said that he will back Syria if the US takes military action.    

Future Reports

Over the weekend we will get a trade report from China along with the latest reading of the consumer price index. Japan will release GDP figures over the weekend as well.  

Trades

If the US strikes Syria, the US will technically be in war with Russia since Russia vowed to protect Syria today at the G20 summit. Most congressional members voiced that they will vote against any military action in Syria. So in light of all of this, the markets responded accordingly. A downward trend should take hold of equities if congress votes in favor of the limited strike. Treasuries rallied today after Putin comments. The rally should be unsustainable due to the lack of support for the strike from Congress. This is a perfect opportunity to short Treasuries. Another opportunity should present itself following the Fed’s meeting that’s rapidly approaching.  

Daily Market Color 09/05/2013

Daily Market Color

09/05/2013

Economic Reports & Headlines

The economic calendar is jam packed today. First we will start off with an employment report in France that was issued by the International Labor Organization. This quarterly report showed the jobless rate in the wine-rich country ticked up ten basis points to 10.5%.

Manufacturing orders in Germany, Europe’s most powerful country, fell more than expected on a month over month basis in July, -2.7% Vs -1.0%. The previous report was revised significantly higher to 5.0% from 3.8%.

The Bank of England left their key rates and asset purchase program unchanged. This was no surprise to market participants.

The European Central bank left their key rate unchanged as well. Inaction from the ECB was expected by economists and analysts.

Heading over the Atlantic ocean into the western hemisphere, the US had plenty of reports for market lovers to look over. Weekly jobless claims were way better than expected, 323k Vs 330k.

The ADP employment report missed consensus by a tiny margin in August, 176k Vs 177k.

The institute of supply management non manufacturing index was better than expected for August, 58.6 Vs 55.0.        

Factory orders in the US were expected to tank by 3.4% on a monthly basis in July, but the report showed that factory orders fell 2.4% instead.

Future Reports

Tomorrow we will get trade reports from Germany, France and the UK. On the domestic front, the US will release the highly anticipated non-farm payrolls report      

Trades

Tomorrow’s Non-farm payroll report will be the last report to be released before the Federal Open Market Committee meeting in September. This report should have a large influence on US equity indices and US Treasuries. If you are looking to add to your US Treasury position, Friday or Monday should be the optimal time to do so ahead of the FOMC meeting later this month.

Daily Market Color 09/04/2013

Daily Market Color

09/04/2013

Economic Reports & Headlines

Yesterday and Monday was all about manufacturing PMI reports, now today’s session is about service PMI reports from Europe. Below you could the actual figures versus consensus. Any reading above 50 indicates an expansion, while any reading below 50 indicates a contraction. All of the reports below are for August:

France: 48.9 Vs 47.7

Germany: 52.8 Vs 52.4

UK: 60.5 Vs 59.8

Eurozone: 50.7 Vs 51.0

Second quarter gross domestic product in the Eurozone was better than expected on an annualized basis, however, growth was still negative, -50 basis points versus -70 basis points.

Retail sale in the Eurozone was worse than expected in July. On a monthly basis sales grew 10 basis points and on an annualized basis prices fell 130 basis points.

The Bank of Canada left their key rates unchanged today.

Merchandise trade in Canada registered a larger than expected deficit in July, C$930 million versus C$400 million.

On the domestic front, US international trade deficit in July was in line with consensus 39.1bn Vs 39.0bn. The deficit was narrow in comparison to the last 12 months.  

More voting members from the House of Representatives have stated that they will vote against taking any military action in Syria.

       

Future Reports

Tomorrow the Bank of England and the European Central Bank will make their monetary policy announcements tomorrow.  In the US, the ADP employment report will be released along with the weekly jobless claims report.

      

Trades

It starting to look like a military strike in Syria will be unlikely. The financial media is making it appear as if there is more support, from voting congressional leaders, for inaction over action in Syria. Equity indices are rallying in light of this. The Ten Year Treasury Note is declining and continuing the trend downwards. The Ten Year is the only market worth trading at the moment.   

Daily Market Color 09/03/2013

Daily Market Color

09/03/2013

Economic Reports & Headlines

The overriding theme for today and yesterday is manufacturing reports. Below you could find the purchasing manager index reports that were released on Labor Day and Tuesday. The first figure is the actual number followed by consensus.

France August: 49.7 Vs 49.7

Germany August: 51.8 Vs 52.0

Eurozone August: 51.4 Vs 51.3

United Kingdom August: 57.2 Vs 55.0

US PMI August: 53.1 Vs 53.9

US ISM August: 55.7 Vs 53.8

China and Japan also released PMI composite reports for their service sectors. The results are below:

China August: 52.8 Vs 51.3

Japan August: 51.2 Vs 50.6  

John Boehner, the current speaker for the House of Representatives, and other key republicans supports military action in Syria.    

We got a read horrid on Australia’s retail sales in July. On a month over month basis sales grew 10 basis points versus consensus of 40 basis points.

The Reserve Bank of Australia kept their key rate unchanged today.

Markit/CIPS UK Construction PMI report for August was better than expected in August, 59.1 Vs 58.4.

Construction spending in the US was better than expected in July on a month over month basis, 60 basis points versus 30 basis points.

Gross domestic product in Australia for the second quarter was in line with consensus on a quarterly and annual basis by growing 0.6% and 2.6%, respectively.

Future Reports

Tomorrow we will get a read on motor vehicles sales in the US along with several service PMI reports from countries around the world. Both Japan’s and Canada’s central banks will be making monetary policy announcements tomorrow.

      

Trades

Manufacturing PMI is looking strong across the globe. Activity is robust in the UK. The short pound trade that was profitable during the beginning of the year is nonexistent now. Syria is becoming somewhat of a roller coaster ride. Last week, it appeared as if the US were going to strike before the weekend until Obama said he will first seek approval from congress. The UK voted to stay out of Syria’s intervention. And President Obama received support from key republicans for the impending limited military strike. In light of all of this US equity indices struggled for direction. Nothing looks suitable to trade at the moment except the 10-Year US Treasury note. That is the only market right now that has a clear trend.