Friday, May 23, 2014

Day Trading Weekly Recap; Markets are HOT!

It’s time to recap what happened in the markets this week! 
We had another profitable week of day trading with members at, and wish everyone a safe and restful Memorial Day Weekend.

Here’s what happened this week:
- Global markets quickly backed away from the panicky dive into safe assets seen last week and equity markets coasted back to May highs.

In the US, the S&P500 pushed out to a (near) record high and the benchmark 10-year yield eased out to 2.536% after touching 2.472% at its deepest compression last week.

Geopolitical developments were front-and-center all week:

Europeans voted in EU Parliament elections, in Thailand the army took over control of the country in an outright coup, North and South Korea exchanged artillery fire, China and Russia signed a 30-year natural gas supply deal, and Ukraine saw more violence ahead of weekend elections though Mr. Putin softened his tone on the crisis.

April housing data showed an improving market in the US. Preliminary European May manufacturing PMI data out of France and Germany missed expectations.

But overall there did not seem to be any major catalyst driving lethargic market moves and many analysts suggested participants were merely biding time, waiting for clarity on possible ECB easing, waiting for Ukraine to calm down and waiting most of all for an excuse to power the US melt-up to ever greater highs.

For the week, the DJIA gained 0.7%, the S&P500 rose 1.2%, and the Nasdaq added 2.3%.

- There was little response in markets to the release of the FOMC minutes which contained no major revelations about the Fed's exit planning. However, a few trends could be gleaned from the document. The Fed is clearly still not concerned about inflation and believes it will stay below the 2% threshold for quite some time. 

Policymakers seemed to agree now is the time to start preparing exit strategies, which will likely involve reverse repos and raising interest rates on excess reserves (IOER). But even as the exit approaches, forward guidance is still in place and could "enhance the clarity and credibility of monetary policy."

- The April US housing data indicates improvements in sentiment after a hard winter selling season. Both new and existing home sales accelerated modestly from March levels. The headline April existing home sales figure was the best reading in four months. Commenting on the data, the NAR chief economist noted that some growth was inevitable after sub-par housing activity in the first quarter, and said he believed improved inventory is expanding choices and sales should generally trend upward from this point. The stocks of major US homebuilder rose 4-5% on the week. Home improvement names Home Depot and Lowes saw restrained growth in first quarter earnings, however both indicated that so far May sales have been very strong.

- There were some truly terrible results seen out of retailers this week, and the tough environment cut across retail categories. Best Buy saw the best results, as the company's big turnaround plans continue to bear fruit and help arrest the big declines in quarterly sales. Target met all expectations in its first quarter but cut its FY14 forecast. Apparel retailers were pretty weak, with most missing or barely meeting deflated consensus expectations. Guidance was quite bad. Aeropostale lost 25% of its value after disclosing especially bad results. Sears Holding's business continues to implode, and the company said it would sell some or all of its position in Sears Canada.

- Caterpillar released troubling April dealer statistics, with retail sales of machines down 13% y/y, slightly worse than the firm's March performance. The cooling of China's housing and resource sectors contributed heavily to Caterpillar's 25% y/y sales decline in Asia, compared to March and February declines of 20% and 17%, respectively.

- After weeks of talks, AT&T has offered to buy DirecTV for $95/share in a cash and stock deal valued around $67.1 billion. DirecTV shareholders will receive $28.50 per share in cash and $66.50 per share in AT&T stock. The price implies a total equity value of $48.5B and a total transaction value of $67.1B. The agreement includes no break-up fee or penalty that AT&T would have to pay if regulators shut down deal, while DirecTV agreed to pay a $1.4B fee to AT&T if it leaves the deal for a higher bid. After the agreement was announced there were reports DISH Networks was holding talks with Verizon, however Verizon's CEO later dismissed them and said the company did not need to do any big acquisitions.

- AstraZeneca rejected Pfizer's final offer of £55/share, and suggested the board could have considered a bid above £58.85. The deal is not quite dead yet as many of AZN's largest shareholders have encouraged the board to take another look or otherwise engage with Pfizer. Monday, May 26th is Pfizer's deadline to get AstraZeneca to accept an offer before having to wait six months under UK law to make another offer. Pfizer has said it has no intention of launching a hostile bid.

- Starting with the UK and the Netherlands, Europe began voting for a new EU parliament on Thursday. Final results are expected Sunday night, however exit polls suggest that euro-skeptic parties are gaining less ground than expected in the election. In the run-up to the elections, there were real fears that fringe parties would capitalize on low turnout, anger over immigration and weak economies to take more seats in the EU legislature. Until the end of last week, European bonds had rallied on the back of rising confidence in the Eurozone recovery and expectations for more ECB easing. But the trend went into reverse on weak GDP readings and fears about the election results, as benchmark peripheral bond spreads widened out to levels not seen in months.

- In the UK, markets were eager to see whether the minutes of the BOE's May meeting would show any loss of consensus among MPC viewpoints. Cable rose from 1.6790 as high as 1.6920 on the release of the notes on Wednesday morning. Some MPC members indicated that gradual, earlier rate hikes might be needed. Cable also benefitted from spectacular April retail sales data (+1.8% v +0.5%e) which saw its largest m/m gain in a decade. The second reading of UK Q1 GDP came in unchanged from the advance reading, but took cable off its best levels thanks to q/q declines in import and export readings. GBP/USD closed out the week well off its best levels, below 1.6820.

- The BoJ policy statement on Wednesday offered no hints that the bank was getting any closer to more easing. For the 10th consecutive meeting, the BoJ said the domestic economy continued to recover moderately and maintained its overall economic assessment. Revisions included a higher capex assessment, following the strong capex component in Q1 GDP and strong machine orders earlier this week, as well as a lowered public investment assessment. Analysts focused on three separate instances in the statement of the BoJ expressing concern that "decline in demand following front-loaded increase prior to consumption tax has been observed." USD/JPY bottomed out around 100.90 ahead of the decision and then pushed back to 102 by Friday. In an interview on Friday, BOJ governor Kuroda signaled some impatience with the Abe government, urging that the growth strategy be implemented swiftly and promptly.

- The Thai Army declared martial law and seized full control of the country in a coup this week, the second time in a decade the army has overthrown an elected government. The move came just a day after talks between the 'red shirt' backers of the current government and their opponents failed, following months of sometimes violent street protests. The Thai constitution has been suspended by the Senate, independent organizations and the courts to remain in place.

- The slow motion deceleration of the Chinese property market continues. The April home price report showed y/y price growth slowed down in all 70 cities surveyed, and the aggregate growth rate dropped to its slowest pace in 11 months. As a result, experts expect the list of major cities easing property market controls to expand to at least 39 from 8 cities presently. Hangzhou, in the eastern province of Zhejiang announced a limit on property price cuts. Addressing the issue, PBoC Governor Zhou asserted that the housing market is in good condition when looked at with an eye to the long term, with bubbles confined to a few cities. On a more positive note, the preliminary May HSBC manufacturing PMI numbers (49.7 v 48.3e), while still in sub-50 contraction territory, did see a second consecutive month of sequential improvement. New export orders and output prices shifted to growth but employment remained soft.

- After nearly a decade of negotiations, China and Russia signed a $400 billion, 30-year gas supply deal, giving Russian President Putin a lovely photo op with his Chinese counterpart and preventing a major embarrassment before flying home to Moscow on Thursday. The pricing terms of the deal were not clear and many analysts believe the Russians were forced to take a much lower price than they originally wanted. Others noted that the fields and pipelines needed to supply the gas have not yet been built.

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