Stocks

Hmmm continued weakness into afternoon  as DOW down some 283 pts. Remember DOW is goofy in how it calculates the weightings in the index.BA,DIS and GS are good for -100 points

SPX Sectors   all 10 lower,  leading decliners  are Financials -1.9%,Information tech -1.5 consumer staples -1.3%. Not the usual suspects leading parade lower(oil and materials).More year end selling ,OPEX   ,Fund re balance at end of day? combination of all 3?

the top 10 stocks,the ones that accounted for most of the SPX gains this year are down.As a group down a collective 1%

Gold silver and platinum having a nice day  on the weaker dollar

Grinch

Grinch move in stocks today so far. Where is Santa? I believe the yen move was the catalyst for the initial move  lower  in stocks.Overnight their was a  report on china.This “beige book “of China growth ( named after Feds beige book),indicated a less then stellar outlook  for China.This isn’t new news  ,but with all the focus on the fed and other central banks this report reminded markets that growth still isn’t good and might not get good in a  hurry. Stoxx 600 in Europe  on pace for worse December in 13 years.

Spain holding elections this weekend and markets are worried about the outcome.Current leadership should retain power but  how many votes will the  anti euro ,anti establishment party receive?

Long time since  something positive out  Government helped markets and  not hurt them.House just passed new spending bill and now moves onto Senate,where likely to pass.Within bill  Oil export  ban lifted and elimination of country of origin tags on Cattle eliminated.

Oil export ban  has been rumored to be lifted but Cl has bid and thus Energy related stocks and ETFs are higher.The elimination of   country of origin  tag allows for more USA exports of cattle and halts Canada  and Mexico’s claims of trade violations against USA.Plus front month live touched 2.5 year low yesterday, so Squeeze  the shorts.Live and feeder strong limit up!!

Theme for today’s trade is a holiday theme.it isn’t one shoe fits all ,it is individual markets are marching to own beat. DOW  down 220  and yet spooz down 15 points.Commodities higher yet impact on stocks is negligible.

 

Yen

JYH6 Curncy (JPN YEN CURR FUT  M 2015-12-18 08-34-45

Above is a 1 minute chart of Yen Futures.the BOJ,after monthly meeting tweaked  Her QE program,it did not expand it.Markets initially interpreted it as an Increase IN  amount of QE   per month,yen sold off hard.Once markets realized it wasn’t an Increase in yen spent per month it did a quick about face and rallied hard. Initial move lower 140 ticks,subsequent move higher 160 ticks.From lows to high close to  260 ticks,Pain felt somewhere.

Risk markets don’t like a higher a yen and this strength has been one of the reason for Lower Stocks world wide

Soybeans

Saw A real nice bounce in Soybeans post 10:00. A couple reasons for bounce. Informa Lowered  forecasts for U.S. 2016 planted area forecast.2)  Into the close of trading in Argentina’s peso it did rally 4% off of lows.3) Soy markets have been aware that the Peso was going to be devalued,so they have already dropped some 6.5% in anticipation of Event.(Sell the rumor buy the news) 4) A few stops were triggered on the move up as march soy cleared yesterdays high of 871’4.  Chart below(daily)

S H6 Comdty (SOYBEAN FUTURE    M 2015-12-17 12-23-15

Outside day on charts near a bottom,could indicate a short term turnaround in beans now that peso devaluation is out pf the way.

5 minute chart below :

S H6 Comdty (SOYBEAN FUTURE    M 2015-12-17 12-32-30

the Grinch

The expected Santa Claus Rally that was supposed to start after yesterdays FED meeting has run into the Grinch!Spoos –  down 24 handles,Dow -170. leading sectors weighing on SPX  are no surprises. Emery -1.8%,materials -1.45% Financials and Consumer discretionary   both.-1.25%.  490 SPX stocks lower, 90  out of 100  NDX stocks lower.No where to hide  in stocks.Year end wash out before  we  see Santa Claus? or  are higher rates causing havoc already?

yesterdays pit Low in spooz  2034.90,if it holds I believe just a wash out before Spooz move higher.If trades below and doesn’t find support at 2030.90(a gap) markets could be in trouble

Crude Oil approaching contract lows and Multi year lows below 34.53(Jan)

Argentine peso

ARS Curncy (Argentine Peso Spot) 2015-12-17 09-32-19

This is a daily chart of the peso,it is not a  “fat finger” trade. The currency was allowed to float free,it has moved 40% lower vs the dollar today.Some chatter that the government would not allow it to devalue more than 40%,seems to provide a ceiling on Dollar strength/peso weakness.Why so important,literally tons of Soy ,soymeal and corn will be unleashed on export market  as Farmers  there have held onto supplies till this event.Plant in peso> sell in dollar>More profits.

FED Day After

Dollar higher  is somewhat of a Surprise as I thought the buy the rumor sell the  news trade would be in play. Dollar +100 ticks.

Emerging market stock markets are well bid ,all up well over 1%,.MSCI The Emerging market Index is up again today after being sold aggressively into fed decision.EM currencies  for most part are down against the dollar.Argentine Peso down some 20% as currency controls are  lifted,South African Rand 1.8% lower,South Korea -1.2% lower

Commodities today are lower  with the precious metals sector being hardest hit.Gold near 2015 lows and thus multi year low,silver approaching 6 year low.if platinum trades below  824 ish  6 year lows! Strong dollar , better return from Fixed income latest cause.Crude oil ugly again.

Developed Market Currencies are lower but to varying  degrees  as “commodity Currencies” are heavy. Aussie -100,Cad -78 NZD  -90 Pips. EUR only down 60,Yen -60   GBP-80.Countries relying on Exports,outside USA  are happy

Those Countries that benefit the most form perceived Increase in Exports  most notably Germany find Their Stock markets higher. Dax +3%

Treasury Curve continues to trade flatter.This has been the trade du jour and looks like it will continue.people that believe FED dot plot were Hawkish( more 2016 hikes than expected) will continue to sell short term and buy longer end.

FOMC preview

The fed is Expected to hike rates by .25 %,it will be an increase in  the band which currently stands between 0-.25%.The new band will be .25-.50%.In the new year markets will  watch to see where the level of rates are between that band. Story for next year.

Expected :

  • .25 % hike
  •  ” not a one and done hike  statement”
  • Lowering by at least .25% the expected end of year fed funds forecast for 20 17,18 and long run

Only click trade will be if fed leaves rates unchanged,Markets will be volatile so don’t be tempted.

Thoughts:

Experts tossing around the dovish hike scenario in that a rate hike will happen but with a statement and rate path adjustment to indicate a data (maybe inflation) dependent fed,that will hike rates gradually and not on a set course.This is main focus of markets. The markets pricing in a lot less FED hikes than fed  predicted in September.The 2 predictions do not have to be equal,But the market want to see FED lower the  end of year expectations by at least .25%( per GS).This is where some of the market  action could come from in the form of whether or not FED disappoints  expectations.This is the Fed dot Plot story/

  • FOMC meeting    2015      2016    2017    2018   longer term
  • Sep 15 median   0.375     1.375   2.625   3.375    3.5
  • Jun 15 median   0.625     1.625   2.875           3.75
  • Ma5 15 median   0.625     1.875   3.125           3.75

Quarterly Economic projections will be published at this meeting as well.An Update of GDP,Inf and Unemployment will be given.these may hold some clues into Fed thinking if the changes to Inflation,et. al   are Big.

FED statement will be adjusted towards solid job growth and stronger assumption of Inflation reaching goal.In a sense statement has to reflect  a better economy  as rates will be hiked.Watch for Dovish dissenters

I believe the market is trading in a Sell the  Rumor buy the news . The SPX is down roughly 5% since DEC 1  and 2 year yield  almost touched 1 %  a 6 year high.Barring a big surprise From FED one that doesn’t correspond to what market has priced.  I believe stocks and bonds will be higher by days end.Watch the curve action.Plenty of chop to happen post number and press conference

lastly their will be other rates that will be adjusted higher,Such as the Discount rate,the rate on overnight reserves  and the repo rate.These are more more of a “House cleaning type” and shouldn’t have any impact on the trade.

 

Soybeans

Today Brazil was downgraded to Junk by Fitch,not a total shock  but currency down 2% vs. Dollar.

Argentina announced the Lifting of capitol controls of her currency,again not a shock.Both of these items will lower value of respected currencies VS dollar and in turn  make  their Soy and corn cheaper  on world markets  relative to USA grains. The reason why SOY BEANS  are near a 3 week low