FOMC Facts, Futures Levels & Economic Reports 10.28.2014
Posted By:- Ilan Levy-Mayer Vice President, Cannon Trading Futures Blog
For 2014 I would like to wish all of you discipline and patience in your trading!
Two pointers I picked from an email service from factset.com that are worthy in looking ahead this week, as we will have FOMC statement this Wednesday:
Earnings metrics improve:
- According to FactSet, the blended growth rate for Q3 S&P 500 EPS pushed up to 5.6% this week from 5.1% at the end of last week and 4.6% at the end of the quarter. In addition, of the 208 companies that have now reported results for Q3, 75% have beat consensus EPS expectations. This is up from 68% last week and ahead of the 73% four-quarter average. In the aggregate, companies are reporting EPS 3.8% ahead of the Street, slightly better than the 3.6% four-quarter average. As was the case last week, some of the better takeaways came from cyclical names where sentiment has been fairly depressed. MMM +8.1% reported a high-quality, margin-driven earnings beat and slightly raised the midpoint of F14 guidance. ITW +5.5% reported its best organic growth since 2011. Europe held up better and the company raised full-year guidance. HVAC leveraged plays like LII +15.1% and WSO +8.6% were some of the post-earnings standouts. UPS +3.4% had some upbeat commentary on the peak holiday shipping season. Outlook commentary following strong results from UNP +7.7% was also positive. Results and guidance from the airline sector also highlighted a still favorable domestic demand backdrop.
Policy speculation remains supportive:
- Policy speculation provided some support for global risk sentiment this week. The ECB received most of the attention with reports that it is considering corporate bond purchases. The reports came in the wake of the latest pickup in concerns about the need for the ECB to do more that accompanied Monday’s start of its covered bond (CB) purchase program. Reuters said that the central bank will consider the matter at its December policy meeting and could start purchases as soon as the beginning of next year. While other media outlets reported that nothing seems to imminent, they also noted that corporate bond purchases have received some consideration. A couple of ECB members downplayed the significance of the reports, though they did concede that corporate bond purchases would help facilitate balance sheet expansion goals. Both the FT and the Economist had articles this week calling for the ECB to engage in sovereign QE. The latter argued that it should also purchase bonds issued by the European Investment Bank (EIB) designed to facilitate an aggressive ramp in infrastructure spending in the region.
TradeTheNews.com Weekly Market Update: The Heart of Earnings
Global markets quieted down this week, allowing participants to focus on corporate earnings and economic fundamentals. There was a glimmer of hope in Europe, where German and Eurozone flash October manufacturing PMI data saw very modest improvement, while officials worked hard to back away from a big battle over France’s flawed 2015 budget and discussed a potential €300 billion public investment plan. In the US, inflation continues to stubbornly avoid showing, with September CPI reading just about flat. The preliminary Markit October manufacturing PMI data was a bit soft, in a reading that missed expectations and saw its lowest level since July. Earnings season hit full stride with corporate reports mostly leading stocks higher, though some high profile names disappointed. For the week, the DJIA gained 2.6%, the S&P500 added 4.1% and the Nasdaq rocketed 5.3%, marking the best gains of the year for the broader indices.
A wave of enthusiasm spread over financial markets on Tuesday on press reports that the ECB could start buying corporate bonds to complement its ABS purchase program. The reports led some participants to believe that a more fleshed-out QE program was under consideration. Two ECB members, Nowotny and Coene, poured cold water on the stories saying the MPC had held no discussions on corporate bond purchases.
All was quiet on the Ebola front this week until Thursday afternoon, when New York City reported its first confirmed case of the disease. Dr. Craig Spencer was placed in isolation at New York’s Bellevue Hospital days after returning from a volunteer stint in Guinea treating Ebola victims. Spencer had been self-monitoring, but had also spent a fair amount out on the town before starting to feel fatigued and feverish. Ebola treatment developers and sanitary equipment manufacturers had traded lower this week before the announcement as no new US cases were announced and people in Texas came out of quarantine, and the bounce higher and Thursday and Friday was not very robust.
Amazon and IBM reported some buggy quarterly results. Amazon was sent to the woodshed after reporting its biggest quarterly loss ever on Thursday afternoon. The reported loss was much steeper than projected, fourth-quarter guidance was weak and the company wrote down $170 million related to the company’s Fire Phone, widely seen as a big flop. IBM missed top- and bottom-line expectations and cut its FY14 and FY15 forecasts, blaming a “new definition of calculating continuing operations.” This was the tenth straight quarter of falling revenue. At the same time, IBM agreed to pay Globalfoundries $1.5 billion in cash to take its processor business off its hands.
Apple had stellar results in its third quarter. Earnings and revenue growth were impressive and above expectations, margins were strong and iPhone shipments were at the top end of market estimates. Note that Apple executives warned the strengthening USD is becoming a significant headwind. The company also launched its Apple Pay service on Monday at thousands of retail stores, with early reports suggesting only some minor glitches that Apple has promised to fix with a software update.
The DJIA’s big junk food components, Coca-Cola and McDonalds, turned some unhealthy third quarter numbers. Coke met earnings expectations, gross margin was up a bit y/y, and global volumes looked good. However, the -1% volume decline in North America was a sign of trouble, and the firm warned that it would be below its long-term EPS growth target for 2014. McDonalds missed top- and bottom-line expectations, the declines in worldwide comps accelerated from Q2, and management warned October comps would remain in the red.
General Motors, Ford, and Caterpillar saw strong third-quarter results. Shares of Caterpillar posted solid gains after its numbers crushed expectations and it raised FY14 guidance. Gains in the firm’s construction and energy equipment sales are seeing good growth, offsetting the steep declines in mining hardware. GM’s third-quarter earnings rose 98% y/y, bolstered by strong North America and China results. Ford’s profit was better than expected, however both sales and revenue declined on a y/y basis thanks to the impact of a big round of product launches.
Consumer name Proctor & Gamble cleaned up nicely as first quarter results met expectations, although revenue growth was limp. P&G also confirmed that it would check out of the Duracell business by creating a stand-alone company, possibly via a spin-off to shareholders. Analysts note that the unit has been on the block for years and the company has had a hard time generating interest in a sale. Competitor Colgate is looking tarnished after the firm warned FX issues cut deeply in the quarter and forced the firm to reduce its full-year guidance.
Coming into the week, the euro continued to move up off the two-year lows against the dollar seen in early October. EUR/USD traded as high as 1.2840 until the ECB corporate bond buying story on Tuesday turned the pair around. EUR/USD glided back down to the low 1.2600 handle on Thursday, when better October flash manufacturing PMI data for Germany and the Eurozone helped arrest the slide. GBP/USD held below key technical resistance in the 1.6210 area, which corresponded the summer downtrend line in the pair. The BoE minutes saw no changes, and speculation that they could be on the dovish side was brushed off as MCP would not have seen the ominous September CPI inflation data at the time of the meeting. GBP/USD had trouble retaking the 1.6100 handle.
China released the balance of its September economic data, which along with October HSBC flash manufacturing PMI were steady but uninspiring. The Q3 GDP reading of 7.3% was just above consensus but still a 5-year low. Industrial output beat estimates, but power generation growth sank below 5%. Both retail sales and fixed asset investment growth was in low double-digits, but still marked multi-year lows. The HSBC PMI hit a 3-month high, but the output subcomponent slowed to a 5-month lows. Finally, September housing price data further confirmed the slowdown in the property space, as y/y prices fell 1.1% after rising 0.5% in August. For the week, the Shanghai Composite was down 1.7% – a second consecutive losing week after an impressive 2-month rally.
Political maneuvering in Japan is bound to become more pronounced as the cabinet draws closer to the expected decision on the second round of consumption tax increase, particularly with the country’s economic progress increasingly lagging. Japan confirmed its 27th consecutive month of trade deficit this week, while the government cut its economic assessment for the second straight month due to soft spots in consumption. Influential advisor to PM Abe, Etsuro Honda, recommended that the next round of sales tax hikes be delayed until 2017, however Finance Minister Aso countered that foregoing the tax hike would jeopardize global investment trust in Japan’s fiscal state. Traders are anxiously awaiting the Bank of Japan policy decision next Friday, as it will be accompanied by the BOJ’s semi-annual Outlook Report providing the latest forecasts for GDP and inflation. The BOJ may also justify some further monetary policy easing to offset any fiscal strain if the tax hike is in fact postponed.
GOOD TRADING !
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Futures Trading Levels
|Contract Dec. 2014||SP500||Nasdaq100||Dow Jones||Mini Russell||Dollar Index|
|Contract||December Gold||Dec.Silver||Dec. Crude Oil||Dec. Bonds||Dec. Euro|
|Resistance 3||1236.0||17.31||83.38||142 22/32||1.2792|
|Resistance 2||1234.0||17.27||82.34||142 16/32||1.2760|
|Resistance 1||1231.0||17.20||81.53||142 7/32||1.2734|
|Support 1||1226.0||17.09||79.68||141 24/32||1.2676|
|Support 2||1224.0||17.05||78.64||141 18/32||1.2644|
|Support 3||1221.0||16.98||77.83||141 9/32||1.2618|
|Contract||Dec Corn||Dec. Wheat||Nov. Beans||Dec. SoyMeal||Dec. bean Oil|
|TueOct 28||3:00am||EUR||German Import Prices m/m||-0.1%||-0.1%|
|8:30am||USD||Core Durable Goods Orders m/m||0.5%||0.4%|
|USD||Durable Goods Orders m/m||0.4%||-18.4%|
|9:00am||USD||S&P/CS Composite-20 HPI y/y||5.7%||6.7%|
|10:00am||USD||CB Consumer Confidence||87.4||86.0|
|USD||Richmond Manufacturing Index||11||14|
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