Tag Archives for " economics "
Is Gold About to Get Cracked?
1) US Economic Data Comeback US economic data continues to firm up following a major drop in momentum since July. In the past week, we’ve seen decent new home sales, Markit Services PMI, durable goods, Chicago PMI, GDP, jobless claims, and ISM Manufacturing numbers. Check out this chart of the Citi US Economic Surprise Index — this could be the start of a new trend following a collapse in expectations: Some reports have been some clunkers, but overall, the strength of data relative to expectations is improving into Friday’s big NFP report. However… 2) Traders Aren’t Sold on the Fed Just Yet A lot of traders believe a December rate hike is a foregone conclusion. The numbers say otherwise. Fed funds futures imply a 61% probability of a December rate increase, so the market’s not buying in whole-hog. This brings us back to this week’s NFP report, which could move the numbers one way or the other. I’d especially be watching… 3) Gold! Call me crazy, but doesn’t this Gold (GLD) $125ish level look pivotal? Gold has been making lower highs, and I’d assume that a big NFP report on Friday could mean a very ugly break of this $125ish support level. There’s been a lot of talk about a possible head & shoulders forming over the past few weeks, but this bigger-picture pattern looks more important. 4) Is Twitter Still in Play? Today, Bloomberg reported that Google (GOOGL) is considering a bid for Twitter (TWTR). Google has perennially been seen as a logical buyer for Twitter because of the latter’s strength in real-time search. But the real good news for Twitter longs is the sheer number of rumored suitors floating around — Salesforce.com (CRM), Disney (DIS), and Microsoft (MSFT) have also been mentioned. This way, if one alleged suitor leaves the picture, we’ve still got others to prevent an all-out collapse. But I’ll still only believe this deal when I see it. Mark your calendars for Twitter’s Q3 earnings report on October 25 — it’s gonna be a big one! 5) A Boom in Call Options? The ISE Sentiment Index, which is my favorite short-term sentiment indicator, is reading 189 this morning as of 10:50 a.m. ET. That’s 189 calls for every 100 puts, which means rampant bullishness, at least on an intra-day basis. Perhaps ironically, we are seeing lots of activity in GLD. NFLX, TSLA, BMY, and CAB are also active. (TSLA announced strong sales, CAB is being taken over)
Continue Reading -->The Morning Hammer: Thank You OPEC!
Want to Earn Serious Income With Options? Then click here to check out Doug Robertson’s special live trading event! ******** Yesterday afternoon, OPEC announced an output cut, ending months of speculation and confusing headlines. That sent oil and energy stocks skyrocketing, and pushed the S&P 500 to flip from a decline to a 0.5% gain. Now if you are bullish on oil and willing to take serious risk, I would look at Diamond Offshore Drilling (DO), which will be removed from the S&P at tomorrow’s close. This is a truly hated stock (just 3 buy ratings out of 35 covering analysts) and it’s still near generational lows. The index removal is definitely the type of news you see near cyclical lows. I’m already pretty heavy in energy with my KYN and BGR positions, but I’m still taking a look. Overseas markets followed through on the oil-driven US strength, with the Euro Stoxx 50 up 0.8% and the Nikkei up 1.4%. Commerzbank announced a major workforce reduction and dividend suspension, and is shrinking its securities business. Pepsi (PEP) beat on earnings and raised guidance on strong results in North America. Barclays cut its target on Apple (AAPL) and removed its “Top Pick” status, sending the stock a little lower pre-market. Pacific Crest downgraded FitBit (FIT) to underweight on weak channel checks. Despite the mostly good news flow, SPX futures are back to flat, which I guess makes sense ahead of 2 days of important economic data. Today, we have GDP with the all-important PCE Deflator (the Fed’s preferred inflation indicator) following tomorrow. Trader are split roughly 50-50 on whether the Fed will hike rates in December, and these numbers could very well shift based on these reports. US economic data has been generally stinky since late July, though we’ve had a few bright spots like the recent Durable Goods, Consumer Confidence, and Jobless Claims numbers. This morning, the Fed’s Harker said he wants to raise rates sooner rather than later. So let’s see if the numbers support him.
Continue Reading -->Clinton Victory Means a Peso Victory
1) Mexican Peso Jumps The big post-election meme on Wall Street today is the jump in the Mexican peso. It’s up 1.2% against the US dollar today on Hillary Clinton’s strong showing in last night’s debate. Donald Trump is not viewed as peso-friendly, to say the least. But keep in mind that over the past few months, broader equity markets haven’t shown a tendency to favor one candidate over the other. That may change as we get closer to the finish line, especially around the second debate on Sunday, October 9. 2) Biotech Is Fine Biotech (IBB) is doing well this morning. In recent history, biotech has done better when Trump was favored, so this is an interesting development — especially since Gilead (GILD) was downgraded. 3) Gold Sinks Gold is taking a big hit this morning, and some of that is attributed to Clinton’s win. Trump’s wild-card nature is seen as more favorable for gold, even though gold’s status as a safety asset is in question. Chinese gold imports from Hong Kong also hit a 7-month low. However, keep in mind that the junior miners (GDXJ) are actually slightly outperforming the metal. GDXJ is essentially a high-octane way to play the metal, so I’m surprised it’s not doing worse. Stay on the lookout for a possible bounce higher in gold. 4) Crude Games It seems like oil bulls keep getting carried away on chatter about production freezes/cuts, and they always end up getting burned. I’m starting to think we should ignore all oil headlines until we get official word on the outcome of the meeting in Algiers. For now, the chances of a production freeze or cut look pretty slim. 5) Economic Data Today, we saw in-line S&P home data, a Markit Services PMI beat, a consumer confidence beat, and a miss on the Richond Fed. Overall, the economic data trend is still down. As you can see in this chart of the Citi US Economic Surprise Index, economic data strength relative to expectations is right around Brexit levels. The difference between now and then is that the market had more or less price rate hikes out. Now it’s pretty much 50-50 as to whether the Fed will move in Deceember. If the data trend continues to weaken, we could very well see the dollar dip and gold rip. We have Durable Goods on Wednesday, GDP on Thursday, and Personal Income/Spending plus the PCE Deflator Friday. So we could see some real fireworks!
Continue Reading -->T3’s Take 3: Hawks and Doves Collide on Fed Day
WEBINAR: Prop Trading May Not Be Right For You… But it has incredible financial benefits for many, many traders and could make a difference in your bottom line. Click here to learn more… 1) Bank of Japan Starts a Party The Japanese Nikkei and Topix indices had a great night after the Bank of Japan made its monetary policy announcement. The Bank did not go deeper into negative rates as had been rumored, but will instead focus on controlling rates and steepening the yield curve. A steeper yield curve means bigger profits for financial institutions, so Japanese banks and insurers staged huge rallies. The yen also rallied against major currencies. Many investors have been concerned about the impact of negative rates, so the new strategy was received favorably. The positive action in Japan flowed through to Europe, which also had a big stock rally with notable strength in financials. 2) The Fed! As expected, the Fed left interest rates unchanged. But what was really interesting was that they gave ammunition to both hawks and doves. 3 Fed officials dissented from the decision, voting to raise rates. The Fed also said that the rate hike case strengthened, which all but seals the deal for a December rate hike. That certainly seems in-line with all the hawkish commentary we’ve been hearing from Fed officials. However, the Fed now expects 2 rate increases in 2017, down from 3 in June. The Fed also cuts its GDP and interest rate forecasts, and said that inflation is still below its goals. So the overall picture is actually pretty mixed – and I’d argue that today may have been a victory for the doves. 3) The Market Reaction For the third day in a row, the S&P 500 hit an early morning high before ticking lower. However, the Fed statement ignited a very solid stock rally into the close, with the S&P rising 1.1% to 2162.87. The Russell 2000 powered up 1.4% to 1245.02. And since the Fed wasn’t as hawkish as many traders expected, we saw rallies in bonds and commodities after the announcement hit. Meanwhile, the dollar fell sharply on Japan’s lack of action and the Fed’s mixed statement. WTI Crude oil rose 3.5% after the American Petroleum Institute and Energy Information Administration reported large drops in US crude inventories. That had energy stocks in the winners’ column. But the biggest hot mover today was the junior gold miners ETF (GDXJ), which rose a whopping 8.0% on the post-Fed pop in gold. Thursday’s Trading Calendar US Economics (Time Zone: EDT) 08:30 Chicago Fed Nat Activity Index (Aug): exp. 0.15, prior 0.27 08:30 Initial Jobless Claims (9/17): exp. 261k, prior 260k 08:30 Continuing Claims (9/10): exp. 2141k, prior 2143k 09:00 FHFA House Price Index MoM (Jul): exp. 0.30%, prior 0.20% 09:45 Bloomberg Economic Expectations (Sep): prior 44.5 09:45 Bloomberg Consumer Comfort (9/18): prior 42.2 10:00 Existing Home Sales (Aug): exp. 5.45m, prior 5.39m 10:00 Existing Home Sales MoM (Aug): exp. 1.10%, prior -3.20% 10:00 Leading Index (Aug): exp. 0.00%, prior 0.40% 10:30 EIA Natural Gas Storage Change (9/16): exp. 54, prior 62 10:30 EIA Working Natural Gas Implied Flow (9/16): exp. 54, prior 62 11:00 Kansas City Fed Manf. Activity (Sep): exp. -3, prior -4 13:00 Fed’s Lockhart Gives Introductory Remarks on Labor Market Global Economics 09:00 EUR ECB Pres. Draghi Speaks 13:00 GBP BOE Gov. Carney Speaks Earnings Before Open: Autozone (AZO) Rite Aid Corp (RAD) After Close: None of Significance
Continue Reading -->5 Keys to Understanding Tomorrow’s Big Fed Day
1) The Hawk Setup Traders are now pricing in a 22% probability of a rate hike tomorrow and a 58% probability for December. For the past month-and-a-half, Fed heads including FOMC Chair Yellen have been spinning a hawkish tale, seemingly to get markets prepared for a rate hike. Now, I have to wonder: if the Fed’s selling rate hikes so hard, why isn’t the market really buying in yet? 2) Is It the Economy? Clearly, US economic data strength has been deteriorating since late July, as you can see in this chart of the Citi US Economic Surprise Index: We’ve seen misses on GDP, NFP, ISM Services, Personal Income, PCE Deflator, Retail Sales, PPI, etc., though last week’s CPI beat was a nice win. The Fed always makes clear that it doesn’t obsess over any one data point, but I wonder if the trend is weak enough to warrant attention. The alternate explanation for people not really buying into rate hikes just yet is probably because of the Fed’s history of misdirection. No one wants to get caught playing the sucker. 3) How Are Traders Feeling? Sentiment is mixed headed into tomorrow. The ISE Sentiment Index is at just 55 this morning — indicating heavy put options demand. CBOE equity put-call is at 1.25 — again, indicating heavy put demand. So it does appear that equity traders are hedging and/or betting on more downside. This is GREAT news for the bulls — the worst setup would be heavy call options demand ahead of an event with so many moving parts. Remember… 4) Rate Hikes Are Not the Sole Point The market reaction won’t solely be determined by the rate decision. What’s really important is signaling of how many rate hikes there will be, and over what time frame. Odds are the Fed will be somewhat vague, but I’m sure there will be some juicy nuggets scattered about — most likely in the form of language removals/additions. But the most important thing is this… 5) Don’t Make a Rush to Judgement Markets do bizarre things on Fed days. And the media is always in a rush to explain it all, which makes no sense because between 2:00 and 4:00 p.m. ET, you can see 3+ different major moves, at least 1 of them based on algos trading within milliseconds of the statement hitting the tape. The market will tell us what matters… but not until 3:30 p.m. at least.
Continue Reading -->What’s Happening: It’s the Final Countdown to the Fed Mystery
We’re one day away from a very big Wednesday featuring FOMC and Bank of Japan rate decisions. Right now it looks like the BoJ is a bigger deal, since most traders think a Fed rate hikes is off the table tomorrow. Fed Funds futures imply a mere 20% probability of a rate hike. Bloomberg ran an interesting story this morning about how Barclays and BNP Paribas think the Fed moves tomorrow: Two of the Fed’s 23 preferred bond-trading partners — Barclays Plc and BNP Paribas SA — are betting against their peers and the bond market by forecasting officials will raise rates Wednesday. It’s the first time more than one dealer has gone against the consensus during the week of a policy meeting since last September, data compiled by Bloomberg show. Economists at both banks say traders have too steeply discounted officials’ intent to hike after the Fed has remained on hold for longer than expected. It’s a tricky situation to say the least. Remember, the rate decision itself is not everything. The signaling for the future pace of hikes is just as important. There is a very real possibility that the Fed hikes but signals an extremely slow pace of future hikes. But no one really knows, so be very careful when placing your bets. SPX futures are up fractionally this morning despite a -1.1% drop in oil. Yesterday, we saw large-cap tech leaders sell off into the close, pushing the index to finish roughly flat, though we saw nice outperformance in small caps and biotech. It still feels like traders are happy to stay in a holding pattern until the BoJ and FOMC news hits tomorrow, so it’s going ot be hard to make much sense of the action. In the energy patch, Brazilian giant Petrobas (PBR) cut its 5-year investment plan by 25% to $74.1 billion. Wells Fargo (WFC) caught an upgrade from Morgan Stanley — maybe I should have jumped on it, but I’ll reassess post-Fed. Tessera (TSRA) is buying DTS (DTSI) for $850 million. Bloomber is reporting that Bayer may drop the Monsanto (MON) name if their merger ever gets done — seems like a smart idea. The economic calendar’s pretty light — just housing starts and building permits. But don’t worry — we SHOULD get some excitement tomorrow… though it’s easy to forget that SHOULD is the most dangerous word in financial markets. Good luck out there!
Continue Reading -->The Morning Hammer: Is Today a Big Day?
I thought yesterday would be a big down day for the market with yet another string of economic data misses, and I was wrong. Equities were pretty strong yesterday, with nice action in biotech and large cap tech. This morning is another story. Deutsche Bank (DB) said the US Department of Justice is seeking $14 billion to settle its MBS probe. DB is not willing to pay that much and the stock is taking a bit hit. That’s helping push European banks down -2.4% in the early going, while the broader Euro Stoxx 50 is off -1.4%. In analyst-land, Nicholas Smith of CLSA said he is “absolutely certain” that the Bank of Japan will stop buying Nikkei 225-based ETFs to boost equities. However, said the bank will not stop buying — they will simply shift their purchases to the Topix and JPX-400. SPX futures are taking a -0.4% dip this morning, following Europe down. Apple (AAPL) is up premarket as iPhone 7 goes on sale. Canaccord also raised its target price to $140 from $120. However, the big news today is the CPI report which hits at 8:30 a.m. ET. The market is split right down the middle on rate hikes. Fed funds futures imply a 50% chance of a December rate hike, down from 60% last week. Economic data has been slipping hard since the July 29 GDP report, and it seems like traders just started paying attention to this important trend. This CPI report will be the last major economic data release before the September 21 rate decision, so there’s a chance we end the week with a bang. The only problem is we can’t figure out what kind of bang. Yesterday, we got a huge batch of dove-supporting bad data and gold and US Treasuries still fell. And equities seem to be reacting randomly to Fed chatter and data too. So even if you gave me the numbers now, it still wouldn’t be easy to trade this CPI report. Near-term, I’d keep a very close eye on Apple (AAPL) and biotech because they’ve been holding up the market. Apple’s got a chance of a sell-the-news reaction today as we see 10 million news reports about iPhone sellouts. Biotech’s still a wild card because the whole sector is moving on takeover chatter surrounding individual companies. Today is also quad-witching options expiration, so get ready to hear everyone’s cockamamie theories on what it means for the action. (I think it’s completely random) I’d also keep an eye on oil. Good luck out there!
Continue Reading -->T3’s Take 3: Biotech, Fed Chatter Rescues Crying Bulls
1) Bulls Fight Back The S&P 500 fell -0.4% to 2119.12 in the early going, which had traders worrying that we’d see a repeat of Friday’s horrendous action. We also saw early weakness in overseas equities, crude oil, bonds, and gold. However, traders very quickly bought the dip, and the S&P finished up 1.5% at 2159.04. This was the first 1% up day in the S&P 500 since July 8. And since Friday was the first -1% down day since June 27, perhaps we are seeing a real return to volatility after 2 months of near-zero movement. 2) Biotech Saves the Day The first clue that the bull was ready to fight back was the early rebound in biotech (IBB), which was supported by 3 pieces of favorable news. First, Horizon Pharma (HZNP) announced it is buying Raptor Pharmaceutical (RPTP) for $800 million. Gilead (GILD) CEO John Milligan also said at an investment conference that the company planned on making regular acquisitions. And finally, Presidential candidate Hillary Clinton fell ill at a 9/11 Memorial Service in New York. Since she is viewed as anti-biotech, anything that hurts her chances of becoming President helps the sector. The Nasdaq Biotech Index (IBB) rose 3.0% to $287.11 today. 3) Fed Schmed This afternoon, Lael Brainard, a voting member of the Federal Open Market Market Committee, gave a highly-anticipated speech in Chicago. Brainard’s speech leaned dovish, making a case for leaving rates as-is. Considering that Brainard is considered to be one of more dovish members of the Fed, this was not a major surprise. However, her speech had a big impact on markets: the US dollar fell, while gold and stocks ripped higher. Traders are also now pricing in a mere 22% of a September rate hike, down from 32% a week ago. Throughout August, traders loved hawkish Fed chatter. It looks like that’s flipped around now. Tuesday’s Trading Calendar US Economics (Time Zone: EDT) 06:00 NFIB Small Business Optimism (Aug): exp. 94.8 , prior 94.6 14:00 Monthly Budget Statement (Aug): exp. -$107.0b , prior -$64.4b Global Economics 03:15 CHF PPI m/m 04:30 GBP CPI y/y 05:00 EUR ECB Pres. Draghi Speaks 05:00 EUR German ZEW Economic Sentiment 18:45 NZD Current Account Earnings Before Open: None of Significance After Close: None of Significance
Continue Reading -->Oil Booms! And 4 More Thoughts on Today’s Action!
1) Oil Booms! We just saw the biggest decline in US crude inventories since January 1999. Traders were looking for a 905K build but the EIA report showed a drop of -14.5 million barrels. Yesterday after the equity market close, the API reported a -12 million barrel decrease, which certainly set the stage for a bullish EIA report. WTI crude is now up 3.8% to $47.22. We are still seeing tons of conflicting headlines regarding a change in OPEC policy, so stay on your toes. 2) Biotech Follows Through Yesterday into the close, biotech got a huge bid after Reuters reported that GW Pharmaceuticals (GWPH) hired advisers after being approached for a takeover. Today, Gilead (GILD) supported biotech M&A hopes by saying it “feels an urgency” to do deals. Traders are already looking at Tesaro (TSRO) as a possible target, and that stock is ripping. More deals would certainly help IBB get above the widely watched $300 mark, which in turn would be a big psychological victory for the bulls. 3) Looking at Bonds/Utilities EWI is up 3.4% since I added it to my little experimental income model portfolio. I’m now looking back at adding some US bond or utilities exposure based on my assumption that Fed rate hikes may come slower than many traders expect. 4) Gold Scold The US dollar is ripping pretty hard intraday as Treasury yields pick up. And gold is getting smacked down, with the gold miners (GDX) off -1.7%. Part of this is profit-taking after the recent rebound on lousy economic data, so I wonder if the gold bugs push back soon. 5) Hot New Issues The hot post-IPO names are all over the place. Line Corp (LN) and TPI Composites (TPIC) look great, while Acacia (ACIA) is sliding If the bears are to succeed, they need to knock these names out all at once. I’d also eyeball Twilio (TWLO) and Impinj (PI).
Continue Reading -->The Morning Hammer: Let’s Go Super Mario!
Crude oil is up 1.7% this morning after the American Petroleum Institute reported a massive 12 million barrel drop in crude stocks. I’d have thought oil would be up even more on that massive numbers, but there are likely 2 factors at play: 1) The E.I.A. numbers hit at 10:30 a.m. ET, and traders may want confirmation. (consensus here is +905K, but the huge API drop would imply that traders expect the E.I.A. numbers to also show a drop. 2) The question of whether OPEC will freeze or cut output at the big meeting in Algiers is a mystery. Iran said it’s too early to discuss a freeze, while Iraq said it coudl support one. Good luck sorting out the confusing and contradictory news flow, which is very reminiscent of what we saw in the lead-up to the June OPEC meeting, which ended with no change in policy. So let’s lump OPEC in with the Fed — there is just no telling what’s next! SPX futures are flat as an ironing board, which is no surprise given that we haven’t had a 1% move in the index since July 8. Traders are complacent… or they’re falling asleep. So far, it looks like we have 1 chance for excitement today — Mario Draghi’s press conference at 8:30 a.m. ET this morning. The ECB rate decision hits at 7:45 a.m. ET, and odds are nothing changes there. Twitter (TWTR) is off a little after CNBC reported that there are “no bids on the table.” Twitter is starting to remind me of the old Research In Motion (RIMM) (now known as BBRY) — I can’t go 10 minutes without hearing a made-up takeover rumors. Supermarket chain Supervalue (SVU) lowered guidance due to competition and deflation — exactly what we heard from Sprouts Farmers Market (SFM) yesterday. Wells Fargo (WFC) downgraded Apple (AAPL) following yesterday’s product launch event, saying the positives are priced in and shares are likely to remain range-bound. Apple is quickly recovering pre-market losses though and is nearly back to flat. Citi is recommending overweighting Russian stocks, saying dividends may increase — though Russia just seems like part of the oil trade. Yesterday afternoon, Reuters reported that GW Pharma (GWPH) hired advisers after being approached by potential buyers. Cantor is out saying it could be worth $165/share. It’s off a few bucks in premarket trading. The GWPH chatter pushed biotech up hard into the close yesterday — I wonder if there’s any follow-through today. Good luck out there!
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