TradeTheNews.com Weekly Market Update: S&P500 Back at All-Time Highs as Earnings Season Begins
- Global markets appear to have shaken off the doubt that was in the air last week. On Wednesday the S&P500 broke above its all-time high of 1,576, made back in October 2007. The US corporate earnings season got under way, with strong EPS growth but flat-to-lower revenue seen out of JPMorgan, Wells Fargo and Alcoa. In Europe, there were questions about Portugal needing another bailout and some static out of Cyprus, but on the whole investors were not panicking about the euro zone crisis. Both France and the UK released some February production data that hinted that steep declines may be bottoming out. In the US, two March datapoints painted an unpleasant picture of the US consumer and may represent the first impact from the sequestration and higher payroll taxes on consumer spending. The preliminary University of Michigan consumer confidence index fell to 72.3, its lowest reading since July 2012. March advance retail sales saw their first negative reading in five months and the biggest drop in nine months. Note that the junk-bond market has seen a big pick-up in activity, with the average yield falling to a new all-time low 5.5% on Friday. For the week, the DJIA gained 2.1%, the S&P 500 rose 2.3% and the Nasdaq added 2.8%.
- Gold prices collapsed this week. Both Deutsche Bank and Goldman Sachs cut their 2013/14 price forecasts and offered bearish commentary on the yellow metal. Friday saw the bulk of the declines: the June contract dropped more than 4%, to close at its lows around $1,491, after crashing through both the psychological $1,500 mark and its 50-day moving average. The contract also broke a key pivot support level around $1,525: the level was support in September and December of 2011, and also in the spring of 2012.
- The FOMC minutes were released early on Wednesday morning after they were accidentally e-mailed to some Congressional staffers and a few major banks 24 hours early on Tuesday afternoon. The minutes themselves exposed the lively debate over the right time to begin winding down Fed asset purchases. All but a few officials agreed that the program should continue until at least midyear. Some said buying should taper down around midyear, others felt buying should continue through September before tapering, and a few wanted buying to continue at its current pace into 2014.
- The White House proposed $3.77 trillion budget blueprint for fiscal 2014 that would trim the deficit over three years by cutting social security, requiring the rich to pay more in taxes and enacting spending cuts to replace the sequester. House Speaker Boehner rejected the proposal, saying the Obama budget never reaches balance and that it backtracks on entitlement reform.
- JPMorgan was the first big bank to reports Q1 results. JPM's net income rose more than 30% and EPS roundly beat expectations, although revenue fell slightly y/y. CEO Dimon highlight both the good and the bad: on the one hand, he said housing prices were still rising and the credit card portfolio did very well, but on the other he warned that loan growth across the industry was softer and small businesses remain cautious.
- IDC reported that Q1 global PC shipments fell 13.9% versus expectations for a 7.7% drop, making for the steepest ever y/y decline since the data series began in 1994. A Sanford Bernstein analyst said his channel checks indicated Q1 PC shipments may be even worse than that, down as much as 18%. This would mark the fourth consecutive quarter of y/y shipment declines for the industry.
- On Tuesday, shares of JC Penny fell 12% after Ron Johnson was forced out as CEO and former CEO Mike Ullman was brought back to salvage the firm. Investors do not seem reassured by the choice. On Friday, reports indicated that Penney was seeking up to $1B in new funding to be secured by its inventory, and many analysts say that it is only a matter of time before the stricken firm is taken private.
- The decline of the yen met resistance this week. USD/JPY traded up to 99.80, its highest level since May 2009, but was unable to break 100. EUR/JPY approached 130.60, its highest level since January 2010. The BoJ disclosed the details of the first operation under its new bond buying scheme: it will purchase ¥1.0T in five- and ten-year JGBs and ¥200B in bonds with maturities exceeding 10 years, as part of ¥6.2T in purchases during April. The yen carry-trade has clearly returned, as Japanese investors look to buy overseas bonds in the hunt for yield.
- On Thursday the Bank of Korea unexpectedly maintained its seven-day repo rate at 2.75% for 6th straight month, despite political pressure to lower rates stemming from the situation in North Korea and the weaker yen. Bond yields hinted at a rate cut and declined to record lows following a cut in the 2013 GDP forecast by the Finance Ministry.
- EUR/USD came into the week around 1.30 and traded as high as 1.3135 on Thursday. There was some low-level turbulence stemming from the peripheral nations. After the Constitutional Court struck down parts of its 2013 austerity measures, Portugal said it would cut spending to meet targets. In Cyprus, there was conflict between the government, which would like to sell off €400M of the nation's gold reserves (which would require selling about 10 tonnes of its 13.9 tonnes of gold reserves), and the central bank, which does not want to let the gold go.
- USD/CNY hit a record low of 6.1923. On Wednesday China reported an unexpected trade deficit of $880M, considerably less than the surplus of over $15B expected. Imports surged by more than 14%, well above the 6% expected, while exports climbed 10.0%, less than the 11.7% expected and well below an almost 22% rise in the prior month of February. Many analysts pointed out that the trade data was heavily skewed by trade flows into and out of Hong Kong. After the close on Friday, the US Treasury released its semi-annual currency report and again declined to name China (or anyone else) a currency manipulator. The Treasury report said that while the Yuan remains significantly undervalued, it has appreciated 16.2% in real terms since 2010.
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