Markets wait for Non Farm Payrolls - "Non Farm Friday"!

There have been some signs that this data is improving as Jobless claims have been falling: this can mean 1) people are really finding work or 2) people are dropping off the statistics.

According to analyst surveys the markets are looking for a number of 140k to 150k this would help keep the trend moving in the right direction. More recently around the 200k level has been tested a few times and the jobless markets have seemed to stall. December numbers were helped by part timers being employed for the holiday season.

This is seen as very important aspect for Obama’s re-election hopes as unemployment has been of major concerns to the US economy.

In the currency markets the USD index up slightly at 78.991 + 0.013 most risk assets are flat in the lead up to today’s release.  Comex Gold is trading at USD1759.10 which is +2.30 in early trading. NFP Friday always has a volatile flavor to the trading day.

Good Trading. CF

European markets posted modest gains, led by materials stocks, which posted a gain of 2.7%. The DAX rose .6%, the CAC40 edged up .3%, and the FTSE ticked up .1%

Mining group, Xstrata, soared 9.9% after confirming it was involved in merger talks with commodity trader, Glencore. Glencore shares surged 6.9%.

US stocks ended mixed as traders prepared for Friday’s job report. The Dow slipped 11 points to 12705, the Nasdaq advanced .4%, and the S&P 500 edged up .1%.

Mastercard shares jumped 6.7% after profits exceeded analyst estimates for the 7th quarter in a row.  Abercrombie and Fitch tumbled 13.7% after releasing weak sales data for the holiday season, and slashed their outlook for the coming year.

Abercrombie & Fitch Shares Continue to Drop

Treasuries and Commodities
US bonds closed mixed after dropping on Wednesday. 10-year notes inched up 2/32 to yield 2/32, while 30-year notes declined 9/32 to yield 3.01%.

The wild ride in natural gas continued, as the energy commodity surged 6.6% to 2.545. Crude oil fell 1.1% to 96.55, and gasoline slid .5% to 2.8771.

Metals traded mostly higher, as silver climbed 1.5% to 34.325, and gold gained .7% to 1761.90. Bucking the uptrend, copper shed 1.5% to 3.7855.

Currencies
Currencies traded in narrow ranges, with the Dollar moving up slightly. The Euro and Swiss Franc both slipped .2% to 1.3149 and 1.0912 respectively, and the Pound lost .3% to 1.5807. The Yen and Australian Dollar closed flat.

Economic Outlook
Weekly jobless claims fell to 367K, 6K better than forecast. Labor costs rose more than expected, while productivity increased less than expected, both positive developments for the employment situation.

Friday’s key report will be January’s non-farm payroll data. Economists are expecting a gain of 150K jobs, down from last month’s 200K gain. The unemployment rate is expected to remain at 8.5%. Also due are the ISM non-manufacturing index, and factory orders.

Earnings are due from Clorox, Tyson Foods, and Weyerhaeuser.

-Bradley Welcher

Total US Crude Inventories are on the build!

More recently there has been a build in total US crude inventories see above chart. The question asked is this the build, in the build up to any possible military action against Iran? Maybe a strike on Iran is not soon as the US is still trying to rebuild inventories in the face of a rising oil price.

US are likely to keep delaying a strike on Iran as war in the Middle East would derail any global recovery as the price of oil in this situation is “your guess is as good as mine scenario”. Having an oil price above USD120 slows world growth and also leads to demand destruction for energy products. The theory is this as total inventories builds price of energy typically falls that’s good for the US economy but under geopolitical scenarios a question mark begs!

If there was a strike on Iran – Saudi saying they can fill the Iran shortfall of 2.5m barrels per day may not be enough as closure of the Strait of Hormuz would mean all bets are off for price forecasting.

Whilst energy prices are resting at these levels you can expect to see a build in US inventories as they try to rebuild stocks.

Good Trading. CF

European markets rallied strongly, supported by upbeat economic news from Germany and the US. The DAX surged 2.4%, the CAC40 climbed 2.1%, and the FTSE jumped 1.9%. Banking shares rebounded 3.8% on news a Greek debt deal was imminent.

DAX Rallies 2.4% on Strong German Manufacturing Data

US stocks climbed as well. The Nasdaq outperformed, closing up 1.2%, followed by the S&P 500, which rose .9% to 1324. The Dow rose 84 points to 12716, ending its 4-day slide.

Amazon shares tumbled 7.7% after the company reported a sharp drop in revenue, and lowered its outlook. Whirlpool shares surged 13.5% after issuing a strong outlook, and Broadcom jumped 8.1% after beating analyst profit forecasts.

Treasuries and Commodities
Bonds snapped their 5-day winning streak, as signs of global growth reduced the appeal of treasuries. 10-year notes eased 9/32 to yield 1.83%, and 30-year notes fell 1 5.32 to yield 2.99%.

Oil inventories rose more than expected, pressuring the energy sector. Crude oil declined 1% to 97.47, natural gas tumbled 4.8%, and gasoline eased .2% to 2.8866.

In contrast, metals rallied, led by platinum’s 2.2% rally to 1623.30. Silver gained 1.5% to 33.775, copper rose 1%, and gold closed up .4% at 1747.20.

Currencies
The Dollar settled modestly lower against global currencies. The Euro rose .5% to 1.3156, recovering from an earlier drop down to 1.3028. The Australian Dollar settled up .7% to 1.0698, while the Pound and Swiss Franc advanced .4%. The Canadian Dollar broke through the parity level, gaining .3% to .9988, and the Yen inched up .1% to 76.22.

Economic Outlook
Wednesday’s ADP Employment report showed the economy gained 170K jobs last month, falling short of expectations of 189K, but still a very respectable figure. The official government non-farm payroll report will be released on Friday.

Construction spending rose by 1.5% last month, more than forecast, and auto sales unexpectedly jumped to an annualized rate of 14.2M, up from last month’s 13.6M reading.

Manufacturing PMI data from Germany rose to 52.1, significantly better than the 50.1 forecast.

Thursday’s data will include weekly unemployment claims, productivity & labor costs, and chain store sales.

Earnings are due from Beazer Homes, Boston Scientific, Cigna, Deutsche Bank, International Paper, Kellogg’s, Merck, Sony, Take Two and Unilever.

-Bradley Welcher

Here is a chart of the S&P Case-Shiller which looks rather scary to think it is heading back to the Mar 2010 lows of 137.64. Yesterday’s print of 138.49 and yoy -3.67% will concern the Government and the Fed a lot.

This is a cause for concern that may trigger more stimulus

Back in 2010 the Case-Shiller broke its uptrend in the October print and was heading lower right about the time the Fed pulled the trigger on QE2. The Fed could not have all asset classes being sold off as this is at the very heart of “Main Street” not just “Wall Street”. What will happen this time?

As markets now have been anticipating possible further QE as the Fed stands by easy monetary policy.

Putting this into context of what it means for markets volatility is low meaning equities have rallied. If the economy is really at threat as it appears the Fed has two options. First is to stand by and let markets correct or the second option is to pump more money in to it to try and continue to push equities and all markets higher as US home prices continue to sink.

Yesterdays equity market weakness comes from traders caution on the cross roads that lie ahead as the US economy shows signs of weakness. Equity volatility is still cheap!

Good Trading. CF

Asian markets advanced moderately on Tuesday. The Kospi climbed .8% to 1956, the Hang Seng rallied 1.1%, and the Shanghai Composite added .3% to 2293. Lagging behind, the Nikkei inched up .1% to 8803, while the ASX 200 slipped .2%.

European markets gained as well, despite weaker than expected data from the US. The CAC40 posted a solid 1% gain, while the DAX and FTSE rose a modest .2%. Hopes lingered on for a Greek debt deal, while pressure mounted on the heavily-indebted country to undertake steep spending cuts.

US stocks closed little changed, overcoming earlier losses. The Dow slipped 21 points to 12634, the S&P 500 closed flat at 1312, and the Nasdaq gained 2 points to 2814. Nonetheless, January was an extremely strong month for stocks, as the Dow climbed 3.4%, the S&P 500 advanced 4.4%, and the Nasdaq soared 8%.

Nasdaq Soars 8% in January

RadioShack tumbled 30% after issuing a profit warning, dropping to a 3-year low. Mattel advanced 5% on strong earnings, while UPS slipped .7% despite exceeding analyst forecasts.

Treasuries and Commodities
US bonds extended their rally to 5 straight days. 10-year notes gained 15/32 to yield 1.79%, and 30-year notes advanced 1 8/32 to yield 2.94%.

Commodities traded mixed, with no clear direction even within market sectors.

Natural gas plunged 8.7% to 2.477, as the resource continues to swing wildly almost daily. Crude oil eased .3% to 98.46, while gasoline gained .7% to 2.8939.

Gold rose .4% to 1741.50, while silver skidded 1% to 33.20, copper dropped .9% to 3.794.

Currencies
The Dollar was mixed as US growth concerns weighed against European debt troubles. The Euro ticked down .4% to 1.3080, and the Swiss Franc shed .3% to 1.0864. The Pound and Australian Dollar both gained .3% to 1.5760 and 1.0617 respectively, and the Yen rose .2% to 76.22.

Economic Outlook
Tuesday’s sobering economic data reawakened doubts over the pace of the US economic recovery. The Case Shiller home price index fell by 3.7%, significantly worse than last month’s 3.4% drop. Chicago PMI dropped to 60.2 from 62.5. Consumer confidence slumped to 61.1 from 64.8, whereas analysts had expected an increase to 68.2.

Wednesday’s busy economic calendar will include the ADP employment report, the Challenger job-cut report, the ISM manufacturing index, construction spending, auto sales, and weekly oil inventories.

Earnings are due from Aetna, Amdocs, AOL, Electronic Arts, Hershey, Nasdaq OMX, Qualcomm and Whirlpool.

-Bradley Welcher

Not all options, however, are the same, and not all forex brokers offer binary, or barrier, options that appeal to currency enthusiasts.  Another forex broker may be required, and proper due diligence performed to ensure that you are getting the desired product.  Ever since the Chicago Board Options Exchange introduced these specialized option products in late 2008, they have gained in appeal across the spectrum of securities, commodities, and currencies.  The “play” in this genre only requires the trader to guess correctly about the direction of the market within certain predetermined time limits.  The investment and payoff/loss rules are set when initiated.  There is no need for setting stop-loss orders.  You either win or lose, depending on how and when the market moves.

The option trader’s foremost guidance tools are euphemistically called the “Fibs”, or Fibonacci ratios for the uninitiated.  The diagram below will demonstrate their value:

First, let’s understand the role these key ratios play, and then we will review a common barrier option strategy that employs them to advantage.  Technical analysts from Elliott to Gann from years gone by have attempted to associate the physics of simple waves to the pricing behavior witnessed in our various financial markets.  As the force of a wave diminishes, it is natural for the height of the wave to diminish also, as it moves further from its original impulse force.

A simple demonstration happens when a rock is dropped into a pool of water.  The waves subside, according to the pull of gravity, as the waveform moves horizontally.  Studies confirm that these diminutions, or “retracements”, occur at specific ratios, primarily 23.6%, 38.2%, 50.0% and 61.2%.  Fibonacci was an Italian scientist that studied these ratios, which occur naturally in everything from seashell formations, to galaxies, to even the double-helix formations of DNA in our chromosomes.

The diagram above reflects how these correlations hold with a recent reversal of the “GBP/USD” currency pair in a 15-minute chart.  Your trading platform will provide a tool that permits you to display these ratios on any chart by dragging the tool cursor from the peak “red oval” to the dip “green oval”.  The ratio lines are drawn automatically.  The “orange ovals” display the actual correlations that occurred over time.  Many forex traders rely solely on the “Fibs” to predict these support and resistance levels.

How do barrier options fit into this scenario?  For a typical “one-touch” barrier option, you are betting that prices will “touch” a specific level within the expiration period of the option.  There are also “double-touch” barrier options for “ranging” market strategies, but here we are focusing on a trend reversal strategy.  When a trend does reverse, the Fibs will predict “retracement” levels.  The trader then uses this information to evaluate the barrier defined in the option contract offered by his broker.  The positive slopes of the additional indicators shown on the bottom of the chart also suggest a strong upswing is in the cards.

If the probability of a “touch” is high, i.e., the Fib line is below the “barrier” offered, then the option may be worth consideration.

About the Author

Tom Cleveland has had an extensive career in the international payments industry with over 30 years of experience. Tom served as CFO for various Visa International entities from 1980 until 1999, retiring with the title of Group EVP and Treasurer. Currently, Tom uses his investment expertise that he has acquired over the years and writes for forextraders.com.

Portugal needs to pay €4bn in February and €10bn in June so it too can become an issue for European leaders in coming weeks. Portuguese outstanding debt requirements for 2012 in total Bonds and interest payments for 2012 is €30bn.

CDS watchers will note that Portuguese 5 year CDS are at record highs of 1581 bps whilst this pales by comparison to Greece 5 year CDS which is at 5428.8 bps at yesterday’s close. These CDS prices should still signal an alarm bell.

EUR traders be quick. Sovereign risk is high!

As Portuguese Bond spreads widens so too will the markets appetite for risk disappear. There is talk out there that Euro banks will likely need to tap ECB emergency funding of ball park €1 trillion. As evidence just last month the ECB provided emergency funding of €489bn this suggests the Euro Banks are being squeezed.

As we enter a new month currency traders and traders of risk assets will be careful and cautious as markets enter into some challenging times and by no means are they out of the European Sovereign / Financial crisis.

Good Trading. CF

Greece failed to reach a deal with private debt holders, pressuring European indexes. Banking shares fell 3.1%. The CAC40 slumped 1.6%, the FTSE fell 1.1%, and the DAX lost 1%. French Banks bore the brunt of the selling, as BNP Paribas, Societe Generale, and Credit Agricole each fell at least 6.5%. Yields on Portuguese debt continued to climb, amid mounting concerns that the country may need another bailout.

US stocks opened sharply lower, but they recovered most of their losses by the close. The Dow eased a mere 7 points to 12654, after falling as much as 130 points in the first hour of trading. The S&P 500 fell .3% to 1313, and the Nasdaq declined .2%.

Dow Pares Losses in Afternoon Advance

Bank of America dropped 3% after Goldman Sachs downgraded the stock to “neutral” from “buy”. Goldman Sachs upgraded Morgan Stanley, but the stock still fell 1.9%.

US Airways surged 4.2% on rumors Delta may make an offer to buy the company.

Treasuries and Commodities
European debt concerns helped lift bonds for their 4th straight day. 10-year notes gained 13/32 to yield 1.85%, and 30-year notes rallied 1 5/32 to yield 3.00%.

Commodities fell across the board. In energy, natural gas tanked 2.7% to 2.683, gasoline fell 2% to 2.869, and crude oil slipped .7% to 98.84.

Copper fell 1.5%, leading metals lower. Silver sank 1.1% to 33.435, and gold eased .3% to 1727.30.

Currencies
The Yen soared 1.4% to 76.34, a 3-month high, while the Dollar traded modestly lower against most other currencies. The Euro ticked up .2% to 1.3130, the Swiss Franc advanced .3% to 1.0896, and the Pound edged up 8 pips to 1.5701. The Australian Dollar eased .3% to 1.0596, as a drop in commodity prices weighed on the currency.

Economic Outlook
Personal income rose by .5% last month, slightly more than expected, but personal spending, which is considered more important, remained flat, falling short of forecasts for a .2% increase.

Tuesday’s reports will include the Case-Shiller home price index, Chicago PMI, employment cost index, and consumer confidence.

Tuesday’s star-studded earnings lineup will include reports from Amazon, Archer Daniels Midland, Broadcom, Eli Lilly, ExxonMobil, Level 3 Communications, Mattel, Pfizer, UPS, and Valero Energy.

-Bradley Welcher

Since 2006 China has been fighting to slow a property market that was red hot.  The monetary policy tool employed by PBOC has been the RRR (Reserve Required Ratio) thus not having to change the official rate – current official lending rate is at 6.56% whereas the Reserve Required Ratio is at 21.0%. See graph of China Interest rates below

PBOC monetary policy tool has been its Reserve Requirement Ratio.

China raised its RRR 19 times from 2006 to 2008 but when the US MBS broke out they then cut 3 times to then find in 2010 they still needed to cool a property market that was still hot and in bubble territory – so voilá another 12 more RR hikes to get to 21%. Simply this means banks can not lend money on new loans as easily and consequently this has less effect on the people with existing mortgages in theory as lending rate is at 6.56%.

Commodity trader’s will remember previously these rate moves by PBOC has meant there has been big spikes in intraday volatility particularly energy markets. So keep an eye on the news wires as for Chinese Rate changes as it can open up to some swift price moves. Surprise is key when you look at Chinese policy.

Good Trading. CF

Disappointing GDP data from the US weighed on European shares in the afternoon. The CAC40 fell 1.3%, the FTSE lose 1.1%, and the DAX slipped .4%.

US GDP grew at 2.8% in the fourth quarter, the fastest pace in nearly 2 years. The data was slightly below the 3% expected by analysts, but far better than last quarter’s 1.8% growth.

US indexes settled mixed, as the Dow lost 74 points to 12660, and the S&P 500 slipped .2%, while the Nasdaq gained .4%. Several disappointing earnings reports weighed on stocks. Dow-component, Chevron, fell 2.5% after reporting earnings that fell short of forecasts. Ford sank 4.2% on weak earnings, and Juniper Networks dropped 3% after issuing a weak outlook.

Dow Sinks 74 Points

A report in the Wall Street Journal said Facebook may file for an IPO as soon as next week.

Treasuries and Commodities
Bonds rallied for a 3rd day. 10-year notes gained 11/32 to yield 1.89%, and 30-year notes advanced 20/32 to yield 3.06%.

Crude oil dipped .1% to 99.56, while the rest of energy rallied. Natural gas surged 3.8% to 2.756, and gasoline climbed 2.8% to 2.9268.

Gold ticked up .3% to 1732.30, and silver edged up .1% to 33.79. Copper posted a slight loss of .3%, settling at 3.889.

Currencies
The Dollar sank against global currencies, as the disappointing GDP data pressured the greenback. The Euro and Swiss Franc advanced .9% to 1.3220 and 1.0958 respectively. The Yen jumped 1% to 76.68, reversing its losses from earlier in the week. The Pound and Australian Dollar both edged up .3%.

Economic Outlook
Consumer Sentiment rose to 75 from last month’s 74, more than expected.

Monday’s economic calendar will include data on Personal income & spending, and the Dallas Fed manufacturing index.

Earnings are due from Acer, Baidu, Graco, and Wendy’s.

-Bradley Welcher

Fitch is downgrading  downgrading Italy, Spain, Belgium, Cyprus and Slovenia, on economic headwinds from the euro zone’s debt crisis. Out of the USthe GDP expanded at a 2.8 percent annual rate, logging its fastest pace in 1-1/2 years in Q4. However, this missedexpectations for a 3.0 percent gain.

The consumer sentiment index rose to a 11-month high in January, climbing to 75, from December’s reading of 69.9.

THE WEEK AHEAD

MONDAY: Personal income & spending, Dallas Fed mfg survey

TUESDAY: Employment cost index, S&P Case-Shiller home price index, Chicago PMI, consumer confidence, Florida GOP Primary vote

WEDNESDAY: Weekly mortgage applications, Challenger job-cut report, ADP employment report, Fed’s Plosser speaks, ISM mfg index, construction spending, oil inventories, auto sales

THURSDAY: Jobless claims, productivity and costs, Fed’s Fisher speaks, chain-store sales

FRIDAY: Employment situation, factory orders, ISM non-mfg index

The markets finished Friday a bit mixed as weak economic and earnings reports scared investors. Further fears out of the Euro zone were no help. The Dow Jones was off 74.17 points, and closed at 12,660.46. The S&P 500 paired losses but was off by 2.10 points, or 0to close at1,316.33. The Nasdaq rose 11.27 points to close at 2,816.55.

DJIA CHART

FOREX

This week will featre an important European summit. Also, we have US employment data due out which should make it an interesting week for forex markets. .

The EURUSD never looked back as it ended near fresh multi month highs at the close of Friday. Can it sustain this recovery?

A European summit on Monday could be a key factor in the Euro as we enter February. On Friday, the NFP are released in the US.  These will highly influencethe broad financial markets. . Markets are tired of listening to Angela Merkel, Nicolas Sarkozy, and fellow Euro Zone leaders commit to vague action plans for the sake of the Euro Zone. In other Can Monday’s summit finally give us some solid indication of a game plan to save the Euro Zone? If not… the Euro recover can be in real trouble.

EURUSD

COMMODITIES

Oil was off 14 cents andclosed at $99.56 after hitting $100.63. Brent rose 67 cents to end at $111.46. Gold rose Friday by 9.40 to close at 1663.70 and ounce on the COMEX.

Oil Chart

EQUTIES

Among the Dow components, Caterpillar was the biggest winner and Travelerswas the biggest loser for the day. Chevron was down sharply after the oil giant reported lower-than-expected earnings, due to rising spending on oil and gas projects offset gains from rising crude prices. Ford also posted lower-than-expected earnings on disappointing results outside North America and rising commodity costs.

US GDP figures are due for release today and according to Bloomberg analyst forecasts markets are looking for a Q4 number of 3% QoQ. Any number weakness may spook markets.  There is no question the data being printed in the US economy has some elements of improvement.

Looking from the eyes of volatility which as it stands is cheap as markets are relaxed somewhat. The chart below highlights that VIX measures are getting close to where corrections have previously started.  So for what is worth equity volatility is cheap for the purchase at current levels with some potential for big moves.  Even with the sniff of Fed running to QE3 caution is needed as markets are very complacent at these lofty levels.

Volatility is approaching levels where equity corrections start

Good Trading. CF

European markets posted strong gains on hopes that Greek debt negotiations were progressing. The DAX surged 1.8%, the CAC40 climbed 1.5%, and the FTSE gained 1.3%. Shares in retailer, Carrefour, jumped 7.5% on rumors of a change in management, and Nokia shares rallied 3.1% on strong earnings data.

Germany's DAX Jumps 1.8%

US stocks pared early gains to close lower. The Dow slipped 22 points to 12735, the Nasdaq dropped .5%, and the S&P 500 fell .6%.

Netflix shares surged 22% to 116.01 after announcing subscriber growth which exceeded forecasts. AT&T fell 2.5% on weaker than expected profits.

Treasuries and Commodities
Bonds rallied, with 10-year notes up 16/32 to yield 1.94%, and 30-year notes up 1 4/32 to yield 3.09%.

Portuguese debt yields hit record highs amid growing expectations that the country will be unable to meet its obligations. 5-year notes rose to yield an outrageous 20.25%, while 10-year notes yielded 15.2%.

Crude oil rose .5% to 99.87, and gasoline futures climbed .6% to 2.8505. Natural gas plummeted 5% to 2.592 as the wild daily swings continued.

Metals advanced, led by copper, which posted a 1.5% gain to 3.885. Gold rose 1.2% to 1720.40, and silver closed up .7% at 33.355.

Currencies
Currencies traded in narrow ranges, as the dollar fell modestly. The Australian dollar, Japanese Yen, and Canadian dollar all gained .3%, and the Pound edged up .2% to 1.5691. The Euro inched up 6 pips to 1.3106, while the Swiss Franc rose .2% to 1.0865.

Economic Outlook
Thursday’s economic data was mixed. Weekly jobless claims were 6K more than expected, rising to 371K from last week’s 351K reading, and new home sales fell to 307K from last month’s 314K. On the bright side, durable goods orders rose 2.1%,, and core durable goods order jumped by 3%, both better than forecast.

Friday’s reports will include advance GDP, which is expected to indicate growth of 3%. Also due is consumer sentiment from the University of Michigan.

Friday’s earnings report schedule will include Altria, Amgen, Chevron, Ford, Honeywell, Procter & Gamble, and T Rowe Price.

-Bradley Welcher

Again FED signals “Exceptionally Low” interest rates till 2014

Looks similar to a chart of Japanese interest rate policy in a lost “2 times decade”? In the long run ZIRP policy presents some big issues namely building a system built on cheap funding and dependence on this “life line” of cheap funding. Secondly, what does the FED know that we don’t know? Answer a lot!

Relating this to markets – maybe this is the queue for markets that there is more stimulus to come which will in the near term pump commodity prices and equity markets higher as correlation of markets all move closer to 1 and asset all move in the same direction –  up.  Equity markets are in bull market territory now up 23.5% from October lows and GSCI (commodity index that is weighted to energy) up 16% from its October lows. Broader commodity indexes are lagging somewhat as most moves have come via the energy markets.

Supporting this move would continue to see dollar weakness and EUR strength as risk markets all take a bid.Caution is needed in these markets as there are plenty of pot holes that maybe the FED knows about!

Good Trading. CF

Concerns over Greek’s debt situation pressured European banks, sending the FTSE down .5% and the CAC40 down .3%. Nonetheless the DAX managed a slight gain. The European mobile sector fell after Ericsson missed profit forecasts.

US stocks advanced in the afternoon, thanks to a commitment from the Fed not to raise interest rates for at least 2 years. Tech shares led the advance, as the Nasdaq gained 1.1% to 2818. The Dow rose 83 points to 12759, and the S&P 500 closed up .9%.

Apple shares surged 6.2% to 446.66 after reporting earnings which exceeded analyst forecasts. 15 brokerage firms raised their targets on the stock, which settled at an all time closing high.

AMD gained 3% after beating estimates for earnings, although revenue fell short of forecasts.

Treasuries and Commodities
Bonds snapped their losing streak, as fears of interest rate hikes were dispelled by the Fed. 5-year notes jumped 15/32 to yield .80%, and 10-year notes gained 17/32 to yield 2.00%. In Europe, German bonds rallied, with 10-year notes up .435 and 30-year notes up 1.165.

Wild swings continue to dominate natural gas’s price chart. On Wednesday, natural gas soared 7.4% to 2.74. Gasoline climbed 1.5% to 2.846, and crude oil rose .9% to 99.86.

Metals posted impressive gains, led by silver’s attention-grabbing 4.1% gain. Gold soared 2.8% to 1711.30, and copper rose 1.3% to 3.8565.

Currencies
The Australian Dollar jumped 1.2% to 1.0606, as the US Dollar fell against its peers. The Euro and Canadian Dollar both rose .6% to 1.3115 and 1.0039 respectively, and the Pound gained .3% to 1.5670. The Yen eased fractionally to settle at 77.72, and the Swiss Franc advanced .7% to 1.0858.

Economic Outlook
Pending home sales fell 3.5% in December, following November’s 7.3% advance. On the plus side, the OFHEO home price index rose by 1%, more than expected.

Thursday’s economic calendar will include durable goods, weekly jobless claims, new home sales, and leading indicators.

Earnings are due from many major companies including AT&T, Bristol-Myers, Caterpillar, 3M, Juniper, JetBlue, Maxim, Motorola Mobility, Raytheon, Starbucks, and Time-Warner Cable.

-Bradley Welcher

Apple reported eps of $13.87 versus  4Q 2010 $6.43 and according to analysts  forecast $10.134 that was 36% better than forecasted. Apple immediately jumped $45.00 on the news to trade up to high of $468.95  in after hours settling at $451.08 up 5.5% on the day.

The company also gave a glowing outlook as they underestimated the Chinese demand for the product. The best example to suggest is just to see the “real” Apple shop in Beijing it will demonstrate for  you the level of interest Chinese have for Apple products.

Relating this on a macro scale from our last earnings report card we gave it was somewhat negative but only 4% of companies had reported – now we have almost 20% reporting and we seemed to have turned a corner after Goldman’s and now Apple. Here are the figures as they line up now with 82 companies of 500 having reported growth on average of 3.32% and earnings surprises of +4.29% this is now starting  to paint a different picture and provide some underlying support to US equity index moves of late.  The main driver to earnings surprises has come from Information Technology Sector which has 12.8% earnings surprises. See the attached table for the full details.

With 82/500 companies reported eps growth of 3.32% corporate earnings are brighter for S&P500

Good trading. CF

European shares declined as hopes for a Greek debt deal began to fade, after finance ministers rejected an offer from private debt holders. The FTSE and CAC40 fell .5%, and the DAX eased .3%, despite an upbeat PMI report which rose to its highest level in 4 months.

In the US, the major indexes closed mixed. The S&P 500 snapped its 5-day winning streak, slipping .1%, while the Dow ticked down 33 points to 12676. The Nasdaq posted a modest .1% rise.

Travelers’ shares fell 3.8% after reporting earnings which were weaker than expected. Texas Instruments reported chip sales that beat expectations, but the shares still fell 2%.

Treasuries and Commodities
Bonds extended their losing streak to 5 straight days, with 10-year notes down 1/32 to yield 2.05%, and 30-year notes down 7/32 to yield 3.14%.

Yields rise on 30-year notes as prices fall for 5 straight days

In energy, natural gas climbed 1% to 2.551, gasoline advanced 1.2% to 2.8121, while crude oil slipped .4% to 98.15.

Metals traded mostly lower. Gold dropped .7% to 1665.90, and silver lost 1% to 31.96. Copper managed a modest .3% gain to 3.81.

Currencies
The Dollar traded mixed against world currencies, as traders paid little mind to the disappointing news from Greece. The Yen slumped 1% to 77.72 against the dollar, and the Australian dollar declined d.5% to 1.0477, while the Pound rose .3% to 1.5616. The Euro inched up 7 pips to 1.3026, and the Canadian Dollar edged up .1% to 1.0100.

Economic Outlook
The Richmond manufacturing index blew past forecasts, surging to 12 from last month’s reading of 3. Analysts had expected the index to rise to 6.

Wednesday’s economic data will include the OFHEO home price index, pending home sales, weekly mortgage applications, and weekly oil inventories.

In the afternoon, the Fed will issue its rate statement and hold a press conference.

Wednesday’s heavyweight earnings schedule will include reports from Abbott, Boeing, Citrix, Corning, Etrade, General Dynamics, Hess, Motorola, Netflix, Sandisk, Symantec, United Technologies, and Xerox.

-Bradley Welcher

In what would normally push energy prices a lot higher but the news seems to have muted price action somewhat. Saudi Arabia has pledged to fill the hole in oil supplies as Iran’s 2.5m bpd will be removed from global markets. OPEC refuses to get involved in these politics.

Europe is estimated to import 450,000 barrels per day of Iranian oil US DOE data suggests that Saudi Arabia can boost production to 12.5m bpd from its current 9.8m bpd leaving 2.7m bpd as spare capacity to fill the Iranian shortfall.

Traders will now be looking at Russian crude prices as they did in the Libyan turmoil which pushed Brent Oil to trade at some big premiums over Urals (Russian Oil Prices) and WTI. Russia however is already pumping oil at maximum capacity so the Russian option is limited for EU refiners.

In some intelligence reports there it is suggested India maybe going to pay Iran in gold instead of USD thereby circum venting the Central Bank sanctions that will soon be in effect.  Despite all this news volatility is low and price action of both gold and crude oil are not reacting to this news flow.

Good Trading. CF

Brent and WTI not responding to this EU sanction on Iran.