Interdum stultus opportuna loquitur...

Wednesday, May 18, 2005

USRant: Repo, Oil, CPI Cocktail....

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Benign CPI data? Do me a favour. The 'core' rate was unchanged - and of course we all know that Americans are now 'core consumers', in that they don't eat food or use Energy (directly or indirectly). The 'headline' rate - the one that's biased downwards through the inclusion of dwelling rents instead of mortgage costs, among other statistical manipulations - rose 0.5%. Now if you do that month after month, you get ... what? The answer is you get annual inflation of 6.1%.

See, while the US statistical authorities annualise output numbers, they don't annualise inflation numbers. See how it works? A 0.9% increase in (hedonically-juiced) 'real' GDP is displayed as 4% p.a. growth, but a 0.5% increase in prices in a month is just, well, 0.5%... nothing to see here, folks...

The market is still fixated on Energy prices, and those got absolutely hammered after some strong inventory build data. It may seem strange that inventories should be being built quickly when oil prices are near 20-year highs - but frankly the build has far more to do with the summer 'driving season' than anything else. Refinery throughput has to rise to meet the demands of people who think it's fun to sit in a 5000lb steel cage for 600 miles with 2.6 whining kids, hoping that their shiny vehicle impresses the fuck out of people they've never met. I'll never understand it, but that's just me.

Oh -while I'm thinking about it... the CPI inclusion of rents (as a supposed proxy for dwelling costs) has some sensible economic arguments. I know that over the very long run, there should be an 'indifference relationship' between rents and imputed rents. But when 68% of families live in their 'own' property (i.e., one that's actually owned in fee simple by a bank, until such time as the last repayment is made) and there's been a massive disconnect between rents and house prices, it is not defensible to 'impute' rent at the actual rental rate on median rental properties; a better proxy would be the minimum repayment (using an interest-only ARM, say) on a 90% mortgaged median sale price house. That is a better reflection of the economy-wide average expenditure on housing (which at 30% of the CPI basket, affects the overall CPI very heavily).

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation - a $7.75billion, weekend repurchase entirely in T-backed collateral.

The Fed clearly sees a need to keep juicing the market - like any good crack dealer it knows it needs to keep its bitches on the pipe, but this week there's been almost $30 billion in three days. Like any criminal enterprise it also has to ensure that its conspirators get to suck as much money as possible into the maelstrom before the plug disintegrates, so perhaps this presages some genuinely awful news.

Major US Indices

The Dow Jones Industrial Average advanced 132.57 points (1.28%), closing out the day at 10464.45 points. The index opened at its low (10323.04) then burst higher - it was up 60 points in the first ten minutes. From there it rose another 100 points to an intraday high of 10480.85, just before 3 p.m. NY time.

Within the blue-chip index, 26 stocks rose, the biggest gainers being Hewlett Packard (HPQ, +4.64% to $22.55) after beating Wall Street estimates, and International Business Machines (IBM, +2.79% to $76.36), which accounted for 23 Dow points between them. Losers in the Dow numbered 4 and were led by Johnson & Johnson (JNJ, -0.46% to $67.60) and Exxon Mobil (XOM, -0.39% to $53.65), with these two stocks contributing -4 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the gainers by a massive margin of over 6:1 - 374.9m shares to 57.7m.

The broader S&P500 added 11.76 points (1%), closing at 1185.56. Within the index, gainers numbered 402, while 91 S&P500 stocks fell for the day. Volume was tilted 3.8:1 in favour of the winners with 1713.21 million units traded in the winners as compared with 451.17 million traded in the losers .

Over at Times Square, the Nasdaq Composite posted a rise of 26.5 points (1.32%), to close at 2030.65, while larger-cap technology issues fared worse with the Nasdaq100 adding 19.12 points (1.28%), to end at 1509.26 points. Within the tech benchmark, gainers numbered 84, while 14 Nasdaq100 stocks fell for the day. Volume was tilted 3.8:1 in favour of the winners with 737.09 million traded in the winners compared to 196.26 million in the losers .

NYSE Volume was super-duper-chunky, with 2.27 billion shares changing hands, while Nasdaq Volume was just plain chunky, with 2 billion shares being shifted from one online brokerage account to another (and back again, in all likelihood).

Major Market Statistics
Dow Jones Industrial Average10464.45132.571.28%
Nasdaq Composite2030.6526.51.32%
NYSE Volume2.27bn--
Nasdaq Volume2bn--


My 9-stock "bellwethers" group rose by an average of 1.46%

  • General Electric (GE) +$0.44 (1.21%) to $36.90;
  • Citigroup (C) +$0.58 (1.23%) to $47.74;
  • Wal Mart (WMT) +$0.73 (1.56%) to $47.58;
  • I.B.M. (IBM) +$2.07 (2.79%) to $76.36;
  • Intel (INTC) +$0.23 (0.89%) to $25.93;
  • Cisco Systems (CSCO) +$0.18 (0.94%) to $19.24;
  • eBay (EBAY) +$0.42 (1.19%) to $35.70;
  • Fannie Mae (FNM) +$0.92 (1.66%) to $56.50; and
  • Freddie Mac (FRE) +$1.04 (1.64%) to $64.33.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 2568 to 741 for a single-day A/D reading of 1827; mindless enthusiasm springs eternal. Nasdaq gainers trumped losers by 2234 to 859. The 10-day moving average of the A/D line rose to 655.5 on the NYSE, while the 10dma of the Nasdaq A/D rose to 337.3.

NYSE advancing volume exceeded volume in decliners by 1836.6 to 393.3 million shares; Nasdaq advancing volume was greater than volume in decliners by 1506.7 to 411.2 million shares.

130 NYSE-listed stocks rose to new 52-week highs, and 30 posted fresh 52-week lows, while on the Nasdaq there were 97 stocks that hit new 52-week highs, and 50 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)1836.581506.7
Declining Volume (m)393.29411.15
New Highs13097
New Lows3050

Market Sentiment Statistics
CBOE Volatility Index13.58-0.99-6.79%
CBOE Nasdaq Volatility Index17.53-0.75-4.1%
Equity Put-Call Ratio0.73-0.04-5.19%
10-day PCR0.700.010.95%
SPX-VIX Ratio87.36.748.37%

Bond Market Analysis

Bonds rose at the long end, with the yield on the benchmark 30-year Treasury bond shedding 4.3 bps to 4.43%. Those who recalled my expectation to be able to re-short 30-year bonds above 116 & 16/32 will note that the high for the session was 116 & 18/32 (the contract closed at 116 & 10/32).

I'm not going to claim the 6 ticks (although it's a one-session gain of 10%... not to be sneezed at), because I didn't send out an e-mail last night (I fell asleep before 'Battlestar Galactica'). The bond market's bounce from below 108 is a sign of near-mortal wounds under the tunic of the US economy, plus a big attempt by the US 'powers that be' to shore up the mortgage market for one last 'Alamo'-like stand.

The middle of the yield curve was broadly higher: five year yields fell to 3.771%, and ten-year yields fell to 4.068%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 1.0 bps tighter at 10.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts rose to 56.0 bps for 10-year AAA, and 90.5 bps for 20-years.

Credit spreads (spreads between corporate bonds of the same maturity profile but different creditworthiness) were broadly wider with the AAA-A spread on 20-years 11.0 bps tighter at 50.0 basis points and the 10-year AAA-A spread 6.0 bps tighter - back to zero.


Treasury Yields
UST 13wk (yld)2.78700%
UST 2Y (yld)3.56-0.02-0.56%
UST 5Y (yld)3.771-0.04-1.05%
UST 10Y (yld)4.068-0.049-1.19%
UST 30Y (yld)4.43-0.043-0.96%

The Banks Index added 1.38 points (1.4%), to end the session at 100.13; within the index,

  • US Bancorp (USB) +$0.75 (2.59%) to $29.76;
  • JPMorganChase (JPM) +$0.84 (2.39%) to $36.05;
  • North Fork Bancorp (NFB) +$0.61 (2.19%) to $28.41;
  • Wachovia (WB) +$1.13 (2.19%) to $52.83; and
  • Northern Trust (NTRS) +$0.93 (2.01%) to $47.19.

The Broker-dealer Index posted a rise of 3.51 points (2.46%), to 145.95; the ticket clippers lined up as follows -

  • Jeffries Group (JEF) +$1.57 (4.49%) to $36.57;
  • Charles Schwab (SCH) +$0.45 (4.01%) to $11.66;
  • E*Trade (ET) +$0.40 (3.31%) to $12.50;
  • Raymond James (RJF) +$0.85 (3.18%) to $27.59; and
  • A G Edwards (AGE) +$1.11 (2.75%) to $41.45.

The Philadelphia SOX (Semiconductor) index posted a rise of 4.33 points (1.04%), to end the session at 418.89

  • Teradyne (TER) +$0.42 (3.35%) to $12.97;
  • ST Microelectronic (STM) +$0.44 (3%) to $15.12;
  • Infineon Tech (IFX) +$0.26 (2.89%) to $9.26;
  • Freescale Semiconductors (FSL-B) +$0.48 (2.43%) to $20.21; and
  • Xilinx (XLNX) +$0.56 (2.08%) to $27.45.

Gold & Silver Markets

Gold rose $2.90 (0.69%) to close at $421.70 per ounce - pretty much mirroring the fall in the US (particularly against the Australian dollar, which is still considered the 'commodity currency').

The Gold Bugs Index posted a rise of 3.93 points (2.31%), closing at 174.22

  • Harmony Gold (HMY) +$0.39 (6.08%) to $6.80;
  • Eldorado Gold (EGO) +$0.08 (3.9%) to $2.13;
  • Gold Fields (GFI) +$0.33 (3.35%) to $10.17;
  • Hecla Mining (HL) +$0.13 (3.22%) to $4.17; and
  • Iamgold (IAG) +$0.19 (3.18%) to $6.16.

Silver rose $0.18 (2.56%) to close at $7.23 per ounce. The Gold and Silver Index (XAU) gained 1.66 points (2.06%), to end the session at 82.21 points.

  • Durban Rooderpoert Deep (DROOY) +$0.09 (12.33%) to $0.82;
  • Harmony Gold (HMY) +$0.39 (6.08%) to $6.80;
  • Gold Fields (GFI) +$0.33 (3.35%) to $10.17; and
  • Goldcorp (GG) +$0.38 (3.01%) to $13.00.
Precious Metals and Indices
PHLX Gold and Silver Index82.211.662.06%
AMEX Gold BUGS Index174.223.932.31%

Oil Market

Yet another solid inventory build in the weekly energy data. It shouldn't really be considered as odd, since refineries need to increase gas and distillate inventories in preparation for the summer 'driving season'. In order to meet the seasonal blip upwards in demand, stocks of crude must increase first, then stocks of gas and distillates increase as refineries are cranked up to process the crude. It's a straightforward 'buffer stock' mechanism.

Ever since CNBC stuck an oil ticker in its little 'bug', the energy market has been the focus of nuffnuffs who wouldn't understand process issues if it bit them on the arse - which results in an oil trading market that reacts like a badly-behaved 2-year-old... seizing on whatever issue it's been programmed to seize on, and throttling it.

Oil lost ground as part of a broader-based selloff in the Energy markets. Front-month Crude dropped $1.98 per barrel, closing at $47.01 per barrel.

The Oil and Gas Index (XOI) - aided by the repo-induced rally in equities - managed to shrug off the decline in oil, and actually managed to gain 2.28 points (0.29%), closing at 794.52

  • Repsol YPF (REP) +$0.35 (1.41%) to $25.26;
  • Royal Dutch Shell (RD) +$0.80 (1.4%) to $57.82; and
  • BP (BP) +$0.63 (1.07%) to $59.75.

The Oil service stocks (OSX) Index was less fortunate, shedding 0.84 points (0.66%), to 126.23

  • Halliburton (HAL) -$0.73 (1.76%) to $40.78;
  • Nabors Industries (NBR) -$0.89 (1.71%) to $51.25; and
  • Smith International (SII) -$0.82 (1.43%) to $56.45.
Energy Complex
Reuters CRB294.850.760.26%
Crude Oil Light Sweet47.01-1.98-4.04%
Heating Oil1.3541-0.02-1.34%
Natural Gas6.394-0.1-1.49%
Unleaded Gas1.409-0.03-1.83%
AMEX Oil Index794.522.280.29%
Oil Service Index126.23-0.84-0.66%

Currency Markets

USD Exchange Rates
US Dollar Index85.84-0.47-0.54%
Australian Dollar0.76130.00640.85%
Swiss Franc1.217-0.0082-0.67%
Canadian Dollar0.7940.00320.4%