Interdum stultus opportuna loquitur...

Tuesday, August 09, 2005

USRant: Fed Raises, Moves To Neutral...

Note - from June 24th 2009, this blog has migrated from Blogger to a self-hosted version. Click here to go straight there.

Yesterday I remarked on the tedium in the bond market and noted the likelihood of being able to re-enter shorts at better prices - and after dipping to a new swing low of 113-24/32 the 30-year bond future obliged, with a rally of just under 3/4 of a point (the actual rally was 22/32) in the half-hour following the Fed's latest rate hike.

What's that? I hear you say... the Fed hiked rates,but bonds fell?

Yes, young Jedi (do you mind if I call you "Jedi"?). As we who are strong in the Farce say, Never short a dull market. That's Never (with an N).

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation - a $3.5billion, overnight repurchase entirely in T-backed collateral. It was undertaken at a 14.1 basis point premium to the Fed Funds Rate (FFR) as of the morning, but a 9.9 basis point discount to the new, higher FFR as of 2:15 in the afternoon.

The market supposedly reacted to the change in the language contained in the Fed's announcement - effectively, a move to what used to be called a 'neutral bias'. But the reality is somewhat different: the S&P opened with a gap up of almost 6 points and went sideways (the usual "pre-FOMC ego-handjob" pump), popped another 3 in the ten minutes after the FOMC, and then - as usual - dropped 7 points  before post-FOMC intraday shorts took profits and gave the market a little closing spurtlet.

I keep saying it, and will say it until I draw my last breath... why anybody would give a flying rat's ass about the economic outlook of a group of people who can't make it in the private sector, is beyond me. The counter-argument (usually offered by 'public servants' and other suckers-at-the-public-teat) is that these frothy crabbers could make it in the private sector if they wanted, but they have a strongly held view on the direction society should take, and devote their lives to trying to get it to happen. (Sure thing... that's why Townsend Greenspan went belly up).

To that I say... why listen to a group of people who are so overcome with hubris that they think they know better than the people who put their capital at risk? it is people who risk their capital, who make economies go forward - not the pillocks in charge (or their lickspittle bureaucrats)... politicians can root a country's economy, but only capitalists can make and economy grow.

My best example here of the anti-bureaucrat is Michael Kroger (a man only a little older than I am) who appears to be genuinely talented despite being a lifelong Party-Machine-man: he was once quoted as saying that he has far better things to do than be Prime Minister... that he would finish his career and maybe consider being Prime Minister once he hit retirement age (or words to that effect). It makes him a megalomaniac, but at least he has the smarts to pull down 7 figures a year until he figures he needs something easier to do - a retirement job. (Let it be said straight off - at first blush I don't like Kroger... John Elliott is more my type of bloke: I recall a Menzies Dinner at the Savage Club... never mind).

Major US Indices

The Dow Jones Industrial Average advanced 78.74 points (0.75%), closing out the day at 10615.67 points. The index hit an intraday high of 10639.08 post-Fed, after opening at its low (10537.65).

Prior to the open the futures got a boost from Productivity and Costs data for Q2/2005, which was better than expected (Productivity +2.2% versus consensus of 2.0%; Unit Labour Costs +1.3% versus consensus for 2.7%). Why it's good to have wages growth so flat, is beyond me... people can't keep drawing down home equity forever. And frankly, this is supposed to be an expansion - I've seen it written that at this stage in a 'normal' expansion, household incomes in aggregate would have been almost a quarter of a trillion dollars better off. Perhaps it's the phantom workers in the CES Birth Death model who are getting all the overtime.

Within the blue-chip index, 26 stocks rose, the biggest gainers being Walt Disney (DIS, +2.87% to $26.14) and Alcoa (AA, +2.07% to $28.62), which accounted for 10 Dow points between them. Losers in the Dow numbered 4 and were led by Procter & Gamble (PG, -0.57% to $53.94) and 3M (MMM, -0.47% to $72.00), with these two stocks contributing -5 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the gainers by 286.8m shares to 21.8m - mindless.

The broader S&P500 gained 8.25 points (0.67%), closing at 1231.38. Within the index, gainers numbered 342, while 146 S&P500 stocks fell for the day. Volume was tilted 2.9:1 in favour of the winners with 1124.42 million units traded in the winners as compared with 389.01 million traded in the losers. That's almost, but not quite, evidence of a blowoff top.

Over at Times Square, the Nasdaq Composite posted a rise of 9.8 points (0.45%), to close at 2174.19, while larger-cap technology issues fared better with the Nasdaq100 adding 11.17 points (0.7%), to end at 1601.14 points. Within the tech benchmark, gainers numbered 67, while 26 Nasdaq100 stocks fell for the day. Volume was tilted 3.8:1 in favour of the winners with 429.56 million traded in the winners compared to 112.06 million in the losers .

NYSE Volume was super-chunky, with 1.9 billion shares changing hands, while Nasdaq Volume was about average, with 1.46 billion shares traded.

Major Market Statistics
Dow Jones Industrial Average10615.6778.740.75%
Nasdaq Composite2174.199.80.45%
NYSE Volume1.9bn--
Nasdaq Volume1.46bn--


My 9-stock "bellwethers" group rose by an average of 0.61%: Notice that Citigroup still looks lacklustre?

  • General Electric (GE) +$0.38 (1.13%) to $34.14;
  • Citigroup (C) +$0.30 (0.69%) to $43.60;
  • Wal Mart (WMT) +$0.07 (0.14%) to $49.22;
  • I.B.M. (IBM) +$0.14 (0.17%) to $83.50;
  • Intel (INTC) +$0.19 (0.71%) to $26.90;
  • Cisco Systems (CSCO) +$0.36 (1.87%) to $19.61;
  • eBay (EBAY) -$0.40 (0.93%) to $42.81;
  • Fannie Mae (FNM) +$0.63 (1.16%) to $54.83; and
  • Freddie Mac (FRE) +$0.32 (0.52%) to $62.15.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 1893 to 1385 for a single-day A/D reading of 508; Nasdaq gainers trumped losers by 1596 to 1446. The 10-day moving average of the A/D line rose to -245.0 on the NYSE, while the 10dma of the Nasdaq A/D rose to -267.7.

NYSE advancing volume exceeded volume in decliners by 1296 to 580.8 million shares; Nasdaq advancing volume was greater than volume in decliners by 918.6 to 506.2 million shares.

101 NYSE-listed stocks rose to new 52-week highs, and 37 posted fresh 52-week lows, while on the Nasdaq there were 83 stocks that hit new 52-week highs, and 35 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)1295.97918.55
Declining Volume (m)580.82506.2
New Highs10183
New Lows3735

Market Sentiment Statistics
CBOE Volatility Index12.42-0.79-5.98%
CBOE Nasdaq Volatility Index15.36-0.59-3.7%
Equity Put-Call Ratio0.6400%
10-day PCR0.5700%
SPX-VIX Ratio99.16.557.08%

Bond Market Analysis

Bonds rose at the long end, with the yield on the benchmark 30-year Treasury bond shedding 2.2 bps to 4.574%.

The middle of the yield curve was broadly higher: five year yields fell to 4.244%, and ten-year yields fell to 4.394%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 1.0 bps tighter at -4.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts fell to 38.0 bps for 10-year AAA, and 74.0 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 12.0 bps wider at 40.0 basis points and the 10-year AAA-A spread 4.0 bps wider at 14.0 bps.

Treasury Yields
UST 13wk (yld)3.43500%
UST 2Y (yld)4.09-0.05-1.21%
UST 5Y (yld)4.244-0.025-0.59%
UST 10Y (yld)4.394-0.025-0.57%
UST 30Y (yld)4.574-0.022-0.48%

The Banks Index rose 0.39 points (0.4%), closing at 98.97; within the index,

  • Wachovia (WB) +$0.63 (1.28%) to $49.95;
  • US Bancorp (USB) +$0.32 (1.08%) to $30.05;
  • M&T Bank Corp (MTB) +$0.87 (0.81%) to $108.51;
  • Citigroup (C) +$0.30 (0.69%) to $43.60; and
  • Regions Financial (RF) +$0.22 (0.67%) to $33.17.

The Broker-dealer Index advanced 2.18 points (1.3%), to 169.74; the ticket clippers lined up as follows -

  • Legg Mason (LM) +$3.45 (3.38%) to $105.50;
  • Charles Schwab (SCH) +$0.32 (2.35%) to $13.94;
  • Ameritrade (AMTD) +$0.45 (2.31%) to $19.97;
  • E*Trade (ET) +$0.25 (1.55%) to $16.35; and
  • Goldman Sachs (GS) +$1.57 (1.43%) to $111.48.

The Philadelphia SOX (Semiconductor) index added 5.65 points (1.21%), to 471.51

  • Marvell Tech Group (MRVL) +$1.48 (3.46%) to $44.23;
  • Texas Instruments (TXN) +$0.98 (3.11%) to $32.51;
  • Broadcom (BRCM) +$1.08 (2.56%) to $43.31;
  • Advanced Micro Devices (AMD) +$0.46 (2.3%) to $20.42; and
  • Freescale Semiconductors (FSL-B) +$0.45 (1.83%) to $25.09.

Gold & Silver Markets

Gold fell by $0.50 (0.11%) to close at $436.60 per ounce. Narrow range, as Gold traders keep eyeing that US dollar index for signs of weakness.

The Gold Bugs Index posted a rise of 0.84 points (0.41%), ending the day at 203.84

  • Hecla Mining (HL) +$0.15 (4%) to $3.90;
  • Coeur d'Alene (CDE) +$0.10 (2.75%) to $3.73;
  • Golden Star (GSS) +$0.06 (1.92%) to $3.19;
  • Randgold Resources (GOLD) +$0.23 (1.64%) to $14.25; and
  • Goldcorp (GG) +$0.20 (1.19%) to $16.95.

Silver rose $0.02 (0.29%) to close at $7.04 per ounce. The Gold and Silver Index (XAU) gained 0.15 points (0.16%), to end the session at 94.19 points.

  • Goldcorp (GG) +$0.20 (1.19%) to $16.95;
  • Agnico Eagle (AEM) +$0.14 (1.08%) to $13.15;
  • Newmont Mining (NEM) +$0.29 (0.74%) to $39.25; and
  • Anglogold Ashanti (AU) +$0.05 (0.15%) to $34.49.
Precious Metals and Indices
PHLX Gold and Silver Index94.190.150.16%
AMEX Gold BUGS Index203.840.840.41%

Oil Market

Oil lost ground, shedding $0.87 per barrel, closing at $63.07 per barrel after getting up as high as $64.27 during the overnight market. (I mentioned yesterday, the possibility of a short-term nuffie-slicing operation, but I still don't think that was it).

The Oil and Gas Index (XOI) posted a rise of 1.65 points (0.17%), at 978.93

  • Repsol YPF (REP) +$0.58 (2.01%) to $29.37;
  • BP (BP) +$0.98 (1.42%) to $70.18; and
  • TotalFinaElf S.A. (TOT) +$1.63 (1.27%) to $130.08.

The Oil service stocks (OSX) Index lost 1.77 points (1.05%), ending the day at 166.01

  • Noble Corp (NE) -$1.58 (2.23%) to $69.33;
  • Tidewater (TDW) -$0.87 (2.1%) to $40.62; and
  • Global Industries (GLBL) -$0.19 (1.74%) to $10.75.
Energy Complex
Reuters CRB313.87-3.15-0.99%
Crude Oil Light Sweet63.07-0.87-1.36%
Heating Oil1.7766-0.01-0.72%
Natural Gas8.649-0.04-0.4%
Unleaded Gas1.8224-0.03-1.86%
AMEX Oil Index978.931.650.17%
Oil Service Index166.01-1.77-1.05%

Currency Markets

USD Exchange Rates
US Dollar Index87.86-0.06-0.07%
Australian Dollar0.7612-0.003-0.39%
Swiss Franc1.2599-0.0011-0.09%
Canadian Dollar0.8240.00090.11%