Intraday Market Update
US equities have overcome early weakness and have fought back to post modest gains as traders ignored an unexpected drop in September industrial production that was released in the pre-market. All of the indexes are trading in a tight range with the DJIA and Russell 2000 leading the way with gains of better than +0.50%. The banking sector has gained more than +2.00% after Citigroup offered an upbeat earnings report and a better than expected increase in homebuilder sentiment. Treasuries are catching a bid today because the decrease in industrial production is keeping expectations in place that the Fed will continue asset purchases in the open market. After surging higher on Friday, the 10-year treasury yield has fallen back below 2.50%. Front month crude oil has gained +2.2% and is near last week's highs. Gold is trading near breakeven at $1,371 per ounce, but is more than +$17 off of its overnight lows. Overseas, the Asia-Pacific region posted solid declines, while European markets posted modest gains.
It will be interesting to see the level of aggressiveness the Fed will take in its second round of quantitative easing as plenty of differing opinions and contradicting statements have surfaced in recent days. Over the weekend Chicago Fed President Charles Evans reiterated his support for further quantitative easing by saying that the decision should not be data dependent. Evans said "In my opinion, much more policy accommodation is appropriate today because the US economy is best described as being in a bona fide liquidity trap," or a point where low interest rates and high savings rates conspire to make monetary policy ineffective. Evans said the Fed should consider using a temporary target for the level of prices instead of the rate of inflation in order to drag the economy out the trap by convincing businesses and consumers to stop saving and start investing and Â¬spending.
On the other hand Dallas Fed President Richard Fisher reiterated on CNBC this morning that the Fed may or may not decide to carry out another round of quantitative easing, and said any decision will be data driven. Meanwhile, St. Louis Fed President James Bullard in an interview last week with the Financial Times said that he was "sympathetic" to the idea of a price level target but that "I donâ€™t think we're going to go in that direction any time soon."
One of the data points released today that will support additional QE2 is a drop in September Industrial Production, which declined -0.2% compared to estimates calling for a +0.2% gain. Overall industrial production slipped to 5.4% y/y compared to 6.4% y/y last month. Today's production numbers indicate weakness in manufacturing, however, continued weakness in the US Dollar will likely boost exports so this could be an isolated down tick, especially when considering strong recent reports from the latest Empire State manufacturing survey and durable goods orders (excluding transportation).
In equities, Citigroup has gained more than +4% after the bank beat earnings estimates but missed revenue estimates slightly. Just like JP Morgan last week, Citigroup said its bottom line was boosted by releasing money from its loan loss reserves. Investors were not impressed with the earnings report from oil services firm Halliburton. The stock has lost more than -5% after their earnings report slightly beat estimates. The company said it had a record quarter in North America, where higher activity in the unconventional natural gas and oil basins offset declines linked to the deepwater drilling suspension in the Gulf of Mexico. Toy maker Hasbro is up more than +4% and trading at all-time highs after the firm beat earnings estimates, while revenues met expectations.
Core Sector List:
Overall reading: 13 sectors advancing, 7 sectors declining
Strongest Sectors: Banks, Broker Dealers, Internet
Weakest Sectors: Semiconductors, Miners, Retail
S&P 500 - Daily and Hourly Charts:
Dow Jones - Daily and Hourly Charts:
NASDAQ - Daily and Hourly Charts:
Russell 2000 - Daily and Hourly Charts: