Macro Market · Market Commentary · Newsletter

Daily Commentary – Pricing in the Dots

A hawkish FOMC announcement from Yellen & co wrapped up the last major risk event of the year, and it sent US Dollar and yields soaring higher to yet another high of the year. To recap, the Fed raised interest rate for the 2nd time post crisis as expected, though the highlight was the new “dot plot”, which shows the Fed’s interest rate projections. As opposed to just 2 hikes in 2017 in the last meeting, the median FOMC member now forecasts 3 hikes next year.

http://www.businessinsider.com/fed-dot-plot-december-2016-2016-12

US equities were spooked as the SPX closed down -18pts. The Teflon Dow, after being a hair from the 20000 milestone, had its 7-day winning streak snapped and closed down nearly -120pts. Technically, both created a bearish engulfing candle – the first since Trump Rally started, signaling further downside in the near-term.

20161215-SPX.png

Even the financials (XLF), which initially celebrated the higher interest rates in knee-jerk reaction and appears to be ripe for a deeper pullback, as the XLF finally closed below a steep uptrend with bearish signals from RSI and MACD.

20161215-XLF.png

It was a broad-based decline yesterday as all sectors were in the red except for biotechs (IBB) which closed slightly green. The worst hit were rate-sensitive sectors in Utilities (XLU) and REITs (IYR), while US dollar strength piled pressure on commodities and energy sector (XLE). Crude Oil plummeted -3.7% while Gold is getting dumped -$30 to 1130 in afterhours trading. Crucial weekly closes loom for both, as the former is threatening a false break topside after the post-OPEC deal spike, while the latter is on verge of breaking under a key weekly channel at 1160.

20161215-GC.png

20161215-CL.png

The Yen, which has a similar technical picture as Gold, threatens to close under a key horizontal support, though should find support at ascending trendline connecting the 2015 lows.

20161215-JPY.png

Next let’s take a look at the latest bond rout, as the 10y Treasury Yield jumped another 4bps to close above 2.5% for the first time since late 2014, while the 30y Yield remains contained under YTD highs at 3.15%.  The technical picture remains the same as the topping pattern which has accurately predicted previous pullbacks remains intact

20161215-TYX.png20161215-price-in-the-dots20161215-price-in-the-dots

The relentless US Dollar strength and sudden reprice of inflation expectations leading to disordered move in interest rates continue to surprise many. For traders, it is important not to step in front of the freight train, but it’s natural to ask how much longer can this dramatic move continue and is it sustainable? The markets have effectively now priced in perfection that the aggressive fiscal easing and policy tightening  will materialize as promised. But one must remember Congress intends to block Trump’s ambitious plans, as his fiscal policies would most certainly balloon national debt to astronomical levels:

 

http://www.nationalreview.com/article/443020/donald-trump-congress-republicans-have-power-slow-down-trumps-legislation

 

On the monetary policy front, the market has forgotten that the “dot” plot has not been a credible forecasting tool, as it had been revised down so many times post-crisis. As the market gets more overstretched, the “Sell the Inauguration (Jan 20)” in US Dollar trade gets more compelling by the day. But as always, timing is everything. We will begin laying out our Trade Ideas of 2017 this weekend after the market digests the FOMC move the next couple days.

 

 

Daily Market Snapshot

Sector ETFs by Daily Return %

SYMBOL NAME CLOSE DAILY (%) WTD % MTD %
IBB iShares Nasdaq Biotechnology 269.42  

0.37

0.14%

-0.09% -1.70%
QQQ PowerShares QQQ Trust 120.21  

-0.25

-0.21%

0.59% 2.31%
PFF iShares S&P US Preferred Stock Fund 36.9  

-0.1

-0.27%

-0.62% -1.55%
XLK SPDR Select Sector Fund – Technology 48.94  

-0.17

-0.35%

0.60% 3.03%
KRE SPDR KBW Regional Banking ETF 54.84  

-0.2

-0.36%

-2.12% 4.64%
XLG Rydex Russell Top 50 ETF 159.05  

-0.67

-0.42%

0.60% 3.29%
XLF SPDR Select Sector Fund – Financial 23.47  

-0.11

-0.47%

-1.18% 4.26%
XLV SPDR Select Sector Fund – Health Care 69.38  

-0.36

-0.52%

0.77% 0.92%
DIA Dow Jones Industrial Average ETF 198.14  

-1.09

-0.55%

0.23% 3.52%
SMH HOLDRS Merrill Lynch Semiconductor 71.87  

-0.46

-0.64%

0.27% 1.14%
XLY SPDR Select Sector Fund – Consumer Discretionary 83.79  

-0.57

-0.68%

-0.62% 2.37%
SPY SPDR S&P 500 225.88  

-1.81

-0.80%

-0.28% 2.50%
XLI SPDR Select Sector Fund – Industrial 63.02  

-0.64

-1.01%

-1.50% 0.98%
XLP SPDR Select Sector Fund – Consumer Staples 51.92  

-0.57

-1.09%

-0.23% 2.65%
XRT SPDR S&P Retail ETF 46.54  

-0.55

-1.17%

-2.92% 1.82%
XLB Materials Select Sector SPDR 50.58  

-0.61

-1.20%

-1.79% 1.28%
IWM iShares Russell 2000 135.15  

-1.67

-1.23%

-2.28% 2.69%
IYR iShares Dow Jones U.S. Real Estate Index Fund 76.36  

-1.44

-1.87%

-1.24% 2.02%
XLE SPDR Select Sector Fund – Energy Select Sector 76.27  

-1.56

-2.02%

-0.43% 2.47%
XLU SPDR Select Sector Fund – Utilities 47.95  

-1.01

-2.08%

-0.02% 2.57%
           

Commodity & Bond ETFs

SYMBOL NAME CLOSE DAILY  (%) WTD % MTD %
DBA PowerShares DB Agriculture Fund 20.07  

-0.05

-0.25%

1.36% 0.65%
AGG iShares Barclays Aggregate Bond Fund 107.29  

-0.59

-0.55%

-0.51% -0.88%
LQD iBoxx $ Investment Grade Corporate Bond Fund 115.61  

-0.74

-0.64%

-0.51% -1.05%
SLV iShares Silver Trust 15.93  

-0.11

-0.69%

-0.25% 1.72%
HYG iShares iBoxx $ HY Corp Bond Fund 85.93  

-0.66

-0.77%

-0.65% 0.33%
TLT iShares Barclays 20 Year Treasury Bond Fund 116.82  

-1.32

-1.12%

-0.58% -2.84%
GLD SPDR Gold Trust 108.83  

-1.61

-1.47%

-1.42% -2.61%
USO United States Oil Fund 11.32  

-0.4

-3.47%

-1.05% 3.57%
GDX Market Vectors TR Gold Miners 19.89  

-1.14

-5.57%

-3.77% -4.51%

Country ETFs

SYMBOL NAME CLOSE DAILY (%) WTD % MTD %
DXJ WisdomTree Japan Total Dividend Fund 51.21  

0.18

0.35%

-0.49% 4.09%
EWU iShares MSCI United Kingdom Index Fund 30.98  

-0.36

-1.16%

-0.64% 3.06%
EWN iShares MSCI Netherlands Index Fund 23.98  

-0.28

-1.16%

-0.21% 1.91%
EWG iShares MSCI Germany Index Fund 26.02  

-0.32

-1.22%

-0.27% 4.79%
EWL iShares MSCI Switzerland Index Fund 29.03  

-0.4

-1.37%

-0.34% 2.40%
EWJ iShares MSCI Japan Index Fund 50.56  

-0.79

-1.55%

-1.35% 1.34%
EWQ iShares MSCI France Index Fund 24.28  

-0.38

-1.55%

-0.65% 3.54%
EWD iShares MSCI Sweden Index Fund 28.57  

-0.48

-1.67%

-0.73% 3.93%
EWH iShares MSCI Hong Kong Index Fund 20.18  

-0.35

-1.72%

-2.04% -4.68%
EWO iShares MSCI Austria Index Fund 16.49  

-0.29

-1.72%

-0.82% 2.51%
EWK iShares MSCI Belgium Index Fund 17.2  

-0.31

-1.76%

-1.23% 0.38%
EWA iShares MSCI Australia Index Fund 20.92  

-0.4

-1.89%

-1.09% 2.35%
EWS iShares MSCI Singapore Index Fund 21.41  

-0.42

-1.94%

-1.38% 1.71%
EWI iShares MSCI Italy Index Fund 23.65  

-0.49

-2.05%

0.68% 8.74%
EWP iShares MSCI Spain Index Fund 26.76  

-0.56

-2.07%

-0.30% 6.32%
EWC iShares MSCI Canada Index Fund 26.58  

-0.59

-2.20%

-1.34% 2.19%
FXI iShares FTSE/Xinhua China 25 Index Fund 36.2  

-0.82

-2.24%

-3.39% -3.70%
EWX SPDR S&P Emerging Markets Small Cap ETF 40.39  

-0.98

-2.40%

-2.37% -1.89%
EWW iShares MSCI Mexico Index Fund 45.14  

-1.12

-2.45%

-1.53% 2.31%
EWM iShares MSCI Malaysia Index Fund 29.33  

-0.73

-2.46%

-2.36% 0.14%
EWY iShares MSCI South Korea Index Fund 54.06  

-1.46

-2.66%

-1.71% 1.50%
EWT iShares MSCI Taiwan Index Fund 30.65  

-0.84

-2.70%

-2.26% -0.29%
EEM iShares MSCI Emerging Index Fund 35.25  

-1.08

-3.02%

-2.54% -0.70%
EWZ iShares MSCI Brazil Index Fund 31.5  

-1.18

-3.68%

-4.02% -5.94%

 

Week Ahead – Events and Economic Data

12/15 Thursday

Time Event / Data
08:30 CPI, Initial Jobless Claims

 

 

12/16 Friday

Time Event / Data
08:30 Housing Starts

 

Quantitative Strategy – Automated Portfolio Update

Performance

ASSET CLASS LONG or SHORT DAILY % MTD % QTD % YTD%
Equities Long Only        
-1.02% 0.85% 4.77% 37.29%
  Short Only        
    0.94% -3.62% -9.06% 25.26%
  Long/Short        
    -0.59% -0.01% 1.83% 34.48%
ETF Long Only        
    -1.17% -0.14% 0.01% 24.81%
  Short Only        
    2.24% -2.79% -5.56% 2.09%
  Long/Short        
    0.65% -1.71% -2.34% 25.10%
Futures Long/Short        
    -1.08% -1.40% -0.47% 6.09%
FX Long/Short        
    -0.79% -2.73% -5.09% 10.02%
SPX Benchmark Index        

 

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s