Wednesday, June 17, 2015

Keystone's Evening Nightcap 6/17/15; FOMC Rate Decision, Forecasts and Fed Chair Yellen Press Conference Play by Play

(As always, the trading day's price action is explained on Keystone the Scribe's site. Reference Keystone the Scribe for further color and detail including the entire day's chronology and jump-start on tomorrow.)

Picking up the action shortly before the FOMC announcement;

At 1:30 PM EST (8:30 PM in Greece), thousands take to the streets in Athens with worries of violence increasing as night falls. The bailout crisis is reaching a peak likely this weekend with only days remaining before the large debt payment is due to the IMF. Greeks are concerned about what will happen to their country if a default occurs.

At 1:35 PM, the US 10-year yield is 2.39% taking out yesterday’s high yields. USD 94.90.

 Moving into the Fed decision at 1:54 PM, SPX 2091. INDU 17864. COMPQ 5048. RUT 1268. VIX 15.34. Euro 1.1255. Euro/yen 139.83. Dollar/yen 124.24. Pound 1.5731. USD 94.92.

WTIC oil slips under 59 to 58.99. Brent oil 62.72 well off the high above 65 this morning. Natural gas 2.85. Gold 1179. Silver 16.01. Copper 2.6120.

US Treasury yields are; 2-year 0.73%, 5-year 1.73%, 10-year 2.39%, 30-year 3.12%. German bund 0.812%.

At 1:58 PM, the insider traders must know something with stocks jumping higher. SPX 2094. INDU 17889. COMPQ 5053. RUT 1269. WTIC oil 59.11. Gold 1178. 2-year yield 0.73%. 10-year yield 2.39%.

At 2 PM EST, the FOMC leaves rates unchanged as expected. The Fed upgrades the economy modestly and says there is progress towards meeting the rate hike criteria. The pace of job gains increases. Unemployment is steady. The Fed says there is moderate growth in household spending. Business fixed investment is soft and exports are soft. Energy prices are stabilizing. VIX drops to 15.03 sending stocks higher. The SPX jumps to 2100.

The Fed statement contains no explicit wording on when the first rate hike will occur but the member forecasts, the dot plot, indicates that 10 members are looking for a 0.63% or higher funds rate this year (which would be two rate hikes by the end of the year) and 15 members are at 0.38% (at least one hike this year).

At 2:03 PM, the US dollar index is dropping. USD 94.64. VIX 14.71. 2-year yield 0.69%. SPX is above 2100. The initial reaction by traders is that the Fed remains dovish with no firm plan on when to hike rates despite members predicting at least one hike, or more, this year.

At 2:05 PM, USD 94.68. Treasury yields are; 2-year 0.71%, 5-year 1.69%, 10-year 2.363%, 30-year 3.11%.

At 2:07 PM, the four major indexes are up uniformly +0.3%. VIX 14.53. TRAN -0.7%. Euro 1.128. Dollar/yen 123.94. WTIC oil 59.43. Brent oil 63.20. 10-year yield 2.35%.

At 2:09 PM, the SPX peaks at 2102 and begins retreating lower. Gold 1181. WTIC 59.72.

At 2:17 PM, SPX 2100. INDU 17936. COMPQ 5064. RUT 1261. US 10-year yield is 2.32%. German bund 0.812%.

At 2:30 PM, Fed Chair Yellen takes the stage and reads a prepared statement. The SPX pops from 2095 to 2099. Yellen, Queen of the Doves, says, “Conditions for a rate hike are not yet achieved.” Yellen says progress is occurring towards maximum employment. USD 94.65. In her characteristic talking out of both sides of her mouth, she says, “Weakness in the labor market remains.”

Yellen says inflation runs below target. 10-year yield 2.35%. WTIC oil 59.77. SPX 2099. INDU 17928. COMPQ 5062. Yellen says committee participants are reducing their growth rate forecasts. She says, “Downward pressure on inflation (deflation) is abating.” Transitory factors have impacted the economy. USD 94.58. WTIC 59.83. 2-year yield 0.68%. 10-year yield 2.33%. Gold 1183.

At 2:40 PM, as Yellen continues with the statement, the SPX is back to 2102 at the highs directly after the 2 PM announcement and moving higher. INDU 17943. USD 94.50. VIX 14.43.

At 2:43 PM, SPX 2104. VIX 14.34. Dovish Yellen knows how to pump stocks higher. There are no plans for a rate hike so stocks jump higher. Yellen says the first hike is data dependent continuing to kick the can down the road.

The Q&A continues and Yellen is asked why member forecasts point to one or two hikes this year but her comments remain reserved. SPX 2105. Yellen keeps singing the “data dependent” song. All Hail Yellen, Queen of the Doves, and champion of the wealthy in America that own large stock portfolios that are filthy rich from her dovish policies. To Hell with the middle class and poor. Let them eat cake.

At 2:47 PM, SPX 2107. The SPX gains 16 handles from before the announcement at 2 PM. The wealthy elite high-five each other and order caviar and champagne for tonight’s celebration. The Dow is up 80 points. USD 94.38. Since Yellen says the conditions are not met to justify a rate hike, stocks move higher.

At 2:50 PM, as the question period continues, SPX 2105. INDU 17979. COMPQ 5076. RUT 1271. Interestingly, the Russell 2000 small caps do not take out the highs from 2:10 PM after the initial announcement but the S&P 500, Dow and Nasdaq does. The VIX is at the day’s lows at 14.14 providing bull fuel.

At 2:55 PM, SPX 2106. VIX is 14.11 printing new lows. 2-year yield 0.665%. 10-year yield 2.31%. USD 94.30.

At 2:56 PM, Yellen keeps tap-dancing around the soft-ball questions. Reporters provide no follow-up or rebuttal to her answers. They sit there like puppy dogs lapping up her answers. VIX drops to 14.08. SPX 2106. TRAN -0.3%.

At 2:58 PM, Yellen is asked if a rate hike will occur this year. She says most participants feel a rate increase this year is appropriate. VIX 14.11. Yellen says ‘we could see data ahead that would justify the dot plot projections but no decision has been made on the timing of the first rate increase’. She follows up saying, “Certainly a rate increase is possible this year.” SPX 2105.

At 3 PM, Yellen says ‘independent of the timing of the first hike in September or December or March, the rise will be gradual’. VIX 14.13. SPX 2104.

At 3:03 PM, VIX 14.19. SPX 2103. Yellen says, “We will respond to incoming data.” At 3:04 PM, VIX 14.26. SPX 2103. The four major indexes are up +0.3%. Euro 1.1332. Dollar/yen 123.36. Pound 1.5822. WTIC oil 59.94. Gold 1187.

At 3:07 PM, the Q&A continues. VIX 14.30. SPX 2102.

At 3:08 PM, the SPX is 2103 fighting against the overhead resistance 20-day MA at 2106 and 50-day MA at 2104. Thus, the 2104-2106 level is a key pivot with market bulls winning big above and bears winning big below.

At 3:11 PM, VIX 14.42. SPX 2101. Yellen better quit while she is ahead. Yellen is questioned on Greece and if it is impacting her decision on the first rate hike. Yellen hopes the European leaders will find a way to resolve the Greece situation. She says if a resolution is not achieved global markets will be disrupted. VIX 14.39. SPX 2103.

XLE -0.1%. Materials are strong. XLB +0.5%. XLF flat. Consumer discretionary moves higher since higher stock prices, that benefit the wealthy, will continue supporting luxury spending. XLY +0.5%. Consumer staples are higher as traders buy defensive stocks that provide a dividend. XLP +0.6%. Homebuilders trade lower. XHB -0.2%. XLV +0.2%. Rates drop so utilities move higher. XLU +0.8%. TRAN -0.3%.

At 3:18 PM, VIX 14.26. SPX 2105. Euro 1.1358. Dollar/yen 123.24. Pound 1.5845. 10-year yield 2.317%.

The press conference ends at 3:30 PM. Stocks popped at 2 PM on the initial announcement, then retreated slightly, then ran higher once Yellen began speaking. The takeaway is that the Fed would like to hike rates this year but remains noncommittal the same position as before the FOMC drama this afternoon. Those looking for a firm strong hint as to when rates will begin moving higher are disappointed but the ongoing dovishness provides lift to stocks.

At 3:33 PM, VIX 14.15. SPX 2103. INDU 17957. COMPQ 5072. RUT 1270. The major indexes are up uniformly +0.3%. Euro 1.1335. Dollar/yen 123.37. Pound 1.5828. WTIC oil 59.82. Brent oil 63.67. Gold 1187. Silver 16.19.

Treasury yields are; 2-year 0.65%, 5-year 1.62%, 10-year 2.31%, 30-year 3.086%. The 2-10 spread is 166 bips indicating a steepening yield curve after the FOMC.

Minutes into the closing bell, the SPX is at 2100 off the highs. Greece PM Tsipras announces plans to meet with President Putin on Friday. The Greece bailout games continue.

The day ends with the SPX gaining 4 points, +0.2%, to 2100. The Dow gains 30 points, +0.2%, to 17935. The Nasdaq is up 9 points, +0.2%, to 5065. The RUT gains 1 point, +0.1%, to 1268. VIX 14.50. USD 94.26. 

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