Day Traders Diary

2/17/16

The major averages ended their Wednesday affair on a higher note, rallying throughout the day alongside crude oil. Adding to today's positive sentiment was sustained sector leadership from the heavily-weighted technology (+2.3%) and consumer discretionary spaces (+2.1%), dovish commentary from Boston Fed President Rosengren. The Nasdaq Composite (+2.2%) ended in the lead while the S&P 500 (+1.7%) and the Dow Jones Industrial Average (+1.6%) followed.

Throughout today's session oil climbed on speculation that OPEC ministers would convince Iran to cooperate on a production freeze. However, while Iran voiced support for market stabilization efforts, the country has yet to agree to take part in yesterday's proposed production freeze. Nevertheless, WTI crude ended its day higher by 5.5% at $30.65/bbl.

In central bank news, the minutes from the FOMC's January meeting echoed a dovish tone that was voiced yesterday by Boston Fed President and FOMC voter Eric Rosengren. The minutes reported concerns over a potential drag on the U.S. economy from larger-than-expected slowdowns in China and other emerging markets. On that note, Fed President Rosengren argued for a more gradual approach to hiking rates in response to headwinds from abroad.

Energy (+2.9%) and technology led the other sectors while materials (+2.0%) and consumer discretionary jockeyed one another. On the flipside, countercyclical utilities (-0.2%), telecom services (+0.3%),consumer staples (+1.0%), and health care (+1.3%) rounded out the board.

The commodity-sensitive energy space topped the leaderboard thanks to the rebound in crude oil. Energy giant Chevron (CVX 88.31, +3.50) climbed 4.1% to outperform the broader sector. Conversely, natural gas company Devon Energy (DVN 20.33, -0.93) surrendered 4.4% after reporting below-consensus revenue in Q4 and announcing a 75.0% dividend cut.

Separately, Salesforce.com (CRM 63.49, +3.77) showed relative strength in the technology sector. The company outperformed after Mizuho issued bullish commentary on the company when previewing Salesforce.com's Q4 earnings (February 24th). Large-cap Facebook (FB 105.19, +3.58) was able to recover from early relative weakness while Apple (AAPL 98.12, +1.48) ended its session behind the broader sector.

Priceline (PCLN 1,235.56, +124.88) outperformed in the consumer discretionary space after reporting above-consensus earnings prior to today's open. Meanwhile, fellow sector heavyweight Disney (DIS 95.50, +2.59) climbed 2.8%. The discretionary group has climbed 4.6% over the last two days, but remains lower by 1.7% for the month.

In the health care space, Johnson & Johnson (JNJ 102.50, +0.18) and Pfizer (PFE 29.63, -0.18) weighed on the broader sector while biotechnology outperformed today, evidenced by a 2.9% increase in the iShares Nasdaq Biotechnology ETF (IBB 266.32, +7.60).

Treasury yields traded higher throughout today's session as the rally in equities continued, but an afternoon bid in the Treasury complex pressured yields from their highs. The yield on the 10-yr note ended the day higher by four basis points at 1.81%.

Today's participation was true to the recent average with more than 1.2 billion shares changing hands at the NYSE floor.

Today's economic data included the weekly MBA Mortgage Index, January PPI, January Housing Starts, January Building Permits, the January Industrial Production Report, Capacity Utilization, and thee FOMC's January Minutes.

MBA Mortgage Index was reported at 7:00 ET, showing a seasonally adjusted increase of 8.2% in mortgage applications.

The Producer Price Index (PPI) for final demand increased 0.1% (Briefing.com consensus -0.2%) in January after an unrevised 0.2% decline in December.

Excluding food and energy, final demand prices increased 0.4% (Briefing.com consensus 0.0%) on top of an upwardly revised 0.2% increase (from 0.1%) in December.

A 0.5% increase in prices for final demand services drove the uptick in the PPI for final demand. That overrode a 0.7% decrease in prices for final demand goods, which flowed from a 5.0% decline for final demand energy goods.

With the January reading, total PPI is down 0.2% year-over-year on an unadjusted basis while core PPI is up 0.6%. There is still much room for improvement, yet January's readings would seem to have PPI headed in the right direction in the Fed's mind.

Housing starts declined 3.8% in January to an annualized rate of 1.099 million units (Briefing.com consensus 1.171 mln), as single-family starts dropped 3.9% and multi-units starts fell 3.7%.

Single-family starts in the South were flat in January; otherwise, there were declines in all other regions with the Northeast down 14.1%, the West down 10.0%, and the Midwest down 3.8%.

The number of housing units under construction at the end of the period stood at 978,000 versus 976,000 at the end of December and the fourth quarter average of 962,000. This should be a slight positive as it relates to first quarter GDP computations.

Building permits slipped 0.2% to an annualized rate of 1.202 million (Briefing.com consensus 1.200 mln), with single-family permits down 1.6% and multi-unit permits up 2.1%.

There was an outsized 55.4% decline in total permits for the Northeast region, which was likely due to the expiration of tax credits for building multi-family properties in New York City.

That decline was offset by a 26.5% increase for total permits in the Midwest and a 24.5% increase for total permits in the West.

Industrial production increased a robust 0.9% in January and could have bee a little bit stronger if not for a big winter storm late in the month, according to the Federal Reserve.

The January reading was much stronger than the Briefing.com consensus estimate of +0.3% and the downwardly revised 0.7% decline (from -0.4%) in December. On a year-over-year basis, total industrial production is still down 0.7%.

Following unseasonably warm weather in December, proper winter temperatures arrived in January and cranked up the demand for heating. That demand fueled a 5.4% increase in the index for utilities, which interrupted a string of three straight monthly declines. A 0.5% increase in manufacturing output was another big driver of the headline surprise. That increase was a byproduct of near 0.5% increases for both nondurables and durables.

The durables increase was powered by a 2.8% increase for motor vehicles and parts. On a related note, total motor vehicle assemblies increased 4.0% month-over-month to a seasonally adjusted annual rate of 12.11 million units. Mining output was surprisingly unchanged in January as substantial decreases for oil and gas well drilling and servicing, for coal mining, and for nonmetallic mineral mining were offset by increases for oil and gas extraction and for metal ore mining. That was the first time since August 2015 that mining output has not declined.

Separately, the total industry capacity utilization rate increased to 77.1% in January from a downwardly revised 76.4% (from 76.5%) in December. The bulk of that improvement stemmed from capacity utilization for utilities increasing to 77.5% from 73.6%.

St. Louis Fed President and FOMC voting member James Bullard will be speaking at 18:00 ET.

Tomorrow's economic data will be limited to the weekly initial claims (Briefing.com consensus 274k) and the February Philadelphia Fed Survey (Briefing.com consensus -2.9) with both reports set to cross the wires at 8:30 ET.

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