Resistance R3 1313.98, R2 1304.40, R1 1296.74
Pivot Point 1287.16
Support S1 1279.56, S2 1269.92, S3 1262.26
FOR Weekly 1/17-1/20 SPX resistance , pivot & support
Resistance R3 1321.36, R2 1309.09, R1 1299.09
Pivot Point 1286.82
Support S1 1276.82, S2 1264.55, S3 1254.55
- Investors got their first view of the state of the US financial industry in the final quarter of 2011 with JPMorgan's Q4 results on Friday. The bank met profit expectations, although reported profit was down about 23% on a y/y basis. Revenue was a bit below par. Equity market and investment banking revenue fell sharply, boding ill for the other large US banks. On the positive side, the bank highlighted the strong growth in loan demand. Note that the company's DVA (debit-valuation-adjustments) shaved around a dime off of earnings (recall that last quarter it added nearly 30 cents to the bottom line). On the conference call, CEO Dimon said that investment banking and trading revenue is volatile by nature and should bounce back. He also said that even as the bank sees growth in all credit categories, JPMorgan is getting "killed in mortgages."
- Alcoa's Q4 miss was right in line with expectations, and revenue was a bit above par. According to the company, aluminum demand grew 10% in 2011 on top of 13% growth seen in 2010. Alcoa warned that growing demand for aluminum and production cutbacks will result in a global aluminum industry deficit of 600K metric tons in 2012, which is ironic given the firm said it would cut 12% of its capacity just last week. Schnitzer Steel's Q1 results came in at the top end of its guidance, beating expectations only slightly. The company warned that heightened global macroeconomic concerns, stemming primarily from the European debt crisis, resulted in a significant slowdown in customer buying patterns, followed by a sharp decline in sale prices. Lennar's Q4 top-line revenue was stronger than expected and its new home orders were up nicely over year-ago levels. In addition, Lennar's backlog was up 35% y/y. Lennar executive said they have seen the housing market start to stabilize, driven by a combination of low home prices and low interest rates.
- Both Chevron and Marathon warned investors that crude price moves in the quarter would negatively impact earnings. Chevron warned that its earnings in Q4 would be significantly lower on a sequential basis, with downstream earnings around breakeven. Marathon said it expects a small EPS loss in the quarter, well below consensus expectations. The company said its results were being hurt by the rapid increase in the price of WTI crude. WTI went from $79.20 on Sept. 30th to $98.83 on Dec. 30th, wiping out the firm's profits.
- FX traders returned to the market on Monday pondering whether the extremely bearish euro sentiment that dominated trading in the prior week wasn't somewhat overdone. CFTC data showed that euro short positions were at record highs, with EUR/USD at 16-month lows and EUR/JPY at 12-year lows. Comments from Fitch about the European sovereign situation also helped the euro -- Fitch Sovereign Director Parker said that France is "not a crisis country" and that he did not expect to downgrade the country in 2012. After the ECB rate decision, central bank president Draghi did his bit to foster confidence, noting that the ECB was seeing signs of economic stabilization at "lower levels" and praised EMU member states for ambitious fiscal policies. Draghi addressed critics of the ECB's new three-year LTRO head on, asserting that the policy has been effective and insisting that funds from operation were not just being salted away in ECB deposits but were circulating in the real economy. By Friday, however, S&P's European downgrades shattered the temporary sense of calm.
- Markets are beginning to realize that Europe's economy could very well sink back into recession in 2012, thanks to the endless debt crisis, ever more austerity and political chaos. On Monday, a survey of 14 bank economists stated that Germany was already in recession, and a few days later the German Stats Office disclosed that Q4 German GDP would be down 0.25%. The Spanish Economy Minister commented mid week that Spanish GDP would contract in both Q1 and Q4 (in late December, the Bank of Spain confirmed that Spain's Q4 GDP contracted). Three leading European institutes (the INSEE, IFO and the ISAE) published a joint report that forecasted a "short recession" in the euro zone.
- The Swiss Franc was firmer against the major pairs following news of Swiss National Bank President Hildebrand's resignation in the wake of an FX trading scandal involving his wife. Following Hildebrand stepping down, EUR/CHF tested its lowest level since the SNB floor was enacted back in early September 2010. In farewell remarks, Hildebrand once again reiterated that the SNB would defend the EUR/CHF floor at 1.2000 with utmost determination.
- Economic data out of China continued to paint a bleak picture, prompting more speculation about the timing of the next PBoC policy move. December trade data saw a surplus of $16.5B which was double the consensus, but the increase was primarily the result of the slowing import component, which fell to a 27-month low (+11.8% y/y). China's latest inflation data was similarly downbeat, as CPI fell for the 5th consecutive month to a 15-month low of +4.1%. For the year, CPI was reported at 5.4% -- well above 3.3% in 2010 and 4.0% official target. Q4 FX reserves at $3.18T was perhaps the most telling data as it marked the first decline since 1998, when the Asian region was mired in a deep financial crisis. While the PBoC deferred its typical Friday policy move, central bank officials acknowledged deterioration in economic data justifying some easing in the future. PBoC advisor Li Daokui said the data give the government room to adjust policy to more growth-oriented stance, and the director of PBoC research bureau warned the financial crisis could last another 2-3 years.