Day Traders Diary


Today's session was highlighted by a risk rally sparked by the Federal Reserve's decision to increase policy accommodations by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The program is open-ended by design, which allows the Federal Reserve to terminate it once the employment picture shows substantial improvement. The S&P 500 was the best performing index and it settled higher by 1.6%.

In addition, the Federal Reserve has released its latest economic projections. Among items of note, the 2012 GDP growth expectation has been lowered, while the outlook for 2013 and 2014 was raised. This year's GDP is now expected to increase by a rate between 1.7% to 2.0%, which is lower than the previous forecast of growth between 1.9% and 2.4%. Looking ahead, the 2013 GDP growth is now expected to be between 2.5% and 3.0% while the previous forecast suggested growth expectations between 2.2% and 2.8%. The Federal Reserve extended its forward guidance, suggesting rates will likely remain at exceptionally low levels through at least mid-2015. Lastly, 'Operation Twist' will conclude at the end of 2012.

Financial stocks made broad advances following the news. Bank of America (BAC 9.40, +0.43) led all majors with an advance of 4.8%. Meanwhile, Citigroup (C 34.45, +1.40), JPMorgan Chase (JPM 41.40, +1.48), Wells Fargo (WFC 35.55, +1.22), and American Express (AXP 59.05, +1.78) all posted gains between 3.0% and 4.2%. The SPDR Financial Select Sector ETF (XLF 16.15, +0.41) advanced 2.6%.

The materials sector outperformed with a 2.5% gain. The group was paced by steelmakers as AK Steel (AKS 6.44, +0.36), Cliffs Natural Resources (CLF 43.18, +2.56), and Steel Dynamics (STLD 12.40, +0.60), all added between 5.0% and 6.3%. Paper and packaging stocks were lifted as well. Louisiana-Pacific (LPX 14.60, +0.37) and Neenah Paper (NP 30.11, +0.63) both gained near 2.5%. Among chemical producers, OM Group (OMG 20.15, +1.06) and LyondellBasell (LYB 51.92, +2.31) jumped 5.6% and 4.7%, respectively.

Coal stocks within the energy sector made notable advances. Alpha Natural Resources (ANR 8.23, +0.89) surged 12.1% while Arch Coal (ACI 7.39, +0.68) spiked 10.1%. Large energy names Halliburton (HAL 36.44, +0.71) and ConocoPhillips (COP 57.65, +1.11) both closed higher by 2.0%.

The 30-yr yield briefly crossed the 3.00% threshold and closed at 2.967%, its highest yield in four months. Maturities across the rest of the complex reversed their post-FOMC selling to finish the day with fractional gains. The 10-yr yield settled at 1.756% after running to almost 1.840% in reaction to the Federal Reserve launching another round of quantitative easing.

Overall producer prices rose by 1.7% in August, which is hotter than the 1.2% increase that had been widely forecasted. Core producer prices were up 0.2% which is in-line with the 0.2% consensus.

Separately, the latest weekly initial jobless claims count totaled 382,000, which is higher than the 369,000 that had been expected. The tally is above the revised prior week count of 367,000. As for continuing claims, they fell to about 3.283 million from 3.322 million.

The U.S. Treasury has released its August budget which showed a deficit of $191 billion. This was slightly better than the broadly expected deficit of $192 billion.

Tomorrow's economic calendar contains a full slate of releases. Retail sales, retail sales ex-auto, CPI, and core CPI will all be announced at 8:30 ET. Industrial production and capacity utilization will hit the wires at 9:15 ET, while the Michigan Sentiment and business inventories will be released at 9:55 ET and 10:00 ET, respectively.

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