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Stocks Take Cues from Currency Shuffle, Banks

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January 15, 2015

No shortage of potential market movers from around the globe for your Thursday. Anyone thinking of checking out early ahead of the Monday no-trading holiday may want to keep one finger on the pulse of a very volatile market. Low-inflation readings and less-than-banner bank earnings flow this morning. But the market was already logging big moves overnight as the Swiss dropped their euro cap. Further, the late-Wednesday options-related and short-covering bounce in oil continued overnight, enough to push the sticky stuff back up through $50 a barrel and clouding the bigger fundamental picture for now. The S&P 500 (SPX) held 2000 convincingly, the bulls will say. Let’s keep an eye on that line. Can the CBOE Volatility Index (VIX), the market’s “fear gauge” hold the psychologically significant 20?

FIGURE 1: S&P 500 charted on TD Ameritrade’s thinkorswim® is clinging so far this week to the closely watched 2000 line. Data source: CBOE. For illustrative purposes only. Past performance does not guarantee future results.

Ripples from the Alps. Warning: about to tread in the weeds here a bit on global currency machinations. Overnight dealings set the foreign-exchange and interest-rate markets into hyper-drive, enough to sink early stock futures trading before a sharp snap back there. So what happened? The Swiss franc rocketed beyond parity with the euro on Thursday after the Swiss central bank stunned markets by scrapping its long-standing cap on the strength of the currency. The franc surged more than 20% before bank intervention to stymie that jump. According to MarketWatch and other news sources, the Swiss National Bank has intervened in markets since September 2011 to prevent the franc climbing too high, acquiring billions of euros in an effort to stop the common currency dropping below 1.20 to the franc. The stock market’s first reaction to something big like this is typically to sell and figure it out later. That’s exactly what happened. Bigger picture, it tells us that European economic and market instability will remain a factor.

Mixed Bag for Banks. Citigroup (C) said Q4 profit was walloped by legal charges. The market may care more about flat revenue at $17.81 billion. Street analysts had expected $18.51 billion. Bank of America (BAC) also reported a drop in profit but Street analysts had braced for such a number. The banking giant was hit by lower revenue from trading, including its bond business, and lending. The strongest part of its report came with expense controls—not bad news just nothing to excite shareholders. BofA revenue fell 13% to $18.73 billion, or to $18.96 billion on a tax equivalent basis, which is comparable with analyst estimates. Analysts had expected $20.94 billion. Now, BlackRock (BLK) may help salvage a decent day in the financial space as it beat profit expectations and nosed its dividend up 13%.

Looking Ahead. Friday brings data on consumer inflation after this morning’s produce price index (PPI) report fell with a tug from gasoline prices. Trading is closed for Martin Luther King, Jr. Day on Monday. The biggest data headlines in the coming week could center on housing. Let’s see if an uptrend shows up in new and existing-home sales after record mortgage applications in a report that hit this week. The earnings parade continues, led by Johnson & Johnson (JNJ), Intel (INTC), Netflix (NFLX), eBay (EBAY) and others.

Good trading,
JJ
@TDAJJKinahan

NC
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