Equities extend gains with S&P 500 notching its first record high of 2014; Soybeans soar on Chinese demand, Oil higher on lower US investories

Market Summary

Equities rallied for a second day, staying in the green throughout the session with seven of ten sectors closing higher after the world bank raised its global GDP forecast to 3.2% from 3%. Crude oil jumped after a government report showed inventories in the US tumbled to its lowest level in nearly 22 months, with WTI solidly outpacing Brent on the day. Soybean prices took off today, rising the most in 5 weeks on signs of higher demand from China. In the precious metals realm, gold futures slumped the most in a week on speculation the Fed will continue tapering its asset purchases, which would boost the dollar and cut the metal’s appeal as an alternative investment. Treasuries declined for a second day amid signs of economic improvement.

Notable News/Earnings

  • BofA/Merrill (BAC) beat on revenue, while EPS came in $0.03 over consensus; NIM rose +21bps
    • Trader’s take: The report looked good as top line grew q/q; IB business is on the rise.Costs were higher due to litigation expenses, the one red flag in today’s report.
  • Key takeaways from Fed’s Beige Book: Reports from the twelve Federal Reserve Districts suggest economic activity continued to expand across most regions and sectors from late November through the end of the year. Nine Districts indicated the local economy was expanding at a moderate pace; among these, the Atlanta and Chicago Districts saw conditions improve compared with the previous reporting period. Boston and Philadelphia cited modest growth, while Kansas City reported the economy held steady in Dec.
    • Trader’s take: The report was essentially ignored by the market (normal).
  • Fed’s Evans (non voter, dovish) said Fed decision to scale back QE was to rebalance policy mix, not lessen accommodation; said inflation remains too low; expects unemployment to fall to 6% or below by end of 2015; sees 2013 GDP growth of 2.75%.

Looking Ahead

Weekly initial claims and Dec CPI are set to be released at 8:30 ET while Net long-term TIC flows for November will be announced at 9:00 ET. The Jan Philadelphia Fed survey and the Jan NAHB Housing Market Index will both be released at 10:00 ET.