MARKET WRAP – SELLING INTO THE FED

The Fed decision did little to spark optimism.  After a very brief move higher stocks actually sold off on the news – an odd occurrence following commentary from Bernanke.  Stocks finished the day marginally higher by 0.15%.  Small caps and financials both rallied 0.7% and oil surged over 2% during the session.  The VIX sold off 4% on the day and currently sits very near the 20 level which has been a level where stocks have sold off lately.  Investors still aren’t willing to fully release the hedges in this market and that could continue to result in sideways trading until the new year.  Daily Futures has the action from all markets:

U.S. Economy
The Federal Reserve concluded its meeting this afternoon and kept the federal funds rate unchanged at .125%, as expected. They noted that “economic activity has continued to pick up and that the deterioration in the labor market is abating.” Even so, they continue to anticipate “exceptionally low levels of the federal funds rate for an extended period.” The March 2011 eurodollars closed up .045 at 98.35.

The U.S. Census Bureau said that housing starts were at an annual rate of 574,000 in November, up 8.9% on the month, but a little less than expected. From a year ago, November housing starts were down 7.3%. March lumber was up $1.20 at $239.00.

The U.S. Labor Department said that the consumer price index was up .4% in November and up 1.8% from a year ago, as expected. Excluding food and energy, prices were flat in November and up 1.7% from a year ago.

Grains and Cotton
The USDA said that China bought 116,000 tons of U.S. soybeans. March soybeans were up a nickel at $10.67.

March cotton closed up 1.37 cents at 76.25, the highest close in fourteen months, while rain in the southern U.S. makes it difficult to finish the harvest.

Cocoa
March cocoa jumped up $133 to at $3,498 with help from a weak dollar and in spite of higher arrivals at Ivory Coast ports this season.

Coffee
Brazil’s Ag Ministry said that they harvested 39.5 million bags this year, up from an estimate of 39.0 million bags in September. The USDA will release its semi-annual estimates on Friday afternoon. March coffee ended up 1.05 cents at $1.4830, the highest close in fourteen months.

Sugar
Brazil’s government estimated that they will produce 34.6 million tons of sugar and 25.8 billion liters of ethanol from 612 million tons of sugarcane in 2009-2010. A month ago, the USDA predicted that Brazil would produce 35.8 million tons of sugar. March sugar closed up 1.12 cents at a new contract high of 25.94.

Orange juice
The ten-day forecast for central Florida at Weather.com shows that temperatures may hit 40 degrees on Sunday and Monday, but no significant damage from the cold is expected. March orange juice closed down 1.85 cents at $1.3285.

Energies
The U.S. Department of Energy (DOE) said that crude oil supplies were down 3.7 million barrels last week to 332.4 million barrels. Supplies of gasoline were up 900,000 barrels and heating oil supplies were down 2.3 million barrels. February crude oil closed up $1.69 at $74.38.

The DOE also said that refinery use fell from 81.1% to 80.0% of capacity last week. Over the past four weeks, gasoline demand was up 1.0% from a year ago while distillate demand was down 6.6% from a year ago.

Metals
March copper closed up 6.40 cents at $3.2055, helped by today’s reported increase in U.S. housing starts and the Federal Reserve’s continued commitment to a federal funds rate near zero.

Currencies
Australia’s Bureau of Statistics said that real GDP was up .2% in the third quarter and up .5% from a year ago, less than expected. The March Australian dollar fell .66 to 89.14.

The U.K.’s Office for National Statistics said that the unemployment rate for August to October was 7.9%, up from 7.8% a month ago. The claimant count was down 6,300 in November to 1.63 million, the first decline since February of 2008. The March British pound ended up .0054 at $1.6301.

Statistics Canada said that manufacturing sales were up 2.0% in October to C$42.5 billion, better than expected. Yesterday, Canada’s Real Estate Association said that existing home sales were up 73% in November from a year ago and prices were up 19%. The March Canadian dollar was down .14 at 94.07.

Eurostat said that consumer prices in the European Union were up 1.0% in November from a year ago. Also, Markit’s composite index of purchasing managers increased from 53.7 to 54.2 in December, the highest in over two years.

Japan’s tertiary index (of services) was up .5% in October, as expected.

The central bank of Norway surprised analysts and raised its interest rate to 1.75%, the second consecutive increase. In October, Norway became the first European country to raise its interest rate.