Mid-Day Thoughts

Allrighty Then,

1) US Dollar remains weak, putting a bid under dollar denominated commodities, and successively the Materials, Energy, and Industrial sectors. Oh, and by the way, the transports are screaming.

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2) Lack of hard news on some kind of coordinated production cut acts as a counterweight on Crude.
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3) Weakness in defensive plays across the board, at least as far as stocks are concerned, namely the Utilities, Staples, and Health Care sectors.  Non-equity defensive plays such as government bonds, and gold are doing fine.
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4) MACRO, MACRO, MACRO… honestly…How bad can the macro get?  Actually, the Productivity vs. Labor Costs equation is just about the most important data that we do see, and it will impact future decisions made by hiring managers.  It has become clear to me that the the FOMC can not raise interest rates anytime soon, unless forced to by a burst in consumer level inflation.  A couple of head fakes, sure…but an eventual cut is far more likely.  That will be embarrassing for them, so they will drag their feet..
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5)  Don’t get me wrong… I am rooting for the economy.  Would much rather be wrong about this than right.
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6)  Jobs Day tomorrow, after the absolutely ridiculous seasonal adjustment last month…. does it mean anything?
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7) LNKD earnings tonight.  From 11 to 12 dollars worth of implied volatility baked in.
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8) Okay, back to work you maggots.

Market Recon Thursday

Good Morning,
                        The US Dollar is weaker again at this time, with the DXY rolling off of a table earlier this morning.  That has been good news for equities, globally, as dollar denominated commodities found some relief.  This will also be our driver…at least for now.  I don’t tell you what to do, you know that, but financial stocks, though they came back quite nicely yesterday, are scaring the heck out of me.  Something is wrong…don’t know what just yet, but they are trading as if there is unbroken news out there somewhere.  There are enough choices in our galaxy for traders, who might have limited risk tolerance to avoid taking shots that might look very ignorant in hindsight.
                       Obviously nothing that is true remains true for very long, and agility will remain a trader’s best friend in these times.  If you marry your positions, they must be protected, and if you are not married to said positions, then you must understand technicals, or at least a set of technicals that you believe work for you.  I have three, one of which is my own, and highly classified.  I am not saying that there is no place for fundamentals.  Those are for your core positions.  What I am saying is that the robots that you’re up against are being programmed by guys who, for the most part, all study the same stuff.  They were not raised in the auction market, and have never developed instinct.  In times of high volatility, when parts are moving faster than human brains can make cognitive decisions, in order to beat the chart monkeys, you must yourself become a chart monkey.  They are faster than you.  They can impact the market in size. You may not be able to do those things…. but….  they do not know what you are going to do.  Understand them better than they understand you.  You can have that edge on them.  Got work ethic?  I bet you do,  no…… I know you do.
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Da Macro
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08:30 ET
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Initial Jobless Claims (Weekly):  Last week, we backed off of our recent high of 294K that printed two weeks ago with at tag of 278K.  Before you go all warm and fuzzy on me though, continuing claims hit a five month high last week, so the big ugly is still out there.  Expectations for today are for an in-line 279K, but just a warning.. the skew is to the upside.
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Non-Farm Production, and Unit Labor Costs (Q4):  I could do these two separately, but let’s face it… these two aren’t just cute together, they’re like peanut butter and jelly.  I mean what is more closely tangled than Worker Productivity, and Labor Costs.  Take it from a guy who’s had his teeth kicked in, you want to be more productive than you cost, at least in the private sector.  Workers rejoiced in the third quarter when Productivity surged 2.2%, while Costs only increased by 1.8%.  (These numbers are measured q/q in SAAR fashion.)  Well…kiddies….expectations for the fourth quarter, like just about everything else we’ve seen for a bit, are just awful.  Projections for Productivity are in the area of -1.6%, while Costs are expected to have risen 3.9% or so.  Some economists are as high as 5.4% on this one.  If these expectations are accurate…then it stands to reason, that more than a few lay-offs are on the way.  The Big Ugly lurks.
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10:00 ET
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Factory Orders (December):  Yeah, we’ve got another winner here.  Looks like this one is headed for month over month contraction of -2.8%, after shrinking just -0.2% in November.  If that number is accurate, this will be the nastiest release in this space in eleven months.
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10:30 ET
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Natural Gas Inventories (Weekly):  The reductions in supply just keep growing in this space.  We expect another sizable reduction today, probably something close to the tune of 175 billion cubic feet.
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From the Fed
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Way Early
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Boston Fed Pres. Eric Rosengren spoke this morning on the subject of “Too Big to Fail” in Cape Town, South Africa.  Rosengren is somewhat dovish, and is a voting member of the FOMC.  He apparently thinks that threats from “Too big to fail” organizations have abated.  That’s good.  He, as far as I could tell, did not really go into policy all that much.
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08:30 ET
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Dallas Fed Pres. Robert Kaplan is set to speak from Dallas on the global economy.  Kaplan is not a voting member of the FOMC this year.
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17:00 ET
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Cleveland Fed Pres. Loretta Mester will speak at an MNI sponsored event in New York City.  Mester is a voting member of the FOMC this year, and will open herself up to questions after the speech.  You know I appreciate that.
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Thursday’s Earnings Highlights
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Before the Open: CI (1.79), CLX (1.05), COP (-.64), MMC (.71), PM (.81), RL (2.11)
After the Close: DV (.66), LNKD (.78)

Market Wrap Wednesday

Good Evening,
                        I know that I rarely write an evening note anymore, but today’s action was so wild, and so invigorating  ….. that it was either run a couple of miles, or write a note.  I will probably still run a couple of miles, but at least I’m on a moving train this way.
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The Story
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                       What was the big story today???  The 8% rip in Crude?  The serious beat-down handed to the US dollar?  The game of Chutes and Ladders played by the equity market?  You know, the S&P 500 level coming in this morning was 1873, and the index bottomed at 1872 and change.  Incredible…just how technical this has all become.  Everybody looking at the same charts.  So many traders talking to each other trying to get a handle on just what we should all be looking at.  Moving parts? Yeah, no kidding.  Is it Friday yet ??
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Sold to You,….. I think
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                        First came the weakness… in the dollar, and equities.  It appears that the Bank of Japan put a cap on the scope of their leap into darkness last week that took more than a few folks by surprise.  I guess they need to take baby steps, because you and I both know that these guys will never, never, ever tighten monetary policy.  That hung an anchor on the greenback, as well as put a bid under WTI, that even a massive increase in supply couldn’t put anything more than a temporary dent in.  I think it’s fairly safe to say that both of these items saw squeezes of one type or another after that.  Then, the whole smoke and mirrors story about an emergency meeting of non-OPEC, and maybe even OPEC types that may, or many not be true.  What the ???…….  Take ’em.
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Moe, Larry, and William
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                       We saw gyrations in the Treasury market.  We saw NY Fed Pres. William Dudley sound anything but sure of himself, just one day after KC Honcho Esther George sounded like she hadn’t even taken a look at any US macro in something like three or four months.  I mean…. C’mon man !!!!!!  If you need help….ASK  !!!
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Final Score
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                      The winners??? The Energy Sector ran 4%.  Telecom, Utilities, Industrials, the Transports, and Gold all had nice days.  The losers?? After all that… US Treasuries.  Even the Financials after having their collective faces ripped off earlier in the day closed, as a sector… close to unchanged.
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Tomorrow is Thursday.  Just bring it.

Market Recon Wednesday

Good Morning,
                        Just how bad was yesterday’s sell-off in US Equity markets?  It did feel pretty bad.  Tactically, there was some damage.  The sell-off was broad-based, with Energy, Financial, Transport, and Small Cap types suffering the most.  I was kind of hoping that Transports, and Small Caps had started to turn a corner.  The Energy sector is going to correlate to Oil, that’s obvious, and the unknown, or maybe in some cases well known strings that tie Energy to some banks is also going to push Financial toward the correlation.
                        The Transports have already suffered mightily, and while moving commodities is what many of them do, reduced fuel costs will improve dynamics for some, and Small Caps…what can you say there?  In a strong dollar environment, they have to be winners, no?  So, we are not healthy.  We already know that.  Back to the charts.  Though, suffering that tactical drawback, the strategic damage really was not as severe as it felt.  That doesn’t mean that I think we are okay.  All of our risks are still there, and the mindless Fed that would have us import the very deflation that they wish to fight, is still, even with collapsing global demand, and crude being crude, our top market risk.  As to the strategic, I think that we can go as low as SPX 1865, or maybe even 1860 before we know for sure that whatever you are doing might need to be adjusted.
                         Today is global Service Sector PMI day.  Overall, the Euro-Zone hit consensus with Spain actually topping forecasts.  Unfortunately Italy, France, and Germany all missed the mark.  Even European Retail Sales, while printing at their best level since Autumn fell short of expectations.  European markets are painted blood red again, but this is not a complete romp, and US Equity Index futures markets are, at least so far, hanging onto small gains.  The American Service Sector gets it number today at 10am.
                        If you have not already decided to make today great, do it now.  You have nothing to lose by doing your best.  So, do it.  If they (whomever) don’t like your best, don’t hold back… lead by example.  At least one of them (whomever) will follow.
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So, You Think We’re All Morons
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          I have said it since I was a young economics student…. Why not just get rid of seasonal adjustments???  They serve no purpose other than to streamline the data for comparison’s sake.  Well, if economics is the study of human behavior in relation to a set of conditions, and resources…..and if we are not a bunch of utter and complete morons….then we know things like seasonal change, and occasionally unexpected forces do impact human behavior.  That said, save us your load of bologna, and just for Pete’s sake release the pure data, exactly the way it is….without the nonsense.  If 11 thousand people found a job, do not tell the masses that 292 thousand people found a job.  I know that it all works out in the end, or at least is supposed to, but, and this my friends, is a big but…. I value honesty.  Any self respecting numbers nerd does.  Any man or woman should.  The guy across your street that you just waved at, who lost his job 14 months ago, still needs to find a new one.  Sarge out.
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Today’s Macro
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08:15 ET
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ADP Employment Report (January):  This item, which is meant to be a predictor for Friday’s Private Payrolls portion of the Non-Farm Payroll report, is often ridiculed for being inaccurate.  Well, in December, this one came in at a very healthy 257K, and we all know that the NFP print then came in at not only very healthy, but an extremely seasonally adjusted 292K.  Today, we expect that this item may have slipped back below 200K, probably to something in the 190’s.  There are economists out there as low as 160K, and as high as 220K.
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09:45 ET
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Markit Services PMI (January):  This item flashed mid-month at 53.7, and that is our expectation for today.  That said, the market will wait 15 minutes for the ISM print, before reacting in this space.
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10:00 ET
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ISM Non-Manufacturing Index (January):  With most parts of the economy crumbling down around the kingdom, and with the manufacturing biz in an outright depression (worse than recession)….  (although New Orders did seem to budge in the right direction on Monday), many folks who normally let this one pass will be watching closely.  The December print showed up at 55.3, which is healthy, and still comfortably in expansionary territory.  The problem here is that we need the Service Sector to remain our engine, and this item is very steadily trending in the wrong direction.  That 55.3 was the weakest print in this space since April of 2014, and the projection for today is for a slightly weaker 55.2.  On top of that, the skew for this one is to the downside, with the low end of the range at 53.0.
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10:30 ET
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Oil Inventories (Weekly):  Last week, we were looking for an increase in supply of over 3 million barrels, and the print came in at an increase of over 8 million.  If you don’t follow this item closely, I’m not joking.  These are the numbers.  That was the largest increase for any one week, in about nine months.  Today, expectations are that we tack on another 4.2 million barrels.  What could possibly go wrong?
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Wednesday’s Earnings Highlights
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Before the Open:  GM (1.20), IP (.82), MAN (1.52), MRK (.91), SO (.42)
After the Close:  BWLD (1.48), GPRO (.03), GMCR (.68), MET (1.36), YUM (.66).

Market Recon Tuesday

Good Morning,
                        I felt really good about where equity markets stood last night.  Yesterday’s price movement showed to me that Friday’s big rally had been digested quite successfully.  Oil took a kick in the pants, and domestic equity indices, after having sold off early, actually rallied into that falling price of crude.  We have seen signs for about a week now…of an uncoupling of these markets with that commodity.  We needed that.  Then comes this morning.
                        Once again, Crude retreats, probably to test $30 support.  Equity markets around the globe, save for Shanghai, are retreating along with it.  Shanghai, btw is sort of in it’s own universe right now.  They’ll go into their Lunar New Year period on Sunday, and the PBOC is regularly injecting large amounts of cash into the system ahead of this event as to avoid a liquidity crunch.  There will be a two month gap in Chinese macro, which may just be a god thing.
                       The Iowa Caucuses were last night, and it looks like Sen. Ted Cruz, and the former Secretary of State were the winners, both very narrowly.  I don’t think it likely that you will see a Wall Street reaction to this event, as it seems clear to me that Wall Street has yet to pick it’s favorites.  The field is still just too large for anyone who plays probabilities to accurately gage direction at this time.
                        We don’t have much macro to look at today, just a bit…and there will some Fed speak, but the markets are likely to try to defend themselves against Crude’s volatility, trade technically, and look forward to this Friday’s release from the Bureau of Labor Statistics.  Conflicting signals…  While, I don’t think anyone could still call the S&P 500 overvalued, they probably would not call it oversold either.  There’s a lot of wiggle room at these levels, and that’s what this market is going to do.
                        Gang, if you can get yourself past the stress, then you will be able to remember that this sport is still kind of fun.  If you can not get past the stress, or if it is ruining your quality of life…. then you are in deeper than your tolerance for risk allows.  So, you go to a higher cash level, and play small ball for a while.  I have done that so many times.  God bless you … I mean that with all my heart.
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Just a Little Bit o’ Macro
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08:55 ET
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Redbook (Weekly):  Our weekly measure of retail sales at chain stores has been sucking some wind of late, printing at it’s lowest levels on a y/y basis in quite some time.  Gone are the heady days of 2014 when y/y prints of 5% to 6% were commonplace.  Today, we hope that the y/y number shows growth of better than 1%.  May be a close one.
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All Day
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Total Vehicle Sales (January):  In December, we saw Total Vehicle Sales drop, quite unexpectedly…. I might add, from the torrid pace that they had run at from the Summer through November.  That print came in at an annualized 17.3 million units, while the Street was still looking for 18 million plus.  Throw in the East Coast blizzard that likely not only slowed consumption, but production as well…..and our expectation for today has been ratcheted down a notch.  We look for something the neighborhood of 17.4 million units with some forecasting a print in the mid 16’s.  Yikes…. that would leave a mark, and it’s not crazy.
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Central Bankers
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Fed Speaker:  KC Fed Pres. Esther George speaks on the economy’s outlook, and Fed policy from Kansas City, Missouri at 13:00 ET.  George is a voting member of the FOMC this year, and is thought of as a policy hawk.
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BOJ Fun:  That fun starts after the closing bell tonight, but will be worth paying attention to.  First, the Bank of Japan will release it’s policy meeting minutes at 18:50 ET.  Don’t forget that the BOJ took a flying leap into the darkness last week with negative interest rates, hence Friday’s global fireworks show.  Then…really late (for a guy based in NY), at 23:30 ET, BOJ Honcho Haruhiko Kuroda speaks at the Kisaragi-Kai in Tokyo.  The Kisaragi-Kai sound cool, but I think I’ll take a pass, and read about it when I wake up tomorrow.
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Tuesday’s Earnings Highlights
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Before the Open: ADM (.66), DOW (.69), XOM (.66), KORS (1.46), PFE (.52), UPS (1.42), USAK (.23)
After the Close: CMG (1.85), YHOO (.13)
Good Morning,
                       Poof !!  If you wake up wondering what happened to our “dance your face off”, end of the month victory march…welllllll, it was the end of the month….and China.  Yes, China, once again, showed signs of a weakening economy and that had some of the folks taking short term profits this morning.  In case you haven’t found it, China’s National Bureau of Statistics release their PMI data last night.  What it showed was a manufacturing sector that was still mired deep in contraction, and in fact missed estimates.  On top of that, although still comfortably in a state of expansion, numbers for the Chinese service sector revealed a growth that was indeed losing some steam.  Pop goes the weasel, cuz the weasel goes pop.
                      The PMI numbers, at least on the manufacturing side, continued around the planet this morning.  Japan missed, India beat. then in Europe, Germany beat, and the Euro-Zone as a whole nailed consensus, but performance was spotty, with Spain crushing it, while Italy missed badly.  We’ll participate in the whole PMI think later today, although here we call it an ISM thing.
                       I think we’re seeing a familiar trend this “Earnings Season”, with most firm’s beating their EPS expectations, probably about the usual seven in ten, and then a fare lesser percentage hitting on revenue projections…and then year over year revs,,,,whooooie.  Those y/y comps, however have been well managed by the firms themselves, and do seem to have been somewhat priced in.  Bottom line…we’re having a lousy earnings season, but, and this is a big but…..  It’s been dressed up nice with balloons, and streamers.  The public does like balloons, and streamers, and on top of that…the public is starved for yield.  Debt to Equity ratios?  Declining revs?  Cash levels are even higher than they were… Hmmmm.  Worried?  Always, but no more than usual.
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PMI-pallooza
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08:30 ET
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Personal Income (December):  The “Unholy Grail”…. personal income.  Everyone that you, and I know is caught in a never-ending battle against what they bring home, and what they need to bring home.  We all know that it’s been tough…for a very long time.  In November, Income inched up 0.3% m/m, which was actually the second weakest gain that we’ve seen since in this space since April.  Expectations for today are for a further softening in such gains to something like 0.2% m/m.  From a familial point of view…..as long as it’s beats Spending, right?
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Consumer Spending (December):  Ahhhh, our opponent, or is it our friend?  Depends where you are on the base-paths.  Are you selling?  Are you looking at the economy from above? Then you want to see folks out there moving the business cycle along, and increasing the dear, dear velocity of money.  That, however, is not how the working stiff sees it, and that is why he or she tries, many times in vain…. but tries to save, or at least service one’s own debt, with out jamming oneself up too badly.  The conundrum will be likely be expressed this morning when, as most economists believe Spending reports in at a m/m increase of 0.1%. off of November’s 0.3% monthly pace.   Looks like Income may have beaten Spending in December, but with both of then slowing down.  No celebratory party here, if indeed that is how this shakes out.
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PCE Price Index (December):  Well, kiddies, they say that there is no consumer level inflation, and this data-point is primarily why.  Janet Yellen, and the rest of the Ant Hill Gang prefer to watch this specific measure, even though Core CPI has already met, and exceeded their mandate.  As you, know this one isn’t even close.  For December, the consensus projections are for 0.0% m/m at the headline.  Don’t worry about that one, nobody on planet Earth does.  The Core print is expected to show that it vaulted ahead by 0.1% m/m, and 1.3% y/y.  Yes, vaulted.  Indeed, they all do watch the Core print. Go nuts.
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09:45 ET
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Markit Manufacturing PMI (January):  Markit’s Manufacturing PMI flashed at 52.7 back on the 22nd, after having printed at 51.2 in December.  This item had out-performed it’s more closely followed rival, the ISM number all throughout 2015.
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10:00 ET
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ISM Manufacturing Index (January):This one left a mark back when the November release came in at 48.2, which was it’s second straight print deep in the hole.  We are looking for a third consecutive month of sharp contraction when we see this release today.  The “experts” are thinking something close to 48.3, but what I think is more telling…. is that there is not a soul that I can find who is above 49.5 on this data-point for today.
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Construction Spending (December):  Here’s one that maybe you can feel a little hopeful about, and given the nature of US macro over the last few month, we’ll take anything that isn’t awful right now.  Look for a significant improvement in this one today, from November’s -0.4% m/m to something well into the positive growth side.
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11:00 ET
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ECB Speaker:  ECB President Mario Draghi testifies before the European Parliament in Strasbourg.
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13:00 ET
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Fed Speaker:  Fed Vice Chair Stanley Fisher speaks on Monetary Policy, and Foreign Relations in New York, NY.
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Monday’s Earnings Highlights
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Before the Open: AET (1.22)
After the Close: GOOG, GOOGL (8.20), MAT (.61), TSO (2.09)