Market Recon Monday

Good Morning,
                        Seventy-Two years ago today, American, British, and Canadian troops hit the beach…quite literally.  Between, the airborne troops who landed behind enemy lines, and the conventional infantry,,, who commenced with the largest amphibious assault in the history of our planet, the allies sustained over 10,000 casualties in those first few days.  Over 4,400 of those were confirmed killed.  When you speak of heroes, it’s hard to imagine what went on inside the heads of these men. It must have been absolutely terrifying.  I grew up as neighbors with one of these men.  His name was Mr. Dempsey.  I don’t remember his first name.  Mr. Dempsey landed at Omaha Beach on the first day.  What I remember is that my Dad told my brother and I (and every Dad told every kid in the neighborhood), that when you see Mr. Dempsey, you make sure that you stop playing, and you look him in the eye, and you acknowledge him.  We did that, as well as doing the things, that for the Dempseys became difficult (air conditioners, snow removal, mowing the lawn) with age.  The whole neighborhood really appreciated what he had done for us.  We all admired Joe Namath, and Tom Seaver, but Mr. Dempsey was the neighborhood hero.
                       Janet Yellen won’t be asked to anything heroic today, but she will be under some pressure when she speaks at 12:30 to the World Affairs Council in Philadelphia.  While, most of the Federal Reserve has been out beating hawkish drums of late, Yellen really has not.  Now, that we’ve been hit with this disastrous BLS report for May, a June rate hike is certainly out of the question, while the chances of a July rate hike are now very, very low.  I could only see a July hike at this point, if there were to be some technical error found in the May Employment Situation that caused sizable revisions to the upside.  Our good doctor will simply be put in a position this afternoon of trying to hold together the reputation, and credibility of the Federal Reserve Bank.  Unfortunately for our good doctor, that’s a horse that has already left the barn.
                       The Federal Reserve is not the only one here suffering from reputational degradation.  How about the BLS ??  What is with the glaring inaccuracy that we as a nation are subject to on a monthly basis…an inaccuracy that forces regularly sizable revisions.  Cramer put it best on his “Mad Money” show last Friday night.  If the technology is there, so that marketers know every little purchase that you make, and even know when you shop for an item, but do not make a purchase, and if big brother knows where you are, and what you’re doing … then quite simply put, there must be a better way to track hiring, and employment across demographics, and across our great land.  Something is wrong when among all industry economists, the consensus view is more than four times the actual Non-Farm Payroll number, and when the lowest estimate out there is still more than 250% of that actual number.  If the private sector is constantly forced to improve, or just fade away, then why do we always accept such sub-par performance from out government agencies ??  Sell the contract to someone who can do the job.  It’s too important not to.
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Earnings Highlight
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VRX :  This release, which was expected last Wednesday, and was postponed until today… has now been postponed until tomorrow.

Market Recon Friday

Good Morning,
                       Too bad today is “Jobs Day”.  I mean the marketplace will move around, and that will likely elevate trading volumes.  That’s good for this guy, but the way equities went out last night was just a thrill a minute.  Remember yesterday, when we mentioned the dog in the car with it’s face pressed up against the window, and compared that to the SPX 2100 trading level.  Well, at 2pm or so, somebody let the dog out, and if you’re a chart monkey…. you study market behavior just after a significant levels cracks.  Most important yesterday afternoon was that the level was re-tested from above, and passed that hurdle with flying colors.
                       Secondly, the trader watches for evidence of further resistance.  Quite frankly, there was none…. at least no organized resistance, just pockets of profit takers.  On a normal day, I would throw out 2111 as my next spot, and it still may be.  The 8:30 Employment numbers will highly impact market direction, particularly if there is a significantly low number for NFP.  On top of that, yesterday’s volume was absurdly light until the close, which always makes one doubt the trustworthiness of the evidence presented.
                      For those keeping score at home, the market has done what it’s done this week, without the leadership that we’ve enjoyed very recently from the Financials, and the Techs.  They’ve been pouring into Health Care, and it’s everything from Bio-Tech (never touch it) to Providers to Pharma.  The Banks, and pretty much anything having to do with consumer level finance did squeeze into the green late yesterday, but most of Tech never even got that far.  Isn’t figuring this stuff out just the best ??  Even when wrong, the exhilaration of making your own decisions based on your own figuring is goose bump territory.
                      It’s Friday.  Let’s work hard.  Let’s go to bed early.  Then, let’s go for some kind of ridiculously long run in the morning.  Who’s in?  I do my best praying, figure out my best trades, and work on all of my familial relationships when I run.  Highly recommended medicine.  Sarge out.
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Macro Note: Gang, there’s just a plethora of numbers to look at today.  I’ve tried to lay it out in a way that might help the home-gamers, so that they can take it in point by point.  Good luck.  Now, get out there, and be the hunter.
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Employment Situation (May)
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08:30 ET
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Non-Farm Payrolls:  This is the big one.  This data-point drives not only public perceptions for the entire BLS report, but ultimately both FOMC monetary policy, and equity market direction.  Consensus for May is for 161K, right in line with April’s 160K.  I thought that I had seen a downside skew in the ADP data, but that item surprised me by almost nailing expectations with that 173K print yesterday.  In my opinion, this increases the chance that Private Payrolls will come very close to the 171K that we expect, which should land the NFP print pretty close to the 161K number.  Then again, the range for this one spans all the way from 105K to 225K, so a lot of smart people see this in very different ways.  My solution… no directional shots taken before this release…and no participation immediately afterward as well.
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Unemployment Rate:  Almost everyone I see is expecting to see a 4.9% tag on this one, down from 5.0%.  In fact nobody is above April’s 5.0% for May.  My one problem with that is that yesterday’s Gallup print for Unemployment ran from 5.2% to 5.5%.  Now, Gallup is not seasonally adjusted, and is not truly comparable to the BLS print, but they do usually move up and down together.  Therefore, I think it likely that we see upward movement in the Participation Rate from the 62.8% that we saw for April.
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Underemployment Rate:  This is the one that the BLS calls U-6, and the guy across the street calls the “Real Unemployment Rate”.  Last month this one edged down to 9.7%, and will be a tricky item to predict for today.  If indeed the Participation Rate swelled, then it’s very likely that the percentage of part-timers in the labor force (which had been declining of late) also grew.  This, for me… is today’s most interesting number.
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Average Hourly Earnings:  Right after traders take in the NFP number, this is the very next item that they will look for.  After all, it’s actually upward wage pressure, velocity of money, and ultimately… consumer level inflation that the voting members of the FOMC are looking for.  We saw a very acceptable 0.3% m/m increase here in April.  The joyride should slow to 0.2% m/m for this release.
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Average Workweek:  Another way to measure wages is though hours worked.  It is expected that this number will hold steady at 34.5 hours.  Even a tenth of an hour here does make a difference.
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Everything Else
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Zero Dark Thirty
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Fed Speaker:  Chicago Fed Pres. Charles Evans spoke on the economy from London, England.  Evans is not a voting member of the FOMC this year, but he is still a much listened to voice.  For those looking for dovish comments in this space, there was no disappointment.  While Evans did acknowledge the possibility of two rate hikes this year, he also made a case for waiting until consumer based inflation (the Core PCE no doubt, as Core CPI has long since surpassed that mark, and only a buffoon would be talking about the headline numbers) actually reaches 2% before acting.
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08:30 ET
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Trade Balance (April):  The balance of trade for March printed at $-40.4B, which believe it or not, was the smallest deficit that we’ve seen since March of 2015.  Today, we expect to se something like $-41.1B, but there is good news.  Projections are for increases in both Imports, and Exports, which in a utopian world means increased demand.  These prints will fly under the radar today.
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09:45 ET
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Markit Services PMI (May):  Flashed at 51.2.  Printed at 52.8 last month.  That is a fairly rapid decline in the pace of growth.  Good thing nobody cares.
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10:00 ET
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ISM Non-Manufacturing (May):  The slowing in the pace of growth for the service sector should be less severely pronounced in this much more highly focused upon data-point than the one released fifteen minutes prior.  Projections are for a print close 55.4, down from 55.7.  Strength is expected to be seen in New Orders, and Business Activity.  Employment, and Prices Paid are expected to be soft spots.
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Factory Orders (April):  This data-point will almost surely be over shadowed, as far as the markets go, by other less dated, higher profile events today.  Factory order have had a hard time gaining any momentum at all for quite some time.  In fact, we only saw two consecutive months of growth one time in 2015, and are yet to see that this year… until now.  Look for an increase of 1.9% m/m today, on top of the 1.1% m/m growth that we saw in March.
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12:30 ET
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Fed Speaker:  Federal Reserve Gov. Lael Brainard will speak on the US, and possibly global economic outlooks from Washington, DC.  Brainard is a voting member of the FOMC, and is about as outspoken a dove as there is amongst that group.  The DXY must have been up around 96 when the Fed sent out today’s group of family singers.  This speech could be interesting, gang..
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13:00 ET
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Baker Hughes Rig Count (Weekly):  Last week, the US Rig Count held steady at 404.  However the number of rigs devoted to Oil production dropped from 318 to 316, while the number of rigs devoted toward Natural Gas increased from 85 to 87.  This print will impact the dollar price of crude, and if you are not an energy trader by profession, it can hit you with your guard down…. so keep your guard up.

Lunchtime Recon

Good Afternoon,

                       The pitch  (John Sterling’s voice)……. and OPEC is caught looking at a called strike three… again.  Why do they even hold these meetings ??    In other news, Mario Draghi tiptoed through the tulips, warning about downside risks to the EMU economy, and “ramping” up 2016 inflation expectations for the Zone from a mere 0.1% to a whopping 0.2%.  Don’t forget that policy tools such as Corporate debt purchases, and the new TLTRO program will kick off this month.  We’ll have to watch those items develop before we decide if economic conditions improve, or if the Euro-Zone will follow Japan into an economic death spiral.  Oh, I almost forgot to mention, that the ECB remains ready to use all of the tools within their mandate.  Phew, thank goodness !!
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                      Hey, anybody else catch that New York ISM number ???  Hoooo Doggie !!  Time to see where the bodies are.
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1) The S&P 500 opened in the hole, but certainly feels like it wants to take another crack at 2100.  I still see 2111 as the next bus stop, but we may have to fake a hand-off to the full back, and pitch it out to the slot-back to get there.  And then our flanker’s going to have to throw a nice block.  2093, and 2088 are our lines of retreat.  That last one already worked like a charm once today.
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2) Health Care is leading the pack today, and it’s fairly broad-based across sector industries.  Still no positive participation this week from Financials, and Tech.  That’s something we are going to need to take that 2100 level.  Advancers are beating decliners so far today
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3) WTI Crude took an early kidney punch, but again that $48 level is like a stone wall.  The inventory print showed some contraction, but smaller than the honchos were looking for.  Gold keep hanging around near that important $1210 level, looking for direction from the DXY which it’s just not getting right now.
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4) Treasuries are stronger today, even the short end.  As always, my bond allocation remains 17.5%, and my concentration is weighted toward those Treasuries.  That’s more of a back door hedge than a call of bravery.
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5) If you see someone on the way home today that looks like they’re in a bad way,  make eye contact.  Let them know that you know they exist.  Could make a difference.  If we don’t help each other, than what good are we ??

Market Recon Thursday

Good Morning,
                        After the release of the Beige Book yesterday afternoon, one thing became crystal clear to me.  The economy has some underlying strengths at this point, while still displaying enough symptoms that one would never declare it to be “well’.  In other words, this economy is both too strong to be dovish, and too weak to be hawkish.  We all know that the Fed should have raised rates a couple of years back when our economy had more momentum.  That’s neither here nor there.  Crying over spilt milk will make us zero dollars.  As a purist, I believe that credit should have a cost, and that the American League should drop the DH Rule. The cost should be free market based.  How we ever get back there will be a challenge.  In the mean time… technicals over fundamentals… for now.
                        Although, we’ll get some jobs related data today, the headline financial news will come from external sources this morning.  Our equity market sort of reminds me of a dog left in a car outside of a store.  Go near that car, and the dog is sure to make a lot of noise, but that dog is not going anywhere unless someone opens the door.  Once again, the S&P 500 has it’s face pressed up against 2100 just waiting to be unleashed ….. or not.  Another dog in another place…. let’s say in an unfenced yard, will test his boundaries.  You put an electric collar on that dog, and it stops trying to reach the end of the yard.  Which dog are we ??  I have some ideas on that.  They’re not all good, but they do include an eventual re-test of the 2130 all time highs.  That said, I’m not retired, and I don’t live in a castle.
                        OPEC.  Think these guys can put together an agreed upon, output ceiling ??  Think these guys can agree upon individual quotas  ??  When is a cartel no longer a cartel ??  When they can’t put aside differences in order in order to mutually benefit, that’s when.  Let you know later in the day, but I wouldn’t bet the farm on this gang.
                        ECB.  As I mentioned in yesterday’s note, there are a couple of planned steps in the easing of monetary conditions set forth by the ECB in March that will take place in June.  You will likely not see any policy changes today.  The focus will center on the press conference.  The willingness to go another mile…. helicopter money… whatever.  Put nothing past Mario Draghi when he has a mission.  The man can talk, and his mission today is to soften the Euro.
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Macro
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08:15 ET
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ADP Employment Report (May):  This “on again, off again” predictor for Non-Farm Payrolls was actually very close last month when it came in at 156K.  Consensus view for today is that we see a pop to something like 176K.  Now, a word of caution here.  That seems a bit high for what I think the NFP will look like tomorrow, and the skew in the range for this item today is decidedly lower.  A surprise miss, in my opinion… is more likely than a surprise beat.  Then again… I thought that a centralized, two-sided, ongoing auction market was the way to go.
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08:30 ET
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Initial Jobless Claims (Weekly):  The four week moving average for this one is now about 278K, which is higher than it’s been in a while, but still extremely low historically.  We’ve now seen some ridiculous number of consecutive weeks of sub-300K prints in this space, which is a good thing.  My fear is that at some point, with such a significant portion of the labor force working part-time for hourly wages, that when employers cut back on overhead, it will be in paid hours, not head count.  Therefore, there is a good chance that this number will remain artificially low in relationship to the labor market in general for some time to come.  We expect a 269k print today.
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10:30 ET
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Natural Gas Inventories (Weekly):  Some guys pick fights with the toughest guy in the room.  Some guys trade Nat Gas futures.  I don’t do either one anymore.  Some wisdom does come with age.  We look for our seventh consecutive weekly inventory build in this space today, without having seen a large number in that entire span.  the pros expect something close to 80 billion cubic feet today, up from last week’s 71B cf.
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11:00 ET
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Oil Inventories (Weekly):  Last week, we saw a larger than expected draw of 4.2 million barrels.  Today, the professional expectation is for another large reduction, however the API print last night showed an unexpected increase in supply of 2.4 M barrels.  Guess, we’ll see which way the wind blows at 11am.
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Fed Speakers
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08:35 ET
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Federal Reserve Governor Jerome Powell:  It was just a few days ago that Powell indicated that an increase in the Fed Funds Rate was likely in our near-term future.  That said, the subject matter of this speech is expected to be regulation.  I think it unlikely that he ventures into monetary policy, but if he does, it will impact the marketplace.  Powell is a voting member of the FOMC.
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11:30 ET
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NY Fed Pres. William Dudley is obviously a voting member of the FOMC, as NY has a permanent vote.  Dudley has been calling for a rate hike this Summer for weeks now.  I see no reason why that would change now, especially with the DXY hanging back comfortably in the low 95’s.
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13:00 ET
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Dallas Fed Pres. Robert Kaplan will speak from Boston College, and field a Q&A session.  Kaplan does not vote until next year, but Q&A can get dicey.  While Kaplan has recently spoken in hawkish fashion, he has also shown some fear of moving in front of the UK Brexit referendum.
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Thursday’s Earnings Highlights
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Before the Open: HOV (.03), NAV (-.14)
After the Close: COO (1.92)

Lunchtime Recon

Fellow Hominids,

                       You may or may not have had it, but clearly there is a line in the sand at last night closing price for the S&P 500.  The index has hit it’s head against that wall (2096) three times today, after hitting it early yesterday afternoon prior to the whack-a mole imitation that we saw at last night’s close.  Of interest this afternoon, both before, and after the release of the dum, dum, dum…..Beige Book, will be whether or not this price point can be meaningfully tackled, and if it can then act as support.  So, where are the bodies at this point ??
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1) Staples, and Health Care lead, while the Transports take on water.  Nothing is really too far from home  at this point.  Finance, and Tech are still MIA so far this week.
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2) Crude dipped below $48 before finding support, and has rebounded sharply from there.  Gold is down a bit.  I am very close to cutting my allocation for the yellow metal, just dragging my feet on pulling that trigger.  Still a long-term bull in that space, there is value in a short-term trade.
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3) Treasuries are floundering toward the middle of the curve.  However, they are selling the short end, and buying the extreme long end.  For those who don’t see the forest for the trees, that’s in preparation for a rate hike.  This is despite the conflicting macro that we saw this morning… better than expected manufacturing data for May, and an utter collapse in Construction Spending for April.
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4)  Speaking of Construction Spending, that print knocked the Atlanta Fed’s GDPNow forecast for Q2 down to 2.5% from 2.9%.
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5) Mets game is a day game today, kids.  Health food for lunch again today.  Still a little fat.

Market Recon Wednesday

Good Morning,
                        Rise and shine my people  (You filthy animals, I love every one of ya).  For today is the day that, amid a week crammed full of macro, we see final May manufacturing data on a global scale.  Oh joy.  PMI-pallooza.  Let the drum roll.  The fun started last night, when despite when despite pouring ludicrous amounts of liquidity into the system, the Chinese CLFP (the gov’t) put an expansionary 50.1 to the tape.  The Caixin figure came in at less robust 49.2, which missed expectations.  New orders, and most especially New Export Orders displayed weakness, possibly signaling some white water ahead.  Strong enough to delay PBOC action ??  Weak enough to warrant such action ??  You be the judge.  The rest of the planetary PMI’s ??  Yeah, lets’ go there.
                      Spain ?? Miss !!  Italy ?? Miss !!  Germany ?? Miss !!  France ??  Beat, but still printed deep into contractionary territory.  The EMU did just meet consensus, but this is a really lackluster performance, and global equities, at least for this morning are limping along as no new stimulus is expected to come out of the ECB pow-wow tomorrow.  Don’t forget that back in March, Mario and friends agreed to pour a bucket full of kerosene into the bonfire starting in June….. and hey, it’s June.  That package of kerosene included the purchase of corporate debt, and the new TLTRO’s.  Not that tomorrow will be dull as far as the ECB is concerned.  There is a press conference, and “helicopter money” is likely to come up.  How it comes up will impact the Euro’s exchange rate.  Oh, and OPEC meets tomorrow too, LOL.
                        Speaking of black gold, oil that is…  WTI Crude is a bit soft today ahead of that meeting, and ahead of US inventory numbers.  In case you missed it, the UAE’s Energy honcho put the whammy on crude yesterday with some cherry commentary, but so far at least, WTI has not broken $48 support.
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Macro
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All Day
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Total Vehicle Sales (May):  This requires going back three weeks, but do you recall headline April Retail Sales surging 1.3% m/m ??  Well, Vehicle Sales were a huge slice of that growth, themselves increasing 4.8% from what had been a very soft March number.  That pop, however… only put Vehicle Sales back on the pace they had been on for the three months prior.  The expectation for today is for a pullback to an annualized pace of 17.2 million units from last month’s 17.4 million.
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08:55 ET
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Redbook (Weekly):  Last week was the first week of the year that year over year sales in this space slowed to less than a 0.5% pace (0.4%).  In fact that was the poorest print in that space in quite a number of years.  I’m thinking that we see a little bit of a bounce here.  Wouldn’t bet the farm on anything though.
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09:45 ET
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Markit Manufacturing PMI (May):  What will not impact the marketplace today ??  This data-point, that’s what.
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10:00 ET
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ISM Manufacturing Index (May):  Consensus view for this highly focused upon release is that despite every regional Fed district printing their manufacturing data in a state of contraction….. that we see a third consecutive month of expansion.  Don’t ask me…. I just work here.  The average projection is for something like 50.4, with the lowest economist out there that I’ve seen at 49.9.  So almost nobody is batting below the Mendoza line.  We’ll see.
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Construction Spending (April):  This is an April number, so it may feel a little dated.  That said, this is still a fairly focused upon item.  We expect to see growth of 0.6% m/m.  If the number plays out as expected, this would be the 12th month in thirteen that we saw actual growth in this space.  See, it’s not always all bad.
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14:00 ET
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Beige Book: Think anecdotal local economic evidence compiled by the twelve regional Federal Reserve bank districts is important to the marketplace ??  With an almost imminent decision on the Fed Funds Rate looming.  Ahhhhh, maybe.  Just listen to the silence at 2pm this afternoon.
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Wednesday’s Earnings Highlights
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Before the Open: CBRL (1.80), LE (-.03), VRX (1.39)
After the Close: DeGrom (3-1, 2.81) vs. Gonzalez (0-1, 4.50)