Market Recon Friday

Good Morning,
                     The Bank of Japan disappointed many last night.  They may have done the right thing by not taking their stimulus package to the levels that were rumored ahead of this meeting, but as witnessed by this morning’s strength in the Yen, there is some disappointment.  The BOJ will be increasing their ETF purchases, however they will not be increasing their purchases of Japanese sovereign debt, an arena in which the central bank already owns between a third, and 40% of the marketplace.  The BOJ also left it’s key interest rate at -0.1%.  Has the BOJ reached the limits of what it can do?  Does this provoke a fight between Abe and Kuroda?  More to come this Tuesday when the Japanese government presents a more detailed version of their economic stimulus plan than the Prime Minister did in his speech this week.  Word is that the actual fiscal stimulus may also be less significant than previously signaled.
                     Let’s take a look at Europe.  The headline macro all came in close enough to expectations.  Q2 GDP, Core CPI, and Unemployment may all be performing meekly, but overall conditions did not deteriorate from previously held levels.  There was some underlying weakness in some core countries however.  Germany, France, Italy, and Spain all caught a dose of softness in their data today.  Don’t forget… European Stress Test results for tonight after the NY close.  Pay attention to Italian banks.  The Euro is responding with strength to all of these numbers, and is now well above that 1.10 level. The Euro, and the Yen rallying together should be good for commodities.  You would think.
                     WTI Crude has broken below $41 a barrel this morning, and nearly traded as low as $40.50.  This is 20% below the top of last month’s rally that forced production back on line.  Technically, I think you may see a bounce from the $39 level if it gets there.  A break at $39 opens a door that could allow another $5 drop.  The top of this range, in my opinion is 44.50, and this range is still in play.  If you’re in the oil space, technically is how you would have to trade this, as Crude is selling off in the face of a weaker US dollar.  That tells you that something is wrong fundamentally.  On top of this, you will hear quarterly numbers from some big oil names this morning.
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Macro
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08:30 – GDP (Q2 -p): Expected 2.6% (???), Q1 1.1% q/q (SAAR).  Most economists had been looking for something close to 2.6% here, which would have been a dramatic improvement from what we’ve seen the last three quarters.  Unfortunately, just yesterday the Atlanta Fed’s GDPNow forecaster cut it’s Q2 view from 2.3% to 1.8% after adjusting lower both the contribution of net exports, and inventory investment to GDP.  The markets generally do not react to preliminary GDP numbers, but I really think that a sub 2% print after all of the positive momentum seen of late could actually hurt sentiment.
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08:30 – Employment Cost Index (Q2): Expected 0.6%, Q1 0.6% q/q.  This item, always consistently increasing over time, has become incredibly regular.  Not only do we expect that the cost of employing an individual increased 0.6% over the last quarter…that’s the very pace of growth that we have seen in this space for three quarters running.  This one won’t move the markets, but it can tell you when overhead is getting away from employers.
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09:30 – Fed Speaker:  San Francisco Fed Pres. John Williams will speak on tools at the Fed’s disposal from Cambridge, Massachusetts.  Williams, though not a voting member this year, is quite influential.  Williams, a former dove, has been outspokenly hawkish of late.  This speech could sneak up on market participants if they are unaware of it’s subject.
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09:45 – Chicago PMI (July): Expected 54.1, June 56.8.  Chicago is wildly unpredictable, and wildly volatile.  For that reason, the number isn’t really expected to be close to expectations.  Yes, you read that right.  Because of that, this item has lost some of it’s luster as a leading regional indicator.  Still, if there is to be impact, a miss would matter more than a beat, being that this one is coming off of it’s best number in a year and a half.
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10:00 – U of M Consumer Sentiment (July-rev): Expected 90.4, Flash 89.5.  For two reasons, you’ll likely see an upward revision here today.  One, that 89.5 mid-month print surprised big time to the downside.  Two, the Conference Board’s similar Consumer Confidence print remained at high levels for July as seen in Tuesday’s release.  Markets do react to Consumer surveys, and will likely react to this one should something awkward hit the tape.
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13:00 – Baker Hughes Rig Count (Weekly): Last week 464 total / 372 oil.  We have witnessed a steady weekly uptick in the number of oil rigs every week since Crude topped out in the low $50’s.  Now that WTI is more than ten dollars a barrel off of those levels, when does this return to production start to tail off?  Another increase today should put pressure on the commodity.  Then again, US dollar valuations may have more of say today as far as that goes.
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13:00 – Fed Speaker:  Dallas Fed Pres. Robert Kaplan will speak to the Independent Bankers Association of New Mexico, and he will open himself up to questions from the audience.  Kaplan, who is not currently a voting member of the committee, was hawkish as recently as two weeks ago.
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Friday’s Earnings Highlights
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Before the Open: BUD (1.25), AON (1.39), AN (1.04), CVX (.34), XOM (.64), SAVE (1.08), TYC (.53), UPS (1.43), XRX (.24).
After the Close: I think we may need a cold beverage, and a disgusting plate of nachos.