Market Recon Tuesday

Good Morning,
                    With the Mets losing decisively last night to the Chicago Cubs, the most entertaining thing on television last night became the Republican National Convention.  You won’t find political commentary here, other than to say that entertaining was probably the right word.  Besides, it becomes difficult to have political preferences when you hate everyone equally.  Earth calling Ross Perot.  Come in Ross Perot.
                    The IMF is due to release their updated World Economic Outlook today, but bits, and pieces of it are already banging around the internet.  One thing you can be fairly sure of, is when this comes out…that you won’t learn anything.  Likely, you’ll see lowered GDP productions for the UK, for anyone that trades with the UK, and for anyone that doesn’t trade with the UK.  Other than that, you might be OK…. unless you have financial institutions in your country, or you trade with someone who trades with the UK.
                   Speaking of financial institutions…. let’s take a look under the hood, particularly at the banks, and the financial services companies.  Last week, the S&P 500 gained almost 1.5% for the five days, while the Financial sector index, buoyed by a sell-off in US treasuries, and some decent Q2 earnings picked up more than 2.5%.  A while back, I put the entire financial sector in the lock-box where I put Bio-techs a long time ago.  It’s called Pandora’s box, and I never open it.  Now, I’m thinking… just thinking about letting some of the banks out of that box.
                   The key will be interest rates.  Though this recovery has really never hit it’s stride, it would be dishonest to argue that it’s not better than it was.  We seen life in Retail Sales.  Inflation…. at least according to the Core CPI is where it was targeted.  Manufacturing is seemingly less ugly.  Wages have not gone very far at all, and that’s a problem.  The US Dollar is still strong, and that’s a problem.  So, there is some reason to think that it is time for the FOMC to seriously consider the next increment in normalization.  There is also valid argument against.  Will the bond market cooperate with a hike?  That remains to be seen.
                   The US ten year has now seen support at 1.6% more than once.  To make banks truly interesting, despite their very attractive trailing, and forward looking valuations, I think that we’re going to need to see that yield approach 2%.  If you feel compelled to get ahead of this, which I do not yet (but it is on my radar)… forget about who beat EPS, and revenue expectations.  JPM, WFC, and USB all posted positive year over year revenue results, and they all have dividend yields of 2.4% or greater (making them, in a way more interesting than locking your money up for ten years).  Now, let’s look at Beta.  WFC, and USB both have numbers of less than one, but JPM… they’re up around 1.6.  If you think the equity market is on it’s way to Nirvana, then the way to go seems obvious.  If you’re not too sure, and who is ??…. then there is the safer path.
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Macro
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08:30 ET
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Housing Starts & Permits (June): Expected: Starts 1.17M, Permits 1.15M (SAAR), Prior: Starts 1.164M, Permits 1.138M (SAAR).  Just yesterday, we saw the Housing Market Index mildly disappoint at 59, but that was a July item.  This is June data, and we expect to see mild increases for both Starts & Permits.  Housing Starts have been a remarkably consistent data-point for quite some time now.  The seasonally adjusted, annualized rate has been maintained at 1M+ for 14 consecutive months without going above 1.2M.  Keep in mind that this is twice the pace seen during the dark days of 2009 & 2010.  A consensus beat here could add credence to the idea that this economy is picking up some momentum, as seen in last week’s data.
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08:55 ET
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Redbook (Weekly):  Prior: 0.8% y/y. Last week, this item showed us a healthy year over year increase of 0.8%, it’s strongest in three weeks.  In fact, we’ve now seen seven consecutive weeks of the y/y growth of 0.5% or better that’s needed to keep this one below the radar.  In case you’re keeping score, yesterday… the Consumer Discretionary sector market performed at +0.3%, while the multi-line retailer sub-sector gained 1.3% as a group.
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Earnings
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Before the open: CMA (.69), GS (3.05), JNJ (1.68), KSU (1.03), LMT (2.93), PM (1.19), UNH (1.89)
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After the Close: DFS (1.40), MSFT (.58), UAL (2.56)

Market Recon Monday

Good Morning,
                    The speed of the news cycle in this modern era truly is shocking.  It almost as if half of one day is just way too much time to spend on any one topic.  Unless, of course, we are ahead of the story, such as Brexit.  Then we can talk about all of the uncertainty that such an event will cause for six months…. the  event can happen on a Thursday, and we can be over it by Tuesday.  When the event is unforeseeable, the cycle is even quicker.  Terrorist attack in Nice on Thursday, replaced on your screen by an attempted coup in Turkey by Friday, which is then replaced by the ambush of police officers in Baton Rouge.  Not only have those gadgets in our hands eroded our individual ability to focus, it’s possible that the 24 hour awareness that globalization has brought with it, is having a similar impact on society in aggregate.
                    We may not have the number of high impact type domestic macro releases scheduled for this week that we saw last week.  We may not have the plethora (thank goodness) of Fed speakers on our daily lists of what may move the markets this week.  We do have enough fish to fry though.  From a central banking perspective, the ECB will hold their policy meeting this Thursday.  This will be their first since that Brexit vote.  we still have to wait for next week for the Fed, and whatever the BOJ is about to force-feed planet Earth.  Then there’s the Republican National Convention in Cleveland.  That should grasp the nation’s attention for at least a few days.
                    Earnings Season got off to fairly decent start last week.  This week, we’ll get a much larger dose of S&P 500 companies reporting their Q2 numbers.  We all know that adjusted earnings are expected to take another 5% hit after taking one just like that in the first quarter.  We did though, suddenly see some improved macro in the June data, namely Retail Sales… not to mention the sudden increase in Industrial Production.  One thing is certain.  We’ll know a lot more by the end of this week, than we knew at the end of last week.
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Macro
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10:00 ET
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NAHB Housing Market Index (July):   Expected: 60, Prior: 60.  Just in case, you watch this one print every month, and you really didn’t know what it is, I’ll clue you in.  This is not truly a Housing Market Index.  It’s more like a New Home builder/buyer sentiment index.  About 900 homebuilder from across the country are polled.  They are asked about current sales, expectations for future sales, and about the level of traffic that they are seeing in prospective home shoppers.  Over the last year or so, this diffusion index had hit the tape in the 60’s for eight consecutive months until March, when this item disappointed with a 58 tag.  There is stayed, at 58 for four straight months until June, when we saw a “pop”, and the index returned to 60. If there is a skew in the range today, it is slightly to the upside.
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16:00 ET
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TIC (May):  Expected: $35.0B, Prior: $-79.6B. The April data showed that cross border investment suffered a “severe” monthly outflow of nearly $-80B.  For that month, most of that negative print was related to corporate bonds, while Treasury flows remained slightly positive.  We know that the last several Treasury auctions, with the exception of last week’s 10 Year Note Auction (which was still 54% purchased by foreign accounts), have been heavily sought after by indirect buyers.  For that reason, I think it’s reasonable to expect a positive number in this space today.
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Monday’s Earnings Highlights
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Before the Open: BAC (.33), HAS (.39)
After the Close: EMC (.41), IBM (2.88), NFLX (.02), YHOO (.10)

Late Morning Recon

Greetings,

                       The domestic US macro-economic data released this morning has painted the economy in a better light than many were expecting to see.  With June Retail Sales reported in much hotter fashion with, or without auto sales, with a Core CPI that printed above the Fed’s stated target for an eighth consecutive month….With Industrial Production/Capacity Utilization data climbing off of their lows, the implications are clear.  We still need to see improvement in wage growth, and in the overall labor market condition, but the economy could most likely handle a quarter point increase in the Fed Funds Rate.  That is why you see, at this time… Treasury yields moving higher (not to mention the German 10yr, which went positive today), slightly weaker gold, and a US dollar that is stronger against the Euro, the Pound, and the Yen.  You will hear from San Francisco Fed Pres. John Williams at 13:00 ET, and he will likely cement this.  He may not have a vote this year, but he is a favorite of Janet Yellen’s, and is considered influential.

Market Recon Friday

Good Morning,
                     Now, we must pray for the people impacted by yet another mindless mass killing.  Pray, but do not fear.  There is no advice that one can heed that will make them “safe” in a random murder whose only target is in numbers, and not in specific individuals.  Do not make that your concern.  That is exactly what bad people want.  What the average man, or woman can do…. is prepare for every day as if it were your last.  Living in that way, will force you to the right things.  Enjoy your family time more, knowing that your time to set an example for your children is precious.  Care about each other in real time, with your presence.  It really is that easy….. but do not fear.  Do not ever fear.
                     S&P futures are down small this morning.  One would think that at some point, this dramatic, multi-day, yet low volume move higher for equity markets would abate somewhat.  We know that many institutions got themselves short ahead of Brexit, and with only a two day window to cover those shorts in decent fashion, are probably chasing these markets this week.  At first glance, last night’s terrorist attack would have seemed to be an easy excuse to take money off of the table, if that’s what traders were looking for.  Then, only a short while later, we learned that the Chinese economy performed better than expected in the second quarter.  While Chinese GDP, and Industrial Production continue to drift lower, they both beat consensus.  On top of that, Retail Sales printed at a five month high.  Certainly nothing to write home about, but the numbers did rescue Asian markets last night.
                    Yesterday, we mentioned the increase in consumer level services at JPM as a possible positive for C, and WFC today.  So far this week, we’ve seen numbers, and/or guidance from AA, CSX, YUM, and DAL as well as JPM.  Obviously this is just a trickle, but what is supposed to be another lousy earnings season is off to a decent start.
                    OK, gang…. the bottom line is that today is going to de a data-driven day.  You’re about to get hit with numbers covering inflation, consumer behavior & sentiment, the manufacturing sector, and crude production.  On top of all of that, which is enough… the plethora of Fed speakers that have inundated us with their words this week is far from over.
                      You have a great day.  Each and every one of you.
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Macro
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08:30 ET
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CPI (June): Expected 0.3% m/m, Prior 0.2% m/m  Core: Expected 0.2% m/m, Prior 0.2% m/m.  The Fed may look at the PCE price index, but most global eco-types follow the CPI when it comes to consumer level inflation.  After yesterday’s PPI numbers came in much hotter than expected both at the headline, and at the Core. this one will be watched by the marketplace.  The Federal Reserve’s stated target for inflation has long been 2.0% on a year over year basis.  For that reason, the most impact will come from the y/y number for Core CPI.  Projections are for that print to come in at 2.3%, which would be the eighth consecutive month spent at or above the stated target.  Now, you know why the Fed doesn’t watch this one.
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Retail Sales (June): Expected 0.1% m/m, Prior 0.5% m/mCore: Expected 0.4% m/m, Prior 0.4% m/m.  The one thing we already know about June Retail Sales is that auto sales hit the tape well below May, and well below consensus.  So, traders should expect to see a lousy monthly headline print.  However, most economists think that once you exclude those auto sales, the rest of the retail universe stayed on track.  If wee see the 0.4% increase that most folks are looking for, then the top four monthly gains in the last eleven months will be the last four months.  Equity markets can react  decisively when it comes to this item.
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Empire State Manufacturing Index (July): Expected 5.0, Prior 6.0.  With the state of US Manufacturing trying, with some limited success to fight it’s way out of depression, the New York State region has become a leader.  we look for more growth today, which if so, would be the fourth positive number in this space in a span of five months.  That would be a real accomplishment for any regional Fed district over the last two years.  Normally, the markets do notice this print almost as much as they do it’s sibling out of Philadelphia.  However, with two other very high profile macro releases scheduled for the same time slot, this one may pass with much reaction.
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09:15 ET
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Industrial Production (June): Expected 0.3% m/m, Prior -0.4% m/m.  Here’s another item, higher in profile, and on a national level that stands to benefit from a slightly improving manufacturing picture.  Industrial Production in the United States has contracted on m/m basis in eleven of the last fifteen months.  This month we expect to see (hope to see) growth.  In May, this item saw drops in vehicle production (witnessed by June auto sales), and Utility production.  That last one had been on again, off again in this space, and that’s where we need to see a rebound.  I would think that you’ll something positive from the miners in this report.
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Capacity Utilization (June):  Expected 75.1%, Prior 74.9%.  Cap Utilization get it’s own mention, basically because it’s easy to understand, and it best illustrates, in a general way for the lay person what the manufacturing sector goes through.  In May, that 74.9% print equaled a six year low, that was set as recently as April.  So times are tough, but as we pointed out in a few of these data-points, a corner may have been turned.  This one alone, will not move the market
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10:00 ET
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U of M Consumer Sentiment (July-p): Expected 93.6, Prior 93.5.  This twice a month survey is off of it’s multi-year highs, but not by too much.  It does seem to be becoming more volatile.  Guess it depends on who they ask.  On a less eventful day, this is one that can, and will move the markets.  More reliable than the Conference Board’s Consumer Confidence as a barometer for consumer optimism.
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Business Inventories (May): Expected 0.1% m/m, Prior 0.1% m/m.  May Wholesale Inventories, a component of this item came in a touch light.  That said, this data-point is relatively dated, ad far less sexy than some of the other numbers that we will have already seen today.  This one is not even on investor radar.
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13:00 ET
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Baker Hughes Rig Count (Weekly): Prior 440/351.  Last week, the number of rigs devoted to Oil production increased by ten rigs from 341.  The week before that, the number increased by eleven.  Crude prices have stagnated a bit over the last couple of weeks.  To see if this count stops growing will be interesting.  If not, WTI could face some selling pressure at this time.
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Fed Speaker: San Francisco Fed Pres. John Williams will speak on monetary policy from Cambridge, Massachusetts.  Williams has been quite vocally in the hawkish camp of late.  He is not a voting member of the FOMC this year.
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13:15 ET
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Fed Speakers: Minneapolis Fed Pres. Neel Kashkari, and St. Louis Fed Pres. James Bullard participate together from St. Louis in a discussion on monetary policy.  Bullard is a voting member, and this is the third time in two days that he’s forcing himself upon the public.  It’s also the second time this week that we’ll hear from Kashkari, who does not vote this year.  I think traders are past being ready to tune these guys out.
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Earnings
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Before the Open: C (1.11), INFY (.23), PNC (1.76), USB (.80), WFC (1.01)
After the Close: Something probably not that good for you, but my wife does have a say.

Market Recon Thursday

Good Morning,
                     Risk on this morning !!  Again ? Really ?  Well, sort of.  Gold is taking a pounding this morning, but that’s a safety vehicle, right ?  can be a risky safety vehicle if you ask me, but you may get an entry point in here somewhere if you think the central banks will go too far.
                     By 7am, we’ll hear from the Bank of England, and the Street is not betting on “if” there will be an announced easing of monetary policy, but just how much easing there will be.  Last week, in the wake of the Brexit referendum, the BOE did a little “under the hood” financial engineering that should, in theory have freed up about 150 GBP in liquidity for the banks.  Not enough.  With most economists cutting their 2017 & 2018 UK GDP expectations, and some calling for a textbook recession, Mark Carney felt compelled to telegraph his intent ahead of this meeting.  A failure to act would shock the markets today.
                    Global markets are also being supported by the speculated fusion of fiscal and monetary policy that we spoke of earlier this week, that Japan may go for later this month.  “Never Never” bonds.  No maturity, no service costs, No nothing.  Gotta love it….. if you’ll like paying eight bucks for a loaf of bread.
                    After the BOE news hits the tape, JPM earnings will then hit the tape, and so goes the Financial sector.  Trading revs, Core businesses, European exposure, and finally guidance.  Interesting what happened to YUM after last night’s close.  Beat by a penny. missed on revs that were down more than 3% y/y.  Stock rocks 4%.  The firm raised full year guidance thanks to a lower effective tax rate, and improved performance in China.  By the way, that Chinese business is the part of the firm that they are planning to spin off….and it’s getting a lot of positive attention in the media.
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Macro
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08:30 ET
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PPI (June):  Expected: 0.3% m/m, Prior: 0.4% m/m; Core… Expected 0.1% m/m, Prior 0.3% m/m.  The national focus is on consumer level inflation, which you’ll see tomorrow, and even then, the Fed focus is on the PCE, not the CPI, solely so they can give themselves some flexibility without violating their stated targets.  All that said, producer level inflation came in hot for May, even ex-food & energy.  It does look like the Core print probably slowed a bit this month.  The markets will not react significantly to this item.
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Initial Jobless Claims (Weekly):  Expected: 264K, Prior 254K.  This item doesn’t even threaten to hit 300K anymore.  Not ever.  With all of this consistency, this data-point does not have the equity index futures jarring punch that it once did.  There would have to be something way outside of the range for traders to take notice, and today’s range in entirely contained within the 260K’s.  Why, you might ask…why have layoffs dwindled while Labor Market Conditions by the Fed’s own measure have deteriorated month after month for six months now?  It’s quite simple.  Obamacare.  When hiring managers need to cut overhead, it’s far simpler to do with a corps of laborers who work part-time, than it is with benefit heavy full-time workers.  I’ve interviewed retail level managers on this, and they’ll take people down to less than five hours a week when business is slow.  Btw, 42% of the labor force makes less than $15 an hour.  That’s a lot of wiggle room.
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10:30 ET
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Natural Gas Inventories (Weekly):  Expected 34B cf, Prior: 39B cf.  Nat Gas looks to be all set for it’s 13th consecutively weekly inventory build.  Not for everyone.  If you trade Nat Gas futures, you know exactly what I mean.
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Fed Speakers
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10:00 – St. Louis Fed Pres. James Bullard speaks on Monetary Policy, and the role of the US in the global economy from St. Louis.  Bullard is a voting member of the FOMC, and widely considered to be the clown prince of central banking.  Already this week, after changing his opinion on policy direction multiple times over, Bullard actually stuck to his plan for one rate into the year 2018.  Good that he can now see that far into the future.  Really. That’s good.
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11:15 – Atlanta Fed Pres. Dennis Lockhart will speak on the economy from Victor, Idaho.  Lockhart is not a voting member of the committee this year, and really has not been heard from all that much since early May when the fed was still debating a June rate hike.  His opinion today will be of interest.
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13:15 – Kansas City Fed Pres. Esther George will participate in a Q&A session from Oklahoma City, Oklahoma.  George is a voting member of the FOMC, and is considered to be the most hawkish member at that.  Earlier this week, George stated that she felt that current US interest rates are too low.  From a trader’s perspective, we know where she stands.
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18:40 – St. Louis Fed Pres. James Bullard… Yes, again.  From St. Louis.  Again.
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19:00 – Dallas Fed Pres. Robert Kaplan, who is not a voting member this year, and spoke publicly just yesterday…will participate in a Q&A session on monetary policy from St. Louis.  In yesterday’s speech, Kaplan tried to avoid saying anything very substantive.  He started out favoring gradual rate hikes, and ended up saying that the Fed was “very sensitive” to strength in the US Dollar.  You be the judge.
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Earnings
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AM: BLK (4.80), DAL (1.51), JPM (1.44), PGR (.34)

Market Recon Wednesday

Good Morning,
                     I know it’s early, but equity index futures are hanging in there, despite cheaper oil, and very slight rebounds in the US sovereign debt, and Gold spaces.  To digest recent moves in place, or even at a moderate discount to current price levels would be impressive.  Still, the closing bell is a long, long way off.
                     Possibly most impressive over the last few days, have been the Financial names.  They’ll start reporting tomorrow morning when JPM releases, and the numbers shouldn’t really be too pretty.  On top of dreadfully low interest rates that have persisted all year despite the best efforts of the Fed to get another hike on the tape, they all had to contend with the Brexit fallout at quarter’s end.  That was way back when many folks still believed that the Brexit was going to be the end of the world, and I’m sure those exchange rate swings took a toll on some of these firms…. not to mention the not completely unwound moves into safe haven vehicles.  Still, three things matter here.  Number one, will be trading revenue.  How did they fare in the Brexit aftermath?  Even if it’s simply part of Q3 guidance.  Number two, and three are related.  How strong is the core domestic business?…. and how exposed are they to European counterparties?  Talks regarding that last item have certainly helped the group this week.
                     In other news, Theresa May likely takes her post as UK Prime Minister today.  The word on the street though is that the invocation of the EU’s Article 50 may not take place until January.  Good thing the outgoing PM moved up his farewell.  Oh, and Neel Kashkari unexpectedly did go into monetary policy at his town hall meeting last night, stressing patience as far as the next move goes.  Kashkari is not a voting member this year, but is considered a sentient voice at the Fed.
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Macro
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08:30 ET
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Import & Export Prices (June):  These two items that must be looked at together both came in very hot in May, thanks to Crude prices.  Other than that, the cross border demand picture really has not changed all that much, and so, this really is not the global barometer for international inflation that it is hoped to be.  That said, expectations for June are that Import prices increased 0.5% m/m on top of May’s 1.4% gain, and that Export prices grew 0.4% m/m on top of the 1.1% print for May.  Just for comparison’s sake the year over year picture is between -4.5%, and -5% for both.  This probably will not impact the marketplace all that much, unless there is underlying inflation from some corner not yet seen.
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09:00 ET
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Fed Speaker: Dallas Fed Pres. Robert Kaplan, who does not vote this year, speaks from Houston, Texas.  He has seemed, at least to me to be willing to show some patience regarding the next interest rate hike.  Kaplan will expose himself to a Q&A session today.  This is a low profile market event as far as Fed speakers go.
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10:30 ET
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Oil Inventories (Weekly):  This is the EIA’s (Energy Information Administration) weekly inventory number.  This item has printed in contraction for seven consecutive weeks now.  The problem is that on Tuesday nights (last night), the API (American Petroleum Institute) also prints a weekly inventory number.  Sometimes, like last week, these two are not close in their estimates.  Last week, the API number showed a draw of -6.7M barrels, and the EIA hit the tape at -2.2M.  You don’t need to be a genius to figure out how Crude prices reacted to that data.  Last night, API shocked the world, reporting an inventory build of 2.2M barrels.  Expectations for the EIA number today are around -3M.  There must be a better way.
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14:00 ET
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Beige Book:  Anecdotal evidence of economic conditions from around the twelve Fed districts couldn’t possibly impact the marketplace more so than say…. two Fed speakers… could it?  Yes, it can.  2pm will be the second most dangerous point of the day for you, after the Oil print.
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18:00 ET
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Fed Speaker: Philadelphia Fed Pres. Patrick Harker, also a non-voter will speak on the economy from the City of Brotherly Love.  Harker will answer questions from both the audience, and the media, but this too may fly beneath the radar.
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Earnings
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PM: CSX (.44), YUM (.74)

Market Recon Monday

Good Morning,
                        The UK appears to have a new Prime Minister.  The Brexit will take time, and surely there will be some bumps & bruises along the way.  Clearly though, the UK is not going out of business.  They still have a market for everything that they already had a market for.  The fear mongering was overplayed.  Italy ??  That banking crisis hasn’t really hit it’s stride yet.  Risk on ??  Yeah, it’s not just the passing of a crisis, it’s more like the passing of the punch bowl.
                        The Bank of England is expected to ease monetary policy at their next meeting this Thursday, and Japan…. well, that one’s special.  Remember just yesterday how we talked about a huge fiscal stimulus plan to be funded by the Japanese Treasury through a coordinated selling of it’s bonds to the BOJ.  Sort of a fusion of fiscal & monetary stimulus.  There is much talk in Japan right now about a meeting between former Fed honcho Ben Bernanke, and Prime Minister Shinzo Abe.  The topic ??  Likely direct funding of the Treasury by the BOJ.  On top of yesterday’s 4% run, the Nikkei 225 ran another 2.5% today.  Huzzah !!
                       For those who do not see this one coming, the model has been in my marble notebooks for quite some time.  Ultimately, the BOJ forgives the Treasury it’s debt after the fiscal money is spent.  That money is then erased from Treasury’s liabilities, and the central bank’s balance sheet, but exists in the real economy.  Poof !!  That slice of debt is at this point monetized.  Money supply spikes, and you end up with the consumer based inflation that you’ve been asking for.  Just be careful what you ask for.  I’m sure that globally, all of these debt laden governments with independent central banks would like to hold hands, and jump together, so as to minimize exchange rate impact, and thus disguise such a blatant move from the public.  Only problem with that is that the Fed is much further away from having to do this than are the others.  That said… still probably drawn up somewhere on one of their marble notebooks…. just in case.
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Macro
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06:00 ET
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Small Biz Optimism Index (June):  Model of consistency, this item presents an eighth consecutive release between 92.6 and 95.2.  Today’s print beat consensus at 94.5, which was the above the top end of the range.  Yes, small business conditions do seem to be improving, but to keep things in perspective, the 40 year average for this data-point is 98.0.
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08:45 ET
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Fed Speaker:  A St. Louis Fed Pres James Bullard speech is perhaps the most dangerous event that markets could face on any given day.  That is unless of course, he has pushed the markets around with his sharp changes in policy direction just one time too many, leading traders to take his words far less seriously than they once had.  Bullard will speak on the economics of business from St. Louis.  He is a voting member of the FOMC this year.
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08:55 ET
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Redbook (Weekly):  This item is specific to the retailers.  Having printed at y/y growth of 0.6% last week, this one remains unnoticed as long as that level of growth remains at 0.5% or better.
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09:15 ET
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Fed Speaker:  Federal Reserve Gov. Daniel Tarullo will speak on shadow banking from Washington, DC.  Tarullo does vote, but his area of concentration is in regulation, and I would be surprised if he says something that would juice the marketplace.
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10:00 ET
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JOLTS (May):  There is no direct correlation between the 5.8 million or so job openings that the BLS will report today, a  number that keeps growing, and Labor Market Conditions.  As we saw just yesterday, that Index has now contracted for six consecutive months.  This is a non-event for traders.
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Wholesale Inventories (May):  We look for growth of 0.2% m/m for this item today, which would be a third straight monthly increase.  Markets may react in somewhat muted fashion, given that this information is slightly dated, and that this report is a component of the Business Inventories print that you’ll see on Friday, which will be a huge day for macro.
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13:00 ET
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10 Year Note Auction:  This auction will get some attention.  The US Treasury will sell $20B worth of debt here today.  The last similar auction took place on 8 June.  That day, Treasury sold $20B at a yield of 1.70%, with a bid to cover of 2.7.  The interesting thing to watch for today will be foreign participation.  Last month, indirect buyers took down 74% of the issue.  Will they be as aggressive at 1.47% or so?  I think so, given the state of negative yields persisting in many of these nations.
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17:30 ET
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Fed Speaker:  Minneapolis Fed Pres. Neel Kashkari will be in Marquette, Michigan to participate in town hall style event.  “Too Big to Fail”  has been his calling.  He is not a voting member this year, and may not touch monetary policy, but his take on the recent stress tests could be of interest.  Dodd-Frank is sure to come up.
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22:30 ET
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Fed Speaker:  Cleveland Fed Pres. Loretta Mester speaks for the second consecutive night from down under.  Mester is a voting member of the FOMC, but she steered very clear of monetary policy last night.  Expect no surprises tonight, although, she will expose herself to a Q&A session.
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Earnings
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AM: FAST (.48)

Market Recon Monday

Good Morning,
                        There sure is a lot of wood to chop this week, gang.  On top of the “at least” thirteen Fed speakers on our radar, we’ll see the latest edition of the Fed’s  Beige Book this Wednesday.  But wait….that’s not all.  Earnings Season will get under way tonight when AA releases, and then pick up some speed once some of the major financials start reporting later in the week.  Then, after all of that, on Friday, those of you who love macro will have more than your fill on Friday when you’ll be hit with high profile data-points covering inflation, production, manufacturing sector, and consumer behavior.  Almost as much fun as baseball.
                       I had intended to write today about Chinese inflation, but you know what?  The macro that we’ll see out of China this Thursday is far more important, and what happened in Japan over the weekend is far more interesting.  By now, I’m sure that you’ve noticed that 4% move to the upside for the Japanese equity markets, and no, it’s not all because of this new game from Nintendo that has people walking into walls, and crossing streets without looking.
                      Prime Minister Shinzo Abe’s coalition apparently did much better in the Japanese Parliamentary elections than expected.  This has the market expecting a major fiscal stimulus package to be in the works, possibly as much as 200 trillion yen’s worth.  This finally (finally !!) took the exchange rate value of the Yen lower versus the US Dollar.  After all, how do you think he’ll pay for this?  Sell bonds to the BOJ, how else ??  Increasing the monetary base is not really an issue here.
                      Oh, did I mention  that the Bank of England is holding a policy meeting this Thursday?  Prepare the kerosene.
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Economics
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10:00 ET
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Fed Speaker:  Kansas City Fed Pres. Esther George will speak on the US Economy from Lake Ozark, Missouri.  This may get interesting.  George, a voting member of the FOMC, is widely considered to be the most hawkish committee participant.  True, she voted with the group after May’s horrible jobs number, but now that Payrolls have rebounded….. the public waits to see if so have her feelings on interest rate direction.
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Labor Market Conditions Index (June):  For those who do not follow this one to closely, this is a diffusion index of 19 labor market related subcomponents of varying weight.  It’s supposed to convey the Federal Reserve’s view of the state of labor in the US.  Zero would represent an unchanged condition in the Fed’s eye.  This item is of special interest today because after what had been a nice run, this data-point has printed in contraction for five consecutive months.  This is not an official report, but we do know that Janet Yellen follows it.  May printed at -4.8.  Everything in this index has already been released.  Just how much luster did sluggish wage growth, and an increase in headline Unemployment take off of that huge NFP number.  We’ll find out this morning.
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21:30 ET
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Fed Speaker: Cleveland Fed Pres. Loretta Mester is slated to speak on financial stability from Sydney, Australia.  She will expose herself to a Q&A session.  Even after Brexit, and before Friday’s NFP release, Mester sounded mildly hawkish, at least to me.  She was the only one that I noticed talking about rate hikes last week.  She is a voting member of the FOMC, and she speaks from Australia again tomorrow night.
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Earnings
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PM: AA (.10)

Lunchtime Recon

Good Afternoon,

                       All…. righty then.  The Jobs number has come and gone, and quite frankly we’ve been hit with a few surprises.  The headline Non-Farm Payrolls print, as you well know by now… absolutely blew away expectations.  After what proved to be a pitiful May, the trend is back on’t sub par pace that has the nations averaging around 147K a month.  Participation increased, which unfortunately put downward pressure on wages, and forced a sizable increase in the Underemployment Rate once the seasonal adjustment is removed.
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Let’s survey the environment.
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1) Equities have been relentless this morning, ignoring several technical sell signals at key levels.  The Leaders ??  How about the Banks, or anything to do with Consumer Finance.  Higher yields in our future?  Treasuries aren’t acting that way, with the exception of the 30 year, which has been volatile all morning.
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2) Other strong spots include the Discretionary names, Industrials, Transports, and Tech.  Obviously this is a tough day for the Utility sector.
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3) The US Dollar has stayed mysteriously flat today in the face of macro that would support a move to the upside.  The is street chatter that the long dollar trade was a bit crowded, and there was a bottleneck of profit taking.
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4) Gold is off of it’s recent highs, but you really must say that the yellow stuff is hanging in there remarkably well on a day where some folks must have some nice profits on the table.
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5) Next week…. Earnings Season begins, I am tracking at least 13 Fed speeches at this time…. oh, and the CPI is due on Friday.  That should be interesting.
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6) This is my last Recon note that will be sent from this firm, or this e-mail account.  I start with a new firm on Monday, and intend to continue publishing.  If you read these notes as an e-mail subscriber, you can look for a new address, or go directly to sarge986.com

Market Recon Friday

Good Morning,
                       The incident in Dallas leads the news this morning.  This comes on the heels of incidents in Louisiana, and Minnesota, while Chicago, for 2016 maintains the most violent pace in that city’s already violent history.  There’s much more if you look around.  I was going to opine this morning on the looming Jobs number, and how that would impact bond yields today, as well as all of the Fed speak that we’ll be up against next week, but I think the talk of economics has to take a back seat right now.
                       My people, my American people…. this has got to stop.  Right now.  We, all of us, must immediately start working on repairing the fabric of community.  This is not about us or them.  Everyone of us has animosities toward someone.  The time to forgive is at hand.  We must.  The time to love each other is now.  Love each other.  Do it.  It is our children that will live in a more reckless, less socially responsible world, unless every stinkin’ one of us sets an example.  Be that guy.
                      We can heal.  Is it too late?  It’s never too late.  Say a prayer (I’ll always tell you to do that), drink some water, get your gear on, and let’s go.  You have a mission today.  In fact you have one every day until they put you in the dirt.  Make that first move.  Try to connect with someone ….. someone you have no reason to connect with.  Somebody clearly different from yourself.  Everybody matters; make sure they know that they matter to you.  Try to be a shining beacon of purity.  Try.  What else are you here for?  Maybe, just maybe twenty-five, or a hundred people, or almost everybody will think you’re crazy, but at least one will try it too.  One is worth it.
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Jobs Day (June) 08:30 ET
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Non-Farm Payrolls:  We all know that May came in at an absolutely awful 38K. after April hit the tape at a formerly awful 123K.  Before that, five of six months had printed at 200K+.  Today, expectations are that this data-point gets close to being back on track with something close to 176K.  The range for this one is rather wide, and actually skews slightly to the upside.  The hope for today is that we also see a serious upside revision to both April & May, especially May.  To me that number seems like it had to be some kind of mistake.  At least we know that we’ll get those 35k Verizon employees back.  This number is the headline event, as far as traders are concerned.  Other numbers within this report matter, but this is the one that can impact expectations of changes in directional monetary policy….. that, and consumer level inflation.
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Unemployment Rate:  This item will not have an impact on your day.  The newspapers love it, but the market no longer recognizes it’s value.  4.7% or 4.8% doesn’t really matter when you know that what people consider the real unemployment rate is at least twice that.
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Participation Rate:  This one stands at 62.6%, which is close enough to 40 year lows to still be considered awful.  Any pop in the rate here, though actually a positive for the economy, will cause headline unemployment to go higher.  That may be taken negatively by the press.
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Average Hourly Earnings:  This has been inconsistent throughout the recovery. It also happens to be the second most important subcomponent within the report, as far as Janet Yellen is concerned.  February, and April both brought with them nice month over month gains in this space, but largely every positive move has been followed by a stumble.  For June, consensus is for a m/m increase of 0.2%, which is exactly what we say for May.
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Average Workweek:  This one is considered an alternate way of looking at age growth, and it really has not given us much.  Economists are projecting another month of folks averaging 34.4 hours per week.
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Underemployment Rate:  This is the one that gets people going.  Considered by most to the “Real Unemployment Rate”, because it includes part time workers, and those marginally attached.  We all know several people who used to have high paying jobs that now work retail or drive school buses a few hours a week.  Where as Gallup’s Unemployment Rate is now close enough to the BLS headline rate that I don’t mention it, there is still real disparity between the two here.  In May, the BLS printed Underemployment at 9.7%.  Yesterday, for June, Gallup’s version of this item hit the tape at 13.6%, down from May’s 13.7%.
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Unrelated Macro
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13:00 ET
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Baker Hughes Rig Count (Weekly): Crude was just pounded yesterday when the EIA print badly missed API led expectations.  The number of US rigs involved in the production of oil increased last week from 330 to 341.  A similar move in the number today will likely have WTI testing $44.
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15:00 ET
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Consumer Credit (May):  Last month, the April print in this space hurt a bit.  Not only did the tally came in at $13.4B, but the part that gets economists all revved up (revolving debt) only nudged up $1.6B.  That means that folks barely used their credit cards at all.  You see, economist don’t get fired up about non-revolving debt…. auto & student related stuff.  They seem to think that the economy will pick up if you guys are willing to hurt yourselves.  That said, we look for $16.5b at the headline for May, with a nice increase in credit card usage if only because that last number was so low.