Market Recon Wednesday

Good Morning,
                     Two Fed officials spoke from Beijing this morning, and thus illustrated for us the ongoing argument regarding forward looking monetary policy. Boston Fed President Eric Rosengren, a former dove, and currently a voting member of the FOMC is now hawkish. Rosengren feels that the economy is at, or nearing full employment, that the 2% inflation target is close to being met, and that a failure to raise interest rates in a timely fashion would continue to cause distortions in asset prices, and result in a lower trough for the economy in a future recessionary period should rates not normalize ahead of such an event.  Then there’s Chicago Fed President Charles Evans. Evans does not vote this year, but is quite influential, and is known as the most dovish high ranking official at the Fed. At least he was until the latest iteration of James Bullard. Charles Evans sees a weak global economy, and less business investment resulting in less eventual output. He also sees the 2% inflation target as a tough nut to crack. I think core consumer level inflation is already above 2%, and has been for quite some time, but Evans is not wrong about everything he said. To his credit, he is open to gradual interest rate hikes, and did openly admit that his analysis could end up being wrong.
                    Looking at other central banks that must make decisions even sooner than must the Fed, European macro was well mixed this morning. German July Retail Sales came in much hotter than expected, while UK Home Prices crushed August expectations. That’s all good until you see that for the Euro-Zone in general, both Headline, and Core August CPIs missed their marks, and the July Unemployment Rate remained unchanged (10.1%), which was worse than projected. The ECB decides if they’re doing enough on September 8th, or a week from tomorrow.
                    WTI Crude is trading just above $46 a barrel this morning. Remember, the technical level (45.75) is nearby, and with the weekly oil number due this morning, could be severely tested. Between the 8:15 ADP print that will take on more significance than usual regarding the probabilities of an increase in the Fed Funds Rate as interpreted by the Fed Funds Futures market, and this Oil print that could in, theory open a door to considerably lower prices, traders will have to cover more than one front in a low volume environment. In the early going, traders will have to protect recent gains in the Financial space, while balancing remaining positions in defensive names, but by 10:30… focus will be on Energy, Transports, and still those Financials.
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Macro
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08:00 – Fed Speaker: Minneapolis Fed Pres. Neel Kashkari will speak on the role of the Federal Reserve Bank from St. Paul, Minnesota. It has been about four weeks now, since we’ve heard from Kashkari, who is not a voting member of the Committee this year. In the past, he has shied away from speaking publicly on monetary policy. At a time like this, I would think that it might be unavoidable.
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08:15 – ADP Employment Report (August): Expecting 174K, July 179K. Unlike the volatile Non-Farm Payrolls print that we’ll see at the end of the week, the ADP number, which should in theory predict Private Payrolls, has been quite consistent. This item has hit the tape between 166K and 179K for four consecutive months, and a fifth is expected. Equity index futures markets, as well as bond yields, and currency markets will react (possibly even overreact) to this number at the time of it’s release. You’ve seen strength in the Financials over the last two days. If this item surprises to the high side, we’re likely to see a third.
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09:45 – Chicago PMI (August): Expecting 54.4, July 55.8.  Though not as closely focused upon as it once was, this item tends to be one of the most volatile data-points on the domestic macro docket. Perhaps that’s a function of the volatility, that the numbers just aren’t trusted. A minor slip is expected for the pace of business growth in the Chicago area for this month. Markets would have to be utterly shocked buy this print to react to it the way they used to.
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10:00 – Pending Home Sales (July): Expecting 0.6%, June 0.2% m/m. The good news here is that lately Pending Home Sales have been doing a good job of predicting Existing Home Sales of late (with a lag of about a month), and we expect a second straight month of growth in this space today. Traders do not usually have strong reaction to this release, but they will when it produces that bigger number down the road.
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10:30 – Oil Inventories (Weekly): Expecting 1.3M, Last Week 2.5M barrels. If expectations are correct, this will be the fifth week in six that inventories grow. Of course, the build for Gasoline Stocks will matter as much as the headlining Crude number as far as the market price of WTI (not to mention the Energy, sector and the Transports) is concerned. Last week, that number was nearly flat from the prior week.  Last night, API reported an inventory build for Crude on 942K barrels, slightly below expectations, but a draw on Gasoline supplies of 1.65M barrels…which is almost a million barrels more than I’ve seen projected elsewhere..
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Wednesday’s Earnings Highlights
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Before the Open: BOBE (.44)
After the Close: CRM (.22)

Market Recon Tuesday

Good Morning,
                    Talk about mixed signals. Yesterday, equity markets were quite strong, albeit in light trading. The market was led by the Financial sector after Core PCE came in at an unchanged 1.6% y/y, which beat expectations. Not enough, nor too little inflation to change any minds on the Committee.  Treasuries rallied throughout the day as well.  Does that mean that equity traders expect an increase in the Fed Funds Rate on 21 September, while bond traders do not. Obviously that would be ridiculous, but the probabilities of an increase at that meeting were at 44% yesterday afternoon, which shows just how split opinion is on this.
                    Federal Reserve Bank Vice Chair Stanley Fischer will be making a TV/Radio appearance this morning. We all know how he rattled a few cages on Friday, when he mentioned the possibility of two rate hikes this year. I would expect some more cage rattling today. Stanley Fischer is a careful man. That said, I think that the mere mentioning of two hike was simply to make one hike seem not so bad. Maybe, he’s playing the bad cop in this scenario. No rational economist would consider two hikes in the Fed Funds rate by year’s end unless there was an unforeseen scarcity event that demanded such a move.
                   The US Dollar is stronger again today versus the Yen, the Pound, and the Euro. I am sure that we’ll see a great deal more of this as we move into the season of September policy meetings for all of these central banks. This will wreak havoc on Energy, Transportation, Mining, and Material names, not to mention the underlying commodities.  The ECB will bat lead-off on 8 Sept, with the Bank of England set to meet one week later, on the 15th. I’m sure Mario Draghi wishes those two were reversed. The Bank of Japan, and the FOMC will both hold two day meetings that end on the 21st. The possibility of explosive market reactions to divergent policy decisions on that day is at this time enormous, and may be reason enough for the Fed to hold their fire. This won’t be boring.
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Macro
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08:55 – Redbook (Weekly): Last Week 0.2% y/y. This weekly report on the retail space is hitting a rough patch of late. After meandering along all year at an approximate 0.5% y/y clip, this item has hit the tape at 0.2% y/y for two straight weeks. On top of that, we have seen growth dip below the once hallowed 0.5% mark in four of the last six weeks. This is the tail end of the “Back to School” season, and the last thing retailers need to see here is a flat print, or even negative number.
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09:00 – Case-Shiller HPI (June): Expecting 5.2%, May 5.2% y/y. This item is the US economy’s most highly focused upon Home Price Index. We’ve seen very consistent year over year growth in this space for about a year and a half, with every month since March 2015 printing between 4.9% and 5.7%. June should be no different. Unfortunately we are expecting to see a number toward the lower end of that tight range. Almost everyone is either at 5.1% or 5.2% on this one today.
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10:00 – Consumer Confidence (August): Expecting 97.1, July 97.3. Most economists expect to see a slight drop in this survey to 97.1, but consensus range spans from 94.5 to 98.5. If the similar University of Michigan’s Consumer Sentiment is any guide, this item will hit the tape toward the lower end of that range. Keep in mind that July Retail Sales were awful, while this data-point beat expectations for July. It will be interesting to see if there is something of a lagging effect in this space. Equity markets often do react to consumer surveys.
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Tuesday’s Earnings Highlights
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Before the Open: ANF (-.21), DSW (.30)
After the Close: HRB (-.54)

Market Recon Monday

Good Morning,
                     Post-Jackson Hole, market participants are obviously seeing hawkish currents at the FOMC. Even though this comes as a surprise to nobody, the marketplace still acted as if it were so. At last glance the Fed Funds Futures market now interprets a 42% probability of a rate increase at the September meeting. There are still two major macro events that will figure into the shaping of monetary policy in this country’s short-term, and two of them are this week. They are today’s year over year Core PCE Price index, and Friday’s jobs numbers to include both headline Non-Farm Payrolls, and wage growth data. I would think that an upside surprise in either of these items, particularly the NFP print could all but seal a .25 increase in the Fed Funds Rate. Conversely, any equally disappointing data could put such a move back in Limbo until after the national election. A third item type that could impact decision making would be unforeseen crisis. Though unpredictable in nature, one of these always seems to be in focus when decision makers don’t really want to be decision makers.
                    The global reaction to last Friday’s events are clear to see.  The US dollar is stronger versus most of it’s peers, especially the Japanese Yen. With the weakening of that Yen, and Japanese equity markets rocketing in upward fashion, divergent expectations for central banking policy are plain to see. The reaction for equities are far less grand across Europe where expectations for the ECB are less defined in the “Not so bad, at least right now” wake of Brexit. Markets are closed today in the UK.
                    Strength in the Dollar will exacerbate weakness in the commodity space. Those trading Crude will find WTI under $47 a barrel this morning. Still, nothing is technically even tested until $45.75 breaks.  Gold is more of a concern, as for many traders, it is their best trade of the year, and one would think that if the commodity approaches 1300/05, stop orders will become an issue to the downside. That may present a buying opportunity, but it will not feel like it at the time.
                    Last week of Summer, gang. Parking lots are thin. Train crowds are light. Let’s do a great job today (and everyday). When volume gets tough, let’s double down, and maintain focus. Effort costs you nothing. Even when it’s results are unproductive, it does breed discipline. Discipline breeds victory.
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Macro
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08:30 – Personal Income (July): Expecting 0.4%, June 0.2% m/m.
08:30 – Consumer Spending (July): Expecting 0.3%, June 0.4% m/m. We’ve run into a bit of a danger zone as far as these two items are concerned. For three straight months, the rate of growth for Consumer Spending has easily outpaced the rate of growth for Personal Income. While this is actually a positive in the short-term for the velocity of money (which excites academic economists), this is in truth an unsustainable trend that if left to continue will curtail not only spending, but saving as well. Projections are for this trend to end today. I hope so. The recent weakness in Consumer Sentiment will only get worse if the US consumer continues to be uncomfortable.
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08:30 – PCE Price Index (July): Expecting 0.0%, June 0.1% m/m…0.9% y/y.
08:30 – Core PCE Price Index (July): Expecting 0.1%, June 0.1% m/m…1.6% y/y.  This one item will impact Fed Funds Futures rate increase probabilities more than anything you’ve seen since…. last Friday, and more than anything you’ll see until this Friday. The money ticket in this space will be the year over year Core PCE print. We already know that y/y Core CPI took a step back in July (from 2.3% to 2.2%). Do we see a similar drop here to something like 1.5%? If you’re long Financials, you hope not. Dividend invstors hope so.
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10:30 – Dallas Fed Manufacturing Index (August): Expecting -1.0, July -1.3.  Thanks to what has transpired in the Energy space, Dallas has easily suffered the harshest conditions of all of the regional Fed districts when it comes to manufacturing.  Though July showed some promise, the month still printed in contraction, the nineteenth consecutive negative headline print for this district. We expect today’s print to be very close to a positive number despite a number of other districts posting awful numbers for August.

Market Recon Friday

Good Morning,
                     The Fed Chair speaks today, finally. It has been a long time since we’ve heard from Janet Yellen. Many think that simply because she may not want to corner herself, that she’ll try to walk a fine line that implies very little going into next month’s policy meeting…. or maybe simply because so many market watchers have placed so much focus on this speech. Dr. Yellen could have skipped Jackson Hole, as she’s done that before.  Ever since Ben Bernanke’s speech in 2010, the Fed Chair speaking at this symposium is met with heightened media attention, and increased market focus. She understands that.
                    The absurdity of it all is quite humorous. On Monday, the key data-point will be the Core PCE Price Index. Then at the end of next week, August Non-Farm Payrolls and wage growth numbers. How much better informed would the Fed Chair be, and would she be able to clarify her intentions if she so intended, if only this speech could be postponed exactly one week? Those looking for a telegraphed message regarding FOMC intentions already have one. In fact, they have several. Over the last ten days or so, William Dudley, Dennis Lockhart, John Williams, Stanley Fischer, Esther George, and Robert Kaplan all spoke. They all had a common theme among them….they were hawkish in their tone. Most of those names are not known as perma-hawks. Only James Bullard has remained dovish in recent Fed speak, and he often lies outside mainstream lines of economic thought.
                    If Janet Yellen sticks strictly to her topic  “Designing Resilient Monetary Policy Frameworks for the Future”, many will be disappointed. Odds are, in my humble opinion, that she would not have taken the podium in such high profile fashion unless she actually had something to say. The flashing red light here is that this assumes a certain level of common sense. If her words are interpreted to be in line with what her colleagues have been telling us, or if she clearly is even mildly in opposition, currencies will move, yields will move, commodities will move, and yes, equities will move. The most greatly impacted at first will be Financial names, and obviously the Utility or defensive names and dividend plays. Then Energy, and Materials will move with the Dollar’s impact on the commodity space. Commodities, in turn will move the Transports.
                   Should the good doctor take a pass, today is still Friday. Have a great weekend, everyone. Let’s go Mets.
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Macro
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08:30 – GDP (Q2-rev): Expecting 1.1%, prev 1.2% q/q SAAR.  Inventories were a weak point in that disastrous first look at Q2 GDP.  For June, we saw upside beats for Wholesale Inventories, and the headline number, Business Inventories as well.  Will that be enough to nudge the second snap-shot of Q2 GDP a little higher? Most economists are guessing that it will not. Some fear that the 4.2% print for Personal Consumption Expenditures may be revised a tad lower. The range of expectations for this item today is anywhere from 0.8% to 1.6%. Any market impact from this item will be sentiment based at this point. The markets are now focused on Q3, and obviously, monetary policy.
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08:30 – Goods Trade Balance (July): Expecting $-62.8B, June $-63.3B. June was the most negative number ever printed in the short life of this data-point, which is really just a component of the headline Trade Balance. That number will hit the tape one week from today. In that June report, there was growth for both imports, and exports.  The balance may have been exacerbated, but increased two-way cross border demand is a positive in any economist’s book. This release will not impact today’s trading activity.
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10:00 – Fed Speaker: Federal Reserve Bank Chair Janet Yellen speaks from Jackson Hole. The topic of this speech is “Designing Resilient Monetary Policy Frameworks for the Future.” This is the speech that the street has been waiting on all week. Her words will be used as fodder for driving market direction regarding currencies, treasuries, equities, and commodities.
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10:00 – U of M Consumer Sentiment (August-rev):  Expecting 90.7, initially 90.4. Two weeks ago, the preliminary August report in this space printed in mild disappointment. The street looks for a revision that is actually a bit higher than the original. In fact, there are some economists as high as 94 on this one. The lowest estimate I’ve seen is the preliminary 90.4, so a mere affirmation of the original survey will not be good enough. Markets do watch consumer based data-points on normal days.
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13:00 – Baker Hughes Rig Count (Weekly): Last Week 491 total, 406 oil. The number of oil producing rigs in operation is what traders watch in this space.  Last week’s print of 406 was the eighth consecutive weekly increase. This number has as much impact on intra-day Crude prices and the Energy sector as does the Inventory number on Wednesdays. Perhaps only currency valuations have a greater market impact.
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Friday’s Earnings Highlight
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Before the Open: BIG (.46)
 After the Close: something disgustingly bad for you, but delicious.

Market Recon Thursday

Good Morning,
                    The symposium in Jackson Hole, hosted by the Kansas City Fed kicks off today. Not to get too excited, mind you. The chances of a market moving headline leaking out ahead of the Fed Chair’s speech tomorrow morning would be quite sloppy. Then again, when it comes to the spoken word, many Federal Reserve Bank officials seem to be a lot less careful than they are with actual policy. What may be of interest today will be the meeting between leaders of the “Fed Up” group of activists, and several Fed officials. “Fed Up” in short, if you have not been following, promotes better public understanding of central bank functionality, while also favoring the barring of bankers from regional Fed district boards, a lower for longer interest rate policy, and more demographic diversity at the central bank.
                    About that speech. there really does seem to be an indecisiveness across different markets about what to expect. The S&P 500 has traded in a 25 point range, and the US ten year has yielded between 1.52%, and 1.59% for about two weeks. Most analysts when asked, express their opinion that the Fed Chair will intentionally be vague, and try not to paint herself into a corner. The DXY has stayed between 94.25 and 95 for nearly two weeks. That softness may, however be a functionality of strength in some major foreign currencies (today, its the Euro) more than any anticipation of domestic monetary policy shifts.
                   That said, there was huge movement out of Gold, and Gold futures just yesterday….as the Fed Funds futures indicate slightly higher probabilities of an imminent increase. Technical selling? Yes. Stops elected? Yes. Still, there has been no early recovery in that space this morning. I think, though Gold is usually considered a safe haven, that move equated to a preservation of capital play for those participants who needed to protect their best trade of the year…. ahead of a potential pitfall.
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Macro
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08:30 – Durable Goods Orders (July): Expecting 3.4%, June -4.0% m/m.
 08:30 – ex-transportation (July): Expecting 0.5%, June -0.5% m/m.  Durable Goods Orders have been a tough nut to crack for this “economic recovery”, printing in contraction in six of the last eight months, including the last three.  In fact, it’s been almost as ugly at the Core, which excludes transportation orders. On that level, we’ve seen four negative numbers in the last seven months, including the last two. Non-military, ex-transportation Capital Goods was the one bright spot last month, finally turning a corner, and putting up a positive number.  Expectations are for much better numbers all around this month. Markets could react if hit with another disappointment in this space. It’s a little tricky with Jackson Hole looming.
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08:30 – Initial Jobless Claims (Weekly): Expecting 265K, Last Week 262K.  There will likely be no surprises in this space today. The entire range of expectations spans just 10K, from 260K to 270K. Due to this item’s regularity, it no longer punches it’s weight in terms of market impact. I would go into why, but I might bore you.
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09:45 – Markit Flash Services PMI (August): Expecting 51.9, July 51.4.  This one is considered a non-event by market participants. It compares to the ISM Non-Manufacturing Index, which does not flash, and is much more closely followed. See you then.
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10:30 – Natural Gas Inventories (Weekly): Expecting 20, Last Week 22 B cf. The Natural Gas number matters a whole lot if you are trading the space, and very little if you are not, so it’s focus audience is very narrow. This data-point has printed in mild expansion in 17 of the last 18 weeks.  In fact, the last two weeks have both hit the tape at a build of 20 something billion cubic feet. That is what we expect again today.
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11:00 – Kansas City Fed Manufacturing Index (August): July -6.  Manufacturing data has been coming in a bit awkward this August. For the month, the Empire State, and Philadelphia reports showed lackluster performance, while Richmond would have to be considered very disappointing. To begin with, the odds are heavily stacked against Kansas City (as they prepare to host the Jackson Hole symposium).  KC has printed in contraction in 15 of the last 17 months. If you think that’s bad, Dallas is scheduled to report on Monday. Dallas has printed in contraction for 19 consecutive months.
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Thursday’s Earnings Highlights
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Before the Open: DG (1.09), DLTR (.74), MDT (1.01), SHLD (-3.48), TIF (.72), TD (1.21)
After the Close: GME (.28), ULTA (1.39)

Market Recon Wednesday.

Good Morning,
                     Take a look at a medium length (five weeks) chart for S&P 500 cash. What you’ll see is resistance at 2193 that has been met and sharply repulsed twice within two weeks. You’ll also see a series of higher lows starting in early August. With Relative Strength almost completely neutral, and a MACD that’s not really helpful….to me, this looks like pennant formation that’s set to close very shortly. Maybe as shortly as Janet Yellen’s scheduled 10am speech from Jackson Hole on Friday. Violent move for equities in the wake of that speech? I don’t have a crystal ball, but the chart says this is likely. Direction? That’s up to the Fed Chair. The formation has an upward bias, but will be outweighed by her words.
                     You’ll notice a much stronger British Pound this morning versus both the US Dollar, and the Euro. This has everything to do with the health of the Bank of England’s quantitative easing program. The BOE made public the results of their most recent reverse auction for securities with maturities in excess of 15 years.  Remember the first reverse auction after the QE announcement made by the BOE in the wake of Brexit? The one with the bid to cover of 0.96? Well, things did get better after that, but suddenly demand (which is actually created by the sellers in this case) waned again. In yesterday’s results, B/C was just 1.54, which is just a little too close for comfort. A fear of a possible failure of the BOE’s quantitative easing program to either function correctly, or at some point even continue at all has obviously put this bid under the Pound today.
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Macro
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09:00 – FHFA HPI (June): Expecting 0.3%, May 0.2% m/m. This is basically a non-event in the macro world. We have two HPI’s, and Case-Shiller is the one traders look at. That one is due on Tuesday. Both are somewhat dated, released with a two month lag. The reason for the lack of interest in this item is it’s narrow scope as only single family homes with mortgages backed by Freddie Mac, and Fannie Mae are tracked.
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10:00 – Existing Home Sales (July): Expecting 5.52M, June 5.57M SAAR.  Like New Home Sales, Existing Home Sales have been running at the top end of the range. Like New Home Sales, the street is looking for a mild contraction in this print. Due to the shocking upside beat in that space yesterday, you can hardly doubt such an occurrence in this space today. Unlike New Home Sales, Existing Home Sales have printed in this neighborhood on and off a few times throughout the recovery, without being able to break through. Existing Home Sales represent the lion’s share of the housing market, and the sale of an Existing Home does have a significant multiplier effect on the general economy, though not quite that of a New Home.
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10:30 – Oil Inventories (Weekly): Expecting -700K, Last Week -2.5M barrels.  This item broke a three week inventory building streak last week. The pros expect a smaller draw for this week. Possibly having just as much impact on the market price of WTI Crude as the headline print is the Gasoline number.  That one is coming off of a contraction of -2.7M barrels. The only projection I’ve seen for Gasoline stocks for today is for -1.4M. last night’s API data hit the tape in startling fashion last night. Those numbers showed an increase of 4.5M barrels for Crude, and a draw for Gasoline of -2.2M. The markets (Crude, and all sectors reliant upon) will react to this release.
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Wednesday’s Earnings Highlights
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Before the Open: RY (1.70)
After the Close: GES (.07), HPQ (.45), WSM (.58)

Market Recon Tuesday

Good Morning,
                     Hiruhiko Kuroda threw Japanese investors a curveball last night. The Nikkei 225, -0.6% this morning is the worst performing major equity index in Asia. The Bank of Japan Governor spoke last night on Information Technology and Financial Services, and he stuck to the topic. Kuroda didn’t go near monetary policy. Those who post on Japanese trader blogs were disappointed, forced to unwind and the US dollar fell well off of it’s highs versus the Japanese Yen.
                     European shares are green across the board this morning, after a plethora of Flash PMIs were released, both for the manufacturing, and service sectors. It’s not that the numbers were great, though they were, for the most part expansionary. I think that the relief is that, we are now into August, and generally speaking… these numbers appear unaffected by the outcome of the Brexit referendum in the UK. At least for now that is, and most economists felt that you would see broader negativity at this point. We will not see British PMI data until the end of next week (We’ll be worried about Non-Farm Payrolls by then), but the pressure seems to abating somewhat for both Mario Draghi, and Mark Carney.
                    The focus remains on WTI Crude prices today, despite the fact that William Dudley, John Williams, and Stanley Fischer all seem worried about inflation. We’ll worry about that in a couple of days. After yesterday’s announcement by Iraq on increasing production, and the bout of profit taking that ensued, the question for oil becomes where does this commodity find a bid? Holders of Energy stocks may not like the volatility, but technically, nothing is yet broken. After the run of the last two weeks, support would have to be tested in order to move higher. The spot to worry about right now is 45.75, which is still about a dollar away this morning. Should that area fail a serious test, the door could swing open to prices as low as 39. That’s not to scare you, it’s to inform you. Hedge appropriately.
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Macro
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08:55 – Redbook (Weekly): Last Week 0.2% y/y.  This weekly is coming uncomfortably close to flat-lining from last year.  Last week, was the third week in the last five that year over year growth dipped below 0.5%.  In fact, last week showed the poorest y/y growth in this space in 2016. At this point, this release will start giving us clues as to the over-all health of the back to school shopping season. Retailers need to see this number improve from last week, after what was a rough July for retail sales.
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09:45 – Markit Flash Manufacturing PMI (August): Expecting 52.7, July 52.9.  This number will not get much media, nor market attention today. If it sees any at all, it will be solely due to the fact that there is no flash ISM print.  The Richmond number in fifteen minutes will carry at least as much weight as this item.
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10:00 – New Home Sales (July): Expecting 580K, June 592K SAAR.  This will be the marquee macro-economic data-point of the day, thanks to the dramatic multiplier effect that New Home Sales have on the broader economy. Housing is once again becoming a strength in the US, as on a seasonally adjusted, annualized rate, June was the strongest month in this space since 2008. The last three months in fact, have averaged 583K, and even if we see a slight pull-back to the 580K that is expected, this item will remain on trend.
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10:00 – Richmond Fed Manufacturing Index (August): Expecting 6, July 10.  Richmond has been one of the healthier regional Fed districts as far as manufacturing is concerned. This index has printed in expansion in five of the last eight months. In my opinion, the headline numbers have not always jived with the underlying components for these data-points. Watch for growth in New Orders, Shipments, and Inventories. If they look alright, pricing and employment should fall into place.
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Tuesday’s Earnings Highlights
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Before the Open: BMO (1.83), BBY (.43), SJM (1.73), TOL (.61)
 After the Close: LZB (.29)

Market Recon Monday

Good Morning,
                     There is very little to look at today in the way of macro-economic data, or quarterly earnings releases. The rest of the week will, however be more interesting.  Earnings season may generally be over, but we’ll still have a few significant releases this week starting tomorrow.  As for the macro, you’ll see important housing numbers for July, the monthly report on Durable Goods Orders, and a revision to Q2 GDP, but the focus will undoubtedly be on the Federal Reserve Bank gathering to be held later this week in Jackson Hole, Wyoming. More specifically, the focus will be on Fed Chair Janet Yellen’s speech this Friday.
                     Janet Yellen’s speech is titled “The Federal Reserve’s Monetary Policy Toolkit”.  The title is vague enough, and in my opinion, the speech will be vague enough to allow the FOMC the wiggle room it would need in order to do whatever it needs to do after another Non-Farm Payroll number rolls in….and not lose even more credibility. The Vice Chair, Stanley Fischer spoke yesterday from Aspen, and he played the roll of the canary in the coal mine ahead of this Jackson Hole symposium.  The Vice Chair was clear that in his view, the economy is close to the Fed’s targets on employment and inflation. He indicated an awareness that growth and productivity are lagging, but that in his view, the second half of the year will be stronger than the first, and that productivity is something that monetary policy has little impact on. There are two key take-aways from the Vice Chair’s speech less than a week ahead of a very high profile speech to made by the Chair.
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1) The Vice Chair seems open to a rate hike in 2016. Without mentioning September specifically, Fischer sounded as if he was making an argument for a hike sooner rather than later.
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2) It is extremely unlikely that the Vice Chair would go public in somewhat hawkish fashion without the Chair’s knowledge. Most likely, in my opinion, he was sent ahead as a scout.  If an ambush awaits, either in the marketplace, or in the media, she would then be well aware of what she was up against.
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                   Before I go, Crude is in the spotlight again today. WTI is off more than 2% this morning. There are a number of reasons. The ever increasing US rig count that represents more domestic production, and a stronger US dollar versus most of it’s competitors are primary, but the media always forgets about profit taking. You’ve just witnessed a dramatic two week move in this space, and the trader instinct is to protect found money. You’ll notice that the Energy Sector, on Friday was ahead of the commodity on this move.

Market Recon Friday

Good Morning,
                    San Francisco Fed President John Williams spoke after the closing bell last night. His remarks are putting some downward pressure on equity index futures markets this morning.  He spoke of raising of raising the Fed Funds Rate sooner rather than later, which a serious case may be made for given the trail of supportive macro-economic results seen in key data-points on a multi-month basis now. His remarks came on top of a hawkish sounding William Dudley (NY Fed President), who spoke twice this week. Williams, though not a voting member of the FOMC this year, is considered part of Janet Yellen’s inner circle. He made one statement last night that lets you into what’s on his mind right now.
                  “If we wait until we see the whites of inflation’s eyes, we don’t just risk having to slam on the monetary policy brakes, we risk having to throw the economy into reverse to undo the damage of overshooting the mark”.  This one quote tells the trader that this central banker, who is neither a perma-dove, nor a perma-hawk is more afraid of inflation after many years of seeing very little of it, than he is of choking off growth after many years of seeing very little of it. This should, in my opinion concern any trader who’s current risk model is under-exposed to Financial names, or over-exposed to Utilities (really any dividend plays).
                   There may not be much going on today in the way of earnings, or macro. That did not stop European shares from moving lower today.  Not only were the major continental indices led lower by downgrades and selling among auto manufacturers, but there are a couple of items to be cognizant of as you proceed. First, both Portugal, and Turkey are scheduled to have their credit ratings reviewed by Fitch today. I have not yet seen headlines on this. Obviously, the outcome of the Turkish review should be interesting. Secondly, Angela Merkel, Francois Hollande, and Matteo Renzi are scheduled to meet in Italy this weekend. Italian stocks were easily the worst performers in Europe today as they were led lower by their troubled banking sector.
                   It’s the weekend, gang. Stay hungry.
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Macro
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13:00 – Baker Hughes Rig Count (Weekly): Last Week 481 Total, 396 Oil. The growing number of Oil rigs is the number that traders are watching in this report.  Last week’s 396 was a nice pop from the week prior’s 381, which in turn… was up from 374.  In fact, the number of operating rigs involved in US oil production has been growing week after week.  The price action seen over the last two weeks for WTI, and moves in the Energy sector indicate that this number is likely to stay on trend, at least in the medium-term.
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Friday’s Earnings Highlights
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Before the Open: BKE (.35), DE (.94), EL (.40), FL (.90), MSG (-.84)
After the Close: weekend stuff

Market Recon Thursday

Good Morning,
                    There are two interesting take-aways from this morning’s European data. First EMU Core June CPI printed it’s final revision at 0.9% y/y.  True, this meets expectations, but this item has gone nowhere for a long time.  Buying sovereign, and corporate debt has kept European governments, and businesses from falling into the abyss, but the ECB’s quantitative easing program, and their experiment with negative interest rates has not produced inflation (nor demand). Secondly, those July UK Retail Sales absolutely crushed projections. Coming off of a negative print for June, and expectations of 0.1%, this release hit the tape at 1.4% m/m. Brexit? Never heard of it?, or did it actually drag consumption forward?  Regardless, the British Pound spiked on the news, and is now trading above 1.315 vs. the US Dollar. It is becoming increasingly difficult for Mark Carney to credibly justify further easing of monetary policy in September.
                    It all started less than two weeks ago with some of the smaller. more desperate OPEC nations talking up an informal meeting in late September where these countries would push a coordinated production freeze. Then, the Russians jumped in, and talked up such an idea. I mean, why wouldn’t they talk up the selling price of a product that their economy relies so heavily upon. Throw in a US Dollar that seems to be weakening somewhat steadily against it’s competitors, and a double surprise drawdown from the EIA yesterday for Crude Inventories, and Gasoline Stocks, and …. voila !!  WTI Crude is flirting with $47 a barrel, while Brent tries to stay above $50.  Suddenly, the talk regarding the Energy sector has gone from picking a point of re-entry to wondering if one has missed the trade. Given the multiplier effect that this one commodity has beyond the Energy sector (Transports, Financials), the way WTI Crude reacts to it’s fundamentals, technicals (now, well above 44.50. next 48-49?), and currency swings is more important to the trader than three week old Fed Minutes that merely reflect the Policy Statement already released at that time.
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Macro
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08:30 – Initial Jobless Claims (Weekly): Expecting 266K, Last Week 266K.  The entire range of expectations for this item spans from 264K to 270K. That’s right, nobody expects anything out of the ordinary for this very consistent data-point. The four week moving average is now 262,750. This release still makes TV news, but has very little impact on markets these days.
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08:30 – Philadelphia Fed Manufacturing Index (August): Expecting 1.8, July -2.9.  This item was not as nasty in July as the headline appeared. After all, the strength of the report, much like the also negative August Empire State print was in New Orders & Shipments. There was also some strength in pricing. Hard to call any manufacturing index with positive numbers in those sub-components negative. This item, as the most important regional manufacturing release in the country can impact the marketplace.
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10:00 – Fed Speaker: NY Fed Pres. William Dudley will speak on regional economic conditions in New York. There is a Q&A session planned, and Dudley did make news on Tuesday with some hawkish sounding comments. The President of the New York Fed has a permanent vote at the FOMC.
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10:00 – Leading Indicators Index (July): Expecting 0.3%, June 0.3% m/m.  Nothing to see here. This one is not followed by many, and never moves the markets.
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10:30 – Natural Gas Inventories (Weekly): Expecting 22B cf, Last Week 29B cf.  Today, we expect our 17th inventory build in the last 18 weeks. This item will not impact you as a trader unless you are directly involved in the space.
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16:00 – Fed Speaker: San Francisco Fed Pres. John Williams will speak on the economy from Anchorage, Alaska.  He has had some interesting ideas of late regarding inflation and GDP targeting that personally, I’d like to hear more of. Williams is not a voting member of the committee this year, but he is considered to be influential, and is a favorite of Janet Yellen’s.
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20:00 – Fed Speaker: Dallas Fed Pres. Robert Kaplan will speak from Dallas. We have not heard from Kaplan in about two weeks, when he made a series of speeches within a few days. Kaplan has urged caution on raising interest rates, while trying to say that September was still on the table. Either he’s been unsure of his position on policy direction, or unwilling to make a stand. Kaplan does not have a vote this year.
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Thursday’s Earnings Highlights
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Before the Open: HRL (.35), TTC (.99), WMT (1.01)
After the Close: DV (.60), GPS (.58), NWY (.00)