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)