Market Recon Wednesday

Good Morning,
                     Just where are we, regarding monetary policy?  NY Fed Pres. William Dudley rattled a few cages yesterday when he spoke of improved growth for the second half of the year, and the possibility of a looming increase in the Fed Funds Rate.  He’s not wrong.  Though first half growth was paltry, the last month of the period, June.. was rather strong across the board. Now, six weeks into the second half, we see rough spots, but also some continuance in areas that have gained strength. I think that across several months now, the Fed has communicated almost an eagerness to get on with the next rate hike, if only it can be justified.
                    Jackson Hole is only a week away. If the committee is serious about taking the next step this close to a national election, it will be up to Janet Yellen to prepare the marketplace at that time. There are a number of balls rolling in the right direction.
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Non-Farm Payrolls have been much stronger for two months.
Core Retail Sales printed badly for July, after a strong four month run.
Housing Starts have been trending toward the top of the range, and broke through in July, forcing the Atlanta Fed to increase their Q3 GDPNow forecast.
Industrial Production is finally showing life, now in positive territory for two consecutive months. Underlying components were positive in July for Manufacturing, Mining, and Utilities.
Core CPI has now run at or above the Fed’s stated 2% inflation target for nine consecutive months.
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                    The next FOMC meeting is still more than a month away. Every data-point that I just mentioned will print again prior to that meeting.  We have been prepared now several times for the next hike, only to see it postponed for one reason or another. With that first half as weak as it was, maybe that was a good thing.  Just do not forget that it was the decision makers themselves that told us that near-term risks to the economy had diminished in last month’s statement. Today’s Fed Minutes will support that theme. Will the Fed Chair stray from that course next week?
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Macro
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10:30 – Oil Inventories (Weekly): Expecting 300K barrels, Last Week 1.1M barrels. Supplies of Crude have printed in expansion for three consecutive weeks.  Expectations for today’s number range from -900K to +300K barrels, and that was before last night’s API number, which surprised to the downside for Crude (-1M barrels), and upside for Gasoline (+2.2M barrels). Interestingly, gasoline stocks have contracted in size in each of the last two weeks. Gasoline stocks seem to have had more of an impact on Crude prices of late than have actual headline inventories of Crude.
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13:00 – Fed Speaker: St. Louis Fed Pres. James Bullard will speak on the economy, and monetary policy from St. Louis. Bullard is a voting member of the FOMC, and is best known for abruptly, and very publicly changing direction on policy decisions. To be fair, Bullard turned “dove” in mid-June, and stuck with it through July.  We really haven’t heard much from him in about a month, so officially, he has held his most recent opinion for two months.
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14:00 – FOMC Minutes: Will we scour the Minutes for clues as to just how hawkish the FOMC is turning?  The information is dated, and Jackson Hole is next week.  That said, you can decide for yourself just how important these Minutes are.  NY Fed Pres. William Dudley told us yesterday that September is still on the table.  Is it likely? No.  Is it possible? I think so, and there is a case for it.  An unclear, confused case, but a case.
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Wednesday’s Earnings Highlights
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Before the Open: AEO (.21), ADI (.76), LOW (1.42), TGT (1.13)
 After the Close: BGG (.54), CSCO (.60), LB (.60)

Market Recon Tuesday

Good Morning,
                     Today is the biggest day of the week in terms of market impact level macro. I know we’ll see the FOMC Minutes tomorrow, and yes, they can be important. That said, the Minutes are dated information and usually hit the tape with more headline than actual impact.
                     The day’s most disturbing headline, however comes from the healthcare space. Though hardly unexpected, Aetna’s announced withdrawal from most of the states where the firm had participated in Affordable Care Act exchanges may end up being good for Aetna. It is not good news, however for the ACA, and for any perception that common folk be able to make competitive choices regarding health care. Aetna joins Humana, and United Health, among others in reducing their ACA participation. The future of health care in this country is as much in doubt as it ever was.  Will an uninsured individual still be penalized if that patient has no options within his or her state? If you thought that this was a political football prior to ACA, you were right. Problem is, it still is.
                     The US Dollar is considerably weaker this morning. UK Consumer level inflation came in a bit hot for July, while UK June Home Prices also gapped higher. This has European traders thinking the BOE may be a little less aggressive than they otherwise might have been at their MPC meeting on Sept. 8.  This has given a burst of life to the Pound. The Euro (positive ZEW sentiment numbers) rallied alongside the Pound, and the Yen is just relentless of late. The Yen is now worth just about a penny. What this does is strengthen the commodity complex on a day that you might have otherwise seen some profit taking, or even technical resistance for the Oil space. At last glance, WTI Crude is trading above $46 a barrel, still on coordination speculation.
                     Always work hard, gang. Always focus, but also look around. The person on your left, or your right might need a pal today. Don’t miss that opportunity if it’s there. Team.
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Macro
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08:30 – CPI (July): Expecting 0.0%, June 0.2% m/m (1.0% y/y).
08:30 – Core CPI (July): Expecting 0.2%, June 0.2% m/m (2.3% y/y).  This economy continually starts and stops throughout this fragile, yet lengthy recovery. The one thing that has allowed the FOMC to keep interest rates near zero, despite less than stellar data-points has been the lack of accompanying consumer level inflation.  The headline number will be a bit soft thanks to the hit that gasoline took in the Retail Sales report.  The Core print is the one that matters. Year over year Core CPI printed at 2.3% in June, it’s eighth consecutive month either at or above the Fed’s stated goal of 2%. Though those at the Fed prefer to follow Core PCE solely because it’s the lower number of the two, an increase from 2.3% in this space would be very difficult to ignore. We have several market impacting releases to focus on today.  This is probably first and foremost among them.
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08:30 – Housing Starts (July): Expecting 1.18M, June 1.189M SAAR.
08:30 – Housing Permits (July): Expecting 1.16M, June 1.153M SAAR.  Housing Starts bounced significantly for June from the minus tick they felt in May.  Perhaps nearly as important, Permits increased for the third consecutive month in June, and are expected to increase further for today’s July print. If expectations are met today, despite the mild slackening expected for Starts, these numbers are not weak, and markets will focus on the inflation numbers. A serious miss here, and all bets are off.
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08:55 – Redbook (Weekly): Last Week 0.5% y/y.  Last week, we said that we would like to sea 0.5% print in this space at a minimal rebound from the week prior’s 0.3%, and that’s exactly what hit the tape. Multi-line retailers as a group suddenly have some mojo working for them of late.  A repeat performance of last week’s print will keep this item under the radar.
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09:15 – Industrial Production (July): Expecting 0.2%, June 0.6% m/m.
09:15 – Capacity Utilization (July): Expecting 75.6%, June 75.4%.  There is no denying that the manufacturing business in this country has been through a ‘depression’. Generally speaking, things got a little better in June across a number of manufacturing related data-points. The hope for today is that headline Industrial Production prints in positive territory for the second month in a row.  That’s something that we have not seen since June & July of 2015.  As for Utilization, in June there was a significant bounce from what had been a six year low.  Projections are for further improvement in that space as well.
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12:30 – Fed Speaker: Atlanta Fed Pres. Dennis Lockhart speaks from Knoxville, Tennessee.  Lockhart, who is not a voting member of the committee this year, always seems to be a little ahead of the pack when it comes to the next rate increase.  The last time we heard from him was two weeks ago, and he was sounding rather hawkish at that time.  There will be a Q&A session after this address open to both the media and the audience.
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Tuesday’s Earnings Highlights
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Before the Open: AAP (2.11), DKS (.69), HD (1.97), TJX (.81)
After the Close: PLKI (.47), URBN (.55)

Market Recon Monday

Good Morning,
                    A new week.  From a macro point of view, Tuesday is the big day.  That’s the day that we’ll start seeing more major data-points for July following Friday’s awful numbers for Retail Sales.  If CPI, Housing Starts, and Industrial Production all come in soft, or come in a weak looking combination, then you will see chances for an increase as illustrated by the Fed Funds futures market drop from the 18% that we saw going into the weekend. There will also be the Minutes from the last FOMC Meeting, the Philly Fed Manufacturing Index, and the ever dangerous James Bullard to contend with as the week progresses.  You will also have some headline level quarterly earnings releases later this week, as the last few retailers straggle in.
                  I guess we now understand why the Bank of Japan needed to commence with this two month study of their monetary policy program.  While you were sleeping, japan released Q2 GDP data, and to put it mildly, they disappointed. We’ll still see another month of macro-economic data prior to the next BOJ policy meeting, but there is already much speculation about what the outcome of this study will be. After some media players acquired drafts of the ongoing study, it is widely expected that the BOJ will defend already in place policies.  The speculative part is whether or not, they dare get more aggressive.
                  WTI Crude is already well of off it’s highs this morning.  If you’re wondering why the volatility, you can blame Russia’s Energy Minister, Alexander Novak.  Novak indicated that Russia was already in dialogue with Saudi Arabia, and several other oil exporting nations, talking over jointly capping production.  We’ve seen this movie before, in my opinion. If you’re selling something, talking up price isn’t the craziest idea anyone ever had.
                  Have a good day, gang.  In fact, have a great week.  I’ll catch you on down the road.
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Macro
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08:30 – Empire State Mfg Survey (August): Expecting 2.2, July 0.55.  Through the prism of hindsight, we now know that the manufacturing sector of our economy sputtered through July, after a hopeful June.  This will be our first glimpse at manufacturing health or lack thereof for August.  The expectation is that the NY region stays just barely on the right side of contraction.  The “New Orders” component will be what catches the eye today, after falling off of a table last month.  On occasion, due to it’s timing this item can punch above it’s weight for futures traders.
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10:00 – NAHB Housing Market Index (August): Expecting 60, July 59.  This “homebuilder optimism index” beat expectations for June, and finally returned to the 60 level after a four month drought….and then slipped again.  It’s expected that this item can print at that elusive spot again today.  Broken down regionally, the Northeast continues to put downward pressure on this index, keeping it from reaching the higher levels seen in late 2015.
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16:00 – TIC (June): Expecting $41.1B, May $40.0B.  This item tracks net cross-border investment, and flows into, and out of US Treasuries.  Given the timing of it’s release, and the fact that the information within is extremely dated, there will be no impact on trading behavior caused by these numbers.
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Monday’s Earnings Highlights
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Before the Open: SYY (.60)
After the Close: DAVE (.12)

Market Recon Friday

Good Morning,
                     Last night, the closing bell rang at 11 Wall Street as usual. Since then, planet Earth has been hit with deluge of high profile economic data. Some of it is not very pretty. As you went to sleep, China’s National Bureau of Statistics released monthly data for Industrial Production, Retail Sales, and Fixed Asset Investment.  Strike one, strike two, and strike three….. missing rather badly on all three counts. Throw in the last two week’s worth of waning inflation, exports, and manufacturing data, and you know that the PBOC now has to act. Perhaps act aggressively. So do Chinese traders, as the Shanghai Composite gained 1.6% on the day, the planet’s top performing major equity index for Friday.
                    As for Europe, there were less surprises. The EMU met aggregate GDP expectations, supported by a bounce in June Industrial Production. More specifically, German Q2 GDP beat expectations, while July consumer level inflation actually showed an increase. The result? The DAX, though down small is Europe’s worst performer in the early going, while the Euro has strengthened against the US dollar, and the Japanese yen. This turn of events runs mildly counter to the thought that the ECB will feel compelled to ease policy at their meting on 8 September in response to the BOE’s recent moves. It’s too early to tell, but I must admit, that I do like the IMF advising the ECB to stay away from taking interest rates any further into negative territory. I do not often applaud the IMF.  It’s not just that negative interest rates harm lenders, suffocate growth, and actually deter risk taking, it’s that these economists actually understood and learned.
                  Crude actually traded above $44 during this morning’s wee hours. The moves seen in that Energy space yesterday along with utterly astonishing movement among the retailers will obviously bear a portion of your focus today. Today, however, there will also be enough data-points to gather your attention, and these items will primarily bear impact upon those segments of the market that just gained so magnificently. These macro-economic data-points will also gain the attention of those trading the Fed Funds futures as well.  Here in the US,  markets have often reacted well to positive data.  At least they have of late, either accepting of the Fed’s eventual path toward normalization, or in denial of it.  So interesting.
                 Have a great trading session today, gang.  On top of that, have a great weekend.
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Macro
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08:30 – Retail Sales (July): Expecting 0.4% June 0.6% m/m
08:30 – Core Retail Sales (July): Expecting 0.2%, June 0.7% m/m.  We’ve just seen four consecutive months of respectable gains for Core Retail Sales, which makes sense. After all, personal consumption was the bright spot of that dismal first look at Q2 GDP. Consumers have put themselves back in the game, even if they have to borrow to do it. We know that from the surge in revolving credit that made up part of the Fed’s report on June Consumer Credit. The headline print has been better also, but more inconsistent as auto sales make the difference. Futures markets will react to these numbers, as this has become one of the most highly focused upon macro events of the month as far as the financial industry goes.
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08:30 – PPI (July): Expecting 0.1%, June 0.5% m/m
08:30 – Core PPI (July): Expecting 0.2%, June 0.4% m/m.  The PPI is the first slice of inflation based data that we see every month, and this release did come in a bit hot in June, and not just because of energy prices. That said, expectations are for producer level prices to resume their pedestrian pace in July.  That June surge did not translate to consumer level inflation, and market participants don’t focus on this release anyway. For traders, the PPI will be overshadowed by Retail Sales.
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10:00 – U of M Consumer Sentiment (August -p): Expecting 91.2, July 90.0.  This survey, for the month of July underperformed the similar Consumer Confidence survey, and consumer behavior as well.  In fact, this survey underperformed consumer behavior for most of the second quarter.  Does that mean, folks spent money, and didn’t feel too good about it? Maybe.  expect to see some marginal improvement here.  Traders do watch this release, and often react to it.
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10:00 – Business Inventories (June):  Expecting 0.1%, May 0.2% m/m.  Expectations are at the low end of the range for this item. We already know that Wholesale Inventories, a component of this report (along with Retail & Manufacturing Inventories) surprised to the upside for June.  if we see an upside surprise to this item today, it could end up nudging that already mentioned dismal Q2 GDP just a bit higher in the first revision.
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13:00 – Baker Hughes Rig Count (Weekly):  Last four weeks 381, 374, 371, 357.  We do have enough data regarding Crude to look at, don’t we? This one does move the market as well. This number, like the others will impact Energy, Transport, and Financial names.
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Friday’s Earnings Highlights
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Before the Open: CXRX (1.46), JCP (-.14)
After the Close: Due for a plate of nachos.

Market Recon Thursday

Good Morning,
                    Oil seems to be what is making headlines again this morning. Just yesterday, the commodity took quite a tumble on higher inventories, and news of record breaking Saudi (OPEC=8 year high) production levels.  Today brings news of the French based International Energy Agency (IEA) trimming their 2017 forecasts for global demand by 100k barrels a day. Just so you understand, the weekly US inventory data comes from the EIA (Energy Information Administration)… not the same people.  Weakness in Crude took the Energy sector lower with it yesterday, and also took a nibble at the Financial sector, as some names in that space become exposed when weaker energy firms have trouble servicing their debt. For today, WTI has already tested $41, and found some support there. Technically, it looks like it wants to make a run at $44. Right now though, a stronger US dollar will work against that kind of move.
                    A little under the radar for mainstream traders is this news item. India’s International Gold Convention kicks off in the city of Agra today. India alone comprises about 30% of the planet’s jewelry consumption.  Indian farmers, who make up more than a quarter of India’s consumption have had two poor years in a row due to weather, and are buying gold at about half of their usual aggregate rate this year. Their ability to overcome a heavy debt burden is weighing on demand.  Headlines coming out of this convention will very likely impact the Materials sector, particularly Metals & Mining names.
                   Last item for today will be come from the US National Weather Service.  At some point today, we’ll see from them an updated forecast for the Atlantic hurricane season.  This will not cause any immediate impact on market direction in today’s trading session, but it may help you trade some of the Staples going forward, and for investors to prepare for where and when money will be spent on insurance, waste management, construction materials, and skilled labor.
                   Have a great day, gang.  Work hard.  Work smart.  God bless.
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Macro
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08:30 – Initial Jobless Claims (Weekly): Expecting 268K, Last Week 269K.  For anyone still counting, this item has now printed below 300K for 74 consecutive weeks.  The four week moving average, which historically is how economists look at this one is now 260,250.  Not to beat a dead horse, but with a large part-time labor force, and nearly 5% of all job holders holding more than one job, it will be tough for this item to shock anytime soon.
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08:30 – Import Prices (July): Expecting -0.3%, June 0.2% m/m.
08:30 – Export Prices (July): Expecting 0.1%, June 0.8% m/m.  These numbers don’t tell us what they used to.  Meant as a comparison for cross-border demand versus exchange rate fluctuations, what this data measured in June was a recovery in crude prices for import side, and inflation pop for food prices on the export side.  Both are expected to have taken steps backwards in July.  While interesting, I don’t think that there is anything here that traders would immediately react to.
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10:30 – Natural Gas Inventories (Weekly): Expectations are all over the place this week, Last week -6B cf.  That contraction in supply last week ended a 15 week streak of consecutive builds.  For this week, I don’t really know what to expect.  I have seen numbers as high as a build in the mid-twenties (billion cubic feet), and I have seen a very large projected draw for this release today.  Natural Gas futures on a Thursday morning are one of the scariest things that I have ever traded…. and today could be a scary one.  This will not matter to the rest of you.
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Thursday’s Earnings Highlights
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Before the Open: BABA (.63), EAT (1.23), DDS (.29), KSS (1.03), M (.48)
After the Close: JWN (.56), PLNT (.15), RT (.11)

Market Recon Wednesday

Good Morning,
                    You probably have noticed global markets treading water this morning.  European equities are mostly lower, and Asian equities are quite mixed, but nobody seems to be too far from where they started.  Possibly they wait for those Chinese numbers tomorrow night.  With all of the planet’s major central banks still a month away from their next policy decisions, and that much ballyhooed informal OPEC meeting still six weeks out, it seems to me that we watch.  We watch currency exchange rates, sovereign debt yields, and commodity prices.  We’ve always watched macro, but now we watch macro, not to evaluate economic strength, but to evaluate the possible path to taken by policy makers.
                   We move in and out of sectors based on the underlying movement in some of those items, but generally we trade technically at this point.  Fundamentals are supposed to be the building blocks of investment thought.  I don’t know if I would venture so far as to call them dishonest in 2016, but I certainly would call them distorted.  While a sound house may not be built using bricks of differing size, shape, and strength, the trader’s job is not to judge the environment provided, but to excel within it.  In the end, that’s why technicals have become more important on a daily basis than fundamentals.  There will be a day when conditions normalize.  When that day is…..  might be impossible to answer.  For now, the environment is the one perpetuated by the global debt super-cycle.
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Macro
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10:00 – JOLTS (June):  Expecting 5.52M, May 5.5M openings.  These numbers for job openings are actually down from what we were seeing this past Spring.  Though dated, the headline number has expanded as Unemployment has contracted.  So, there is some correlation here.  No matter.  They say Janet Yellen looks at this item.  Nobody else in our industry does, and it will not have an impact on your day as a trader.
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10:30 – Oil Inventories (Weekly):  Expecting -1M barrels, Last Week 1.4M barrels.  The inventory build was a shock last week where as a draw had been expected, but not the biggest shock.  The size of the draw in gasoline stocks (-3.3M barrels) was jaw dropping, and helped support Crude prices in the immediate wake of this release.  Expect further contraction for gasoline this week.  Impacting Crude prices to the downside overnight, the API numbers came in at startling levels.  API reported a 2.1M barrel Crude inventory build, and another large drop in gasoline stocks.  That gasoline number is probably the only thing preventing WTI from testing the lower bound of the recent technical range.
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13:00 – Ten Year Note Auction: $23B July 1.52% / 2.3 b-c.  This item will impact bond markets for sure upon seeing the results.  If you recall, that bid to cover of 2.3 last month was a bit light, with Indirect Bidders (foreign accounts) taking down les than 55% of the issue.  That’s well below recent norms.  With the yield on the Japanese ten year approaching 0%, the cost of hedging the currency risk virtually wipes out the advantage that the yield on the US ten year would afford the Japanese buyer.  Will they participate?  How this plays could be very intellectually interesting today.
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14:00 – Budget Balance (July): Expecting $-121B, June $6.3B.  Before you decide that these numbers look odd, keep in mind that June has regularly been a positive flow month for the US Treasury, while July can get very negative.  In truth, that $6.3B print last month was a disappointment.  Though this item controls the supply side of the US sovereign bond market, it will not catch most traders’ interest upon it’s release.
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Wednesday’s Earnings Highlights
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Before the Open: KORS (.74), RL (.89), WEN (.09)
After the Close: BUFF (.17), SHAK (.13)

Market Recon Tuesday

Good Morning,
                    This “informal” meeting that OPEC is supposedly having in Algeria in late September has really taken on a life of it’s own.  The cartel has thrown energy traders so many head fakes over the last couple of years that I’m a little surprised anyone buys this kind of story anymore.  What you don’t do though, is argue with the tape, and the tape says that Crude has a bid under it right now.  They did try to sell WTI earlier.  As soon as it hit the 42.50 range, they took it back over 43.  They can take it all the way to 44 in my opinion without changing anything technically, so there is still some room in that direction, at least short-term for your Energy names, as well as some Transports, and Financials.  Weekly API numbers hit the tape tonight.
                   Chinese consumer level inflation softened again in July for the third month in a row.  The PBOC has been trying to steer clear of further rate cuts, and focusing instead on adding liquidity.  This Thursday night, China will release data on Retail Sales, and Industrial Production.  If there is obvious disappointment in those numbers, the thought here is that you’ll see action on the monetary policy front sooner rather than later from the central bank.  One more fish swimming the other way for the Fed.
                   The British Pound took another dive this morning against the US dollar.  Currently one Pound buys you less than $1.30.  One of the Bank of England policy makers, Ian McCafferty wrote a piece for the Times of London this morning.  His intent was apparently to come off as quite dovish as he wrote about possibly taking the benchmark rate closer to zero, and increasing the BOE’s quantitative easing program.  September 8th should be interesting.  Fortunately for the DXY, the dollar is flat against the Euro, and softer vs, the Yen at this time, keeping it close to unchanged.
                   Okay, gang.  Let’s do Tuesday.  Stay tough.  Stay focused.
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Macro
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06:00 – NFIB Small Business Optimism Index (July): On the tape at 94.6Expected 94.5, June 94.5.  In June, Small Businesses were the most optimistic that they have been since late 2015 when this item was printing at levels that it has not gone near since.  For the purposes of the survey, small businesses are those with between one and 250 employees.  Recent strength in this release has come from Job Openings, and Plans to Increase Capital Outlays.  Keeping in mind however, that over the 40+ year history of this data-point, with the average score being 98, this data-point has a long way to go.  On the alarming side, only 8% of those surveyed considered the current period as favorable for expansion.
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08:30 – Non-Farm Productivity (Q2-pre): Expecting 0.5%, Q1 -0.6% q/q SAAR.
08:30 – Unit Labor Costs (Q2-pre): Expecting 1.8%, Q1 4.5% q/q SAAR.  These two need to be addressed together, as one is useless without the other.  For two consecutive quarters now, we’ve seen American worker productivity contract.  Overall output has actually increased, but with the pace of hours worked increasing to a greater degree.  This is all while the cost of labor has risen rather dramatically over that time frame.  We are expecting to see positive productivity for Q2, but still not expanding close to the pace of Unit Labor Costs.  This is an unsustainable economic trend, and at some point, would leave it’s mark on overall employment.
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08:55 – Redbook (Weekly): Last Week 0.3% y/y.  I think you have to be disappointed in last week’s number, as Consumer Expenditures have been a perceived strength for the economy over the last quarter or so.  A print above 0.5% y/y will be needed to allay worries for the retail space.
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10:00 – Wholesale Inventories (June): Expecting 0.0%, May 0.1% m/m.  We are hoping to see that wholesalers at least maintained inventory levels in this report after missing expectations in May.  This item will likely not impact trading at the time of it’s release for two reasons.  One.. this is slightly dated information.  Two.. this is one component (along with retailers, and manufacturers) within the June Business Inventories print that you’ll see this Friday.
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Tuesday’s Earnings Highlights
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Before the Open: COH (.41), WWAV (.30), ZBRA (1.05)
After the Close: SCTY (-2.56), DIS (1.61), YELP (.15)

Market Recon Monday

Good Morning,
                     As this week creeps out of the gate, you’ll notice that some of the better items to look at come later in the week.  From Chinese Industrial Production and Retail Sales on Thursday night to German and EMU GDP on Friday, and then on to US Retail Sales, also on Friday.  The brick and mortar retailers will start reporting in size later in the week as well, signaling the close of another “Earnings Season”.  What is going to get your notice right away though, is the move higher for Crude this morning.
                    WTI crude has spiked 1.5% this morning to prices nearing 42.50, despite a somewhat stronger US dollar in general.  The dollar’s strength is hurting Gold, and other commodities that trade in dollar denominated prices.  So, what gives here?  Well, though it never seems to amount to anything… some OPEC nations are talking about a production freeze again.   OPEC will hold what’s being called an “informal” meeting on September 27-28 in Algeria.  Markets are unable to completely discount any talks in this space despite the obvious recent history, and therefore until denied, a freeze must be at least partially priced in.  Once again, Energy names, and some Transports are what will move higher on this.  Speaking of Transports, you will see monthly numbers from many of the airlines today.  Separately, I’m sure that you’ve all noticed the issues that Delta is having on a global scale today.
                    Taking a look at September is becoming somewhat daunting.  We’ll be on Fed Watch now that the Fed Funds Futures market is signaling an increased chance of a rate increase.  We’ll be on BOJ watch, as they will be coming out of that much hyped study of their current direction regarding monetary policy.  There is much speculation that they’ll launch something far less disappointing than they just did two weeks ago.  Now, we’ll also be on OPEC watch.  Not to mention that you’ll have the BOE that just eased policy, and the ECB, that has not yet reacted to the BOE both meeting on the same day (Sept 8).  If you’re one of those folks that likes to take vacation after Labor Day, I’d think twice about it this year.
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Macro
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10:00 – Labor Market Conditions (July): June -1.9.  This rather newish (2014) release is prepared by the Federal Reserve.  In description, this is a diffusion index made of 19 employment related data-points.  It’s intent is to present an overhead look at the labor market.  Extra weight is given to Private Payrolls, which is fine, and the Unemployment Rate, which I think should be further down on the list.  The bottom line is that this is not an official report, but we do know that the members of the FOMC do look at it.  We’ve seen six consecutive months of contracting conditions, but perhaps the wage growth that we saw on Friday can assist those Private Payrolls, pushing this number closer to zero than it has been.  Interesting? Yes it is.  However, traders do not seem to follow this item.
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Monday’s Earnings Highlights
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Before the Open: AGN (3.33), DF (.40), TSN (1.06)
After the Close: NWSA (.12), RAX (.22), TWLO (-.15)

Market Recon Friday (Jobs Day)

Good Morning,
                     It’s “Jobs Day”.  Not much else needs to be said.  Outside of an FOMC policy announcement, this is probably the biggest economics day that we have in terms of market impact.  This is certainly the largest amount of data that you’ll see wrapped up in one bundle.  There really are three distinct items that will impact future interest rate direction …  Employment, Wage Growth, and Consumer Level Inflation.  This release from the Bureau of Labor Statistics (BLS) will cover the first two, and the first two should greatly affect the third.  Keep in mind that a healthy economy with normalized interest rates is far more preferable than is easy money in an economy that struggles to grow.  Good can, and should ultimately be good.
                   German Factory Orders for June missed badly this morning.  This will knock German Q2 GDP down a peg.  We’ll see that number in a week.  Looking around Europe, we also see that UK Home Prices, and Italian Industrial Production badly missed their marks as well.  Regardless, European equities are all mildly into the green today, still basking in yesterday’s moves from the BOE.  The ECB, fyi.. will not meet again until late September.  The US jobs report, and subsequent thoughts over possibly divergent policy direction will more than likely change the trajectory of the European close today.
                   I know that you’ve probably already seen a soccer game or two, but for all intents and purposes, the Summer Olympic games begin today.  While I personally find the games very entertaining, and it does my heart good to see that baseball will be added back into the mix in 2020, this is really a geo-political risk story for money managers.  Simply put, this is a high profile, global event in a country that from the outside appears somewhat unprepared for the size and scope of the mission.  Protection is the name of this game.  Hard assets are for long term protection.  The VIX, Utilities, some Staples, and though it may sound crazy… maybe even some small caps as they usually have little to no international exposure.  That’s if you’re just renting protection for a couple of weeks.
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July Employment Situation  08:30 ET
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Non-Farm Payrolls:  Expecting 182K, June 287K.  This one number is the immediate takeaway for the public and for traders alike.  Going back six month, which starts with February, this item is averaging 174K, but with very high peaks, and very low valleys. The ADP (compares to private payrolls, which comprises about 95% of NFP) print from Wednesday is averaging 183K since February, so these two are in the same ballpark.  Unfortunately, this item, from the BLS is quite volatile, and plagued by much larger revisions than is that ADP release.  That said, this one is your market mover today.
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Unemployment Rate (U-3):  Expecting 4.8%, June 4.9%.  Traders do not react to the Unemployment Rate, but the media does follow it.  There could be an “improvement” here due to a slight decrease in participation.  For comparison’s sake, the Gallup non-seasonally adjusted Unemployment Rate dropped from 5.3% to 5.1%.  While the Gallup number, and the BLS number are not truly comparable, they do seem to trend together.
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Average Hourly Earnings:  Expecting 0.2%, June 0.1% m/m.  In this item, you have the second most closely followed number in this release.  Wage growth has been the Fed’s Holy Grail as far as the Employment picture goes.  I don’t think the 0.2% expectation will get markets going, but there are some economists at 0.3%.  If we see that, the market will take notice, and the Fed Funds Futures will show an increased chance of  a rate hike for September.
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Average Workweek: Expecting 34.4 hrs, June 34.4 hrs. This item is secondary, but if you were to see a constructive change here coupled with an increase in wages, then this would be well received by the marketplace.
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Participation Rate: Expecting 62.6%, June 62.7%. As previously mentioned, participation has a greater impact on headline unemployment than does the percentage of working age adults who are not working.  As for market impact, this data-point does have value in a trader sentiment sort of way.
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Underemployment Rate (U-6): June 9.6%.  Underemployment has been a major problem in this economic recovery, as many employers have chosen to maintain part-time labor over full-time staff as a means of keeping overhead down.  This has also kept Initial Jobless Claims artificially low for almost a year and a half.  For traders, they will eventually get to this item, but it is tertiary in nature, and like participation is sentimental in market value.  For comparison, the Gallup Underemployment Rate (non-seasonally adjusted) dropped all the way from 13.6% to 12.7% in July.  In theory, that bodes well for U-6 for today.
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Other Macro
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08:30 – Trade Balance (June): Expecting $-42.8B, May $-41.1B.  Last week the Goods Trade Balance, which is a sub-component of this report covering about 70% of overall trade.  That’s how we know that not only will this item come in well into the negative, but likely see the gap widen at that.  This is not a market event.
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13:00 – Baker Hughes Rig Count (Weekly): Last Week 374, up from 371.  The number of rigs actively involved in oil production had been steadily rising.  That is until last week, when only three were tacked on.  With Crude trading toward the bottom of it’s six week
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15:00 – Consumer Credit (June): Expecting $16.0B, May $18.6B.  Credit expansion had it’s second best month of the last five in May.  The problem for economists is that revolving credit has been weakening over the last two reports.  For those in need of definition, revolving credit compounds interest regularly such as credit cards would, where as non-revolving credit would be something with a payment schedule like auto, or student loans.
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Friday’s Earnings Highlights
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Before the Open: SSP (.14), VA (1.18), WY (.21)
After the Close: The Weekend

Market Recon Thursday

Good Morning,

Markets are moving slowly ahead of the 7am ET policy announcement expected from the Bank of England’s Monetary Policy Committee.  European equity markets are all painted green this morning, with the UK’s FTSE 100 trailing the pack, up just small after having been lower.  In other developments, yields on British sovereign debt are grinding their way higher, and the USD/GBP relationship has worked it’s way below 1.33, but has not gone near the depths seen earlier in the week.  If indeed, there were some easing of policy, it appears that shorting the Pound ahead of this announcement has become a very crowded trade.  We’ve already seen the currency behave rather curiously as the week has developed, and now there is real fear that this cross could spike if there were to be disappointment in the level of the MPC’s aggression.  Perhaps even if there is no disappointment.

Interesting price movements for WTI Crude overnight.  Though we witnessed a surprising increase in US oil supply yesterday, the shocking drop in gasoline stocks outweighed anything else…. or was it a technical bounce once the commodity approached $39 a barrel.  Regardless, WTI surged more than 3% in yesterday’s regular trading session, settling at 40.83.  Then it kept going, nearly hitting 41.50 in the overnight session.  Now, we see prices falling again heading into Thursday morning.  Yesterday, the S&P Energy sector index gained 1.8% on the day, and the DJTA, which has been mired in a deep slump picked up 0.8% to get it’s five day performance back to less than -2%.  It certainly seems that the Equity/Oil correlation that is not always there, is more there than not when Crude is cheap.

Today is the last really huge day of earnings in terms of sheer numbers of firms reporting.  There are still plenty of headliners out there, namely most of the retailers, but the trader’s ability to focus on a few less items at any one time should return after today.  Earnings have been slightly better than expected coming into the season.  Early Q2 estimates for the S&P 500 were for an aggregate reduction of -5.3% from this time a year ago.  The last updates that I’ve seen for this were under -4.0%, with revenue growth just a hair above flat.  tech has been strong, and Energy has been very weak, but it will really be up to those retailers on just how the story of this quarter will ultimately be written…. and we know from our weak first look at Q2 GDP a week ago, that personal consumption expenditures were the strength of the entire report.

Macro

06:15 – Fed Speaker:  Dallas Fed Pres. Robert Kaplan, who is not a voting member of the FOMC is speaking again from Beijing as he did on Tuesday.  This is largely considered to be the same speech, a speech where Kaplan tried to stress patience with the next interest rate increase while not taking September off of the table.

08:30 – Initial Jobless Claims (Weekly):  Expecting 265K, Last Week 266K, 4 week moving avg. 256.5k.  It’s hard to believe, but if this week comes in where it’s expected, then we’ll have two consecutive weeks running above trend.  The four week moving average is how economists look at this number, and traders haven’t paid much mind in this space in over a year due to it’s regularity.  The range of expectations for today spans just 8k, from 262K to 270K.  Markets will notice this one on the day it prints near 300K, or under 250K, and with a large portion of the labor force working less than full-time hours, this just isn’t very likely.

08:30 – Gallup Unemployment & Underemployment Rates (July):  June 5.3% UnEmp, & 13.6% UnderEmp.  While not apples to apples, Gallup does offer another view of the employment situation that does not always line up that perfectly with the BLS data that you see every “Jobs Friday”.  The Gallup data is based upon a daily survey of 1,000 adults, so the end results are a non-seasonally adjusted, rolling 30 day average of nearly 30k interviews.  Traders will not react to this survey, but I always find interesting the gap between these numbers and the ones the government dishes out.  Those government numbers always seem better than these for some reason.

10:00 – Factory Orders (June):  Expecting -1.8%, May -1.0% m/m.  In what had on many levels been a decent June for the economy, we saw last week, that Durable Goods Orders dropped -4.0% m/m.  That item, and this item intersect to some degree, so we know that we’re going to print negative today.  The thought here is that this print can be partially rescued by non-durables.  Due to the fact that much of this release is considered a known quantity, a market surprise would be difficult.

10:30 – Natural Gas Inventories (Weekly):  Expecting 19B cf, Last Week 17B cf.  We are looking for a sixteenth consecutive weekly build in this data-point today.  This print will pass largely unnoticed with the exception of those directly trading the space.

Thursday’s Earnings Highlights

Before the Open: APA (-.21), BLL (1.00), BDX (2.20), CTB (1.05), DUK (1.01), K (.91), PH (1.76), TEVA (1.21), VIAB (1.03)

After the Close: ED (.69), KHC (.73), LNKD (.78), MNST (1.03), PCLN (12.66), ZG (-.04), ZNGA (.00)