Market Recon Wednesday

Good Morning,
                     Today, at least in the early going, the focus is on the service sector.  We’ll see our numbers later this morning, but globally… the numbers are out.  Generally speaking, they are not very good, but not altogether unexpected.  While manufacturing data makes for better headlines, this slice of data covers about 70% of the domestic economy, and an ever-growing share globally as well.  Chinese numbers missed consensus, but did manage to print in expansion, and while most of Europe either met their number or came close, it was the UK that hit the tape deeply in contraction.  First month over-reaction to the Brexit shock?  Probably.  The start of a nasty trend?  Possibly.
                      That brings us to the next hitter in out central banking line-up.  That would be the Bank of England.  The BOE’s Monetary Policy Committee actually begins their meeting today, and will release their announcement tomorrow at 7am NY time.  Gov. Mark Carney already indicated last month that August would likely be the time for a policy shift, so there is clearly some expectation.  To put things in perspective the BOE has left interest rates alone since 2009, and Carney’s reputation at the Bank of Canada in his prior job was that he was something of a hawk.  With that in mind, the British Pound has been acting a little bit odd this week.  Two days ago, we were talking about 1.31 support.  Now. we’re talking about 1.335 resistance.  Not exactly what you might expect from a nation’s currency if that nation’s central bank were about to ease policy.  The Japanese Yen acted like this ahead of the BOJ’s massive disappointment on Friday, for your information.
                      When I started writing this note, European equity indices were lower across the board, but with the notable exception of the FTSE 100 (UK), they have all turned higher.  Today’s leaders to the upside?  The banks of course.  Yesterday’s victims became today’s winners after certain Dutch and French banks reported surprise profits, and then HSBC announced a corporate repurchase program.  Why not?  With the ECB buying corporate debt these days, I would think that this kind of announcement will become more commonplace in Europe.
                      There may not be a lot of Fed speakers on the docket this week, but you know this crowd.  They simply can not stay away from a microphone.  Atlanta Fed Pres. Dennis Lockhart appeared in the media yesterday, and he did not rule out a rate hike at the FOMC’s next meeting in September.  I wouldn’t rule it out either, it’s eight weeks away, but thanks for coming in Dennis.  Today, Chicago Fed Pres. Charles Evans will speak to several news outlets.  Widely considered one of the most dovish speakers at the Fed, I can hardly wait for what Evans has to say.  By the way, neither one of these guys is a voting member of the FOMC this year.
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Macro
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08:15 – ADP Employment Report (July): Expecting 169K, June 172K.  This item makes an appearance every jobs week.  It makes a big splash, and then is forgotten about almost immediately as we head into the Friday NFP print.  What you probably don’t know is that over the last six months, this item has averaged 183K, while the BLS’ NFP has averaged 174K.  This one has been consistent while the BLS has thrown an 11K, and a 287k at you over that span of time.  Now folks, this one is compiled by a business, and that one is compiled by the government.  Kind of makes you wonder which one is the one that we should be focusing on.  Futures markets will be impacted immediately upon thisrelease.
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09:45 – Markit Services PMI (July-rev): Flashed 50.9, June 51.3.  Like a warm-up act that nobody paid to see, this one will hit the tape, and then go away.  Traders will wait the fifteen minutes for the ISM number.  Non-event.
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10:00 – ISM Non-Manufacturing Index (July): Expecting 56.2, June 56.5.  June’s print in this space surprised shockingly to the upside on the strength of the Business Activity reading.  In fact, that was the strongest reading on the pace of expansion for the Service Sector seen to this point in 2016.  All will be watching to see if the increased growth was a fluke in June, or if this pace becomes a trend.  ISM numbers are always a market event.
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10:30 – Oil Inventories (Weekly): Expecting -1.6M barrels, Last week +1.7M barrels.  Last week’s upside pop for US Crude supplies disrupted a streak of nine consecutive draws in the space.  Those who trade oil futures are expecting to start a new streak this week.  The API number came in sporting a drop in supplies of -1.3 million barrels.
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Wednesday’s Earnings Highlights
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Before the Open: CLX (1.28), D (.71), HUM (2.28), NBL (-.28), OXY (-.19), SMG (2.11), USAK (.19)
After the Close: ALL (.59), HLF (1.21), MET (1.35), PRU (2.50), SQ (-.03), TSLA (-.63), TSO (1.77), RIG (-.02)

Market Recon Tuesday

Good Morning,
                     As big stories mount, the oil story would have to be right up there.  Like a pitchfork with several prongs, the relapse of WTI Crude into bear market territory is far reaching.  One prong is the Energy sector itself.  That’s what you witnessed yesterday.  The entire sector took a beating step for step with the underlying commodity.  Then there’s the Transports, or at least those that haul the stuff.  They’ve been underperforming the general marketplace for some time now (let’s start with May), and that gets the Dow theorists fired up.  Lastly, there’s the on again, off again correlation that existed between equities and oil throughout most of last year’s decline.  That daily comparison had slackened, and fallen out of the public eye once Crude prices climbed up into the $50’s.  Should WTI crack this $39 level, and swing lower, does this reappear?  Food for thought.
                    It looks as if Japan laid another egg.  At least, that’s what Japanese markets are telling us right now.  The Prime Minister’s economic stimulus plan, which has been approved by his cabinet will throw about $274B at the Japanese economy.  This plan does include some helicopter money for lower income folk.  Why the disappointment?  About $200B of this spending comes in the form of targeted low interest loans.  Only a quarter of the plan or so will result in actual fiscal policy expenditures.  If you’re looking for proof of investor sentiment, the Nikkei 225 is off 1.5% on the day, and USD/JPY is trading closer to 101.50 than it is 102.
                    There may have been no immediate reaction, but it’s plain to see that financial stocks are being slapped around throughout Europe.  If a semi-ridiculous batch of stress-tests that weren’t even graded on a Pass/Fail basis were not enough, then I guess STOXX Ltd.’s decision to toss Credit Suisse, and Deutsche Bank from the StoxxEurope 50 Index by next week was trigger enough.  European traders said “sold!!” to European banking shares today in a big way.  Most major equity indices across the continent are down more than a percent, with many individual banking names off between 5% and 8%.  You’ll want to watch banking stocks in US trading for any signs of perceived counterparty risk from abroad.
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Macro
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All Day – Total Vehicle Sales (July): Expecting 17.1M, June 16.7M (SAAR).  This item is seen as the first monthly look at Retail Sales.  The fact that the June print in this space was so poor, and still didn’t put the hurt on headline Retail Sales speaks volumes.  Either this item rebounds, or we could be on our way to seeing an unwelcome revision to when those Retail Sales rolls around again on 12 August.  Because this data is released piecemeal, it does not directly impact the market at any one place in time.
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06:15 – Fed Speaker:  Dallas Fed Pres. Robert Kaplan spoke from Beijing this meeting on monetary policy.  Kaplan is not a voting member of the FOMC.  That has not kept him from being an outspoken hawk of late, even since Friday’s poor Q2 GDP showing.   Kaplan has also indicated that he GDP numbers may be revised.  I actually can’t remember them not being revised.  This speech will likely have less market impact than if it were during trading hours, and if Kaplan was not considered a known entity.
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08:30 – PCE Price Index (June):  Expecting 0.2%, May 0.2%….0.9% y/y.  Core: Expecting 0.1%, May 0.2% m/m … 1.6% y/y.  The only print here that matters is year over year Core PCE.  The Fed’s stated target for consumer level inflation has long been 2%, and this is the item that they watch.  That is probably because if they watched Core CPI, which is at 2.3% y/y, and has been at, or greater than 2% for eight months, then they would have much less flexibility on the timing of interest rate hikes.  Either that, or sacrifice more credibility.  The marketplace will react to this print, especially if it nears itself to that stated target.
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08:30 – Personal Income (June):  Expecting 0.3%, May 0.2% m/m.
08:30 – Consumer Spending (June): Expecting 0.3%, May 0.4% m/m.  These two items must be addressed together.  Consumer Spending has gotten way out in front of Personal Income over the last two months, which is good for the velocity of money.  It’s just not very good for people in the long run, nor is it sustainable over a long period of time.  Expectations for June are that the folks at least kept pace with their expenses.  Markets will not react immediately to this data, as they will the numbers on inflation.
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08:55 – Redbook (Weekly): Last week 0.6% y/y.  After stumbling a little the week prior, this item pushed back over the 0.5% y/y mark.  That’s the mark that I feel, you want to see maintained in this space, especially right now, when personal consumption expenditures seem to be the economy’s bright spot.
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Tuesday’s Earnings Highlights
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Before the Open: AET (2.12), ADM (.45), AVP (.03), CVS (1.30), TAP (1.10), PFE (.62), PBI (.39), PG (.74), RCL (1.01)
After the Close: AIG (.94), FIT (.11), PZZA (.54), PKD (-.35)

Market Recon Monday

Good Morning,
                     The workweek really began last night.  Almost under the radar, you had New York Fed Pres. William Dudley speak from Bali.  He tried to toe the line of indecision with out really telling us anything, which was most likely his intent.  Dudley, who as Head of the NY district is a permanently voting member of the FOMC, urged continued caution on forward looking interest rate direction.  In the very same speech, he also warned traders against becoming complacent when it comes to said policy.  Really ??  My opinion?  Dudley, like many at the Fed, really wants to raise interest rates.  He probably feels that it is time, but that Q2 GDP print, and the Q1 revision are just too weak to pull it off.  Keep that in mind.  If the overall macro stays stronger as it did in June, and you get a positive revision to that Q2 GDP, these guys already have their weapon off safe.  They just don’t want to be blamed should a recession arise shortly after pulling that trigger.
                    The monthly barrage of manufacturing PMI data also began last night in China.  There was a role reversal, and the picture is quite muddled.  In China, the governmental number fell back into contraction, while the Caixin print that measures smaller, non-state entities actually showed marked improvement.  The UK did show signs of Brexit related stress, and France remained mired deep in regression.  The overall picture in the EMU was not that bad, however, nor was it in the most important core country of Germany.
                    Looking to the week ahead.  One more very heavy week of earnings releases, and then we go to the retailers.  Expectations are that we’ll be hearing from the Japanese government, possibly as soon as tomorrow regarding Prime Minister Abe’s economic/fiscal stimulus plan.  The Bank of England steps to the plate on Thursday.  The thought here is that they will cut their key interest rate from .5% to .25%, and that Gov. Carney, and the MPC may tack on some quantitative easing.  Then, when you think you’ve already run the gauntlet, this Friday is “Jobs Day” here in the US.  We will find out then, if the June burst of new jobs simply put us back on a weakened track, or actually leads to something more positive.
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Macro
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09:45 – Markit Manufacturing PMI (July – rev): Expecting 52.9, Flashed 52.9.  Traders will be coming off of all of those global manufacturing numbers.  They will also be anticipating the ISM print in fifteen minutes.  Therefore, this release will likely be overlooked.  You will not have to deploy any intellectual capital here today.
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10:00 – ISM Manufacturing Index (July): Expecting 53.1, June 53.2.  July was a tough month for manufacturing, at least regionally.  Still, we saw good number in Richmond, and some decent prints among the underlying components in Philadelphia.  The belief among economists today, is that the pace of overall expansion shouldn’t fall that far off of June’s……and that was the best print that we’ve seen here in a year.  This item is important, and markets looking for a reason to turn may do so on this number.
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10:00 – Construction Spending (June): Expected 0.5%, May -0.8% m/m.  Construction Spending has printed in the hole two months in a row, and in each case, an increase had been expected.  That came after three fairly solid months in a row.  Keeping in mind that the majority of macro-economic data-points sported decent numbers for June, We’ll try this again.  Market impact should be minimal however, being that this one will print along side a higher profile, less dated item.
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Monday’s Earnings Highlights
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Before the Open: DO (.01), FDC (.34), GRA (.67)
After the Close: TEX (.54), THC (.52)