Market Recon Friday

Good Morning,

The Week Behind

The week behind ended up being a bit more daunting than it looked on Monday when it was the week ahead. On top of a Presidential debate, an OPEC inspired rally for Crude, and the current trader angst visible in the Financial sector, you now just have to put Q3 to bed. Good luck.

Europe.

Most major European equity indices are in the hole this morning, but at least well off of their lows. On top of all of the woes connected to Deutsche Bank, German Retail Sales missed badly this morning. Then two hours later EMU Core CPI also missed expectations. That would normally convince market participants that the ECB would eventually bring more easy policy to the party. The thing is that they’re already doing too much, and pushing interest rates even lower will only further damage European banks. The ECB next meets on October 20th.

The Deutsche Bank Situation

Speaking of that Deutsche Bank situation. The bank’s systemic significance is undeniable. With an estimated 46T Euros ($51.5T) worth of gross derivative exposure, any kind of doubt over counter-party risk must be taken seriously. That’s why those hedge funds in the news yesterday did what they did. Purely a business decision that seems understandable. DB is also facing $14B worth of proposed fees from the US Department of Justice. This number, depending upon where DB is trading this morning is close enough to the firm’s market cap to make you look twice. From what I’ve been reading, the firm has set aside something like 5.2B Euros for litigation fees, and has sold an approximate 4.6B Euros worth of CoCo Bonds, which can be erased from the balance sheet. The firm would obviously not be able to raise money that way again, but it would reduce forward looking obligations. Deutsche Bank may be able to figure a way through this, but with no help apparently coming from the German government, Mario Draghi may have to say something in order to reassure the investment community. This Monday is a banking holiday in Germany, fyi. More pressure on the ECB.

Trader Focus. 

This morning, you see strength in Treasuries, or really all developed world sovereign debt, upward movement for some currencies like the US Dollar, and the Japanese Yen. Gold is also well above Thursday’s levels, and testing Wednesday’s resistance in dollar terms. What is not considered a safe haven, and has produced enough positive movement this week to provoke short-term profit taking is Crude. If the US Dollar continues to strengthen throughout the regular trading session, an acceleration of the selling in this space would not surprise me. However, keep in mind… there is a rig count number due at 1pm ET. For now, those balancing portfolios…  who are long the Financial sector (in my opinion) must now consider those positions speculative, at least until something clearly supportive is said.

Macro

08:30 – Personal Income (August): Expecting 0.2%, July 0.4% m/m.

08:30 – Consumer Spending (August): Expecting 0.2%, July 0.3% m/m. In July, the pace of growth for Income was actually greater than the pace of growth for Spending, even if just by a smidge. For May, June, and July, the story was vastly different. Economists might have loved it because the velocity of money increased as witnessed by the Personal Consumption Expenditures component of Q2 GDP, but it looks as if the consumer has had to slow it down in the third quarter, perhaps getting ahead of themselves. The consumer will only come back to stay when the consumer is comfortable. We are not close. Retail Sales for July & August have been awful. We’ll see the September print in two weeks.

08:30 – PCE Price Index (August): Expecting 1.0%, July 0.8% y/y.

08:30 – Core PCE Price Index (August): Expecting 1.7%, July 1.6% y/y. This is perhaps among the two or three most important macro-economic data-points that we run across in the course of a month. The headline print is meaningless, at least for now, and the month over month print will not impact the marketplace. What Fed watchers watch is the Core year over year print.  That item is expected to inch closer to the FOMC’s stated 2% target this month. For comparison, Core CPI has been running above 2% for ten months now. A hot print in this space will put added pressure on the Financial sector at a time of vulnerability. That same hot print would push the US Dollar higher, negatively impacting Gold, Oil, and Treasuries.

09:45 – Chicago PMI (September): Expecting 52.1, August 51.5. This number rarely comes in anywhere near consensus, and last month was no exception… badly missing expectations. This print has either missed, or beaten consensus opinion by a margin of at least 1.5 in every single month since August of 2015. Either something is wrong with every economist in the country, or something’s wrong the data. This item has lost some of it’s ability to impact the marketplace, likely due to this inconsistency.

10:00 – U of M Consumer Sentiment (September-rev): Expecting 90.0, Flashed 89.8.  The expectation for September as of two weeks ago was for something close to 91, so some kind of upward revision here today would not be a complete surprise, particularly given the robust Consumer Confidence release that we saw on Tuesday. The paradox of it all, is that, of these two items that should move similarly… Confidence has been improving regularly, while Sentiment has been rather stable, even running below trend of late. The broader market often does move on this item.

13:00 – Baker Hughes Rig Count (Weekly): Last Week 506 total, 416 oil. This is the last market moving release of the week, and will directly impact Crude prices, and Energy prices. What might be more interesting will be next week’s number after this week’s OPEC related pop.

13:00 – Fed Speaker: Dallas Fed Pres. Robert Kaplan will host a Q&A session in Dallas. Kaplan does not vote this year, but will join the committee in January. Kaplan is not the most outspoken of fed officials, but he did indicate earlier this week that he would have been okay with a September rate hike. Expect this speech to tilt hawkish, as did most of yesterday’s Fed speakers.

Friday’s Earnings Highlight

Before the Open: MKC (.94)

 

Market Recon Thursday

Good Morning,
OPEC Agreement.
                    OPEC agreed to their first production cut/freeze in eight years, Crude prices ran wild, and the Energy sector has it’s best day in eight months. Undeniably a market moving event, as hope became somewhat priced into the space. This agreement reminds me a little bit of that guy in the Popeye cartoons that used to say “I’ll gladly pay you Tuesday for a hamburger today”. In this case, they were paid immediately, and “Tuesday” comes at the next formal OPEC meeting in Vienna on November 30th. That next meeting is when the cartel will slice and dice this 32.5M barrel cap amongst it’s member nations. No cause for strife there. On top of that, there is already talk that Iran, Libya, and Nigeria will all be exempt from the agreement. Possibly three exempt nations in a fourteen nation group. Sounds to me like they have only agreed to consider putting together an agreement …. in two months.  Actually, forget the cartoon guy, it’s more like two kids agreeing to stop fighting until Mom leaves the room.
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Trading Oil
                    While Crude roared yesterday, the commodity still is not close to it’s Summer highs. the door to higher prices swings open only if WTI Crude breaks, and holds 49.80, which is still quite a ways off.  If there is eventually such a break, 53 becomes possible. Prices in the 50’s have their problems though, such as binging off line producers back on line.  Let’s not forget non-OPEC producers who would not be subject to any such agreement if it were indeed actually ratified. Russia produces 11.1M barrels of oil a day. Curtailing output could just be handing over market share to others who will gladly seize it. Apparent support levels as this starts to sink in across the Street are at 46.10, and 44.90 for WTI.
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All Day Fed Speak, Day Two
                    Philadelphia Fed Pres. Patrick Harker spoke from Dublin early this morning. He was hawkish in his tone, which really comes as no surprise. Harker has stated before that he feels that policy normalization is a good thing. Right now the DXY is back above 95.50, and the US Dollar is firmer against the British Pound, the Japanese Yen, and the Euro. Harker, who is not a voting member of the FOMC this year was only batting lead-off. There are five more Fed speaking engagements on today’s schedule, coming after yesterday’s six. Key among those speaking will be Gov. Powell (permanent voting member) at 10am, and the Fed Chair herself after the closing bell.
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Macro
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08:30 – GDP (Q2-final): Expecting 1.3%, Q2-rev 1.1% q/q SAAR. The second quarter was not very pretty. That’s already history. There is expected to be a slight upward revision to this, the third and final look at the quarter, but unless there is a big shock here, markets are already focused upon the third quarter. FYI, the Atlanta Fed lowered their forecast for Q3 from 2.9% to 2.8% yesterday, and will likely revise the expectation again tomorrow after the August Consumer Spending release.
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08:30 – Initial Jobless Claims (Weekly): Expecting 260k, Last Week 252k. The four week moving average for this item is down to 258,500. The entire range of expectations spans just 9k, from 256k to 265k. This data-point is no longer a significant mover for equity index futures markets.
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08:30 – Goods Trade Balance (August): Expecting $-62.4B, July $-59.3B. This data-point is actually a component of the August trade Balance that you’ll see next week. This is not a market mover, but it is interesting. This deficit is actually considerably larger than the overall trade balance deficit, because the US is better at selling services than goods, and these numbers will eventually matter when GDP estimates roll around.
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08:50 – Fed Speaker: Atlanta Fed Pres. Dennis Lockhart will speak from Orlando, Florida. Lockhart has regularly been one of the more hawkish regional district presidents, and he will field questions from both the media, and the audience. Lockhart is not a voting member of the FOMC this year. Atlanta does not regain their vote until 2018, and Dennis Lockhart is planning to retire this February.
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10:00 – Fed Speaker: Federal Reserve Gov. Jerome Powell is set to deliver the keynote address at the same banking conference in St. Louis that James Bullard, and Charles Evans spoke at yesterday. It was easily forgotten once the OPEC news broke yesterday, but Evans did move the markets on his dovish comments. Powell has leaned toward very gradual interest rate hikes when he has spoken; he is a permanent voting member of the FOMC.
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10:00 – Pending Home Sales (August): Expecting 0.2%, July 1.3% m/m. Pending Home sales have been inconsistent all year, printing in contraction in six of the last twelve months. It looks worse than it is, as this is supposed to help predict Existing Home Sales, and that number has been running back and forth between an annualized rate of 4.75M, and 5.5M just about every month over the same time frame. This release will not move the marketplace.
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10:30 – Natural Gas Inventories (Weekly): Expecting 54B cf, Last Week 52B cf. Possibly the only weekly data series more regular than the Initial Jobless Claims series.  This one is headed for it’s 23rd consecutive inventory build in 24 weeks. I haven’t traded Nat Gas myself in a few years. I wonder if they still get worked up for this print every week now that there are so few surprises. Would love to hear from someone regularly in the space.
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14:30 – Fed Speaker: Minneapolis Fed Pres. Neel Kashkari will speak “town hall” style in Rapid City, South Dakota. Kashkari will not be a voting member of the FOMC until January. Banking regulation is comfort zone, as he is not very outspoken on monetary policy.
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16:15 – Fed Speaker: Kansas City Fed Pres. Esther George will speak for the second time in two days. George is scheduled to cover opportunities for and challenges to the banking system. She is opinionated on monetary policy, and will likely opine. George is the most hawkish member of the committee.
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17:10 – Fed Speaker: Federal Reserve Chair Janet Yellen will attend the Kansas City Fed’s Minority Bankers Forum through video conferencing. She will likely answer some questions, which always carries some market risk. At least this speech is after hours.
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Thursday’s Earnings Highlights
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Before the Open: ACN (1.30), CAG (.48), PEP (1.31)
 After the Close: COST (1.73)

Market Recon Wednesday

Good Morning,
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Forex
                    There have been some wild fluctuations in currency valuations this morning. The British Pound took off, and then spiked lower, now trading beneath 1.30, while the Euro did quite opposite and is now trading around 1.122 after touching 1.118. Bank of England Deputy Gov. Nemat Shafik rattled a few cages this morning while speaking from London. Shafik is a voting member of the MPC, and she made clear that she still expects to see an economic slowdown in the UK due to last June’s “Brexit” referendum. On top of that, she expects that the BOE will again have to ease monetary policy. If that isn’t enough, on top of the six US central bankers that will speak today, ECB President Mario Draghi is scheduled to speak from Berlin at 10:30 ET. He is expected to address current EMU economic conditions and possibly push for stimulus on the fiscal side.
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Deutsche/Financials
                     Deutsche Bank shares found some support today. That is in turn supporting Europe’s financial sector, and equity markets in general. The German weekly “Die Zeit” reports that German authorities are putting together a rescue plan for the bank should it find itself unable to raise the capital required to meet it’s obligations, and litigation costs. This is in stark contrast to the message that German Chancellor Angela Merkel reportedly tried to put forth this past weekend in different German publication. If there is more than smoke here, this should even lend some support to the US financial sector. Though that sector did perform with the market yesterday, financials are the only sector in the red over the last five days. Though, that has as much to do with shrinking yields as it does German banking woes, removing a significant roadblock like this would, in my opinion… improve the sector’s outlook six months plus going forward.
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OPEC/Energy
                      As you’ll see below, the API data, if confirmed by today’s numbers should lend Crude prices a helping hand. Unfortunately, headlines from Algiers are likely to overmatch any such data. Indications are that Saudi Arabia is quite comfortable waiting until the official OPEC meeting on November 30th before getting serious about any talk of a production freeze, and now it appears that when Iran talks about reaching their pre-sanction production rate, they mean market share, not actual barrels produced. This would mean that they can take their current production level of about 3.4M barrels a day up to 4.2M (a 12% market share) before they consider themselves square. Clearly, that is not a positive for the underlying commodity going into the fourth quarter.
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Macro
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08:30 – Durable Goods Orders (August): Expecting -1.7%, July +4.4% m/m.
08:30 – ex-Transportation (August): Expecting -0.4%, July +1.5% m/m.
08:30 – Core Capital Goods (August): July +1.6% m/m. Headline Durable Goods roared in July after having printed in contraction for most of the year. Even the important ex-Transportation purchases strip-out was fairly robust for the month, as were Capital Goods purchases. It’s been twelve months since this series put up a two month winning streak, and almost no economists are expecting to it happen this month. This data will impact Q3 GDP expectations.
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08:45 – Fed Speaker: Minneapolis Fed Pres. Neel Kashkari is due to speak at an investor conference in Minneapolis. Kashkari does not vote in December, and doesn’t really extend himself when it comes to monetary policy. He will however participate in a Q&A session.
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10:00 – Fed Speaker: Federal Reserve Chair Janet Yellen testifies before the House Financial Services Committee on the Fed’s supervision, and regulation of the financial system. Obviously, this is an event that could move the financial sector in real time. How deeply she’ll go into monetary policy is unknown at this time.
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10:15 – Fed Speaker: St. Louis Fed Pres. James Bullard is set to deliver the opening remarks to a banking conference in St. Louis. Bullard will have a vote until the end of the year. This Fed official is the wildcard. He’s been calm for a while, but anything can happen in the marketplace when James Bullard speaks. He is currently dovish. This event could be your sleeper.
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10:30 – Oil Inventories (Weekly): Expecting +3M, Last Week -6.2M barrels.
10:30 – Gasoline Stocks (Weekly): Expecting -500k, Last Week -3.2M barrels. Again, the API’s data surprised to the downside last night. API reported a draw of -752K barrels at the headline, and a draw for gasoline of another whopping -3.7M barrels. If the API’s numbers are close to confirmed by the EIA, this will, at the headline be the largest four week draw-down for Crude in three years. That would be bullish for the commodity, and for the Energy sector.
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13:30 – Fed Speaker: Chicago Fed Pres. Charles Evans will give the keynote address at the same conference in St. Louis that James Bullard will have already spoken at. Evans is widely regarded as the most dovish of Fed officials outside of Lael Brainard. He will regain his vote in January.
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16:35 – Fed Speaker: Cleveland Fed Pres. Loretta Mester, who dissented in favor of a rate hike at last week’s FOMC policy meeting, will speak on the economy from Cleveland. She will expose herself to questions from both the media, and the audience. Mester will lose her vote after December.
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19:15 – Fed Speaker: Kansas City Fed Pres. Esther George will give the keynote address at a forum for minority bankers in Kansas City. George, considered to be the most hawkish member of the FOMC, as she dissented not only last week, but several times throughout the year. George will lose her vote at the end of the year.
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Wednesday’s Earnings Highlights
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Before the Open: BBRY (-.05), PAYX (.57)
 After the Close: PIR (.06)

Market Recon Tuesday

Good Morning,
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Post-Debate.
                    One down, two to go. Two and a half to go, if you count the Vice Presidential debate. The Democratic party nominee clearly came in well prepared, and most pollsters gave her the nod afterward. There were however, no knockout punches thrown on either side, and I do not think that either side will gain, or lose substantially based on last night’s performances. What is gaining substantially this morning is the Mexican Peso. Being taken as a reverse measure of Donald Trump’s success, the Peso rallied almost 2% from it’s lows last night. Other than that, there was little market reaction easily attributable to this debate. Asia is higher, Europe is lower. S&P futures rallied throughout the debate, but have come most of the way back in since.
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Oil / Energy.
                    Oil is once again front and center. After an up day on Monday that brought WTI back to Thursday and Friday’s levels. It will be very interesting to see what happens as the commodity approaches prices around 44.90/95, which is where resistance was met in the overnight hours on Sunday into Monday. The Energy sector will clearly be in play during today’s trading session. The sector badly underperformed WTI Crude yesterday. You have oil producers meeting (consulting?) into tomorrow (Iranian officials have already downplayed the event just this morning), and you have a perceived win in a Presidential debate by a candidate who is not considered Energy friendly.
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Bigger Picture.
                    Financials will remain in focus here in the U.S. Deutsche Bank may have halted their slid in Tuesday’s early European trade, but this is a major international bank with lots of tentacles. The European banking sector will likely be unable to fully recover until this story has a happy ending, or at least some kind of resolution. By extension, this issue will remain an anchor hanging around the necks of US banks while the depth of their exposure is determined. Negotiation? Counter-party risk? What if it’s more than one? This could take a while, in my opinion, and coupled with signaled intent on behalf of several FOMC member to raise or not to raise rates could subsequently hold broader markets back from further gains at this time.
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Macro
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08:55 – Redbook (Weekly): Last Week 0.2% y/y. Our weekly barometer of health for the retailers has been getting a little soft of late. Now showing y/y growth of only 0.2% in three of the last six weeks, we would really like to see this get back to a half of one percent, and not test contraction.
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09:00 – Case-Shiller HPI (July): Expecting 5.1%, June 5.1% y/y. The headline print in this space is the year over year, 20 city, non-seasonally adjusted number. June’s growth was the weakest seen here since September of last year, so we are watching this one to see if declining growth is becoming a trend. yes, there’s nothing wrong with 5% growth in a low inflation environment, but in that June report, 9 of the 20 cities reported declines. Among the nine were New York, and Chicago, as the Northeast, and the Mid-west have both struggled to keep up with the rest of the country.
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09:45 – Markit Services PMI Flash (September): Expecting 51.1, August (f) 51.0. Growth in the service sector has slowed to a crawl as witnessed by the most recent data released by Markit, and the ISM. Traders do not watch this item and will not react to it. You might as well wait until next Wednesday for the ISM’s non-manufacturing number.
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10:00 – Consumer Confidence (September): Expecting 98.7, August 101.1. It’s something of a paradox that as this item, which is compiled by the Conference Board seems to have strengthened steadily throughout 2016, while the very similar Consumer Sentiment (Compiled by the University of Michigan) has been moving in the wrong direction. Regardless, this is today, and you’ll have to wait until Friday to see the latter. Market participants do react to Consumer surveys, and chances are that should this one print above 102, or below 97, they will.
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10:00 – Richmond Fed Manufacturing Index (September): Expecting -2, August -11. Richmond will be the tie-breaker this month. At least at the headline, Philadelphia, and Kansas City posted expansionary numbers, while New York, and Dallas (yes, 21 in a row) hit the tape in a state of contraction. Richmond has been one of the better performing regional districts when it comes to manufacturing, having posted positive numbers in four months in 2016 alone, which ties them with NY, and Philadelphia atop the leader-board.
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11:15 – Fed Speaker: Federal Reserve Vice Chair Stanley Fischer will speak from Washington, DC, and will take questions from the audience. Fischer is thought to be hawkish at this time, but did not dissent last week. There is some speculation that this was out of respect for the Chair. Obviously, the Vice Chair is a permanent voting member of the FOMC.
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Tuesday’s Earnings Highlights
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After then Close: CTAS (1.08), NKE (.56)

Market Recon Monday

Good Morning,
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European Banks.
                     It didn’t take long for Friday’s late session ugliness to continue into this week. Major global equity indices are all off more than a percent, with European banking shares leading the way lower. Actually, it’s Deutsche Bank that’s leading those banking shares. DB is own a rough 6%, while the broader group is off around 3.5%.  The culprit seems to be an article in the German magazine “Focus” in which Chancellor Angela Merkel claims to be against providing state aid to the bank in the wake of the US Justice Department’s proposal that DB pay $14B to settle a mortgage securities investigation should the bank need more capital. Is counter-party risk an issue? Is the Chancellor playing tough? The US Financial sector will let us know what markets think at 09:30 ET.
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Presidential Debate: Market Impact.
                    There will be no immediate impact on the economy, nor on the general marketplace for that matter, but it is undeniable that tonight’s Presidential debate between Democrat Hillary Clinton, and Republican Donald Trump will be front and center in terms of attention given. Any market reaction to this first debate will most likely be a short-term trading opportunity. That said, there are two political footballs to keep your eyes on. Healthcare, and Energy. Depending on who appears to come out on top tonight could provide direction to these two sectors. Energy is a regulation play, while Healthcare becomes about the perceived success or failure of Obama-care. These two candidates have very different ideas on these two areas, and an upper hand on Tuesday morning for either candidate could provide movement.
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Trader Focus.
                    The week ahead is jammed with potential roadblocks and detours. On the macro side, after today’s New Home Sales, we’ll see data on Durable Goods, a last look at Q2 GDP, and on Friday, perhaps most importantly Core PCE for the month of August. Oil traders, and those involved in the Energy space will be watching for headlines out of this quasi-OPEC meeting in Algiers that culminates on Wednesday as well. It is, in my opinion, however, that “Fed Speak” will by the end of the week, be what has impacted the marketplace the most. There are several speakers out there today, but not real newsmakers. This Wednesday, I am tracking six scheduled speeches. Included in the six are the Fed Chair, the unpredictable James Bullard, perma-dove Charles Evans, and two of the dissenters from the last FOMC decision (Mester & George). That’s the day where you’ll see some cages being rattled.
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Macro
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09:30 – Fed Speaker: Minneapolis Fed Pres. Neel Kashkari speaks on “Too Big to Fail” from Minneapolis. Kashkari does not vote on monetary policy until 2017, and likey will not go there in his speech. However, he can move the Financial sector with his word at times.
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10:00 – New Home Sales (August): Expecting 597K, July 654K SAAR. This item is very important, not only for what the data represents at the headline, but also for implied job creation, but for all of the peripheral spending implications that can also be applied to buyers of new homes.  The July number was an absolute blow out print….way above expectations, and at the highest annualize rate since 2007. As focused on as the headline number will be today, the revision to July will be just as focused upon.
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10:30 – Dallas Fed Manufacturing Survey (September): Expecting 1, August -6.2. This, while not a high-profile event, is a very interesting event. Dallas has printed in contraction for 20 consecutive months. December of 2014 was the last month that the Dallas Federal Reserve District printed it’s manufacturing data in state of expansion. There is hope. Every market has a bottom, and the similarly streaky Kansas City has shown expansion in two of the last five months. That’s a winning streak in this league.
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11:05 – ECB Speaker: ECB Pres. Mario Draghi will be in Brussels to testify before the European Parliament’s Committee of Economic & Monetary Affairs. Draghi will need support if he intends to further ease policy as inflation remains stubbornly below ECB expectations. Traders will also be on the watch for any clues on his thinking regarding the Bank of Japan’s targeting of the yield curve. This speech as much as any event on this day could impact exchange rates, which in turn would impact almost everything else.
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11:45 – Fed Speaker: Federal Reserve Gov. Daniel Tarrullo speaks from Yale in New Haven on the evolution of stress testing the banks. As a Governor, Tarullo’s vote on the Committee is permanent, but he is not very outspoken on monetary policy. He likely will stick to regulation today.
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13:30 – Fed Speaker: Dallas Fed Pres. Robert Kaplan will speak from San Antonio, Texas to the Independent Banker Association Convention. Kaplan is not known for making attention grabbing headlines, and will not be a voting member of the FOMC until January. There will be a Q&A session with the media following the event.
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Monday’s Earnings Highlight
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Before the Open: CCL (1.89)

Market Recon Friday

Good Morning,
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Hawks On Deck
                    After a nice two day run for US equities that was inspired by nothing more than a decision to do nothing, one must ask themselves a question. Is the uncertainty that was priced out of the marketplace over the last two to three weeks, priced back in yet? In other words, is it time for a little profit taking going into the weekend? Certainly, nobody is all that comfortable with where markets are right now, so you would think that at least in spots, that today…there will be movement. There are also a bevy of Fed hawks lined up as speakers for the day.
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Trader Focus
                    Currency exchange rates, and interest rates control everything in the modern marketplace, so let’s start with the US Dollar. The Japanese Yen may have finally hit resistance vs. the greenback, and Service Sector Flash PMIs across Europe, more specifically Germany showed real weakness. The DXY, at least for now, is showing some early strength. Should this strength carry over into the regular session, that will move money out of the Energy, and Materials spaces where much of the positive movement since Wednesday afternoon has been seen. Bear in mind that Crude prices, and subsequently Energy stocks will remain subject to the Rig Count later today, and any head fakes delivered by the OPEC crowd that will meet next week.
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Hiding Spot
                   Money is again flowing back into Treasuries this morning. The US 10 Year Note spent most of the Summer yielding between 1.5% and 1.6%. In fact, the 50 day SMA is currently 1.58%, and the charts certainly seem to be saying that we’ll see that level again … soon.  As long as this keeps up, Utilities, or really any high yielding dividend type name will remain impervious to general market direction (as they were earlier this year), and be a good place for unsure money to hide.
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Macro
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09:45 – Markit Manufacturing PMI Flash (September): Expecting 52, August Final 52. For August, Markit’s manufacturing numbers were not in line with what we saw from the ISM, from Durable Goods Orders, from Industrial Production, or from the regional Fed districts. Otherwise, they were spot on. This data-point will not cause a market reaction today.
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12:00 – Fed Speaker: Philadelphia Fed Pres. Patrick Harker will deliver the opening remarks to the following panel that will discuss “the Role of the Fed in the Community” from Philadelphia. Harker is not one of the more outspoken officials at the Fed, nor is he a voting member of the FOMC this year. Harker is perceived as hawkish, and will vote in 2017.
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12:20 – Fed Speakers: From Philadelphia, the previously mentioned Patrick Harker, Atlanta Fed Pres. Dennis Lockhart, and Cleveland Fed Pres. Loretta Mester will participate on the also already mentioned panel. This panel consists of a rather hawkish crowd. In fact, Loretta Mester was one of the three dissenters in favor of a rate increase at this week’s FOMC meeting. Mester will lose her vote in 2017. Atlanta does not vote again until 2018.
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12:30 – Fed Speaker: Dallas Fed Pres. Robert Kaplan will speak from an Energy forum in Houston, and will answer questions. Kaplan sounded hawkish throughout the Summer, but seemed to back away from that stance as the calendar turned to September. Kaplan is not a voting member of the FOMC this year, but like Harker, will have a vote in 2017.
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13:00 – Baker Hughes Rig Count (Weekly): Last Week Overall 506, Oil 416. As usual, our last domestic economic data-point of the week is a fairly important one. With Crude trading a rough three dollars a barrel higher than it was a few days ago when markets were impacted by that huge draw on inventories, and the weaker dollar, there could be less of a pop in the number of operating Oil wells than we’ve grown used to.

Market Recon Thursday

Good Morning,
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Market Reaction
                     The September FOMC policy announcement has come and gone. What is clear is that although there were three dissents, perhaps four if you count Stan Fischer, the Vice Chair. The decision to leave interest rates unchanged for now was the correct decision at this time, but as you can see, markets seem to be pricing a possible December hike back into the various instruments that were impacted over the last couple of weeks when due to all of the hawkish “Fed Speak”, the possibility of a September rate increase had to be rapidly priced in. Down goes the US Dollar. Up goes Gold, and Crude, as well as Energy, Material, and Utility names. What may be good for the portfolio, may not be good for Federal Reserve credibility. Will markets continue to trust anything said by the nation’s central bankers going forward?
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Credibility
                     Between the Fed’s Statement, and the Fed’s Economic Projections, which were also released at 2pm yesterday, there were some moving parts that just did not fit.
1) Statement: “Labor Markets continue to strengthen” Projection: Increased the central tendency and the lower end of the range for 2016 Unemployment.
2) Statement: “Economic activity has picked up” Projection: Cut the central tendency and the range for 2016 GDP.
3) Statement: “Household Spending has been growing strongly” Projection: Cut the central tendency and the range for 2016 PCE inflation.
                    Clearly, the statement, and the hawkish sentiment behind it are not truly supported by the group’s own expectations for the economy. Not the best recipe for fostering trust. In fact, going out to 2019, not one member of the Federal Reserve Board, nor one regional President sees GDP above 2.2%, yet at least one contributor sees a Fed Funds Rate of 3.8%.
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Global Cognizance
                     With the Bank of Japan out of the way, and that nation’s markets closed for a holiday today, global equities did rally on the news from the Federal Reserve. There is still some chance that foreign central bankers will impact our markets today. ECB President Mario Draghi will address the European Systemic Risk Board today at 9am ET in Frankfurt, and Bank of England Gov. Mark Carney speaks from Berlin at 1pm ET. Either one of these two speakers is very likely to impact currency exchange rates….. which would subsequently impact those previously mentioned Energy, and Material names.
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Macro
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08:30 – Initial Jobless Claims (Weekly): Expecting 261k, Last Week 260k.  The time has come once again for the most consistent series in domestic macro-economics. The range for today spans a whopping 7k, from 258K to 265K, and the four week moving average is now 260,750, just 250 individuals below our expectation, and 750 individuals above the week prior. This one will not likely disrupt your trading session.
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09:00 – FHFA HPI (July): Expecting 0.3%, June 0.2% m/m. Our domestic HPI’s are both rather dated information, and those following along choose to follow the Case-Shiller variety due to it’s broader scope. That one will be released this Tuesday.  As this item only covers single family homes with mortgages backed by Fannie Mae & Freddie Mac, this number will pass unnoticed by the marketplace.
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10:00 – Existing Home Sales (August): Expecting 5.44M, July 5.39M SAAR. This, the largest slice of the housing pie, disappointed in July after New Homes Sales had knocked the cover off of the ball the day prior. That made the disappointment seem even more dramatic than it should have really been for a number that was in line with 2016 norms. This is the most important macro-economic data-point to be released today.
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10:00 – CB Leading Indicators (August): Expecting 0.1%, July 0.3% m/m.  Exect this data-point to illustrate the economic slow-down in August from July. Do not expect the market to move on it. In more than 30 years on Wall Street, I have never heard anyone without the word Economist in their title mention this one.
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10:30 – Natural Gas Inventories (Weekly): Expecting 55B cf, Last Week 62B cf. Will Natural Gas supplies ever contract again? This weekly number looks to expand for the seventh consecutive week, and for the 22nd week in the last 23. You will only be impacted by this print if you are specifically trading the space.
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11:00 – Kansas City Fed Manufacturing Index (September): August -4. Not as messy as Dallas, but still a mess. Kansas City has fully participated in the “Depression” that the US Manufacturing sector has been going through for several years now. Considered a minor regional Fed number, this will not have the market impact of the Philly Fed, which btw put a nice headline number out there this month, but without support from the right sub-components.
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Thursday’s Earnings Highlights
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Before the Open: AZO (14.24), RAD (.03)

Market Recon Wednesday (BOJ/FOMC)

Good Morning,
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Central Banking
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Bank of Japan Policy Announcement.
                          The Bank of Japan changed gears a bit last night. There were no new additions to the central bank’s stimulus programs, though the BOJ did announce that they plan to keep their aggressive QQE program in place until consumer level inflation “exceeds” 2%. What they did add to the program was yield curve control. The most noticeable change to policy is the targeting of a specific yield for the Japanese 10 year note, which will be “close to zero”. Attacking the yield curve is not a surprise, as it was leaked to the media last week that something like this was in the works. Interest rates on the short end were left in place for now. Japanese markets seem to have reacted well. The Nikkei 225 roared to the tune of almost 2%, obviously led by the Financial sector. At first the Yen weakened, and the Japanese ten year, though already negative rallied. Both are well off of their overnight extremes. In fact, there really was nothing in this announcement that I see that would have caused such a knee-jerk for the Yen. That currency is back in the 101.50 range vs. the US Dollar after kissing 103 earlier.
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14:00 – FOMC Policy Announcement.
14:00 – Federal Reserve Bank Economic Projections.
14:30 – Fed Chair Janet Yellen Press Conference.
                        The belief across the marketplace is that there will be no increase announced today for the Fed Funds Rate…. for a number of reasons. You may choose your poison, be it a much weaker Q3 for the US economy in general than was anticipated as recently as three weeks ago, the looming Presidential election, a recently stronger US Dollar, or simply the lack of consistent wage growth and the inflation that such growth would bring with it. Should rates already be higher for some time? Of course, but that’s not today’s fight. Today, we try to anticipate the Fed, and find a way to profit from what they do or say.
                        In all likelihood, the statement will show an increased willingness to raise rates before the end of the year (with the removal of a dot). I think you will see more dissents from a decision to leave rates where they are than we have seen in the past. Kansas City’s Esther George might not stand alone. She may be joined by up to two or three others. The only iron-clad dove left is Lael Brainard. To justify more hawkish posture, the economic projections made by the Fed will have to show a consensus increase from current positions for GDP (1.9 to 2%) for 2016, and Core y/y PCE Inflation (1.6 to 1.8%). Tweaking that last item (Core PCE) is imperative, leaving the forecasts where they are would be seen as dovish.
                       It is true that monetary conditions have already tightened. conditions have been getting tougher since early July. Still, if you get all of these hawkish leanings, there will be a reaction. You will see the US Dollar move higher against it’s peers. You will see a rally in the Financial sector, particularly Banks, Capital Markets, and Consumer Finance names. This should also provoke some selling pressure on the Utility sector, and on Gold. Treasuries, seemingly already having priced in some uncertainty may behave very interestingly, and will be a tough call to make, as they are also so very impacted by foreign central banking policies.
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Macro
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10:30 – Oil Inventories (Weekly): Expecting +1.1M, Last Week -600k barrels.
10:30 – Gasoline Stocks (Weekly): Expecting -800k, Last Week +600k barrels. Crude prices soared last night after the API numbers were released. WTI is now trading above $45 a barrel. For the second week in three, the American Petroleum Institute reported a massive draw for both Crude supplies (-7.5M bar), and Gasoline stocks (-2.5M bar). Large gaps between expectations, and reality are nothing new to the Crude space. Should we see a confirmation of this API data today by the EIA, this will be taken as very supportive not only for the underlying commodity, but for the Energy sector as a unit.
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Wednesday’s Earnings Highlights
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Before the Open: KMX (.88), GIS (.75)
After the Close: BBBY (1.16), JBL (.25), RHT (.54)

Market Recon Tuesday

Good Morning,
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Bank of Japan.
                     The FOMC goes into their two day meeting today, as did the bank of Japan this morning. We will not hear from the FOMC today, but by the time I send this note tomorrow, the BOJ will have made their announcement, and Gov. Hiruhiko Kuroda will have held his press conference. If leaks and rumors are to be believed, the Bank of Japan is looking to steepen their yield curve by possibly pushing the short end deeper into the negative while allowing the long end to trade freely in the marketplace. In theory, the move improves conditions for lenders, and ultimately promotes inflation. In concept, is this easing or tightening? Currency markets are acting as if they don’t know, or doubt it’s effectiveness. Will the Bank move at all? Only roughly two thirds of Japanese economists surveyed, think they will. The BOJ has surprised the marketplace before. This is still a wildcard event.
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Financial Sector.
                     It was a day that started out strong enough. The general marketplace did sell off throughout the afternoon, and the S&P 500 closed nearly unchanged. The Financials were among the best bid sectors yesterday, particularly the banks. The focus on that space will be put squarely on Wells Fargo CEO John Stumpf, who must testify before the Senate Banking Committee at 10am ET. An entire sector’s performance for the day could rely on how well this goes, especially with the quiet markets that we can see preceding central banking policy decisions.
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Paradox.
                     The marketplace is clearly unprepared for an increase in the Fed Funds rate at tomorrow’s announcement. For those who follow the markets very closely, there were a number of mixed signals present yesterday. For one, the odds of a hike as interpreted through futures markets increased to about 18% for tomorrow, and to about 55% for some time this year, both a touch higher than late last week. We’ve already mentioned the out-performing Financial sector, especially the banks. Those would do well with a rate increase. They themselves, though, were out-performed by Utilities, whose stocks prices should benefit if the Fed decides to stand pat for longer. The US Dollar itself has been softening against it’s peers, which could be a function of expectations of an extended period of easy money, or merely expectations of disappointment abroad (BOJ). Then there’s the Small Caps, who simply ran well ahead of all other major indices yesterday. A bet on the domestic economy?…  Or a hedge against a stronger US dollar going forward? One thing is for sure. By Thursday, the puzzle pieces should fit together a little better, and either Lael Brainard, or Esther George will have officially lodged a dissent. So, so, so intellectually fascinating.
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Macro
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08:30 – Housing Starts (August): Expecting 1.19M, July 1.21M SAAR.
08:30 – Housing Permits (August): Expecting 1.17M, July 1.15M SAAR. Start printed in July at their highest level in about half a year. The fact is that Starts have printed higher than Permits on an annualized basis for six months running, which I would usually take as a caution sign. Usually. Housing data in general has been putting up the strongest numbers in the domestic economy of late, and who can argue with the September home-builder optimism survey that hit the tape yesterday? I do not think this number, though important will highly influence the FOMC’s decision tomorrow by itself. We’ll hear from a couple of those home-builder today.
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08:55 – Redbook (Weekly): Last Week 0.4% y/y. the growth in this space last week was a little tepid compared to the two weeks prior. Still, In September, the year over year growth is averaging 0.6% as compared to the 0.3% this item averaged in August. we like to see an average of at least 0.5% in this space.
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Tuesday’s Earnings Highlights
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Before the Open: LEN (.95)
After the Close: ADBE (.72), FDX (2.79), KBH (.39)

Market Recon Monday

Good Morning,
Weaker US Dollar.
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               You’ll notice this morning, a weaker US dollar. Then you’ll notice firmer market prices for Gold, Crude, and Equity Index futures. With last week’s continuance of the recent run of rather weak US macro, the chances of a rate hike announcement by the FOMC this Wednesday are perceived by most economists to have diminished somewhat. Thus, at least for the moment, the dollar weakens. Chances are that if the Fed is to take a pass until after the election, the Bank of Japan policy meeting, which is still something of a wildcard will impact exchange rates more so than the US central bank.
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Oil Volatility. 
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               The volatility in Oil this morning is in response to some mixed signals that traders are seeing on top of those currency fluctuations. Over the weekend, Mohammed Barkindo (Sec. Gen. of OPEC) tried to scale back expectations of any agreement on a production freeze being put together at the informal meeting being held next week in Algiers. After that, we see the President of Venezuela, Nicolas Maduro declaring that he had a long meeting with the leaders of Iran, and that a deal between OPEC & non-OPEC producers is very close. Who to believe? Right now, markets are going with the last thing they’ve heard.
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Trader Focus.
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               While the macro is very light this week, and earnings, are for the most part, in between seasons, the moves in Oil (and subsequently the impact in the Energy sector, and Transportation space) will likely be where traders go early on Monday. What traders also want to cognizant of today, are Bayer AG’s analyst meeting. It’s no secret that MON’s stock price has not behaved correctly if one believes that this deal will get through apparent regulatory hurdles. I would think that some kind of strategy regarding completion of this deal might come out of the meeting. It is also expected that Japan’s Prime Minister Shinzo Abe will speak at the UN on his economic growth plan. While it is doubtful that he will comment on monetary policy days ahead of that BOJ meeting, it is not at all unlikely that Abe will detail the progress made on the fiscal side.
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Macro
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10:00 – NAHB Housing Market Index (September): Expecting 60, August 60. This item is also referred to as the Homebuilder Optimism Index. Simply put, this is a survey of roughly 900 homebuilders from around the country, and they are asked to rate the current environment as well as their future expectations. After a very strong second half of 2015, this item has ranged for most of this year between 58 and 60. Regardless, there will be little market reaction to this item, especially with August Housing Starts just one day away.