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)