Market Recon Friday

Good Morning,
 
Consumer Level Inflation
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                  The one and only thing that could actually force the Federal Reserve Bank to raise the Fed Funds Rate would be a burst of consumer level inflation. What markets watch for, are the year over year Core numbers. The Fed watches the y/y Core PCE as it runs below the CPI, and has allowed them more flexibility in making policy decisions. If you read me often, you know that I have long argued for recognition of the CPI, and for an earlier normalization of interest rate policy. Recently though, you’ve heard me argue against, because it does appear to me that the economy is slumping a bit this year. Whether or not this economy is heading into a recession, near recession-like conditions, or just a temporary slow-down is unknowable. We do know that if we enter a recession after a hike in rates, the Fed surely will take the blame, losing what credibility the central bank might still have.
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Grading The Fed.
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                  In case you are keeping score, Core year over year CPI has run at or above the Fed’s stated 2% target for nine consecutive months. On top of that, Core CPI has also run at or above 2% for parts of 2011, 2012, 2013, 2014, and 2015. Going back to 2011, while GDP has been volatile, there have been many quarters that printed well above 3%, or even 4% when annualized (Several years printed above 2% as well). The point is that the FOMC had ample opportunity to normalize rates (or at least get the ball rolling) while there was simultaneous growth mixed with consumer level inflation. Wouldn’t it be nice to think that in the face of possibly lower trending macro-economic data-points that the FOMC could behave normally. It becomes extremely difficult to overstate the lack of preparation to insulate the US economy when entering rough seas. That would have been productive work. Constantly grabbing the microphone in order to opine on policy? Not so productive.
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Trader Focus.
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                Yesterday, we mentioned a few trading levels. The equity index levels were good, but the 43.50 level for WTI Crude that I spoke of… is looking more and more like a 43.25 level. That’s where we have now repeatedly seen support, and is the spot that must break in order to see the 40.75 level. First resistance for Crude is now in the 44.25-44.50 range. The impetus for a break one way or the other could very well come this afternoon with the release of the Rig Count information. This will impact Energy stocks, and could tilt the broader equity market ahead of what should be a rather intense closing bell at 11 Wall Street. Traders will be pricing in not only the quarterly rebalances, that will include to some degree the creation of an 11th sector (REITs), but the “Quadruple Witch” expiration as well.
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Macro
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08:30 – CPI (August): Expecting 0.1% & 1.0%, July 0.0% m/m & 0.8% y/y.
08:30 – Core CPI (August): Expecting 0.2% & 2.2%, July 0.1% m/m & 2.2% y/y. As stated above, consumer level inflation may force the FOMC’s hand. This is not Janet Yellen’s preferred dat-point in this space, but a shock to the upside would move the needle for the Fed Funds futures market, and for the marketplace in general, but primarily the Financial sector.
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10:00 – U of M Consumer Sentiment (September-p): Expecting 90.0, August 89.8. This is an item that can sneak up on you if you’re not ready for it. Like all consumer-based surveys, markets do sometimes react, and even over-react at the time of their release. Sentiment has been trending decidedly lower since June, but expectations are for if not something of a rebound today…at least a halt to the decay.
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13:00 – Baker Hughes Rig Count (Weekly): Last Week 508 total, 414 oil. Those who trade Crude, the Energy space, or parts of the market reliant upon the Energy space watch the number of rigs involved in the production of oil nearly as closely as they do the Wednesday inventory print. That number has been on the rise, adding seven last week. I would think given the relatively bearish moves in Crude prices of late that the urge to increase capacity would start to wane at some point.
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16:00 – TIC Net Flows (July): Expecting $25B, June $-3.6B. This dated measure of cross border net demand for investment surprised to the downside for June. This item will not impact your trading session today, but I think it’s one of the most interesting series in our macro world. Chinese and Japanese accounts easily hold the top two spots in US Treasury holdings. I bet most of you did not know that, at least as of June…. Irish accounts had moved into the third spot.

Mid-Day Recon

Good Morning,

                     For those of you still concerned that the FOMC would decide to increase the Fed Funds Rate next week, today’s macro-economic data-points should put those immediate concerns to rest. A sentient economist would most likely have to be either acting against instinct, or under orders to vote in favor of such a hike after what we have recently seen in the August data… or for most of 2016 if truth be told.
                     I wish rates were already higher.  Actually, interest rates should be higher for quite some time now.  Fed Chair Janet Yellen will at some point, have to admit that she had her pitch a few years ago, in fact more than one pitch, and she (they) whiffed.
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Let’s look at today’s key data-point takeaways.
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Retail Sales (August): Badly disappointing at both the Headline, and at the Core.  Suddenly this two month losing streak for the headline looks a lot worse when you realize that there really have been only two good months in the last eight.  The Core number, which did have a nice four month run going at one point, has now printed in contraction for two straight months.
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Industrial Production (August): Expectations were for contractions in both headline Industrial Production, and Capacity Utilization.  That’s exactly what we saw, except in both cases the print was even worse than the expectation.  This was coming off of a fairly robust July, which by the way was revise slightly lower. In fact, in each of the last four positive prints for Industrial Production (which takes us back more than a year), they have all been revised lower one month later.
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Philly Fed (September):
A rather robust looking 12.8 print hit the tape in this space, soundly beating expectations of merely 1.4.  Wait a minute, New orders barely held their ground, and that’s what drives manufacturing.  On top of that … Shipments, Unfilled Orders, and Inventories all collapsed.  The only strength was in pricing.  Inflation with out growth in the underlying businesses. That’s just terrific, and unintentionally deceptive.

Market Recon Thursday

Good Morning,
 
Bank of England.
                     Today’s early headline will come out of the Bank of England, where there will be a policy decision announcement at 7am ET. At the August meeting, the BOE cut the Official Bank Rate from .5% to .25%, kick started their quantitative easing program that included corporate bonds as well as government, and offered cheap loans to British banks. The BOE also promised further policy aggression if need be. Since then, the British economy has been stable, even pretty decent in spots. Retail Sales, Industrial Production, and UK PMI data have all been better than previously thought. The Bank of England certainly does not need to, and likely will not act today. Economists in the UK will more likely be discussing whether or not Mark Carney saved the economy, or if the MPC went too far last month. As with all central bankers, I am sure that the BOE will monitor the data, and stand ready to do what’s necessary going forward.
 
Very Heavy Domestic Macro Day.
 
                    Here, in the States, we have an extremely heavy macro day ahead of us, after not seeing so much in the way of data for quite some time. In my opinion, it is far more interesting to peruse a somewhat important batch of items like this, than it is to figure it’s interpretation though the prism of “Fed Speak”. Unfortunately, that is how all data is looked at in these times. Their ability to swing, or not swing policy decisions outweighs their use a barometer of economic health. We still have a few of those “high profile” economic events to get through prior to the FOMC’s meeting next week, and perhaps the most impactful of those will be today’s August Retail Sales numbers. This could be a case of good being bad for the market, or vice versa. Today’s Industrial Production print, and tomorrow’s CPI (though the FOMC does not admit it) should also matter to someone mulling a move in interest rate policy.
 
Trader Focus.
 
                     There are some levels that traders are watching very closely, and working off of. First and foremost, it’s difficult to not notice the brick wall that 2120 has been for the S&P 500. Now tested five times over three sessions, and providing immediate support each time, it’s not very hard to see where some traders, and some algos have decided to make a stand. If, and when this spot breaks, there will be visible violence on the chart. BTW, yesterday’s high of 2141 is also a trading level that has passed two tests of it’s own this week. Another is the 43.50 spot for WTI Crude. This level is more like an area target, and might be compared to the SPX 2120 level as a hand grenade would be compared to a sniper rifle. Though, far less precise, once this spot is not only pierced, but becomes resistance, the door opens to another fight just above $40 for oil.
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Macro
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08:30 – Retail Sales (August): Expecting -0.1%, July 0.0% m/m.
08:30 – Core Retail Sales (August): Expecting 0.2%, -0.3% m/m. At the headline, Retail Sales have run hot in two of the last four months. That’s kind of like a winning streak in this modern economy. Auto Sales were not strong in August, so I wouldn’t expect to see three out of five. We are however, looking for a fairly strong Core number. The Fed is looking for this too, especially after an impressive second quarter in this space ended with the disaster in July. Industrial Production, and tomorrow’s CPI both matter, but this is the most important item left prior to next Wednesday’s monetary policy announcement.
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08:30 – PPI (August): Expecting 0.1%, July -0.4% m/m.
08:30 – Core PPI (August): Expecting 0.1%, July -0.3% m/m. Producer prices rolled off of the table in July. projections aren’t exactly for a robust bounce back in the August data. FYI, projections were all positive last month when these two both surprised. The markets do not react much to inflation, or the lack thereof at this level, basically because the Fed does not react to inflation at this level.
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08:30 – Initial Jobless Claims (Weekly): Expecting 264k, Last Week 259k. I really can’t get over how consistent this item has become. It really is a shame that real economists don’t see that having a high number of part-timers in the labor force correlates to a drop in layoffs, and a lower Unemployment Rate, but does not mean that you’re approaching full employment. the four week moving average for this item is 261,250, and the entire range of opinions for today’s number spans just 4k, from 261k to 265k. Markets will not likely react to this release.
08:30 – Philadelphia Fed Manufacturing Index (September): Expecting 1.4, August 2.0. Though the number was quite paltry, Philadelphia’s headline print landed above zero in August, which ended up being quite a feat in comparison to most of the other manufacturing data that we saw for the month, and somewhat deceptive at that. All you’ve got to know is that New Orders, the single most important sub-component in the space were decisively negative for Philly last month. Not much in the way of growth is expected here today. Should you see a surprise here today, the markets will react. Philly is the most influential regional manufacturing number in our macro world.
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08:30 – Empire State Manufacturing Index (September): Expecting -1.0, August -4.2. Even thought he headline print showed contraction in August, New Orders at least held their ground. The forward looking employment number for the New York region was poor last month. That will be watched today, but with so much other high profile data available at this time, this report will not be what moves the marketplace.
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09:15 – Industrial Production (August): Expecting -0.2%, July 0.7% m/m.
09:15 – Capacity Utilization (August): Expecting 75.7%, July 75.9%. I bet you did not know that the last three times that Industrial Production printed in a state of growth, the number was revised lower the next month. That said, we saw nice month over month growth in July. Actually, it was more like a two month winning streak. If you can recall the August ISM print, and all of the regional data that we saw, then you probably aren’t looking for positive numbers here today.
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10:00 – Business Inventories (July): Expecting 0.1%, June 0.2% m/m.  This item is dated, and traders don’t really react to it, but it does factor into GDP, so eventually it will matter. Wholesale inventories for July were reported last Friday, and they are a major sub-component of this data-point. Now we add in inventories for manufacturers, and retailers in order to see a more complete picture.
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10:30 – Natural Gas Inventories (Weekly): Expecting 45B, Last Week 36B cf. The build just keeps going in this space. This week, we expect to see our 21st increase in Natural Gas supplies in the last 22 reports. This will likely be a low profile event.
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Thursday’s Earnings Highlight
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After the Close: ORCL (.58)

Market Recon Wednesday

Good Morning,
                    The good news for market participants is that all of the Fed speakers have been put back in their cages for a week or so. The obvious take-away is that the FOMC felt the need to change market expectations toward the possibility of an increase in the Fed Funds Rate, which they have done for now. Have the markets priced in an imminent increase? No, but they have priced in a degree of uncertainty, along with a simultaneous degree of uncertainty regarding global central banking expectations. It was only a couple of months back when the Bank of England, and the European Central Banks were pledging to pour as much kerosene on the fire as necessary in the wake of Brexit. There were, at the same time rumors of a merging of monetary & fiscal policies in Japan that would result in “helicopter” money. All of that, had Janet Yellen thinking that maybe spitting into the wind wasn’t such a hot idea. Normalization could wait.
                   What happened next was, that the sky didn’t fall. Suddenly, the BOE didn’t need to be as aggressive as Mark Carney had previously thought. If Mark Carney didn’t need to be aggressive, well then certainly Mario Draghi wasn’t going to react alone. Although, after he saw the ZEW numbers out of Germany yesterday, and European Industrial Production print this morning, he may be wondering if he should have. The Bank of Japan held their fire, and announced a two month study of their monetary easing policies. Now, the Fed could think about going about their business. In plain English, global central banks are simply looking less dovish than they were three months ago.
                  This is all simply posture until it is action, and never count on action until it is fact. What’s been working? Nothing over the last few days, but over three months’ time, the Tech space has been your best. Even over the last few days, that space has been damaged the least. The Financials are flat over a month’s time as a group largely because of interest rate hopes. I think that you do want some exposure there, but in a limited way.  Changing one’s allocation toward Treasuries might be wise before the yield on the ten year hits it’s 200 day SMA (1.81%), but I wouldn’t go too low in that space. In the past, every time I have thought about lowering my allocation (currently 17.5%) in that space, I have been rewarded for dragging my feet. Personally, I would not go below 14.5% there at this time. Gold acts well, considering that it’s fighting a stronger dollar. As long as the yellow metal stays above $1305, an allocation of between 5% to 10% seems appropriate to me. Should that level crack, momentum would shift away from precious metals at least temporarily, and I think that the lower bound of that range would serve better than the upper, until the spot was eventually retaken. Gold is not like a stock. Momentum is more of a factor there.
                   This is all short-term, gang. The whole “not getting creamed” thing may be high-maintenance for a while. Carry on.
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Macro
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08:30 – Import Prices (August): Expecting -0.1%, July +0.1% m/m.
08:30 – Export Prices (August): Expecting 0.0%, July +0.2% m/m. thanks to the volatility seen for quite some time now in Energy prices, and Food prices, these two items are not as reflective of cross-border demand as they once were. In July, the headline print for Import prices may have been 0.1% m/m, but prices for fuel imports were -2.5% m/m. Exclude fuel, and the print become 0.3%. For exports, the story is similar, but substitute agriculture for fuel, and the headline print of 0.2% m/m also become 0.3%. We expect further erosion in these subcomponents to continue to impact headline prices for August. Futures markets will not react with any kind of urgency to this data upon it’s release.
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10:30 – Oil Inventories (Weekly): Expecting +3.3M, Last Week -14.5M barrels.
10:30 – Gasoline Stocks (Weekly): Expecting +250K barrels, Last Week -4.2M barrels. Last week, you’ll recall that these numbers showed some of the most dramatic one week contractions in inventory in decades. These numbers matter every week, but after the beating that Crude, the Energy space, and the Transports took yesterday, they matter even more so today. Expectations for today are for a resumption of the methodical build in Crude supplies now that the inclement weather that contributed to last week’s surprise is out of the way.  Last week, the Tuesday night API number ended up being a fairly accurate forecast of what was to come. Last night, the API release showed a lower than expected build for Crude of 1.4M barrels, and a draw of over 2M barrels for Gasoline. This has allowed a bid to form around the 44.75 level for WTI.
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Wednesday’s Earnings Highlight
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Before the Open: CBRL (2.13)

Market Recon Tuesday

Good Morning,
                    There was good news for the month of August coming out of China last night. Good news for the Chinese economy, not if you were hoping the PBOC would be prodded into action sooner rather than later. In China both Retail Sales, and Industrial Production beat consensus views, as did Fixed Asset Investment. Chinese GDP is in no danger of falling toward the lower bound of the 6.5% to 7% target range set by that government.
                    While there will be no more Fed Speak until after next week’s policy meeting, equity index futures are back in the hole in the very early going on Tuesday. There is still clearly much uncertainty regarding Federal Reserve Bank intentions on interest rates. Surely, Lael Brainard’s dovish comments yesterday helped undo some of Friday’s carnage. Stocks closed near their highs of the day yesterday. The probability of an increase in the Fed Funds Rate as interpreted by the futures markets dropped late Monday back to 22%, last week’s low. The thing is, that if your tear apart the FOMC, one by one, Brainard is the only sure thing that the doves have left.  While Esther George is her hawkish counterpart, and there at two that I consider to truly be wild-cards, the other five are all folks who have spoken more hawkishly in recent weeks than they had in the past. Then there’s the Fed Chair. In her heart, she’s a dove, but she has at least made it clear that she is maybe reluctantly open to the next rate hike. Perhaps next week is too soon, and would get messy in front of a national election. I think either way, most of those seven voters will vote with the Chair. As there is no press conference in November, you’re probably looking at December…. if. That’s right… if, and only if the macro doesn’t fall completely out of bed between now and then.
                   You may not have seen the news, but you surely saw the market price of Crude take a sharp hit in the overnight session. The catalyst for this move was the International Energy Agency cutting their views on demand for Crude sizably. Primarily due to what they are seeing in China and India, the EIA cut their 2016 forecasts buy 100k barrels, and their 2017 forecasts by 200k. They are not calling for contraction, mind you, but for a reduction in their prior forecast for growth in the space. These things are, however priced in, and this morning, you are seeing some of those future sales priced out. By the way, for those not familiar this body is not the EIA, which releases out Inventory number for Crude every Wednesday.
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Macro
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06:00 – NFIB Small Business Optimism Index (August): Actual 94.4, Had Expected 94.7, July 94.6. While it seems like 94.4 is still a very strong number, the truth is that this is only in comparison to the trend since 2009. Prior to that, the headline number rarely printed below 95, and usually printed well above 100. Weakness for small businesses this month are seen in Plans to increase Employment, Expectations for the US Economy, and in Earnings Trends. By the time you read this note, the futures markets will have absorbed this print.
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08:55 – Redbook (Weekly): Last Week 0.8% y/y. we’ve seen stronger year over year numbers in this space over the last two weeks. Is it a trend? Not yet, but the ball may be moving in the right direction. There was much weakness toward the middle of August. Might have been too little to save the month’s Retail Sales print, which will be released on Thursday.
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14:00 – Federal Budget Balance (August): Expecting $-104B, July $-112.8B. Another sloppy number is expected here today. The bright spot should come next month as September is one of the few months that actually produces a surplus for the government on a regular basis. This item will not impact your day as a trader.

Market Recon Monday

Good Morning,
                    What’s Happening? That’s the easy question. All of the recent “Fed Speak” has come from a hawkish perspective. What this has done is force traders across every asset class to re-price their merchandise. Whatever it is that you trade, you most likely had priced in another three months without an increase in the Fed Funds rate given that a national election looms, and the economy seems to be slowing down. There is no doubt in my military mind that interest rates should be higher already. Maybe even considerably higher, and for quite some time now. The past mistake of the Fed’s inaction when action was required, was short-sighted, and will only be compounded should this Fed act when inaction is required. Then again, they haven’t acted yet. Right now, we must deal with either a group of academic economists ill prepared in the ways of the real world, or more probably…. a group who have been told to get out there and change market expectations because the plot is already written in stone.
                    Should One Hide? Obviously, being overweight the Utility sector, or any dividend type stocks right now has put some folks in a box. When the fear of a resumption of a tightening cycle suddenly gets under way like that, and when the carnage is broad, these names will, or are being hurt the worst. Traders are also being hurt who piled into Energy names over the last week/month as that sector led the way higher. A stronger US dollar environment will, however put a quick end to that. On top of all of this, many investors suddenly feel overexposed to Treasuries, or Corporates. The time to put up your fists is not after the fight.
                   How Does One Hide? We mentioned it last week,, and last month as Financials became interesting. Not simply Financials, but the Banks. The S&P banking component of the Financials index was hit with everything else on Friday, but only to the tune of -1.2%, while the broader market took a beating of -2.5%. This is where the benefit will be in the equity markets should there be an increase in rates in the immediate future, particularly if the threat of further increases persists. That environment will most likely, at least provide a short-term pop in this space. A stronger dollar should, in theory also help small caps, but there’s danger there. Small caps, in general can be a market leader, and many are as reliant upon credit, if not more so than their larger counterparts that have more staying power. About that stronger dollar…. it should be damaging to other USD denominated commodities just as much as it hurts Crude, and the Energy space. Gold seems to be hanging in there better than the others though. That likely means that a portion of us out there are not buying into this rate hike thing at all, or they think that this economy will head into a recession once the hike(s) resume. Then, there’s cash, which may earn you a smidge more in the bank, but is really just fiat currency at the end of the day, anyway.
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Macro
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08:00 – Fed Speaker: Atlanta Fed Pres. Dennis Lockhart will speak from Atlanta, Georgia. Just last week Lockhart spoke about maybe squeezing in two interest rate hike this year, so we know where he stands on policy. Lockhart is not a voting member of the FOMC this year.
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13:00 – Fed Speaker: Federal Reserve Gov. Lael Brainard will speak on the economy, and monetary policy from Chicago, Illinois. The addition of this speech to the docket was what, in my opinion rattled more than a few cages on Friday.  Even more so even than Eric Rosengren’s speech that morning. Brainard is a voting member of the FOMC, and is thought of as something of a “perma-dove” by the economics community. We do not yet know what this governor will say today, but the possibility of her changing teams was at least partially responsible for the damage done to financial markets on Friday.
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13:00 – Fed Speaker: Minneapolis Fed Pres. Neel Kashkari will be in St. Paul, Minnesota, and he will take questions. He is not a voting member of the FOMC, and monetary policy is not considered his strength. He will be completely overshadowed by Brainard.
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13:00 – 10 Year Note Auction. The Treasury will try to auction off $20B worth of ten year notes (and $24B worth of three year notes) while Lael Brainard makes her speech. The strength of lack of strength in this auction, and the foreign interest, or lack there of will be headline material after the fact. Just so you know where we at coming from…the most recent auction of 10 year paper occurred on 10 August when Treasury sold $23B at 1.5% with a bid to cover of 2.4, and with indirect bidders (foreign accounts) taking down 71% of the issue.

Market Recon Friday

Good Morning,
                     Oddly enough, the probabilities of an interest rate increase this year as interpreted through the Fed Funds futures market have increased somewhat over the last 36 hours or so. Late yesterday, the odds of a September hike were up to 28% from 22%, and the odds for a hike by December had gone from 51% to 59%. You did not need to actually see these probabilities in order to accurately guess which way they were moving.  Treasury yields, Gold, the DXY, and positive movement within the banking component of the S&P Financials Index told the story just as well.  Even with a long trail of disappointing macro-economic data-points littering our recent path, the Fed speakers that have stuck their necks out this week have remained hawkish. This is precisely what traders will be up against this morning as well. Without any headline level macro, and in between earnings seasons, the focus will be squarely on our two Fed speakers in the early going. Then, there’s the Rig Count this afternoon.
                   China is something to keep an eye on, again.  August CPI rolled in at 1.3% y/y, sharply lower than July’s 1.8%, and well below the 2.3% y/y prints that Chinese consumers were dealing with back in the Spring. Chinese GDP ran at 6.7% in the second quarter, which is below the 8%, and 7% levels where the Chinese government has tried to make a stand in the past, but within the 6.5% to 7% stated target range for this year. While dealing with a real estate bubble, and an over-leveraged financial industry that have at times fed off of each other, the PBOC has been slower than other global central banks to ease policy, (at least lately) under trying economic conditions. The PBOC will not act in response to this data, but I think they certainly belong on the watch list. China’s National Bureau of Statistics is scheduled to release both August Industrial Production, and August Retail Sales this Monday night (NY time).
                   This Sunday will be the fifteenth anniversary of the 9/11 attacks on the United States. People say things like “Never Forget”. I know they mean well, but forgetting would be a luxury, and unfortunately…. will never be an option. Don’t forget to say a prayer at some point this weekend, for those impacted, for those who still suffer physically, and emotionally. Pray for those who’ve responded… that day, and over the last fifteen years. Pray for our friends, and pray for our enemies. Pray for peace.
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Macro
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07:45 – Fed Speaker: Boston Fed Pres. Eric Rosengren will layout his forecast for the economy from Quincy, Massachusetts. Early last week, Rosengren indicated that he felt that the US economy was close to reaching it’s goals, and that he felt the time to raise interest rates was nearing. It will be interesting to see if the string of disappointing numbers (Jobs, wage growth, auto sales, productivity, both ISM prints) that we’ve seen since he spoke have impacted his outlook. Rosengren is a voting member of the FOMC, and has the ability to move equity index futures markets as he speaks.
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09:30 – Fed Speaker: Dallas Fed Pres. Robert Kaplan will speak twice today. First from Austin, Texas at this time, and then tonight, at 20:30 from Dallas, Texas. Kaplan maintains a lower profile among Fed officials, and is not a voting member of the FOMC.  The caveat here is that Kaplan will subject himself to Q&A sessions at both of these events. When we last heard from Kaplan, two weeks ago, as with most of the Fed in recent weeks, he sounded hawkish in nature.
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10:00 – Wholesale Inventories (July): Expecting 0.0%, June 0.3% m/m. This item has just gone through four consecutive months of somewhat robust growth. That helped contribute to the four months of milder growth that we’ve just witnessed for Business Inventories, which is the headline item in this space. Unfortunately, the growth is expected to stop with this report, which will be the first in this series for the third quarter. July Business Inventories will be released next Thursday.
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13:00 – Baker Hughes Rig Count (Weekly): Last Week 407, up one. Traders watch for the number of rigs devoted to Oil production, not the headline number, which printed at 497 last week, up eight. In recent weeks, this print has rivaled the weekly EIA inventory number for the ability to impact the market price of Crude. However, give what transpired yesterday, I find it difficult to believe that this will be the case this week.
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Friday’s Earnings Highlights
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Before the Open: HOV (.06), KR (.45)
After the Close: Let’s go Mets!

Market Recon Thursday

Good Morning,
                     It’s ECB Thursday, and for those of you who’ve missed Mario Draghi over the last seven weeks or so, you will get your fill today at 08;30 ET. Way back when most European economists were predicting that the UK’s Brexit referendum would lead to the next global extinction event, the Bank of England was easing policy, with the ECB promising to follow along. Now, that the British, and Euro-Zone economies are either going to apparently hold their ground at these currently so-so levels, or erode much more slowly than previously thought…the BOE is likely to hold their ground next week. That puts the focus on today’s ECB policy meeting. This morning’s valuation of the Euro vs. the Dollar (spiked up to 1.127) tells you what need to know about what European traders might be thinking. It’s not impossible that Mario Draghi will announce an extension of the ECB’s current QE program of E 80B (sovereign & corporate debt) a month past it’s previously announced March 2017 end-point. He may even widen the parameters of what debt is acceptable to the program in order to keep eligible supplies from running dry. He’s also just as likely to talk up this game, while putting it off until later this year.  That seems to be what the currency traders are expecting.
                    Think today’s weekly Oil Inventories report from the Energy Information Administration will garner much attention? In case you’ve missed it, the American Petroleum Institute (which reports a competing number every Tuesday evening, this holiday week, on Wednesday evening) printed their inventory number last night at -12.1M barrels. Gasoline stocks also came in much lower than what we were expecting to see today. If this very large draw is confirmed (or close to it) by the EIA, this will be the single largest contraction in this space for any one week in over 30 years. I honestly thought this was a misprint when I saw it last night.  Don’t forget, Tropical Storm Hermine was a threat to the Gulf Coast region last week, so there will be something for analysts to blame if their expectations are not close. Obviously, Energy stocks, yesterday’s winners will likely open at a premium.  Within the Transports, an oil move like this would give the Railroads a chance to catch up to the Airlines after that group ran with the ball during yesterday’s session.
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Macro
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08:30 – Initial Jobless Claims (Weekly): Expecting 264k, Last week 263k, 4wk MA 263k.  This week, we expect to see our seventh consecutive weekly print in the 260k’s.  In fact, the entire range of expectations for this item today is contained within the 260k’s, and the four week moving average is now 263k. The day we do see a surprise in this series, it will truly be just that… a surprise.  In all likelihood, this item will not have a great impact on the equity index futures markets upon it’s release.
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10:30 – Natural Gas Inventories (Weekly): Expecting 44B, Last Week 51B cf.  We look for our fifth consecutive weekly build in this space today, and our 20th in the last 21 weeks. This report will not impact most of you.
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11:00 – Oil Inventories (Weekly): Expecting 500k, Last Week 2.3M barrels.
11:00 – Gasoline Stocks (Weekly): Expecting -350k, Last Week -691k barrels. Crude inventories have been building, printing in expansion in five of the last six weeks.  Gasoline numbers have been going the other way, printing in contraction in four of the last five weeks. The gasoline print has been the force behind any mid-day support that Crude prices have been getting on Wednesdays. That said, as mentioned above, the API number last night reported that inventories dropped a shocking -12.1M barrels. WTI Crude surged in the immediate aftermath straight to 46.10, and is trading in the 46.30’s at last glance. API also reported gasoline stocks to have come in at -2.3M barrels as well.
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15:00 – Consumer Credit (July): Expecting $15.6B, June $12.3B. In a month where new credit printed toward the bottom of it’s range, the revolving credit portion was actually the lion’s share of the number for a change. Simply put, that means folks increased the use of their credit cards faster for July than they did borrow for new auto purchases, or spend on education. Many economists like to see credit card usage pop, thinking it signals consumer confidence, and an increase in the velocity of money. I generally worry when it comes suddenly that folks are borrowing just to maintain their standard of living.
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Thursday’s Earnings Highlights
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Before the Open: BKS (-.18)
After the Close: DLTH (.07), KFY (.53), ZUMZ (-.08)

Market Recon Wednesday

Good Morning,
                    San Francisco Fed President John Williams spoke last night, and he didn’t sound swayed by the recently poor numbers that we’ve seen for auto Sales, job growth, wage growth, worker productivity, hours worked, the manufacturing sector, the service sector, construction spending, etc. Williams still thinks the economy is in “good shape”, and still would like to see a hike in interest rates “sooner rather than later”. The probabilities (according to the futures market) of an increase in the Fed Funds Rate dropped to 24% for September, and 51% for December yesterday after those disappointing service sector numbers, and the sixth negative print for the labor market conditions Index in seven months hit the tape together. Today, two other hawks, (Esther George & Jeffrey Lacker) will testify om monetary policy before Congress. Expect more volatility for the Miners, Materials, Utilities, and Financials.
                   The reality is that, at this point, the FOMC has likely missed it’s window to raise the Fed Funds Rate very soon. It’s no secret that, in aggregate, they want to. I think that we all agree that they should have raised rates a few years ago when there was both growth, and inflation. They whiffed. The voting members of the committee will have to consider a few overt items that really cause hesitation. First, there was very little economic growth in this country throughout the first half of the year. Second, we are two thirds of the way through Q3, and the data is becoming less and less impressive all the time. Third, it’s not so much that a quarter point increase in the Fed Funds Rate would surely force the economy into a recession, it’s more the political and public perception of the committee if the economy should fall into a recession after such a rate hike. Even if we are headed there now, that hike would be blamed in the aftermath.
                  German Industrial Production rolled right off of a table one day ahead of the ECB’s policy meeting. The ECB came off as quite dovish in their first meeting post-Brexit, but the numbers out of the UK, and across Europe have not been catastrophic, and the BOE will likely hit the pause button next week when they step to the plate. Where does that leave the ECB? I’m fairly certain interest rates will be left in place.  There will likely be talk of extending or enhancing the existing quantitative easing program, but with the pressure somewhat lessened (German Retail sales did show a pop last week.), Mario Draghi will probably try to put any policy changes off until this Autumn.
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Macro
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08:55 – Redbook (Weekly): Last Week 0.6% y/y.  Finally, after slumping for most of August, this item showed some life last week, showing a year over year increase of 0.6%. Now, the trick is to keep it above half of a percent growth.
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09:45 – Markit Services PMI (August-f): Flashed 50.9, July 51.4.  The marketplace has never seemed very interested in data provided by Markit. This item was delayed yesterday until today, and traders had quite the reaction to the lousy ISM print. They have already judged the service sector’s performance in August. This release will pass quietly.
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10:00 – JOLTS (August): Expecting 5.58M, June 5.62M. This information is dated, and the markets never really react to it. Don’t expect them to today. Even an upside surprise would pass quietly, especially after the lousy labor market data released by the BLS on Friday, and the Fed yesterday.
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10:00 – Fed Speakers: Kansas City Fed Pres. Esther George, and Richmond Fed Pres. Jeffrey Lacker will both speak before the House Committee on Financial Services’ subcommittee on Monetary Policy.  These are two of the most hawkish of Federal Reserve officials, so you can probably imagine how this will go. George is a voting member of the FOMC this year, while Lacker is not. In fact George has dissented several times throughout the year in favor of raising the Fed Fuds Rate.
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14:00 – Beige Book: As August has gone, I can not imagine that anecdotal economic evidence from around the twelve districts will be anything more than spotty at best. That said, the potential is there for movement in the Fed Funds Futures markets on this release, and therefore….everything that moves in accordance.
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Wednesday’s Earnings Highlights
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Before the Open: HDS (.87)
After the Close: HPE (.45)

Market Recon Tuesday

Good Morning,
                     Coming off of Friday’s disappointing Employment data, and a long weekend, Crude resumes it’s place in the spotlight today. WTI ran on yesterday’s news that Russia and Saudi Arabia would cooperate to some degree. What they agreed to was simply to monitor the oil market (they weren’t already?), and to share ideas that promote stability. Once again, hope sprang eternal, and traders started pointing toward the informal OPEC meeting later this month. Though, WTI traded above $46 yesterday on that news, the technical 45.75 level that we spoke about last week has come into play during the overnight session, and the commodity is well off of those highs. There should be some volatility this morning in the Energy space, and in those areas that rely upon it, such as railroads, shippers, and some financials.
                     Central Banking is never too far from our thoughts. The August NFP miss, and the simultaneous lack of wage growth certainly must have hit the pause button for the more hawkish members of the FOMC. Under the radar was the Average Workweek, which dropped to 34.3 hours. You may not be aware of this, but that 0.1% of a drop, spread across the entire economy is roughly equal to a loss of 300k jobs. Also under the radar was the 41k unadjusted payrolls that were folks who were compelled to take on a second job. Full employment?? Try again. We will see the Beige Book tomorrow afternoon, and the ECB will hold their next policy meeting this Thursday morning. Though inflation remains tough across the EMU, I would think that the pressure is off for Mario Draghi, given the lessened urgency in the UK. At least for now.
                     Think your three day weekend went fast? Today, the US House and Senate return from their seven week recess. Let’s all give ’em a big hand for finding the courage, and the work ethic to take such a short summer break. Welcome back, guys !! I’m sure the best interests of this nation didn’t need much attention during your absence.
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Macro
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09:45 – Markit Services PMI (August-f): Flashed 50.9, July 51.4.  The marketplace has never seemed very interested in data provided by Markit. Traders will wait the fifteen minutes for the ISM print before they judge the service sector’s performance in August.
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10:00 – ISM Non- Manufacturing Index (August): Expecting 55.2, July 55.5.  The manufacturing print released last Thursday gathers far more market attention that does this service sector number. Perhaps given that this number covers 70% of the economy, this item should be more in focus than it currently is. Like it’s manufacturing counterpart, exports have been a strength, and employment has been a weakness. Unlike manufacturing, New Orders have remained strong here.
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10:00 – Labor Market Conditions Index (August): July 1.0.  This is a very interesting little data-point, that is starting to gain some attention. In existence less than two years, this is simply a composite index made of 19 components, all of which are labor related data-points themselves that have already been released. This Index is released by the Fed, but is not considered an official report. It is considered research, and those on the FOMC use it to gauge the net health of the Employment Situation in one place. Curiously, though coming off of a +1.0 print for July, this item printed in contraction for the five straight months prior, even though most considered June a strong month for employment.
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20:30 – Fed Speaker: San Francisco Fed Pres. John Williams will speak on the economy from Reno, Nevada. Though not a voting member of the FOMC, Williams is believed to have the ear of the Chair. For that reason, he is considered influential. A former dove, he has been hawkish in his recent appearances. A Q&A session will follow this speech.
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Tuesday’s Earnings Highlights
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After the Close: PLAY (.44), TIVO (.13)