With Olivia Bono Voznenko …. The Voz
China’s National Bureau of Statistics did indeed report that miss for September Industrial Production that we spoke of yesterday. It was difficult to see that one item shaping up differently after Chinese exports suffered the way they have over the last two months. That however, was not enough to fully rattle world markets thanks to a slight beat for Chinese Retail sales, and a remarkably stable Chinese GDP. Though over time, the rate of growth has come in, any economy the size of China’s that prints y/y growth at 6.7% for three quarters in a row most likely is not properly measuring it’s size. Global markets are mixed to lower in response, but not in any clearly defined fashion.
Pricing these markets has become increasingly tricky. Recent macro-economic data has been sporadic to positive. The September numbers to this point seem to be an improvement over August. Both ISM’s printed in expansion, with the service sector particularly strong. Retail sales were impressive as well. On the “not so hot” side, job quality and wage growth remain roadblocks to national success, and Industrial production remains near long-term lows. The Atlanta Fed is now tracking Q3 GDP at 1.9%, which will be adjusted after today’s September Housing Starts hit the tape (Give them a couple of hours). The bottom line is that nothing has happened to change the December rate hike narrative. My concern in that space is that so many Fed speakers have been talking this up for so long, that the quarter point increase may be close to priced in already. With almost two months to go until that hike is realistic, the US Dollar runs the risk of becoming over-valued, and yields on Treasuries may become artificially skewed to the high side.
All of that said, Q3 earnings are off to a better start than many expected. It’s very early, so we’re not marking the score-book just yet, but there are a lot of outright beats being printed on the revenue side, with plenty of accompanying y/y revenue numbers that are just as impressive. The risk to Q4 earnings, getting way ahead of myself, will be the very risk just mentioned. That is the potential of an over-prepared marketplace to overshoot proper valuations for the currency exchange, and debt markets……. and then there’s oil. The place to hide in that environment will likely be the small caps. The pain that they might be experience due to higher interest rates may just pair off against their aggregate lack of exposure to exchange rates.
08:30 – Housing Starts (September): Expecting 1.175M, August 1.142 SAAR.
08:30 – Housing Permits (September): Expecting 1.165M, August 1.139M SAAR. This is an item that has been rather stable all year. That said, August was the weakest month in this space since March. Home-builder optimism spiked in September, and held most of the ground gained for October. That optimism has been seen in New Home Sales data. it’s time to start seeing more of it here.
08:45 – Fed Speaker: San Francisco Fed Pres. John Williams is set to speak from Newark, New Jersey. The topic is diversity. That said, Williams, recently hawkish, will not vote until 2018, though he is well known in economic circles to have Chair Yellen’s ear. A Q&A session is expected after today’s speech.
10:30 – Oil Inventories (Weekly): Expecting -800k, Last Week +4.9M barrels.
10:30 – Gasoline Stocks (Weekly): Expecting -350k, Last Week -1.9M barrels. The API data, released every Tuesday night has become a better predictor than the consensus expectations that are compiled earlier in the week. Last night, API “surprised” again with some large numbers. The American Petroleum Institute reported a draw of 3.8M barrels for Oil Inventories, and a second straight sharp decline in Gasoline Stocks (2.3M barrels). WTI Crude has spiked in response, and is now trading close to $51.
13:30 – Fed Speaker: Dallas Fed Pres. Robert Kaplan, who will not have a policy vote until January will speak from Fort Worth. Kaplan, who keeps a rater low profile is on record favoring a rate hike in the near term, though he does not see the economy overheating. Neither do I. A Q&A session is scheduled for after this event.
14:00 – Beige Book: This item certainly can move the marketplace. It’s basically a check-up of economic anecdotal evidence compiled Fed regional district by Fed regional district that is released two weeks prior to every FOMC policy meeting. Given that we’ve seen some positive data (ISM Services, Retail Sales), and some not really horrible data (ISM Manufacturing, Industrial Production, Jobs, CPI), there is cause to believe that this Beige Book might contain some muted optimism.
19:45 – Fed Speaker: New York Fed Pres. William Dudley is scheduled to speak on economic history in New York City. New York has a permanent spot at the FOMC table, and Dudley has repeatedly stated that he expects to see a rate hike this year. FYI, I am currently tracking three speeches scheduled for tomorrow by William Dudley alone.
Wednesday’s Earnings Highlights
Before the Open: ABT (.58), HAL (-.07), MS (.63), STJ (1.01), USB (.83)
After the Close: AXP (.95), EBAY (.44), MAT (.71), URI (2.44)
Out of Europe.
Globally, equities are a bit higher this morning, as the US Dollar takes a breather. This has given some lift to commodities including Oil, and pushed yields slightly lower across the planet. Notice the price of WTI Crude moves one percent higher, and so does the Asia Dow, as well as Europe’s Stoxx 600. The European underperformer? The FTSE 100, still higher, but lagging the pack after UK consumer prices beat expectations at both the headline and the core for September. I don’t think that means that Mark Carney is about to tighten monetary policy in Britain, but it does mean that he’s probably not going to consider easing further. Keep in mind that when he ran the Bank of Canada, his truest instincts were quite hawkish. Consumer prices will also be the focus here in New York this morning, especially after Fed Vice Chair Stanley Fischer again leaned hawkish yesterday.
and into China.
Last week, Chinese export data bumped global markets amid concerns over forward looking global demand. Fed Chair Janet Yellen has used China as an excuse to slow down policy changes in the past. Then, the very next day, increased Chinese consumer level inflation put some of those fears on pause. Tonight, we’ll see a trio of Chinese macro-economic data-points that certainly could rattle some cages overnight, particularly along the Pacific Rim. At 10pm ET, the Chinese National Bureau of Statistics will release Q3 GDP (exp 6.7% q/y ann.), September Retail Sales (exp. 10.7% y/y), and September Industrial Production (exp. 6.4% y/y). In the case of GDP, this would be holding the level. The Chinese government has kind of made 6.5% out to be a line in the sand for GDP. In the other two cases, the expectation represents minor improvement. The Retail Sales number is obviously domestic in nature, but a miss in industrial Production would be close to a confirmation of those troubling Export numbers that already hit the tape.
08:30 – CPI (September): Expecting 0.3%, August 0.2% m/m.
08:30 – Core CPI (September): Expecting 0.2%, August 0.3% m/m. With the Federal Reserve Bank seemingly on the verge of tightening monetary policy, what could be more important than consumer prices? With that in mind, even though this item is not What the FOMC is specifically watching, it is what the rest of us are watching, and the year over year data will likely have as much market impact if not more so than the month over month numbers. The recent boost in energy prices will likely give the headline print a northerly nudge from the 1.1% August release, but it is the highly focused upon Core data that can move the marketplace. We see a tick up from August’s 2.3%, and you’ll see a tick up in the WIRP as well. This item is likely to at least print at 2% or greater for the eleventh consecutive (but, who’s counting?) month today.
08:55 – Redbook (Weekly): Last Week 0.5% y/y. Coming off of the prior week’s 1.3% y/y pop, we really needed to see that print around the 0.5% gain that we did see last week after several weeks of continuously sluggish growth. The trick for today will be keeping growth from falling below that level.
10:00 – NAHB Housing Market Index (October): Expecting 63, September 65. this item is also known as the Homebuilder Optimism Index, and optimism surged in September. In fact, 60 had been resistance in this space since last January, so even if there were to be a pull-back this month, anything between 60 and 65 is still going to be taken as generally positive.
16:00 – TIC (August): Expecting $45B, July $103.9B. This information prints with a lag, and will not move markets, but remains very interesting. July was a big surprise to the upside for US cross-border investment. US investors were net sellers of foreign long-term securities to the tune of $31.3, while foreign investors net purchased $72.6B worth of US long-term securities. When it comes to Treasuries, China net sold $7.7B worth of US debt in July, but easily remained the largest holder at 19.8%.
Tuesday’s Earnings Highlights
Before the Open: BLK (4.99), CMA (.78), DPZ (.89), GS (3.83), HOG (.64), JNJ (1.65), UNH (2.08)
After the Close: INTC (.72), YHOO (.14)
The week in front of us shapes up as fairly active. From the S&P 500, we’ll see quarterly numbers from 87 corporations, and then there’s the macro. Last week, the looming September Retail Sales data, which turned out pretty good, dominated an otherwise quite week from a macro-economic perspective. This week, starting with today’s Industrial Production print, there will be at least one high-profile, possibly impactful item released every day through Thursday. From a policy point of view, there are scheduled Fed speakers every day this week, with the exception on Tuesday. The ECB will also make a decision this week, on Thursday, without the overhang of a BOE policy decision being made directly before or after. How Mario Draghi handles the press conference will be of heightened interest, even if no policy changes are announced. Since the last ECB policy meeting, there has been talk of both extending the central bank’s QE program past March, and also of tapering the program’s purchases. The BOE will not step to the plate again until 3 November, the day after the FOMC’s next decision.
Today’s focus, at least in the early going will be placed directly on weakening global sovereign debt. Particularly on European debt, but US Treasuries are experiencing some early morning softness as well. On top of the already mentioned policy hurdle facing the ECB, the BOJ’s Gov. Hiruhiko Kuroda spoke far less dovishly over the weekend than he had in the past. Add that to the belief that the FOMC will act at their last meeting of the year, and globally, there are many markets pricing in tighter monetary conditions. The direct pressures that this places on debt products and currency exchange rates in turn will move commodity prices, and ultimately in “tail wag the dog” fashion, the equity markets. If it were only it were just that simple. OPEC does not formally meet until the end of November, and then there is this earnings season that has just begun. With the US central bank being the only major central bank talking about not only being less accommodative, but tightening policy, exchange rates (already the 800 pound gorilla in the room) will only increase in market impact and corporate performance.
08:30 – Empire State Manufacturing Index (October): Expecting 1.2, September -2.0. This will be our first look at the state of manufacturing for the month of October. We expect to see that the New York region actually experienced some overall expansion this month, after a two month losing streak. Two of the five regional Fed districts did hit the tape in expansion for September as did the ISM Survey, showing marked improvement from the August data. Being released alone at 08:30, this item could impact the futures markets upon release.
09:15 – Industrial Production (September): Expecting 0.2%, August -0.4% m/m.
09:15 – Capacity Utilization (September): Expecting 75.6%, August 75.5%. These numbers rolled off of the table for August after a couple of decent months in a row. Market expectations are that there was a positive rebound in September, both for Production, and to a lesser degree, Utilization. This is the highest profile macro event of the day, at east until Noon, and the equity markets will likely take their pre-opening cue here.
12:00 – Fed Speaker: Federal Reserve Vice Chair Stanley Fischer will speak in New York City. Fischer , a permanent voting member of the FOMC is considered hawkish at this time. He is on record recently calling the decision to stand pat on rates in September a “close call”.
Monday’s Earnings Highlights
Before the Open: BAC (.34), SCHW (.33), HAS (1.74)
After the Close: IBM (3.23), NFLX (.05), UAL (3.05)
After the Close: Weekend Awesomeness