Market Recon Friday

Good Morning,
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Earnings.
                    The almost immediate focus this morning will be on the Financial sector. This is a sector that has sort of snuck up on some folks, having outperformed the marketplace in general now for about a quarter, yesterday’s Chinese data inspired beating not withstanding. Though, officially, the unofficial start to “earnings season” came earlier in the week, it is today that we actually buckle in, as a bevy of high-profile banks, including JPM, WFC, and C all put their quarterly numbers to the tape. The worry is that US corporations will post a sixth quarter of diminishing aggregate profitability; earnings expectations for the S&P 500 are for a rough decline of 2% y/y. Starting with September, though volatile, US Treasuries have afforded US bank stocks the ability to move higher in price. The market’s expectation for a long coming slightly higher interest rate environment probably allowed the banks to salvage the quarter, and bodes well for the banks throughout Q4. However, that comes with a more expensive dollar, which will in effect, damage overall earnings in that same Q4 for much of the S&P 500.
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Friday Afternoon.
                   Once the morning’s earnings are out of the way, along with the highly focused upon Retail Sales print, there will be a few Fed Speakers to navigate around. We’ll hear from two hawks who dissented in favor of raising rates at September’s policy meeting, and lose their voting rights at the end of the year. Then we’ll hear from the Fed Chair herself. There are so many ways she could go as she discusses the economic recovery. Does she dare mention full employment with her own Labor Market Conditions Index deep in the hole? Will she acknowledge the re-emerging threat to stabilization that China represents? Will she simply skirt the issue, or will she drive home the belief that the December hike is probably very close to a done deal in order to further prep the marketplace. I think that latter. Mix this speech in with a little oil volatility after the 1pm Rig Count number, and this could be an interesting afternoon.
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Macro
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08:30 – Retail Sales (September): Expecting 0.6%, August -0.3% m/m.
08:30 – Core Retail Sales (September): Expecting 0.4%, August -0.1% m/m. Retail Sales rolled right off of a table in July, crashing at both the Headline and the Core. then things got even worse in August. Today, we have hope that there was a September rebound, so that Q3 does not end up being a complete loss in this space. If the economy is going to build any momentum going into year’s end, it’s not going to happen without the consumer. This will be the most important economic data-point of the week.
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08:30 – PPI (September): Expecting 0.2%, August 0.0%.
08:30 – Core PPI (September): Expecting 0.1%, August 0.1% m/m. This data-point runs hot and cold. August was cold. Producer Prices are far more volatile than Consumer Prices, and don’t seem to impact the financial marketplace al that much either. You would need a wild print in this space to move the needle.
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08:30 – Fed Speaker: Boston Fed Pres. Eric Rosengren will discuss this painful recovery from Boston. Rosengren dissented at the September FOMC policy meeting in favor of a rate hike. Rosengren, a dove turned hawk will lose his vote in January.
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10:00 – Business Inventories (August): Expecting 0.1%, July 0.0% m/m. This item is a little dated, and may pass by unnoticed by market participants. That said, it does directly impact GDP. We’ll look for a slight improvement here, even with the -0.1% m/m number that we’ve already seen for August Wholesale Inventories, which is a component of this release along with Retail & Manufacturing Inventories.
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10:00 – U of M Consumer Sentiment (October -p): Expecting 92.0, September final 91.2. The University of Michigan’s Sentiment number has been trending below the Conference Board’s Confidence number. That said, Sentiment was revised high for September from an initial print of 89.8, all the way to 91.2. That’s fairly dramatic improvement. We look for this item to at least hold it’s ground, and if those September Retail Sales hit the tape close to expectations, it should.  The market does sometimes move on this report.
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12:00 – Fed Speaker: Cleveland Fed Pres. Loretta Mester will speak from Cleveland. Like Rosengren, Mester both dissented in September, and will lose her place on the committee come January. Mester, an aggressive hawk, has gone as far as making a case for an increase in the Fed Funds Rate in November, regardless of the presidential election.
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12:30 – Fed Speaker: Federal Reserve Chair Janet Yellen will give the keynote speech at the same Boston conference that Eric Rosengren spoke at earlier. The sluggish economic recovery is the topic. I can’t imagine that she can speak on this without discussing monetary policy. Something said here will almost surely cause some market volatility.
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13:00 – Baker Hughes Rig Count (Weekly): Last Week 524 total 428 oil, up from 522/425. As always, this release will be our last market moving economic data-point of the week. Given where Crude has been trading ever since the “sort of, maybe” OPEC agreement to talk about a possible agreement later, it’s likely that the US added a few more oil producing rigs in the last week.
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Friday’s Earnings Highlights
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Before the Open: C (1.16), JPM (1.39), PNC (1.78), WFC (1.01)
After the Close: Weekend Awesomeness