Market Recon Monday

Good Morning,
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What Was That?
                    Just in case a faltering OPEC deal (pressure on Crude), multiple global central banking policy decisions (higher yields), a GDP surprise, Jobs numbers due this week, a strong dollar, better than expected earnings in general, Chinese manufacturing data due tonight, and a horrific miss for German Retail Sales (The ECB does NOT meet this week) weren’t enough, the US presidential election is nearing a point where it may be too close to call, forcing a certain amount of uncertainty to be re-priced by the marketplace.
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Central Banking.
                   The one bright spot in all of this is that the Fed is not likely to be one of the current uncertainties facing the markets. With a November (non) decision due this Wednesday ahead of the not only the presidential election, but another round of data from the BLS, the expectation for a December (not a November) rate increase is now up to 68%. The question marks around this election only cement expectations for another month’s delay. With the Federal Reserve taking a November pass, it is likely that both the Bank of Japan, and the Bank of England remain inert as well. The BOJ just announced their new policy of targeting of the yield curve in September, and the BOE has faced criticism over being to aggressive in the wake of Brexit. placing Gov. Mark Carney under some fire. The ECB does not meet again until December.
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Trader Focus.
                    With “Earnings Season” seemingly cruising at a beat rates close to 80% for EPS, and above 60% for revenues, you would think that the S&P 500 might be trading closer to the top of it’s four month range. In fact the index is currently testing four month lows. Why? Can it all be blamed on election uncertainly? Of course not, although a short-term position in VIX options sounds like a better hedge than it has for a while right now. There are, for traders… two culprits greater than next Tuesday’s outcome. Those two are currency exchange rates, and crude oil…and they often walk hand in hand, but not always. In October alone, the DXY has moved from below 96 to above 98.50. This comes after trading between 94 and 95 for much of the second quarter. If this condition were to persist, it’s probably easy to see earnings for multi-nationals falter in the fourth quarter (with a built-in excuse). While crude prices are somewhat dependent upon exchange rates, traders in that space must also contend with the likely unwinding OPEC deal that was never truly agreed to in the first place. Even if some kind of deal stands, the exemptions that may (will) be granted provide more immediate uncertainty to the Energy sector than even the US election (where the two major candidates contrast greatly).
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Macro
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08:30 – Personal Income (September): Expecting 0.4%, August 0.2% m/m.
08:30 – Consumer Spending (September): Expecting 0.5%, August 0.0% m/m. Over the last two months, Income has outpaced Spending, which is clear to see in last Friday’s preliminary print for Q3 GDP. That headline print was carried largely by exports, in spite of a severe drop-off in the pace of consumer participation. The thought here is that Spending catches up to Income a bit in September. Needless to say, these expectations are on the high side for both data-points, and would be quite welcome. If these numbers bear out, this could suggest increased velocity of money, but will be overshadowed by the simultaneous release of inflation data.
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08:30 – PCE Price Index (September): Expecting 0.2%, 1.0%; Aug 0.1% m/m, 1.0% y/y.
08:30 – Core PCE Price Index (September): Exp 0.1%, 1.6%; Aug 0.2% m/m, 1.7% y/y. As we have already seen in the September CPI data, we will likely see more headline growth than we will at the Core due to increased Energy prices during the month. The most highly focused upon macro-economic data-point of the day will be the year over year Core print in this space. The expectation here is that we will likely see a decrease in the pace of Core inflation today, as there also was in the CPI (released Oct 18). The markets will react to this information only if there is widespread belief that the probability of a rate increase in December has been damaged.
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09:45 – Chicago PMI (October): Expecting 54.1, September 54.2. Expectations are meaningless in this space, as the actual print is rarely anywhere near the consensus view coming into the print. That’s said, this item is pushing for it’s fifth consecutive month in expansion. For those who may be confused, the Chicago number is more a measure of business activity than it is a manufacturing index. At times, this print can move markets with a severe miss in either direction.
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10:30 – Dallas Fed Manufacturing Index (October): Expecting 1.1, September -3.7. Dallas has long been the weakest link in the weakest corner of a “weakish” US economy. That corner may be turned today. An expansionary positive number is expected from Dallas today. That would end an incredible 21 month losing streak for the district. This would also split the five major regional Federal Reserve district manufacturing reports 3/2 in favor of expansion for the third time this year. This print will not likely impact the marketplace.
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Monday’s Earnings Highlights
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Before the Open: CAH (1.20), CTB (1.01), DO (.03), L (.72), LL (-.21), ROP (1.61), SO (1.18), WMB (.17)
After the Close: APC (-.56), HMN (.49), THC (.17), TSO (1.42)