Market Recon Tuesday

Good Morning,

Loretta Mester.

Cleveland Fed President Loretta Mester stole the show late yesterday. She appeared on Bloomberg Radio with host Kathleen Hays. To refresh your memory, Mester dissented at the last FOMC policy meeting, and clearly is still quite hawkish going forward. Mester expects the economy to make a much stronger showing over the second half of the year than it did the first, with a GDP that will end up getting the full year up around 2%. She also thinks that inflation is picking up, and that a pre-emptive increase in the Fed Funds Rate would be appropriate. In the wake of this appearance, the odds of a rate hike this year as interpreted through the Fed Funds futures markets rose to about 61%. The most shocking thing thrown out there by Mester was here insistence that the case for an increase at the November 2 meeting “would remain compelling”. I don’t think any reasonable person would expect a change in monetary policy just days ahead of the national election.

Forex Volatility.

The British Pound fell again on Tuesday vs. the US Dollar. Prime Minister Theresa May’s Brexit talk vs. Loretta Mester’s Fed speak. In fact, while the Pound plumbs 30 year lows vs the greenback, that dollar is gaining on most of it’s competitors. A strong dollar has not yet impacted the OPEC faux-agreement infused rally for the market price of Crude. With the DXY now above 96, and nearing levels that have traditionally brought out the doves (Evans speaks later), this could change today. Gold will struggle against this as well.  Subsequently, this will also cause headwinds for Energy names, and Materials in the short-term, and all US multi-nationals should the condition persist.

Trader Focus.

Early this morning, I still don’t see any agreement between Deutsche Bank and the US Department of Justice. Until there is some kind of firm resolution in this space, this uncertainly will continue to hang over the Financial sector as it did yesterday. This leaves the sector wide open to rumor-based volatility in either direction. The equity market has been remarkably resilient. That resiliency will now be tested, as at least Energy & Materials face strong dollar challenges, Utilities & Real Estate will battle with Treasury yields that are working their way higher, and you have this big question mark hanging over the just mentioned Financials.  Btw, “Earnings Season” kicks off next week. What could possibly go wrong?

Macro

08:05 – Fed Speaker: Richmond Fed Pres. Jeffrey Lacker will speak from Charleston, West Virginia on his outlook for the US economy.  Lacker, who is not a voting member of the FOMC this year will answer questions for the media. Just last week, Lacker made the case for an increase in the Fed Funds Rate by December.

08:55 – Redbook (Weekly): Last Week 0.2% y/y. Our weekly Redbook numbers have shown just slight growth over last year for a coupe of weeks now. A 0.5% year over year print would be desirable in this space.

20:00 – Fed Speaker: Chicago Fed Pres. Charles Evans is set to speak on monetary policy from Auckland, New Zealand. Evans is something of a perma-dove, and sees a low interest rate environment going forward. he is not a voting member of the FOMC at this time, but will regain his vote in January.

Tuesday’s Earnings Highlights

Before the Open: DRI (.82)

After the Close: MU (-.11)