For those trying to gauge future monetary policy decisions, the Jobs data that was released by the BLS was largely unhelpful. The headline number for job creation was slightly below consensus. Wage growth landed right on expectations when a beat would have been nice given August’s weakness. The most disappointing part of the report though, was the net loss in full-time employment. That’s right. Less people in the United States worked full-time in September than in August, but more people still worked full-time in September than in July. So, the trend is still higher, but the momentum is broken. Bottom line is really that though the September Employment picture was less than impressive, it does not convince anyone at the FOMC to change their narrative. You still have a group leaning hawkish that most likely can not act at the next meeting. That means that we’ll need a couple of good months in a row, from a macro-economic perspective.
That leads us to the week ahead. The macro will be rather light this week, until we see September Retail Sales this Friday. Those Retail Sales have been awful over a couple of months, and are expected to have bounced back in this release. Policy hawks will feel much better seeing a good number here, and in next Monday’s industrial Production print. Friday will evolve as the week’s high impact day as there is not only the just mentioned item, but Janet Yellen will speak from Boston, and “Earnings Season” will kick into second gear with several “high profile” financial firms reporting. Those numbers will be closely looked at as yields and currency exchange rates have been extremely choppy, and the financials have been among the market’s leaders for about a quarter.
Crude prices have been an equity market support of late, and have helped give some life to the sectors that it directly impacts. Most eyes have turned toward the formal OPEC meeting coming in late November. Before we get there however, there are this week’s World Energy Congress meetings . Through Thursday, OPEC producers will have a chance to convince Russia to play ball with their coming plan to cut/freeze production. Before even heading for Istanbul, the Russian Energy Minister had indicated that he was not interested in signing anything at this ‘get together”. That is the primary reason that you’ll see WTI prices in red early this morning. This commodity, and it’s subsequently reliant sectors will be subject to the rumor mill all week long.
22:00 – Fed Speaker: Chicago Fed Pres. Charles Evans will speak tonight from Syndy, Australia. Well known as a dove, Evans made clear that week the he’s “fine” with a rate hike this year. Evans does not vote until January.
ECB Taper Tantrum.
A report circulated Tuesday afternoon that had the ECB tapering it’s QE program prior to the program’s March expiration date. Currently the ECB is buying E 80B worth of sovereign and corporate bonds a month. This put added pressure on equity, and bond markets, as well as gold as yesterday’s session wore on. The same report also mentioned the possibility of extending the current program past March, and ECB Pres. Mario Draghi felt compelled to come out and deny that tapering was ever even discussed. Such talk often means that something somewhere is behind it. The Euro did finally stop falling against the US Dollar.
Global Removal of Policy Accommodation.
Global removal of policy accommodation is becoming a theme. The BOJ has been slower to act this year than they have been in the past. the BOE is facing criticism for being too aggressive in the aftermath of the “Brexit” referendum. There is clear dissatisfaction with the experiment in negative interest rates in the places where it has been tried. More Fed officials than not have been calling for an increase in the Fed Funds Rate sooner rather than later. It’s now plain to see that real interest rates are higher than they were only a couple of weeks ago, and it’s all on words. There have been no official policy changes. The plus is that this is boosting Financial names at a time when they are mired in uncertainty. The downside is that this pulls money away from Utilities, Real Estate, and Telecom.
API Shock. Again.
Another shocking Tuesday evening report on Oil and Gasoline inventories from the API puts today’s EIA numbers under even more focus than usual. I am sure that you noticed the overnight moves in Crude prices. The headline print for Oil Inventories out of the American Petroleum Institute showed a massive draw of 7.6M barrels. The experts were looking for a build of close to 2M barrels, so today’s print will be looked at for confirmation. API showed a large build for gasoline stocks. A build there had been expected, but not of this magnitude. The sheer size of the headline draw is outweighing that gasoline number. Technically, a crack above $50 for WTI Crude, could swing the commodity as high as $53.
08:15 – ADP Employment Report (September): Expecting 168K, August 177K. Market participants make the NFP number on Friday the beginning and the end of Job creation data, and in the end, it might be fairly accurate. The ADP number, which predicts the Private Payrolls (nearly all) portion of Non-Farm Payrolls has been far more streamlined. For example, over the last six months of job creation data, the BLS’ NFP has averaged 176.67K jobs per month, while the ADP print has averaged 179.16K. The difference is that the ADP’s high and low over this time are 194K & 166K respectively. The NFP’s high and low for the time span are 292K, and 11K. The wild swings skew reactions across many markets. In all honesty, are 11K, and 292K truly realistic when the bean counters that don’t work for the government don’t have numbers anywhere close to that?
08:30 – Trade Balance (August): Expected $-39.8B, July $-39.5B.
08:30 – Exports (August): Expecting $188B, July $186.33B. 08:30 – Imports (August): Expecting $228B, July $225.86B. Increasing or decreasing cross-border demand is very important. Growth in both are evidence of an improving economy through selling, or consumer/business spending. That said, immediate market impact on the day of release is minimal.
09:30 – Fed Speaker: Minneapolis Fed Pres. Neel Kashkari is scheduled to speak from Minneapolis. Kashkari is not a voting member of the FOMC, and is not very outspoken on monetary policy. He thought to be leaning dovish at this time.
09:45 – Markit Services PMI (September -F): Flashed 51.9. Like Markit’s manufacturing data, traders do not watch this report, and will wait the fifteen minutes to cast judgement on the service sector.
10:00 – ISM Non-Manufacturing Index (September): Expecting 53.0, August 51.4. the service sector is one place the US economy does not need to see trouble. This data-point has missed consensus expectations in three of the last four months, and last month truly missed badly. August was the closest this item has come to printing in contraction since 2010. Expectations are for a September rebound, as New Orders & New export Orders will be closely watched after falling way off from where they were in July. The market does react to this print.
10:00 – Factory Orders (August): Expecting -0.3%, July +1.9% m/m. This data-point is somewhat dated at this point. What it includes are an update to last week’s August Durable Goods number, plus a production component for non-durable goods. Something way out of line can still cause a market reaction.
10:30 – Oil Inventories (Weekly): Expecting 2.1M, Last Week -1.9M barrels.
10:30 – Gasoline Stocks (Weekly): Expecting 915K, Last Week 2M barrels. Another shockingly large draw was reported by the American Petroleum Institute (API). API reported a contraction of 7.6M barrels of crude, and a build of 2.9M barrels of gasoline. lately, the API numbers have been close to confirmed by the official EIA data on Wednesday.
13:00 – Fed Speaker: Richmond Fed Pres. Jeffrey Lacker speaks from Huntington, West Virginia. Lacker is a known hawk, and said just yesterday that if he was a voting member of the FOMC this year that we would have dissented in September with Mester, George, and Rosengren.
17:00 – Fed Speaker: Richmond Fed Pres. Jeffrey Lacker speaks again from the same location. We already know how he feels regar4ding interest rates. This second speech of the day will likely focus on regulation.
Wednesday’s Earnings Highlights
Before the Open: STZ (1.65), MON (-.02) After the Close: YUM (1.09)
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.
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.
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?
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)