Market Recon Thursday

Good Morning,
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Trade Idea.
                       October Retail Sales were released on Tuesday morning. The Non-Store Retailer sub-component printed at a 1.5% month over month increase, well ahead of the headline increase of 0.8% m/m. That same slice of retail sales is now sporting year over year growth of 12.9% vs. the headline print of 4.3%. AMZN is the undisputed king of non-store retail (In full disclosure, this author is long AMZN equity), but there’s a fight on the way. We all know that WMT, which reports this morning, bought Jet in order to ramp up it’s market share in e-commerce. TGT earnings hit the tape yesterday, and the stock ran 6.4%. Why? Not because y/y revs were -6.6%. Yes, the firm did beat expectations for both quarterly EPS & Revs, but why? E-commerce. That part of the business grew 26% for the quarter, and puts TGT’s e-tailing business on the playing field with the mighty AMZN. I go to the stores. That’s how I figure out what people are buying, and what they’re paying. WMT is still crowded, TGT not so much, at least not out by me. They both are going to fight, neither will surrender. They have in common.. awesome national distribution. At least one of these two will rise a as a long-term player on both sides of the ball. There’s at least a seasonal trade here. Let the earnings related over-reaction die down a little. Maybe take a limited shot going into Black Friday, and get flat about two weeks ahead the actual Christmas holiday. You can then hedge this money with a long-dated straddle in a delivery service company such as UPS. UPS rolled off a table last December, and also at the end of 2012. The stock rallied hard into year’s end in 2011, 13, and 14. a tough nut to crack, yes. Much easier just to play the volatility, but go out pretty far on expiration, so you give yourself some time to be right…. just in case you’re wrong.
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Send in the Clowns.
                     Federal Reserve Bank Chair Janet Yellen will testify today before the Joint Economic Committee of our esteemed legislators. The text will be released at 8am, but the real fun will start when the questions begin. The apparent December rate hike, and the trajectory of wage growth and consumer level inflation will obviously be covered. The reaction of the marketplace to Donald Trump’s electoral victory will certainly get a look, as will her opinion on economic possibilities going forward now that a different direction seems obvious. The good doctor will likely impact the trading session whether she means to or not.  New York Fed President William Dudley speaks twice today, as does Chicago Fed President Charles Evans, and Fed Gov. Lael Brainard. Today’s speeches will take the number of public speaking events made by Fed Officials this week to 15…. and there are five more speeches scheduled for tomorrow. Those currently serving aboard the FOMC haven’t asked for my advice, though I have made it available time and time again. We all know that opportunities to normalize on schedule without severely hurting the economy were missed in 2013, and 2014. We all know that politics, unfortunately played more of a role than it should have. A lower profile would be my current advice. Instead of trying to sound like you know (because we know you do not), maybe walk around with your sleeves rolled up, a pencil tucked in your ear, and carry around a bunch of marble notebooks. That way, we think you’re working.
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Trader Focus.
                     Janet Yellen, the ongoing transition in Washington, the CPI, and WMT may be our headline makers today, and the reason why the cogs that run our engine run the way that they do. That said, currency exchange rates, Treasury yields, and WTI Crude remain the focus. So, stay focused. Anything you do in the equity space is reliant upon those four extremely variable underlying values right now. Play accordingly. There’s some profit taking in parts of the marketplace that have run wild post-election, without really hurting the broad market indices. That’s noteworthy. Small Caps have stalled for three days, without coming in. Can they? Sure. You’ve been punched in the mouth before. You’ve probably had a great week and a half. Stay nimble (shout out to Arthur). Protecting yourself is costly. A lot less costly than getting your face ripped off.
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Macro
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08:30 – CPI (October): Expecting 0.4%/1.6%, September 0.3% m/m 2.2% y/y.
08:30 – Core CPI (October): Expecting 0.2%/2.2%, September 0.1% m/m 2.2% y/y. For traders, this will be the most important slice of macro released on what will be a very active day. This is not the Fed’s preferred measure of consumer level inflation, but is obviously closely watched by all, even those aboard the FOMC. There are concerns here. Many believe that inflation has taken hold, but then you had a disappointing print at the Core for September on a year over year basis, which is how central bankers look at this. Just yesterday, though not truly comparable, October PPI acted like a pea rolling off of a table.
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08:30 – Housing Starts (October): Expecting 1.167M, September 1.047M SAAR.
08:30 – Building Permits (October): Expecting 1.185M, September 1.225M SAAR. What’s important here are Starts. Permits are something of a leading indicator, but are imperfect as they can not be counted on. The 2016 average for starts is 1.15M SAAR (Seasonally adjusted annualized rate), which amazingly the series really has not strayed very far from all year… until last month. September’s print here was the weakest since April of 2015. With homebuilder optimism so strong, you would expect (hope) that this data-point gets back on track today, and brings a upward revision to it’s most recent past. This item is important enough to warrant marketplace attention.
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08:30 – Initial Jobless Claims (Weekly): Expecting 257K, Last Week 254K. Barring some kind of bone-jarring surprise, this one will not impact our markets. Part-time labor, and the ever growing legion of multiple jobs holders have skewed the importance of this release as those unfortunate realities have also rendered the Unemployment Rate, and the Phillips Curve less than relevant in the modern era. The four week moving average now stands at just less than 260K.
08:30 – Philadelphia Fed Manufacturing Index (November): Expecting 6.3, October 9.7. Philly is a little more important than most of the other regional Fed district manufacturing releases., and Philly has printed in headline expansion for three consecutive months. Philadelphia can impact the markets, but on a day that has this item competing for attention with inflation, housing starts, and the Fed Chair, it may get a pass from investors. New Orders and Shipments have been strong here. My concern is that Inventories in the Philly region have been in contraction for months, and if there was a serious need to reshelf in the district, this may have slowed Shipments, and Delivery Times. Most of the street is around 8.0 here today, I am slightly lower at 6.3.
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08:50 – Fed Speaker: New York Fed Pres. William Dudley will actually speak twice from the New York Fed. First on “International Macro & Finance” at 8:50, and then on the “Evolution of Work” (That should be a doozy) at 9:10. Dudley has a permanent vote at the FOMC. Just a thought on the “Evolution of Work”… Why don’t we ask some guy who had to re-invent himself, or some single mom holding down two jobs rather than the president of the New York Fed? Crazy thought, I know….. what the heck would they know?
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10:00 – Fed Speaker: Federal Reserve Chair Janet Yellen will testify before the Joint Economic Committee of the US Congress. Yellen’s testimony will undoubtedly impact the markets in some way, as she will be asked about the already telegraphed December rate hike, consumer level inflation, and almost certainly about market reaction to, and the potential economic future concening the surprise election of Donald trump to the US presidency.
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10:30 – Natural Gas Inventories (Weekly): Expecting +41B cf, Last Week +54B cf. Natural gas has rallied mildly with much of the commodity complex since the US election. Still, Nat Gas is a long way from those heady days of …. oh say.. late October. The fundamental problems here will not be alleviated anytime soon as we expect to see a fifteenth consecutive weekly build, and a thirtieth build in the last 31 weeks.
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12:30 – Fed Speaker: Federal Reserve Gov. Lael Brainard will also speak from the New York Fed on the “Evolution of Work”. At least William Dudley did actually work in the private sector. Brainard is a permanent voting member of the FOMC.
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14:45 – Fed Speaker: Chicago Fed Pres. Charles Evans is set to speak from Chicago. An openly dovish Fed official in the past, Evans seems more than alright with a December rate hike. Evans, however will not vote on such matters until  January.
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Thursday’s Earnings Highlights
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Before the Open: BBY (.47), HP (-.43), SPLS (.34), WMT (.96)
After the Close: GPS (.60), WSM (.77)