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)

Market Recon Wednesday

Good Morning,
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The Rock.
                        So, Senator Barbara Boxer introduces a bill to abolish the electoral college, and move the presidential election toward a popular vote. I try very hard to not get political in my written word, and I try to keep my preferences to myself but doesn’t this seem like a futile waste of time coming from a US Senator representing what is easily the largest state? I mean, for this bill to pass, this would require her colleagues, particularly in the Senate where all states are equal, to voluntarily vote against the best interests of their constituents. I am not commenting on the merits of this idea, nor the lack of merit, but unless the junior Senator from California is a rock, she knows that the electoral college benefits most of the other states, and this is simply a disingenuous attempt to gain favor within her party and among her supporters.  Ain’t politics grand?
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Whirlwind.
                        Did you enjoy your blustery day? Your blustery week? Markets continue to try to price in everything that comes with new policy direction, without getting too far out on a limb. After all, what if the game plays out a bit differently than the script? I mean quantitative easing was supposed to produce consumer level inflation way back when I was a much younger man. Sometimes, markets, and economies just don’t play along. So, as our marketplace prices in a beast-like US Dollar, consumer level inflation, higher interest rates, repatriated money, OPEC’s nonsense and most of all…..  drum roll please…. a potential 15% US corporate tax rate (music, please), a rally that was at one time in the ninth inning, now appears…. at least to this kid from Queens to have decided to pay an unscheduled double header. Volatility that leaves that horrible feeling in your stomach because you failed to go home flat (or did go home flat) ?? Sure… guaranteed. A general northerly direction on an extended, possibly sharper trend?  I think so. The powerful greenback will be our enemy, but everything else is our friend until it doesn’t work. I am going to raise my S&P 500 target soon, perhaps within a week or so. Just haven’t placed it yet.
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Macro
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04:00 – Fed Speaker: St. Louis Fed Pres. James Bullard spoke this morning on monetary policy from London, England. This morning, Bullard indicated that he believes one hike (this December) may be enough to get the job done. Formerly the most erratic member of the FOMC, this has been his consistent message for close to six months now.
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07:30 – Fed Speaker: Minneapolis Fed Pres. Neel Kashkari speaks this morning from New York City. Kashkari does not vote this December, but will in 2017. That said, he is not expected to go into monetary policy today, and  is expected to discuss protecting taxpayers in a “too big to fail” scenario.
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08:30 – PPI (October): Expecting 0.3%, September 0.3% m/m.
08:30 – Core PPI (October): Expecting 0.2%, September 0.2% m/m. Expectations are for some pricing strength at the producer level for the second consecutive month. Loom for the headline to come in stronger than the Core due to increased Energy prices last month. The PPI does not directly impact the marketplace. The CPI this Thursday is a far bigger fish.
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09:15 – Industrial Production (October): Expecting 0.2%, September 0.1% m/m.
09:15 – Capacity Utilization (October): Expecting 75.5%, September 75.4%. Industrial Production has been anything but productive in the US for some time now. We saw a positive number in this space in September, and hope for another today. Manufacturing as a sector has been mildly improving of late, so there is hope. Industrial Production has contracted in seven of the last twelve month, but a print at consensus today would make it four out of five on the plus side. Look for Utilization to inch higher. A strong print here will impact the markets more so than something on the weak side.
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10:00 – NAHB Housing Market Index (November): Expecting 63, October 63. This one is also known as “The Homebuilder Optimism Index”. It’s supposed to be something of a leading indicator for New Home Sales (next week), and Housing Starts (tomorrow). I don’t see a month to month comparison necessarily there among the three, but the three way trend often does line up. Btw, 63 is a really strong number in this space.
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10:30 – Oil Inventories (Weekly): Expecting +900k barrels, Last Week +2.4M barrels.
10:30 – Gasoline Stocks (Weekly): Expecting -550k barrels, Last Week -2.8M barrels. Crude roared back yesterday, taking back most of November in one session. Still a long way from October levels, what could help other than those rumors floated yesterday about Saudi-Russian cooperation would be a surprise draw at the headline here today. What is hurting oil prices this morning was the unexpected (but, becoming routine) 3.6M barrel inventory build reported by the API last night.
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16:00 – TIC (September): Expecting $28B, August $48.3B. this measure of cross-border investment is interesting, but is so dated by the time of it’s release that it is no help to market participants trading in real time. We do expect to see an overall net increase in the space today, but when focusing on Treasuries.. we have seen the two largest holders China and Japan reducing their holdings in recent months. Keep in mind this info is way ahead of last week’s election.
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17:30 – Fed Speaker: Philadelphia Fed Pres. Patrick Harker speaks tonight on the purpose and functions of the Federal Reserve Bank from the perspective of the city of Philadelphia. There is expected to be a Q&A session afterward. Harker will have a committee vote as of January.
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S&P Cash Levels
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The 2180, and 2172 levels were indeed spectacular yesterday.  Fair Value this morning is -2.16.
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2193, 2187, 2180, 2172, 2165
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Wednesday’s Earnings Highlights
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Before the Open: LOW (.97), TGT (.83)
After the Close: LB (.40)

Mid-Day Recon

Good Afternoon,
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                          The S&P 500 is testing the 2172 level at the top of today’s chart for the third time as I type out this note. Should this level crack early this afternoon, then 2180 becomes a distinct possibility. A failure here allows a retreat as far as 2166, which is our local rally point. While the index acts well enough, leadership has changed, at least for now. That said, let’s take a look under the hood.
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1) Strong macro.  October Retail Sales hit the tape impressively, and brought with them upward revisions to September. Strength was seen in Non-Store retailers, Motor vehicles, Gasoline, and Building Materials. You expected that. Right? What you not have seen coming was the strength in the Sporting Goods, Hobbies, Book & Music Store sub-component. (Yes, that’s all one category). What does this mean, kids? This means that Jimmy, and Suzy are buying stuff they like !!!  Not just stuff they need. That’s key. On top of that wonderful bit of information, the November Empire State Manufacturing Index printed in expansion. Why? Because New Orders printed in expansion for a change !!  (celebratory balloons)
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2) Gold, (Long-dated) Treasuries and Oil all find a bid.  Especially Oil. That’s a good thing, because without the pop in WTI, we would not be seeing this move for the entire Energy sector, which just happens to be leading the way today. Gold and Treasuries have barely stabilized, but they are not being brutalized. The US Dollar was weaker this morning, but has been untamed. The animal spirits have found the greenback. Beware.
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3) Money going in. Besides Oil, Energy, Treasuries, Gold and the USD ??  Tech and Utilities. With expanding yields comes life for the dividend reliant, interest rate sensitive Utility sector. Tech is just trading with momentum as the risk gang files back in.
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4) Money going out. The recent winners are for the most part, today’s losers. There’s a nasty bout of profit taking making the rounds among the Financials, Defense stocks, the Small caps, and the Railroads.
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5) Pasta Salad for lunch.

Market Recon Tuesday

Good Morning,
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Europe / Germany
                       What do the Germans know? German GDP disappointed this morning, both on a year over year, and quarter over quarter basis. The most recent data (September) for German Retail Sales, Factory Orders, and Industrial Production all represents an economy that looks as if it fell off of a cliff. On the surface, the engine that supports Europe seems to be under-performing Europe itself. Yet, for the second month in  row… the ZEW Survey for Business Expectations shows sentiment that is much more optimistic going forward than it is when considering current conditions. Last week, the Sentix Investor Confidence Survey for the Euro-Zone (a six month into the future forward looking survey) showed a similar pop. The ECB does not meet again until 8 December, and I don’t think that an announced extension of their quantitative easing program would come as all that much of a surprise.  On top of that, I’m not sure that European are that excited about Donald Trump’s election in the US. What we deal with are realities here, and the reality is that Europeans, particularly Germans think a better day is coming.
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Check Marks
                       There have been a few directional changes overnight. Treasuries found some support, as did Gold. Sovereign debt around the globe actually found a bid, with the notable exception of Japan, where the ten year actually kissed the zero bound. WTI Crude is now significantly higher than where it traded late in Monday’s session, and the DXY seems to be taking a breather just below the 100 level. That last item is actually the driver of all the others, with the exception of Crude. Crude though still heavily impacted by currency exchange rates, is also influenced by speculation (OPEC’s nonsense), and the mo-mo crowd (technicals) as much as anything else. It would be healthy for the marketplace if some of these check marks actually held throughout the morning, but I will believe that after I see it.
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Trader Focus
                        Being thrilled that your P/L suddenly showed some life even though you didn’t do much to get it there isn’t enough. Obviously there is a major rotation under way among equity sectors, and industry groups. While I’m not about to step in front of a speeding train and buy some of the dividend types, and interest rate sensitive groups, I am at this point…very much inclined to protect some of this “found money”. Selling some of these financial stocks right now might be akin to stepping up to the plate against a major leaguer, but some of these infrastructure names have benefitted to an obscene degree since the election. I do believe that we will see growth, and inflation. I also believe that in selected spots  (let’s say ohhhhh, some of the defense contractors) you will see spots where you will be able to sell already opened long put positions at profits while the equity itself continues to appreciate. Notice I did not say anything about shorting these stocks that mostly trade in three digit full prices. That could make you a fortune. That could also get good people hurt.
                         Sarge out.
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Macro
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07:30 – Fed Speaker: Boston Fed Pres. Eric Rosengren, who is a voting member of the FOMC, will speak from Portland, Maine. To refresh your memory, in a true display of central banking incompetence, this is the guy who dissented in favor of a rate hike in October, then became the only voting member to openly play politics in front of the election on November 2nd…reversing his dissent, and will undoubtedly charge ahead with the rest of this crew in December.
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08:30 – Retail Sales (October): Expecting 0.5%, September 0.6% m/m.
08:30 – Core Retail Sales (October): Expecting 0.4%, September 0.5% m/m. Retail Sales showed some strength back in September thanks to gasoline sales, and a somewhat less horrible (still bad) month for department stores. As far as the headline goes, we should see nice growth for the second consecutive month after that surprise upside pop for October Auto Sales. Equity index futures will likely react (possibly over-react) to this print.
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08:30 – Empire State Manufacturing Index (November): Expecting -2.2, October -6.8. This one could get a glance today, after traders take in the Retail Sales data. As far as Manufacturing goes, the headline ISM number has shown some recent life as have some of the other Federal Reserve districts. Not New York. The New York region has hit the tape in a state of contraction for three consecutive months, and a fourth is expected today. Any strength that we have seen here has been in pricing. New Orders remain a drag, and you, as a manufacturer are going nowhere without that. I don’t care how the rest of the report reads…as a trader that’s all I need.
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08:30 – Import Prices (October): Expecting 0.4%, September 0.1% m/m.
08:30 – Export Prices (October): Expecting 0.2%, September 0.3% m/m. The expectation is for a pop in Import Prices that outpaces Export Prices for October. In the past, this has item has had everything to do with currency valuations. That is still true to a degree, but the volatile price swings that we have seen for crude (imports), and agriculture (exports) matter just as much. Remember it was agricultural exports (soybeans, particularly) that so impacted Q3 GDP, pushing the number up to that 2.9% q/q annualized tag.
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08:55 – Redbook (Weekly): Last Week 0.7% y/y. You guys know that I look for 0.5% y/y growth for this weekly, and we’ve gotten just that (and more) in five of the last six weeks. This one comes right smack in the middle of Retail Earnings week.
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09:05 – Fed Speaker: Federal Reserve Governor Daniel Tarullo speaks from D.C. Tarullo, a permanent voting member of the committee usually sticks to regulation. This speech, however is planned to cover finance and the economy.  That said, there could be some policy minded content.
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10:00 – Business Inventories (September): Expecting 0.1%, August 0.2% m/m. Wholesale Inventories surprised to the downside last week, and that is a major component of this item. Many other economists are expecting a 0.2% print here today. The Wholesale print is why I went down to 0.1% on this one. As long as this item prints above zero, the markets will give it a pass.
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13:30 – Fed Speaker: Dallas Fed Pres. Robert Kaplan is set to speak from Dallas, Texas. He will take questions from the media. Kaplan said just yesterday that he expects to see 2% growth in 2017, and that he also expects interest rates to rise very soon. I think every trader I know beat him to that one. A for effort though. Kaplan will vote in January.
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13:30 – Fed Speaker: Federal Reserve Vice Chair Stanley Fischer, who is a thoughtful speaker and a permanent member of the FOMC will speak from Washington. Fischer has been pounding the table about an imminent increase in the Fed Funds Rate. I’m pretty sure he’ll stick to his message today. Probably not a market event.
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Tuesday’s Earnings Highlights
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Before the Open: BZH (.59), DKS (.42), HD (1.58), TEVA (1.28), TJX (87)
After the Close: Nothing I see to get fired up about.

Market Recon Monday

Good Morning,
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Asia.
                     While European markets, and US equity index futures apparently keep on pace with last week in the early going, there were a bevy of high level Asian macro-economic data-points released last night for Far Eastern markets to deal with.  First, the Japanese economy grew at an annualized 2.2% in Q3 vs. expectations of 0.8%. Much like US Q3 GDP. this report was welcome, but heavy on exports, as external demand far outweighed the domestic. The Nikkei 225 gained 1.7% in response. Chinese markets displayed a mixed reaction to October data that showed a slowing in the pace of expansion for both Retail Sales, and Industrial Production. On top of that, other data showed that fiscal spending in China, particularly on the local level dropped sharply for the month.
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This Week.
                      Right now, I am tracking at least twelve public speaking engagements featuring Fed officials this week, including three set for today alone. Usually Fed speakers, depending on how radical they intend to be, can move the marketplace. I’m not so sure how true that is this week. With Treasury markets, and the obvious rotation among stock sectors taking place, it’s plain to see that markets expect growth, expect inflation, and expect to see rising interest rates going forward. Sounding hawkish is not going to do anything except cement current opinion. The macro won’t get juicy until tomorrow, when we see October Retail Sales, and get our first read on November manufacturing.
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Trader Focus…  Treasuries & Gold.
                       How far can Treasury yields, and Gold go? The market response to the expected fiscal spending plans of a Donald Trump presidency coupled with a Republican legislature may have lit a fire under some sectors as others have softened, but the astounding pressure on both Treasuries and Gold is a very difficult thing to play for investors. Gold has already seen support where it should exist this morning. That by no means is an endorsement at these levels. If these levels just above $1200 do indeed crack, I would think about becoming more cautious than aggressive, and consider holding off until se see considerably lower prices (or upside momentum) prior to re-entry. Perhaps waiting until $1100 ish, or $1305. At either of those points, one (in my opinion) could think about taking a 5% allocation back up to 7.5%. Either would represent to me a purchase point. As for government debt, the environment is rather dangerous, and could remain so for the foreseeable future. A reduction in exposure in this space directed toward cash or something liquid could set trigger for the gold trade when the target is reached. In the mean-time, sector-driven momentum is the game.
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Macro
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12:30 – Fed Speaker: Dallas Fed Pres. Robert Kaplan will speak from Wichita Falls, Texas. Kaplan will not vote in December, but will in 2017. He has spoken recently in favor of a rate increase this year, and for increased fiscal stimulus. There will be a Q& A session after the speech.
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16:30 – Fed Speaker: Richmond Fed Pres. Jeffrey Lacker is set to speak on fiscal health, and also on the national debt from Chestertown, Maryland. Lacker has been outspoken on the possible need for increased tightening of policy in the face of a Fiscal stimulus package. Richmond will not vote again until 2018.
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18:30 – Fed Speaker: San Francisco Fed Pres. John Williams speaks tonight from San Francisco. Though San Francisco will not vote again until 2018, Williams is considered quite influential. He will take questions from the audience.
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Monday’s Earnings Highlights
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After the Close: AAP (1.71)

Market Recon Friday

Good Morning,
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Changes in (Market) Leadership
                    Bond markets are closed today for the Federal holiday, and that may be a good thing. The last printed yield for US Ten Year paper overnight was above 2.15%.  US Treasuries have been sold off just as hard as Banking shares, and other Financial type stocks have been bought. I do get the belief that growth, wage & price inflation, and a less regulatory environment may be on the way, but the change in leadership in this marketplace is still more than two months ahead of the change in leadership in Washington. As we have not even yet approached the holiday season, this could make for a particularly volatile year end. Those first few days of January 2017 may be epic.
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Found Money
                    Back to the here, and now.  Maybe we take a little breather, maybe a little profit taking in those sectors that have reacted so dramatically to the election results. Interest Rate sensitive sectors such as Real Estate, and Utilities will be watched as closely as the apparent winners. In the event that traders possibly take some money off of the top this morning, it will be interesting to see just how these two areas perform. Will found money play defense, or simply go into cash?
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Oil / Energy
                    With all of these post-election moves impacting the marketplace.  With all of the projected policy talk, we haven’t really taken a good look at oil in a few days. As the dollar has strengthened for much of the same reasons that yields have spiked, WTI Crude has taken a minor bath. Now, with that dollar threatening to go even higher, Oil may be technically trapped below $45. Yes, you could, in theory still see OPEC put together something at their 30 November meeting, but keep in mind that this is a crew that doesn’t even trust each other. WTI is now below September’s support levels. The real level is going to be around 41.50/41.75. Any combination of a DXY surge toward 100 (which can be done with words), or an OPEC fumble at the goal line (increasingly likely) will threaten that spot. Still just conjecture, but when you do see a break there, we could very well be talking about much lower prices.
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Macro
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09:00 – Fed Speaker: Federal Reserve Fed Chair Stanley Fischer will speak, but just as a heads up… differing media sites are reporting the time as 9, 10, and 11 am ET. The Vice Chair is set to speak from Santiago Chile on the global economy and on monetary policy. Fisher is a rather thoughtful speaker, and he will likely be interesting in his first appearance since the US election. The Vice Chair is obviously a permanent voting member of the FOMC, and has agreed to take questions after the speech. This could be the day’s market event.
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10:00 – U of M Consumer Sentiment (November -p): Expecting 87.3, October 87.2. Consumer sentiment has been in steady decline all year. In fact, October’s print was the weakest in this series since September of 2015. This is in stark contrast to the very similar Consumer Confidence survey, which has been peaking in recent months. They both can not be right. Side by side, they tell us nothing.
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13:00 – Baker Hughes Rig Count (Weekly): Last Week 569 total, 450 oil. We’ve seen these numbers on the rise of late, but with everything else going on in the space, the market impact of this weekly number seems to be withering. A surprise here could have more impact on a Federal holiday when there might be less liquidity.
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Friday’s Earnings Highlight
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Before the Opening: JCP (-.19)

Market Recon Thursday

Good Morning,
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Financials…. The Yield Story.
                     If you were to say “What a difference a day makes”, you might be using an entirely too long of a time frame in order to assess what is taking shape. S&P futures are strong this morning versus fair value. As we’ve so recently seen, that may, or may not be meaningful as we approach the opening bell at 11 Wall Street. What is meaningful is the trajectory of sovereign debt yields. Across Europe, in Japan, and most notably in the US, everyone is yielding more than they were prior to the election. Probabilities for an FOMC December rate hike wavered at first. Many, including this writer wondered if the Fed could stay on track. Just one thing… the bond market is still in charge, and will remain so.  Off to the races went Banks, Capital Markets, and Consumer Finance stocks. Adding to the Financial sector’s run is the belief that a Republican led legislature with a business minded President will take aim at regulation such as Dodd-Frank. That may be a long way off, and not realistic, at least as a repeal in it’s entirety, but there will be change. This does add legs to that trade, and not just for US based lenders.
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Energy.
                     Crude prices hit an iceberg early this morning. OPEC may have set the stage for some kind of agreement back in September, and they may be holding a formal meeting on 30 November, but that hasn’t stopped the cartel from increasing output for a fifth straight month in October. In fact, OPEC has ramped up production to levels well above the top end of the supposed range put forth at the September get together. Now, the IEA (International Energy Agency) has warned of “relentless global supply growth (in 2017) similar to that seen in 2016”. Flows from Nigeria, Libya, and Iran are all been on the increase, while Iraqi production hit an all-time high for the month. SUV sales to rise?
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A Tale of One Sector.
                      The Health Sector quickly experienced an internal tug of war in the wake of Tuesday’s election. The sector as a single unit may have run nearly 3.5%, but this sector can not be viewed as a single unit for stock pickers. Suddenly missing was the threat to the drug makers from the left. Biotech ran wild, Pharma ran wild. Take ’em. The Affordable Care Act ?? Yeah, there’s trouble brewing there. Hospital stocks sold off hard, providers under-performed, Health Care Supplies followed Health Care Tech right down the rabbit hole. The landscape is changing, and so is this sector. It’s early. We are still months away from Inauguration Day, but this maybe too broad of a market slice to be looked at under one microscope. Twelve sectors? Been known to happen.
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Macro
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08:30 – Initial Jobless Claims (Weekly): Expecting 264K, Last Week 265K. Still below the radar. Still at incredibly low levels, thanks to the dwindling full-time labor force.. This item has actually trended slightly higher over the last few weeks from it’s bottom earlier in the Autumn. This will not impact the marketplace upon it’s release.
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09:15 – Fed Speaker: St. Louis Fed Pres. James Bullard will speak from St. Louis, Missouri. Bullard said as recently as two weeks ago that only one quarter point hike was needed for the Fed Funds Rate anytime in the near future.  Bullard  does vote in December.  There will be a Q&A session with both the audience and the media.
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10:30 – Natural Gas Inventories (Weekly): Expecting 54B cf, Last Week 54B cf. It looks very much like we’ll see a fourteenth consecutive build in this space, or the 29th build in the last 30 weeks. Remember when the Natural Gas number was a big deal? This will not impact your day, unless this is specifically what you trade.
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15:00 – US Treasury Monthly Budget Statement (October): Expecting $-65B, September $33B. The October print is historically an oversized negative print for the Treasury. Today’s expectation is actually smallish to what we have seen in years past. Another macro item that the markets will take a pass on.
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Thursday’s Earnings Highlights
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Before the Open: AZN (.96), CCE (.63), KSS (.70), M (.41), RL (1.71)
 After the Close: BUFF (.20), KORS (.88), JWN (.52), DIS (1.16)

Market Recon Wednesday

Good Morning,
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Sweep.
                    Republican sweep. Didn’t really see that one coming, and it certainly does change things somewhat. In doubt now is the FOMC’s determination, or willingness to lift the Fed Funds Rate in December. We, however still have a month to let the dust settle a bit before that decision is made. Obviously, the gridlock/Health Care trade is not going to materialize in the way that we thought. Financials are now anything but a sure thing. The re-pricing of everything has already begun. Donald Trump has some isolationist ideas, but is not as anti-trade as presented in the media. His administration will likely be pro-business. The regulations, and burdens put on businesses over the last eight years should ease. His economics are pro-growth in the short-term. Reduced taxes, and increased fiscal spending provided by increased borrowing should produce a higher GDP. The trick is that the economy has to catch fire before the debt becomes even more unmanageable than it already is.
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Volatility.
                    If you missed last night’s buying opportunity, you’ll probably live. With many balls up in the air, with the immediate direction of monetary policy an unknown, with global relationships (for better or worse) about to change, today will not be your last volatile session. One thing to remember is that, yes this will be a re-pricing….. but a re-pricing of exactly what? There will be plenty of guesswork, and that will produce market inefficiency.
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Trader Focus.
                    While, there would be an expected sell-off across several sectors this morning. Not only the already mentioned Financial, and Health Care sectors, but Consumer type stocks, and Tech should take a hit as well, as risk comes off. There will be hiding places. The Materials sector comes to mind. A weaker greenback, coupled with stronger Gold prices will force that sector to separate early. Then there’s the Utilities, a sector that we mentioned last week. That sector has led for over a month, as it usually does prior to market turbulence. Safe Haven status, plus a dividend if you’re wrong. Those taking a shot at names that will do better during the implementation of a fiscal stimulus package may want to look at Building Products, Electrical Equipment, some Transports, and Defense Contractors. By the way, Fed speakers are more important today than they were yesterday, but only for a little while. There may be changes on the way for that crowd.
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Macro
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10:00 – Wholesale Inventories (September-f): Flashed 0.2% m/m. This item preliminarily printed at a 0.2% m/m increase after having contracted in August. If, in fact this number is confirmed, this will be the second strongest print in this space since October of 2015. This release is actually a component (along with Retail & Manufacturing Inventories) of the larger Business Inventories print that will hit the tape next Tuesday.
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10:30 – Oil Inventories (Weekly): Expecting +1.1M, Last Week +14.4M barrels.
10:30 – Gasoline Stocks (Weekly): Expecting -1.4M, Last Week -2.2M barrels.  Last night, the American Petroleum Institute reported another large inventory build at the headline. If the API is accurate, as they have been to some degree, Oil Inventories grew by 4.4M barrels, while Gasoline Stocks contracted by 3.6M barrels. WTI Crude is up small this morning, more likely due to dollar weakness than anything else.
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13:00 – 10 Year Note Auction: The US Treasury will auction off $23B worth of Ten Year paper just one day after this debt security spent most of Tuesday testing a long-term support level, and then the early morning pushing on through that level. What will be watched closely will be the bid to cover, and the level of foreign participation.
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13:30 – Fed Speaker: Minneapolis Fed Pres. Neel Kashkari will speak from Eau Claire, Wisconsin. Kashkari will be a voting member of the FOMC as of this January. He is not one of the more outspoken Fed officials when it comes to monetary policy, but he will open himself up to questions from the audience today.
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21:00 – Fed Speaker: San Francisco Fed Pres. John Williams has been outspoken of late about getting at least one interest rate hike to the tape this yea, and we know that he has the ear of the Fed Chair, herself. He’ll speak tonight about the national economic outlook, and take questions from both the media and the audience. San Francisco does not vote again until 2018.
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Wednesday’s Earnings Highlights
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Before the Open: VIAB (.65), WEN (.10), WWAV (.38)
 After the Close: MYL (1.46), SHAK (.14), SUN (.40)

Market Recon (Election Day)

Good Morning,
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Election Day.
                  It’s both your right, and your privilege to participate in the process. How you express your viewpoint on national direction is one thing. Adapting to, and excelling in an ever-evolving marketplace is another. The equity markets came very close in just one day to pricing everything back in that was priced out over the nine day losing streak. Not everything was put back in it’s place the same way, and it is possible to learn from that. Today, we’ll touch on three specifics.
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US Dollar Valuations.
                   On the day Director Comey announced that the FBI was taking another look at Sec. Clinton’s e-mail case, the DXY had been trading between 98.75, and 99 for a few sessions. Yesterday, the DXY rallied all the way up to the high 97’s. If you believe that a victory by the Democratic nominee keeps the FOMC on track, and thus strengthens the US Dollar vs. it’s competitors, then it stands to reason that there is trouble on the horizon, for Treasuries, Gold, and ultimately multi-national Corporate earnings. You can also throw WTI Crude in that group, just not yet, as there are too many external factors impacting that commodity. Currency exchange rates will be just as important a factor to forward looking market performance as interest rates, and they’ll walk hand in hand.
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The Financial Sector.
                   Take a look at a sector heat-map. Go back one day, go back five days. thirty days, ninety days. Only one sector comes up green in all of those maps, and that’s the Financials. Again, an election outcome that keeps the monetary narrative in place is perceived by the trading public as a positive for banks, consumer finance, and capital markets. Performance is what you need for an investment. All you need for a trade is perception.  Throw in a some consumer level inflation over the first half of 2017, and this will remain an out-performing group for that time frame.
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The Healthcare Sector.
                   A lot of folks don’t know what to make of this space. Drug makers attacked from the left. The Affordable Care Act attacked from the right. This sector struggled over the last month plus as political pundits considered a Democratic sweep. The when the top of that ticket hit a bump in the road, and the Republican nominee gained a lot of ground in the race, this sector struggled more. There was even some talk last week (not in the media, but within the business) of a possible Republican sweep. Both of those outcomes could/would be awful for parts of this sector. Yesterday, one of the biggest reliefs of that relief rally was in the Healthcare space. The expectation is now for more gridlock in Washington. Likely, traders will deal with a lot of rhetoric, but little action. The Drug makers go about their business. Ordinary Americans keep paying higher premiums, and deductibles as the Affordable Care Act underperforms. Bills get paid on time. What’s good for health care, and what’s good for the Health Care sector don’t always jive. This sector wins in a gridlock scenario.
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Macro
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06:00 – NFIB Small Business Optimism Index (October): Expecting 94.2, September 94.1. Small Business Optimism has been trending slightly lower over the last couple of months, but was still higher in September than it was over the first half of the year. Key to this report will be Plans to Make Capital Outlays, and Current Job Openings, bot of which are coming off of abysmal prints.
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07:45 – Fed Speaker: Chicago Fed Pres. Charles Evans will speak on monetary policy, and economic conditions from New York City. Evans, who will be a voting member of the FOMC next year, will participate in a Q&A session.
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08:55 – Redbook (Weekly): Last week 0.6% y/y. As always, a year over year number in the 0.5% range keeps this weekly number under the radar.
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10:00 – JOLTS (September): Expecting 5.45M, August 5.44M openings. Job Openings printed at their lowest level for August since the January release. Today’s expectation is for a return to a number closer to the trend. This item is not closely looked at, and will not move the marketplace.
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12:45 – Fed Speaker: Chicago Fed Pres. Charles Evans will speak from New York City for the second time today, and speak publicly for the third time in two days. Evans will again take questions from the audience.
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Tuesday’s Earnings Highlights
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Before the Open: CVS (1.57), USFD (.36)
After the Close: VVV (.31)

Market Recon Monday

Good Morning,
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Light Macro Week.
                    There’s an 800 pound gorilla in the room. With the national election scheduled to finally end tomorrow, and a 24 news cycle that’s squarely focused upon exactly that, it’s hard to imagine anything else impacting the marketplace, at least in the early part of this week. An election that a week and a half ago seemed to be headed toward a forgone conclusion, but looked like a toss-up just a day and a half ago, now seems to be headed back toward some kind of certainty. At least that’s what the markets appear to be telling us.
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Where We Stand.
                    The S&P 500 gave up 2% last week, and has surrendered about 3.5% over the last month or so. The longer month long price erosion has been more of an interest rate expectations story. Telecom, and Real Estate (with Health Care for different reasons) have been especially weak over that span, while the Financials as a sector moved higher. The sharper move was last week though, where all eleven sector finished in the red. The pain was led by the Tech sector (with Energy for different reasons), or simply where the most risk/profit had been visible over more than a quarter.
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Trader Focus.
                    The question for traders today, will be just how much that reduced uncertainty is worth. S&P futures are about 1.4% higher as this note goes to print. NASDAQ futures (Representative of the Tech sector) are +1.7%. Gold, as it was a safety play last week is now giving much of that move back. Crude is different. Yes, crude is higher as well, but that’s still an OPEC/technicals story. It’s almost certain, at least to me, that any rally/sell-off based on this week’s election results will be overdone in either direction. Today’s European trade smelled of a short squeeze, and all of those major indices have now hit some resistance. That may be our early morning blueprint.  Playing tomorrow’s results feels somewhat speculative to me. Even if one is confident in the result, the value of that result is going to be tough to measure. In the meantime, look for significant pops today across those very same Tech, Energy, and Staples stocks that took on water last week. Keep in kind, that Crude has been moving with the DXY of late, and is doing so again this morning…. meaning that you can’t count on it.  A stronger dollar will work against the entire commodity complex, which will leave the Materials sector behind the pack this morning.
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Macro
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10:00 – Labor Market Conditions Index (October): Expecting -1.3, September -2.2. We are constantly told that the Labor market is improving. Yet, this, the Fed’s own experimental tool has printed in a state of contraction in eight of the last nine months. On top of that, this composite index of 19 labor market related sub-components that are meant to illustrate an overall snapshot of the health of the nation’s employment situation is expected to show further erosion for October.
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14:45 – Fed Speaker: Chicago Fed Pres. Charles Evans will make the first of three speeches in two days. Evans tends to be one of the most dovish Fed officials, but of late has tempered that opinion a bit. Evans will not have a vote in December, but he will in 2017.
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15:00 – Consumer Credit (September): Expecting $18.4B, September $25.9B. The September increase in consumer level borrowing was the third strong print in the last five. Non-revolving credit (credit card usage) made up $5.6B of that $25.9B, which is good, but not what those who watch the velocity of money would like to see. This item always raises questions that are not easily answered. One never knows if increased borrowing for average Americans is representative of a surge in confidence, or done in desperation to keep one’s family’s standard of living from changing for the worse.
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Monday’s Earnings Highlights
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Before the Open: RESI (-.36), DF (.36), ROK (1.49), SYY (.58)
After the Close: IFF (1.42), MAR (.88)