Don’t Take My Punch Bowl Away

+ Intro: The blackout period for Fed speakers begins this week as we all wait for the Sept 21st FOMC statement. In the meantime, traders will look to see if any economic indicators this week including Retail Sales, Philly Fed, CPI or Draghi speaking will help the market recover from last Friday’s sell off (fear of the punch bowl being taken away).

+ Fed Speaker: Fed Governor Lael Brainard is the only Fed member due to speak this week (Monday 9/12) before the blackout period begins. If he reiterates Rosengren’s sentiment, we may see markets continue to fall. If he gives no hints as to the Fed’s thinking, expect the status quo for the day. The investment community is also speculating that he may hint at rates being raised this year just so the Fed maintains credibility.

+ Draghi Speaks: Last week, Super Mario left the ECB’s official interest rate and quantitative easing program unchanged, disappointed markets and sending Bond prices lower. In reaction, some bond yields moved higher with 10Y German Bunds now yielding (wait for it) above 0%. Traders will be listening to his speech in Trento, Italy to see if he elaborates on current QE measures. Any additional QE the ECB may potentially implement will send European equities and bond prices higher pushing the yield even further below 0. Some speculators are even listening for any potential hints of the ECB potentially buying equities (another step towards Helicopter Money) similar to the Japanese Central Bank, which would send equites higher. 

+ Volatility: Before last Friday’s speech, when Boston Fed President Eric Rosengren said low interest rates are increasing the chance of overheating the U.S. economy, the S&P 500 one-month trailing realized volatility had dropped to 4.8, its lowest level in 45 years. Investors will watch to see if we have another VIX spike or if we go back to this sideways trading pattern which will see the VIX fall.

+ Oil: Oil spiked last week after data showed US crude oil inventory levels witnessed their largest decline since 1999. Part of the drop was the one off event of Houston shipping channels being closed and production idled because of Hurricane Hermine. Last Friday, oil fell back again along with the broader market drop. This week, traders will wait to see if any algos get triggered from a tweet on twitter stating that one of OPEC’s oil minister’s is open to a talk to freeze production sending the price of oil up. Once the tweet gets disproven with another statement later in the trading session or the next day, oil prices will fall back to where they were before the spike.   

+ Hanjin Shipping Bankruptcy fallout: Even though the 7th largest shipper accounted for only 7% of Far East – North America shipping, the bankruptcy has left lots of parties in limbo. Freight rates on some routes Hanjin operates on have seen rates surge. The longer the bankruptcy hearing takes as merchandise sits on ships delaying delivery, retailers will start to use the delay as a reason for earnings misses this quarter and in the next. Shippers working along these routes and other forms of transportation may see stock boosts the longer this goes. Economic activity estimates such as GDP and retail sales may potentially be impacted the longer this gets prolonged.  

CPI: On Friday (9/16), CPI is released. Should CPI come in weaker than expected, we could see the Fed delay an interest rate increase. However, if we do see increases in CPI, this will provide further ammunition that the consumer will be able to absorb an interest rate hike this year.