And the Fed Chair Goes to….

Who will Trump give the rose (ahem) Chair Position to, and who will he say “Your Fired” to?

Investors have a busy week ahead as Trump is supposed to announce his pick for the next Fed chair, the latest Fed statement, and another busy earnings week. On the economic front, we have Manufacturing PMI, the Unemployment Rate, Non-Farm Payrolls and Average Hourly Earnings.

 

Head of the Fed: And the rose goes to… President Trump is likely to announce the new Federal Reserve chair before he leaves for China later this week. Sources are saying that the 2 finalists for the most powerful person on Earth are Fed Governor Jerome Powell and Stanford University Economist John Taylor, meaning Fed Chair Janet Yellen and the rest of the candidates are out of the running. PredictIt.com continues to have Jerome Powell as the odds on favorite. We will continue to see movements in the markets along with the US Dollar as the Fed Chair decision comes nearer. However, anything can happen.

Federal Reserve: So in the same week of a potential new Fed chair, we have the Fed scheduled to release a statement on Wednesday (11/1). This is one of the smaller meetings with no updated projections and no press conference after. The markets are factoring this meeting as being a nothing burger for rates. However, we may get a clue as to if the Fed started to unwind their balance sheet. If the unwinding started and is larger than anticipated, we may see the US Dollar shoot up, along with oil and Treasury Yields. Bank stocks will also be happy as banks continue to pocket the extra interest rate instead of paying depositors so you will continue to get .00001% on your savings. 

Earnings: Earnings are roughly halfway through and we have another 135 S&P 500 companies scheduled to report this week. Traders will continue to see individual stocks have huge price swings if a company’s earnings outpaces or fall short of what the street expected. According to Thomson Reuters I/B/E/S, we have now seen 55% of S&P 500 companies report 3rd quarter earnings so far. Of them, 67% reported revenue above expectations while 74% have reported earnings above expectations. This week has some heavy hitters including Apple and Facebook.

Non-Farm Payrolls & Unemployment Rate: Non-Farm Payrolls, the Unemployment Rate and Average Hourly Earnings for October are scheduled to be released this Friday (11/3). Should the figure show that the economy created more jobs than expected, or if average hourly earnings jumped higher, we will likely see the markets go higher, the US Dollar go higher and oil go lower. Should these numbers disappoint, the markets will likely go lower along with the US Dollar. Like in previous months, the Unemployment Rate may drop but average hourly earnings will continue to stagnate as additional part time workers at Amazon will only be paid minimum wage until a robot can do it for cheaper. As we learned last week, Amazon hired 160K people in the 3Q. So roughly half the jobs created in the US in the 3Q were by Amazon?

Bank of Japan: On Tuesday (10/31), the Bank of Japan will release a policy statement followed by a press conference. This will be the first statement since current Prime Minister Shinzo Abe won the latest election. With the election, Bank of Japan Governor Haruhiko Kuroda will likely be in charge of monetary policy for another 5 years after his current term is up next year. With him at the helm, investors do not expect a policy shift or for the Bank of Japan to announce any type of dial back of its huge stimulus program (Yay free money) any time soon.  

Another Super Thursday for Bank of England: The Bank of England is scheduled on Thursday (11/2) to publish its policy decision, Inflation Report, Official votes and new forecasts or as they call it, Super Thursday (cause their Super, thanks for asking). The Bank of England Governor will also give us his latest outlook as to how the negotiations are going with Brexit. Comments around the negotiations could potentially strengthen or weaken the British Sterling.

Catalonia: The latest out of Spain has the Catalan Parliament voting for independence to form the Catalan Republic, an independent and sovereign country. We don’t know the full extent of what the Spanish Government reaction will be at this time, but there are fears it will involve a police state similar to what Francisco Franco implemented in his reign. So far they have implemented Article 155 and the Spanish Prime Minister has fired the Catalan President, Police Chief and entire Catalan government (sounds very Democratic to me). Spanish bonds will likely spike higher on the news as the Euro will dip with European banks and markets to likely go lower as the crisis continues. Also, will history repeat itself? The last time the Catalan Republic was declared back in 1934, there was a state of war for 10 hours, resulting in 46 dead in Barcelona.

All Saints Day & Culture Day: On Wednesday (11/1) in certain European countries such as France and Italy, banks will be closed for All Saints Day. Since it’s in the middle of the week, markets will likely not see outsized moves the day before or after the holiday in their respective countries, and the rest of Europe. Also this week, Japanese banks are closed for Culture Day on Thursday (11/2).

Expect Liquor Companies To Go Higher With All The Rain

 

As Harvey continues to dump excessive amounts of rain in Texas, we have another relatively quiet week ahead until Friday. Then, we fade into the last weekend of summer and the long Labor Day weekend. Traders will also continue to assess the damage from Hurricane Harvey. On the economic front, we have Manufacturing PMI, the Unemployment Rate, Non-Farm Payrolls and Average Hourly Earnings. 

Hurricane: Energy companies will be checking their oil and gas platforms for damage from this weekend’s hurricane which brought to the Gulf of Mexico and Texas 130+ mph winds. The US Gulf of Mexico is home to about 17 per cent of the nation’s crude oil output, which stands at 9.5M barrels a day, according to the US energy department. Roughly 45% of US refining capacity is along the Gulf coast, so the longer the platforms are down, we could see a jump in the price of oil on a short term dip in supply. The longer the rain continues and disrupts people’s daily lives, we could see a dip in GDP for 3Q, which could lower the broader markets. Also watch insurance companies as the more destruction we see, insurance companies will have to make more payouts, negatively affecting their stock. Home builders would get a boost as more money from insurance company payouts would be used for rebuilding. Liquor companies would also see stock boosts as some people will spend the insurance money on booze, drugs and maybe, a vacation.

Non-Farm Payrolls & Unemployment Rate: Non-Farm Payrolls, the Unemployment Rate and Average Hourly Earnings for August are scheduled to be released this Friday (9/1). Should the figure show that the economy created more jobs than expected, or if average hourly earnings jumped higher, we will likely see the markets go higher, the US Dollar go higher and oil go lower. Should these numbers disappoint, the markets will likely go lower along with the US Dollar. Like in previous months, the Unemployment Rate may drop but average hourly earnings will continue to stagnate as additional part time workers at Amazon will only be paid minimum wage until a robot can do it for cheaper.

I’m Building a Wall, Where the Illegals Get in: President Trump’s rhetoric helped drive the markets down last week when he said he would shut the government down if he didn’t get funding for the wall in the next budget. A potential government shutdown would be bad for everybody, except for the government temporary not wasting your money. Congress has to pass a budget by September 30th so they have a month to pass one. They could just pass a clean bill and push everything off a year, but this is unlikely at this juncture as they also work on tax reform. Since it’s still a month away, besides a knee jerk reaction to the markets, we could see a move into safe havens with Treasury yields going lower, the Japanese Yen and gold go higher.

GDP Second Release: On Wednesday (8/30), we get our second release of US GDP for the 2nd quarter. We get 3 releases, Advance, Preliminary and Final. The first release is the most impactful. However, if a line item were to surprise in the Preliminary reading, the markets can react accordingly. The first release came in at 2.6%, in-line with expectations.  If we get better than expected information with this reading on the consumer, we can expect to see equities go higher. If the consumer comes in weaker, expect equities to fall.   

So much for a quiet week: Similar to my office, which is borderline working with a skeleton crew, the last week of the summer is the time when many people are on vacation. And just like last week, we are likely to continue to see low volume. However, algos could potentially be busy in an instant with anything coming out of the Trump White House, or from another terror attack.

Jackson Hole Reactions: Even though the markets were able to react to most speakers from the Jackson Hole Symposium, additional speeches were made after the market closed on Friday. Monday morning will give algos and investors the first chance to react.

UK Bank Holiday: UK banks will be closed on Monday (8/28) for what they just call Summer Bank Day, or what we call here in the US Labor Day, the end of summer. Enjoy both!!!  

All Eyes on the Jackson Hole Symposium

Well, one eye still on the White House Circus 

The week is relatively quiet until the Jackson Hole Symposium later in the week. On the economic front, we have Durable Goods and New Home Sales.

Jackson Hole Symposium: From Thursday, (8/24) – Saturday, (8/26), central bankers, finance ministers, academics and other important finance people participate in the Jackson Hole Symposium, in Jackson Hole Wyoming. At the Symposium, we can expect speeches from Super Mario Draghi, Fed Chair Janet Yellen and many others from around the world. Comments from the central bankers can move markets. If they mention any change in policy or a time frame to the Fed unloading their balance sheet, or the ECB pulling back on its bond buying, we can expect a strengthening in the respective currency and a possible pull back in the broader markets.

The Apprentice, White House Edition: Another week, another instance of “Your Fired.” But the latest person to leave (Steve Bannon) had a reaction in the markets cause of his anti-globalization view which had the markets react. If we have somebody unexpectedly leave the White House such as Gary Cohn or the Treasury Secretary Steve (Street Fighter 2 sounding) Mncuhin, we could see a sell off again as Trump’s pro-business agenda could potentially be in jeopardy.

Another Draghi Speech: ECB President, Super Mario Draghi is also scheduled to speak on Wednesday (8/23), a few days before the Jackson Hole Symposium. Draghi could potentially mention that he will be ending Europe’s Quantitative Easing. If this were to happen, we would see the Euro weaken and also a pullback in the markets on both sides of the Atlantic.

So much for a quiet week. The last 2 weeks of the summer are the time when a lot of people go on family vacation (especially in the northeast) as camp is over for the kids, but school has not started yet, so families go away. And with it, we usually see low volume. However, algos could potentially be busy in an instant with anything coming out of the Trump White House, or from another terror attack, such as in Barcelona.  

So Many PMI readings:  Flash Manufacturing PMI readings from across the globe are due out this week. Traders will watch these readings as potential weak readings could cause central banks to take further steps to stimulate their respective nation’s economies.

Dow Theory: The Dow Jones Transports Average (Made up of 20 transportation companies) have been going lower the last few weeks while the Dow Jones Industrials Average has been going higher. With this divergence, traders have been paying attention to Dow Theory. Dow Theory states that when we see a divergence between the 2 indexes, in a reasonable time the Industrials average would likely follow suit. This would mean that we should see the Industrials, and the broader markets pull back. For more on Dow Theory, please watch my video from Nasdaq Advisory Live where I discussed the divergence we are seeing between the Dow Jones Industrials and the Dow Jones Transportation Average.

UK GDP Second Estimate: On Thursday (8/24), the UK releases their revised GDP or “2nd Estimate.” The 1st reading usually has the largest effect on the market, but if the reading were to surprise, we could see markets go higher, or lower. If UK markets were to go higher, we would see the British Pound weaken as it continues to negotiate on Brexit.    

Just Work On Tax Reform Please!!!

 

Investors have another heavy earnings week ahead as we also await the latest Unemployment Rate and Average Hourly Earnings figures. Additionally, on the economic front, we have Personal Spending, Pending Home Sales and Challenger Job Cuts.

Earnings: Earnings had their heaviest week last week, so it’s all down here from here. We still have a heavy week with 133 S&P 500 companies and 2 Dow components this week. Traders will continue to see individual stocks have huge price swings if a company’s earnings outpaces or fall short of what the street expected. According to Thomson Reuters I/B/E/S, we have now seen 58% of S&P 500 companies report 2nd quarter earnings so far. Of them, 71% reported revenue above expectations while 73% have reported earnings above expectations.

Non-Farm Payrolls & Unemployment Rate: Non-Farm Payrolls, the Unemployment Rate and Average Hourly Earnings for July are scheduled to be released this Friday (8/4). Should the figure show that the economy created more jobs than expected, or if average hourly earnings jumped higher, we will likely see the markets go higher, the US Dollar go higher and oil go lower. Should these numbers disappoint, the markets will likely go lower along with the US Dollar. As we’ve seen time and again with these figures, the Unemployment Rate may drop but average hourly earnings will continue to stagnate as another part time worker at Amazon will only be paid minimum wage until a robot can do it for cheaper.

Bank of England: The Bank of England is scheduled this week to publish its policy decision, Inflation Report Official votes and new forecasts or as they call it, Super Thursday (cause their Super, thanks for asking). The Bank of England Governor will also give us his latest outlook and if they will be raising interest rates. With significant uncertainty around the impact of Brexit on the UK’s economy, investors will likely not see any changes and will continue the wait and see approach.

So Many PMI readings:  PMI readings from across the globe are due out this week. Traders will watch these readings as potential weak readings could cause central banks to take further steps to stimulate their respective nation’s economies.

Chinese Data: This week, China will be releasing Manufacturing PMI Non-Manufacturing PMI and Caixin Service PMI. Investors will monitor the data and the Yuan’s reaction as strong data will put upward pressure on the currency, with the potential for markets to rise globally.

WWJD June 2017 Edition

What Would Janet Do???

 

The week ahead is highlighted by the Fed statement and the potential to see another interest rate hike. On the economic front, we have Building Permits, CPI, Retail Sales and Michigan Sentiment.

Federal Reserve: On Wednesday (6/14), the Fed will release a statement where everybody will be waiting to see if the Federal Reserve decides to raise interest rates again. Odds for an interest rate hike are above 90% so the markets have already priced it in. If the Fed does raise rates for the second time in 2017, and 3rd since the election, we can expect to see significant volatility following the statement release. Some of the results of an interest rate increase include a strengthening in the US Dollar, a spike in Utilities & Financial companies, a weakening of foreign currencies, oil and metals. We would also see mortgage rates go up as Treasury yields will increase. However, with Treasury Yields, they have been falling all year as China said they would be buying them again putting downward pressure on yields. A press conference will follow the announcement with FOMC Chair Janet Yellen taking questions. If they were to not hike at this meeting, we could see a temporary reversal with the markets pushing higher, and mortgage rates falling back. This could also put additional pressure on oil pushing it higher, as its priced in US Dollars. We may also potentially hear when they may begin to unwind the Fed’s balance sheet, but will likely just say “later this year.”

Oil and Qatar: It’s very hypocritical for the Saudis, the financiers of 9/11 and ISIS, as saying Qatar funds terrorists while they are acting all innocent. Qatar’s market and currency has crashed since the countries broke off diplomatic ties with them last week. Shippers are seeing their cargo not getting in or out of Qatar which hurts firms such as Maersk. Investors will watch to see if this comes to some conclusion or we could see shippers continue to get hurt the longer this embargo lasts. Oil will likely go lower as an agreement between OPEC members to cut production may likely be in jeopardy adding to the global over supply. Adding to the surprise move by Gulf countries, we are still not even sure if President Trump knows that US Central Command with 10,000 US troops fighting ISIS is commanded out of Qatar which also bewilders the markets potential response.      

Policy Statements: Besides the Fed, we are expecting policy statements from the Bank of Japan, Swiss National Bank and the Bank of England all on Thursday (6/15). Investors are not expecting any massive monetary policy shift. However, any unexpected monetary stimulus announced by either bank has the potential to push markets higher not just in their respective countries, but across markets worldwide. This would likely push the US Dollar higher against the respective currencies.

Housing Starts: On Friday (6/16), Housing Starts is scheduled to report. Investors will be looking to see if the report was affected by the recent drop in mortgage rates as Treasury Yields are at year to date lows. If more people took advantage of the lower rates and this number beats, we will see housing stocks and home improvement companies potentially increase.

VIX Down Below 10: Now with all the excitement behind us, what’s a market to do? For the VIX, no place to go but up as volatility risk keeps dropping. The VIX is now at a 23 year low. The VIX spiked in late afternoon trading last Friday after Amazon (AMZN) saw a flash crash from a fat finger. However, broader markets keep hitting new highs, almost on a daily basis. Investors will watch to see if the lack of market moving news push the VIX to an even lower level over the coming days and weeks.

 

This latest blog is brought to you by the wonderful MTA of NYC. I’d like to thank them for making my 5.7-mile commute home yesterday take 3 trains in 100 minutes. How the board of the MTA is not dragged into the street and shot is beyond comprehension.

“If You Fire Me Now, I Shall Become More Powerful Than You Can Possibly Imagine”

– Preet Bharara’s potential last speech to Donald Trump before he got fired. Now that he has been fired by President Trump, “I felt a great disturbance in the force.”

 

After the shocking news for the sheriff of Wall Street over the weekend, investors will now turn their attention to WWJD March 17 Edition

What Would Janet Do???

 

The week ahead is highlighted by the Fed statement and the potential to see an interest rate hike. On the economic front, we have Building Permits, CPI, Retail Sales and Michigan Sentiment.

Fed: On Wednesday (3/15), the Fed will release a statement where everybody will be waiting to see if they decide to raise interest rates. Odds for an interest rate hike hit nearly 100% so the markets have already priced it in. If the Fed does raise rates for the first time in 2017, we can expect to see significant volatility following the statement release. Some of the results of an interest rate increase include a strengthening in the US Dollar, a spike in Utilities & Financial companies, a weakening of foreign currencies, oil and metals. We would also see mortgage rates go up as Treasury yields will increase. A press conference will follow the announcement with FOMC Chair Janet Yellen taking questions. If they were to not hike at this meeting, we could see a temporary reversal with the markets pushing higher, and mortgage rates falling back. This could also help to reverse oil’s decline.

Policy Statements: Besides the Fed, we are expecting policy statements from the Bank of Japan, Swiss National Bank and the Bank of England all on Thursday (3/16). Investors are not expecting any massive monetary policy shift. However, any unexpected monetary stimulus announced by either bank has the potential to push markets higher not just in their respective countries, but across markets worldwide. This would likely push the US Dollar higher against the respective currencies.

Oil: West Texas Crude Oil fell down 5% last Wednesday (3/8) on reports that US crude inventories were at record highs. This brought up concerns of a global oil glut as OPEC tries to raise prices by cutting production. Oil continued to slide the rest of the week as WTI fellow below $49, its lowest level since November. The US oil rig count also hit 16 month highs last Friday which helped to push oil down below its 200 day moving average, a technical bearish signal. Investors will continue to monitor the latest oil inventories and rig counts to see if the trend lower continues.

Super Mario Speaks: On Monday (3/13), ECB President Mario Draghi will be speaking in Frankfurt, Germany. After his press conference last week, investors will be listening to any hints as to when the ECB’s monthly Quantitative easing is reduced. The sooner he hints to normalizing monetary policy, we could see bonds in Europe sell off and the Euro increase against a basket of currencies. 

Debt Ceiling: Guess who’s back, back again? The Debt Ceiling’s back, tell a friend. Treasury Secretary (Street Fighter) Mnuchin has written a letter to Congress that the US Treasury will reach its borrowing limit on Thursday (3/16). Since the Republicans have the House, Senate and Presidency, it is unlikely that they would use the debt limit as a bargaining chip for legislation before just raising it. Markets are pricing in for them to raise it at the very last minute as to not trigger a default. However, people like myself will be hoping for the US Mint to develop a trillion dollar bill, (which Obama actually did contemplate back in 2011) and for Homer Simpson to put it in a vending machine to buy a snack. 

CPI: On Wednesday (3/15), CPI is released. Should CPI come in stronger than expected, it would signal that the consumer will be able to absorb another potential interest rate. If it comes in weaker than expected, it may give the Fed reason to pause before potentially raising rates this week.

St. Patty’s Day: With St. Patty’s Day falling on a Friday this year, investors can expect to see lighter volume and potential higher volatility as traders start their day off with kegs and eggs and march in the St. Patty’s Day parade here in NY. As the day progresses, volume will likely taper off as lunch meetings get swept into St. Patty’s Day debauchery and traders don’t make it back to their desks.    

Preet Bharara: The sheriff of Wall Street and the highest profile US Attorney, Preet Bharara was fired by President Trump over the weekend after refusing to resign. This guy took down Sheldon Silver, Joe Bruno and was investigating the NY Governor, NYC Mayor and wall street corruption which will likely see those investigations and others he was working on cease. It’s my opinion that he was likely starting to have a look at President Trump, which his office has the power to do. And because of that, we saw a reversal from Trump’s meeting he had with Preet back after the election which had Trump asking him to stay on past the inauguration. But a rock star like Preet won’t be going away any time soon. Preet will now likely become Obi Wan Kenobi when he last fought Darth Vader. For Preet, “If you fire me now, I shall become more powerful than you can possibly imagine.”

Hello Super Nintendo Devos

Will we have a whole generation of Ralph Wiggum’s?

Investors will be watching Fed Chair Janet Yellen’s testimony as another string of earnings come in this week. We will also continue to monitor President Trump’s Executive Orders and potential 3AM tweets. On the economic front, we have a busy week with PPI, CPI, Retail Sales, Building Permits and the Philly Fed.

Chairman Yellen Testifies: Federal Chair Janet Yellen is scheduled to testify to the Senate Banking Committee Tuesday (2/14) and the House Financial Services Committee on Monetary Policy on Wednesday (2/15). At the hearings, investors will be looking for hints as to the timing of interest rate hikes and the potential steepening of the yield curve. If she hints at pushing out interest rate hikes, we could see the US Dollar and Treasury Yields fall. Investors will also be looking for any discussion about the Fed’s balance sheet and when they will normalize the $4.5 Trillion they hold.   

Additionally, the committee’s will definitely have a discussion with Janet about the Fed’s “regulatory point man” Daniel Tarullo resigning unexpectedly last Friday. Tarullo likely resigned because he was such a staunch advocate of regulations and Trump is looking to loosen most regulations including Dodd-Frank. Yellen will obviously not state that but will answer with some long convoluted response. Her response on how the Fed will tackle certain regulations may see bank stocks move.

With Tarullo resigning, President Trump now has to fill 3 Fed governor positions. Investors will be looking to see if his nominees fit into his narrative from the campaign trail in that rates have been too low for too long and should be normalized. This person will also likely want to overhaul the regulatory system such as Dodd-Frank and be hawkish. Hopefully, he will not nominate somebody that thinks the Fed is responsible to protect Americans from grizzly bears.  

FOMC Members Speak: Besides Janet’s testimony, two additional Fed members (Robert Kaplan and Patrick Harker) are scheduled to speak this week. Investors will be looking for any hints as to rate timing and also potential thoughts on future monetary policy with fiscal policy potentially changing later this year. We will likely hear that they have a wait and see approach with no real substance. We will also listen to their thoughts on who they think the President will appoint to the Fed.

Earnings Chugs Along: Earnings have now seen over 350 companies of the S&P 500 report 4th quarter earnings. 68% have beaten earnings expectations with 48% beating revenues according to Thomson Reuters I/B/E/S. This week has 57 S&P 500 companies and 1 Dow 30 component expected to report Q4 earnings this week. We have seen individual stocks have huge price swings for earnings misses such as Twitter (TWTR) last week.  This will continue for the next few weeks.

Low Volatility: The S&P has now gone 40 days without a 1% Intraday Move: The longest streak in history. The VIX has been extremely low since the election currently at 10.9. This is well below its long term average of 20. However, the S&P and Nasdaq still continued to set new all-time highs including this week. We are expecting Trump to make some kind of announcement in the next week or two around tax reform. Until details come out, expect this sideways to higher pattern to continue.

GDP: Japan, Germany, Great Britain and other European Countries are scheduled to report GDP for the 4Q 16. If GDP comes in is less than expected, we may see equities fall in their respective countries as investors will believe their respective economy is not growing as fast as expected. US markets may also fall in tandem as the fall in their GDP could be from US companies and consumers consuming fewer imports from these countries. If we see GDP beat, this would also be a signal that their economies are growing and help push markets higher domestically, and in the US.  

Retail Sales: On Wednesday (2/15), Retail Sales are released and investors will get another look at how retailers have performed since Trump became President.

Greece: Greece may be coming back into the forefront as the can kicking of years past shows its ugly head again. For Greece to be eligible for its next round of aid this summer to pay for 6 billion Euros coming due, they have to show they are making enough fiscal cuts. Without the necessary cuts, speculation will again start about the future of the Euro currency. Euro area finance ministers are scheduled to meet Monday (2/20). This is their last meeting before European elections later this year. Since politics would come in to the picture after this meeting, this is their best chance of another round of can kicking. If these talks sour, expect the Euro to fall against the Dollar, European equities to fall and yields on Greek bonds will likely shoot up.