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.