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Jobs Report Preview, August 31, 2017

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Before getting into this month’s jobs report preview, I want to point out that August jobs reports have a history of being the worst reports of the year, and often provide negative surprises. The reason why isn’t exactly clear. It likely has to do with the resumption of college and end of summer jobs, although that’s never been statistically verified. The reason I’m telling you this is because if there’s one month where a soft jobs report is at least partially overlooked, it’s August. Point being, a soft jobs report tomorrow won’t be as “dovish” as a soft jobs re- port any other month.

Bigger picture, the inflation component of this report remains key. A December rate hike isn’t certain, but if wages tick higher and the headline number is strong, that will push yields and the dollar higher, and stocks likely lower (at least in the short term). Longer term, though, we need a “reflation,” and that comes with better growth and inflation, so that’s the preferred outcome for anyone with a longer-term time horizon (which is all of us, I suspect).

“Too Hot” Scenario (A December Rate Hike Becomes More Certain)
• >250k Job Adds, < 4.1% Unemployment, > 2.8% YOY wage increase. A number this hot will refute the lower inflation numbers and reintroduce the potential for a “not dovish” Fed. Likely Market Reaction: We should see a powerful re-engagement…withheld for subscribers only—unlock specifics and ETFs by signing up for a free two-week trial).

“Just Right” Scenario (Leaves a December Rate Hike As A 50/50 Proposition)
• 125k–250k Job Adds, > 4.2% Unemployment Rate, 2.5%-2.8% YOY wage increase. This is the best-case scenario for stocks, as it would reinforce the current expectation of balance sheet reduction in September, and (maybe) one more 25-bps rate hike in December. Likely Market Reaction: A knee-jerk, mild stock rally..withheld for subscribers only—unlock specifics and ETFs by signing up for a free two-week trial).

“Too Cold” Scenario (Economic Growth Potentially Stalling)
• < 100k Job Adds, < 2.5% YOY Wage Gains. If we see a big disappointment in the jobs number and a further softening of wage inflation, that will send bond yields lower, but it would also likely weigh on stocks as it will raise concerns about economic growth. Likely Market Reaction: Bonds and gold should surge and the 10-year Treasury yield would…withheld for subscribers only—unlock specifics and ETFs by signing up for a free two-week trial).

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Shutdown vs. Debt Ceiling, August 30, 2017

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Washington will be at the epicenter of markets in September, and for four reasons: Progress (or lack thereof) on tax cuts, Fed balance sheet reduction, debt ceiling increase and government shutdown. I’ve covered the first two in the Report at length, but I haven’t spent a lot of time on the latter two events.

And, once media coverage moves on from the tragedy of Hurricane Harvey, as it undoubtedly will shortly, it will refocus on Washington, and specifically the debt ceiling and government shutdown, as both are coming up fast.

The shutdown and debt ceiling fight have the potential to cause a pullback in stocks, and both will undoubtedly be referenced by scary headlines on the financial media.

In reality, the chances of either event actually hitting stocks is low, and I want to spend a few minutes to give you the “need to know” on each event, and what needs to happen for either event to push stocks lower.

Government Shutdown Deadline Dates: September 30th. Why It’s A Potential Problem: The border wall. What Needs To Happen: Congress must pass a budget by that date or begin to close non-essential government services. Last Time It Happened: 2013. Will It Cause A Pullback? Almost certainly not.

The fight here seems to revolve around Trump’s border wall. The president wants funding for the wall included in the budget, but Democrats have vowed to vote against any budget that includes the border wall.

That stalemate could cause a shutdown as Republicans would have to vote as a block to pass the budget over Democrat opposition, and that’s just not something that’s likely to happen.

What Likely Happens: September 30th isn’t a hard deadline, as Congress can pass short-term “continuing resolutions” to keep the government funded and open while the negotiations get settled. Probability of a Shutdown: 20%.

Debt Ceiling. Deadline Date(s): September 30th, midOctober. Why It’s a Potential Problem: Because it’s Washington, and they can’t do anything easily (at least not so far). What Needs to Happen: Congress must pass a debt limit extension by the deadline. Last Time It Happened: Never. The government has never failed to raise the debt ceiling, although there was a big scare in 2011 that spooked markets. Will It Cause A Pullback? Almost certainly not.

There isn’t any specific issue that could cause the debt ceiling to not be extended, but again, it’s Washington—so nearly anything is possible.

What Likely Happens: Of the two issues (government shutdown and debt ceiling) the debt ceiling is the much more serious one, because there isn’t the ability to kick the can down the road like there is with funding the government (i.e. no short-term extensions). So, I’d expect the debt ceiling will be raised with (relatively) little drama. Probability of a Default (i.e. not raising the debt ceiling): 15% (and that’s probably a mild over estimation).

Bottom Line
These two events will dominate headlines in the coming weeks, but a cold, unemotional look at the facts strongly suggest these are not going to be material headwinds on the markets this fall.

Progress (or not) on tax cuts, earnings, economic data and geopolitical dramas are the major threats to this 2017 rally as we enter the stretch run into year end.

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Harvey’s Market Impact, August 29, 2017

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We got a couple of questions from advisors yesterday about the market impact of Hurricane Harvey, so I imagined you might be getting similar calls from your clients.

So, I wanted to clearly and briefly outline the market impact of the storm.

Macro Impact: Not Much. From a macro standpoint (Fed policy, GDP growth, inflation) Hurricane Harvey won’t have much of an effect. While clearly a significant human tragedy for Houston and Southeast Texas, storms simply don’t have a lasting effect on markets. Katrina and Sandy had impacts on the local economies, but again, the broader macro influence wasn’t big. Harvey does not change our “cautiously positive” stance on markets.

Micro Impact: The more palpable impact of Hurricane Harvey will be on specific market sectors, although I will not provide a list of “winners” given the damage wrought upon Houston and other parts of Texas.

That said, companies that likely will see increased demand due to the storm are: Refiners (HFC, DK), trucking companies (KNX), and equipment rental companies (URI). Unfortunately, there’s not a clean ETF for these sectors, and the only tradeable infrastructure ETF is a global ETF, so I don’t think it’s applicable here.

Companies that are likely to see business decline because of Harvey are: Natural gas and oil E&P companies due to a lower production and lower prices (ETF is XOP), and insurers.

Looking at insurers, the focus there is on property and casualty insurers as they will be the most affected by the storm. The big insurance ETF is KIE which traded down 1% on the news yesterday. But, while the first instinct would be to run from the insurance space, in some ways I view this as a potential opportunity to buy insurers on a dip (if this continues).

First, property and casualty insurers are just 40% of KIE. Yes, there will be more exposure through reinsurance (10.8% of assets), but that still leaves about half the assets of the ETF somewhat insulated from the storm. Additionally, 24% of the exposure of the fund is to the UK, and those should have little exposure to Harvey.

Point being, I’m not saying buy KIE today but I also want to look through the initial impulse to just shy away from the sector entirely. But, over the longer term, being long insurance companies are like betting with the house in a casino—they always win given enough time.

If Harvey creates an unreasonable downdraft in KIE, we will likely allocate capital to it for longer-term accounts. We’ll be watching this one going forward.

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Weekly Market Cheat Sheet, August 28, 2017

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Last Week in Review

There were only two notable economic reports last week, and neither were particularly controversial… and neither did anything to change the current market expectation of 1) High 2% to low 3% GDP growth in Q3, or 2) Fed reduction of the balance sheet in September.

Neither data point gave us any incremental color on whether the Fed will hike rates in December, although
we’ll get a lot more color on that issue this week. Looking at the data, the most important number last week was the August flash composite PMIs. The headline number beat at 56 vs. (E) 54.3, but that strong aggregate number hid some pretty significant discrepancies in the details.

The reason the PMIs beat was because of a surge in service companies. Flash service sector PMI rose to 56.9 vs. 54.8. But, the more important manufacturing PMI dropped to 52.5 vs. 53.2 (the manufacturing PMI is just a better reading of activity, so it’s more heavily weighted in the minds of economists).

So, despite the headline beat, this number was actually a disappointment, although I want to be clear that it was not an outright negative (PMIs need to drop below 50 before they imply economic activity is slowing). Bottom line, this is not the type of August reading that would make us think we’re seeing an economic acceleration.

Turning to Durable Goods, they were in line. Yes, the headline reading missed expectations as orders for Durable Goods fell -6.8% vs. (E) -5.8%. But, longer-time readers of this Report know you should ignore the headline as it’s massively skewed by airplane orders. The more important number is New Orders for Non-Defense Capital Goods ex Aircraft (NDCGXA) and it rose 0.4% vs. (E) 0.5%, although June data was revised 0.1% higher, so it was an in-line reading.

Again, we watch NDCGXA because it’s the best proxy for business spending and investment. And, similar to the flash PMI, while the number isn’t an outright negative, it’s not the kind of number that makes us think a broad economic acceleration is coming.

Bottom line, both numbers last week implied continued steady, but unspectacular, economic growth, and that’s simply not enough to cause a rising.

This Week’s Preview

This will be one of the busiest weeks of the year from an economic data standpoint, and it will come during one of the lowest liquidity weeks of the year… so the potential for data-based volatility this week is high.

The key reports this week (in order of importance) are: Jobs Report (Friday), Personal Income and Outlays (Thursday) and Global Manufacturing PMIs (Thursday night/Friday morning).

The reason those reports are ranked like that is because of inflation. Remember, barring a shockingly week Jobs Report on Friday, nothing is going to stop the Fed from reducing the balance sheet in September.

But, whether they hike rates in December remains uncertain, and the key variable that will decide that is inflation. So, that means that the wage number in Friday’s Jobs Report, and the Core PCE Price Index (the Fed’s preferred measure of inflation, which is contained in the Personal Income and Outlays report) will be the two key numbers this week.

If they run hotter than expected, you will see markets begin to price in the chance of a December rate hike, which would likely be a near-term headwind on stocks as a rate hike is not priced in to bond yields, the dollar or equities.

Turning to measures of economic growth, the August manufacturing PMIs are always important, but again there really shouldn’t be any major surprises here. A firm number in the US that refuted the soft flash PMI from last week would be welcomed as we need better growth to push stocks higher, but really the focus will be on inflation this week.

Looking at the dovish possibilities, we could easily see the data this week push the 10-year Treasury yield to new lows if the inflation data is underwhelming, and we would view that as a negative for stocks broadly.

Bottom line, I know this is a heavy vacation week, but it’s important one for Fed and ECB expectations, and that has the potential to move markets, especially given the precarious technical situation the S&P 500 is sitting in.

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EIA Report & Oil Update, August 24, 2017

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Yesterday’s EIA data was relatively in line with expectations, and the market reacted accordingly with a very choppy and insignificant response. Gasoline stocks did fall more than expected, and as a result RBOB futures outperformed WTI futures, which closed up 1.72% and 1.09%, respectively.

On the headlines, crude oil stocks fell -3.3M bbls vs. (E) -3.1, which also roughly matched the -3.6M bbl draw reported by the API late Tuesday. The change in gasoline supply was the only real surprise in the data print as stockpiles fell -1.2M vs. (E) -500K. And compared to the API, which reported gasoline inventories rose +1.4M bbls, that data point favored the bulls.

The rising trend of lower 48 production remains the most important influence on the energy markets right now, and there was a potential sign of fatigue in that figure as it rose just 12K b/d vs. the 2017 average of 25K b/d. In theory that is a slightly bullish influence, but it is only one report and US output did hit another multi-year high in this most recent release, which is still longer-term bearish. Additionally, Alaskan production continued to stabilize and show signs of turning higher into the fall, as production rose 14K b/d to the highest level since mid-July.

Bottom line, US production continues to trend higher despite a slight pullback in pace last week. And as long as US production is grinding to new multi-year highs, it will be a headwind on the entire complex, and the $50/barrel mark will continue to be a stubborn psychological and technical resistance level for WTI.

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Taxes Update, August 23, 2017

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What a difference a few days can make. By Thursday’s close, the S&P 500 was at a one-month low, and the prospects for any tax cuts or foreign profit repatriation tax holiday were dim.

Now, thanks to one Politico article, happy days are here  again, as the S&P 500 surged on the idea that the leaders in Washington are actually making progress on tax cuts! Hopefully, you can sense my sarcasm.

The lack of liquidity and attendance in the market is making these tax-related market mood swings worse than they otherwise should be, so I wanted to step back and provide a clear, unemotional update on the tax cut situation.

Starting with Tuesday’s Politico article, there were two reasons it was positive: The “Big Six,” and 22% to 25%. Starting with the latter, you know from this Report that right now, the market is expecting a corporate tax cut in Q1 2018 down to 28%. If that happens, it likely isn’t a materially positive or negative catalyst.

However, the Politico article implied consensus was coalescing around a corporate rate between 22% and 25%, obviously less than 28%. If that happens, it will represent a positive catalyst and a boost to corporate earnings, which will send stocks higher.

Now, on to the former. The “Big Six” is apparently the nickname that a key group of Republican leaders have given themselves in regards to tax negotiations. For clarity, the “Big Six” are: Treasury Secretary Mnuchin, National Economic Council Director Cohn, Senate Majority Leader McConnell, Speaker of the House Ryan, House Ways and Means Committee Chair Brady, and Senate Finance Committee Chair Hatch.

The Politico article implied the “Big Six” have been working much closer than previously thought, and that they have made a lot more progress on the structure of tax cuts (although plenty of details remain).

Bottom Line
The noise on this topic is officially deafening, but I want to cut through it and give you some hard takeaways on the outlook for tax cuts and the impact on the market.

1. Expect more tax-related volatility. If January through August is any guide, we can expect the ever-growing Washington soap opera to fully engulf the tax cut issue this fall. Like healthcare, there are multiple moving pieces, a lot of important, TV happy players (I’m not even including Trump), and a lot of pressure—as this is basically the Republicans’ last chance to get any legislative priorities accomplished before focus on the midterms starts in 2018.

2. The outlook for tax cuts wasn’t as bad as it seemed last Thursday, and it’s not as good as it seems right
now. The Politico article was positive, but it didn’t contain anything ground breaking. To boot, it appears that substantially controversial issues are being discussed in the tax cut package, including: Capping mortgage interest deductions, eliminating the deduction of state and local taxes against federal, corporate interest deductibility and other issues. These and foundational pieces of the current tax code, and removing them won’t be easy.

3. The sector winners from potential tax cuts remain the same as they’ve been all year: Super-cap tech (on foreign profit repatriation), healthcare (on foreign profit repatriation), retailers (they pay high corporate taxes) and oil and gas (high tax rates). FDN/QQQ, XLV/IBB/IHF, RTH and XLE/XOP are all ETFs that
should outperform if taxes surprise to the upside.

4. A prediction: Tax cuts happen in Q1 2018. I’m in the business of generating conclusions and opinions, so I’ll give one about this tax issue. I’d give it about a 65% chance that tax cuts/foreign repatriation holiday gets done by Q1 2018, and about a 50/50 chance those tax cuts positively surprise (i.e. the corporate rate drops below 28%). I do not expect any changes to personal taxes. The reason for this opinion, as I’ve said several times before, is self-preservation. Congressional Republicans are on the ballot in 2018, President Trump is not. If they fail to accomplish anything (no healthcare repeal, no tax cuts) and this Washington soap opera continues, then it’ll be Congressional Republicans who are out of a job. So, they have to get something done if they want to save their jobs. There’s no better predicator of action in Washington than the rule of self-preservation.

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Commodities Update, August 22, 2017

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Commodities were mostly higher yesterday as gold continued to benefit from risk-off money flows and a weaker dollar, which also propped up copper futures. Meanwhile, crude oil bucked the trend and gave back most of Friday’s rally. The benchmark commodity index ETF, DBC, fell 1.21% thanks to he declines in energy futures.

Yesterday’s pullback in oil was a textbook retracement of Friday’s very “squeezy” rally. Shorts that were run out of the market late last week repositioned yesterday morning, which influenced the heavy trading that was largely dictated by technicals. WTI futures fell 2.22% on the day.

Friday’s big rally essentially created a “gap” in the market as the bulk of the move occurred in less than an hour, and on very light volume. That set things up for a reversal, and because newswires were very quiet yesterday, algos and technical traders took control of the market and largely “filled the gap” as we ended the day near where Friday’s rally began.

As far as the longer-term trend in oil goes, yesterday’s session was rather insignificant. The market remains in a broad, sideways range with the $50 mark continuing to act as a stubborn resistance level.

Fundamentally, the OPEC/NOPEC meeting in Vienna was anticlimactic. The previous extraordinary meeting was a non-event as well, and the market is beginning to shrug off OPEC-related headlines more and more as the cartel has been largely ineffective in recent months.

The oil market remain bearish for now, as US production continues to grind higher and OPEC has so far failed at trying to offer material support to the market through their policy decisions. Looking ahead, the $50 mark in WTI is a very important technical and psychological resistance level that will not likely be violated in the absence of a legitimate bullish catalyst.

Natural gas rallied 2.42% yesterday as the market continues to show signs of life in the late summer. There was no real catalyst for the move yesterday, but nat gas is continuing to show signs of putting a bottom in and forming support in
the $2.80-$2.90 area.

Looking ahead, the bulls have their sights set on reclaiming the $3.00 mark, and a close above would be a bullish development on the charts. That would match the supply side fundamentals showing a potential long-term shift of supply levels turning lower.

In the metals, the weaker dollar was the primary influence on the market yesterday, as gold rallied 0.39% and copper rallied 1.36%. Gold continued to catch a bid from the cautious feel in the market after last week’s sharp pullback in stocks, but futures failed to close at a new high and above the $1300 mark despite rallying through the important resistance level briefly in Friday trade.

For now, we remain cautious on gold as the technical outlook is rather cloudy. If, however, bond yields break- down further (more on that in the currencies and bonds section) then gold will surely have the support to break out through $1300 and begin a new uptrend.

Copper continued to grind higher yesterday with futures hitting the highest level since late 2014. With the price action in gold and the bond market both flashing a warning sign for risk assets, copper continues to flash a positive signal for the global economy.

Looking ahead, the path of least resistance is still higher for copper, which is a positive for the global economic outlook and risk assets. Yet, the biggest thing to watch with regard to the rally is the dollar, as a reversal back higher in the buck could significantly damage the uptrend in all metals.

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Weekly Market Cheat Sheet, August 21, 2017

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Last Week in Review

There were some puts and takes from the economic data last week, but in aggregate it didn’t change the outlook for the US economy (still slow but steady growth) or the Fed (balance sheet reduction in September, a rate hike in December dependent on inflation).

I say puts and takes, because there were some decent economic reports last week, starting with a strong Retail Sales report. July retail sales beat estimates on both the headline (up 0.6% vs. 0.3%) and in the more important “Control Group” (retail sales ex-autos, gas and building materials), which rose 0.6% vs. (E) 0.4%, and saw a positive revision to June data.

That was a legitimate uptick in activity and an economic positive, although it remains to be seen whether that strength in consumer spending can be sustained past back-to-school and summer-vacation season.

The other highlights from last week were the August manufacturing surveys. August Empire Manufacturing surged to 25.2 vs. (E) 9.8 while Philly Fed Manufacturing also beat estimates at 18.9 vs. (E) 17.0. To boot, New Orders were strong in both reports (20.6 for Empire and 20.4 in Philly).

According to that type of data, we should see a big uptick in manufacturing activity in August, although I’ll again caution that these are surveys. And, unfortunately, with the exception of retail sales, the other “hard” economic data didn’t match these very strong survey results.

Specifically, July Industrial Production missed estimates, rising 0.2% vs. (E) 0.3%. But, more disconcertingly, the manufacturing subcomponent dropped -0.1% vs. (E) 0.2%. A lot of that decline was auto related, so it’s not quite as bad as it appears.

But, the overarching takeaway from last week’s data is that a wide gap remains between still-strong survey results (the PMIs) and actual, hard data (industrial production). We need that hard data to get consistently better if we have any hope of a rising economic tide carrying stocks higher for the rest of the year.

Turning to the Fed, the July meeting minutes were released last week, and while the market traded as though the minutes were slightly “dovish,” the reality is that they were neither hawkish nor dovish. The minutes confirmed that the Fed will reduce the balance sheet in September, although a rate hike in December seems very much 50/50.

Bottom line, it wasn’t a bad week for economic data, but we need evidence of economic acceleration to help push stocks higher, and that continues to be elusive.

This Week’s Preview

In aggregate, this is a quiet week for economic data (next week is the important week, as we get final global PMIs and the August jobs report), but there are still some potentially market-moving events to watch.

First, the Jackson Hole Policy Conference (i.e. conference/summer vacation) starts Thursday and runsthrough the weekend. The big names will be there: Draghi, Yellen, Carney, Fischer… but don’t expect anything that will move markets. It’s been made clear that Draghi doesn’t want to drop any hints about tapering until the ECB meeting in September (basically three weeks away). With the Fed, we know what to expect…balance sheet reduction in September.

Looking past central bankers, the key economic report this week will be the global flash PMIs, out Thursday morning. Again, we’re looking for the national PMI to match the strength we saw in Empire and Philly last week. If it does, that will be taken as an anecdotal positive. Internationally, there shouldn’t be any big surprises in this number.

Beyond the flash PMIs, July Durable Goods (Friday) is an important report, because it will give us greater insight into the state of “hard” economic data. If Durable Goods shows an uptick in corporate spending/investment, that might put upward pressure on expected Q3 GDP, which would be equity positive.

Bottom line, this week’s economic events should give more insight into the pace of the economy, but barring any big surprises, it’s likely the calm before the “storm” of next week.

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Why Taxes Caused Yesterday’s Selloff, August 18, 2017

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If there was one “reason” for the sell-off yesterday, it was taxes—specifically, the dying dream of tax cuts and a profit repatriation holiday.

That’s why the Cohn headline spooked stocks. It’s not that markets particularly love Gary Cohn. Instead, he’s important because he’s viewed as a key figure in pushing tax cuts through in early 2018, an expectation that market has held on to (until, perhaps, yesterday).

If Cohn resigns, then the prospects for tax cuts (and almost more importantly, the foreign profit repatriation holiday) dim… significantly.

The declining expectations for tax cuts and profit repatriation hit tech especially hard yesterday and it combined with the underwhelming CSCO/NTAP earnings to push that sector sharply lower—and falling tech dragged the whole market down yesterday afternoon.

Now, going forward, clearly there’s been some damage done on the charts (the S&P 500 closed at a one-month low), and momentum indicators are showing warning signs.

And, those warning signs are appearing at a particularly dangerous time for markets (in the short term) as late August is particularly favorable for “air pockets” to form in the markets given that a lot of desks are minimally staffed due to summer vacation. Point being, I don’t think we’re done with the uptick in volatility yet—again due mostly to the calendar.

However, Nasdaq, SOXX and FDN all remain above last week’s lows. So, while Thursday’s trading was clearly painful, I’m not ready to get materially more defensive just yet (although clearly we’re watching those indicators very, very closely going forward).

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Weekly Market Cheat Sheet, August 14, 2017

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Last Week in Review

There was more underwhelming economic data last week, especially on the inflation front, as the prospects for an economic reflation in 2017 continued to dim.

From a Fed standpoint, the disappointing CPI and PPI reports further reduce the chances of a rate hike in December, although importantly the Fed is still expected to begin to reduce its balance sheet in September.

Starting with the headline numbers, CPI and PPI, they were both disappointing. The Producer Price Index declined to -0.1% vs. (E) 0.1% while the core figure was flat vs. (E) 0.2%. Meanwhile, the CPI report was slightly less underwhelming at 0.1% vs. 0.2% on the headline, and the same for the core.

While these aren’t horrible numbers, they aren’t good either, and the bottom line is that statistical inflation
remains stubbornly low, and it is appearing to continue to lose momentum. Again, for context, that’s a problem because in this environment, with (supposedly) strong economic growth and low unemployment, inflation should not be going down. Period. And the longer it goes on, the more it sparks worries that eventual deflation or disinflation will rise, and that’s not good for an economy with still-slow growth and extended asset markets.

Bottom line, even before the uptick in North Korea jitters this was a market in need of a positive catalyst to spur further gains. Unfortunately, the economic data (ex-jobs and sentiment surveys) has been consistently underwhelming, so the chances of a rising tide driven by an economic reflation continue to dim. And while a “dovish” number may be good for a mild pop in the S&P 500, soft data and a lower dollar/bond yields aren’t going to drive the market to material new highs.

This Week’s Preview

This week is busy, with mostly anecdotal data that will give us a better overall picture of the economy and inflation—and the main risk to stocks now is that the data comes in light, and along with low inflation that spurs fears of an economic loss of momentum. If that happens, stocks will take out last week’s lows.

The most important report this week will be tomorrow’s Retail Sales report. Consumer spending has been lackluster for most of 2017, but around now we see a typical seasonal uptick. That will be welcomed by markets if that appears again this year. If the number is soft, it’s going to spur worries about the pace of economic growth (remember, hard economic data hasn’t been great all year, it’s been the PMI surveys that have been strong).

Beyond retail sales, we also get a first look at August economic data via the Empire and Philly manufacturing indices. Both numbers haven’t been highly correlated to the national PMIs lately, but it’s still our most-recent economic data and it could move markets, especially if we see any weakening in the data. Empire comes tomorrow and Philly comes Thursday.

Turning to central banks, we get the Fed minutes from the July meeting on Wednesday, and the ECB minutes from the July meeting on Thursday. The Fed minutes are important because we will be looking for clues as to how eager or committed the Fed is to September balance sheet reduction. With the ECB, the key will be seeing how committed or eager the ECB is to announce tapering of QE in September. As is usually the case, there shouldn’t be any big surprises in these minutes, but they could slightly shift expectations for those two events (balance sheet reduction/announcement of tapering), and as such also move Treasury yields and Bund yields.

Finally, July Industrial Production and Housing Starts also come this week (Thursday and Wednesday,
respectively). Again, these are an opportunity for the hard data to rise and meet strong soft data surveys, and in doing so reassure investors that the economy’s accelerating.

Bottom line, none of the numbers this week are “major,” but in aggregate they will give us a lot more insight into the pace of economic growth and the outlook for the Fed and ECB. And, this market needs some economic reassurance to help bolster sentiment after last week. Better data and steady Fed/ECB are a needed boost markets this week.

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