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Trading Radar: Economics Not In Focus, Geopolitical More Important

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Economics, earnings reports, and market events for the week ahead.

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In the week past equities were very volatile. The trading range in the S&P 500 (SPX) was 60 points, the widest of the year. The fact that this volatility expansion came near the highs is troubling. By the end of today's session it was only down 0.69% for the week after reaching a trough of -2.87%. The small cap Russell 2000 (RUT) was down as much as 9.22% from its prior peak during the week, which raised fears that it was reaching a "down trend" rather than a simple pullback. The US dollar index (DXY) ended the week up 1.21%, mostly due to the strong performance on Friday, as investors were only emboldended about bullish USD positions.

From a positioning standpoint, portfolios are much more clean after today's trading day because two things occured. Long-term investors reduced small amounts of risk from the highs once the 50dma was breached to the downside and short-term traders covered on Friday as negative sentiment reached an extreme. Heading into next week, we'll be able see which new trends develop without as much noise.

As is typical after a jobs report, the economic data in the week ahead is very light. The only event of any significance is the release of the FOMC minutes on Wednesday afternoon. Due to some of the committee members' speeches over the past two weeks we know that two changes occured at this meeting and both will likely be present in the minutes. First, the dovish cohort (Dudley, Evans, Lockhart) has expressed a high level of concern about starting the normalization process too early because it would snuff out the beginnings of growth. Additionally, because of high aggregrate debt levels, economies are increasingly sensitive to changes in interest costs. Second, hawks like Dallas Fed President Richard Fisher has said that Yellen and some of the other members have become more receptive to his more hawkish thesis that the Fed starts the normalization process sooner due to growing financial stability risks. Either way, we have a full plate of Fedspeak next week to potentially move markets.

The bottom line, however, is that the FOMC minutes will most likely be a minor event for the week. The events for investors to focus on is the first round of elections in Brazil, which will be conducted on Sunday. The polls for this event close on Sunday evening with results due out by 9pm ET. If incumbent Rousseff - who's administration's economic policy is viewed as unfavorable - were to win more than 50% of the election, she would take be re-elected by default. However, Rousseff only holds about 40% of the votes according to recent polls, so the result will more than likely determine who her opponent will be (the runner up) in the runoff polls scheduled for later in the month.

Also on the radar for next week is a resolution to the pro-democracy protests in Hong Kong and the Russian asset seizure vote on Tuesday. In Hong Kong, protestors have had to battle other citizens to hold their position in the city, and thus far investors don't see a large risk that this situation flares up and becomes a larger problem for China. With regards to Russia, there is little information regarding what may happen with the vote, but the potential consequences are very large.

In Australia, the Reserve Bank (RBA) will make its monthly rate decision on Monday evening. With news this past week that the New Zealand central bank had begun actively intervening in its foreign exchange market to lower the value of its currency, the next likely candidate to follow this path is the RBA. Because of a relatively stronger economy, the RBA is not able to lower interest rates to reduce the value of its currency and will have to resort to actively selling it instead. If this were to occur it would be only bullish for the US dollar, an already strong theme.

There are almost no earnings reports next week, but Alcoa (AA) will start off the third quarter reporting season on Wednesday. Pepsi (PEP), Family Dollar (FDO), Monsanto (MON), Costco (COST), and Yum Brands (YUM) will also report.

Monday, October 6

US Economics (Time Zone: EST)
 
No major reports
11:00 Fed to purchase $1.4b-$1.7b notes in 7 to 10-year range
11:30 Treasury to sell $24b 3-month bills and $24b 6-month bills
 
Fedspeak:
 
8:30pm George (hawk, nonvoter) speaks in New Mexico
 
Global Economics (Time Zone: GMT)

06:00 EUR German Factory Orders
08:30 EUR Eurozone Sentix Investor Confidence
14:00 CAD Ivey PMI
 
Earnings
 
No major reports

Tuesday, October 7

US Economics (Time Zone: EST)
 
10:00 JOLTS Job Openings (Aug) - expected 4700, prior 4673
11:00 Fed to purchase $250m-$350m TIPS in 5 to 30-year range
3:00 Consumer Credit - exp $20B, prior $26B
11:30 Treasury to sell 4-week bills
1:00 Treasury selling $27b 3-year notes
 
Fedspeak
 
2:30pm Kocherlakota (dove, voter) speaks in South Dakota
3:00pm Dudley (dove, voter) speaks in New York

Global Economics (Time Zone: GMT)

03:30 AUD RBA Rate Decision
05:00 JPY Leading Index
06:00 EUR German Industrial Production
07:15 CHF CPI
08:30 GBP Industrial & Manufacturing Production
14:00 GBP NIESR GDP Estimate (Sep)

Earnings

Before:
Yum! Brands (YUM)

Wednesday, October 8

US Economics (Time Zone: EST)

07:00 MBA Mortgage Apps
2:00 FOMC Minutes
1:00 Treasury selling $21b in 10-year notes

Global Economics (Time Zone: GMT)
 
01:45 CNY HSBC China Services PMI
05:45 CHF Unemployment Rate

Earnings


Before:
Costco (COST)
Monstanto (MON)
 
After:
Alcoa (AA)

Thursday, October 9

US Economics (Time Zone: EST)

08:30 Initial Jobless Claims, expected 294k, prior 287k
08:30 Continuing Claims - exp 2440K, prior 2429k
10:00 Wholesale Inventories (Aug) - exp 0.3%, prior 0.1%
1:00 Treasury selling $13b 30-year bonds
 
Fedspeak
 
9:45am Bullard (hawk, nonvoter) speaks in St. Louis
11:00am Draghi (ECB head) and Fischer (dove, vice chair) speak in Washington
1:10pm Tarullo (moderate, board) speaks in Washington
1:15pm Lacker (hawk, nonvoter) speaks in North Carolina
1:30pm Fischer speaks in Washington
3:40pm Williams (dove, nonvoter) speaks in Las Vegas
 
Global Economics (Time Zone: GMT)

Japan Investors Purchases of Foreign Stocks/Bonds
00:30 AUD Employment Data
06:00 JPY Machine Tool Orders
06:00 EUR German Trade Balance
11:00 GBP BoE Rate Decision

Earnings

Before:
Pepsi (PEP)
Family Dollar (FDO)

Friday, October 10

US Economics (Time Zone: EST)

08:30 Import Price Index YoY (Sep) - expected -1.3%, prior -0.4%
08:30 Import Price Index MoM - exp -0.7%, prior -0.9%
 
Fedspeak
 
9:00am Plosser (hawk, voter) speaks in New York
1:00pm George (hawk, nonvoter) speaks Nebraska
3:00pm Lacker (hawk, nonvoter) speaks in Chicago

Global Economics (Time Zone: GMT)

CNY New Yuan Loans
00:30 AUD Home Loans
08:30 GBP Trade Balance
12:30 CAD Unemployment Rate

Earnings

No major reports


Twitter: @MichaelSedacca

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