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Trading Radar: FOMC Meeting is Key Catalyst Next Week

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

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The week ended on a sour one with the S&P 500 (SPX) going out near its lows. Briefly during the day the benchmark index made new lows, down as much as 17 points, but a sell program exhausted the remaining supply and a bounce ensued. The SPX closed down 1.1% for the week. One remaining overhang is the Scottish referendum vote, which is scheduled for next Thursday. It appears that common sense has prevailed and the voters realize that there is little upside economically speaking to separating from the UK.

The main theme for next week is the Fed meeting, scheduled for Wednesday. Most forecasters think there is a better than even money chance that the Fed strikes a hawkish tone by removing its pledge to keep interest rates near zero for a considerable time after asset purchases end next October. Additionally, the 2017 economic projections will be released which include the Fed funds projections from the various members. It is also possible that the Fed lowers its long-run projections while forecasting a rate of around 3.25% at the end of 2017, signaling that the tightening cycle would end around then.

However, I do not think that the Fed will go down this path. There is a deflation pulse in the market that is saying if the Fed does begin to pull forward the first rate hike then, well, bad things will happen. As my friend Neil Azous of Rareview Macro argues, the Fed has not even completed its asset purchase program, so it does not make sense to drop the considerable time phrase from the statement and box the FOMC into a corner. Thus, I think that the Fed will do less than market participants think, which would be a dovish signal.

The risk of a policy error is still high. What makes sense to us in the market may not be true for the FOMC members. Let's not forget that in her first press conference, Janet Yellen slipped up when defining what length of time the "considerable time" reflected, causing a sizable spike in interest rates. So the risk is small, but there nonetheless.

The main event for global markets next week is the rate decision by the Swiss National Bank (SNB). Earlier this week, the SNB said that it is prepared to use negative interest rates to defend its currency barrier at 1.20 EURCHF. They will clearly need to make some sort of movement as that barrier has been tested in the past few days following the easing moves by the ECB last week. Keep an eye on the USDCHF cross. The SNB now has more than 600bln Euros in assets due to its FX-related purchases over the last few years, making it a sovereign wealth fund in everything but name. That likely means it will have to diversify into other currencies with the USD being the most likely candidate.

There's only a few earnings reports next week, but one is a biggie. The Fedex (FDX) report on Wednesday is the first major company for the third quarter reporting season, not to mention a bellweather for the transportation and retail industry. Oracle (ORCL) and General Mills (GIS) will follow up FDX's report.

Monday, September 15

US Economics (Time Zone: EDT)
 
08:30 Empire Manufacturing (Sep) - expected 16.00, prior 14.69
09:15 Industrial Production (Aug) - exp 0.3%, prior 0.4%
09:15 Capacity Utilization - exp 79.3%, prior 79.2%
11:00 Fed buying $950M-$1.15b Treasuries in 25 to 30-year range
11:30 Treasury to sell $24b 3-month bills, $23b 6-month bills

Global Economics (Time Zone: GMT)

09:00 EUR Eurozone Trade Balance
 
Earnings
 
No reports scheduled

Tuesday, September 16

US Economics (Time Zone: EDT)

08:30 Producer Price Index Final Demand (Aug) YoY - expected 1.8%, prior 1.7%
-- MoM exp 0.0%, prior 0.1%
08:30 PPI Ex Food & Energy YoY - exp 1.8%, prior 1.6%
-- MoM exp 0.1%, prior 0.2%
4:00 Net Long-term TIC Flows - prior -$18.7B
4:00 Total Net TIC Flows - prior -$153.5B
11:00 Fed buying $2b-$2.5b notes in 7 to 10-year range
11:30 Treasury to sell 4-week bills, $25b 52-week bills

Global Economics (Time Zone: GMT)

08:30 GBP CPI & PPI
09:00 EUR German ZEW Economic Sentiment
5:30am BoJ Kuroda speaks in Osaka

Earnings

After
Adobe Systems (ADBE)

Wednesday, September 17

US Economics (Time Zone: EDT)

07:00 MBA Mortgage Purchase Index
08:30 Consumer Price Index YoY (Aug) - expected 1.9%, prior 2.0%
-- MoM - exp 0.0%, prior 0.1%
08:30 CPI Ex Food & Energy YoY - exp 1.9%, prior 1.9%
-- MoM - exp 0.2%, prior 0.1%
10:00 NAHB Housing Market Index (Sep) - exp 56, prior 55
2:00 FOMC Rate Decision
11:00 Fed to buy $350m-$450m TIPS in 5 to 30-year range

Global Economics (Time Zone: GMT)

08:30 GBP BoE Minutes
08:30 GBP Jobless Claims Change
08:30 GBP ILO Unemployment Rate 3M
09:00 EUR Eurozone CPI (Aug final)
2:45pm BoE's Carney speaks to Parliament

Earnings

Before:
Lennar (LEN)
Fedex (FDX)

After:
Pier 1 Imports (PIR)
General Mills (GIS)

Thursday, September 18

US Economics (Time Zone: EDT)
 
08:30 Initial Jobless Claims - expected 304K, prior 315K
08:30 Continuing Claims - prior 2487K
08:30 Housing Starts (Aug) - exp 1040K, prior 1093K
08:30 Building Permits - exp 1040K, prior 1052K
10:00 Philly Fed - exp 23.0, prior 28.0
12:00 Household Change in Net Worrth (2Q)
11:00 Fed to purchase $250m-$350m Treasuries in 10 to 17-year range
1:00 Treasury selling $13b 10-year TIPS (reopening)

Fedspeak

8:45am Yellen (dove, chair) speaks in Washington

Global Economics (Time Zone: GMT)

NZD GDP
JPY Trade Balance
01:30 CNY China August Property Prices
07:30 CHF SNB Rate Decision
08:30 GBP Retail Sales
7:35am Kuroda speaks in Tokyo

Earnings

Before:
ConAgra (CAG)

After:
Oracle (ORCL)
TIBCO Software (TIBX)

RiteAid (RAD)
RedHat (RHT)

Friday, September 19
 
US Economics (Time Zone: EDT)

10:00 Leading Index (Aug) - expected 0.4%, prior 0.9%

Global Economics (Time Zone: GMT)

Japan Investors Purchases of Foreign Bonds/Stocks
04:30 JPY All Industry Activity Index (Jul)
06:00 EUR German PPI
12:30 CAD CPI
7:05am BoJ's Kuroda speaks
 
Earnings

No reports scheduled

Twitter: @MichaelSedacca

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