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US Stocks Continue to Trade Erratically to Close out the Quarter

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Today's financial recap and tomorrow's financial outlook.

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Early this morning, the Eurostat flash estimate of European consumer prices for the month of September missed estimates. Core prices only grew at a 0.7% year-over-year compared to estimates of 0.9% and similar growth in the month prior. In response, the Euro fell as much as 0.9% as market participants and forecasters began to assess that the size of the ECB asset purchase program, to be announced at its meeting on Thursday, will be much larger than previously anticipated. This was a boon for global risk assets in early trading.

Hong Kong stocks remained under pressure today as protests persisted and the Chinese government's deadline for intervention approached. The Hang Seng index (HSI) fell by 1.28% and was the worst performing equity index overnight. Related Chinese currencies recovered about half of their losses from yesterday.

US stocks continued to trade erratically for a second day as the third quarter came to a close. Commodities and their respective producers were hammered during the day as the strong dollar continued to act as a serious headwind. Crude oil - both West Texas intermediate and brent - was the worst performer of the bunch, dropping 3.4% by the close of trading. A number of different catalysts were cited for the weakness, but ultimately the most likely scenario is that it is quarter end and investors need to readjust the composition of their portfolios. Materials stocks were equally weak.

The S&P 500 (SPX) traversed a 17 point range today, clearly justifying a 16 VIX for the high intraday levels of volatility. At one point the benchmark index breached its lows from yesterday, but quickly rallied back to unchanged. Activity went both ways within the 1965 to 1985 range the SPX has built over the past four days. Over the quarter, the small-cap Russell 2000 (RUT) fell by 7.7%. Conversely, the SPX rose by 0.62%.

The Chicago manufacturing index fell to 60.5 in September, below the 62.0 expected and 64.3 from last month. The high relative level of the index indicates that growth continues to be very broad across the various firms. Worrying was the decline in the Conference Board consumer confidence index, which fell to 86.0 in September versus the 92.0 expected. The economic expectations component of the index showed a severe drop to 83.7 from 93.1.

Later in the afternoon, the CDC confirmed that the first US patient had tested positive for the Ebola virus, in Dallas, Texas. US equity futures reacted negatively with select companies that produce a vaccine seeing their stocks bid up.

Tomorrow's Financial Outlook

Investors tomorrow will begin to grapple with any new emerging trends that have manifested over the third quarter. A prominent theme is the US dollar strength and small cap underperformance, arguably saying the same thing: that credit risk is increasing in the United States. The major report tomorrow to determine whether these movements are justified is the September ADP private payrolls report. If this report shows a second consecutive month of weakness, then those trends will be vilified. Economists expect private payrolls to rise a similar amount in the month, up to 205K from 204K in the month prior. Also scheduled to be reported is the September ISM manufacturing survey and auto sales. The ISM index is expected to fall modestly to 58.5 from 59.0 in the month prior. Auto sales are expected to also fall modestly to 16.80 million from 17.45 million in the month prior.

Globally, the Chinese military gave a 48 hour deadline on Monday morning for Hong Kong authorities to bring the protest under control. That deadline expires tomorrow morning. Also scheduled out overnight is Japan's Tankan manufacturing outlook for the fourth quarter. Should this survey continue to show increased optimism, it may pare back some of the continued weakness in the Yen, which has been attributed to a decrease in economic growth due to recent tax increases. Also due out is the official Chinese manufacturing gauge. The private survey, which had its final estimate released yesterday, saw a small decline from the prior month.

There are no major earnings reports scheduled for tomorrow.

Twitter: @Minyanville

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