If the market is moving on headlines, it would be good to know what future headlines the market is anticipating. Planning ahead keeps you ahead of the game and your competition (other investors). Before we take a look at future catalysts, let’s consider today’s news events.
Today’s News
Germany’s parliament passed the July 21st summit decision to expand the EFSF’s powers and size. This is important, because earlier in the week there was some fierce debate coming out of Germany about the U.S.’s idea to leverage the EFSF. Not only did it pass, but the vote was a strong majority with 523 for and 85 against. Within Merkel’s party, only 13 opposed the expansion of powers when she could have afforded to lose up to 19 votes. The strong vote sent the market a solid message that those footing the bill support throwing more money at the problem.
There are still a few more votes that need to take place in other countries. There are six countries that still need to vote. The last to vote will be Slovakia, mid-October. Then, European countries will need to decide whether to leverage the EFSF or not. Again, this is a very touchy subject as we’ve seen fierce debate over the issue coming from Germany. More market pressure may be needed to justify the leverage.
In economic news today, Jobless claims fell an unexpected 37,000 to 391,000 last week. Continuing claims ticked down to 3.73 million from 3.75 million. If we see more declines in initial claims, it would lower the odds of the economy falling back into recession, which many believe is sitting right now at a 50% chance. Pending home sales fell a second month in a row, with a 1.2% decline posted in August. This number could have been adversely affected by Hurricane Irene in the Northeast region where pending home sales dropped the most in the country, down 5.8%. Year over year, the index is up 7.7% but last year’s data could be clouded by the end of the buyers' credit that summer. The last economic release to be released today was the Kansas City Fed Manufacturing Survey, which rose 3 points to 6 in September. Shipping, new orders, employment, and production all rose in the survey.
Something that has bothered me today more than any of the news events has been some of the charts in the Nasdaq 100. Some of these companies have been Wall Street darlings all year long like Priceline (PCLN), Baidu (BIDU), Wynn Resorts (WYNN), O’Reilly Automotive (ORLY), and Apple (AAPL). They now appear to be under distribution. As I said earlier in the year, when your generals are the only ones left on the front lines, there’s a problem. Now the generals appear to be retreating.
Now that we’ve touched on today, let’s look at tomorrow. The market is always looking ahead and attempting to discount future change in today’s price. If I know about these up and coming events, then so do others, and so should you.
Tomorrow’s News
Two likely non-events will by China’s up and coming official PMI release on Friday night as well as the meeting between Merkel and Sarkozy on October 1st. Sarkozy and Merkel will likely just reiterate their support of the euro and aid to Greece. Now that the EFSF has passed in Germany, the market isn’t sure if we’ll hear anything about leveraging it from Merkel, at least at this meeting. Concerning China, they have a holiday tomorrow when they will announce the official PMI numbers, but what’s more, holidays are typically when the PBOC enacts changes to policy.
There will be a Eurozone financial ministry meeting on October 3-4. The focus for the market will be on any talk about leveraging the EFSF. Like previous meetings, the official release from the meeting will most likely be a non-event. What’s more important will be the discussions behind the curtains that gets leaked to the public during and soon after the meeting.
The first week of the month is always economically sensitive with the ISM numbers and the job data. We’ll also have the first trading day on Monday after China’s PMI data gets released as well as official numbers from Europe. Expectations are low for China and Europe due to the flash numbers last week (remember these helped pushed copper down from $4 to $3.30), but the last tick in the U.S. ISM numbers were up in August. The ADP Employment report comes on October 5th (Wednesday) ahead of the official Bureau of Labor Statistics (BLS) report on Friday.
Bernanke will testify before Congress on Tuesday, the 4th. The Fed is being perceived as a bullish catalyst for the U.S. dollar as current policies have not been inflationary. Congress will be asking the Fed Chairman, “what’s next” should the economy and financial markets continue to decline.
Marriott International (MAR), Costco (COST), and Monsanto (MON) will kick off the earnings season next week when they release on Wednesday while the main event starts the week after with Alcoa on October 11th (Tuesday). Investors have bid up the market ahead of the last two earnings seasons. While China and Europe’s PMIs have clobbered commodities and material stocks, I’ve found that positive earnings results from Oracle, Broadcom, Cerner, Accenture, and many others have brought sighs of relief to investors. Many bears have pounded the table that earnings have not been revised lower and they’re the next shoe to drop on this bear market. The up and coming earnings season will be more important now than in the last two seasons while the LEIs have rolled over and PMI’s at the macro level are indicating recession territory.
Thursday, next week, will be a big central bank day. The European Central Bank (ECB) and the Bank of England (BOE) will announce any policy changes they might have drummed up. Speculation is high that the BOE will add more quantitative easing while any rate change and covered bond buyback programs from the ECB are less certain due to official comments over the last few days stating rate cut speculation is “wild”. In addition, I think Trichet will not want to start a new accommodative policy shift ahead of the new President, Mario Draghi, who will take office on November 1st. If and when the ECB lowers rates, it will be bullish for the U.S. dollar and bearish on the euro.
So that’s a lot to be looking forward to next week. Hopefully, it will give a eureka moment to investors on the economy and markets to shake us out of this two-month-long consolidation, which average investors can’t make much from. Last week’s PMI numbers and guidance from FedEx (FDX) caused commodities to tumble. Were they necessarily ground breaking results the market hadn’t anticipated? No, but they were results the market wanted to move on. Looking at next week’s big events will give you, our FSO reader, a heads up on upcoming catalysts, and that’s good to know.
