Alcoa formally kicked off earnings season with a thud, missing badly on earnings. Base metal miners had been selling off ahead of the news indicating expectations were low but they could still come under pressure today along with gold miners as the yellow metal price fell. Perhaps even more importantly, Alcoa repeated the soft outlook for China seen in Yum! Brands results earlier this week. Alcoa cut its China guidance while holding its North American outlook and going neutral to even slightly positive on Europe. The big question of the day now is whether the big selloff in Chinese markets last summer has already priced in current weakness. Even before this news, there had been a lot of developments in North American trading to keep the pot boiling through to the weekend. Crude oil has quickly shrugged off yesterday’s weakness and resumed its uptrend with traders still speculating that reduced exploration spending could lead to lower US production next year. A smaller than expected inventory build for natural gas helped provided support for speculation that the supply overhang in energy could fade in the coming months. Higher crude oil prices helped Energy stocks to outperform other groups in the US and Canada today. Reports of a technical meeting between OPEC and non OPEC countries being scheduled for Oct 21st also helped to keep a tailwind behind WTI. Indices in Europe and North America were flat on the day, essentially digesting the gains of the last few days and waiting for a new reason to move. The main focus of news has been on central banks. There weren’t any major surprises in the Bank of England decision or minutes although comments that economic conditions have softened since August caused GBP to underperform most of its peers. ECB minutes contained all the usual platitudes about being supportive and ready to do more, but no concrete plans to accelerate stimulus except a brief bounce back to average from a quieter summer. The FOMC has also been under the microscope again today. Minneapolis Fed President Kocherlakota, the FOMC’s most dovish member called for a US interest rate cut, essentially confirming that he was responsible for the negative interest rate call on the last round of Fed Funds projections. He’s a non-voter, considered to be an outlier and retiring at the end of the year, so his comments didn’t have much of an impact. This lack of impact does suggest, however, that FOMC member comments since the last meeting have fully squashed the idea of a dovish hold FOMC minutes, meanwhile, confirmed statements from several FOMC members since the meeting that the central bank remains on track toward interest rate liftoff soon. While they recognized the potential for short term turbulence and negative impacts on inflation, employment and the economy are expected to continue strengthening at a moderate pace and inflation is expected to rebound toward 2% over the medium term. The factor which could have the biggest impact on US interest rate liftoff, the risk of a government shutdown in December, was thrown into chaos today. The leading candidate to replace outgoing house speaker Boehner, Kevin McCarthy, suddenly withdrew his candidacy just before a Republican vote to name their candidate, saying he’s not the person to unite the Republican caucus. The vote has been delayed indefinitely as this has thrown the party into chaos with clear cracks appearing in their plans to have a showdown with the Democrats over a series of key measures including the budget, highway spending and raising the debt limit. This means the potential shutdown showdown coming to a head has been kicked out past October and likely toward late November or early December. Overall, the market appears to have taken the minutes as neutral to hawkish. USD initially fell then rebounded to a higher level than it was at before the minute, while stocks rose slightly and crude oil maintained its big gains. Earlier in the day, US jobless claims fell to their lowest level since July indicating that although the US may not be adding as many new jobs as it nears full employment, it isn’t losing jobs either. Earnings season has officially kicked off with Alcoa’s disappointing report, with a lot more results to come next week. Some things to watch for this earnings season include: Look for potential guidance cuts from companies realising they can’t hit their annual targets as we saw with Monsanto earlier this week. What kind of an impact has lower commodity prices had on oil producers? Keep a particularly close eye on refiners. The crack spread has narrowed dramatically in the back half of the quarter, so the performance gap between downstream and integrateds and upstream producers may narrow. Also the summer selloff in oil could spark another round of layoffs. Lower oil prices could benefit oil consumers like airlines. Miners results may indicate if the recent dire predictions about the sector as seen in Glencore’s wild swings are well founded or not. (Alcoa’s miss suggests perhaps) USD has levelled off but could still have an impact on earnings. CAD pairs may remain active into the weekend through the morning Canada jobs report. The street is expecting a 10K increase. Soft US payrolls don’t often coincide with Canada weakness but between recent oilpatch layoffs, the later than usual Labour Day holiday and a normal retrenchment of last month’s big full time gains, I think we could see a small decline in the 5K range. That being said, CAD has been recovering lately, and a positive surprise could really set it on fire. Corporate News Alcoa $0.07 vs street $0.12 Economic News Significant announcements released overnight include: UK interest rate and QE 0.50% & £375B no change as expected, 1 hawkish dissenter on rate vote US jobless claims 263K vs street 274K US natural gas 95 BCF vs street 99 BCF Canada new house prices 230K vs previous 1.3% Germany trade balance €15.3B vs street €19.0B Germany exports (5.2%) vs street (0.9%) Germany imports (3.1%) vs street (0.6%) Greece unemployment rate 25.0% vs street 25.4% Upcoming significant economic announcements include: 11:30 am AEDT Australia home loans street 4.7% 7:45 am BST France industrial production street 0.2% 9:00 am BST Norway consumer prices street 2.2% 9:00 am BST Italy industrial production street 1.4% 9:30 am BST UK construction output street 1.4% 9:30 am BST UK trade balance street (£2.1B) 10:00 am BST Greece industrial production street (2.8%) 10:00 am BST Greece consumer prices street (1.5%) 8:30 am EDT Canada employment change street 10K 8:30 am EDT Canada full-time jobs previous 55K 8:30 am EDT Canada part-time jobs previous (42K) 8:30 am EDT Canada unemployment rate street 7.0% 9:10 am EDT FOMC Lockhart speaking 1:00 pm EDT US Baker Hughes drill rig count previous 809 1:30 pm EDT FOMC Evans speaking
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