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Mixed market action ahead of FOMC minutes and Alcoa earnings

CMC Markets

Stocks and commodities have been mixed this morning with a number of cross trends rippling through while traders respond to central bank news in Europe while waiting for this afternoon’s developments in North America. Mainland China markets rallied 3-4% on their return to trading catching up to the recent gains made by other markets. Gold and the VIX falling, meanwhile, indicate that fears of wider turmoil continue to ease off. European indices are mixed today while US indices have been trading lower so far. Crude oil has bounced back a bit from yesterday’s correction. There hasn't been much economic news but US jobless claims were encouraging, dropping to their lowest level since July, which indicates that even if US job growth has slowed, employment remains robust, which may keep the Fed on track toward interest rate liftoff this year. Meanwhile, Canada housing starts were well above expectations, indicating the rebalancing of the economy away from an overdependence on oil production continues. On the other hand, Germany trade and Japan machine orders were disappointing. There weren’t any major surprises in the Bank of England decision or minutes although comments that economic conditions have softened since August have knocked Sterling back a bit as it indicates the central bank remains unlikely to raise rates any time soon. ECB minutes contained all the usual platitudes about being supportive and ready to do more, but nothing concrete. They indicated plans to accelerate purchases in September to November ahead of a slowdown in December. Weekly data showed that all they did in September was to return to average from a slower summer, with purchases still running about €12B per week well below the €13.8B per week needed to hit its current targets. As today progresses, focus turns back to the FOMC and corporate earnings. Several FOMC members are speaking today, the most interesting of which could be Minneapolis Fed President Kocherlakota. He’s the most dovish member of the FOMC and it will be interesting to see if he owns up to being the member who forecast negative rates at the last meeting. The street took that forecast as making the meeting a “dovish hold” while FOMC member comments since have generally been screaming “hawkish hold”. Today’s FOMC minutes may help to clarify some of the confusion. Kocherlakota is planning to retire from the Fed soon, it will be interesting to see if his successor is as dovish. Later today, earnings season officially kicks off with Alcoa’s report, which could be mixed with the company having already announced plans to split into two separate companies going forward. Some things to watch for this earnings season include: Yum! Brands reported slow growth in China earlier this week, how weak is China really and what impact may that have on earnings from companies with large operations there? 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. USD has levelled off but could still have an impact on earnings. Corporate News There have been no major corporate announcements this morning. 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 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% Japan machine orders (3.5%) vs street 3.5% Upcoming significant announcements include: 9:30 am EDT FOMC Bullard speaking 10:30 am EDT US natural gas street 99 BCF 1:00 pm EDT FOMC Kocherlakota speaking 2:00 pm EDT FOMC meeting minutes 3:30 pm EDT FOMC Williams speaking 4:00 pm EDT Alcoa earnings street $0.12 CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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