Despite being a 4 day week in the U.S., this week will be packed with data. This morning we have ISM Manufacturing data with expectations for a small increase to 50.0 from last month's 49.8. The data has been below 50 (contraction) for 2 months so continued deterioration here would not be a welcome sign (but I suppose the market in true George Costanza fashion says more bad data = more Fed action).
Thursday we will have the ECB meeting which the market appears to believe will include a rate cut and some further discussion of bond buying. However, without countries explicitly (yet) asking for assistance from the ECB (namely Spain) the central bank is sitting on its hands in that regard.
- ….several European officials familiar with discussions among euro-zone governments said in recent days that Spain may not request financial support for several months—a step Mr. Draghi has indicated is necessary for the ECB to step in.
ADP Employment (expected 149K) and ISM Non Manufacturing (expectations of a 53.0 vs 52.6) also hit Thursday. And on Friday we have the monthly employment data with expectations of 125K jobs created versus 163K last month, and a steady unemployment rate of 8.3%. At this point who knows what the market "wants" from that number – any surprise to the upside might actually be viewed with disdain if traders believe it pushes off the Fed.
Turning back to Europe briefly there is talk this morning the ECB will be willing to go up to 3 year notes in terms of what it would buy, rather than just 1-2 year debt. The spread between 10 years in Spain (the "natural market" if you will) and 2 years has widened to its widest level in decades as we have a market anticipating intervention on the low end, versus reality on the high end. So it shows once again central banks dominate almost all our markets now.
Looking back at August it was a quiet month sandwiched around some activity very early in the month and the last two days of the month. Essentially the whole market gain in the month came on August 3rd – with some ancillary movement the day or two after. The rest of the month was spent in a very tight range on extremely light volume – some of the lightest non holiday volumes in years. The upper 1390s on the S&P 500 has been tested three times in the past two weeks so is an obvious level to note. With the spate of heavy economic data + the ECB some pickup in volatility should happen this week.
Transports continue to be an issue….
Also note, gold took off Friday as Jackson Hole was perceived as "currency debasement" friendly if you will.
China continued to make year lows… a very strange dichotomy across various asset classes.
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund's holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog