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A Whirlwind of News

Posted October 28, 2021 at 9:45 am
Patrick J. O’Hare

The stock market got blown over yesterday with a gust of late selling pressure, and this morning there is another whirlwind of information to digest. Today, however, there seems to be a nice, island breeze blowing through the futures market.

Currently, the S&P 500 futures are up 15 points and are trading 0.5% above fair value, the Nasdaq 100 futures are up 83 points and are trading 0.6% above fair value, and the Dow Jones Industrial Average futures are up 68 points and are trading 0.5% above fair value.

The fact that the futures market has the wind at its back stems primarily from a round of predominately encouraging earnings news, which has featured positive responses to reports from Ford (F)Caterpillar (CAT)Merck (MRK)Comcast (CMCSA)KLA-Tencor (KLAC), and Yum! Brands (YUM).

Be sure to visit our Earnings Results page for the full rundown of reporters. It’s an extensive list containing a lot of green figures (i.e. the color to denote positive surprises).

There were no surprises at the ECB policy meeting. As expected, the ECB left its corridor of key interest rates unchanged at 0.00%, 0.25%, and -0.50%, respectively, while maintaining its plan to continue asset purchases at a monthly pace of €20 bln and conducting net asset purchases under the pandemic emergency purchase program with a total envelope of €1,850 billion until at least the end of March 2022.

The Bank of Japan for its part also did not surprise with a decision to leave its key policy rate unchanged at -0.10%. The BOJ, however, cut its domestic growth view for 2021 to 3.4% from 3.8% and its inflation outlook to 0.0% from 0.6%.

There may be some surprises out of Washington today.

The surprises could go either way, too, in terms of the Democrats reaching an agreement, or not, on a framework for their social spending package. There is reportedly some optimism that President Biden’s visit to The Hill today to meet with House Democrats is a sign that good news is forthcoming. There are press reports, though, suggesting the path to an agreement still has some big potholes to fill in the form of Medicare expansion plans and tax proposals to pay for the plan.

Stay tuned.

The same can be said for the earnings reports after the close today from Apple (AAPL) and (AMZN). They are the biggies on the calendar.

There is no need to wait further for today’s big economic data. It is out.

The Advance Q3 GDP report indicated real GDP increased at an annual rate of 2.0% ( consensus 2.4%), down noticeably from the 6.7% growth rate reported for the second quarter, as personal spending growth decelerated to just 1.6% from 12.0% in the second quarter. The GDP Price Deflator was up 5.7% ( consensus 5.5%) after increasing 6.1% in the second quarter.

The key takeaway from the report is that it was weaker than meets the eye. Real final sales of domestic product, which exclude the change in private inventories, were down 0.1% after increasing 8.1% in the second quarter. That was the weakest showing since the second quarter of 2020.

Initial jobless claims remain on an encouraging track. For the week ending October 23, initial claims declined by 10,000 to 281,000 ( consensus 291,000), marking the lowest level for initial claims since March 14, 2020. Continuing claims for the week ending October 16 decreased by 237,000 to 2.243 million, which was also the lowest level since March 14, 2020.

The key takeaway from the report rests in the improving trend in jobless claims, which is what should be seen when taking into account the massive number of job openings and the recurring acknowledgment of labor constraints heard from companies reporting earnings.

The Treasury market has continued to be a whirlwind itself. The 10-yr note yield is up four basis points to 1.57%, trading at its highs of the morning after the data. The 2-yr note yield, though, is up six basis points to 0.54%, which is also at its high of the morning and creating a continuance of the curve-flattening trade that is commanding increased attention as a potential harbinger of a growth shock.

Originally Posted on October 28, 2021 – A Whirlwind of News

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