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What’s Up This Week? Earnings Galore, Fed Speakers and More Data

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October 24, 2016

(Monday Pre Market) The pace of Federal Reserve speakers out this week are coupled with a handful of data points that some analysts say may have high impact on the stock markets, the dollar, and, yes, the Fed’s decision on whether to raise interest rates.

Monday’s agenda is jammed packed with Fed speakers, including Fed Gov. Jerome Powell, before the group goes silent ahead of its next two-day Federal Open Market Committee meetings beginning Nov. 2. Might a gaggle of Fed speakers move the markets and the dollar? Last week, the dais were filled with Fed speakers who all mostly supported a rate hike before the year is out.

"If the economy stays on its current trajectory I think...we'll see an interest rate hike later this year," New York Fed President William Dudley said on Wednesday. The likelihood of that happening only days before the presidential elections seems pretty remote, according to Chicago Mercantile Exchange’s FedWatch tool. The probability for a move in November is at a mere 9.3% while the odds hike to a 69.9% likelihood in December, according to CME.

The data points (see Economic Calendar below) that analysts say may make a market difference include Thursday’s initial and continuing claims numbers, as well as the durable-goods orders, and Friday’s measure of gross domestic product, GDP. And let’s not forget that earnings season is in full swing.

As for the dollar, Dudley’s comments gave it some steam as did the European Central Bank when it opened the door to more stimulus in December, according to analysts. The euro hit a seven-month low against the dollar and some analysts say it could go lower yet. (See more on the dollar below.)

Crude oil prices (CLX6) were flopping around the flat line last week but managing to stay ahead of the $50.00 a barrel mark. But they may go higher if the World Bank’s forecast of $55.00 a barrel is reached in 2017. World Bank upped its projection from $53.00 a barrel amid expectations of an output agreement with OPEC members and Russia. Stay tuned.  

S&P 500

FIGURE 1: THE TEASE.

The S&P 500 (SPX), plotted here through midday Friday on the TD Ameritrade thinkorswim® platform, looked as if it might break through new resistance levels earlier this month, but has done very little in the past two weeks to support that notion. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Is the Dollar on Fire? On Friday, we saw the ICE U.S. Dollar Index (DXY) barrel through the February reaction high at 98.58. That has some analysts pointing to the next resistance at the January rally high at 99.83. The DXY is the measure of the greenback against a basket of currencies from countries with which the U.S. trades.

If the Federal Reserve raises interest rates, as expected in December, it could further juice the dollar at a time in which a number of global economies are loosening their monetary policies. Remember that a strong dollar may hurt American exports, like computers, smart phones, autos and food, for example, because it raises the prices on the goods in other countries, and may cause the number of exports to fall.

The SPX’s Struggle. It’s been tough times in trading for the S&P 500 (SPX), which has struggled under its 50-day moving average for more than seven weeks. Why? Many market watchers blame it on the uncertainty surrounding the presidential elections while others point to the Federal Reserve’s likelihood of raising interest rates in December. Watch if support can still hold at the 2,128 level.

Has the VIX Lost Its Touch? The Volatility Index (VIX), which the Chicago Board of Options Exchange describes as “a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices,” has long been called the market’s fear gauge. The higher it goes, the more antsy the markets are, according to the theory.

But that concept is being challenged by David Hait, the chief executive of OptionMetrics, who says that his research shows only a small percentage of its daily movement is swayed by market sentiment. “The value of the VIX index on any given day is mostly determined by its value on the previous day and other lagged periods, and the magnitude and direction of the change in the SPX index on the same day,” he said in a recent white paper. “Since an overwhelming portion of its daily variation is explainable by contemporaneous measures, this would suggest that its value as a predictor of future volatility, or as a 'fear gauge,' is severely overstated.”

Good Trading,
JJ
@TDAJJKinahan

Economic calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR

Source: Briefing.com

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