What a week for news in the market. The ADP employment change got smoked with a huge miss only to be almost completely reversed on Friday with the government NFP number which came out as a huge beat. With the help from the news, the market eked out a slightly positive week with the S&P 500 ($SPX) (SPY) closing up around 0.5%. In energy land oil was annihilated this week closing down almost 9% on the week and many of the energy stocks followed suit. Hopefully, that ends up being good news for energy prices.
This week looks like it has plenty in store for us with PPI, CPI, FOMC Minutes, and more. Here are 5 things to watch in the markets this week:
Bank Holiday
On Monday the US and Canadian Banks will be closed in observance of Columbus Day and Thanksgiving Day respectively. While this will affect commercial and personal banking, the markets will remain open for trading on a normal schedule. But it could potentially affect trading volumes on Monday in futures, stocks, and options.
FOMC minutes
The meeting minutes from the last FOMC rate announcement usually produce some volatility in the market. We already know what the rate decision was, but investors often scour the meeting minutes to look for some edge or insight into future rate decisions. Powell has already indicated that another hike could be necessary this year, so these minutes could be considered a little more carefully as people try to figure out when it is coming and how much it will be.
PPI
The Producer Price Index is a measure of the change in the price of finished goods sold by producers. Given all the inflation over the past few years, a negative number here would probably produce a positive reaction in the market. The last several have come in significantly higher than expected which could be seen as a signal that the Fed doesn’t in fact have a grip on inflation. Since this is due out prior to market opening, the actual report volatility will most likely have subsided by the time 9:30 rolls around. That being said it's possible that it sets the tone for the day.
CPI
This is also measuring inflation but from the consumer side of the coin. If PPI comes in hot then it's possible that we see CPI come in hot as well. With the incredible NFP report last week, the Fed will more than likely be keeping a more watchful eye on these reports since they have already signaled another hike this year. If the economy continues to prove that it is robust, even if it is just on paper, then it could back the Fed into a corner and force them to hike more aggressively into the new year. On an intraday basis, it's possible that CPI is similar to PPI in so far as it could set the tone for the day by the opening bell.
Bond Yields
On a macro level, it's possible bond yields will become the front and center of the markets for the coming weeks/months. As rates continue to rise the cost of private and public debt will continue to get more expensive as the lower-rate bonds are rolled into the current higher-rate ones. In addition, most of our creditors will likely want to dump any of the longer-dated bonds to pick up the shorter-dated ones with a higher yield. This could create some turmoil in the bond markets and those usually correlate to moves in the equities markets. As with everything trading-related, nothing is for sure, but historically bonds and equities share some form of correlation.
Best of luck this week and don’t forget to check out my daily options article.
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