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TRADING THE WEEK: Sept. Jobs Report Seen as Tepid

Traders Magazine Online News, October 2, 2017

John D'Antona Jr.

The equity markets have been content to meander at all-time highs throughout the summer but traders could see an end as the Fall brings more economic data, volatility and possibly the hike in interest rates everyone has been waiting for.

First and foremost, traders are cautiously eyeing up next week’s September jobs data, which according to Larry Peruzzi, Managing Director International Trading at Mischler Financial Group, will be the most watched release on Friday. Estimates are currently looking for less than 100K jobs to be added.

“Payrolls are expected to show that we added the fewest workers in six months as Hurricanes Harvey and Irma put a temporary halt to hiring in parts of the southeast,” he began. “Also, third quarter earnings will begin in 2 weeks but we are expecting earnings from PepsiCo Inc., Monsanto Co., Tesco Plc, Paychex Inc., Lennar Corp. and Costco Wholesale Corp next week.”

Also on tap for this week and could bear some scrutiny are: September ISM data, ADP employment change on Wednesday, August trade balance, factory and durable goods orders on Thursday.

But also on traders’ collective mind is the Federal Reserve. With only three months left in the year, the central bank will begin its balance sheet unwinding procedure and raise interest rates. At the September 20th  FOMC meeting while not raising rates the Fed did signal it will continue to increase the pace of its  balance sheet unwind it comes while inflation is below their 2% target rate, which perplexes them.

“They are planning on raising rates soon…eventually…someday,” Peruzzi began, “but there is some doubt the Fed will actually raise rates again this year.” The market is pricing in a meager 1% chance of an October rate hike but a more substantial 67% chance of a December rate hike. The end of cheap money will eventually come but the recently disclosed tax reform blueprint could give financial markets its next coddle induced growth spurt. So far, tax reform details suggest a battle in Congress is on the horizon. This leads us once again to focus on macro and micro economic data as well as upcoming corporate earnings growth.”

Last week saw a pullback in August U.S new home sales as well as pending sales, better durable and capital goods orders and personal income and spending was mostly in line, Peruzzi added. Inflation remained timid with the Fed-favorite core PCE deflator slowing to 1.3% in August while Euro area core inflation fell .1% to 1.1% in September.

With the third quarter now in the books, the S&P 500 closed out September with its 6th straight monthly gain. This is the first time the S&P closed positive in the month of September since 2013, with its leading sectors being techs, energy and industrials. Also, the U.S dollar closed out its best week of the year.

Most global markets are also at or are near all-time highs amid a VIX index that continues to hover at year lows at 9.61.

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