E:Mini S&P 500: A perfect storm.
A perfect storm of uncertainty with the proposed tax cuts, uncertainty of the US consumer prices and retail sales tomorrow and a slower growth in China converge as consumers begin to prepare for the coming holidays. It will be interesting to see if this stock market can hold up if the data is weak and the forecasts or sentiment is for the interest rate hike in December.
The country awaits the long overdue tax reforms and cuts promised during the campaign of US President Donald Trump with nervous apprehension. The consumer is still confused by the tax reforms and who exactly will benefit. The US House of Representative has been forming the structure and implementation of a US tax code as promised by US President Donald Trump. The tax bill written would increase the US deficit by $300 billion. While the vote seemed to welcome the boost to the US economy, Fitch, a credit rating agency, believes that the tax plan may stimulate growth, it may also lead to hefty fiscal deficits. The federal deficit for 2017 alone equals around $666 billion. US deficit total may exceed $20 trillion. The house bill is introduced with the idea that new government revenues may absorb some of the deficit. The tax cuts may appeal to certain groups but not necessarily the low income or middle class. The Republicans usually guard against increases in the federal deficit, so this becomes more complicated.
Today's NFIB Small Business Optimism Index for October was 103.8 while the previous reading was 103.0. The PPI-FD for October was 0.4 % while the previous reading was 0.4 %. The PPI-FD excluding food and energy was 0.4 % unchanged. The PPI-FD excluding food, energy and trade services was 0.2 % unchanged. The Redbook Store Sales for the week of November 11th was 2.3 % while the previous reading was 2.6 %.
US President Donald Trump has selected Federal Reserve Governor Jerome Powell as Chairman of the Federal Reserve. Powell is noted as a dovish monetary policy that is thought to bring continuity to the Federal Reserve. He has been supportive of Chair Janet Yellen's gradual progression of monetary policy. The sustainable future with the US economy seems to be just a matter of continuing on the path we have been on. The Federal Open Market Committee found that the labor market has continued to strengthen and that the economic activity has been rising at a solid rate despite the hurricane disruptions. Household spending has been on an upswing despite the weather related problems. The Fed remains fairly accommodative thus supporting the labor market. The tax reforms and cuts would be the frosting on the cake of course. The tax reforms may be progressing but it becomes questionable who may benefit the most from the measures. The US Corporations may not have the same plans for the added benefits. The House did pass a budget bill to open the door to the tax reforms and cuts. The market may rocket back up upon the sentiment shifting toward the final tax reforms and cuts going to fruition. Inflation still remains a muted 1.3 % a far cry from the Feds 2 % target rate. The hurricanes have caused destruction and in the near term will affect the economic activity. Higher energy costs due to the storms may boost inflation in the short term. Their stance was accommodative, but they intend to begin to wind down the quantitative easing in October by reducing its $4.2 trillion of holdings in US Treasury Bonds and mortgage backed securities. Expecting a tightening in the labor sector may over time boost wages as well thus contributing further to consumer spending. Inflation seems to still be baffling to the Fed, but may be addressed by an alteration of monetary policy. US Fed Chair Yellen's term ends on February 3rd 2018.
The Nonfarm Payrolls for October were 261,000 new jobs created under expectations while the previous reading was a meager -33,000 new jobs created. The Unemployment Rate was 4.1 % while the previous reading was 4.2 %. The Private Payrolls were 252,000 while the previous reading was -40,000. Manufacturing Payrolls was 24,000 while the previous reading was -1,000. The Participation Rate was 62.7 % while the previous reading was 63.1 %. The Average Hourly Earnings were 0.0 % while the previous reading was 0.5 %. The Average Workweek was 34.4 hours unchanged. The expansion of the US economy is both expected and welcome along with US President Trumps tax cuts and reforms. Of course, there is still the implementation of these cuts. There is a sentiment that the tax cuts may be of little worth to some. The GDP Price Index came in at 1.0 % while the previous reading was 1.0 %. The Real Consumer Spending was 3.3 % while the previous reading was 3.3 %. The strength of the market may be propelled by sentiment and the sentiment sets the stage for a higher trade. Once achieved, then a retracement may ensue. Any further sparring with North Korea can impact the market negatively along with any further doubt about the reforms and tax cuts projected by US President Donald Trump. The tax cuts and reforms seem to be stifled by the US budget deficit. The government runs on our tax dollars and the lack of those extra taxes cuts into what we pay down the deficit with. The US government needs to find additional revenue and that may be tricky. Economic growth may increase revenue, but that must come from expansion which has not come to fruition as of yet. The E-Mini S&P 500 seems unstoppable, yet this is the time to worry. This is the season where it may typically retrace. The fall is a time historically where the market has made some significant sell-offs, so this is the time to trade with caution. We remember black Monday in October of 1987.
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Today's E-Mini S&P 500 (December) traded $2582.25 to $2564.25 an inside to lower day. The E-Mini S&P 500 is in a bearish stance unless it can penetrate $2594.50. Wednesday's range for the ESZ7 could be $2580.50 to $2559.50, an inside to lower to outside day. The VIX was up +0.78 % to $11.59. The VIX may trade inversely to the E-Mini S&P 500.
The forecast for tomorrow's EIA are showing a possible draw -2.25 Crude Oil stocks. The EIA forecasts for the Gasoline stocks call for a draw of -1.0 million barrels. The API Crude Oil Stocks were a build of +6.5 million barrels. The API Motor Gas Stocks were a build of +2.4 million barrels. OPEC's Secretary General does not see any problems extending the cuts thru March of 2018. OPEC Members are running about 92 % compliance with the cuts. OPEC seems to be keeping its vow to allow the production cuts to continue into next year. Energy analyst at Goldman Sachs projects that the estimated US Crude Oil demand may decline by about 900,000 bpd due to the impact of the hurricanes. Saudi Energy Minister agrees with UAE that it may be considered to extend the oil supply reduction past the March 2018 time frame.
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