This Week's Top 10 Market Movers: What Everyone Absolutely Must Watch

Includes: DIA, EWP, QQQ, SPY
by: Cliff Wachtel

There Are 10 Things You Absolutely Need To Watch This Week

Here are the top likely market movers for the coming week. We start with the usual epicenter the great financial crisis ever since December 2009, the EU.


As we've noted repeatedly over the prior weeks, in keeping with Washington's request as reported by Reuters, we expect relative quiet from the EU until after the November 6th elections. Still, that didn't stop Spain bailout related news from being a top market mover last week, as we noted in our earlier post, Prior Weeks' Top Market Movers' 4 Key Lessons For This Week.

As noted in that article, we question the belief of many that after the October 21 regional elections, Spain would cooperate with the EU and make the aid request needed to activate the ECB's OMT plan to buy Spain bonds and remove default risk for at least the coming months. There is plenty of room for further delays, which could scare markets and send them lower as Spain and the EU (really, Germany) continue to engage in brinksmanship and risk another bout of EU crisis. See the above article for details.

Ironically, although markets crave a Spain bailout because it theoretically removes Spain default risk in the coming months, it utterly fails to meet our criteria for being even a step in the right direction for the EZ. See 7 Criteria For Distinguishing Real Eu Crisis Solutions From Fakes.

Like all the other EU 'solutions,' this one just adds more debt to a nation that cannot repay its current obligations, and so it just buys some time at a potentially enormous cost of making the eventual default that much more damaging (greater real losses, greater debasement of the euro as it's printed in greater quantities to repay nominal amounts owed, a crippling credit crunch as EU borrowing rates soar to compensate for being repaid in debased euros, etc.)


Also as noted in Prior Weeks' Top Market Movers' 4 Key Lessons For This Week, there's a real risk that these elections, and another in Catalonia, suddenly make the assumed coming bailout less likely. There are many other potential obstacles, but markets are expecting this first one to be surmounted this week. If not, that adds bearish uncertainty about Spain's future solvency.


Ok, no one expected much progress, but the EU's inability to act decisively while it still has time again reminds us that it cannot be relied upon to act fast if the need arises, and raises the risks that the EU could lose control of the situation and cause yet another crisis from sheer lack of market confidence in the EU.

The US is the other likely source of major market moving events this week.


After its third week, earnings season loses influence as the overall tone has been set, so this is the final and climactic week in which most of the remaining marquee names report.

Like the second week, it features many bellwethers in the financial, technology and industrial sectors. As expected, earnings are down year over year. Meanwhile, Q2's trend of most companies beating earnings expectations but missing sales estimates has continued. That's bad, because firms have largely exhausted the benefits of cost cutting in recent years, and need to show sustainable sales growth in order to convince markets they can sustain earnings growth and justify rising share prices.

Given its prominence and sheer sex appeal, Apple (NASDAQ:AAPL) is the big name this week, but there are many others that could draw attention and move markets in the absence of bigger news. See any good earnings calendar for a listing of the most prominent sector leaders announcing each day.


The second big US event this week that could move markets is the FOMC policy meeting and statement issuance Wednesday. With unlimited QE already baked in, the statement could move markets if it offers new insights on:

  • The Fed's prognosis for the economy
  • The pace and timing of its mortgage bond purchases


Many, including the Fed, believe that healing the housing industry is key to healing the banking sector, and both are seen as critical foundations to a real US recovery. You know, one based on people actually becoming wealthier and spending money that they actually have or can afford to repay.

Indeed, the Fed is so convinced that QE 3 is essentially a mass purchase of mortgage backed bonds.

Many believe that QE 3 (and prior QE programs) were in fact just more stealth bailouts to prop up housing and the banks overloaded with bad mortgages). Consider:

  • The US economy continues to struggle
  • QE has not proven to be a cost effective way of creating jobs. For example, per San Francisco Fed Chief John Williams, the $600 bln QE 2 created 700,000 jobs, implying a staggering $857,142 spent per job created [$600,000,000,000 / 700,000 jobs]. I could be wrong, but I assume that each of these jobs will not pay $857K over the course of their existence in real terms.
  • Meanwhile, the assorted stimulus programs have added trillions to our national debt, have weakened the USD, and have potentially expanded the money supply enough to keep the USD falling. Remember, 70% of US GDP is consumer spending, exports are a relatively small part of GDP, so a weak dollar hurts the US more than it helps.

While some point to the recent jump in housing starts as proof that the housing sector is recovering, others believe it's bad news for housing because demand for new home sales isn't keeping up with the implied coming supply, and that could mean yet another round of falling home prices, increasing foreclosures, and weak bank balance sheets loaded with bad mortgages.

So this week's new home sales will provide the latest look at whether the housing starts data is a sign of recovery or yet more problems in the housing and banking sectors.

Indeed, although yet again we here much in the media that the critical housing sector has bottomed, there's plenty of evidence that the sector is still a complete wreck, and in many places is getting worse. See here for details.


Other key U.S. economic indicators to watch this coming week include durable goods orders for September on Thursday, Q3 GDP on Friday, as well as the final reading for October on consumer sentiment from the Thomson Reuters/University of Michigan surveys.


As noted in "Prior Weeks' Top Market Movers' 4 Key Lessons For This Week", most risk asset markets have encountered firm technical resistance for the past 6 weeks, despite the plethora of new easing/money printing programs from many leading central banks. Given that markets have rallied for the past months on little justification beyond anticipated new stimulus, and that stimulus is now largely old news, we don't see where markets will get the fundamental data to fuel a break above current resistance, like the 1450 zone on the S&P 500, $117 for Brent crude, 1750 for the DAX index, or whatever your preferred risk appetite barometer.


As noted in our earlier post, while it may be hard to get the timing of this, related to the firm technical resistance (as either cause, effect, or paradoxically both) is the temptation by many US investors to book profits in the coming weeks while the 15% capital gains tax remains in effect until December 31st.


In case it wasn't already clear from the above, this is an unusually heavy calendar for the end of the month.

In addition to the above mentioned events, others worth watching include:


Australia: CPI

China: HSBC flash mfg PMI

Europe: Batch of mfg, services PMIs for France, Germany, and the EU, ECB President Draghi speaks

US: New Home Sales, FOMC statement


UK: Preliminary GDP

US: Durable goods, pending home sales


US: Advance GDP, UoM consumer sentiment

See any good economic calendar for further details


Here's a parting thought to consider. Well. Really well.

1. There are so many dangers, the EZ debt crisis, slowing growth worldwide, the US fiscal cliff, the China slowdown, etc.

2. Yet risk asset markets remain relatively resilient despite the dangers.

Paradoxically, #1 is causing #2.

How can that be?

These threats are causing the largest central banks worldwide to engage in money printing on an unprecedented scale as a means of boosting their weakening economies. That money printing, or the anticipation of it, is causing of markets remaining at levels near their peaks before the Great Recession began in 2007.

In sum, money printing is both the official response to these threats AND the reason markets have stayed high.

Unfortunately, this solution is likely to become a huge problem, unless you're protected.

One of the most likely results of this ongoing explosion of dollars, euros, yen, or other currencies from nations doing the same thing (typically to keep their exports competitively priced versus the falling currencies of their customers) is that your local currency, and anything you own that's linked to it, is going to depreciate.

That means we all need to start diversifying into the more responsibly managed currencies or into assets denominated in them.

Disclosure/disclaimer: No positions. The above is for informational purposes only. All trade decisions are solely the responsibility of the reader.