World shares were green across the board after details from the Fed's minutes cast further doubt on the prospect of a rate rise this year. European stocks broke a one-month high for their best weekly gain since late January on renewed hopes central banks will keep monetary policy loose for longer. Overnight, Asian equities and currencies also moved higher following yesterday's gains on Wall Street (the Dow ended above 17,000 for the first time since August, while the S&P 500 closed well past its 50-day MA of 1,995).
Oil prices traded above $50 a barrel this morning, with a gain of nearly 9% this week; for the biggest weekly gain in 6 years.
Investors are now positioning themselves for corporate earnings season, which picks up steam next week with most of the nation's largest banks reporting their results, as well as big companies including; Intel, Netflix, UnitedHealth and GE. Earnings are expected to be down roughly 5.5 percent from a year ago, according to FactSet, mostly because of the drop in commodity prices. Now there is a game on Wall Street where analysts set the bar very low and then celebrate when a company stumbles over it. However, if the index reports a decline in earnings for Q3, it will mark the first back-to-back quarters of earnings declines since 2009. In other words, the last time we had consecutive quarters of negative earnings growth, the US economy was in a recession.
Yesterday the Fed published the minutes of the September FOMC meeting; most of the attention was on the policymakers' decision to leave interest rates unchanged for now; they're worried about global economies and inflation running below their target of 2%; they think we are at or near full employment. Generally the tone was dovish. The current Fed has talked about raising rates for about a year. Now we have the Fed saying future interest rate increases will be "data dependent." Also in the minutes, we saw economic projections and they are basically calling for 2% GDP growth. Slow, sluggish - get used to it.
Emerging market currencies have had a strong week. The Indonesian rupiah was the leader with a 9.2% gain against the dollar, followed by the Russian ruble, with a 7.3% gain. The Malaysian ringgit gained 6.4%, and the Brazilian real was up 4.8%. This does not mean emerging market currencies are in a bull market; for now, it's just a bounce.
If you follow all the data the Fed is looking at, you would stay quite busy; there are at least 30 economic reports that must be monitored in order to get a clue as to what the Fed's next move will be. The quick and easy monitor is the dollar index, because the greenback affects just about every tradeable market: inflation, manufacturing, exports, trade balance, jobs, and more - in one handy chart. The dollar index is just a hair under 95. It has traded from a high of 98.7 in August to a low of 92.5 (also in August).
The dollar index has been in a downtrend since September 25, and this is why we have seen a bounce in oil (probably a greater cause than rig counts and demand, or Russia's moves in Syria.) This is why the commodity indices have had a nice little rally in the month of October. Emerging-markets currencies have been battered over the past year by the expectation that the Federal Reserve will soon raise interest rates, but as the dollar has experienced a recent dip, the emerging currencies have bounced.
The trend lines on the dollar index suggest resistance around 97.5 and support, right about where we landed today; any further breakdown could see the dollar index testing the 92.5 lows. If we see a bounce, or even some sideways action here, then we look for the support and resistance trend lines to cross in the final week of the month, which is coincidentally, when the Fed FOMC holds its next meeting.
Today, New York Fed President William Dudley and Dennis Lockhart of the Atlanta Fed each said they expected a policy tightening in 2015 despite some recent red flags.
In a brief press conference yesterday, Rep. Kevin McCarthy announced he would not seek the nomination as House Speaker, saying he was still short of the support needed to be an effective speaker. Rep. Jason Chaffetz of Utah, current House Oversight chairman, and Rep. Daniel Webster of Florida were running against McCarthy. Rep. Darrell Issa of California says he's considering jumping into the race for House speaker; Issa says he would support Paul Ryan of Wisconsin, the Chair of the House Ways and Means Committee; Ryan has said he does not want the job. Anybody else? Anybody? …Bueller?
Meanwhile, Congress faces another deadline to lift the debt limit on Nov. 5; today John Boehner acknowledged that getting enough votes to pass a debt-limit increase would be difficult. And another potential government shutdown threat looms in December when the current stop-gap spending bill expires.
U.S. import prices declined 0.1 percent. A surge in value of the U.S. dollar last year, fueled by expectations a strengthening U.S. economy would lead to higher interest rates, has been a factor pushing down inflation, evident by declines of non-oil import prices. The smaller than expected decline in import prices might lay a bit of groundwork for an eventual interest rate hike by the Federal Reserve because a smaller downward push on inflation from imports could alleviate the Fed's concerns that inflation is too low.
In a separate report, the Commerce Department said wholesale inventories rose 0.1 percent in August, boosted by larger stocks of computers and professional equipment used by businesses. Inventories are a key component of gross domestic product changes. The component of wholesale inventories that goes into the calculation of GDP - wholesale stocks excluding autos -rose 0.1 percent. At August's sales pace it would take 1.31 months to clear shelves. An inventory-to-sales ratio that high usually means an unwanted inventory build-up, which would require businesses to liquidate stocks. That in turn could weigh on manufacturing and economic growth.
Glencore is slashing its zinc production by a third in reaction to a 30% plunge in the commodity's price over the past few months. The company will cut 500,000 tons of zinc production, 4% of the world's total supply. Glencore is the world's biggest miner of the industrial metal.
Chipmaker Intel is set to get the go-ahead from EU antitrust regulators for its $16.7 billion offer for Altera. A decision is scheduled by Oct. 14.
PC sales dropped sharply again in the third quarter. IDC estimates global PC shipments fell 10.8% year-to-year to 71 million units, a drop nearly as large as the second quarter's 11.8%. Sales have been declining for so long - 14 consecutive quarters - that it is becoming harder to remember a time when PCs ruled the tech world. However, the market's four biggest players all grabbed share from smaller firms with less scale. IDC calculates market leader Lenovo's unit share rose 130 basis points year-to-year to 21%, HP's increased 110 basis points to 19.6%, Dell's jumped 120 bps to 14.3%, and Apple's climbed 60 basis points to 7.5%.
Apollo Education Group, the parent company of The University of Phoenix has released information that the Department of Defense has suspended the university from recruiting military students. University of Phoenix, the largest for-profit college in the US, has brought in $1.2 billion in GI Bill money since 2009 and received $20 million in tuition assistance from the Pentagon last year alone. That outsized share of the market, in addition to alleged predatory tactics at the school to lure in military personnel, resulted in an investigation into the school earlier this year. Though the order to stop military recruitment at the University of Phoenix is not yet permanent, it is likely a distressing development for the school, as well as the larger for-profit college industry.
Combining two vaccine components from Crucell Holland and Janssen Pharmaceutical, Johnson & Johnson is beginning clinical trials of a preventive Ebola vaccine regimen in Sierra Leone. Is the Ebola outbreak finally over? For the first time since the disease was reported in March 2014, the World Health Organization reported no new cases over the past week. According to the WHO, this is part of a trend: The number of cases in West African countries has remained below 10 per week over the past three months, but that doesn't mean the virus can't surface again. A total of 11,300 have died since the start of the epidemic.
According to the International Monetary Fund, 6.5 percent of global gross domestic product currently goes to energy subsidies. The United Nations Environmental Program has just published a report calling for a $6 trillion cut of public and private investments in high-polluting energy by 2030. The agency estimates the world's governments and private institutions should be investing $5 to $7 trillion annually on things like infrastructure improvements, clean energy, sanitation and agriculture, starting now, in order to meet the U.N.'s 2030 goals for reducing the pollution that causes climate change.
The 2015 Nobel Peace Prize was awarded today to Tunisia's National Dialogue Quartet for its efforts to bring democracy to the country. The National Dialogue Quartet is made up of four organizations: the Tunisian General Labor Union; Tunisian Confederation of Industry, Trade and Handicrafts; Tunisian Human Rights League; and Tunisian Order of Lawyers. The Tunisian revolution, which forced the country's long-time president to step down in what was called the Jasmine Revolution, led to uprisings against dictators in other nations including Egypt, Libya and Syria in what became known as the Arab Spring. Today, Tunisia is the only country in the region to make genuine progress transitioning to a democracy.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.