Sunday, October 28, 2012

The Week Ahead: Prepare for the surge

Update: This entire schedule has been thrown into doubt as a result of Hurricane Sandy pushing through the Washington, D.C. region. 

The week's big report, employment, will go ahead as planned on Friday, according to a Department of Labor statement here.

No info from the issuing agencies yet  regarding the other big reports, the ISM manufacturing index scheduled for Thursday and factory orders on Friday. Since Sandy is due onshore on Tuesday, my best guess is that those two reports will proceed as scheduled.

Be prepared for a surge. Not from Hurricane Sandy pushing her way up the mid-Atlantic and northeastern seaboard, but of political headlines following the absolutely final federal jobs report before the Nov. 6 election.

For my trading, I don't put a lot of faith in the Labor Department's employment situation report, out on Friday at 8:30 a.m. Eastern. It's a trailing indicator, since hiring is the last step in a decision process that proceeds from market estimates and many other things. And there are better tools for judging the economy's prospects, including -- and perhaps especially -- the trend of the S&P 500.

But the release will generate a flood of commentary on how the unemployment rate (the least reliable part of the jobs report) will impact President Obama's chances for re-election and Gov. Romney's struggle against the Electoral College odds. That's despite the fact that early voting began last week, so a lot of votes will be cast before the report comes out.

"Nowhere am I so desperately needed as among a shipload of illogical humans." -- Spock in the Star Trek episode "I, Mudd".

The usual collection of employment sneak previews will be out: On Thursday, the ADP employment report at 8:15 a.m., the Challenger job-cut report at 7 a.m., and jobless claims at 8:30 a.m. And sometime Friday, look for the Monster employment index (so appropriate for Halloween week).

Personal income and outlays kicks off the week on Monday at 8:30 a.m. The personal savings rate is calculated from this data set, and savings, they say, is a key to financial recovery. Since we were spooked by the collapse of capitalist finance, we've been saving hard for a rainy day. When we're confident enough to spend instead of save, the recovery will take hold, the theory goes, and happy days will indeed be here again.

The Institute of Supply Management's manufacturing index, out Thursday at 10 a.m., is a source of data for the leading indicators (see below), as is factory orders, released Friday at 10 a.m.

Leading indicators out this week (in order of importance):

The interest rate spread between 10-year Treasuries and the federal funds rate, reported continually during market hours.

The M2 money supply, out Thursday at 4:30 p.m. from the Federal Reserve.

The average hourly workweek in manufacturing is taken from the employment situation report, out Friday at 8:30 a.m.

Average weekly initial jobless claims will be reported at 8:30 a.m. Thursday.

Manufacturers' new orders for consumer goods and materials will be reported in factory orders on Friday at 10 a.m.

Vendor performance, also called the deliveries times index, is a part of the ISM manufacturing index released Thursday at 10 a.m. The idea is that if delivery times slow, it is because they are flooding in, straining the system's ability to cope. That, in turn, is a positive sign for econ activity.

The S&P 500 index, reported continually during market hours.

Manufacturers' new orders for nondefense capital goods, also part of the factory orders report.

I also like to keep an eye on the Baltic dry index of world shipping, updated daily.

Other reports of interest:

Monday: The Dallas Federal Reserve Bank's manufacturing survey of its region, at 10:30 a.m.

Tuesday: S&P Case-Shiller home price index (tracking prices by metro area), at 9 a.m., and the government's consumer confidence report, at 10 a.m.

Wednesday: Employment cost index at 8:30 a.m., the Chicago purchasing managers' index at 9:45 a.m. and petroleum inventories at 10:30 a.m.

Thursday: Motor vehicle sales throughout the day, productivity and costs at 8:30 a.m. and construction spending at 10 a.m..


Two Federal Open Market Committee members are scheduled to make public appearances: New York Fed Vice Chairman William Dudley on Tuesday and San Francisco Fed Pres. John Williams on Wednesday and Friday.

An alternate FOMC member, Boston Fed Pres. Eric Rosengren, speaks on Thursday.

Trading calendar

We're in the in-between period for complex option structure. By my rules, as of Monday I can trade February single options and straddles. Of course, shares are good at any time.

Happy Halloween and good trading!

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