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Cheat Sheet for the Week of November 1st

10/31/2010

Monday November 1 - ISM

October 54.4; November Consensus Range 53.0 to 53.8

The market expects further deterioration in the ISM. The "belly" of the Index, "New Orders to Inventory," is softening.  Last month, it was reported at negative 4.5, the worst reading since January 2009.     

Overall market expectation: leaning toward disappointment

Tuesday November 2 - U.S. Midterm Elections  

The market expects the following:

  1. U.S House turns back to the Republicans - currently the House has 255 Democrats, 178 Republicans, 2 Vacancies. The Street estimate for the new House is 245 Republicans, 190 Democrats.
  2. U.S Senate remains slightly with Democrats - currently the Senate has 59 Democrats, 41 Republicans. The Street estimate for the new Senate is 51 Democrats, 49 Republicans.  

The one surprise remaining would be if the Republicans take the Senate, the implication of which would be the potential for an extension of all the Bush tax cuts. The upcoming lame duck session of Congress will need to address the Bush tax cuts first. The market will respond positively to any upward movement on the plan to raise taxes on those making $250,000 or more - raise the level from $250,000 to $1,000,000?

Overall market expectation: leaning toward upside surprise

Wednesday November 3 - FOMC announcement

The market expects an initial balance sheet expansion of at least $100 billion, concurrent with language suggesting additional  purchases of $500 billion to $1 trillion over an open ended period of time. That expectation has been lowered from the previous initial expansion of $500 billion.  More recently, suggestions have been made that the balance sheet expansion will include purchases of 30 year U.S. Treasuries.

I believe it is most important for investors to focus the reasoning and goals surrounding QE2.

Here is a checklist to determine the success of the FOMC efforts:

  1. Anchor private sector borrowing costs at historically low levels
  2. Force a reallocation of capital out of low yielding savings, or cash, into riskier assets
  3. Incentivize corporations to allocate cash toward expanding  capex budgets and employment
  4. Protect the secular downtrend in the USD to support the export economy
  5. Stimulate the "wealth effect," which will close the output gap and support consumer spending

Overall market expectation: Neutral

*However*  Post FOMC continued capital flows into foreign currencies, commodities, emerging market debt, emerging market equities, and U.S. corporate bonds suggests an upside surprise.

Friday November 5 - U.S. Jobs Report

Headline Figure

October -95,000

November estimate +60,000

Private Sector Jobs

October +64,000

November estimate +80,000

Unemployment Rate

October 9.6%

November estimate 9.6%


Overall market expectation: leaning toward upside surprise

5 earnings reports that matter

Monday November 1

Simon Property Group

SPG

Commercial Real Estate Insight

Tuesday November 2

Newmont Mining

NEM

Precious Metals prices?

Wednesday November 3

Qualcomm

QCOM

Technology sustained recovery?

Thursday November 4

Kraft

KFT

Food Price Inflation Update

Thursday November 4

Starbucks

SBUX

Consumer accepting rising food prices?


 

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