The Day Ahead: Equity Futures Better Before Busy Day
Risk is back on the table. As investors await labor data, a key survey on the services sector, and of course the policy announcement from the central bank’s monetary policy board, equity futures are all looking up.
More than two hours ahead of the bell, the S&P 500 looks to open 7 points higher at 1048.70 and Dow futures are up 64 points to 9,836.
The main action may not be in equities though. Gold hit a new record high Tuesday at $1,089 per ounce, and this morning gold futures are up further to $1,094.60. Meanwhile, oil futures are back above $80, and yields on the benchmark 10-year Treasury Note are up 1 basis point to 3.48%.
Analysts have said the US dollar will rally if the Federal Reserve shows any signs of tightening rates sooner than expected. However, in a morning note HFE’s Ian Shepherdson said any word on tightening would shocking given chairman Ben Bernanke’s background as a student of the Great Depression.
“If you learn one thing as a student of depressions, it is that premature tightening is the kiss of death. And if your learn anything from watching the pas de deux between the markets and the Fed, it is that when the Fed suggests something might change in the futures, the markets will react as though it has already happened. The Chairman has undoubtedly absorbed both lessons.
Key Events Today:
8:15 ― The ADP Private Employment is expected to show further moderation in the the pace of lay-offs for October. Analysts looks for the report to show a loss of 220,000 jobs in the month, a worse reading than expectations for Friday’s official numbers which should include gains from the public sector. Watch for predictions to change if the ADP report throws a curveball in either direction.
“The survey has established itself as the best single advance indicator of the official payroll numbers, but it remains infuriatingly inconsistent,” said Ian Shepherdson from High Frequency Economics. “It did a great job in September, coming within just 9K of the official headline number, but good months are often followed by bad months. In short, take the survey seriously, but don’t bet the farm on it.”
10:00 ― Economists are expecting the ISM non-manufacturing index to continue growing in September. Forecasts are largely based on last month’s new orders component, which jumped 4 points to 54.2. Compared to its cousin index from Monday ― which jumped to its highest level since April 2006 at 55.7, and including a positive reading in employment ― this report isn’t so closely watched, but analysts do pay attention to the labor component to track nonfarm payrolls.
Economists from Nomura believe the index will see its best reading since August 2008: “The recent gains in this indicator came from improvements in firms' general sentiment about business activity and new orders. The employment component of the report remains below 50. For October, we expect that the index moved more convincingly above the 50 breakeven point, to 52.0.”
2:15 ― The FOMC Meeting Announcement will get attention insofar as the Fed gives new information about the direction of monetary policy. Yet chairman Ben Bernanke has made it clear that an expansionary policy with historic low rates will remain in place well into 2010. So, despite the media speculation for this report the results will probably be insignificant.
“While the exit strategy is anticipated to be a primary discussion topic, the committee is not expected to make any changes to the current policy until it is clear that the recovery is sustainable,” said economists at BBVA.
Added analysts from Deutsche Bank: “The Fed does not want to begin its exit strategy from a super-accommodative position until there is more confidence the labor market is stabilizing, and we are just not there yet.”
The Wall Street Journal said one key thing to look for is whether the statement repeats the phrase, “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”