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Tradable Events this week
1. U.S. Inflation Data:
PPI is due out on Tuesday and CPI (accompanied by Retail Sales) is set to follow on Wednesday. The Fed is expected to hike rates again in December, however, these data points still remain crucial in dictating the Fed’s message/path heading into 2018. Inflation has been arguably the only laggard in a growing economy and this has been well-documented by Janet Yellen and the Fed. For us at Blue Line it is less about the fact that the Fed is hiking and more about the perceived path at which they think they can do so. One year ago, in December, their hawkish hike swung the pendulum of perception; the Dollar traded above 103 and the 10-year treasury traded below 123. These were respectively highs and lows for each market. Treasury prices finished last week on a very weak note and better than expected data would put further pressure on this market heading into the meeting one month away. Furthermore, if you look back to December of 2013, Treasury prices have given traders a great buy opportunity in the latter half of the month and into January. We are looking for a similar setup once again. A miss on these reads does not mean that this trade won’t set up, however, it would immediately support our long term bearish Dollar thesis and further weaken its recent tape.
2. Central Bank Speak:
We run into a gauntlet of speak this week and it begins with the Fed’s Harker tonight. The main event is the ECB Panel on Tuesday that will include ECB President Draghi, Fed Chair Yellen, BoJ Governor Kuroda and BoE Governor Carney. The title of the panel is “At the heart of policy: challenges and opportunities of central bank communication”. On Monday the ECB’s Constancio speaks along with Kuroda. On Tuesday Chicago Fed President Evans opens the ECB panel. We also look to a lineup of Fed speakers on Thursday that includes Brainard, Mester, Kaplan, Williams Thursday. Needless to say, there will be an abundance of opinions this week and Tuesday’s panel will be key. The last time we had a panel like this was in July where the Bank of Canada began telegraphing their hike and a tectonic shift began in currency markets. We don’t expect the same type of volatility but the key levels from our FX Rundown should be watched closely.
Bills from both the House and the Senate remain at the forefront. The House is expected to produce a vote this week. The hurdle remains property tax deductions and the House and Senate are far away; the House wants to leave it at $10,000 while the Senate wants to eliminate it altogether. Another key question mark is the State and Local tax deductions. It is no secret that equity markets have outperformed all expectations. However, if tax-reform fails we expect to see a 3-5% correction at minimum. The reality is though, this correction may not come this year. The S&P has begun to trade in an exhausted fashion and a move below key support at 2561.75-2562.25 should encourage another 20 points. However, look for any pull back to 2539.25-2543 as a buy opportunity and one to ride through the end of the year.
4. Crude Oil Option Expiration
Crude Oil is trading at the highest level since June 2015 and we have not been shy about our bullishness. Still, there is more going on this week than meets the eye. OPEC releases their Monthly Oil Market Report on Monday around 5:00/6:00 am CT and the IEA releases theirs on Tuesday morning. Of course, U.S inventories come into the picture on Tuesday and Wednesday. What some might not be focused on though is the option expiration on Wednesday. The December contract is the most highly traded contract for Crude Oil each year which also means unusually high open interest in the options. After this move, a massive amount of call bets between $50 and $55 have gone in the money. However, there is still large open interest in the $57 calls that are now out of the money and that can keep a lid on price action and open a door for the bears until after expiration. What would hurt the most amount of people is a move down to $55. On the other end, there are large put bets coming into play but the open interest at 55.00, 56.00 and 56.50 does not hold a candle to the call side. What does though is the open interest in the $55 puts; look for weaker price action to stay above here through Wednesday.
5. Big Data:
We discussed the inflation data out of the U.S but it does not end domestically. Inflation data from around the world including the Eurozone and the U.K is due on Tuesday. We also have Sentiment data and GDP out of the Eurozone. The EU raised their growth forecast for 2017 last week to 2.2%, this would be the highest in a decade. On Monday night Fixed Asset Investment, Industrial Production and Retail Sales is due out of China. Fixed Asset Investment measures the change in the total spending on non-rural capital investments such as factories, roads, power grids, and property. This is a number that we watch very closely, and we believe that it does not get enough attention. Currencies should see volatility, but traders should also watch the base metals which finished last week on a negative note.
The CME is expected to open trading on Bitcoin futures later this year. Bitcoin was taken to the woodshed this weekend losing about $2000 from its Wednesday high of more than $7700. Earlier in the week another hard fork for the Bitcoin blockchain was called off. The first fork in August created Bitcoin Cash, a now totally different instrument, but one that is more in line with the original vision of Bitcoin. Bitcoin Cash more than tripled over the weekend and overtook the market cap of Ethereum.
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