"The waiting is the hardest part, every day you see one more card
You take it on faith, you take it to the heart, the waiting is the hardest part"
- Tom Petty and the Heartbreakers
If traders are anything like me, they've had these lyrics from the late, great Tom Petty (RIP) ricocheting around in their heads. It feels like markets are currently balancing on a knife's edge ahead of a raft of top-tier economic data and decisions over the next couple weeks.
Most immediately, traders are looking ahead to Thursday's European Central Bank meeting, where we'll finally get some clarity on the ECB's asset purchase program. A recent Bloomberg survey of 57 economists showed that the majority expect the purchases to be extended another nine months, but cut to €30B/month (from €60B presently) starting in January.
A potentially more hawkish outcome for the single currency could emerge if ECB officials only announce a six month extension of the program, in which case we could see a spike in EUR/USD, potentially back toward the 2-year highs around 1.20. In any event, both the recent economic data and financial conditions on the continent have improved of late (not to mention a tick of weakness in the euro), so it's likely that the central bank will feel comfortable announcing the details of its taper plan in less than 48 hours' time.
Another event drawing market participants' attention is the Fed chair nomination sweepstakes, a topic we covered in last week's blog post, "Market drama hits a fever pitch as Trump narrows Fed chair shortlist." At present, the frontrunner appears to be current Fed board member Jerome Powell, who is broadly seen as the status quo, dovish candidate; prediction markets are currently pricing in a 60% chance that Powell is the confirmed candidate by February.
Some analysts have suggested that, at least in the short term, any candidate but current chairwoman Janet Yellen could provide a boost to the dollar, as the outgoing Fed chair would look to raise interest rates in December to "take the pressure" off a newcomer. This effect could be magnified if the eventual nominee is seen as one of the more hawkish options, such as Stanford economist John Taylor.
Meanwhile, up on Capitol Hill, Congress is working on a tax reform package that could have a dramatic impact on US economic growth in the coming years. While we're skeptical that the sort of broad, wholesale reform that the Republicans want will be achieved, the odds of at least a modest tax cut are decent. On that front, CNBC reported earlier today that House Republicans aim to release their tax bill on November 1st, so developments on that front could suck much of the air out of the room next week.
Finally, traders are also waiting on the results of Q3 earnings season in the US. A full third of the stocks in the S&P 500 report earnings this week, including megacorporations like 3M Corporation (NYSE:MMM) (which beat estimates this morning), AT&T (NYSE:T), Texas Instruments (NASDAQ:TXN), Visa Inc (NYSE:V), Coca-Cola Company (NYSE:KO), Boeing (NYSE:BA), Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Anheuser-Busch Inbev SA (NYSE:BUD), Intel (NASDAQ:INTC), Comcast (NASDAQ:CMCSA), Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), and many others. Early indications are that "Corporate America" saw another strong quarter, with 76% of S&P 500 companies beating earnings estimates and 72% beating revenue estimates according to FactSet. Equity bulls will want to see that momentum continue through the week and into November to keep fueling the bullish trend in stocks.
It's said that stocks climb "a wall of worry" on the way up, and there's certainly plenty to worry about if you're so inclined. Our general attitude is that most, if not all, of the fundamental concerns on the horizon are discounted into the present price, so we'll continue to follow the established trends across markets, with a wary eye out for signs of a potential reversal.
Every day you see one more card.