A narrative that the FOMC could begin slowing its roll in interest rates may have run into some uncertainty this morning after the Eurozone posted a new record high in inflation.  Although we will continue to deal with the wild hops and drops in earnings reports, the intensifying geopolitical situation and the reality of the worldwide economic issues may return to front and center this week.  So as we wait on the FOMC Wednesday decision, plan for considerable volatility in the days ahead.  The news cycle seems to have taken a turn toward the bears this morning, so don’t be surprised if they attack at even a hint of bullish weakness.

Asian markets traded mixed, with Japan surging upward even as China’s factory activity contracts and more pandemic lockdowns occur.  European markets trade flat to slightly bullish after posting a weak GDP and record high inflation.  U.S. futures suggest a modestly bearish open while rising off overnight lows as bond yields increase, with an FOMC decision pending Wednesday.  Buckle up for another wild week of price action, as earnings and economic data will likely keep the price action challenging.

Economic Calendar

Earnings Calendar

We have more than 60 companies on the earnings calendar to begin a new trading week, but just over  40 are confirmed.  Notable reports include AWK, CAR, CINF, FN, GPN, GT, HLF, LEG, VAC, NXPI, ON, PCG, SAIA, SBAC, VRNS, XPO, & WMB.

News & Technicals’

Kyiv is struggling for power and water after a wave of missile strikes, and an intense fight occurred around Avdiivka and the strategically important town of Bakhmut.  In addition, Russia announced Saturday that it was suspending its involvement in the Black Sea Grain Initiative brokered in July. 

Preliminary data on Monday from Europe’s statistics office showed headline inflation came in at an annual 10.7% last month.  This represents the highest-ever monthly reading since the euro zone’s formation.  The 19-member bloc has faced higher prices, particularly on energy and food, for the past 12 months.  However, the increases have been accentuated by Russia’s invasion of Ukraine in late February. 

Diesel prices have increased 33% for November deliveries and are expected to go higher.  In addition, diesel supply in the Northeast, the drought-stricken Mississippi River, and a potential rail strike are contributing to higher fuel demand with calls for federal government intervention to increase supply.  Furthermore, diesel reserves have not been this low since 1951, and a ban on Russian products set for next year will intensify competition for the fuel.

The official purchasing managers’ index for manufacturing fell to 49.2 this month, down from 50.1 in September, China’s National Bureau of Statistics said Monday.  According to analysts polled by Reuters, economists had expected a print of 50.  Sub-indicators on factory employment, production, new orders, and supplier delivery time all showed a contraction in October from September.  In addition, Shanghai’s Disney Resort abruptly suspended operations on Monday to comply with Covid-19 prevention measures, with all visitors at the time of the announcement directed to stay in the park until they returned a negative test for the virus.  The report said at 11:39 a.m. local time (03:39 GMT) would immediately shut the main theme park and surrounding areas, including its shopping street, until further notice to comply with virus curbs.

Fueled on earnings hype and a narrative that once again gave hope to the FOMC, slowing its roll-on interest rates allowed the bulls to run wild last week.  But, unfortunately, with inflation hitting a new record in Europe, U.S. Treasury yields are back on the rise as we wait for the FOMC decision Wednesday afternoon.  Though the relief rally provided us a nice break from the bearishness, the news cycle seems to have suddenly turned toward the bears this morning.  Of course, earnings hype will continue to create a lot of emotion with big hops and drops, but the worldwide economic realities and geopolitical consequences could return to front center of invertor’s minds.  Plan carefully; I suspect this will be another very challenging week to navigate.

Trade Wisely,

Doug