The Heat Is On, On The Street.

The HEAT is on…. Glenn Frey – 1984…..who remembers? Glen is the singer, songwriter known as a founding member of the Eagles…..They were an American Rock band formed in 1971….Frey, Henley, Leadon and Meisner… and were one of the most successful bands of the ‘70’s.  the Eagles eventually broke up in 1980 and Frey went onto a solo career…he won 6 grammys and 5 American Music Awards….and  this morning I cannot help but think that. “The Heat Is On, on the Street, Inside your head, on every beat.  And the beat’s so loud, deep inside, The pressure’s high, just to stay alive, ‘cause the Heat Is On………” How will Mario handle the heat? The expectations are so high this morning  –  can he really do anything else but disappoint?   Well – according to what US futures are doing right now +5 pts,  and the action in European mkts – all in the green column, it feels a bit confused.   His comments last week did nothing but whip the mkts into a frenzy, causing the shorts to run for cover and the HFT’s to push the envelope…… I mean think about it….unless he has solved this problem and offers up a realistic solution that can be implemented – the mkt can only be disappointed. The speculation this morning is that he in fact will “offer up” a joint action with the ESM (European Stability Mechanism) to coordinate the purchase of Spanish and Italian debt by granting a banking license for this fund.  This would then allow the ESM to borrow money from the ECB and be the lender of last resort. This would be a HUGE, DRAMATIC move and cause the mkts to explode to the upside but news sources in Europe report that Draghi will NOT actually announce this plan but will re-iterate his stance from last week noting that the FINAL decision CAN’T come until Sept 12th when the  German High Court will rule on the whether the ESM is even legal and whether it can replace the current EFSF (European Financial Stability Fund). The German Bundesbank president has voiced “strong” opposition to this plan….so unless this guy was fitted with a pair of cement boots and taken for a boat ride – then the chances are slim to none that this will ultimately pass…. So what else could he announce?
  • The ECB can buy more sovereign debt
  • They can initiate the Long Term Re-fi Operation (LTRO)
  • They can cut rates even further
  • They could change the collateral rates and they could launch a QE (Quantitative Easing) program by purchasing both Spanish and Italian debt to put pressure on those rates to move lower.
Draghi’s  meeting will end at 7:45 am (EST)  and he will hold his press conference at 8:30 am (EST) – giving US mkts one hour to digest, dissect and analyze….. The jawboning continues and the clock ticks….. Yesterday we saw  Uncle Benny take the door off the hinges here in the US  – if that is even possible –  as he changed the language of the FOMC mins from “was prepared to act” to  “will provide additional stimulus as needed”….as he noted that the economy is in stall mode…..(deceleration).   Like I said – more jawboning…. Here at home at 8:30 am we will then get the usual suspects
  • Initial jobless Claims – exp of 370k
  • Cont Claims – exp of 3.288 mil
  • Later on – look for Factory orders exp of 0.5%  and monthly chain store sales
  • Earnings today include GM, SNY (Sony) , CLX (Clorox), APA (Apache Oil), TWX (Time Warner), K (Kellogg), AIG, and KFT (Kraft)
After all of this – the focus will shift to Friday’s all important Non Farm Payroll number…..consensus is for the creation of 100K jobs (some estimates are as high as +160k) …….yes this is positive but well below  the 250K that we need to get us out of the gutter. Be mindful of what types of jobs are created…..part time, min wage, temporary etc….that makes a difference.  As we have heard – Wall St expects to lay off some 100K more people before year end and by most accounts these are not temporary, minimum wage jobs and the loss of these jobs has wide ranging implications for other service jobs…. Overnight in Asia – mkts all moved a bit lower – treading water really. They were less than impressed with what Benny and the Jets had to say and they anxiously await the ECB news. Does Draghi have the fire power to save the Euro?  The bears are lining up getting ready to pounce – salivating at the chance to punish the mkts in the event of disappointment.  Japan +0.1%, Hong Kong -0.6%, China -0.6%, ASX flat. In Europe right now – mkts in a holding pattern although a bit higher as they also wait for the press conference.  FTSE +0.4%, CAC 40 + 0.4%, DAX +0.6%, Eurostoxx +0.6%, Spain +0.7% and Italy +0.9%. US futures were soft overnight and are now +5.8 pts trading at 1376. Anticipation seems to be building that mkts will not be disappointed.  If that is the case then watch for the S&P to challenge 1400 quickly while analysts and strategists figure out what the implications will be. If the mkt senses disappointment then we will hit 1350 fairly quickly. Take good care, Kp
Kenny PolcariThe Heat Is On, On The Street.