A Close Look At Wednesday’s Key Market Events

A Close Look At Tuesday’s Key Market Events

$BAC

Wednesday Q-3 earnings reporting heats up with more ,market reports, including that from Bank of America (NYSE:BAC), along with influential economic releases that include China’s Consumer Price Index (CPI) and the US Retail Sales report for September.

I. China September CPI Report (Tuesday, 13 October, 9:30p EDT)

Why it’s important?

1. Slowing inflation goes hand-in-hand with slowing economies. Market participants will view this report in the context of what it is signaling about Chinese economic activity.
2. The inflation trend contributes to the market’s monetary policy expectations in China, which are often a major driver of the Chinese equity market and an influence on commodity prices
3. This inflation report holds the potential to raise concerns, or to mitigate them, about China exporting disinflation

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A Close Look

1. China’s CPI hit a 5-year low of 0.8% in January. Prices have bounced some since then. The 2.0% Y-Y reading for August was the highest since August 2014, but is below the 5-year peak of 6.5% seen in July 2011.
2. China is experiencing disinflation, which has gone hand-in-hand with its slowing economy.

In play Wednesday

China ETFs

1. iShares China Large-Cap ETF (FXI)
2. ProShares UltraShort FTSE China 50 (FXP)
3. db X-trackers harvest CSI 300 China A-Shares Fund (ASHR)
4. iShares MSCI China ETF (MCHI)
5. SPDR S&P China ETF (GXC)
6. China Small Cap ETF (HAO)
7. Market Vectors China ETF (PEK)

Regional ETFs

1. iShares MSCI Emerging Markets (EEM)
2. SPDR S&P Emerging Asia Pacific ETF (GMF)
3. iShares MSCI Japan (EWJ)
4. iShares MSCI South Korea Capped ETF (EWY)
5. iShares MSCI Singapore (EWS)
6. iShares MSCI Australia ETF (EWA)
7. iShares MSCI Taiwan ETF (EWT)

Commodities

Crude Oil, Gold, Silver, Platinum. Palladium, Wheat, Corn, Soybean

Treasuries

S&P futures

II. Economic report

September Retail Sales Report (8:30a EDT)

Why it it important?

1. It’s the first comprehensive look of the month at consumer spending on durable and nondurable goods
2. Spending on goods represents about 33% of consumer spending while spending on services e.g. hair cuts, utilities, insurance, etc., which is not captured in this report, comprises the other 67% of consumer spending
3. The report provides an opportunity to determine if consumers are spending more, or less, on discretionary items, which helps paint a picture of underlying strength in the US economy
   The report factors into GDP computations through the measurement of core retail sales, which exclude auto, gasoline station, and building equipment and materials sales
4. Core retail sales are used in the computation of the goods component for personal consumption expenditures
5. Participants will be looking to this report as a validation of the rally effort

A Closer Look

Expectations

Metric Time of Release  Consensus Prior

1. Retail Sales 8:30a EDT 0.2% 0.2% 0.2%
2. Retail Sales, Ex-Auto 8:30a EDT -0.2% -0.1% 0.1%

In play Wednesday

Sector ETFs

1. SPDR S&P Retail ETF (XRT)
2. Market Vectors Retail ETF (RTH)
3. Consumer Discretionary Select Sector SDPR Fund (XLY)

III. Bank of America (NYSE:BAC) Earnings Report before the opens

Why it is important

1. Bank of America is the 2nd-largest US bank in terms of assets. That makes it a systemically important institution.
2. This particular bank carries added importance for the market because it derives close to 90% of its revenue from the US
3. It is a widely-held stock among institutional and retail investors alike, the market will be keen to hear what Bank of America is saying about business activity in the US
4. Bank of America is facing an easier comparison this reporting period, evidenced by analysts’ average EPS expectation of 0.33/share Vs a reported loss of 0.01/share in the same frame a year ago.

What Bank of America said after its Q-2 report in July

1. Saw the lowest non-litigation expense base since 2008
2. All loan categories showed growth from the first quarter with the exception of consumer real estate, which declined from both discretionary activity as well as other runoff
3. Commercial lending was strong
4. Saw an uptick in nonperforming loans and reservable criticized exposure from Q-1 driven by downgrades in Oil & Gas exposures. Despite the downgrades, feel good about exposure in this area as it is well collateralized and most of these credits only had a 1-level migration on risk-rating scale.
5. Sees a benefit of $3.9-B from a 100 bpts rate increase; has approximately 60% of its book on the short end and 40% on the long end

What’s in play?

$BAC

Related companies

1. Citigroup (C)
2. JPMorgan Chase (JPM)
3. Wells Fargo (WFC)
4. US Bank (USB)
5. Goldman Sachs (GS)
6. Morgan Stanley (MS)

Sector ETFs

1. Financial Select Sector SPDR ETF (XLF)… BAC is fourth largest holding at 5.82% of assets
2. iShares US Financials ETF (IYF)… BAC is fourth largest holding at 4.27% of assets
3. Vanguard Financials ETF (VFH)… BAC is third largest holding at 4.51% of assets
4. SPDR S&P Regional Banking ETF (KRE)
5. SPDR S&P Bank ETF (KBE)

Stay tuned…

HeffX-LTN

Paul Ebeling

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