Here's your complete preview of this week's big market-moving events

It’s been brutal in the global markets.

Down 6%, the S&P 500 just had its worst first five trading days in history.

And there’s no shortage of explanations for the volatility.

The most popular target of blame is the Fed, which tightened monetary policy with an interest rate hike back in December. And while we’re on the subject of policymakers, there’s also China, which can’t seem do anything right lately.

And then there’s oil, which continues surprise analysts by tumbling to new lows

This volatility in the US markets seems to conflict with what’s going on in the US economy, where the labour market continues to exceed expectations. All told, it seems to be another reminder that stocks are not the economy.

So as we prepare for the markets to reopen, here’s your Monday Scouting Report:

Top Stories

  • Big headwinds in the stock market. We could spend time discussing and debating what the Fed means to the markets and liquidity, and all that other technical stuff that seems so distant to the fundamentals underlying the actual companies that make up the market. True is, the underlying fundamentals are actually deteriorating for one industry: energy. And it’s surprise to the downside so much so that you have strategists across Wall Street warning their clients that the outlook for stocks may be getting worse.

    You see, a month ago, most analysts assumed that oil prices would at least stabilise at around $40 per barrel and perhaps begin to rally, bringing profits back to the massive US energy sector. But since then, prices have only gone lower. “We expect [the energy sector of the S&P 500] will post a $2 per share loss in 2015 EPS, the first time that [last-twelve month] Energy EPS has been negative since our data series began in 1967,” Goldman Sachs’ David Kostin said. “The write-down in Energy company assets has exacerbated the earnings hit from the 35% fall in Brent crude oil prices in 2015 following a 48% plunge in the commodity price in 2014.”

Economic Calendar

  • Job Openings & Labour Turnover Survey (Tues.): Economists estimate the US had 5.40 million job openings in November, up from 5.383 in October. From Credit Suisse: “Job openings edged down in October to 5.4M after rising to a near cycle-high level of 5.5M in the prior month. The ratio of vacancies to unemployed workers moved down to 0.68 — just shy of the 2006-2007 peak. However, measures of job turnover, which tend to lead wage acceleration, were disappointing. The quits and hires rates were unchanged and have now stagnated for nearly a year. We investigated the stagnation in the quits rate closely using detailed demographic and business data from the Census Bureau. We find evidence for structural headwinds which suggest that even if the labour market continues to tighten in the months ahead, we should not necessarily expect the quits rate to return to its historic norms.”
  • Beige Book (Wed.): At 2pm ET, the Federal Reserve will publish its collection of economic anecdotes. From Nomura: “We expect the Fed Beige Book prepared for the 26-27 January FOMC meeting to show that economic momentum slowed at the end of 2015. We will look for colour on how the industrial sector continues to adjust to the various headwinds that has faced it for the past year, the sector’s expectations for future activity, and any comments on inventory correction. It will also be interesting to see the state of the consumer, as consumer activity is expected to be the primary driver of economic growth over the next year. We will look for additional insights on price and wage growth across the districts to determine if there are any inflationary pressures building. Last, it will be interesting to see how various sectors have reacted to the warmer-than-usual winter weather so far.”
  • Initial Jobless Claims (Thurs.): Economists estimate spending that initial claims slipped to 275,000 from 277,000 a week ago. Here’s Deutsche Bank’s Joe LaVorgna: “Regarding jobless claims, they are likely to remain near their current four-week moving average of 276k. These figures are notoriously unreliable this time of year given ever-shifting weather patterns and the difficulty of properly adjusting for the winter holidays. Still, as long as claims on a trend basis remain comfortably below 300k, we can be reasonably confident that the labour market remains healthy. Over the last three months, nonfarm payroll gains have averaged 284k, the fastest pace since the three months ending January 2015 (318k).”
  • Retail Sales (Fri.): Economists estimate sales climbed 0.1% in December. Excluding autos and gas, core retail sales are estimated to have climbed by 0.3%. Here’s RBC Capital: “Headline retail sales will likely be weighed down by the sequential softening in both auto sales (which slipped to 17.2m from 18.1m) and gasoline prices (-4% in seasonally adjusted term). We have therefore plugged in a -0.2% m/m drop for the top-line read. Sales should look better beneath the surface and we believe both the warmer weather and strong activity in the online arena will help boost the “control” group (ex autos, gasoline, building materials) by about 0.4% on the month. This would be consistent with a 2% real consumer spending profile in Q4.”
  • Producer Price Index (Fri.): Economists estimate PPI fell 0.1% month-over-month or 1.0% year-over-year. Excluding food and energy, core PPI is estimated to have climbed by 0.1% and 0.3%, respectively. Here’s Wells Fargo’s John Silvia: “Renewed gains in the dollar and lower energy prices in December will likely again weigh on these inflation measures. The underlying trend is somewhat firmer after stripping out some of the more volatile components of producer price inflation, although the trend remains modest. The divide between the goods and services side of the economy is also evident in the producer price index. Core services producer price inflation is currently running at roughly 1 per cent year over year, while core goods inflation posted a slight decline over the 12 months ending in November. This trend should continue, as domestic strength should support services spending, while the stronger dollar and slower global growth continue to weigh on manufacturing.”
  • Empire Manufacturing (Fri): Economists estimate this regional manufacturing index improved to -4.0 in January from -4.59 in December. From Nomura: “In December, the Empire State manufacturing headline index was negative for the fifth straight month, as the industrial sector continues to struggle with various headwinds, such as the strong dollar, low oil prices, and softening global demand. Given that these factors are still a concern, we expect manufacturing sentiment to remain pessimistic in the NY region at the start of 2016. In addition, given that the orders subindexes remained negative in December, activity is unlikely to pick up in the near term.”
  • Industrial Production (Fri.): Economists estimate production slipped by 0.1% in December as capacity utilization slipped to 76.8% from 77.0%. Here’s Morgan Stanley’s Ted Wieseman: “We estimate IP fell for a fourth straight month, with manufacturing declining 0.2%, drilling and mining dropping 1.3%, and utilities rebounding 1.1%. Industry figures pointed to a 4% pullback in motor vehicle assemblies, while a 0.1% dip in factory hours worked in the employment report was consistent with flat manufacturing ex autos output. The rig count fell 6% to a new low, indicating another sharp drop in drilling, and oil extraction should, with a delay, start to see more weakness as inventories of previously dug wells are depleted.”
  • U. of Mich Sentiment (Fri): Economists estimate this index of sentiment climbed to 93.0 in January from 92.6 in December. From Barclays:”Stock prices have fallen sharply at the start of 2016 as concerns of a China-led slowdown in global growth have re-emerged. Jobless claims remain low and retail gasoline prices have continued to trend lower, so we would expect any slip in sentiment to be short-lived. That said, changes in sentiment are highly correlated with equity market returns, and we see downside risk to the current level of sentiment in the near term.”

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