The equity markets have been content to meander at all-time highs throughout the summer but traders could see an end as the Fall brings more economic data, volatility and possibly the hike in interest rates everyone has been waiting for.

First and foremost, traders are cautiously eyeing up next week’s September jobs data, which according to Larry Peruzzi, Managing Director International Trading at Mischler Financial Group, will be the most watched release on Friday. Estimates are currently looking for less than 100K jobs to be added.

“Payrolls are expected to show that we added the fewest workers in six months as Hurricanes Harvey and Irma put a temporary halt to hiring in parts of the southeast,” he began. “Also, third quarter earnings will begin in 2 weeks but we are expecting earnings from PepsiCo Inc., Monsanto Co., Tesco Plc, Paychex Inc., Lennar Corp. and Costco Wholesale Corp next week.”

Also on tap for this week and could bear some scrutiny are: September ISM data, ADP employment change on Wednesday, August trade balance, factory and durable goods orders on Thursday.

But also on traders’ collective mind is the Federal Reserve. With only three months left in the year, the central bank will begin its balance sheet unwinding procedure and raise interest rates. At the September 20th  FOMC meeting while not raising rates the Fed did signal it will continue to increase the pace of its  balance sheet unwind it comes while inflation is below their 2% target rate, which perplexes them.

“They are planning on raising rates soon…eventually…someday,” Peruzzi began, “but there is some doubt the Fed will actually raise rates again this year.” The market is pricing in a meager 1% chance of an October rate hike but a more substantial 67% chance of a December rate hike. The end of cheap money will eventually come but the recently disclosed tax reform blueprint could give financial markets its next coddle induced growth spurt. So far, tax reform details suggest a battle in Congress is on the horizon. This leads us once again to focus on macro and micro economic data as well as upcoming corporate earnings growth.”

Last week saw a pullback in August U.S new home sales as well as pending sales, better durable and capital goods orders and personal income and spending was mostly in line, Peruzzi added. Inflation remained timid with the Fed-favorite core PCE deflator slowing to 1.3% in August while Euro area core inflation fell .1% to 1.1% in September.

With the third quarter now in the books, the S&P 500 closed out September with its 6th straight monthly gain. This is the first time the S&P closed positive in the month of September since 2013, with its leading sectors being techs, energy and industrials. Also, the U.S dollar closed out its best week of the year.

Most global markets are also at or are near all-time highs amid a VIX index that continues to hover at year lows at 9.61.

“So, the coming few weeks of economic data, tax reform and earnings should give us clarity as to when the Fed can raise rates,” Peruzzi said.. Looking back at the S&P 500 return the last four Octobers: October 2016 -1.94%, October 2015 +8.3%, October 2014 +2.32%, and October 2013 +4.46%. We can see that October is a month that investors do not want to sit idle on the sidelines. October is a month to pick apples, watch the leaves turn, watch football and watch the market.”

In other market news, equity volumes have hit their lowest volume levels in three years, according to the latest TABB Group’s Equities LiquidityMatrix. The drop is due in large part to sustained low volatility as measured by the VIX and also stubbornly high valuations, traders told Traders  Magazine.

TABB reported that the industry average daily volume decreased 2% month-over-month to 5.9 billion shares in Aug-2017, the lowest ADV in three years.

Also, as previously mentioned, volatility has played a role as it and volumes are correlated; however, while volume decreased in Aug- 2017, the VIX average close increased to 12.0, the highest in seven months. But by historical measures, volatility is still low.

In August, off-exchange market share decreased month-over-month to 37.1% from 37.4%.

Industry trade size was 204 in Aug-2017, the lowest since February 2016.

Greenwich Associates also reported The vast majority of fixed-income trading volume and revenue is still captured by the six dealers that make up the list of the 2017 Greenwich Share Leaders in Overall U.S. Fixed Income: leaders Citi and Goldman Sachs, followed by J.P. Morgan, Bank of America Merrill Lynch, Morgan Stanley, and Barclays.

Dealers from this group also dominate the underlying product markets in U.S. fixed income. In both Rates and Credit Products, the 2017 Greenwich Share Leaders are Citi, Goldman Sachs and J.P. Morgan. In Emerging Markets, the 2017 Share Leaders are Citi, Barclays and Bank of America Merrill Lynch, and in Municipals, the Share Leaders are Citi, Morgan Stanley and Bank of America Merrill Lynch. Only in Securitized Products does a seventh dealer claim a spot on the list, with Credit Suisse joining Bank of America Merrill Lynch and J.P. Morgan as the 2017 Share Leaders.

Lastly, CME Group announced that it will exit the company’s credit default swap (CDS) clearing business by mid-2018, freeing up $650 million in clearing member capital.  Going forward, in order to meet customer needs in light of uncleared margin rules, CME will focus its over-the-counter (OTC) clearing services on interest rate swaps (IRS) and foreign exchange (FX), as well as on developing further capital efficiencies for market participants.

CME Group will work with CDS open interest holders and regulators to ensure an efficient and seamless transition for the credit market. During this transition, CME will continue to provide full clearing services so that participants can continue to manage their risk, including the roll to CDX 29.

 

This Week’s U.S. Economic Indicators of Interest:
Monday	ISM Manufacturing Index Construction Spending
Tuesday	Redbook Retail Sales US Motor Vehicle Sales
Wednesday	ISM Non Manufacturing Index Janet Yellen Speaks James Bullard Speaks
Thursday	Jobless Claims International Trade Factory Orders John Williams Speaks
Friday	Employment Report Wholesale Trade William Dudley Speaks Robert Kaplan Speaks