Why the FOMC will not move on Rates

UPDATE: Fed see moderate expansion. Rates unchanged @peterckenny 2:33 EST


Investors and traders were treated to another mixed trading session yesterday. However, volume did pick up as a result of Q3 earnings. Volume on the NYSE rose by 23.14% and on the NASDAQ by 11.04%. All three majors lost incremental ground on the session. The Dow Industrials lost 0.23%, the S&P 500 lost 0.25% and the NASDAQ slipped 0.09%. Losers closed out the session well ahead of winners on both the NYSE and the NASDAQ.

Some narrowly focused lift was provided the market by news of Walgreen’s takeover of competitor Rite Aid, Northrup Grumman’s contract win for the next strategic bomber and by Apple’s earnings beat which was released after the closing bell. Otherwise, markets hung in there yesterday in spite of having little to cheer about.

From an economic data standpoint yesterday, investors were underwhelmed by September’s Durable Goods data. For the month of September, Durable Goods Orders dropped 1.2% – which was a lower reading than consensus expectations which were calling for:

New Orders M/M -1.0%
Ex-Transportation M/M -0.1%.

It wasn’t simply the top line miss that disappointed investors either. Durables Ex-Transportation slipped 0.4% in September and Core Capital Goods Orders slipped – 0.3%. These are not data points that speak to resilient and expanding economic growth. In addition, August’s Durable Goods data was revised lower.

Consumer Confidence data for October also came in weaker than consensus expectations. It dropped to a three-month low of 97.6 The Present Situations Index within the broader reading also dropped 8.2 points to 88. Perspective matters however, though the Consumer Confidence data we were treated to yesterday spoke to a pullback, it does still remain near cycle highs.

Investors fear that the recent weakness posted in Durables Goods may be forecasting a weak GDP in upcoming releases. That concern is being supported by Q3 earnings from the transportation, railroad and the heavy machinery sectors of the economy. For example yesterday UPS and JBLU missed earnings consensus for Q3. Cat Tractor missed last week. This Thursday our latest GDP is scheduled for release. Consensus expectations are calling for:

Real GDP – Q/Q change SAAR 1.7%
GDP Price Index – Q/Q change SAAR 1.4%

Based on Monday’s New Home Sales figures, our recent Durables data and Durables-centric earnings, we may well see a softer GDP reading than consensus is calling for on Thursday.

In short, investors were treated to uneven Q3 results and weaker than expected Durable Goods data yesterday. A patina of doubt has emerged once again and was driven home by the Consumer Confidence data. As I have been suggesting in recent notes, this week is FOMC-centric. The odds of a move by the FOMC on rates today is a statistical zero.

photo @mel810