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Market Lab Report - Premarket Pulse 10/14/16

Major averages continued to decline yesterday on higher volume though by the close were able to claw back some of the losses. As Gil pointed out in yesterday's market webinar, the fact that the S&P 500 had undercut the prior September 12th low in its pattern set up a natural undercut & rally move. Whether this carries into a full recovery or simply sets up a shortable bounce remains to be seen.

Central banks certainly know how to jawbone to make it look as if they're being vigilant about rates as a number of central banks have expressed concern regarding negative interest rates. Indeed, the European Central Bank, Bank of England, and Bank of Japan have all suggested tapering QE as a possibility if global economic conditions warrant. But that is a big IF as improving conditions globally still seem distant.

Central banks tend to move together, and with odds pointing towards a rate hike in December, precious metals, bonds, and stocks have all corrected somewhat. Precious metals ETFs GLD, SLV, and GDX and bond ETF TLT are all trading around their 200-day moving averages.

But with continued troubles in China as its weak trade data is a reflection of a weak global economy, the Fed and other central banks may have no choice but to keep rates low. Should such a scenario become more evident, we could see the price of stocks, bonds, and precious metals regain their lost ground as they have done so many times before.

In economic news, retail sales met strong expectations and PPI data beat estimates, thus stoking the probability of a rate hike in December.

In earnings news, Dow component JPMorgan Chase (JPM) is helping to bolster the futures after coming in with a strong earnings report this morning.

On the central bank front, Boston Fed President Rosengren (an FOMC voter) maintained his hawkish stance saying that the economy is close to hitting full employment and that interest rate hikes will continue to be gradual but that markets may not be pricing in a steep enough path of increases. Separately, Federal Reserve Chair Janet Yellen is scheduled to offer remarks at 1:30 p.m. ET today.

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